Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
OR
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File Number: 001-36761
KENON HOLDINGS LTD.
(Exact name of registrant as specified in its charter)
(Company Registration No. 201406588W)
Singapore
(State or other jurisdiction of
incorporation or organization)
4911
(Primary Standard Industrial
Classification Code Number)
Not Applicable
(I.R.S. Employer
Identification No.)
1 Temasek Avenue #36-01
Millenia Tower
Singapore 039192
+65 6351 1780
Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Copies
to:
Scott V. Simpson
James A. McDonald
Skadden, Arps, Slate, Meagher and Flom (UK) LLP
40 Bank Street
London E14 5DS
Telephone: +44 20 7519 7000
Facsimile: +44 20 7519 7070
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Ordinary Shares, no par value
Name of Each Exchange on Which Registered
The New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
53,693,975 shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨
No x
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. Yes ¨
No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such a shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes x
No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ¨
International Financial Reporting Standards as issued
by the International Accounting Standards Board x
Other ¨
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:
Item 17 ¨
Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨
No ¨
Table of Contents
TABLE OF CONTENTS
PART I
ITEM 1. Identity of Directors, Senior Management and Advisers
A.
B.
C.
Directors and Senior Management
Advisers
Auditors
ITEM 2. Offer Statistics and Expected Timetable
ITEM 3. Key Information
A.
B.
C.
D.
Selected Financial Data
Capitalization and Indebtedness
Reasons for the Offer and Use of Proceeds
Risk Factors
ITEM 4. Information on the Company
A.
B.
C.
D.
History and Development of the Company
Business Overview
Organizational Structure
Property, Plants and Equipment
ITEM 4A. Unresolved Staff Comments
ITEM 5. Operating and Financial Review and Prospects
A.
B.
C.
D.
E.
F.
G.
Operating Results
Liquidity and Capital Resources
Research and Development, Patents and Licenses, Etc.
Trend Information
Off-Balance Sheet Arrangements
Tabular Disclosure of Contractual Obligations
Safe Harbor
ITEM 6. Directors, Senior Management and Employees
Directors and Senior Management
Compensation
Board Practices
Employees
Share Ownership
A.
B.
C.
D.
E.
ITEM 7. Major Shareholders and Related Party Transactions
A.
B.
C.
Major Shareholders
Related Party Transactions
Interests of Experts and Counsel
ITEM 8. Financial Information
A.
B.
Consolidated Statements and Other Financial Information
Significant Changes
ITEM 9. The Offer and Listing
A.
B.
C.
D.
E.
F.
Offer and Listing Details.
Plan of Distribution
Markets
Selling Shareholders
Dilution.
Expenses of the Issue
ITEM 10. Additional Information
A.
B.
C.
D.
E.
F.
G.
H.
I.
Share Capital
Constitution
Material Contracts
Exchange Controls
Taxation
Dividends and Paying Agents
Statement by Experts
Documents on Display
Subsidiary Information
ITEM 11. Quantitative and Qualitative Disclosures about Market Risk
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ITEM 12. Description of Securities Other than Equity Securities
Debt Securities
Warrants and Rights
Other Securities
American Depositary Shares
A.
B.
C.
D.
PART II
ITEM 13. Defaults, Dividend Arrearages and Delinquencies
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
ITEM 15. Controls and Procedures
ITEM 16. [RESERVED]
ITEM 16A. Audit Committee Financial Expert
ITEM 16B. Code of Ethics
ITEM 16C. Principal Accountant Fees and Services
ITEM 16D. Exemptions from the Listing Standards for Audit Committees
ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
ITEM 16F. Change in Registrant’s Certifying Accountant
ITEM 16G. Corporate Governance
ITEM 16H. Mine Safety Disclosure
PART III
ITEM 17. Financial Statements
ITEM 18. Financial Statements
ITEM 19. Exhibits
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INTRODUCTION AND USE OF CERTAIN TERMS
We have prepared this annual report using a number of conventions, which you should consider when reading the information contained herein. In this
annual report, the “Company,” “we,” “us” and “our” shall refer to Kenon Holdings Ltd., or Kenon, and each of our subsidiaries and associated companies,
collectively, as the context may require, including:
•
•
•
•
•
I.C. Power Asia Development Ltd. (“IC Power”), formerly I.C. Power Ltd., an Israeli holding company with electricity generation and distribution
operations in Latin America, the Caribbean and Israel, in which Kenon has an indirect 100% interest;
IC Power Pte. Ltd. (“IC Power Singapore”), a Singaporean holding company, which holds a direct 100% interest in IC Power;
Qoros Automotive Co., Ltd. (“Qoros”), a Chinese automotive company based in China, in which Kenon has a 50% interest;
ZIM Integrated Shipping Services, Ltd. (“ZIM”), an Israeli global container shipping company, in which Kenon has a 32% interest; and
Primus Green Energy, Inc. (“Primus”), a New Jersey corporation which is an innovative developer of an alternative fuel technology, in which Kenon,
through IC Green, has a 91% interest.
Additionally, this annual report uses the following conventions:
•
•
•
•
•
•
•
•
“HelioFocus” means HelioFocus Ltd., an Israeli corporation with minimal operations, in which Kenon, through IC Green, has a 70% interest, and
which is in the process of being wound down;
“IC” means Israel Corporation Ltd., an Israeli corporation traded on the Tel Aviv Stock Exchange, or the “TASE,” and Kenon’s former parent;
“IC Green” means IC Green Energy Ltd., an Israeli corporation, which holds Kenon’s equity interests in Primus and HelioFocus, and which held
Kenon’s interest in REG.
“Petrotec” means Petrotec AG, a German company listed on the Frankfurt Stock Exchange, which IC Green sold in December 2014;
“Quantum” means Quantum (2007) LLC, a Delaware limited liability company, which is the direct owner of our 50% interest in Qoros;
“REG” means Renewable Energy Group, Inc., a Delaware corporation, in which Kenon held an interest as a result of IC Green’s December 2014 sale
of its interest in Petrotec;
“our businesses” shall refer to each of our subsidiaries and associated companies, collectively, as the context may require;
“spin-off” shall refer to (i) IC’s January 7, 2015 contribution to Kenon of its interests in each of IC Power, Qoros, ZIM, Tower, Primus, HelioFocus
and REG, as well as other intermediate holding companies related to these entities, and (ii) IC’s January 9, 2015 distribution of Kenon’s issued and
outstanding ordinary shares, via a dividend-in-kind, to IC’s existing shareholders; and
•
“Tower” means Tower Semiconductor Ltd., an Israeli specialty foundry semiconductor manufacturer, listed on the NASDAQ stock exchange, or
“NASDAQ” and the “TASE.”
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Additionally, this annual report uses the following conventions for IC Power:
•
IC Power’s Operating Companies, Assets in Advanced Stages of Construction, Pipeline Projects and Other Relevant Businesses:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
“Acter Holdings” means Inkia Holdings (Acter) Limited, a Cayman Islands corporation through which IC Power held its interest in Southern
Cone;
“AEI Jamaica” means AEI Jamaica Holdings Ltd, a Jamaican corporation;
“AIE” means Advanced Integrated Energy Ltd., an Israeli corporation;
“Amayo I” means Consorcio Eólico Amayo S.A., a Panamanian corporation;
“Amayo II” means Consorcio Eólico Amayo (Fase II) S.A., a Panamanian corporation;
“CDA” means Cerro del Águila S.A., a Peruvian corporation;
“Cenérgica” means Cenérgica, S.A. de C.V., a Salvadorian corporation;
“Central Cardones” means Central Cardones S.A., a Chilean corporation;
“CEPP” means Compañía de Electricidad de Puerto Plata S.A., a Dominican Republic corporation;
“COBEE” means Compañía Boliviana de Energía Eléctrica S.A., a Canadian corporation;
“Colmito” means Termoeléctrica Colmito Ltda., a Chilean corporation;
“Corinto” means Empresa Energética Corinto Ltd., a Cayman Islands corporation;
“DEOCSA” means Distribuidora de Electricidad de Occidente, S.A., a Guatemalan corporation;
“DEORSA” means Distribuidora de Electricidad de Oriente, S.A., a Guatemalan corporation;
“Edegel” means Edegel S.A.A., a Peruvian corporation;
“Energuate” means DEOCSA and DEORSA, collectively. Energuate is the trade name of IC Power’s Guatemalan distribution businesses
DEORSA and DEOCSA. Energuate is not a legal entity;
“Generandes” means Generandes Perú S.A., a Peruvian corporation through which IC Power held its indirect interest in Edegel;
“Guatemel” means Comercializadora Guatemalteca Mayorista de Electricidad, S.A., a Guatemalan corporation;
“Hadera Paper” means Hadera Paper Ltd., an Israeli corporation;
“ICPI” means IC Power Israel Ltd., an Israeli corporation;
“ICPNH” means IC Power Nicaragua Holdings, a Cayman Islands corporation, formerly known as AEI Nicaragua Holdings Ltd., or AEI
Nicaragua;
“Inkia” means Inkia Energy Limited, a Bermudian corporation;
“JPPC” means Jamaica Private Power Company Ltd., a Jamaican corporation;
“Kallpa” means Kallpa Generación S.A., a Peruvian corporation;
“Kanan” means Kanan Overseas I. Inc., a Panamanian corporation;
“Nejapa” means Nejapa Power Company S. de R.L., a Panamanian corporation;
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•
“OPC” means O.P.C. Rotem Ltd., an Israeli corporation;
“Pedregal” means Pedregal Power Company S.de.R.L, a Panamanian corporation;
“Puerto Quetzal” means Puerto Quetzal Power L.L.C., a Delaware limited liability company;
“RECSA” means Redes Eléctricas de Centroamérica, S.A., a Guatemalan corporation;
“Samay I” means Samay I S.A., a Peruvian corporation;
“Southern Cone” means Southern Cone Power Perú S.A., a Peruvian corporation through which we held our interest in Generandes.
“Surpetroil” means Surpetroil S.A.S., a Colombian corporation; and
“Tipitapa Power” means Tipitapa Power Company Ltd., a Cayman Islands corporation.
•
IC Power’s Regulatory Bodies and Electricity System Coordination Entities
•
•
•
•
•
•
•
•
•
•
•
“AMM” means Wholesale Market Administrator ( Administrador
del
Mercado
Mayorista
), a private entity that coordinates the operation of
the generation facilities and international interconnections and transmission lines that form Guatemalan National Electricity System;
“ANA” means the National Water Authority of Peru (
Autoridad
Nacional
del
Agua
);
“CFE” means the Federal Electricity Commission ( Comisión
Federal
de
Electricidad
), which is Mexico’s state-owned power utility;
“CND” means the National Dispatch Center of Panama ( Centro
Nacional
de
Despacho
);
“CNDC” means the National Dispatch Committee of Bolivia ( Comité
Nacional
de
Despacho
de
Carga
), a governmental entity responsible
for planning and coordinating the operation of the generation, transmission and distribution systems that form the SIN in Bolivia;
“CNEE” means the National Electric Energy Commission of Guatemala ( Comisión
Nacional
de
Energia
Electrica
), which was established
pursuant to the General Electricity Law of 1996, Decree 93-96, or General Electricity Law ( Ley
General
de
Electricidad
) and acts as a
technical arm of the MEM and which determines the transmission and distribution tariffs and is responsible for ensuring compliance with
Guatemalan electricity laws;
“COES” means the Committee for the Economic Operation of the System ( Comité
de
Operación
Económica
del
Sistema
Interconectado
Nacional
), an independent and private Peruvian entity composed of qualified participants undertaking activities in SEIN which is responsible
for planning and coordinating the operation of the generation, transmission and distribution systems that form the SEIN;
“CREG” means the Commission for the Regulation of Energy and Gas in Colombia ( Comisión
de
Regulación
de
Energía
y
Gas
);
“EA” means the Electricity Authority in Israel, which was established pursuant to the Electricity Sector Law to regulate and supervise, among
other things, the provision of essential electric public services in Israel and electricity tariffs;
“IEC” means Israel Electric Corporation, a government-owned entity, which generates and supplies the majority of electricity in Israel,
transmits and distributes all of the electricity in Israel, acts as the system operator of Israel’s electricity system, determines the dispatch order
of generation units, grants interconnection surveys, and sets spot prices, among other roles;
“INDECOPI” means the National Institute for the Defense of Competition and Intellectual Property Protection ( Instituto
Nacional
de
Defensa
de
la
Competencia
y
de
la
Protección
de
la
Propiedad
Intelectual
), the Peruvian antitrust and intellectual property regulator;
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•
“INDE” means the National Electrification Institute of Guatemala ( Instituto
Nacional
de
Electrificación
), an entity in charge of development
of local power production pursuant to the General Electricity Law and which operates through its three subsidiary firms: Empresa de
Generación de Energía Eléctrica (EGEE) responsible for power generation, Empresa de Transporte y Control de Energía Eléctrica (ETCEE)
responsible for transmission and Empresa de Comercialización de Energía (ECOE) responsible for marketing;
“MEM” means the Ministry of Energy and Mines of Guatemala ( Ministerio
de
Energía
y
Minas
), which is responsible for enforcing the
General Electricity Law and the related regulations and for the coordination of policies between CNEE and the AMM and overseeing energy
and mining sectors in Guatemala;
“MINEM” means the Ministry of Energy and Mines of Peru ( Ministerio
de
Energía
y
Minas
), which is responsible for, among other things,
setting national energy policy, proposing and adopting laws and regulations to supervise the energy sector and granting concessions and
authorizations to entities who wish to operate in power generation, transmission or distribution in Peru;
“OC” means the Coordinating Body ( Organismo
Coordinador
), a Dominican governmental authority whose function is to plan and
coordinate the operations of the generation, transmission and distribution systems that form the SENI;
“OSINERGMIN” means the Supervisory Body of Investment in Energy and Mining ( Organismo
Supervisor
de
la
Inversión
en
Energía
y
Minería
), a Peruvian governmental authority which is responsible for, among other things, ensuring that companies comply with the rules and
regulations applicable to the energy industry in Peru and for setting the tariffs to be charged to regulated customers;
“PUAE” means Israel’s Public Utilities Authority ( Electricity
), the entity which, prior to January 1, 2016, regulated and supervised, among
other things, the provision of essential electric public services in Israel and electricity tariffs. As of January 1, 2016, the EA performs this role;
“Salvadorian CNE” means the National Energy Commission of El Salvador ( Comisión
Nacional
de
Energía
), a governmental entity which is
responsible for proposing and adopting policies and regulations for the Salvadorian energy sector;
“SEIN” means the national interconnected electrical system of Peru ( Sistema
Eléctrico
Interconectado
Nacional
);
“SENI” means the national interconnected electrical system of the Dominican Republic ( Sistema
Eléctrico
Nacional
Interconectado
);
“SIC” means the national interconnected electrical system of Chile ( Sistema
Interconectado
Central
);
“SIEPAC” means Central American Electrical Interconnection System ( Sistema
de
Interconexión
Eléctrica
de
los
Países
de
América
Central
) that connects the transmission systems of Nicaragua, Panama, Costa Rica, Honduras, El Salvador and Guatemala through a 230 KW
transmission line;
“SIGET” means the General Superintendency of Electricity and Telecommunications ( Superintendencia
General
de
Electricidad
y
Telecomunicaciones
), a Salvadorian entity which is responsible for ensuring that companies comply with the rules and regulations passed by
the Salvadorian CNE, as well as other laws that are applicable to the energy industry in El Salvador;
“SIN” means a national system formed by generation plants, the interconnected grid, regional transmission lines, distribution lines and
consumer loads ( Sistema
Interconectado
Nacional
) in each of Bolivia, Colombia and Guatemala;
“SING” means the Interconnected System of Norte Grande of Chile ( Sistema
Interconectado
Norte
Grande
); and
“UPME” means the Mining and Energy Planning Unit ( Unidad
de
Planeación
Minero
Energética
), a special administrative unit of the
Ministry of Mines and Energy of Colombia.
•
Industry and Other Terms Relevant to IC Power’s Operations
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“availability factor” means the percentage of hours a power generation unit is available for generation of electricity in the relevant period,
whether or not the unit is actually dispatched or used for generating power;
“Btu” means British thermal units;
“CAGR” means compound annual growth rate;
“COD” means the commercial operation date of a development project;
“distribution” refers to the transfer of electricity from the transmission lines at grid supply points and its delivery to consumers at lower
voltages through a distribution system;
“EPC” means engineering, procurement and construction;
“firm capacity” means the amount of energy available for production that, pursuant to applicable regulations, must be guaranteed to be
available at a given time for injection to a certain power grid;
“greenfield projects” means projects constructed on unused land with no need to demolish or remodel existing structures;
“GWh” means gigawatt hours (one GWh is equal to 1,000 MWh);
“Heat rate” means the number of Btu of energy contained in the fuel required to produce a kWh of energy (Btu/kWh) for thermal plants;
“HFO” means heavy fuel oil;
“IC Power’s capacity” or “IC Power’s installed capacity” means, with respect to each asset, 100% of the capacity of such asset, regardless of
IC Power’s ownership interest in the entity that owns such asset;
“proportionate capacity” means, with respect to each asset, the proportionate capacity of such asset, as determined by IC Power’s ownership
interest in the entity that owns such asset;
“installed capacity” means the intended full-load sustained output of energy that a generation unit is designed to produce (also referred to as
name-plate capacity);
“IPP” means independent power producer, excluding co-generators and generators for self-consumption;
“kV” means kilovolt;
“KWh” means kilowatts per hour;
“MMBtu” means one million metric Btu;
“MW” means megawatts (one MW is equal to 1,000 kilowatts or KW);
“MWh” means megawatt per hour;
“OEM” means original equipment manufacturer;
“PPA” means power purchase agreement;
“transmission” refers to the bulk transfer of electricity from generating facilities to the distribution system at load center station in which the
electricity is stabilized by means of the transmission grid;
“VNR” means variable transmission revenue and VNR of transmission system is the estimated cost of replicating a “model” transmission
system including an estimated return on capital; and
“weighted average availability” refers to the number of hours that a generation facility is available to produce electricity divided by the total
number of hours in a year.
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Although we acquired each of our subsidiaries and associated companies in connection with the spin-off, the operating and other statistical information with
respect to each of our subsidiaries and associated companies is presented as of December 31, 2015, unless otherwise indicated, as if we owned such businesses for
the periods covered by this annual report.
FINANCIAL INFORMATION
We produce financial statements in accordance with the International Financial Reporting Standards, or IFRS, issued by the International Accounting
Standards Board, or IASB, and all financial information included in this annual report is derived from our IFRS financial statements, except as otherwise indicated.
In particular, this annual report contains certain non-IFRS financial measures which are defined under “ Item
3.A
Selected
Financial
Data
” and “ Item
4.B
Business
Overview—Our
Businesses—IC
Power.
” In addition, certain financial information relating to Tower, where indicated, has been derived from Tower’s financial
statements that have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP.
Our financial statements for the years ended December 31, 2014 and 2013, and as of December 31, 2014, are presented as combined carve-out financial
statements and have been derived from the consolidated financial statements of IC, our former parent. These combined financial statements reflect the assets,
liabilities, revenues and expenses directly attributable to us, as well as allocations deemed reasonable by us, to present our combined financial position, profit and
loss and other comprehensive income, changes in equity attributable to the owners of the company and cash flows. These combined carve-out financial statements
are not necessarily indicative of our financial position, profit and loss and other comprehensive income, or cash flows had we operated as a separate entity
throughout the periods presented. We present our combined carve-out financial statements in U.S. Dollars.
Our financial statements as of and for the year ended December 31, 2015, are presented as consolidated financial statements. The audited consolidated
financial statements included in this annual report comprise the consolidated statements of profit and loss, other comprehensive income, changes in equity
attributable to the owners of the company, and cash flows for the year ended December 31, 2015 and the consolidated statement of financial position as of
December 31, 2015. We present our consolidated financial statements in U.S. Dollars.
All references in this annual report to (i) “U.S. Dollars”, “$” or “USD” are to the legal currency of the United States of America; (ii) “RMB” are to Yuan, the
legal currency of the People’s Republic of China, or China; (iii) “NIS” or “New Israeli Shekel” are to the legal currency of the State of Israel, or Israel; (iv) “Euro”
are to the legal currency of participating member states for the purposes of the European Monetary Union; (v) “Peruvian Sol” are to the legal currency of Peru;
(vi) “Bs” or “Bolivianos” are to the legal currency of the Plurinational State of Bolivia, or Bolivia; (vii) “S$” are to Singapore Dollars, the legal currency of the
Republic of Singapore, or Singapore; (viii) “Colombian pesos” are to the legal currency of the Republic of Colombia, or Colombia; and (ix) “Chilean pesos” are to
the legal currency of the Republic of Chile, or Chile. We have made rounding adjustments to reach some of the figures included in this annual report.
Consequently, numerical figures shown as totals in some tables may not be arithmetic aggregations of the figures that precede them.
In this annual report, we also include the consolidated financial statements of profit or loss and other comprehensive income, changes in equity, and cash
flows for the years ended December 31, 2015, 2014 and 2013, and audited consolidated statements of financial position for Qoros as of December 31, 2015 and
2014, pursuant to Rule 3-09 of Regulation S-X. We also incorporate by reference the (i) unaudited consolidated financial statements of Generandes as of
December 31, 2014 and 2013 and for the years ended December 31, 2014 and 2013 and (ii) audited consolidated financial statements of Generandes as of
December 31, 2013, 2012 and 2011 and for the years ended December 31, 2013 and 2012, and the related independent auditors’ report thereon, as required by Rule
3-09 of Regulation S-X. These financial statements have been audited according to U.S. Generally Accepted Auditing Standards, except for the financial statements
as of and for the year ended December 31, 2014, which are not required to be audited by Rule 3-09 of Regulation S-X because Generandes is not considered a
“significant subsidiary” pursuant to Rule 1-02(w) of Regulation S-X for the year ended December 31, 2014.
NON-IFRS FINANCIAL INFORMATION
In this annual report, we disclose non-IFRS financial measures, namely Adjusted EBITDA and Net Debt, each as defined under “ Item
3.A
Selected
Financial
Data–Information
on
Business
Segments
” and “ Item
3.A
Selected
Financial
Data–Information
on
Business
Segments–IC
Power
” and “ Item
4.B
Business
Overview—Our
Businesses—IC
Power—IC
Power’s
Description
of
Operations.
” Each of these measures are important measures used by us, and our
businesses, to assess financial performance. We believe that the disclosure of Adjusted EBITDA and Net Debt provides transparent and useful information to
investors and financial analysts in their review of our, or our subsidiaries’ and associated companies’, operating performance and in the comparison of such
operating performance to the operating performance of other companies in the same industry or in other industries that have different capital structures, debt levels
and/or income tax rates.
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EXCHANGE RATE INFORMATION
The following tables set forth the historical period-end, average, high and low noon buying rates in New York City for cable transfers in foreign currencies
as certified by the Federal Reserve Bank of New York for the U.S. Dollar expressed in RMB per one U.S. Dollar for the periods indicated:
Year
2011
2012
2013
2014
2015
RMB/U.S. Dollar
Period
end 1
6.2939
6.2301
6.0537
6.2046
6.4778
Average
rate 2
6.4475
6.2990
6.1412
6.1701
6.2869
High
6.6364
6.3879
6.2438
6.2591
6.4896
Low
6.2939
6.2221
6.0537
6.0402
6.1870
1.
2.
Represents the closing exchange rate on the last business day of the applicable period.
Represents the average of the closing exchange rates on the last business day of each month during the relevant one-year periods.
Month
October 2015
November 2015
December 2015
January 2016
February 2016
March 2016
April 2016 (through April 15, 2016)
RMB/U.S. Dollar
High
6.3591
6.3945
6.4896
6.5932
6.5795
6.5500
6.4810
Low
6.3180
6.3180
6.3883
6.5219
6.5154
6.4480
6.4580
The following tables set forth the historical period-end, average, high and low rates calculated using the daily closing exchange rates, as reported by
Bloomberg, for the U.S. Dollar expressed in Peruvian Sol per one U.S. Dollar for the periods indicated:
Year
2011
2012
2013
2014
2015
Peruvian Sol/U.S. Dollar
Period
end 1
2.697
2.568
2.786
2.963
3.414
Average
rate 2
2.755
2.638
2.703
2.839
3.204
High
2.816
2.693
2.802
2.963
3.414
Low
2.697
2.568
2.552
2.787
2.975
1.
2.
Represents the closing exchange rate on the last business day of the applicable period.
Represents the average of the closing exchange rates on the last business day of each month during the relevant one-year periods.
Month
October 2015
November 2015
December 2015
January 2016
February 2016
March 2016
April 2016 (through April 21, 2016)
ix
Peruvian Sol/
U.S. Dollar
High
3.288
3.379
3.414
3.473
3.531
3.518
3.930
Low
3.212
3.284
3.367
3.413
3.477
3.313
3.243
Table of Contents
MARKET AND INDUSTRY DATA
Certain information relating to the industries in which each of our subsidiaries and associated companies operate and their position in such industries used or
referenced in this annual report were obtained from internal analysis, surveys, market research, publicly available information and industry publications. Unless
otherwise indicated, all sources for industry data and statistics are estimates or forecasts contained in or derived from internal or industry sources we believe to be
reliable. Market data used throughout this annual report was obtained from independent industry publications and other publicly available information. Such data,
as well as internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified. In addition, in certain cases
we have made statements in this annual report regarding the industries in which each of our subsidiaries and associated companies operate and their position in
such industries based upon the experience of our businesses and their individual investigations of the market conditions affecting their respective operations. We
cannot assure you that any of these statements are accurate or correctly reflect the position of subsidiaries and associated companies in such industries, and none of
our internal surveys or information has been verified by independent sources.
Market data and statistics are inherently predictive and speculative and are not necessarily reflective of actual market conditions. Such statistics are based
upon market research, which itself is based upon sampling and subjective judgments by both the researchers and the respondents. In addition, the value of
comparisons of statistics for different markets is limited by many factors, including that (i) the markets are defined differently, (ii) the underlying information was
gathered by different methods and (iii) different assumptions were applied in compiling the data. Accordingly, although we believe and operate as though all
market and industry information presented in this annual report is accurate, the market statistics included in this annual report should be viewed with caution.
REPRESENTATION OF CAPACITY AND PRODUCTION FIGURES
Unless otherwise indicated, statistics provided throughout this annual report with respect to power generation units are expressed in MW, in the case of the
capacity of such power generation units, and in GWh, in the case of the electricity production of such power generation units. One GWh is equal to 1,000 megawatt
hours, or MWh, and one MWh is equal to 1,000 kilowatt hours, or KWh. Statistics relating to aggregate annual electricity production are expressed in GWh and are
based on a year of 8,760 hours. Unless otherwise indicated, IC Power’s capacity figures provided in this annual report reflect 100% of the capacity of all of IC
Power’s assets, regardless of IC Power’s ownership interest in the entity that owns each such asset, and IC Power’s consolidated generation figures provided in this
annual report reflect 100% of the generation figures of IC Power’s subsidiaries, and excludes the generation figures of IC Power’s associated companies. Excluding
the generation figures of AIE, whose generation figures are only presented since the date of its acquisition, generation figures for assets acquired during a year are
presented for the full year, regardless of the date within the year when the acquisition occurred. As a result, the generation figures provided in this annual report of
Colmito, which we acquired in 2013, and ICPNH, Puerto Quetzal, Surpetroil and JPPC, which IC Power acquired in 2014, reflect 100% of the generation figures of
these companies for the years ended December 31, 2013 and 2014, respectively, regardless of IC Power’s date of acquisition of such companies. With respect to
capacity figures for the year ended December 31, 2014, and any prior periods thereto, IC Power’s capacity figures exclude Edegel’s 1,540 MW of capacity, as a
result of the sale of IC Power’s indirect interest in Edegel in September 2014. For information on IC Power’s ownership interest in each of its operating companies
and associated companies, see “ Item
4.B.
Information
on
the
Company—Business
Overview—Our
Businesses—IC
Power.
” For further details on technical
conventions used in this annual report, see “ Introduction
and
Use
of
Certain
Terms
.”
INFORMATION REGARDING TOWER
On July 23, 2015, consistent with our strategy to realize value for our shareholders by, among other things, distributing our interests in our non-primary
businesses to our shareholders rationally and expeditiously, we completed the pro rata distribution in specie of 18,030,041 ordinary shares of Tower, representing
23% of the then currently outstanding Tower shares and substantially all of our interest in Tower, to holders of our ordinary shares. As of the date of this annual
report, our interest in Tower comprises (i) 2,668 options to purchase 2,668 ordinary shares of Tower and (ii) 1,669,795 Series 9 Warrants to purchase 1,669,795
ordinary shares of Tower, which represents an aggregate of approximately 2% of Tower’s outstanding shares.
Tower is subject to the reporting requirements of the Securities and Exchange Commission, or the SEC, and, as a foreign private issuer, Tower is required to
file with the SEC annual reports containing audited financial information, and to furnish to the SEC reports containing any material information that Tower
provides to its local securities regulator, investors or stock exchange. Tower’s published financial statements are prepared according to U.S. GAAP. Information
related to Tower contained, or referred to, in this annual report has been derived from Tower’s public filings with the SEC. Although we held a significant equity
interest in Tower during certain periods discussed in this annual report, we did not control or manage Tower, participate in the preparation of Tower’s public
reports or financial statements or have any specific information rights regarding Tower during such periods. Any information related to Tower contained, or
referred to, in this annual report is provided to satisfy our obligations under the Securities Exchange Act of 1934, or the Exchange Act. You are encouraged to
review Tower’s publicly available filings, which can be found on the SEC’s website at www.sec.gov.
x
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements within the meaning of Section 21E of the Exchange Act, and reflects our current expectations and
views of the quality of our assets, our anticipated financial performance, our future growth prospects, the future growth prospects of our businesses, the liquidity of
our ordinary shares, and other future events. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events
or trends and similar expressions concerning matters that are not historical facts, and are principally contained in the sections entitled “ Item
3.
Key
Information
,” “
Item
4.
Information
on
the
Company
” and “ Item
5.
Operating
and
Financial
Review
and
Prospects
.” These statements are made under the “safe harbor”
provisions of the U.S. Private Securities Litigation Reform Act of 1995. Some of these forward-looking statements can be identified by terms and phrases such as
“anticipate,” “should,” “likely,” “foresee,” “believe,” “estimate,” “expect,” “intend,” “continue,” “could,” “may,” “plan,” “project,” “predict,” “will,” and similar
expressions.
These forward-looking statements relate to:
•
•
•
•
•
•
•
•
•
•
•
our goals and strategies;
our capital commitments and/or intentions with respect to each of our businesses;
our ability to implement, successfully or at all, our strategies for us and for each of our businesses following the spin-off;
our capital allocation principles, as set forth in “ Item
4.B
Business
Overview
”;
the funding requirements, strategies, and business plans of our businesses, including statements as to our businesses’ ability to raise third party debt
and/or equity financing to fund their operations as needed, including for the construction or expansion of their operations and/or respective facilities;
the potential listing, offering, distribution or monetization of our businesses and the anticipated timing thereof;
expected trends in the industries in which each of our businesses operate, including trends relating to the growth of a particular market;
our expected tax status and treatment;
fluctuations in the availability and prices of commodities purchased by, or in competition with, our businesses;
statements relating to litigation and/or regulatory proceedings;
with
respect
to
IC
Power:
•
•
•
•
•
•
•
expected supply and demand trends in the Peruvian power market;
the expected cost and timing of commencement and completion of existing acquisitions and construction projects, as well as the anticipated
installed capacities and business results of such acquisitions or projects;
its strategy to source and finance new, development and acquisition projects;
its strategy to source and enter into long-term PPAs, and turnkey agreements and the amounts to be paid under such agreements;
expected increased demand in certain of the power generation markets where IC Power currently operates or may operate in the future;
expected trends in energy consumption, particularly in Latin America;
its capital expenditure program;
xi
Table of Contents
•
•
•
•
•
•
•
•
•
•
•
•
the expected revenues of its PPAs, including the PPAs of its assets in advanced stages of construction;
its strategy to acquire additional generation and distribution businesses;
the expected cash flows from its distribution businesses;
future subsidies available to IC Power’s businesses and distribution customers;
expected trends in electrification levels in Guatemala;
the competitive landscape within Energuate’s service areas;
expected or potential changes in distribution tariffs;
its ability to enter into or renew its PPAs;
its expected coverage under its insurance policies;
the expected initial public offering of IC Power Singapore;
the price and volume of gas available to OPC and other IPPs in Israel; and
the potential nationalization of operating assets;
•
with
respect
to
Qoros:
•
•
•
•
•
•
•
•
•
•
•
•
Qoros’ expectation to renew or refinance its working capital facilities to support its continued operations and development;
Qoros’ strategy to increase its sales volumes;
expected growth in the Chinese passenger vehicle market, particularly within the C-segment and C-segment SUV market;
Qoros’ liquidity position;
the expected conversion of Qoros’ shareholder loans into equity;
Qoros’ plans to develop its dealer network;
the assumptions used in Qoros’ impairment analysis, including assumptions related to future sales volumes and price, operating expenses, and
the availability of funding, including certain subsidies from local Chinese governments during the projection period;
the effect of environmental regulations on Qoros’ business;
Qoros’ ability to increase its production capacity;
Qoros’ ability to launch new models using its existing platform, to the extent that demand for its vehicles increases;
the expected development of the New Energy Vehicle, or NEV, market in China; and
Qoros’ NEV division.
•
with
respect
to
ZIM:
•
the assumptions used in Kenon’s and ZIM’s impairment analysis with respect to Kenon’s investment in ZIM, and ZIM’s assets, respectively,
including with respect to expected fuel price, freight rates, and WAC trends;
xii
Table of Contents
•
•
•
modifications with respect to its operating fleet and lines, including the utilization of larger vessels within certain trade zones;
the expansion of the Panama Canal; and
trends related to the global container shipping industry, including with respect to fluctuations in container supply, demand, bunker prices and
charter/freights rates;
•
with
respect
to
Primus:
•
•
•
•
its strategy;
its plans to raise capital;
its project pipeline; and
its expected sources of revenue.
The preceding list is not intended to be an exhaustive list of each of our forward-looking statements. The forward-looking statements are based on our
beliefs, assumptions and expectations of future performance, taking into account the information currently available to us and are only predictions based upon our
current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or
achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by these forward-looking statements which
are set forth in “ Item
3.D
Risk
Factors
.” Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of
actual results.
Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise. The foregoing factors that could cause our actual results to differ materially from those contemplated in any forward-looking statement
included in this annual report should not be construed as exhaustive. You should read this annual report, and each of the documents filed as exhibits to the annual
report, completely, with this cautionary note in mind, and with the understanding that our actual future results may be materially different from what we expect.
xiii
Table of Contents
ITEM 1.
Identity of Directors, Senior Management and Advisers
A.
Directors and Senior Management
PART I
Not applicable.
B.
Advisers
Not applicable.
C.
Auditors
Not applicable.
ITEM 2.
Offer Statistics and Expected Timetable
Not applicable.
ITEM 3.
Key Information
A.
Selected Financial Data
The
following
tables
set
forth
our
selected
combined
carve-out
financial
and
other
data
(for
all
periods
as
of
and
prior
to
December
31,
2014)
and
selected
consolidated
financial
and
other
data
(for
all
periods
subsequent
to
December
31,
2014).
This
data
should
be
read
in
conjunction
with
our
audited
financial
statements,
and
the
related
notes
thereto,
as
of
December
31,
2015
and
2014
and
for
the
years
ended
December
31,
2015,
2014
and
2013,
included
elsewhere
in
this
annual
report,
and
the
information
contained
in
“Item
5.
Operating
and
Financial
Review
and
Prospects”
and
“Item
3.D
Risk
Factors.”
The
historical
financial
and
other
data
included
here
and
elsewhere
in
this
annual
report
should
not
be
assumed
to
be
indicative
of
our
future
financial
condition
or
results
of
operations.
During
2015,
an
immaterial
error
was
identified
with
respect
to
the
deferred
tax
calculation
relating
to
the
effect
of
foreign
exchange
rate
on
non-
monetary
assets
in
previous
years
in
IC
Power.
Kenon’s
and
IC
Power’s
selected
financial
data
for
2014,
2013
and
2012
has
been
revised
to
correct
this
immaterial
error.
Our
financial
statements
presented
in
this
annual
report
have
been
prepared
in
accordance
with
IFRS
as
issued
by
the
IASB.
The
assumptions
used
in
the
preparation
of
the
selected
financial
data
for
2012
and
2011
set
forth
below
are
the
same
as
those
used
in
the
preparation
of
the
audited
financial
statements
for
2015,
2014
and
2013,
as
described
in
Note
1
to
our
audited
financial
statements
included
elsewhere
in
this
annual
report.
The
selected
financial
data
below
also
includes
certain
non-IFRS
measures
used
by
us
to
evaluate
our
economic
and
financial
performance.
These
measures
are
not
identified
as
accounting
measures
under
IFRS
and
therefore
should
not
be
considered
as
an
alternative
measure
to
evaluate
our
performance.
2015
2014
Year Ended December 31,
2012 1
2013 1
(in
millions
of
USD)
2011 1
Statements of Profit and Loss Data 2
Revenues from sale of electricity
Cost of sales and services
Depreciation
Gross profit
Selling, general and administrative expenses
Gain from distribution of dividend in kind
Gain from disposal of investees
Gain on bargain purchase
Asset impairment
Dilution gains from reduction in equity interest held in associates
1
(863)
(111)
(981)
(100)
(395)
(51)
(594)
(70)
$1,289 $1,372 $ 873 $ 577 $ 480
(334)
(37)
$ 315 $ 291 $ 209 $ 131 $ 109
(51)
—
19
—
—
—
(104)
210
—
—
(7)
33
(131)
—
157
68
(48)
—
(69)
—
5
—
—
—
(73)
—
—
1
—
—
Table of Contents
Other expenses
Other income
Operating profit from continuing operations
Financing expenses
Financing income
Financing expenses, net
Share in losses of associated companies, net of tax
Profit from continuing operations before income taxes
Income taxes
Profit / (loss) for the year from continuing operations
Profit / (loss) for the year from discontinued operations (after taxes) 4
Profit / (loss) for the year
Attributable to:
Kenon’s shareholders
Non-controlling interests
Profit / (loss) for the year attributable to Kenon’s shareholders derived from:
IC Power
Qoros
ZIM
Gain from ZIM in light of deconsolidation and change to associated company
Tower
Gain from distribution of dividend in kind
Other 6
Total profit / (loss) for the year attributable to Kenon’s shareholders
Statements of Financial Position Data
Cash and cash equivalents
Short-term investments and deposits
Trade receivables, net
Other current assets
Income tax receivable
Inventories
Total current assets
Total non-current assets 7
Total assets
Total current liabilities
Total non-current liabilities
Equity attributable to the owners of the Company
Total equity
Total liabilities and equity
Statements of Cash Flow Data
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
(Decrease) / increase in cash and cash equivalents
2
2015
2014
Year Ended December 31,
2012 1
2013 1
(in
millions
of
USD)
2011 1
$ (111) $
$ 456 $ 374 $ 137 $
(5)
5
(7)
16
(14)
51
(124)
13
(110)
16
(94) $
1713
(4)
—
12
29
79 $ 102
(37)
(39)
3
3
(34)
(36) $
42
52
26
(9) $
18
20
8
6 $ (103) $
(29) $
— $ 471 $ (513) $ (409) $ (397)
96 $ 477 $ (616) $ (438) $ (389)
(69)
5
(64) $
127
(54) $
49
62
96 $
1873
103
$ 158 $ 109 $
$
$
$
73 $ 458 $ (631) $ (450) $ (407)
18
15
23
19
12
$
61 $
63 $ 199 $
605
(54)
(196)
(395)
1
—
—
(8)
(1)
—
210
(4)
(10)
73 $ 458 $ (631) $ (450) $ (407)
59 $
(54)
(432)
—
(21)
—
(2)
(175)
(142)
609
10
—
(43)
(127)
(533)
—
(27)
—
(5)
$
227
181
59
4
55
$ 384 $ 610 $ 671 $ 414 $ 439
175
286
93
8
161
1,136 $1,314 $1,098 $1,162
4,839
3,184
$4,483 $4,320 $5,985 $5,978 $6,001
309
123
45
4
51
916
3,567
89
323
83
15
174
30
358
98
7
150
4,880
4,671
653 $ 497 $2,925 $1,172 $2,666
$2,566 $2,385 $2,113 $3,357 $1,756
1,401
$1,264 $1,438 $ 947 $1,449 $1,579
$4,483 $4,320 $5,985 $5,978 $6,001
1,230
1,061
1,214
710
$ 290 $ 410 $ 257 $ 169 $ 130
(575)
269
(176)
(883)
430
(42)
(737)
233
(214)
(320)
122
(29)
(278)
281
260
Table of Contents
1.
2.
3.
4.
5.
6.
7.
Results during these periods have been reclassified to reflect the discontinued operations of ZIM and Petrotec. For further information, see Note 27 to our
financial statements included in this annual report.
Consists of the consolidated results of IC Power and Primus for 2011 through 2013 and, from June 30, 2014, the consolidated results of HelioFocus; prior to
this date, Kenon did not consolidate HelioFocus’ results of operations.
Includes Kenon’s share in ZIM’s loss for the six months ended December 31, 2014 and the year ended December 31, 2015. As from July 1, 2014, Kenon
accounted for ZIM’s results of operations pursuant to the equity method of accounting.
Consists of (i) ZIM’s results of operations for 2011 through 2013 and the six months ended June 30, 2014 and (ii) Petrotec’s results of operations for 2011
through 2014.
Includes $24 million of pre-tax recognition of gain on bargain purchase.
Consists of the elimination of intercompany finance income until 2014, Kenon’s general and administrative expenses, finance expenses, the results of Primus
and gain from reductions in equity invested. From June 30, 2014, also includes the consolidated results of HelioFocus.
Includes Kenon’s associated companies: (i) Qoros, (ii) Tower (until June 30, 2015), (iii) from June 30, 2014, ZIM; and (iv) prior to June 30, 2014,
HelioFocus.
Selected Reportable Segment Data
Kenon is a holding company of (i) IC Power, (ii) Primus, (iii) a 32% interest in ZIM, (iv) a 50% interest in Qoros, (v) until December 24, 2014, Petrotec, and
(vi) until July 23, 2015, a 22.5% interest in Tower. Kenon’s segments are IC Power, Qoros and Other. Kenon’s Other segment includes the results of Primus, and
from June 30, 2014, the results of HelioFocus and Kenon (Company level).
The results of the following companies are included in Kenon’s statements of profit and loss as share in losses of associated companies, net of tax, for the
years set forth below, except as otherwise indicated: (i) Qoros, (ii) ZIM from June 30, 2014, (iii) Tower until June 30, 2015, (iv) HelioFocus until June 30, 2014
(subsequently, HelioFocus’ results have been consolidated with Kenon’s) and (v) certain non-controlling interests held by IC Power. The following table sets forth
selected financial data for Kenon’s reportable segments for the periods presented:
Sales
Depreciation and amortization
Asset impairment
Financing income
Financing expenses
Share in (losses) income of associated companies
Gain from distribution of dividend in kind
Income (loss) before taxes
Income taxes
Income (loss) from continuing operations
Attributable to:
Kenon’s shareholders
Non-controlling interests
Segment assets 5
Investments in associated companies
Segment liabilities
Capital expenditure
Adjusted EBITDA
Year Ended December 31, 2015
Qoros
1
Other
2
Adjustments
3
Consolidated
Results
IC Power
$ 1,294
(119)
—
10
(115)
—
—
149
$
(62)
874
$
$
(in
millions
of
USD,
unless
otherwise
indicated)
(5)
$ —
—
—
—
—
—
—
—
—
—
(196)
—
—
—
$(196)
—
—
—
$(196)
$ —
(1)
(7)
3
(9)
9
210
$ 205
—
$ 205
$
$
63
24
$ 4,069
9
3,063
5338
3724,9
$
(196)
—
$ —
159
—
—
$ —
206
(1)
$ 456
201
1567
—
$
$
110
$
—
—
—
—
—
—
—
3
$
$
$
$
$
1,289
(120)
(7)
13
(124)
(187)
210
158
(62)
96
73
23
4,114
369
3,219
533
373
Table of Contents
IC Power
Qoros
1
Other
2
Adjustments
3
Consolidated
Results
Year Ended December 31, 2015
Percentage of consolidated revenues
Percentage of consolidated assets
Percentage of consolidated assets excluding associated companies
Percentage of consolidated Adjusted EBITDA
100%
91%
99%
100%
4%
—
—
5%
1%
—
—
—
—
—
100%
100%
100%
100%
(in
millions
of
USD,
unless
otherwise
indicated)
—
—
1.
2.
3.
4.
Associated company.
Includes the results of Primus and HelioFocus; the results of ZIM and Tower (up to June 30, 2015), as associated companies; as well as Kenon’s and IC
Green’s holding company and general and administrative expenses.
“Adjustments” includes inter-segment sales.
IC Power’s net income and Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2015, differ from the amounts reported by IC Power
for the same period as a result of the adjustment of certain provisions at IC Power, which were adjusted in IC Power’s 2014 financial statements, but were
adjusted in 2015 for Kenon. For further information, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—Decisions
by
the
EA
Regarding
System
Management
Charges
. ”
Excludes investments in associates.
Includes Kenon’s and IC Green’s assets.
Includes Kenon’s and IC Green’s liabilities.
Includes the additions of Property, Plant and Equipment, or PP&E, and intangibles based on an accrual basis.
5.
6.
7.
8.
9. With respect to IC Power’s Adjusted EBITDA, as reported by Kenon, for the years ended December 31, 2015 and 2014, Kenon defines “Adjusted EBITDA”
as net income for the period, as reported by Kenon, before depreciation and amortization, finance expenses (net), asset impairment and income tax expense,
excluding share in income of associated companies, gain on bargain purchase and gain from disposal of investees. Adjusted EBITDA is not recognized under
IFRS or any other generally accepted accounting principles as a measure of financial performance and should not be considered as a substitute for net
income or loss, cash flow from operations or other measures of operating performance or liquidity determined in accordance with IFRS. Adjusted EBITDA
is not intended to represent funds available for dividends or other discretionary uses by us because those funds may be required for debt service, capital
expenditures, working capital and other commitments and contingencies. Adjusted EBITDA presents limitations that impair its use as a measure of our
profitability since it does not take into consideration certain costs and expenses that result from our business that could have a significant effect on net
income, such as financial expenses, taxes, depreciation, capital expenses and other related charges. The following table sets forth a reconciliation of IC
Power’s net income (loss), as reported by Kenon, to its Adjusted EBITDA, as reported by Kenon, for the periods presented. Other companies may calculate
EBITDA differently, and therefore this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies.
Net income for the period
Depreciation and amortization
Financing expenses, net
Asset impairment
Income tax expense
Share in (income) of associated companies
Gain on bargain purchase
Gain from disposal of investees
Adjusted EBITDA
4
Year Ended
December 31,
2015
2014
($ millions)
$ 87
119
104
—
62
—
—
—
$372
$ 222
108
123
35
99
(14)
(68)
(157)
$ 348
Table of Contents
10. With respect to its “Other” reporting segment, Kenon defines “Adjusted EBITDA” as income (loss) for the year before finance expenses, net, depreciation
and amortization, asset impairment, and income tax expense, excluding gain from distribution of dividend in kind and share in loss of associated companies,
net of tax. Adjusted EBITDA is not recognized under IFRS or any other generally accepted accounting principles as a measure of financial performance and
should not be considered as a substitute for net income or loss, cash flow from operations or other measures of operating performance or liquidity determined
in accordance with IFRS. Adjusted EBITDA is not intended to represent funds available for dividends or other discretionary uses by us because those funds
may be required for debt service, capital expenditures, working capital and other commitments and contingencies. Adjusted EBITDA presents limitations
that impair its use as a measure of our profitability since it does not take into consideration certain costs and expenses that result from our business that could
have a significant effect on net income, such as financial expenses, taxes, depreciation, capital expenses and other related charges. The following table sets
forth a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA for the periods presented. Other companies may calculate
EBITDA differently, and therefore this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies.
Income (loss) for the period
Finance expenses (net)
Depreciation and amortization
Asset impairment
Income tax expense
Gain from distribution of dividend in kind
Share in (income) loss from associated companies
Adjusted EBITDA
Sales
Depreciation and amortization
Financing income
Financing expenses
Share in (losses) income of associated companies
Asset impairment
Gain from disposal of investee
Gain from bargain purchase
Income (loss) before taxes
Income taxes
Income (loss) from continuing operations
Attributable to:
Kenon’s shareholders
Non-controlling interests
Segment assets 6
Investments in associated companies
Segment liabilities
Capital expenditure 9
Adjusted EBITDA
Percentage of combined revenues
Percentage of combined assets
Percentage of combined assets excluding associated companies
Percentage of combined Adjusted EBITDA
Year Ended December 31,
2015
2014
2013
(in
millions
of
USD)
$ 205
7
1
7
—
(210)
(9)
1
$
$ (41)
(29)
—
13
4
—
10
$ (43)
$ (50)
(17)
5
—
—
—
32
$ (30)
Year Ended December 31, 2014 1
IC Power
Qoros
2
Other
3
Adjustments
4
Combined
Carve-Out
Results
$ 1,358
(108)
9
(132)
14
(35)
157
68
321
(99)
2225
$
$
$
(in
millions
of
USD,
unless
otherwise
indicated)
14
$ —
—
—
(32)
—
32
—
—
(175)
—
—
—
—
—
—
—
$(175)
—
—
—
$(175)
$ —
—
39
(10)
(10)
(13)
—
—
$ (37)
(4)
$ (41)
$
$
197
25
$ 3,832
10
2,860
593
3485, 10
99%
89%
99%
114%
$
(175)
—
$ —
221
—
—
$ —
—
—
—
—
(34)
(7)
$ 8377
205
8068
12
$ (43) 11
—
23%
21%
(14)%
$
$
—
—
(785)
—
(785)
—
—
1%
(12)%
(20)%
—
5
$
$
$
$
$
1,372
(108)
16
(110)
(171)
(48)
157
68
109
(103)
6
(12)
18
3,884
436
2,881
605
305
100%
100%
100%
100%
Table of Contents
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary
assets in previous years in IC Power. Kenon’s and IC Power’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial
error.
Associated company.
Includes financing income from former parent company loans to Kenon’s subsidiaries; the results of Primus, HelioFocus (from June 30, 2014) and ZIM (up
to June 30, 2014); the results of ZIM (from June 30, 2014), Tower and HelioFocus (up to June 30, 2014), as associated companies; as well as Kenon’s and IC
Green’s holding company and general and administrative expenses.
“Adjustments” includes inter-segment sales, and the consolidation entries. For the purposes of calculating the “percentage of combined assets” and the
“percentage of combined assets excluding associated companies,” “Adjustments” has been combined with “Other.”
IC Power’s net income and Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2014, differ from the amounts reported by IC Power
for the same period as a result of the adjustment of certain provisions at IC Power, which were adjusted in IC Power’s 2014 financial statements, but were
adjusted in 2015 for Kenon. For further information, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—Decisions
by
the
EA
Regarding
System
Management
Charges
. ”
Excludes investments in associates.
Includes Kenon’s and IC Green’s assets.
Includes Kenon’s and IC Green’s liabilities.
Includes the additions of PP&E and intangibles based on an accrual basis.
For a reconciliation of IC Power’s net income, as reported by Kenon, to its Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2014,
see “ Item
3.A
Selected
Financial
Data
.”
11. Adjusted EBITDA is a non-IFRS measure. For a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA, see footnote 10 to
the preceding table setting forth the selected financial data for the year ended December 31, 2015.
Year Ended December 31, 2013 1, 2
IC Power
Qoros
3
Other 4
Adjustments
5
Combined
Carve-Out
Results
Sales
Depreciation and amortization
Financing income
Financing expenses
Share in (losses) income of associated companies
Income (loss) before taxes
Income taxes
Income (loss) from continuing operations
Attributable to:
Kenon’s shareholders
Non-controlling interests
Segment assets 6
Investments in associated companies
Segment liabilities
Capital expenditure
Adjusted EBITDA
Percentage of combined revenues
Percentage of combined assets
Percentage of combined assets excluding associated companies
Percentage of combined Adjusted EBITDA
$
$
$
866
(75)
5
(86)
32
123
49
74
61
13
$ 2,749
286
2,237
$
3519
24710
99%
51%
50%
114%
6
$
(in
millions
of
USD,
unless
otherwise
indicated)
7
$ —
—
—
(32)
—
32
—
—
(127)
—
(127)
—
—
—
$(127)
$ —
(5)
32
(15)
(32)
$
(50)
—
(50)
$
$
$
(127)
—
$ —
226
—
—
$ —
—
—
—
—
(48)
(2)
$3,8327
28
3,9338
—
$
—
(30) 11
65%
70%
(14)%
—
—
(1,136)
—
(1,136)
—
—
$
$
1%
(16)%
(21)%
—
$
$
$
$
$
873
(80)
5
(69)
(127)
(54)
49
(103)
(114)
11
5,444
540
5,033
351
217
100%
100%
100%
100%
Table of Contents
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary
assets in previous years in IC Power. Kenon’s and IC Power’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial
error.
Results during the period have been reclassified to reflect the discontinued operations of ZIM and Petrotec. For further information, see Note 27 to our
financial statements included in this annual report.
Associated company.
Includes financing income from former parent company loans to Kenon’s subsidiaries; the results of Primus and ZIM; the results of Tower and HelioFocus,
as associated companies; as well as Kenon’s and IC Green’s holding company and general and administrative expenses.
“Adjustments” includes inter-segment sales and the consolidation entries. For the purposes of calculating the “percentage of combined assets” and the
“percentage of combined assets excluding associated companies,” “Adjustments” has been combined with “Other.”
Excludes investments in associates.
Includes Kenon’s, IC Green’s and ZIM’s assets.
Includes Kenon’s, IC Green’s and ZIM’s liabilities.
Includes the additions of PP&E and intangibles based on an accrual basis.
For a reconciliation of IC Power’s net income, as reported by IC Power, to its Adjusted EBITDA, as reported by IC Power, see “ Item
3.A
Selected
Financial
Data
.”
For a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA, see footnote 10 to the table setting forth the selected financial
data for the year ended December 31, 2015.
IC
Power
The following tables set forth other financial and key operating data for IC Power for the periods presented:
2015
2014
2013
2012
2011
Year Ended December 31,
Net income from continuing operations 1
Net income for the period
Adjusted EBITDA 3
Net debt 4
Installed capacity of operating companies and associated companies at end of period (MW)
Proportionate capacity of operating companies and associated companies at end of period (MW)
Weighted average availability during the period (%)
Gross energy generated (GWh)
Energy sold under PPAs (GWh)
49
532
3262
1,903
2,665
2,170
128
2562
3952
($ millions, except as otherwise indicated)
39
68
154
1,001
1,572
1,198
45
74
247
1,143
2,070
1,608
1,557
2,642
2,108
53
73
120
701
1,280
979
95%
94%
94%
93%
91%
13,109
13,748
13,156
14,220
8,820
9,217
6,339
5,365
6,011
5,212
1.
2.
The share in net income attributable to non-controlling interests held by third parties in IC Power’s subsidiaries was $17 million, $29 million, $13 million,
$10 million and $13 million for the years ended December 31, 2015, 2014, 2013, 2012 and 2011 respectively.
IC Power’s Adjusted EBITDA and net income, as reported by Kenon, for the years ended December 31, 2015 and 2014 differ from the amounts reported by
IC Power for the same period as a result of the adjustment of certain provisions at IC Power, which were adjusted in IC Power’s 2014 financial statements,
but were adjusted in 2015 for Kenon. For further information, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—Decisions
by
the
EA
Regarding
System
Management
Charges.”
7
Table of Contents
3.
IC Power defines “Adjusted EBITDA” for each period as net income (loss) for the period before depreciation and amortization, financing expenses, net,
income tax expense and asset write-off, excluding share in (income) loss of associated companies, gain on bargain purchase, capital gains, and net (income)
loss from discontinued operations, net of tax, excluding dividends received from discontinued operations. Adjusted EBITDA is not recognized under IFRS or
any other generally accepted accounting principles as a measure of financial performance and should not be considered as a substitute for net income or loss,
cash flow from operations or other measures of operating performance or liquidity determined in accordance with IFRS. Adjusted EBITDA is not intended to
represent funds available for dividends or other discretionary uses because those funds may be required for debt service, capital expenditures, working
capital and other commitments and contingencies. Adjusted EBITDA presents limitations that impair its use as a measure of IC Power’s profitability since it
does not take into consideration certain costs and expenses that result from IC Power’s business that could have a significant effect on IC Power’s net
income, such as finance expenses, taxes and depreciation. The following table sets forth a reconciliation of IC Power’s net income to its Adjusted EBITDA
for the periods presented. Other companies may calculate Adjusted EBITDA differently, and therefore this presentation of Adjusted EBITDA may not be
comparable to other similarly titled measures used by other companies:
2015
2014
2013
2012
2011 2010 (i) 2009 (i) 2008 (i)
Year Ended December 31,
($ millions)
Net income (loss) for the period
Depreciation and amortization (ii)
Financing expenses, net
Income tax expense
Asset write-off
Share in (income) of associated companies
Gain on bargain purchase
Capital gains
Net (income) loss from discontinued operations, net of tax, excluding
$ 53 $ 256
108
119
63
35
(2)
(71) (iii)
119
104
50
—
—
—
—
—
$ 74 $ 68 $ 73 $
55
44
18
—
(2)
—
—
76
80
48
—
(2)
(1)
—
41
36
16
—
(2)
(24)
—
36 $
28
24
6
—
(1)
—
—
66 $
26
18
8
—
(1)
—
(35)
(4)
20
27
8
—
(2)
—
—
dividends received from discontinued operations
—
(113) (iv)
Adjusted EBITDA
$326 $ 395
(28)
(29)
$247 $154 $120 $
(20)
(11)
82 $
(17)
65 $
(8)
41
(i)
IC Power was incorporated in January 2010. Financial data for the year ended December 31, 2010 reflects the consolidated results of Inkia and OPC
from April 1, 2010 and June 30, 2010, respectively, the time of their transfer to IC Power.
Includes depreciation and amortization expenses from cost of sales and general, selling and administrative expenses.
Includes $68 million of income from gain on bargain purchase and $3 million of income from the measurement of fair value.
(ii)
(iii)
(iv) Excludes $15 million received from Edegel post-equity method accounting, which is reflected as “other income” in our discontinued operations for
that period, but is included in net income (loss) for the period, so is therefore included in Adjusted EBITDA for the period.
4.
Net debt is calculated as total debt, excluding debt owed to our parent, minus cash and short term deposits and restricted cash. Net debt is not a measure
recognized under IFRS. The table below sets forth a reconciliation of our total debt to net debt.
As of December 31,
Total debt (i)
Cash (ii)
Net debt
2014
2015
2013
($ millions)
$2,565 $2,348 $1,669 $1,266 $1,093
392
$1,903 $1,557 $1,143 $1,001 $ 701
2012
662
791
526
265
2011
(i)
(ii)
Total debt comprises loans from banks and third parties and debentures, excluding liabilities of disposal group classified as held for sale and loans
owed to our parent, and includes long term and short term debt.
Includes short-term deposits and restricted cash of $302 million, $208 million, $9 million, $81 million and $171 million at December 31, 2015, 2014,
2013, 2012 and 2011, respectively.
8
Table of Contents
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Our
business,
financial
condition,
results
of
operations
and
liquidity
can
suffer
materially
as
a
result
of
any
of
the
risks
described
below.
While
we
have
described
all
of
the
risks
we
consider
material,
these
risks
are
not
the
only
ones
we
face.
We
are
also
subject
to
the
same
risks
that
affect
many
other
companies,
such
as
technological
obsolescence,
labor
relations,
geopolitical
events,
climate
change
and
risks
related
to
the
conducting
of
international
operations.
Additional
risks
not
known
to
us
or
that
we
currently
consider
immaterial
may
also
impair
our
business
operations.
Our
businesses
routinely
encounter
and
address
risks,
some
of
which
may
cause
our
future
results
to
be
different—sometimes
materially
different—than
we
presently
anticipate.
Risks Related to Our Diversified Strategy and Operations
Some
of
our
businesses
have
significant
capital
requirements.
If
these
businesses
are
unable
to
obtain
sufficient
financing
from
third
party
financing
sources
or
renew
or
refinance
their
working
capital
facilities,
they
may
not
be
able
to
operate,
and
we
may
deem
it
necessary
to
provide
such
capital,
provide
a
guaranty
or
indemnity
in
connection
with
any
financings,
provide
collateral
in
connection
with
any
financings,
including
via
the
cross-collateralization
of
assets
across
businesses,
or
we
may
refrain
from
investing
further
in
any
such
businesses,
all
of
which
may
materially
impact
our
financial
position
and
results
of
operations.
The business plans of our businesses contemplate additional debt or equity financing which is expected to be raised from third parties. However, our
businesses may be unable to raise the necessary capital from third party financing sources, and in this case Kenon would be their only source of funding. For
example, Qoros will require additional cash to further its development and, until it achieves significant sales levels, to meet its operating expenses, financing
expenses, and capital expenditures. For further information on Qoros’ liquidity requirements, see “—Qoros
will
require
additional
capital
resources
to
meet
its
operating
expenses.”
The cash resources on our balance sheet ($58 million) are currently insufficient to fund any significant additional investments in Qoros or our other
businesses, particularly in light of our indirect guarantees of Qoros’ indebtedness. In the event that Qoros or one or more of our other businesses require capital,
either in accordance with their business plans or in response to new developments or to meet operating expenses, and such businesses are unable to raise such
financing, Kenon may (i) issue equity in the form of shares or convertible instruments (through a pre-emptive offering or otherwise), (ii) provide financing to a
business using funds received from the operations or sales of Kenon’s other businesses, (iii) sell part, or all, of its interest in any of its businesses, (iv) raise debt
financing at the Kenon level or (v) provide guarantees or collateral in support of the debt of its businesses. To the extent debt financing is available to it, any debt
financing that Kenon incurs may not be on favorable terms, may require Kenon to agree to restrictive covenants that limit how Kenon manages its investments in
its businesses, and may also limit dividends or other distributions by Kenon. In addition, any equity financing, whether in the form of a sale of shares or convertible
instruments, would dilute existing holders of our ordinary shares and any such equity financing could be at prices that are lower than the current trading prices.
In the future, third party financing sources may also require Kenon to guarantee an individual business’ indebtedness and/or provide additional collateral,
including collateral via a cross-collateralization of assets across businesses. To the extent Kenon guarantees an individual business’ indebtedness, it may divert
funds received from one business to another business. We may also sell some or all of our interests in any of our businesses to provide funding for another
business. Additionally, if we cross-collateralize certain assets (i.e., pledging shares or assets of one of our operating companies to secure debt of another of our
operating companies) in order to provide additional collateral to a lender, we may lose an asset associated with one business in the event that a separate business is
unable to meet its debt obligations. Furthermore, if Kenon provides any of our businesses with additional capital, provides any third parties with indemnification
rights or a guaranty, and/or provides additional collateral, including via cross-collaterization, this could reduce our liquidity. For further information on the capital
resources and requirements of each of our businesses, see “Item
5.B
Liquidity
and
Capital
Resources.”
9
Table of Contents
Qoros
will
require
additional
capital
resources
to
meet
its
operating
expenses.
Qoros commenced commercial operations at the end of 2013. Qoros has incurred losses since inception and is continuing to experience losses and negative
operating cash flow and expects that this will continue until it achieves significantly higher levels of sales. Qoros’ operating expenses, debt service requirements,
capital expenditures and other liquidity requirements are significant. Until Qoros experiences a significant increase in sales, it will continue to require additional
financing, including the renewal or refinancing of its working capital facilities, to meet these expenses and requirements, and there is no assurance that Qoros will
experience an increase in sales in the near-term, if at all.
Qoros has historically relied upon capital contributions, loans, and bank guarantees from its shareholders (Chery Automobile Co. Ltd, or Chery, and Kenon)
to fund its development and operations. Qoros’ shareholders have made equity contributions in the aggregate amount of RMB8.3 billion and loans of RMB1.5
billion, Chery has guaranteed RMB2,200 million principal amount of Qoros debt (plus interest and fees) and Kenon has provided back-to-back guarantees to Chery
for up to RMB1,100 million, plus certain interest and fees. For further information on the risks related to Kenon’s guarantee obligations in respect of Qoros’
indebtedness, see “ —Kenon
has
significant
“back-to-back”
guarantee
obligations
to
Chery
in
respect
of
guarantees
that
Chery
has
given
for
Qoros’
bank
debt
and
has
pledged
a
portion
of
its
interests
in
Qoros
to
secure
Qoros’
bank
debt.”
Qoros’ cash flows from operations are not sufficient to meet its operating expenses and debt service requirements at this time, and it does not expect to
generate sufficient cash flows from operations to meet such liquidity requirements until it achieves a significant increase in sales, and it may not experience an
increase in sales in the near-term or at all. Qoros’ available liquidity and capital resources are limited, and it has significant obligations. As of December 31, 2015,
Qoros had total loans and borrowings (excluding shareholder loans) of RMB6.0 billion and current liabilities (excluding shareholder loans) of RMB4.3 billion,
including trade and other payables of RMB2.6 billion. As of December 31, 2015, Qoros had current assets of RMB1.5 billion, including cash and cash equivalents
of RMB257 million. Qoros has long-term, short-term and working capital credit facilities, but amounts available under such facilities are limited. Qoros actively
manages its trade payables, accrued expenses and other operating expenses in connection with the management of its liquidity requirements and available
resources.
In April 2016, Ansonia Holdings Singapore B.V., or Ansonia, which owns approximately 46% of the outstanding shares of Kenon, entered into a loan
agreement to provide loans of up to $50 million to Qoros to support Qoros’ ordinary course working capital requirements, subject to Wuhu Chery making
corresponding loans. Ansonia and Wuhu Chery are each expected to initially fund approximately $25 million of these loans, with remaining amounts at the
discretion of Ansonia and Wuhu Chery. In light of the investments made by Kenon in Qoros, including guarantees of Qoros’ indebtedness, and Kenon’s strategy to
refrain from material “cross-allocation” (i.e., investing returns from one business into another), Kenon will not make any loans or other investments in Qoros as
part of this transaction. For more information see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Recent
Developments—Qoros—Ansonia’s
Agreement
to
Invest
in
Qoros.”
Qoros is continuing to seek additional financing for its operations.
Qoros will need to secure additional financing to meet its operating expenses (including accounts payable) and debt service requirements. If Qoros is not able
to raise additional financing as required, it may be unable to continue operations, in which case Kenon may lose its entire investment in Qoros and Kenon may be
required to make payments under its back-to-back guarantees to Chery in respect of Qoros’ bank debt. Alternatively, Chery or other investors may choose to make
additional investments in Qoros (without a corresponding Kenon investment) which may result a dilution of Kenon’s interest. See “—Some
of
our
businesses
have
significant
capital
requirements.
If
these
businesses
are
unable
to
obtain
sufficient
financing
from
third
party
financing
sources
or
renew
or
refinance
their
working
capital
facilities,
they
may
not
be
able
to
operate,
and
we
may
deem
it
necessary
to
provide
such
capital,
provide
a
guaranty
or
indemnity
in
connection
with
any
financings,
provide
collateral
in
connection
with
any
financings,
including
via
the
cross-collateralization
of
assets
across
businesses,
or
we
may
refrain
from
investing
further
in
any
such
businesses,
all
of
which
may
materially
impact
our
financial
position
and
results
of
operations
.” above.
Kenon
has
significant
repayment
obligations
under
the
IC
Credit
Facilit
y.
In connection with the spin-off, IC provided Kenon with a $200 million credit facility, or the IC Credit Facility. During the initial five-year term of the IC
Credit Facility, Kenon has agreed to pay IC an annual commitment fee equal to 2.1% of the undrawn amount of the credit facility, which will be capitalized as a
payment-in-kind and added to the outstanding amount of the credit facility. Principal and interest payments accrue annually, and become due and payable in
accordance with the
10
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terms of the credit facility, with interest payments over the first five-years being paid-in-kind. Kenon has pledged 66% of its interest in IC Power Singapore and IC
Power Singapore has pledged 66% of its interest in IC Power to secure Kenon’s obligations under the IC Credit Facility, which is now fully drawn. Kenon may be
required to use a substantial portion of cash flows received from its businesses to make payments to IC in accordance with the IC Credit Facility, which may reduce
Kenon’s ability to advance cash to its businesses or to pay dividends to its shareholders in the future, and Kenon may be unable to generate sufficient cash to make
such payments. If Kenon is unable to fulfill its payment obligations under the terms of the loan, IC could elect to declare all amounts outstanding thereunder
immediately due and payable and terminate all commitments to extend further credit to Kenon. If IC accelerates the repayment of Kenon’s obligations (including
any acceleration resulting if Kenon fails to make payments under its back-to-back guarantees to Chery), Kenon may not have sufficient liquidity to repay such
obligations. For further information on the risks related to Kenon’s guarantee obligations in respect of Qoros’ indebtedness, see “— Kenon
has
significant
“back-
to-back”
guarantee
obligations
to
Chery
in
respect
of
guarantees
that
Chery
has
given
for
Qoros’
bank
debt
and
has
pledged
a
portion
of
its
interests
in
Qoros
to
secure
Qoros’
bank
debt
.” In such circumstances, Kenon would need to raise external financing to repay this facility to avoid losing the shares in IC Power
Singapore that it has pledged.
Kenon may also need to raise debt financing or issue equity, and such issuance could result in a full, or partial, dilution of your direct equity interest in
Kenon or indirect equity interest in Kenon’s businesses. The IC Credit Facility also contains covenants that restrict our ability to make distributions and incur
additional indebtedness. For example, prior to a listing of IC Power Singapore’s equity, the IC Credit Facility prohibits Kenon from distributing dividends to its
shareholders, unless such dividends consist of all, or a portion of, Kenon’s equity interests in ZIM. Additionally, there are further restrictions on dividends
following an initial public offering, or an IPO, or listing of IC Power Singapore. If, at any time after a listing of IC Power Singapore’s equity, we seek to
(i) distribute a dividend to our shareholders (in cash or in kind), (ii) incur additional debt, (iii) sell, transfer, or allocate a portion, or all, of our interest in IC Power
Singapore, or (iv) sell all of IC Power Singapore’s assets, the IC Credit Facility will require the value of Kenon’s remaining interest in IC Power Singapore to be, at
any given time, equal to at least two times Kenon’s net debt (which shall be equal to the outstanding principal amount of the credit facility plus
the outstanding
principal amount of any additional debt owed by Kenon to third parties minus
Kenon’s cash on hand), in each case plus
interest and fees. Kenon’s compliance with
such terms may limit its operating and financial flexibility, which may affect Kenon’s ability to execute its strategy and thereby have a material adverse effect on
Kenon’s business, financial condition, results of operations or liquidity. For further information on the terms of the loan from IC to Kenon, see “ Item
5.B
Liquidity
and
Capital
Resources—Kenon’s
Liquidity
and
Capital
Resources—Kenon’s
Commitments
and
Obligations—IC
Credit
Facility
.”
We have approximately $58 million in cash, and, other than the IC Credit Facility (which we have fully drawn), we have not entered into any other credit
facilities at the Kenon level. We are dependent on our businesses for cash flows from operations and to meet our obligations under the IC Credit Facility and our
other obligations, including our obligations under our back-to-back guarantees to Chery with respect to Qoros’ bank debt. For further information on the risks
related to our dependence on our businesses for our liquidity, see “—We
are
a
holding
company
and
are
dependent
upon
cash
flows
from
our
businesses
to
meet
our
existing
and
future
obligations
.”
Disruptions
in
the
financial
markets
could
adversely
affect
Kenon
or
its
businesses,
which
may
not
be
able
to
obtain
additional
financing
on
acceptable
terms
or
at
all.
Kenon’s businesses may seek to access capital lending markets for various purposes, which may include raising funding for the repayment of indebtedness,
acquisitions, capital expenditures and for general corporate purposes. For example, Kenon’s subsidiary IC Power Singapore has filed a registration statement with
the SEC to register an initial public offering of its shares. The ability of Kenon’s businesses to access capital lending markets, and the cost of such capital, could be
negatively impacted by disruptions in those markets. In 2008, 2009 and 2010, credit markets experienced significant dislocations and liquidity disruptions, and
capital markets in the beginning of 2016 have demonstrated significant volatility. These disruptions impacted other areas of the economy and led to a slowdown in
general economic activity. Similar disruptions in the credit markets could make it more difficult or expensive for our businesses to access the capital or lending
markets if the need arises and may make financing terms for borrowers less attractive or available. Furthermore, a decline in the value of any of our businesses,
which are or may be used as collateral in financing agreements, could also impact their ability to access financing.
Kenon may seek to access the capital or lending markets to obtain financing in the future, including to support its businesses. The availability of such
financing and the terms thereof will be impacted by many factors, including: (i) our financial performance, (ii) our credit ratings or absence of a credit rating,
(iii) the liquidity of the overall capital markets, and (iv) the state of the economy. There can be no assurance that Kenon will be able to access the capital markets
on acceptable terms or at all. If Kenon deems it necessary to access financing and is unable to do so on acceptable terms or at all, this could have a material adverse
effect on our financial condition or liquidity.
11
Table of Contents
We
are
dependent
upon
access
to
the
capital
markets
to
execute
our
strategy
with
respect
to
our
non-primary
interests.
Our strategy may include sales or distributions of our interests in our non-primary businesses. Our ability to distribute or monetize our non-primary
businesses is heavily dependent upon the public equity markets. For example, the ability to realize any value from a business disposition may depend upon our
ability to complete an initial public offering of the business in which such investment is held. Even if the securities of our business are publicly traded, large
holdings of securities can often be disposed of only over a substantial length of time, exposing the investment returns to risks of downward movement in market
prices during the intended disposition period. Accordingly, under certain conditions, we may be forced to either sell our equity interest in a particular business at
lower prices than expected to realize or defer such a sale, potentially for a long period of time.
We
are
a
holding
company
and
are
dependent
upon
cash
flows
from
our
businesses
to
meet
our
existing
and
future
obligations.
We are a holding company of various operating companies, and as a result, do not conduct independent operations or possess significant assets other than
investments in and advances to our businesses. We have significant obligations and limited liquidity, and as a result, we will depend on funds from our businesses
or external financing to meet our obligations.
We have approximately $58 million in cash, and have fully drawn the IC Credit Facility. We will depend on funds from our subsidiaries or associated
companies (or from sales of interests in subsidiaries and associated companies) to repay the IC Credit Facility as well as any interest and fees outstanding on the
loan, and, for so long as the loan remains outstanding, to make payments of interest on the loan and to make any payments we may be required to make under the
back-to-back guarantees we have given to Chery in respect of Qoros’ bank debt. Kenon’s subsidiary IC Power Singapore has filed a registration statement with the
SEC to register and conduct an initial public offering or IC Power Singapore’s shares, and a portion of the proceeds of the offering would be used to repay up to
$220 million of loans owing from IC Power Singapore to Kenon. However, there is no assurance as to when such an IPO would take place, if at all, or that the
proceeds would be applied to repay this obligation to Kenon.
In addition, Kenon has provided back-to-back guarantees to Chery of RMB1,100 million, plus certain interest and fees, in respect of certain of Qoros’
indebtedness. For further information on, and an overview of, each of the guarantees provided by Kenon in respect of Qoros’ debt, see “ Item
5.B
Liquidity
and
Capital
Resources—Kenon’s
Liquidity
and
Capital
Resources—Kenon’s
Commitments
and
Obligations—Back-to-Back
Guarantees
Provided
to
Chery
.” Kenon
may not have sufficient liquidity to pay the full amount of its back-to-back guarantees if it is required to do so. In the event that Kenon is required to make such
payments, it would need to obtain such funds from its businesses, which may include IC Power (via dividends, loans or advances, or the repayment of loans or
advances to us, which may be funded by sales of assets or minority interests in our businesses), or obtain external financing, which may result in dilution of
shareholders (in the event of equity financing) or additional debt obligations for the company (in the event of debt financing). In the event Kenon is required to
make payments on its back-to-back guarantees and does not have sufficient liquidity to do so, there may be a cross-default under the IC Credit Facility, which
would require Kenon to obtain additional financing or obtain such funds from its businesses to pay the outstanding amounts under such facility. In the event that
funds from its businesses or external financing are not available to meet such obligations on reasonable terms or at all, Kenon may need to sell assets to meet such
obligations, and its ability to sell assets may be limited in light of the various pledges over the shares and assets within its most valuable asset, IC Power Singapore.
Any sales of assets may not be at attractive prices, particularly if such sales must be made quickly to meet Kenon’s obligations.
Accordingly, we depend upon the receipt of sufficient funds from our businesses (via dividends, loans or advances, or the repayment of loans or advances to
us) or external financing to satisfy our obligations, including our obligations under the IC Credit Facility, or, if required, to make payments in respect of our back-
to-back guarantees to Chery in respect of Qoros’ indebtedness, and if such funds or financing are not available or sufficient, we may decide to sell interests in our
businesses and use the proceeds resulting therefrom to make payments in respect of these obligations, which could reduce amounts available for distributions to our
shareholders, and may result in our disposition of assets in circumstances where we might otherwise not have considered such dispositions to be in the best interest
of our shareholders.
We have provided loans and guarantees in the past to support our businesses, such as Qoros, and we may provide additional loans to or make investments in
or provide guarantees in support of our businesses. Our liquidity requirements will increase to the extent we make further loans or grant additional guarantees to
support our businesses.
In addition, as our businesses are legally distinct from us and will generally be required to service their debt obligations before making distributions to us,
our ability to access such cash flow from our businesses may be limited in some circumstances and we may not have the ability to cause our entities to make
distributions to us, even if they are able to do so. Additionally, the terms of existing and future joint venture, financing, or cooperative operational agreements
and/or the laws and jurisdictions under which each of our businesses are organized may also limit the timing and amount of any dividends, other distributions, loans
or loan repayments to us. In the case of IC Power, which is a holding company of numerous businesses, its ability to make payments to us may be further limited if
its businesses are unable to make payments to it.
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Table of Contents
Additionally, as dividends are generally taxed and governed by the relevant authority in the jurisdiction in which the company is incorporated, there may be
numerous and significant tax or other legal restrictions on the ability of our businesses, including, for example, IC Power’s businesses and their ability to remit
funds to IC Power or to us, or to remit such funds without incurring significant tax liabilities or incurring a ratings downgrade.
We
do
not
have
the
right
to
manage,
and
in
some
cases
do
not
control,
several
of
our
businesses,
and
therefore
we
may
not
be
able
to
realize
some
or
all
of
the
benefits
that
we
expect
to
realize
from
our
businesses.
As we do not own a majority interest in Qoros, one of our primary assets, or ZIM, we are subject to the operating and financial risks of these business, the
risk that these businesses may make business, operational or financial decisions that we do not agree with, and the risk that we may have objectives that differ from
those of the applicable business itself or its controlling shareholder. Our ability to control the development and operation of these investments may be limited, and
we may not be able to realize some or all of the benefits that we expect to realize from these investments. For example, we may not be able to cause these
businesses to make distributions to us in the amount or at the time that we need or want such distributions.
Furthermore, the loans that Ansonia has agreed to make to our subsidiary Quantum (which will be used by Quantum to make back-to-back loans to Qoros)
will be convertible into equity of Quantum at a 10% discount to the implied value of Qoros based upon the receipt of third-party financing. Accordingly, upon such
conversion, Kenon’s indirect interest in Qoros will be diluted, which will result in economic dilution and Kenon having less control over the Qoros business. In
connection with the loan agreement, Ansonia also has certain consent rights with respect to actions that we take in respect of our interest in Qoros. For further
information on Ansonia’s agreement to invest in Qoros, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Recent
Developments—Qoros—Ansonia’s
Agreement
to
Invest
in
Qoros.
”
In addition, we rely on the internal controls and financial reporting controls of our businesses and the failure of our non-controlled businesses to maintain
effective controls or to comply with applicable standards could make it difficult to comply with applicable reporting and audit standards. For example, the
preparation of our consolidated financial statements requires the prompt receipt of financial statements from each of our subsidiaries and associated companies,
some of whom rely on the prompt receipt of financial statements from each of their subsidiaries and associated companies. Additionally, in certain circumstances,
we may be required to file with our annual report on Form 20-F, or a registration statement filed with the SEC, financial information of associated companies
which has been audited in conformity with SEC rules and regulations and relevant audit standards. We may not, however, be able to procure such financial
statements, or such audited financial statements, as applicable, from our subsidiaries and associated companies and this could render us unable to comply with
applicable SEC reporting standards.
Some
of
our
businesses
are
highly
leveraged.
Some of our businesses are significantly leveraged and may incur additional debt financing in the future. As of December 31, 2015, we had approximately
$2.7 billion of outstanding indebtedness on a consolidated basis, including long-term debt, short-term debt and debentures, and including IC Power’s $2.6 billion of
outstanding indebtedness. As of December 31, 2015, Qoros had outstanding indebtedness of RMB6.0 billion (excluding shareholder loans) (approximately $923
million), and ZIM had outstanding indebtedness of approximately $1.5 billion.
Highly leveraged assets are inherently more sensitive to declines in earnings, increases in expenses and interest rates, and adverse market conditions. A
leveraged company’s income and net assets also tend to increase or decrease at a greater rate than would otherwise be the case if money had not been borrowed.
Consequently, the risk of loss associated with a leveraged company is generally greater than for companies with comparatively less debt. Additionally, a significant
portion of our businesses’ assets (including their interests in certain of their subsidiaries) have been pledged to secure indebtedness, and as a result, the amount of
collateral that is available for future secured debt or credit support and a business’ flexibility in dealing with its secured assets may be limited. For example, certain
of Kallpa’s assets, which represent a significant percentage of IC Power’s assets secure Kallpa’s senior secured credit facility, and IC Power uses a substantial
portion of its consolidated cash flows from operations to make debt service payments, thereby reducing its ability to use its cash flows to fund operations, capital
expenditures, or future business opportunities. Additionally, notwithstanding the completion of its restructuring on July 16, 2014, ZIM remains highly leveraged
and will continue to face risks associated with those of a highly leveraged company.
13
Table of Contents
Our businesses will generally have to service their debt obligations before making distributions to us or to any other shareholder. In addition, many of the
financing agreements relating to the debt facilities or our operating companies contain covenants and limitations, including the following:
•
•
•
•
•
•
•
•
limits on the ratio of debt to EBITDA;
minimum required ratios of EBITDA to interest expense;
minimum equity;
limits on the incurrence of liens or the pledging of certain assets;
limits on the incurrence of subsidiary debt;
limits on the ability to enter into transactions with affiliates, including us;
limits on the ability to pay dividends to shareholders, including us; and
limits on our ability to sell assets, including interests in subsidiaries and associated companies.
If any of our businesses are unable to repay or refinance their indebtedness as it becomes due, or if they are unable to comply with their covenants, we may
decide to sell assets or to take other disadvantageous actions, including (i) reducing financing in the future for investments, acquisitions or general corporate
purposes or (ii) dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on their indebtedness. As a result, the
ability of our businesses to withstand competitive pressures and to react to changes in the various industries in which we operate could be impaired. If we choose
not to pursue any of these alternatives, a breach of any of our businesses’ debt instruments and/or covenants could result in a default under the relevant debt
instrument(s). Upon the occurrence of such an event of default, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and
payable and, in the case of credit facility lenders, terminate all commitments to extend further credit. If the lenders accelerate the repayment of the relevant
borrowings, the relevant business may not have sufficient assets to repay any outstanding indebtedness, which could result in a complete loss of that business for
us. Furthermore, the acceleration of any obligation under a particular debt instrument may permit the holders of other material debt to accelerate their obligations
pursuant to “cross default” provisions, which could have a material adverse effect on our business, financial condition and liquidity.
As a result, our businesses’ degree of leverage could have a material adverse effect on our business, financial condition, results of operations or liquidity.
In addition, we have guarantee obligations with respect to certain Qoros debt and have pledged a portion of our interest in Qoros to support certain Qoros
debt. See “— Kenon
has
significant
“back-to-back”
guarantee
obligations
to
Chery
in
respect
of
guarantees
that
Chery
has
given
for
Qoros’
bank
debt
and
has
pledged
a
portion
of
its
interests
in
Qoros
to
secure
Qoros’
bank
debt.”
Our
success
will
be
dependent
upon
the
efforts
of
a
limited
number
of
directors
and
executive
officers.
Our success will be dependent upon the decision-making of our directors and executive officers as well as the directors and executive officers of our
businesses. The loss of any or all of our directors and executive officers could delay the implementation of our strategies or divert our directors and executive
officers’ attention from our operations which could have a material adverse effect on our business, financial condition, results of operations or liquidity.
Foreign
exchange
rate
fluctuations
and
controls
could
have
a
material
adverse
effect
on
our
earnings
and
the
strength
of
our
balance
sheet.
Through our businesses, we have facilities and generate costs and revenues in a number of geographic regions across the globe. As a result, a significant
portion of our revenue and certain of our businesses’ operating expenses, assets and liabilities, are denominated in currencies other than the U.S. Dollar. The
predominance of certain currencies varies from business to business, with many of our businesses generating revenues or incurring indebtedness in more than one
currency. For example, most of ZIM’s revenues and a significant portion of its expenses are denominated in the U.S. Dollar. However, a material portion of ZIM’s
expenses are denominated in local currencies.
Additionally, we have provided back-to-back guarantees to Chery of RMB1,100 million, plus certain interest and fees, in respect of certain of Qoros’
indebtedness. As a result, we are subject to several arrangements that may expose us to RMB exchange rate fluctuations.
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Table of Contents
Furthermore, our businesses may pay distributions or make payments to us in currencies other than the U.S. Dollar, which we must convert to U.S. Dollars
prior to making dividends or other distributions to our shareholders if we decide to make any distributions in the future. Foreign exchange controls in countries in
which our businesses operate may further limit our ability to repatriate funds from unconsolidated foreign affiliates or otherwise convert local currencies into U.S.
Dollars.
Consequently, as with any international business, our liquidity, earnings, expenses, asset book value, and/or amount of equity may be materially affected by
short-term or long-term exchange rate movements or controls. Such movements may give rise to one or more of the following risks, any of which could have a
material adverse effect on our business, financial condition, results of operations or liquidity:
•
•
•
•
Transaction
Risk
—exists where sales or purchases are denominated in overseas currencies and the exchange rate changes after
our entry into a
purchase or sale commitment but prior
to
the completion of the underlying transaction itself;
Translation
Risk
—exists where the currency in which the results of a business are reported differs from the underlying currency in which the
business’ operations are transacted;
Economic
Risk
—exists where the manufacturing cost base of a business is denominated in a currency different from the currency of the market into
which the business’ products are sold; and
Reinvestment
Risk
—exists where our ability to reinvest earnings from operations in one country to fund the capital needs of operations in other
countries becomes limited.
If
our
businesses
are
unable
to
manage
their
interest
rate
risks
effectively,
our
cash
flows
and
operating
results
may
suffer.
Certain of our businesses’ indebtedness bears interest at variable, floating rates. In particular, some of this indebtedness is in the form of Consumer Price
Index (CPI)-linked, NIS-denominated bonds. We, or our businesses, may incur further indebtedness in the future that also bears interest at a variable rate or at a
rate that is linked to fluctuations in a currency in the form of other than the U.S. Dollar. Although our businesses attempt to manage their interest rate risk, there can
be no assurance that they will hedge such exposure effectively or at all in the future. Accordingly, increases in interest rates or changes in the CPI that are greater
than changes anticipated based upon historical trends could have a material adverse effect on our or any of our businesses’ business, financial condition, results of
operations or liquidity.
Risks Related to the Industries in Which Our Businesses Operate
Current
conditions
in
the
global
economy,
and
in
the
industries
in
which
our
businesses
operate
in
particular,
could
have
a
material
adverse
effect
on
us.
The business and operating results of each of our businesses have been, and will continue to be, affected by worldwide economic conditions, particularly
conditions in the energy generation, passenger vehicle, and shipping industries our businesses operate in. The global economic conditions that began in 2008 have
affected the operating results and profitability of our businesses. These conditions have included slower global economic growth, a credit market crisis, lower levels
of consumer and business confidence, downward pressure on prices, continued high unemployment levels, reduced levels of capital expenditures, fluctuating
commodity prices (specifically prices for electricity, natural gas, heavy fuel oil, bunker, gasoline, and crude oil), bankruptcies, government deficit reduction and
austerity measures, heightened volatility, uncertainties with respect to the stability of the emerging markets, concerns for the economic stability of the United States
and several countries in Europe, budget consolidation measures by governments, and other challenges affecting the global economy. Recent volatility in global
financial markets and in prices for oil and other commodities could result in a continuation or worsening of these conditions. As a result of these conditions, some
of the government and non-government customers of our businesses have experienced deterioration of their businesses, cash flow shortages, and/or difficulty in
obtaining financing. As a result, existing or potential customers may delay or cancel plans to purchase the products and/or services of our portfolio subsidiaries,
including long-term purchases of energy capacity (in the case of IC Power) or purchases of shipping capacity (in the case of ZIM), or may not be able to fulfill their
obligations to us in a timely fashion. Furthermore, the vendors, suppliers and/or partners of each of our businesses may be experiencing similar conditions, which
may impact their ability to fulfill their obligations. In addition, volatility in global fuel prices can affect margins at IC Power. For further information, see “ Risks
Related
to
IC
Power—The
production
and
profitability
of
IPPs
in
Israel
may
be
adversely
affected
by
changes
in
Israel’s
regulatory
environment.
”
Additionally, economic downturns may alter the priorities of governments to subsidize and/or incentivize participation in any of the markets in which our
businesses operate. For example, economic downturns or political dynamics may impact the
15
Table of Contents
availability of financial incentives provided by the Chinese government to Chinese automobile purchases. If slower growth in the global economy continues for a
significant period and/or there is additional significant deterioration in the global economy (as a result of recent volatility in global markets and commodity prices,
or otherwise), such occurrences could have a material adverse effect on our business, financial condition, results of operations or liquidity.
Our
businesses’
operations
expose
us
to
risks
associated
with
conditions
in
those
markets.
Through our businesses, we operate and service customers in a number of geographic regions across the globe, including emerging markets. There are
certain risks inherent in conducting business in emerging markets, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
heightened economic volatility;
difficulty in enforcing agreements, collecting receivables and protecting assets;
the possibility of encountering unfavorable circumstances from host country laws or regulations;
fluctuations in revenues, operating margins and/or other financial measures due to currency exchange rate fluctuations and restrictions on currency and
earnings repatriation;
unfavorable changes in regulated electricity tariffs;
trade protection measures, import or export restrictions, licensing requirements and local fire and security codes and standards;
increased costs and risks of developing, staffing and simultaneously managing a number of foreign operations as a result of language and cultural
differences;
issues related to occupational safety, work hazard, and adherence to local labor laws and regulations;
potentially adverse tax developments;
changes in the general political, social and/or economic conditions in the countries where we operate, particularly in emerging markets;
the threat of nationalization and expropriation;
the presence of corruption in certain countries;
fluctuations in available municipal funding in those instances where a project is government-financed;
terrorist activities; and
cyber-attacks.
If any of our businesses are impacted by any of the aforementioned factors, such an impact could have a material adverse effect on our business, financial
condition, results of operations or liquidity.
We
require
qualified
personnel
to
manage
and
operate
our
various
businesses.
As a result of our decentralized structure, we require qualified and competent management to independently direct the day-to-day business activities of each
of our businesses, execute their respective business plans, and service their respective customers, suppliers and other stakeholders, in each case across numerous
geographic locations. Many of the products and services offered by our businesses are highly technical in nature and may require specialized training or physically
demanding work. Therefore, we must be able to retain employees and professionals with the skills necessary to understand the continuously developing needs of
our customers and to maximize the value of each of our businesses. This includes developing talent and leadership capabilities in the emerging markets in which
certain of our businesses operate, where the depth of skilled employees may be limited. Changes in demographics, training requirements and/or the unavailability
of qualified personnel could negatively impact the ability of each of our businesses to meet these demands. Unpredictable increases in the demand for our goods
and/or services, or the geographical diversity of our businesses, may exacerbate the risk of not having a sufficient number of trained personnel. If any of our
businesses fail to train and retain qualified personnel, or if they experience excessive turnover, we may experience declining sales, production/manufacturing delays
or other inefficiencies, increased recruiting, training or relocation costs and other difficulties, any of which could have a material adverse effect on our business,
financial condition, results of operations or liquidity.
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Table of Contents
Significant
raw
material
shortages,
supplier
capacity
constraints,
production
disruptions,
supplier
quality
and
sourcing
issues
or
price
increases
could
increase
our
operating
costs
and
adversely
impact
the
competitive
positions
of
the
products
and/or
services
of
our
businesses.
The reliance of certain of our businesses on certain third-party suppliers, contract manufacturers and service providers, or commodity markets to secure raw
materials (e.g., natural gas, HFO, and diesel for IC Power and bunker for ZIM), parts, components and sub-systems used in their products or services exposes us to
volatility in the prices and availability of these materials, parts, components, systems and services. Some of these suppliers or their sub-suppliers are limited- or
sole-source suppliers.
For example, Kallpa, the largest IC Power operating company, is party to a natural gas exclusive supply agreement with a consortium of suppliers, pursuant
to which such consortium supplies Kallpa with all of its natural gas requirements based upon a base price, in U.S. Dollars, set on the date of the agreement and
indexed on two producer price indices pursuant to the terms of the agreement. Additionally, Kallpa is party to a natural gas exclusive transportation agreement with
a gas transporter. OPC is party to a natural gas exclusive supply agreement with a consortium of suppliers who, in accordance with a resolution passed by the
Israeli Natural Gas Council, may be required to allocate gas otherwise designated for OPC to other consumers in the event of a capacity shortage. For further
information on the terms and nature of IC Power’s relationships with certain of its raw material suppliers, see “—Risks
Related
to
IC
Power—Supplier
concentration
may
expose
IC
Power
to
significant
financial
credit
or
performance
risk,
particularly
with
respect
to
those
agreements
which
may
expire
during
the
life
of
its
power
plants
” and “ Item
4.B
Business
Overview
—
Our
Businesses—IC
Power—IC
Power’s
Description
of
Operations—IC
Power’s
Raw
Materials
and
Suppliers
.”
For further information on the terms and nature of Qoros’ relationships with certain of its raw material suppliers, see “ —Risks
Related
to
Our
Interest
in
Qoros—Qoros
is
dependent
upon
its
suppliers
” and “ Item
4.B
Business
Overview—Our
Businesses—Qoros
—Qoros’
Sourcing
and
Suppliers
.”
A disruption in deliveries from these and other third-party suppliers, contract manufacturers or service providers, capacity constraints, production
disruptions, price increases, or decreased availability of raw materials or commodities, including as a result of catastrophic events, could have an adverse effect on
the ability of our businesses to meet their commitments to customers or could increase their operating costs. Our businesses could encounter supply problems and
may be unable to replace a supplier that is not able to meet their demand in either the short- or the long-term; these risks are exacerbated in the case of raw
materials or component parts that are sourced from a single-source supplier. Furthermore, quality and sourcing issues experienced by third-party providers can also
adversely affect the quality and effectiveness of our businesses’ products and/or services and result in liability and reputational harm that could have a material
adverse effect on our business, financial condition, results of operations or liquidity.
Some
of
our
businesses
must
keep
pace
with
technological
changes
and
develop
new
products
and
services
to
remain
competitive.
The markets in which some of our businesses operate experience rapid and significant changes as a result of the introduction of both innovative technologies
and services. To meet customer needs in these areas, these businesses must continuously design new, and update existing, products and services, as well as invest
in, and develop new technologies. Introducing new products and technologies requires a significant commitment to research and development that, in return,
requires the expenditure of considerable financial resources that may not always result in success. For example, Qoros recently announced expansion initiatives
which aim to target more effectively the opportunities presented by the significant structural changes impacting the automotive industry. The opportunities Qoros
intends to target are those being created by the shift towards ultra-low and zero emission vehicles, low environmental impact technologies, the growth of alternative
forms of car usage and ownership and the application of self-drive technologies in the field of personal transportation. For further information on Qoros’ new
initiatives, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Recent
Developments—Qoros—Launch
of
New
Business
Divisions.
”
Our sales and profitability may suffer if our businesses invest in technologies that do not operate, or may not be integrated, as expected or that are not
accepted into the marketplace as anticipated, or if their services, products or systems are not introduced to the market in a timely manner, in particular, compared to
its competitors, or become obsolete. Furthermore, in some of these markets, the need to develop and introduce new products rapidly in order to capture available
opportunities may lead to quality problems. Our operating results depend to a significant extent on our ability, and the ability of these businesses, to anticipate and
adapt to changes in markets and to reduce the costs of producing high-quality, new and existing products and services. If we, or any of these businesses, are
unsuccessful in our efforts, such a failure could have a material adverse effect on our business, financial condition, results of operations or liquidity.
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Our
businesses
operate
in
highly
competitive
markets.
The worldwide markets for our services, products and solutions are highly competitive in terms of pricing, service and product quality, development and
introduction time, customer service and financing terms. In many of our businesses, we face downward price pressure and we are or could be exposed to market
downturns or slower growth, which may increase in times of declining investment activities, government incentives and/or consumer demand. We face strong
competitors, some of which are larger and may have greater resources in a given business area, as well as competitors from emerging markets, which may have
better, more efficient cost structures. Some industries in which our businesses operate are undergoing consolidation, which may result in stronger competition and a
change in our relative market position.
For example, in recent years, the power production industry has been characterized by strong and increasing competition with respect to both obtaining long-
term and short-term PPAs—which provide for the sale of electricity, independent of actual generation allocations or provisions of availability, to financially stable
distribution companies or other unregulated consumers—and acquiring existing power generation assets. In certain markets, these factors have caused reductions in
the prices negotiated in PPAs and, in many cases, have caused higher acquisition prices for existing assets through competitive bidding processes. The evolution of
competitive electricity markets and the development of highly efficient power plants have also caused, or are anticipated to cause, price pressure in certain power
markets where IC Power sells or intends to sell power. For example, IC Power expects the generation capacity in Peru to increase at a faster rate than the demand
for such electricity, resulting in an oversupply of capacity and a downward pressure on energy and capacity prices. Additionally, certain competitors might be more
effective and faster in capturing available market opportunities, which in turn may negatively impact IC Power’s market share.
Furthermore, the passenger vehicle market in China is highly competitive, as China has been one of the world’s fastest growing economies, in terms of gross
domestic product, or GDP, in recent years, and has also been the fastest growing among major passenger vehicle markets in the world. Many of the largest global
manufacturers, through joint venture relationships with Chinese manufacturers, and numerous established domestic manufacturers, compete within this market.
Some of these manufacturers have longer operating histories, or may be able to devote greater resources to their operations than Qoros, which may impact Qoros’
competitiveness and ability to increase sales. Additionally, the decline in growth rate that occurred in China in 2015 in connection with volatility in the Chinese
financial markets and a slowdown in the Chinese economy resulted in increased competition in China’s automotive market through price reductions, which has
resulted in reduced margins. In response to market conditions, in February 2016, Qoros announced suggested retail price reductions of approximately 10% on its
existing models. In addition to reducing margins, increased competition may make it difficult for Qoros to increase sales.
In addition, the container shipping industry is highly competitive, with the top three carriers in terms of global capacity—A.P. Moller-Maersk Group,
Mediterranean Shipping Company and CMA CGM S.A.—accounting for approximately 37% of global capacity, and the remaining carriers each contributing less
than 5% of global capacity as of December 2015. Certain of ZIM’s large competitors may be better positioned and have greater financial resources than ZIM and
may therefore be able to offer more attractive schedules, services and rates to attract and retain customers. In addition, there has been an increase in mergers and
acquisitions within the container shipping industry in recent years, which has further concentrated global capacity among certain of ZIM’s competitors. If one of
ZIM’s competitors expands its market share in a market in which ZIM operates, or intends to enter, through a merger or acquisition, or otherwise, this could have a
material adverse effect on ZIM’s market share.
Any of these factors alone, or in combination, may negatively impact one or more of our businesses and thereby have a material adverse effect on our
business, financial condition, results of operations or liquidity.
Our
businesses
may
be
adversely
affected
by
work
stoppages,
union
negotiations,
labor
disputes
and
other
matters
associated
with
our
labor
force.
As of December 31, 2015, we, and our consolidated businesses, employ, directly and indirectly, approximately 1,361 employees. Qoros and ZIM directly
employed 1,772 and 4,050 employees, respectively, as of December 31, 2015. Our operating companies could experience strikes, industrial unrest, or work
stoppages. For example, in June and November 2015, COBEE’s facilities in Bolivia experienced a brief strike. Although the strikes at COBEE’s facilities did not
result in a work stoppage or have a material effect on IC Power’s results of operations, there can be no assurance that future strikes or industrial unrest will not
occur or lead to a work stoppage which could have an effect adverse effect on IC Power’s results of operations.
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Table of Contents
Additionally, ZIM, which employs, directly and indirectly, 4,050 employees around the globe, could experience strikes, industrial unrest or work stoppages.
A significant portion of ZIM’s Israeli employees and employees of the ports ZIM uses are members of unions. In April and May 2014, ZIM experienced labor
strikes as a result of disagreements related to ZIM’s operational and financial restructuring plans and other employee concerns. Collective bargaining agreements
addressing certain of these concerns were entered into in November 2014 and January 2015.
Disruptions in the operations of any of our businesses as a result of labor stoppages or strikes may also occur in the future and, if so, such disruptions could
materially and adversely affect our or the relevant businesses’ reputation and could adversely affect operations. Additionally, a work stoppage at any one of the
suppliers of any of our businesses could materially and adversely affect our operations if an alternative source of supply were not readily available. Stoppages by
employees of our customers could also result in reduced demand for our products or services which could have a material adverse effect on our business, financial
condition, results of operations or liquidity.
The
activities
of
certain
of
our
businesses
may
be
impacted
by
the
geopolitical,
economic
and
security
conditions
in
Israel
and
the
Middle
East.
Some of our businesses are incorporated, and certain of the operations of our businesses are located, in Israel. Therefore, the existing security, economic and
geopolitical conditions in Israel and the Middle East could affect our existing relationships with certain foreign corporations, as well as affect the willingness of
potential partners to enter into transactions or business relationships with Israeli companies, particularly our businesses that are based in or have facilities which are
located in Israel. Since July 2014, for example, ZIM’s west coast operations have been subject to political activity which, in certain instances, had immaterial
effects on ZIM’s operational activities. Additionally, numerous countries, corporations and organizations around the globe limit their business activities in Israel
and their business ties with Israeli-based companies. For example, ZIM’s status as an Israeli company has limited, and may continue to limit, ZIM’s ability to call
on certain ports and has therefore impacted, and may continue to impact, ZIM’s ability to enter into alliances and operational partnerships with other shipping
companies. Additionally, Israel has been and is subject to terrorist activity, with varying levels of severity. Parties with whom we or our businesses do business
have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements where necessary.
Developments in the political and security situation in Israel may also result in parties with whom we have agreements claiming that they are not obligated to
perform their commitments under those agreements pursuant to force majeure provisions. Although the number of businesses limiting their ties to Israel is
decreasing, any deterioration in the security or geopolitical conditions in Israel and/or the Middle East could adversely impact our business relationships and
thereby have a material adverse effect on our business, financial condition, results of operations or liquidity.
Israel’s geopolitical situation has led to security issues and, as a result, our Israel-based operations or associated companies, including IC Power, its
subsidiaries OPC and AIE, and ZIM may be exposed to hostile activities (including harm to computer systems or, with respect to IC Power’s operations or
development projects, attacks on critical infrastructure, such as gas transmission systems or pipelines), security restrictions connected with Israeli
bodies/organizations overseas, possible isolations by various bodies for numerous political reasons, and other limitations (such as a prohibition against entering into
specific ports). Certain of OPC’s, AIE’s or ZIM’s employees in Israel are also subject to being called upon to perform military service in Israel, and their absence
may have an adverse effect upon the operations of the relevant business. Generally, unless exempt, male adult citizens of Israel under the age of 41 are obligated to
perform up to 36 days of military reserve duty annually and are subject to being called to active duty at any time under emergency circumstances. Furthermore,
while OPC is classified as an “essential facility” by the State of Israel, and therefore, certain of its key employees are exempt from military service in times of
emergency, OPC’s employees may be subject to being called upon to perform military service should OPC lose this classification. Additionally, ZIM’s owned and
chartered vessels, including those vessels that do not sail under the Israeli flag, may be subject to control by the authorities of the State of Israel in order to protect
the security of or bring essential supplies and services to the State of Israel. Israeli legislation also allows the State of Israel to use ZIM’s vessels in times of
emergency.
Any of the aforementioned events and conditions could disrupt IC Power’s or ZIM’s operations, which could, in turn, have a material adverse effect on our
business, financial condition, results of operations or liquidity.
We,
and
each
of
our
businesses,
face
cyber-security
risks.
Our business operations, and the operations of our various operating companies, rely upon secure information technology systems for data processing,
storage and reporting. As a result, we, and our businesses, maintain information security policies and procedures for managing such information technology
systems. Despite careful security and controls design, implementation and updating, such security measures may be ineffective and our information technology
systems, or those of our businesses, may be subject to cyber-attacks, including malicious software, network, system, application and data breaches and such cyber-
security breaches may result in operational disruptions or information misappropriation.
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Table of Contents
Furthermore, ZIM and IC Power’s subsidiaries OPC and AIE may be at greater risk for cyber-attacks due to their status as Israeli corporations, as a number
of Israeli corporations have been the subject of recent cybersecurity attacks. For example, in January 2016, Israel’s Electricity Authority, or the EA, was the subject
of one of the largest cyber-attacks in Israeli history and had to shut down several of its systems in order to address the cyber-attack. Should Kenon or any of its
operating businesses experience a cyber-attack, this could have a material adverse effect on our, or any of our operating companies’, business, financial condition
or results of operation. For further information on the risks related to IC Power’s information technology systems, see “— The
interruption
or
failure
of
IC
Power’s
information
technology,
communication
and
processing
systems
or
external
attacks
and
invasions
of
these
systems
could
have
an
adverse
effect
on
IC
Power
.”
Risks Related to Legal, Regulatory and Compliance Matters
We,
and
each
of
our
businesses,
are
subject
to
legal
proceedings
and
legal
compliance
risks.
We are subject to a variety of legal proceedings and legal compliance risks in virtually every part of the world. We, our businesses, and the industries in
which we operate, are periodically reviewed or investigated by regulators and other governmental authorities, which could lead to enforcement actions, fines and
penalties or the assertion of private litigation claims and damages. Changes in laws or regulations could require us, or any of our businesses, to change manners of
operation or to utilize resources to maintain compliance with such regulations, which could increase costs or otherwise disrupt operations. Protectionist trade
policies and changes in the political and regulatory environment in the markets in which we operate, such as foreign exchange import and export controls, tariffs
and other trade barriers and price or exchange controls, could affect our businesses in several national markets, impact our profitability and make the repatriation of
profits difficult, and may expose us or any of our businesses to penalties, sanctions and reputational damage. In addition, the uncertainty of the legal environment in
some regions could limit our ability to enforce our rights.
While we intend to adopt, and believe that each of our businesses have adopted, appropriate risk management and compliance programs, the global and
diverse nature of our operations means that legal and compliance risks will continue to exist and additional legal proceedings and other contingencies, the outcome
of which cannot be predicted with certainty, will arise from time to time. No assurances can be made that we will be found to be operating in compliance with, or
be able to detect violations of, any existing or future laws or regulations. A failure to comply with or properly anticipate applicable laws or regulations could have a
material adverse effect on our business, financial condition, results of operations or liquidity.
We
could
be
adversely
affected
by
violations
of
the
U.S.
Foreign
Corrupt
Practices
Act
and
similar
anti-bribery
laws
outside
of
the
United
States.
The U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery laws in other jurisdictions generally prohibit companies and their
intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Recent years have seen
a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both the U.S.
Department of Justice and the SEC, increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against
companies and individuals. Our policies mandate compliance with these anti-bribery laws. We operate, through our businesses, in many parts of the world that are
recognized as having governmental and commercial corruption. Additionally, because many of our customers and end users are involved in infrastructure
construction and energy production, they are often subject to increased scrutiny by regulators. We cannot assure you that our internal control policies and
procedures will protect us from reckless or criminal acts committed by our employees, the employees of any of our businesses, or third party intermediaries. In the
event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we
may decide or be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant
time and attention from senior management. Violations of these laws may result in criminal or civil sanctions, inability to do business with existing or future
business partners (either as a result of express prohibitions or to avoid the appearance of impropriety), injunctions against future conduct, profit disgorgements,
disqualifications from directly or indirectly engaging in certain types of businesses, the loss of business permits or other restrictions which could disrupt our
business and have a material adverse effect on our business, financial condition, results of operations or liquidity.
Our global operations necessitate the importation and exportation of goods and technology across international borders on a regular basis. From time to time,
we, or our businesses, obtain or receive information alleging improper activity in connection with such imports or exports. Our policy mandates strict compliance
with applicable trade laws. Nonetheless, we cannot provide assurance that our policies and procedures will always protect us from actions that would violate U.S.
and/or
20
Table of Contents
foreign laws. Such improper actions could subject us to civil or criminal penalties, including material monetary fines, denial of import or export privileges, or other
adverse actions. The occurrence of any of the aforementioned factors could have a material adverse effect on our business, financial condition, results of operations
or liquidity.
In addition, our subsidiary IC Power has made acquisitions in recent years and has recently acquired a new business in Guatemala. We face risks with respect
to compliance with the FCPA and similar anti-bribery laws through our acquisition of new companies and the due diligence we perform in connection with an
acquisition may not be sufficient to enable us fully to assess an acquired company’s historic compliance with applicable regulations.
Certain
of
our
businesses
are
subject
to
regulatory
restrictions
relating
to
ties
with
hostile
entities
and/or
countries.
As a result of their international activities and operations in various industries worldwide, certain of our businesses are exposed to regulations in Israel and in
other countries governing business relations with hostile entities or countries. We have taken, and will continue to take, measures to ensure our compliance with
such regulations. Despite our best precautions, however, the wide-reaching business activities of our businesses may expose us to sanctions, which could have a
material adverse effect on our business, financial condition, results of operations or liquidity.
Risks Related to IC Power
IC
Power’s
results
of
operations
and
financial
condition
are
dependent
upon
the
economic,
environmental,
social
and
political
conditions
in
those
countries
in
which
IC
Power
operates.
IC Power has operating assets, and assets in advanced stages of construction, in 11 countries, including emerging markets, and it expects to have additional
development projects in these or other countries. As a result, IC Power’s results of operations are dependent upon the economic, social and political conditions in
each of the countries in which it operates, and IC Power is exposed to a variety of risks, including risks related to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
heightened economic volatility;
difficulty in enforcing agreements, collecting receivables and protecting assets;
difficulty in obtaining authorizations, permits and licenses required for the operation of its assets;
the possibility of encountering unfavorable circumstances from host country laws or regulations;
fluctuations in revenues, operating margins and/or other financial measures due to currency exchange rate fluctuations and restrictions on currency and
earnings repatriation;
trade protection measures, import or export restrictions, licensing requirements and environmental, local fire and security codes and standards;
increased costs and risks of developing, staffing and simultaneously managing a number of foreign operations as a result of language and cultural
differences;
issues related to occupational safety, work hazard, and adherence to local labor laws and regulations;
potentially adverse tax developments or interpretations;
changes in political, social and/or economic conditions;
the threat of nationalization and expropriation;
the presence of corruption in certain countries;
fluctuations in the availability of funding;
a potential deterioration in IC Power’s relationships with the different stakeholders in the communities surrounding its facilities; and
terrorist or other hostile activities.
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Table of Contents
Additionally, IC Power’s revenue is derived primarily from the sale of electricity, and the demand for electricity is largely driven by the economic, political
and regulatory conditions of the countries in which IC Power operates. Therefore, IC Power’s results of operations and financial condition are, to a large extent,
dependent upon the overall level of economic activity in these emerging market countries. Should economic or political conditions deteriorate in Peru, or in any of
the other countries in which IC Power operates, or in emerging markets generally, such an occurrence could have a material adverse effect on IC Power’s business,
financial condition, results of operations or liquidity.
IC
Power
operates
in
highly
competitive
markets.
The worldwide markets for power generation are highly competitive in terms of pricing, quality, development and introduction time, customer service and
financing terms. In many of the markets in which IC Power operates, it faces downward price pressure and it is or could be exposed to market downturns or slower
growth, which may increase in times of declining investment activities, government incentives and/or consumer demand. IC Power faces strong competitors, some
of which are larger and may have greater resources in a given business area than it has, as well as competitors from emerging markets, which may have better, more
efficient cost structures.
For example, IC Power has two assets in advanced stages of construction in Peru—CDA and Samay I—which it expects to collectively provide 1,110 MW
of capacity. IC Power expects generation capacity and, to a lesser extent, the demand for electricity, to increase in Peru. As the increase in demand is expected to be
less than the increase in capacity, this oversupply in the Peruvian market is expected to affect the price levels in Peru. As IC Power sells energy and capacity on the
spot market in Peru and expects to enter into, and renegotiate, PPAs during this period of downward pressure on energy prices, the oversupply in the Peruvian
market may adversely affect IC Power’s business or results of operations.
Additionally, in recent years, the power production industry has been characterized by strong and increasing competition with respect to obtaining long-term
and short-term PPAs—which provide for the sale of electricity, independent of actual generation allocations or provisions of availability, to financially stable
distribution companies or other non-regulated consumers—and acquiring existing power generation assets. In certain markets, these factors have caused reductions
in the prices negotiated in PPAs and, in many cases, have caused higher acquisition prices for existing assets through competitive bidding processes. The evolution
of competitive electricity markets and the continued development of highly efficient gas-fired power plants have also caused, or are anticipated to cause, price
pressure in certain power markets where IC Power sells or intends to sell power. Certain competitors might be more effective and faster in capturing available
market opportunities, which in turn may negatively impact IC Power’s market share.
Any of these factors alone, or in combination, may negatively impact one or more of IC Power’s businesses and thereby have a material adverse effect on its
business, financial condition, results of operations or liquidity.
IC
Power
primarily
operates,
and
expects
to
continue
to
primarily
operate,
in
emerging
markets.
IC Power has operations in a number of emerging markets, including Peru, Guatemala, Chile and Colombia. Investing in the securities of a company with
operations in emerging markets generally involves a higher degree of risk than investing in the securities of a company with operations in a more developed
market. For example, IC Power is subject to increased political, social and economic instability, which may affect the economic results of the emerging markets in
which it operates and which stems from many factors, including:
•
•
•
•
•
•
•
•
high interest rates;
abrupt changes in currency values;
high levels of inflation;
exchange controls;
wage and price controls and increased employment-related regulations;
regulations on imports of equipment and other necessities (goods and services) relevant to operations;
changes in governmental, economic or tax policies; and
social and political tensions,
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Table of Contents
any of which could have a material adverse effect on its financial condition, results of operations or liquidity.
IC
Power
is
a
holding
company
and
is
dependent
upon
cash
flows
from
its
subsidiaries
to
meet
its
existing
and
future
obligations.
IC Power is a holding company of various operating companies, and as a result, does not conduct independent operations or possesses significant assets other
than investments in its businesses. Therefore, IC Power depends upon the receipt of sufficient funds from its businesses (via dividends or loans) to meet its
obligations, including to contribute committed capital to its businesses, repay any amounts it may borrow in the future, and to pay dividends or other distributions
to IC Power’s shareholders. However, as IC Power’s corporate structure includes several intermediate holding companies which, along with IC Power’s operating
businesses, are legally distinct from IC Power, such businesses will generally be required to service their debt obligations before making distributions to IC Power.
Therefore, IC Power’s ability to access such cash flow from its businesses may be limited in some circumstances and it may not have the ability to cause its entities
to make distributions to it, even if they are able to do so. Additionally, the terms of existing and future joint ventures, financings, or cooperative operational
agreements and/or the laws and jurisdictions under which each of IC Power’s businesses is incorporated may also limit the timing and amount of any dividends,
other distributions, loans or loan repayments to IC Power.
Additionally, as dividends are generally taxed and governed by the relevant authority in the jurisdiction in which the company is incorporated or where the
company is a tax resident, there may be numerous and significant tax or other legal restrictions on the ability of IC Power’s businesses to remit funds to it, or to
remit such funds without IC Power’s, or its businesses’, incurring significant tax liabilities or incurring a ratings downgrade.
IC
Power
is
significantly
leveraged.
As of December 31, 2015, IC Power had $2,565 million of outstanding indebtedness on a consolidated basis. In January 2016, IC Power completed the
acquisition of Energuate, which it funded, in part, with a $120 million credit facility which it entered into in December 2015, and which was fully drawn in
connection with the completion of the acquisition. IC Power also assumed Energuate’s debt of $289 million as of January 22, 2016. Some of IC Power’s debt
agreements include financial covenants, affirmative and negative covenants, and/or events of default or mandatory prepayments for contractual breaches, change of
control events, and/or material mergers and divestments, among other provisions.
IC Power uses a substantial portion of its cash flow from operations or investing activities to make debt service payments, reducing IC Power’s ability to use
cash flow to fund its operations, capital expenditures or future business opportunities. In addition, a number of IC Power’s credit facilities are secured. For
example, Kallpa’s senior secured credit facility, Kallpa’s capital leases, and the OPC financing agreement are secured by certain of the assets of those companies.
The pledge of a significant percentage of IC Power’s assets to secure its debt has reduced the amount of collateral that is available for future secured debt or credit
support as well as its flexibility in dealing with these secured assets. This level of indebtedness and related security, as well as the terms governing such
indebtedness, could have other important consequences for IC Power, including:
•
•
•
•
•
•
increasing IC Power’s vulnerability to general adverse economic and industry conditions;
limiting IC Power’s flexibility in planning for, or reacting to, changes in its business and the industry;
limiting IC Power’s ability to enter into long-term power sales or fuel purchases which require credit support;
limiting IC Power’s ability to adjust to changing market conditions and placing IC Power at a competitive disadvantage compared to its competitors
that are not as highly leveraged;
limiting IC Power’s ability to distribute dividends or other payments to its shareholders without leading to a downgrade of its outstanding indebtedness
or long-term corporate ratings, if at all; and
limiting, along with the financial and other restrictive covenants relating to such indebtedness, among other things, IC Power’s ability to borrow
additional funds for working capital including collateral postings, capital expenditures, acquisitions and general corporate or other purposes.
IC Power also provides performance, and other, guarantees, from time to time, in support of the financing and development of certain of its operating
companies. As of December 31, 2015, IC Power had provided performance, or other, guarantees in an aggregate amount of $137 million.
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IC
Power
may
be
unable
to
refinance
its
existing
indebtedness
or
raise
additional
indebtedness
on
favorable
terms,
or
at
all.
IC Power may need to refinance all, or a portion of, its indebtedness on or before the respective maturity dates. The ability to refinance any such
indebtedness, obtain additional financing or comply with its existing lenders’ requirements will depend on, among other things:
•
•
•
•
IC Power’s financial condition, or the financial condition of its relevant subsidiaries, at the time of the proposed refinancing;
the amount of financing outstanding and lender requirements outstanding at the time of the proposed refinancing;
restrictions in any of IC Power’s credit agreements, indentures, or other outstanding indebtedness; and
other factors, including the condition of the capital markets.
If IC Power does not have adequate access to credit, it may be unable to refinance its existing borrowings and credit facilities on commercially reasonable
terms and may be forced to raise financing at a higher cost or on less favorable terms ( e.g.
, by providing collateral, security or guarantees to lenders and/or
accepting higher interest rates) when its existing indebtedness matures. Additionally, if IC Power is not able to refinance any of its indebtedness and does not
generate sufficient cash flow from operations, and additional borrowings or refinancings or proceeds of asset sales are not available to IC Power, it may not have
sufficient cash to enable it to meet all of its obligations. Should future access to capital be unavailable to IC Power, it may have to sell assets or decide not to build
new plants or expand or improve existing facilities, any of which could affect IC Power’s future growth.
If
IC
Power
is
unable
to
manage
its
interest
rate
risks
effectively,
its
cash
flows
and
operating
results
may
suffer.
As IC Power continues to draw down on its credit facilities with third parties and raise additional third party financing to fund its capital expenditures
(including development projects and acquisitions), it may experience an increase in interest costs. Many of the debt agreements of IC Power’s operating companies
have floating interest rates ( e.g.
, many of the debt instruments are tied to London Interbank Offered Rate, or LIBOR) and a continued increase in interest rates
could increase the cost of the capital required to continue to fund IC Power’s development and expansion efforts. In particular, some of this indebtedness is in the
form of CPI-linked, NIS-denominated bonds. IC Power, or its businesses, may incur further indebtedness in the future that also bears interest at a variable rate or at
a rate that is linked to fluctuations in a currency other than the U.S. Dollar.
Although IC Power’s businesses attempt to manage their interest rate risk by entering into interest rate swaps, there can be no assurance that they will hedge
such exposure effectively, in full, or at all in the future. Accordingly, increases in interest rates or changes in the CPI could have a material adverse effect on IC
Power’s or any of its businesses’ business, financial condition, results of operations or liquidity.
IC
Power’s
expansion,
development
and
acquisition
strategy
may
be
limited.
IC Power’s growth strategy contemplates (1) the expansion, construction or development of power generation facilities and (2) the acquisition and
development of generation and distribution companies in key growth markets. The ability to pursue such growth opportunities successfully will depend upon IC
Power’s ability to identify projects and properties suitable for expansion, construction or acquisitions, and negotiate purchase or engineering, procurement and
construction agreements on commercially reasonable terms. Due to growing environmental restrictions, transmission line saturation, obstacles for fuel
transportation and a scarcity of sites in which new plants may be located, the development of new assets in the countries in which IC Power operates—such as
CDA, Samay I, Kanan and AIE—and in the countries in which IC Power may operate in the future, are subject to increased developmental competition and involve
higher development costs than in the past, which could have an adverse impact on its strategy and business.
Additionally, IC Power relies significantly on its ability to successfully access the capital markets as a source of liquidity and such reliance may be increased
to the extent that IC Power utilizes cash from its operations to distribute funds to its shareholders or repay loans. IC Power’s ability to arrange financing with no or
limited recourse, and the costs of such capital, are dependent upon numerous factors, some of which are beyond its control. Commercial lending institutions
sometimes refuse to provide financing in certain less developed economies, and in these situations IC Power may seek direct or indirect (through credit support or
guarantees) project financing from a limited number of multilateral or bilateral international financial institutions or agencies. As a pre-condition to making such
project financing available, the lending institutions may also require sponsor guarantees for completion risks and governmental guarantees of certain business and
sovereign related
24
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risks. However, the financing from international financial agencies or governmental guarantees required to complete projects may not be available when needed. If
so, IC Power may have to abandon potential projects or invest more of its own funds, which may not be in line with its investment objectives and would leave less
funds for other investments and projects.
An inability to identify and source appropriate projects / acquisitions, negotiate the agreements relating to such projects / acquisitions, or secure the
necessary funding, could have an adverse impact on IC Power’s strategy and, as a result, could have a material adverse effect on its business.
IC
Power’s
assets
in
advanced
stages
of
construction
may
not
be
completed
or,
if
completed,
may
not
be
completed
on
time
or
perform
as
expected.
IC Power is in the advanced stages of constructing the CDA plant, a run-of-the-river hydroelectric project on the Mantaro River in central Peru, the Samay I
plant, a cold-reserve open-cycle diesel and natural gas (dual-fired) thermoelectric plant in Mollendo, Arequipa, in southern Peru and Kanan, a thermal generation
project in Panama.
There can be no assurance that CDA, Samay I or Kanan will reach its COD in accordance with IC Power’s current expectations. Any of the CDA, Samay I
or Kanan plants may not be completed within IC Power’s expected costs or in a timely fashion, or at all, and developmental delays could result in increased costs or
breaches of the PPAs relating to these assets. In the case of the CDA plant, an additional minor delay in the completion of the CDA plant could result in an inability
to fulfill IC Power’s obligations under its PPAs (as is currently the case with Kanan) or an obligation to purchase energy on the spot market in order to meet its
contractual obligations under the relevant PPAs, which may reduce IC Power’s anticipated revenues or margins. For further information on the timing and the
construction of the CDA and Samay I plants, see “ Item
4.B
Business
Overview—Our
Businesses—IC
Power—IC
Power’s
Description
of
Operations—Peru
Segment—Cerro
del
Aguila
(CDA)
” and “ Item
4.B
Business
Overview—Our
Businesses—IC
Power—IC
Power’s
Description
of
Operations—Peru
Segment—
Samay
I
,” respectively.
If IC Power’s construction efforts with respect to the CDA or Samay I plants are not successful, or are delayed, IC Power may, notwithstanding any
liquidated damages to which IC Power is entitled to in accordance with its EPC contracts for these projects, incur penalties or additional costs, or abandon the
project and write-off the costs incurred in connection with such project. At the time of abandonment, IC Power would expense all capitalized development costs
incurred in connection therewith and may incur additional losses associated with any related contingent liabilities, the occurrence of which could have a material
adverse effect on its business, financial condition, results of operations or liquidity.
Proposed
and
potential
construction
or
development
projects
may
not
be
completed
or,
if
completed,
may
not
be
completed
on
time
or
perform
as
expected.
IC Power plans to expand its operations through projects constructed on unused land, or greenfield projects. Greenfield projects require IC Power to spend
significant sums on engineering, permitting, legal, financial advisory and other expenses in preparation for competitive bids that IC Power may not win or before
IC Power determines whether a development project is even feasible, economically attractive or capable of being financed. These activities consume a portion of IC
Power’s management’s focus and could increase IC Power’s leverage or reduce its consolidated profitability.
Furthermore, once IC Power decides to proceed with a project and, if applicable, enter into a turnkey agreement to commence the construction of a project,
its development and construction still involve numerous additional risks, including:
•
•
•
•
•
•
•
•
unanticipated cost overruns;
claims from contractors;
an inability to obtain financing at affordable rates or at all;
delays in obtaining necessary permits and licenses, including environmental permits;
unforeseen engineering, environmental and geological problems;
adverse changes in the political and regulatory environment in the country in which the project is located;
opposition by political, environmental and other local groups;
shortages or increases in the price of equipment, materials or labor;
25
Table of Contents
•
•
•
work stoppages or other labor disputes;
adverse weather conditions, natural disasters, accidents or other unforeseen events; and
an inability to perform under PPAs as a result of any delays in the assets becoming operational.
Any of these risks could result in IC Power’s financial returns on its projects being lower than expected, or could cause IC Power to operate below expected
capacity or availability levels. This, in turn, could result in IC Power’s experiencing lost revenues and/or increased expenses. Although IC Power maintains
insurance to protect against some of these risks, such insurance may not be sufficient. As a result, projects may cost more than anticipated and IC Power may be
unable to fund principal and interest payments underlying its construction financing obligations, if any. In addition, a default under such a financing obligation
could result in IC Power losing its interest in a power generation facility.
In August 2015, IC Power acquired 100% of the shares of AIE from Hadera Paper for NIS 60 million (approximately $16 million). AIE, which currently
operates an 18 MW steam turbine, holds a conditional license for the construction of a cogeneration power station in Israel. As part of the acquisition, IC Power
will need to complete the construction of AIE’s facilities, which IC Power expects will cost approximately $250 million (including the consideration paid for the
acquisition of AIE). The project is in the advanced development stage, construction is expected to commence in mid-2016, and the AIE plant, which is expected to
have a capacity of 135 MW, is expected to reach its COD in the second half of 2018. However, there is no guarantee that IC Power will be able to finance the AIE
project or commence or complete AIE’s construction within a timely fashion, at the expected cost, or at all.
Acquisitions
may
not
perform
as
expected.
IC Power has recently completed several acquisitions and plans to continue to develop its portfolio through acquisitions in certain attractive markets,
including those in which IC Power does not currently operate. For example, in January 2016, IC Power completed its acquisition of Energuate, which consists of
two Guatemalan distribution companies, as well as two smaller related businesses.
Acquisitions require IC Power to spend significant sums on legal, financial advisory and other expenses and consume a portion of its management’s focus.
Acquisitions may increase IC Power’s leverage or reduce its profitability. Future acquisitions may be large and complex, and IC Power may not be able to complete
them successfully or, if completed successfully, such acquisitions may not be completed at the cost or in the time frame in which they are expected.
Although acquired businesses may have significant operating histories at the time IC Power acquires them, IC Power will have no history of owning and
operating these businesses and potentially limited or no experience operating in these particular lines of business, or operating businesses in the countries in which
these acquired businesses are located. For example, IC Power has not previously operated or owned companies within the distribution sector, and this may affect IC
Power’s ability to effectively operate Energuate. Future growth in revenues, earnings and cash flow will be partly dependent on future economic conditions and
conditions in the Guatemalan electricity distribution industry and IC Power’s ability to operate within this industry. With respect to IC Power’s recent acquisition
of Energuate and other acquisitions IC Power has made, as well as any other acquisition which IC Power may consummate in the future:
•
•
•
•
•
•
acquired businesses may not perform as expected;
IC Power may incur unforeseen obligations or liabilities;
for a generation business, the fuel supply needed to operate the acquired business at full capacity may not be available;
acquired businesses may not generate sufficient cash flow to support the indebtedness existing at acquisition, the indebtedness incurred to acquire
them or the capital expenditures needed to operate them;
the rate of return from acquired businesses may be lower than anticipated in IC Power’s decision to invest its capital to acquire them;
any benefits gained may not outweigh the management and personnel resources which will need to be diverted from IC Power’s operations to achieve
those benefits; and
26
Table of Contents
•
IC Power may not be able to expand as planned or to integrate the acquired company’s activities and achieve the economies of scale and any expected
efficiency or other gains IC Power had planned, which often drive such acquisition decisions.
IC
Power’s
generation
companies
may
not
be
able
to
enter
into,
or
renew
existing,
long-term
contracts
for
the
sale
of
energy
and
capacity,
contracts
which
reduce
volatility
in
IC
Power’s
results
of
operations.
IC Power’s generation companies sell a substantial majority of their energy under long-term PPAs. IC Power’s generation companies rely upon PPAs with a
limited number of customers for the majority of their energy sales and revenues over the term of such PPAs, which typically range from one to 15 years. Some of
IC Power’s generation companies’ long-term PPAs are at prices above current spot market prices. Depending on market conditions and regulatory regimes, it may
be difficult for IC Power’s generation companies to secure long-term PPAs with new customers, renew existing long-term PPAs as they expire, or enter into long-
term PPAs to support the development of new projects. As a result, IC Power’s generation companies have been, and may continue to be required to sell capacity
on the spot market at the rates dictated by such market. In addition, in December 2011, the Bolivian government amended the applicable law to prohibit generation
companies from entering into new PPAs. As a result, IC Power will be unable to extend or replace COBEE’s current PPA, under which IC Power has contracted
18.9% of COBEE’s installed capacity, when it expires in October 2017.
When the distribution companies in El Salvador organize tenders under the supervision of the SIGET for new long-term PPAs, the bidding rules generally do
not permit the participation of HFO-fired generators, such as Nejapa, in tenders for PPAs with terms in excess of five years. An increase in the availability of, and
demand for, renewable energy in the other countries in which IC Power’s generation companies operate could lead to similar prohibitions in those countries and a
further reduction in their ability to enter into long-term PPAs.
Furthermore, the introduction of a more efficient energy generation technology could adversely affect the competitiveness of gas-fired energy plants, such as
Kallpa, Las Flores, and, potentially, Samay I, in the dispatch order. Similarly, IC Power’s generation assets face potential displacements in dispatch merit orders as
new, more efficient technologies became available in their markets. Any displacement of dispatch merit orders could affect the competitiveness of IC Power’s
generation assets and thereby impact their ability to enter into long-term PPAs. If IC Power’s generation companies are unable to enter into long-term PPAs, they
may be required to sell electricity into spot markets at prices that may be below the prices established in their PPAs, including in those countries which are, or may
be, experiencing an oversupply in capacity in the short- to medium-term. Because of the volatile nature of power prices, if IC Power’s generation companies are
unable to secure long-term PPAs, they could face increased volatility in their earnings and cash flows and could experience substantial losses during certain periods
which could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.
Supplier
concentration
may
expose
IC
Power
to
significant
financial
credit
or
performance
risk,
particularly
with
respect
to
those
agreements
which
may
expire
during
the
life
of
its
power
plants.
IC Power relies on natural gas and HFO to fuel most of its power generation facilities. The delivery of these fuels to IC Power’s various generation facilities
is dependent upon a number of factors, including the continuing financial viability of contractual counterparties and the infrastructure (including barge facilities,
roadways and natural gas pipelines) available to serve each generation facility. Any disruption in the fuel delivery infrastructure or failure of a counterparty to
perform, may lead to delays, disruptions or curtailments in the production of power at one or more of IC Power’s generation facilities. This risk of disruption is
compounded by the supplier concentration that characterizes many of IC Power’s operating companies.
27
Table of Contents
IC Power sources most of its HFO from a limited number of suppliers. In the event of shipping delays which may affect IC Power’s suppliers, IC Power may
experience delays in the receipt and transportation of its HFO. Additionally, many of its gas suppliers are sole or monopolistic suppliers, and may exercise
monopolistic control over their supply of natural gas to IC Power. The Kallpa and Las Flores plants’ generation facilities, for example, rely on a consortium,
composed of Pluspetrol Peru Corporation S.A., Pluspetrol Camisea S.A., Hunt Oil Company of Peru L.L.C. Sucursal del Perú, SK Corporation Sucursal Peruana,
Sonatrach Peru Corporation S.A.C., Tecpetrol del Perú S.A.C. and Repsol Exploración Perú Sucursal del Perú, which IC Power collectively refers to as the
Camisea Consortium, for the provision of natural gas and on a sole supplier for the transportation of such natural gas. If these suppliers cannot perform under their
contracts, the Kallpa and Las Flores plants would be unable to generate electricity at their facilities, and such a failure could prevent Kallpa and Las Flores from
fulfilling their contractual obligations, which could have a material adverse effect on IC Power’s business and financial results. Continued supply of natural gas to
the Kallpa and Las Flores plants is dependent upon a number of factors, over which IC Power has no control, including:
•
•
•
•
•
levels of exploration, drilling, reserves and production of natural gas in the Camisea fields and other areas in Peru and the price of such natural gas;
accessibility of the Camisea fields and other gas production areas in Peru, which may be affected by weather, natural disasters, geographic and
geological conditions, environmental restrictions and regulations, activities of terrorist group or other impediments to access;
the availability, price and quality of natural gas from alternative sources;
market conditions for the renewal of such agreements before their expiration and IC Power’s ability to renew such agreements and the terms of any
renewal; and
the regulatory environment in Peru.
Upon the commencement of Samay I’s second operational stage, Samay I’s plant will operate as a natural gas-fired power plant, and will thereby be
dependent upon the Camisea Consortium for the provision of natural gas to it and will also depend upon gas transportation services rendered by Concesionaria
Gasoducto Sur Peruano S.A.’s through its natural gas pipeline, which is currently under construction.
Furthermore, as these suppliers are the principal suppliers of natural gas and natural gas transportation services to substantially all generation facilities in
Peru fueled by natural gas, a change in the terms of their agreements with IC Power or other power generators, or a failure by either of these suppliers to meet their
contractual obligations, could have a significant effect on Peru’s entire electricity supply and, therefore, prompt the Peruvian governmental authorities to undertake
certain remedial actions. Any such actions could adversely affect the operations of the Kallpa or Las Flores plants, or the expected operations of the Samay I plant.
Similarly, OPC has a gas supply agreement with a single supplier, which provides for the curtailment of OPC’s gas supply in the event of a lack of pipeline
capacity. Although OPC has never experienced a significant decline in its gas supply as a result of a lack of pipeline capacity, there can be no assurance that such
declines will not occur. OPC also relies on a single transporter for the transport of its natural gas requirements. If such parties are unable to perform under their
contracts with OPC, or are forced to curtail, in whole or in part, their supply or transport of natural gas to OPC, OPC would not be able to generate electricity using
natural gas, which could adversely affect OPC’s operations and financial performance.
Moreover, certain of IC Power’s contracts for natural gas are scheduled to expire during the life of the power plants which they service. These contracts have
not yet been extended or replaced with one or more contracts on comparable terms. For example, Kallpa, IC Power’s largest asset, purchases its natural gas
requirements for its generation facilities from the Camisea Consortium pursuant to a natural gas supply agreement which expires in June 2022 and which has not
yet been extended. If IC Power is unable to renew, or enter into supply contracts and, in particular, enter into long-term supply contracts, IC Power may be required
to purchase its natural gas on spot markets at prices that may be significantly greater than the prices IC Power previously paid for such commodities, or may be
unable to purchase such commodities on competitive prices at all. As a result, IC Power could face increased volatility in its earnings and cash flows and could
experience substantial losses during certain periods which could have a material adverse effect on its business, financial condition, results of operations or liquidity.
Certain
of
IC
Power’s
facilities
are
affected
by
climate
conditions
and
changes
in
the
climates
or
other
occurrences
of
natural
phenomena
in
the
countries
in
which
these
facilities
operate
could
have
a
material
adverse
effect
on
IC
Power.
Certain of IC Power’s generation facilities are based on hydroelectric power generation. As a result, their operating results are directly impacted by water
sources which are, in turn, affected by the amount of rainfall and snowmelt. The occurrence of natural phenomena, such as El Niño and La Niña, two climactic
phenomena that influence rainfall regularity in some of the Latin American countries in which IC Power operates, may result in droughts which affect its results of
operations. A prolonged drought in a country in which IC Power’s generation facilities rely on hydroelectric energy may reduce its ability to operate its
hydroelectric plants at full capacity. In addition, a prolonged drought may result in disputes with governments, regulators, local communities, farmers and other
stakeholders over water use. As a result of such disputes, IC Power may be forced to enter into agreements which restrict its ability to use water for hydroelectric
generation.
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Table of Contents
Droughts and excessive rainfall also affect the operation of IC Power’s thermal plants, including those facilities which use natural gas or HFO as fuel, in the
following manner:
•
•
•
•
During periods of drought, thermal plants are used more frequently. Operating costs of thermal plants can be considerably higher than those of
hydroelectric plants. IC Power’s operating expenses may increase during these periods.
IC Power’s thermal plants require water for cooling and a drought not only reduces the availability of water, but also increases the concentration of
chemicals, such as sulfates in the water. The high concentration of chemicals in the water IC Power uses for cooling increases the risk of damaging the
equipment at its thermal plants as well as the risk of violating relevant environmental regulations. As a result, IC Power may have to purchase water
from areas that are also experiencing shortages of water. These water purchases may increase IC Power’s operating costs, as well as the costs relating
to its social responsibility commitments.
Thermal power plants burning gas generate emissions such as sulfur dioxide (SO 2 ) and nitrogen oxide (NOx) gases. When operating with diesel, they
also release particulate matter into the atmosphere. Therefore, greater use of thermal plants during periods of drought increases the risk of
unsatisfactory performance of the abatement equipment used to control pollutant emissions.
During excessive rainfall periods, hydroelectric plants increase their generation, which reduces the spot prices in the system, and also reduces the
dispatch of thermal power plants. As a result, IC Power’s thermal plants selling energy to the spot market may face a reduction in their margins due to
their lower dispatch or due to sales occurring at the lower spot prices.
Additionally, certain of IC Power’s facilities are also exposed to additional climate change risk and to the specific natural phenomena occurring in their
respective countries of operation, including earthquakes (due to heightened seismic activity), hurricanes and flooding, landslides, volcanic eruptions, fire, and other
natural disasters. For example, in 2007, Peru experienced a 7.9 magnitude earthquake that struck the central coast of Peru. In 2015, Peru has also experienced
flooding. The occurrence of any of the natural calamities listed above may cause significant damage to IC Power’s power stations and facilities.
Furthermore, the production of wind energy depends heavily on suitable wind conditions, which are variable and difficult to predict. Operating results for
such plants vary significantly from period to period depending on the wind resource during the periods in question. Therefore, the electricity generated by IC
Power’s wind energy plants may not meet its anticipated production levels or the rated capacity of the turbines located there, which could adversely affect its
business.
IC Power could experience severe business disruptions, significant decreases in revenues based on lower demand arising from climate changes or
catastrophic events, or significant additional costs to IC Power not otherwise covered by business interruption insurance policies. There may be an important time
lag between a major climate change event, accident or catastrophic event and IC Power’s recovery from any insurance policies, which typically carry non-
recoverable deductible amounts, and in any event, are subject to caps per event. Furthermore, many of IC Power’s supply agreements, including its natural gas
supply agreements and transportation services agreements, contain force majeure provisions that allow for the suspension of performance by its counterparties for
the duration of certain force majeure events. If a force majeure event were to occur and IC Power’s counterparties were to temporarily suspend performance under
their contracts, IC Power may be forced to find alternative suppliers in the market on short notice (which IC Power may be unable to do) and incur additional costs.
Additionally, any of these events could cause adverse effects on the energy demand of some of IC Power’s customers and of consumers generally in the affected
market, the occurrence of which could have a material adverse effect on its business, financial condition, results of operations or liquidity.
IC
Power
is
exposed
to
electricity
spot
market,
fuel
and
other
commodity
price
volatility.
IC Power’s generation companies purchase and sell electricity in the wholesale spot markets. During the years ended December 31, 2015, 2014 and 2013, IC
Power’s generation companies purchased 17%, 18% and 18% of the electricity that they sold (in GWh) from the spot market, respectively. As a result, IC Power is
exposed to spot market prices, which tend to fluctuate substantially. Unlike most other commodities, electric power can only be stored on a very limited basis and
generally must be produced concurrently with its use. As a result, power prices are subject to significant volatility from supply and demand imbalances, especially
within the spot markets in which IC Power may purchase and sell electricity. Typically, spot market prices for electricity are volatile and the demand for such
electricity often reflects the cyclical fluctuating cost of coal, natural gas and oil, rain volumes or the conditions of hydro reservoirs. The Peruvian and Chilean
electricity markets are also indirectly affected by the price of copper, as a result of the electricity-intensive mining industry, which represents a significant source of
the electricity demand in these markets. Therefore, a decline in such mining activity could adversely affect IC Power, and any changes in the supply and cost of
coal, natural gas and oil, rain volumes, the conditions of hydro reservoirs, the unexpected unavailability of other generating units, or the supply and cost of copper,
may impact the volume of electricity
29
Table of Contents
demanded by the market. Volatility in market prices for fuel and electricity may result from many factors which are beyond its control and IC Power does not
generally engage in hedging transactions to minimize such risks. For further information on the effects of fluctuations in oil prices on IC Power’s results of
operations, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—Fluctuations
in
Oil
Prices
and
Currency
Exchange
Rates.”
IC
Power
is
exposed
to
counterparty
risks.
IC Power’s cash flows and results of operations are dependent upon the continued ability of its customers to meet their obligations under their relevant PPAs.
Additionally, a small number of customers purchase a significant portion of IC Power’s output under PPAs that account for a substantial percentage of the
anticipated revenue of its generation companies. Although IC Power’s generation companies evaluate the creditworthiness of their various counterparties, its
generation companies may not always be able to, if at all, fully anticipate, detect, or protect against deterioration in a counterparty’s creditworthiness and overall
financial condition. The deterioration of creditworthiness or overall financial condition of a material counterparty (or counterparties) could expose IC Power to an
increased risk of non-payment or other default under its contracts with them. For example, CEPP, IC Power’s Dominican Republic generation subsidiary, has
experienced significant payment delays under its PPAs.
Furthermore, if any of the counterparties to IC Power’s PPAs were to become insolvent, IC Power may be unable to recover payment under local insolvency
laws. For example, under Peruvian insolvency laws, if a private counterparty under any of IC Power’s PPAs were to become insolvent, its claims with respect to
payments due by such counterparty under its relevant contract will rank junior to, among others, the counterparty’s labor, social security, taxes, pension fund and
secured obligations. In such a case, IC Power’s ability to recover payments due on its existing PPAs in Peru may be limited. Any default by any of IC Power’s key
customers could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.
IC
Power
relies
on
power
transmission
facilities
that
it
does
not
own
or
control
and
that
are
subject
to
transmission
constraints.
If
these
facilities
fail
to
provide
IC
Power
with
adequate
transmission
capacity,
IC
Power
may
be
restricted
in
its
ability
to
deliver
wholesale
electric
power
and
IC
Power
may
either
incur
additional
costs
or
forego
revenues.
IC Power depends upon transmission facilities owned and operated by others to deliver the wholesale power it sells from its power generation plants. If
transmission is disrupted, or if the transmission capacity infrastructure is inadequate, IC Power’s ability to sell and deliver wholesale power may be adversely
impacted. If the power transmission infrastructure in one or more of the markets that IC Power serves is inadequate, its recovery of wholesale costs and profits may
be limited. If restrictive transmission price regulation is imposed, the transmission companies may not have sufficient incentive to invest in expansion of
transmission infrastructure. IC Power cannot predict whether transmission facilities will be expanded in specific markets to accommodate competitive access to
those markets, a failure of which could have a material adverse effect on its business, financial condition, results of operations or liquidity. In addition, in some of
the markets in which IC Power operates, different spot prices may occur within the grid as a result of a transmission constraint. As a result, IC Power may need to
purchase energy in the spot market in order to fulfill a PPA obligation in one part of the grid, even if IC Power is generating energy in another part of the grid, and
such purchase may occur at a spot market price which is higher than its own generation cost.
If
any
of
IC
Power’s
generation
units
are
unable
to
generate
energy
as
a
result
of
a
breakdown
or
other
failure,
IC
Power
may
be
required
to
purchase
energy
on
the
spot
market
to
meet
its
contractual
obligations
under
the
relevant
PPAs.
The breakdown or failure of one of IC Power’s generation facilities may require IC Power to purchase energy in the spot market to meet its contractual
obligations under its PPAs, while simultaneously resulting in an increase in the spot market price of energy, resulting in a contraction, or loss, of its margins. In
addition, the failure or breakdown of one of IC Power’s generation units may prevent that particular facility from performing under applicable PPAs which, in
certain situations, could result in termination of the PPA or liability for liquidated damages, the occurrence of which could have a material adverse effect on its
business, financial condition, results of operations or liquidity. For example, due to unscheduled maintenance of one of its turbines in the first half of 2013, Kallpa
was required to make energy purchases on the spot market to meets its obligations under its PPAs. For further information on the effect of the Kallpa plants’
unscheduled maintenance stoppage on its cost of sales in 2013, see “ Item
5.A—Operating
Results—Year
Ended
December
31,
2014
Compared
to
Year
Ended
December
31,
2013—Cost
of
Sales.
”
IC Power maintains insurance policies for property value and business interruptions, intended to mitigate any losses due to customary risks. However, we
cannot assure you that the scope of damages suffered in such an event would not exceed the policy limits, deductibles, losses, or loss of profits outlined in IC
Power’s insurance coverage. IC Power may be materially
30
Table of Contents
and adversely affected if it incurs losses that are not fully covered by its insurance policies and such losses could have a material adverse effect on its business,
financial condition, results of operations or liquidity. For further information on the risks related to IC Power’s insurance policies, see “— IC
Power’s
insurance
policies
may
not
fully
cover
damage,
and
IC
Power
may
not
be
able
to
obtain
insurance
against
certain
risks
.”
Some
of
the
countries
in
which
IC
Power
operates,
or
may
operate
in
the
future,
have
experienced
terrorist
activity
and
social
unrest
in
the
past
and
it
is
possible
that
a
resurgence
of
terrorism
in
any
of
these
countries
could
occur
in
the
future.
Some of the countries in which IC Power operates, or may operate in the future, have experienced terrorist activity and social unrest in the past. For example,
Peru, the country in which IC Power has its largest operations, experienced terrorist activity that reached its peak of violence against the government and private
sector in the late 1980s and early 1990s. IC Power’s operating company in Peru represented 47% of IC Power’s Adjusted EBITDA, as reported by IC Power, for
the year ended December 31, 2015. Any terrorist activities or other hostile actions in Peru could have a material adverse effect on IC Power’s business, financial
condition and results of operation. Adjusted EBITDA is a non-IFRS measure. For a reconciliation of Kallpa’s net income to Kallpa’s Adjusted EBITDA (which
reflects the portion of IC Power’s Adjusted EBITDA which is represented by Peru), see “ Item
3.A
Selected
Financial
Data—Information
on
Business
Segments—
IC
Power
.”
The existing security, economic and geopolitical conditions in Israel and the Middle East could affect IC Power’s operations in Israel. Israel has been and is
subject to terrorist activity, with varying levels of severity. Parties with whom IC Power does business have sometimes declined to travel to Israel during periods of
heightened unrest or tension, forcing IC Power to make alternative arrangements where necessary. Developments in the political and security situation in Israel
may also result in parties with whom IC Power has agreements claiming that they are not obligated to perform their commitments under those agreements pursuant
to force majeure provisions. Any deterioration in the security or geopolitical conditions in Israel and/or the Middle East could adversely impact IC Power’s
business relationships and thereby have a material adverse effect on its business, financial condition, results of operations or liquidity.
Israel’s geopolitical situation has led to security issues and, as a result, IC Power’s Israel-based subsidiary OPC, as well as any additional entities IC Power
may develop or acquire in Israel, including AIE, may be exposed to hostile activities (including harm to computer systems or, with respect to its operations, missile
attacks on its facilities or attacks on critical infrastructure, such as gas transmission systems or pipelines), security restrictions connected with Israeli
bodies/organizations overseas, possible isolations by various bodies for numerous political reasons, and other limitations. Any of the aforementioned events and
conditions could disrupt IC Power’s and OPC’s operations, which could, in turn, have a material adverse effect on its business, financial condition, results of
operations or liquidity.
Inflation
in
any
of
the
countries
in
which
IC
Power
currently
operates,
or
will
operate,
could
adversely
affect
IC
Power.
If any of the countries in which IC Power currently operates, or in which IC Power may operate in the future, experiences substantial inflation, the costs of
its operations could increase and its operating margins could decrease, which could materially and adversely affect its results of operations. A number of the
countries in which IC Power operates have experienced significant inflation in prior years, including Peru, its primary country of operation. Inflationary pressures
may also impact IC Power’s margins to the extent that cost increases driven by inflation are not accompanied by corresponding increases in the price of electricity
or capacity sold, or limit its ability to trigger the minimum thresholds set forth in the price adjustment mechanisms in IC Power’s PPAs or long-term supply
agreements or access foreign financial markets, and may also prompt government intervention in the economy of the affected country, including the introduction of
government policies that may adversely affect the overall performance of such economy. Any of the foregoing could have a material adverse effect on IC Power’s
business, financial condition, results of operations or liquidity.
IC
Power
has
granted
rights
to
the
minority
shareholders
of
certain
of
its
subsidiaries.
Although IC Power owns a majority of the voting equity in most of its businesses, IC Power has entered into, and may, and in some instances, will be
required to, continue to enter into, shareholders’ agreements granting minority rights to the minority shareholders of certain of those entities. For example, IC
Power has entered into shareholders’ agreements with, among others, Energía del Pacífico S.A., or Energía del Pacífico, a member of the Quimpac group and the
minority shareholder of Kallpa, CDA and Samay I, as well as with Veolia Energy Israel Ltd., or Veolia, the minority shareholder of OPC, and Centrans Energy
Services Inc. the minority shareholder of IC Power’s Nicaraguan assets. Among other things, IC Power’s shareholders’ agreements generally grant the applicable
minority shareholder veto rights over significant acquisitions and dispositions as well as the incurrence of significant debt. Therefore, IC Power’s ability to develop
and operate any of its businesses governed by a shareholders’ agreement may be limited if IC Power is unable to obtain the approval of a minority shareholder for
certain corporate actions IC Power deems to be in the best interest of the relevant business. In addition, such shareholders’ agreements may limit IC Power’s ability
to dispose of its interests in any of these businesses. IC Power’s
31
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operation of its subsidiaries may also subject IC Power to litigation proceedings initiated by the minority shareholders of its subsidiaries. For further information on
its shareholders’ agreements, see “ Item
4.B
Business
Overview—Our
Businesses—IC
Power—Shareholders’
Agreements
.”
IC
Power
could
face
risks,
or
barriers
to
exit,
in
connection
with
the
disposals
or
transfers
of
its
businesses
or
their
assets.
IC Power continually assesses the strategic composition of its power generation portfolio and may, as a result of its assessments, divest its interests in
businesses whose operations are inconsistent with its long-term strategic plan. Divestitures can generate organizational and operational efficiencies, cash for use in
IC Power’s capital investment program and operations, and cash to repay outstanding debt. However, divestitures may also result in a decline in IC Power’s net
income or profitability.
Additionally, IC Power may face exit barriers, including high exit costs or objections from various stakeholders, in connection with dispositions of certain of
its operating companies or their assets. For example, pursuant to Israel’s Electricity Sector Law 5756-1996, or Electricity Sector Law, the transfer of control over
an entity that holds a generation license in Israel must be approved by the EA. Additionally, pursuant to OPC’s PPA with the IEC and OPC’s syndicated credit
agreement, both the IEC and OPC’s lenders must consent to IC Power’s transfer of control of OPC to a third party. Such restrictions, as well as similar restrictions
contained in other shareholders’ agreements or financing agreements in respect of IC Power’s other operating companies may prohibit IC Power from disposing of
its interests in its businesses, and such prohibitions may have a material adverse effect on its development and growth strategy. Furthermore, although IC Power has
recently exported power generation barges (from Guatemala and the Dominican Republic to Panama), IC Power may face opposition from local governments in
connection with any decision to sell and/or export any of the power generation barges that IC Power has installed or may install from one country to another
country.
IC
Power
requires
qualified
personnel
to
manage
and
operate
its
various
businesses
and
projects.
As a result of IC Power’s decentralized structure, IC Power requires qualified and competent management to independently direct the day-to-day business
activities of each of its businesses, execute their respective business and/or project development plans, and service their respective customers, suppliers and other
stakeholders, in each case across numerous geographic locations. The services offered by IC Power’s businesses are highly technical in nature and require
specialized training and/or physically demanding work. Therefore, IC Power must be able to retain employees and professionals with the skills necessary to
understand the continuously developing needs of IC Power’s customers, to maximize the value of each of its businesses, and to ensure the timely and successful
completion of any expansion or development projects. This includes developing talent and leadership capabilities in the emerging markets in which certain of IC
Power’s businesses operate, where the depth of skilled employees may be limited. Changes in demographics, training requirements and/or the unavailability of
qualified personnel could negatively impact the ability of each of IC Power’s businesses to meet these demands. Unpredictable increases in the demand for its
services, or the geographical diversity of its businesses, may exacerbate the risk of not having a sufficient number of trained personnel.
In addition, IC Power’s operating companies could experience strikes, industrial unrest or work stoppages. In June and November 2015, COBEE’s facilities
in Bolivia experienced a brief strike. Although neither of the strikes at COBEE facilities resulted in a work stoppage nor had a material effect on IC Power’s results
of operations, there can be no assurance that future strikes or industrial unrest will not occur or lead to a work stoppage which could have an effect on its results of
operations. A significant percentage of IC Power’s employees in Bolivia, Israel and Jamaica are members of unions, and, as of December 31, 2015, approximately
23% of all of its employees were unionized. For further information on IC Power’s unionized employees, see “ Item
4.B
Business
Overview—Our
Businesses—IC
Power—Employees
.”
If any of IC Power’s businesses fail to train and retain qualified personnel, or if they experience excessive turnover, strikes or work stoppages, IC Power may
experience declining production, maintenance delays or other inefficiencies, increased recruiting, training or relocation costs and other difficulties, any of which
could have a material adverse effect on its business, financial condition, results of operations or liquidity.
IC Power’s success will also be dependent upon the decision-making of its directors and executive officers as well as the directors and executive officers of
its businesses. The loss of any or all of IC Power’s directors and executive officers could affect the creation or implementation of its short-term plans or long-term
strategies or divert its directors and executive officers’ attention from its operations, which could result in a delay in the completion of a project, affect its ability to
enter into PPAs, or otherwise have a material adverse effect on its business, financial condition, results of operations or liquidity.
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The
interruption
or
failure
of
IC
Power’s
information
technology,
communication
and
processing
systems
or
external
attacks
and
invasions
of
these
systems
could
have
an
adverse
effect
on
IC
Power.
IC Power depends on information technology, communication and processing systems to operate its businesses. Such systems are vital to each of IC Power’s
operating companies’ ability to monitor its power plants’ operations, maintain generation and network performance, adequately generate invoices to customers,
achieve operating efficiencies and meet its service targets and standards. Damage to its networks and backup mechanisms may result in service delays or
interruptions and limit IC Power’s ability to provide customers with reliable service over its networks. Some of the risks to IC Power’s networks and infrastructure
include:
•
•
•
•
•
•
•
physical damage to access lines, including theft, vandalism, terrorism or other similar events;
energy surges or outages;
software defects;
scarcity of network capacity and equipment;
disruptions beyond IC Power’s control;
breaches of security, including cyber-attacks and other external attacks; and
natural disasters.
The occurrence of any such event could cause interruptions in service or reduce IC Power’s generation capacity, either of which could reduce its revenues or
cause IC Power to incur additional expenses.
Furthermore, as a distribution company with over 1.6 million customers, Energuate processes and retains certain sensitive and confidential customer
information in the ordinary course of its business. Should Energuate experience a security breach resulting in the misappropriation, loss or unauthorized disclosure
of confidential information, this may disrupt Energuate’s business and result in reputational harm and litigation.
Although IC Power has operational insurance with business interruption coverage that may protect it against specific insured events, IC Power may not be
insured for all events or for the full amount of the lost margin or additional expense. In addition, the occurrence of any such event may subject IC Power to
penalties and other sanctions imposed by the applicable regulatory authorities. The occurrence of damages to IC Power’s networks and systems could have a
material adverse effect on its business, financial condition, results of operations or liquidity. For further information on the recent cyber-attack on the EA and the
risks related to OPC and AIE’s information technology systems due to their status as Israeli corporations, see “ —We,
and
each
of
our
businesses,
face
cyber-
security
risks.
”
IC
Power
is
exposed
to
material
litigation
and/or
administrative
proceedings.
IC Power is involved in various litigation proceedings, and may be subject to future litigation proceedings, any of which could result in unfavorable
decisions or financial penalties against IC Power, and IC Power will continue to be subject to future litigation proceedings, which could have material adverse
consequences to its business.
For example, since 2010, the Peruvian Tax Authority ( Superintendencia
Nacional
de
Administración
Tributaria
), known as SUNAT for its abbreviation in
Spanish, has issued tax assessments to Kallpa and its lenders (as lessors under the Kallpa leases) for payment of import taxes allegedly owed by Kallpa and its
lenders in connection with the engineering services of the EPC contractors for Kallpa I, II, III and IV. Kallpa and its lenders disputed the tax assessments before
SUNAT and, after SUNAT confirmed the assessments, appealed before the Peruvian Tax Administrative Court, or the Tribunal Fiscal. In January 2015, the
Tribunal Fiscal rejected Kallpa and its lenders’ appeal in respect of the Kallpa I assessment, and Kallpa subsequently challenged the decision in the Peruvian
courts. However, in order to challenge the administrative ruling of the Tribunal Fiscal in the judicial system, Kallpa and its lenders were required to pay the tax
assessment of Kallpa I. A decision of the Tribunal Fiscal of the Kallpa appeals in respect of the Kallpa II and III assessments is still pending. As of December 31,
2015, the total tax exposure related to claims by SUNAT against Kallpa and its lenders in connection with the importation of equipment related to the Kallpa I, II,
III and IV projects, equaled approximately $31.2 million, including interest and fines. For further information on these proceedings, see “ Item
4.B
Business
Overview—Our
Businesses—IC
Power—Legal
Proceedings—Kallpa—Import
Tax
Assessments
.”
33
Table of Contents
Litigation and/or regulatory proceedings are inherently unpredictable, and excessive verdicts do occur. Adverse outcomes in lawsuits and investigations
could result in significant monetary damages, including indemnification payments, or injunctive relief that could adversely affect IC Power’s ability to conduct its
business and may have a material adverse effect on IC Power’s financial condition and results of operations. For example, the Tribunal Fiscal’s decision, with
respect to the Kallpa I plant, could have a negative impact on the outstanding rulings and assessments in respect of the Kallpa II and III plants or other plants or
projects. In addition, such investigations, claims and lawsuits could involve significant expense and diversion of IC Power’s management’s attention and resources
from other matters, each of which could also have a material adverse effect on its business, financial condition, results of operations or liquidity.
IC
Power’s
insurance
policies
may
not
fully
cover
damage,
and
IC
Power
may
not
be
able
to
obtain
insurance
against
certain
risks.
IC Power maintains insurance policies intended to mitigate its losses due to customary risks. These policies cover IC Power’s assets against loss for physical
damage, loss of revenue and also third-party liability. However, we cannot assure you that the scope of damages suffered in the event of a natural disaster or
catastrophic event would not exceed the policy limits of its insurance coverage. In addition, IC Power may be required to pay insurance deductibles, which are not
recoverable, in order to utilize its insurance policies. IC Power maintains all-risk physical damage coverage for losses resulting from, but not limited to, fire,
explosions, floods, windstorms, strikes, riots, mechanical breakdowns and business interruption. IC Power’s level of insurance may not be sufficient to fully cover
all losses that may arise in the course of its business or insurance covering its various risks may not continue to be available in the future. In addition, IC Power
may not be able to obtain insurance on comparable terms in the future. IC Power may be materially and adversely affected if IC Power incurs losses that are not
fully covered by its insurance policies and such losses could have a material adverse effect on its business, financial condition, results of operations or liquidity. For
further information on IC Power’s insurance policies, see “ Item
4.B
Business
Overview—Our
Businesses—IC
Power—Insurance.
”
Future
expansion
into
new
markets
or
businesses
involve
significant
costs
and
risks,
and
may
be
unsuccessful.
IC Power is constantly monitoring and assessing development and acquisition opportunities. In particular, IC Power may seek to diversify and expand its
operations to certain countries in which IC Power does not currently have a presence, such as Mexico, through greenfield development projects and acquisitions.
Additionally, in January 2016, IC Power expanded and diversified by entering into the electricity distribution business through its acquisition of Energuate in
Guatemala.
IC Power has limited experience in operating a distribution business and does not have any experience operating companies in certain of the other countries
in which IC Power is considering expansion, such as Mexico. In entering into new markets and operating in these new businesses, IC Power would face
managerial, commercial, technological and regulatory risks. The business strategies, managerial expertise and institutional knowledge that IC Power utilizes and
has developed over time with regard to power generation in the countries in which IC Power currently operates may not be applicable to the distribution business,
or to the energy sectors of the countries in which IC Power is considering expansion. As expansion into a new market or business will require significant
investment of capital and management resources, such expansions will involve many risks, including risks related to:
•
•
•
•
•
•
obtaining the necessary government and regulatory licenses and authorizations to operate;
the significant capital expenditures required to establish a footprint in these businesses and markets;
competition from experienced market participants;
an inability to attract customers, create brand awareness and establish brand credibility;
an inability to establish relationships with regulators, stakeholders and other market participants; and
barriers to entry.
Additionally, with respect to IC Power’s recent acquisition of Energuate, IC Power’s ability to integrate Energuate’s operations into its existing business will
be important to IC Power’s future success. However, the acquisition of Energuate may not improve, and may even adversely affect, IC Power’s results of
operations, and the integration of Energuate into IC Power’s existing business may expose IC Power to additional risks, liabilities and losses. Additionally, the
process of integrating the Energuate business will likely involve significant costs and absorb management time and resources and may otherwise distract
management from other opportunities or problems in IC Power’s primary business of power generation and its primary markets, such as Peru and Israel. Similarly,
if IC Power acquires companies or assets in new markets such as Mexico, IC
34
Table of Contents
Power cannot provide assurance that such expansion and integration efforts will be successful, or that it will be able to successfully execute its business plan. If IC
Power is unsuccessful in its attempt to expand into new businesses or markets, this could have a material adverse effect on its material adverse effect on IC Power’s
business, financial condition, results of operations or liquidity.
The
production
and
profitability
of
IPPs
in
Israel
may
be
adversely
affected
by
changes
in
Israel’s
regulatory
environment.
The EA, which was known as Israel’s Public Utilities Authority (Electricity), or the PUAE, until January 1, 2016, regulates and supervises, among other
things, the provision of essential electric public services in Israel and OPC’s operations can be affected by changes in the EA’s policies, regulations, and tariffs. The
EA’s generation component tariff, for example, serves as the base price for OPC’s calculation of the sale price of its energy to its private customers. As a result, its
increases or decreases have a related effect on the sales price of OPC’s energy and OPC’s revenues. In addition, the price at which OPC purchases its natural gas
from its sole natural gas supplier, the Tamar Group, a group composed of Noble Energy Mediterranean Ltd., or Noble, Delek Drilling Limited Partnership, Isramco
Negev 2 Limited Partnership, Avner Oil Exploration Limited Partnership and Dor Gas Exploration Limited Partnership, is predominantly indexed (in excess of
70%) to changes in the EA’s generation component tariff, pursuant to the price formula set forth in OPC’s supply agreement with the Tamar Group. As a result,
increases or decreases in this tariff have a related effect on OPC’s cost of sales and margins.
In July 2013, the EA published four generation component tariffs/power cost indicators, ranging from NIS 386 per MWh to NIS 333.2 per MWh, instead of
the single tariff that had previously been used. In January 2015, the EA reduced the tariff rates by approximately 10%. In connection with the indexation of their
natural gas price formula for OPC’s gas supply agreement with the Tamar Group, OPC and the Tamar Group disagreed as to which of the EA’s July 2013 tariffs
applied to OPC’s supply agreement and have a similar disagreement with respect to the tariffs published in January 2015. OPC and the Tamar Group remain in
discussions with respect to this disagreement.
Additionally, on September 8, 2015, the EA published a final decision, which became effective on September 13, 2015, reducing the EA generation
component tariff by approximately 12%. This reduction will result in a corresponding decline in the sale prices of OPC’s energy and OPC’s revenues. In addition,
the natural gas price formula in OPC’s supply agreement is subject to a floor mechanism. As a result of previous declines in the EA generation component tariff,
OPC began to pay the ultimate floor price in November 2015. Therefore, the September 2015 decline and any further declines in the EA generation component
tariff, will not result in a corresponding decline in OPC’s natural gas expenses, and will lead to a greater decline in OPC’s margins, which may have a material
adverse effect on OPC’s business, results of operations and financial condition.
Furthermore, since 2013, the EA had been in the process of determining a system cost tariff. In August 2015, the EA published a decision that IPPs in Israel
would be obligated to pay system management service charges, which charges are retroactively effective as of June 1, 2013. According to the EA decision, as
amended in September 2015 and December 2015, the amount of system management service charges that would be payable by OPC from the effective date of
June 1, 2013 to June 30, 2015, is approximately NIS 163 million (approximately $43 million), which includes interest rate and linkage costs of NIS 8 million
(approximately $2 million). The approximately NIS 163 million which the EA has deemed payable by OPC is based upon the “average rate” of the system
management service charges. However, as the rate of the new system management service charges, like other rates of the EA, varies by season (e.g., summer and
winter) and by demand period (peak, shoulder and off-peak), the EA’s final calculation of the amount payable by OPC will be based upon the applicable time of
use rates, which provides different energy rates for different seasons (e.g., summer and winter) and different periods of time during the day, or “Time of Use” rates.
For further information on Israel’s seasonality and the related EA tariffs, see “ Item
4.B
Business
Overview—Our
Businesses—IC
Power—IC
Power’s
Industry
Overview—Israel
.” For further information on the effect of EA tariffs on IC Power’s revenues and margins, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—EA
Tariffs
Affect
IC
Power’s
Results
in
Israel
Segment.”
IC Power is considering the
implications of this decision and may contest it.
Additionally, a steering committee was appointed by the State of Israel in July 2013 to propose comprehensive reform of IEC. Although the steering
committee had not published its final recommendations, and there had not been any formal announcements concerning the steering committee’s discussions or
negotiations with IEC and the State of Israel for some time, in November 2015, the steering committee announced that it resumed its discussions regarding
comprehensive reform of IEC and the Israeli electricity market. If OPC incurs significant costs or experiences a further reduction in revenues or margins as a result
of changes in regulation or the establishment of any new regimes or the implementation of any such laws or governmental regulations, this could have a material
adverse effect on IC Power’s business, financial condition, results of operations or liquidity. For further information on the regulation of the Israeli electricity
sector, see “ Item
4.B
Business
Overview—Our
Businesses—IC
Power—Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Israeli
Electricity
Sector—EA
.”
35
Table of Contents
Governments
have
a
high
degree
of
influence
in
the
countries
in
which
IC
Power
operates.
IC Power operates in 11 countries and therefore is subject to significant and diverse government regulation. The laws and regulations affecting IC Power’s
operations are complex, dynamic and subject to new interpretations or changes. Such regulations affect almost every aspect of IC Power’s businesses, have broad
application and, to a certain extent, limit management’s ability to independently make and implement decisions regarding numerous operational matters.
Additionally, governments in many of the markets in which IC Power operates frequently intervene in the economy and occasionally make significant changes in
monetary, credit, industry and other policies and regulations. Government actions to control inflation and other policies and regulations have often involved, among
other measures, price controls, currency devaluations, capital controls and limits on imports. IC Power has no control over, and cannot predict, what measures or
policies governments may enact in the future. The results of operations and financial condition of IC Power’s businesses may be adversely affected by changes in
governmental policy or regulations in the jurisdictions in which IC Power operates if those changes impact, among other things:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
consumption of electricity and natural gas;
supply of electricity and natural gas;
operation and maintenance of generation, transmission or distribution facilities, including the receipt of provisional and/or permanent operational
licenses;
tariffs or royalties on the use of water for hydroelectric or thermal plants;
energy policy;
rules governing the dispatch merit order;
key permits or operating licenses that IC Power currently holds;
calculations of marginal costs or spot prices;
subsidies and incentives;
regulated rates and tariffs, including under PPAs where tariffs are based on regulated rates;
labor, environmental, or other laws;
mandatory salary increases;
public consultations for new projects;
social responsibility obligations;
economic growth;
currency fluctuations and inflation;
fiscal policy and interest rates;
capital control policies and liquidity of domestic capital and lending markets;
tax laws, including the effect of tax laws on distributions from IC Power’s subsidiaries;
import/export restrictions;
acquisitions, construction, or dispositions of power assets; and
other political, social and economic developments in or affecting the countries in which its operating companies are based.
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Uncertainty over whether governments will implement changes in policy or regulations affecting these or other factors in the future may also contribute to
economic uncertainty and heightened volatility in the securities markets. For example, in 2016, there will be elections in Peru and Jamaica, and the results of such
elections may create economic or regulatory uncertainty.
Existing or future legislation and regulation or future audits could require material expenditures by IC Power or otherwise have a material adverse effect on
its operations. For example, Peruvian regulators have increased their reviews of permitting, licensing and concession applications and have recently imposed time
limits on newly-granted licenses and concessions. Additionally, unregulated clients will be provided access to the spot market on January 1, 2016. However, as the
regulatory rules that would govern their access have not yet been approved, there remains uncertainty as to how such access will be implemented and the impact
such access may have on power companies in Peru, including IC Power’s Peruvian assets. The provision of such access could result in increased competition in the
Peruvian generation sector and/or result in increased pressures to reduce contractual prices in Peru. Furthermore, general elections in Peru are expected to take in
place in April 2016, and presidential and congressional elections may impact the development of certain industries, affect the interpretation of existing legislation
or result in the enactment of additional regulations, actions or agencies, which may result in changes in regulations in Peru that adversely affect IC Power’s
business. Peruvian regulators may also enact processes to expand generation capacity in Peru in excess of the rate of demand growth, which expansion could
therefore have a negative impact on spot and contractual prices in Peru, which in turn could reduce the margins of IC Power’s Peruvian assets. Moreover, Peruvian
regulators may amend the rules that govern how natural gas prices in Peru are determined and such prices are used to determine the variable fuel cost of thermal
generation units that burn such fuel. As a result, any such amendment may affect the order of dispatch of thermal generation units in the Peruvian system (such as
Kallpa or Samay I), which may have a material adverse effect on IC Power’s margins or results of operations.
Additionally, government agencies could take enforcement actions against IC Power and impose sanctions or penalties on it for failure to comply with
applicable regulations. Depending on the severity of the infraction, enforcement actions could include the closure or suspension of operations, the imposition of
fines or other remedial measures, and the revocation of licenses. Compliance with enhanced regulations could force IC Power to make capital expenditures and
divert funds away from planned investments in a manner that could have a material adverse effect on its business, financial condition, results of operations or
liquidity.
Due to populist political trends that have become more prevalent in certain of the countries in which IC Power operates over recent years, some of the
governments or authorities in countries where IC Power operates might seek to promote efforts to increase government involvement in regulating economic
activity, including the energy sector, which could result in the introduction of additional political factors in economic decisions. For example, Bolivia has
nationalized natural gas and petroleum assets, as well as generation companies that compete with IC Power. Bolivia has also dictated mandatory salary increases
for both public and private companies, affecting the profitability of IC Power’s company in Bolivia, COBEE. For further information on the risks related to the
Bolivian government’s recent nationalization of certain generation companies, see “— The
Bolivian
government
has
nationalized
energy
industry
assets,
and
IC
Power’s
remaining
operations
in
Bolivia
may
also
be
nationalized
.”
If IC Power fails to comply with existing regulations and legislation, or reinterpretations of existing regulations and new legislation or regulations, such as
those relating to the reduction of anti-competitive conduct, air and water quality, ecological waterflow for hydroelectric plants, noise avoidance, electromagnetic
radiation, fuel and other storage facilities, volatile materials, renewable portfolio standards, cyber security, emissions or air quality social responsibility, obligations
or public consultations, performance standards, climate change, hazardous and solid waste transportation and disposal, protected species and other environmental
matters, or changes in the nature of the energy regulatory process, this may have a significant adverse impact on IC Power’s financial results.
The
Bolivian
government
has
nationalized
energy
industry
assets,
and
IC
Power’s
remaining
operations
in
Bolivia
may
also
be
nationalized.
Bolivia has experienced political and economic instability that has resulted in significant changes in its general economic policies and regulations and the
adoption of a new constitution in 2006 that, among other things, prohibits private ownership of certain oil and gas resources. In May 2010, the Bolivian government
nationalized Empresa Eléctrica Guaracachi S.A., or Guaracachi, Empresa Eléctrica Valle Hermoso S.A., or Valle Hermoso and Empresa Eléctrica Corani S.A., or
Corani, each a significant generation company in Bolivia. In May 2012, the Bolivian government nationalized Transportadora de Electricidad S.A., a transmission
company that had previously operated as a subsidiary of Red Eléctrica de España. In December 2012, Electricidad de La Paz S.A. (Electropaz) and Empresa de Luz
y Fuerza de Oruro S.A. (Elfeo)—companies which had no previous ownership relationship with the Bolivian government—were also nationalized.
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Although there were elections in Bolivia during the third quarter of 2014, and such elections resulted in the re-election of certain key government officials, it
is unclear whether the Bolivian government will continue nationalizing entities involved in its power utility market. It is also unclear whether such nationalization
(if any) would be adequately compensated for by the Bolivian government. IC Power’s subsidiary COBEE is one of the few remaining privately-held generation
companies in Bolivia. Although we believe IC Power’s circumstances differ from those of the nationalized generation companies (because COBEE was not
previously owned by the Bolivian government), there is a risk that COBEE will be subject to nationalization. Such nationalization may include the expropriation or
nullification of IC Power’s existing concessions, licenses, permits, agreements and contracts, as well as effective nationalization resulting from changes in Bolivian
regulatory restrictions or taxes, among other things, that could have an adverse impact on COBEE’s profitability. If COBEE were indeed nationalized, we cannot
assure you that IC Power would receive fair compensation for its interests in COBEE.
IC Power could face nationalization risks in other countries as well. The nationalization of any of IC Power’s operating companies or power generation
plants, even if fair compensation for such nationalization is received, could have a material adverse effect on its business, financial condition, results of operations
or liquidity.
IC
Power’s
business
and
profitability
may
be
adversely
affected
if
water
rights
are
limited
or
denied.
Certain of IC Power’s generation facilities rely on hydroelectric power generation. For instance, in Bolivia, COBEE facilities generate power from, among
others, ten run-of-the-river hydroelectric plants in the Zongo river valley and four run-of-the-river hydroelectric plants in the Miguillas river valley. In addition, IC
Power is currently developing CDA’s plant, a 510 MW run-of-the-river hydroelectric project in Peru.
IC Power owns water rights in Bolivia granted by the Bolivian Ministry of Energy and Hydrocarbons and in Peru, granted by the National Water Authority (
ANA—Autoridad
Nacional
del
Agua
). From time to time, local governments and regulators may amend regulations pertaining to water rights. Furthermore, IC
Power may be unable to obtain, or otherwise experience difficulty in obtaining, water rights in connection with the construction of new hydroelectric plants, which
may impact the viability, design, timing or profitability of a project. Local governments may also try to impose a royalty or tariff for water use on IC Power’s
hydroelectric plants. In addition, several plants are required to leave a percentage of the water available in the river and therefore may not utilize such water in their
generation activities (this reserve is commonly referred to as the ‘ecological waterflow’). Local governments may decide to enact a change in the regulation or in
the calculation of the ecological waterflow, thereby reducing available volumes of water for power generation in IC Power’s plants. Any limitations on IC Power’s
current water rights, its ability to obtain additional water rights, or its ability to effectively utilize its existing rights, could have a material adverse effect on its
current hydroelectric plants and its hydroelectric projects.
IC
Power’s
equipment,
facilities,
operations
and
new
projects
are
subject
to
numerous
environmental,
health
and
safety
laws
and
regulations.
IC Power is subject to a broad range of environmental, health and safety laws and regulations which require IC Power to incur ongoing costs and capital
expenditures and expose IC Power to substantial liabilities in the event of non-compliance. These laws and regulations require IC Power to, among other things,
minimize risks to the natural and social environment while maintaining the quality, safety and efficiency of IC Power’s facilities. Furthermore, as IC Power’s
operations are subject to various operational hazards, including personal injury and the loss of life, IC Power is subject to laws and regulations that provide for the
health and safety of its employees.
These laws and regulations also require IC Power to obtain and maintain environmental permits, licenses and approvals for the construction of new facilities
or the installation and operation of new equipment required for its business. Some of these permits, licenses and approvals are subject to periodic renewal.
Government environmental agencies could take enforcement actions against IC Power for any failure to comply with applicable laws and regulations. Such
enforcement actions could include, among other things, the imposition of fines, revocation of licenses, suspension of operations or imposition of criminal liability
for non-compliance. Environmental laws and regulations can also impose strict liability for the environmental remediation of spills and discharges of hazardous
materials and wastes and require IC Power to indemnify or reimburse third parties for environmental damages. As fuel leaks may occur when fuel is received from
containerships at sea (as is the case for fuel received in El Salvador and the Dominican Republic), sea water may be inadvertently polluted at the time of fuel
receipt; IC Power’s primary operational environmental risk relates to the potential leaking of such fuel. Although IC Power has operating procedures in place to
minimize these, and other, environmental risks, there is no assurance that such procedures will prove successful in avoiding inadvertent spills or discharges.
IC Power expects the enforcement of environmental, health and safety rules to become more stringent over time, making its ability to comply with the
applicable requirements and obtain permits and licenses in a timely fashion more difficult. Additionally, compliance with changed or new environmental, health
and safety regulations could require IC Power
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to make significant capital investments in additional pollution controls or process modifications. These expenditures may not be recoverable and may consequently
divert funds away from planned investments in a manner that could have a material adverse effect on IC Power’s business, financial condition, results of operations
or liquidity.
While IC Power intends to adopt, and believe that each of its businesses has adopted, appropriate risk management and compliance programs, the nature of
its operations means that legal and compliance risks will continue to exist and additional legal proceedings and other contingencies, the outcome of which cannot
be predicted with certainty, will arise from time to time. No assurances can be made that IC Power will be found to be operating in compliance with, or be able to
detect violations of, any existing or future laws or regulations. A failure to comply with or properly anticipate applicable laws or regulations could have a material
adverse effect on IC Power’s business, financial condition, results of operations or liquidity.
In the case of new project developments, environmental or other regulations may change during the course of IC Power’s development of such projects,
potentially increasing the costs of such projects or making them inviable projects for completion.
Foreign
exchange
rate
fluctuations
and
controls
could
have
a
material
adverse
effect
on
IC
Power’s
earnings
and
the
strength
of
its
balance
sheet.
Through IC Power’s businesses, IC Power has facilities and generate costs and revenues in a number of countries in Latin America, the Caribbean and Israel.
Although IC Power’s costs and revenues are generally denominated in the U.S. Dollar, or are linked to the U.S. Dollar as a result of its PPAs or supply agreements,
OPC’s revenues, operating expenses, assets and liabilities are denominated in New Israeli Shekels. Therefore, significant fluctuations in the New Israeli Shekel
against the U.S. Dollar could have a material adverse effect on IC Power’s earnings and the strength of its balance sheet. In IC Power’s other countries of operation,
which generally have a direct or indirect link to the U.S. Dollar, the effects of the indexation may materialize on a delayed basis or may require a minimum
threshold to be triggered; inflationary pressures, which impact exchange rate fluctuations, may also impact its margins to the extent that cost increases driven by
inflation are not accompanied by corresponding increases in the price of electricity or capacity sold. In addition, some costs, such as payroll and taxes, are normally
denominated in local currency, and this denomination exposes IC Power to the foreign exchange fluctuations of the relevant local currency vis-a-vis the U.S.
Dollar. Furthermore, whereas the financial statements of IC Power and each of its generation companies are prepared in U.S. Dollars, Energuate prepares its
financial statements in Guatemalan Quetzales. Significant fluctuations in the Guatemalan Quetzal against the U.S. Dollar could have a material adverse effect on IC
Power’s earnings and the strength of its balance sheet.
Furthermore, IC Power’s businesses may pay distributions or make payments to IC Power in currencies other than the U.S. Dollar, which IC Power must
convert to U.S. Dollars prior to making dividends or other distributions to us if IC Power decides to make any distributions in the future. Foreign exchange controls
in countries in which IC Power’s businesses operate may further limit its ability to repatriate funds or otherwise convert local currencies into U.S. Dollars.
Although exchange rates within Peru, for example, are determined by market conditions, with regular purchase and sale operations by the Peruvian Central Reserve
Bank ( Banco
Central
de
Reserva
del
Perú
) in the foreign exchange market in order to reduce volatility in the value of Peru’s currency against the U.S. dollar, this
has not always been the case. Should the relevant regulatory bodies in any of the countries in which IC Power operates institute protectionist and interventionist
laws and policies or restrictive exchange rate policies in the future, such policies could have a material adverse effect on its operating companies or its financial
condition, results of operations or liquidity.
Consequently, as with any international business, IC Power’s liquidity, earnings, expenses, asset book value, and/or amount of equity may be materially
affected by short-term or long-term exchange rate movements or controls. Such movements may give rise to, among other risks, translation risk, which exists where
the currency in which the results of a business are reported differs from the underlying currency in which the business’ operations are transacted, which could have
a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity. For further information on the effect of exchange rates on IC
Power’s results of operations, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—
Fluctuations
in
Oil
Prices
and
Currency
Exchange
Rates.”
IC
Power’s
growth
may
be
limited
by
antitrust
laws.
IC Power has acquired a number of operating power generation companies. In the future, IC Power may seek to expand its operations within any of the
countries in which IC Power currently, or may in the future, operates. Government policies, specifically antitrust and competition laws in these relevant countries,
can impact its ability to execute this strategy successfully.
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Table of Contents
In Peru, for example, INDECOPI, the Peruvian antitrust regulator, reviews acquisition agreements that may result in vertical or horizontal market
concentration in the electricity sector and, in connection with such review, may, impose conditions upon the parties to such agreements.
Similarly, in Israel, the Antitrust Authority is authorized to prevent market power accumulation through the regulation of mergers in Israel. Additionally, IC
Power’s expansion activities in Israel may be limited by the Law for Promotion of Competition and Reduction of Concentration – 2013, or the Concentration Law.
Pursuant to such law, if IC Power, or a company controlled by it, intends to obtain or purchase a license for the production of electricity in the future for a power
plant which exceeds 175 MW, such obtainment or purchase will be subject to the procedures set forth in the Concentration Law, the EA, and the Ministry of
National Infrastructures, Energy and Water Resources, which will consider how such obtainment or purchase may affect the concentration in the power generation
market. According to the guidelines published by the EA in March 2015: (1) the maximum capacity of electricity production facilities, using conventional and
cogeneration technologies, held or controlled by one person, is capped, and (2) a person may not hold or control a dominant market share in a production
technology. Entities deemed to be under common control with IC Power would be considered having capacity of a single person. Therefore, the capacity of entities
which may be considered to be under common control with IC Power may prevent IC Power from effecting certain acquisitions or otherwise increasing its
operations in Israel.
Additionally, IC Power may consider disposing of certain assets, or equity interests in certain of its operating assets, to further its development and
operational expansion. Such dispositions may also be impacted by antitrust and competition laws in the countries in which IC Power operates, if the acquirers of
such interest have significant interests in the power generation market, or the purported transaction may cross any of the applicable legal thresholds. For example,
IC Power’s 2014 sale of its 21% indirect interest in Edegel to Edegel’s indirect controlling shareholder was subject to regulatory approval from INDECOPI.
Risks
Related
to
IC
Power’s
Acquisition
of
Energuate
IC
Power
may
not
achieve
the
expected
benefits
of
the
Energuate
acquisition.
IC Power acquired Energuate in January 2016 with the expectation that the acquisition would result in various benefits to IC Power, including a successful
initial entry into electricity distribution. Some of those benefits may not be achieved or, if achieved, may not be achieved at the cost or in the time frame in which
they are expected. Also, any benefits may not outweigh the management and personnel resources which will need to be diverted from IC Power’s operations to
achieve those benefits. Whether IC Power will actually realize the anticipated benefits depends on future events and circumstances, some of which, including
market and regulatory conditions, are beyond IC Power’s control. Future growth in revenues, earnings and cash flow will be partly dependent on future economic
conditions and conditions in the Guatemalan electricity distribution industry.
Furthermore, the process of integrating the operations of Energuate is expected to take time and IC Power may be unable to accomplish the integration
smoothly or successfully. This risk is heightened by the fact that the Energuate acquisition represents IC Power’s initial entry into the electricity distribution
business, and as such, IC Power does not have prior experience operating such a business. In addition, IC Power may experience difficulties in integrating
Energuate’s financial reporting, which could result in IC Power’s disclosure controls and procedures and internal controls over financial reporting becoming
ineffective. For example, the Energuate businesses have not historically prepared their respective financial statements under IFRS. While IC Power is in the process
of evaluating and integrating Energuate’s system of controls into its business, IC Power may be unsuccessful in doing so in a timely manner. IC Power’s failure to
successfully integrate the Energuate businesses may result in a significant diversion of management’s time from on-going business matters, and may have a
material adverse effect on its business, results of operations or financial condition.
The
tariffs
that
Energuate
charges
for
the
distribution
of
electricity
are
determined
by
CNEE,
and
unfavorable
changes
to
the
distribution
tariffs
could
have
a
material
adverse
effect
on
IC
Power’s
results
of
operations.
The price that Energuate charges consumers for electricity distributed is based on distribution tariffs, consisting of an electricity charge and a Value Added
by Distribution ( Valor
Agregado
de
Distribución
), or VAD, charge, which is determined on the basis of the legal and regulatory proceedings by CNEE every five
years. There are seven different tariffs that are applicable to Energuate’s regulated customers, and each of Energuate’s regulated customers purchases electricity at
one of these tariff rates. The VAD component of the distribution tariff is revised every five years with semi-annual adjustments for inflation and local currency
exchange rates against the US dollar. The tariffs are set by the CNEE.
The process of establishing the distribution tariffs involves several parties, including distribution companies, and takes place over several stages. While the
tariffs are intended to be set on the basis of objective criteria, the parties who participate in
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the process of establishing the tariffs can exercise discretion. The CNEE will reassess the VAD charge in January 2019. If the CNEE does not appropriately revise
the distribution tariff, due to, among others, political pressure or an economic crisis, this may have a material adverse effect on IC Power’s business, financial
condition or results of operations. In addition, if the semi-annual adjustments to the VAD component of the distribution tariff are insufficient to fully account for
inflation or exchange rate effects, this may have a material adverse effect on IC Power’s business, financial condition or results of operations.
IC
Power
will
be
required
to
make
significant
capital
expenditures
to
improve
Energuate’s
transmission
grid
and
service
quality
and
reduce
electricity
losses.
IC Power believes that additional investment in Energuate’s capital expenditures will be required to, among other things, modernize Energuate’s
transmission grid, improve service quality and customer satisfaction levels and reduce electricity losses. As such, IC Power intends to invest over $30 million in
Energuate in 2016, and expect that its capital expenditures will increase in the coming years. IC Power may finance its capital expenditure program through cash on
hand, internally generated funds or financing from the domestic and international capital markets. IC Power’s ability to make these capital expenditures depends on
a variety of factors, including changes to the tariffs Energuate charges to its customers, IC Power’s access to domestic and international capital markets, the results
of IC Power’s other subsidiaries and a variety of operating, regulatory or other contingencies. IC Power may not have the financial resources to make the necessary
capital expenditures in a timely manner. In addition, should the CNEE’s revision to the distribution tariffs Energuate charges to its regulated customers be
unfavorable, IC Power may be unable to recoup the costs of its capital expenditure program. A failure to make the necessary capital expenditures in a timely
manner and recoup the cost of such program could have a material adverse effect on IC Power’s business, financial condition, results of operation or liquidity.
A
slowdown
in
the
growth
of
electricity
demand
in
Guatemala
could
adversely
affect
Energuate’s
business,
financial
condition
and
results
of
operations.
In times of economic crisis, electricity demand in Guatemala has grown at lower rates due to declines in overall levels of economic activity and has resulted
in the deterioration of the ability of many consumers to pay their electricity bills. A slowdown in the growth of electricity sales or a decline in collection rates from
customers due to a deterioration of Guatemalan economic conditions may have a material adverse effect on IC Power’s business, financial condition, results of
operations or liquidity.
If
Energuate
is
unable
to
successfully
control
electricity
losses,
IC
Power’s
results
of
operations
could
be
adversely
affected.
Energuate experiences two types of electricity losses: technical losses and commercial losses. Technical losses occur in the ordinary course of Energuate’s
distribution of electricity, while commercial losses result from illegal connections, fraud and underbilling. Energuate’s total electricity losses in the year ended
December 31, 2015 and 2014 were 17.3% and 17.7% of its total energy received, respectively. The distribution tariffs that Energuate charges its regulated
customers include a VAD component, which provides for an allowance for losses incurred in the distribution of electricity determined by the CNEE. To the extent
that Energuate’s electricity losses exceed the allowance contemplated in the VAD component of the distribution tariff, Energuate will bear the costs of such losses.
IC Power intends to reduce commercial losses through improving customer billing practices, increasing targeted inspections and meter replacements,
implementing a communication program with local communities and modernizing Energuate’s facilities to reduce tampering, especially in areas where electricity
theft has been more prevalent, while reducing technical losses by investing in the modernization of Energuate’s transmission grid and distribution system.
However, these strategies may not effectively combat Energuate’s electricity losses. Should Energuate’s electricity losses remain high or increase, this could have a
material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.
Defaults
by
Energuate’s
consumers
due
to,
among
other
causes,
a
reduction
in
subsidies,
could
adversely
affect
IC
Power’s
business,
operational
results
and/or
financial
condition.
Energuate records a provision for doubtful receivables for past due receivables owed by its customers. Energuate may be unable to collect amounts payable
from numerous consumers in arrears. If such debts are not totally or partially settled, this may have a material adverse effect on IC Power’s business, financial
condition and results of operations or liquidity. Additionally, the amount of receivables that IC Power is unable to collect may exceed the provision that IC Power
has constituted. Should the amount of debts in arrears from Energuate’s consumers exceed the amounts IC Power has provisioned, this could have a material
adverse effect on IC Power’s business, financial conditions, results of operations or liquidity.
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INDE currently provides electricity rate subsidies for low-income customers to assist in their payment of their electricity bills, and a significant percentage of
Energuate’s regulated customers rely on tariffs from INDE. Due to budgetary constraints, INDE may be required to reduce the subsidies it provides to low-income
customers. Should INDE reduce electricity rate subsidies, Energuate’s customers may be unable to bear the cost of their electricity, leading to a decrease in
collection rates and an increase in doubtful receivables, which could have a material adverse effect on IC Power’s business, financial condition, results of
operations or liquidity.
Energuate
is
subject
to
comprehensive
regulation
of
its
business,
which
may
affect
IC
Power’s
financial
performance.
Energuate’s business is subject to extensive regulation by various Guatemalan regulatory authorities, particularly the CNEE. The CNEE regulates and
oversees Guatemala’s electricity sector, and establishes Energuate’s distribution tariffs. If Energuate is obligated by the CNEE to make additional and unexpected
capital investments and is not allowed to adjust its tariffs accordingly, if the CNEE does not authorize the recovery of all costs or if it modifies the regulations
related to tariff adjustments, Energuate may be adversely affected.
Furthermore, Energuate has been, and in the future may continue to be, subject to significant fines and penalties by regulatory authorities for, among others,
failure to meet quality and delivery standards, some of which may be due to causes out of Energuate’s control, such as service distributions attributable to problems
at generation facilities. Fines relating to Energuate’s failure to meet any quality or delivery standards are payable by granting credits to its customers to offset a
portion of their electricity charges, while those not directly related to customers are paid directly to CNEE. In the years ended December 31, 2015 and 2014,
Energuate’s paid fines and penalties totaled approximately $210 thousand and $450 thousand, respectively. In addition, Energuate is currently subject to ongoing
proceedings with respect to fines and penalties for failure to meet quality and delivery standards, which may have a material adverse effect on IC Power’s business,
financial condition and results of operations. If Energuate fails to comply with any of these conditions, the Guatemalan government may seek to obtain payment of
these fines and penalties from IC Power, terminate Energuate’s authorizations or require the sale of Energuate’s assets, each of which could have a material adverse
effect on IC Power’s business, financial condition and results of operations.
In addition, electricity is a utility with high social impact, particularly within the service areas in which Energuate operates. As such, there is frequent public
debate and pressure to modify the regulatory framework for the Guatemalan electricity industry. From time to time, various proposals are made to modify the
electricity regulatory framework, and such proposals, if implemented, may affect Energuate’s ability to conduct its operations profitably, or at all. In addition, in
2016, a new president was inaugurated in Guatemala, and such regime change may result in modifications to the electricity regulatory framework. Both the
implementation of Energuate’s strategy for growth and its ordinary business may be adversely affected by governmental actions, including changes to current
legislation, the termination of national and local authorization licenses or permits, the forced sale of Energuate’s distribution assets in a public auction, the creation
of more rigid criteria for qualification in public energy auctions, a delay in the revision and implementation of new tariffs or a modification of the tariff regime.
Energuate’s
authorizations
can
be
terminated
if
its
service
levels
fall
below
those
required
by
its
authorization
agreements
with
the
Ministry
of
Energy
and
Mining.
Energuate conducts its electricity distribution business pursuant to authorization agreements which were executed between DEORSA and the MEM and
DEOCSA and the MEM. The authorization agreements require Energuate to comply with certain service and quality standards. The Guatemalan government has
the right to impose fines and ultimately revoke Energuate’s authorizations if it does not comply with the minimum quality standards established in the regulations
under the General Electricity Law or meet certain levels of customer satisfaction. In the event that Energuate’s authorizations are terminated, Energuate’s
distribution assets may, after a series of proceedings, be sold in a public auction, as provided for in the General Electricity Law. A termination of Energuate’s
authorizations would have immediate negative effects on Energuate’s business and results of operations, which could have a material adverse effect on IC Power’s
business, financial condition and results of operations.
Energuate
operates
in
certain
conflict
zones
which
have
been
and
may
continue
to
be
subject
to
high
levels
of
electricity
theft
and
other
illicit
activity,
low
collection
rates
and
violent
protest.
Energuate’s service area includes “conflict zones”, which are areas characterized by high levels of electricity theft and low collection rates. In certain of the
“conflict zones” in which Energuate operates, particularly along the borders of Mexico, there is little government control and presence. In such areas, Energuate’s
ability to conduct its operations has been, and may continue to be, affected by illicit activities, such as drug trafficking and violent crime.
Furthermore, Energuate has faced opposition in such areas from a variety of social organizations, some of whom promote violent protests and energy theft.
In recent years, local organizations in Energuate’s service area have conducted
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violent protests to challenge electricity prices. Energuate has undertaken efforts to improve its relationships with the communities in the service areas in which it
operates; however, these efforts may be unsuccessful. Electricity theft and other illicit activity, low collection rates and social protests in certain of the “conflict
zones” in which Energuate operates may have a material adverse effect on IC Power’s business, financial condition and results of operations.
Risks Related to Our Interest in Qoros
Qoros
depends
on
additional
financing
to
further
its
development
and,
until
it
achieves
significant
sales
levels,
to
meet
its
operating
expenses,
financing
expenses,
and
capital
expenditures.
Qoros commenced commercial operations at the end of 2013. Qoros has incurred losses since inception and is continuing to experience losses and negative
operating cash flow and expects that this will continue until it achieves significantly higher levels of sales. Qoros’ operating expenses, debt service requirements,
capital expenditures and other liquidity requirements are significant. Until Qoros experiences a significant increase in sales, it will continue to require additional
financing, including the renewal or refinancing of its working capital facilities, to meet these expenses and requirements, and there is no assurance that Qoros will
experience an increase in sales in the near-term, if at all, or obtain additional financing.
Qoros’ available liquidity and capital resources are limited, and it has significant obligations. Qoros has historically relied upon capital contributions, loans,
and bank guarantees from its shareholders (Chery and Kenon) to fund its development and operations. As of December 31, 2015, Qoros total loans and borrowings
(excluding shareholder loans) of RMB6.0 billion and current liabilities (excluding shareholder loans) of RMB4.3 billion, including trade and other payables of
RMB2.6 billion. As of December 31, 2015, Qoros had current assets of RMB1.5 billion, including cash and cash equivalents of RMB257 million. Qoros has long-
term, short-term and working capital credit facilities, but amounts available under such facilities are limited. Qoros actively manages its trade payables, accrued
expenses and other operating expenses in connection with the management of its liquidity requirements and available resources.
In April 2016, Ansonia, which owns approximately 46% of the outstanding shares of Kenon, entered into a loan agreement to provide loans of up to $50
million to Qoros to support Qoros’ ordinary course working capital requirements, subject to Wuhu Chery making corresponding loans. Ansonia and Wuhu Chery
are each expected to initially fund approximately $25 million of these loans, with remaining amounts at the discretion of Ansonia and Wuhu Chery. In light of the
investments made by Kenon in Qoros, including guarantees of Qoros’ indebtedness, and Kenon’s strategy to refrain from material “cross-allocation” (i.e., investing
returns from one business into another), Kenon will not make any loans or other investments in Qoros as part of this transaction. For more information see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Recent
Developments—Qoros—Ansonia’s
Agreement
to
Invest
in
Qoros.”
Qoros is continuing to seek additional
financing for its operations.
Qoros will need to secure additional financing to meet its operating expenses (including accounts payable) and debt service requirements. If Qoros is not able
to raise additional financing as required, it may be unable to continue operations, in which case Kenon may lose its entire investment in Qoros and Kenon may be
required to make payments under its back-to-back guarantees to Chery in respect of Qoros’ bank debt. See “—Some
of
our
businesses
have
significant
capital
requirements.
If
these
businesses
are
unable
to
obtain
sufficient
financing
from
third
party
financing
sources
or
renew
or
refinance
their
working
capital
facilities,
they
may
not
be
able
to
operate,
and
we
may
deem
it
necessary
to
provide
such
capital,
provide
a
guaranty
or
indemnity
in
connection
with
any
financings,
provide
collateral
in
connection
with
any
financings,
including
via
the
cross-collateralization
of
assets
across
businesses,
or
we
may
refrain
from
investing
further
in
any
such
businesses,
all
of
which
may
materially
impact
our
financial
position
and
results
of
operations.”
Qoros’
future
success
is
dependent
upon
an
increase
in
sales
volumes
and
continued
expansion
of
its
dealer
network.
•
•
•
•
•
•
Qoros’ success will depend upon Qoros increasing its sales volumes, which will depend on:
the continued development of the Qoros brand;
the successful launch of the Qoros 5 SUV, which Qoros launched in March 2016;
expansion of its dealer network;
build-up of its aftersales and services infrastructure;
managing its procurement, manufacturing and supply processes;
43
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•
•
establishing effective, and continuing to improve, customer service processes; and
securing additional financing to support its operating and capital expenses and further its growth and development.
Qoros’ ability to increase its sales volumes and generate profits will require the execution of effective planning and management processes, and such
execution may be influenced by Qoros’ ability to sell its vehicle models within Qoros’ targeted price range, at prices that generate profits for Qoros, and at targeted
volumes, as well as factors out of Qoros’ control, such as state of the Chinese economy.
Qoros sold approximately 14,250 vehicles in 2015, as compared to 7,000 in 2014. The volume of sales Qoros is able to achieve will have a significant impact
on Qoros’ liquidity, future success, and the ability to continue its commercial operations altogether. Qoros’ ability to increase its sales will depend, in part, upon its
ability to expand its dealer network and increase the proportion of high-performing dealers. Qoros may have difficulty in expanding its dealer network if existing
dealers are not performing well in terms of sales, and if Qoros is not successful in expanding its dealer network, this could make it difficult for Qoros to
significantly increase sales levels, which could have a significant impact on Qoros’ liquidity and future success, as well as on the value of Kenon’s investment in
Qoros, which may result in Kenon’s recognition of an impairment charge in respect of Qoros and could result in Kenon being required to make payments under its
guarantees of Qoros’ debt if Qoros is unable to meet its debt obligations.
If Qoros does not achieve some, or all, of its development or commercial milestones in a timely manner, Qoros may be unable to establish itself as a brand or
a viable business and Qoros may be unable to obtain additional financing.
Qoros
is
significantly
leveraged.
As of December 31, 2015, Qoros had RMB6.0 billion of outstanding indebtedness consisting of current and non-current loans and borrowings of RMB1.3
billion and RMB4.7 billion, respectively, excluding shareholder loans. Qoros intends to finance its continued development with additional financing.
Highly leveraged businesses are inherently more sensitive to declines in revenues, increases in expenses and interest rates, and adverse market conditions.
This is especially true for Qoros, as Qoros commenced commercial sales at the end of 2013 and has yet to generate positive cash flows from its operations. Qoros
uses a portion of its cash flows from operations to make debt service payments (as Qoros has begun to, and will need to semi-annually, make principal repayments
on its RMB3 billion facility, thereby reducing its ability to use its cash flows to fund its operations, capital expenditures, or future business opportunities. In
addition, Qoros’ RMB3 billion syndicated credit facility, RMB1.2 billion syndicated credit facility, and RMB700 million syndicated credit facility contain
financial, affirmative and negative covenants. Those facilities, as well as its other short-term credit facilities, also contain events of default and mandatory
prepayments for breaches, including certain changes of control, and for material mergers and divestments, among other provisions. A significant percentage of
Qoros’ assets secures its RMB3 billion syndicated credit facility and, as a result, the amount of collateral that Qoros has available for future secured debt or credit
support and its flexibility in dealing with its secured assets is therefore relatively limited, which could have a material adverse effect on Qoros’ business, financial
condition, results of operations or liquidity.
Currently, Qoros’ debt-to-asset ratio is higher, and its current ratio is lower, than the allowable ratios set forth in the terms of Qoros’ RMB3 billion
syndicated credit facility. In 2014, the syndicated consortium of Qoros’ syndicated credit facility waived Qoros’ compliance with the financial covenants under this
facility through the first half of the 2017 fiscal year. As a result, Qoros will not be required to comply with these financial covenants until July 2017 (or later, if
additional waivers are granted). The waivers also provide that, after Qoros enters into a continuous and sustained operating period, a request for adjustment of the
financial covenants, as necessary, can be submitted to the syndicated loan group or the lender under the working capital facility, as applicable, for consideration.
Should Qoros’ debt-to-asset ratio continue to exceed, or its current ratio continue to be less than, the permitted ratios in any period after June 30, 2017, and Qoros’
syndicated lenders do not waive such non-compliance or revise such covenants so as to ensure Qoros’ compliance, Qoros’ lenders could accelerate the repayment
of borrowings due under Qoros’ RMB3 billion syndicated credit facility.
If Qoros is unable meet its debt service obligations or otherwise comply with other covenants in its credit facilities, this would lead to an event of default.
Each of Qoros’ significant debt facilities above contains a “cross-default” provision which provides for an event of default if any other debt of Qoros in excess of
RMB50 million becomes payable prior to maturity, so a default under other debt facilities would result in a default under the facilities referenced above and a
default that leads to acceleration under either facility above will result in an event of default under the other facility.
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In the event that any of Qoros’ lenders accelerate the payment of Qoros’ borrowings, Qoros would not have sufficient liquidity to repay its debt under the
syndicated credit facility, as well as maintain payments on its remaining credit facilities. Additionally, as Qoros is significantly leveraged and a significant portion
of its assets, including its manufacturing facility, secures its syndicated credit facility, if Qoros were unable to comply with the terms of its debt agreements, this
could result in the foreclosure upon and loss of certain of Qoros’ assets, which could have a material adverse effect on Qoros’ business, financial condition, results
of operations or liquidity.
Kenon has provided “back-to-back” guarantees to Chery in respect of guarantees that Chery has given in respect of a significant amount of Qoros’ bank debt
and has pledged a portion of its interests in Qoros to secure Qoros’ bank debt. Accordingly, if Qoros’ debt facilities become payable due to a default under these
facilities or otherwise, Kenon may be required to make payments under its guarantees and could lose the shares in Qoros it has pledged. See “— Kenon
has
significant
“back-to-back”
guarantee
obligations
to
Chery
in
respect
of
guarantees
that
Chery
has
given
for
Qoros’
bank
debt
and
has
pledged
a
portion
of
its
interests
in
Qoros
to
secure
Qoros’
bank
debt.”
Kenon
has
significant
“back-to-back”
guarantee
obligations
to
Chery
in
respect
of
guarantees
that
Chery
has
given
for
Qoros’
bank
debt
and
has
pledged
a
portion
of
its
interests
in
Qoros
to
secure
Qoros’
bank
debt.
Kenon has provided back-to-back guarantees to Chery of RMB1,100 million principal amount of Qoros’ indebtedness, plus certain interest and fees. These
back-to-back guarantees consist of (i) a back-to-back guarantee of one-half of the principal amount of Chery’s guarantee of RMB1.5 billion with respect to Qoros’
RMB3 billion facility; Kenon’s obligation is limited to RMB750 million, but in the event that Chery’s obligations under its guarantee exceed RMB1.5 billion (e.g.,
as a result of interest and fees), Kenon has agreed to negotiate with Chery in good faith to find a solution so that Kenon’s and Chery’s liabilities in respect of the
RMB3 billion credit facility are equal in proportion; and (ii) a back-to-back guarantee of one-half of the principal amount of Chery’s guarantee of Qoros’ RMB700
million facility. Kenon’s guarantee is for RMB350 million principal amount, but it also extends to interest and fees of up to RMB60 million. In the event that
Chery’s obligations under its guarantee exceed those of Kenon’s under the back-to-back guarantee, Kenon has agreed to discuss the matter amicably with Chery to
find a solution acceptable for both parties, but without any obligation on Kenon to be liable for more than the amount set forth in its back-to-back guarantee to
Chery.
If Qoros is unable meet its debt service obligations and comply with other covenants in these credit facilities, this would lead to an event of default. In
addition, each of these facilities contains various events of default which may result in the event of non-payment of amounts due and payable, breach of obligations
under the facilities and liquidation or bankruptcy events, or other similar legal proceedings. In addition, each of the facilities above contains a “cross-default”
provision which provides for an event of default if any other debt of Qoros in excess of RMB50 million becomes payable prior to maturity, so a default under other
debt facilities would result in a default under the facilities referenced above and a default that leads to acceleration under either facility above will result in an event
of default under the other facility.
In the event of a default under one of these credit facilities which leads to acceleration of amounts due thereunder, Chery could be required to make
payments under its guarantees and upon such payment by Chery, Kenon would be required to make payments under its back-to-back guarantees to Chery.
As of the date of this annual report, Kenon has cash of $58 million and $210 million outstanding under the IC Credit Facility (including interest and fees),
and has back-to-back guarantee obligations of up to RMB1,100 million, plus certain interest and fees. For further information on, and an overview of, each of the
guarantees provided by Kenon in respect of Qoros’ debt, see “ Item
5.B
Liquidity
and
Capital
Resources—Kenon’s
Liquidity
and
Capital
Resources—Kenon’s
Commitments
and
Obligations—Back-to-Back
Guarantees
Provided
to
Chery
.” In the event that Kenon is required to make such payments, it would need to obtain
such funds from its businesses, which may include IC Power (via dividends, loans or advances, or the repayment of loans or advances to us, which may be funded
by sales of assets or minority interests in our businesses), or obtain external financing, which may result in dilution of shareholders (in the event of equity
financing) or additional debt obligations for the company (in the event of debt financing). In the event Kenon is required to make payments on its back-to-back
guarantees and does not have sufficient liquidity to do so, there may be a cross-default under the IC Credit Facility, which would require Kenon to obtain additional
financing or obtain such funds from its businesses to pay the outstanding amounts under such facility. In the event that funds from its businesses or external
financing are not available to meet such obligations on reasonable terms or at all, Kenon may need to sell assets to meet such obligations, and its ability to sell
assets may be limited in light of the various pledges over the shares and assets within its most valuable asset, IC Power Singapore. Any sales of assets may not be at
attractive prices, particularly if such sales must be made quickly to meet Kenon’s obligations.
Finally, Quantum, the wholly-owned subsidiary through which we own our 50% interest in Qoros has pledged 28.4% of its shares in Qoros to secure Qoros’
RMB1.2 billion credit facility. This pledge could result in a loss of our equity interest in Qoros in the event of a default under that facility (or another facility which
results in a cross default under the RMB1.2 billion
45
Table of Contents
credit facility). For further information on the risks related to Kenon’s obligations in respect of Qoros’ debt, see “ —Qoros
depends
on
additional
financing
to
further
its
development
and,
until
it
achieves
significant
sales
levels,
to
meet
its
operating
expenses,
financing
expenses,
and
capital
expenditures.
”
Qoros
is
a
joint
venture
in
which
our
interest
is
only
50%.
We have a 50% stake in Qoros, with the remaining 50% interest owned by Wuhu Chery Automobile Investment Co., Ltd., or Wuhu Chery, a subsidiary of
Chery, a state controlled holding enterprise and large Chinese automobile manufacturing company that has been producing automobiles since 1999.
Our joint venture partner, Chery, has established a joint venture, Chery Technical Center Shanghai with another automobile manufacturer in China,
Jaguar/Land Rover, and Chery may enter into additional joint venture agreements, subject to the terms of our Joint Venture Agreement, in the future. Consequently,
Wuhu Chery or Chery may have goals, strategies, priorities, or resources that conflict with our goals, strategies, priorities or resources, which may adversely impact
our ability to jointly and effectively own Qoros, undermine Wuhu Chery or Chery’s commitment to Qoros’ long-term growth, or adversely impact Qoros’ business.
Furthermore, Chinese regulations prevent us, as a non-Chinese entity, from holding a greater than 50% equity interest in Qoros. As a result, should we invest
additional equity into Qoros, Kenon will not experience an increase in its equity ownership of Qoros. The Joint Venture Agreement provides that Wuhu Chery may
purchase our interest in Qoros in the event of the termination of the Joint Venture Agreement, which is triggered upon the occurrence of certain events, including
the nationalization or confiscation, in whole or in substantial part, of Qoros’ assets, Qoros’ bankruptcy, certain breaches of the Joint Venture Agreement, the
occurrence of certain force majeure events, and a deadlock of the board of directors of Qoros as to matters where the lack of a decision could materially and
adversely affect Qoros. In the event of the termination of the Joint Venture Agreement, Wuhu Chery may purchase our interest in Qoros at an agreed upon price or
at the price determined by an independent appraiser selected or appointed, as applicable, pursuant to the valuation procedure set forth in the Joint Venture
Agreement.
The Joint Venture Agreement also contains provisions relating to the transfer and pledge of Qoros’ shares, the appointment of executive officers and
directors, and the approval of “substantial matters,” which may prevent us from causing Qoros to take actions that we deem desirable.
In addition, the loans that Ansonia has agreed to make to our subsidiary Quantum (which will be used by Quantum to make back-to-back loans to Qoros)
will be convertible into equity of Quantum at a 10% discount to the implied value of Qoros based upon the receipt of third-party financing. Accordingly, upon such
conversion, Kenon’s indirect interest in Qoros will be diluted, which will result in economic dilution and Kenon having less control over the Qoros business. In
connection with the loan agreement, Ansonia also has certain consent rights with respect to actions that we take in respect of our interest in Qoros. For further
information on Ansonia’s agreement to invest in Qoros, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Recent
Developments—Qoros
—Ansonia’s
Agreement
to
Invest
in
Qoros.
”
For further information on the terms of our Joint Venture Agreement with Chery, see “ Item
4.B
Business
Overview—Our
Businesses—Qoros—Qoros’
Joint
Venture
Agreement
.”
Qoros
has
entered
into
certain
arrangements
and
agreements
with
Chery.
Although Qoros is under no obligation to do so, Qoros sources its engines and certain spare parts from Chery in the ordinary course of Qoros’ business.
Additionally, Qoros entered into a platform sharing agreement with Chery, pursuant to which Qoros provides Chery with the right to use Qoros’ platform in
exchange for a fee. Qoros may also enter into additional commercial arrangements and agreements with Chery, or parties related to it, in the future.
Pursuant to the Joint Venture Agreement, all of Qoros’ transactions with related parties are subject to the approval of Qoros’ board of directors, of which
Kenon has the right to appoint three of the six directors. However, Qoros’ related party transactions with Chery could create, or appear to create, potential conflicts
of interest when Qoros’ board of directors is faced with decisions that could have different implications for Qoros and Chery, which may have a material adverse
effect on Qoros’ operations and financial position.
Qoros actively manages its trade payables, accrued expenses and other operating expenses in connection with the management of its liquidity requirements
and available resources, and Qoros has accounts payable to Chery. Should Qoros be unable to make payments to Chery for its supply of engines, spare parts and
other supplies from Chery, this may have a material adverse effect on Qoros’ relationship with Chery. For further information on Qoros’ commercial arrangements
with Chery, see Note 29 to Qoros’ consolidated financial statements, included in this annual report.
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Table of Contents
Qoros
commenced
commercial
sales
at
the
end
of
2013
and
has
a
history
of
losses
and
expects
to
continue
to
incur
losses,
at
least
until
it
reaches
higher
sales
volumes.
Qoros incurred losses of RMB2.5 billion for the year ended December 31, 2015 and has incurred losses since its inception. Qoros expects to incur substantial
marketing costs and expenses in the future as it continues to promote its new vehicle models through the use of traditional media such as television, radio and print
as well as non-traditional and online media. Qoros will also incur substantial costs, including financing costs, in connection with the continued development of its
various vehicle models and the implementation of phase two of its manufacturing facilities if Qoros expands its manufacturing facility to increase its production
capacity.
Qoros believes that it will continue to incur operating and net losses each quarter until it achieves significantly higher sales volumes and it may not achieve
such higher volumes in the near-term or at all. Qoros sold approximately 14,250 vehicles and 7,000 vehicles in 2015 and 2014, respectively. Qoros may have
difficulty in expanding its dealer network if existing dealers are not performing well in terms of sales, and if Qoros is unsuccessful in expanding its dealer network,
this could make it difficult for Qoros to significantly increase sales levels. As Qoros’ operating and development costs and debt service requirements significantly
exceed its revenues, Qoros may continue to incur losses for a significant period of time and may not become profitable.
Qoros’
vehicle
models
and
brand
are
still
evolving
and
may
not
be
accepted
by
Qoros’
targeted
consumer
group,
at
Qoros’
targeted
prices.
Qoros’ brand and business are relatively new, and Qoros’ targeted consumers may not accept Qoros’ models, style or brand at the anticipated or desired
velocity, or the anticipated or desired price, if at all. Specifically, Qoros seeks to manufacture and sell to Chinese consumers Chinese vehicles which comply with
recognized international standards, with respect to their design and operations, and are comparable in quality and price to internationally manufactured vehicles.
Qoros’ future business and profitability outlook depends, in large part, upon Qoros’ ability to sell vehicle models that will be accepted by young, modern, urban
consumers, in its targeted price range. The sector of the Chinese automobile market that Qoros targets is currently dominated by foreign brands, and Chinese car
buyers may be slower than expected in accepting a Chinese brand, may have a preference for other Chinese brands, or may not ultimately view Qoros’ vehicle
models as an attractive alternative to foreign brands at the price point targeted by Qoros, if at all.
Chinese consumers have historically indicated a strong preference for products that are internationally-branded. Such a preference for foreign-branded
products could impact the buying patterns of Qoros’ targeted consumers, which could affect the demand for Qoros’ vehicles and, as a result, also adversely impact
Qoros’ margins (e.g., as a result of Qoros increasing the content provided in each vehicle without concurrently increasing its price), and its sales volumes.
Qoros
depends
upon
a
network
of
independent
dealers
to
sell
its
automobiles.
As is customary in China, Qoros distributes and services its cars through a network of independent automobile dealers that are engaged on a non-exclusive
basis. Dealers maintain the primary sales and service interface with the ultimate consumer of Qoros’ products and, as a result, the quality of Qoros’ dealerships and
its relationship with its distributors are critical to Qoros’ success. Qoros also expects its dealers to generate the vast majority of the revenues that Qoros expects to
receive from the sale of spare parts and aftersales products. Consequently, Qoros’ success is dependent, in large part, upon a network of dealers, whose
salespersons Qoros does not directly employ and therefore cannot control. As a result, Qoros’ dealer network may not achieve the required standards of quality of
service producers within Qoros’ expected timeframe, if at all.
Qoros is still in the process of developing and establishing its dealer network, which will require Qoros’ dealers to construct their dealerships using their own
capital resources, with partial reimbursements from Qoros. As part of its strategy to increase its sales, Qoros intends to increase the size of its dealer network by
creating incentives for its high-performing dealers to open additional points of sales. Qoros’ development of its dealer network will likely be affected by conditions
in the Chinese passenger vehicle market and the Chinese economy, the financial resources available to existing and potential dealers, the decisions dealers make as
a result of the current and future sales prospects of Qoros’ vehicle models, and the availability and cost of the capital necessary to acquire and hold inventories of
Qoros’ vehicles for resale. Qoros’ ability to secure new dealers depends, in part, upon the sales performance of Qoros’ existing dealers. Therefore, Qoros may have
difficulty in expanding its dealer network if existing dealers are not performing well in terms of sales, and if Qoros is unable to expand its dealer network, this
could make it difficult for Qoros to significantly increase sales levels. Continued delays in, or other negative developments with respect to, the expansion of Qoros’
dealer network could have a material adverse effect on Qoros’ business, financial condition, results of operations or liquidity.
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Table of Contents
Qoros
is
undertaking
additional
cost-cutting
measures
to
optimize
its
cost
structure
and
align
its
operations
with
its
business
plan
and
the
current
financial
market
and
economic
conditions
in
China,
and
such
measures
may
make
it
difficult
for
Qoros
to
increase
sales.
In 2015, Qoros took steps to reduce its costs and address its low sales and its liquidity situation, including workplace optimization and reduced promotional
spending. Qoros will continue to undertake cost-cutting measures to optimize its cost structure, which may impact Qoros’ ability to successfully conduct its
operations. For instance, Qoros may be required to continue reducing spending on promotions and other advertising, which could make it difficult for Qoros to
significantly increase sales, as brand awareness is critical to increasing sales in the highly competitive Chinese car industry. Furthermore, Qoros has and may
continue to reduce spending on design and research and development costs for new models, which may result in Qoros introducing fewer models than it might have
otherwise introduced without such-cutting measures. A slower pace in introducing new models may make it difficult for Qoros to attract and retain customers,
which is crucial at Qoros’ current stage of development.
Qoros’
business
is
subject
to
intense
competition.
China has been one of the world’s fastest growing economies in terms of GDP in recent years, and has been the fastest growing among major passenger
vehicle markets in the world. The passenger vehicle market in China is highly competitive. Many of the largest global manufacturers, through joint venture
relationships with Chinese manufacturers, and numerous established domestic manufacturers compete within this market. Accordingly, Qoros competes with the
established automobile manufacturers, particularly with the European, U.S., Korean and Japanese automakers. Most of Qoros’ current and potential competitors
have longer operating histories, broader customer relationships, greater name recognition, established customer bases, and greater financial, technical,
manufacturing, marketing and other resources. As a result, many of these competitors may be able to devote greater resources to the design, development,
manufacturing, distribution, promotion, pricing sale and support of their products, which could impair Qoros’ ability to operate within this market or adversely
impact Qoros’ sales volumes or margins.
As the size of the Chinese passenger vehicle market continues to increase, Qoros anticipates that additional competitors, both international and domestic, will
seek to enter the Chinese market and that existing market participants will try to maintain or increase their market share. The decline in growth rate that occurred in
2015 in connection with volatility in the Chinese financial markets and a slowdown in the Chinese economy resulted in increased competition in China’s
automotive market through price reductions, which has resulted in reduced margins. In response to market conditions, in February 2016, Qoros announced
suggested retail price reductions of approximately 10% on its existing models. In addition to reducing margins, increased competition may make it difficult for
Qoros to increase sales. If Qoros is unable to increase its sales, or sell its vehicles with its expected margins, in light of increased competition in the passenger
vehicle market, or if vehicle sales in China decrease or do not continue to increase as expected, this could have a material adverse effect on Qoros’ business,
financial condition, results of operations or liquidity.
Qoros also faces intense competition in the C-segment SUV market, which it entered in March 2016 with its launch of the Qoros 5 SUV. Although the
Chinese C-segment SUV model grew by 38% in 2015 and is one of the fastest growing segments in the Chinese car market, many of Qoros’ competitors in this
market will continue to upgrade their vehicles and introduce new models in 2016. For instance, a number of domestic and international SUV models have been or
will be revamped, or will be replaced by a new generation, in 2016. Several new car manufacturers are also expected to join this market segment, which may make
it difficult for Qoros to gain market share in the C-segment SUV market.
Qoros’
success
depends,
in
part,
upon
its
ability
to
protect,
and
maintain
ownership
of,
its
intellectual
property.
Qoros has independently developed and patented, and owns numerous motor vehicle technologies, including technologies related to human machine
interface, or HMI, motor vehicles, and motor vehicle platforms, parts, components and accessories for motor vehicles. Qoros believes that such technologies
provide it with a competitive advantage and the platform with which to produce international-standard vehicles for its targeted Chinese consumers. Additionally,
Qoros owns the brands, trade names, trademarks, or emblems developed in connection with, or with respect to, any of its vehicles. If Qoros fails to protect its
intellectual property rights adequately, Qoros’ competitors might gain access to its technology, and its brand or business may be adversely affected. Qoros relies on
copyright, trade secret and patent laws, confidentiality procedures and contractual provisions to protect its proprietary methods and technologies and trademark
laws to protect the brands, trade names, trademarks, or emblems developed in connection with, or with respect to, any of Qoros’ vehicles. Qoros currently holds
patents in China, the European Union and the U.S., and has pending patent applications in various countries. Further, Qoros
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Table of Contents
has trademark registrations and applications in various markets in Asia, the Middle East, Europe, North America, South America, Africa, Australia, and New
Zealand. Patents may not be granted for Qoros’ pending patent applications, and the claims allowed on any issued patents may not be sufficiently broad to protect
Qoros’ technologies. Any patents or trademarks currently held by Qoros, or that may be issued to Qoros in the future, may be challenged, invalidated or
circumvented, and any rights granted under these patents or trademarks may not actually provide Qoros with adequate defensive protection or competitive
advantages. Additionally, the process of applying for patent and trademark protection is expensive and time-consuming, and Qoros may not be able to complete all
necessary or desirable patent and trademark applications at a reasonable cost or in a timely manner.
Furthermore, policing the unauthorized use of Qoros’ technology, or trademarks, may prove difficult as the laws of some foreign countries may not be as
protective of intellectual property rights as those of the United States, and mechanisms for enforcement of Qoros’ proprietary rights in such countries may be
inadequate. From time to time, Qoros may need to initiate legal action to enforce its intellectual property rights, to protect its trade secrets, to determine the validity
and scope of the proprietary rights of others, or to defend itself against claims of infringement. Qoros has previously been a defendant in suits with respect to
Qoros’ alleged infringement of the intellectual property of other vehicle manufacturers, including with respect to Audi, a claim which was settled in August 2014.
Any such litigation could result in substantial costs and the diversion of limited resources and could negatively affect Qoros’ business, reputation or brand. If Qoros
is unable to protect its proprietary rights (including aspects of its technology platform), Qoros may lose its expected competitive advantage which could have a
material adverse effect on Qoros’ business, financial condition, results of operations or liquidity.
Finally, Qoros has pledged, and, in the future, may further pledge, certain of its intellectual property as collateral as a condition for its receipt of financing. A
default on Qoros’ obligations secured by intellectual property under the terms of such facility could provide the secured parties with the right to foreclose on, and
subsequently sell and/or license, all or a portion of Qoros’ pledged patent rights, which could materially impair Qoros’ ability to conduct its business.
The
economic,
political
and
social
conditions
in
China
could
have
a
material
adverse
effect
on
Qoros.
Substantially all of Qoros’ assets are located in China and Qoros expects that substantially all of its revenue will continue to be derived from its operations in
China in the short-term and that at least a substantial proportion of its revenues will be derived from its operations in China in the long-term. Accordingly, Qoros’
results of operations and prospects are subject, to a significant extent, to the economic, political and legal developments in China. China’s economy differs from the
economies of most developed countries in many respects, including government involvement, level of development, growth rate, control of foreign currency
exchange and allocation of resources. The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although the
Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive
assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese
government. Additionally, the Chinese government continues to play a significant role in regulating industry by imposing industrial policies and continues to
exercise significant control over China’s economic growth through allocating resources, controlling the payment of foreign currency-denominated obligations,
setting monetary policy, and providing preferential treatment to particular industries or companies.
China’s economy has experienced rapid growth, much of it due to the issuance of debt over the last few years. This debt-fueled economic growth has led to
an increase in the money supply and rising inflation. The Chinese government has implemented various measures from time to time to control China’s rate of
economic growth, control inflation and otherwise regulate economic expansion. These measures include imposing controls on bank credit, limiting loans and
enacting other restrictions on economic activities, such as measures to curb property, stock market speculation, and increasing inflation. These policies and
procedures may, from time to time, be modified or reversed, which could lead to a tightening of credit, which measures, if taken, could further reduce the economic
activity in China, reducing Qoros’ ability to obtain additional financing. Additionally, any economic, political or social crisis within China may also lead to a
drastic decline in economic activity which could lead to a decline in the demand for Qoros’ vehicles or the availability of funding. For example, in 2015, China’s
GDP grew by 6.9%, representing its lowest GDP growth rate since 1990, according to the National Bureau of Statistics of China, or NBSC. Furthermore, the
Shanghai Composite Index declined by more than 30% percent from mid-June 2015 to the end of the year, and experienced high volatility in January 2016. The
slowdown in China’s economic growth, as well as the decline and volatility in China’s stock market, negatively impacted consumption rates and the purchase of
costly items, such as vehicles, throughout China.
Furthermore, China’s central government faces a number of issues arising from increased oil dependency. Among these issues are greenhouse gas emissions,
heavy haze and urban gridlock due to fast-growing downtown vehicle fleets. As such, the Chinese government has implemented, and may continue to implement,
policies to reduce, or slow down, the growth of the vehicle fleet, or promote green cars. Some local governments are being required to launch local promotion
policies to
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speed up new energy vehicle development, which are expected to ease state energy security and local air pollution and traffic congestion problems. These policies
may be costly or alter the demand for Qoros’ vehicles, or Qoros may be unable to adjust to changing regulations, which may have an adverse effect on Qoros’
business, results of operations and financial condition.
Qoros
is
subject
to
Chinese
regulation
and
its
business
or
profitability
may
be
affected
by
changes
in
China’s
regulatory
environment.
Local and national Chinese authorities have exercised and will continue to exercise substantial control over the Chinese economy through regulation and
state ownership, including rules and regulations that regulate or affect the Chinese automobile manufacturing process and concern vehicle safety and environmental
matters such as emission levels, fuel economy, noise and pollution. Additionally, China has recently permitted provincial and local economic autonomy and private
economic activities, and, as a result, Qoros is dependent upon its relationship with the local governments in the Jiangsu and Shanghai provinces. As a result, certain
of Qoros’ ongoing corporate activities are subject to the approval and regulation of the relevant authorities in China including, among other things, capital increases
and investments in Qoros, changes in the structure of Qoros’ ownership, increases in the production capacity, construction of Qoros’ production facilities,
ownership of trademarks, relocation of Qoros’ head office, the formation of subsidiaries, and the inclusion of Qoros’ products in the national catalogue for purposes
of selling them throughout China. Qoros’ operations are also sensitive to changes in the Chinese government’s policies relating to all aspects of the automobile
industry. In addition, Qoros’ production facility and products are required to comply with Chinese environmental regulations.
Qoros has incurred, and expects to incur in the future, significant costs in complying with these, and other applicable, regulations and believes that its
operations in China are in material compliance with all applicable legal and regulatory requirements. For example, in order to comply with the Beijing VI
emissions standards, which are expected to be implemented in December 2017, Qoros will need to upgrade the engines in its new vehicles and expects to incur
significant costs in doing so. The central or local Chinese governments may continue to impose new, conflicting or stricter regulations or interpretations of existing
regulations that would require additional expenditures and efforts by Qoros to ensure its compliance with such regulations or interpretations or maintain its
competitiveness and margins. Qoros’ ability to operate profitably in China may be harmed by any such changes in China, Jiangsu, or Shanghai’s laws and
regulations, including those relating to taxation, environmental regulations, land use rights, property, or the aforementioned corporate matters. Qoros’ failure to
comply with such laws and regulations may also result in fines, penalties or lawsuits, which could have a material adverse effect on Qoros’ business, financial
condition, results of operations or liquidity.
In January 2016, Qoros created an NEV business division, which will focus on the development of efficient, cost-effective electric cars. Should Qoros
proceed with developing and selling electric vehicles, Qoros will be subject to a new regulatory regime, which is still evolving in China.
The
Chinese
passenger
vehicle
market
may
not
continue
to
grow
as
it
has
in
the
past.
Qoros has strategically located its operations, and designed its vehicle models for consumers, within China so as to directly access the largest and the fastest
growing automobile markets in the world. However, the demand for vehicles in the Chinese automobile industry was highly volatile in 2015, due largely to
weakness in the Chinese economy, and it is uncertain how the Chinese car industry will be affected going forward. Following the economic slowdown and
volatility in the Chinese stock market in the second and third quarters of 2015, sales volumes in 2015 were flat year-on-year. In response, China’s central
government enacted a tax policy to incentivize the sale of domestic vehicle sales by lowering taxes on certain vehicles, including Qoros’ vehicles. However, the
success of this policy is uncertain, and if the Chinese passenger vehicle market does not continue to grow, or grows at a slower pace than it has grown in recent
years, this could materially affect demand for Qoros’ vehicles.
In addition, from time to time, Chinese cities have implemented, and may continue to implement, license plate quota policies, and such quotas may reduce
vehicle sales. Although no large- or mid-sized cities launched new car license plate quota policies in 2015, cities may implement such policies in 2016 in light of
increased concerns about haze and air pollution, oil dependency, urban gridlock and noise pollution. If cities implement license plate quota policies, the prices for
provincial license plates may continue to increase, particularly in Shanghai, where Qoros’ selling efforts are focused, or if Chinese policies to incentivize domestic
vehicle sales prove unsuccessful, demand for passenger vehicles in China may decrease, which may have a material adverse effect on Qoros’ business, financial
conditions, results of operations or liquidity.
Qoros
requires
qualified
personnel
to
manage
its
operations.
Qoros’ senior executives and personnel are important to Qoros’ success, the establishment of Qoros’ strategic direction, and the design and implementation
of Qoros’ business plan. Qoros also requires qualified and competent employees
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to independently direct its day-to-day business operations, execute its business plans, and service Qoros’ customers, dealers, suppliers and other stakeholders.
Qoros’ products and services are highly technical in nature. Therefore, Qoros must be able to attract, recruit, hire and train skilled employees, including employees
with the capacity to operate Qoros’ production line as well as employees possessing core competencies in vehicle design and engineering. This includes developing
talent and leadership capabilities in China, where the amount of skilled employees may be limited. The unavailability of qualified personnel in these competitive
specialties, or the loss of key Qoros executives, could negatively impact Qoros’ ability to meet its growing operational and servicing demands. In addition,
unpredictable increases in the demand for Qoros’ vehicle models may also exacerbate the risk of not having a sufficient number of trained personnel. If Qoros fails
to train and retain qualified personnel, or if it experiences excessive turnover, Qoros may experience production/manufacturing delays or other inefficiencies,
increased recruiting, training or relocation costs, or other difficulties, any of which could have a material adverse effect on Qoros’ business, financial condition,
results of operations or liquidity.
Qoros
is
dependent
upon
its
suppliers.
Qoros sources the component parts necessary for its vehicle models from over 100 suppliers. A number of Qoros’ component parts are currently obtained
from a single source. Qoros utilizes such single-source suppliers to manage its expenses and maintain consistency in its component parts. Many of Qoros’ suppliers
are European-based with manufacturing facilities in China. Additionally, although Qoros is under no obligation to do so, Qoros sources its engines and certain
spare parts from Chery.
Qoros maintains minimal inventories of the materials, systems, components and parts needed to conduct its manufacturing operations. Therefore, Qoros is
dependent upon the continued ability of its suppliers to deliver such materials, systems, components and parts in sufficient quantities and at such times that will
allow Qoros to meet its production schedules. As Qoros, consistent with industry practice, outsources a significant portion of its components and parts from
suppliers, it may be affected by any fluctuations in the expertise and manufacturing capabilities of its suppliers. Additionally, as Qoros’ suppliers may also supply a
significant portion of the components and parts of Qoros’ competitors, such concentration may expose Qoros and its competitors to increased pricing pressure.
Qoros may also be unable to procure the component parts necessary for its vehicle models if the established manufacturers with which it competes have the
capacity to influence Qoros’ suppliers. Although Qoros believes it may be able to establish alternate supply relationships and obtain or engineer replacement
components in the event a supplier, including Chery or a single-source supplier, is unable to supply Qoros with a necessary component part at a favorable cost,
Qoros may be unable to do so in the short-term, or at all, at prices or costs that it deems favorable. In addition, although Qoros believes that its component parts are
available from many suppliers, qualifying alternate suppliers or developing replacements for certain highly customized components of its vehicles may be time
consuming and costly or may force Qoros to make additional and unexpected modifications to its vehicle models’ designs or schedules. An unexpected shortage of
materials, systems, components or parts, if even for a relatively short period of time, could prevent Qoros from manufacturing its vehicles, cause Qoros to alter its
production designs, or prevent Qoros from timely supplying its dealers with the aftersales parts necessary for the servicing of Qoros’ vehicles. Such occurrences
could adversely impact Qoros’ relationships with its dealers or customers and thereby affect Qoros’ business, financial condition, results of operations or liquidity.
Increases in the prices of raw materials that are included within the component parts Qoros purchases from its suppliers, may increase Qoros’ costs and could
reduce Qoros’ profitability if Qoros cannot recoup the increased costs through increased vehicle prices. Qoros may not be able to maintain favorable arrangements
and relationships with its suppliers and, in particular, may not be able to secure or maintain, as applicable, contractual conditions comparable with those of Qoros’
main competitors.
Although Qoros does not believe that it is dependent upon any of its suppliers, Magna Steyr Fahrzeugtechnik AG & Co., KG, or Magna Steyr, a company
engaged in automobile design and engineering, has been engaged to develop Qoros’ platform and is an important provider of engineering services for Qoros’
various C-segment models. In the event that Magna Steyr is unable to supply Qoros with its engineering services and support, Qoros will need to establish
alternative arrangements and may be unable to do so in the short-term, or at all, or on terms that are favorable to it.
Qoros actively manages its trade payables, accrued expenses and other operating expenses in connection with the management of its liquidity requirements
and available resources. As of December 31, 2015, Qoros had trade and other payables of RMB2.6 billion. If Qoros is unable to pay its suppliers on a timely basis,
it may be unable to procure the parts, components and services it requires to continue operating and Qoros has been, and may continue to be, subject to suits or
other claims in respect of outstanding payables. For further information on Qoros’ liquidity and capital resources, see “ Item
5.B
Liquidity
and
Capital
Resources—
Qoros’
Liquidity
and
Capital
Resources.
” For further information on claims brought by certain of Qoros’ suppliers, see “Item
4.B
Business
Overview—Qoros—
Qoros’
Legal
Proceedings—Claims
by
Suppliers.
”
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Qoros’
manufacturing
operations
will
need
to
increase
production
to
the
extent
that
sales
levels
increase.
To the extent that its sales increase, Qoros will need to ramp up its production, and there is a risk that Qoros will not be able to meet planned production
volumes as required to successfully satisfy the market demand for the C-segment models it has launched and plans to launch. Qoros may face delays and cost
overruns which may occur as a result of factors beyond its control, such as disputes with suppliers or vendors. Any such delays in Qoros’ production could result in
additional operating costs, adverse publicity, or diminished relationships with Qoros’ customers or dealers which could have a material adverse effect on Qoros’
business, financial condition, results of operations or liquidity.
Qoros
may
experience
delays
and/or
cost
overruns
with
respect
to
the
design,
manufacture,
launch
and
financing
of
new
or
enhanced
models.
Historically, automobile customers have come to expect new or enhanced vehicle models to be introduced frequently, and Qoros’ business plan contemplates
the introduction of new vehicle models, as well as enhanced versions of existing vehicle models, over the short- and long-term. Additionally, as technologies
continue to evolve, Qoros will be expected to continually upgrade and adapt its vehicle models so that new vehicle models introduced into the market will
continually provide consumers with the latest automobile technology. Qoros’ introduction of both new and enhanced vehicle models will require significant
investments. Further, there can be no assurance that Qoros will be able to secure the necessary financing to fund the continued introduction of new and enhanced
vehicle models, design future vehicle models that will maintain the high quality standards required for Qoros’ branding image, meet the expectations of its
customers, and become commercially viable, in light of its current liquidity situation. Automobile manufacturers often experience delays and cost overruns in the
design, manufacture and commercial release of new and enhanced vehicle models and any delay in the financing, design, manufacture or launch of Qoros’ new or
enhanced models could materially damage Qoros’ brand, the development of its business and its financial position.
The
economic
and
reputational
costs
associated
with
vehicle
recalls
could
have
a
material
adverse
effect
on
Qoros.
From time to time, Qoros may recall certain of its vehicle models to address material performance, compliance or safety-related issues. For example, in July
2015, Qoros voluntarily recalled 6,736 vehicles in connection with information discovered during testing done on frontal impact crashes of new Qoros models
under development. As of December 31, 2015, Qoros has completed the repairs of 81% of the outstanding recalls. Qoros’ completion schedule is in line with
regulatory guidelines, which require Qoros to complete 90% of the outstanding recalls within a twelve-month period. As of the date of this annual report, Qoros has
not received any field incidences or customer complaints related to this defect across any of its vehicles in the market.
The direct economic costs Qoros may incur in connection with any recalls may include the costs associated with the particular part’s development and
replacement and the labor costs associated with the removal and replacement of the defective part. Vehicle recalls, notwithstanding the size, scope, or whether or
not the recall is voluntary, can harm Qoros’ reputation and can cause Qoros to lose customers and experience a decline in its sales. This is particularly true as Qoros
is continuing to develop its brand, as any such recalls may cause consumers to question the safety or reliability of Qoros’ vehicle models. Any direct economic
costs incurred or lost sales caused by future vehicle recalls, a failure by Qoros to issue a vehicle recall when appropriate, or Qoros’ failure to issue a vehicle recall
on a timely basis, could have a material adverse effect on Qoros’ reputation, business, financial condition, results of operations or liquidity.
Our
independent
registered
public
accounting
firm
currently
relies
on
an
independent
registered
public
accounting
firm
located
in
the
People’s
Republic
of
China,
who
are
not
inspected
by
the
PCAOB,
for
assistance
in
completing
their
audit
work
associated
with
our
investment
in
Qoros,
and
as
such,
you
are
deprived
of
the
benefits
of
such
inspection.
Our independent registered public accounting firm currently relies on an independent registered public accounting firm located in the People’s Republic of
China for assistance in completing the audit work associated with our investment in Qoros. Auditors of companies that are publicly traded in the United States and
firms registered with the PCAOB are required to undergo regular Public Company Accounting Oversight Board, or PCAOB, inspections. However, because Qoros
has substantial operations within China, a jurisdiction in which the PCAOB is currently unable to conduct inspections without the approval of the Chinese
government authorities, the audit work conducted in China with respect to Qoros has not been inspected by the PCAOB.
Inspections of other auditors conducted by the PCAOB outside of China have, at times, identified deficiencies in those auditors’ audit procedures and quality
control procedures, which may be addressed as part of the PCAOB’s inspection process to improve future audit quality. The lack of PCAOB inspections of audit
work undertaken in China prevents the PCAOB from regularly evaluating audits and quality control procedures conducted in China. As a result, our shareholders
may be deprived of the benefits of PCAOB inspections, and may lose confidence in Kenon’s or Qoros’ financial statements and the procedures and the quality
underlying such financial statements.
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If
the
China-based
affiliates
of
the
“Big
Four”
accounting
firms,
including
the
auditor
of
Qoros,
were
to
violate
the
terms
of
a
settlement
agreement
with
the
SEC
arising
out
of
proceedings
instituted
by
the
SEC
against
them
in
late
2012,
such
violation
could
result
in
the
Chinese
member
firms
of
the
“Big
Four”
accounting
firms
being
suspended
from
practicing
before
the
SEC
which
could,
in
turn,
delay
the
timely
filing
of
our,
or
Qoros’,
financial
statements
with
the
SEC.
In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002
against the mainland Chinese affiliates of the “Big Four” accounting firms, including the auditor of Qoros. The Rule 102(e) proceedings initiated by the SEC
related to the failure of these firms to produce documents, including audit work papers, in response to the request of the SEC pursuant to Section 106 of the
Sarbanes-Oxley Act of 2002.
On January 22, 2014, an SEC administrative law judge, issued an initial decision suspending the Chinese member firms of the “Big Four” accounting firms,
including the auditor of Qoros, from, among other things, practicing before the SEC for six months. In February 2014, the initial decision was appealed. While
under appeal and in February 2015, the Chinese member firms of “Big Four” accounting firms reached a settlement with the SEC. As part of the settlement, each of
the Chinese member firms of “Big Four” accounting firms agreed to settlement terms that include a censure; undertakings to make a payment to the SEC;
procedures and undertakings as to future requests for documents by the SEC; and possible additional proceedings and remedies should those undertakings not be
adhered to.
Pursuant to Rule 3-09 of Regulation S-X, Kenon is required to attach Qoros’ separate audited financial statements to this annual report on Form 20-F, and
may be required to attach Qoros’ separate audited financial statements to its future annual reports on Form 20-F. Additionally, our independent registered public
accounting firm currently relies on a Chinese member firm of the “Big Four” network for assistance in completing the audit work associated with our investment in
Qoros. If the settlement terms are not adhered to, the Chinese member firms of “Big Four” accounting firms may be suspended from practicing before the SEC
which could in turn delay the timely filing of our, or Qoros’, financial statements with the SEC. In addition, it could be difficult for Qoros to timely identify and
engage another qualified independent auditor.
Any such occurrences may ultimately affect the continued listing of our ordinary shares on the New York Stock Exchange, or the NYSE, or our registration
with the SEC, or both. Moreover, any further negative news about the proceedings, any violations of the settlement agreement relating to the proceedings or any
future proceedings against these audit firms may adversely affect investor confidence in companies with substantial mainland China based operations listed in, or
affiliated with listings in, the U.S., such as Qoros, which could have a material adverse effect on the price of our ordinary shares and substantially reduce or
effectively terminate the trading of our ordinary shares in the United States.
Risks Related to Our Other Businesses
Risks
Related
to
Our
Interest
in
ZIM
The
container
shipping
industry
is
dynamic
and
volatile.
The container shipping industry is dynamic and volatile and has been marked in recent years by instability as a result of the recent global economic crisis and
the many conditions and factors that affect supply and demand in the shipping industry, which include:
•
•
•
•
•
•
global and regional economic and geopolitical trends, including armed conflicts, terrorist activities, embargoes and strikes;
the supply of and demand for commodities and industrial products globally and in certain key markets, such as China;
developments in international trade;
currency exchange rates;
prices of energy resources;
environmental and other regulatory developments;
53
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•
•
•
changes in seaborne and other transportation patterns;
changes in the infrastructure and capabilities of ports and terminals; and
weather conditions.
These factors also significantly affect ZIM’s freight rates. For example, according to the Shanghai (Export) Containerized Freight Index, the high and low
spot market index rates were approximately 1200 points and approximately 480 points, respectively, between January 2014 and December 2015, as compared to an
average spot market index rate of 567 points for December 2015. Furthermore, rates within the charter market, through which ZIM sources a substantial portion of
its capacity, may also fluctuate significantly based upon changes in demand for shipping services. As global trends continue to change, it remains difficult to
predict their impact on the container shipping industry and on ZIM’s business. If ZIM is unable to adequately respond to market changes, they could have a
material adverse effect on its business, financial condition, results of operations and liquidity.
Excess
supply
of
global
container
ship
capacity
may
limit
ZIM’s
ability
to
operate
vessels
profitably,
and
lead
to
overload
and/or
overcapacity
and
congestion
in
certain
ports.
Global container ship capacity has increased over the years and continues to exceed demand. As of January 1, 2016, global container ship capacity was
approximately 19.9 million 20-foot equivalent units, or TEUs, spread across approximately 5,150 vessels. According to Alphaliner, excess capacity is projected to
further increase, outpacing any expected increase in worldwide demand, as a result of large global orders for newbuildings. Many of these orders are for vessels
with carrying capacities of 10,000 TEUs and above, which may increase capacity for each shipping voyage. Additionally, responses to changes in market
conditions may be slower as a result of the time required to build new vessels and adapt to market needs. As shipping companies purchase vessels years in advance
to address expected demand, vessels may be delivered during times of decreased demand or unavailable during times of increased demand, leading to a
supply/demand mismatch. The container shipping industry may continue to face oversupply in the coming years and numerous other factors beyond ZIM’s control
may also contribute to an increase in capacity, including deliveries of refurbished or converted vessels, port and canal congestion, decreased scrapping of older
vessels, any decline in the practice of slow steaming, a reduction in the number of void voyages and a decrease in the number of vessels that are out of service (e.g.,
vessels that are laid-up, drydocked, awaiting repairs or are otherwise not available for hire). Excess capacity depresses freight rates and can lead to lower utilization
rates, which may adversely affect ZIM’s revenues, profitability and asset values. Until such capacity is fully absorbed by the container shipping market and, in
particular, the shipping lines on which ZIM’s operations are focused, the industry will continue to experience downward pressure on freight rates and such
prolonged pressure could have a material adverse effect on ZIM’s financial condition, results of operations and liquidity.
Furthermore, in recent years, container ship capacities have increased globally at a faster rate than the rate at which some container ports have increased their
capacities, leading to considerable delays in processing container shipments in affected ports. As a result of longer load and unload times, increases in container
ship capacities could increase port congestion, which could have a material adverse effect on affected shipping lines. In addition, as industry capacity continues to
grow, ZIM may have difficulty securing sufficient terminal slots to expand its operations in accordance with its growth strategy due to the limited availability of
port facilities.
The
expansion
of
the
Panama
Canal
may
have
an
adverse
effect
on
ZIM’s
results
of
operations.
The Panama Canal plays a key role in the delivery of cargo to the United States via the U.S. east coast and the Gulf of Mexico. The Panama Canal expansion
project is currently under way and is expected to be completed in 2016. Currently, the Panama Canal can accommodate container vessels with capacities of up to
5,000 TEUs. Upon completion, the Panama Canal is expected to accommodate container vessels with capacities of 13,000-14,000 TEUs, which can then access via
the Panama Canal the Pacific trade zone, which is one of ZIM’s strategic trade zones. The introduction of such vessels within this trade zone may require shipping
liners seeking to remain competitive, including ZIM, to alter their fleet composition and incorporate larger vessels into their Panama Canal operations. ZIM
currently does not have any agreements in place to procure or charter-in large container vessels. If ZIM’s competitors successfully deploy large vessels into this
trade, a significant portion of its vessels will become increasingly less efficient to operate upon completion of the Panama Canal expansion project and, if ZIM is
unable to incorporate larger vessels into its fleet, this could adversely affect the business within this key trade zone. This risk is further exacerbated by ZIM’s
inability to participate in certain alliances and thereby access larger vessels for deployment. ZIM may need to reroute some of ZIM’s shipping lines to remain
competitive and cannot predict the effects of any such changes in the shipping lines.
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Even if ZIM is able to procure or charter-in larger vessels for transport through the Panama Canal, there is a risk that the U.S. east coast shipping
infrastructure will not be able to accommodate the influx of such vessels. Currently, few U.S. east coast ports can accommodate these large vessels. Any failure of
the U.S. east coast ports to complete planned upgrades and modifications related to the Panama Canal expansion on time, or at all, could lead to overload and/or
overcapacity and congestion in certain ports in this trade zone. If ZIM is unable to adequately respond to these changes related to the Panama Canal expansion
project, it could have a material adverse effect on its business, financial condition, results of operations and liquidity.
ZIM
does
not
benefit
from
the
efficiencies
of
participating
in
strategic
alliances
and
the
ability
to
enter
into
such
alliances
and
the
participation
in
operational
partnerships
in
the
shipping
industry
may
be
limited,
which
may
adversely
affect
ZIM’s
business.
The container shipping industry has seen a trend towards strategic alliances and partnerships among container carriers, which can result in more efficient and
better coverage for shipping companies participating in such arrangements. For example, A.P. Moller-Maersk Group and Mediterranean Shipping Company, the
world’s two largest container liner companies, are party to a ten-year vessel sharing agreement operating in the east-west trades, while CMA CGM S.A., United
Arab Shipping Company (S.A.G.) and China Shipping Container Lines Co., Ltd. are party to the Ocean Three alliance.
ZIM is not a member of any alliances. As a result, ZIM does not benefit from the economies of scale that many of its competitors are able to achieve through
participation in such arrangements. However, ZIM is party to operational partnerships with other carriers in most of the trade zones in which ZIM operates, and
may seek to enter into additional operational partnerships or similar arrangements with other shipping companies or local operators, partners or agents. If ZIM is
not successful in expanding operational partnerships, this could adversely affect its business. In addition, ZIM’s status as an Israeli company has limited, and may
continue to limit, its ability to call on certain ports and has therefore limited, and may continue to limit, ZIM’s ability to enter into alliances or operational
partnerships with certain shipping companies. For further information on the risks related to ZIM’s status as an Israeli company, see “ —Risks
Related
to
the
Industries
in
Which
Our
Businesses
Operate—The
activities
of
certain
of
our
businesses
may
be
impacted
by
the
geopolitical,
economic
and
security
conditions
in
Israel
and
the
Middle
East.
”
Declines
in
freight
rates,
or
other
market
conditions,
could
negatively
affect
ZIM’s
business,
financial
condition,
or
results
of
operations
and
could
thereby
result
in
ZIM’s
incurrence
of
impairment
charges.
At each of its reporting periods, ZIM examines whether there have been any events or changes in circumstances, such as a decline in freight rates or other
market conditions, which would indicate an impairment. Additionally, when there are indications of an impairment, an examination is made as to whether the
carrying amount of the operating assets or cash generating units, or CGUs, exceeds the recoverable amount and, if necessary, an impairment loss is recognized in
its financial statements. The projection of future cash flows related to ZIM’s CGU, which is one CGU, is complex and requires ZIM to make various estimates
including future freight or charter rates, bunker prices, earnings from the vessels and discount rates, all of which have been volatile historically. For each of the
years ended December 31, 2013, 2014 and 2015, ZIM concluded that the recoverable amount of its CGU was higher than the carrying amount of its CGU and, as a
result, did not recognize an impairment loss in its financial statements. ZIM cannot assure that it will not impair its CGU in future years and such impairment
charges, if any, could negatively affect ZIM’s and/or Kenon’s results of operations.
An
increase
in
bunker
prices
may
have
an
adverse
effect
on
ZIM’s
results
of
operations.
Bunker expenses represent a significant portion of ZIM’s operating expenses, accounting for 20.3% and 13.8% of the income from voyages and related
services for the years ended December 31, 2014 and 2015, respectively. Bunker prices move in close interdependence with crude oil prices, which have historically
exhibited significant volatility. Crude oil prices are influenced by a host of economic and geopolitical factors that are beyond ZIM’s control, particularly economic
developments in emerging markets such as China and India, global terrorism, political instability and tensions in North Africa and the Middle East, uncertainty
regarding the nuclear agreement between the United States and Iran, insurrections in the Niger Delta, and the long-term increase in global demand for oil. A rise in
bunker prices could have a material adverse effect on ZIM’s business, financial condition, results of operations and liquidity. Historically, and in line with industry
practice, ZIM has imposed from time to time surcharges over the base freight rate ZIM charges to its customers in part to minimize its exposure to certain market-
related risks, including bunker price adjustments. However, there can be no assurance that ZIM will be successful in passing on future price increases to customers
in a timely manner, either for the full amount or at all.
ZIM’s bunker consumption is affected by various factors, including the number of vessels being deployed, vessel capacity, pro forma speed, vessel
efficiency, the weight of the cargo being transported, port efficiency and sea conditions. ZIM have implemented various optimization strategies designed to reduce
bunker consumption, including operating vessels in
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“super slow steaming” mode, trim optimization, hull and propeller polishing and sailing rout optimization. Additionally, ZIM manages part of its exposure to
bunker price fluctuations by entering into hedging arrangements with highly reputable counterparties. ZIM’s optimization strategies and hedging program may not
be successful in mitigating higher bunker costs, and any price protection provided by hedging may be limited due to market conditions, such as choice of hedging
instruments, and the fact that only a portion of ZIM’s exposure is hedged. There can be no assurance that ZIM’s hedging arrangements will be cost-effective, will
provide sufficient protection, if any, against rises in bunker prices or that the counterparties will be able to perform under ZIM’s hedging arrangements.
ZIM
is
highly
leveraged
and
may
be
unable
to
comply
with
its
financial
covenants
or
meet
its
debt
service
or
other
obligations.
ZIM’s
failure
to
comply
with
these
covenants
or
meet
such
obligations,
including
as
a
result
of
events
beyond
its
control,
could
adversely
affect
its
business,
financial
condition,
results
of
operations
and
liquidity.
As of December 31, 2015, ZIM had approximately $1.5 billion of outstanding loans and liabilities to be repaid between 2015 through 2027, of which $114
million constituted short-term debt. Many of the financing agreements relating to ZIM’s debt facilities contain covenants and limitations, including:
•
•
•
Minimum liquidity, fixed charge coverage ratio and total leverage covenants;
A covenant to retain a receivables-backed credit facility at least until July 2016; and
Other non-financial covenants and limitations such as restrictions on dividend distribution and incurrence of debt and various reporting obligations.
If ZIM is unable to meet its obligations or refinance its indebtedness as it becomes due, or if ZIM is unable to comply with its covenants, ZIM may have to
take disadvantageous actions, such as (i) reducing financing in the future for investments, acquisitions or general corporate purposes or (ii) dedicating a high level
of ZIM’s cash flow from operations to the payment of principal and interest on indebtedness. As a result, the ability of ZIM’s business to withstand competitive
pressures and to react to changes in the container shipping industry could be impaired. If ZIM chooses not to pursue any of these alternatives and is unable to obtain
waivers from the relevant creditors, a breach of any of its debt instruments and/or covenants could result in a default under the relevant debt instruments. Upon the
occurrence of such an event of default, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable and, in the case of
credit facility lenders, terminate all commitments to extend further credit. If the lenders accelerate the repayment of the relevant borrowings, ZIM may not have
sufficient assets to repay any outstanding indebtedness. Furthermore, the acceleration of any obligation under a particular debt instrument may cause a default
under other material debt or permit the holders of such debt to accelerate repayment of their obligations pursuant to “cross default” or “cross acceleration”
provisions, which could have a material adverse effect on ZIM’s business, financial condition and liquidity. For additional information, see “ Item
5.B
Liquidity
and
Capital
Resources—ZIM’s
Liquidity
and
Capital
Resources.
”
Furthermore, ZIM may be unable generate sufficient cash flows to satisfy its debt service and other obligations. ZIM’s ability to generate cash flow from
operations to make interest and principal payments on ZIM’s debt obligations will depend on its future performance, which will be affected by a range of
economic, competitive and business factors. ZIM cannot control many of these factors, including general economic conditions and the health of the shipping
industry. If ZIM’s operations do not generate sufficient cash flow from operations to satisfy its debt service and other obligations, ZIM may need to borrow
additional funds or undertake alternative financing plans, such as refinancing or restructuring its debt, or reducing or delaying capital investments and other
expenses. It may be difficult for ZIM to incur additional debt on commercially reasonable terms, even if ZIM is permitted to do so under its debt agreements, due
to, among other things, its financial condition and results of operations and market conditions. ZIM’s inability to generate sufficient cash flows from operations or
obtain additional funds or alternative financing on acceptable terms could have a material adverse effect on its business.
A
decrease
in
the
level
of
China’s
import
or
export
of
goods
could
have
a
material
adverse
effect
on
ZIM’s
business.
A significant portion of ZIM’s business originates from China, and ZIM therefore depends on the level of imports and exports to and from China. As China
exports considerably more goods than it imports, any reduction in or hindrance to China-based exports, whether due to decreased demand from the rest of the
world, an economic slowdown in China, increased tariffs or other factors, could have a material adverse effect on ZIM’s business. For instance, the Chinese
government has recently implemented economic policies aimed at increasing domestic consumption of Chinese-made goods. This may have the effect of reducing
the supply of goods available for export and may, in turn, result in decreased demand for cargo shipping. In recent years, China has experienced an increasing level
of economic autonomy and a gradual shift toward a “market economy” and enterprise reform. However, many of the reforms implemented, particularly some
limited price reforms, are unprecedented or experimental and may be subject to revision, change or abolition. The level of imports to and exports from China could
be
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adversely affected by changes to these economic reforms by the Chinese government, as well as by changes in political, economic and social conditions or other
relevant policies of the Chinese government. For example, in 2015, China experienced its slowest GDP growth rate since 1990, which affected levels of imports to
and exports from China. In response to the recent slowdown in China’s economic growth, China may implement additional trade barriers to protect their domestic
industries against foreign imports, which may depress the global demand for shipping services. Changes in laws and regulations, including with regard to tax
matters, and their implementation by local authorities could also affect ZIM’s vessels calling on Chinese ports and could have a material adverse effect on its
business, financial condition and results of operations.
Israel
holds
a
Special
State
Share
in
ZIM,
which
imposes
certain
restrictions
on
ZIM’s
operations
and
our
equity
interest
in
ZIM.
The State of Israel holds a special share in ZIM, or Special State Share, which imposes certain limitations on the activities of ZIM that may negatively affect
ZIM’s business and results of its operations. The Special State Share, and the permit which accompanies it, also imposes transferability restrictions on our equity
interest in ZIM. Furthermore, although there are no contractual restrictions on any sales of our shares by our controlling shareholders, if Idan Ofer’s ownership
interest in Kenon is less than 36%, or Idan Ofer ceases to be the controlling shareholder, or sole controlling shareholder of Kenon, then Kenon’s rights with respect
to its shares in ZIM (e.g., Kenon’s right to vote and receive dividends in respect of its ZIM shares) will be limited to the rights applicable to an ownership of 24%
of ZIM, until or unless the State of Israel provides its consent, or does not object to, this decrease in Idan Ofer’s ownership or “control” (as defined in the State of
Israel consent received by IC in connection with the spin-off). The State of Israel may also revoke Kenon’s permit if there is a material change in the facts upon
which the State of Israel’s consent was based, upon a breach of the provisions of the Special State Share by Kenon, Mr. Ofer, or ZIM, or if the cancellation of the
provisions of the Special State Share with respect to a person holding shares in ZIM contrary to the Special State Share’s provisions apply (without limitation). For
further information on the Special State Share, see “Item
4.B
Business
Overview—Our
Businesses—ZIM—ZIM’s
Special
State
Share.”
ZIM
faces
risks
as
a
result
of
its
status
as
an
Israeli
corporation.
ZIM is incorporated and its headquarters is located in Israel, and the majority of its key employees, officers and directors are residents of Israel. Accordingly,
political, economic and military conditions in Israel may directly affect ZIM’s business and existing relationships with certain foreign corporations, as well as
affect the willingness of potential partners to enter into business arrangements with ZIM. Numerous countries, corporations and organizations limit their business
activities in Israel and their business ties with Israeli-based companies. ZIM’s status as an Israeli company has limited, and may continue to limit, its ability to call
on certain ports and therefore has limited, and may continue to limit, its ability to enter into alliances or operational partnerships with certain shipping companies,
which has historically adversely affected its operations and its ability to compete effectively within certain trades. In addition, ZIM’s status as an Israeli company
has limited, and may continue to limit, its ability to enter into alliances that include certain carriers who are not willing to cooperate with Israeli companies.
Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. In recent
years, these have included hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which resulted in rockets being fired into
Israel, causing casualties and disrupting economic activities. Recent political uprisings, social unrest and violence in the Middle East and North Africa, including
Israel’s neighbors Egypt and Syria, are affecting the political stability of those countries. This instability has raised concerns regarding security in the region and
the potential for armed conflict. Armed conflicts or hostilities in Israel or neighboring countries could cause disruptions in ZIM’s operations, including significant
employee absences, failure of its information technology systems and cyber-attacks, which may lead to the shutdown of its headquarters in Israel. ZIM’s
commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli
government is currently committed to covering the reinstatement value of direct damages caused by terrorist attacks or acts of war, ZIM cannot assure you that this
government coverage will be maintained, or if maintained, will be sufficient to fully compensate us for damages incurred. Any losses or damages incurred by us
could have a material adverse effect on its business. Any armed conflict involving Israel could adversely affect ZIM’s business and results and operations.
During the 2006 Lebanon War, a military conflict took place in Lebanon. As a result of rocket fire in the city of Haifa, ZIM closed its headquarters for
several days. Although ZIM maintains an emergency plan, such events can have a material adverse effect on its operational activities. Any future deterioration in
the security or geopolitical conditions in Israel or the Middle East could adversely impact ZIM’s business relationships and thereby have a material adverse effect
on its business, financial condition, results of operations or liquidity. As an Israeli company, ZIM has relatively high exposure, compared to many of its
competitors, to acts of terror, hostile activities including cyber-attacks, security limitations imposed upon Israeli organizations overseas, possible isolation by
various organizations and institutions for political reasons and other limitations (such as restrictions against entering certain ports). If ZIM’s facilities, including its
headquarters, become temporarily or
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permanently disabled by an act of terrorism or war, it may be necessary for us to develop alternative infrastructure and ZIM may not be able to avoid service
interruptions. Additionally, ZIM’s owned and chartered vessels, including those vessels that do not sail under the Israeli flag, may be subject to control by the
authorities of the State of Israel in order to protect the security of, or bring essential supplies and services to, the State of Israel. Israeli legislation also allows the
State of Israel to use ZIM’s vessels in times of emergency. Any of the aforementioned factors may negatively affect ZIM and its results of operations. For further
information on the risks related to ZIM’s operations in Israel, see “ —Risks
Related
to
the
Industries
in
Which
Our
Businesses
Operate—The
activities
of
certain
of
our
businesses
may
be
impacted
by
the
geopolitical,
economic
and
security
conditions
in
Israel
and
the
Middle
East
. ” For further information on the risks related
to entry into operational partnerships within the shipping industry, see “ —ZIM
does
not
benefit
from
the
efficiencies
of
participating
in
strategic
alliances
and
the
ability
to
enter
into
such
alliances
and
the
participation
in
operational
partnerships
in
the
shipping
industry
may
be
limited,
which
may
adversely
affect
ZIM’s
business
.”
ZIM
charters
a
substantial
portion
of
its
fleet
and
the
cost
associated
with
chartering
such
vessels
is
unpredictable.
ZIM charters a substantial portion of its fleet. As of December 31, 2015, of the 85 vessels through which ZIM provides transport services globally, 72 are
chartered under “Time Charter” operational leases, which represents a percentage of chartered vessels that is higher than the industry average. A rise in charter hire
rates may adversely affect ZIM’s results of operations. ZIM is party to a number of long-term charter agreements. As of December 31, 2015, approximately 39% of
ZIM’s “Time Charter” operationally chartered vessels are chartered under operational leases for terms exceeding one year. As a result, ZIM may be unable to take
full advantage of short-term reductions in charter hire rates. In addition, some of ZIM’s long-term charter agreements contain rate adjustment mechanisms pursuant
to which charter hire rates will increase if the market rate increases, so ZIM may not benefit from such long-term charter agreements in the event of an increase in
market charter hire rates. Furthermore, if ZIM is unable in the future to charter vessels of the type and size needed to serve its customers efficiently on terms that
are favorable to ZIM, if at all, this may have a material adverse effect of on its business, financial condition, results of operations and liquidity.
ZIM
currently
does
not
own
or
charter
enough
large
vessels
to
support
its
growth
strategy,
and
ZIM
may
face
difficulties
acquiring
or
chartering
larger
vessels
for
its
fleet.
Container shipping companies have been incorporating, and are expected to continue to incorporate, larger, more economical vessels into their operating
fleets. The cost per TEU transported on large vessels is less than the cost per TEU for smaller vessels (assuming the vessels are operating at full capacity), as,
among other reasons, larger vessels provide increased capacity and fuel efficiency. As a result, cargo shippers are encouraged to deploy large vessels, particularly
within the more competitive trades. According to Alphaliner, vessels in excess of 10,000 TEUs represented approximately 24% of the current global order book
based on TEU capacity as of December 2015. Furthermore, a significant introduction of large vessels, including very large vessels in excess of 18,000 TEUs, into
any trade zone will enable the transfer of existing, large vessels to other shipping lines on which smaller vessels typically operate. Such transfers, which are
referred to as “fleet cascading,” may in turn generate similar effects in the other, smaller trade zones in which ZIM operates. ZIM does not currently have
agreements in place to procure or charter large container vessels, and the continued deployment of larger vessels by ZIM’s competitors will adversely impact
ZIM’s competitiveness if ZIM is not able to acquire, charter or obtain financing for such vessels on attractive terms or at all. This risk is further exacerbated due to
ZIM’s inability to participate in certain alliances and thereby access lager vessels for deployment. Even if ZIM is able to acquire or charter larger vessels, ZIM may
be unable to achieve utilization rates necessary to operate such vessels profitably.
ZIM
is
subject
to
environmental
regulation
and
failure
to
comply
with
such
regulation
could
have
a
material
adverse
effect
on
ZIM’s
business.
ZIM is subject to many legal provisions relating to the protection of the environment, including the emissions of hazardous substances, sulfur oxides, or SOx,
and nitrogen oxides, or NOx, and the use of low-sulfur fuel or shore power voltage, all of which may be subject to ongoing developments and amendments. For
example, ZIM is subject to the International Convention for the Prevention of Pollution from Ships (including designation of Emission Control Areas thereunder),
the International Convention for the Control and Management of Ships Ballast Water & Sediments, the International Convention on Liability and Compensation for
Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea of 1996, the Oil Pollution Act of 1990, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act, and National Invasive Species Act, among others. Compliance with such laws, regulations and
standards, where applicable, may require the installation of costly equipment or operational changes. ZIM may also incur additional compliance costs, and any such
costs could have a material adverse effect on its business. If ZIM fails to comply with any of the environmental regulations applicable, ZIM could be exposed to
significant environmental liability damages, criminal charges, and substantial harm to its operations and reputation. Additionally, environmental laws often impose
strict liability for remediation of spills and releases of oil and hazardous substances, which could subject ZIM to liability without regard to whether ZIM is
negligent or at fault.
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Environmental requirements may also require a reduction in cargo capacity, ship modifications or operational changes or restrictions, lead to decreased
availability of or more costly insurance coverage for safety and environmental matters or result in ZIM’s denial of access to certain jurisdictional waters or ports, or
its detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, ZIM could incur material liabilities, including
cleanup obligations, natural resource damages, personal injury and property damage claims in the event there is a release of petroleum or other hazardous materials
from its vessels, or otherwise, in connection with its operations. Violations of, or liabilities under, safety and environmental requirements can result in substantial
penalties, fines and other sanctions, including in certain instances, seizure or detention of its vessels and events of this nature could have a material adverse effect
on ZIM’s business, reputation, financial condition and results of operations.
The
shipping
industry
is
subject
to
extensive
government
regulation
and
standards,
international
treaties
and
trade
prohibitions
and
sanctions.
The shipping industry is subject to extensive regulation that changes from time to time and that applies in the jurisdictions in which shipping companies are
incorporated, the jurisdictions in which vessels are registered (flag states), the jurisdictions governing the ports at which vessels call, as well as regulations by virtue
of international treaties and membership in international associations. As a global container shipping company, ZIM is subject to a wide variety of international,
national and local laws, regulations and agreements. As a result, ZIM is subject to extensive government regulation and standards, customs inspections and security
checks, international treaties and trade prohibitions and sanctions, including laws and regulations in each of the jurisdictions in which we operate, including those
of the State of Israel, the U.S. Federal Maritime Commission, the International Safety Management Code, or the ISM Code, and the European Union. Any violation
of such laws, regulations, treaties and/or prohibitions could have a material adverse effect on ZIM’s business, financial condition, results of operations and liquidity
and may also result in the revocation or non-renewal of its “time-limited” licenses. Furthermore, the U.S. Department of the Treasury’s Office of Foreign Assets
Control administers certain laws and regulations that impose restrictions upon U.S. companies and persons and, in some contexts, foreign entities and persons, with
respect to activities or transactions with certain countries, governments, entities and individuals that are the subject of such sanctions laws and regulations. Similar
sanctions are imposed by the European Union and the United Nations. ZIM are acting in accordance with the applicable sanction laws. Under economic and trading
sanction laws, governments may seek to impose modifications to business practices, and modifications to compliance programs, which may increase compliance
costs, and may subject us to fines, penalties and other sanctions.
Additionally, ZIM is subject to competition and antitrust regulations in each of the countries where ZIM operates. In most of the jurisdictions in which ZIM
operates, operational partnerships among shipping companies are generally exempt from the application of antitrust laws, subject to the fulfillment of certain
exemption requirements. Recently, however, there has been a trend within the international community to limit such exemptions and it is difficult to predict
whether existing exemptions or their renewal will be affected in the future. ZIM is party to numerous operational partnerships and view these agreements as
competitive advantages in response to the market concentration in the industry as a result of mergers and global alliances, as well as the global economic crisis. An
amendment to or a revocation of any of the exemptions for operational partnerships that ZIM rely on could negatively affect ZIM’s business and results of
operations. See “ Item
4.B
Business
Overview—Legal
proceedings
.”
There
are
numerous
risks
related
to
the
operation
of
any
sailing
vessel
and
ZIM’s
inability
to
successfully
respond
to
such
risks
could
have
a
material
adverse
effect
on
ZIM.
There are numerous risks related to the operation of sailing vessels, including dangers associated with potential port closures, marine disasters, mechanical
failures, collisions, lost or damaged cargo, contraband smugglers, poor weather conditions, the content of the load, exceptional load, meeting deadlines, risks of
documentation, maintenance and the quality of fuels, piracy, shortages of qualified sea and shoreside personnel and maritime arrests arising from unsatisfied debts,
claims or damages. The occurrence of any of the aforementioned risks could have a material adverse effect on ZIM’s business, financial condition, results of
operations or liquidity and ZIM may not be adequately insured against any of these risks.
In
the
event
ZIM
lists
its
shares
on
a
stock
exchange
for
trading,
changes
in
the
market
price
of
ZIM’s
stock
could
have
a
material
adverse
effect
on
the
value
of
our
investment
in
ZIM.
ZIM may seek a public listing of its shares. Upon such listing, our ability to liquidate our 32% equity interest in ZIM, without adversely affecting the value
of these shares, may be limited. If we were to sell, or indicate an intention to sell, substantial amounts of our equity interest in ZIM in the public market, the trading
price of ZIM’s shares could decline.
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Additionally, the perception in the market that these sales may occur could also cause the trading price of ZIM’s shares to decline. Furthermore, the value of our
interest in ZIM may be affected by economic and market conditions that are beyond our control. Globally traded securities have been highly volatile and continued
volatility, which may result in significant changes in ZIM’s market price, in particular, could also have a material adverse effect on our business, financial
condition, results of operations or liquidity. If ZIM does not complete a listing of its shares, this would affect our ability to sell our equity interest in ZIM, if we
decide to do so.
We
may
be
required
to
record
a
significant
charge
to
our
earnings
if
we
are
required
to
impair
our
investment
in
ZIM.
As of December 31, 2015, the balance of our investment in ZIM was $201 million. We performed an impairment test of our investment in ZIM as of
December 31, 2015 and concluded that the recoverable amount of our investment in ZIM was higher than the carrying amount. If ZIM is not commercially
successful or, if due to economic or other conditions, our assumptions regarding the performance of ZIM are not achieved or are revised downward, we would
likely be required to record impairment charges. Given ZIM’s recent restructuring, the current economic and competitive environment, and the uncertainties
regarding the impact on such restructuring and environment on ZIM, we cannot assure you that the estimates and assumptions made for purposes of our impairment
testing will prove to be accurate predictions for the future. Additionally, any public listing of ZIM’s shares may also affect the value of our interest in ZIM and may
therefore result in our recognition of an impairment charge in respect of our investment in ZIM. Any impairment charges in respect of our investment in ZIM could
have a material adverse effect on our financial condition or results of operations.
Risks
Related
to
our
Other
Businesses
Primus
relies
on
Kenon
to
finance
its
operations.
The implementation of Primus’ business plan requires additional capital to enable Primus to continue to develop its commercial operations. Primus expects
such funding to be provided by additional shareholder funding (either through capital contributions or shareholder loans) provided by us or by new investors in
Primus. For example, in October 2014, we, through our wholly-owned subsidiary IC Green, entered into an investment agreement with Primus pursuant to which
we may lend Primus, at our discretion, up to $25 million via a series of convertible notes through December 31, 2015. As of December 31, 2015, through this
investment agreement, we have invested in Primus an aggregate of $16.5 million through convertible notes issued to Kenon.
Primus is currently seeking to raise capital from new investors. However, there is no certainty that additional financing will be provided to Primus, either by
us or new investors in Primus. In addition, in the event of new investments in Primus, such investments may serve to dilute our equity interest in Primus. Any lack
of, or delay in securing, such financing may delay, or prevent completely, Primus’ ability to continue to research and develop its commercial operations, which may
result in Primus’ ultimate liquidation or dissolution.
Primus’
STG+
process
may
not
become
commercially
viable.
Demand for and industry acceptance of Primus’ technologies is subject to a high level of uncertainty. If potential customers fail to accept Primus’
technologies, if acceptance develops slower than anticipated by Primus, or if Primus’ technologies prove uneconomical or unattractive, this could have a material
adverse effect on Primus’ business, financial condition, results of operations or liquidity.
Primus
is
an
early
stage
company
with
a
limited
operating
history.
Primus is an early stage company. The risks and uncertainties associated with the operation of an early stage company include a potential inability to:
•
•
•
•
•
commence significant operations on the current, or any revised, schedule in compliance with the current, or any revised, budget;
secure necessary capital;
successfully negotiate with government agencies, vendors, customers, feedstock suppliers or other third parties;
effectively manage rapid growth in personnel or operations;
successfully manage its existing, or enter into new, strategic relationships and partnerships;
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•
•
•
•
recruit and retain key personnel;
maintain optimal cost structure as, and when, the business expands;
adequately protect its intellectual property; and
develop technology, products or processes that complement existing business strategies or address changing market conditions.
If Primus is unable to adequately address any of these risks, this could have a material adverse effect on Primus’ business, financial condition, results of
operations or liquidity.
Primus’
STG+
process
may
not
generate
gasoline
or
methanol
that
satisfies
required
specifications.
The commercialization of Primus’ technology contemplates the production of gasoline that satisfies certain specifications. If any of the fuels produced by
Primus’ STG+ process, in particular its high-octane gasoline, are unable to satisfy required specifications, Primus may be unable to market and commercialize its
proprietary liquid fuels technology, the STG+ process. Any change in such specifications, could increase Primus’ expenses or delay the commercialization or
viability of Primus’ gas monetization technology, which could have a material adverse effect on Primus’ business, financial condition, results of operations or
liquidity.
Primus’
operations
are
highly
dependent
upon
commodity
prices,
particularly
natural
gas,
methanol
and
gasoline.
Primus’ operations depend substantially on the prices of various commodities, including natural gas, gasoline, crude oil, methanol and others. The prices of
certain of these commodities are volatile, and this volatility may affect Primus’ ability to market its technology and processes.
The liquid fuels that Primus produces using its STG+ process (gasoline and methanol) will compete in markets with refined petroleum products and, because
natural gas, or syngas derived from natural gas, will be primarily used as the feedstock in Primus’ STG+ process, an increase in natural gas prices relative to prices
for refined petroleum products, or a decrease in prices for refined petroleum products, could adversely affect demand for Primus’ technology. The price and
availability of natural gas and refined products may be affected by numerous factors, including the level of consumer product demand, weather conditions, the
availability of water for fracking, domestic and foreign government regulation (including regulation of fracking), the actions of the Organization of Petroleum
Exporting Countries, political conditions in oil and natural gas producing countries, the supply of domestic and foreign crude oil and natural gas, the location of any
plants developed by Primus vis-á-vis natural gas reserves and pipelines, the capacities of such pipelines, fluctuations in seasonal demand, governmental regulations,
the price and availability of alternative fuels and overall economic conditions. For example, recent trends in crude oil prices have led to significant declines in
gasoline prices which affects the economic feasibility of new projects using the STG+ technology. Primus cannot predict future demand and prices for natural gas
or refined products, and a relative increase in the price of natural gas could have a material adverse effect on its business, financial condition, results of operations
or liquidity.
Primus’
success
depends,
in
part,
upon
its
ability
to
protect
its
intellectual
property.
Primus has independently developed, patented and owns numerous processes related to liquid fuels synthesis, gasoline composition, and incremental
improvements and customizations. If Primus fails to protect its intellectual property rights adequately, its competitors might gain access to its technology, and its
competitive advantage, brand or business may be adversely affected.
Primus relies on trade secret and patent laws, confidentiality procedures and contractual provisions to protect its proprietary methods and processes. Primus
currently holds several patents and has pending patent applications in the U.S. Valid patents may not be issued from Primus’ pending applications, and the claims
allowed on any issued patents may not be sufficiently broad to protect Primus’ STG+ process. Any patents currently held by Primus or that may be issued to
Primus in the future may be challenged, invalidated or circumvented, and any rights granted under these patents may not actually provide Primus with adequate
defensive protection or competitive advantages. Additionally, the process of applying for patent protection is expensive and time-consuming, and Primus may not
be able to complete all necessary or desirable patent applications at a reasonable cost or in a timely manner.
Policing unauthorized use of technology may prove difficult for Primus as the laws of some foreign countries may not be as protective of intellectual
property rights as those of the United States, and mechanisms for the enforcement of Primus’
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proprietary rights in such countries may be inadequate. From time to time, Primus may need to initiate legal action to enforce its intellectual property rights, to
protect its trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend itself against claims of infringement. Such litigation
could result in substantial costs and the diversion of limited resources and could negatively affect Primus’ business, reputation or brand. If Primus is unable to
protect its proprietary rights, it may lose its expected competitive advantage which could have a material adverse effect on its business, financial condition, results
of operations or liquidity.
The
decrease
in
the
cost
of
fuel
or
electricity
generated
by
traditional
sources
may
cause
the
demand
for
the
services
provided
by
Primus
to
decline.
Decreases in the costs associated with traditional sources of fuel or electricity, such as prices for commodities like crude oil, coal, fuel oil and natural gas,
have reduced, and could further reduce the demand for the solutions provided by Primus. Crude oil prices, for example, fell considerably during 2014 and 2015,
and prices have continued to decline in 2016. The cost of fuel may be further reduced by changing global supply-demand dynamics, the discovery of large new
deposits of traditional fuels and technological progress, among other causes. These fuel price reductions have, and future reductions could further, reduce the
demand for the solutions offered by Primus.
Risks Related to Our Spin-Off
The
potential
indemnification
of
liabilities
to
IC
pursuant
to
the
Separation
and
Distribution
Agreement
may
require
us
to
divert
cash
to
IC
to
satisfy
our
indemnification
obligations.
We entered into a Sales, Separation and Distribution Agreement with IC, or the Separation and Distribution Agreement, which provides for, among other
things, indemnification obligations designed to make us financially responsible for liabilities incurred in connection with our businesses, and as otherwise allocated
to us in the Separation and Distribution Agreement. If we are required to indemnify IC under the circumstances set forth in the Separation and Distribution
Agreement, we may be subject to substantial liabilities, which could have a material adverse effect on our business, financial condition, results of operations or
liquidity.
There
can
be
no
assurance
that
IC’s
indemnification
of
certain
of
our
liabilities
will
be
sufficient
to
insure
us
against
the
full
amount
of
those
liabilities,
or
that
IC’s
ability
to
satisfy
its
indemnification
obligation
will
not
be
impaired
in
the
future.
Pursuant to the Separation and Distribution Agreement, IC has agreed to indemnify us for certain liabilities retained by it (which includes certain specified
pending legal matters). However, third parties could seek to hold us responsible for any of the liabilities that IC has agreed to retain, and there can be no assurance
that the indemnity from IC will be sufficient to protect us against the full amount, or any, of such liabilities, or that IC will be able to satisfy its indemnification
obligations. Moreover, even if we ultimately succeed in recovering from IC any amounts for which we are held liable, we may be temporarily required to bear these
losses ourselves. Additionally, IC’s insurers may deny coverage to us for liabilities associated with occurrences prior to the spin-off. Even if we ultimately succeed
in recovering from such insurance providers, we may be required to temporarily bear such loss of coverage. If IC is unable to satisfy its indemnification obligations
or if insurers deny coverage, the underlying liabilities could have a material adverse effect on our business, financial condition, results of operations or liquidity.
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If we are unable to upgrade our financial and management controls, reporting systems, information technology systems and procedures in a timely and
effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could
be impaired, we may suffer adverse regulatory consequences, including violations of the NYSE’s or the TASE’s listing rules. As a result, any failure to achieve and
maintain effective internal controls could have a material adverse effect on our business, financial condition, results of operations or liquidity.
Risks Related to Our Ordinary Shares
Our
ordinary
shares
are
traded
on
more
than
one
stock
exchange
and
this
may
result
in
price
variations
between
the
markets.
Our ordinary shares are listed on each of the NYSE and the TASE. Trading in our ordinary shares therefore takes place in different currencies (U.S. Dollars
on the NYSE and New Israeli Shekels on the TASE), and at different times (resulting from different time zones, different trading days and different public holidays
in the United States and Israel). The trading prices of our ordinary shares on these two markets may differ as a result of these, or other, factors. Any decrease in the
price of our ordinary shares on either of these markets could cause a decrease in the trading prices of our ordinary shares on the other market.
If
securities
or
industry
analysts
do
not
publish
research
or
reports
about
our
business,
or
publish
negative
reports
about
our
business,
our
share
price
and
trading
volume
could
decline.
There is no analyst coverage of Kenon outside of Israel. The trading market for our ordinary shares depends, in part, upon the research and reports that
securities or industry analysts publish about us or our businesses. If securities or industry analysts do not cover us, we could lose visibility in the financial markets,
which could cause our share price or trading volume to decline.
A
significant
portion
of
our
outstanding
ordinary
shares
may
be
sold
into
the
public
market,
which
could
cause
the
market
price
of
our
ordinary
shares
to
drop
significantly,
even
if
our
business
is
doing
well.
A significant portion of our shares are held by two shareholders. Ansonia held approximately 46.3% of our shares as of January 11, 2016 and Bank Leumi
Le-Israel B.M., or Bank Leumi, held approximately 14.0% of our shares as of February 8, 2016. If any of our principal shareholders sell, or indicate an intention to
sell, substantial amounts of our ordinary shares in the public market, the trading price of our ordinary shares could decline. The perception that any such sales may
occur, including the entry of any of our principal shareholders into programmed selling plans, could have a material adverse effect on the trading price of our
ordinary shares and/or could impair the ability of any of our businesses to raise capital.
Control
by
principal
shareholders
could
adversely
affect
our
other
shareholders.
Ansonia beneficially owned approximately 46.3% of our outstanding ordinary shares and voting power as of January 11, 2016. Ansonia therefore has a
continuing ability to control, or exert a significant influence over, our board of directors, and will continue to have significant influence over our affairs for the
foreseeable future, including with respect to the election of directors, the consummation of significant corporate transactions, such as an amendment of our
constitution, a merger or other sale of our company or our assets, and all matters requiring shareholder approval. In certain circumstances, Ansonia’s interests as a
principal shareholder may conflict with the interests of our other shareholders and Ansonia’s ability to exercise control, or exert significant influence, over us may
have the effect of causing, delaying, or preventing changes or transactions that our other shareholders may or may not deem to be in their best interests.
In addition, the loans that Ansonia has agreed to make to our subsidiary Quantum (which will be used by Quantum to make back-to-back loans to Qoros)
will be convertible into equity of Quantum at a 10% discount to the implied value of Qoros based upon the receipt of third-party financing. Accordingly, upon such
conversion, Kenon’s indirect interest in Qoros will be diluted, which will result in economic dilution and Kenon having less control over the Qoros business. In
connection with the loan agreement, Ansonia also has certain consent rights with respect to actions that we take in respect of our interest in Qoros. For further
information on Ansonia’s agreement to invest in Qoros, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Recent
Developments—Qoros—Ansonia’s
Agreement
to
Invest
in
Qoros.
”
We
do
not
have
sufficient
distributable
profits
to
pay
dividends.
Under Singapore law and our constitution, dividends, whether in cash or in specie, must be paid out of our profits available for distribution. We have no
current plans to pay cash dividends for the foreseeable future and we currently do not have distributable profits from which dividends may be declared. The
availability of distributable profits is assessed on the
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basis of Kenon’s standalone unconsolidated accounts (which are based upon the Singapore Financial Reporting Standards, or the SFRS). There is no assurance that,
on such basis, we will not incur losses, that we will become profitable, or that we will have sufficient distributable income that might be distributed to our
shareholders as a dividend or other distribution in the foreseeable future. Therefore, we will be unable to pay dividends to our shareholders unless and until we have
generated sufficient distributable reserves. Accordingly, it may not be legally permissible for us to pay dividends to our shareholders. As a result, and until such
time, if ever, that we declare dividends with respect to our ordinary shares, a holder of our ordinary shares will only realize income from an investment in our
ordinary shares if there is an increase in the market price of our ordinary shares. Such potential increase is uncertain and unpredictable.
Under Singapore law, it is possible to effect either a court-free or court-approved capital reduction exercise to return cash and/or assets to our shareholders.
For example, we effected a court-approved capital reduction exercise in 2015 to enable our pro rata distribution of substantially all of our interest in Tower to our
shareholders. IC, as our sole shareholder prior to the consummation of the spin-off, has confirmed, including in its capacity as a creditor under our credit facility
with it, that it will not object to our performance of a capital reduction, if the terms and conditions relating to distributions set forth in our credit facility with IC
have been complied with. IC’s agreement is subject to the provisions of the laws of Singapore, and, notwithstanding this agreement, the completion of a court-
approved capital reduction exercise will require the approval of the High Court of Singapore, which we may not be successful in obtaining. Further, the completion
of a court-free capital reduction exercise will depend on whether our directors are comfortable executing a solvency statement attesting to our solvency, as well as
whether there are any other creditor objections raised (in the event that we have creditors other than IC).
Any
dividend
payments
on
our
ordinary
shares
would
be
declared
in
U.S.
Dollars,
and
any
shareholder
whose
principal
currency
is
not
the
U.S.
Dollar
would
be
subject
to
exchange
rate
fluctuations.
The ordinary shares are, and any cash dividends or other distributions to be declared in respect of them, if any, will be denominated in U.S. Dollars.
Shareholders whose principal currency is not the U.S. Dollar will be exposed to foreign currency exchange rate risk. Any depreciation of the U.S. Dollar in relation
to such foreign currency will reduce the value of such shareholders’ ordinary shares and any appreciation of the U.S. Dollar will increase the value in foreign
currency terms. In addition, we will not offer our shareholders the option to elect to receive dividends, if any, in any other currency. Consequently, our shareholders
may be required to arrange their own foreign currency exchange, either through a brokerage house or otherwise, which could incur additional commissions or
expenses.
We
are
a
“foreign
private
issuer”
under
U.S.
securities
laws
and,
as
a
result,
are
subject
to
disclosure
obligations
that
are
different
from
those
applicable
to
U.S.
domestic
registrants
listed
on
the
NYSE.
We are incorporated under the laws of Singapore and, as such, will be considered a “foreign private issuer” under U.S. securities laws. Although we will be
subject to the reporting requirements of the Exchange Act, the periodic disclosure required of foreign private issuers under the Exchange Act is different from the
periodic disclosure required of U.S. domestic registrants. Therefore, there may be less publicly available information about us than is regularly published by or
about other public companies in the United States. We are also exempt from certain other sections of the Exchange Act that U.S. domestic registrants are otherwise
subject to, including the requirement to provide our shareholders with information statements or proxy statements that comply with the Exchange Act. In addition,
insiders and large shareholders of ours will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act
and will not be obligated to file the reports required by Section 16 of the Exchange Act.
As
a
foreign
private
issuer,
we
may,
in
the
future,
follow
certain
home
country
corporate
governance
practices
instead
of
otherwise
applicable
SEC
and
NYSE
corporate
governance
requirements,
and
this
may
result
in
less
investor
protection
than
that
accorded
to
investors
under
rules
applicable
to
domestic
U.S.
issuers.
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the
NYSE’s rules for domestic U.S. issuers, provided that we disclose which requirements we are not following and describe the equivalent home country requirement.
For example, foreign private issuers are permitted to follow home country practice with regard to director nomination procedures and the approval of compensation
of officers. Additionally, we are not required to maintain a board comprised of a majority of independent directors. However, notwithstanding our ability to follow
the corporate governance practices of our home country Singapore, we have elected to apply the corporate governance rules of the NYSE that are applicable to U.S.
domestic registrants that are not “controlled” companies. Nevertheless, we may, in the future, decide to rely on the foreign private issuer exemptions provided by
the NYSE and follow home country corporate governance practices in lieu of complying with some or all of the NYSE’s requirements.
Following our home country governance practices, as opposed to complying with the requirements that are applicable to a U.S. domestic registrant, may
provide less protection to you than is accorded to investors under the NYSE’s corporate governance rules. Therefore, any foreign private exemptions we avail
ourselves of in the future may reduce the scope of information and protection to which you are otherwise entitled as an investor.
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It
may
be
difficult
to
enforce
a
judgment
of
U.S.
courts
for
civil
liabilities
under
U.S.
federal
securities
laws
against
us,
our
directors
or
officers
in
Singapore.
We are incorporated under the laws of Singapore and certain of our officers and directors are or will be residents outside of the United States. Moreover,
most of our assets are located outside of the United States. Although we are incorporated outside of the U.S., we have agreed to accept service of process in the
United States through our agent designated for that specific purpose. Additionally, for so long as we are listed in the U.S. or in Israel, we have undertaken not to
claim that we are not subject to any derivative/class action that may be filed against us in the U.S. or Israel, as applicable, solely on the basis that we are a
Singapore company. However, since most of the assets owned by us are located outside of the United States, any judgment obtained in the United States against us
may not be collectible within the United States.
Furthermore, there is no treaty between the United States and Singapore providing for the reciprocal recognition and enforcement of judgments in civil and
commercial matters, such that a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether
or not predicated solely upon the federal securities laws, would, therefore, not be automatically enforceable in Singapore. Additionally, there is doubt whether a
Singapore court may impose civil liability on us or our directors and officers who reside in Singapore in a suit brought in the Singapore courts against us or such
persons with respect to a violation solely of the federal securities laws of the United States, unless the facts surrounding such a violation would constitute or give
rise to a cause of action under Singapore law. We have undertaken not to oppose the enforcement in Singapore of judgments or decisions rendered in Israel or in
the United States in a class action or derivative action to which Kenon is a party. Notwithstanding such undertakings, it may be difficult for investors to enforce
against us, our directors or our officers in Singapore, judgments obtained in the United States which are predicated upon the civil liability provisions of the federal
securities laws of the United States.
We
are
incorporated
in
Singapore
and
our
shareholders
may
have
greater
difficulty
in
protecting
their
interests
than
they
would
as
shareholders
of
a
corporation
incorporated
in
the
United
States.
Our corporate affairs are governed by our constitution and by the laws governing corporations incorporated in Singapore. The rights of our shareholders and
the responsibilities of the members of our board of directors under Singapore law are different from those applicable to a corporation incorporated in the United
States. Therefore, our public shareholders may have more difficulty in protecting their interest in connection with actions taken by our management or members of
our board of directors than they would as shareholders of a corporation incorporated in the United States. For information on the differences between Singapore and
Delaware corporation law, see “ Item
10.B
Constitution.
”
Singapore
corporate
law
may
impede
a
takeover
of
our
company
by
a
third-party,
which
could
adversely
affect
the
value
of
our
ordinary
shares.
The Singapore Code on Take-overs and Mergers and Sections 138, 139 and 140 of the Securities and Futures Act, Chapter 289 of Singapore contain certain
provisions that may delay, deter or prevent a future takeover or change in control of our company for so long as we remain a public company with more than 50
shareholders and net tangible assets of S$5 million or more. Any person acquiring an interest, whether by a series of transactions over a period of time or not, either
on his own or together with parties acting in concert with such person, in 30% or more of our voting shares, or, if such person holds, either on his own or together
with parties acting in concert with such person, between 30% and 50% (both inclusive) of our voting shares, and such person (or parties acting in concert with such
person) acquires additional voting shares representing more than 1% of our voting shares in any six-month period, must, except with the consent of the Securities
Industry Council of Singapore, extend a mandatory takeover offer for the remaining voting shares in accordance with the provisions of the Singapore Code on
Take-overs and Mergers.
In October 2014, the Securities Industry Council of Singapore waived the application of the Singapore Code on Take-overs and Mergers to the Company,
subject to certain conditions. Pursuant to the waiver, for as long as Kenon is not listed on a securities exchange in Singapore, and except in the case of a tender offer
(within the meaning of U.S. securities laws) where the offeror relies on a Tier 1 exemption to avoid full compliance with U.S. tender offer regulations, the
Singapore Code on Take-overs and Mergers shall not apply to Kenon.
Accordingly, Kenon’s shareholders will not have the protection or otherwise benefit from the provisions of the Singapore Code on Take-overs and Mergers
and the Securities and Futures Act.
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Our
directors
have
general
authority
to
allot
and
issue
new
shares
on
terms
and
conditions
and
with
any
preferences,
rights
or
restrictions
as
may
be
determined
by
our
board
of
directors
in
its
sole
discretion,
which
may
dilute
our
existing
shareholders.
We
may
also
issue
securities
that
have
rights
and
privileges
that
are
more
favorable
than
the
rights
and
privileges
accorded
to
our
existing
shareholders.
Under Singapore law, we may only allot and issue new shares with the prior approval of our shareholders in a general meeting. Other than with respect to the
issuance of shares pursuant to awards made under our Share Incentive Plan 2014 or Share Option Plan 2014, and subject to the general authority to allot and issue
new shares provided by our shareholders annually, the provisions of the Singapore Companies Act and our constitution, our board of directors may allot and issue
new shares on terms and conditions and with the rights (including preferential voting rights) and restrictions as they may think fit to impose. Any such offering may
be on a pre-emptive or non-pre-emptive basis. Subject to the prior approval of our shareholders for (i) the creation of new classes of shares and the (ii) granting to
our directors of the authority to issue new shares with different or similar rights, additional shares may be issued carrying such preferred rights to share in our
profits, losses and dividends or other distributions, any rights to receive assets upon our dissolution or liquidation and any redemption, conversion and exchange
rights. At the annual general meeting of shareholders held in 2015, or the 2015 AGM, our shareholders granted the board of directors authority (effective until the
conclusion of the annual general meeting of shareholders to be held in 2016, or the 2016 AGM, or the expiration of the period by which the 2016 AGM is required
to be held) to allot and issue ordinary shares and/or instruments that might or could require ordinary shares to be allotted and issued as authorized by our
shareholders at the 2015 AGM and shareholders will be asked to renew this authority at the 2016 AGM. Ansonia, our significant shareholder, may use its ability to
control to approve a grant of such authority to our board of directors, or exert influence over, our board of directors to cause us to issue additional ordinary shares,
which would dilute existing holders of our ordinary shares, or to issue securities with rights and privileges that are more favorable than those of our ordinary
shareholders. There are no statutory pre-emptive rights for new share issuances conferred upon our shareholders under the Companies Act, Chapter 50 of
Singapore, or the Singapore Companies Act. Furthermore, any additional issuances of new shares by our directors could adversely impact the market price of our
ordinary shares.
Risks Related to Taxation
We
may
be
classified
as
a
passive
foreign
investment
company,
which
could
result
in
adverse
U.S.
federal
income
tax
consequences
to
U.S.
holders
of
our
ordinary
shares.
Based upon, among other things, the valuation of our assets and the composition of our income and assets, we do not believe we were a passive foreign
investment company, or PFIC, for U.S. federal income tax purposes for our previous taxable year ended December 31, 2015. However, the application of the PFIC
rules is subject to uncertainty in several respects. In addition, a separate determination must be made after the close of each taxable year as to whether we were a
PFIC for that year. Accordingly, we cannot assure you that we will not be a PFIC for our current, or any future, taxable year. A non-U.S. corporation will be a PFIC
for any taxable year if either (i) at least 75.0% of its gross income for such year is passive income or (ii) at least 50.0% of the value of its assets (based on an
average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income.
For this purpose, we will be treated as owning our proportionate share of the businesses and earning our proportionate share of the income of any other business in
which we own, directly or indirectly, at least 25.0% (by value) of the stock. Because the value of our assets for purposes of the PFIC test will generally be
determined in part by reference to the market price of our ordinary shares, fluctuations in the market price of the ordinary shares may cause us to become a PFIC. In
addition, changes in the composition of our income or assets may cause us to become a PFIC. As a result, dispositions of operating companies could increase the
risk that we become a PFIC. If we are a PFIC for any taxable year during which a U.S. Holder (as defined below) holds an ordinary share, certain adverse U.S.
federal income tax consequences could apply to such U.S. Holder. For further information on such U.S. tax implications, see “ Item
10.E
Taxation—U.S.
Federal
Income
Tax
Considerations—Passive
Foreign
Investment
Company.
”
Tax
regulations
and
examinations
may
have
a
material
effect
on
us
and
we
may
be
subject
to
challenges
by
tax
authorities.
We operate in a number of countries and are therefore regularly examined by and remain subject to numerous tax regulations. Changes in our global mix of
earnings could affect our effective tax rate. Furthermore, changes in tax laws could result in higher tax-related expenses and payments. Legislative changes in any
of the countries in which our businesses operate could materially impact our tax receivables and liabilities as well as deferred tax assets and deferred tax liabilities.
Additionally, the uncertain tax environment in some regions in which our businesses operate could limit our ability to enforce our rights. As a holding company
with globally operating businesses, we have established businesses in countries subject to complex tax rules, which may be interpreted in a variety of ways and
could affect our effective tax rate. Future interpretations or developments of tax regimes or a higher than anticipated effective tax rate could have a material adverse
effect on our tax liability, return on investments and business operations.
In addition, we and our businesses operate in, are incorporated in and are tax residents of, various jurisdictions. The tax authorities in the various jurisdictions
in which we and our businesses operate, or are incorporated, may disagree with and challenge our assessments of our transactions, tax position, deductions,
exemptions, where we or our subsidiaries or businesses are tax resident, or other matters. If we, or our businesses, are unsuccessful in responding to any such
challenge from a tax authority, we, or our businesses, may be required to pay additional taxes, interest, fines or penalties, and we, or our businesses, may be subject
to taxes for the same business in more than one jurisdiction or may also be subject to higher tax rates, withholding or other taxes. Even if we, or our businesses, are
successful, responding to such challenges may be expensive, consume time and other resources, or divert management’s time and focus from our operations or
businesses or from the operations of our businesses. Therefore, a challenge as to our, or our businesses’, tax position or status or transactions, even if unsuccessful,
may have a material adverse effect on our business, financial condition, results of operations or liquidity or the business, financial condition, results of operations or
liquidity of our businesses.
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Our
shareholders
may
be
subject
to
non-U.S.
taxes
and
return
filing
requirements
as
a
result
of
owning
our
ordinary
shares.
Based upon our expected method of operation and the ownership of our businesses following the spin-off, we do not expect any shareholder, solely as a
result of owning our ordinary shares, to be subject to any additional taxes or additional tax return filing requirements in any jurisdiction in which we, or any of our
businesses, conduct activities or own property. However, there can be no assurance that our shareholders, solely as a result of owning our ordinary shares, will not
be subject to certain taxes, including non-U.S. taxes, imposed by the various jurisdictions in which we and our businesses do business or own property now or in
the future, even if our shareholders do not reside in any of these jurisdictions. Consequently, our shareholders may also be required to file non-U.S. tax returns in
some or all of these jurisdictions. Further, our shareholders may also be subject to penalties for failure to comply with these requirements. It is the responsibility of
each shareholder to file each of the U.S. federal, state and local, as well as non-U.S. tax returns that may be required of such shareholder.
ITEM 4.
Information on the Company
A.
History and Development of the Company
Kenon Holdings Ltd. was formed in 2014 to be the holding company of certain companies that were currently owned (in whole, or in part) by IC in
connection with our spin-off from IC in January 2015. We currently own the following subsidiaries and associated companies:
•
•
•
•
a 100% interest in IC
Power
, a leading owner, developer and operator of power generation and distribution facilities located in key energy markets in
Latin America, the Caribbean and Israel;
a 50% interest in Qoros
, a China-based automotive company in which we have a 50% equity interest;
a 32% interest in ZIM
, a large provider of global container shipping services; and
a 91% interest in Primus
,
an innovative developer and owner of a proprietary natural gas-to-liquid technology process.
In connection with our spin-off from IC, we also held a 29% interest in Tower
, a NASDAQ- and TASE– listed specialty foundry semiconductor
manufacturer. In July 2015, we completed a pro-rata distribution in specie of substantially all of our interest in Tower and, as of the date of this annual report, we
have approximately a 2% interest in Tower’s outstanding share capital.
We also own a 70% interest in HelioFocus
, a developer of dish technologies for solar thermal power fields; this company has ceased operations and is in the
process of being wound down.
We were incorporated in March 2014 under the Singapore Companies Act. Our registered office and principal place of business is located at 1 Temasek
Avenue #36-01, Millenia Tower, Singapore 039192. Our telephone number at our registered office and principal place of business is + 65 6351 1780. We have
appointed Gornitzky & Co., Advocates and Notaries, as our agent for service of process in connection with certain claims which may be made in Israel.
Our ordinary shares are listed on each of the NYSE and the TASE under the symbol “KEN.” We plan to examine the various considerations in respect of our
dual listing and, in particular, the advisability of maintaining or terminating such dual listing. We may, as a result of such examination, delist our ordinary shares
from trading on the TASE pursuant to the Securities Law of Israel, 5728—1968. In the event we do decide to delist our ordinary shares from trading on the TASE,
we have undertaken to publish an Immediate Report with the TASE no less than 9 months prior to the delisting.
B.
Business Overview
We are a holding company that operates dynamic, primarily growth-oriented, businesses. The companies we own, in whole or in part, are at various stages of
development, ranging from established, cash generating businesses to early stage development companies.
We were established in connection with a spin-off of our businesses from IC to promote the growth and development of our primary businesses, and we are
primarily engaged in the operation of the following businesses: (i) IC Power, a wholly-owned power generation and distribution company that has experienced
profitable growth in its revenues and generation capacity since its inception in 2007, and (ii) Qoros, a China-based automotive company in which we have a 50%
equity interest, that is seeking to deliver international standards of quality, safety, and innovative features to the large and fast-growing Chinese automotive market
and commenced commercial sales at the end of 2013.
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In the case of IC Power, we intend to continue to invest in projects that IC Power expects to generate attractive, risk-adjusted returns, using operating cash
flows, project or other financing at the IC Power level, as well as proceeds resulting from IC Power’s selective dispositions of assets. As part of our business
development strategy, we will seek to provide investors with direct access to IC Power when we believe it is in the best interests of IC Power’s development and
our shareholders to do so. For example, IC Power Singapore, the entity through which Kenon holds its interests in IC Power, has filed a registration statement with
the SEC in connection with its plan for an initial public offering of its equity. The completion of this IPO is subject to business and market conditions and other
relevant factors.
In the case of Qoros, we have used a significant portion of our liquidity and capital resources that we received in connection with our spin-off from IC to
support Qoros through shareholder loans and guarantees in respect of Qoros’ debt, and we have no obligation to provide further funding to Qoros. In April 2016,
Ansonia, which owns approximately 46% of the outstanding shares of Kenon, entered into an agreement to provide loans in an aggregate amount of up to $50
million to Quantum to support Qoros’ ordinary course working capital requirements, subject to Wuhu Chery’s provision of loans to Qoros in the same amount and
on similar conditions. In light of the investments made by Kenon in Qoros, including guarantees of Qoros’ indebtedness, and Kenon’s strategy to refrain from
material “cross-allocation” (i.e., investing returns from one business into another), Kenon will not make any loans or other investments in Qoros as part of this
transaction. Instead, and to support Qoros in light of Qoros’ financing needs, Kenon has worked with its major shareholder, Ansonia, to facilitate Ansonia’s
provision of loans to Qoros.
Qoros will require additional financing, including the renewal or refinancing of its working capital facilities, to continue to operate and meet its operating
expenses and debt service requirements. If Qoros is not able to raise additional financing as required, it may be unable to continue operations.
We also hold interests in:
•
•
ZIM
—A large provider of global container shipping services, which, as of December 31, 2015 operated 85 (owned and chartered) vessels with a total
container capacity of 369,549 TEUs, and in which we have a 32% equity interest; and
Primus
, an innovative developer and owner of a proprietary natural gas-to-liquid technology process.
In furtherance of our strategy, we intend to support the development of our non-primary interests businesses, and to act to realize their value for our
shareholders by distributing our interests in our non-primary businesses to our shareholders or selling our interests in our non-primary businesses, rationally and
expeditiously, and either distributing the proceeds derived from such sales to our shareholders or using such proceeds in connection with our guarantees of Qoros’
indebtedness or to repay amounts owing under the IC Credit Facility.
As we execute our strategy, we intend to operate under disciplined capital allocation principles designed to ensure the prudent use of our capital. We intend
to refrain from acquiring interests in new companies outside our existing businesses. We do not intend to materially “cross-allocate” proceeds received in
connection with distributions from / sales of our interests in any of our businesses, among our other businesses. Instead, we intend to distribute such proceeds to our
shareholders or to use such proceeds in connection with our guarantees of Qoros’ indebtedness or to repay amounts owing under the IC Credit Facility. In addition,
we will not make further investments in ZIM.
Our strategy set forth above is designed to promote the growth and development of our primary businesses, maximize value for our shareholders and ensure
the prudent use of our capital. However, we will be required to make determinations over time that will be based on the facts and circumstances prevailing at such
time, as well as continually evolving market conditions and outlook, none of which are predictable at this time. As a result, we will be required to exercise
significant judgment while seeking to adhere to these capital allocation principles in order to maximize value for our shareholders and further the development of
our businesses.
Our Businesses
Set forth below is a description of our businesses.
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References to IC Power’s Adjusted EBITDA and net income set forth below in “— IC
Power
” are references to IC Power’s Adjusted EBITDA and net
income, as reported by IC Power. For a description of the differences between IC Power’s Adjusted EBITDA and net income, as reported by Kenon and as reported
by IC Power, during the years ended December 31, 2014 and 2015, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—Decisions
by
the
EA
Regarding
System
Management
Charges
.”
IC Power
IC Power, which accounted for 100% of our revenues in the year ended December 31, 2015, and 91% of our assets as of December 31, 2015, is a leading
owner, developer and operator of power generation facilities located in key energy markets in Latin America, the Caribbean and Israel, and has recently entered the
power distribution business with the acquisition of two distribution businesses in Guatemala. The power generation companies within IC Power’s portfolio utilize a
range of fuels, including natural gas, hydroelectric, HFO, diesel and wind. Currently, IC Power’s principal focus is on Latin American markets, which typically
have higher rates of growth of GDP and lower overall and per capita energy consumption, as compared with more developed markets. IC Power believes that
economic growth in Latin American markets will drive increases in overall and per capita energy consumption and therefore require significant additional
investments in power generation assets in those markets.
As of December 31, 2015, IC Power’s generation companies had an installed capacity and proportionate capacity of 2,665 MW and 2,170 MW, respectively.
IC Power expects to increase its generation companies’ installed capacity by 1,202 MW, or 45%, to 3,867 MW (3,095 MW on a proportionate basis) by the second
half of 2016, upon the completion of certain assets in advanced stages of construction, including:
•
•
•
CDA’s 510 MW hydroelectric project located in Peru, which is expected to be completed in the second half of 2016;
Samay I’s 600 MW cold-reserve thermoelectric project located in Peru which is expected to be completed in the second quarter of 2016; and
Kanan’s 92 MW thermal generation project in Panama expected to be completed in the first half of 2016.
In addition, in August 2015, IC Power acquired AIE, which holds a conditional license for the construction of a cogeneration power station in Israel. The
project is in the advanced development stage, construction is expected to commence in mid-2016, and the AIE plant, which is expected to have a capacity of 135
MW, is expected to reach its COD in the second half of 2018.
Between 2007 and December 31, 2015, IC Power invested approximately $2.7 billion in the acquisition, development and expansion of its power generation
assets. Of this amount, 87% represented investments in greenfield development (including investments made in those assets in advanced stages of construction) and
13% represented acquisitions. IC Power has financed its greenfield development using a combination of cash on hand, debt financing and investments by minority
shareholders at the asset level, and have financed its acquisitions using cash on hand. Of the 2,116 MW that IC Power has added to its installed capacity since
Inkia’s formation, 62% derived from greenfield development projects, consisting of its construction of the Kallpa combined cycle plant, which comprises Peru’s
largest power generation facility, and the construction of OPC’s plant, which became Israel’s first IPP. In the same period, IC Power has acquired businesses with
an aggregate installed capacity of 801 MW in six countries in Latin America, Israel and the Caribbean. By the second half of 2016, IC Power will have derived
76% of its installed capacity growth since 2007 from its greenfield development efforts (based upon IC Power’s current portfolio and assuming the completion of
its assets in advanced stages of construction).
By successfully pursuing growth opportunities, primarily through contracted greenfield development projects in existing markets and acquisitions of anchor
investments in new markets, IC Power has expanded its regional presence, diversified through the addition of various facilities which use a range of fuels, and
significantly increased its cash flows. In 2015, IC Power’s Adjusted EBITDA, as reported by IC Power, was $326 million, as compared to $65 million in 2009,
representing a CAGR of 31% during this period. Adjusted EBITDA is a non-IFRS measure. For a reconciliation of IC Power’s net income, as reported by IC
Power, to its Adjusted EBITDA, as reported by IC Power, see “ Item
3.A
Selected
Financial
Data—Information
on
Business
Segments—IC
Power
.”
In January 2016, IC Power completed the acquisition of Energuate, the indirect owner of two distribution companies in Guatemala (DEORSA and DEOCSA,
and two smaller, related companies (Guatemel and RECSA)). Energuate provides services for approximately 1.6 million regulated customers in Guatemala
(representing approximately 55% of Guatemala’s regulated distribution customers in 2014) and distributes energy approximately 100,000 km 2 in Guatemala,
covering approximately 12 million inhabitants. Energuate operates approximately 34,000 km of distribution lines within Guatemala (representing approximately
70% Guatemala’s distribution lines as of December 31, 2015), and holds the non-exclusive right to distribute electricity within its concession area until 2048. In the
years ended December 31, 2015 and 2014, Energuate sold 2,304 GWh and 2,163 GWh of energy, respectively.
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IC Power’s generation activities are conducted through various operating companies in which, with the exception of Pedregal, IC Power holds controlling
interests. The following graphic sets forth IC Power’s generation companies (the percentage of holdings stated alongside each generation company are, in some
cases, indirect holdings) 1,2 :
Source: Company information:
(1)
(2) Excludes 18 MW currently under operation at AIE and a 135 MW cogeneration plant, for which construction is expected to commence in mid-2016 and COD is expected to be reached in
Includes 193 MW additional capacity from Las Flores.
the second half of 2018.
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The following table sets forth summary operational information regarding each of IC Power’s operating companies and associates in its power generation
business (i.e., excluding the recently acquired Energuate distribution business) as of December 31, 2015 1 :
Segment
Peru
Israel
Central America
Other
Total Operating Capacity
Ownership
Percentage
(Rounded)
Entity
Country
Peru
Kallpa
OPC
AIE
Israel
Israel
Nicaragua Corinto
Nicaragua Tipitapa Power
Nicaragua Amayo I
Nicaragua Amayo II
Guatemala Puerto Quetzal
El Salvador Nejapa
Bolivia
Chile
COBEE
Central
Cardones
Colmito
Chile
Dominican
Republic
Jamaica
Colombia Surpetroil
Pedregal6
Panama
CEPP
JPPC
Fuel
Natural Gas
Natural Gas
and Diesel
Steam 6
HFO
HFO
Wind
Wind
HFO
HFO
Hydroelectric,
Natural Gas
Diesel
Natural Gas
and Diesel
75%
80%
100%
65%
65%
61%
61%
100%
100%
100%
87%
100%
HFO
HFO
Natural Gas
97%
100%
60%
21% 7 HFO
Installed
Capacity
(MW) 1
Proportionate
Capacity 2
Type of Asset
1,0634
797 Greenfield 4
Weighted
Average
Remaining
Life
of PPAs
Based on
Firm
Capacity
(Years)
LTM
Energy
Sales
Under
PPAs
(GWh) 3
6,327
7
440
18
71
51
40
23
179
140
228
153
58
67
60
20
54
2,665
352 Greenfield
18 Acquired
46 Acquired
33 Acquired
24 Acquired
14 Acquired
179 Acquired
140 Original Inkia Asset
228 Original Inkia Asset
133 Acquired
58 Acquired
65 Original Inkia Asset
60 Original Inkia Asset
12 Acquired
11 Original Inkia Asset
2,170
75
17
3
3
8
9
1
2
2
3,953
237
451
341
183
87
594
794
270
— —
2
255
— —
427
43
280
2
1
1
1.
2.
3.
4.
5.
6.
7.
8.
9.
Reflects 100% of the capacity of each of IC Power’s assets, regardless of IC Power’s ownership interest in the entity that owns each such asset.
Reflects the proportionate capacity of each of IC Power’s assets, as determined by IC Power’s ownership interest in the entity that owns each such asset.
Reflects energy sales under PPAs for the year ended December 31, 2015.
Kallpa’s plants were developed as greenfield projects in four different stages between 2005 and 2012, resulting in 870 MW of installed capacity. In addition,
Kallpa acquired Las Flores’ power plant in 2014, adding 193 MW to Kallpa’s capacity.
Reflects the weighted average remaining life of OPC’s PPAs with end users based on OPC’s firm capacity. The IEC PPA, which extends for an 18-year term
and covers OPC’s entire firm capacity, provides OPC with the option to allocate and sell the generated electricity of the power station directly to end users.
OPC has exercised this option and sells all of its energy and capacity directly to 24 end users, as of December 31, 2015. For further information on the IEC
PPA, see “ —IC
Power’s
Description
of
Operations—Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Israeli
Electricity
Sector
”
below.
AIE also holds a conditional license for the construction of a cogeneration power station in Israel. This station will be developed as a greenfield project (at an
expected cost of $250 million, including the acquisition price of AIE), based upon a plant with 135 MW of capacity. Construction is expected to commence
in mid-2016 and COD is expected in the second half of 2018.
Reflects energy sales under PPAs since IC Power acquired AIE in August 2015.
Although Pedregal is located in Central America, it is a minority investment. Therefore, from an income statement perspective, it is not part of the Central
America segment and Pedregal is only reflected in IC Power’s share in income of associated companies.
Although we have a non-controlling interest in Pedregal, IC Power is party to a management services agreement, which designates us as the administrator
responsible for the day-to-day management of Pedregal.
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The following table sets forth summary operational information regarding each of IC Power’s generation assets in advanced stages of construction as of
December 31, 2015:
Country
Peru
Ownership
Percentage
(Rounded)
Installed
Capacity
(MW) 1
Fuel
Proportionate
Capacity 2
Expected
COD
Percentage
Developed
Expected cost
Amount
Invested
Hydroelectric 510
383
H2 of 2016 90%—Overall completion $959 million $834 million
Entity
CDA 75%
Peru
Samay I
75%
Diesel and
Natural Gas
600 3
450
Q2 of 2016
98%—Dam construction
100%—Tunnel drilling
97%
$380 million
$340 million
Panama
Total Capacity of Assets in Advanced Stages of
Kanan 100%
HFO
92
92
H1 of 2016 98%
$85 million 4 $80 million 4
Construction
1,202
925
$1,424 million $1,254 million
Reflects 100% of the expected capacity of each asset, regardless of IC Power’s ownership interest in the entity that owns the asset.
Reflects the proportionate capacity of each of IC Power’s assets, as determined by IC Power’s ownership interest in the entity that owns each such asset.
1.
2.
3. When fueled by natural gas, the Samay I plant will have an installed capacity of approximately 720 MW.
4.
Includes $40 million of intercompany expenses relating to Puerto Quetzal’s and CEPP’s sale of the barges to Kanan.
IC
Power’s
Strengths
Strong
track
record
in
disciplined
project
development
and
obtaining
financing
—IC Power leverages its core competencies—project identification,
evaluation, development, construction and operation—to develop power generation facilities using various technologies in attractive markets that typically have
relatively high GDP growth rates and relatively low levels of per capita energy consumption. For example, in 2012, IC Power completed its third expansion of
Kallpa’s gas-powered plant, which is the largest power generation facility in Peru in terms of capacity, by converting it into a combined cycle facility and thereby
adding 292 additional MW to the facility’s capacity. This expansion was completed on time and below budget. Additionally, in 2013, OPC became the first IPP in
Israel when IC Power completed the construction of its 440 MW combined cycle power plant.
IC Power’s projects have been developed with a disciplined capital structure, which reflects its commitment to develop projects in accordance with three key
fundamental principles. First, IC Power endeavors to construct projects by entering into turnkey EPC agreements that define the total project cost and transfer most
of the risks of construction delays and cost overruns to IC Power’s EPC contractors. IC Power currently has assets in advanced stages of construction with an
expected aggregate installed capacity of 1,202 MW, 1,110 MW of which is being constructed pursuant to EPC contracts. Second, IC Power seeks to secure a
revenue stream prior to the construction of its plants by sourcing and entering into long-term PPAs, which provide IC Power’s development projects with verifiable
projected margins and cash flows, before construction has commenced. Finally, IC Power leverages its EPC contracts and PPAs to secure long-term project
financing agreements which are generally stand-alone, secured, project-specific, and with no or limited recourse. Over the course of its history, IC Power has
secured different types of financings ( e.g.
, leases, local and international bonds, syndicated loans, etc.) during times of changing financial markets and in
connection with its construction of various projects using a range of fuels.
Long-term
PPAs
and
supply
agreements
that
limit
exposure
to
market
fluctuations
—IC Power’s generation subsidiaries typically enter into long-term
PPAs, which generally limits their exposure to fluctuations in energy spot market rates, generates stable and predictable margins, and helps to create stability and
predictability in IC Power’s cash flows. In the year ended December 31, 2015, IC Power’s generation companies made 89% of its aggregate energy sales (in GWh)
pursuant to long-term PPAs. As of December 31, 2015, the weighted average remaining life of IC Power’s PPAs was 10 years (including the remaining life of the
PPAs for its assets in advanced stages of construction) and it has historically sought, and will continue to seek, to renew its long-term PPAs as they expire.
As of December 31, 2015, the majority of IC Power’s PPAs were indexed to the price of the corresponding power plant’s operating fuel prices in U.S.
Dollars. Additionally, as of December 31, 2015, many of IC Power’s PPAs provided for payment in, or were linked to, the U.S. Dollar, thereby limiting IC Power’s
exposure to fuel price and exchange rate fluctuations. Additionally, the counterparties to IC Power’s long-term PPAs are typically large local distribution
companies or non-regulated customers, including subsidiaries of large multi-national corporations, which IC Power believes have strong credit profiles, mitigating
the risk of customer default. Some of IC Power’s major customers within Peru and Israel include Southern Peru Copper Corporation, Sociedad Minera Cerro Verde
S.A.A., a subsidiary of Freeport-McMoRan, Compañía Minera Antapaccay S.A., a subsidiary of Glencore Xstrata, and Oil Refineries Limited, as well as
governments and quasi-governmental entities.
As its power facilities utilize and are dependent upon natural gas, hydroelectric, HFO, diesel, wind, or a combination of these energy sources, IC Power seeks
to enter into long-term supply and transportation agreements to acquire the necessary fuel for its facilities. For example, Kallpa and OPC, which own and operate
IC Power’s largest plants, are party to long-term supply agreements, including natural gas supply agreements and transportation services agreements, that are
material to their operations.
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Attractive
footprint
in
high
growth
markets
—Currently, IC Power’s principal focus is on Latin American markets, which typically have higher rates of
growth of GDP and lower overall and per capita energy consumption, as compared with more developed markets. IC Power expects continued growth in these key
markets, providing IC Power with the opportunity to generate attractive, risk-adjusted returns through additional investments in power generation assets in those
countries.
IC Power is a leader in its largest market, Peru, one of the fastest growing economies in Latin America, with an average GDP growth of approximately
5.8% per year from 2010 through 2014, according to the International Monetary Fund, a mature regulatory framework, and a well-run power system. As of and for
the year ended December 31, 2015, IC Power’s operating company in Peru had an installed capacity of 1,063 MW, representing 11% of Peru’s installed capacity,
and generated 12% of the gross energy generated (in GWh) in Peru. IC Power’s operating company in Peru, Kallpa, represented 47% of IC Power’s Adjusted
EBITDA, 81% of its net income, and 40% of its installed capacity as of and for the year ended December 31, 2015. Additionally, IC Power’s assets in advanced
stages of construction in Peru are expected to provide an additional 1,110 MW in installed capacity to address the expected increase in Peruvian energy demand,
which is expected to result, in part, from the substantial investments made in connection with Peru’s energy-intensive mining industry and expected growth in its
manufacturing industry.
IC Power also operates OPC, the first IPP in Israel, which, following decades of state control, recently opened its electricity market to private power
producers. As a result, the electricity market in Israel is still in the early stages of development. Furthermore, Israel’s energy consumption levels have increased in
recent years and are expected to continue to increase in the near-term. As of and for the year ended December 31, 2015, OPC had an installed capacity of 440 MW,
representing approximately 3% of Israel’s installed capacity and 19% of the installed capacity of IPPs, and generated 6% of the gross energy generated (in GWh) in
Israel. As of and for the year ended December 31, 2015, OPC represented 24% of IC Power’s Adjusted EBITDA, 38% of its net income, and 17% of IC Power’s
installed capacity. We believe that OPC’s plant provides IC Power with a strategic advantage as an early entrant in the Israeli electricity market. Additionally, given
Israel’s growing economy and the advanced age of its existing state-owned power generation facilities, we believe OPC provides IC Power with the know-how,
visibility of, and opportunity to participate in, additional power projects in Israel, which opportunities may become increasingly available to private sector
participants such as IC Power.
In addition to its attractive position in Peru and Israel, IC Power has also developed an attractive footprint in several markets in Latin America, including
Chile and Colombia. We believe that IC Power’s current platform, coupled with its agile and disciplined decision-making process, enables it to take advantage of
opportunities as they arise.
Established
and
disciplined
track
record
in
acquiring
generation
assets—
IC Power has acquired numerous generation assets since 2007, resulting in the
expansion of its operations by 806 MW (707 MW on a proportionate basis) in six countries in Latin America, Israel and the Caribbean. We believe IC Power’s
recognition as a regional generator and developer with a relatively strong balance sheet, and its ability to act quickly with respect to acquisitions, has complemented
IC Power’s development capabilities by allowing it to strategically source and execute acquisitions. Furthermore, IC Power has the ability to manage projects that
are too small for large companies, as well as projects that are too large for small companies. IC Power’s acquisition of Central Cardones in 2011, for example,
provided it with an initial footprint in Chile, a dynamic and important power market, and facilitated IC Power’s acquisition of Colmito in October 2013. Similarly,
IC Power’s acquisition of certain Nicaraguan assets in 2014, representing 185 MW of installed capacity (117 MW on a proportionate basis) provided it with an
entry into the Nicaraguan market and diversified its portfolio with operational wind generation assets. Additionally, in August 2015, IC Power acquired 100% of
the shares of AIE, which currently operates an 18 MW steam turbine. AIE also holds a conditional license for the construction of a cogeneration power station in
Israel, a new and growing private electricity generation market.
Recently
Acquired
Distribution
Company
With
Which
to
Leverage
Future
Expansion
in
the
Electricity
Distribution
Industry
—In January 2016, IC
Power further expanded and diversified its portfolio by completing its acquisition of Energuate, which operates distribution companies in Guatemala, a country
with a historically stable electricity sector framework. IC Power’s purchase of Energuate marks IC Power’s initial entry into electricity distribution and IC Power
believes this purchase will provide it with a platform to further expand its distribution portfolio. Energuate provides services to approximately 1.6 million regulated
customers in Guatemala (representing approximately 55% of Guatemala’s regulated distribution customers in 2014) and distributes energy to a service area of
approximately 100,000 km 2 in Guatemala, covering primarily rural areas with a population of approximately 12 million inhabitants. Energuate, the largest
distribution company in Central America (by the size of population served), operates approximately 34,000 km of distribution lines within Guatemala (representing
approximately 70% Guatemala’s distribution lines as of December 31, 2015). IC Power expects that Energuate’s sizeable distribution base and limited exposure to
fluctuations in the cost of electricity (both as a result of Energuate’s entry into PPAs
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and a compensation framework anchored on predefined distribution tariffs) will provide Energuate with predictable cash flows from its operations, which IC Power
believes will contribute significantly to its further expansion within the distribution industry.
Driving
operational
excellence
through
partnerships
with
leading
OEMs
and
reliance
on
efficient
technologies
—IC Power seeks to optimize its power
generation capacity by using leading technologies ( e.g.
, turbines manufactured by Siemens, General Electric, Mitsubishi and Andritz) and entering into long-term
service agreements with leading, multi-national original OEMs. IC Power’s technologies and long-term partnerships enable its power generation assets to perform
more efficiently and at relatively high levels of reliability. Additionally, its experienced staff is committed to increasing IC Power’s operating performance and
ensuring the disciplined maintenance of its power generation assets. IC Power believes that its generation plants’ weighted average availability rate of 95% for the
year ended December 31, 2015 was the result of its optimization efforts and commitment to improving its operating efficiency and performance.
Additionally, IC Power’s acquisition or construction of power generation assets that use efficient technologies ( e.g
., the conversion of Kallpa’s facility into
a combined cycle operation in 2012) places its generation assets competitively in the dispatch merit order in certain of the countries in which IC Power operates.
For example, Kallpa’s facility, a base load plant and combined cycle gas turbine, is among the first power plants to be dispatched, due to its efficiency and
competitiveness in the dispatch stack. Similarly, CDA’s plant, as a hydroelectric power plant, will also be among the first power plants to be dispatched in Peru
once it reaches its COD in the second half of 2016. Having a portfolio which includes efficient power plants with lower production costs allows IC Power to
potentially earn higher margins than companies that utilize certain other competing technologies in their plants and are therefore less competitive in the dispatch
merit order.
Experienced
management
team
with
strong
local
presence
—IC Power’s management team has extensive experience in the power generation business. Its
executive officers have an average of approximately 20 years of experience in the power generation industry, and significant portions of IC Power core
management team have been working together in international large power generation companies since 1996. We believe that this overall level of experience
contributes to IC Power’s ability to effectively manage its existing operating companies and to identify, evaluate and integrate high-quality growth opportunities
within and outside Latin America. Furthermore, its hands-on management team utilizes a lean decision-making process, which allows IC Power to quickly take
advantage of strategic acquisitions and potential developments and opportunities as they materialize. IC Power’s managers are compensated, in part, on the basis of
IC Power’s financial performance, which incentivizes them to continue to improve the operating results. Additionally, IC Power’s local management teams provide
in-depth market knowledge and power industry experience. These teams consist primarily of local executives with significant experience in the local energy
industry and with local government regulators. We believe that the market-specific experience of IC Power’s local management provides IC Power with insight
into the local regulatory, political and business environment in each of the countries in which it operates.
In addition, in connection with its acquisition of Energuate in January 2016, IC Power has successfully recruited a management team for its Energuate
business. IC Power’s Energuate management team will consist of officers who will work directly with IC Power’s management team to oversee and integrate the
Energuate business, as well as local executives who will manage the day-to-day operations of Energuate. IC Power’s Energuate management team has extensive
experience managing large distribution companies in various countries throughout Central and South America, including Guatemala.
IC
Power’s
Strategies
Continue
to
successfully
develop
greenfield
assets
in
attractive
markets
—One of IC Power’s core competencies is identifying, evaluating, constructing,
and operating greenfield development projects in its target markets. IC Power will continue to seek to develop power generation assets in countries with relatively
stable, growing economies, low levels of per capita energy consumption or developing private energy generation markets. IC Power also seeks to develop assets
that can be expanded through further investment, or as additional fuels become available, which provides it with the ability to further develop an asset and increase
its installed capacity in connection with market trends, industry developments, or changing fuel availability.
IC Power places particular focus on its ability to complete the development of its greenfield projects on time and within budget and will continue to use
extensive project planning and contracting mechanisms to minimize its development risk. For example, in connection with its development activities, IC Power
typically enters into lump-sum, turnkey EPC contracts to minimize its construction risks and mitigate construction cost overruns, while also entering into long-term
PPAs to generate stable and predictable margins and cash flows; we believe this combination facilitates IC Power’s access to construction financing. Engaging in
such practices has allowed IC Power to successfully complete several thermal generation projects, including the Kallpa facility, its largest development to date.
Additionally, IC Power’s first hydroelectric development, CDA’s plant, is expected to be fully operational at a cost of $1.9 million per MW, making CDA’s plant
among the most efficiently constructed hydroelectric facilities in Latin America in terms of cost per MW.
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Continue
to
Optimize
and
Expand
IC
Power’s
Operations
Within
the
Electricity
Distribution
Industry
—IC Power’s recent acquisition of Energuate
represents IC Power’s initial entry into the electricity distribution business. IC Power intends to further expand its portfolio and diversify its revenue streams by
applying its disciplined acquisition principles as it seeks to purchase distribution assets in countries where IC Power believes it can significantly increase its cash
flows, optimize its operations, and leverage the experience gained from its acquisition of Energuate. Additionally, IC Power will endeavor to optimize Energuate’s
existing distribution operations by targeting Energuate’s electricity losses in the near- to medium-term. IC Power’s management intends to reduce commercial
losses through improving customer billing practices, increasing targeted inspections and meter replacements, implementing a communication program with local
communities and modernizing Energuate’s facilities to reduce tampering, especially in areas where electricity theft has been more prevalent, while reducing
technical losses by investing in the modernization of Energuate’s transmission grid and distribution system.
Optimize
portfolio
to
maximize
returns
while
minimizing
risk
—IC Power regularly assesses its portfolio of operating companies and employ disciplined
portfolio management principles to optimize its operations in light of changing industry dynamics in a particular country or region, create financing flexibility and
address specific risk management and exposure concerns. IC Power’s strategy is to optimize the composition of its portfolio by focusing on profitable
developments and acquisitions within key power generation markets typically in Latin America, the Caribbean and Israel.
For example, prior to IC Power’s 2014 acquisition of the Las Flores facility, a 193 MW thermal power generation plant (representing 145 MW on a
proportionate basis), Las Flores had operated intermittently due to the lack of a long-term regular supply of natural gas. The Kallpa facility, which is located near
the Las Flores plant, had an excess supply of natural gas. IC Power identified these and other potential synergies and, since its acquisition of the Las Flores facility,
has been able to significantly improve the operations and generation activities of Las Flores’ plant, while also maximizing the use of the Kallpa facility’s natural
gas supply and transportation capabilities. IC Power’s acquisition of Puerto Quetzal serves as another example of the portfolio optimization efforts. In addition to
providing IC Power with an attractive entry point into the Guatemalan market, one of the barges it acquired from Puerto Quetzal was recently redeployed to
Panama to allow Kanan to take advantage of a short-term supply shortfall in the Panamanian power market. Additionally, in 2014, IC Power divested its 21%
indirect equity interest in Edegel, one of Peru’s largest power generation companies. While the Edegel investment was a strong cash flow generator which helped to
fund the initial stages of IC Power’s growth, it opted to sell this investment in order to redeploy the proceeds from such sale into projects in which it has a majority
control and which it believes will have a better risk and return profile for its shareholders over the long-term.
Complement
IC
Power’s
organic
development
with
dynamic
and
disciplined
acquisitions
—IC Power seeks to invest in countries and/or assets where it can
significantly increase its cash flows and optimize its operations. Therefore, in addition to greenfield developments, IC Power also seeks to enter into and/or expand
its presence in attractive markets by acquiring controlling interests in operating assets to anchor IC Power’s geographical expansion. For example, IC Power
acquired power generation assets in Nicaragua, Guatemala and Colombia, which represents its initial entry into these markets, through the acquisitions of
(1) ICPNH, which provided IC Power with controlling interests in two HFO and two wind energy Nicaraguan generation companies, (2) Puerto Quetzal, which
provided IC Power with three power barges with HFO generators (one of which was recently transferred to IC Power’s subsidiary Kanan to allow it to take
advantage of supply shortfalls in the Panamanian power market), and (3) Surpetroil, a company that utilizes stranded natural gas reserves in its production of
energy. Chile and Colombia represent important parts of IC Power’s growth strategy. IC Power continues to seek expansion in Chile and Colombia, and we expect
that IC Power’s assets in these countries will provide it with the initial footprint from which to carry out IC Power’s organic development strategy in these two
markets. Additionally, consistent with its strategy of maintaining controlling interests in its power generation assets, in May 2014, IC Power increased its equity
ownership in JPPC (which has an aggregate 60 MW of installed capacity in two HFO generation units in Jamaica) from 16% to 100%, and in January 2015, it
increased IC Power’s equity ownership in Nejapa (which has 140 MW of installed capacity at an HFO power generation facility in El Salvador) from 71% to
100%. IC Power will continue to seek to leverage its acquisitions of assets in new markets and/or of assets utilizing a broad range of technologies (which may
include new fuels, such as solar power) to generate attractive risk-adjusted returns.
Continue
to
enter
into
long-term
PPAs
with
credit-worthy
counterparties
—In the year ended December 31, 2015, IC Power’s generation companies made
89% of its aggregate energy sales (in GWh) pursuant to PPAs, many of which are denominated in, or linked to, the U.S. Dollar. IC Power’s strategy of generating
strong and predictable cash flows from long-term PPAs has enabled it to successfully secure financing for its greenfield projects from a diverse international lender
base to fund its development and construction projects. IC Power’s generation companies seek to enter into long-term capacity PPAs prior to committing to a new
project so as to accurately determine expected cash flows and margins of a particular asset, which facilitates its financing. For example, although the CDA plant is
yet to reach its COD, CDA has sourced and entered into three
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long-term PPAs beginning in 2016, 2018 and 2022 for a significant portion of its expected capacity, contracting most of the estimated firm energy it expects to
generate between 2018 and 2027. The expected cash flows associated with such PPAs contributed to CDA’s attractive credit profile, which supported the financing
of CDA’s plants development. Similarly, the Peruvian government has guaranteed capacity payments for 600 MW of the expected capacity of Samay I’s plant for a
20-year period at rates above regulated capacity rates, which also provided support for the financing of the plant’s development. IC Power continues to seek to
enter into, or renew, its long-term PPAs. For example, in 2015, Kallpa entered into a 10-year PPA with Southern Peru Copper Corporation to provide 120 MW of
capacity. In addition to significantly improving IC Power’s access to financing with no or limited recourse, its strategy of contracting its assets’ energy and capacity
significantly reduces IC Power’s exposure to changes in spot prices.
IC
Power’s
Industry
Overview
Overview
of
Electricity
Generation
Industry
IC Power’s generation businesses operate in power utility markets in Latin America, Israel and the Caribbean, each of which are governed by different
degrees of regulation and regulatory systems (as further explained below) and provide varying degrees of incentives for private investment. These markets are
typically characterized by relatively high rates of growth of GDP and lower overall and per capita energy consumption, as compared with more developed markets.
In the Latin American and Caribbean markets that IC Power serves, the power utility market regulation generally allows for the sale and delivery of power
from power generators (private or state-owned) to distribution companies (private or state-owned) and to non-regulated consumers. Israel, another market that IC
Power serves, has recently undergone significant structural changes. Until July 2013, when OPC commenced commercial operations as the first IPP in Israel, the
IEC, a state-owned entity, operated as the sole large-scale provider of electricity in the country. Since then, other IPPs have begun operating in Israel and several
other IPPs are expected to enter this market.
In the countries in which IC Power’s generation businesses operate, there is typically structural segregation between the companies involved in power
generation and the companies involved in power transmission and distribution. In most of these countries, the government operates the power grid, and
transmission services are provided on an open access basis ( i.e.
the transmission company must transmit power through the grid, and in exchange, the transmission
company charges a transmission rate set by the supervisory authority or resulting from a competitive process). In the markets where private and state-owned
entities compete in the power generation sector, transmission and distribution services are conducted subject to exclusive franchises, effectively regulating the
transmission and distribution operations.
Although operating permits are required in each of the countries in which IC Power operates, the markets in these countries generally have no material
regulatory barriers to entry. The financial resources required to enter these markets and the significant costs associated with the construction of power facilities,
however, pose barriers to entry.
The following discussion sets forth a brief description of the key electricity generation markets in which IC Power’s generation companies operate.
Peru
The power utility market in Peru is currently IC Power’s primary market of operation and, driven by the growth in GDP and the expansion of energy
coverage, Peruvian energy consumption has grown in recent years. According to the Peruvian National Institute of Statistics and Informatics ( Instituto
Nacional
de
Estadística
e
Informática—INEI
), Peru had a population of approximately 31 million as of December 31, 2014. According to the World Bank, Peruvian GDP grew
by 2.4% and 5.8% in 2014 and 2013, respectively. An increase in domestic demand, resulting from growth in the overall economic activity of Peru, an increase in
the population’s income and consumption and an increase in investment in infrastructure, has also led to an increase in investments in value-added manufacturing
processes to create products to serve the domestic market and for export. In addition, the availability and extraction of natural resources, in particular metals, has
led to increased energy-intensive mining activity, which, according to MINEM, has supported the increase in Peru’s energy consumption from 29,492 GWh in
2010 to 39,509 GWh in 2015, representing a compound average growth rate of 6%. Nonetheless, the generation capacity in Peru is expected to increase at a faster
rate than the demand for such electricity, resulting in an oversupply of capacity in the Peruvian market, which may result in downward pressure on negotiated and
spot energy and capacity prices in Peru in the short- to medium-term.
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The following chart presents a breakdown of installed capacity in Peru based on generation technology and fuel source, as of December 31, 2015:
Installed Capacity by Generation
Technology
Installed Capacity by Fuel Source
The power utility market in Peru has experienced significant changes in the past 20 years, as a result of privatizations following structural reforms initiated in
1992. In that context, the Peruvian power industry underwent a structural reform characterized by: (1) the enactment of a new regulatory model under the
Electricity Concessions’ Law ( Ley
de
Concesiones
Eléctricas
), or Law 25844; (2) the restructuring and reorganization of the vertically integrated state owned
power utilities into non vertically integrated generation, transmission and distribution companies; (3) the privatization of most of the restructured state owned
utilities; (4) the promotion of private investment; (4) the regulation of the remuneration model for distribution and transmission activities based on cost-efficient
standards; (5) the creation of an “open access” principle for the use of transmission and distribution networks; (6) the creation of a compensation system between
generators that operates independently from contractual arrangements; and (7) the segmentation of power consumers as “regulated” and “non-regulated,” the latter
being entitled to directly contract the supply of electricity from generators. From a regulatory perspective, the Peruvian system has split the regulatory roles among
an independent regulator, OSINERGMIN, a policy body, the MINEM, and a market operator that is a private entity, COES. The structure and its separation have
remained constant since the start of the reforms in 1992 and the economic model (i.e., marginal cost system) upon which the reform has been built is effectively
embedded in the general electricity laws of Peru, providing long-term economic stability for investment.
The Law to Ensure Effective Development of Power Generation ( Ley
para
Asegurar
el
Desarrollo
Eficiente
de
la
Generación
Eléctrica
), or Law 28832,
and together with Law 25844, the General Electricity Laws of Peru, introduced further changes to the power utility market and strengthened the model, mainly
aiming to: (1) maintain the economic principles used in Law 25844 and add new measures to facilitate competition in the wholesale market; (2) reduce government
intervention in establishing power generation tariffs; (3) allow power generation tariffs for regulated power consumers to reflect a competitive market, facilitating
the construction of new generation plants when required; and (4) ensure a sufficient supply of power by reducing the power system’s exposure to the risks of high
prices and rationing inherent to situations of undersupply of natural gas or transportation congestion. Law 28832 was approved as a consequence of a severe crisis
in the Peruvian electricity market that resulted from, among other causes, OSINERGMIN defining the tariff at which distribution companies purchased electricity
to supply to regulated customers at levels that did not reflect market conditions and were not attractive for generators to sell to distribution companies. The changes
introduced by this law strengthened the model and incorporated mechanisms to effectively transfer risks from generators to end users that were not contemplated
when the reforms were approved in 1992.
The reforms of 1992, together with the Peruvian Constitution of 1993, liberalized ownership across the Peruvian electricity sector and opened it to private
investment, effectively eliminating any ownership restriction based upon nationality (except within 50 km of Peru’s international land borders, where certain
restrictions apply) or otherwise. The privatization and
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concession award process was structured based upon the need to attract foreign investment and expertise that the country lacked. As a result of such ownership
rules, the majority shareholders of almost all the private companies acting in the Peruvian electricity market are controlled by foreign investors. The second largest
investors in the electricity sector are the Peruvian private pension funds administrated by the Private Pension Funds Administrators, or the AFPs.
Since 1992, the Peruvian market has been operating based upon a “marginal generation cost” system. Such system is embedded in the general electricity
laws of Peru and is administrated by COES. In such capacity the COES has as its main mandate the satisfaction of all the demand for electricity at any given time
(i.e., periods of 15 minutes each) with the most efficient generation assets available at such time, independently of contractual arrangements between generators
and their clients. For this purpose, the COES determines which generation facilities will be in operation at any given time with an objective of minimizing the
overall system energy cost. Energy units are dispatched (i.e., ordered by the COES to inject energy into the system) on a real-time basis; units with lower variable
generation costs are dispatched first and then other less efficient generation units will be dispatched, until the electricity demand is satisfied.
The variable cost for the most expensive generation unit dispatched in each 15-minute time period determines the price of electricity in such time period for
those generation companies that sell or buy power on the spot market price during such time period. The COES determines, for each such 15-minute period, the
spot market at which such transactions among generators take place and acts as a clearinghouse of all such transactions.
Generation companies in the Peruvian electricity market sell their capacity and energy under PPAs or in the spot market. The principal consumers under
PPAs are distribution companies and non-regulated consumers. Under regulations governing the Peruvian power sector, customers with a capacity demand above
2,500 kW participate in the unregulated power market and can enter into PPAs directly with generation companies at freely-negotiated prices. Customers with a
capacity demand between 200 kW and 2,500 kW may choose to participate in the unregulated power market or contract as a regulated client with a distribution
company. PPAs to sell capacity and energy to distribution companies for resale to regulated customers must be made at fixed prices based on public bids received
by the distribution companies from generation companies or at the applicable bus bar tariff set by the OSINERGMIN. Generation companies are authorized to buy
and sell capacity and energy in the spot market to cover their needs and their commitments under their PPAs. Customers that are entitled to participate in the
unregulated power market must enter into PPAs with generation or distribution companies covering all their electricity demand as they are not allowed to purchase
energy or capacity directly in the spot market.
For further information on Peru’s regulatory environment, see “—I C
Power’s
Description
of
Operations—Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Peruvian
Electricity
Sector.
”
The following table sets forth a summary of energy sales in the Peruvian market for the periods presented:
Year Ended December 31,
2011
2012
2013
2014
2015
Energy Sales
Under PPAs
Distribution
Unregulated
(GWh)
17,888
18,961
19,880
20,663
21,988
13,904
14,661
15,841
16,465
17,521
The demand for power and electricity in Peru is served by a variety of generation companies, including IC Power’s subsidiary Kallpa, Edegel, a subsidiary of
Enel, ElectroPerú, a state-owned generation company whose primary generation facilities are hydroelectric plants, EnerSur S.A., a subsidiary of Engie S.A., and
Duke Energy Egenor S. en C. por A., a subsidiary of Duke Energy Corp.
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Table of Contents
The following table sets forth a summary of the principal generation companies in Peru, indicating their capacity by type of generation, as of December 31,
2015:
Capacity as of December 31, 2015
EnerSur
Edegel
Kallpa IC Power
ElectroPerú
Egenor
Other generation companies
Total
Israel
Combined
Cycle-
Natural
Gas
Open-
Cycle
Natural
Gas
806
484
870
—
—
570
2,730
—
313
193
—
175
306
987
Hydro
137
783
—
898
359
1,526
3,703
Dual
Fuel
(MW)
497
106
—
—
—
416
1,019
HFO Coal Other Total
156
—
—
13
—
387
556
142
—
—
—
—
—
142
—
—
—
—
16
464
480
1,738
1,686
1,063
911
550
3,669
9,617
Percentage
of Installed
Capacity
(%)
18
18
11
9
6
38
100
According to the Israel Central Bureau of Statistics, Israel had a population of approximately 8 million as of December 31, 2014. According to the Israel’s
Central Bureau of Statistics, Israeli GDP grew by 2.8% and 3.2% in 2014 and 2013, respectively. Demand for electric power has increased in Israel in recent years
due to, among other reasons, population growth, higher living standards and climate change.
Israel’s power generation units utilize fossil fuels almost exclusively. As of December 31, 2015, the installed capacity in Israel was approximately 16,789
MW, of which 10,645 MW is fueled by natural gas based upon information available from IEC’s financial report for 2014 and the EA.
The following charts present a breakdown of installed capacity in Israel based on fuel source as of December 31, 2015:
Installed Capacity by Fuel Source
Until July 2013, the state-owned IEC operated as the sole large-scale provider of electricity in Israel. However, EA incentives have encouraged private
investments in the Israeli power generation market and OPC and other IPPs now operate in the market with significant capacity. For example, in May 2014, Dorad
Energy Ltd., or Dorad, became the second IPP to commence commercial operations in Israel, adding capacity of 860 MW to the Israeli power market. In July 2015,
the first of two units of the power plant of Dalia Power Energies Ltd., or Dalia Power Energies, reached its COD. In September 2015, the second unit reached its
COD, adding, together with the first unit, 910 MW to the Israeli power market. Several other IPPs are in the process of constructing power plants, and are expected
to reach their COD in the coming years.
As of December 31, 2015, OPC had installed capacity of 440 MW, representing approximately 3% of Israel’s installed capacity and 19% of the installed
capacity of IPPs (excluding self-generators), which had an aggregate installed capacity of approximately 2,334 MW as of December 31, 2015, according to the EA.
Sales of IPPs are generally made on the basis of PPAs for the sale of energy to customers, with prices predominantly linked to the tariff issued by the EA and
denominated in New Israeli Shekels. The EA operates a Time of Use tariff, which provides different energy rates for different seasons ( e.g.
, summer and winter)
and different periods of time during the day.
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Within Israel, the price of energy varies by season and demand period, with tariffs varying based upon the season—summer (July, August), winter (January,
February, December) and transition (March-June, September-November)—and demand (peak, shoulder and off-peak). Generally, the tariffs in the winter and
summer seasons are higher than those in the transition season, making Israeli power generators, including OPC, more profitable, generally, in the winter and
summer months, as compared to other months of the year.
The following tables set forth the tariffs and consumption blocks for each of the seasons set forth below, as of September 2015, which is the last month in
which the EA has published final tariffs:
Peak
Shoulder
Off-Peak
Weighted tariff
Peak
Shoulder
Off-Peak
Winter
Regulated “Generation Component” Tariff
Transition
(NIS per MWh)
282
217
166
265
647
371
195
Summer
713
268
165
Winter
Hours per Consumption Block 1
Transition
(Hours)
Summer
404
208
1,548
2,002
906
2,204
308
308
872
1.
The hours per consumption block may vary due to changes in the dates of weekdays, weekends and public holidays.
For information on the risks associated with the indexation of OPC’s revenues and cost of sales to the EA’s generation component tariff and its potential
impact on OPC’s business, financial condition and results of operations, see “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—The
production
and
profitability
of
IPPs
in
Israel
may
be
adversely
affected
by
changes
in
Israel’s
regulatory
environment
.”
The following table sets forth a summary of energy sales in the Israeli market for the periods presented:
Year Ended December 31,
Energy Sales
2011
2012
2013
2014
Distribution
(GWh)
53,100
57,900
56,900
58,296
IEC has been classified by the Electricity Sector Law as an “essential service provider” and, as such, is subject to basic obligations concerning the proper
management of the Israeli power utility market. These obligations include the filing of development plans, management of Israel’s power system, management of
Israel’s power transmission and distribution systems, provision of backup and infrastructure services to IPPs and consumers, and the purchase of power from IPPs.
The IEC also transmits and distributes all of the electricity in Israel.
For further information on Israel’s regulatory environment, see “ —IC
Power’s
Description
of
Operations—Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Israeli
Electricity
Sector
.” For information on the risks related to changes in Israel’s regulatory environment, see “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—The
production
and
profitability
of
IPPs
in
Israel
may
be
adversely
affected
by
changes
in
Israel’s
regulatory
environment
.”
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Nicaragua
According to the World Bank, Nicaragua had a population of approximately 6 million as of December 31, 2014. According to the International Monetary
Fund, Nicaraguan GDP grew by an estimated 4.0% and 4.6% in 2014 and 2013, respectively.
Nicaragua’s interconnected power system has an installed capacity of approximately 1,058 MW, consisting of thermal, wind, hydroelectric, geothermal and
biomass power stations using HFO or diesel, which accounted for 56%, 18%, 11%, 8% and 6%, respectively, of Nicaragua’s capacity as of December 31, 2015
according to CNDC. Nicaragua is part of the SIEPAC, thereby permitting the creation of a Central American wholesale power generation market. For information
on Nicaragua’s regulatory environment, see “—IC
Power’s
Description
of
Operations—Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Nicaraguan
Electricity
Sector.”
The following table sets forth a summary of capacity and energy sales in the Nicaraguan market for the periods presented:
Year Ended December 31,
2011
2012
2013
2014
2015
Guatemala
Capacity Sales
Energy Sales
Under PPAs
Spot Market
Under PPAs
Spot Market
(MW)
(GWh)
702
728
740
749
736
112
72
72
72
79
3,353
3,536
3,695
3,933
4,051
130
91
133
140
185
According to the World Bank, Guatemala had a population of approximately 16 million as of December 31, 2014. According to the International Monetary
Fund, Guatemalan GDP grew by 4.0% and 3.7% in 2014 and 2013, respectively.
Guatemala’s interconnected power system has an installed capacity of approximately 3,174 MW, consisting of hydro, thermal and other technologies, which
accounted for 33%, 62%, and 5%, respectively, of Guatemala’s capacity as of December 31, 2015 according to the Guatemalan electricity wholesale market
administrator, or AMM ( Administrador
del
Mercado
Mayorista
).
Guatemala, which is also a member of the SIEPAC, was a net exporter of energy in 2015.
All capacity sales in Guatemala are made pursuant to PPAs. The following table sets forth a summary of capacity and energy sales in the Guatemalan market
for the periods presented:
Year Ended December 31,
2011
2012
2013
2014
2015
El
Salvador
Capacity Sales
Under PPAs
(MW)
Energy Sales
Under PPAs
Spot Market
(GWh)
1,491
1,533
1,564
1,635
1,672
7,286
7,500
7,394
8,223
8,984
1,019
1,056
1,785
1,899
1,502
According to the World Bank, El Salvador had a population of approximately 6 million as of December 31, 2014. According to the Consultants for
Corporate Development ( Consultores
para
el
Desarrollo
Empresarial
), Salvadorian GDP grew by 1.8% and 1.7% in 2014 and 2013, respectively.
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Hydroelectric plants accounted for 31% of El Salvador’s capacity as of December 31, 2015 and geothermal plants accounted for 13%, based upon
information available from the SIGET. The remaining 56% of El Salvador’s capacity is provided by thermal plants powered by HFO, diesel and bio-mass.
Prior to August 2011, a market for capacity sales did not exist and consumers of electricity, including non-regulated consumers, purchased only energy.
However, as a result of regulatory changes, and similar to generation companies operating in the Peruvian market, Salvadorian generation companies sell capacity
and energy under PPAs or in the spot market. For further information on these reforms and El Salvador’s regulatory environment, see “ —IC
Power’s
Description
of
Operations—Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Salvadorian
Electricity
Sector
.”
The following table sets forth a summary of capacity and energy sales in the Salvadorian market for the periods presented:
Year Ended December 31,
2011
2012
2013
2014
2015
Panama
Capacity Sales
Energy Sales
Under PPAs
Spot Market
Under PPAs
Spot Market
(MW)
(GWh)
555
655
715
764
515
404
332
285
271
581
2,745
3,122
3,823
4,176
3,828
3,011
2,761
2,177
1,891
2,482
According to the World Bank, Panama had a population of approximately 4 million as of December 31, 2014. According to the International Monetary Fund,
Panamanian GDP grew by 6.2% and 8.4% in 2014 and 2013, respectively.
Panama’s interconnected power system had an installed capacity of approximately 2,844 MW, mainly consisting of hydro, thermal, coal and other
technologies, which accounted for 57%, 32%, 4% and 6%, respectively, of Panama’s capacity as of December 31, 2015, according to CND.
The following table sets forth a summary of capacity and energy sales in the Panamanian market for the periods presented:
Year Ended December 31,
2011
2012
2013
2014
2015
Energy Sales
Under PPAs
Spot Market
(GWh)
6,696
7,217
7,359
7,542
8,858
2,053
1,884
2,615
3,193
2,656
An energy deficit has accumulated in Panama’s generation market, and such deficit has recently increased as a result of an extended dry season, which led to
increased electricity shortages. For example, in 2014, as an emergency measure, the Panamanian government called for an emergency bid to attempt to cover
electricity shortfalls in the short-term. IC Power submitted a bid in response to this request and, in October 2014, Kanan was awarded a five-year contract to supply
energy in Panama in connection with the Panamanian government’s effort. As a result of Panama’s energy deficit, the Panamanian government may solicit
additional bids in the future and IC Power may submit a bid and further expand its operations in Panama in connection with such requests.
Bolivia
According to the World Bank, Bolivia had a population of approximately 11 million as of December 31, 2014. According to the International Monetary
Fund, Bolivian GDP grew by 5.2% and 6.8% in 2014 and 2013, respectively.
Based upon information available from the CNDC, Bolivia’s national dispatch committee, as of December 31, 2015, thermal plants fueled by natural gas
accounted for 72% of Bolivian capacity and hydroelectric plants accounted for 25%. As of December 31, 2015, thermal plants in Bolivia had capacity of 1,446
MW and hydroelectric plants in Bolivia had a capacity of 483 MW, according to the CNDC.
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Following the nationalization of Guaracachi, Valle Hermoso and Corani in May 2010 by the Bolivian government, all of the generation companies currently
developing power projects in Bolivia are government-owned entities. It is unclear whether the Bolivian government will continue nationalizing entities involved in
its power utility market and it is unclear whether such nationalization (if any) would be adequately compensated for by the Bolivian government. For further
information on the Bolivian government’s acts of nationalization, see “Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—The
Bolivian
government
has
nationalized
energy
industry
assets,
and
IC
Power’s
remaining
operations
in
Bolivia
may
also
be
nationalized
. ”
In December 2011, the Bolivian government amended the applicable law to prohibit generation companies from entering into new PPAs. For further
information on risks related to IC Power’s inability to renew, enter into, or replace long-term PPAs, see “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—IC
Power’s
generation
companies
may
not
be
able
to
enter
into,
or
renew
existing,
long-term
contracts
for
the
sale
of
energy
and
capacity,
contracts
which
reduce
volatility
in
IC
Power’s
results
of
operations.”
For further information on Bolivia’s regulatory environment, see “—IC
Power’s
Description
of
Operations—
Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Bolivian
Electricity
Sector.”
Bolivian generation companies sell capacity and energy under PPAs or in the spot market. The following table sets forth a summary of capacity and energy
sales in the Bolivian market for the periods presented:
Year Ended December 31,
2011
2012
2013
2014
2015
Capacity Sales
Energy Sales
Under PPAs
Unregulated
(MW)
Spot Market
Under PPAs
Unregulated
(GWh)
Spot Market
47
43
47
44
47
1,005
1,060
1,119
1,254
1,317
368
369
368
357
360
5,934
6,236
6,645
7,121
7,583
In Bolivia, wages are periodically increased by governmental decree and, as a result, labor costs, which already represent a significant portion of the
operating expenses of Bolivian generation and distribution companies, are expected to continue to increase and represent a greater portion of generation expenses.
Chile
According to the World Bank, Chile had a population of approximately 18 million as of December 31, 2014. According to the Central Bank of Chile ( Banco
Central
de
Chile
), Chilean GDP grew by 1.8% and 4.3% in 2014 and 2013, respectively.
Two of Chile’s four power systems represent a significant portion of its 20,076 MW electricity market. The largest of such systems is the Central
Interconnected System, or the SIC, which has a capacity of 15,411 MW, primarily consisting of coal-based power stations, hydroelectric stations, dual-fueled
power stations using liquid natural gas or diesel and wind farms and solar power stations which accounted for 16%, 41%, 33% and 11%, respectively, of the SIC’s
capacity as of December 31, 2015. The SIC serves approximately 93% of the Chilean population. The other power system is the SING, which has a capacity of
4,165 MW and serves approximately 6% of the Chilean population.
In 1982, Chile became the first country in the region to adopt the marginal generation cost system. Chile still uses the marginal generation cost system to
ensure demand for power is met at the minimum system cost. For further information on Chile’s regulatory environment, see “—IC
Power’s
Description
of
Operations—Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Chilean
Electricity
Sector.”
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Table of Contents
The following table sets forth a summary of capacity and energy sales in the SIC for the periods presented:
Year Ended December 31,
2011
2012
2013
2014
2015
Dominican
Republic
Capacity Sales
Energy Sales
Under PPAs
Spot Market
Under PPAs
Spot Market
(MW)
(GWh)
4,663
4,754
5,351
5,832
5,853
1,205
1,438
1,334
1,248
1,253
38,364
36,966
41,147
44,234
44,772
5,440
9,315
6,630
8,032
8,130
According to the Dominican Republic’s National Statistics Office ( Oficina
Nacional
de
Estadística
), the Dominican Republic had a population of
approximately 10 million as of December 31, 2014. According to the Dominican Central Bank ( Banco
Central
de
la
República
Dominicana
), the Dominican
Republic’s GDP grew by 7.3% and 4.8% in 2014 and 2013, respectively; the significant growth in 2014 primarily resulted from the decline in international fuel
prices.
Based upon information available from the Coordinating Body ( Organismo
Coordinador
), or OC, as of December 31, 2015, HFO plants accounted for 48%
of the Dominican capacity and hydroelectric plants accounted for 16%. The remainder of Dominican capacity is provided by open-cycle and combined-cycle plants
fueled by natural gas, and thermal plants fueled by coal and natural gas. As of December 31, 2015, thermal plants in the Dominican Republic had a capacity of
3,732 MW, hydroelectric plants in the Dominican Republic had a capacity of 612 MW and wind plants had a capacity of 85 MW, according to the OC.
The large-scale theft of power from the grid is prevalent in the Dominican Republic. Since generation and distribution companies do not pass through the
cost associated with such theft to consumers, the government must provide significant subsidies to these companies. For information on the Dominican Republic’s
regulatory environment, see “ —IC
Power’s
Description
of
Operations—Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Dominican
Republic
Electricity
Sector
.”
Dominican generation companies sell capacity and energy under PPAs or in the spot market. The following table sets forth a summary of capacity and
energy sales in the Dominican market for the periods presented:
Year Ended December 31,
2011
2012
2013
2014
2015
Jamaica
Capacity Sales
Energy Sales
Under PPAs
Spot
Market
Under PPAs
Spot
Market
Distribution
Other
Unregulated
(MW)
Distribution
Other
Unregulated
(GWh)
1,377
1,429
1,676
1,453
1,110
111
238
212
163
183
529
634
569
822
1,010
9,877
11,084
10,929
10,045
9,411
1,107
1,792
2,164
1,389
1,557
2,615
2,657
3,114
4,109
4,268
According to the World Bank, Jamaica had a population of approximately 3 million as of December 31, 2014. According to the Statistical Institute of
Jamaica, Jamaican GDP decreased by 0.5% and grew by 0.2% in 2014 and 2013, respectively . Jamaica’s interconnected power system has an installed capacity of
approximately 935 MW, consisting of thermal and renewable technologies, which accounted for 94% and 6%, respectively, of Jamaica’s capacity as of
December 31, 2015, according to the Jamaica Public Service Company.
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Table of Contents
The following table sets forth a summary of capacity and energy sales in the Jamaican market for the periods presented:
Year Ended December 31,
2011
2012
2013
2014
2015
Colombia
Capacity Sales
Under PPAs
(MW)
Energy Sales
Under PPAs
(GWh)
789
854
854
938
935
4,137
4,135
4,142
4,107
4,209
According to the World Bank, Colombia had a population of approximately 48 million as of December 31, 2014. According to the Colombian National
Administrative Department of Statistics, Colombia’s GDP grew by 4.6% and 4.9% in 2014 and 2013, respectively.
Colombia’s interconnected power system has an installed capacity of approximately 16,342 MW, consisting of hydro, thermal plants, minor plants and
cogenerators, which accounted for 66%, 29%, 4% and 1%, respectively, of Colombia’s capacity as of December 31, 2015, according to UPME.
The following table sets forth a summary of energy sales and consumption in the Colombian market for the periods presented:
Year Ended December 31,
2011
2012
2013
2014
2015
Overview
of
Electricity
Distribution
Market
Guatemala
Background
Energy Sales
Energy Consumption
Under PPAs
Spot Market
Regulated
Unregulated
(GWh)
(GWh)
62,179
67,183
71,375
69,846
71,549
16,787
17,016
14,948
15,544
16,905
38,231
39,175
40,282
42,323
44,629
18,536
19,800
20,237
20,867
21,187
During the 1970s, the Guatemalan government was the only distributor of electricity in Guatemala through Instituto Nacional de Electrificación, or INDE,
and Empresa Eléctrica de Guatemala, S.A., or EEGSA. In the next two decades, the Guatemalan electricity sector became increasingly privatized, and in 1994, the
Guatemalan government adopted a new law to deregulate and privatize the Guatemalan electricity industry in order to encourage privately funded growth. In 1996,
the Guatemalan government adopted the Ley General de Electricidad ( General
Electricity
Law
), which created a legal and regulatory framework designed to
reduce government intervention and attract private investment into the sector.
Operations
and
regulations
Guatemalan distribution companies acquire electricity through PPAs from generation facilities and then deliver electricity through low-voltage and medium-
voltage transmission lines to regulated customers and large users and perform a range of related services such as metering, billing and management. Distribution
companies also collect tolls from large users for their use of the transmission grid.
The General Electricity Law provides that transmission companies and distribution companies must permit physical connections to the transmission and
distribution systems for all customers. Large users are entitled to receive electricity from any source and transmission and distribution companies must allow such
electricity to pass through their transmission and distribution lines. Distribution and transmission companies are entitled to collect distribution tariffs and
transmission tolls for the use of their systems. Failure to provide such access by a transmission or distribution company may lead to fines and ultimately to the
termination of such company’s distribution authorization.
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Table of Contents
There are three large distribution companies authorized to distribute electricity in Guatemala: EEGSA, which serves Guatemala City, Sacatepéquez and
Escuintla (urban areas), and DEORSA and DEOCSA (which operate under the brand name “Energuate”). Guatemala has an electricity distribution market model
that supports free access to any person or legal entity that fulfils the requirements of the General Electricity Law. Authorizations for distribution services are
granted on a non-exclusive basis for specific geographic areas and have terms of up to 50 years. Although authorizations to provide distribution services are non-
exclusive, the investment required to establish a competing distribution system is a substantial barrier to entry. In addition to these large distribution companies,
there are approximately 15 municipal distributors operating in the AMM.
Distribution companies are required to have PPAs in place with generation companies for the supply of sufficient electricity for the current year and the next
year. Each year, the electricity regulator estimates the demand for each distribution company for the period from May 1 through April 30 of the following year.
Each distribution company is then required to establish its own projection of demand for the following period from May 1 through April 30.
The industry is regulated by MEM, CNEE and AMM. The MEM is responsible for enforcing the General Electricity Law and the related regulations and for
the coordination of policies between CNEE and the AMM. The CNEE acts as the technical arm of the MEM and determines the transmission and distribution
tariffs while ensuring compliance with electricity laws. The AMM is a private entity that coordinates the operation of the generation facilities and international
interconnections and transmission lines that form the National Electricity System. The AMM is responsible for the safety and operation of the National Electricity
System, performing economically efficient dispatch, and managing electricity resources in a manner that seeks to minimize operating costs, including failure costs
within restrictions imposed by the transmission system and service quality requirements.
For further information on distribution tariffs, see “ –Distribution
Segment—Energuate—Regulation
of
Distribution
Companies.
”
For further information on macroeconomic conditions in Guatemala, see “— Overview
of
Electricity
Generation
Sector—Guatemala
.”
IC Power’s Description of Operations
Generation
Operations
IC Power’s generation operations are focused in Latin American and Caribbean markets—primarily Peru—that are characterized by relatively high rates of
GDP growth and relatively low base levels of per capita energy consumption (in comparison to those of developed markets). In July 2013, IC Power commenced
commercial operations in Israel, operating the first large-scale private power plant in the country. Collectively, IC Power’s operations had a capacity of 2,665 MW
as of December 31, 2015, and a capacity of 3,867 MW, assuming the completion of IC Power’s construction projects, which includes its CDA and Samay I projects
in Peru, and Kanan in Panama. IC Power’s portfolio includes power generation plants that operate on a range of fuel sources, including natural gas, hydroelectric,
HFO, diesel, wind and solar.
IC Power owns, operates and develops power plants to generate and sell electricity to distribution companies and unregulated consumers under long-term
PPAs and to the spot market. IC Power’s largest generation asset is its Kallpa facility, a combined-cycle plant in Peru that includes three gas-fired generation
turbines and is the largest power plant in Peru, in terms of capacity. In 2015, 89% of IC Power’s generation businesses’ energy and capacity sales were pursuant to
long-term PPAs, reducing IC Power’s exposure to fluctuating electricity and fuel prices. During the year ended December 31, 2015, IC Power’s generation
businesses sold 6,366 GWh of electricity, representing 41% of volume sold, to distribution companies, 7,382 GWh of electricity, representing 48% of volume sold,
to consumers in the unregulated markets and 1,645 GWh of electricity, representing 11% of volume sold, in the spot markets. IC Power’s generation businesses
sold 15,393 GWh of electricity during the year ended December 31, 2015. During the year ended December 31, 2015, IC Power’s operations in Peru generated
35% of IC Power’s consolidated revenues and 47% of IC Power’s Adjusted EBITDA.
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Table of Contents
The following charts set forth the relative percentages of IC Power’s generation companies installed capacity by energy source as of December 31, 2015, and
its expected installed capacity by energy source, as adjusted to assume the completion of IC Power’s assets in advanced stages of construction (the CDA, Samay I
and Kanan assets), and excluding additional capacity which may become available through other acquisitions or projects that IC Power may complete in the second
half of 2016 or other potential changes to its capacity:
Actual Installed Capacity by Energy Source
(as of December 31, 2015) 1
Expected Installed Capacity by Energy Source
(H2 2016) 2
2,665 MW
3,867 MW 2
1.
2.
IC Power’s dual-fueled assets, OPC, Samay I and Colmito, are categorized as natural gas, diesel and natural gas, respectively. AIE is categorized as natural
gas.
Does not include the 135 MW cogeneration power station to be developed by AIE as a greenfield project. Construction of this plant is expected to commence
in mid-2016 and COD is expected in the second half of 2018.
The following charts set forth the relative percentage of IC Power’s installed capacity by segment as of December 31, 2015, and its expected installed
capacity by segment, as adjusted to assume the completion of its assets in advanced stages of construction (the CDA, Samay I and Kanan assets), and excluding
additional capacity which may become available through other acquisitions or projects that IC Power may complete in the second half of 2016 or other potential
changes to its capacity:
Actual Installed Capacity by Segment
(as of December 31, 2015)
Expected Installed Capacity by Segment
(H2 2016) 1
2,665 MW
3,867 MW 1
1.
Does not include the 135 MW cogeneration power station to be developed by AIE as a greenfield project. Construction of this plant is expected to commence
in mid-2016 and COD is expected in the second half of 2018.
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Table of Contents
The following table sets forth summary financial information for IC Power’s generation subsidiaries and associates for the year ended December 31, 2015:
Entity
Peru segment
Kallpa
Assets
in
advance
stages
of
construction
CDA
Samay I
Israel segment
OPC
AIE
Central America segment
ICPNH 4
Puerto Quetzal 5
Nejapa 6
Cenergica
Assets
in
advance
stages
of
construction
Kanan
Other segment
COBEE
Central Cardones
Colmito
CEPP
JPPC 7
Surpetroil 8
Inkia & Other 9
IC Power & Other 10
Total
Year Ended December 31, 2015
Ownership
Interest
(%)
Sales
Cost of
Sales
Adjusted
EBITDA
1
Outstanding
debt 2
Net
debt 3
($ millions)
75 $ 448 $ 279 $
152 $
416 $ 388
75
75
—
—
—
—
—
—
536
285
519
253
80
100
318
8
235
7
79
—
383
—
255
—
61-65
100
100
100
111
109
100
17
73
94
85
13
36
10
12
4
99
15
6
1
100
—
—
—
—
76
7
(3)
(1)
(3)
100
87
100
97
100
60
100
100
43
14
28
39
45
8
1
—
18
2
25
31
41
6
—
—
$1,289 $ 909 $
21
10
3
6
2
1
(4)
(6)
326 $
69
44
16
13
5
3
565
109
50
39
15
8
1
2
273
24
2,565 $1,903
1.
2.
3.
4.
5.
6.
“Adjusted EBITDA” for each entity for the period is defined as income (loss) before depreciation and amortization, finance expenses, net and income tax expense (benefit).
Includes short-term and long-term debt.
Net debt is defined as total debt attributable to each of IC Power’s subsidiaries, minus the cash and short term deposits and restricted cash of such companies. Net debt is not a measure of
liabilities in accordance with IFRS. The tables below set forth a reconciliation of net debt to total debt for IC Power’s subsidiaries.
Through ICPNH, IC Power indirectly holds 65% interests in Corinto and Tipitapa Power and 61% interests in Amayo I and Amayo II.
Figures include Puerto Quetzal and Poliwatt Limited (one of IC Power’s subsidiaries that performs administrative functions and maintains certain licenses on behalf of Puerto Quetzal).
Figures include amounts related to Nejapa’s branch and main office.
88
Table of Contents
7.
8.
9.
10.
Figures include JPPC and Private Power Operator Ltd. (an IC Power subsidiary that employs JPPC’s employees and performs administrative-related functions).
Figures include Surpetroil and Surenergy S.A.S ESP (an IC Power subsidiary that performs administrative functions and maintains certain licenses on behalf of Surpetroil).
Outstanding debt includes Inkia for $448 million and $117 million for IC Power Distribution Holdings.
Includes $12 million of outstanding IC Power debt and $97 million of ICPI debt.
The following tables set forth a reconciliation of income (loss) to Adjusted EBITDA for IC Power’s generation subsidiaries for the year ended December 31, 2015:
Kallpa CDA
Samay I OPC
Hadera
ICPNH
AIE
Puerto
Quetzal
Income (loss)
Depreciation and amortization
Finance expenses, net
Income tax expense (benefit)
Adjusted EBITDA
Income (loss)
Depreciation and amortization
Finance expenses, net
Income tax expense (benefit)
Adjusted EBITDA
Income (loss)
Depreciation and amortization
Finance expenses, net
Income tax expense (benefit)
Adjusted EBITDA
$ 43 $ (8) $
(4) $ 20 $
($ millions)
2 $
50
36
23
—
3
5
—
3
1
26
26
7
—
(3)
1
17 $
10
9
—
2
3
2
3
10
$ 152 $— $ — $ 79 $ — $
36 $
Nejapa
Cenérgica
Kanan
COBEE
Central
Cardones
$
4
4
—
4
12
$
$
2
1
—
1
4
$
($ millions)
$ —
—
—
—
$ —
$
$
10
4
5
2
21
$
$
3
4
2
1
10
CEPP
JPPC
Surpetroil
Inkia &
Other
IC Power &
Others
$
$
3
3
(1)
1
6
$ (2)
4
1
(1)
2
$
$
$
($ millions)
(1)
3
—
(1)
1
$
$
(32)
6
20
2
(4)
$
$
(7)
—
—
1
(6)
Colmito
$
1
1
1
—
3
$
Total
$ 53
119
104
50
$326
The tables below set forth a reconciliation of net debt to total debt for IC Power’s generation subsidiaries.
Kallpa CDA Samay I OPC
Hadera
ICPNH
AIE
Puerto
Quetzal Nejapa Cenérgica
Total debt
Cash
Net Debt
Total debt
Cash
Net Debt
$ 416 $536 $
28
17
$ 388 $519 $
($ millions)
285 $383 $ — $
32
253 $255 $ — $
—
128
99 $
23
76 $
15 $
8
7 $
6 $
9
(3) $
1
2
(1)
Kanan COBEE
Central
Cardones Colmito CEPP
JPPC
Surpetroil
Inkia &
Other
ICP&
Other
Total
—
3
(3)
$
$
$
69 $
19
50 $
44 $
5
39 $
($ millions)
16 $ 13 $
1
15 $
5
8 $
5 $
4
1 $
89
3 $ 565 $ 109 $2,565
1
662
2 $ 273 $ 24 $1,903
85
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Table of Contents
The following table sets forth summary financial information for IC Power’s generation subsidiaries as of and for the year ended December 31, 2014:
Entity
Peru segment
Kallpa
Assets
in
advanced
stages
of
construction
CDA
Samay I
Israel segment
OPC 4
Central America segment
ICPNH 5
Puerto Quetzal 6
Nejapa 7
Cenérgica
Assets
in
advanced
stages
of
construction
Kanan
Other
COBEE
Central Cardones
Colmito
CEPP
JPPC 8
Surpetroil 9
Inkia & Other 10
ICP & Other 11
Total
Ownership
Interest (%) Revenues
Cost of
Sales
Adjusted
EBITDA 1
Outstanding
debt 2
Net debt 3
Year Ended December 31, 2014
($ millions)
75 $
437 $ 270 $
154 $
453 $
428
75
75
—
—
—
—
—
—
444
145
338
11
80
413
252
153
419
231
61-65
100
71
100
125
33
132
18
98
29
119
14
22
3
11
4
100
—
—
—
100
87
100
97
100
60
100
100
41
11
38
73
41
9
1
—
18
2
36
56
39
3
—
—
$ 1,372 $ 936 $
19
7
2
16
1
5
1
(3)
395 $
108
32
—
—
—
92
14
(23)
(4)
(4)
85
48
20
30
8
3
447
106
43
44
19
22
4
2
262
78
2,348 $ 1,557
1.
2.
3.
4.
5.
6.
“Adjusted EBITDA” for each entity for the period is defined as net income (loss) before depreciation and amortization, financing expenses, net, income tax expense (benefit) and asset
write-off, excluding share in income (loss) from associates, gain on bargain purchase, measurement to fair value of pre-existing share and net income from discontinued operations, net of
tax (excluding dividends received from discontinued operations).
Includes short-term and long-term debt.
Net debt is defined as total debt attributable to each of IC Power’s subsidiaries, minus the cash and short term deposits and restricted cash of such companies. Net debt is not a measure of
liabilities in accordance with IFRS. The tables below set forth a reconciliation of net debt to total debt for IC Power’s subsidiaries.
Reflects tariffs in 2014, which were higher than the applicable tariffs in 2015.
Through ICPNH, IC Power indirectly holds 65% interests in Corinto and Tipitapa Power and 61% interests in Amayo I and Amayo II.
Reflects 100% of Puerto Quetzal’s financial results from the date of consolidation (September 2014). Figures include Puerto Quetzal and Poliwatt Limited (one of IC Power’s subsidiaries
that performs administrative functions and maintains certain licenses on behalf of Puerto Quetzal).
Figures include amounts related to Nejapa’s branch and main office.
Figures include JPPC and Private Power Operator Ltd. (an IC Power subsidiary that employs JPPC’s employees and performs administrative-related functions).
Figures include Surpetroil and Surenergy S.A.S ESP (an IC Power subsidiary that performs administrative functions and maintains certain licenses on behalf of Surpetroil).
7.
8.
9.
10. Outstanding debt includes Inkia for $447 million.
11.
Includes $12 million of outstanding IC Power debt and $94 million of ICPI debt.
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Table of Contents
The following tables set forth a reconciliation of net income (loss) to Adjusted EBITDA for IC Power’s generation subsidiaries for the year ended
December 31, 2014:
Income (loss) for the year
Depreciation and amortization
Financing expenses, net
Income tax expense (benefit)
Adjusted EBITDA
Income (loss) for the year
Depreciation and amortization
Financing expenses, net
Income tax expense
Adjusted EBITDA
Kallpa CDA
Samay I OPC
($ millions)
ICPNH
Puerto
Quetzal
$ 50 $ (5)
—
46
—
35
(5)
23
— $ 71 $
—
—
—
25
31
26
$ 154 $— $ — $153 $
6 $
8
7
1
22 $
(1)
1
1
2
3
Nejapa
Cenérgica
$
4
5
—
2
11
$
$
2
1
—
1
4
$
Central
Cardones
$
$
(1)
4
2
2
7
Colmito
$ —
1
1
—
2
$
COBEE
($ millions)
9
$
4
4
2
19
$
Inkia &
CEPP
JPPC
Surpetroil
Other
ICP & Others
Total
Income (loss) for the year
Depreciation and amortization
Financing expenses, net
Income tax expense (benefit)
Share in income (loss) from associates
Gain on bargain purchase
Asset write-off
Measurement to fair value of pre-existing share
Net income from discontinued operations, net of tax, excluding dividends received
$
$
9
3
1
3
—
—
—
—
$ (2)
3
1
(1)
—
—
—
—
2
1
1
1
—
—
—
—
($ millions)
$
131
6
23
(8)
(2)
(68)
35
(3)
$
(19)
—
12
4
—
—
—
—
$ 256
108
119
63
(2)
(68)
35
(3)
from discontinued operations
Adjusted EBITDA
—
$ 16
—
1
$
$
—
5
(113)
1
$
$
—
(3)
(113)
$ 395
The tables below set forth a reconciliation of net debt to total debt for IC Power’s generation subsidiaries.
Kallpa CDA Samay I OPC
ICPNH
Puerto
Quetzal Nejapa Cenérgica Kanan COBEE
($ millions)
Total debt
Cash
Net debt
Total debt
Cash
Net debt
$ 453 $444 $
25
106
$ 428 $338 $
145 $419 $ 108 $
134
11 $231 $
16
92 $
188
32 $ — $ — $ — $
18
14 $ (23) $
4
(4) $
4
(4) $
23
85
42
43
Central
Cardones Colmito CEPP
JPPC
Surpetroil
Other
Inkia &
ICP &
Others
Total
$
$
48
4
44
$
$
20
1
19
$ 30
8
$ 22
$
$
91
$
($ millions)
8
4
4
$
3
1
2
$
$
447
185
262
$ 106
28
78
$
$2,348
791
$1,557
Table of Contents
The following table sets forth summary financial information for IC Power’s generation subsidiaries as of and for the year ended December 31, 2013:
Entity
Peru segment
Kallpa
Assets
in
advanced
stages
of
construction
CDA
Samay I
Israel segment
OPC 3
Central America segment
Nejapa 4
Cenérgica
Other
COBEE
Central Cardones
Colmito 5
CEPP
Acter 6
Inkia & Other 7
ICP & Other
Total
Ownership
Interest (%)
Year Ended December 31, 2013
Cost of
Adjusted
EBITDA 1
Outstanding
debt
Sales
Sales
Net debt 2
($ millions)
75
$394
$ 239
$
141
$
365
$
351
100
100
—
—
—
—
80
187
139
71
100
135
12
121
6
100
87
100
97
100
100
100
41
11
1
92
—
—
—
$873
18
2
—
69
—
—
—
$ 594
$
—
—
43
11
6
18
7
—
21
—
—
—
247
$
109
—
52
(28)
487
424
—
—
50
51
—
38
122
4478
—
1,669
(17)
(1)
31
48
—
28
—
295
(40)
$ 1,143
1.
“Adjusted EBITDA” for each entity for the period is defined as net income before depreciation and amortization, financing expenses, net and income tax expense, excluding share in
income from associates, gain on bargain purchase and net income from discontinued operations, net of tax, excluding dividends received from discontinued operations.
Adjusted EBITDA is not recognized under IFRS or any other generally accepted accounting principles as measures of financial performance and should not be considered as substitutes for
net income or loss, cash flow from operations or other measures of operating performance or liquidity determined in accordance with IFRS. Adjusted EBITDA is not intended to represent
funds available for dividends or other discretionary uses because those funds may be required for debt service, capital expenditures, working capital and other commitments and
contingencies. Adjusted EBITDA presents limitations that impair its use as a measure of profitability since it does not take into consideration certain costs and expenses that result from
each business that could have a significant effect on its net income, such as finance expenses, taxes, depreciation, capital expenses and other related charges.
The following tables set forth a reconciliation of net income from continuing operations to Adjusted EBITDA for IC Power’s generation subsidiaries for the
year ended December 31, 2013:
Net income (loss) (i)
Depreciation and amortization
Financing expenses, net
Income tax expense
Adjusted EBITDA
(i)
Reflects net income after elimination and consolidation adjustments.
Kallpa
CDA
Samay I OPC Nejapa Cenérgica COBEE
$ 42
40
33
26
$ 141
$ (7)
—
1
6
$—
$ —
—
—
—
$ —
($ millions)
$ 6
12
22
3
$ 43
$
5
6
—
2
11
$
$
4
1
—
1
6
$
$
$
8
4
3
3
18
Net income (i)
Depreciation and amortization
Financing expenses, net
Income tax expense
Share in income (loss) from associates
Gain on bargain purchase
Net income from discontinued operations, net of tax, excluding dividends received
Central
Cardones Colmito CEPP Acter
($ millions)
Inkia &
Other
ICP &
Others Total
$
2 $ — $ 12 $— $
4
1
—
—
—
—
—
—
—
—
3
1
5
—
—
—
—
—
—
—
4 $ — $ 74
76
—
6
80
—
19
48
—
2
(2)
—
(2)
(1)
—
(1)
from discontinued operations
Adjusted EBITDA
—
—
(28)
7 $ — $ 21 $— $ — $ — $247
—
—
—
(28)
$
92
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(i)
Reflects net income after elimination and consolidation adjustments.
2.
Net debt is defined as total debt attributable to the relevant subsidiary, minus the cash and short term deposits and restricted cash of such companies. Net debt is not a measure of liabilities
in accordance with IFRS. The table below sets forth a reconciliation of net debt to total debt for IC Power’s generation subsidiaries.
Total debt
Cash, short term deposits and
restricted cash
Net debt
Kallpa CDA Samay I OPC Nejapa Cenérgica COBEE
Central
Cardones Colmito CEPP Acter
Inkia &
Other
ICP &
Others Total
$ 365 $109 $ — $487 $ — $ — $
($ millions)
50 $
51 $ — $ 38 $122 $
447 $ — $1,669
14 57
$ 351 $ 52 $
28 63
17
(28) $424 $ (17) $
1
(1) $
19
31 $
3 — 10 122
48 $ — $ 28 $— $
40
152
526
295 $ (40) $1,143
3.
4.
5.
6.
7.
8.
Reflects tariffs in 2013, which were higher than the applicable tariffs in 2015.
In January 2015, IC Power acquired Crystal Power’s 29% stake in Nejapa in connection with the settlement of IC Power’s shareholder dispute with Crystal Power. Figures include amounts
related to Nejapa’s branch and main office.
Reflects 100% of Colmito’s financial results from the date of consolidation (October 2013).
Acter Holdings, the wholly-owned subsidiary that previously held IC Power’s indirect interest in Edegel prior to September 2014.
Prior to the date of JPPC’s consolidation (May 2014), JPPC was an investment carried at cost basis, and any dividends were paid to Inkia were reflected in Inkia & Other during the
relevant periods.
Reflects Inkia’s outstanding debt.
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The following table sets forth summary operational information for IC Power’s generation subsidiaries and its associated company for the year ended
December 31, 2015:
Entity
Peru segment
Kallpa
Israel segment
OPC
AIE 4
Central America segment
ICPNH
Puerto Quetzal
Nejapa
Other
COBEE
Central Cardones
Colmito
CEPP
JPPC
Surpetroil
Pedregal
Total
Year Ended December 31, 2015
Installed
Capacity
(MW) 1
Proportionate
Capacity 2
Gross
energy
generated
(GWh)
1,063
797
5,166
440
18
185
179
140
228
153
58
67
60
20
54
2,665
352
18
117
179
140
228
133
58
65
60
12
11
2,170
3,811
265
1,095
673
440
1,081
4
27
298
445
43
356
13,465
Availability
factor (%)
Operating Companies
Average heat
rate 3
Average
sales price
($ per MWh)
Average
fuel cost
($ per MWh)
97
99
58
90
94
96
89
97
99
81
86
96
94
7,868
6,730
4,630
8,926
9,107
9,591
13,594
11,241
9,221
9,470
7,989
13,829
8,859
57
80
53
99
113
117
39
217
95
125
101
104
107
28
36
40
51
74
83
16
229
114
73
69
38
71
1.
2.
3.
4.
5.
Reflects 100% of the capacity of each of IC Power’s assets, regardless of the ownership interest in the entity that owns each such asset.
Reflects the proportionate capacity of each of IC Power’s assets, as determined by the ownership interest in the entity that owns each such asset.
Heat rate is defined as the number of Btus of energy contained in the fuel required to produce a kilowatt-hour of energy (btu/kWh) for thermal plants.
AIE also holds a conditional license for the construction of a cogeneration power station in Israel. This station will be developed as a greenfield project (at an expected cost of $250 million,
including the acquisition price of AIE), based upon a plant with 135 MW of capacity. Construction is expected to commence in mid-2016 and COD is expected in the second half of 2018.
Reflects gross energy generated (GWh) since IC Power acquired AIE in August 2015.
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Table of Contents
The following table sets forth summary operational information for IC Power’s generation subsidiaries and its associated company as of and for the year
ended December 31, 2014:
Entity 1
Peru segment
Kallpa
Israel segment
OPC
Central America segment
ICPNH
Puerto Quetzal
Nejapa
Other
COBEE
Central Cardones
Colmito
CEPP
JPPC
Surpetroil
Pedregal
Total
Installed
capacity
(MW) 2
Proportionate
Capacity 3
Gross energy
generated
(GWh)
Availability
factor (%)
Operating Companies
Average heat
rate 4
Average
sales price
($ per MWh)
Average
fuel cost
($ per MWh)
Year Ended December 31, 2014
1,063
440
185
179
140
228
153
58
67
60
15
54
2,642
797
352
117
179
99
228
133
58
65
60
9
11
2,108
5,920
3,465
1,099
490
376
1,085
—
6
242
425
48
405
13,561
97
90
95
97
97
91
97
95
89
85
84
93
7,105
6,754
9,011
9,182
9,597
13,786
12,238
8,521
9,539
8,306
14,900
8,800
55
104
143
126
178
40
148
227
182
140
196
24
40
96
137
158
15
—
241
146
137
21
129
1.
2.
3.
4.
Does not include Edegel, which IC Power sold in September 2014.
Reflects 100% of the capacity of each of IC Power’s assets, regardless of IC Power’s ownership interest in the entity that owns each such asset.
Reflects the proportionate capacity of each of IC Power’s assets, as determined by the ownership interest in the entity that owns each such asset.
Heat rate is defined as the number of Btus of energy contained in the fuel required to produce a kilowatt-hour of energy (btu/kWh) for thermal plants.
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The following table sets forth summary operational information for IC Power generation subsidiaries and its associated company for the year ended
December 31, 2013:
Entity 1
Peru segment
Kallpa
Israel segment
OPC 5
Central America segment
Nejapa
Other
COBEE
Central Cardones
Colmito
CEPP
JPPC
Pedregal
Total
Installed
capacity
(MW) 2
Proportionate
Capacity 3
Gross energy
generated
(GWh)
Availability
factor (%)
Operating Companies
Average heat
rate 4
Average
sales price
($ per MWh)
Average
fuel cost
($ per MWh)
Year Ended December 31, 2013
870
440
140
228
153
58
67
60
54
2,070
652
352
99
228
133
58
65
10
11
1,608
5,459
1,357
458
1,161
—
46
339
447
420
9,687
93
96
95
96
98
91
87
88
93
7,366
6,746
9,564
13,942
—
—
9,665
8,159
8,800
53
103
185
37
—
11
234
191
201
21
38
156
16
—
—
154
143
137
1.
2.
3.
4.
5.
Does not include Edegel, which IC Power sold in September 2014.
Reflects 100% of the capacity of each of IC Power’s assets, regardless of the ownership interest in the entity that owns each such asset.
Reflects the proportionate capacity of each of IC Power’s assets, as determined by IC Power’s ownership interest in the entity that owns each such asset.
Heat rate is defined as the number of Btus of energy contained in the fuel required to produce a kilowatt-hour of energy (btu/kWh) for thermal plants.
Reached its COD in July 2013.
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Peru
Segment
The following summaries provide a description of the portfolio of generation assets in IC Power’s Peru segment.
Kallpa
IC Power owns 75% of Kallpa; the remaining 25% is held by Energía del Pacífico S.A., or Energía del Pacífico. Energía del Pacífico is a member of the
Quimpac S.A. group, a Peruvian chemical company. Energía del Pacífico also holds a 25% interest in both CDA and Samay I. Kallpa is IC Power’s largest asset
and owns and operates two power plants, including the largest power generation facility in terms of capacity in Peru, its largest market, which utilizes natural gas
for its operations. The Kallpa facility’s combined cycle plants have a capacity of 870 MW, representing approximately 9% of the total capacity in Peru, as of
December 31, 2015, following the 2012 conversion of this facility’s three natural gas-powered open-cycle generation turbines into combined cycle turbines with a
292 MW steam turbine. IC Power completed the conversion of the Kallpa facility in August 2012 at a cost of $337 million.
The Kallpa facility’s combined-cycle plants are among the most efficient plants in Peru (by cost of operations in U.S. Dollars per MW capacity). As a result
of Kallpa’s efficiency and the low cost at which it can operate, Kallpa has a competitive position in Peru’s market.
Kallpa has a long-term contract for the supply of natural gas not exceeding 100% of its installed capacity. The price that Kallpa pays for its supply of natural
gas is based on a base price in U.S. Dollars set on the date of the supply agreement, indexed each year based on two producer price indices, with discounts available
based on the volume of natural gas consumed. Kallpa’s PPAs are indexed to the underlying fuel cost under the related long-term supply agreements, which
generally limits Kallpa’s exposure to fuel price fluctuations, helping Kallpa to maintain its margins in the event of variations in fuel prices. In April 2014, Kallpa
purchased the 193 MW single turbine natural gas-fired plant “Las Flores,” which reached its COD in May 2010 and is located in Chilca, Peru, for $114 million,
increasing Kallpa’s installed capacity from 870 MW to 1,063 MW, representing approximately 11% of the total installed capacity in Peru as of December 31, 2015.
Prior to Kallpa’s acquisition of Las Flores in 2014, the Las Flores plant had operated intermittently due to the lack of a long-term regular supply of natural gas and
an associated natural gas transportation contract. The Kallpa facility, which is located near the Las Flores plant, had an excess of available gas supply, and was,
therefore, in a position to significantly improve the Las Flores plant’s operations and generation activities. Since Kallpa’s acquisition of Las Flores, Las Flores has
been able to utilize Kallpa’s excess gas supply and enjoys several synergies in the use and transport of gas to its facility.
Additionally, Las Flores holds environmental permits for a future 190 MW gas-fired expansion and has sufficient space to locate such a facility, as well as a
combined cycle expansion, on its existing premises. In July 2015, Kallpa received environmental approval to convert both its existing unit and the future gas
turbine in Las Flores, if developed, into a combined-cycle plant. If completed, these expansion projects, which IC Power has not committed to initiate, would
increase the capacity of Las Flores’ plant by 400 MW from 193 MW to approximately 593 MW.
During the years ended December 31, 2015, 2014 and 2013, Kallpa generated revenues of $448 million, $437 million and $394 million, respectively,
representing 35%, 32% and 45% of IC Power’s consolidated revenues, respectively. During the year ended December 31, 2015, Kallpa generated 5,166 GWh,
representing 12% of the Peruvian interconnected system’s energy production.
In the year ended December 31, 2015, approximately 98% of Kallpa’s aggregate energy sales (in GWh) were made pursuant to PPAs, respectively. As of
December 31, 2015, all of Kallpa’s PPAs were indexed to the price of the corresponding power plant’s operating fuel prices in U.S. Dollars and provided for
payment in, or are linked to, the U.S. Dollar, thereby generally limiting Kallpa’s exposure to fuel price and exchange rate fluctuations. As of December 31, 2015,
the weighted average remaining life of Kallpa’s PPAs based on firm capacity was 7 years. Kallpa has committed to sell more than 50% of its available energy (in
MWh) in every year up to 2021.
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The following table sets forth certain information regarding each of Kallpa’s turbines for each of the periods presented:
Turbine
Kallpa I 1
Kallpa II 1
Kallpa III 1
Kallpa IV 2
Las Flores
Total
Year of
Commission
2007
2009
2010
2012
2014
As of
December 31,
2015
Installed
Capacity
(MW)
186
195
197
292
193
1,063
Years Ended December 31,
2015
2014
2013
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
954
1,126
1,218
1,759
109
5,166
91
99
99
95
100
1,243
1,266
1,262
2,027
122
5,920
96
97
96
98
96
1,251
1,229
1,212
1,767
—
5,459
96
96
94
86
—
1.
2.
Reflects the effective capacity of the turbine at its COD.
Reflects the installed capacity. Kallpa IV is the steam turbine built to convert the Kallpa plant to combined cycle, which reached its COD in August 2012.
Kallpa’s turbines are maintained according to a predefined schedule based upon the running hours of each turbine and the manufacturer specifications
particular to it. Kallpa anticipates the first maintenance of its Kallpa IV turbine to occur in 2017 or 2018. Kallpa’s maintenance schedule is coordinated with, and
approved by, the COES. Kallpa is a party to a services contract with Siemens Energy, Inc. and a supply and support contract with Siemens Power Generation, Inc.,
each of which provides for an 18-year term of service for each of the Kallpa I, II and III turbines, or the equivalent of 100,000 hours of operation, beginning in
March 2006, in December 2007, and in July 2008, respectively. In addition, IC Power has relationships with the OEM and Sulzer, which each periodically perform
onsite analyses and make annual recommendations regarding line maintenance. Spare parts for the Kallpa IV turbine are generally available and can be obtained
from the OEM as well as from other suppliers. In addition, this agreement was amended to include Las Flores, thereby requiring the OEM to supply spare parts,
hardware and maintenance services to Las Flores during the term of the agreement.
Through Inkia, IC Power has entered into a shareholders’ agreement, which grants protective minority rights to Energía del Pacífico, a 25% partner in
Kallpa. For example, IC Power and Energía del Pacífico have agreed that each will submit projects related to generation or transmission of energy in Peru to Kallpa
and will not develop such projects other than through Kallpa, subject to limited exceptions. For further information on IC Power’s shareholders’ agreements, see “
—Shareholders’
Agreements
” and the risks related to IC Power’s shareholders’ agreements, see “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—IC
Power
has
granted
rights
to
the
minority
shareholders
of
certain
of
its
subsidiaries
.”
Cerro
del
Aguila
(CDA)
IC Power owns 75% of CDA; the remaining 25% is held by Energía del Pacífico. In October 2010, Kallpa entered into—and in June 2011, Kallpa transferred
to CDA—a concession agreement with the State of Peru that provides a concession, which grants Kallpa, for an unlimited term, the right to construct and operate a
run-of-the-river hydroelectric project on the Mantaro River in central Peru. The CDA plant is located 16 kilometers down stream of Peru’s largest hydroelectric
complex, formed by the Mantaro hydroelectric plant and the Restitución hydroelectric plant, with capacity of 800 MW and 208 MW, respectively, and the Junin
water reservoir. The Mantaro plants form the largest hydroelectric complex in Peru (in terms of capacity and generation) and run as a year round base load unit.
The Junin water reservoir will provide a relatively constant water flow for the downstream power plants. IC Power holds water rights granted by the National Water
Authority ( ANA—Autoridad
Nacional
del
Agua
) in connection with the operation of the CDA plant. IC Power estimates that the CDA plant will have an average
annual load factor of 70%, which is significantly above the average (60%) for similar projects in Latin America. The CDA plant will consist of a 6 kilometer
headacre tunnel and a 17 kilometer transmission line. The CDA plant is expected to have an installed capacity of 510 MW, which would make it the largest
privately-owned hydroelectric plant in Peru and among the largest in Latin America.
CDA has entered into three PPAs—a 15-year PPA with ElectroPerú covering 200 MW of capacity and the associated energy that commences in 2016, a 10-
year PPA with Luz del Sur S.A.A., Edelnor and Edecañete, covering 202 MW of capacity and the associated energy that commences in January 2018 and a 10-year
PPA with Edelnor and Luz de Sur, covering 81 MW that commences in January 2022—which will account for a significant portion of CDA’s expected generation
capacity. Assuming a consumption factor of approximately 0.70 and certain volumes of capacity, peak and off-peak sales occurring at each PPA’s average price
(from the beginning of the PPA until 2020), IC Power expects CDA’s PPA with ElectroPerú to generate annual revenues in the range of $85 to $90 million per full
year, CDA’s PPA with Luz del Sur S.A.A., Edelnor S.A.A.
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and Edecañete S.A. to generate annual revenues in the range of $65 to $70 million per full year and CDA’s PPA with Edelnor and Luz del Sur S.A.A. to generate
annual revenues of approximately in the range of $20 to $22 million per full year. Kallpa has provided bank guarantees of $4 million and CDA has undertaken to
provide bank guarantees of $19 million to secure obligations under the PPAs. As of December 31, 2015, the weighted average remaining life of CDA’s PPAs based
on firm capacity was 14 years. The 200 MW PPA is denominated in U.S. Dollars and indexed to the U.S. producer price index. The 202 MW PPA is denominated
in the Peruvian Sol, but is indexed to natural gas prices in Peru, which are denominated in U.S. Dollars, as well as to the U.S. producer price index, thereby
providing CDA with hedges against natural gas prices and exchange rate fluctuations. The 81 MW PPA is denominated in Peruvian Sol.
IC Power expects that CDA will reach its COD in the second half of 2016. Construction of the hydroelectric plant is underway and, as of December 31,
2015, was approximately 90% completed, with 98% of the dam construction and 100% of the tunnel drilling completed. Each of the CDA plant’s three turbines
will have a separate COD, with the first COD expected to take place in the first half of 2016 and the last COD expected to take place in the second half of 2016.
There is no certainty that the facility will be completed in accordance with current expectations. As CDA has not yet commenced commercial operations, it has not
yet recognized any revenues or operating income from its operations.
Construction of the CDA plant is estimated to cost approximately $959 million. The CDA plant is expected to be fully operational at a cost of $1.9 million
per MW, making the CDA plant among the most efficiently constructed hydroelectric facilities in Latin America industry in terms of cost per MW. Development of
the CDA plant is being financed with a $591 million syndicated credit facility, or the CDA Finance Facility, with export credit agencies, development banks and
private banks, and collateralized by the assets of the project. The remaining portion of the cost of the CDA plant has been substantially financed with equity from
each of Inkia and Energía del Pacífico. As of December 31, 2015, Inkia (through which IC Power holds interest in CDA) and Energía del Pacífico have invested
$246 million and $82 million in CDA, respectively. In connection with the CDA Finance Facility, each of Inkia and Energía del Pacífico entered into an equity
contribution and retention agreement with the administrative agent under the CDA Finance Facility and agreed, among other things, to provide contingent equity
and credit support to cover cost overruns (this support obligation is limited, in Inkia’s case, to $44 million). As of December 31, 2015, CDA had invested $835
million into its development and had drawn $547 million under the CDA Finance Facility. For further information regarding the terms of the CDA Finance Facility,
see “Item
5.B
Liquidity
and
Capital
Resources—IC
Power’s
Liquidity
and
Capital
Resources—IC
Power’s
Material
Indebtedness—CDA
Finance
Facility.”
In November 2011, CDA and Astaldi S.p.A. and GyM S.A., as contractors operating under the consortium name of Consorcio Río Mantaro S.A., or Río
Mantaro, individually entered into a turnkey engineering, procurement and construction contract for the construction of the CDA plant, or the CDA EPC, pursuant
to which each of Astaldi S.p.A. and GyM S.A. committed, on a joint and several basis, to construct the CDA plant by February 2016 and provide all services
necessary for the design, engineering, procurement, construction, testing and commissioning of the CDA plant for approximately $700 million, payable on a
monthly basis to Río Mantaro based upon construction completed in the previous calendar month. CDA’s payments to Río Mantaro are subject to adjustments
made in accordance with the CDA EPC.
In April 2014, Astaldi S.p.A. and GyM S.A., the contractors under the CDA EPC delivered a claim to CDA, demanding a six-month extension for the
completion of the construction of the CDA plant (from early 2016 to the second half of 2016) and an approximately $92 million increase in the total contract price
of the CDA plant’s development. In March 2015, IC Power, together with the CDA EPC contractors, amended the CDA EPC to address such claims. Pursuant to
the amendment, IC Power has agreed to pay, subject to certain conditions, an additional $40 million, subdivided into four payments over the course of the
remaining construction period, and granted the extensions previously requested by the CDA EPC contractors, which range between four and six months in length,
depending upon the applicable CDA unit.
Should CDA experience an additional delay in reaching its COD, CDA’s 15-year PPA would require CDA to pay a penalty to ElectroPerú. Although the
terms of the CDA EPC entitle CDA to demand the payment of liquidated damages from Río Mantaro due to delays in the commercial operation of CDA, there is no
certainty that such payments, if received, would cover the entirety of the penalties imposed under the PPA. For further information on the risks related to CDA’s
ability to satisfy its obligations under its PPAs, see “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—IC
Power’s
assets
in
advanced
stages
of
construction
may
not
be
completed
or,
if
completed,
may
not
be
completed
on
time
or
perform
as
expected.
”
Samay
I
IC Power owns 75% of Samay I; the remaining 25% is held by Energía del Pacífico. In November 2013, Samay I won a public bid auction conducted by
MINEM to build a cold-reserve open-cycle diesel and natural gas (dual-fired) thermoelectric plant in Mollendo, Arequipa in southern Peru, with an installed
capacity of approximately 600 MW (when operated with diesel fuel) at an estimated cost of $380 million. The two-bid auction, which was won by Samay I and a
subsidiary of Suez Energy, is part of an effort by the Peruvian government to promote the construction of a power node in southern Peru, which will be fueled by
natural gas once a natural gas pipeline (the Gasoducto Sur Peruano, currently under construction) delivers gas to the area. Approximately 82% of the cost of the
Samay I plant is expected to be financed with a $311 million seven-year syndicated secured loan agreement with Bank of Tokyo-Mitsubishi, Sumitomo Mitsui
Banking Corporation and HSBC. The remaining 18% has been financed with equity from each of Inkia and Energía del Pacífico. As of December 31, 2015, Samay
I has invested $340 million into the development of the facility and has drawn $291 million under the Samay I Finance Facility (as defined below). For further
information on the Samay I Finance Facility, see “ Item
5.B
Liquidity
and
Capital
Resources—IC
Power’s
Liquidity
and
Capital
Resources—IC
Power’s
Material
Indebtedness—Samay
I
Finance
Facility
.”
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The Samay I plant is expected to have three operational stages. First, it will operate as a cold reserve plant with diesel until natural gas becomes available in
the area through a pipeline currently under construction. Although the pipeline developer is obligated to complete this construction by 2018, it is uncertain when
the pipeline will be completed. Second, once natural gas becomes available to the facility through the new natural gas pipeline, the Samay I plant will have the
obligation to operate as a natural gas-fired power plant and will be able to do so with minor investments by IC Power in Samay I’s facilities. When fueled by
natural gas, the Samay I plant will have an installed capacity of approximately 720 MW. Finally, following an additional investment in the conversion of the Samay
I plant, which IC Power has not committed to make, the Samay I plant could operate as a combined cycle thermoelectric plant, which would increase Samay I’s
installed capacity to approximately 1,100 MW. Samay I has entered into an agreement with the State of Peru, with a term of 20 years, under which Samay I will
receive fixed monthly capacity payments denominated in U.S. Dollars and IC Power will pass-through all of the variable costs during the cold reserve phase,
representing an aggregate amount of approximately $1 billion in revenues from the Samay I plant over the 20-year term of this agreement. The amount of monthly
payments required to make up the total amount to which Samay I is entitled will be calculated by the COES, and will be paid by all generators that form part of the
SEIN who, in their turn collect the corresponding fee from their customers through a surcharge in the transmission tariffs applicable to, and payable by, all end
consumers. The surcharge does not involve the use of state funds or any appropriation process, being a mechanism that has been used for almost 20 years in Peru to
cover the cost of various energy projects.
In the past, access to a supply of natural gas has been a primary factor that has limited the development of new power projects in Peru. For example, Las
Flores plant operated intermittently for four years when it did not have access to a firm supply of natural gas to support its operations. In contrast, in addition to
receiving a 20-year stream of capacity payments, Samay I has an advantage in being one of only two power generation companies that have defined rights to a
natural gas supply and transportation capacity once the Gasoducto Sur Peruano is completed. The developer of such pipeline has a contractual obligation under its
concession agreement with the State of Peru to build a branch of the pipeline to connect it with the Samay I plant. IC Power’s strategic development of the Samay I
plant will provide it with a significant advantageous position in the future southern Peru power node, which will develop once the Gasoducto Sur Peruano is
completed. Pursuant to the terms of its tender, Samay I must receive gas and transportation services pursuant to terms which are similar to other power plants
located in other parts of Peru and served by the existing Transportadora de Gas del Perú S.A., or TGP, pipe line, such as the Kallpa plant. According to Law 29970,
natural gas transportation costs of the Samay I plant will be eventually subsidized by additional tariffs on the electricity transmission toll periodically determined by
OSINERGMIN with the purpose of decentralizing the generation of electricity with natural gas, which is one of the main purposes of the State of Peru developing
the southern Peru power node. ElectroPerú has commenced negotiations with suppliers and concessionaires for the supply and transport of natural gas to each of
Samay I and the other plant with a defined right to the firm supply of natural gas. However, as ElectroPerú may not be successful in obtaining an agreement which
conforms to the conditions as contemplated in the tender documents of the cold reserve bidding process, IC Power believes Samay I has the right to reject entering
into any supply and transportation agreements which do not comply with the conditions set forth in its tender.
In connection with the construction of its facility, Samay I has entered into three EPC contracts with the following parties: (1) Posco Engineering &
Construction Co., Ltd. and Santos CMI Inc. (USA), for the design, construction and installation of the power station; (2) Abengoa Perú S.A. for the construction of
the transmission line; and (3) Siemens Energy, Inc., Siemens S.A.C. and Siemens Power Generation, Inc. for the construction of the substation. Construction of the
Samay I plant is underway and as of December 31, 2015 was approximately 97% completed. IC Power expects that the Samay I plant will reach its COD in the
second quarter of 2016, in accordance with the terms of its agreement with the Peruvian government; however, there is no certainty that the facility will be
completed in accordance with current expectations. As Samay I has not yet commenced commercial operations, it and has not yet recognized any revenues or
operating income from its operations.
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Israel
Segment
The following summaries provide a description of the portfolio of assets in IC Power’s Israel segment.
OPC
IC Power’s 80% stake in OPC is held indirectly through ICPI. The remaining 20% is held by Veolia, which, in 2015, was acquired by Oaktree Capital
Management, an investment management firm. In July 2013, OPC became Israel’s first IPP by commencing commercial operation of its power station, located in
Mishor Rotem industrial zone in the south of Israel. The OPC plant was constructed for an aggregate cost of approximately $508 million. OPC’s combined cycle
plant has a capacity of 440 MW, representing approximately 3% of the installed capacity and approximately 19% of the installed capacity provided by IPPs in
Israel as of December 31, 2015. Given Israel’s growing economy and the advanced age of the existing state-owned power generation facilities, we believe OPC
provides IC Power with a strategic position in the Israeli electricity market and thereby provides it with an opportunity to participate in additional power projects in
Israel, which IC Power believes may become available to private sector participants in connection with Israel’s growing energy industry.
OPC purchases natural gas from the Tamar Group, pursuant to a natural gas supply agreement that expires upon the earlier of June 2029 or the date on which
OPC consumes the entire contractual capacity. The EA’s generation component tariff is the base for the natural gas price linkage formula in the agreement between
OPC and the Tamar Group. For further information on OPC’s gas supply agreement, see “— IC
Power’s
Raw
Materials
and
Suppliers—Natural
Gas
Supply
and
Transportation
Agreements.
”
During the year ended December 31, 2015, OPC generated revenues of $318 million, representing 25% of IC Power’s consolidated revenues. During the
year ended December 31, 2015, OPC generated 3,811 GWh.
The following table sets forth certain information for OPC’s plant for each of the periods presented:
Plant
OPC 1
December 31, 2015
2015
As of
Year Ended December 31,
2014
2013
Installed
Capacity
(MW)
440
Gross Energy
Generated
(GWh)
3,811
Availability
Factor
(%)
99%
Gross Energy
Generated
(GWh)
3,465
Availability
Factor
(%)
90%
Gross Energy
Generated
(GWh)
1,357
Availability
Factor
(%)
96%
1.
Commenced commercial operations in July 2013.
OPC has a PPA with IEC, the government-owned electricity generation, transmission and distribution company in Israel, or the IEC PPA. The term of the
IEC PPA lasts until 20 years after the power station’s COD ( i.e.
20 years from July 2013). The IEC PPA is a “capacity and energy” agreement, committing OPC to
provide the entire net available capacity of its power station to IEC and to generate power at such volumes and schedules as required by IEC. The terms of the IEC
PPA allow OPC to carve out energy and capacity for direct sales to private consumers, and OPC has accordingly allocated the entire capacity of the plant to private
consumers since COD. As a result, OPC supplies energy to approximately 24 end users according to long-term PPAs (generally for a minimum of 10 years). Under
the IEC PPA, OPC can also elect to revert back to supplying to the IEC instead of to private customers. As of December 31, 2015, the weighted average remaining
life of OPC’s PPAs with end users based on firm capacity was seven years. In the year ended December 31, 2015, OPC’s energy and capacity sales to end users
represented 98% of OPC’s total energy and capacity sales.
Mitsubishi Heavy Industries of Japan provides the long-term servicing of the power station, for a term of 100,000 hours of operation, or 12 years based upon
the expected operations of the power station, which is consistent with IC Power’s strategy of entering into long-term servicing agreements with OEMs to help
ensure the efficiency and productivity of its generation plants.
In March 2014, one of IC Power’s subsidiaries was awarded a tender published by the Israel Land Authority to lease a plot of land adjacent to the OPC site.
The plot, which is large enough to house another combined cycle or similar generation facility, may be used to expand OPC’s capacity in the long-term.
IC Power has entered, through its subsidiary ICPI, into a shareholders’ agreement which grants minority rights to OPC’s minority shareholder. For further
information on IC Power’s shareholders’ agreements, see “—Shareholders’
Agreements”
and for further information on the risks related to IC Power’s
shareholders’ agreements, see “Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—IC
Power
has
granted
rights
to
the
minority
shareholders
of
certain
of
its
subsidiaries.”
For further information on the regulation of the Israeli electricity sector, see “ —Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Israeli
Electricity
Sector.
”
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AIE
In August 2015, IC Power acquired 100% of the shares of AIE from Hadera Paper, a large paper and paper product manufacturer in Israel. The consideration
for the transaction was NIS 60 million (approximately $16 million), of which approximately NIS 24 million (approximately $6 million) was provided in the form of
a loan to be converted into consideration (and considered a payment to Hadera Paper) upon the completion of Hadera Paper’s sale of certain equipment to us, as
discussed below. AIE, which currently operates an 18 MW steam turbine, holds a conditional license for the construction of a cogeneration power station in Israel.
The project is in the advanced development stage and construction is expected to commence in mid-2016. Based upon IC Power’s initial assessment, IC Power
expects that the total cost of completing the AIE plant (including the consideration for the acquisition of AIE and the construction of the power station) will be
approximately $250 million, based upon a plant with 135 MW of capacity. In January 2016, AIE entered into an approximately $150 million EPC contract in
connection with the project, and the AIE plant is expected to reach its COD in the second half of 2018.
AIE’s power plant is expected to supply the electricity and steam needs of Hadera Paper’s facility as well as to provide electricity to end users in Israel. The
power plant will operate using natural gas and diesel oil and is expected to have a relatively high level of energy utilization due to usage of the cogeneration
technology, which supplies electricity and steam in a single production process.
In June 2015, AIE entered into an agreement with Hadera Paper for AIE’s supply of electricity and steam from the AIE power plant to be constructed by IC
Power to Hadera Paper’s facility from closing and for a period of 18 years from the date the power plant reaches its COD. Pursuant to this agreement, Hadera Paper
will acquire all of its electricity and steam needs from AIE. The agreement provides for minimum quantities of steam to be purchased by Hadera Paper, which will
be subject to adjustment. Until AIE reaches its COD, AIE will supply steam and electricity to Hadera Paper using its old equipment purchased.
Additionally, Hadera Paper has a gas supply agreement with the Tamar Group and a related gas transport agreement with Israel Natural Gas Lines Ltd., both
of which were assigned to AIE in connection with the acquisition.
In connection with the acquisition, Hadera Paper agreed to sell certain equipment that it uses to produce steam, and approximately 25 MW of additional
capacity, within its manufacturing plant to AIE. AIE will also lease from Hadera Paper the land on which the power generation plant is located from the closing of
the acquisition to up to 20 years from AIE’s plant’s COD.
Central
America
Segment
The following summaries provide a description of the portfolio of assets in IC Power’s Central America segment.
Nicaragua
ICPNH
IC Power’s operations in Nicaragua are carried out through ICPNH. IC Power owns 100% of ICPNH, which it acquired in March 2014 and which was
formerly known as AEI Nicaragua. ICPNH owns and operates four power generation plants located throughout Nicaragua through its indirect (i) 65% equity
interest in Corinto, (ii) 65% equity interest in Tipitapa Power, (iii) 61% equity interest in Amayo I, and (iv) 61% equity interest in Amayo II. Corinto and Tipitapa
Power, which have a combined capacity of 122 MW, are powered by HFO. The Corinto and Tipitapa Power plants house fuel storage tanks on site with capacity of
approximately 90 thousand barrels and 63 thousand barrels, respectively. Amayo I and Amayo II have a combined capacity of 63 MW of wind power energy.
Collectively, these four entities represent a capacity of 185 MW, approximately 17% of the total capacity of the Nicaraguan interconnected system as of
December 31, 2015.
During the year ended December 31, 2015, ICPNH generated revenues of $111 million, representing 9% of IC Power’s consolidated revenues. During the
year ended December 31, 2015, ICPNH generated 1,095 GWh, representing 25% of the Nicaraguan interconnected system’s energy requirements. ICPNH has
committed to sell its available energy, as follows:
•
•
Corinto has commitments for 70% of its available energy in every year up to December 2018;
Tipitapa Power has commitments for 100% of its available energy in every year up to December 2018;
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•
•
Amayo I has commitments for 100% of its available energy in every year up to March 2024; and
Amayo II has commitments for 100% of its available energy in every year up to March 2025.
The following table sets forth certain information for ICPNH’s plants for each of the periods presented:
Plant
Corinto
Tipitapa Power
Amayo I
Amayo II
Total
Year of
Commission
1999
1999
2009
2010
As of
December 31,
2015
Installed
Capacity
(MW)
2015
Years Ended December 31,
2014
2013
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
71
51
40
23
185
476
345
186
88
1,095
93
92
94
70
494
327
174
104
1,099
93
98
98
96
515
326
148
96
1,085
92
97
97
97
In December 2014, ICPNH’s wind farm complex in Nicaragua sustained damage in connection with a blackout in the Nicaragua’s National Interconnection
System, which left one wind turbine collapsed and another two wind turbines with severe damage. The three damaged turbines, which represent 10% of all of IC
Power’s installed capacity at its Amayo I and Amayo II plants, were replaced and were operational in early 2016. The contracted operator has the responsibility to
replace the turbines. Between the contracted operator and insurance provider, IC Power expects that there will be sufficient funds to cover the replacement and
business interruption costs resulting from the damaged turbines.
Guatemala
Puerto
Quetzal
IC Power owns 100% of Puerto Quetzal, which represents its initial entry into the Guatemalan power generation market. Puerto Quetzal, which IC Power
acquired in September 2014, utilized three floating power barges with HFO generators, representing 234 MW, at the time of its acquisition. In November 2014,
Puerto Quetzal transferred one of its three power barges, which has a capacity of 55 MW, to IC Power’s Panamanian subsidiary Kanan. As a result, Puerto Quetzal
now operates two power barges with an aggregate capacity of 179 MW, representing approximately 5% of the total capacity in the Guatemala interconnected
system as of December 31, 2015. The Puerto Quetzal plant houses fuel storage tanks on site with capacity of approximately 200 thousand barrels.
In the fourth quarter of 2015, Puerto Quetzal entered into two PPAs representing approximately 26 MW of capacity as of December 31, 2015.
During the year ended December 31, 2015, Puerto Quetzal generated revenues of $109 million, representing 8% of IC Power’s consolidated revenues.
During the year ended December 31, 2015, Puerto Quetzal generated 673 GWh, representing 7% of the Guatemalan system’s energy requirements.
The following table sets forth certain information for Puerto Quetzal’s plant for each of the periods presented:
Year of
Commission
As of
December 31,
2015
Installed
Capacity
(MW)
Years Ended December 31,
2015
2014
2013
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
1993
179
673
94
490
97
525
95
Plant
Puerto Quetzal
El
Salvador
Nejapa
IC Power owns 100% of Nejapa in El Salvador as a result of its acquisition in January 2015 of Crystal Power’s 29% stake in Nejapa for $20 million in
connection with the settlement of a shareholder dispute with Crystal Power. Prior to this settlement, IC Power owned 71% of Nejapa’s outstanding equity.
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Nejapa owns and operates 27 diesel generators (located in a single facility) powered by HFO. Nejapa has a capacity of 140 MW, representing 9% of the total
capacity of El Salvador as of December 31, 2015. The Nejapa plant houses fuel storage tanks on site with capacity of approximately 47,000 barrels. In addition,
Cenérgica, one of IC Power’s wholly-owned subsidiaries, maintains a fuel depot and marine terminal and owns three fuel storage tanks with an aggregate capacity
of 240,000 barrels in Acajutla, El Salvador.
During the years ended December 31, 2015, 2014 and 2013, Nejapa generated revenues of $100 million, $132 million and $135 million, respectively,
representing 8%, 10% and 15% of IC Power’s consolidated revenues, respectively. During the year ended December 31, 2015, Nejapa generated 440 GWh,
representing 8% of the national interconnected electrical system of El Salvador. Nejapa has committed to sell over 50% of its available energy (in MWh) in every
year up to 2017.
The following table sets forth certain information for Nejapa’s plant for each of the periods presented:
Year of
Commission
As of
December 31,
2015
Installed
Capacity
(MW)
Years Ended December 31,
2015
2014
2013
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
1995
140
440
96
376
97
458
95
Plant
Nejapa
Panama
Kanan
IC Power owns 100% of Kanan. In October 2014, Kanan was awarded a five-year contract in connection with the Panamanian government’s call for
emergency bids to attempt to cover electricity shortfalls in Panama in the short-term. Kanan’s contract to supply energy in Panama, with a maximum contractual
capacity of 86 MW, became effective in December 2015. To facilitate Kanan’s supply of this energy, IC Power has transferred thermal generation units, in the form
of barges, from its subsidiaries Puerto Quetzal and CEPP to Kanan with a total capacity of 92 MW, which, when installed, are expected to represent 3% of the total
capacity of Panama as of December 31, 2015. As a result, Kanan’s capacity of 92 MW will consist of (i) a 55 MW power barge transferred to Kanan by Puerto
Quetzal in November 2014, and (ii) a 37 MW power barge transferred to Kanan by CEPP in November 2014. Both barges were successfully relocated to Panama
and are in the process of installation and interconnection to the power system. IC Power expects Kanan to reach its COD in the first half of 2016.
Other
Segment
The following summaries provide a description of the portfolio of assets in IC Power’s Other segment.
Bolivia
COBEE
IC Power owns 100% of COBEE. COBEE is the third largest generator of electricity in Bolivia, generating power from ten run-of-the-river hydroelectric
plants in the Zongo river valley, four run-of-the-river hydroelectric plants in the Miguillas river valley, and two open-cycle natural gas powered generation turbines
at a plant located in El Alto-Kenko, adjacent to La Paz, Bolivia. IC Power owns water rights in connection with operation of COBEE. COBEE has capacity of 228
MW, representing 12% of the total capacity of Bolivia as of December 31, 2015.
During the years ended December 31, 2015, 2014 and 2013, COBEE generated revenues of $43 million, $41 million and $41 million, respectively,
representing 3%, 3% and 5% of IC Power’s consolidated revenues, respectively. During the year ended December 31, 2015, COBEE generated 1,081 GWh,
representing 13% of the national interconnected electrical system of Bolivia’s energy requirements.
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The following table sets forth certain information for each of COBEE’s plants for each of the periods presented:
Plant
Zongo
Valley
plants:
Zongo
Tiquimani
Botijlaca
Cutichucho
Santa Rosa
Sainani
Chururaqui
Harca
Cahua
Huaji
Miguillas
Valley
plants
Miguillas
Angostura
Choquetanga
Carabuco
El Alto-Kenko 6
Total
As of
December 31,
2015
Year of
Commission
Elevation
(meters)
Installed
Capacity
(MW)
Years Ended December 31,
2015
2014
2013
Gross
Energy
Generated
(GWh)
Availability
Factor
(%)
Gross
Energy
Generated
(GWh)
Availability
Factor
(%)
Gross
Energy
Generated
(GWh)
Availability
Factor
(%)
1997 4,264
1997 3,889
19381 3,492
19422 2,697
2006 2,572
1956 2,210
19663 1,830
1969 1,480
1974 1,195
945
1999
1931 4,140
19364 3,827
19395 3,283
1958 2,874
1995 4,050
11
9
7
23
18
10
25
26
28
30
10
13
39
128
86
24
139
162
163
180
4
6
6
6
19
228
9
19
37
42
30
1,081
98
98
99
95
97
34
96
95
94
92
91
92
95
94
50
9
11
34
91
84
15
127
156
163
198
9
19
37
43
90
1,086
99
99
97
80
98
17
95
95
95
96
99
99
98
97
93
8
11
38
104
82
71
144
166
171
205
9
20
40
45
46
1,160
98
99
97
85
96
98
98
97
98
97
99
99
99
98
87
1.
2.
3.
4.
5.
6.
This plant was originally commissioned with an installed capacity of 3 MW in 1938. The installed capacity of this plant was increased by 2 MW in 1941 and 4 MW in 1998.
This plant was originally commissioned with an installed capacity of 3 MW in 1942. The installed capacity of this plant was increased by 3 MW in 1943, 3 MW in 1945, 2 MW in 1958
and 15 MW in 1998.
This plant was originally commissioned with an installed capacity of 15 MW in 1966. The installed capacity of this plant was increased by 15 MW in 1967.
This plant was originally commissioned with an installed capacity of 3 MW in 1936. The installed capacity of this plant was increased by 3 MW in 1958 and by 3 MW in 2008.
This plant was originally commissioned with an installed capacity of 3 MW in 1939. The installed capacity of this plant was increased by 6 MW in 1944.
Reflects the effective capacity of El Alto—Kenko, which is comprised of two open-cycle turbines. The turbines have an installed capacity of 29 MW. However, as a result of the high
altitude of the turbines (which are located at 4,050 meters above sea level), the installed capacity of these turbines are de-rated, resulting in an effective capacity of 19 MW.
Although the Bolivian government has nationalized entities in its power utility market, as recently as 2012, IC Power is unaware of any steps the Bolivian
government may take, or is currently taking, with respect to nationalizations within the Bolivian power utility market, generally, or with respect to COBEE, in
particular. For further information on the risks related to the Bolivian government’s nationalization of certain generation companies, see “Item
3.D
Risk
Factors—
Risks
Related
to
IC
Power—The
Bolivian
government
has
nationalized
energy
industry
assets,
and
IC
Power’s
remaining
operations
in
Bolivia
may
also
be
nationalized.”
Chile
Central
Cardones
IC Power owns 87% of Central Cardones; the remaining 13% is held by Central Cardones’ former controlling shareholder, South World Consulting S.A., an
energy consulting and business development firm. IC Power acquired its interest in Central Cardones in December 2011 to obtain an initial footprint in the Chilean
power market. Central Cardones owns and operates one open-cycle diesel Siemens turbine located in the northern part of the SIC and was the first Chilean power
facility to be included in IC Power’s portfolio. Central Cardones has an installed capacity of 153 MW, representing 0.8% of the total installed capacity of Chile as
of December 31, 2015. Central Cardones’ power plant is used primarily for cold reserve capacity as a peaking unit, generally operating only in extraordinary
situations. Central Cardones receives revenues from its allocation of available system capacity and does not have any customers. During the years ended
December 31, 2015, 2014 and 2013, Central Cardones generated revenues of $14 million, $11 million and $11 million, respectively, representing 1%, 1% and 1%
of IC Power’s consolidated revenues, respectively.
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The following table sets forth certain information for Central Cardones’ plant for each of the periods presented:
Plant
Year of
Commission
As of
December 31,
2015
Installed
Capacity
(MW)
Years Ended December 31,
2015
2014
2013
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Central Cardones
2009
153
4
97
0.04
97
—
98
Colmito
IC Power owns 100% of Colmito. Colmito, which IC Power acquired in September 2013, owns and operates a dual fuel open-cycle Rolls Royce
aeroderivative turbine that commenced operation in August 2008. Although the Colmito plant previously operated with diesel oil as a backup for the SIC, the plant
was connected to a natural gas pipeline in February 2015, and has begun to purchase natural gas on a seasonal basis to generate energy. Colmito’s generation
facility is located in the central part of the SIC. Colmito has an installed capacity of 58 MW, representing 0.3% of the total installed capacity of Chile as of
December 31, 2015.
During the years ended December 31, 2015, 2014 and 2013, Colmito generated revenues of $28 million, $38 million and $1 million, respectively,
representing 2%, 4% and 0.1% of IC Power’s consolidated revenues, respectively. During the year ended December 31, 2015, Colmito generated 27 GWh,
representing 0.1% of the SIC system’s energy requirements. Colmito has committed to sell over 50% of its available energy in every year up to 2017.
The following table sets forth certain information for Colmito’s plant for each of the periods presented:
Year of
Commission
As of
December 31,
2015
Installed
Capacity
(MW)
Years Ended December 31,
2015
2014
2013
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
2008
58
27
99
5.9
95
46
91
Plant
Colmito
Dominican
Republic
CEPP
IC Power owns 97% of CEPP; the remaining 3% is held by Basic Energy LTD Bahamas. CEPP owns and operates 12 generation units powered by HFO at
two plants located in Puerto Plata, Dominican Republic. The CEPP I plant is located on land and consists of three Wartsila V32 diesel generators burning HFO with
a combined capacity of 17 MW. The CEPP II plant generates power on a barge near the shore, which contains nine Wartsila V32 diesel generators burning HFO,
that is moored at a pier adjacent to the CEPP I plant and has capacity of 50 MW. In the third quarter of 2013, CEPP purchased second a barge with a capacity of 37
MW for $5 million. This barge contains seven engines, five with 5.5 MW of capacity and two with 5 MW of capacity. CEPP completely refurbished this barge at a
total cost of $16 million, and, in November 2014, transferred this barge to IC Power’s subsidiary Kanan.
Excluding the capacity associated with the newly-refurbished barge that has been transferred to Kanan, CEPP has a capacity of 67 MW, representing
approximately 2% of the total capacity in the Dominican Republic as of December 31, 2015. The CEPP I plant and the CEPP II plant also have fuel storage tanks
on-site with an aggregate storage capacity of 56,000 barrels.
During the years ended December 31, 2015, 2014 and 2013, CEPP generated revenues of $39 million, $73 million and $92 million, respectively,
representing 3%, 5% and 11% of IC Power’s consolidated revenues, respectively. During the year ended December 31, 2015, CEPP generated 298 GWh,
representing 2% of the national interconnected electrical system of the Dominican Republic’s energy requirements.
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The following table sets forth certain information for each of CEPP’s plants for the periods presented:
Plant
CEPP I
CEPP II
Total
Year of
Commission
1990
1994
As of
December 31,
2015
Installed
Capacity
(MW)
Years Ended December 31,
2015
2014
2013
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
16
51
67
67
231
298
74
83
51
191
242
34
42
78
261
339
87
87
Prior to September 2014, CEPP was party to two long-term PPAs, representing 75% of its capacity, with Empresa Distribuidora de Electricidad del Norte
S.A., or Edenorte, and had experienced significant payment delays with respect to such PPAs. As a result, CEPP’s payment cycle spanned three to six months, as
compared to the typical payment cycle of IC Power’s other business which spans 30 to 45 days. Notwithstanding such significant delays, which characterize
Edenorte’s payment patterns in both the PPA and spot market in the Dominican Republic, Edenorte has historically paid its outstanding obligations, in full,
including interest accrued on late payments. To finance its operating activities in light of such payment cycle, CEPP utilizes its working capital line of credit with
local banks. For further information on CEPP’s counterparty risks, see “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power
— IC
Power
is
exposed
to
counterparty
risks
.” For further information on CEPP’s line of credit with financial institutions in the Dominican Republic, see “ Item
5.B
Liquidity
and
Capital
Resources—IC
Power’s
Liquidity
and
Capital
Resources—IC
Power’s
Material
Indebtedness—Short-Term
Loans.
”
Each of CEPP’s PPAs expired in September 2014, and as of the date of this annual report have not yet been extended or replaced with one or more PPAs on
comparable terms. As a result, CEPP sells the previously contracted capacity under such PPAs on the spot market, at the rates dictated by such market, and subject
to the aforementioned significant payment delays.
Jamaica
JPPC
IC Power owns 100% of JPPC, as a result of its purchase in May 2014 of the 84% of JPPC’s outstanding equity interest that IC Power did not own, which
increased IC Power’s equity interest in JPPC from 16% to 100%. JPPC owns and operates two diesel generation units burning HFO and a combined-cycle steam
turbine at a plant located in Kingston, Jamaica. JPPC has capacity of 60 MW, representing approximately 6% of the total capacity of the Jamaican interconnected
system as of December 31, 2015. JPPC’s plant has fuel storage tanks on site with an aggregate storage capacity of 50,000 barrels.
During the years ended December 31, 2015 and 2014, JPPC generated revenues of $45 million and $41 million, respectively, representing 3% and 3% of IC
Power’s consolidated revenues, respectively. During the year ended December 31, 2015, JPPC generated 445 GWh, representing 11% of the Jamaican
interconnected system’s energy requirements. JPPC has committed to sell over 50% of its available energy in every year up to 2018.
The following table sets forth certain information for JPPC’s plant for each of the periods presented:
Year of
Commission
As of
December 31,
2015
Installed
Capacity
(MW)
Years Ended December 31,
2015
2014
2013
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
1998
60
445
86
425
85
447
88
Plant
JPPC
Colombia
Surpetroil
IC Power owns 60% of Surpetroil, which IC Power acquired in March 2014 and which represents its initial entry into the Colombian power generation
market; the remaining 40% is owned by Mr. Yesid Gasca Duran. Surpetroil is dedicated to power generation utilizing stranded and associated natural gas reserves
and operates three power plants fueled by natural gas in different parts of Colombia. Surpetroil also transports and distributes compressed natural gas within
Colombia. The Surpetroil
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plant has a generation capacity of 20 MW, representing approximately 0.12% of the total capacity in the Colombian interconnected system as of December 31,
2015. Out of the 20 MW of Surpetroil’s capacity, only 10 MW (purification plant) are connected to the Colombian interconnected system. Surpetroil has various
small-scale opportunities to install additional capacity using stranded gas under development.
During the years ended December 31, 2015 and 2014, Surpetroil generated revenues of $8 million and $9 million, respectively, representing 1% and 1% of
IC Power’s consolidated revenues in each of the periods. During the year ended December 31, 2015, Surpetroil generated 43 GWh, and primarily provided energy
to Enertolima, an affiliate of Enel Group, via purification plant.
Plant
La Hocha
Purificación
Entrerios
Geopark
Year of
Commission
2011
2014
2015
2015
As of
December 31,
2015
Installed
Capacity
(MW)
3
10
2
5
20
Years Ended December 31,
2015
2014
2013
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
Gross Energy
Generated
(GWh)
Availability
Factor
(%)
10
19
12
2
43
84
100
98
100
47
1
—
—
48
98
11
—
—
22
—
—
—
22
97
—
—
—
1.
As a result of gas unavailability during December 2014.
Panama
Pedregal
IC Power owns 21% of Pedregal; of the remaining 79%, (1) 55% is held by Conduit Capital Partners, LLC, a private equity investment firm focused on the
independent electric power industry in Latin America; (2) 12% is held by Burmeister & Wain Scandinavian Contractor A/S, an operating company of the Mitsui
Group; and (3) 11% is held by The Industrialization Fund for Developing Countries, a fund focusing on promoting economic activities in developing countries.
Although Pedregal is located in Central America, it is not included as part of IC Power’s Central America segment because IC Power does not consolidate
Pedregal’s results in its income statement, but account for its investment in Pedregal under the equity method, recording its share in income of associated
companies.
Pedregal owns and operates three generation units powered by HFO at a plant located in Pacora, Panama. Although IC Power has a non-controlling interest
in Pedregal, Pedregal has entered into a management services agreement with IC Power’ wholly-owned subsidiary Inkia Panama Management that expires in
October 2016. Under this agreement, Inkia Panama Management has been designated as the administrator responsible for day-to-day management of Pedregal. As
of the date of this annual report, the management services agreement has not been extended beyond October 2016. Pedregal has an installed capacity of 54 MW,
representing approximately 2% of the total installed capacity in the Panamanian interconnected system as of December 31, 2015. Pedregal’s plant also has fuel
storage tanks on site with an aggregate storage capacity of 51,402 barrels.
During the year ended December 31, 2015, Pedregal generated 356 GWh, representing 4% of the Panamanian interconnected system’s energy requirements.
Pedregal has committed to sell over 60% of its available energy in 2016.
Distribution Operations
In January 2016, IC Power acquired 100% of a holding company that indirectly holds the Energuate businesses of DEORSA and DEOCSA and two related
businesses, which represents IC Power’s initial entry into the electricity distribution business. The acquired businesses consist of:
•
Energuate, the trade name for IC Power’s Guatemalan electricity distribution businesses, which consists of:
•
•
DEORSA, in which IC Power holds a 93% interest; the remaining 7% interest is held by private minority shareholders; and
DEOCSA, in which IC Power holds a 91% interest; the remaining 9% interest is held by private minority shareholders; and
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•
100% of two smaller related businesses, Comercializadora Guatemalteca Mayorista de Electricidad S.A., or Guatemel, an electricity trading company
in Guatemala, and Redes Electricas de Centroamerica, S.A., or RECSA, an electricity transmission company that owns and operates a 32 km network
of transmission lines and eight substations in Guatemala.
History
and
Background
In January 2016, IC Power acquired Energuate, as well as Guatemel and RECSA, from Deorsa-Deocsa Holdings Limited, an investment company of Actis
LLP, a private equity firm. IC Power paid $265 million in cash for the acquired businesses and assumed debt of $289 million. IC Power funded the payment of the
acquisition through internally generated funds and a $120 million loan facility, which IC Power entered into in December 2015.
DEORSA and DEOCSA were both founded in 1998, when the Guatemalan government conducted an auction for these companies as part of the privatization
of the Guatemalan electricity sector. As a result of the auction, DEORSA and DEOCSA were sold to Union Fenosa.
Guatemel and RECSA were founded in 2004 and 2006, respectively. In 2011, DEORSA, DEOCSA, Guatemel and RECSA were sold to Actis LLP.
Energuate
Energuate consists of two electricity distribution companies in Guatemala that provide services for approximately 1.6 million regulated customers in
Guatemala (representing approximately 55% of Guatemala’s regulated distribution customers in 2014) and distribute energy to a service area of approximately
100,000 km2 in Guatemala, covering primarily rural areas with a population of approximately 12 million inhabitants. Energuate operates approximately 34,000 km
of distribution lines within Guatemala (representing approximately 70% Guatemala’s distribution lines as of December 31, 2015). Energuate operates in 20 of
Guatemala’s 22 departments and holds the non-exclusive right to distribute electricity within its service areas until 2048.
In the years ended December 31, 2015 and 2014, Energuate sold 2,304 GWh and 2,163 GWh of energy, respectively.
Service
Area
Energuate has authorizations to provide electricity distribution services within its service area until 2048. Energuate operates in 20 of Guatemala’s 22
departments, excluding Guatemala City and Sacatepéquez, covering approximately 100,000 km2 and approximately 12 million inhabitants. DEORSA’s service
area covers the northern and eastern regions of Guatemala, while DEOCSA’s service area covers the southwest region of Guatemala. DEOCSA’s authorization also
includes the Department of Guatemala, but DEOCSA does not operate within this department.
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The following map indicates the areas in which DEORSA and DEOCSA operate.
Compared to the urban and residential departments in which the other large Guatemalan distribution company, EEGSA, operates, Energuate’s service area is
predominantly rural and characterized by lower electrification levels and underdeveloped infrastructure. For example, in Energuate’s service area, there are still
some households that utilize propane and wood for cooking, illumination and other household needs. As such, IC Power believes that Energuate’s service area
shows room for further growth in electricity distribution. In addition, the Guatemalan government has historically implemented projects to increase electrification
levels in Guatemala and IC Power believes the Guatemalan government will continue to promote access to electricity through policies such as subsidies for low-
consumption rural clients.
The following chart shows the growth of electrification levels in Guatemala between 2009 and 2014.
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Customer
Base
Energuate provides services to approximately 1.6 million customers, which includes both regulated and unregulated customers. Energuate’s customer base is
divided into four categories:
•
•
•
•
Residential (some of whom receive subsidies for their purchase of electricity);
Commercial;
Industrial; and
Other (which includes certain government entities, such as municipalities).
The following table sets forth the energy distributed to Energuate’s consumers and the number of Energuate’s regulated consumers by category, the volume
of energy purchased and the percentage of purchased energy lost during the periods indicated.
Energy purchased (GWh)
Total electricity losses (%)
Energy distributed (GWh)
To
regulated
customers
Residential
Commercial
Industrial
Other customers
To
unregulated
customers
1
Number of customers
Regulated
customers
Residential
Commercial
Industrial
Other customers
Unregulated
customers
1
2015
Year ended December 31,
2014
2,785
17.3%
2,304
2,149
1,604
245
34
266
156
1,634,773
1,634,616
1,630,204
4,037
79
296
157
2,631
17.7%
2,164
1,991
1,483
234
27
246
173
1,579,725
1,579,555
1,575,204
3,991
65
295
170
2013
2,520
20.0%
2,017
1,862
1,405
228
19
210
155
1,534,923
1,534,758
1,530,474
3,917
75
292
165
1.
Unregulated customers consist of end users with a demand exceeding 100 kW, consisting principally of industrial and commercial customers.
Distribution
Tariffs
Under the General Electricity Law and the regulations of the CNEE, the tariffs that Energuate charges to its regulated customers are subject to the approval
of the CNEE. Energuate charges distribution tariffs for all electricity delivered through its distribution system, whether to its customers or customers of wholesale
electricity brokers.
There are seven different tariffs that are applicable to Energuate’s regulated customers. Each of Energuate’s regulated customers agrees to purchase
electricity from Energuate at one of these tariff rates. Energuate’s schedule of tariffs includes:
•
•
•
•
a social tariff available to customers with a demand of less than 300 kWh per month;
a regular tariff, available to all customers that purchase electricity at low voltage;
a low voltage peak tariff available to customers that have their greatest demand during hours of peak demand (between 6:00 p.m. and 10:00 p.m.);
a low voltage off-peak tariff available to customers that have their greatest demand during off-peak hours;
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•
•
•
a medium voltage peak tariff available to customers that have their greatest demand during peak hours (between 6:00 p.m. and 10:00 p.m.);
a medium tension off-peak tariff available to customers that have their greatest demand during off-peak hours; and
a tariff available to governmental entities that purchase electricity for public lighting.
For further information on the seven tariffs applicable to Energuate’s regulated customers, see “ Regulatory,
Environmental
and
Compliance
Matters—
Regulation
of
the
Guatemalan
Electricity
Distribution
Market—Tariffs
and
Tolls.
” The following table sets forth the volume of energy delivered by Energuate to
its regulated customers by tariff during the periods indicated.
Tariff
Social tariff
Regular tariff
Low voltage peak tariff
Low voltage off-peak tariff
Medium voltage peak tariff
Medium voltage off-peak tariff
Public lighting tariff
Energy distributed
The tariffs above are comprised of :
Year ended December 31,
2015
1,175
407
98
148
14
177
250
2,304
2014
(GWh)
1,102
363
72
163
2
197
240
2,163
2013
1,039
348
33
197
2
172
210
2,017
•
•
an electricity charge designed to reimburse the distribution company for the cost of electricity and capacity that it purchases and transmission tolls; and
a VAD charge designed to permit Energuate to cover its operating expenses, complete its capital expenditure plans and recover its cost of capital. The
electricity charge consists of a base tariff and an electricity adjustment surcharge. Under the General Electricity Law and the regulations of the CNEE,
the base tariff is adjusted annually each year on May 1 to reflect anticipated changes in the cost of electricity to be purchased by Energuate during the
following year. The electricity adjustment surcharge is adjusted quarterly to reflect variations in the actual cost of electricity purchased by Energuate
against the projected cost.
The VAD component of the distribution tariff is revised every five years with semi-annual adjustments for inflation and local currency exchange rates
against the US dollar. The VAD charges are set by the CNEE. The VAD charge was last set in January 2014 and will expire in January 2019. In setting the tariff,
the range for permitted theoretical after-tax return on investment for distributors is between 7%—13%. Currently, the tariffs approved for Energuate’s
authorizations contemplate approximately a 7.0% return. For further information on the calculation of distribution tariffs, see “—Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Guatemalan
Electricity
Distribution
Market—Tariffs
and
Tolls.
”
Authorizations
In 1998, the MEM granted authorizations to DEORSA and DEOCSA to use public property (including rivers) and impose easements on private lands, thus
enabling them to deliver electricity over their respective distribution systems in their service areas for a period of 50 years. The authorizations allow Energuate to
conduct its operations and include the right to use public roads and other public domain spaces and to obtain easements over certain state-owned and private lands
in order to construct, maintain and operate its distribution system.
The authorizations granted are not exclusive. However, due to the high cost of constructing a distribution system, IC Power does not expect significant
competition from other distribution companies within Energuate’s service area in the near- to medium-term.
The authorizations impose certain obligations on Energuate, such as the obligation to provide service to all consumers requesting such service and maintain
safety and quality standards, as well as customer satisfaction levels. The authorizations may be revoked at the discretion of MEM if Energuate fails to meet these
standards, among others. In the event that
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Energuate’s authorizations are revoked, the MEM may sell through a public auction Energuate’s distribution assets. For further information on Energuate’s
authorizations to provide electricity distribution services in Guatemala, see “ Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Guatemalan
Electricity
Distribution
Market—Distribution
Authorizations
.”
Billing
Energuate bills its customers on a monthly basis. Energuate’s customers have meters installed to record electricity usage, and customers are sent invoices
each month based on their total electricity consumption. Payments are required to be made 30 days from billing. By law, customers can accumulate two invoices
without making a payment before their supply of electricity can be ceased. Customers who fail to pay a bill will receive an interest charge on their subsequent bill
for amounts not paid in the preceding month. Unpaid invoices are sent to Energuate’s internal collections department, and generally, Energuate will cease
supplying its services when a customer repeatedly fails to make payments. Energuate records a monthly provision for doubtful accounts based on its past collection
experience and management estimates regarding future collections. Amounts are written off when the collections department deems the account to be irrecoverable.
In the years ended December 31, 2015 and 2014, DEORSA’s collection rates were 97.6% and 97.5%, respectively, and DEOCSA’s collection rates were 92.4%
and 92.9%, respectively.
Power
Purchase
Agreements
and
Spot
Market
Purchases
Energuate purchases the electricity it distributes to its customers through PPAs with generation companies. Guatemalan distribution companies are required
by the General Electricity Law to maintain PPAs with generating companies at all times to cover 100% of the maximum expected demand for the current year, as
well as the next year. Should the contracted capacity and electricity under its PPAs be insufficient to meet the demand of its customers, Energuate makes purchases
on the spot market. As of December 31, 2015, Energuate was party to over 100 PPAs.
The following table sets forth the supplier, the amount of contracted capacity and the expiration date of Energuate’s eight largest effective PPAs.
Supplier
Jaguar Energy Guatemala LLC
Instituto Nacional de Electrificación
Eólico San Antonio El Sitio, Sociedad Anónima
Renace, Sociedad Anónima
Preexistentes
Instituto Nacional de Electrificación
Hidro Xacbal, Sociedad Anónima
Duke Energy Guatemala y Compañía, Sociedad en Comandita por Acciones
Contracted Capacity
(MW)
200
76
50
45
34
38
30
18
Expiration
Date
April 2030
April 2017
April 2030
April 2030
October 2019
April 2030
April 2030
April 2017
Under each of its PPAs, Energuate pays a capacity charge and an energy charge. Energuate pays a specified amount for each MW of capacity purchased
under these PPAs and an electricity charge for the kWh of electricity actually consumed. Most of Energuate’s PPAs also provide that the electricity charge is
indexed to changes in published quotations for the type of fuel used by the generator. In addition, Energuate is required to pay certain additional costs incurred by
the generators to provide electricity including connection costs, transmission tolls, additional costs imposed by the CNEE and other similar costs.
Service
Standards
Pursuant to its authorizations, Energuate is required to meet specified standards with respect to the quality and delivery of the electricity distributed to its
customers. The quality standards refer to the electricity’s voltage levels. A breach may be deemed to have occurred when there are changes in the voltage level. A
monetary fine is imposed under Energuate’s authorizations for breaches exceeding certain limits, with such fines credited towards the affected consumer’s next bill.
Delivery standards refer to the frequency and duration of breaches in the supply of electricity.
Energuate is also required to survey its customers annually to assess their satisfaction levels. The survey covers perceived service quality, technical services
(measuring interruptions or blackouts during the year) and overall customer
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service. If customer satisfaction levels set by the CNEE are not achieved, Energuate may be fined. If Energuate repeatedly incurs such fines, does not pay fines that
have been imposed or otherwise repeatedly provides deficient service, its authorizations may be revoked.
Energuate may be subject to other monetary fines and penalties for failure to comply with other terms of its authorization agreements. In the years ended
December 31, 2015 and 2014, Energuate paid approximately $210 thousand and $450 thousand in fines, respectively.
The following table sets forth the results of the annual customer survey for DEORSA, DEOCSA and EEGSA, the other significant electricity distribution
company in Guatemala, for the periods presented.
For the Year Ended December 31,
2013
2015
2014
DEORSA
Product Quality (%)
Technical Service (%)
Customer Service (%)
DEOCSA
Product Quality (%)
Technical Service (%)
Customer Service (%)
EEGSA
Product Quality (%)
Technical Service (%)
Customer Service (%)
71.5
70.1
93.1
72.4
70.9
72.5
59.9
59.5
88.1
78.3
76.9
76.7
78.6
75.1
92.1
86.6
87.0
89.5
81.6
77.8
94.0
77.6
75.8
91.9
87.7
85.4
93.7
In connection with its acquisition of Energuate, IC Power’s management has established a goal to improve Energuate’s customer satisfaction levels by
improving service standards, reducing interruptions, and improving customer service by achieving faster response times.
Electricity
Losses
Energuate experiences electricity losses in the form of technical and commercial losses. Technical losses are those that occur in the ordinary course of
Energuate’s distribution of electricity or those resulting from the specific characteristics of Energuate’s distribution network. Commercial losses are those resulting
from illegal connections, fraud or billing errors. Energuate’s total electricity losses in the year ended December 31, 2015 and 2014 were 17.3% and 17.7% of its
total energy received, respectively. The distribution tariffs that Energuate charges its regulated customers include a VAD component, which provides for an
allowance for losses incurred in the distribution of electricity determined by the CNEE. To the extent that Energuate’s electricity losses exceed the allowance
contemplated in the VAD component of the distribution tariff, Energuate will bear the costs of such losses.
In connection with its acquisition of Energuate in January 2016, IC Power’s management has established a goal to reduce Energuate’s electricity losses. IC
Power intends to reduce commercial losses through improving customer billing practices, increasing targeted inspections and meter replacements, implementing a
communication program with local communities and modernizing Energuate’s facilities to reduce tampering, especially in areas where electricity theft has been
more prevalent, while reducing technical losses by investing in the modernization of Energuate’s transmission grid and distribution system. In particular, Energuate
will inspect around 10,000 specifically targeted meters each month for evidence of fraud and replace approximately 93,000 old meters each year.
Distribution
Network
Electricity is transferred from supply points connected with the Guatemalan National Electricity System, to customers through Energuate’s distribution
system, which consists of a wide network of overhead lines, cables and substations carrying successively lower voltages. As of December 31, 2015, Energuate’s
distribution system included approximately 34,000 km of distribution lines, representing approximately 70% of Guatemala’s installed distribution lines.
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Transmission,
Construction
and
Maintenance
Services
Energuate pays tolls for transmission of electricity over the secondary transmission system. These tolls are subject to the approval of the CNEE and will
expire on December 31, 2016. The cost of transmission tolls are included in the electricity charge in Energuate’s tariffs, which are then passed through to
Energuate’s customers.
Energuate has outsourced certain construction and maintenance activities to various third parties, who provide the following services to Energuate:
•
•
•
•
24-hour emergency services, including call center, fault response, building security and personal security services;
building new connections and installations;
providing connection and disconnection services; and
maintaining and repairing installations and equipment, including substations, transformers and meeting stations.
Seasonality
Seasonality does not have a significant impact on the demand for electricity in Energuate’s service area. Demand for electricity is consistent throughout the
year due to a steady number of daylight hours throughout the year and limited use of heating and air conditioning systems within Energuate’s service areas.
Employees
As of December 31, 2015, Energuate had a total of 788 employees, divided into operative, administrative and customer service employees. From time to
time, Energuate contracts for the service of temporary employees.
Guatemala
Distribution
Service
Providers
The electricity distribution market in Guatemala is predominantly served by three companies: DEORSA and DEOCSA (which operate under the brand name
“Energuate”) and EEGSA. In addition, there are approximately 15 municipal distributors operating in the AMM. EEGSA operates in an urban and suburban service
area, including the departments of Guatemala (which includes the country’s capital, Guatemala City), Sacatepéquez and Escuintla and holds an authorization over
the service area until 2048. DEORSA and DEOCSA are the only large distribution companies with authorizations granted to operate distribution systems in their
service area, and therefore do not face significant competition for regulated customers within their service areas. However, DEORSA and DEOCSA’s
authorizations are non-exclusive and MEM may grant an authorization to a competing distribution company in their service areas. Given the cost of constructing a
competing distribution system, IC Power does not believe any other distribution company will establish a widespread service to regulated customers in DEORSA
and DEOCSA’s service areas in the near- to medium-term.
Other Businesses
The acquired businesses also include Guatemel, an electricity trading company, and RECSA, a transmission company.
Guatemel
IC Power owns 100% of Guatemel, an electricity trading company that supplies large users within Guatemala’s unregulated sector.
Guatemel enters into sales contracts with its customers under which it sells a specified amount of capacity to each customer. Customers are charged a
capacity charge based on the amount of capacity purchased and an energy charge based on the amount of energy actually consumed. Guatemel pays transmission
tolls and distribution tariffs to the transmission and distribution companies that deliver the electricity it sells to its customers, including Energuate. As of
December 31, 2015 and 2014, Guatemel had agreements to supply capacity and electricity to 46 and 58 large customers, respectively, which consumed an average
of 57 GWh and 74 GWh annually, respectively.
Guatemel enters into PPAs in order to obtain the capacity and electricity that it then on sells to unregulated customers. In the event that Guatemel requires
capacity or electricity in excess of that supplied under its PPAs in order to meet customer demand under its sales contracts, Guatemel makes spot market purchases.
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RECSA
IC Power owns 100% of RECSA, an electricity transmission company that supports Guatemala’s electrical system by operating 32 km of transmission lines
and eight sub-stations. RECSA operates its transmission lines under a 50-year authorization granted by the Guatemalan government that will expire in 2057.
Generators, transportation companies, distributors, electricity brokers and unregulated customers pay for their connection to, and use of, RECSA’s transmission
lines. The tolls charged for use of RECSA’s lines were set by CNEE in January 2015, and will expire in January 2017.
Potential Projects
IC Power is constantly monitoring and considering development and acquisition opportunities and is currently assessing approximately 25 projects in Israel
and various Latin American countries, such as Chile, Jamaica, Colombia, Mexico, Peru, the Dominican Republic, and Nicaragua. These potential projects range in
size from small-scale power facilities ( e.g.
, less than 40 MW) to large-scale power facilities ( e.g.
, approximately 550 MW) and utilize different fuels and
technologies, including natural gas, hydroelectric, wind, and stranded gas. In some instances, IC Power has acquired land, secured necessary licenses or rights,
including temporary concessions and water rights, commissioned studies, made bids, or initiated similar actions, in connection with its assessment of the viability
of the relevant project.
In addition to the Latin American opportunities that IC Power is currently considering, it also monitors opportunities in other markets. For example, in
August 2015, IC Power acquired 100% of the shares of AIE from Hadera Paper for NIS 60 million (approximately $16 million). AIE holds a conditional license for
the construction of a cogeneration power station in Israel. The project is in the advanced development stage, construction is expected to commence in mid-2016,
and the AIE plant is expected to reach its COD in the second half of 2018. Based upon IC Power’s initial assessment, it expects that the total cost of completing the
AIE plant (including the consideration for the acquisition of AIE) will be approximately $250 million.
Set forth below is a map summarizing certain of the markets and projects that IC Power has identified for potential expansion. Development projects imply a
high degree of uncertainty, and there is no guarantee that IC Power will proceed with these projects. Ultimately, notwithstanding the number of opportunities that
IC Power may consider over the long- and short-terms, it will only pursue those projects that it believes will generate attractive, risk-adjusted returns over the long-
term and which it believes it has the management capacity to build and operate. In addition, in some cases, IC Power may not obtain the relevant approval to
develop a project. Furthermore, in many cases, IC Power will need to win tenders, obtain additional rights, permits, licenses, land purchases and water rights and
may need to negotiate with counterparties or conduct valuations and environmental studies, each of which could take years to satisfy, or may not be satisfied at all.
The summary below sets forth projects developed and owned by IC Power, as well as projects owned by third parties, that IC Power may be able to acquire by
direct negotiations or through tender processes. This summary is not exhaustive, is only provided to show projects which IC Power is evaluating, and should not
serve as an indication of any expectation regarding any final outcome:
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Chile
IC Power believes that Chile is one of the most attractive power markets in Latin America, as it is characterized by a highly-efficient and investor-friendly
model with a stable regulatory framework, electricity demand growth and prices which are among the highest in the region.
IC Power is constantly monitoring and assessing opportunities in Chile and, specifically, in the SIC system. The acquisitions of Colmito and Central
Cardones provide IC Power with the initial footprint from which to carry out organic development strategy in this key market. Currently, IC Power has identified
opportunities in the thermal and renewables segments. In the thermal segment, IC Power has already acquired lands and a 50-year land concession from the
government on which it may develop thermal projects representing an installed capacity of 1,890 MW. In the renewables segment, IC Power is currently analyzing
potential opportunities in the hydroelectric, wind and solar sectors. Chile represents one of the most attractive markets in Latin America, but historically it has also
been one of the most challenging markets in Latin America to obtain environmental permits. As such, opportunities may take time to materialize.
Israel
Following recent government initiatives encouraging investments in the Israeli power generation market, the entrance of private developers has opened the
door for a range of opportunities. IC Power believes the OPC plant, the first IPP in the country, provides it with a first-mover’s advantage to further expand IC
Power’s presence in this fast growing, but stable market. In addition, IC Power acquired an additional plot of land adjacent to OPC, which is large enough to house
another combined cycle or similar generation facility to expand OPC’s capacity in the long-term, among other potential opportunities.
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Mexico
Mexico is enjoying strong momentum in the energy and infrastructure sectors following market reforms in 2013 and 2014. The reform of the electricity
sector has driven, and is expected to continue to drive, significant investments in new generation capacity. In addition, PEMEX, a Mexican state-owned petroleum
company, has announced that it aims to reach an installed capacity of approximately 3.1 GW in the medium-term by partnering with power companies for the
development of cogeneration plants. The Mexican government has also announced initiatives towards the development of significant renewable energy capacity,
seeking to add approximately 4.6 GW of wind capacity over the next decade. Given the market’s expected growth, strong demand and stability, IC Power has
decided to open an office in Mexico which is fully dedicated to the sourcing of opportunities and IC Power hopes to materialize prospects in the short to medium
term as a result of these efforts.
Colombia
Colombia’s investment grade status, high growth and mature regulatory framework make Colombia similar to Peru and one of the main target countries
within our strategic plan. Factors such as the attractive niche of stranded gas reserves and the proximity of such reserves to industrial areas create an appealing
opportunity for us. For these reasons, IC Power’s strategic acquisition of a 60% equity interest in Surpetroil, a company that utilizes stranded natural gas reserves,
serves as an important entry point into the Colombian market. By having a local presence in the market, IC Power has been able to identify new opportunities, such
as a large project portfolio of small-scale stranded gas and mini-hydros, that it is currently pursuing.
Peru
Peru, IC Power’s current core market, represents an attractive geography for further expansion, especially in the hydro segment. Peru has one of the fastest
growing economies in Latin America, with a strong outlook for power demand coupled with a mature regulatory framework and a well-run power system. For these
reasons, Peru remains a key growth focus for IC Power and it has several opportunities under various states of development in this country. In the hydro segment,
IC Power has secured land and is pursuing environmental approval for two hydroelectric projects with a combined capacity of approximately 550 MW. In addition
to hydro, IC Power has also identified other opportunities such as two cold reserve projects in the thermal segment. IC Power believes its strong presence in the
Peruvian market gives it a competitive advantage at the time of materializing opportunities, helping to identify and assess new developments in advance of other
market participants.
In addition, IC Power may pursue opportunities to expand the installed capacity of its existing operating assets and assets in advanced stages of construction
in Peru. For example, the Samay I plant, which, as of December 31, 2015, was 98% constructed, will operate as a cold reserve plant with diesel and is expected to
have an installed capacity of 600 MW upon its COD in the second quarter of 2016. Once natural gas becomes available to the facility through the Gasoducto Sur
Peruano (which the pipeline’s developers are obligated to complete by 2018), the Samay I plant will operate as a natural gas-fired power plant and will be able to
do so without us making any additional investments in Samay I’s facilities. When fueled by natural gas, the Samay I plant will have an installed capacity of 720
MW. Finally, following an additional investment in the conversion of the Samay I plant, which IC Power has not committed to make, the Samay I plant could
operate as a combined cycle thermoelectric plant, which would increase Samay I’s installed capacity to approximately 1,080 MW.
Furthermore, IC Power may pursue opportunities to increase the installed capacity of the Las Flores plant, which has the environmental approvals and a
permit to increase its installed capacity through the construction of a 190 MW gas-fired expansion. In addition, Las Flores has sufficient space to locate a
combined-cycle expansion on its existing premises. Following the gas-powered expansion and an additional investment in the conversion of the Las Flores plant,
neither of which IC Power has committed to do, the Las Flores plant could operate as a combined cycle thermoelectric plant, reflecting an increase in capacity by
400 MW from 193 MW to 593 MW.
IC Power applies a disciplined approach to evaluating and pursuing any development projects. First, it endeavors to construct projects by entering into
turnkey EPC agreements that define the total project cost and transfer significant part of the risks of construction delays and cost overruns to its EPC contractors.
Second, IC Power seeks to secure a revenue stream as early as possible in the development process of its plants by sourcing and entering into long-term PPAs,
which provide IC Power’s development projects with verifiable projected margins and cash flows before construction has commenced. Finally, IC Power leverages
its EPC contracts and PPAs to secure long-term project financing agreements which are generally standalone, secured, project-specific and with no or limited
recourse. IC Power has not entered into EPC agreements, PPAs or financing agreements in connection with these potential projects.
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IC
Power’s
Generation
Customers
IC Power’s generation businesses’ customers include governments, local distribution companies, and/or non-regulated customers, depending upon the
operating company and the particular country of operation. IC Power’s generation companies seek to enter into long-term PPAs with power purchasers. In 2015,
approximately 89% of IC Power’s capacity and energy sales were pursuant to long-term PPAs, although IC Power operates in challenging jurisdictions that subject
it to numerous regulatory or counterparty risks, including risks related to asset nationalizations or delayed payments. Additionally, the majority of IC Power’s
capacity has been contracted for sale, according to long-term agreements. For example, in 2015, Kallpa signed 7 long-term PPAs with various distribution
companies and non-regulated clients for the sale of electricity (which accounts for most of its current generation capacity) and Kallpa has committed to sell over
50% of its available energy (in MWh) in every year through 2021.
In attempting to limit the effects of such counterparty risks, each of IC Power’s generation companies analyzes the creditworthiness and financial strengths
of its various counterparties during the PPA negotiations as well as during the life of the agreement. Where the creditworthiness of the power purchaser is deemed
to be below standard, various contractual agreements and structures are negotiated (such as letters of credit, liquidity facilities, and government guarantees) to
provide the credit support.
Under the terms of most of IC Power’s generation businesses’ PPAs, the power purchaser is contractually obligated to purchase energy, and sometimes
capacity and/or ancillary services, from the power generator based upon a base price (denominated either in U.S. Dollars or in the local currency) that is adjusted
for (i) fluctuations in exchange rates, (ii) the U.S. inflation index, (iii) a local inflation index, (iv) fluctuations in the cost of operating fuel, (v) supply of natural gas,
(vi) transmission costs and/or (vii) spot prices in the case of an interruption of the supply or transportation of natural gas. Many of these PPAs differentiate between
peak and off-peak periods. Utilizing PPAs allows IC Power’s generation companies to lock in gross margins and provides IC Power and its generation companies
with earnings stability.
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The following table sets forth a summary of the significant PPAs for IC Power’s generation companies as of December 31, 2015:
Company
Principal Customer
Commencement
Expiration
Contracted
Capacity 2
(MW)
Peru Segment
Kallpa
Israel Segment
OPC 7
AIE
Central America
Segment
Corinto
Tipitapa Power
Amayo I and Amayo II
Nejapa
Puerto Quetzal
Other Segment
COBEE 9
Colmito
JPPC
Surpetroil
Pedregal
CDA
Samay I
Kanan
Operating Companies and Associated Company
Edelnor S.A.A., Luz del Sur S.A.A., Hidrandina S.A., Edecañete
S.A.A., Electosureste S.A., Seal S.A. 3
Edelnor S.A.A., Luz del Sur S.A.A., Hidrandina S.A.,
Electosureste S.A., Seal S.A., Electrosur S.A. 4
Sociedad Minera Cerro Verde S.A.A. 5
Compañía Minera Antapaccay S.A. 6
Southern Perú Copper Corporation
PPA with Israel Electric Corporation 8
Hadera Paper
Hadera Paper
January 2014
December 2021
January 2014
January 2011
November 2011
April 2017
December 2023
December 2020
December 2025
April 2027
July 2013
August 2015
September 2018
June 2032
September 2018
August 2036
Distribuidora de Electricidad del Norte S.A., Distribuidora de
Electricidad del Sur S.A.
June 1999
December 2018
Distribuidora de Electricidad del Norte S.A.,
Distribuidora de Electricidad del Sur S.A.
Distribuidora de Electricidad del Norte S.A.,
Distribuidora de Electricidad del Sur S.A.,
Seven distribution companies
Seven distribution companies
Seven distribution companies
Empresa Electrica de Guatemala,
Comegsa
CCEESA
MEL
Minera San Cristóbal
ENAP Refinerías S.A.
Jamaica Public Services Company
GEOPARK
PETROSUD
Empresa de Distribución Eléctrica Metro-Oeste, S.A., Empresa
de Distribución Eléctrica Chiriqui, S.A.
Elektra Noreste, S.A.
Empresa de Distribución Eléctrica Metro-Oeste, S.A., Empresa
de Distribución Eléctrica Chiriqui, S.A.
Elektra Noreste, S.A.
April 1999
March 2009
March 2010
August 2013
August 2013
January 2015
October 2015
January 2013
September 2015
February 2013
December 2018
March 2024
March 2025
January 2018
July 2017
December 2017
April 2016
April 2017
December 2017
December 2017
December 2008
January 2014
January 1998
December 2015
March 2015
October 2017
December 2017
January 2018
December 2016
June 2018
February 2013
February 2013
December 2016
December 2016
January 2014
January 2014
December 2016
December 2016
Assets in Advanced Stages of Construction
ElectroPerú
Luz del Sur S.A.A. 11
Edelnor S.A.A.
Peruvian Investment Promotion Agency
Empresa de Distribución Eléctrica Chiriqui (EDECHI)
H1 2016 10
January 2018
January 2022
May 2015
December 2015
December 2030
December 2027
December 2031
April 2035
December 2020
Empresa de Distribución Eléctrica Elektra Nor Este S.A.
(ENSA)
December 2015
Empresa de Distribución Eléctrica Metro Oeste S.A. (EDEMET) December 2015
December 2020
December 2020
120
350
210
140
100
120
440
12
40
50
51
40
23
71
39
30
14
20/30
12
15
43
35
60
7
2
25
13
5
2
200
202
81
600
7
34
45
Table of Contents
1.
Many of IC Power’s PPAs, excluding OPC’s PPAs, provide for payment in, or are linked to, the U.S. Dollar. The majority of the PPAs are indexed to the
price of the corresponding power plant’s operating fuel prices in U.S. Dollars. Although OPC’s PPAs are not linked to the U.S. Dollar, IEC, who has
contracted to purchase all of OPC’s energy and capacity, purchases its gas pursuant to an agreement which, as a result of a number of other factors, ties
IEC’s gas purchases to the U.S. Dollar.
2. Where a range is presented, contracted capacity varies monthly for the duration of the PPA.
3.
Kallpa executed 14 PPAs, two PPAs with each of the following seven entities: (i) Edelnor S.A.A., (ii) Luz del Sur S.A.A., (iii) Edecañete S.A.,
(iv) Electrosur S.A., (v) Electro Sur Este S.A.A., (vi) Sociedad Eléctrica del Sur Oeste S.A. and (vii) Electro Puno S.A.A. Each of Electrosur S.A. and
Electro Puno S.A.A. assigned their PPAs to Hidrandina S.A. in August 2012 and in October 2012, respectively. The 350 MW capacity represents the
aggregate contracted capacity among these 14 PPAs.
Kallpa executed 12 PPAs, two PPAs with each of the following six entities: (i) Edelnor S.A.A., (ii) Luz del Sur S.A.A., (iii) Electrosur S.A., (iv) Electro Sur
Este S.A.A., (v) Electro Puno S.A.A. and (vi) Sociedad Eléctrica del Sur Oeste S.A. Electro Puno S.A.A. assigned its PPAs to Hidrandina S.A. in October
2012. The 210 MW capacity represents the aggregate contracted capacity among these 12 PPAs.
A subsidiary of Freeport McMoRan, Inc.
A subsidiary of Glencore Xstrata.
OPC’s PPAs provide for payment in New Israeli Shekels.
The terms of the IEC PPA provide OPC with the option to allocate and sell the generated electricity of the power station directly to end users. OPC has
exercised this option and sells its energy and capacity directly to 24 end users as of December 31, 2015 (22 end users as of December 31, 2014), who
primarily consist of Israeli industrial companies, such as Oil Refineries Limited and Granit Group. OPC has entered into PPAs with end users which cover a
range of 5 MW to 107 MW of capacity, with each PPA covering, on average, 25 MW of capacity. As of December 31, 2015, the weighted average remaining
life of OPC’s PPAs with end users based on firm capacity is seven years. For further information on the IEC PPA, see “—Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Israeli
Electricity
Sector.”
In December 2011, the Bolivian government amended the applicable law to prohibit generation companies from entering into new PPAs. As a result,
COBEE will be unable to extend or replace its current PPA, under which it has contracted 19% of its capacity, when it expires in October 2017. For further
information on risks related on IC Power’s inability to renew, enter into, or replace long-term PPAs, see “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power
—IC
Power’s
generation
companies
may
not
be
able
to
enter
into,
or
renew
existing,
long-term
contracts
for
the
sale
of
energy
and
capacity,
contracts
which
reduce
volatility
in
IC
Power’s
results
of
operations
.”
Subject to an adjustment in connection with a delay in the completion of the CDA plant’s construction.
Represents capacity under three separate PPAs.
4.
5.
6.
7.
8.
9.
10.
11.
IC
Power’s
Raw
Materials
and
Suppliers
IC Power’s power facilities utilize either natural gas, hydroelectric, HFO, diesel, wind, solar or a combination of the aforementioned energy sources. The
price volatility, availability and purchase price of these materials (other than wind and hydroelectricity) depend upon the specific fuel and the market in which the
fuel is to be used.
Kallpa, IC Power’s largest asset, is party to several supply agreements, including natural gas supply agreements and transportation services agreements that
are material to its operations. While Nejapa and CEPP purchase the HFO necessary for their operations in the El Salvador and Dominican spot markets,
respectively, JPPC, Nejapa, Corinto, Tipitapa and Puerto Quetzal purchase the HFO necessary for their operations from several fuel suppliers in connection with
long-term supply agreements. The sole provider of natural gas in Bolivia is a government-owned company. Therefore, the terms for transmission and delivery of
natural gas to COBEE are set by government decree.
Natural
Gas
Supply
and
Transportation
Agreements
Kallpa purchases its natural gas requirements for its generation facilities from the Camisea Consortium, composed of Pluspetrol Peru Corporation S.A.,
Pluspetrol Camisea S.A., Hunt Oil Company of Peru L.L.C. Sucursal del Perú, SK Corporation Sucursal Peruana, Sonatrach Peru Corporation S.A.C., Tecpetrol del
Perú S.A.C. and Repsol Exploración Peru Sucursal del Perú, which we collectively refer to as the Camisea Consortium, pursuant to a natural gas exclusive supply
agreement. Under this agreement, the Camisea Consortium has agreed to supply Kallpa’s natural gas requirements, subject to a daily maximum amount, and Kallpa
has agreed to acquire natural gas exclusively from the Camisea Consortium. The Camisea Consortium is obligated to provide a maximum of 4.3 million cubic
meters of natural gas per day to Kallpa’s plant and Kallpa is obligated to purchase a minimum of 2.2 million cubic meters of natural gas per day. Should Kallpa fail
to consume the contractual minimum volume on any given day, it may make up the consumption volume shortage on any day during the following 18 months. The
price that Kallpa pays to the Camisea Consortium for the natural gas supplied is based upon a base price in U.S. Dollars set on the date of the agreement, indexed
each year based on two producer price indices: Fuels and Related Products Power Index and Oil Field and Gas Field Machinery Index, with discounts available
based on the volume of natural gas consumed. This agreement expires in June 2022.
Kallpa’s natural gas transportation services are rendered by Transportadora de Gas del Peru S.A., or TGP, pursuant to a natural gas firm transportation
agreement dated December 2007, as amended. In April 2014, this agreement was further
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modified to include the transportation agreement between Duke Energy Egenor S. en C. por A. and Las Flores. Pursuant to the modified agreement, TGP is
obligated to transport up to 3.4 million cubic meters of natural gas per day from the Camisea Consortium’s delivery point located at the Camisea natural gas fields
to Kallpa’s facilities. This obligation will be reduced, first, by approximately 199,312 cubic meters per day beginning in March 2020 and, second, 206,039 cubic
meters per day beginning in April 2030. This agreement expires in December 2033. Additionally, Kallpa is party to two additional gas transportation agreements, to
become effective at the completion of the expansion of TGP’s pipeline facilities (which is expected to occur between March 2016 and September 2016). Pursuant
to these agreements, TGP will be obligated to transport up to 565,130 cubic meters of natural gas per day and 935,000 cubic meters of natural gas per day,
respectively, from the Camisea Consortium’s delivery point located at the Camisea natural gas fields to Kallpa’s facilities. These agreements expire in April 2030
and April 2033, respectively. Additionally, on April 1, 2014, Kallpa entered into an agreement with TGP to cover the period up to the completion of the expansion
of TGP’s pipeline facilities. Pursuant to this agreement, TGP is obligated to transport up to 120,679 cubic meters of natural gas per day from the Camisea
Consortium’s delivery point located at the Camisea natural gas fields to Kallpa’s facilities. Pursuant to the terms of each of these agreements, Kallpa pays a
regulated tariff approved by the OSINERGMIN.
Set forth below is a summary of the natural gas transportation services under each of the two agreements:
Periods
Initial Date of Dispatch
Initial Date of Dispatch - 3/20/20
3/20/20 - 1/1/21
1/2/21 - 3/31/30
4/1/30 - 3/31/33
4/1/33 - 12/31/33
Firm
3,474,861
4,854,312
4,655,000
4,655,000
3,883,831
2,948,831
Interruptible
1,329,593
764,463
764,463
530,000
1,301,169
1,301,169
OPC purchases natural gas from the Tamar Group, composed of Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership, Isramco Negev 2
Limited Partnership, Avner Oil Exploration Limited Partnership and Dor Gas Exploration Limited Partnership, or collectively, the Tamar Group, pursuant to a
natural gas exclusive supply agreement dated November 2012. Under this agreement, the Tamar Group has agreed to supply OPC’s natural gas requirements,
subject to a contractual maximum amount of 10.6 billion cubic meters, and OPC has agreed to acquire its natural gas exclusively from the Tamar Group.
The price that OPC pays to the Tamar Group for the natural gas supplied is based upon a base price in New Israeli Shekels set on the date of the agreement,
indexed to changes in the “Production Cost” tariff, which is part of the “Time of Use” tariff and the U.S. Dollar representative exchange rate. As a result, increases
or decreases in the EA’s generation tariff have a related effect on OPC’s cost of sales and margins. In addition, the natural gas price formula in OPC’s supply
agreement is subject to a floor mechanism. As a result of previous declines in the EA generation component tariff, OPC began to pay the ultimate floor price in
November 2015. Therefore, the September 2015 decline and any further declines in the EA generation component tariff, will not result in a corresponding decline
in OPC’s natural gas expenses, and will therefore lead to a greater decline in OPC’s margins, which may have a material adverse effect on OPC’s business, results
of operations and financial condition. For information on the risks associated with the impact of the EA’s generation tariff on OPC’s supply agreement with the
Tamar Group, see “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—The
production
and
profitability
of
IPPs
in
Israel
may
be
adversely
affected
by
changes
in
Israel’s
regulatory
environment
.”
OPC’s agreement with the Tamar Group expires upon the earlier of June 2029 or the date on which OPC consumes the entire contractual capacity. For
information on the Israeli Natural Gas Council’s resolution regarding the pro rata distribution of natural gas in the event of gas shortages in Israel, see “ —
Regulatory,
Environment
and
Compliance
Matters—Regulation
of
the
Israeli
Electricity
Sector
.”
OPC’s agreement with the Tamar Group provides for the curtailment of OPC’s gas supply in the event of insufficient gas supply, and notes that certain other
Tamar Group customers have priority over OPC for supply and may therefore not be curtailed even if OPC were curtailed. However, in December 2012, the Israeli
Natural Gas Council issued Resolution No. 6/2012, or the Gas Authority Resolution, with respect to the regulation of the usage of capacity of the natural gas
pipeline from the Tamar rig in case of a shortage of capacity of the gas pipeline, and such regulation differs from the provision included in OPC’s agreement with
the Tamar Group. IC Power believes that the pro-rata mechanism stipulated in the Gas Authority Resolution may increase the gas volume delivered to OPC
pursuant to OPC’s agreement with the Tamar Group in the event of gas pipeline capacity shortages. The manner in which the Gas Authority Resolution would be
implemented, if at all and, if implemented, its potential effect on OPC’s agreement with the Tamar Group, if any, remains unknown.
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The Tamar Group has, in the past, worked on the expansion of the transmission capacity of natural gas from the Tamar gas field, which expansion will
eventually increase the pipeline capacity from the platform to the shore, and to the transmission system. However, following delays in the Israeli Anti-Trust
Authority’s approval of, among others, Noble, a part owner and the operator of the Tamar lease as a result of Noble’s cross holdings in additional gas fields
(primarily the Leviathan gas field), Noble announced that it was suspending all of its projects in Israel, including the Tamar expansion project, until all regulatory
issues were resolved. On August 16, 2015, a revised natural gas framework arrangement between the Tamar Group, the Leviathan group, and the Israeli
government was approved by the Israeli government. Pursuant to such arrangement, new IPPs may now, among other things, select to purchase gas at a base price
which reflects the average price paid by the three major conventional IPPs—Dorad, Dalia Power Energies and OPC. In response to petitions filed against the
natural gas framework arrangement, on March 27, 2016, the Supreme Court of the State of Israel affirmed the natural gas framework arrangement, with the
exception of the stability provisions (which, subject to certain conditions, protected the Tamar Group and the Leviathan Group from future regulatory changes).
The Supreme Court concluded that the Israeli government should provide stability assurances and provisions through an alternate legal mechanism and indicated
that provided the Israeli government had one year to resolve this matter. Once such matter has been resolved. Noble is expected to continue with the Tamar
expansion project (together with the Tamar Group) and the development of the Leviathan field (together with the Leviathan group). In the event that the Tamar
expansion project is not completed, the possible result could be a lack of pipeline capacity in the future, which could result in the curtailment of OPC’s gas supply.
HFO
and
Diesel
Supply
IC Power’s operating companies that rely on HFO and diesel obtain their supply of HFO and diesel either through acquisitions on the spot market or
pursuant to short- to medium-term supply agreements. The supply agreements that IC Power’s operating companies enter into for HFO and diesel are generally
linked to the Platts, McGraw Hill Financial Index.
IC
Power’s
Competition
IC Power’s major competitors in the Latin American and Caribbean countries in which its generation companies operate are generally the large international
power utility corporations operating in these countries. Local competitors also exist in each of these countries and account for varying market shares, depending
upon the country of interest. Within Israel, IC Power’s major competitors are IEC, Dorad Energy Ltd., a private power generator, and other private developers who,
as a result of recent government initiatives encouraging investments in the Israeli power generation market, are constructing power stations with significant
capacity.
Set forth below is a discussion of competition among power generation companies in certain of IC Power’s markets of operation. For a discussion of
Energuate’s competition, see “ —Distribution
Operations—Energuate—Guatemala
Distribution
Service
Providers.”
Peru
In Peru, power generation companies compete along a number of dimensions, including the ability to (i) source and enter into long-term PPAs with power
purchases, (ii) source and secure land for the development or expansion of additional power generation plants, (iii) source and secure natural gas to fuel power
generation stations, (iv) win tenders by the Peruvian government to build cold, or other generation supply, reserve plants, and (v) maintain or increase market share
in the growing Peruvian electricity market, particularly in connection with the balance of energy supply and demand within Peru. In Peru, IC Power competes with
state-owned generation companies (although their relative weight in the market has been diminishing over time since the privatization process started in the 1990s),
as well as large international and domestic generators.
The following table sets forth the quantity of energy generated by each of the principal generation companies in Peru for the periods presented:
Gross Energy Generation
For the Year Ended December 31,
2014
2013
2015
Company
Kallpa Generación S.A.
Edegel 1 (a subsidiary of Enel)
EnerSur S.A. (a subsidiary of Engie S.A.)
ElectroPerú S.A. (a state-owned generation company)
Duke Energy Egenor S. en C. por A 2 (a subsidiary of Duke Energy Corp)
Other generation companies
Total
123
Market
Share
(%)
Market
Share
(%)
Market
Share
(%)
(GWh)
(GWh)
(GWh)
5,166 11.60 5,920 14.17 5,459 13.76
8,370 18.79 8,848 21.17 8,700 21.93
7,172 16.10 7,098 16.98 7,719 19.46
7,172 16.10 7,041 16.85 7,272 18.33
2,648
6.87
14,012 31.46 10,351 24.77 7,793 19.65
44,540 100.0 41,792 100.0 39,670 100.0
6.06 2,727
5.95 2,534
Table of Contents
1.
2.
Includes Edegel and Chinango S.A.C.
Includes Egenor and Termoselva S.R.L.
Israel
Until OPC commenced commercial operations in July 2013, IEC operated as the sole large-scale provider of electricity in Israel. In May 2014, Dorad Energy
Ltd. became the second IPP to commence commercial operations in Israel, adding a capacity of 860 MW to the Israeli electric market. In July 2015, the first of two
units of the power plant of Dalia Power Energies commenced commercial operations. In September 2015, the second unit reached its COD, adding, together with
the first unit, 910 MW to the Israeli electric market. Several other IPPs are in the process of constructing power plants, and are expected to commence commercial
operations in the coming years. As of the date of this annual report, IEC has not published generation and energy and capacity sales information for IPPs.
Nicaragua
The electricity market in Nicaragua is served by a variety of generation companies, including (1) ICPNH, (2) ALBA de Nicaragua, S.A. (ALBANISA),
(3) PENSA Proyecto Eléctrico de Nicaragua, S.A, (4) Enel SpA and (5) Generadora de Occidente, Ltda. ICPNH competes with each of these companies for the
right to supply capacity and energy to distribution companies and other unregulated customers as well as exports to SIEPAC.
The following table sets forth the quantity of energy generated by each of the principal generation companies in Nicaragua for the periods presented:
Gross Energy Generation
For the Year Ended December 31,
2014
2013
2015
Company
ICPNH
ALBA de Nicaragua, S.A. (ALBANISA)
PENSA Proyecto Eléctrico de Nicaragua, S.A.
Enel SpA
Generadora de Occidente, Ltda.
Other generation companies
Total
Guatemala
Market
Share
(%)
Market
Share
(%)
Market
Share
(%)
(GWh)
(GWh)
(GWh)
1,095 24.88 1,099 26.71 1,085 28.03
886 20.13 745 18.11 535 13.82
451 10.24 430 10.45 424 10.95
8.60 435 11.23
283
370
6.66
6.47 258
1,316 29.91 1,220 29.65 1,134 29.29
4,401 100.0 4,114 100.0 3,871 100.0
6.42 354
8.42 266
The electricity market in Guatemala is served by a variety of generation companies, including (1) Puerto Quetzal, (2) El Instituto Nacional de Electrificación
(Inde), (3) Energías San José S.A., and (4) Duke Energy Guatemala y Cia, S.C.A. Puerto Quetzal competes with each of these companies for the right to supply
capacity and energy to distribution companies and other unregulated customers, as well as ancillary services to the grid. In addition, Puerto Quetzal competes
directly, or through its trading arm Poliwatt Limitada, for the export of energy and capacity to various countries in SIEPAC.
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Table of Contents
The following table sets forth the quantity of energy generated by each of the principal generation companies in Guatemala for the periods presented:
Gross Energy Generation
For the Year Ended December 31,
2014
2015
2013
Company
Puerto Quetzal
El Instituto Nacional de Electrificación (Inde)
Energías San José, S. A.
Duke Energy Guatemala y CIA, S. C. A.
Other generation companies
Total
El
Salvador
(GWh)
673
Market
Share
(%)
6.53
Market
Share
(%)
(GWh)
4.67 514
Market
Share
(%)
(GWh)
5.38
490
1,969 19.11 3,159 30.09 2,763 28.91
9.58
970
1,045 10.14
9.47
872
6.55
5,940 57.66 5,007 47.69 4,460 46.66
10,302 100.0 10,498 100.0 9,558 100.0
9.24 916
8.31 905
675
The electricity market in El Salvador is served by a variety of generation companies, including (1) Nejapa, (2) Comisión Ejecutiva Hidroeléctrica del Río
Lempa, a state-owned generation company whose primary generation facilities are hydroelectric plants, (3) LaGeo S.A. de C.V., a state-owned generation company
whose primary generation facilities are geothermal plants, (4) Duke Energy International, a subsidiary of Duke Energy Corp., (5) Inversiones Energéticas, S.A. de
C.V., and (6) Termopuerto, S.A. de C.V. Nejapa competes with each of these companies for the right to supply capacity and energy to distribution companies and
other unregulated customers, as well as for exports to SIEPAC.
The following table sets forth the quantity of energy generated by each of the principal generation companies in El Salvador for the periods presented:
Gross Energy Generation
For the Year Ended December 31,
2014
2013
2015
Company
Nejapa
Comisión Ejecutiva Hidroeléctrica del Río Lempa
LaGeo S.A. de C.V.
Duke Energy International
Inversiones Energéticas, S.A. de C.V.
Termopuerto, S.A. de C.V.
Other generation companies
Total
Panama
Market
Share
(%)
(GWh)
7.97 376
Market
Share
(%)
(GWh)
6.08 458
Market
Share
(%)
(GWh)
440
7.37
1,349 24.43 1,718 27.76 1,790 28.81
1,432 25.93 1,558 25.17 1,560 25.11
853 15.43 821 13.26 826 13.29
9.64
491
8.89 574
493
4.88
8.93 476
8.42 667 10.77 677 10.90
465
5,523 100.0 6,188 100.0 6,211 100.0
9.27 599
7.69 303
The electricity market in Panama is served by a variety of generation companies, including (1) Pedregal, (2) ACP, (3) AES Panamá, S.R.L, (4) Celsia SA
ESP and (5) Enel Fortuna, S.A. Pedregal competes with each of these companies for the right to supply capacity and energy to distribution companies and other
unregulated customers, as well as for exports to SIEPAC.
The following table sets forth the quantity of energy generated by each of the principal generation companies in Panama for the periods presented:
Gross Energy Generation
For the Year Ended December 31,
2014
2015
2013
Company
Pedregal
ACP
AES Panamá, S.R.L.
Celsia SA ESP
Enel Fortuna, S.A.
Other hydros
Other thermal
Solar & wind
EOR
Total
125
(GWh)
356
828
Market
Market
Share
Share
(%)
(GWh)
(%)
(GWh)
3.31 405
4.40 420
7.70 1,029 11.18 551
Market
Share
(%)
4.79
6.28
2,497 23.22 1,993 21.66 2,160 24.63
1,444 13.43 1,565 17.00 1,750 19.95
1,658 15.42 1,130 12.28 1,224 13.96
1,777 16.53 1,473 16.00 1,191 13.58
9.74 1,311 14.25 1,408 16.05
1,047
3.97 189
428
0.16 108
17
0.78
10,752 100.0 9,203 100.0 8,772 100.0
2.05 —
68
1.17
Table of Contents
Bolivia
The electricity market in Bolivia is primarily served by a variety of generation companies, including COBEE, Guaracachi, Valle Hermoso and Corani. Prior
to May 2010, Guaracachi was a subsidiary of Rurelec Plc, Valle Hermoso was a subsidiary of the Bolivian Generating Group, and Corani was a subsidiary of
Engie. In May 2010, the Bolivian government nationalized each of these generation companies and began negotiations with the owners of these generation
companies with respect to the compensation to be paid for these assets. In October 2011, the Bolivian government reached compensation settlements related to the
nationalization of Valle Hermoso and Corani, and in 2014, reached compensation settlements related to the nationalization of Guaracachi.
The following table sets forth the quantity of energy generated by each of the principal generation companies in Bolivia for the periods presented:
Gross Energy Generation
For the Year Ended December 31,
2014
2013
2015
Company
COBEE
Guaracachi
Valle Hermoso
Corani
Other generation companies
Total
Chile
(SIC)
Market
Share
(%)
Market
Share
(%)
Market
Share
(%)
(GWh)
(GWh)
(GWh)
1,081 12.97 1,086 13.86 1,160 15.17
1,999 23.98 2,078 26.52 2,104 28.63
1,070 12.84 1,457 18.59 1,318 17.94
938 11.25 923 11.78 930 12.66
3,247 38.96 2,292 29.25 1,836 24.99
8,335 100.0 7,837 100.0 7,348 100.0
The electricity market in Chile is served by a variety of generation companies, including (1) Central Cardones, (2) Colmito, (3) Endesa and (4) Colbún. We
compete in the SIC system, Chile’s largest power system, with each of these companies for the right to supply capacity and energy to distribution companies and
other unregulated customers. A transmission line is under construction to connect the SIC with SING, Chile’s second largest power system. Once completed, we
also expect to compete with power plants in the SING system.
The following table sets forth the quantity of energy generated by each of the principal generation companies in SIC for the periods presented:
Gross Energy Generation
For the Year Ended December 31,
2014
2013
2015
Company
Central Cardones
Colmito
Endesa S.A.
Colbún S.A.
AES Gener S.A.
Empresa Eléctrica Guacolda S.A.
Empresa Eléctrica Pehuenche S.A.
Other generation companies
Total
126
(GWh)
(GWh)
Market
Share
(%)
Market
Share
(%)
(GWh)
4
27
Market
Share
(%)
0.01 — — — —
0.09
0.01
0.05
6
11,759 22.23 12,312 23.58 15,184 29.88
11,805 22.32 12,170 23.31 10,363 20.39
9.54 5,296 10.14 5,420 10.67
5,047
9.36 5,115 10.06
8.60 4,889
4,548
2,980
5.08
5.76 2,583
5.63 3,006
16,731 31.63 14,531 27.83 12,109 23.83
52,901 100.0 52,210 100.0 50,820 100.0
46
Table of Contents
Dominican
Republic
The power and electricity market in the Dominican Republic is served by a variety of generation companies, including (1) CEPP, (2) affiliates of AES Corp.,
which own one combined-cycle plant fueled by natural gas and two open-cycle plants fueled by natural gas, as well as equity interests in two plants fueled with
coal, (3) Empresa de Generación Hidroeléctrica Dominicana, a state-owned generation company whose primary generation facilities are hydroelectric plants,
(4) Empresa Generadora de Electricidad Haina, S.A., (5) Compañía de Electricidad de San Pedro de Macorís, (6) Gas Natural SDG, S.A. (Gas Natural Fenosa),
(7) Transcontinental Capital Corp. (Bermuda) Ltd (Seaboard), and (8) Consorcio Laesa Ltd. CEPP competes with each of these companies for the right to supply
capacity and energy to distribution companies and other unregulated customers.
The following table sets forth the quantity of energy generated by each of the principal generation companies in the Dominican Republic for the periods
presented:
Gross Energy Generation
For the Year Ended December 31,
2014
2013
2015
Company
CEPP
Affiliates of AES Corp.
Empresa de Generación Hidroeléctrica Dominicana
Empresa Generadora de Electricidad Haina, S.A.
Compañía de Electricidad de San Pedro de Macorís
Gas Natural SDG, S.A. (Gas Natural Fenosa)
Transcontinental Capital Corp. (Bermuda) Ltd (Seaboard)
Consorcio Laesa Ltd
Other generation companies
Total
Colombia
(GWh)
298
(GWh)
339
(GWh)
242
Market
Share
(%)
1.99
Market
Share
(%)
1.80
Market
Share
(%)
2.45
5,311 35.48 5,443 40.40 5,075 36.62
2,688 17.96 1,260
9.35 1,860 13.42
6.72 2,731 20.27 1,739 12.55
1,006
113
2.09
290
0.84
6.23
934
7.91
6.82 1,096
6.76
1,012
919
9.60
7.47 1,330
5.62 1,006
842
3.50
5.32
737
471
4.09
612
2,287 15.28 1,285
9.54 1,391 10.04
14,970 100.0 13,470 100.0 13,857 100.0
The electricity market in Colombia is served by a variety of generation companies, including (1) Surpetroil, (2) Empresas Públicas de Medellín E.S.P,
(3) Emgesa S.A. E.S.P, (4) Isagen S.A. E.S.P and (5) Generadora y Comercializadora de Energía del Caribe S.A. E.S.P. Surpetroil competes with each of these
companies for the right to supply energy and reliability to distribution companies and other non-regulated customers. Surpetroil also competes in the off-grid
generation market.
The following table sets forth the quantity of energy generated by each of the principal generation companies in Colombia for the periods presented:
Gross Energy Generation
For the Year Ended December 31,
2014
2013
2015
Company
Surpetroil
Empresas Públicas de Medellín E.S.P
Emgesa E.SP
Isagen S.A. E.SP
Generadora y Comercializadora de Energía del Caribe S.A. E.S.P.
Other generation companies
Total
IC
Power’s
Seasonality
(GWh)
43
(GWh)
22
Market
Share
(%)
0.06
Market
Share
(%)
0.04
Market
Share
(%)
(GWh)
0.04
23
13,994 21.03 13,626 21.18 14,518 23.34
13,749 20.66 13,691 21.28 12,877 20.70
12,821 19.27 10,609 16.49 10,322 16.60
6,972 10.48 7,508 11.67 6,834 10.99
18,970 28.51 18,871 29.34 17,624 28.34
66,548 100.0 64,328 100.0 62,197 100.0
Within the Latin American and the Caribbean countries in which IC Power operates, power is generally generated by hydroelectric or thermal power
stations. The hydroelectric stations are an efficient source of power generation due to the cost
127
Table of Contents
savings of fuel associated with thermal power generation. The power generated by these hydroelectric power stations varies in accordance with the rainy seasons
and rainfall patterns of each country in each year. For example, greater amounts of hydroelectric power are dispatched between November and April in Peru—the
Peruvian rainy season—than between May and October, when the volumes of rainfall declines and operators have less water available for electricity generation in
the reservoirs serving their plants. However, greater amounts of hydroelectric power are dispatched between May and October in El Salvador—the Salvadorian
rainy season—than between November and April, when the volumes of Salvadorian rainfall declines and the hydroelectric units have less water available for
electricity generation. El Salvador’s hydroelectric plant is also subject to annual variations depending on climactic conditions, such as the El Niño phenomenon.
For the same reasons, the volume of power generated by thermal power stations is also variable. Furthermore, IC Power’s Nicaraguan assets which rely on wind
generate less volume of power during the Nicaraguan rainy season between May and October, as those months tend to experience less wind. Accordingly, IC
Power’s revenues are subject to seasonality, the effects of rainfall, and the type of energy generated in each country of operation (whether hydroelectric or thermal,
and whether generated using natural gas, HFO or diesel). Although IC Power acts to reduce this exposure to seasonality by contracting long-term PPAs for most of
its capacity, this effect cannot be completely neutralized.
Within Israel, electricity demand is sensitive to temperatures and tends to be greater in the summer season (July to August) because of the use of air
conditioners and in the winter season (December to February) because of the use of heating devices, as compared with the other months of the year. As a result, the
tariffs in the winter and summer seasons are higher than those in the transition seasons, making Israeli power generators, such as OPC, more profitable, generally,
in the winter and summer months, as compared to other months of the year. These seasonal increases are partially offset by an increase in fuel costs during those
periods. For further information on the seasonality of tariffs in Israel, see “ —IC
Power’s
Industry
Overview—Israel.
”
For a discussion of the seasonality of Energuate, see “ —Distribution
Operations—Energuate—Seasonality
.”
IC
Power’s
Property,
Plants
and
Equipment
The following table provides certain information regarding IC Power’s power plants that are owned, leased or under construction, as of December 31, 2015:
Company/Plant
Peru Segment
Kallpa:
Location
Installed Capacity
(MW)
Operating Companies
Fuel Type
Kallpa I, II, III and IV
Las Flores
Chilca district, Peru
Chilca district, Peru
870
193
1,063
Natural gas (combined cycle)
Natural gas
Kallpa Total
Israel Segment
OPC
AIE 1
Central America Segment
ICPNH
Corinto
Tipitapa Power
Amayo I
Amayo II 1
ICPNH Total
Puerto Quetzal
Nejapa
Other Segment
CEPP
COBEE:
Zongo
Valley
plants:
Zongo
Tiquimani
Botijlaca
Cutichucho
Santa Rosa
Sainani 2
Mishor Rotem, Israel
Hadera, Israel
440
18
Natural gas and diesel (combined cycle)
Steam
Chinandega, Nicaragua
Managua, Nicaragua
Rivas, Nicaragua
Rivas, Nicaragua
Escuintla, Guatemala
Nejapa, El Salvador
HFO
71
51
HFO
40 Wind
23 Wind
185
179
140
HFO
HFO
Puerto Plata, Dominican Republic
67
HFO
Zongo Valley, Bolivia
Zongo Valley, Bolivia
Zongo Valley, Bolivia
Zongo Valley, Bolivia
Zongo Valley, Bolivia
Zongo Valley, Bolivia
128
11
9
7
23
18
10
Hydroelectric
Hydroelectric
Hydroelectric
Hydroelectric
Hydroelectric
Hydroelectric
Installed Capacity
(MW)
Fuel Type
Table of Contents
Company/Plant
Chururaqui
Harca
Cahua
Huaji
Miguillas
Valley
plants:
Miguillas
Angostura
Choquetanga
Carabuco
Location
Zongo Valley, Bolivia
Zongo Valley, Bolivia
Zongo Valley, Bolivia
Zongo Valley, Bolivia
Miguillas Valley, Bolivia
Miguillas Valley, Bolivia
Miguillas Valley, Bolivia
Miguillas Valley, Bolivia
El Alto-Kenko
LaPaz, Bolivia
COBEE Total
Central Cardones
Colmito
JPPC
Surpetroil
La Hocha
Purificación
Entrerios
Geopark
Surpetroil Total
CDA
Samay I
Kanan
Copiapó, Chile
Concón, Chile
Kingston, Jamaica
Huila, Colombia
Tolima, Colombia
Casanare, Colombia
Casanare, Colombia
Assets in Advanced Stages of Construction
Huancavelica, Peru
Mollendo, Peru
Colon, Panama
25
26
28
30
187
4
6
6
6
22
19
228
153
58
60
3
10
2
5
20
510
600
92
Hydroelectric
Hydroelectric
Hydroelectric
Hydroelectric
Hydroelectric
Hydroelectric
Hydroelectric
Hydroelectric
Natural gas
Diesel
Natural gas and diesel
HFO
Natural gas
Natural gas
Natural gas
Natural gas
Hydroelectric
Diesel and natural gas
HFO
1.
AIE also holds a conditional license for the construction of a cogeneration power station in Israel. This station will be developed as a greenfield project (at an expected cost of $250 million,
including the acquisition price of AIE), based upon a plant with 135 MW of capacity. Construction is expected to commence in mid-2016 and COD is expected in the second half of 2018.
2. Wind farm complex sustained damage in December 2014 in connection with a blackout in the Nicaragua’s National Interconnection System, which left one wind turbine collapsed and
another two wind turbines with severe damage. The three damaged turbines, which represent 10% of all of IC Power’s installed capacity at the Amayo I and II plants, were replaced and
were operational in early 2016. Between the contracted operator and IC Power’s insurance provider, IC Power expects that there will be sufficient funds to cover the replacement and
business interruption costs resulting from the damaged turbines.
In addition:
•
•
•
Cenérgica owns three fuel storage tanks on site with an aggregate capacity of 240,000 barrels and maintains a fuel depot and marine terminal located
on a 6.5 hectare site that IC Power leases in Acajutla, El Salvador;
IC Power was awarded a tender published by the Chilean government for a lease of land in Northern Chile, which is intended for the construction of a
power station with a capacity of about 350 MW; and
IC Power was awarded a tender published by the Israel Land Authority to lease an approximately 592,000 square foot plot adjacent to the OPC site,
which can be utilized to extend OPC’s capacity in Israel.
For further information regarding IC Power’s plants, see “ —IC
Power’s
Description
of
Operations
.”
IC Power believes that it has satisfactory title to its plants and facilities in accordance with standards generally accepted in the electric power industry, other
than title to certain land on which CEPP’s facilities are located. With respect to CEPP, the Dominican Corporation of State Electricity Companies ( Corporación
Dominicana
de
Empresas
Eléctricas
Estatales
) has transferred the land titles on which CEPP’s facilities are located to CEPP and CEPP is in the process of
obtaining the definitive titles documenting CEPP’s appointment as the beneficiary.
For a discussion of Energuate’s property, plant and equipment, see “ —Distribution
Operations—Energuate—Distribution
Network
.”
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Table of Contents
IC Power leases its principal executive offices in Lima, Peru and various other office space in the markets that it serves. IC Power owns all of its production
facilities, other than Kallpa I, Kallpa II, Kallpa III and Las Flores power plant. IC Power leases the Kallpa I, Kallpa II and Kallpa III facilities under capital leases
as described in “ Item
5.B—Liquidity
and
Capital
Resources—IC
Power’s
Liquidity
and
Capital
Resources—IC
Power’s
Material
Indebtedness—Kallpa
Leases.
”
IC Power believes that all of its production facilities are in good operating condition. As of December 31, 2015, the consolidated net book value of IC
Power’s property, plant and equipment was $2,972 million.
Maintenance
and
Spare
Parts
IC Power’s operating subsidiaries regularly perform comprehensive maintenance on their facilities, including maintenance to turbines, engines, generators,
transformers, the balance of plant and substations, as well as civil works maintenance. Maintenance is typically performed according to a predefined schedule at
fixed intervals, based on running hours or otherwise according to manufacturer or engineering specifications. Maintenance is either performed by IC Power’s
trained employees, or is outsourced to third party contractors. In some cases, IC Power’s operating subsidiaries have entered into long-term service agreements for
their maintenance.
Each of IC Power’s operating subsidiaries has arrangements to obtain spare parts, as necessary. IC Power’s operating subsidiaries generally purchase their
spare parts from the OEMs, as well as from other suppliers. In some cases, these operating subsidiaries have entered into long-term supply contracts for spare parts.
For a discussion of maintenance services received by Energuate, see “— Distribution
Operations—Energuate—Transmission,
Construction
and
Maintenance
Services
.”
Insurance
IC Power carries insurance for its plants against material damage and consequent business interruption through comprehensive “all-risks” insurance policies.
These all-risk insurance policies provide for total replacement values of $2.4 billion for property damage and $563 million for business interruption and are
renewed annually, with the most recent renewal occurring in December 2015. Specifically, Kallpa and OPC plants are covered by insurance policies which provide
for total replacement values of $734 million and $400 million for property damages per year, respectively, and $265 million and $120 million for business
interruption damages per 18-month period, respectively. In some cases, IC Power relies on insurance policies in the event that any of its plants sustain damages or
experience business interruptions as a result of the actions of, or a breach under the relevant agreement by, suppliers, customers or other third parties whose liability
obligations are contractually limited. IC Power’s insurance coverage is underwritten by some of the largest international reinsurance companies, including Mapfre
S.A., Munich Re, Zurich Insurance Group Ltd, ACE Limited, American International Group, Inc., Allianz SE and Swiss Re Ltd, among others.
The material damage insurance for IC Power’s operations provides insurance coverage for losses due to accidents resulting from fire, explosion and
machinery breakdown, among others. This coverage has a maximum indemnification limit of $600 million per event (combined material damage and business
interruption coverage). These policies have deductibles of up to $2 million, depending on the plant.
The business interruption coverage under each of these policies provides insurance for losses resulting from interruptions due to any material damage
covered by the policy. The losses are covered until the plant production is fully re-established, with maximum indemnity periods ranging from 12 to 30 months.
IC Power carries insurance for CDA to protect against certain risks associated with this project. IC Power carries a (1) construction all-risk policy with a
limit of $679 million, (2) consequent delay in start-up policy with a limit of $180 million with a 24-month indemnity period, and (3) third-party liability policy with
a limit of $25 million.
IC Power carries insurance for Samay I to protect against certain risks associated with this project. IC Power carries a (1) construction all-risk policy with a
limit of $320 million, (2) consequent delay in start-up policy with a limit of $86 million with a 18-month indemnity period, and (3) third-party liability policy with
a limit of $40 million.
IC Power does not anticipate having any difficulties in renewing any of its insurance policies and believe that its insurance coverage is reasonable in amount
and consistent with industry standards applicable to energy generation companies operating in the same markets.
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Table of Contents
Employees
As of December 31, 2015, IC Power had a total of 1,309 employees. All of IC Power’s employees are employed on a full-time basis, and are usually divided
into one of the following functions: plant operation and maintenance, administrative support, corporate management, budget and finance, legal and project
management.
The table below sets forth breakdown of employees by main category of activity and by segment as of the dates indicated:
Number of employees by category of activity:
Plant operation and maintenance
Administrative support
Corporate management, budget and finance
Other, including project management
Total
Number of employees by segment:
Peru
Israel
Central America
Other
Total
As of December 31,
2015
2014
2013
894
305
38
72
1,309
230
66
389
624
1,309
842
310
33
50
1,235
182
61
443
549
1,235
445
159
23
32
659
149
58
127
325
659
IC Power does not employ a material number of temporary employees.
For a discussion of Energuate’s employees, see “ —Distribution
Operations—Energuate—Transmission,
Construction
and
Maintenance
Services
.”
As of December 31, 2015, approximately 23% of IC Power’s employees were unionized, representing a significant portion of its employees in Israel, Bolivia
and Jamaica. As of December 31, 2015, approximately 45% of OPC’s employees were represented by Histadrut Labor Federation, the general federation of labor in
Israel, approximately 72% of COBEE’s employees were represented by the Sindicato Unico de Trabajadores de Luz y Fuerza COBEE and approximately 27% of
JPPC’s employees were represented by Union of Technical Administrative and Supervisory Personnel. We negotiate a collective bargaining with each union on an
annual basis. In June 2015, COBEE’s facilities in Bolivia experienced a brief strike, which did not result in a work stoppage and did not have a material effect on
IC Power’s operations.
As IC Power’s operations are subject to various hazards, IC Power’s management places a high priority on, and closely monitors, the health and safety of its
employees. IC Power has installed policies, procedures and training programs to reduce workplace accidents at each of its operating companies.
Additionally, IC Power has a competitive compensation structure for its employees and the managers of each of its operating subsidiaries. Compensation for
such managers typically consists of a base salary, as well as a year-end bonus, which is based on the personal performance of the manager and the performance of
the relevant operating subsidiary.
Shareholders’
Agreements
IC Power holds a majority stake in most of its operating companies—Kallpa, OPC, CEPP, Central Cardones, Surpetroil, Corinto, Tipitapa Power, Amayo I,
Amayo II, CDA, and Samay I—and a non-controlling interest in Pedregal. The operations of these companies are subject to shareholders’ and/or member
agreements. Although the terms of each of these shareholder and member agreements vary, they generally provide, in certain circumstances and subject to certain
conditions: (1) each shareholder with the right to elect a specified number of directors and/or appoint specified executive officers; (2) for the distribution of
dividends in proportion to each shareholder’s equity interest; (3) the minority shareholder with veto rights with respect to significant corporate actions ( e.g.
,
mergers, share issuances, the amendment of governing documents, and the entry into PPAs or other contracts in excess of a specified value) and certain approval
protocol with respect to the budget of the relevant company; (4) each party with a right of first refusal with respect to any potential sale of equity interests in the
relevant company; and (5) specifications of additional equity contributions, if any.
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Additionally, IC Power and Energía del Pacífico, the minority shareholder in each of Kallpa, Samay I, and CDA, have agreed that each of IC Power and
Energía del Pacífico submits projects related to generation or transmission of energy in Peru to Kallpa and will not develop such projects other than through Kallpa.
Similarly, IC Power has provided tag-along rights to Mr. Yesid Gasca Duran, the minority shareholder in Surpetroil, with respect to any new projects which IC
Power may develop or acquire in Colombia.
Legal
Proceedings
Set forth below is a discussion of a significant legal proceeding to which IC Power’s subsidiary is party. As of the date of this annual report, IC Power is not
party to any other significant legal proceedings.
Kallpa—Import
Tax
Assessments
Since 2010, SUNAT has issued tax assessments to Kallpa and its lenders (as lessors under the Kallpa leases) for payment of import taxes allegedly owed by
Kallpa and its lenders in connection with the engineering services related to the EPC contractors of Kallpa I, II, III and IV. The assessments were made on the basis
of the allegation that Kallpa and its lenders should have included the value of the engineering services rendered by the contractor of the relevant project in the tax
base of the imported equipment for the import taxes. Kallpa disagrees with these tax assessments on the grounds that the engineering services rendered to design
and build the power plant are not part of the value of the imported goods but a separate service for which Kallpa paid its corresponding taxes because all such
equipment, according to SUNAT’s allegation, could be deemed a plant with respect to the unit in connection with which it was imported. Kallpa and its lenders
disputed the tax assessments before SUNAT and, after SUNAT confirmed the assessments, appealed before the Peruvian Tax Administrative Court, or the Tribunal
Fiscal, except for the assessment of Kallpa IV.
In January 2015, Kallpa and its lenders were notified that the Tribunal Fiscal had rejected their appeal in respect of the Kallpa I assessment. Kallpa and its
lenders disagreed with the Tribunal Fiscal’s decision and challenged this decision in the Peruvian courts. In order to challenge the Kallpa I ruling, Kallpa and its
lenders were required to pay the tax assessment of Kallpa I in the aggregate amount of approximately $12.3 million, which amount consists of the tax assessment
for Kallpa I, plus related interest and fines. In April 2015, Kallpa and its lenders made the final payment (under protest) regarding Kallpa I’s tax assessment in
order to appeal the administrative ruling of the Tribunal Fiscal in the judicial system. Kallpa has reimbursed the lenders for each of the amounts due under the
terms and conditions set forth in the operation agreement dated July 31, 2008, as amended, by and among Citibank del Perú S.A., Citileasing S.A., Banco de
Crédito del Perú, Scotiabank Perú, and Kallpa. To the extent that the appeal is successful, Kallpa and its lenders will be entitled to seek the return of the amounts
paid to SUNAT. A decision of the Tribunal Fiscal of the appeals in respect of the Kallpa II and III assessments is still pending.
As of December 31, 2015, the total tax exposure related to claims by SUNAT against Kallpa and its lenders in connection with the importation of equipment
related to the Kallpa I, II, III and IV projects, equaled approximately $31.2 million, including interest and fines.
In January 2016, SUNAT issued a ruling in favor of Kallpa, releasing Kallpa from substantially all claims and associated fines related to Kallpa IV, as
SUNAT concluded that the Kallpa IV unit could not be deemed a plant and therefore, the engineering services rendered in connection with the Kallpa IV project
could not be incorporated into the value of the imported equipment.
Regulatory,
Environmental
and
Compliance
Matters
In Latin America, Central America and the Caribbean, where IC Power primarily operates, the electricity market allows for sale and delivery of power from
power generators (private or government owned) to distribution companies (private or government owned) and to industrial (i.e., unregulated) consumers. In these
countries there is typically structural segregation of power generation companies and transmission and distribution companies. In most of these countries there is a
government-owned power grid and transmission services are provided on open access basis, i.e. the transmission company must transmit power through the grid
and in exchange, charges a transmission rate set by the supervisory authority or based on a competitive proceeding or regulated tariff. Whereas in these markets
private and government-owned entities compete for power generation, its transmission and distribution are conducted subject to exclusive franchises; therefore, the
transmission and distribution operations are regulated in markets in which IC Power operates.
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In these countries, delivery and sale of power is subject to a regulatory regime (typical of privatized electricity markets) which includes supervision by an
independent supervisory entity for the electricity market. For further information on the regulatory risks related IC Power’s operations, see “ Item
3.D
Risk
Factors
—Risks
Related
to
IC
Power—IC
Power’s
equipment,
facilities,
operations
and
new
projects
are
subject
to
numerous
environmental,
health
and
safety
laws
and
regulations
.”
Regulation
of
the
Peruvian
Electricity
Sector
In Peru, power is generated by companies which primarily operate hydroelectric and natural gas based power stations. The general electricity laws in Peru
form the statutory framework governing the electricity market in Peru and cover, among other things:
•
•
•
generation, transmission, and distribution and trading of electricity;
operation of the energy market; and
generation prices, capacity prices and other tariffs.
All entities that generate, transmit or distribute power to third parties in Peru operate subject to the general electricity laws in Peru. Power generating
companies in Peru, such as Kallpa, are impacted by, among other things, regulation applicable to transmission and distribution companies.
Although significant private investment has been made in the electricity market in Peru and independent supervisory entities have been created to supervise
and regulate the electricity market, the State of Peru has remained, in actual fact, in the role of supervisor and regulator. In addition, the State of Peru owns multiple
power generation and distribution companies in Peru, although their market participation has diminished over time and face significant legal restrictions to engage
in new projects or investments.
Regulatory
Entities
There are five entities in charge of regulation, operation and supervision of the electricity market in Peru in general, and of IC Power’s operations in Peru, in
particular:
MINEM
—The Ministry of Energy and Mines, responsible for:
(a) setting national energy policy; (b) proposing and adopting laws and regulations to supervise the energy sector; (c) controlling expansion plans for SEIN;
(d) approving proposed expansion plans by COES; (e) promoting scientific research and investment in energy; and (f) granting concessions or authorizations, as
applicable, to entities to operate in power generation, transmission or distribution in Peru.
OSINERGMIN
—the Supervisor Body of Investment in Energy and Mining is an independent governmental regulatory agency responsible, among other
things, for:
(a) supervising compliance of different entities with laws and regulations concerning power generation, transmission, distribution and trading; (b) setting
transmission (electricity and natural gas) and distribution (electricity and natural gas) tariffs; (c) setting and enforcing price levels in the electricity market in Peru
and setting tariffs for customers subject to regulated tariffs; (d) imposing fines and compensations for violations of the laws and regulations; (e) handling claims
made by, against or between consumers and players in the electricity market; (f) supervising public tenders with regard to PPAs between generation companies and
distribution companies for the supply to regulated consumers; and (g) supervising operations of COES.
Generation tariffs for the sale of energy by generation companies to distribution companies are generally determined based on tenders where OSINERGMIN
sets a cap price that is not disclosed to participants except when the respective bid is unsuccessful because no party has made an offer below such price cap. In
addition, OSINERGMIN annually specifies energy prices, known as the regulated tariff, which is used by market participants only in exceptional situations, as
most of the PPAs with distribution companies are based on the results of the tenders. OSINERGMIN also determines the annual capacity prices used in agreements
between generation companies and distribution companies, as well as in the spot market.
COES
—the Committee for the Economic Operation of the System is an independent private entity composed of qualified participants undertaking activities
in the SEIN (i.e.
, electric power generators, transmission companies, distributors and major non regulated users) which is responsible, among others, for:
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(a) planning and co-ordination of the power generation system for all power generation and transmission units, in order to ensure reliable generation at
minimum cost; (b) setting spot market prices based on marginal cost; (c) managing the clearing house of the spot market transactions between generation
companies (excess and shortage of actual generation vs. demand pursuant to PPAs); (d) allocating firm capacity and firm energy to generation units; (e) submitting
proposals to OSINERGMIN for issuing regulatory standards, including technical standards and procedures used as guidelines for carrying out COES directives;
(f) determining on a monthly basis the amounts owed between generators as consideration for energy injected into the grid and for ancillary services; and
(g) proposing expansion plans for the transmission grid.
INDECOPI
—the Antitrust and Intellectual Property Authority in Peru.
OEFA
—the governmental body responsible for the power stations compliance with the environmental regulations.
Generation
Companies
Since 1992, the Peruvian market has been operating based upon a “marginal generation cost” system. Such system is embedded in the general electricity
laws of Peru and is administrated by COES. In such capacity the COES has as its main mandate to satisfy all the demand of electricity at any given time (i.e.,
periods of 15 minutes each) with the most efficient generation assets available at such time, independently of contractual arrangements between generators and
their clients. For such purpose, the COES determines which generation facilities will be in operation at any given time with the objective of minimizing the overall
system energy cost. Energy units are dispatched (i.e., ordered by the COES to inject energy into the system) on a real-time basis; units with lower variable
generation costs are dispatched first and other less efficient generation units will be ordered to dispatch until the electricity demand is satisfied.
The variable cost for the most expensive generation unit dispatching in each 15-minute time period determines the spot price of electricity in said time
period. Generally, the variable cost used for dispatch is audited by the COES, based on actual fuel costs, the plant efficiency, and variable maintenance costs.
However, as natural gas supply and transportation contracts contain high levels of take-or-pay, the calculation of variable costs for these units is not
straightforward. As a result, generators with power plants utilizing natural gas are allowed to declare the variable cost of their plants once a year and such declared
cost may differ from the actual cost of such plant and this declaration will be the variable cost applicable for dispatch purposes for the next 12 months, being the
declared cost part of the commercial strategy of the corresponding generator.
The spot market price is determined by the COES and is the price at which generation companies sell or buy power on the spot market during each 15-
minute period. All injections and withdrawals of electricity are valued at the spot market price of the 15-minute period when they are made. Any generation
companies with excess generation over energy sold pursuant to PPAs in each 15-minute interval, sell their excess energy at spot prices to generation companies
with lower generation than their contractual obligations under PPAs for that time period. COES defines, on a monthly basis, the amounts that are owed by each
generator with a net “buyer” position to generators with a net “seller” position. Generators with a net seller position directly invoice and collect from generators
with a net buyer position the amounts liquidated by COES, respectively, not being COES involved in the payment procedure or providing any form of payment
guarantee. Distribution companies and regulated consumers cannot purchase power off the grid at spot prices. Distribution companies must enter into agreements
that guarantee offtakes of regulated consumers located in their concession areas. Regulated consumers must enter into agreements with distribution companies or,
in the case of a large consumer, may contract directly with power generation companies.
Power generation companies are also paid capacity fees by SEIN, based on their firm capacity and other variables. Capacity transactions are subject to Law
25844. This law stipulates a methodology for calculating the capacity payments for each generation unit. Firm capacity calculation varies by type of technology,
but is principally based upon the unit’s effective capacity and its ability to supply energy continuously during the peak hours of the dry season, and also taking into
consideration the historic availability statistics of the unit. Capacity payments are based primarily upon the unit’s firm capacity and the regulated capacity price, but
it is also affected by other variables, such as the expected supply-demand balance, the approved reserve margin, and the merit order of the generation unit. PPAs
are commercial agreements, independent of actual allocation of generation or actual provision of availability. Generation companies that generate over any 15-
minute period insufficient energy to satisfy the supply obligations under their PPAs purchase in the spot market the energy required to satisfy such supply
obligations, based on COES procedures, from other generation companies with excess generation or availability during any such period. The energy price for those
transactions is the spot price, and the capacity price is regulated and set by OSINERGMIN. Due to short term constraints in the gas supply and power transmission
systems, which were generating distorting price signals in the spot market, the Peruvian government issued Emergency Decree 049-2008, extended by Emergency
Decree 079-2010 and Law 30115. Pursuant to this decree, COES is required to simulate energy spot prices without accounting for limitations due to shortage in
supply and transportation of natural gas and for limitations on the transmission system. The latter scheme caps spot prices at a maximum amount of S/. 0.3135 per
megawatt hour. Generation companies with units that are called to dispatch that have a variable cost higher than the spot price determined pursuant to the
referenced
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emergency decree are compensated for the difference in their cost by transmission surcharges imposed on all end consumers of the SEIN ( i.e.
, regulated and non-
regulated customers) and collected by distribution companies. As of the date of this annual report, the aforementioned government decree will be in force until
December 2016. Emergency decrees are legislative statutes that are exceptionally issued by the executive branch of the Peruvian government which can only be
issued on circumstances and in areas specified in the Peruvian Constitution and are effective for a limited time period.
Sales of electricity under PPAs are not regulated unless they involve sales to distribution companies for resale to regulated customers. The latter PPAs are
subject to price caps set by OSINERGMIN prior to the corresponding public bidding process where generators submit their bids. Generation and distribution
companies may also enter into contracts resulting from a direct negotiation and not a bidding process, but only when the regulated tariff approved by
OSINERGMIN is applicable. As with capacity transactions under PPAs, the financial settlement of energy transactions under PPAs is independent of the actual
dispatch of energy by any particular generation unit. Generators accrue receivables from the counterparties to their PPAs based on the contract price in their PPAs
and the amount of energy delivered from the SEIN, irrespective of the amount of energy that was produced by the generator counterparty to the PPA. The COES’s
dispatch of generation units in the SEIN is designed to satisfy the demand of electricity of the SEIN at any given time in the most efficient manner possible and the
COES is not under any obligation to dispatch a particular generation unit to fulfill a generator’s PPA commitments.
The general electricity laws of Peru require generators with an installed capacity in excess of 500 kW that use renewable energy sources to obtain a definitive
generation concession, and generators with an installed capacity in excess of 500 kW that use thermal energy sources to obtain a generation authorization. A
concession for electricity generation activity is granted by the State of Peru acting through the MINEM and embedded in an agreement between the generator and
the MINEM, while an authorization is merely a unilateral permit granted by the MINEM. Authorizations and concessions are granted by the MINEM for an
unlimited period of time and their termination, respectively, is subject to the same considerations and requirements under the procedures set forth in the Law 25844
and related regulations. However, according to Legislative Decree 1221, the concessions granted as a result of an investment promotion process will have a term of
up to 30 years.
The definitive concession allows its titleholder to use public lands and infrastructure, and obtain easements imposed by the MINEM (in lieu of easements
agreed with the owner of the affected land plots) for the construction and operation of generation plants, substations or transmission lines and distribution networks,
as applicable. The definitive concession is granted by a ministerial resolution issued by the MINEM. Also, definitive concessions for generation with renewable
energy sources, with an installed capacity equal to or less than 10 MW are granted by resolution of the Energy and Mines Regional Directorate ( Dirección
Regional
de
Energía
y
Minas
) of the corresponding regional government. In all cases a definitive concession involves the execution of a concession agreement
under the form of a public deed. The concession agreement is based on a standard form and is recorded in the public registries.
Under the general electricity laws in Peru, the titleholders of authorizations have most of the rights and benefits of concessionaires and have basically, the
same obligations than concessionaires.
Definitive concessions and authorizations may be terminated by relinquishment or breach upon the occurrence of certain termination events set forth in Law
25844 and upon completion of a procedure regulated by the general electricity laws in Peru. Termination events include: (i) failure to provide evidence of
registration of the concession agreement in the public registry within the term of twenty business days following such registration; (ii) non-compliance with the
schedule for completion of the project included in the concession agreement, unless otherwise authorized by the MINEM due to force majeure; (iii) failure to
operate for at least 876 hours during a calendar year, without justified cause; and (iv) failure by the concessionaire, after being penalized, to operate the facilities in
accordance with COES’ operative regulations, unless otherwise authorized by the MINEM by justified reasons. The termination procedure for breach of the project
schedule may be suspended by the concessionaire upon delivery of a new project schedule that is guaranteed with a performance bond, thereby providing a
mechanism that in practice substantially reduces the risk of termination for such cause. According to Legislative Decree 1221, this guaranteed schedule will be
approved only once.
Without prejudice to the above, Law 25844 provides that if the State of Peru declares the termination of a definitive concession for a reason different from
those mentioned above ( i.e.
, termination at will), the concessionaire shall be indemnified at the present value of the net cash flow of future funds generated by the
concession’s activities, using the discount rate set forth in article 79 of such law (12% on an annual basis). As of the date of this annual report, IC Power believes
no concession has been terminated by the Peruvian government invoking its authority to terminate at will.
Termination of a definitive concession is declared by a ministerial resolution issued by MINEM. In such case, MINEM shall ensure the continuity of the
operation of the generation plant by appointing a temporary administrator of the assets ( intervención
), until the concession is transferred to a new concessionaire.
MINEM shall appoint a consultant to make a valuation of the concession and its assets, elaborate the corresponding bidding rules and organize a tender procedure.
MINEM
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shall award the definitive concession to the best bid offered. The product of the tender shall be used to pay the costs of the temporary administration, the costs of
the tender procedure, and any balance shall be allocated in favor of the former concessionaire. The procedure for termination of an authorization is similar to that of
a concession. IC Power believes that no definitive concession or authorization of a project that actually started construction or operation has been terminated, as of
the date of this annual report.
Transmission
Companies
Transmission in the SEIN grid is operated by the individual companies that conform the transmission system and is centrally coordinated by COES.
Expansion plans for the transmission grid are proposed by COES to MINEM for final approval; prior to executing the COES expansion plan, the Peruvian
government prepares the transmission plan. Transmission companies who wish to participate in construction of the transmission system specified in the expansion
plan are required to submit their bid for a tender organized by the Peruvian Agency for the Promotion of Private Investments ( ProInversión
). The transmission
company awarded the tender may operate the line over the term of its concession (usually 30 years) and would be eligible to receive tariff payments paid by all the
final users in the SEIN, as specified in the tender document and incorporated into its concession contract. The group of transmission lines created pursuant to such
tenders after 2006 are known as “guaranteed transmission lines.” Transmission lines not included in plans such as the aforementioned, independently constructed
by transmission companies after 2006, are known as “complementary transmission lines”; tariffs for use of these lines are determined by OSINERGMIN and are
paid based upon actual use.
Transmission lines created prior to 2006 are categorized into two groups. Transmission lines available for use by all generation companies are categorized as
principal transmission lines; transmission lines only used by specific generation or distribution companies and only available to these generation companies are
categorized as secondary transmission lines. Both the Kallpa and Las Flores facilities transmit the power generated by their plants through secondary transmission
lines built prior to 2006, which then connect to primary and guaranteed transmission lines.
Distribution
Companies
According to the general electricity laws in Peru, distribution companies are required to provide energy to regulated customers at regulated prices.
Distribution companies may also provide energy to customers not subject to regulated prices—pursuant to PPAs. As of the date of this annual report, the only
private distribution companies holding a distribution concession are: Luz del Sur, Edelnor, Edecañete, Electro Dunas and Coelvisac. These five companies
distributed 73% of all energy distributed by distribution companies in Peru in 2014. The remainder of power is sold by state-owned entities.
Prior to July 2006, pricing in all contracts between generation companies and distribution companies with respect to sale of power to end customers at
regulated prices, included energy tariffs composed of payment for capacity, energy and transmission, as determined by OSINERGMIN. Distribution companies sell
energy on the regulated market at cost plus an additional distribution charge known as VAD. After July 2006, most of the agreements result from tenders in which
generation companies bid prices. Bid prices include payment for capacity and energy.
The energy purchased by distribution companies from generation companies at regulated prices pursuant to old PPAs accounted for less than 56% of total
purchasing in 2014—and is expected to decrease in coming years.
Since July 2006, pursuant to Law 28832, contracts to sell energy to distribution companies for resale to regulated customers may be made at fixed prices
based on public bids of generation companies or at regulated prices set by the OSINERGMIN. After the bidding process is concluded, a distribution company will
be entitled to purchase energy from the winning bidder at the bid price for the life of the relevant PPA. The prices obtained through the public bid process are
subject to a maximum energy price set by the OSINERGMIN prior to bidding. If all the bids are higher than the price set by the OSINERGMIN, the public bids are
disregarded and no PPA will be awarded. The process may be repeated until the prices that are offered are below the cap set by the OSINERGMIN for each
process.
Regulated tariffs are annually set by OSINERGMIN through a public procedure conducted by the Adjunct Manager´s Office for Tariff Regulation (
Gerencia
Adjunta
de
Regulación
Tarifaria
) and are effective from the month of May of each year. During this process, the OSINERGMIN will take into account a
proposal delivered by the COES.
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The price components of the regulated tariffs are: (i) the regulated price of energy; (ii) the capacity price in peak hours; and, (iii) the transmission toll, and
are calculated considering the following:
•
•
•
•
•
•
•
•
•
a projection of demand for the next 24 months, considering generation and transmission facilities scheduled to start operations during such period. The
projection assumes, as a constant, the cross-border ( i.e.
, Ecuador) supply and demand based on historical data of transactions in the last year;
an operations program that minimizes the operation and rationing costs for the period taking into account the hydrology, reservoirs, fuel costs and a
rate of return ( Tasa
de
Actualización
) of 12% annual. The evaluation period includes a projection of the next 24 months and the 12 months precedent
to March 31 of each year considering historic data;
a forecast of the short-term marginal costs of the expected operations program, adapted to the hourly blocks ( bloques
horarios
) established by
OSINERGMIN;
determination of the basic price of energy ( precio
básico
de
la
energía
) for the hourly blocks of the evaluation period, as a weighted average of the
marginal costs previously calculated and the electricity demand, updated to March 31 of the corresponding year;
determination of the most efficient type of generation unit to supply additional power to the system during the hour of maximum peak demand during
the year ( demanda
máxima
anual
) and the annual investment costs, considering a rate of return of 12% on an annual basis;
the base price of capacity in peak hours ( precio
básico
de
la
potencia
de
punta
) is determined following the procedure established in the general
electric laws of Peru, considering as a cap the annual investment costs (which include connection and operation and maintenance costs). An additional
margin to the basic price shall be included if the reserve of the system is insufficient;
calculation of the nodal factors of energy ( factores
nodales
de
energía
) for each bar of the system. The factor shall be equal to 1.00 for the bar where
the basic price is set;
the capacity price in peak hours (precio de la potencia de punta en barra) is calculated for each bar of the system, adding to the basic price of capacity
in peak hours the unit values of the Transmission Toll and the Connection Toll referred to in Article 60 of Law 25844; and
the bus bar price of energy ( precio
de
energía
en
barra
) is calculated for each bar of the system, multiplying the nodal basic price of energy ( precio
básico
de
la
energía
nodal
) of each hourly block by the respective nodal factor of energy.
Peruvian Energy Policy 2010-2040
The Energy Policy 2010-2040 was approved by Supreme Decree 064-2010-EM. By this document, the Peruvian government set forth the following
objectives in order to improve the energy market:
•
•
•
•
•
•
develop a diversified energy matrix, based on renewable energy resources and efficiency. The government, among other measures, will prioritize the
development of efficient hydroelectric projects for electricity generation;
competitive energy supply. One of the main guidelines is to promote private investment in energy projects. The Peruvian government has a subsidiary
role in the economy as mandated by the Peruvian Constitution;
universal access to energy supply. Among other guidelines, the Peruvian government shall develop plans to ensure the supply of power and
hydrocarbons;
promote a more efficient supply chain and efficient energy use. Comprises promoting the automation of the energy market through technological
repowering;
achieve energy self-sufficiency. For such purpose, the Peruvian government will promote the use of energy resources located in the country;
develop an energy sector with minimal environmental impact and low carbon in a sustainable development framework. Promote the use of renewable
energy and eco-friendly technologies that avoid environmental damage and promote obtaining Certified Emission Reductions, or CERs, by the energy
projects developed;
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•
•
•
strengthen the institutional framework of the energy sector. Maintain a legal stability intended to promote development of the sector in the long term.
Likewise, simplification and optimization of administrative and institutional structure of the sector will be promoted;
regional market integration for a long-term development. Regional interconnection agreements will permit the development of infrastructure for
energy uses; and
developing the natural gas industry and its use in household activities, transportation, commerce and industry as well as efficient power generation.
Regulation
of
the
Nicaraguan
Electricity
Sector
The electricity market in Nicaragua is subject to the Nicaraguan Electrical Industry Law and regulations based thereupon, which apply to the electricity
sector and the wholesale power market. The Electrical Industry Law is subject to supervision by local authorities.
The regulation of the Nicaraguan electricity market governs three sectors of the electricity market, which are vertically unbundled: generation, transmission
and distribution. Units which use renewable resources, such as wind, geothermal and biomass, are dispatched with priority over thermal units. Transmission is
administered by a government-owned company and distribution is carried out by a sole private company, which is subject to regulated prices.
The power pricing mechanism in Nicaragua is based on a free market where generation companies compete for dispatch, and the spot price is determined on
an hourly basis, based on marginal cost and considering the last unit dispatched in such hour. All power generation companies are required to obtain a license from
the Nicaragua’s Ministry of Energy and Mines for the right to generate and sell power to the national grid. Generation companies can sell energy to distribution
companies or to non-regulated clients.
Regulation
of
the
Salvadorian
Electricity
Sector
Through July 2011, the electricity market in El Salvador was based on purchase and sale of power by competitive price tenders by generation companies. In
August 2011, the electricity market in El Salvador was re-structured and is now essentially similar to electricity markets in other Latin American countries in which
IC Power operates. Currently, generation units are dispatched based on the variable cost thereof, and prices are determined by the variable cost of the most
expensive unit operating. Due to this change, local distribution companies have issued a first tender for purchase of power over a two- to three-year term. In
conjunction with this tender, Nejapa was awarded a contract to provide 71 MW over a four- to five-year term, through January 2018 and a 39 MW PPA over a
four-year period until July 2017.
Regulation
of
the
Bolivian
Electricity
Sector
The electricity market in Bolivia is subject to Bolivia’s Electricity Act and regulations based there upon, which apply to the electricity sector and the
wholesale power market in Bolivia and which is subject to supervision by local authorities. The power pricing system in Bolivia is based on a free market where
generation companies compete for dispatch of their generation units, and the spot price is determined based on marginal cost (similar to Peru), with free access to
transmission and distribution systems. However, major customers purchase power at regulated tariffs. The price for energy and power generation in this country is
based on marginal cost. According to Bolivia’s 2009 constitution, all power generation companies in Bolivia are required to obtain a license from the relevant
authority for the right to generate and sell power on the national grid. As of the date of this annual report, COBEE operates in accordance with the interim licenses
awarded to it. There is no certainty that IC Power will obtain the necessary permanent licenses.
In December 2011, the Bolivian government amended the applicable law to prohibit generation companies from entering into new PPAs. For further
information on the risks related the potential nationalization of IC Power’s assets in Bolivia, see “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—The
Bolivian
government
has
nationalized
energy
industry
assets,
and
IC
Power’s
remaining
operations
in
Bolivia
may
also
be
nationalized
.”
Regulation
of
the
Chilean
Electricity
Sector
The electricity market in Chile consists of three sectors: generation, transmission and distribution. Power generation is open to competition, whereas
transmission and distribution are conducted by monopolies subject to regulated prices.
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The electricity market in Chile uses the marginal generation cost method to determine the sequence of dispatch of power stations, thereby ensuring that
demand for power is satisfied at the minimum system cost. This method, launched in 1982, is now used in many countries.
Chile has four power systems, of which two of these are its major systems. The largest system is the SIC, with capacity of 15,911 MW, primarily consisting
of hydroelectric, coal-based power stations and dual power stations using natural gas (imported as liquid natural gas) or diesel. SIC serves over 93% of the Chilean
population.
The second largest system is the SING, with capacity of 4,165 MW. SING covers a 700 kilometer stretch of Chile’s northern coast line. SING serves 6% of
Chile’s population and is a major power supplier for the country’s copper mining industry.
The two other power systems located in the south of Chile are relatively smaller.
Central Cardones and Colmito are part of the SIC power grid. The National Energy Commission ( Comisión
Nacional
de
Energía
) is an independent
government regulator which determines distribution tariffs, among other things. Prices used by generation companies to sell power to distribution companies for
regulated customers (those customers who consume up to 2 MW) are determined by regulated tenders. Power prices for non-regulated customers are determined by
direct negotiations and by tenders, with no intervention by government entities. Tariffs for expansion of the transmission system are determined by international
tenders.
Regulation
of
the
Dominican
Republic
Electricity
Sector
The regulatory framework of the electricity sectors in the Dominican Republic is essentially similar to the one in Peru. Power generation in the Dominican
Republic is based on free competition among private and government-owned generation companies, whereas the transmission and distribution grid is controlled by
government-owned companies. The main source of revenues for generation companies is direct energy sale to distribution companies and from sale of energy and
availability in the spot market.
The large-scale theft of power from the grid is prevalent in the Dominican Republic. Since generation and distribution companies do not pass through the
cost associated with such theft to consumers, the government must provide significant subsidies to these companies.
Regulation
of
the
Colombian
Electricity
Sector
Since 1994, the electricity sector in Colombia has allowed private companies to participate in the different types of businesses in the industry chain. The
different activities of the electricity sector are governed by Law 142 of 1994, or the Public Service Code and Law 143 of 1994, or the Electricity Code. The
industry’s activities are also governed by the regulations and technical standards issued by the CREG. The wholesale energy market began operating in July 2005,
and since then generating companies must submit price bids and report the quantity of energy available on a daily basis in a competitive environment.
The Colombian Electricity Act regulates the generation, trading, transmission and distribution of electricity. Under the law, any company, domestic or
foreign, may undertake any of these activities. New companies, however, must engage exclusively in one of these activities. Trading can be combined with either
generation or distribution. The system formed by generation plants, the interconnected grid, regional transmission lines, distribution lines and consumer loads is
referred to as the SIN. Utility companies are required to ensure continuous and efficient service, facilitate the access of low-income users through subsidies granted
by the government, inform users regarding efficient and safe use of services, protect the environment, allow access and interconnection to other public service
companies and large customers, cooperate with the authorities in the event of an emergency to prevent damage to users and report to the authority any commercial
start-up of operations.
The Colombian electricity market includes two types of customers: unregulated and regulated. Unregulated customers (those who consume a minimum of
100 kWh or 55,000 kWh per month) can negotiate freely with generation companies, distribution companies or traders. Regulated customers (all other customers)
must purchase energy through public bids and establish bilateral two-party agreements, which normally last from one to five years.
The maximum market share for generators is limited by law. The limit for generators is 25.0% of firm energy. Firm energy refers to the maximum electric
energy that a generation plant is able to deliver on a continuous basis during a year in extremely dry conditions, such as in the case of the “El Niño” phenomenon.
Such limits are applied to economic groups,
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including companies that are controlled by, or under common control with, other companies. In addition, generators may not own more than a 25.0% interest in a
distributor, and vice versa. However, this limitation only applies to individual companies and does not preclude cross-ownership by companies of the same
corporate group.
A generator, distributor, trader or an integrated company, i.e., a firm combining generation, transmission and distribution activities, cannot own more than
15.0% of the equity in a transmission company if the latter represents more than 2.0% of the national transmission business in terms of revenues. A distribution
company can own more than 25.0% of an integrated company’s equity if the market share of the integrated company is less than 2% of national generation
revenues. Any company created before enactment of the Electricity Code is prohibited from merging with another company created after the enactment thereof.
The Ministry of Mines and Energy of Colombia defines the government’s policy for the energy sector. Other government entities which play an important
role in the electricity industry include (1) the Public Utility Superintendency of Colombia, which is in charge of overseeing and inspecting the utility companies,
(2) the Superintendency of Industry and Commerce, which is in charge of evaluating market competency, (3) CREG, which is in charge of regulating the energy
and gas sectors and (4) the UPME, which is in charge of planning the expansion of the generation and transmission network.
CREG is empowered to issue regulations that govern technical and commercial operations and to set charges for regulated activities. CREG’s main functions
are to establish conditions for gradual deregulation of the electricity sector toward an open and competitive market, approve charges for transmission and
distribution networks and charges to regulated customers, establish the methodology for calculating and establishing maximum tariffs for supplying the regulated
market, establish regulations for planning and coordination of operations of the SIN and establish technical requirements for quality, reliability and security of
supply, and protection of customers’ rights.
Regulation
of
the
Israeli
Electricity
Sector
IEC
IEC, in which the State of Israel maintains a 99.846% equity interest, operates as a vertically integrated electricity company. IEC generates and supplies the
majority of electricity in Israel according to licenses granted by virtue of the Electricity Sector Law 5756-1996, or the Electricity Sector Law, and transmits and
distributes all of the electricity in Israel. In addition, IEC acts as the “System Operator” of Israel’s electricity system, determining the dispatch order of generation
units, granting interconnection surveys, and setting spot prices, etc. within Israel. IEC is required, among other things, to provide service to the general public,
purchase electricity from IPPs, provide infrastructure and certain backup services, and act to ensure provision of all of its services, including services pursuant to a
development plan approved in accordance with the Electricity Sector Law.
The objective of the Electricity Sector Law enacted in 1996, is “to regulate the activity in the electricity market for the good of the public, guaranteeing
reliability, availability, quality, efficiency, while concurrently creating conditions for competition and minimizing costs.”
IEC is classified as an “Essential Service Provider,” as defined in the Electricity Sector Law. As such, it is subject to statutory obligations and operations for
proper management of the electricity market in favor of the entire public without discrimination, including filing development plans, management of the power
system, management of the power transmission and distribution systems, providing backup and infrastructure services to IPPs and to consumers, and purchasing
power from IPPs.
IEC was declared a monopoly by the Israeli Antitrust Authority in all segments of the electricity sector: generation, transmission, distribution, supply and
provision of backup services for electricity customers and manufactures.
Pursuant to the Electricity Sector Law, the Minister of National Infrastructures, Energy and Water Resources, or the Minister of Energy, has an overall
responsibility for the electricity sector in Israel, including responsibility for IEC and its overall supervision. In July 2013, the State of Israel appointed a steering
committee, tasked with proposing a comprehensive reform of IEC and the Israeli electricity market. The committee was mandated to review the electricity market
structure, while focusing on unbundling the electricity market, the implementation of competition in the competitive sectors, the financial stabilization of IEC, and
the development of a plan to improve IEC’s efficiency. Although the steering committee has not published its final recommendations, and there had not been any
recent formal announcements concerning the steering committee’s discussions or negotiations with IEC and the State of Israel for some time, in November 2015
the steering committee announced that it resumed its discussions regarding comprehensive reform of IEC and the Israeli electricity market. The effect of any such
reforms on OPC is uncertain.
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EA
The EA (which was, until January 1 ,2016, known as the PUAE) was established in 1996 in accordance with the Electricity Sector Law. The EA is
responsible for granting licenses (although licenses for facilities with a capacity of more than 100 MW are also subject to approval by the Minister of Energy),
supervising the holders of such licenses, setting the tariffs and determining the standards of service which are required from a holder of an Essential Service
Provider license. As such, the EA oversees both the government-owned IEC and the IPPs.
The EA determines the electricity tariffs to the public, based on the costs of IEC which the EA decides to recognize, and including a fair rate of return on
equity. The EA sets different tariffs for the various electricity segments. In addition, the EA sets the tariffs that IEC pays for electricity purchased from IPPs. The
Electricity Sector Law provides that IEC will collect payments pursuant to the tariffs set by the EA and that IEC will make payments to another license holder or a
customer, pursuant to the relevant tariffs.
Each year, the EA performs an annual update of the various components of the costs recognized in the tariffs, and publishes a new set of tariffs accordingly.
In January 2015, the EA reduced the tariff rates by approximately 10% effective as of February 1, 2015. On September 8, 2015, the EA published a final decision,
which became effective on September 13, 2015, reducing the EA generation component tariff by approximately 12%. OPC’s operations can be affected by changes
in the EA’s policies, regulations, and tariffs. The EA’s generation component tariff, for example, serves as the base price for OPC’s calculation of the sale price of
its energy to its private customers. As a result, increases or decreases in this tariff have a related effect on the sales price of OPC’s energy and OPC’s revenues. In
addition, the price at which OPC purchases its natural gas from its sole natural gas supplier, the Tamar Group, is predominantly indexed (in excess of 70%) to
changes in the EA’s generation component tariff, pursuant to the price formula set forth in OPC’s supply agreement with the Tamar Group. As a result, its increases
or decreases have a related effect on OPC’s cost of sales and margins. In addition, the natural gas price formula in OPC’s supply agreement is subject to a floor
mechanism. As a result of previous declines in the EA generation component tariff, OPC began to pay the ultimate floor price in November 2015. Therefore, the
September 2015 decline and any further declines in the EA generation component tariff, will not result in a corresponding decline in OPC’s natural gas expenses,
and will therefore lead to a greater decline in OPC’s margins, which may have a material adverse effect on OPC’s business, results of operations and financial
condition.
Furthermore, since 2013, the EA had been in the process of determining a system cost tariff. In August 2015, the EA published a decision that IPPs in Israel
would be obligated to pay system management service charges, which charges are retroactively effective as of June 1, 2013. According to the EA decision, as
amended in September 2015 and December 2015, the amount of system management service charges that would be payable by OPC from the effective date of
June 1, 2013 to June 30, 2015, is approximately NIS 163 million (approximately $43 million), which includes interest rate and linkage costs of NIS 8 million
(approximately $2 million). The approximately NIS 163 million which the EA has deemed payable by OPC is based upon the “average rate” of the system
management service charges. However, as the rate of the new system management service charges, like other rates of the EA, varies by season (e.g., summer and
winter) and by demand period (peak, shoulder and off-peak), the EA’s final calculation of the amount payable by OPC will be based upon the applicable “Time of
Use” rates. For further information on Israel’s seasonality and the related EA tariffs, see “ —IC
Power—IC
Power’s
Industry
Overview—Israel
.” For further
information on the effect of EA tariffs on IC Power’s revenues and margins, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—EA
Tariffs
Affect
IC
Power’s
Results
in
Israel
Segment.”
IC Power is considering the implications of this decision and
may contest it.
Additionally, on November 19, 2015, as a part of the legislative process regarding the State of Israel’s 2015—2016 budget, new legislation was approved by
the Knesset (the Israeli parliament) incorporating, among other things, amendments to the Electricity Sector Law-1996. According to an amendment to the
Electricity Sector Law, which was published on November 30, 2015, and became effective on January 1, 2016, the PUAE was replaced by the EA, which was
merged with the
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electricity unit of the Israeli Ministry of National Infrastructures, Energy and Water Resource and is therefore subordinate to the Minister of National
Infrastructures, Energy and Water Resources. As a result, the Minister of National Infrastructures, Energy and Water Resources may overrule the EA’s decisions,
demand a rehearing of specific decisions (excluding tariff decisions, which remain entirely in the EA’s independent authority), and controls the EA’s key board
appointments and policies. The EA has yet to appoint a new chairman.
Any decisions of the EA, including decisions regarding licenses and tariffs, prior to this date will remain in force and will be deemed to have been made by
the EA.
Regulatory
Framework
for
Conventional
IPPs
The regulatory framework for current and under construction conventional IPPs was set by the EA in 2008. An IPP may choose to allocate its generation
capacity, as “permanently available capacity,” or PAC, or as “variable available capacity,” or VAC. PAC means capacity that is allocated to IEC and is dispatched
according to IEC’s instructions. PAC receives a capacity payment for the capacity allocated to IEC, as well as energy payment to cover the energy costs, in the
event that the unit is dispatched. VAC refers to capacity that is allocated to private consumers, and sold according to an agreement between the IPP and a third
party. Under VAC terms, an IPP may sell the capacity to IEC on a short-term basis. IEC may purchase electricity from the VAC allocated to it, based on a bid
price. An IPP may choose to allocate its capacity between 70% to 90% as PAC, with the remaining 30% to 10% as VAC, or 100% VAC.
In December 2014, the EA published a new regulatory framework for conventional IPPs, which shall apply to conventional IPPs who have commenced
commercial operations as of January 2019. The new framework allows an IPP to choose between a transaction with IEC (similar to PAC regulation), and a bilateral
agreement with a third party.
OPC’s
Regulatory
Framework
OPC operates according to a tender issued by the state of Israel in 2001 and, in accordance therewith, OPC and the IEC executed the IEC PPA in 2009,
which stipulates the regulatory framework of OPC. OPC’s framework differs from the general regulatory framework for IPPs, as set by the EA and described
above.
According to the IEC PPA, OPC may sell electricity in one or more of the following ways:
1.
2.
Capacity
and
Energy
to
IEC
: according to the IEC PPA, OPC is obligated to allocate its full capacity to IEC. In return, IEC shall pay OPC a monthly
payment for each available MW, net, that was available to IEC.
In addition, when IEC requests to dispatch OPC, IEC shall pay OPC for the starting of the power plant (an amount that covers the starting costs), as
well as a variable payment for each operating hour. IEC shall also pay the fuel cost of OPC.
Sale
of
energy
to
end
users
: OPC is allowed to inform IEC, subject to an advanced notice, that it is releasing itself in whole or in part from the
allocation of capacity to IEC, and extract (in whole or in part) the capacity allocated to IEC, in order to sell electricity to private customers pursuant to
the Electricity Sector Law. OPC may, subject to an advanced notice, re-include the excluded capacity (in whole or in part) as capacity sold to IEC.
OPC informed IEC, as required by the IEC PPA, of the exclusion of the entire capacity of its power plant, in order to sell such capacity to private customers.
Since July 2013, the entire capacity of OPC has been allocated to private customers. Under the IEC PPA, OPC can also elect to revert back to supplying to the IEC
instead of to private customers.
The IEC PPA includes a transmission and backup appendix, which requires IEC to provide transmission and backup services to OPC and its customers, for
private transactions between OPC and its customers, and the tariffs payable by OPC to IEC for these services. Moreover, upon entering a PPA between OPC and an
individual consumer, OPC becomes the sole electricity provider for this customer, and IEC is required to supply power to this customer when OPC is unable to do
so, in exchange for a payment by OPC according to the tariffs set by the EA for this purpose. For further information on the risks associated with the indexation of
the EA’s generation tariff and its potential impact on OPC’s business, financial condition and results of operations, see “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—The
production
and
profitability
of
IPPs
in
Israel
may
be
adversely
affected
by
changes
in
Israel’s
regulatory
environment.
”
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Regulatory
Framework
for
Cogeneration
IPPs
The regulatory framework for current and under construction cogeneration IPPs was established by the EA in its 2008 and 2013 decisions. The primary
difference between the regulation of cogeneration IPPs (as compared to the regulation of conventional IPPs) is that, as long as the cogeneration production unit
meets the definition of a “Cogeneration Production Unit” as stipulated in the regulations (which require such unit to, among other things, meet a certain efficiency
rate), and if the cogeneration IPP so wishes, IEC will be obliged to purchase energy from such IPP in accordance with the following provisions:
1.
At peak and shoulder times, one of the following shall apply:
a. each year, the IPP may sell up to 70% of the total electrical energy, calculated annually, produced in its facility to IEC—for up to 12 years from the
date of the grant of the license; and
b. each year, the IPP may sell up to 50% of the total electrical energy, calculated annually, produced in its facility to IEC—for up to 18 years from the
date of the grant of the license.
2.
At low demand times, IPPs with units with an installed capacity of up to 175 MW, may sell electrical energy produced by it with a capacity of up to 35
MW, calculated annually (in accordance with the duration applicable to the IPP with respect to peak and shoulder time, as set forth above).
According to regulations published by the EA in January 2015, if a cogeneration facility no longer qualifies as a “Cogeneration Production Unit,” such
cogeneration facility may be entitled, under certain circumstances, to operate under the regulatory framework for conventional IPPs, with certain modifications and
limitations.
AIE’s
Regulatory
Framework
AIE holds a conditional license for the construction of a cogeneration power station in Israel. As set forth above, AIE must meet certain conditions before it
will be subject to the regulatory framework for cogeneration IPPs and be considered a “Cogeneration Production Unit.” For example, AIE will have to obtain a
certain efficiency rate which will depend, in large part, upon the steam consumption of AIE’s consumers. In circumstances where AIE no longer satisfies such
conditions and therefore no longer qualifies as a “Cogeneration Production Unit,” AIE may be entitled to operate under the special regulatory framework set forth
in the regulations published by the EA in January 2015, as described above in “— Regulatory
Framework
for
Cogeneration
IPPs
.”
Regulation
of
the
Guatemalan
Electricity
Distribution
Market
The
General
Electricity
Law
and
the
Liberalization
of
the
Electricity
Sector
The General Electricity Law provided for the liberalization of the electricity industry and authorized the creation of two new institutions to regulate the
electricity sector: the CNEE and the AMM. Regulations implementing the General Electricity Law were adopted by the Executive through the MEM on March 21,
1997. The CNEE and the AMM were created in 1997 and 1998, respectively, completing the legal framework for the privatized electricity sector.
The electricity industry in Guatemala is governed by the General Electricity Law and related regulations. The General Electricity Law was adopted in 1996
to liberalize the electricity sector.
Limitations on Activities of Industry Participants
The General Electricity Law provides that no individual company may engage directly in more than one of the following businesses: generation,
transmission, or distribution services. However, the General Electricity Law allows any company carrying any such specific business to own stock or other interests
in companies carrying any other specific business within the industry.
Deregulation of Generation
The General Electricity Law provides that a governmental license is only required to operate a power plant (hydroelectric, geothermal or general
thermoelectric plants) and connect to the National Electricity System where state- or publicly-owned property is used and the power exceeds 5MW.
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Unrestricted Access to Transmission and Distribution Systems
The General Electricity Law provides that transmission and distribution companies must grant all customers the ability to connect to their transmission and
distribution grids. Unregulated customers are entitled to choose freely their supplier and to acquire electricity from any source and transmission and distribution
companies must allow such electricity to flow through their transmission lines. Distribution and transmission companies are entitled to collect distribution or
transmission tolls for the use of their grids. Failure to provide such access by a transmission or distribution company may lead to fines and ultimately the
termination of that company’s distribution authorization, and potentially the appointment of a receiver of the distributor and the sale of its assets.
Unregulated Customers
The General Electricity Law provides that no public price regulation may be established relating to PPAs entered into by end users that have power demand
greater than 100 kW. The MEM has the authority to lower or remove the threshold electricity that defines customers as “unregulated customers.” Unregulated
customers are entitled to choose as their supplier the distribution company operating the distribution grid to which the unregulated customer is connected, any
generator that supplies electricity to the National Electricity System or any electricity broker.
Regulated Customers and Distribution Authorizations
The General Electricity Law provides that those companies in the electricity business may use public property (including rivers) and acquire mandatory
easements on privately owned lands as necessary to carry on their business activities, provided they have been granted an authorization from the MEM. The
General Electricity Law provides that the MEM may authorize a company to use the public domain and impose easements on private lands to distribute or transmit
electricity. Authorizations for distribution services are granted on a non-exclusive basis for specific geographic areas and have terms of up to 50 years. Although
authorizations to provide distribution services are non-exclusive, the investment required to establish a competing distribution system is a substantial barrier to
entry.
The General Electricity Law provides that a distribution company must provide service to all those demanding the supply of electric energy that are located
within 200 meters of its distribution lines. In addition, a distributor must provide electricity to all parties who demand their services within the service area covered
by the distributor’s authorization, provided the interested party provides for its connection to the distributor’s system. A distributor must also provide electricity to
all parties who demand the distributor’s service and furnish their own lines or those of a third party. A distributor must provide these services at prices and quality
levels determined by the CNEE.
All tariffs charged by distribution companies to regulated customers are determined and revised by the CNEE pursuant to legal and regulatory proceedings.
Principal
Regulatory
Authorities
Ministry of Energy and Mines (MEM )
The MEM is the Guatemalan government’s highest-ranking regulator of the electricity industry. The MEM is responsible for enforcing the General
Electricity Law and the related regulations and for the coordination of policies between the CNEE and the AMM. The MEM also has the authority to grant
operating authorizations to distribution, transmission and generation companies.
National Electric Energy Commission (CNEE)
The Guatemalan electricity industry is regulated by the CNEE, a regulatory agency created pursuant to the General Electricity Law. The CNEE acts as the
technical arm of the MEM. The CNEE is comprised of three members who are appointed by the Guatemalan government. The members must be nominated by the
MEM, the national universities, and the board of the AMM. Members hold office for five years. The General Electricity Law establishes the following powers and
duties for the CNEE:
•
•
•
Determine transmission and distribution tariffs;
Enforce the sector’s laws and regulations and impose fines and penalties as legally prescribed;
Supervise compliance by the holders of any kind of authorization to carry on business in the electricity sector, protect the rights of end-users, and
prevent anti-competitive, abusive and discriminatory activities;
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•
•
•
Conduct arbitration proceedings and exercise powers of review in case of controversy among any parties subject to the General Electricity Law and its
regulations;
Issue technical rules and performance standards for the electricity sector and enforce accepted international practices; and
Issue regulations and rules to secure access to and use of the transmission lines and distribution grids.
Wholesale Market Administrator (AMM)
The Guatemalan wholesale market is managed by the AMM, an independent private entity created pursuant to the General Electricity Law. The AMM
coordinates the operation of the generators, international interconnections, and transmission lines that form the National Electricity System. The AMM is in charge
of overseeing the safety and operation of the National Electricity System and the efficient dispatch of electricity, with the mission to minimize operating costs,
including costs from losses, and compliance with service quality requirements. The AMM is also responsible for scheduling the operation of the system and
managing the dispatch of electricity on the basis of best market prices.
All policies and rules of the AMM are subject to approval by the CNEE. If a generation company, transmission company, distribution company, electricity
broker or large user does not operate its facilities in accordance with the regulations established by the AMM, the CNEE has the ability to impose fines and, in the
case of serious breaches, may require that a company disconnect from the National Electricity System.
The
Wholesale
Electricity
and
Capacity
Markets
The Guatemalan wholesale electricity and capacity markets are “open border” markets that allow market participants to purchase energy and capacity from
generators and to sell energy and capacity to customers inside and outside Guatemala. The parties that may, but are not required to, participate in the wholesale
electricity and capacity market include:
•
•
•
•
•
generators with an installed capacity of more than 10 MW;
distribution companies with 20,000 or more customers;
transmission companies with a system connected to plants with capacity of more than 10 MW;
electricity brokers buying or selling 10 MW or more, including importers and exporters; and
unregulated customers.
Purchases and sales of capacity are conducted through the wholesale capacity market. Generators may sell generating capacity at negotiated prices through
medium- or long-term PPAs with distribution companies, unregulated customers or electricity brokers. Distribution companies are required to have PPAs covering
at least 100% of their projected capacity needs for the current year and the following year. Distribution companies may only enter into PPAs through public bids
conducted under the supervision of the CNEE.
Generators may sell uncommitted electricity in the spot market at prices determined as described below. Other participants in the wholesale electricity
market may buy electricity in the spot market to cover shortages under their PPAs or to sell excess electricity. The AMM dispatches electricity in the spot market
based on the marginal variable cost of the generators offering electricity, giving priority to electricity produced at the lowest marginal cost.
The prevailing price in the spot market for electricity is established on an hourly basis based on the clearing price at which demand can be filled by available
offered electricity.
Participants in the wholesale market can also trade capacity transactions, permitting generators that are unable to supply their committed capacity to purchase
additional capacity and other market participants who have contracted to purchase capacity in excess of their need to sell their excess capacity. Prices in the
capacity market are set by the AMM based on the theoretical cost of installing efficient power generation.
Operation
of
the
National
Electricity
System
The AMM runs the National Electricity System in real time, arranging any re-dispatches deemed necessary to correct differences between actual and
projected power demand to ensure that the National Electricity System runs safely and efficiently. In the event of electricity failures and emergencies, the AMM is
responsible for ensuring that service be reestablished and normal operation of the National Electricity System is achieved.
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All participants in the wholesale electricity market are required to abide by the operating and dispatch instructions issued by the AMM. The commercial
practices and rules of the AMM create the framework within which the participants are obligated to carry on their business in the wholesale electricity market.
All parties connected to the National Electricity System, including large generation facilities, distribution companies, transmission companies, electricity
brokers and unregulated customers that choose not to participate in the wholesale market, as well as small generators, transmission companies and distribution
companies that cannot participate in the wholesale market, are required to submit to the directions of the AMM in all that concerns technical standards for the
adequate operation of the National Electricity System.
Quality
of
Service
Regulation
The CNEE establishes minimum levels of quality for electricity services. In addition, the CNEE imposes certain obligations on distribution companies
related to quality standards, and fines them for failure to comply with such quality standards and other obligations. The CNEE regulates the quality parameters of
the supplied electricity (tension, frequency and disturbances), establishes parameters for continuity (number and length of interruptions) and minimum standards for
customer service. An interruption is defined as any period of time over three minutes during which electricity is not available.
The CNEE monitors the number of interruptions, the length of time of each interruption and the total number of customers affected. If a distribution
company experiences excessive interruptions, it must indemnify the affected customers.
Each distribution company is required to survey its customers annually to obtain information regarding its compliance with required customer service
regulations. The CNEE publishes the results of these surveys. Fines and other sanctions can also be imposed if a distribution company does not comply with CNEE
customer service standards or if there are other service complaints.
If a distribution company does not comply with the CNEE’s regulations regarding the quality of the supplied electricity and implementation of electricity
services and quality of service, it can be fined and, ultimately, its authorization can be revoked. In addition, the General Electricity Law provides for an
appointment of a receiver and the sale of the distribution company’s assets.
Tariffs
and
Tolls
Distribution Tariffs
Pursuant to the General Electricity Law, distributors charge consumers a price for electricity sales based on distribution tariffs, consisting of an electricity
charge and a VAD charge, which are determined on the basis of the legal and regulatory proceedings by the CNEE every five years. There are nine different tariffs
that are applicable to a distributors’ regulated customers, of which seven of these tariffs are applicable to Energuate’s regulated customers. Each of Energuate’s
regulated customers purchases electricity at one of those seven tariff rates. The VAD component of the distribution tariff covers the distributor’s operating
expenses, capital expenditures, and the cost of capital and is revised every five years with semi-annual adjustments for inflation and local currency exchange rates
against the US dollar. The tariffs are set by the CNEE in accordance with the applicable legal and regulatory proceedings.
The process of establishing the distribution tariffs involves several parties, including distribution companies, and takes place over several stages. While the
tariffs are intended to be set on the basis of objective criteria, the parties who participate in the process of establishing the tariffs can exercise discretion. The prices
for electricity charged to unregulated customers are not regulated by the CNEE; however, unregulated customers must pay a regulated tariff, equal to the applicable
VAD charge, for delivery of electricity through the facilities of a distribution company.
Regulated Tariffs
The CNEE publishes a schedule of tariff rates for regulated customers every three months. These tariffs currently include:
•
•
•
a social tariff available to customers that demand less than 300 kWh per month;
a regular tariff, available to all customers that purchase electricity at low tension;
three additional tariffs available to customers that purchase electricity for delivery at low voltages;
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•
•
three tariffs available to customers that purchase electricity for delivery at medium voltage; and
a tariff available to governmental entities that purchase electricity for public lighting.
The social tariff, the regular tariff and the public lighting tariff consist solely of an electricity charge, a VAD charge and a monthly fixed charge for
connection to the distribution system.
The three additional low voltage tariffs and three medium voltage tariffs are available for:
•
•
•
customers that purchase capacity and electricity only during hours of peak demand which are between 6:00 p.m. and 10:00 p.m.;
customers that purchase capacity and electricity only during off-peak hours (between 10:00 p.m. and 6:00 a.m.); and
customers that purchase capacity and electricity during any time of the day.
Customers that request these tariffs enter into a contract with the distribution company to purchase a specified amount of capacity. These tariffs consist of a
fixed capacity consumption charge for each contracted kW, an electricity charge for the electricity used by the customer, a capacity consumption charge and a
monthly fixed charge for connection to the distribution system. The capacity consumption charge consists of two components: a generation and transmission
component and a distribution component. Customers are charged the capacity consumption charge based on the maximum amount of capacity demanded during
any billing cycle.
The electricity charge and the generation and transmission components of the capacity consumption charge is adjusted in the same manner as the electricity
charge under the social tariff, the regular tariff and the public lighting tariff. The capacity charge and the distribution component of the maximum capacity charge
are adjusted in the same manner as the VAD charges under the social tariff, the regular tariff and the public lighting tariff.
Tariff Adjustments
The VAD charges for each distribution company are established by the CNEE every five years and are calculated to equal an annuity over 30 years of the
Net Replacement Value of the distribution system. The Net Replacement Value of a distribution system is determined by calculating the replacement value of a
distribution network economically adjusted such that it would allow the distribution company to offer the services as if provided by a distribution company
operating in the same area. The replacement value of the distribution system is determined based on a discount rate set by the CNEE, based on studies conducted by
independent consultants. The calculation of the VAD for a distribution company uses as a benchmark the costs estimated of an efficient distribution company
serving a similar distribution area and accounts for the following costs:
•
•
•
an allowance for electricity losses as determined by the CNEE;
administrative costs; and
costs of maintaining and operating the distribution systems, including the cost of capital.
The VAD charged by DEORSA and DEOCSA until January 2019 was established in January 2014. New VAD charges applicable to DEORSA and
DEOCSA are scheduled to be established in January 2019. The process of establishing the VAD charges requires the distribution company to engage an
independent consultant approved by the CNEE to calculate the components of the VAD (including the Net Replacement Value) applicable to the distribution
company’s system. The CNEE may also engage a consultant to calculate the VAD applicable to the distribution company’s system. Following the submission of
the VAD calculated by the independent consultants to the CNEE, the CNEE decides whether to approve the VAD calculated by the consultants. In the event that
the CNEE does not approve the new VAD charges, the dispute is submitted to an arbitration panel composed of three individuals, one named by the distribution
company, one named by the CNEE and one named by the other two arbitrators. The arbitration panel must rule within 60 days. In one instance, the General
Electricity Law and its regulations were construed such that the CNEE was not bound to adopt the decision of the arbitration panel and is free to set the VAD at its
discretion.
The VAD charges are adjusted semi-annually to reflect the effect of fluctuations in the quetzal/dollar exchange rate on the dollar-denominated components
of the Net Replacement Value calculation and the effects of Guatemalan inflation on the quetzal-denominated components of the Net Replacement Value
calculation.
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The energy charge is designed to allow a distribution company to recover the costs of the electricity that it purchases and transports up to the connection
points of its own grid. The energy charge component of the regulated tariffs consists of a base tariff and an electricity adjustment surcharge. Under the General
Electricity Law and the regulations of the CNEE, the base tariff is adjusted annually to reflect anticipated changes in the cost of the electricity to be purchased by
the distribution company during the following year. The electricity adjustment surcharge is adjusted quarterly to reflect variations in the actual cost of electricity
purchased by the distribution company from the projected cost.
The Social Tariff
In 2001, Guatemala enacted the Social Tariff Law ( Ley
de
la
Tarifa
Social
para
el
Suministro
de
Energía
Eléctrica
) which requires that a special tariff,
called the “social tariff”, be made available to customers with electricity consumption of less than 300 kWh per month. Under regulations adopted by the CNEE,
distribution companies solicit bids for PPAs to supply the electricity to be delivered to customers eligible for the social tariff. INDE has been the only bidder for
these PPAs and has agreed to provide electricity under these PPAs at below market rates, which effectively lowers the base tariff applicable to these customers. In
addition, the VAD charge applicable to customers eligible for the social tariff is lower than the VAD charge that is part of the regular tariff as a result of technical
characteristics related to the calculation of the VAD applicable to these customers.
Transmission Tolls
The General Electricity Law provides that all parties that connect to the National Electricity System, including all generation companies, transportation
companies, distribution companies, electricity brokers and unregulated customers, must pay for their connection to and use of the National Electricity System. The
transmission tolls for electricity can be negotiated by the generation companies, distribution companies or unregulated customers using the National Electricity
System. In the absence of a negotiated price, tolls for the use of the transmission lines, substations and distribution installations are set according to regulations
issued by the CNEE.
There are separate tolls applicable to the primary transmission system and the secondary transmission system. Both tolls are determined on the basis of the
VNR of the transmission system. The VNR of a transmission system is the estimated cost of replicating a “model” transmission system including an estimated
return on capital.
The tolls for the primary transmission system are determined by the CNEE based on information provided by the owners of the transmission facilities and
the AMM. CNEE revises transmission tolls for the primary transmission system every two years and whenever new generation capacity is connected to the
National Electricity System or a portion of the secondary transmission system is upgraded to become part of the primary transmission system.
Transmission tolls for the secondary transmission system are negotiated between the owners of these transmission facilities and the generators and electricity
brokers that use these transmission facilities. If these parties cannot reach an agreement with respect to transmission tolls, the transmission tolls are established by
the CNEE according to applicable regulations. The transmission tolls for distribution facilities are equal to the VAD charge.
Transmission tolls for use of the primary transmission system are paid by generation companies or importers and are included as part of the cost in the tariffs
paid by regulated customers. Transmission tolls for use of the secondary transmission system are paid by distribution companies, electricity brokers or unregulated
customers. Transmission tolls for use of the secondary transmission system paid by distribution companies are included as part of the cost in the tariffs paid by
regulated customers.
Qoros
Qoros is a China-based automotive company delivering international standards of quality and safety, as well as innovative features, to the large and fast-
growing Chinese automotive market. Qoros’ vision is to design, manufacture, distribute, and service (through dealers) high quality cars for young, modern, urban
consumers. Qoros has assembled a highly experienced international management team with decades of experience in leading global OEMs and other industry
participants, and has established strong relationships with world class suppliers and engineering service providers. Qoros’ existing manufacturing facility has a
technical capacity of 150 thousand units per annum, which can be increased to approximately 220 thousand units per annum through the utilization of different shift
models (and further increased through additional shift optimizations and improvements in workday efficiency) and is located in Changshu, China. In 2015, Qoros
launched three vehicle models, the Qoros 3 Sedan, the Qoros 3 Hatch and the Qoros 3 City SUV and launched the 2016 model versions of the Qoros 3 Sedan, the
Qoros 3 Hatch and the Qoros 3 City SUV. In 2015, Qoros sold approximately 14,250 vehicles, as compared to approximately 7,000 vehicles in 2014. In November
2015, Qoros debuted the Qoros 5 SUV at the Guangzhou Auto Show, and launched the model in March 2016.
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Qoros is seeking to establish a strong position in the Chinese passenger vehicle market, the largest and fastest growing passenger vehicle market in terms of
new units sold, according to China
Association
of
Automobile
Manufacturers
, or CAAM. In designing its vehicles, Qoros devoted significant time and resources in
conducting extensive consumer surveys, including tracking the driving habits of drivers, to ascertain the vehicle features preferred by its targeted consumers:
young, modern, urban consumers who have demonstrated a preference for C-segment vehicle models. The C-segment, which primarily includes the sedan,
hatchback, SUV, and multi-purpose-vehicle body types, is the largest vehicle segment in China with 10.6 million C-segment vehicles, or 56% of China’s total
passenger vehicle sales, sold in 2015 (including exports, and excluding imports) according to China
Passenger
Car
Association
, or CPCA. Qoros’ strategy is to
offer Chinese consumers expressive design, international standards of quality and safety, as well as innovative features, in a Chinese manufactured and branded
vehicle and, having designed such vehicles, Qoros believes that it will be positioned to enter into other markets in the future.
Qoros’ vehicles reflect the strong customer preferences identified in Qoros’ research, such as vehicle safety, innovative connectivity, and vehicle
performance and design features tailored to the Chinese market. Qoros received numerous awards throughout 2015, including a “5+” star safety rating in the China
—New Car Assessment Program (C-NCAP)’s 2015 crash test (representing the highest score ever in its 9-year history). In addition, Qoros received the highest and
second highest quality ranking among all domestic brands and all car brands (including JV brands), respectively, in Autohome’s annual top quality rankings.
Each Qoros vehicle is equipped with a Multi-Media Hub, or MMH, which includes an 8-inch touch screen and interactive human machine interface, or HMI,
system. Through the MMH, most of Qoros’ vehicles are equipped with the “QorosQloud,” an innovative, cloud-based entertainment and services system that
delivers a variety of free (e.g., cloud-enhanced navigation, car care, and social sharing) and premium (e.g., real-time traffic and parking information) connectivity
features.
We have a 50% stake in Qoros, with the remaining 50% interest owned by Wuhu Chery, a subsidiary of Chery, a large state controlled holding enterprise and
Chinese automobile manufacturing company that has been producing automobiles since 1999. As of December 31, 2015, Kenon and Chery each have invested
RMB4.9 billion to Qoros via capital contributions and/or convertible or non-convertible shareholder loans. In January and February 2016, Kenon and Chery each
made further loans of RMB275 million to Qoros. Additionally, in April 2016, Ansonia, which owns approximately 46% of the outstanding shares of Kenon,
entered into a loan agreement to provide loans in an aggregate amount of up to $50 million to Qoros to support Qoros’ ordinary course working capital
requirements, subject to Wuhu Chery’s provision of loans in the same amount and on similar conditions to Qoros. For further information on Ansonia’s agreement
to invest in Qoros, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Recent
Developments—Qoros—Ansonia’s
Agreement
to
Invest
in
Qoros.
”
Qoros will need to secure additional financing to meet its operating expenses (including accounts payable) and debt service requirements. Qoros’ ability to
obtain such financing will depend on a number of factors, including its sales performance, and Qoros may be unable to secure such financing. If Qoros is not able
to raise additional financing as required, it may be unable to continue operations, in which case Kenon may lose its entire investment in Qoros and Kenon may be
required to make payments under its back-to-back guarantees to Chery in respect of Qoros’ bank debt. See “ Item
3.D
Risk
Factors
— Risks
Related
to
Our
Diversified
Strategy
and
Operations
— Qoros
will
require
additional
capital
resources
to
meet
its
operating
expenses.”
Qoros’
Strengths
Focus on the Large Chinese Passenger Vehicle Market —China is the largest passenger vehicle market in the world in terms of new units sold, with
approximately 19 million domestic passenger vehicles sold in 2015, representing approximately 32% of the global passenger vehicle market, according to CAAM,
CPCA and the International
Organization
of
Motor
Vehicle
Manufacturing
, or OICA. China is also the fastest growing passenger vehicle market in the world in
terms of new units sold with a 21% CAGR from 2004 to 2015, based upon information sourced from CAAM and CPCA, with respect to vehicles sold (including
imports) during the period. Industry analysts expect the growth of China’s passenger vehicle market to continue—for example, CPCA forecasts a 10% growth rate
in 2016. Additionally, China’s vehicle penetration level as of the end of 2014 (approximately 10%) is significantly lower than those of many other developed
automotive markets (81% in the U.S., for example), according to OICA, indicating significant growth potential for this market. The C-segment, in which Qoros’
initial vehicle models compete, is the largest passenger vehicle segment in China in terms of units sold. According to CPCA, 10.6 million C-segment vehicles were
sold in China in 2015 (including exports, and excluding imports), representing 56% of China’s passenger vehicle sales in that year. A significant portion of the
sales within this segment is generated from foreign joint venture brands, indicating Chinese consumers’ preference for vehicles delivering international standards
and features.
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Modern, high-quality vehicle models specifically-designed for the Chinese urban consumer —Based on Qoros’ extensive customer and industry
research, Qoros’ vehicle models were specifically designed to reflect the preferences of young, modern, urban consumers. In designing its C-segment model, Qoros
commissioned more than 100 primary marketing studies, soliciting input from over 10,000 potential buyers over the course of seven years, including tracking the
driving habits of drivers. Qoros has developed a vehicle product concept that Qoros believes satisfies the three “voice of the customer” pillars—Refined and Solid
Driving Experience, Expressive Design, and Engaging Consumers through Qoros World—and reflects Chinese consumers’ safety, performance, design and
connectivity preferences:
•
Refined
and
Solid
Driving
Experience:
Qoros has engaged global companies in both the automotive (e.g., Magna Steyr, Bosch, Getrag, Valeo) and
non-automotive (e.g., Frog Design, Microsoft, China Unicom) industries to facilitate the development and design of its vehicle platform. As evidence
of Qoros’ successful engineering efforts, the Qoros 3 Sedan has been recognized for its outstanding vehicle safety according to European standards,
having received the Euro NCAP’s maximum five-star rating. In 2015, the Qoros 3 Sedan received 2015 Annual Safety Car Award in Compact
Category issued by World Auto. Additionally, the Qoros 3 Sedan’s vehicle performance is competitive within this segment in China, particularly in
terms of fuel economy, acoustics, aerodynamics, climatic comfort and braking performance.
•
•
Expressive
Design:
Qoros has an experienced in-house design team. The Qoros 3 Sedan’s design provides one of the most spacious interiors in the
segment. In particular, the large shoulder room and rear leg room reflect important preferences of the Chinese C-segment consumers. In 2015, the
Qoros 3 Sedan Excite received two awards from the 10 th China Car Annual Selection, including Car of Year Award and Annual Best Design Award.
Engaging
Consumers
through
Qoros
World:
All of Qoros’ vehicles are equipped with a MMH, including an intuitive, 8-inch capacitive touch screen
with swipe gestured control HMI, and most Qoros vehicles are equipped with the “QorosQloud,” a cutting-edge telematics and cloud-based
entertainment and services system that delivers a variety of free (e.g., cloud-enhanced navigation, car care, and social sharing) and premium (e.g., real-
time traffic, parking information, cloud-enabled map update, and safe drive monitoring) connectivity features. Qoros believes that the features and the
services provided by the QorosQloud integrates Qoros’ vehicle into the driver’s lifestyle, by virtually connecting the vehicle, the driver and the
driver’s digital world. In addition, in 2016, Qoros intends to launch a customer relationship management initiative to further engage Qoros drivers by
creating a direct web-based communication channel between Qoros and its drivers to enable aftersales, improve customer relations and develop a
loyalty program to enhance customer lifetime management.
Flexible platform and scalable manufacturing footprint —Qoros’ vehicle platform reflects the results of Qoros’ intensive research and collaboration with
industry experts, enabling Qoros to efficiently deliver new model variants.
Qoros has developed core competencies within key selected areas (e.g., safety, styling, multimedia, etc.) and outsources many of its non-core operations
through relationships that it has developed with various external engineers and suppliers with technical centers located throughout Europe and China. Outsourcing
non-core functions allows Qoros to access technology and service suppliers as needed, without incurring the costs associated with maintaining such research and
development capacity or capacity expansion on a full-time basis. For example, Qoros has engaged Magna Steyr, a company engaged in automobile design and
engineering, in the design and development of Qoros’ vehicle platform, and of its individual vehicle models. Qoros also collaborates and sub-contracts with several
other engineering firms for its product development activities. Qoros sources the component parts necessary for its vehicle models from over 100 global suppliers,
which are typically European-based, with manufacturing facilities in China. Qoros aims to establish long-term relationships with its suppliers as a means of
building loyalty, achieving competitive pricing, and achieving component quality and timeliness of delivery. Qoros’ strategic relationships and outsourcing permits
it to maintain a lean and relatively flat organizational structure.
Additionally, Qoros’ vehicle platform has been designed to support the development and production of each of Qoros’ planned C-segment models and can be
modified into a D-segment platform with relatively minor adjustments. Qoros constructed its state-of-the-art manufacturing facility in Changshu, China, which it
also designed in consultation with various international consultants with extensive experience in the development of automobile production facilities in China and
globally. Qoros’ manufacturing facility has a technical capacity of 150 thousand units per annum, which can be increased to approximately 220 thousand units per
annum through the utilization of different shift models (and further increased through additional shift optimizations and improvements in workday efficiency) and
can, subject to Qoros’ receipt of government approval, be further increased to up to approximately 440 thousand units per annum through a second stage plant
expansion together with an optimized work shift model.
International management team with significant industry experience —Qoros is managed by a highly experienced global management team with
decades of experience in leading global businesses within the automotive and high-tech industries and Qoros’ management team is critical to its success. Qoros
believes that its management team’s experience contributes to Qoros’ ability to effectively execute Qoros’ current development plan.
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Qoros’
Strategies
Establish the Qoros brand —Qoros has deployed an integrated marketing campaign to establish and increase customers’ awareness of the Qoros brand,
including participation in auto shows and similar events, the use of online, and pay-per-click ads, and the use of traditional advertising, such as television and print
ads. In August 2015, Qoros held a Qoros Brand Day at its Changshu plant with approximately 120 media personnel and 100 car owners and Key Opinion Leaders.
The Qoros Brand Day event served as the kick-off for a series of Qoros marketing campaigns focusing on its brand positioning and product line updates. Qoros
believes its marketing efforts have increased its brand awareness in China. For example, Qoros has received numerous awards throughout 2015, including a 5+ star
safety rating in the China—New Car Assessment Program (C-NCAP)’s 2015 crash test (representing the highest score ever in its 9-year history) and the “Model of
the Year” and “Beauty of the Year” awards by Automotive Observer for the performance in manufacturing quality, safety features, and appearance design of the
Qoros 3 Sedan. Qoros intends to continue its brand development efforts, seeking to generate demand for Qoros’ vehicles and increasing leads to Qoros’ dealerships
and sales teams.
Successfully ramp up Qoros’ commercial sales and expand Qoros’ dealer network — Qoros’ commercial launch included the launch of Qoros’ C-
segment models, the Qoros 3 Sedan, the Qoros 3 Hatch and the Qoros 3 City SUV. Qoros has also launched the 2016 model year versions of the Qoros 3 Sedan, the
Qoros 3 Hatch and the Qoros 3 City SUV. In March 2016, Qoros entered the C-segment SUV market with the Qoros 5 SUV. Qoros sold approximately 14,250
vehicles in 2015, as compared to approximately 7,000 in 2014, and Qoros intends to continue to expand its dealer network, and build-up of its sales and service
infrastructure to further ramp up its sales.
Qoros is continuing to focus on the sales of the Qoros models that have been launched, and as well as on its customer awareness and outreach efforts. Qoros
is also continuing to develop its dealer network, targeting those regions and cities that have been identified by Qoros’ extensive research as having high sales
potential within the C-segment. Qoros intends to increase the size of its dealer network by creating incentives for its high-performing dealers to open additional
points of sales. Each of Qoros’ dealerships is constructed in accordance with a distinctive, Qoros-branded corporate identity, designed to result in consistent
appearance and service standards. Qoros’ dealers are required to complete rigorous training with respect to Qoros’ vehicle models, features and accessories. The
construction and operation of Qoros’ dealerships are financed by Qoros’ dealers themselves, with partial reimbursements received from Qoros, resulting in the
financial commitment of dealers to the commercial success of Qoros’ vehicle models. As of December 31, 2015, Qoros’ dealerships included 86 fully operational
points of sales, 7 additional points of sales under construction and Memorandums of Understanding with respect to the potential development of 3 additional points
of sales.
The development of Qoros’ sales and service infrastructure includes Qoros’ development of an information technology infrastructure connecting Qoros with
its dealers and enabling coordination regarding the sales and aftermarket support of Qoros’ vehicles. Qoros is also continuing to establish service and provide
diagnostic tools and service manuals across its dealer network and to train technicians to conduct repairs and to provide other after-market support at its various
dealer locations.
Leverage platform to grow Qoros’ business and expand its product offerings —Qoros’ long-term strategy contemplates the expansion of Qoros’ vehicle
portfolio through the introduction of additional vehicle models using Qoros’ existing platform. By using its existing scalable platform, Qoros can develop new
models in an efficient manner, as its platform permits Qoros to develop new models with varying and distinctive features, while making only minor adjustments.
The Qoros platform, for example, has been used to develop the Qoros 3 Sedan, the Qoros 3 Hatch, the Qoros 3 City SUV, and the Qoros 5 SUV. Furthermore, in
January 2016, Qoros created an NEV business division, which will focus on the development of efficient, cost-effective electric cars, and in the future, Qoros may
develop and sell NEVs pending the receipt of further investment. Qoros also intends to offer additional services, parts and accessories for its vehicles, including
value added services based upon its connectivity platform.
Overview
of
the
Chinese
Passenger
Vehicle
Market
Qoros is currently focused on the Chinese passenger vehicle market, which has experienced rapid growth in recent years driven by significant expansion of
the Chinese economy. Today, China is the largest and fastest growing passenger vehicle market in the world in terms of units sold. Based upon information sourced
from CAAM and CPCA, the domestic sales volume of passenger vehicles grew from approximately 2.4 million vehicles (including imports) in 2004 to 19.3 million
vehicles (including imports) in 2015, representing a CAGR of 21%, and is expected to continue to grow.
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Factors
Driving
Growth
in
the
Chinese
Passenger
Vehicle
Industry
Qoros believes the following factors have contributed to the growth of the Chinese passenger vehicle industry:
Rapid Economic and Purchasing Power Growth
High GDP growth in China over the past decade has resulted in increased personal wealth and purchasing power. According to the NBSC, China’s nominal
GDP increased from RMB13,582 billion in 2003 to RMB67,671 billion in 2015. According to the NBSC, the annual disposable income per capita in Chinese urban
households increased from RMB24,565 in 2012 to RMB31,195 in 2015, representing an increase of 27%. If the Chinese economy continues to grow,
corresponding personal wealth generation will support greater demand for passenger vehicles, which will accelerate the expansion of China’s passenger vehicle
industry.
In 2015, China’s GDP grew at its lowest rate since 1990, according to the NBSC. For information on the risks related to China’s economic growth, see “
Item
3D.
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros
—The
economic,
political
and
social
conditions
in
China
could
have
a
material
adverse
effect
on
Qoros
.”
Low Penetration Rate Implies Long-Term Growth Potential
Although China’s passenger vehicle market is the largest in the world by country (in terms of units sold), China’s penetration rate of vehicles as a proportion
of its population is still relatively low, at approximately 10% at the end of 2014. According to OICA, the penetration rate of more mature economies, by
comparison, typically ranges from 55% (in the case of Japan and Korea) to 81% (in the case of the United States), which indicates significant growth potential for
the passenger vehicle market in China.
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Increased Urbanization
Urbanization within China has created significant opportunities for the passenger vehicle industry as urban residents have shown a tendency for greater
mobility. China has become increasingly urbanized over the years. According to the World Bank, from 2003 to 2014, China’s urbanization rate has increased from
approximately 40% to approximately 54%, with an urban resident population of approximately 742 million in 2014. Pursuant to the National New Urbanization
Plan (2014-2020) issued in March 2014, the Chinese government set a target of raising the urbanization rate (as measured by urban resident population) to
approximately 60% by 2020. Going forward, small and medium-size cities and towns in the central and western areas of China are projected to grow at a faster rate
than the national average.
Increased Investment in Transportation Infrastructure
China’s substantial investment in the construction of transportation infrastructure has fueled demand for passenger automobiles. According to the NBSC,
from 2003 to 2014, the total length of China’s highways has grown from approximately 1,810,000 kilometers to 4,464,000 kilometers, representing a CAGR of
8.6%. Further highway extensions are expected to promote increased use of automobiles. The increase in the length of highways further facilitates inter-city travel,
which in turn has boosted automobile sales as the use of passenger vehicles has increased accordingly.
Market Segmentation of the Chinese Passenger Vehicle Industry
The Chinese passenger vehicle market, in line with international markets, can be separated into the following segments: large-size and mid- to large-size (E-
segment), mid-size (D-segment), compact (C-segment), small-size (B-segment) and mini (A-segment) models based on the size of the vehicles and their typical
engine displacement. The following table sets forth the major categories of passenger vehicles and key features.
Category
Mini
Small-size
Compact
Mid-size
Mid- to large-size
Large-size
Wheel base
(millimeter)
2,000 – 2,300
2,300 – 2,500
2,500 – 2,700
2,700 – 2,900
2,800 – 3,000
Above 3,000
Length of vehicles
(millimeter)
Below 4,000
4,000 – 4,300
4,200 – 4,600
4,500 – 4,900
4,800 – 5,000
Above 5,000
Engine displacement
(liter) (excluding
turbo)
Below 1.0
1.0 – 1.5
1.6 – 2.0
1.8 – 2.4
Above 2.4
Above 3.0
Vehicle
category
A
B
C
D
E
E
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With 10.6 million vehicles (including exports and excluding imports) sold in 2015, China’s C-segment market, which Qoros is initially targeting, is one of
the largest C-segment markets in the world and represents, by far, the largest segment within the Chinese automotive market. The C-segment has also been one of
China’s fastest growing segment over the past decade, with a CAGR of 14% from 2010 to 2015 according to CPCA. Qoros believes that the C-segment’s primary
attractiveness in China results from its delivery of the combination of value for money with sufficient comfort and space for families.
Within the C-segment, Chinese consumers have shown a strong consumer preference for sedans, which, according to CPCA, represented approximately 56%
of all C-segment sales in 2015 (including exports and excluding imports), differing strongly from the preferences of European consumers, who have a strong
preference for hatchbacks. An important trend over recent years has been the high growth in SUV demand which, according to CPCA, represented approximately
34% of C-segment sales in China in 2015 (including exports and excluding imports), as compared to approximately 23% in 2013. In response to consumer demand
for SUVs, over 30 new SUV models were introduced in China last year. Sales of SUVs increased by 53% in 2015 and it is expected that the SUV continue to
capture market share.
The Chinese passenger vehicle market is typically further divided into categories, as set forth below:
Segment
Joint venture Brands
Premium
Mid- to High-end
Economy
Local Chinese Brands
Mid- to High-end
Economy
Examples of Brands
Mercedes Benz, BMW, Audi, Cadillac
Volkswagen, Nissan, Buick, Toyota, Honda, Hyundai
Suzuki
Roewe, Senova, MG
BYD, Geely, Great Wall
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The role of joint venture brands is particular to the Chinese automotive market, as foreign automotive OEMs are only allowed to establish local production
through joint ventures with local manufacturers. Joint venture brands participate in the larger and more expensive market segments of the Chinese passenger
vehicle market, and a significant portion of the sales within these segments are generated from foreign joint venture brands. Chinese consumers have indicated a
preference for foreign joint venture brands as a result of their perceived higher quality and technology, as well as their higher prestige. Local brands participate
primarily in the economy price range, with demand mainly driven by first-time car buyers, often located in tier 3 (those with populations ranging from 4-10 million,
including subsidiary counties and towns) and tier 4 (those with populations ranging from 2-6 million, including subsidiary counties and towns) cities, which
typically have lower vehicle penetration rates than the larger tier 1 and tier 2 cities.
The following table sets forth estimated market share in the Chinese automotive market by vehicle segment for joint ventures and local brands:
New Energy Vehicle Market in China
The Chinese central government has stated that the new energy vehicle, or NEV, market is critical for the development of the Chinese automobile industry
and China’s economic growth, and has implemented a number of policies to promote the growth of the market. Sales of NEV cars (which includes plug-in and
battery electric vehicles) increased from 59,000 units in 2014 to 177,000 units in 2015, representing a growth rate much higher than that of the internal combustion
engine car.
Most NEVs are sold in NEV “demo cities”, which are mid- to large-sized cities where the government has implemented policies to promote the growth of
the NEV market. Policies to promote NEV sales include lowering purchase prices and decreasing the running costs for private customers through purchase
subsidies from central and local governments, tax cuts, free license plates in cities which have quotas or extra costs for new car registration, exclusive license plates
for NEVs, charging facility subsidiries and exclusive parking access, among others.
Industry analysts expect that additional policies to encourage the growth of NEVs will be instituted, as many local governments are under pressure to reduce
CO 2 emissions, urban gridlock and haze. In the near- to mid-term, NEVs may be given traffic privileges and exempted from driving day restrictions.
Meanwhile, OEMs are expected to invest in manufacturing NEVs to meet mandatory fuel economy regulations on corporate average fuel consumption. In
October 2015, the Chinese central government indicated that it needed to improve infrastructure and increase the prevalence of charging facilities to accelerate the
development of the NEV market. According to a release from the National Development and Reform Commission, China expects to construct 4.8 million charging
points by 2020. Industry analysts expect that improving infrastructure and access to charging facilities will also improve the market’s acceptance of NEVs.
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Chinese Passenger Vehicle Market Update
Following years of rapid growth, the Chinese passenger vehicle market experienced reduced growth rates in 2015. According to CPCA, cumulative
passenger vehicle wholesales in 2015 increased by 9%, as compared to 11% and 17% in 2014 and 2013, respectively. SUV sales increased by approximately 50%
in 2015 compared to 2014 and by 55% in January and February 2016 from the same period in 2015, while sedan sales in January and February 2016 decreased
12%, according to the CAAM. The decline in the industry’s overall growth rate that occurred in 2015 in connection with volatility in the Chinese financial markets
and a slowdown in the Chinese economy resulted in increased competition in China’s automotive market through price reductions.
Towards the end of 2015, dealers and OEMs offered customers a variety of inducements for customers to purchase vehicles, including price reductions. In
line with many of its competitors, Qoros announced suggested retail price reductions on all its vehicle models. It is expected that dealers and OEMs will continue to
reduce prices and offer further inducements to purchase vehicles in 2016. Furthermore, in the third quarter of 2015, China’s central government initiated a tax
policy to incentivize domestic vehicle sales by reducing invoice prices by approximately 4.25%. From October 1, 2015 to December 31, 2016, passenger vehicles
with engines that are 1.6L or smaller, which includes all Qoros vehicles, will be eligible for this tax incentive.
Qoros’
Description
of
Operations
Qoros designs, engineers and manufactures a new brand of automobiles manufactured in China, designed to deliver international standards of quality and
safety, as well as innovative features. In 2015, Qoros sold approximately 14,250 cars, as compared to approximately 7,000 cars in 2014.
Models
Qoros has launched and commenced commercial sales of its C-segment models—the Qoros 3 Sedan, the Qoros 3 Hatch and the Qoros 3 City SUV. Qoros
has also launched the 2016 model year versions of the Qoros 3 Sedan, the Qoros 3 Hatch and the Qoros 3 City SUV. In March 2016, Qoros entered the C-segment
SUV market with the Qoros 5 SUV. Qoros’ platform has been designed to enable the efficient introduction of new models in the C- and D-segments. Qoros intends
to introduce new vehicle models over time, as it expands its commercial operation in line with demand for its vehicles.
Qoros developed its vehicles in accordance with international standards of quality and safety, as well as innovative features, working in conjunction with
global entities from both automotive (e.g., Magna Steyr, Bosch, Getrag, Valeo) and non-automotive (e.g., Frog Design, Microsoft, China Unicom) industries. The
Qoros 3 Sedan’s vehicle performance is competitive in its segment, particularly with respect to fuel economy, acoustics, aerodynamics, climatic comfort, and
braking performance. For example, the Qoros 3 Sedan has a powertrain optimized for efficient fuel consumption and engine performance, resulting in competitive
highway and city fuel consumptions of 4.9 liter/100 km and 8.3 liter/100 km, respectively. Additionally, the Qoros 3 Sedan demonstrates competitive braking
performance according to Auto Motor and Sports’ standards. The Qoros 3 Sedan also received a 5+ star safety rating in the China—New Car Assessment Program
(C-NCAP)’s 2015 crash test, becoming the first car ever to achieve the 5+ rating against the demanding 2015 assessment protocol. The Qoros 3 Sedan also received
the 2015 Annual Safety Car Award in Compact Category by World Auto.
The Qoros 3 Sedan’s design provides one of the most spacious interiors in the segment. In particular, the large shoulder room and rear leg room reflect
important Chinese C-segment consumer preferences. The Qoros 3 Sedan is also one of the widest vehicles in its segment. In 2015, Qoros 3 Sedan Excite received
two awards from 2015 10 th China Car Annual Selection, including Car of Year Award and Annual Best Design Award.
QorosQloud
All of Qoros’ vehicles are equipped with a MMH, including a user friendly 8-inch capacitive touch screen with swipe gestured control HMI. Most of Qoros
vehicles are equipped with the “QorosQloud,” a cutting-edge telematics and cloud-based entertainment and services system that delivers a variety of free (e.g.,
cloud-enhanced navigation, car care, and social sharing) and premium (e.g., real-time traffic, parking information, cloud-enabled map update, and safe drive
monitoring) connectivity features. Qoros believes the features and the services provided by the QorosQloud integrates Qoros’ vehicle into the driver’s lifestyle, by
virtually connecting the vehicle, the driver and the driver’s digital world. QorosQloud creates a digital ecosystem that, among other features, provides the driver
with the following free features:
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•
•
guiding
services
, offering trip planning, navigation services which, after parking, can continue to provide the user with directions via the use of
mobile devices, and smart points of interest. The QorosQloud has recently began to include the “Pick Me Up” feature, which provides navigation
services to Qoros drivers who have offered rides to their friends on the WeChat messaging and calling app;
car
care
services
, offering car status monitoring, booking of appointments for service maintenance, real-time monitoring of service maintenance
status from a mobile device, driving behavior monitoring, which may help drivers in connection with their insurance, and monitoring of fuel
efficiency. Qoros recently developed a web-based customer communication platform, which enables Qoros to leverage vehicle usage data to provide
targeted messages to Qoros drivers; and
•
share
services
, offering check-in, shared trips and other social networking features. The QorosQloud is integrated with the WeChat messaging and
calling app, allowing Qoros drivers to access QorosQloud functions through their WeChat account.
The QorosQloud also provides drivers with remote access to their vehicle, providing key information with respect to the vehicle’s location, owner’s manual,
warranty information, and vehicle diagnostics and maintenance, as well as, for an additional fee, enabling drivers to access real-time information such as traffic and
surrounding points of interest from the vehicle.
Drivers of Qoros’ vehicles may also purchase premium connectivity features, such as access to dynamic, real-time parking and traffic information and live
map updates, representing an additional source of revenue for Qoros.
New
Models
and
Models
under
Development
Qoros launched the Qoros 5 SUV in March 2016, marking Qoros’ entry into the C-segment SUV market. The Qoros 5 SUV is a dynamic mid-sized SUV,
designed and produced with international standards of quality, safety and performance. Qoros debuted the Qoros 5 SUV at the Guangzhou Auto Show in November
2015. In November 2015, the Qoros 5 SUV was named “The Most Anticipated Compact SUV” at the 14 th Auto Industry Oscar Awards. The Qoros 5 SUV also
received the Most Anticipated SUV Award from a selection team consisting of mainstream automotive media members.
Qoros is also developing a sedan crossover model, which it expects to launch in 2017.
Information
Technology
Qoros has designed a comprehensive IT infrastructure to support its operating model, including product processes, customer order processes, sales & service
processes, and enterprise management and support processes. Qoros has implemented all business-critical systems, including its engineering, purchasing, and
production control systems. Additionally, to support its commercial sales, Qoros has also launched its marketing and sales systems, including its dealer
management system, dealer portal, customer relation management system, and spare part and warranty systems.
Qoros’
Manufacturing:
Property,
Plants
and
Equipment
Qoros conducts its vehicle manufacturing and assembly operations at its 150 thousand unit per annum, 790,000 square meter factory by land size in
Changshu, China, for which it has a land use right until March 4, 2062. Qoros’ western-standard manufacturing facility incorporates comprehensive, flexible
capabilities, including body assembly, state-of-the-art paint shop, final vehicle assembly and end-of-line testing. Qoros’ newly constructed paint shop uses cutting
edge painting processes, such as TecTalis, a nanoceramic conversion coating process for metals, and the B1B2 compressed painting process, in which two layers of
wet-to-wet basecoats are applied instead of the traditional application of a basecoat layer and a primer coating, to achieve production efficiency, improve painting
quality, and minimize environmental impact. Qoros’ paint shop also utilizes state-of-the-art equipment and robots, to contribute to the overall effectiveness and
efficiency of Qoros’ painting operations.
Qoros plans to continue to ramp up its production of the Qoros 3 Sedan, the Qoros 3 Hatch and the recently-launched Qoros 3 City SUV, subject to demand,
as it continues to seek to deploy its full-scale commercial sales model. Qoros will adjust the manufacturing capacity of its manufacturing facility in accordance with
the demand for its vehicles. Currently, the base installed volume of vehicles that can be manufactured, or the “technical capacity”, of Qoros’ manufacturing facility
is 150 thousand units per annum. Through alterations of operating parameters, such as the utilization of different shift models, the volume of vehicles manufactured
can be increased to approximately 220 thousand units per annum (and further increased through additional shift optimizations and improvements in workday
efficiency). This represents the manufacturing facility’s “shift capacity.” Subject to approval from the relevant Chinese government authorities and additional
investments in phase two
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of the manufacturing facility, the production capacity of Qoros’ manufacturing facility can subject to Qoros’ receipt of government approval, be further increased
to up to approximately 440 thousand units per annum through a second stage plant expansion together with an optimized work shift model.
Qoros’
Sourcing
and
Suppliers
Qoros sources the component parts necessary for its vehicle models from over 100 global suppliers. A majority of Qoros’ suppliers are European-based, with
manufacturing facilities in China. Qoros aims to establish long-term relationships with its suppliers as a means of building loyalty, achieving competitive pricing,
and achieving component quality and prompt delivery. Qoros has implemented enterprise resource planning and management software to automate its procurement
and inventory processes and to integrate them with its financial accounting system. This resource management system allows Qoros to reduce and control costs by
maintaining minimal inventories of the components and parts needed to conduct its manufacturing operations.
In 2009, Qoros entered into an agreement with Magna Steyr, a company engaged in automobile design and engineering, for the purposes of engaging Magna
Steyr in the design and development of Qoros’ vehicle platform. Qoros has entered into additional contracts with Magna Steyr for the engineering and styling of its
individual vehicle models, including the Qoros 3 Sedan, the Qoros 3 Hatch, the Qoros 3 City SUV and the Qoros 5 SUV. Qoros also collaborates and sub-contracts
with several other engineering firms for its product development activities.
Qoros utilizes a “managed outsourcing” model for the development of its vehicle models, which Qoros believes increases its operational effectiveness and
efficiency. Under its “managed outsourcing” model, Qoros utilizes the knowledge it has acquired from its extensive customer research to develop its vehicles,
including defining corresponding vehicle and (sub-) system level performance targets, formulating detailed design verification/testing plans, and managing vehicle
development programs. The detailed implementation work necessary to develop Qoros’ vehicles is then carried out by engineering service providers and/or related
suppliers in accordance with Qoros’ requirements. For information on Qoros’ relationship with, and the risks related to, Qoros’ suppliers, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros
is
dependent
upon
its
suppliers
.” For information on claims brought by certain of Qoros’ suppliers, see
“—Qoros’
Legal
Proceedings—Claims
by
Suppliers.
”
Qoros’
Commercial
Agreements
with
Chery
Although Qoros is under no obligation to do so, Qoros sources its engines and certain spare parts from Chery in the ordinary course of Qoros’ business.
Additionally, Qoros entered into a platform sharing agreement with Chery, pursuant to which Qoros provides Chery with the right to use Qoros’ platform in
exchange for a fee. Qoros may also enter into additional commercial arrangements and agreements with Chery, or parties related to it, in the future.
For further information on Qoros’ commercial arrangements with Chery, see Note 29 to Qoros’ consolidated financial statements, included in this annual
report. For further information on the risks related to Qoros’ commercial agreements with Chery, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros
has
entered
into
certain
arrangements
and
agreements
with
Chery
.”
Qoros’
Patents
and
Licenses
Qoros owns the intellectual property rights related to motor vehicles that it has independently developed (including HMI, electric powered motor vehicles
and relevant motor vehicles platforms, parts, components and accessories for motor vehicles) and also owns any and all brands, trade names, trademarks, or
emblems developed in connection with, or with respect to, any of its vehicles.
Qoros has filed trademark applications for Qoros major trademarks (e.g., QOROS, Qoros logos) and other trademark related to Qoros business in Asia
(including Australia/New Zealand), Europe, Middle East, North America, South America, Africa, etc. “QOROS,” “Qoros Auto” and the Qoros logo have been
registered throughout Europe and Asia.
For information on the risks related to Qoros’ ownership of its intellectual property, including the risks relating to Qoros’ pledging of its rights in certain of
its patents, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros’
success
depends,
in
part,
upon
its
ability
to
protect,
and
maintain
ownership
of,
its
intellectual
property
.”
Qoros’
Marketing
Channels
Qoros has implemented an integrated product, marketing and communication strategy, based upon extensive customer research. Since its inception, Qoros
has commissioned more than 100 primary marketing studies focusing upon key vehicle
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features, purchasing factors and consumer needs. Qoros’ centralized, in-house marketing team aims to utilize its market research and:
•
•
•
•
generate demand for Qoros’ vehicles and drive leads to Qoros’ dealerships and sales teams;
build long-term brand awareness and develop and manage Qoros’ reputation;
employ effective marketing strategies in a cost-efficient manner; and
use Qoros’ web-based customer communication platform as part of its customer relationship management initiative.
On August 19, 2015, Qoros held a Qoros Brand Day in its Changshu plant with approximately 120 media personnel, 100 car owners and Key Opinion
Leaders, and 33 dealers in attendance. The Qoros Brand Day event served as the kick-off for a series of Qoros marketing campaigns focusing on its brand
positioning and product line updates. Furthermore, Qoros was the title sponsor of the 2015 World Table Tennis Championships, which gave Qoros publicity
through a ten-city promotional tour, a table tennis game series in 108 cities throughout China, a partnership with the International Table Tennis Federation and live
broadcast time. Qoros was also the title sponsor of the 2015 Car Challenge Performance—X (Domestic Division).
Qoros continued to participate in major auto shows in 2015. In November 2015, Qoros debuted its Qoros 5 SUV model at the Guangzhou Auto Show. Qoros
also participated in the Shanghai and Chengdu Auto Shows in 2015.
Qoros’
Dealers
Qoros markets its vehicles in China through a network of independent authorized retail dealers, with whom Qoros enters into non-exclusive relationships. As
of December 31, 2015, Qoros had 62 4S dealer stores, providing Qoros’ customers with dealers and authorized salesmen, showrooms, and service and parts, under
one roof; the remaining portion of Qoros’ dealership network comprises only showrooms. Locations of Qoros’ dealerships have been identified in Qoros’ extensive
research, with a view to optimizing and increasing Qoros’ market coverage. As of December 31, 2015, Qoros’ dealerships included 86 fully operational points of
sales, 7 additional points of sales under construction and Memorandums of Understanding with respect to the potential development of 3 additional points of sales.
As part of its strategy to increase its sales, Qoros intends to increase the size of its dealer network by creating incentives for its high-performing dealers to open
additional points of sales.
Qoros enters into a contract with each authorized dealer, agreeing to sell to the dealer all specified vehicle lines at wholesale prices and granting to the dealer
the right to sell those vehicles to retail customers from an approved location. It is expected that Qoros’ dealers will offer the full vehicle model lineup offered by
Qoros. Authorized Qoros dealers also offer parts, accessories, service and repairs for Qoros’ vehicles, using genuine Qoros parts and accessories obtained directly
from Qoros. Qoros’ dealers are authorized to service Qoros’ vehicles under Qoros’ limited warranty program, and those repairs are required to be made only with
Qoros’ parts. In addition, most of Qoros’ dealers also provide their customers access to retail financing, vehicle insurance and warranty packages. The dealership
facilities are based on Qoros’ branded construction plans, to ensure consistency and quality, and are constructed by the dealer using its own capital resources, with
partial reimbursements received from Qoros.
Because dealers maintain the primary sales and service interface with the end consumer of Qoros’ products, the quality of Qoros’ dealerships and its
relationship with its distributors are critical to its success. Qoros conducts rigorous training for dealers with respect to its vehicle models and ancillary and aftersales
products, most of which are required to be completed prior to the opening of a dealer’s operations. Qoros’ training program for dealers includes (i) a step-by-step
course plan, which includes an initial launch training, (ii) a three leveled core curriculum with a final certification test, and (iii) subject-specific training when
appropriate (e.g. the launch of a new product, a QorosQloud upgrade, etc.). Dealers are also expected to undergo subject-specific trainings throughout subsequent
years. Pursuant to the terms of its standard dealer arrangement, Qoros’ dealers are required to periodically participate in ongoing training and educational sessions
regarding Qoros, its vehicle models, and the servicing of its vehicles.
For information on the risks related to Qoros’ relationship with its dealers, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros
depends
upon
a
network
of
independent
dealers
to
sell
its
automobiles
.”
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Aftersales
and
Services
Qoros is continuing to ramp up the aftersales and services it offers for its vehicle models through its network of authorized dealers. Qoros drivers can utilize
their QorosQloud to respond to service invitations, make and secure appointments, and report issues on their vehicle in advance of any servicing appointments.
Aftersales and services are provided pursuant to warranties and for a fee where warranty coverage is not available.
Qoros recently developed a web-based customer communication platform, which enables Qoros to leverage vehicle usage data to provide Qoros drivers with
targeted messages via various channels, including e-mail and SMS, in-app and in-car MMH messaging. Qoros intends to use its customer communication platform
as part of its customer relationship management initiative.
Qoros’
Customers
Qoros’ intended target audience consists of Chinese consumers.
Target purchasers of the Qoros 3 Sedan are generally urban residents between the ages of 25 and 35, with an average-to-high level of income, while target
purchasers of the Qoros 3 Hatch are generally female customers with higher-than-average education and income.
Qoros is also targeting a diverse group of fleet-sale customers, including car rental companies (including those serving Chinese government agencies),
corporate entities, and other large groups.
Retail
Financing
Program
Customer financing is available through dealers and financing packages are also offered by Chery Motor Finance Service, Co. Ltd., a Wuhu Chery affiliate.
Qoros does not provide direct financing to customers at this time.
Warranty
Program
Qoros provides a 36-month or 100,000 km limited warranty with every Qoros vehicle model and also provides 36 months of free, twenty-four hour, 365 days
roadside assistance. Qoros’ limited warranty, which is similar to those offered by other international OEMs, is subject to certain limitations, exclusions or separate
warranties, including certain wear items, such as tires, brake pads, paint and general appearance, and battery performance, and is intended to cover parts and labor
to repair defects in material or workmanship in the body, chassis, suspension, interior, electronic systems, battery, powertrain and brake system.
Qoros’
Competition
The passenger vehicle market in China is highly competitive, with competition from many of the largest global manufacturers (acting through joint
ventures), including European, U.S., Korean and Japanese automakers, and established domestic manufacturers. As the size of the Chinese automotive market
continues to increase, Qoros anticipates that additional competitors, both international and domestic, may seek to enter the Chinese automotive market and that
market participants will act to maintain or increase their market share. For information on the risks related to Qoros’ competition, see “ Item
3.D
Risk
Factors—
Risks
Related
to
Our
Interest
in
Qoros—Qoros’
business
is
subject
to
intense
competition.
”
Qoros’
Seasonality
In general, demand for new cars in the Chinese automobile industry peaks during three periods: March—April, September—October, and December—
January. The Chinese automobile industry generally experiences reduction in demand during February, July and August.
Qoros’
Joint
Venture
Agreement
We are party to a Joint Venture Agreement, entered into on February 16, 2007 (which has been amended, supplemented or otherwise modified since then)
that sets forth certain rights and obligations of each of Quantum, the wholly-owned subsidiary through which we own our equity interest in Qoros, and Wuhu Chery
with respect to Qoros, or the Joint Venture Agreement. The Joint Venture Agreement is governed by Chinese law. Pursuant to the terms of the Joint Venture
Agreement, each of Kenon, through Quantum, and Wuhu Chery is required to invest pro rata amounts into Qoros at various and specified intervals. The Joint
Venture Agreement also contains provisions regarding (i) the joint approval of “substantial matters” (e.g., changes to Qoros’ articles of association; the merger,
amalgamation, split or public offering of Qoros) via
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unanimous approval from Qoros’ board of directors; (ii) the selection of Qoros’ Board of Directors and senior management; (iii) a prohibition against the
sale/assignment/transfer/pledge of either party’s interest in Qoros, subject to certain exceptions, and (iv) indemnification, confidentiality, non-competition, and
liquidation processes.
Pursuant to the terms of our Joint Venture Agreement, we have the right to appoint three of Qoros’ six directors and Wuhu Chery has the right to appoint the
remaining three of Qoros’ six directors. We also have the right to, together with Wuhu Chery, jointly nominate Qoros’ Chief Executive Officer and Chief Financial
Officer. The joint nomination of Qoros’ Chief Executive Officer and Chief Financial Officer are each subject to the approval of Qoros’ board of directors by a
simple majority vote.
Additionally, Wuhu Chery may, in the event of the termination of the Joint Venture Agreement, purchase our interest in Qoros at an agreed upon price or at
the price determined by an independent appraiser selected or appointed as applicable, pursuant to the valuation procedure set forth in the Joint Venture Agreement.
The nationalization or confiscation, in whole or in substantial part, of Qoros’ assets, or Qoros’ bankruptcy, for example, are all termination events that may trigger
Wuhu Chery’s purchase rights. Furthermore, the Joint Venture Agreement also contains provisions relating to the transfer and pledge of Qoros’ shares, the
appointment of executive officers and directors, and the approval of “substantial matters,” which may prevent us from causing Qoros to take actions that we deem
desirable.
Each of Kenon and Chery had committed to provide Qoros with RMB3.74 billion of capital contributions. Kenon and Chery have satisfied their individual
committed capital contributions (assuming the conversion of certain convertible shareholder loans), having invested RMB5.2 billion and RMB5.1 billion,
respectively, in Qoros as of the date of this annual report via capital contributions and/or convertible or non-convertible shareholder loans.
Kenon and Chery have also guaranteed the full performance and observance by Quantum and Wuhu Chery, respectively, of, and compliance with, all
covenants, agreements, obligations and liabilities applicable to Quantum or Chery, as applicable, under and in accordance with the terms and conditions of the Joint
Venture Agreement. As a result, Kenon and Chery are effectively subject to the terms of the Joint Venture Agreement.
The Joint Venture Agreement will expire in December 2032 and either we or Chery may terminate the Joint Venture Agreement prior to this date, under
certain circumstances, and subject to certain conditions. For further information on the risks related to the Joint Venture Agreement, including the risks related to
Chery’s status as a state controlled holding enterprise, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros
is
a
joint
venture
in
which
our
interest
is
only
50%.
”
Qoros’
Board
and
Executive
Management
Qoros has recently made a number of personnel changes at the executive management level and in the senior management structure. For example, Qoros’
board of directors recently appointed a new interim Chief Executive Officer. Qoros’ interim Chief Executive Officer also serves as the chairman of Qoros’ board of
directors.
Qoros’
Legal
Proceedings
Claims
by
Suppliers
During 2015, Qoros was subject to various claims brought by certain of its suppliers claiming unpaid amounts. As of the date of this annual report, the total
amounts claimed are approximately RMB87 million. Qoros is defending itself against each of these claims. For further information on the risks related to Qoros’
relationship with its suppliers, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros
is
dependent
upon
its
suppliers.
”
Eisenmann
Proceedings
In February 2016, Eisenmann SE, or Eisenmann, brought a claim against Geico Taikisha and Qoros before the Suzhou Intermediate People’s Court of
Jiangsu Province, alleging that Geico Taikisha and Qoros infringed upon Eisenmann’s patents through Qoros’ use of J-Flex equipment which it purchased from
Geico Taikisha. Geico Taikisha and Qoros are contesting this action, and will file an invalidation petition of the Eisenmann patent before the State Intellectual
Property Office of the People’s Republic of China. Should the court rule in favor of Eisenmann, Qoros could be required to cease its use of the J-Flex equipment,
which Qoros uses to dip and transport vehicle bodies on the pre-treatment and paint lines of its manufacturing facility. Qoros may also be required to pay monetary
damages, but Qoros believes that Geico Taikisha would be required to indemnify it for any such damage award and the associated legal costs. For further
information on the risks associated with Qoros’ dependence on systems, components and parts to conduct its manufacturing operations, see “ Item
3.D
Risk
Factors
—Risks
Related
to
Our
Interest
in
Qoros—Qoros
is
dependent
upon
its
suppliers.
”
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Qoros’
Regulatory,
Environmental
and
Compliance
Matters
Qoros is subject to regulation, including environmental regulations, in China and the Jiangsu Province. Such regulations are becoming increasingly stringent
and focus upon the reduction of emissions, the mitigation of remediation expenses related to environmental liabilities, the improvement of fuel efficiency, and the
monitoring and enhancement of the safety features of Chinese vehicles. For example, the Beijing VI emissions standards, which are expected to be implemented in
December 2017, will impose stricter emissions regulations on Chinese car manufacturers. In order to comply with these new emissions regulations, Qoros will need
to upgrade its engines and is expects to incur significant costs in doing so. Qoros’ facility, activities and operations are also subject to continued monitoring and
inspection by the relevant Chinese authorities. Qoros believes that it is in compliance with applicable Chinese government regulations.
Additionally, certain of Qoros’ corporate activities are subject to the regulation and approval of the competent authorities in China. Such activities include
capital increases by loans to, or investments in Qoros, changes in the structure of Qoros’ ownership, increases in the production capacity, construction of Qoros’
production facilities, registration and ownership of trademarks, relocation of Qoros’ head office, the formation of subsidiaries, and the inclusion of Qoros’ products
in the national catalogue for purposes of selling them throughout China.
Furthermore, in January 2016, Qoros created an NEV business division, which will focus on the development of efficient, cost-effective electric cars. Should
Qoros proceed with developing and selling electric vehicles, Qoros will be subject to a new regulatory regime, including regulations regarding battery safety and
testing, limitations on electrolyte spillage, battery retention, avoidance of electric shock following specified crash tests, energy efficiency testing and electric car
labeling requirements. For further information on Qoros’ regulatory, environmental and compliance risks, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros
is
subject
to
Chinese
regulation
and
its
business
or
profitability
may
be
affected
by
changes
in
China’s
regulatory
environment
.”
ZIM
We have a 32% stake in ZIM, an international shipping company in which IC held an approximately 99.7% equity interest prior to ZIM’s restructuring on
July 16, 2014, which reduced ZIM’s outstanding indebtedness and liabilities (face value, including future off-balance sheet commitments in respect of operational
leases and with respect to those parties participating in the restructuring) from approximately $3.4 billion to a remaining balance of approximately $2 billion. As a
result of the completion of ZIM’s restructuring in July 2014, IC’s equity interest in ZIM was reduced from 99.7% to 32% and ZIM is reflected as a discontinued
operation in our results of operations for all periods prior to June 30, 2014. ZIM’s results of operations for the six month period ended December 31, 2014, and all
periods subsequent thereto, are reflected in our share in income (losses) of associated companies, net of tax.
ZIM is a global container liner company that operates in select and niche markets. ZIM was founded in Israel in 1945, and has over 70 years of experience in
the shipping industry providing customers with seaborne transportation and logistics services and solutions. As of December 31, 2015, ZIM operated 85 vessels (of
which 7 were owned and 78 were chartered) with a total shipping capacity of 369,549 TEUs. As of December 31, 2015, ZIM chartered 91% of its capacity, and
approximately half of its charter leases by capacity have durations of less than one year.
As of December 31, 2015, ZIM operated a global network of approximately 65 weekly lines, calling at approximately 170 ports in approximately 70
countries. ZIM’s network includes strategically located hubs and regional feeder lines to increase geographical coverage. ZIM has cooperation agreements with
other leading container liner companies and alliances, allowing ZIM to increase its fleet utilization by sharing capacity, expand its service offering and benefit from
cost savings. ZIM’s vessels have capacities ranging from less than 1,000 TEUs to approximately 10,000 TEUs, allowing ZIM to match the markets’ dynamics and
ensure high utilization. Within ZIM’s global network, ZIM offers a variety of services, including land transportation and logistical services, as well as specialized
shipping solutions, such as the transportation of out-of-gauge cargo, refrigerated cargo and hazardous cargo.
Pursuant to ZIM’s articles of association, Kenon currently has the right to appoint up to 2 directors to ZIM’s board of directors (even if our interest in ZIM’s
share capital otherwise entitles us to appoint more than 2 directors to ZIM’s board of directors). This right will expire if ZIM’s board of directors is comprised of
more than 9 directors, in which case Kenon will be entitled (alone or together with others) to appoint a number of directors that corresponds to our equity interest in
ZIM.
ZIM’s
Industry
Update
The shipping industry continued to experience low margins during 2015, and industry conditions remain challenging due to the historically large supply-
demand gap created by the global financial crisis and subdued trade growth since then
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along with the rapid increase of capacity. The oversupply of vessel capacity within the container shipping industry is expected to continue in the near future as the
global fleet continues to increase. In 2015, 62 vessels of over 10,000 TEUs were delivered, and their total scheduled deliveries amounted to 1.7 million TEUs out of
19.9 million TEUs delivered, representing an 8.5% increase in total TEUs delivered as compared to 2014.
The dramatic decrease in bunker prices of approximately 50% since December 2014 year over year has had both negative and positive impacts on industry
supply and demand trends. On the one hand, the shipping industry, which is currently characterized by oversupply, suffers, as low bunker prices result in additional
downward pressures on freight rates, as customers put pressure on shipping companies to reduce their freight rates. On the other hand, low bunker prices positively
impact shipping companies’ cost structures and support household spending that increases private consumption, which, in turn, results in higher demand for goods.
As a result of the challenging supply-demand balance and the deterioration of bunker prices, freight rates reached their lowest level since 2009. As a result of
market oversupply and low demand, the number of idle vessels has increased and the container charter market continues to experience a sharp decrease in charter
rates, mainly for 4,000 to 6,000 TEU vessels, which experienced approximately between a 40% and 60% decrease in charter rates in 2015.
According to the Panama Canal Authority, the upgraded Panama Canal is scheduled to be completed in 2016. This may lead to a change in method of
operation within the shipping industry, as the Panama Canal’s widened locks will be capable of handling 13,000 TEU vessels, as opposed to only 5,000 TEU
vessels which the Panama Canal currently handles. Carriers began to serve Trans-Pacific trade through the Suez Canal in order to gradually increase capacity until
the completion of the Panama Canal expansion. The method of operation may change during 2016 and pose new challenges for the deployment of the Panamax
5,000 TEU vessels, as they become too small for the Trans-Pacific trade zone and too large for some of the intra trade zones.
ZIM’s
Description
of
Operations
ZIM operates in the liner shipping sector and provides container space/allocation in connection with its operation of regular routes between fixed
destinations, within and between trade zones, according to set schedules and anchoring at ports in accordance with a predetermined schedule and according to
either pre-determined or spot rates. ZIM operates globally, although its key operational activities are conducted in the Trans-Pacific trade zone, the Asia (including
Indian Sub-Continent)-Black Sea/ East Mediterranean Sea trade zones and the Intra-Asia trade zone. In 2015, these trade zones accounted for approximately 70%
of ZIM’s total carried volume (measured in TEUs).
ZIM competes with other liner shipping companies to provide transport services to customers worldwide. The market is significantly concentrated with the
top three carriers (A.P. Moller-Maersk Group, Mediterranean Shipping Company, and CMA CGM S.A.) accounting for approximately 37% of the global capacity,
and the remaining top 20 carriers each controlling less than 5% of the capacity as of December 2015. ZIM controls approximately 2% of the global container
shipping capacity and is ranked nineteenth among shipping carriers globally as of December 2015 (in terms of TEU capacity).
To compete in an oversupplied market and to minimize costs, the main containership operators have created, and are continuing to create and enter into
alliances of cooperative operational arrangements. These alliances enable rationalization of the activities of the carriers, realization of economies of scale in the
operation of vessels and utilization of port facilities, promotion of technical and economic progress and greater, more efficient utilization of container and vessel
capacity. ZIM is not a member of an alliance. However, ZIM is party to a wide range of operational partnerships, including vessel sharing agreements, swap
agreements, and slot purchase agreements with other carriers in most of the trade zones in which it operates. For further information on the risks related to
competition within the shipping industry and ZIM’s participation in cooperative operational agreements, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Other
Businesses—Risks
Related
to
Our
Interests
in
ZIM—ZIM
does
not
benefit
from
the
efficiencies
of
participating
in
strategic
alliances
and
the
ability
to
enter
into
such
alliances
and
the
participation
in
operational
partnerships
in
the
shipping
industry
may
be
limited,
which
may
adversely
affect
ZIM’s
business.
” In light of
such industry dynamics, ZIM continues to monitor its operational costs and strives to implement additional cost reduction practices in order to position itself as a
more efficient and profitable carrier.
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The map below illustrates ZIM’s trade zones of operation, as of December 31, 2015, and the percentage of TEUs transported by zone:
The following table sets forth, a description of the major trade zones or sub-trade zones in which ZIM operates, and the distribution of TEUs transported by
ZIM within each zone, for each of 2015, 2014 and 2013:
Business Unit
Pacific
Cross Suez
Intra-Asia
Atlantic
Latin America
Total
Description of Business Unit
The Pacific BU consists of the Trans-Pacific trade zone, which covers trade
between Asia (mainly China) and the east coast and west coast of the U.S.,
Canada, Central America and the Caribbean
The Cross Suez BU consists of the Asia-Europe trade zone, which covers trade
between Asia and Europe through the Suez Canal, primarily through the Asia-
Black Sea/Mediterranean Sea sub-trade zone
The Intra-Asia BU consists primarily of the Intra-Asia trade zone, which covers
trade within regional ports in Asia, as well as trade between Asia and Africa
The Atlantic BU consists of the Trans-Atlantic trade zone, which covers the
trade between the Mediterranean to US east and west coasts and the Caribbean,
as well as Intra trades which include the East Mediterranean, West
Mediterranean and North Europe and the Mediterranean to West Africa trade
The Latin America BU consists of the Intra-America trade zone, which covers
trade within regional ports in the Americas as well as trade between South
American east coast and Asia and the Mediterranean to South America east
coast via the Atlantic Ocean
2015
TEU
Transported
(%)
34.7
2014
TEU
Transported
(%)
31.0
2013
TEU
Transported
(%)
28.4
15.4
21.6
26.8
18.5
22.4
18.4
21.7
18.7
19.9
9.0
7.3
6.2
100.0
100.0
100.0
ZIM’s
Description
of
Fleet
ZIM operates in the liner shipping sector and generates revenue from fees paid to it in exchange for transportation services provided by it (through
deployment of its fleet of vessels it owns or charters to ZIM’s customers). As of December 31, 2015, ZIM’s fleet included 85 vessels (84 container vessels and 1
vehicle transport vessel), of which 7 vessels were indirectly
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owned by ZIM (through subsidiaries established for vessel-holding purposes only) and 78 vessels were chartered (5 of these are defined as financial leases). As of
the date of this annual report, ZIM had re-delivery dates ranging from 2016 to 2026. As of December 31, 2015, the total capacity of ZIM’s fleet of vessels (both
owned and chartered) was 369,549 TEUs (compared to 346,156 TEUs as of December 31, 2014).
The following table sets forth summary information relating to ZIM’s vessels as of December 31, 2015, differentiating between owned and chartered vessels,
and the remaining period of the charter:
Vessels owned by ZIM
Vessels chartered from parties related to ZIM
Periods up to 1 year (from December 31, 2015)
Periods between 1 to 5 years (from December 31, 2015)
Periods over 5 years (from December 31, 2015)
Vessels chartered from third parties
Periods up to 1 year (from December 31, 2015)
Periods between 1 to 5 years (from December 31, 2015)
Periods over 5 years (from December 31, 2015)
Total
1.
Vehicle transport vessels.
Container Vessels
Number
7
Capacity
(TEU)
32,023
2
3
2
8,500
14,850
8,442
47
15
8
84
168,296
79,314
58,125
369,549
Other
Vessels
0
0
0
0
11
0
0
11
Total
7
2
3
2
48
15
8
85
Industry analysts expect shipping companies’ deployments of larger vessels to increase and, in particular, to increase in certain of the key trade zones in
which ZIM operates and intends to increase its operations. The recent Panama Canal expansion is illustrative of the industry trend towards larger vessels. To
remain competitive within these trade zones, ZIM may seek to alter its fleet composition accordingly.
Chartered
Vessels
ZIM charters vessels under charter agreements for varying periods. With the exception of those vessels whose rates were set in connection with ZIM’s 2014
debt restructuring, ZIM’s charter rates were fixed at the time of entry into the charter, and depend upon market conditions existing at that time. As of December 31,
2015, of the 78 vessels chartered by ZIM under lease arrangements:
•
•
•
72 vessels were chartered under a “time charter,” which consists of chartering the vessel capacity for a given period of time against a daily charter fee,
with the crewing and technical operation of the vessel handled by its owner, including 7 vessels chartered under a time charter from parties related to
ZIM;
1 vessel was charted under a “bareboat charter,” which consists of the chartering of a vessel for a given period of time against a charter fee, with the
operation of the vessel handled by the charterer; and
5 vessels were chartered under financial lease agreements.
Subject to any restrictions in the applicable lease arrangement, the charterer determines the type and quantity of cargo to be carried as well as the ports of
loading and discharging. ZIM’s vessels operate worldwide within the trading limits imposed by its insurance terms. The technical operation and navigation of
ZIM’s vessels remain, at all times, the responsibility of the vessel owner, who is generally responsible for the vessel’s operating expenses, including the cost of
crewing, insuring, repairing and maintaining the vessel, costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses.
Fleet
Management
ZIM provides its own operational and technical management services for each of the vessels that it owns.
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ZIM operates vessels in accordance with the ISM Code and the International Ship and Port Facilities Security Code, or ISPS Code, in addition, developing,
implementing and maintaining a safety management system in accordance with the ISM Code.
Non-Fleet
Equipment
In addition to the vessels that ZIM owns and charters, ZIM owns and charters a significant number of shipping containers. As of December 31, 2015, ZIM
held 328,512 container units with a total capacity of 527,920 TEUs, of which approximately 60% were owned by ZIM (including under finance leases) and
approximately 40% were chartered.
Utilization
Rate
ZIM’s utilization of its carrying capacity, its utilization rate, varies from time to time and generally ranges between approximately 70% and 93% of total
active vessels operating on its voyages to western countries (i.e., the dominant leg), with the utilization rates of its voyages in the opposite direction (i.e., the
counter-dominant leg) being much lower.
ZIM’s
Customers
In 2015, ZIM had more than 26,000 customers. ZIM’s customers are divided into “end users”, including exporters and importers, and “forwarders,” these
being non-vessel operating common carriers (i.e., entities engaged in assembling cargos from various customers and the forwarding thereof through a shipping
company). In 2015, 42% of ZIM’s customers (in terms of transported volume) were “end” customers, while the remainder were “forwarders,” e.g., entities dealing
with consolidation cargo from various clients and shipping the cargo by various shipping companies. ZIM does not depend upon any single customer.
ZIM’s
Seasonality
Activity in the marine container shipping industry is affected by various seasonality factors. Generally, the first quarter of the calendar year is marked by a
decrease in demand for shipping, primarily due to a decrease in demand from Asia as a result of the Chinese New Year. In the third and fourth quarters, demand for
cargo shipping generally increases, primarily due to the holiday periods in the United States. The third quarter is generally the strongest quarter with respect to
shipping demand.
Recently, as a result of the continuing crisis within the shipping industry, the seasonality factors have not been as apparent as they have been in the past. The
marine shipping market is dynamic and volatile by its very nature and has been marked in recent years by relative instability. As global trends that affect the
shipping market have been changing rapidly in recent years, it remains difficult to predict these trends and the shipping industry’s activities.
ZIM’s
Legal
Proceedings
Derivative
Action
Concerning
ZIM
Restructuring
On August 5, 2014, a petition was submitted to the District Court in Tel Aviv, to approve the submission of a derivative action against IC, ZIM, certain of
IC’s independent directors comprising a special committee of the IC board established to consider ZIM’s restructuring, Millenium Investments Elad Ltd., or
Millenium, which owned approximately 46.9% of IC, and Mr. Idan Ofer. The petitioner alleges that (i) IC’s execution of a related party transaction in connection
with the completion of ZIM’s restructuring deviated from the approval of IC’s general assembly, (ii) a condition precedent to such transaction relating to the
transferability of IC’s equity interest in ZIM was not fulfilled, and (iii) as a result, IC has incurred damages of approximately $27 million. The petitioner requests
that the defendants (excluding IC and ZIM) hold a shareholder meeting to approve IC’s execution of such related party transaction or the defendants (excluding IC)
compensate IC (in an amount not less than $27.4 million), as a result of the lower value of ZIM shares that were issued to IC in connection with the restructuring.
Additionally, the petitioner alleges that the defendants wrongfully enriched breached their statutory duties, exceeded their authorization, and/or breached their duty
of care and fiduciary duties. The petitioner further claims that the defendants, Millenium and Mr. Idan Ofer, as controlling shareholders of IC, acted to convene
additional shareholder meetings. At this stage, ZIM is unable to estimate the probability of an adverse outcome or the effect of an adverse outcome on its business,
if any.
European
Commission
Antitrust
Investigation
On November 22, 2013, the European Commission published an announcement in respect of the commencement of investigation procedures against several
liner shipping companies due to a suspicion of them acting in concert. According to
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the announcement, the European Commission intends to investigate whether public notices of the shipping companies in respect of the future price increase, which
were published on the carriers’ internet websites, in the press and elsewhere, caused or may have caused any restriction on competition and customers’ trading in
the liner shipping market to and from the European Union and the European Economic Area.
On November 21, 2013, an official notice was submitted to ZIM, in which it was clarified that the investigation proceedings involve a substantial number of
liner shipping companies operating from and to the European Economic Area, including ZIM and that the initiation of proceedings does not imply that the
European Commission has made a definitive finding of an infringement, but only that it intends to give priority to the matter. At this stage, all of the carriers
involved in the proceedings, including ZIM, are engaged in advanced constructive negotiation of commitments with the European Commission.
ZIM’s
Regulatory,
Environmental
and
Compliance
Matters
Government and international regulation significantly affects the ownership and operation of vessels. ZIM is subject to many legal provisions relating to the
protection of the environment, including with respect to the emissions of hazardous substances, SOx and NOx gas exhaust emissions, the operation of vessels while
at anchor by means of generators, and the use of low-sulfur fuel. ZIM could be exposed to high costs in respect of environmental damages (to the extent that the
costs are not covered by its insurance policies), criminal charges, and substantive harm to its operations and goodwill, if and to the extent that environmental
damages are caused by its operations. ZIM instructs the crews of its vessels on the environmental regulatory requirements and operates in accordance with
procedures that ensure its in compliance with such regulatory requirements. ZIM also insures its activities, where effective for it to do so, in order to hedge its
environmental risks. ZIM’s vessels are also subject to the standards imposed by the International Maritime Organization, the United Nations specialized agency
with responsibility for the safety and security of shipping and the prevention of marine pollution by ships.
ZIM is also subject to extensive regulation that changes from time to time and that applies in the jurisdictions in which shipping companies are incorporated,
the jurisdictions in which vessels are registered (flag states), the jurisdictions governing the ports at which the vessels anchor, as well as regulations by virtue of
international treaties and membership in international associations. Changes and/or amendments to the regulatory provisions applying to ZIM (e.g., the U.S.’s
recent policy requiring the scanning of all cargo en route to the United States) could have a significant adverse effect on ZIM’s results of operations. Additionally,
the non-compliance of a port with any of the regulations applicable to it may also adversely impact ZIM’s results of operations, by increasing ZIM’s operating
expenses.
Additionally, ZIM is subject to competition regulations worldwide. For example, in the European Union, ZIM is subject to articles 101 and 102 of the
Consolidated Version of the Treaty on the Functioning of the European Union. ZIM’s transport activities serving the U.S. ports are subject to the Shipping Act of
1984, as modified by the Ocean Shipping Reform Act of 1998. With respect to Israel, ZIM is subject to the general competition law established in the Israel
Antitrust Law, 1988. Immunity from antitrust laws to certain agreements between ocean carriers that operate in the aforementioned jurisdictions, such as slot
exchange agreements and other operational partnerships, are in effect. ZIM is party to certain operational and commercial partnerships with other carriers in the
industry and each of those arrangements, as well as any future arrangements it becomes party to, must comply with the applicable antitrust regulations in order to
remain protected and enforceable.
ZIM is also subject to Israeli regulation regarding, among other things, national security and the mandatory provision of ZIM’s fleet, environmental and sea
pollution, and the Israeli Shipping Law (Seamen) of 1973, which regulates matters concerning seamen, and the terms of their eligibility and work procedures.
Finally, ZIM is subject, in the framework of its international activities, to laws, directives, decisions and orders in various countries around the world that
prohibit or restrict trade with certain countries, individuals and entities.
For further information on ZIM’s regulatory risks, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Other
Businesses—Risks
Related
to
Our
Interest
in
ZIM—ZIM
is
subject
to
environmental
regulation
and
failure
to
comply
with
such
regulation
could
have
a
material
adverse
effect
on
ZIM’s
business
” and “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Other
Businesses—Risks
Related
to
Our
Interest
in
ZIM—The
shipping
industry
is
subject
to
extensive
government
regulation
and
standards,
international
treaties
and
trade
prohibitions
and
sanctions.
”
ZIM’s
Special
State
Share
In connection with the 2004 sale of the holdings of the State of Israel in ZIM to IC, ZIM ceased to be a “mixed company” (as defined in the Government
Companies Law of Israel) and issued a Special State Share to the State of Israel. The objectives underlying the Special State Share are to (i) safeguard ZIM’s
existence as an Israeli company, (ii) ensure ZIM’s
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operating ability and transport capacity, so as to enable the State of Israel to effectively access a minimal fleet in an emergency crisis, or for security purposes and
(iii) prevent elements hostile to the State of Israel or elements liable to harm the State of Israel’s vital interests or its foreign or security interest or Israel’s shipping
relations with foreign countries from having influence on ZIM’s management. In connection with the completion of ZIM’s restructuring plan, certain transferability
restrictions imposed by the terms of the Special State Share were revised. Prior to the consummation of ZIM’s restructuring plan, the Israeli Supreme Court
validated ZIM’s articles of association, including the revised terms of the Special State Share. The key terms and conditions of the revised Special State Share
include the following requirements:
•
•
•
•
•
ZIM must be, at all times, a company incorporated and registered in Israel, whose headquarters and registered main office are domiciled in Israel;
at least a majority of the members of ZIM’s board of directors, including the Chairman of the board, as well as the Chief Executive Officer or the
person serving as its Chief Business Officer, whatever his/her title may be, must be Israeli citizens;
any transfer of vessels shall be invalid vis-à-vis ZIM, its shareholders and any third party if, as a result thereof, the minimum fleet target mandated by
the State of Israel will not be maintained and the holder of the Special State Share has not given prior written consent thereto;
any holding and/or transfer of shares and/or allocation that confers possession of shares in ZIM at 35% or more of its issued share capital, or that vests
the holder thereof with control over ZIM, including as a result of a voting agreement, shall be invalid vis-à-vis ZIM, its shareholders and any third
party, if the holder of the Special State Share has not given prior written consent thereto; and
any transfer of shares granting the owner a holding exceeding 24% but not exceeding 35%, shall require prior notice to the State of Israel, including
full information regarding the transferor and the transferee, the percentage of the shares held by the transferee after the transaction will be completed,
and the relevant information about the transaction, including voting agreements and agreements for the appointment of directors (if applicable). In any
case, if the State of Israel determines that a transfer of such shares shall constitute potential harm to the State of Israel’s security, or any of its vital
interests, or that it has not received the relevant information in order to make a decision, the State of Israel shall be entitled to notify the parties within
30 days that it opposes the transaction, and will be obligated to justify its opposition. In such a situation, the requestor of the transaction shall be
entitled to transfer this matter to the competent court, which shall hear and rule on the subject in question.
Any change, including an amendment or cancellation of the rights afforded to the State of Israel by the Special State Share shall be invalid with respect to
ZIM, its shareholders and any third party, unless it is approved in advance and in writing by the State of Israel.
Kenon’s ownership of ZIM shares is subject to the terms and conditions of the Special State Share, which restricts Kenon’s ability to transfer its equity
interest in ZIM to third parties. The terms of the State of Israel’s consent of Kenon’s and Idan Ofer’s status, individually and collectively, as a “Permitted Holder”
of ZIM’s shares, stipulates, among other things, that Kenon’s transfer of the means of control of ZIM is limited if the recipient is required to obtain the State of
Israel’s consent, or is required to notify the State of Israel of its holding of ZIM shares pursuant to the terms of the Special State Share, unless such consent was
obtained by the recipient or the State of Israel did not object to the notice provided by the recipient. In addition, the terms of the consent provide that, if Idan Ofer’s
ownership interest in Kenon is less than 36% or Idan Ofer ceases to be the controlling shareholder, or sole controlling shareholder of Kenon, then Kenon’s rights
with respect to its shares in ZIM will be limited to the rights applicable to an ownership of 24% of ZIM, until or unless the State of Israel provides its consent, or
does not object to, this decrease in Idan Ofer’s ownership or control. Therefore, if Mr. Ofer sells a portion of his interest in Kenon and owns less than 36% of
Kenon, or ceases to be Kenon’s controlling shareholder, then Kenon’s right to vote and receive dividends in respect of its ZIM shares, for example, will be limited
to those available to a holder of 24% of ZIM’s shares (even if Kenon holds a greater percentage of ZIM’s shares). “Control”, for the purposes of this consent, is as
defined in the State of Israel’s consent, with respect to certain provisions. Additionally, the State of Israel may revoke Kenon’s permit if there is a material change
in the facts upon which the State of Israel’s consent was based, or upon a breach of the provisions of the Special State Share by Kenon, Mr. Ofer, or ZIM. For
information on the risks related to the State of Israel’s ownership of the Special State Share, including with respect to IC’s transfer of its interest in ZIM to us, see “
Item
3.D
Risk
Factors
—Risks
Related
to
Our
Other
Businesses—Risks
Related
to
Our
Interest
in
ZIM—Israel
holds
a
Special
State
Share
in
ZIM,
which
imposes
certain
restrictions
on
ZIM’s
operations
and
our
equity
interest
in
ZIM.
”
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Tower
Tower is a pure-play independent specialty foundry dedicated to the manufacture of semiconductors. Typically, pure-play foundries do not offer products of
their own, but focus on producing integrated circuits, or ICs, based on the design specifications of their customers. Tower manufactures semiconductors for its
customers primarily based on third-party designs. Tower currently offers the manufacture of ICs with geometries ranging from 1.0 to 45-nanometers. Tower also
provides design support and complementary technical services. ICs manufactured by Tower are incorporated into a wide range of products in diverse markets,
including consumer electronics, personal computers, communications, automotive, industrial and medical device products.
On July 23, 2015, consistent with our strategy to realize value for our shareholders by, among other things, distributing our interests in our non-primary
businesses to our shareholders rationally and expeditiously, we completed the pro rata distribution in specie of 18,030,041 ordinary shares of Tower, representing
23% of the then currently outstanding Tower shares and substantially all of our interest in Tower, to holders of our ordinary shares. As a result of this distribution,
we recognized a $210 million gain in the year ended December 21, 2015, which reflects the difference between the fair market value of the Tower ordinary shares
held by us on the distribution date ($255 million based upon the closing price of the Tower shares on NASDAQ on the date of our distribution of such shares to our
shareholders) and the carrying amount of Tower’s shares at the time of the distribution ($45 million). As of the date of this annual report, our interest in Tower
comprises (i) 2,668 options to purchase 2,668 ordinary shares of Tower and (ii) 1,669,795 Series 9 Warrants to purchase 1,669,795 ordinary shares of Tower,
which represents an aggregate of approximately 2% of Tower’s outstanding shares.
Tower’s results of operations are reflected in our share in income (losses) of associated companies, net of tax, for all periods prior to June 30, 2015. For
further information on Tower and its operations, see “ Information
Regarding
Tower.
”
Remaining Businesses
We have a 91% equity interest in Primus
, an innovative developer and owner of a proprietary natural gas-to-liquid technology process.
We also own a 70% equity interest in HelioFocus
, which previously developed dish technologies for solar thermal power fields, but currently has minimal
operations and is currently in the process of being wound-up.
Additionally, until December 24, 2014, we owned a 69% equity interest in Petrotec
, a European producer of biodiesel generated from used cooking oil, or
UCO, whose securities are listed on the Frankfurt Stock Exchange. On December 24, 2014, REG, a NASDAQ-listed advanced biofuels producer and developer of
renewable chemicals, purchased Kenon’s holdings in Petrotec. As consideration for REG’s purchase of Petrotec’s shares, Kenon received approximately $20.9
million, which was paid in the form of newly-issued shares of REG. Kenon has sold its interest in REG.
Primus
Primus’
Description
of
Operations
Primus is an innovative developer of a proprietary liquid fuels technology, the STG+ process, which is designed to produce liquid hydrocarbons from
synthesis gas, or syngas, derived from natural gas (including synthetic natural gas) and other feedstocks (e.g., ethane). Primus’ STG+ process converts syngas into
methanol and high-octane gasoline. As a result of the availability of large shale gas reserves in the U.S. and the low cost of natural gas in relation to the cost of
gasoline, Primus intends to primarily utilize domestically produced natural gas in its STG+ process.
Primus’ business consists of three primary activities:
•
•
•
Methanol Production . Primus intends to own, operate and develop, or license the technology for the operation and development of, methanol
production plants across North America to service local users of methanol who are located far from larger-scale methanol plants.
Gasoline Production . Primus intends to provide its STG+ process to convert natural gas into high octane gasoline for industrial and chemical plant
owners who have spare syngas capacity.
Gas Flaring Solutions . Primus offers gas flaring solutions to convert natural gas that would otherwise be flared into gasoline. Primus intends to
provide technology licenses and collect gasoline production royalties from operators seeking to remain in compliance with strict anti-flaring
regulations and monetize natural gas that would otherwise be flared.
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Primus seeks to operate as a technology development company and may take equity interests in the plants which it develops. Primus seeks to generate
revenues from construction management and engineering fees, technology licensing fees and production royalties, and, from plants in which Primus will have an
equity interest, operating revenue from the sale of methanol and gasoline. Where Primus develop a plant for a customer, Primus intends to pass through the costs of
developing the plant to the customer.
Primus’ STG+ process improves upon existing gas-to-liquid technologies by integrating all reactors into a single-loop process, thereby reducing capital and
operating costs while increasing reliability and yield. Primus expects the STG+ process to operate on a smaller scale than the competing methanol-to-gasoline
process utilized by other, non-traditional gasoline producers. Primus expects its customers to be able to distribute, store and pump its gasoline using existing fuel
infrastructures and expects that the gasoline produced may be utilized in unmodified, conventional vehicles.
Between 2011 and 2013, Primus operated a pilot scale test facility at its headquarters in Hillsborough, New Jersey. Primus’ pilot plant consisted of two major
units, the first being a wood pellet gasifier that produced syngas, and the second being the STG+ process. The STG+ process has been successfully validated at the
pilot scale. Primus used the data obtained from such operations to optimize the design of its demonstration plant, which was completed in August 2013. Primus’
demonstration plant generates syngas from natural gas, and converts the syngas into high-octane gasoline. The demonstration plant has a nameplate production
capacity of 12.7 gallons per hour, or 100,000 gallons per year, and was designed to replicate the key scale parameters of a larger plant, so as to minimize potential
scale-up risks. Between 2013 and 2015, Primus successfully operated the demonstration plant for over 7,600 hours.
In the year ended December 31, 2015, Primus did not generate material revenues from its operations. As of December 31, 2015, we have invested
approximately $76 million (which includes amounts invested by IC prior to the spin-off) into Primus’ operations.
In connection with Primus’ further development and our efforts to maximize its value, we may provide additional capital to Primus, in the form of debt or
equity financing, if deemed appropriate to facilitate Primus’ operational and development capital requirements. In October 2014, we entered into an investment
agreement with Primus pursuant to which we, through our wholly-owned subsidiary IC Green, may lend Primus, at our discretion, up to $25 million via a series of
convertible notes through December 31, 2015. As of December 31, 2015, through this investment agreement, we have invested in Primus an aggregate of $16.5
million through convertible notes issued to Kenon.
We own 91% of Primus and the remaining 9% is primarily held by Primus’ founders; on a fully diluted basis, giving effect to management share options,
Kenon’s ownership interest in Primus is approximately 83%.
Primus’
Principal
Markets;
Customers
Primus intends to own, operate and develop, or license the technology for the operation and development of, methanol production plants in North America.
The intended off-takers of Primus’ methanol will primarily consist of local users of methanol who are located far from large-scale methanol production plants. In
the United States, methanol is generally produced in the Gulf Coast and is transported to off-takers throughout the country. Due to transportation costs, methanol
customers in the Northeast and Midwest pay a substantially higher price than customers around the Gulf Coast. Primus intends to construct and own plants in such
regions to capture the price spread resulting from the transportation costs.
The main customers and commercial partners for Primus’ gasoline production services are underutilized chemical and industrial plants. Specifically, Primus
aims to partner with industrial and chemical plant owners who have spare syngas generation capacity to produce gasoline. Primus also intends to provide gasoline
production services to customers and partners in regions that have limited gasoline refining abilities and infrastructure.
Finally, Primus intends to provide its gas flaring solutions to customers throughout the world, particularly those in regions with strict gas flaring regulations.
The production of oil results in the “flaring” of natural gas—a method disposing of, rather than utilizing, any excess natural gas. Such flaring has become a concern
in certain countries as a result of the associated emissions in greenhouse gases and the subsequent decrease in the availability of natural gas. As Primus’ STG+
process converts syngas into high-octane gasoline, Primus provides its customers with the technological tools to transform the natural gas associated with oil
production and flaring into gasoline.
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Potential customers of the gasoline and methanol produced by Primus’ technology include existing refiners of crude oil, industrial and chemical users,
purchasers of oil-based fuels, and blenders of transportation fuels and direct end-users, such as retailers.
Decreases in the costs associated with traditional sources of fuel or electricity, such as prices for commodities like crude oil, coal, fuel oil and natural gas,
have, and could further, reduce the demand for the solutions provided by Primus. For further information on the risks related to the demand of Primus’ products and
services in light of the fluctuating costs of traditional sources of fuel, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Other
Businesses—Risks
Related
to
Our
Other
Businesses—The
decrease
in
the
cost
of
fuel
or
electricity
generated
by
traditional
sources
may
cause
the
demand
for
the
services
provided
by
Primus
to
decline
.”
Primus’
Project
Pipeline
Primus is currently engaged in discussions with potential customers and joint venture partners with respect to a range of project types, including for the
construction of methanol plants in North America, the conversion of syngas into gasoline and the provision of gas flaring solutions. Should Primus secure these
potential projects, which may be located throughout the world, Primus would be compensated through a mix of revenues from sales to off-takers, construction
management and engineering fees, technology licensing fees and production royalties. A number of these projects also give Primus the opportunity to own equity in
the project.
Primus’
Collaboration
Agreement
with
Jereh
In October 2015, Primus launched a global market collaboration with Yantai Jereh Oilfield Services Group, Co., or Jereh, an international integrated oil and
gas company specializing in Oil and Gas EPC services, oilfield technology services and equipment manufacturing. Pursuant to this collaboration, Primus and Jereh
will jointly market and deploy a range of gas-to-liquids, or GTL, systems, including gas-to-gasoline and gas-to-methanol systems, that use Primus’ STG+ process
to produce liquid products from natural gas.
Primus’
Raw
Materials
and
Suppliers
In connection with the operation of Primus’ demonstration plant in the year ended December 31, 2015, a single supplier provided Primus with its natural gas
requirements, representing an immaterial amount of Primus’ operating expenses in the year ended December 31, 2015.
Primus’
Competition
Primus seeks to operate as a technology development company and may, in the long-term, operate as a producer of alternative liquid fuels. Its competitors in
both spaces include other gas-to-liquids companies and companies using other feedstocks to produce syngas, such as ExxonMobil MTG, Haldor Topsøe TIGAS or
other newly-established ventures, that provide a different technological approach to the production of syngas. Primus also competes with traditional producers of
gasoline (e.g., oil refineries utilizing crude oil) and methanol (e.g., state-owned enterprises). As Primus’ STG+ process is further developed to produce gasoline and
methanol, Primus also expects to compete with the traditional and alternative producers of these fuels. Primus believes that its (i) direct synthesis of the desired fuel
product, (ii) high yield and cost-effective results; and (iii) selective process allows it to remain competitive with its competitors in both areas.
Primus’
Patents,
Licenses,
Etc.
Primus’ intellectual property portfolio includes: two issued U.S. patents on its core technology, the “Single Loop Process”, to produce liquid fuels from
syngas; two issued U.S. patents on its first commercial product, specifically the “Fuel Composition”; and several additional patent applications and trade secrets
that are generally categorized into the following areas: liquid fuel synthesis, liquid fuel composition, incremental improvements and customization, and biomass
gasification.
Primus has also filed corresponding patent applications under the Patent Cooperation Treaty and has filed national phase applications in multiple countries
for its base process patent. Primus actively evaluates its intellectual property portfolio so as to optimize its intellectual property strategy and to protect the
authenticity and commercial value of its STG+ process.
Primus’
Property,
Plants
and
Equipment
Primus’ fully operational 300 gallon-per-day integrated industrial demonstration plant located in Hillsborough, New Jersey, was successfully constructed in
August 2013. The demonstration plant converts natural gas feedstock into syngas which is, in turn, converted into high-octane gasoline and methanol. The
demonstration plant has a nameplate production capacity for
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Table of Contents
gasoline of 12.7 gallons per hour, or 100,000 gallons per year and for methanol of 32.4 gallons per hour or 255,000 gallons per year. Primus expects this
demonstration plant to provide the performance data necessary for the design and development of other plants.
Primus’
Regulatory,
Environmental
and
Compliance
Matters
Primus’ operations are affected by various local and foreign laws, rules, regulations and authorities. As a result, changes in various types of regulations could
affect Primus’ business adversely. For example, the implementation of new safety, environmental or legal requirements could impact Primus’ ability to produce
gasoline and methanol, or use the STG+ process. Furthermore, changes to the various regulations governing gas flaring could impact Primus’ ability to provide gas
flaring solutions. The impact of these changes in regulation could adversely affect Primus’ business, financial condition and results of operations even where the
specific regulations do not directly apply to Primus or to its technologies, products or services.
Petrotec
Petrotec, in which we held a 69% interest until December 2014, is a European producer of biodiesel generated from UCO and other waste. Petrotec, based in
Germany, produces biodiesels via the processing of UCOs and other waste oils and fats (primarily to large European—in particular, German—oil distributors), and
also operates its own UCO collection business and blending facility.
On December 24, 2014, REG, a NASDAQ-listed advanced biofuels producer and developer of renewable chemicals, purchased Kenon’s holdings in
Petrotec. As consideration, Kenon received approximately $20.9 million, which was paid in the form of newly-issued shares of REG. Kenon has sold its interest in
REG.
C.
Organizational Structure
The chart below represents a summary of our organizational structure, excluding intermediate holding companies. This chart should be read in conjunction
with the explanation of our ownership and organizational structure above.
D.
Property, Plants and Equipment
For information on our property, plants and equipment, see “ Item
4.B
Business
Overview
. ”
ITEM 4A. Unresolved Staff Comments
Not Applicable.
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Table of Contents
ITEM 5. Operating and Financial Review and Prospects
This
section
should
be
read
in
conjunction
with
our
audited
combined
carve-out
(for
all
periods
as
of
and
prior
to
December
31,
2014)
and
consolidated
(for
all
periods
subsequent
to
December
31,
2014)
financial
statements,
and
the
related
notes
thereto,
as
of
December
31,
2015
and
2014,
and
for
the
years
ended
December
31,
2015,
2014
and
2013,
and
the
related
notes
thereto,
included
elsewhere
in
this
annual
report.
Our
financial
statements
have
been
prepared
in
accordance
with
IFRS
as
issued
by
the
IASB.
The
financial
information
below
also
includes
certain
non-IFRS
measures
used
by
us
to
evaluate
our
economic
and
financial
performance.
These
measures
are
not
identified
as
accounting
measures
under
IFRS
and
therefore
should
not
be
considered
as
an
alternative
measure
to
evaluate
our
performance.
In
addition,
all
financial
information
below
relating
to
Tower
has
been
derived
from
financial
statements
that
were
prepared
in
accordance
with
U.S.
GAAP.
The
discussion
and
analysis
relating
to
our
results
of
operations
for
periods
as
of
and
prior
to
December
31,
2014
have
been
prepared
assuming
that
Kenon
operated
as
a
separate
entity
prior
to
the
consummation
of
the
spin-off
on
January
7,
2015.
Therefore,
references
in
this
discussion
to
the
historical
results
of
our
businesses
refer
to
businesses
that
had
not
been,
but
were
expected
to
be,
contributed
to
us
in
connection
with
the
spin-off.
The
historical
financial
statements
for
the
periods
under
review
have
been
carved
out
of
the
consolidated
financial
statements
of
IC,
which
held
each
of
our
businesses
during
the
periods
under
review.
References
in
this
discussion
to
our
historical
results
of
operations
prior
to
the
spin-off
therefore
refer
to
the
carved-out
historical
results
of
IC’s
operations.
The
financial
position,
results
of
operations
and
cash
flows
reflected
in
our
combined
carve-out
financial
statements
for
all
periods
as
of
and
prior
to
December
31,
2014
include
all
expenses
attributable
to
our
business
and
each
of
our
businesses,
but
may
not
be
indicative
of
those
that
would
have
been
achieved
had
we
operated
as
a
separate
public
entity
for
all
periods
presented,
or
of
our
future
results.
Certain
information
included
in
this
discussion
and
analysis
includes
forward-looking
statements
that
are
subject
to
risks
and
uncertainties,
and
which
may
cause
actual
results
to
differ
materially
from
those
expressed
or
implied
by
such
forward-looking
statements.
For
further
information
on
important
factors
that
could
cause
our
actual
results
to
differ
materially
from
the
results
described
in
the
forward-looking
statements
contained
in
this
discussion
and
analysis,
see
“Special
Note
Regarding
Forward-Looking
Statements”
and
“Item
3.D
Risk
Factors.”
Business Overview
We are a holding company that operates dynamic, primarily growth-oriented, businesses. The companies we own, in whole or in part, are at various stages of
development, ranging from established, cash generating businesses to early stage development companies.
We were established in connection with a spin-off of our businesses from IC to promote the growth and development of our primary businesses, and we are
primarily engaged in the operation of the following businesses: (i) IC Power, a wholly-owned power generation and distribution company that has experienced
profitable growth in its revenues and generation capacity since its inception in 2007, and (ii) Qoros, a China-based automotive company in which we have a 50%
equity interest, that is seeking to deliver international standards of quality, safety, and innovative features to the large and fast-growing Chinese automotive market
and commenced commercial sales at the end of 2013.
In the case of IC Power, we intend to continue to invest in projects that IC Power expects to generate attractive, risk-adjusted returns, using operating cash
flows, project or other financing at the IC Power level, as well as proceeds resulting from IC Power’s selective dispositions of assets. As part of our business
development strategy, we will seek to provide investors with direct access to IC Power when we believe it is in the best interests of IC Power’s development and
our shareholders to do so. For example, IC Power Singapore, the entity through which Kenon holds its interests in IC Power, has filed a registration statement with
the SEC in connection with its plan for an initial public offering of its equity. The completion of this IPO is subject to business and market conditions and other
relevant factors.
In the case of Qoros, we have used a significant portion of our liquidity and capital resources that we received in connection with our spin-off from IC to
support Qoros through shareholder loans and guarantees in respect of Qoros’ debt, and we have no obligation to provide further funding to Qoros. In April 2016,
Ansonia, which owns approximately 46% of the outstanding shares of Kenon, entered into an agreement to provide loans in an aggregate amount of up to $50
million to Quantum to support Qoros’ ordinary course working capital requirements, subject to Wuhu Chery’s provision of loans to Qoros in the same amount and
on similar conditions. In light of the investments made by Kenon in Qoros, including guarantees of Qoros’ indebtedness, and Kenon’s strategy to refrain from
material “cross-allocation” (i.e., investing returns from one business into another), Kenon will not make any loans or other investments in Qoros as part of this
transaction. Instead, and to support Qoros in light of Qoros’ financing needs, Kenon has worked with its major shareholder, Ansonia, to facilitate Ansonia’s
provision of loans to Qoros.
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Table of Contents
Qoros will require additional financing, including the renewal or refinancing of its working capital facilities, to continue to operate and meet its operating
expenses and debt service requirements. If Qoros is not able to raise additional financing as required, it may be unable to continue operations.
We also hold interests in:
•
•
ZIM
—A large provider of global container shipping services, which, as of December 31, 2015 operated 85 (owned and chartered) vessels with a total
container capacity of 369,549 TEUs, and in which we have a 32% equity interest; and
Primus
, an innovative developer and owner of a proprietary natural gas-to-liquid technology process.
Overview
of
Financial
Information
Presented
As a holding company, Kenon’s results of operations are impacted by the financial results of each of its businesses. To effectively assess our results of
operations, we supply detailed information on the financial results of our individual businesses and the impact such results have had on our consolidated results of
operations. The analysis of each business’ impact on our results of operations for the year ended December 31, 2015 depends upon the method of accounting
applicable to it as set forth in the following table:
IC Power
Qoros
ZIM 2
Other
Primus
As of December 31, 2015
Ownership
Percentage
100%
50%
32%
Method of Accounting
Consolidated 1
Equity
Equity
Treatment in Consolidated Financial Statements
Consolidated
Share in losses of associated companies, net of tax
Share in income of associated companies, net of tax
91%
Consolidated
Consolidated
1.
IC Power’s consolidated results of operations include income/loss from associated companies relating to IC Power’s non-controlling interests in Pedregal, which IC Power accounts for
pursuant to the equity method of accounting.
The analysis of each business’ impact on our results of operations for the year ended December 31, 2014 depends upon the method of accounting applicable
to it, as set forth in the following table:
Six Months Ended December 31, 2014
All Periods Prior to June 30, 2014
IC Power
Qoros
ZIM 2
Ownership
Percentage
100%
50%
Method of
Accounting
Consolidated
1
Equity
32%
Equity
Tower
29%
Equity
Treatment in Combined
Carve-Out Financial
Statements
Consolidated
Share in losses of
associated companies,
net of tax
Share in losses of
associated companies,
net of tax 3
Share in income of
associated companies,
net of tax
Ownership
Percentage
100%
50%
Method of
Accounting
Consolidated
1
Equity
Treatment in Combined
Carve-Out Financial
Statements
Consolidated
Share in losses of associated
companies, net of tax
99.7% 2
Consolidated
—
Discontinued
Operations
Income (loss) for the year
from discontinued
operations (after taxes)
29%
Equity
Share in losses of associated
companies, net of tax 4
Other
Primus
Petrotec
91% Consolidated Consolidated
— 3
Equity—
Discontinued
Operations
Income (loss) for the
year from
discontinued
operations (after
taxes)
Consolidated
91%
69%
Consolidated Consolidated
Consolidated
—
Discontinued
Operations
Income (loss) for the year
from discontinued
operations (after taxes)
70% 4
Equity
Share in losses of associated
companies, net of tax
HelioFocus
70%
Consolidated
1.
2.
IC Power’s consolidated results of operations for the year ended December 31, 2014, as reported by Kenon, included income/loss from IC Power’s associated companies (Generandes and
Pedregal), which were accounted for pursuant to the equity method of accounting.
On July 16, 2014, ZIM completed the restructuring of its outstanding indebtedness, which resulted in IC, and consequently, Kenon, owning 32% of the restructured ZIM as compared to
IC’s previous interest in ZIM of approximately 99.7%. As a result of the restructuring, ZIM’s results of operations for all periods prior to June 30, 2014 are reflected as discontinued in
Kenon’s results of operations. ZIM’s results of operations for all periods subsequent to June 30, 2014 are reflected in Kenon’s share in losses of associated companies, net of tax.
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Table of Contents
3.
4.
For further information on Kenon’s December 2014 sale of its equity interest in Petrotec, see “ Item
4B.
Business
Overview—Our
Businesses—Remaining
Businesses—Petrotec
.”
Notwithstanding our majority equity interest in HelioFocus, as a result of veto rights held by HelioFocus’ other major shareholder until May 31, 2014, we did not consolidate HelioFocus’
results with our own until June 30, 2014.
175
Table of Contents
The following tables set forth selected financial data for Kenon’s reportable segments for the periods presented:
Sales
Depreciation and amortization
Asset impairment
Financing income
Financing expenses
Share in (losses) income of associated companies
Gain from distribution of dividend in kind
Income (loss) before taxes
Income taxes
Income (loss) from continuing operations
Attributable to:
Kenon’s shareholders
Non-controlling interests
Segment assets 5
Investments in associated companies
Segment liabilities
Capital expenditure
Adjusted EBITDA
Percentage of consolidated revenues
Percentage of consolidated assets
Percentage of consolidated assets excluding associated companies
Percentage of consolidated Adjusted EBITDA
IC Power
$ 1,294
(119)
—
10
(115)
—
—
149
$
(62)
874
$
63
24
$ 4,069
9
3,063
5338
3724,9
100%
91%
99%
100%
$
Year Ended December 31, 2015
Qoros
1
Other
2
Adjustments
3
Consolidated
Results
$
(in
millions
of
USD,
unless
otherwise
indicated)
(5)
$ —
—
—
—
—
—
—
—
—
—
(196)
—
—
—
$(196)
—
—
—
$(196)
$ —
(1)
(7)
3
(9)
9
210
$ 205
—
$ 205
$
$
(196)
—
$ —
159
—
—
$ —
—
4%
—
—
206
(1)
$ 456
201
1567
—
110
$
—
5%
1%
—
$
$
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
1,289
(120)
(7)
13
(124)
(187)
210
158
(62)
96
73
23
4,114
369
3,219
533
373
100%
100%
100%
100%
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Associated company.
Includes the results of Primus and HelioFocus; the results of ZIM and Tower (up to June 30, 2015), as associated companies; as well as Kenon’s and IC
Green’s holding company and general and administrative expenses.
“Adjustments” includes inter-segment sales.
IC Power’s net income and Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2015, differ from the amounts reported by IC Power
for the same period as a result of the adjustment of certain provisions at IC Power, which were adjusted in IC Power’s 2014 financial statements, but were
adjusted in 2015 for Kenon. For further information, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—Decisions
by
the
EA
Regarding
System
Management
Charges
. ”
Excludes investments in associates.
Includes Kenon’s and IC Green’s assets.
Includes Kenon’s and IC Green’s liabilities.
Includes the additions of PP&E and intangibles based on an accrual basis.
For a reconciliation of IC Power’s net income, as reported by Kenon, to its Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2015,
see “ Item
3.A
Selected
Financial
Data
.”
For a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA, see “ Item
3.A
Selected
Financial
Data
.”
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Table of Contents
Sales
Depreciation and amortization
Financing income
Financing expenses
Share in (losses) income of associated companies
Asset impairment
Gain from disposal of investee
Gain from bargain purchase
Income (loss) before taxes
Income taxes
Income (loss) from continuing operations
Attributable to:
Kenon’s shareholders
Non-controlling interests
Segment assets 6
Investments in associated companies
Segment liabilities
Capital expenditure 9
Adjusted EBITDA
Percentage of combined revenues
Percentage of combined assets
Percentage of combined assets excluding associated companies
Percentage of combined Adjusted EBITDA
Year Ended December 31, 2014 1
IC Power
Qoros
2
Other
3
Adjustments
4
Combined
Carve-Out
Results
$ 1,358
(108)
9
(132)
14
(35)
157
68
321
(99)
2225
$
$
$
(in
millions
of
USD,
unless
otherwise
indicated)
14
$ —
—
—
(32)
—
32
—
—
(175)
—
—
—
—
—
—
—
(175)
—
—
—
$(175)
$ —
—
39
(10)
(10)
(13)
—
—
$ (37)
(4)
$ (41)
$
$
197
25
$ 3,832
10
2,860
593
3485,10
99%
89%
99%
114%
$
(175)
—
$ —
221
—
—
$ —
—
—
—
—
(34)
(7)
$ 8377
205
8068
12
$ (43) 11
—
23%
21%
(14)%
$
$
—
—
(785)
—
(785)
—
—
1%
(12)%
(20)%
—
$
$
$
$
$
1,372
(108)
16
(110)
(171)
(48)
157
68
109
(103)
6
(12)
18
3,884
436
2,881
605
305
100%
100%
100%
100%
1.
2.
3.
4.
5.
During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary assets in previous years in IC
Power. Kenon’s and IC Power’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial error.
Associated company.
Includes financing income from former parent company loans to Kenon’s subsidiaries; the results of Primus, HelioFocus (from June 30, 2014) and ZIM (up to June 30, 2014); the results of
ZIM (from June 30, 2014), Tower and HelioFocus (up to June 30, 2014), as associated companies; as well as Kenon’s and IC Green’s holding company and general and administrative
expenses.
“Adjustments” includes inter-segment sales, and the consolidation entries. For the purposes of calculating the “percentage of combined assets” and the “percentage of combined assets
excluding associated companies,” “Adjustments” has been combined with “Other.”
IC Power’s net income and Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2014, differ from the amounts reported by IC Power for the same period as a result
of the adjustment of certain provisions at IC Power, which were adjusted in IC Power’s 2014 financial statements, but were adjusted in 2015 for Kenon. For further information, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—Decisions
by
the
EA
Regarding
System
Management
Charges
. ”
Excludes investments in associates.
Includes Kenon’s and IC Green’s assets.
Includes Kenon’s and IC Green’s liabilities.
Includes the additions of PP&E and intangibles based on an accrual basis.
6.
7.
8.
9.
10. For a reconciliation of IC Power’s net income, as reported by Kenon, to its Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2014, see “ Item
3.A
Selected
Financial
Data
.”
11. For a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA, see “ Item
3.A
Selected
Financial
Data
.”
177
Table of Contents
Sales
Depreciation and amortization
Financing income
Financing expenses
Share in (losses) income of associated companies
Income (loss) before taxes
Taxes on income
Income (loss) from continuing operations
Attributable to:
Kenon’s shareholders
Non-controlling interests
Segment assets 6
Investments in associated companies
Segment liabilities
Capital expenditure
Adjusted EBITDA
Percentage of combined revenues
Percentage of combined assets
Percentage of combined assets excluding associated companies
Percentage of combined Adjusted EBITDA
Year Ended December 31, 2013 1,2
IC Power
Qoros
3
Other 4
Adjustments
5
Combined
Carve-Out
Results
$
$
$
866
(75)
5
(86)
32
123
49
74
61
13
$ 2,749
286
2,237
$
3519
24710
99%
51%
50%
114%
$
(in
millions
of
USD,
unless
otherwise
indicated)
7
$ —
—
—
(32)
—
32
—
—
(127)
—
(127)
—
—
—
$(127)
$ —
(5)
32
(15)
(32)
$
(50)
—
(50)
$
$
$
(127)
—
$ —
226
—
—
$ —
—
—
—
—
(48)
(2)
$3,8327
28
3,9338
—
$
—
(30) 11
65%
70%
(14)%
—
—
(1,136)
—
(1,136)
—
—
$
$
1%
(16)%
(21)%
—
$
$
$
$
$
873
(80)
5
(69)
(127)
(54)
49
(103)
(114)
11
5,444
540
5,033
351
217
100%
100%
100%
100%
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary
assets in previous years in IC Power. Kenon’s and IC Power’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial
error.
Results during the period have been reclassified to reflect the discontinued operations of ZIM and Petrotec. For further information, see Note 27 to our
financial statements included in this annual report.
Associated company.
Includes financing income from former parent company loans to Kenon’s subsidiaries; the results of Primus and ZIM; the results of Tower and HelioFocus,
as associated companies; as well as Kenon’s and IC Green’s holding company and general and administrative expenses.
“Adjustments” includes inter-segment sales and the consolidation entries. For the purposes of calculating the “percentage of combined assets” and the
“percentage of combined assets excluding associated companies,” “Adjustments” has been combined with “Other.”
Excludes investments in associates.
Includes Kenon’s, IC Green’s and ZIM’s assets.
Includes Kenon’s, IC Green’s and ZIM’s liabilities.
Includes the additions of PP&E and intangibles based on an accrual basis.
For a reconciliation of IC Power’s net income to, as reported by IC Power, its Adjusted EBITDA, as reported by IC Power, see “ Item
3.A
Selected
Financial
Data—Information
on
Business
Segments—IC
Power
.”
For a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA, see “ Item
3.A
Selected
Financial
Data
.”
178
Table of Contents
The following tables set forth summary information regarding each of our equity-method accounting businesses for the periods presented.
Year Ended December 31, 2015
Income (loss) (100% of results)
Share of Income (loss) from Associates
Book Value
Qoros
$(392)
(196)
159
Tower
1
ZIM
(in
millions
of
USD)
$
2
10
201
(1)
(1)
—
$
Total
$(391)
(181)
360
1.
Reflects Tower’s results of operations up to June 30, 2015. As a result of our distribution in specie of substantially all of our interest in Tower, representing 23% of the then currently
outstanding Tower shares on July 23, 2015, Tower’s results of operations for all periods subsequent to June 30, 2015 are not reflected in our consolidated financial statements.
Year Ended December 31, 2014
Income (loss) (100% of results)
Share of Income (loss) from Associates
Book Value
Market Capitalization
Kenon Share of Market Capitalization
Qoros
$(350)
(175)
221
—
—
ZIM
1
Tower
(in
millions
of
USD)
$ (73)
(13)
191
—
—
$ 25
18
14
$ 7742
$ 224
Total
$(400)
(170)
426
774
224
1.
On July 16, 2014, ZIM completed the restructuring of its outstanding indebtedness, which resulted in IC, and consequently, Kenon, owning 32% of the restructured ZIM as compared to
IC’s previous interest in ZIM of approximately 99.7%. As a result of the restructuring, ZIM is only reflected as an associated company in Kenon’s results of operations for the six months
ended December 31, 2014.
2. Market capitalization is based upon 58,033,049 shares outstanding, as of December 31, 2014, at $13.33 per share, the closing price of Tower’s shares on NASDAQ on December 31, 2014.
Income (loss) (100% of results)
Share of Income (loss) from Associates
Book Value
Market Capitalization
Kenon Share of Market Capitalization
Year Ended December 31, 2013
Qoros
Tower
Generandes
1
(in
millions
of
USD)
$(255)
(127)
226
—
$
$(109)
(31)
— 2
2803
103
86
30
276
—
—
Total
$(278)
(118)
502
280
103
1.
2.
Kenon’s indirect interest in Generandes was sold in September 2014, in connection with IC Power’s sale of its interest in Edegel.
To the extent the cumulative net loss equals the total investment, as was the case for Tower as of the year ended December 31, 2013, the book value of our investment will be reduced to
zero. Losses beyond the cumulative investment will not be reflected and the book value will only change with positive net income received in connection with an investment that is higher
than the previously accumulated net losses. In 2013, a $6 million loss in Tower’s results of operations was not reflected in Kenon’s combined carve-out statement of profit and loss.
3. Market capitalization is based upon 47,869,150 shares outstanding, as of December 31, 2013, at $5.84 per share, the closing price of Tower’s shares on NASDAQ on December 31, 2013.
Qoros
We have a 50% equity interest in Qoros. As a result, we account for Qoros pursuant to the equity method of accounting and discuss Qoros’ results of
operations in our discussion of our share in losses of associated companies, net of tax. Additional detail on Qoros’ historical financial performance can be found in
Qoros’ separate financial statements for the years ended December 31, 2015, 2014 and 2013, which are included in this annual report.
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Table of Contents
ZIM
On July 16, 2014, ZIM completed the restructuring of its outstanding indebtedness, which resulted in IC, and consequently, Kenon, owning 32% of the
restructured ZIM as compared to IC’s previous interest in ZIM of approximately 99.7%. As a result of the restructuring, ZIM’s results of operations for all periods
prior to June 30, 2014 are reflected as discontinued in Kenon’s results of operations and ZIM’s results of operations for the six months ended December 31, 2014
and the year ended December 31, 2015 are reflected in Kenon’s share in losses of associated companies, net of tax.
Set forth below are our results attributable to ZIM for the six months ended June 30, 2014 and the years ended December 31, 2013 and 2012, during which
ZIM’s results of operations were reflected in our financial statements as discontinued operations:
Six Months
Ended
Year Ended
December 31,
Sales
Cost of sales
Gross profit (loss)
Operating loss
Loss before taxes on income
Taxes on income
Loss after taxes on income
Income from realization of discontinued operations
Income (loss) for the period from discontinued operations
$
$
Tower
For information on Tower’s results of operations, see “ Information
Regarding
Tower.
”
Material
Factors
Affecting
Results
of
Operations
Kenon
Certain
Singapore
Tax
Implications
for
Kenon
June 30, 2014
2013
(in
millions
of
USD)
$ 3,682
(3,770)
(88)
(191)
(497)
(23)
(519)
—
$ (519)
1,741
(1,681)
60
(18)
(119)
(10)
(129)
609
480
2012
$ 3,960
(4,053)
(93)
(206)
(393)
(19)
(412)
—
$ (412)
As a Singapore-resident company, Kenon would be subject to income tax in Singapore on its income accruing in or derived from Singapore, and foreign-
sourced income received in Singapore from outside Singapore unless otherwise exempt. The corporate tax rate in Singapore is currently 17%, unless reduced under
an applicable concession or incentive, and is chargeable on income less allowable deductions and allowances. However, as each of the businesses that were
transferred to Kenon in connection with the spin-off intends to continue to conduct its operations outside of Singapore, Kenon does not expect to be subject to tax
in Singapore on any income generated by such businesses. Pursuant to Singapore’s one-tier corporate tax system, the tax on corporate profits is final and dividends
paid by a Singapore-resident company to its shareholders, regardless of their legal form or tax residence, would be exempt from tax in Singapore. No withholding
tax would be payable on such dividends.
Foreign-sourced income in the form of dividends, branch profits and service income received or deemed to be received in Singapore by Kenon (as a
Singapore tax-resident company) would also be exempt from tax in Singapore, provided certain conditions, including the following, are satisfied:
•
•
such income is subject to tax of a similar character to income tax under the law of the jurisdiction from which such income is received; and
at the time the income is received in Singapore, the highest rate of tax of a similar character to income tax (by whatever name called) levied under the
law of the territory from which the income is received on any gains or profits from any trade or business carried on by any company in that territory at
that time is not less than 15%.
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Table of Contents
Certain concessions and clarifications have also been announced by the Inland Revenue Authority of Singapore, or IRAS, with respect to the above
conditions.
To the extent that the conditions set out above are fulfilled in relation to foreign-sourced dividends and branch profits received in Singapore by Kenon,
Kenon should not be subject to Singapore tax on such income.
As a result, Kenon does not expect to pay any taxes in Singapore on its foreign-sourced income, as such income (i) is expected to be exempt from tax when
remitted into Singapore (based upon the conditions outlined above), (ii) may be maintained outside of Singapore and utilized by Kenon to make dividend payments
to shareholders outside of Singapore or (iii) may be maintained outside of Singapore and utilized by Kenon to make further investments outside of Singapore. No
material Singapore corporate taxes have therefore been accounted for, or are expected to be accounted for, in Kenon’s financial statements.
Singapore does not impose taxes on disposal gains, which are considered to be capital in nature, but imposes tax on income and gains of a trading nature. As
such, whenever a gain is realized on the disposal of an asset, the practice of the IRAS is to rely upon a set of commonly-applied rules in determining the question of
capital (not taxable) or revenue (taxable). Under Singapore tax laws, any gains derived by a divesting company from its disposal of ordinary shares in an investee
company between June 1, 2012 and May 31, 2022 are generally not taxable if, immediately prior to the date of such disposal, the divesting company has held at
least 20% of the ordinary shares in the investee company for a continuous period of at least 24 months.
IC
Power
Set forth below is a discussion of the material factors affecting the results of operations of IC Power for the periods under review.
Capacity
Growth
IC Power’s capacity, excluding the capacity attributable to its assets in advanced stages of construction, was 2,665 MW as of December 31, 2015,
representing a 108% growth in capacity since January 1, 2012. IC Power’s proportionate capacity, excluding the capacity attributable to its assets in advanced
stages of construction, was 2,170 MW as of December 31, 2015.
Entity 1
Capacity at January 1, 2012
Kallpa
Total increase in capacity during 2012
Capacity at January 1, 2013
OPC
Colmito
Total increase in capacity during 2013
Capacity at January 1, 2014
Corinto
Tipitapa Power
Amayo I
Amayo II
Surpetroil
Kallpa—Las Flores
JPPC 4
Puerto Quetzal 5
Total increase in capacity during 2014
Capacity at December 31, 2014
Nejapa 6
Country
Energy Used to Operate
Power Station
Completion of
Development/Date of
Acquisition/Date of Transfer
Installed
Capacity
(MW) 2
1,280
Proportionate
Capacity 3
979
219
Peru
Natural gas
Operation of Combined Cycle
Commenced—August 2012
292
Israel
Natural gas and diesel
Operations Commenced—
July 2013
292
1,572
440
Chile
Natural gas and diesel Acquired—October 2013
219
1,198
352
58
410
1,608
46
33
24
14
12
145
50
179
503
2,170
41
58
498
2,070
71
51
40
23
20
193
—
179
577
2,647
—
Nicaragua
Nicaragua
Nicaragua
Nicaragua
Colombia
Peru
Jamaica
HFO
HFO
Wind
Wind
Natural gas
Natural gas
HFO
Guatemala
HFO
Acquired—March 2014
Acquired—March 2014
Acquired—March 2014
Acquired—March 2014
Acquired—March 2014
Acquired—April 2014
Acquired Remaining
Interest—May 2014
Acquired—September 2014
El Salvador
HFO
Acquired Remaining
Interest—January 2015
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Table of Contents
Entity 1
AIE 7
Total increase in capacity during 2015
Capacity at December 31, 2015
Country
Israel
Energy Used
to Operate
Power Station
Completion of
Development/Date of
Acquisition/Date of Transfer
Steam Acquired—August 2015
Installed
Capacity
(MW) 2
18
18
2,665
Proportionate
Capacity 3
18
59
2,170
1.
2.
3.
4.
5.
6.
7.
As a result of IC Power’s sale of its indirect interest in Edegel in September 2014, the capacity growth summary does not include Edegel’s 1,540 MW of installed capacity during the
periods in which IC Power held its indirect interest in Edegel.
Reflects 100% of the capacity of each of IC Power’s assets, regardless of the ownership interest in the entity that owns each such asset.
Reflects the proportionate capacity of each of IC Power’s assets, as determined by the ownership interest in the entity that owns each such asset.
In May 2014, IC Power increased equity ownership in JPPC from 16% to 100%.
In November 2014, Puerto Quetzal transferred a 55 MW power barge to Kanan, reducing Puerto Quetzal’s capacity from 234 MW to 179 MW.
In January 2015, IC Power increased its equity ownership in Nejapa from 71% to 100%.
AIE also holds a conditional license for the construction of a cogeneration power station in Israel. This station will be developed as a greenfield project (at an expected cost of $250 million,
including the acquisition price of AIE), based upon a plant with 135 MW of capacity. Construction is expected to commence in mid-2016 and COD is expected in the second half of 2018.
As a result of its capacity expansion, IC Power’s consolidated revenues, operating income, finance expenses and net income during the periods discussed in
this section substantially increased. IC Power expects to further increase its installed capacity by 45% to 3,867 MW (3,095 MW on a proportionate basis), upon the
completion of its assets in advanced stages of construction: CDA’s 510 MW hydroelectric project located in Peru (expected COD in the second half of 2016),
Samay I’s 600 MW cold-reserve thermoelectric project located in Peru (expected COD in the second quarter of 2016) and Kanan’s 92 MW thermal generation
project in Panama (expected COD in the first half of 2016).
Macroeconomic
Conditions
in
the
Countries
in
which
IC
Power
Operates
Macroeconomic conditions may impact the gross domestic production of the countries in which IC Power operates which may, in turn, affect the
consumption of electricity by industrial and individual consumers in those countries. For instance, countries experiencing sustained economic growth generally
experience an increase in their consumption of electricity. Additionally, macroeconomic conditions are also likely to affect foreign exchange rates, domestic
interest rates and inflation, which each has an effect on IC Power’s financial and operating costs. Fluctuations in the exchange rates between local currencies in the
countries in which IC Power operates and the U.S. dollar, which is IC Power’s functional currency, will generate either gains or losses on monetary assets and
liabilities denominated in these local currencies and can therefore affect its profitability. Fluctuations in inflation rates may also increase labor costs and other local
expenses of IC Power’s operations, and it may be unable to pass such increases on to its customers ( e.g
., to customers who purchase energy or capacity from IC
Power pursuant to long-term PPAs, which are not linked to local inflation rates).
For further information on the risks associated with currency fluctuations, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Diversified
Strategy
and
Operations—Foreign
exchange
rate
fluctuations
and
controls
could
have
a
material
adverse
effect
on
IC
Power’s
earnings
and
the
strength
of
its
balance
sheet
.”
The following table sets forth the percentage growth in GDP, the currency appreciation / depreciation (relative to the U.S. Dollar), and the annual inflation
rate for each of the countries in which IC Power operates, according to segment.
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Table of Contents
Country
Peru
Israel
Central America
Nicaragua
Guatemala
El Salvador
Panama
Other
Bolivia
Chile
Dominican Republic
Jamaica
Colombia
2014
2013
Inflation
Rate
GDP
Growth
Currency
Appreciation
(Depreciation)
(%)
Inflation
Rate
GDP
Growth
Currency
Appreciation
(Depreciation)
3.2
(0.2)
6.4
3.4
0.5
2.1
5.2
4.6
3.0
6.4
3.7
2.4
2.6
4.0
4.0
1.8
6.2
5.2
1.8
7.3
(0.5)
4.6
(11)
(12)
(5)
4
—
—
—
(23)
(6)
(10)
(7)
2.8
1.5
5.7
4.3
0.8
5.9
5.7
1.8
4.8
9.5
1.9
5.8
3.3
4.6
3.7
1.7
8.4
6.8
4.3
4.8
0.2
4.9
(4)
7
(4)
(1)
—
—
—
(2)
(6)
(13)
(4)
For further information on the macroeconomic conditions of the key countries in which IC Power operates or in which it may operate in the future, see “Item
4.B
Business
Overview—IC
Power—IC
Power’s
Industry
Overview
. ”
For further information on the sensitivity of our net income to changes in the CPI and certain exchange rates, see Note 30 to our financial statements
included in this annual report.
Availability
and
Dispatch
The regulatory frameworks in each of the countries in which IC Power currently operates, other than Israel and Jamaica, establish marginal cost systems, and
the relevant regulatory agencies determine which generation units are to be dispatched, so as to minimize the cost of energy supplied.
The availability of a power generation asset refers to the percentage of time that a plant is available to generate energy. For example, even though they
generally maintain the highest place in the dispatch merit order due to their efficiency and low generation costs, hydroelectric plants are unavailable when they are
removed from operation to conserve water in the associated reservoirs or river basins or for maintenance, or when there are unscheduled outages. Thermal plants,
which are lower in the dispatch merit order than hydroelectric plants, are unavailable for dispatch when they are removed from operation for maintenance or when
there are unscheduled outages. Each of the relevant regulatory agencies considers the average availability of generation plants when it allocates firm capacity,
which is the amount of capacity that, pursuant to applicable regulations, an energy sector regulator recognizes and remunerates to each power generation unit for
being available to cover the demand in peak hours.
IEC, which is owned by the State of Israel and was the sole large-scale provider of energy in Israel prior to the commencement of OPC’s operations in July
2013, is the System Operator of Israel’s electricity system and determines the dispatch order of Israel’s generation units. Pursuant to OPC’s PPA with IEC, which
covers OPC’s entire firm capacity, OPC has informed IEC of the exclusion of OPC’s entire capacity, so as to sell such capacity directly to private customers. As a
result, OPC’s entire capacity has been allocated to private customers in Israel since July 2013.
The following table sets forth the weighted average availability of IC Power’s generation plants in each of the countries in which IC Power operates for the
periods presented, according to segment:
Peru
Israel
Year Ended
December 31,
2015
97%
97%
Year Ended
December 31,
2014
97%
90%
Year Ended
December 31,
2013
94%
96% 1
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Table of Contents
Central America
Nicaragua
Guatemala
El Salvador
Panama
Other
Bolivia
Chile
Dominican Republic
Jamaica
Colombia
Year Ended
December 31,
2015
Year Ended
December 31,
2014
Year Ended
December 31,
2013
90%
94%
96%
94%
89%
97%
81%
86%
96%
95%
97%
97%
93%
91%
96%
89%
85%
84%
—
—
95%
92%
96%
96%
87%
88%
—
1.
Reflects average availability of OPC since its COD in July 2013.
A substantial portion of the capacity in each of the countries in which IC Power currently operates, other than Israel, Nicaragua and Jamaica, is comprised of
hydroelectric plants. The marginal cost of production by these plants is almost nil. As a result, these plants are generally the first to be dispatched, when available.
However, the availability of these plants is subject to annual and seasonal variations based on the hydrology of the reservoirs and river basins that provide the water
to operate these plants. For example, COBEE’s hydroelectric plants are among the first generation units to be dispatched in Bolivia as a result of the low variable
costs associated with these units, and we expect that following its commissioning in 2016, CDA’s plant will be among the first generation units dispatched in Peru.
IC Power seeks to ensure that our hydroelectric units are available to be dispatched when necessary, as such availability is important to our ability to capture the
benefits of marginal cost dispatch and the maximization of our margins.
When hydroelectric plants are unavailable or have been fully dispatched, other generation plants are generally dispatched on the basis of cost, with lower
cost units, such as thermal gas plants, generally dispatched first. The Kallpa facility units, for example, are among the first generation units to be dispatched in Peru
after the hydroelectric plants, since the Kallpa plants are among the lowest-cost thermal generation plants in Peru. Generally, the order in which regulatory agencies
will dispatch plants which are neither hydroelectric or gas-powered are: (1) wind-powered; (2) coal-powered; (3) HFO-powered; followed by (4) diesel-powered.
As many of the countries in which IC Power operates are seeking to incentivize the production of wind and renewable energy plants, which typically have
relatively low operating costs, these countries often dispatch wind-powered plants, such as Amayo I and Amayo II, on a priority basis. Similar to hydroelectric
plants, however, the availability of wind-powered plants to be dispatched is limited by the availability of the resource ( i.e
., whether the wind is blowing).
If IC Power’s generation plants are available for dispatch and are not dispatched, or are partially dispatched, by the relevant System Operator and if IC
Power’s obligations to deliver energy under its PPAs exceed the energy dispatched from IC Power’s own generation units at any particular time, IC Power
purchases energy in the spot market to satisfy these obligations, and there is a risk that the price of such energy may be higher than the price for energy that it
receives under its PPAs.
Similarly, if IC Power’s generation plants are not allocated sufficient firm capacity to satisfy its obligations under its PPAs, IC Power purchases capacity in
the spot market to satisfy these obligations, and there is a risk that the price of such capacity may be higher than the price for capacity that it receives under its
PPAs.
The following table sets forth the amount of energy sold under IC Power’s PPAs and in the spot market, and the amount of energy generated and purchased
during the years presented by each of the operating companies IC Power owned as of December 31, 2015, according to segment 1 :
Segment
Peru
Israel
Period
Kallpa:
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
OPC and AIE:
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013 (since July 2013)
184
Sales under
PPAs (GWh)
Sales
in Spot Market
Net Energy
Generated
2
Energy
Purchased
6,327
6,324
6,268
4,321
3,976
3,973
1,813
106
235
84
162
—
—
—
5,027
5,698
5,265
4,133
3,759
3,400
1,331
1,406
861
1,087
350
217
573
482
Table of Contents
Segment
Central
America
ICPNH:
Period
Sales under
PPAs (GWh)
Sales
in Spot Market
Net Energy
Generated
2
Energy
Purchased
Other
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
Puerto Quetzal:
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
Nejapa:
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
COBEE:
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
Central Cardones:
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
Colmito:
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
CEPP:
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
JPPC:
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
Surpetroil:
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
Pedregal:
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
1,062
1,063
1,045
1,123
594
1,005
1,304
1,369
794
626
535
448
270
268
276
277
—
—
—
3
255
250
—
—
—
253
325
316
427
410
432
422
43
45
45
45
280
269
200
120
28
22
44
20
368
53
24
82
53
93
171
244
769
762
827
826
4
—
—
1
26
—
46
—
291
54
53
14
—
—
—
—
—
—
—
—
102
136
205
251
1,054
1,058
1,042
1,119
641
465
489
547
436
373
457
559
1,039
1,030
1,103
1,103
3
—
—
—
26
5
45
—
291
236
332
330
427
410
432
422
43
23
22
22
343
391
405
371
36
27
47
24
321
593
840
904
411
346
249
133
—
—
—
—
1
—
—
4
255
245
1
—
—
71
46
—
—
—
—
—
—
—
—
—
39
14
—
—
Total
(excluding
Pedregal)
Year Ended December 31, 2015
Year Ended December 31, 2014
Year Ended December 31, 2013
Year Ended December 31, 2012
13,748
14,217
12,043
8,324
1,645
1,219
1,249
1,349
12,746
12,698
10,518
8,235
2,647
2,716
2,752
1,415
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Table of Contents
1.
2.
The information included within the table reflects 100% of the energy sold under PPAs, sold in the spot market, generated, and purchased by IC Power’s assets, regardless of its ownership
interest in the entity that owns each such asset, and also contains information for certain of IC Power’s assets from periods prior to the acquisition of such asset. For further information on
acquisition of assets during the periods within the table, see “— Material
Factors
Affecting
Results
of
Operations
— IC
Power
— Capacity
Growth
.”
Net energy generated is defined as energy delivered at the interconnection to the system.
Cost
of
Sales
IC Power’s principal costs of sales are natural gas, HFO, lubricants, purchases of capacity and energy on the spot market, transmission costs, personnel,
third-party services and maintenance costs.
IC Power’s costs for natural gas, which include transportation costs, vary primarily based on the quantity of natural gas consumed, the variation of market
prices of HFO, to which IC Power’s natural gas prices are indexed, and whether IC Power consumes all of the natural gas that it is obligated to purchase under its
natural gas supply contracts. Kallpa’s long-term gas supply contract with the Camisea Consortium, which is also used to supply gas to Las Flores, hedges Kallpa
against fluctuations in the price of natural gas; however, Kallpa’s agreement with the Camisea Consortium will expire in June 2022, unless renewed by the parties.
Once expired, Kallpa and Las Flores may be required to purchase their natural gas on spot markets at prices that may be greater than the prices they previously paid
for such commodities and could therefore face increased volatility in their earnings and cash flows.
The price at which OPC purchases its natural gas from its sole natural gas supplier, the Tamar Group, is predominantly indexed (in excess of 70%) to
changes in the EA’s generation component tariff, pursuant to the price formula set forth in OPC’s supply agreement with the Tamar Group. As a result, increases or
decreases in this tariff have a related effect on OPC’s cost of sales and margins. Additionally, the natural gas price formula in OPC’s supply agreement is subject to
a floor mechanism. EA generation component tariffs were lower in 2015 as compared to 2012-2014. Additionally, on September 8, 2015, the EA published a final
decision, which became effective on September 13, 2015, and which further reduced the EA generation component tariff by approximately 12%. As a result of
previous declines in the EA generation component tariff, OPC began to pay the ultimate floor price in November 2015. Therefore, the September 2015 decline and
any further declines in the EA generation component tariff, will not result in a corresponding decline in OPC’s natural gas expenses, and will lead to a greater
decline in OPC’s margins.
IC Power’s costs for HFO, which include transportation costs, vary primarily based on the quantity of HFO consumed and the variation of market prices of
HFO. For example, IC Power generates electricity using HFO in each of the countries comprising its Central America segment, as well as in the Dominican
Republic. The price adjustment mechanisms in IC Power’s PPAs in these countries generally limit its exposure to the price of HFO.
As fuel is a significant cost for most of IC Power’s operating companies, the price of various fuels ( e.g.
, gas, diesel, or HFO) has a significant effect on its
costs. However, as prices in the spot market tend to reflect current fuel prices and, as the majority of IC Power’s PPAs contain a fuel price adjustment mechanism
to reflect increases or decreases in the price of fuel, changes in fuel prices generally result in corresponding changes in revenues as a result of these pass-through
mechanisms and do not substantially affect IC Power’s operating margins. Accordingly, while the decline in global oil prices, which occurred during 2014 and
2015, has resulted, in part, in a decline in IC Power’s revenues for the year ended December 31, 2015, such decline in global oil prices did not have a
commensurate effect on IC Power’s operating margins or Adjusted EBITDA for that year. In some cases, however, the fuel price adjustment mechanisms in IC
Power’s PPAs may not adjust to reflect the full increase or decrease in fuel prices, or may reflect such adjustments on a lagging basis as a result of the indexation
mechanisms of its PPAs (which update only periodically and have minimum thresholds) and the indexations of IC Power’s long-term supply agreements.
IC Power’s costs for transmission vary primarily according to the quantity of energy that IC Power sells and the locations of the specific nodes to which its
plants are connected in the national interconnected electrical systems of the various countries in which IC Power operates. Under its PPAs and the regulatory
regimes under which IC Power sells energy in the spot market, most transmission costs are passed on to IC Power’s customers.
IC Power incurs personnel and third-party services costs in the operation of its plants. These costs are usually independent of the volumes of energy
produced by IC Power’s plants. IC Power incurs maintenance costs in connection with the ongoing and periodic maintenance of its generation plants. These costs
are usually correlated to the volumes of energy produced and the number of running hours of IC Power’s plants.
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Results
from
IC
Power’s
Associated
Company
IC Power’s net income, cash flows from operations and statements of financial condition are affected by the results of Pedregal, in which it holds a 21%
indirect equity interest. IC Power recognizes its proportional share in the net income of Pedregal, currently its only associated company, in the statement of income
as share in profit in associates. IC Power’s share in profit in associated companies was $274 thousand, $2 million and $2 million during the years ended
December 31, 2015, 2014 and 2013, respectively. IC Power records dividends received from Pedregal as cash inflows from operating activities in IC Power’s
statement of cash flows. During the years ended December 31, 2015, 2014 and 2013, IC Power received dividends from Pedregal in the aggregate amount of $1
million, $2 million and $5 million, respectively. The carrying value that IC Power recognizes for Pedregal in its statement of financial position is adjusted to reflect
IC Power’s proportional share in the net income of Pedregal and the dividends received from Pedregal, which is adjusted to reflect the cumulative translation
adjustment to the value of IC Power’s investment.
Prior to September 2014, IC Power held a 21% indirect equity interest in Edegel, the largest generator of electricity in Peru. IC Power owned this interest via
Inkia’s wholly-owned subsidiary Southern Cone, which had a 39% equity interest in Generandes, an entity that, in turn, had a 54% equity interest in the outstanding
shares of Edegel. In September 2014, IC Power completed the sale of its indirect equity interest in Edegel. The results of operations of Generandes (the entity
through which IC Power held its indirect equity interest in Edegel) for the years ended December 31, 2014 and 2013 are reflected as discontinued operations in IC
Power’s financial statements. The results of operations of Generandes for the years ended December 31, 2014 and 2013 are reflected as share in income of
associates in Kenon’s financial statements.
As a result of Generandes’ significance to Kenon’s results of operations for certain periods prior to IC Power’s disposition of Generandes, this annual report
incorporates by reference the (i) unaudited consolidated financial statements of Generandes as of December 31, 2014 and 2013 and for the years ended
December 31, 2014 and 2013 and (ii) audited consolidated financial statements of Generandes as of December 31, 2013, 2012 and 2011 and for the years ended
December 31, 2013 and 2012, and the related independent auditors’ report thereon, as required by Rule 3-09 of Regulation S-X. These financial statements have
been audited according to U.S. Generally Accepted Auditing Standards, except for the financial statements as of and for the year ended December 31, 2014, which
are not required to be audited by Rule 3-09 of Regulation S-X because Generandes is not considered a “significant subsidiary” pursuant to Rule 1-02(w) of
Regulation S-X for the year ended December 31, 2014.
Effects
of
Outstanding
Indebtedness,
including
Financial
Leases
IC Power’s total outstanding consolidated indebtedness was $2,565 million as of December 31, 2015. IC Power had no outstanding loans and notes owed to
Kenon as of such dates.
IC Power financed its acquisition of the Kallpa I, II and III turbines and the Las Flores power plant through financial leases. As a result, it has recognized
these turbines and power plant as property, plant and equipment and has recognized the related lease obligations as loans from banks and others, but does not
recognize any cash flow from financing activities upon its entry into these financing agreements. Payments under these leases are recognized in IC Power’s
statement of cash flows as cash flows from financing activities at the time that these payments are made.
Additionally, IC Power is committed to expanding its operations by developing greenfield assets in accordance with three fundamental principles, one of
which includes securing long-term project financing agreements to finance its development efforts. These financing agreements are generally stand alone, secured,
project-specific, and with no or limited recourse. IC Power expects that the commitment to its operational expansion will result in the incurrence of additional
indebtedness, which may, in turn, result in an increase in its outstanding consolidated indebtedness.
Furthermore, as IC Power continues to develop its assets by (1) drawing down on its existing credit facilities with third parties or (2) securing additional
third-party financing, as discussed above, to fund its capital expenditures with respect to new assets or projects, it may experience an increase in interest costs.
Many of IC Power’s debt agreements have floating interest rates ( e.g.
, many of the debt instruments bear interest rates based on LIBOR) and, notwithstanding any
interest rate swaps which IC Power has entered, or may enter, into to address this risk, a continued increase in interest rates could increase its interest expenses and
the cost of the capital required to continue to fund its development and expansion efforts. Other than OPC’s, ICPI’s, Surpetroil’s, and certain of COBEE’s
indebtedness, which represented an aggregate of $557 million of IC Power’s outstanding indebtedness as of December 31, 2015, IC Power’s outstanding
indebtedness is either denominated in, indexed to, or is the subject of interest rate swaps tied to, the U.S. Dollar. For further information on IC Power’s outstanding
indebtedness, including the interest rate and currency applicable to the indebtedness, see “ Item
5.B
Liquidity
and
Capital
Resources—IC
Power’s
Liquidity
and
Capital
Resources—IC
Power’s
Material
Indebtedness
.”
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Table of Contents
Bargain
Purchase
Gains
IC Power’s development strategy contemplates the acquisition of energy assets in attractive markets, from time to time, in connection with its capacity
expansion efforts. Based upon the difference between the amount paid, which IC Power records in connection with its acquisition of such assets, and the net asset
fair value, it may recognize a gain on bargain purchase at the purchase date.
For the year ended December 31, 2015, IC Power did not recognize a gain on bargain purchases. For the year ended December 31, 2014, IC Power
recognized gains on bargain purchases of $24 million, $24 million and $20 million in connection with its acquisitions of ICPNH in March 2014, JPPC in May 2014
and Puerto Quetzal in September 2014, respectively.
Income
Taxes
IC Power operates through various subsidiaries in several countries and, as a result, is subject to income tax in various jurisdictions. The following table sets
forth the corporate income tax rates applicable as of December 31, 2015, 2014 and 2013 in each of the countries in which IC Power operates:
Peru 1
Israel 2
Central America
Nicaragua 3
Guatemala
El Salvador
Panama
Other
Bolivia
Chile 4
Dominican Republic
Jamaica 5
Colombia 6
Year Ended December 31,
2015
28%
26.5%
25%
25%
30%
25%
25%
22.5%
27%
33.33%
39%
2014
(%)
30%
26.5%
25%
28%
30%
25%
25%
21%
28%
33.3%
34%
2013
30%
25%
25%
31%
30%
25%
25%
20%
29%
33.3%
34%
1.
2.
3.
4.
5.
6.
The corporate income tax rate decreased to 28% in 2015 and is scheduled to decrease to 27% in 2017 and 2018 and 26% in 2019. The dividend tax rate has increased to 4.1% in 2015 and is
scheduled to increase to 8% in 2017 and 9.3% in 2019. Distributions of profits for 2014 are subject to a tax rate of 4.1%. Kallpa, CDA and Samay I have signed legal stability agreements
with the relevant tax authority in Peru pursuant to which, during the term of the corresponding agreement, Kallpa, CDA and Samay I, respectively, will be subject to the income tax regime
in place at the time each such agreement was entered into, which stipulates a 30% income tax rate, and not the general income tax regime applicable to other firms in Peru. These stability
agreements expire in 2020, 2022 and 2024, respectively. Only after these tax agreements expire, or if Kallpa, CDA and Samay I terminate the corresponding agreement, will they be subject
to the general income tax regime of Peru and receive the benefit of the changes in the Peruvian income tax rates described above.
From 2016, the corporate income tax rate in Israel will be reduced to 25%.
The statutory rate in Nicaragua in 2012-2015 is 25%. However, Empresa Energética Corinto Ltd, or Corinto, and Tipitapa Power Company Ltd, or Tipitapa Power, are subject to 25%
income tax, based on a Foreign Investment Agreement signed in June 2000, which protects them from any unfavorable changes in the tax law. In addition, Amayo I and Amayo II are tax
exempt from income tax payments, in accordance with Law No.532 for Electric Power Generation with Renewable Sources Incentive, up to a period of seven years since their CODs.
The corporate income tax rate increased to 22.5% in 2015 and is scheduled to increase to 24% in 2016 and 25% in 2017 for shareholders on the attribution method or 22.5% in 2017 for
shareholders on the cash-basis method. The corporate income tax rate is scheduled to increase to 27% in 2018 for shareholders on the cash-basis method.
33.3% is the rate applied to regulated companies in Jamaica, including the companies regulated by Office of Utilities Regulation.
The aggregate income tax rate of 34% in Colombia is composed of a base corporate income tax rate of 25% plus the “income tax for equality,” or CREE, tax at a rate of 9%. Beginning in
2015, a surcharge to the CREE tax rate of 5% on income in excess of 800 million Colombian pesos (approximately $272 million) would effectively increase the aggregate income tax rate
to approximately 39%. The surcharge on the CREE tax is expected to increase to 6% in 2016, 8% in 2017 and 9% in 2018, effectively increasing the aggregate income tax rate to
approximately 40%, 42% and 43% in 2016, 2017 and 2018, respectively, before being eliminated.
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For further information on the tax rates, including withholding tax rates, applicable to IC Power’s operating companies, see Note 25 to our financial
statements included in this annual report.
Factors
Affecting
Comparability
of
Operating
and
Financial
Results
IC Power’s operational and financial results for the year ended December 31, 2015 have been affected by its acquisitions of various operating businesses,
which must be understood in order to assess the comparability of IC Power’s operating and financial results in the period to period financial analysis set forth
below.
As set forth in “— Material
Factors
Affecting
Results
of
Operations
— IC
Power
— Capacity
Growth
,” during the year ended December 31, 2015, IC
Power successfully completed the acquisition of AIE, which provided IC Power with 18 MW in Israel and an additional 23 GWh of power generated in the year
ended December 31, 2015. Additionally, during the year ended December 31, 2014, excluding Las Flores (whose results of operations are consolidated with
Kallpa’s), IC Power successfully completed the acquisition of six generation assets, including the consolidation of JPPC, which collectively provided IC Power
with 439 MW in four countries in Latin America and the Caribbean and an additional 2,037 GWh of power generated in the year ended December 31, 2014.
Although IC Power’s financial results reflect the results of each of its acquired assets for the periods subsequent to IC Power’s acquisition of such assets, the IC
Power’s year-end generation figures reflected throughout this annual report reflect 100% of the generation figures of its consolidated companies at year-end, and
therefore include the full-year generation figures of its acquired companies, regardless of the date of acquisition of such companies. As a result, IC Power’s
increase in GWh for the years ended December 31, 2015 and 2014 reflects the contribution of its acquired companies, and also includes certain amounts generated
by these companies prior to acquisition of these companies by IC Power. However, as IC Power’s financial results for the years ended December 31, 2015 and
2014, such as sales and cost of sales, reflect the financial results of these acquisitions from the date of consolidation, IC Power’s operating results for the years
ended December 31, 2015 and 2014 may not be comparable to the financial results for the period to the extent of businesses acquired in the period.
As IC Power seeks to invest in additional assets through the acquisition of controlling interests in new operating assets, these factors may also affect the
comparability of its operating and historical financial results in future periods.
EA
Tariffs
Affect
IC
Power’s
Results
in
Israel
Segment
In Israel, sales of IPPs are generally made on the basis of PPAs for the sale of energy to customers, with prices predominantly linked to the tariff issued by
the EA and denominated in New Israeli Shekels.
The EA operates a Time of Use tariff, which provides different energy rates for different seasons (e.g., summer and winter) and different periods of time
during the day. Within Israel, the price of energy varies by season and demand period. For further information on Israel’s seasonality and the related EA tariffs, see
“Item
4.B
Business
Overview—Our
Businesses—IC
Power—IC
Power’s
Industry
Overview—Israel.”
The EA’s rates have affected IC Power’s revenues and income in the periods under review. EA tariffs in the period 2012 to 2014 were incrementally higher
to reflect higher fuel prices in 2012, which the EA determined would be reflected in higher tariffs in 2012-2014. The revenues in IC Power’s Israel segment in 2015
were affected by the lower EA tariffs in 2015, as discussed further below. Additionally, on September 8, 2015, the EA published a final decision, which became
effective on September 13, 2015, which further reduced the EA generation component tariff by approximately 12%. Average prices in 2015 were 21% lower than
in 2014.
As a result of previous declines in the EA generation component tariff, OPC began to pay the ultimate floor price set forth in its supply agreement in
November 2015. Therefore, the September 2015 decline and any further declines in the EA generation component tariff will not result in a corresponding decline in
OPC’s natural gas expenses, and will lead to a greater decline in the sales price of OPC’s energy, revenues and, therefore, margins. For further information on the
EA and the EA tariffs, see “ Item
4.B
Business
Overview—Our
Businesses—IC
Power—Regulatory,
Environmental
and
Compliance
Matters—Regulation
of
the
Israeli
Electricity
Sector—EA
.”
Decisions
by
the
EA
Regarding
System
Management
Charges
Kenon’s and IC Power’s financial statements as of December 31, 2014 and March 31, 2015 previously authorized for issuance included provisions
(beginning in June 2013) by OPC for system management service charges and diesel surcharges in the aggregate amount of $70 million as of December 31, 2014
and $79 million as of March 31, 2015. In August 2015, the EA published a decision detailing the amounts that IPPs in Israel would be obligated to pay system
management service charges, retroactively from June 2013.
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In accordance with IFRS, Kenon adjusted its provisions as of June 30, 2015, such that the adjusted balance of the provision as of such date in Kenon’s
financial statements was $38 million, resulting in a credit of $52 million to net profit attributable to Kenon’s shareholders after tax effect. Kenon was not required
to revise its financial statements as of December 31, 2014 or March 31, 2015, as Kenon’s financial statements for these periods were already approved at the time
of the EA’s August 2015 decision and the provisions recorded in those financial statements represented Kenon management’s best estimate of the expenditure
required to settle the obligation, based on the information available at the time the financial statements were finalized.
Because IC Power reapproved its financial statements in connection with IC Power Singapore’s filing of a registration statement on Form F-1 with the SEC,
with such reapproval taking place subsequently to the EA’s August 2015 publication, IC Power adjusted the previously recorded provisions, such that the adjusted
balance of the provision as of December 31, 2014 and December 31, 2015 was $27 million and $47 million, respectively. This adjustment resulted in adjustments
to IC Power’s income statement (a $46 million decrease in cost of sales, as well as adjustments to tax expenses and net income, in 2014, which resulted in a
corresponding increase in IC Power’s Adjusted EBITDA in 2014) and in its statement of financial position as of the end of 2014. Accordingly, income statement
figures in IC Power’s financials for 2014 and 2015 differ from those attributable to IC Power in Kenon’s financials for those periods.
The discussion of IC Power’s results of operations below is based on IC Power’s consolidated financial information which reflects the adjustments to
provisions in 2014, and since this adjustment was made by Kenon in 2015, the results for IC Power in 2014 and 2015 for cost of sales differ from amounts set forth
in Kenon’s consolidated financial statements. For the year ended December 31, 2015, IC Power’s cost of sales, as reported by Kenon, was $863 million, whereas
IC Power’s cost of sales for the period, as reported by IC Power, was $909 million. For the year ended December 31, 2014, IC Power’s cost of sales, as reported by
Kenon, was $983 million, whereas IC Power’s cost of sales for the period, as reported by IC Power, was $936 million.
In addition, as a result of the above, certain income statement amounts below cost of sales differ from amounts set forth in Kenon’s consolidated financial
statements.
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Table of Contents
Fluctuations
in
Oil
Prices
and
Currency
Exchange
Rates
As fuel is a significant cost for most of IC Power’s operating companies, the prices of the various fuels utilized by its operating companies (e.g., gas, diesel,
or HFO) have a significant effect on IC Power’s results of operations. Many of IC Power’s PPAs, including all of OPC’s PPAs, are denominated in the applicable
local currency and contain an adjustment mechanism such that prices under its PPAs will be adjusted to reflect (among other things) changes in (i) the price of oil
(by reference to oil price indices), (ii) the price of the underlying fuel, (iii) the relevant producer price index and/or (iv) changes in the local currency to U.S. Dollar
exchange rate. In addition, for most of IC Power’s gas and other fuel supply agreements, the price IC Power pays is subject to adjustment based on changes in oil
prices (by reference to oil price indices), the price of the underlying fuel, and currency exchange rates.
These adjustments under IC Power’s PPAs and supply agreements are made on a periodic basis (e.g., monthly, quarterly or annually) and may also be subject
to minimum deviation thresholds. Accordingly, although changes in oil, or other fuel, prices, inflation rates and foreign exchange rates can affect IC Power’s
revenues, there is generally not a corresponding effect on its margins.
However, these adjustments do not fully hedge IC Power’s margins against changes in fuel prices and such other factors. In addition, IC Power remains
subject to variations in oil, or other fuel, prices, inflation and currency exchange rates in the short- to medium-term until such adjustments are made and to the
extent of variations below the threshold. Further, while a significant portion of IC Power’s sales are made pursuant to PPAs, IC Power does make sales in the spot
market and is subject to spot market prices (which are influenced by changes in oil, or other fuel, prices, inflation and exchange rates), and it is also subject to
changes in market rates (which are influenced by fuel prices and inflation and exchange rates) when it renews its PPAs. A significant change (even where both fuel
costs and PPAs are fully indexed) in the above mentioned factors can result in an increase or decrease in IC Power’s margins.
Qoros
Set forth below is a discussion of the material factors affecting the results of operations of Qoros for the periods under review.
Qoros commenced commercial operations at the end of 2013, and, as a result, generated revenues for the first time during the fiscal year ended December 31,
2013. Qoros has incurred losses since its inception, as it invests heavily in product research and development and its commercial operations.
During 2015, Qoros debuted the Qoros 5 SUV at the Guangzhou Auto Show and launched the new 2016 model year versions of the Qoros 3 sedan, the
Qoros 3 Hatch and the Qoros 3 City SUV. During 2014, Qoros launched two vehicle models
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—the Qoros 3 Hatch and the Qoros 3 City SUV. Qoros has incurred significant expenses, including financing costs, in connection with the launches of its various
vehicle models, including expenses relating to the development and marketing of these vehicle models. In the years ended December 31, 2015 and 2014, Qoros
incurred net losses of RMB2.5 billion and RMB2.2 billion, respectively. Qoros is continuing to experience losses and negative operating cash flow and expects that
this will continue until it achieves significantly higher levels of sales.
Qoros remains subject to risks inherent in the establishment of a new business enterprise, including risks relating to uncertain and unpredictable revenues and
possible cost overruns due to cost increases in services and supply materials. For the year ended December 31, 2015, Qoros sold approximately 14,250 cars, as
compared to approximately 7,000 cars in 2014. If Qoros is unable to ramp up sales, Qoros’ operations will continue to generate net losses. Qoros’ ability to
generate positive net income and cash flow from its operations will depend upon a variety of factors, many of which Qoros will be unable to control, such as the
ability to sell its vehicles within its targeted price range and develop an effective dealer network. If Qoros is unable to substantially increase its sales, Qoros may
not be able to generate positive net income or cash flow or achieve or sustain profitability, any of which may result in an inability to continue its commercial
operations altogether.
Kenon has used a significant portion of the cash received in connection with its spin-off from IC and available amounts under the IC Credit Facility to
provide financing and guarantees to Qoros, and has no obligations to provide further funding to Qoros. Qoros will need to secure additional financing to meet its
operating expenses (including accounts payable) and debt service requirements. If Qoros is not able to raise additional financing as required, it may be unable to
continue operations, in which case Kenon may lose its entire investment in Qoros and Kenon may be required to make payments under its back-to-back guarantees
to Chery in respect of Qoros’ bank debt. See “ Item
3.D
Risk
Factors
— Risks
Related
to
Our
Diversified
Strategy
and
Operations
— Qoros
will
require
additional
capital
resources
to
meet
its
operating
expenses
.”
ZIM
On July 16, 2014, ZIM completed its financial restructuring, which resulted in IC, and consequently, Kenon, owning 32% of the restructured ZIM as
compared to IC’s previous interest in ZIM of approximately 99.7% and reduced ZIM’s outstanding indebtedness and liabilities (face value, including future off-
balance sheet commitments in respect of operational leases and with respect to those parties participating in the restructuring) from approximately $3.4 billion to
approximately $2 billion. As a result, Kenon received a 32% equity interest in ZIM upon the consummation of the spin-off.
ZIM’s results of operations for all periods prior to June 30, 2014 are reflected as discontinued in Kenon’s results of operations and ZIM’s results of
operations for the six months ended December 31, 2014 and the year ended December 31, 2015 are reflected in Kenon’s share in losses of associated companies,
net of tax, pursuant to the equity method of accounting.
In addition, bunker prices and freight rates are material factors which affect ZIM’s results of operations. For a discussion of bunker prices and freight rates,
see “ Item
4.B
Business
Overview—Our
Businesses—ZIM—ZIM’s
Industry
Update.
”
Primus
In the year ended December 31, 2015, Primus did not generate material revenues from its operations.
Primus seeks to operate as a technology development company and may take equity interests in the plants which it develops. Primus seeks to generate
revenues from construction management and engineering fees, technology licensing fees and production royalties, and, from plants in which Primus will have an
equity interest, operating revenue from the sale of methanol and gasoline. Where Primus develops a plant for a customer, Primus intends to pass through the costs
of developing the plant to the customer.
Set forth below is a discussion of the material factors affecting Primus’ results of operations for the periods under review.
Supply
and
Demand
Pricing
and
Trends
The market for the manufacture, marketing and sale of methanol and gasoline and GTL technologies, is highly competitive. Sustained competition could
increase the costs associated with feedstock supply, plant construction, raw materials, attracting and retaining qualified engineers, chemists and other key
employees, and other operating expenses. Decreasing oil prices, or an increase in feedstock prices that significantly reduces the differential between such feedstock
and oil, could also negatively affect demand for alternative fuel technologies Crude oil prices, for example, fell considerably during 2014 and 2015, and prices have
continued to decline in 2016. Reductions in the price of crude oil, which increases the cost-effectiveness
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of petrol-fueled machines (e.g., cars, planes, etc.), may adversely impact developers of alternative fuels technologies, such as Primus. Additionally, if production
capacity within the industry increases faster than the demand for alternative fuel technologies, the prices for Primus’ services or technologies could be depressed,
which could negatively affect Primus’ business model, credit profile, or results of operations.
Project
Development
and
Operational
Capabilities
Primus’ financial condition and results of operations depend upon its ability to successfully commercialize its energy and gas monetization technologies.
Primus expects to design and develop a number of commercial facilities in the future, if and when requested by third parties. Such developments are expected to
present additional challenges to Primus’ internal processes, external construction management, working capital management, and financing capabilities, as
applicable. Significant project development may result in increased expenses (e.g., financing and operating expenses) which will likely not be offset, in the short-
term, by increases in revenues or net income.
Critical Accounting Policies and Significant Estimates
In preparing our financial statements, we make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily
apparent from other sources. Our estimates and associated assumptions are reviewed on an ongoing basis and are based upon historical experience and various
other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or
conditions. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our
financial statements:
•
•
•
•
Impairment analysis;
Revenue recognition;
Provisions for legal claims; and
Useful life of property, plant and equipment.
Set forth below is a discussion of impairment analyses conducted by Kenon and its subsidiaries and associated companies. For further information on the
estimates, assumptions and judgments involved in our accounting policies, see Note 2 to Kenon’s financial statements included in this annual report.
Impairment
Analysis
For each reporting period, Kenon examines whether there have been any events or changes in circumstances which would indicate an impairment of one or
more non-monetary assets or cash generating units, or CGUs. Additionally, when there are indications of an impairment, a review is made as to whether the
carrying amount of the non-monetary assets or CGUs exceeds the recoverable amount and, if so, an impairment loss is recognized. An assessment of the
impairment of the goodwill is performed once a year or when signs of an impairment exist.
Under IFRS, the recoverable amount of the asset or CGU is determined based upon the higher of (i) the fair value less costs of disposal and (ii) the present
value of the future cash flows expected from the continued use of the asset or CGU in its present condition, including cash flows expected to be received upon the
retirement of the asset from service and the eventual sale of the asset (value in use). The future cash flows are discounted to their present value using a discount rate
that reflects current market assessments of the time-value of money and the risk specific to the asset or CGU.
The estimates regarding future cash flows are based upon past experience with respect to this asset or similar assets (or CGUs), and on Kenon’s businesses
best possible assessments regarding the economic conditions that will exist during the remaining useful life of the asset or CGU. Such estimates rely on the
particular business’ current development plans and forecasts. As the actual cash flows may differ, the recoverable amount determined could change in subsequent
periods, such that an additional impairment loss may need to be recognized or a previously recognized impairment loss may need to be reversed.
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Impairment
Test
for
IC
Power
At the end of each reporting period, IC Power assesses whether there is any indication that any of the CGUs relating to IC Power’s assets may be impaired
and considers, among other things, whether there are indications of any of the following:
•
•
•
•
•
•
•
Significant changes in the technological, economic or legal environment in which the CGUs relating to IC Power operate, taking into account the
country in which each CGU operates;
Increases in interest rates or other market rates of return, which are likely to affect the discount rates used in calculating the CGUs’ recoverable
amount;
Evidence of obsolescence or physical damage of the CGUs’ assets;
Actual performance of the CGU that does not meet expected performance indicators (e.g., the budget);
Declines in tariffs agreed upon in PPAs and/or in current energy prices;
Increases in fuel and/or gas prices and other power generation costs; and
New laws and regulations, or changes in existing laws and regulations, that could have an adverse effect on the power generation industry.
As of December 31, 2013, the CGUs relating to IC Power were performing according to budget, were profitable, and none of the aforementioned indications
were present, so as to suggest that the CGUs relating to IC Power may be impaired. Therefore, IC Power determined that there was no need to measure the
recoverable amount of the CGUs relating to IC Power as of such date.
During 2014, a subsidiary of Inkia updated its five-year budget as a result of a downward trend in its results combined with anticipated impacts of recent
political changes in the country in which the subsidiary operates, which affects the power generation business therein, and expectations of an increase in operating
costs and unchanged electricity prices, which will lead to a decrease in its profitability. As a result, Inkia considered a potential impairment in this subsidiary and
conducted an impairment analysis using the value in use method and a discount rate of 7.6%. Accordingly, Inkia determined that the book value of the subsidiary’s
assets exceeded its recoverable amount and therefore recorded an impairment loss of $35 million in the year ended December 31, 2014. At the end of 2015, Inkia
performed an impairment test on the long-lived assets of this subsidiary to identify whether the impairment loss should be reversed or whether an additional
impairment loss is required. As a result of this assessment, no reversal or additional impairment loss is required as of December 31, 2015. However, due to the
sensitivity of the assumptions used, management believes that minor changes in the key assumptions may materially affect the carrying value of this subsidiary in
the future.
Impairment
Test
of
HelioFocus
Kenon recorded an impairment charge in the amount of approximately $13 million in the year ended December 31, 2014 in respect of HelioFocus’ assets, as
a result of HelioFocus’ board of directors’ decision to reduce HelioFocus’ activities and maintain only a minimum number of personnel. This decision was made by
HelioFocus’ board of directors in response to HelioFocus’ expectation of insufficient financing during the 2015 fiscal year. HelioFocus’ assets have been written
down to $0, and HelioFocus is in the process of being wound down.
Impairment
Test
of
Qoros
Qoros’ management performed an impairment test of certain of Qoros’ assets (primarily its PP&E and intangible assets) as of December 31, 2015, based
upon Qoros’ 2014 business plan, which was updated in 2015. A discussion of the impairment test of Qoros’ assets as of December 31, 2015, including its key
assumptions, is set forth below.
For the purposes of IAS 36, Qoros, which develops, manufactures and distributes passenger vehicles, has one CGU, which consists of all of Qoros’ assets.
The carrying amount of the CGU’s assets (adjusted for depreciation and amortization) was approximately RMB9.2 billion as of December 31, 2015.
Qoros estimated its recoverable amount based upon the fair value of Qoros’ assets less the costs of disposal and its value in use, using the discounted cash
flow method. In developing the estimates of Qoros’ future cash flows for the eight years ending December 31, 2023, including terminal value, assumptions were
made relating to future sales volume and sale price, utilization capacity of Qoros’ manufacturing facility, timing and nature of investments related to the expansion
of Qoros’ manufacturing facility, timing for launch of new models, inventory volumes, operating expenses, capital expenditures, availability of funding, taxes, the
discount rate (based on a WACC that is consistent with WACCs used by other development stage companies in Qoros’ industry), and a terminal growth rate, in
each case over the course of the remaining eight-year period upon which Qoros’ business plan is based. Assumptions in respect of Qoros’ funding include
assumptions related to Qoros’ receipt of certain subsidies from local Chinese governments.
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Qoros concluded that the recoverable amount of its CGU was approximately 15% higher than the carrying amount of its CGU (adjusted for depreciation and
amortization), based upon the mid-point of the analysis. Therefore, no impairment was recognized in Qoros’ December 31, 2015 financial statements in respect of
its CGU.
In conducting the impairment test, Qoros made a number of key assumptions which were based upon the assumptions outlined in Qoros’ business plan and,
Qoros’ March 2016 approval of a new budget, including a significant increase in the volumes of cars manufactured and sold by Qoros from current levels. Qoros
also assumed sufficient funding being available to it, either from its shareholders or other lenders.
Although Qoros believes the assumptions used to evaluate the potential impairment of its assets are reasonable and appropriate, such assumptions are
subjective. There can be no assurance as to future levels of cars produced or sold by Qoros, the availability of funding and the development of Qoros’ distribution
and dealer network.
The analysis for the impairment test is sensitive to variances in each of the assumptions used and if the assumptions used by Qoros to evaluate the potential
impairment of its assets proves incorrect, Qoros may recognize significant impairment charges in its financial statements in the future. Qoros’ management has
determined that the forecasted volume of sales is the most important element of Qoros’ business plan and accordingly is the most sensitive key assumption for
which there reasonably could be a possible change that could cause the carrying amount of Qoros’ CGU to exceed the recoverable amount.
Impairment
Tests
of
ZIM
In connection with the completion of ZIM’s restructuring in July 2014, IC’s equity interest in ZIM (which was transferred to Kenon in connection with
Kenon’s spin-off from IC) was reduced to 32%. In 2015, Kenon performed a valuation of its 32% equity investment in ZIM as of December 31, 2015 in accordance
with IAS 36 and IAS 28. Kenon’s valuation of its interest in ZIM was based on a variety of valuation multiples that are applicable to ZIM’s peers in the container
shipping industry, to the extent such multiples are also applicable to ZIM, including:
•
•
•
•
•
an increase to the mid-point analysis from the impairment test of ZIM conducted by Kenon as of December 31, 2014, which was based on a detailed
cash flow forecast for 5 years based on ZIM’s business plan and other factors, such as bunker prices, freight rates, average TEU chartered rates and
long-term growth;
an EBITDA multiple range of 10.5x to 11.5x to the normalized EBITDA of $170 million;
share prices based on comparable quoted shipping companies discounted 9% over the year ended December 31, 2015;
forward average enterprise value/EBITDA multiples of comparable companies; and
broker forecasts of the EBITDA margins for comparable peer companies for the year ended December 31, 2015, where ZIM’s performance is in the
middle of the range and is expected to outperform its peers.
Kenon concluded that, as of December 31, 2015, the recoverable amount of its investment in ZIM exceeded the carrying amount and, therefore, Kenon did
not recognize an impairment in its financial statements in respect of its investment in ZIM.
Additionally, as a result of current container shipping market conditions, ZIM conducted an impairment test of its operating assets as of December 31, 2015.
For the purposes of IAS 36, ZIM, which operates integrated network liner activity, has one CGU, which consists of all of ZIM’s assets. ZIM estimated its
recoverable amount based upon the fair value of its assets less the costs of disposal, using the discounted cash flow method.
ZIM’s assumptions were made for a five-year period starting in 2016 and a representative year intended to reflect a long-term, steady state. The key
assumptions are set forth below:
•
•
A detailed cash flow forecast for five years based upon ZIM’s business plan;
Bunker
price
: according to the future price curve of fuel;
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Table of Contents
•
•
•
•
•
•
•
Freight
rates
: a compound annual growth rate of 0.8% over the projection period, reflecting a change in cargo mix;
Increase
in
aggregate
TEU
shipped
: a compound annual growth rate of 4.1% over the projection period, which assumes an increase in the leasing of
very large container vessels in ZIM’s fleet during 2017;
Charter
hire
rates
: contractual rates in effect as of December 31, 2015, and assuming anticipated market rates for renewals of charters expiring in the
projection period;
Discount
rate
of 10.5%;
Long-term
nominal
growth
rate
of 1.5%, which is consistent with the expected industry average;
Capital
expenditures
that are less than or equal to ZIM’s expected vessel depreciation; and
Payment
of
tax
at ZIM’s corporate tax rate of 25%; also assumes expected use of tax losses.
ZIM concluded that the recoverable amount of its CGU was higher than the carrying amount of the CGU, and therefore, no impairment was recognized in
ZIM’s financial statements in respect of its CGU.
Although ZIM believes the assumptions used to evaluate the potential impairment of its assets are reasonable and appropriate, such assumptions are highly
subjective. There can be no assurance as to how long bunker prices and freight rates will remain consistent with their current levels or whether they will increase or
decrease by any significant degree. Freight rates may remain at depressed levels for some time, which could adversely affect ZIM’s revenue and profitability. For
further information on recent trends relating to bunker prices and freight rates, see “ Item
5.D
Trend
Information—ZIM
.”
A change of 100 bps in the following assumptions will result in an increase (decrease) in the fair value of the recoverable amount as follows:
Discount rate
Terminal growth rate
Recent Developments
Kenon
Drawdowns
under
the
IC
Credit
Facility
Increase
Decrease
By 100 bps
(US$
million)
(111)
100
137
(80)
In January 2016, Kenon drew down $40 million under its $200 million IC Credit Facility. In April 2016, Kenon drew down the remaining $50 million
available under the facility. As of the date of this annual report, the aggregate amount outstanding under the IC Credit Facility is $210 million, including interest
and fees.
IC
Power
Singapore
Reorganization
In March 2016, Kenon announced an internal restructuring pursuant to which IC Power Singapore, which was a holding company with no material assets,
acquired IC Power. As a result of such transaction, IC Power Singapore is now the parent holding company of Kenon’s power generation and distribution
businesses. In connection with the reorganization of IC Power Singapore, IC Power Singapore issued notes of $145 million and $75 million payable to Kenon.
Kenon had pledged 66% of the IC Power shares to secure the IC Credit Facility. In connection with the internal reorganization, this pledge over IC Power
shares was released and the IC Power shares were transferred to IC Power Singapore, which pledged 66% of the transferred IC Power shares to IC. In addition,
Kenon also pledged to IC 66% of the shares of IC Power Singapore and the $145 million note owing from IC Power Singapore to Kenon. The pledge over the
shares of IC Power is expected to be released in connection with an IPO of IC Power Singapore. In addition, the pledge over the shares of IC Power Singapore and
the $145 million note can be released upon an IPO of IC Power Singapore, subject to Kenon’s meeting of a financial ratio.
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Table of Contents
IC
Power
Completion
of
Acquisition
of
Energuate
In January 2016, IC Power acquired Energuate, as well as Guatemel and RECSA, from Deorsa-Deocsa Holdings Ltd., an investment company of Actis LLP,
a private equity firm. Energuate consists of two electricity distribution companies in Guatemala that provide services for approximately 1.6 million regulated
customers in Guatemala (representing approximately 55% of Guatemala’s regulated distribution customers in 2014) and distribute energy approximately 100,000
km 2 in Guatemala, covering approximately 12 million inhabitants. In the years ended December 31, 2015 and 2014, Energuate sold 2,304 GWh and 2,163 GWh of
energy, respectively.
IC Power paid $265 million for the acquired businesses and assumed its debt of $289 million. IC Power funded the payment of the acquisition through
internally generated funds and a $120 million loan facility, which it entered into in December 2015.
For further information on Energuate, see “ Item
4B.
Business
Overview–Our
Businesses—IC
Power—IC
Power’s
Description
of
Operations—Distribution
Operations—Energuate
.”
Qoros
Funding
of
RMB275
million
shareholder
loans
In January 2016 and February 2016, Kenon contributed RMB275 million to Qoros via shareholder loans. We expect these loans, as well as additional
shareholder loans from Kenon, to convert into equity in Qoros upon the satisfaction of certain conditions, including the approval of the relevant Chinese authority.
Chery has also made similar shareholder loans to Qoros, which are also expected to be converted to equity.
Launch
of
New
Business
Divisions
In January 2016, the board of directors of Qoros announced two new expansion initiatives to address potential opportunities in the NEV market and the
application of self-driving technologies in the field of personal transportation. Qoros has created an NEV division, which will focus on the development of
efficient, cost-effective electric vehicles, and a Mobility division, which will focus on new mobility platforms and self-driving technologies.
Launch
of
the
Qoros
5
SUV
Qoros launched the Qoros 5 SUV in March 2016, marking Qoros’ entry into the C-segment SUV market. The Qoros 5 SUV is a dynamic mid-sized SUV,
designed and produced with international standards of quality, safety and performance. Qoros debuted the Qoros 5 SUV at the Guangzhou Auto Show in November
2015.
Executive
Management
Changes
Qoros has recently made a number of personnel changes at the executive management level and in the senior management structure. For example, Qoros’
board of directors recently appointed a new interim Chief Executive Officer. Qoros’ interim Chief Executive Officer also serves as the chairman of Qoros’ board of
directors.
Ansonia’s
Agreement
to
Invest
in
Qoros
On April 22, 2016, Ansonia, which owns approximately 46% of the outstanding shares of Kenon, entered into an agreement to provide loans in an aggregate
amount of up to $50 million to Quantum to support Qoros’ ordinary course working capital requirements, subject to Wuhu Chery’s provision of loans to Qoros in
the same amount and on similar conditions. Ansonia and Wuhu Chery are each expected to initially fund approximately $25 million of these loans, with remaining
amounts expected to be funded subsequently, at the discretion of Ansonia and Wuhu Chery.
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Table of Contents
The loans from Ansonia will be made directly to Quantum, which will make back-to-back on-loans in an aggregate amount of up to RMB300 million
(approximately $50 million) to Qoros. Ansonia’s loans to Quantum are limited recourse to Quantum in that Quantum has no obligation to repay any amounts owed
to Ansonia unless, and to the extent that, Quantum receives loan repayments from Qoros or Quantum sells all, or a portion of, its interests in Qoros. Ansonia’s
loans to Quantum are non-recourse to Kenon.
Additionally, Qoros has agreed to secure Quantum’s and Wuhu Chery’s loans with a pledge of certain collateral. Quantum has agreed to assign its rights,
title and interests in the collateral securing the Quantum loan to Ansonia. Qoros’ pledge of this collateral will be released upon a conversion of the shareholder
loans into equity (as described below) or upon repayment.
In order to facilitate a potential investment by a third party in Qoros, Ansonia’s loans are automatically convertible into equity in Quantum in the event of a
third-party financing at Qoros that meets certain conditions, unless Ansonia’s loans are to be repaid in connection with such third-party financing. The loans will be
convertible into equity of Quantum at a 10% discount to the implied value of Qoros based upon the third-party financing. Upon such conversion, Kenon’s indirect
interest in Qoros will be diluted. After a conversion of Ansonia’s loans into equity in Quantum, and until the third anniversary of such conversion, Ansonia will
have the option to convert its equity holdings in Quantum into an equivalent value of equity holdings in Qoros, subject to the receipt of regulatory approvals,
Qoros’ corporate approvals, and Chery’s and Wuhu Chery’s approvals. Prior to a conversion of Ansonia’s loans into equity in Quantum, the loans can be repaid by
Quantum without penalty or premium.
In light of the investments that have been made by Kenon in Qoros, including Kenon’s back-to-back guarantees to Chery of Qoros’ indebtedness, and
Kenon’s strategy to refrain from material “cross-allocation” (i.e., investing returns from one business into another), Kenon will not make any loans or other
investments in Qoros as part of this transaction. Instead, and to support Qoros in light of Qoros’ financing needs, Kenon has worked with its major shareholder,
Ansonia, to facilitate Ansonia’s provision of loans to Qoros (through Quantum, as described above).
In light of Qoros’ financing needs, Kenon believes that the transactions described above, including Ansonia’s provision of loans of up to $50 million to
Quantum to facilitate on-loans in an aggregate amount of up to RMB300 million (approximately $50 million) to Qoros, are in the best interests of Kenon and its
shareholders. As Ansonia is a major shareholder in Kenon, this transaction has been reviewed and approved by Kenon in accordance with its related party
transaction policy.
The foregoing summary of Ansonia’s agreement to invest in Qoros is subject to, and is qualified in its entirety by, the full text of the related Loan Agreement
and the Undertaking Agreement, copies of which are filed as Exhibits 4.17 and 4.18 to this annual report.
A.
Operating Results
Our consolidated/combined financial statements for the years ended December 31, 2015, 2014 and 2013 are comprised of IC Power, Primus, HelioFocus,
and the results of the associated companies (Qoros, ZIM and Tower).
As set forth above, as a result of the completion of ZIM’s restructuring in July 2014, IC’s equity investment in ZIM was reduced from 99.7% to 32% and
ZIM is reflected as a discontinued operation for all periods prior to June 30, 2014. ZIM’s results of operations for the six month period ended December 31, 2014,
and all periods subsequent thereto, are reflected in our share in losses of associated companies, net of tax for the relevant period. Additionally, Tower’s results of
operations for all periods prior to June 30, 2015 were accounted for pursuant to the equity method of accounting and were reflected in our share in losses of
associated companies, net of tax. As a result of our distribution in specie of substantially all of our interest in Tower on July 23, 2015, Tower’s results of operations
for all periods subsequent to June 30, 2015 are not reflected in our consolidated/combined financial statements. Finally, as a result of the completion of the sale of
Petrotec in December 2014, Petrotec is reflected as a discontinued operation in our results of operations for the years ended December 31, 2014 and 2013.
Our consolidated/combined results of operations for each of the periods presented are largely impacted by IC Power, which generated net income of $53
million, $256 million and $74 million for the years ended December 31, 2015, 2014 and 2013, respectively.
IC Power uses the following segments in its consolidated financial statements: Peru, Israel, Central America (which consists of Nicaragua, Guatemala, El
Salvador and Panama) and Other (which consists of Bolivia, Chile, the Dominican Republic, Jamaica, Colombia and IC Power’s associated company). These are
not segments in Kenon’s consolidated financial statements (IC Power is a segment within Kenon’s consolidated financial statements). The discussion of IC Power’s
sales, cost of sales and financing expenses (net) below is based on IC Powers’ segments.
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Table of Contents
Year
Ended
December
31,
2015
Compared
to
Year
Ended
December
31,
2014
Set forth below are our consolidated (for the year ended December 31, 2015) and combined carve-out (for the year ended December 31, 2014) statements of
profit and loss information:
Year Ended December 31,
(in millions of USD)
% Change
Revenues from sale of electricity
Cost of sales and services
Depreciation
Gross profit
Selling, general and administrative expenses
Gain from disposal of investees
Asset impairment
Dilution gains from reduction in equity interest held in associate
Gain on bargain purchase
Other expenses
Other income
Gain from distribution of dividend in kind
Operating profit
Financing expenses
Financing income
Financing expenses, net
Share in losses of associated companies, net of tax
Profit before income taxes
Tax expenses
Profit for the year from continuing operations
Income for the year from discontinued operations (after taxes)
Net Profit for the year
Attributable to:
Kenon’s shareholders:
Non-controlling interests
$
2015
$ 1,289
(863)
(111)
315
(104)
—
(7)
33
—
(7)
16
210
456
(124)
13
(111)
(187)
158
(62)
$
96
—
96
$
$
$
$
$
2014 1
1,372
$
(981)
(100)
291
(131)
157
(48)
—
68
(14)
51
—
374
(110)
16
(94)
(171)
109
(103)
6
471
477
$
$
$
$
$
$
$
73
23
$
$
458
19
(6)%
12%
(11)%
8%
21%
*
85%
*
*
(50)%
(70)%
*
22%
(11)%
(19)%
(18)%
(9)%
45%
40%
*
*
(80)%
(85)%
21%
1.
*
During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary
assets in previous years in IC Power. Kenon’s and IC Power’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial
error.
Indicates that the percentage change is not meaningful.
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Table of Contents
The following tables set forth summary information regarding our operating segment results for the years presented.
Sales
Depreciation and amortization
Asset impairment
Financing income
Financing expenses
Share in (losses) income of associated companies
Gain from distribution of dividend in kind
Income (loss) before taxes
Income taxes
Income (loss) from continuing operations
Attributable to:
Kenon’s shareholders
Non-controlling interests
Segment assets 5
Investments in associated companies
Segment liabilities
Capital expenditure
Adjusted EBITDA
Percentage of consolidated revenues
Percentage of consolidated assets
Percentage of consolidated assets excluding associated companies
Percentage of consolidated Adjusted EBITDA
IC Power
$ 1,294
(119)
—
10
(115)
—
—
149
$
(62)
874
$
63
24
$ 4,069
9
3,063
5338
3724,9
100%
91%
99%
100%
$
Year Ended December 31, 2015
Qoros
1
Other
2
Adjustments
3
Consolidated
Results
$
(in
millions
of
USD,
unless
otherwise
indicated)
(5)
$ —
—
—
—
—
—
—
—
—
—
(196)
—
—
—
$(196)
—
—
—
$(196)
$ —
(1)
(7)
3
(9)
9
210
$ 205
—
$ 205
$
$
(196)
—
$ —
159
—
—
$ —
—
4%
—
—
206
(1)
$ 456
201
1567
—
110
$
—
5%
1%
—
$
$
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
1,289
(120)
(7)
13
(124)
(187)
210
158
(62)
96
73
23
4,114
369
3,219
533
373
100%
100%
100%
100%
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Associated company.
Includes the results of Primus and HelioFocus; the results of ZIM and Tower (up to June 30, 2015), as associated companies; as well as Kenon’s and IC
Green’s holding company and general and administrative expenses.
“Adjustments” includes inter-segment sales.
IC Power’s net income and Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2015, differ from the amounts reported by IC Power
for the same period as a result of the adjustment of certain provisions at IC Power, which were adjusted in IC Power’s 2014 financial statements, but were
adjusted in 2015 for Kenon. For further information, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—Decisions
by
the
EA
Regarding
System
Management
Charges
. ”
Excludes investments in associates.
Includes Kenon’s and IC Green’s assets.
Includes Kenon’s and IC Green’s liabilities.
Includes the additions of PP&E and intangibles based on an accrual basis.
For a reconciliation of IC Power’s net income, as reported by Kenon, to its Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2015,
see “ Item
3.A
Selected
Financial
Data
.”
For a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA, see “ Item
3.A
Selected
Financial
Data
.”
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Table of Contents
Sales
Depreciation and amortization
Financing income
Financing expenses
Share in (losses) income of associated companies
Asset impairment
Gain from disposal of investee
Gain from bargain purchase
Income (loss) before taxes
Income taxes
Income (loss) from continuing operations
Attributable to:
Kenon’s shareholders
Non-controlling interests
Segment assets 6
Investments in associated companies
Segment liabilities
Capital expenditure 9
Adjusted EBITDA
Percentage of combined revenues
Percentage of combined assets
Percentage of combined assets excluding associated companies
Percentage of combined Adjusted EBITDA
Year Ended December 31, 2014 1
IC Power
Qoros
2
Other
3
Adjustments
4
Combined
Carve-Out
Results
$ 1,358
(108)
9
(132)
14
(35)
157
68
321
(99)
2225
$
$
$
(in
millions
of
USD,
unless
otherwise
indicated)
14
$ —
—
—
(32)
—
32
—
—
(175)
—
—
—
—
—
—
—
$(175)
—
—
—
$(175)
$ —
—
39
(10)
(10)
(13)
—
—
$ (37)
(4)
$ (41)
$
$
197
25
$ 3,832
10
2,860
593
3485,10
99%
89%
99%
114%
$
(175)
—
$ —
221
—
—
$ —
—
—
—
—
(34)
(7)
$ 8377
205
8068
12
$ (43) 11
—
23%
21%
(14)%
$
$
—
—
(785)
—
(785)
—
—
1%
(12)%
(20)%
—
$
$
$
$
$
1,372
(108)
16
(110)
(171)
(48)
157
68
109
(103)
6
(12)
18
3,884
436
2,881
605
305
100%
100%
100%
100%
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary
assets in previous years in IC Power. Kenon’s and IC Power’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial
error.
Associated company.
Includes financing income from former parent company loans to Kenon’s subsidiaries; the results of Primus, HelioFocus (from June 30, 2014), and ZIM (up
to June 30, 2014); the results of ZIM (from June 30, 2014), Tower and HelioFocus (up to June 30, 2014), as associated companies; as well as Kenon’s and IC
Green’s holding company and general and administrative expenses.
“Adjustments” includes inter-segment sales, and the consolidation entries. For the purposes of calculating the “percentage of combined assets” and the
“percentage of combined assets excluding associated companies,” “Adjustments” has been combined with “Other.”
IC Power’s net income and Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2014, differ from the amounts reported by IC Power
for the same period as a result of the adjustment of certain provisions at IC Power, which were adjusted in IC Power’s 2014 financial statements, but were
adjusted in 2015 for Kenon. For further information, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—Decisions
by
the
EA
Regarding
System
Management
Charges
. ”
Excludes investments in associates.
Includes Kenon’s and IC Green’s assets.
Includes Kenon’s and IC Green’s liabilities.
Includes the additions of PP&E and intangibles based on an accrual basis.
For a reconciliation of IC Power’s net income, as reported by Kenon, to its Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2014,
see “ Item
3.A
Selected
Financial
Data
.”
For a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA, see “ Item
3.A
Selected
Financial
Data
.”
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Table of Contents
The following table sets forth summary information regarding the results of operations of our equity-method businesses for the periods presented:
Year Ended December 31,
2015
ZIM Qoros
Tower
1
Six Months
Ended
December 31,
2014
ZIM
Year Ended December 31,
2014
Qoros Tower
Generandes
2
Revenues
Income/(Loss)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Share of Kenon in total comprehensive income/(loss)
Adjustments
Share of Kenon in total comprehensive income/(loss) presented in the
books
Dividends received
Total assets
Total liabilities
Book value of investment
$2,991 $ 232 $ 462 $
2
(2)
(392)
—
(1)
—
(in
millions
of
USD)
1,667 $
(72)
2
138 $ 828 $
(350)
—
25
(9)
$ — $ (392) $
(1) $
$ — $ (196) $ — $
—
10
(1)
10 $ (196) $
$
(1) $
$ — $ — $ — $
$1,912 $1,665 $ — $
1,635
159
1,834
201
—
—
(70) $ (350) $ 16 $
5 $
(23) $ (175) $
13
10
—
(13) $ (175) $ 18 $
— $ — $ — $
2,156 $ 1,810 $ 874 $
(2,077)
191
(1,670)
221
(738)
14
193
30
—
30
12
—
12
12
—
—
—
1.
2.
Reflects Tower’s results of operations up to June 30, 2015. As a result of our distribution in specie of substantially all of our interest in Tower, representing
23% of the then currently outstanding Tower shares on July 23, 2015, Tower’s results of operations for all periods subsequent to June 30, 2015 are not
reflected in our consolidated financial statements.
Kenon’s indirect equity interest in Generandes was sold in September 2014, in connection with IC Power’s sale of its interest in Edegel.
Revenues From Sale of Electricity
Our revenues from sales of electricity decreased by $83 million, or 6%, to $1,289 million for the year ended December 31, 2015 from $1,372 million for the
year ended December 31, 2014, as a result of IC Power’s decrease in consolidated revenues, as set forth in further detail below by IC Power’s segments.
Peru
Segment
Sales from IC Power’s Peru segment increased by $11 million, or 3%, to $448 million for the year ended December 31, 2015 from $437 million for the year
ended December 31, 2014, principally as a result of a $15 million, or 21%, increase in Kallpa’s revenue from ancillary businesses to $88 million during 2015 from
$73 million during 2014, which primarily resulted from an increase in toll tariffs during 2015. As a result of a 2% increase in the average energy price charged by
Kallpa to $45 per MWh in 2015 from $44 in 2014, revenues from energy sales in 2015 and 2014 were $291 million, despite a 2% decrease in the volume of energy
sold by Kallpa to 6,433 GWh of energy in 2015 from 6,559 GWh sold in 2014.
These effects were partially offset by a $4 million decrease in Kallpa’s revenue from capacity sales in 2015 to $69 million in 2015 from $73 million in 2014,
primarily as a result of a 2% decrease in the volume of capacity sales to an average of 913 MW in 2015 from an average of 929 MW in 2014, which resulted from
the expiration of an opportunistic short-term PPA in April 2014.
Israel
Segment
Sales from IC Power’s Israel segment decreased by $87 million, or 21%, to $326 million for the year ended December 31, 2015 from $413 million for the
year ended December 31, 2014, as a result of a decrease in OPC´s revenue from energy sales. This decrease in sales is largely due to a decline in the EA generation
component tariff in 2015, representing an average sales price reduction in 2015 versus 2014 equivalent to 21%, as EA tariffs in the period 2012 to 2014 were
incrementally
202
Table of Contents
higher than in previous years, reflecting higher fuel prices in 2012. This tariff forms the basis of OPC’s energy prices, so the decline in the tariff in 2015 led to a
decline in sales. To a lesser degree, the decline in sales was also the result of the strengthening of the U.S. Dollar against the New Israeli Shekel, OPC’s functional
currency. As a result of these factors, OPC experienced a 23% decline in the average price of the energy it sold to $80 per MWh in 2015 from $104 per MWh in
2014. In addition, the volume of energy sold by OPC in 2015 decreased slightly to 3,951 GWh in 2015 from 3,973 GWh in 2014.
OPC’s declines were partially offset by an $8 million increase in revenues due to the acquisition of AIE in August 2015.
Central
America
Segment
Sales from IC Power’s Central America segment increased by $29 million, or 9%, to $337 million for the year ended December 31, 2015 from $308 million
for the year ended December 31, 2014, primarily as a result of IC Power’s acquisition of Puerto Quetzal in September 2014 (which generated $109 million in sales
in 2015 compared to $33 million in sales in 2014 from the date of acquisition by IC Power).
This increase was partially offset by (1) a $32 million, or 24%, reduction in Nejapa’s sales, primarily as a result of a decline in realized energy prices due to a
decline in HFO prices; and (2) a $14 million, or 11%, reduction in ICPNH’s sales, primarily as a result of a $24 million decline in realized energy prices due to a
decline in HFO prices, which decline was partially offset by a $10 million increase in revenues as a result of higher than normal wind levels at Amayo I and II.
Other
Segment
Sales from IC Power’s Other segment decreased by $36 million, or 17%, to $178 million for the year ended December 31, 2015 from $214 million for the
year ended December 31, 2014, primarily as a result of (1) a $34 million, or 47%, reduction in CEPP’s sales, primarily as a result of the expiration of CEPP’s PPA
in September 2014, and the consequent sale of energy at lower prices in the spot market, which resulted in a decline in sales despite an increase in energy
generation; and (2) a $10 million, or 26%, reduction in Colmito’s sales, primarily as a result of a decline in Colmito’s energy sales to non-regulated customers due
to lower consumption.
Cost of Sales and Services (excluding Depreciation and Amortization)
Our cost of sales (excluding depreciation and amortization) decreased by $118 million, or 12%, to $863 million for the year ended December 31, 2015 from
$981 million for the year ended December 31, 2014, as a result of IC Power’s decrease in cost of sales.
IC Power’s cost of sales, as reported by Kenon, decreased by 12% to $863 million for the year ended December 31, 2015 from $983 million for the year
ended December 31, 2014. IC Power’s cost of sales (excluding depreciation and amortization), as reported by IC Power, decreased by 3% to $909 million for the
year ended December 31, 2015 from $936 million for the year ended December 31, 2014. See “— Decisions
by
the
EA
Regarding
System
Management
Charges
”
for an explanation of the difference between IC Power’s cost of sales, as reported by Kenon and as reported by IC Power, during these periods.
A description of the decrease in IC Power’s cost of sales, as reported by IC Power, is set forth in further detail below by IC Power’s segments.
Peru
Segment
Cost of sales from IC Power’s Peru segment increased by $9 million, or 3%, to $279 million for the year ended December 31, 2015 from $270 million for the
year ended December 31, 2014, primarily as a result of:
•
•
a $9 million increase in transmission charges as a result of an increase in toll tariffs during 2015; and
a $5 million increase in intermediation fees as a result of new PPAs signed during 2015 with distribution companies in which the profit of the PPA is
shared with the distribution company.
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Table of Contents
These effects were partially offset by a $4 million decline in gas expenses as a result of a 12% decline in Kallpa’s gross energy generation, the effect of
which was partially offset by an increase in the natural gas prices paid by Kallpa.
Israel
Segment
Cost of sales from IC Power’s Israel segment decreased by $10 million, or 4%, to $242 million for the year ended December 31, 2015 from $252 million for
the year ended December 31, 2014, primarily as a result of a $37 million decline in OPC’s energy purchases as a result of a decline in energy purchased from IEC
(Israel’s system operator), to 215 Gwh in 2015 from 573 Gwh in 2014, and an increase in OPC’s net generation from 3,400 Gwh in 2014 to 3,736 Gwh in 2015.
The decline in tariffs, which led to a reduction in revenues, did not result in a corresponding decrease in gas prices. For further information on this reduction, see “
Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—EA
Tariffs
Affect
IC
Power’s
Results
in
Israel
Segment
.”
These effects were partially offset by a $23 million increase in system charges provision during the year ended December 31, 2015 as a result of additional
charges implemented during 2015.
Central
America
Segment
Cost of sales from IC Power’s Central America segment increased by $5 million, or 2%, to $265 million for the year ended December 31, 2015 from $260
million for the year ended December 31, 2014, primarily as a result of IC Power’s acquisition of Puerto Quetzal in September 2014 (which incurred cost of sales of
$94 million in 2015 as compared to $29 million in 2014 since the date of acquisition by IC Power).
This increase was partially offset by a $25 million, or 26%, decline in ICPNH’s cost of sales and a $34 million, or 29%, decline in Nejapa’s cost of sales, in
each case primarily as a result of a decline in HFO prices.
Other
Segment
Cost of sales from IC Power’s Other segment decreased by $31 million, or 20%, to $123 million for the year ended December 31, 2015 from $154 million
for the year ended December 31, 2014, primarily as a result of (1) a $25 million, or 45%, decline in CEPP’s cost of sales, principally resulting from a decline in the
price of fuel purchased by CEPP and (2) an $11 million, or 31%, decline in Colmito’s cost of sales, primarily due to a decline in energy purchased by Colmito in
connection with lower energy prices. This decline was partially offset by IC Power’s acquisition of JPPC in May 2014 (which incurred cost of sales of $41 million
in 2015 as compared to $39 million in 2014 since the date of acquisition by IC Power).
Depreciation and Amortization
Our depreciation expenses relate primarily to IC Power.
IC Power’s depreciation and amortization expenses increased by $10 million, or 10%, to $111 million in 2015 from $101 million in 2014, primarily as a
result of:
•
•
•
a $4 million or 9%, increase in IC Power’s Peru segment’s depreciation expense to $49 million in 2015 from $45 million in 2014, primarily as a result
of the acquisition of Las Flores in April 2014;
a $3 million, or 17%, increase in IC Power’s Central America segment’s depreciation expense to $21 million in 2015 from $18 million in 2014,
primarily as a result of IC Power’s consolidation of ICPNH and Puerto Quetzal in March and September 2014, respectively; and
a $3 million, or 14%, increase in IC Power’s Other segment’s depreciation expense to $25 million in 2015 from $22 million in 2014, primarily as a
result of IC Power’s consolidation of JPPC in May 2014.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist of payroll and related expenses, bad/doubtful debts, depreciation and amortization, and other
expenses. Our selling, general and administrative expenses decreased 21% to approximately $104 million for the year ended December 31, 2015, compared to $131
million for the year ended December 31, 2014. This decrease was primarily driven by one-time expenses that were incurred in connection with our spin-off from IC
and the listing of our ordinary shares in 2014 and one-time expenses related to the adoption and implementation of Kenon’s share incentive plans in 2014.
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Table of Contents
IC Power’s general, selling and administrative expenses (excluding depreciation and amortization) increased by $2 million, or 3%, to $71 million for the year
ended December 31, 2015 from $69 million for the year ended December 31, 2014, primarily as a result of:
•
•
the consolidation of $4 million in general, selling and administrative expenses for the year ended December 31, 2015 as a result of IC Power’s
consolidation of ICPNH, Surpetroil, JPPC and Puerto Quetzal from the dates of their respective acquisitions in March 2014, March 2014, May 2014,
and September 2014, respectively; and
a $4 million increase in IC Power’s general, selling and administrative expenses in connection with its IPO process.
These effects were partially offset by a $7 million decrease in Inkia’s legal fees as a result of the settlement of litigation relating to Crystal Power in
December 2014.
Gain from Distribution of Dividend in Kind
On July 23, 2015, we completed the pro rata distribution of substantially all of our interest in Tower. We recognized a $210 million gain in the year ended
December 21, 2015, which reflects the difference between the fair market value of the Tower ordinary shares held by us on the distribution date ($255 million
based upon the closing price of the Tower shares on NASDAQ on the date of our distribution of such shares to our shareholders by way of a capital reduction) and
the carrying amount of Tower’s shares at the time of the distribution ($45 million).
Gain from Disposal of Investees
Our gain from disposal of investees is primarily comprised of capital gains recognized from IC Power’s sale of its investment in Edegel for $413 million in
the year ended December 31, 2014. We recognized approximately $110 million of net profit as a result of IC Power’s sale of its interest in Edegel ($(157) million
of capital gains, which were offset by $47 million of income tax expenses for the year ended December 31, 2014.
Gain on Bargain Purchase
We did not generate any gain on bargain purchase in 2015.
We generated $68 million in gain on bargain purchase during the year ended December 31, 2014, reflecting IC Power’s acquisition of:
•
•
•
ICPNH in March 2014, which resulted in IC Power’s recognition of a gain of $24 million;
the 84% of the outstanding equity of JPPC which IC Power did not previously own, in May 2014, resulting in IC Power’s recognition of a gain of $24
million; and
Puerto Quetzal in September 2014, which resulted in IC Power’s recognition of a gain of $20 million.
Asset Impairment
Our $7 million asset impairment in 2015 is primarily due to IC Green writing-off its goodwill in Primus in the amount of $6 million.
Our $48 million asset impairment in 2014 is comprised of (i) an approximately $35 million impairment charge in respect of Inkia’s impairment of one if its
subsidiaries and (ii) an approximately $13 million impairment charge in respect of HelioFocus’ assets. For further information, see “ —Critical
Accounting
Policies
and
Significant
Estimates—Impairment
Analysis—Impairment
Test
for
IC
Power
” and “ —Critical
Accounting
Policies
and
Significant
Estimates—Impairment
Analysis—Impairment
Test
of
HelioFocus
,” respectively.
Other Expenses
Our other expenses decreased to approximately $7 million for the year ended December 31, 2015, compared to approximately $14 million for the year ended
December 31, 2014.
In 2015, our “other expenses” consisted primarily of:
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Table of Contents
•
•
$4 million related to the loss on sale of property, plant and equipment, net; and
a $1 million provision for contingencies.
In 2014, our “other expenses” consisted primarily of:
•
•
$8 million related to the loss on sale of property, plant and equipment, net; and
$2 million related to a net loss on sale of spare parts.
Other Income
Our other income decreased significantly to approximately $16 million for the year ended December 31, 2015, compared to approximately $51 million for
the year ended December 31, 2014.
In 2015, our “other income” consisted primarily of:
•
•
•
$7 million related to insurance claims, primarily related to Amayo II’s claims in respect of three wind turbines, which were damaged in December
2014; and
$4 million in dividend income from Edegel; and
$5 million in other income.
In 2014, our “other income” consisted primarily of:
•
•
$18 million in dividend income from Edegel;
$20 million resulting from changes in Kenon’s interests in Tower as a result of an increase in Tower’s outstanding share capital due to the conversion
and exercise of certain of Tower’s outstanding convertible bonds, options and warrants. As a result of Tower’s issuance of shares in connection with
such conversions and exercises, our interest in Tower declined from approximately 32% as of December 31, 2013 to approximately 29% as of
December 31, 2014, resulting in our recognition of a $20 million dilution gain, which was determined by calculating the difference between the
carrying amounts of our investment in Tower immediately before and after the relevant share issuances; and
•
$7 million related to insurance claims, primarily related to Amayo II’s claims in respect of three wind turbines, which were damaged in December
2014.
Financing Expenses, Net
Our financing expenses, net increased 18% to $111 million for the year ended December 31, 2015, compared to $94 million for the year ended December 31,
2014. This increase was primarily driven by IC Power’s financing expenses, net, which declined by $15 million, or 13%, to $104 million for 2015 from $119
million for 2014, as set forth in further detail below by segment.
Peru
Segment
Financing expenses, net, from IC Power’s Peru segment increased by $8 million, or 24%, to $42 million for the year ended December 31, 2015 from $34
million for the year ended December 31, 2014, primarily as a result of an $11 million increase in foreign exchange rate losses as a result of the strengthening of the
U.S. dollar against the Peruvian Sol during 2015. This increase was partially offset by a $3 million decline in interest expense from bank and others primarily as a
result of the lower outstanding debt amount during 2015.
Israel
Segment
Financing expenses, net, from IC Power’s Israel segment declined by $7 million, or 23%, to $23 million for the year ended December 31, 2015 from $30
million for the year ended December 31, 2014, primarily as a result of a decrease in OPC’s interest expense due to a 0.9% CPI decrease, which was partially offset
by the strengthening of the U.S. Dollar against the New Israeli Shekel, OPC’s functional currency.
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Table of Contents
Central
America
Segment
Financing expenses, net, from IC Power’s Central America segment increased by $2 million, or 25%, to $10 million for the year ended December 31, 2015
from $8 million for the year ended December 31, 2014, as a result of the increase of interest expense of $2 million resulting from IC Power’s acquisitions of
ICPNH and Puerto Quetzal in March and September 2014, respectively.
Other
Segment
Financing expenses, net, from IC Power’s Other segment declined by $17 million, or 37%, to $29 million for the year ended December 31, 2015 from $46
million for the year ended December 31, 2014, primarily as a result of (1) the recognition of $13 million in finance expenses for the year ended December 31, 2014,
as a result of repaying $95 million of capital notes to IC, reflecting the difference between the nominal value of the capital notes ($95 million) and the book value
of the capital notes ($82 million) and (2) a $7 million decrease in interest expense during the year ended December 31, 2015 due to IC Power’s repayment of $263
million of debt owed to IC, our former parent, during May and June 2014. These effects were partially offset by a $3 million increase in interest expense during the
year ended December 31, 2015, primarily as a result of the drawing of ICPI’s mezzanine loan in June 2014.
Share In Income (Losses) of Associated Companies, Net of Tax
Our share in losses of associated companies, net of tax increased by 9% to approximately $(187) million for the year ended December 31, 2015, compared to
approximately $(171) million for the year ended December 31, 2014. Set forth below is a discussion of income/loss for our material associated companies and the
share in income (losses) of associated companies, net of tax.
Qoros
Our share in Qoros’ comprehensive loss increased to approximately $196 million for the year ended December 31, 2015, compared to losses of
approximately $175 million for the year ended December 31, 2014. As we have a 50% equity interest in Qoros, we recognize 50% of the net loss of Qoros in 2015
(RMB2,475 million) and 2014 (RMB2,154 million). A discussion of Qoros’ results of operations (on a 100% basis; Kenon’s share is 50%) for 2015 and 2014 is set
forth below. Qoros’ results of operation for 2015 and 2014 reflect the fact that Qoros is an early stage automobile manufacturer. Accordingly, Qoros has incurred
significant expenses, including expenses relating to the launch of new models, but has not achieved significant revenues.
Qoros had revenues of RMB1,459 million in 2015 compared to revenues of RMB865 million in 2014, representing an increase of 69%. Qoros’ increased
revenues in 2015 reflect a 104% increase in vehicle sales from approximately 7,000 cars in 2014 to approximately 14,250 cars in 2015.
Qoros’ cost of sales were RMB1,713 million in 2015 compared to RMB1,019 million in 2014, representing a 68% increase. The increase in cost of sales is
due to an increase in the number of vehicles sold in 2015.
Qoros had research and development expenses of RMB278 million in 2015 compared to RMB264 million in 2014, representing an increase of 5%. Research
and development expenses in 2015 reflected research and development activities conducted in connection with the launch of the Qoros 5 SUV, whereas such
expenses in 2014 reflected research and development activities conducted for the Qoros 3 Sedan.
Qoros had selling and distribution expenses of RMB820 million in 2015 compared to RMB927 million in 2014, representing a decrease of 12%. The
decrease reflects a reduction in advertising and consulting expenses due to changes in Qoros’ 2015 marketing and sales strategy and cost cutting efforts. This
decrease was partially offset by an increase in Qoros’ marketing and promotion expenses.
Qoros had administration expenses of RMB740 million in 2015 compared to RMB592 million in 2014.
As a result of the foregoing, Qoros had a loss from operation of RMB2,129 million in 2015 compared to RMB1,962 million in 2014.
Qoros had finance costs of RMB359 million in 2015 compared to finance costs of RMB217 million in 2014, representing a 65% increase. The increase was
due in part to an increase in amounts outstanding under short term and long term loans, including shareholder loans, in 2015 as compared to 2014, with total loans
and borrowings (including current loans) of RMB7,489 million as of December 31, 2015 as compared to loans and borrowings of RMB7,303 million as of
December 31, 2014. Exchange rate effects also contributed to the increase in finance costs.
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Table of Contents
As a result of the foregoing, Qoros reported a loss for the year of RMB2.5 billion for the year ended December 31, 2015, compared to RMB2.2 billion for the
year ended December 31, 2014.
ZIM
Our share in ZIM’s income for the year ended December 31, 2015 was approximately $2 million. Set forth below is a summary of ZIM’s results during the
relevant periods:
Sales
Cost of sales
Gross profit
Operating profit
Profit before taxes on income
Taxes on income
Profit after taxes on income
Profit for the period
Year Ended December 31,
2015
(in
millions
of
USD)
$
$
2,991
2,775
216
98
5
2
7
7
Our share in ZIM’s loss was approximately $13 million for the six months ended December 31, 2014, the period in which Kenon accounted for ZIM’s results
of operations pursuant to the equity method of accounting.
In the year ended December 31, 2015, ZIM carried approximately 2,308,000 TEUs, as compared to approximately 2,360,000 TEUs in the year ended
December 31, 2014, reflecting a 2.3% decrease compared to the year ended December 31, 2014. The slight decrease in carried quantities was primarily due to the
closure of the line from Asia to Northern Europe during the second quarter of 2014. In the year ended December 31, 2015, ZIM’s revenues were approximately
$3.0 billion, as compared to approximately $3.4 billion in the year ended December 31, 2014, reflecting a 12.2% decrease, due to reduced freight rates and a slight
decrease in carried quantities. The reduction in revenues was offset by a reduction in cost of voyages and related services, which decreased by 15.3% to $2.8 billion
in the year ended December 31, 2015, as compared to $3.3 billion in the year ended December 31, 2014, primarily due to a decrease in bunker prices, as well as a
decrease in cargo handling expenses.
ZIM publishes its results on its website. For more information, see www.ZIM.com. This website, and any information referenced therein, is not incorporated
by reference herein.
Tower
Our share in Tower’s comprehensive income (loss) for the period in 2015 prior to June 30, 2015, during which period Kenon accounted for Tower’s results
of operations pursuant to the equity method of accounting, was approximately $(1) million.
Our share in Tower’s comprehensive income for the year ended December 31, 2014 was approximately $18 million.
Generandes
We did not record any comprehensive income for the year ended December 31, 2015 from Generandes, as IC Power sold its equity interest in Generandes
during 2014.
Our share in Generandes’ comprehensive income for the year ended December 31, 2014 was approximately $12 million.
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Table of Contents
Tax Expenses
Our tax expenses decreased 40% to approximately $62 million for the year ended December 31, 2015, compared to approximately $103 million for the year
ended December 31, 2014. This decrease was primarily driven by a decrease in our effective tax rate to 39% in 2015 from 95% in 2014, due to an increase in non-
taxable gains to $243 million in 2015, as compared to $69 million in 2014, offset by $47 million income tax expense on the sale of IC Power’s interest in Edegel
for $413 million in 2014.
Income (Loss) For the Year From Discontinued Operations (After Taxes)
We did not generate any income (loss) for the year ended December 31, 2015 from discontinued operations (after taxes).
Our income (loss) for the year ended December 31, 2014 from discontinued operations (after taxes) is comprised of (i) ZIM’s results of operations for the six
months ended June 30, 2014 and (ii) Petrotec’s results of operations for the year ended December 31, 2014. Our income for the year from discontinued operations
(after taxes) was approximately $471 million for the year ended December 31, 2014, primarily as a result of (i) ZIM’s results of operations during the six months
ended June 30, 2014, the period in which Kenon accounted for ZIM as a discontinued operation in the amount of $480 million of net income from the realization of
discontinued operations in the amount of $609 million and (ii) the net results of Petrotec as a discontinued operation in the amount of $(9) million.
Profit For the Year
As a result of the above, our profit for the year amounted to $96 million for the year ended December 31, 2015, compared to a profit of $477 million for the
year ended December 31, 2014.
Year
Ended
December
31,
2014
Compared
to
Year
Ended
December
31,
2013
Set forth below are our combined carve-out statements of profit and loss information for the years ended December 31, 2014 and 2013:
Year Ended December 31,
(in millions of USD)
% Change
Revenues from sale of electricity
Cost of sales and services
Depreciation and amortization
Gross profit
Selling, general and administrative expenses
Gain from disposal of investees
Asset impairment
Gain on bargain purchase
Other expenses
Other income
Operating profit
Financing expenses
Financing income
Financing expenses, net
Share in losses of associated companies, net of tax
Profit/(Loss) before income taxes
Tax expenses
Profit /(Loss) for the year from continuing operations
Income (loss) for the year from discontinued operations (after taxes)
Profit /(Loss) for the year
Attributable to:
Kenon’s shareholders:
Non-controlling interests
$
2014 1,2
1,372
$
(981)
(100)
291
(131)
157
(48)
68
(14)
51
374
(110)
16
94
(171)
109
(103)
6
471
477
$
$
$
$
$
$
2013 1,2
873
$
(594)
(70)
209
(73)
—
—
1
(5)
5
137
(69)
5
64
(127)
(54)
(49)
(103)
(513)
(616)
$
$
$
$
$
$
$
458
19
$
$
(631)
15
209
57%
65%
43%
39%
80%
*
*
*
*
*
*
(59)%
*
(47)%
(35)%
*
*
*
*
*
*
27%
Table of Contents
1.
2.
*
During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary
assets in previous years in IC Power. Kenon’s and IC Power’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial
error.
Results during these period have been reclassified to reflect the discontinued operations of ZIM and Petrotec. For further information, see Note 27 to our
financial statements included in this annual report.
Indicates that the percentage change is not meaningful.
The following tables set forth summary information regarding our operating segment results for the years presented.
Year Ended December 31, 2014 1
IC Power
Qoros
2
Other
3
Adjustments
4
Combined
Carve-Out
Results
Sales
Depreciation and amortization
Financing income
Financing expenses
Share in (losses) income of associated companies
Asset impairment
Gain from disposal of investee
Gain from bargain purchase
Income (loss) before taxes
Income taxes
Income (loss) from continuing operations
Attributable to:
Kenon’s shareholders
Non-controlling interests
Segment assets 6
Investments in associated companies
Segment liabilities
Capital expenditure 9
Adjusted EBITDA
Percentage of combined revenues
Percentage of combined assets
Percentage of combined assets excluding associated companies
Percentage of combined Adjusted EBITDA
$ 1,358
(108)
9
(132)
14
(35)
157
68
321
(99)
2225
$
$
$
(in
millions
of
USD,
unless
otherwise
indicated)
14
$ —
—
—
(32)
—
32
—
—
(175)
—
—
—
—
—
—
—
$(175)
—
—
—
$(175)
$ —
—
39
(10)
(10)
(13)
—
—
$ (37)
(4)
$ (41)
$
$
197
25
$ 3,832
10
2,860
593
3485,10
99%
89%
99%
114%
$
(175)
—
$ —
221
—
—
$ —
—
—
—
—
(34)
(7)
$ 8377
205
8068
12
$ (43) 11
—
23%
21%
(14)%
$
$
—
—
(785)
—
(785)
—
—
1%
(12)%
(20)%
—
$
$
$
$
$
1,372
(108)
16
(110)
(171)
(48)
157
68
109
(103)
6
(12)
18
3,884
436
2,881
605
305
100%
100%
100%
100%
1.
2.
3.
4.
5.
During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary
assets in previous years in IC Power. Kenon’s and IC Power’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial
error.
Associated company.
Includes financing income from former parent company loans to Kenon’s subsidiaries; the results of Primus, HelioFocus (from June 30, 2014) and ZIM (up
to June 30, 2014); the results of ZIM (from June 30, 2014), Tower and HelioFocus (up to June 30, 2014), as associated companies; as well as Kenon’s and IC
Green’s holding company and general and administrative expenses.
“Adjustments” includes inter-segment sales, and the consolidation entries. For the purposes of calculating the “percentage of combined assets” and the
“percentage of combined assets excluding associated companies,” “Adjustments” has been combined with “Other.”
IC Power’s net income and Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2014, differ from the amounts reported by IC Power
for the same period as a result of the adjustment of certain provisions at IC Power, which were adjusted in IC
210
Table of Contents
Power’s 2014 financial statements, but were adjusted in 2015 for Kenon. For further information, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Material
Factors
Affecting
Results
of
Operations—IC
Power—Decisions
by
the
EA
Regarding
System
Management
Charges
. ”
Excludes investments in associates.
Includes Kenon’s and IC Green’s assets.
Includes Kenon’s and IC Green’s liabilities.
Includes the additions of PP&E and intangibles based on an accrual basis.
For a reconciliation of IC Power’s net income, as reported by Kenon, to its Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2014,
see “ Item
3.A
Selected
Financial
Data
.”
For a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA, see “ Item
3.A
Selected
Financial
Data
.”
6.
7.
8.
9.
10.
11.
Year Ended December 31, 2013 1,2
IC Power
Qoros
3
Other 4
Adjustments
5
Combined
Carve-Out
Results
Sales
Depreciation and amortization
Financing income
Financing expenses
Share in (losses) income of associated companies
Income (loss) before taxes
Income taxes
Income (loss) from continuing operations
Attributable to:
Kenon’s shareholders
Non-controlling interests
Segment assets6
Investments in associated companies
Segment liabilities
Capital expenditure
Adjusted EBITDA
Percentage of combined revenues
Percentage of combined assets
Percentage of combined assets excluding associated companies
Percentage of combined Adjusted EBITDA
$
$
$
866
(75)
5
(86)
32
123
49
74
61
13
$ 2,749
286
2,237
$
3519
24710
99%
51%
50%
114%
$
(in
millions
of
USD,
unless
otherwise
indicated)
7
$ —
—
—
(32)
—
32
—
—
(127)
—
$(127)
—
—
—
$(127)
$ —
(5)
32
(15)
(32)
$
(50)
—
(50)
$
$
$
(127)
—
$ —
226
—
—
$ —
—
—
—
—
(48)
(2)
$3,8327
28
3,9338
—
$
—
(30) 11
65%
70%
(14)%
—
—
(1,136)
—
(1,136)
—
—
$
$
1%
(16)%
(21)%
—
$
$
$
$
$
873
(80)
5
(69)
(127)
(54)
49
(103)
(114)
11
5,444
540
5,033
351
217
100%
100%
100%
100%
1.
2.
3.
4.
5.
6.
7.
8.
9.
During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary
assets in previous years in IC Power. Kenon’s and IC Power’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial
error.
Results during the period have been reclassified to reflect the discontinued operations of ZIM and Petrotec. For further information, see Note 28 to our
financial statements included in this annual report.
Associated company.
Includes financing income from former parent company loans to Kenon’s subsidiaries; the results of Primus and ZIM; the results of Tower and HelioFocus,
as associated companies; as well as Kenon’s and IC Green’s holding company and general and administrative expenses.
“Adjustments” includes inter-segment sales and the consolidation entries. For the purposes of calculating the “percentage of combined assets” and the
“percentage of combined assets excluding associated companies,” “Adjustments” has been combined with “Other.”
Excludes investments in associates.
Includes Kenon’s, IC Green’s and ZIM’s assets.
Includes Kenon’s, IC Green’s and ZIM’s liabilities.
Includes the additions of PP&E and intangibles based on an accrual basis.
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Table of Contents
10. For a reconciliation of IC Power’s net income, as reported by IC Power, to its Adjusted EBITDA, as reported by IC Power, see “ Item
3.A
Selected
Financial
Data
–
Information
on
Business
Segments
–
IC
Power
.”
11. For a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA, see “ Item
3.A
Selected
Financial
Data
.”
The following table sets forth summary information regarding the results of operations of our equity-method businesses for the periods presented:
Six Months
Ended
December 31,
2014
ZIM
Year Ended December 31,
2014
2013
Qoros Tower Generandes 1 Qoros Tower Generandes
(in
millions
of
USD)
Revenues
Income/(Loss)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Share of Kenon in total comprehensive income/(loss)
Adjustments
Share of Kenon in total comprehensive income/(loss) presented in
the books
Dividends received
Total assets
Total liabilities
Book value of investment
$
$
$
$
$
1,667 $
(72)
2
138 $ 828 $
(350)
—
25
(9)
(70) $ (350) $ 16 $
(23) $ (175) $
5 $
10
—
13
(13) $ (175) $ 18 $
—
—
—
2,156 $ 1,810 $ 874 $
(2,077)
191
(1,670)
221
(738)
14
2 $ 505 $
(109)
(13)
193 $
(255)
30
—
22
30 $ (233) $(122) $
12 $ (127) $ (39) $
—
—
8
—
12 $ (127) $ (31) $
12
— $ 1,531 $ 694 $
—
—
(1,127)
226
(632)
—
—
513
(86)
—
86
33
(3)
30
26
1,653
(710)
276
1.
Kenon’s indirect equity interest in Generandes was sold in September 2014, in connection with IC Power’s sale of its interest in Edegel.
Revenues From Sale of Electricity
Our revenues from sale of electricity increased 57% to approximately $1,372 million for the year ended December 31, 2014, compared to approximately
$873 million in revenues for the year ended December 31, 2013, as a result of an increase in IC Power’s consolidated revenues. This increase was primarily driven
by (1) the acquisition of the Las Flores plant in 2013 in IC Power’s Peru segment, (2) the first full year of operations of OPC in IC Power’s Israel segment, and
(3) IC Power’s acquisition of various businesses during 2014, as set forth in further detail below by IC Power’s segments.
Peru
Segment
Sales from IC Power’s Peru segment increased by $43 million, or 11%, to $437 million for the year ended December 31, 2014 from $394 million for the year
ended December 31, 2013, primarily as a result of:
•
a $24 million, or 9%, increase in Kallpa’s revenue from energy sales to $291 million in 2014 from $267 million during 2013, primarily as a result of a
$9 million, or 3%, increase in revenue resulting from an increase in the volume of energy sales by Kallpa to 6,559 GWh in 2014 from 6,352 GWh in
2013 and a $13 million, or 5%, increase in revenue resulting from an increase in Kallpa’s average energy price to $44 per MWh in 2014 from $42 per
MWh in 2013, principally due to the commencement of service under certain PPAs with distribution companies which provided for the sale of energy
at higher prices, and included a pass-through of the cost of the primary toll system tariff which was imposed on generators in Chilca as of January 1,
2014 in connection with the completion of a gas pipeline constructed by Gas Natural de Lima y Callao S.A., or Calidda, which has a concession to
distribute gas from Chilca to Lima, and within Lima;
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•
•
a $10 million, or 18%, increase in Kallpa’s revenue from ancillary services (principally transmission tolls that are passed through to Kallpa’s
customers) as a result of a 19% increase in the primary toll system tariff during 2014; and
a $5 million, or 7%, increase in Kallpa’s revenue from capacity sales to $73 million during 2014 from $68 million during 2013, primarily as a result of
a 6% increase in revenue resulting from an increase in the volume of capacity sales to an average of 929 MW in 2014 from an average of 880 MW in
2013, which was principally due to IC Power’s acquisition of the Las Flores plant in April 2014.
Israel
Segment
Sales from IC Power’s Israel segment increased by $226 million, or 121%, to $413 million for the year ended December 31, 2014 from $187 million for the
year ended December 31, 2013, primarily as a result of the first full year of operations of OPC, which commenced commercial operations in July 2013. OPC’s
revenue from energy sales increased by $225 million, or 120%, to $412 million for the year ended December 31, 2014, from $187 million for the year ended
December 31, 2013, principally as a result of a $225 million, or 119%, increase in revenue resulting from an increase in the volume of energy sold to 3,973 GWh in
2014 from 1,813 GWh in 2013, which reflects a full year of commercial operations of OPC’s plant during 2014 and an increase in the average price of energy sold
to $104 per GWh in 2014 from $103 per GWh in 2013.
Central
America
Segment
Sales from IC Power’s Central America segment increased by $161 million, or 110%, to $308 million for the year ended December 31, 2014 from $147
million for the year ended December 31, 2013, primarily as a result of IC Power’s acquisition of ICPNH (which generated sales of $125 million since IC Power’s
acquisition of it in March 2014) and Puerto Quetzal (which generated sales of $33 million since IC Power’s acquisition of it in September 2014).
Other
Segment
Sales from IC Power’s Other segment increased by $69 million, or 48%, to $214 million for the year ended December 31, 2014 from $145 million for the
year ended December 31,2013 primarily as a result of IC Power’s acquisition of JPPC (which generated sales of $41 million since IC Power’s acquisition of it in
May 2014), Colmito (which generated sales of $38 million in 2014, as compared to $1 million in 2013 from the date of its acquisition by IC Power) and Surpetroil
(which generated sales of $9 million since IC Power’s acquisition of it in March 2014). These effects were partially offset by a $19 million, or 21%, reduction in
CEPP’s revenues to $73 million for the year ended December 31, 2014 from $92 million for the year ended December 31, 2013, primarily as a result of the
expiration of its PPA in September 2014 and a change in CEPP’s position in the dispatch order as a result of the entry of an additional, more efficient power plant
in the Dominican Republic.
Cost of Sales and Services (excluding Depreciation and Amortization)
Our cost of sales and services (excluding depreciation and amortization) increased 65% to approximately $981 million for the year ended December 31,
2014, compared to $594 million for the year ended December 31, 2013, as a result of the increase in IC Power’s costs of sales.
IC Power’s cost of sales, as reported by Kenon, increased by 65% to $983 million for the year ended December 31, 2014, as reported by IC Power, from
$594 million for the year ended December 31, 2013. IC Power’s cost of sales (which excludes depreciation and amortization) increased 58% to $936 million for the
year ended December 31, 2014, compared to $594 million for the year ended December 31, 2013. This increase was primarily driven by (1) the imposition of
certain tariffs in Peru as of January 1, 2014 in IC Power’s Peru segment, (2) the first full year of operations of OPC in IC Power’s Israel segment and (3) IC
Power’s acquisition of various businesses during 2014, as set forth in further detail below by IC Power’s segments.
See “— Decisions
by
the
EA
Regarding
System
Management
Charges
” for an explanation of the difference between IC Power’s cost of sales, as reported by
Kenon and as reported by IC Power, during the year ended December 31, 2014.
A description of the decrease in IC Power’s cost of sales, as reported by IC Power, is set forth in further detail below by IC Power’s segments.
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Table of Contents
Peru
Segment
Cost of sales from IC Power’s Peru segment increased by $31 million, or 13%, to $270 million for the year ended December 31, 2014 from $239 million for
the year ended December 31, 2013 primarily as a result of:
•
a $27 million, or 24%, increase in Kallpa’s gas and gas transportation and distribution costs to $139 million in 2014 from $112 million in 2013, as a
result of (1) the commencement of Calidda’s gas distribution services, which increased Kallpa’s gas costs by $18 million and (2) a $9 million increase
in Kallpa’s natural gas costs primarily as a result of an 8% increase in gross energy generated by Kallpa to 5,920 GWh in 2014 from 5,459 GWh in
2013 (as a result of our acquisition of Las Flores in April 2014);
•
•
a $13 million, or 20%, increase in Kallpa’s transmission costs to $77 million in 2014 from $64 million in 2013, as a result of a 19% increase in the
primary toll system tariff; and
a $9 million, or 22%, decrease in Kallpa’s cost for purchases of energy and capacity as a result of an 8% increase in energy generated by Kallpa to
5,920 GWh in 2014 from 5,459 GWh in 2013, which resulted in a reduction in Kallpa’s spot market purchases, which partially offset the above-
described increases.
Israel
Segment
Cost of sales from IC Power’s Israel segment increased by $113 million, or 81%, to $252 million for the year ended December 31, 2014 from $139 million
for the year ended December 31, 2013 primarily as a result of an increase in the gross energy generated by OPC to 3,465 GWh in 2014 from 1,357 GWh in 2013,
reflecting a full year of commercial operations of this plant during 2014, as compared to approximately six months of commercial operations of this plant in 2013
following its COD in July 2013.
Central
America
Segment
Cost of sales from IC Power’s Central America segment increased by $133 million, or 105%, to $260 million for the year ended December 31, 2014 from
$127 million for the year ended December 31, 2013 primarily as a result of:
•
•
•
IC Power’s acquisition of ICPNH (which incurred cost of sales of $98 million since our acquisition of it in March 2014) and Puerto Quetzal (which
incurred cost of sales of $29 million since our acquisition of it in September 2014). The consolidation of these entities increased IC Power’s cost of
sales as follows: (1) IC Power’s fuel and lubricants costs increased by $98 million; (b) IC Power’s purchases of energy and capacity increased by $12
million; (c) IC Power’s maintenance expenses increased by $8 million; and (d) IC Power’s personnel expenses increased by $4 million;
an $11 million, or 30%, increase in energy purchased by Nejapa, primarily as a result of an increase in sales in 2014, despite a lower amount of energy
generated by Nejapa, which reduction was due to an increase in low cost energy purchased by the electricity system in El Salvador from other SIEPAC
countries, primarily Guatemala; and
a $12 million, or 17%, decrease in Nejapa’s fuel costs as a result of the reduction of its generation activities, which partially offset the increases above.
Other
Segment
Cost of sales from IC Power’s Other segment increased by $65 million, or 73%, to $154 million for the year ended December 31, 2014 from $89 million for
the year ended December 31, 2013 primarily as a result of:
•
IC Power’s acquisition of JPPC (which incurred cost of sales of $40 million since our acquisition of it in May 2014) and Surpetroil (which incurred
cost of sales of $2 million since our acquisition of it in March 2014). The consolidation of these entities increased IC Power’s cost of sales as follows:
(a) IC Power’s fuel, gas and lubricants costs increased by $34 million; (b) IC Power’s maintenance expenses increased by $3 million and (c) IC
Power’s personnel expenses increased by $2 million;
•
•
a $36 million increase in IC Power’s cost of sales as a result of our acquisition of Colmito, which IC Power acquired in October 2013, primarily as a
result of the $32 million energy and capacity purchases made by Colmito to supply its PPA with ENAP Refinerías S.A., which commenced in January
2014; and
a $17 million, or 33%, decline in CEPP’s fuel costs in connection with a 29% decrease in CEPP’s gross generation to 242 GWh in 2014 from 339
GWh in 2013 primarily as a result of a change in CEPP’s position in the dispatch order as a result of the entry of an additional, more efficient power
plant, which partially offset the above-described increases.
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Table of Contents
Depreciation and Amortization
Our depreciation expenses relate primarily to IC Power.
IC Power’s depreciation and amortization expenses increased by $30 million, or 43%, to $100 million in 2014 from $70 million in 2013, primarily as a result
of the increase in IC Power’s depreciable property, plant and equipment as a result of depreciation expenses related to (1) a full year of commercial operations of
OPC during 2014, as compared to approximately six months of commercial operations of this plant following its COD in July 2013, which increased OPC’s
depreciation from $12 million in 2013 to $25 million in 2014, (2) the acquisitions of ICPNH, Surpetroil, JPPC and Puerto Quetzal, which contributed $12 million
to IC Power’s consolidated depreciation in 2014 and (3) the acquisition of Las Flores in April 2014, which increased Kallpa’s depreciation expense by $5 million
from $40 million in 2013 to $45 million in 2014.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist of payroll and related expenses, bad/doubtful debts, depreciation and amortization, and other
expenses. Our selling, general and administrative expenses increased 80% to $131 million for the year ended December 31, 2014, compared to approximately $73
million for the year ended December 31, 2013. This increase was primarily driven by an increase in Kenon’s and IC Power’s administrative expenses during the
period, for the reasons discussed below.
Kenon’s administrative expenses increased to approximately $38 million for the year ended December 31, 2014, from approximately $14 million for the year
ended December 31, 2013. This increase was primarily driven by expenses incurred in connection with our spin-off from IC and the listing of our ordinary shares,
as well as expenses related to the adoption and implementation of Kenon’s share incentive plans.
IC Power’s general, selling and administrative expenses increased by $27 million, or 66%, to $68 million for 2014 from $41 million for 2013. This increase
was primarily driven by (1) the consolidation of general, selling and administrative expenses in an aggregate amount of $9 million as a result of IC Power’s
consolidation of ICPNH, Surpetroil, JPPC and Puerto Quetzal from the dates of their respective acquisitions in March 2014, March 2014, May 2014 and September
2014; (2) an $8 million increase in legal fees to $11 million from $3 million, primarily due to a $7 million increase in Inkia’s legal fees as a result of litigation
relating to Crystal Power, which was settled in December 2014; (3) a $3 million increase in OPC’s general, selling and administrative expenses to $8 million in
2014 from $5 million in 2013 as a result of the commencement of OPC’s commercial operations in July 2013 (certain of OPC’s general, selling and administrative
expenses were capitalized prior to the beginning of OPC’s commercial operations in July 2013); and (4) a $2 million increase in amortization expenses as a result
of the purchase price allocation adjustments made in connection with our acquisitions of ICPNH, Surpetroil, JPPC and Puerto Quetzal.
Gain from Disposal of Investees
Our gain from disposal of investees is primarily comprised of capital gains recognized from IC Power’s sale of its investment in Edegel for $413 million in
2014. We recognized a gain of $157 million in connection with such sale in 2014.
Asset Impairment
Our $48 million asset impairment in 2014 is comprised of (i) an approximately $35 million impairment charge in respect of Inkia’s impairment of one if its
subsidiaries and (ii) an approximately $13 million impairment charge in respect of HelioFocus’ assets. For further information, see “ —Critical
Accounting
Policies
and
Significant
Estimates—Impairment
Analysis—Impairment
Test
for
IC
Power
” and “ —Critical
Accounting
Policies
and
Significant
Estimates—Impairment
Analysis—Impairment
Test
of
HelioFocus
,” respectively.
Gain on Bargain Purchase
Our gain on bargain purchase increased significantly to approximately $68 million for the year ended December 31, 2014, compared to approximately $1
million for the year ended December 31, 2013. This increase was driven by the negative goodwill generated in connection with IC Power’s acquisition of:
•
•
ICPNH in March 2014, which resulted in IC Power’s recognition of a gain of $24 million;
the outstanding stake in JPPC in May 2014, which resulted in IC Power’s recognition of a gain of $24 million; and
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Table of Contents
•
Puerto Quetzal in September 2014, which resulted in IC Power’s recognition of a gain of $20 million.
Other Expenses
Our other expenses increased significantly to approximately $14 million for the year ended December 31, 2014, compared to approximately $5 million for
the year ended December 31, 2014. This increase was primarily driven by a $7 million charge as a result of IC Power’s retirement of certain of Amayo II’s assets.
Other Income
Our other income increased significantly to approximately $51 million for the year ended December 31, 2014, compared to approximately $5 million for the
year ended December 31, 2013. In 2014, our “other income” consisted primarily of:
•
•
$18 million in dividend income from Edegel;
$20 million resulting from changes in Kenon’s interests in Tower as a result of an increase in Tower’s outstanding share capital due to the conversion
and exercise of certain of Tower’s outstanding convertible bonds, options and warrants. As a result of Tower’s issuance of shares in connection with
such conversions and exercises, our interest in Tower declined from approximately 32% as of December 31, 2013 to approximately 28% as of
December 31, 2014, resulting in our recognition of a $20 million dilution gain, which was determined by calculating the difference between the
carrying amounts of our investment in Tower immediately before and after the relevant share issuances; and
•
$7 million related to insurance claims, primarily related to Amayo II’s claims in respect of three wind turbines, which were damaged in December
2014.
In 2013, our “other income” consisted of (i) $4 million of non-operating income and (ii) $1 million of dividends received from JPPC.
Financing Expenses, Net
Our financing expenses, net, increased 47% to $94 million for the year ended December 31, 2014, compared to $64 million for the year ended December 31,
2013. This increase was primarily driven by an increase in IC Power’s net finance expenses, as set forth in further detail below by IC Power’s segments.
Peru
Segment
Financing expenses, net from IC Power’s Peru segment were $34 million in both 2013 and 2014, reflecting a $3 million increase in interest expense from
banks and others to $33 million, primarily as a result of interest expenses relating to Las Flores’ leases (accrued since IC Power’s acquisition of Las Flores in April
2014). This increase was partially offset by a $4 million decline in foreign currency loss due to the depreciation of the Peruvian Sol against the U.S. Dollar during
2014.
Israel
Segment
Financing expenses, net, from IC Power’s Israel segment increased by $8 million, or 36%, to $30 million for the year ended December 31, 2014 from $22
million for the year ended December 31, 2013, primarily as a result of a $5 million increase in OPC´s interest expense from banks and others to $22 million in 2014
from $17 million in 2013. Prior to OPC’s COD in July 2013, OPC’s interest expense was capitalized.
Central
America
Segment
Financing expenses, net, from IC Power’s Central America segment increased by $8 million, to $8 million for the year ended December 31, 2014, primarily
as a result of the recognition of $7 million of interest expense relating to ICPNH’s debt, as a result of IC Power’s acquisition of ICPNH in March 2014.
Other
Segment
Financing expenses, net, from IC Power’s Other segment increased by $23 million to $46 million for the year ended December 31, 2014 from $23 million
for the year ended December 31, 2013 primarily as a result of: (1) the recognition of $13 million in finance expenses as a result of repaying $95 million of capital
notes to IC, reflecting the difference between the
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nominal value of the capital notes ($95 million) and the book value of the capital notes ($82 million); (2) a $9 million increase in Inkia’s interest expense from
banks and others to $21 million in 2014 from $12 million in 2013, primarily as a result of IC Power’s incurrence of a full year of interest expense in respect of
Inkia’s incremental $150 million senior notes, which were issued in September 2013, and interest expense relating to Inkia’s $125 million credit facility (which was
entered into in December 2013 and fully paid in August 2014); (3) a $3 million increase in interest expense in respect of ICPI’s NIS 350 million ($93 million)
mezzanine financing agreement, which ICPI entered into in June 2014; and (4) a $2 million increase in Colmito’s interest expense from banks and others, primarily
as a result of Colmito’s incurrence of additional debt in February 2014. These effects were partially offset by a $4 million decrease in interest expense on loans
from IC Power’s parent company to $7 million for the year ended December 31, 2014 from $11 million for the year ended December 31, 2013, as a result of IC
Power’s repayment of the full outstanding amount of the loans owed to IC during May and June 2014.
Share In Income (Losses) of Associated Companies, Net of Tax
Our share in income (losses) of associated companies, net of tax increased 35% to approximately $(171) million for the year ended December 31, 2014,
compared to approximately $(127) million for the year ended December 31, 2013. Set forth below is a discussion of income/loss for our material associated
companies and the share in income (losses) of associated companies, net of tax, of IC Power.
Qoros
Our share in Qoros’ comprehensive loss increased to approximately $175 million for the year ended December 31, 2014, compared to losses of
approximately $127 million for the year ended December 31, 2013. As we have a 50% equity interest in Qoros, we recognize 50% of the net loss of Qoros in 2014
(RMB2,154 million) and 2013 (RMB1,557 million). A discussion of Qoros’ results of operations (on a 100% basis; Kenon’s share is 50%) for 2014 and 2013 is set
forth below. Qoros’ results of operation for 2014 and 2013 reflect the fact that Qoros is an early stage automobile manufacturer that launched commercial sales at
the end of 2013. Accordingly, Qoros incurs significant expenses, including expenses relating to the launch of new models, but has not achieved significant
revenues.
Qoros had revenues of RMB864.9 million in 2014 compared to revenues of RMB13.1 million, representing a significant increase. Qoros commenced
commercial sales at the end of 2013 (with some limited sales in December 2013), so revenues in 2013 were negligible. Qoros’ revenues in 2014 reflect sales of
approximately 7,000 cars, primarily the Qoros sedan.
Cost of sales increased from RMB29 million in 2013 (when there was only limited commercial operations) to RMB1,019 million in 2014. Qoros incurred a
gross loss in 2014 (cost of sales exceeded revenues) reflecting the level of sales in 2014 and an increase in inventories, including vehicles.
Qoros had research and development expenses of RMB264 million in 2014 compared to RMB408 million in 2013, representing a decrease of 35%. The
decrease in research and development expenses reflects the completion in 2013 of a significant portion of the research and development activities conducted in
connection with the launch of Qoros’ first three vehicle models at the end of 2013 and in 2014.
Qoros had selling and distribution expenses of RMB927.2 million in 2014 compared to RMB269.7 million in 2013. The increase in selling and distribution
expenses reflects the significant marketing and related expenses incurred in connection with the launch of Qoros’ first three vehicle models.
Qoros had administration expenses of RMB591.6 million in 2014 compared to RMB864.8 million in 2013, representing a decrease of 32%. The decrease in
administration expenses was primarily the result of a decrease in personnel expenses and a decrease in consulting expenses reflecting the substantial completion of
a research and development work relating to Qoros’ first three models and the completion of other projects (e.g., vehicle design) that were completed prior to
launch of these three vehicle models.
As a result of the foregoing, Qoros had a loss from operation of RMB1,962 million in 2014 compared to RMB1,545 million in 2013, representing an increase
of 25%.
Qoros had finance costs of RMB217 million in 2014 compared to finance costs of RMB29.2 million in 2013, representing a significant increase. The
increase was due in part to an increase in amounts outstanding under short term and long term loans, including shareholder loans, in 2014 as compared to 2013,
with total loans and borrowings (including current loans) of RMB7,303 million as of December 31, 2014 as compared to loans and borrowings of RMB4,110
million as of December 31, 2013. In addition, a significant portion of Qoros’ interest costs was capitalized as property, plant and equipment in 2013, with a much
smaller portion capitalized in 2014 as a result of adjustments made in Qoros’ accounting method in 2014.
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As a result of the foregoing, Qoros reported a loss for the year of RMB2.1 billion for the year ended December 31, 2014, compared to RMB1.6 billion for the
year ended December 31, 2013.
ZIM
Our share in ZIM’s loss for 2014 was approximately $13 million, which represented our share in ZIM’s loss for the six months ended December 31, 2014,
the period in which Kenon accounted for ZIM’s results of operations pursuant to the equity method of accounting.
Tower
Our share in Tower’s comprehensive income increased to approximately $18 million for the year ended December 31, 2014, compared to an approximately
$(31) million share in Tower’s comprehensive loss for the year ended December 31, 2013. A portion ($6 million) of Tower’s loss in 2013 was not reflected in our
share in losses of associated companies, net of tax, for that period, since the cumulative losses incurred in our investment in Tower exceeded the value of our
investment, and the book value of an equity method investee cannot be less than zero.
Generandes
Our share in Generandes’ comprehensive income decreased by 60% to $12 million for the year ended December 31, 2014, compared to $30 million for the
year ended December 31, 2013, due to IC Power’s sale of Edegel in 2014.
Tax Expenses
Our tax expenses increased 110% to approximately $103 million for the year ended December 31, 2014, compared to approximately $49 million for the year
ended December 31, 2013. This increase was primarily driven by a $47 million income tax expense on our gain on IC Power’s sale of Edegel for $413 million.
Income (Loss) For the Year From Discontinued Operations (After Taxes)
Our income (loss) for the year from discontinued operations (after taxes) is comprised of (i) ZIM’s results of operations for the six months ended June 30,
2014 and (ii) Petrotec’s results of operations for the year ended December 31, 2014.
Our income for the year from discontinued operations (after taxes) increased to approximately $471 million for the year ended December 31, 2014,
compared to approximately $513 million losses for the year ended December 31, 2013, primarily as a result of (i) ZIM’s results of operations during the six months
ended June 30, 2014, the period in which Kenon accounted for ZIM as a discontinued operation in the amount of $480 million of net income from the realization of
discontinued operations in the amount of $609 million and (ii) the net results of Petrotec as a discontinued operation in the amount of $(9) million.
Profit For the Year
As a result of the above, our profit for the year amounted to $477 million for the year ended December 31, 2014, compared to a loss of $(616) million for the
year ended December 31, 2013.
B.
Liquidity and Capital Resources
Kenon’s Liquidity and Capital Resources
We were formed in 2014 in connection with our spin-off from IC. In connection with the spin-off, we received $35 million in cash, and entered into a $200
million credit facility with IC, or the IC Credit Facility. As of December 31, 2015, the total drawings outstanding under the IC Credit Facility were $110 million. In
the first quarter of 2016, Kenon drew down an additional $40 million under the IC Credit Facility. In April 2016, Kenon drew down the remaining $50 million
under the IC Credit Facility, and as a result, the full $210 million amount, including interest and fees, is currently outstanding. Our recent drawing of $50 million
under the IC Credit Facility is intended to provide us with sufficient cash resources in light of our liquidity position and our obligations under our indirect
guarantees of Qoros’ indebtedness (as discussed below). As of the date of this annual report and as a result of our recent drawing under the IC Credit Facility, we
have cash of $58 million. We have not entered into any other credit facilities at the Kenon level, and are dependent on our businesses for cash flows from
operations and to meet our obligations under the IC Credit Facility and our back-to-back guarantees to Chery with respect to Qoros’ indebtedness, each of which
are discussed further below.
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We believe that Kenon’s working capital is sufficient for its present requirements. Other than expenses related to our day-to-day operations, our principal
needs for liquidity are expected to be expenditures related to investments in our businesses and our back-to-back guarantees to Chery with respect to Qoros’
indebtedness. Our businesses are at various stages of development, ranging from early stage development companies to established, cash generating businesses, and
some of these businesses will require significant financing, via equity contributions or debt facilities, to further their development, execute their current business
plans, and become or remain fully-funded. We may, in furtherance of the development of our businesses, and other than with respect to ZIM, make further
investments, via debt or equity financings, in our remaining businesses.
Kenon has provided back-to-back guarantees to Chery of RMB1,100 million principal amount of Qoros’ indebtedness, plus certain interest and fees. These
back-to-back guarantees consist of (i) a back-to-back guarantee of one-half of the principal amount of Chery’s guarantee of RMB1.5 billion with respect to Qoros’
RMB3 billion facility; Kenon’s obligation is limited to RMB750 million, but in the event that Chery’s obligations under its guarantee exceed RMB1.5 billion (e.g.,
as a result of interest and fees), Kenon has agreed to negotiate with Chery in good faith to find a solution so that Kenon’s and Chery’s liabilities in respect of the
RMB3 billion credit facility are equal in proportion; and (ii) a back-to-back guarantee of one-half of the principal amount of Chery’s guarantee of Qoros’ RMB700
million facility. Kenon’s guarantee is for RMB350 million principal amount, but it also extends to interest and fees of up to RMB60 million. In the event that
Chery’s obligations under its guarantee exceed those of Kenon’s under the back-to-back guarantee, Kenon has agreed to discuss the matter amicably with Chery to
find a solution acceptable for both parties, but without any obligation on Kenon to be liable for more than the amount set forth in its back-to-back guarantee to
Chery.
Kenon may not have sufficient liquidity to pay the full amount of its back-to-back guarantees if it is required to do so. In the event that Kenon is required to
make such payments, it would need to obtain such funds from its businesses, which may include IC Power (via dividends, loans or advances, or the repayment of
loans or advances to us, which may be funded by sales of assets or minority interests in our businesses), or obtain external financing, which may result in dilution
of shareholders (in the event of equity financing) or additional debt obligations for the company (in the event of debt financing). In the event Kenon is required to
make payments on its back-to-back guarantees and does not have sufficient liquidity to do so, there may be a cross-default under the IC Credit Facility, which
would require Kenon to obtain additional financing or obtain such funds from its businesses to pay the outstanding amounts under such facility.
We intend to adhere to our capital allocation principles which seek to limit cross-allocation of funds and capital contributions to our businesses, via debt or
equity financings or the provisions of guarantees. Nevertheless, the cash resources currently on Kenon’s balance sheet (approximately $58 million as of the date of
this annual report) may not be sufficient to fund additional investments that we deem appropriate in our businesses or meet our guarantee obligations. As a result,
Kenon may seek additional liquidity from its businesses. For a description of our capital allocation principles, see “ Item
4.B
Business
Overview.
” For further
information on the risks related to the significant capital requirements of our businesses, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Diversified
Strategy
and
Operations—Some
of
our
businesses
have
significant
capital
requirements.
If
these
businesses
are
unable
to
obtain
sufficient
financing
from
third
party
financing
sources
or
renew
or
refinance
their
working
capital
facilities,
they
may
not
be
able
to
operate,
and
we
may
deem
it
necessary
to
provide
such
capital,
provide
a
guaranty
or
indemnity
in
connection
with
any
financings,
provide
collateral
in
connection
with
any
financings,
including
via
the
cross-collateralization
of
assets
across
businesses,
or
we
may
refrain
from
investing
further
in
any
such
businesses,
all
of
which
may
materially
impact
our
financial
position
and
results
of
operations.
” For a discussion of our outstanding commitments and obligations, see “—Item
5.B
Liquidity
and
Capital
Resources—
Kenon’s
Liquidity
and
Capital
Resources—Kenon’s
Commitments
and
Obligations
.” For a discussion of the capital requirements of each of our businesses, see below.
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Table of Contents
Consolidated Cash Flow Statement
Year
Ended
December
31,
2015
Compared
to
Year
Ended
December
31,
2014
Cash and cash equivalents decreased 37% to approximately $384 million for the year ended December 31, 2015, compared to approximately $610 million in
cash and cash equivalents for the year ended December 31, 2014. The following table sets forth our summary cash flows from our operating, investing and
financing activities for the years ended December 31, 2015 and 2014:
Net cash flows provided by operating activities
IC Power
Adjustments and Other
Total
Net cash flows used in investing activities
Net cash flows provided by financing activities
Net change in cash in period
Cash—opening balance
Effect of exchange rate fluctuations on balances of cash and cash equivalents
Cash—closing balance
Cash
Flows
Provided
by
Operating
Activities
Year Ended December 31,
2015
2014
(in
millions
of
USD)
320
(30)
290
(737)
233
(214)
610
(12)
384
$
413
(3)
410
(883)
430
(42)
671
(19)
610
$
Net cash flows provided by our operating activities are a significant source of liquidity for our subsidiaries and decreased 29% to approximately $290 million
for the year ended December 31, 2015, compared to approximately $410 million for the year ended December 31, 2014. This decrease was primarily driven by a
decrease in cash flows provided by IC Power’s operating activities, as set forth in “ Item
5.B
Liquidity
and
Capital
Resources–
IC
Power’s
Liquidity
and
Capital
Resources
” below. As our businesses are legally distinct from us and will generally be required to service their debt obligations before making distributions to us,
our ability to access such cash flow from our businesses may be limited in some circumstances. For further information on the risks related to such limitations, see
“ Item
3.D
Risk
Factors—Risks
Related
to
Our
Diversified
Strategy
and
Operations—We
are
a
holding
company
and
are
dependent
upon
cash
flows
from
our
businesses
to
meet
our
existing
and
future
obligations
.”
Cash
Flows
Used
in
Investing
Activities
Net cash flows used in our investing activities, which include our investments in our associated companies, decreased to approximately $(737) million for
the year ended December 31, 2015, compared to approximately $(883) million for the year ended December 31, 2014. This decrease was primarily driven by
(1) the $311 million exit from the combination and transition to associate company, less cash eliminated relating to ZIM in 2014; (2) a $170 million decrease in
proceeds from short-term deposits and loans, (3) a $58 million decrease in cash paid for businesses purchased, less cash acquired in 2015 (e.g., IC Power’s
acquisition of AIE) as compared to 2014 (e.g., IC Power’s acquisitions of ICPNH, JPPC, Surpetroil and Puerto Quetzal) and (4) a $50 million reduction in amounts
invested in Qoros during 2015, offset by (1) $360 million net proceeds received by IC Power in connection with its sale of its indirect interest in Edegel in 2014
and (2) an increase in acquisitions of property, plant and equipment of $92 million in 2015 as compared to 2014 in connection with the construction of the Samay I
and CDA plants and the Kanan project’s installation and interconnection to Panama’s power system in 2015.
Cash
Flows
Provided
by
Financing
Activities
Net cash flows provided by the financing activities of our consolidated businesses are a significant source of liquidity for their operations and decreased 46%
to approximately $233 million for the year ended December 31, 2015, compared to approximately $430 million for the year ended December 31, 2014. This
decrease was primarily driven by (1) a $380 million reduction in contributions from former parent IC and (2) a $411 million decrease in proceeds from long-term
loans and debentures, primarily due to a decrease in IC Power’s receipt of proceeds from long-term loans during the year ended December 31, 2015, offset by
Kenon’s drawdowns under the IC Credit Facility, which it entered into in 2015. The decrease in cash flows provided by financing activities was offset by payments
by IC Power to its former parent IC of $300 million in 2014 (as compared to nil in 2015), (2) a $77 million decrease in interest paid in 2015, as compared to 2014
and (3) a $209 million increase in proceeds from short-term loans.
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Table of Contents
Year
Ended
December
31,
2014
Compared
to
Year
Ended
December
31,
2013
Cash and cash equivalents decreased 9% to approximately $610 million for the year ended December 31, 2014, compared to approximately $671 million in
cash and cash equivalents for the year ended December 31, 2013. The following table sets forth our summary cash flows from our operating, investing and
financing activities for the years ended December 31, 2014 and 2013:
Net cash flows provided by operating activities
IC Power
Adjustments and Other
Total
Net cash flows used in investing activities
Net cash flows provided by financing activities
Net change in cash in period
Cash—opening balance
Effect of exchange rate fluctuations on balances of cash and cash equivalents
Cash—closing balance
Year Ended December 31,
2014
2013
(in
millions
of
USD)
$
$
413
(3)
410
(883)
430
(42)
671
(19)
610
$
$
272
(15)
257
(278)
281
260
411
—
671
Combined
Cash
Flows
Provided
by
Operating
Activities
Net cash flows provided by our operating activities, which includes income received as dividends from associated companies, are a significant source of
liquidity for our subsidiaries and increased 60% to approximately $410 million for the year ended December 31, 2014, compared to approximately $257 million for
the year ended December 31, 2013. This increase was primarily driven by an increase in cash flows provided by IC Power’s operating activities, as set forth in “
Item
5.B
Liquidity
and
Capital
Resources—IC
Power’s
Liquidity
and
Capital
Resources
” below.
Combined
Cash
Flows
Used
in
Investing
Activities
Net cash flows used in our investing activities, which include our investments in our associated companies, increased significantly to approximately $(883)
million for the year ended December 31, 2014, compared to approximately $(278) million for the year ended December 31, 2013. This increase was primarily
driven by (i) IC Power’s acquisition of property, plant and equipment (in particular, the acquisitions of ICPNH, AEI Jamaica, Surpetroil and Puerto Quetzal) and
development of the CDA, Samay I and Kanan projects during 2014, as set forth in “ —Item
5.B
Liquidity
and
Capital
Resources—IC
Power’s
Liquidity
and
Capital
Resources
” below, (ii) IC’s $180 million investment in Qoros in December 2014, and (iii) IC’s $200 million investment in ZIM in 2014 in connection with the
completion of its restructuring.
Combined
Cash
Flows
Provided
by
Financing
Activities
Net cash flows provided by the financing activities of our consolidated businesses are a significant source of liquidity for their operations and increased 58%
to approximately $430 million for the year ended December 31, 2014, compared to approximately $281 million for the year ended December 31, 2013. This
increase was primarily driven by (i) an increase in ZIM’s receipt of long-term loans, capital lease, and other long-term liabilities during the six months ended
June 30, 2014, (ii) a decrease in ZIM’s repayment of borrowing during the six months ended June 30, 2014, and (iii) an increase in IC Power’s receipt of long-term
loans during the year ended December 31, 2014.
Kenon’s
Commitments
and
Obligations
As of December 31, 2015, Kenon had consolidated liabilities of $3,219 million. As of December 31, 2015, on a stand-alone basis, Kenon had liabilities of
$118 million arising under the IC Credit Facility. In January 2016, Kenon drew down $40 million under the IC Credit Facility. In April 2016, Kenon drew down
the remaining $50 million available under the IC Credit Facility. As of the date of this annual report, the aggregate amount outstanding under the IC Credit Facility
was $210 million, including interest and fees. In addition, Kenon has obligations under its back-to-back guarantees provided by it to Chery, which amounted to
RMB1,100 million, plus interest and certain fees. For further information on, and an overview of, each of the guarantees provided by Kenon in respect of Qoros’
debt, see “ —Kenon’s
Commitments
and
Obligations—Back-to-Back
Guarantees
Provided
to
Chery
.”
As of the date of this annual report, other than amounts outstanding under the IC Credit Facility and the back-to-back guarantees we have provided to Chery
in respect of certain of Qoros’ indebtedness, we, at the Kenon level, have no outstanding indebtedness or financial obligations and are not party to any credit
facilities or other committed sources of external financing.
Set forth below is a summary of these obligations.
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Table of Contents
IC
Credit
Facility
In connection with the consummation of the spin-off, IC provided us with a $200 million credit facility. As of the date of this annual report, the aggregate
amount outstanding under this facility was $210 million, including interest and fees.
Interest
The IC Credit Facility bears interest at a rate of 12-Month LIBOR + 6% per annum, which, during the initial five-year term of the IC Credit Facility, will be
capitalized as a payment-in-kind and added to the aggregate outstanding amount of the IC Credit Facility. If we decide to extend the repayment schedule in
accordance with the terms of the IC Credit Facility, as set forth below, and we do not repay the aggregate outstanding amount owed under the IC Credit Facility
within the initial five-year term, additional interest accruing on the aggregate outstanding amount as of the final date of the initial five-year term will become
payable in cash on an annual basis.
Repayment Date
The aggregate amount outstanding under the IC Credit Facility (including interest or commitment fees that have accrued and been capitalized as payments-
in-kind during the initial five-year term) is due five years from the date of the IC Credit Facility, unless extended as set forth below. In the event an initial listing or
offering of IC Power Singapore’s shares has been effected, the aggregate amount outstanding under the IC Credit Facility, including any interest or commitment
fees accrued and capitalized to date, will be due within 18 months from such date. However, we are entitled, at each repayment date, to extend the repayment date
for two-year periods if, as of the date of our delivery of our notice of repayment extension, an initial listing or offering of IC Power Singapore’s shares has not yet
been effected. Notwithstanding the above, the final repayment date may not, under any circumstances, be more than ten years from the date of the IC Credit
Facility.
Commitment Fee
During the initial five-year term, we will pay IC an annual commitment fee equal to 2.1% of the undrawn amount of the IC Credit Facility, which will be
capitalized as a payment-in-kind and added to the outstanding amount of the IC Credit Facility. Additionally, we may voluntarily prepay the outstanding principal
amount of the IC Credit Facility at any time without premium or penalty.
Pledge of Equity Interest in IC Power
The following interests have been pledged on a first priority basis, in favor of IC, to secure the IC Credit Facility as set forth below:
•
•
•
66% of the shares of IC Power;
66% of the shares of IC Power Singapore; and
the $145 million note owing from IC Power Singapore to Kenon entered into in connection with the reorganization of IC Power Singapore.
The pledge over the shares of IC Power is expected to be released upon an IPO of IC Power Singapore. In addition, the pledge over the shares of IC Power
Singapore and the $145 million note owing from IC Power Singapore to Kenon can be released upon an IPO of IC Power Singapore, subject to Kenon’s meeting of
a financial ratio.
Restrictive Covenants
The IC Credit Facility contains incurrence covenants restricting our ability to encumber certain assets and distribute dividends.
For example, prior to a listing or offering of IC Power Singapore’s equity, the IC Credit Facility prohibits us from distributing dividends to our shareholders,
unless such dividends consist of all, or a portion of, our equity interests in ZIM.
There are further restrictions on dividends following an IPO or listing of IC Power Singapore’s equity. If, any time after a listing of IC Power Singapore’s
equity, we seek to (i) distribute a dividend to our shareholders (in cash or in kind), (ii) incur additional debt, (iii) sell, transfer, or allocate a portion, or all, of our
interest in IC Power Singapore, or (iv) sell all of IC Power Singapore’s assets, the IC Credit Facility will require the value of Kenon’s remaining interest in IC
Power Singapore to be equal to at least two times Kenon’s net debt (which shall be equal to the outstanding principal amount of the IC Credit
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Facility plus
the outstanding principal amount of any additional debt owed by Kenon to third-parties minus
Kenon’s cash on hand), in each case plus interest and
fees. Although a failure to comply with any of the aforementioned covenants will not constitute an event of default under the terms of the IC Credit Facility, Kenon
will be restricted from distributing dividends or incurring additional debt and, should Kenon distribute dividends or incur additional indebtedness notwithstanding
such restrictions, such actions will constitute an event of default under the terms of the IC Credit Facility. If Kenon is unable to meet such ratio, Kenon may not
make distributions to its shareholders or incur additional indebtedness.
Additionally, following an IPO or listing of IC Power Singapore’s equity, we will not engage in certain transactions, as set forth in the IC Credit Facility,
which would result in a de-listing of IC Power Singapore’s shares from the exchange on which such shares are trading.
Assignability
We may not assign or delegate our rights and obligations under the IC Credit Facility without IC’s prior written consent, except that we may assign our rights
and obligations under the IC Credit Facility to an affiliate, provided
that we remain jointly and severally liable for all such obligations with such affiliate, and
further
provided
that such assignment or delegation shall not serve to prejudice any of IC’s rights under the terms of the IC Credit Facility.
IC is entitled to assign or delegate its rights and obligations under the IC Credit Facility in its sole discretion, and without our prior written consent.
For information on the risks related to Kenon’s ability to repay, or maintain compliance with, the IC Credit Facility from IC, see “ Item
3.D
Risk
Factors—
Risks
Related
to
Our
Diversified
Strategy
and
Operations—Kenon
has
significant
repayment
obligations
under
the
IC
Credit
Facility.
”
Back-to-Back
Guarantees
Provided
to
Chery
Set forth below is an overview of the guarantees provided by Kenon to Chery in respect of Qoros’ debt to date:
Date Granted
Spin-Off / November 2015
May 2015/November 2015
Total
Qoros Credit Facility
Kenon Guarantee Amount
RMB3 billion credit facility
RMB700 million EXIM Bank loan facility
RMB750 million 1
RMB350 million, plus certain interest and fees
up to RMB60 million 2
RMB 1,100 million, plus certain interest and
fees
1.
2.
In the event that Chery’s liability under its guarantee exceeds RMB1.5 billion, Kenon has committed to negotiate with Chery in good faith to find a solution so that Kenon’s and Chery’s
liabilities for the indebtedness of Qoros under this credit facility are equal in proportion.
In the event that Chery is obligated under its guarantee of the EXIM Bank loan facility to make payments that exceed Kenon’s obligations under the guarantee, Kenon and Chery have
agreed to try to find an acceptable solution, but without any obligation on Kenon to be liable for more than the amounts set forth in the table above.
Debt
Owed
to
Kenon
from
Subsidiaries
$220
Million
of
Notes
from
IC
Power
Singapore
In connection with the reorganization of IC Power Singapore, IC Power Singapore issued notes of $145 million and $75 million payable to Kenon. The
proceeds of the notes were applied by IC Power Singapore towards paying the purchase consideration for the acquisition of Kenon’s entire equity interest in IC
Power. The notes both bear interest at a rate of LIBOR + 6% per annum until the date the notes are fully paid.
Debt
Owed
to
Kenon
from
Subsidiaries
Prior to the spin-off, some of our businesses borrowed funds from, or issued capital notes to, IC. IC transferred its interest in each of the outstanding loans
and capital notes to Kenon in connection with the spin-off. These loans and capital notes, as well as loans and capital notes provided to Kenon subsequent to the
spin-off, are described below.
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Table of Contents
Quantum Capital Notes
Quantum issued a series of capital notes to IC or Kenon, as applicable, in connection with each of IC’s or Kenon’s, as applicable, equity contributions to
Qoros. The capital notes issued by Quantum bear no interest and are not linked. As of December 31, 2015, the outstanding balance of these capital notes was $755
million. In the first quarter of 2016, Quantum issued additional capital notes to fund a RMB 275 million loan to Qoros.
Qoros Shareholder Loans
In January 2016 and February 2016, Kenon, through its wholly-owned subsidiary Quantum, contributed RMB275 million to Qoros via shareholder loans. We
expect these loans, as well as additional shareholder loans from Kenon, to convert into equity in Qoros upon the satisfaction of certain conditions, including the
approval of the relevant Chinese authority. Chery has also made similar shareholder loans to Qoros, which are also expected to be converted to equity.
As of the date of this annual report, the outstanding balance of the shareholder loans by Kenon, through its wholly-owned subsidiary, Quantum to Qoros was
RMB1.0 billion.
Other Capital Notes and Loans
In October 2014, IC Green issued a $7.5 million capital note to IC to fund any investments made by IC Green in Primus, in connection with the investment
agreement IC Green entered into with Primus in October 2014. This capital note bears no interest and is not linked to the CPI.
During 2015, IC Green granted Primus a convertible loan in the amount of $12.5 million. These convertible loans bear interest of 7% annually and will be
repayable on July 1, 2016.
The following discussion sets forth the liquidity and capital resources of each of our businesses.
IC Power’s Liquidity and Capital Resources
As of December 31, 2015 and December 31, 2014, IC Power had cash and cash equivalents of $360 million and $583 million and short-term deposits of $50
million and $119 million, respectively.
IC Power’s principal sources of liquidity have traditionally consisted of cash flows from operating activities, including dividends received from entities in
which IC Power owns non-controlling interests; short-term and long-term borrowings; and sales of bonds in domestic and international capital markets. IC Power
does not have funds designated for, or subject to, permanent reinvestment in any country in which it operates. Distributions of the earnings of IC Power’s foreign
subsidiaries are subject to the withholding taxes imposed by the foreign subsidiaries’ jurisdictions of incorporation. From time to time, however, IC Power may be
unable to receive dividends from its subsidiaries and associated company as a result of a lack of distributable reserves or limitations under IC Power’s contractual
arrangements. For example, IC Power’s sale of its indirect interest in Edegel constituted an “asset sale” under Inkia’s indenture, pursuant to which Inkia was
required to use the $235 million net proceeds from Inkia’s sale of its interest in Edegel within 30 months of Inkia’s receipt of such net proceeds to reinvest in its
operations through acquisitions, or capital expenditures, or to repay certain debt, failing which IC Power must use any remaining proceeds to offer to repurchase
these notes at 100% of principal amount plus accrued interest. Inkia has fully invested the net cash proceeds from the Edegel sale through, among others, debt
repayments and its acquisition of Energuate.
In addition, IC Power is also limited in its usage of certain cash, with such restricted cash constituting an aggregate amount of $252 million as of
December 31, 2015 and $88 million as of December 31, 2014, either because such cash deposits are time deposits or as a result of the loan covenants relating to IC
Power’s Bolivian, Nicaraguan and Israeli assets. For further information on potential limitations to IC Power’s ability to receive dividends from certain of the
entities in which IC Power hold interests, see “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—IC
Power
is
a
holding
company
and
is
dependent
upon
cash
flows
from
its
subsidiaries
to
meet
its
existing
and
future
obligations
,” “ Item
3.D
Risk
Factors—Risks
Related
to
IC
Power—IC
Power
is
significantly
leveraged
”
and Notes 10 and 11 to our audited financial statements included in this annual report.
IC Power’s principal needs for liquidity generally consist of capital expenditures related to the development and construction of generation projects and the
acquisition of other generation companies; working capital requirements ( e.g.
, maintenance costs that extend the useful life of its plants); and dividends on IC
Power’s ordinary shares. As part of its growth strategy, IC Power expects to develop, construct and operate greenfield projects in the markets that IC Power serves
as well as start projects or acquire controlling interests in operating assets within and outside Latin America. IC Power’s development of
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Table of Contents
greenfield projects and its acquisition activities in the future may require IC Power to make significant capital expenditures and/or raise significant capital. IC
Power believes that its liquidity is sufficient to cover its working capital needs in the ordinary course of its business.
IC Power’s Cash Flows
Year
Ended
December
31,
2015
Compared
to
Year
Ended
December
31,
2014
The following table sets forth IC Power’s summary cash flows from IC Power’s operating, investing and financing activities for the years ended
December 31, 2015 and 2014:
Year Ended December 31,
2015
2014
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows provided by financing activities
Net change in cash in period
Cash—opening balance
Effect of exchange rate on the cash
Cash—closing balance
IC
Power’s
Cash
Flows
Provided
by
Operating
Activities
$
$
($ millions)
$
320
(621)
88
(213)
583
(10)
360
413
(378)
47
82
517
(16)
583
$
Net cash flows provided by IC Power’s operating activities are IC Power’s primary source of liquidity and decreased by 23% to $320 million for 2015 from
$413 million for 2014. This decrease was primarily driven by (1) a $107 million decrease in OPC’s net cash flows from operating activities, primarily as a result of
a lower generation component tariff, which serves as the base for the price calculation for the billing of OPC’s customers; and (2) $22 million in dividends from
discontinued operations as a result of the sale of Edegel, which took place in 2014.
These factors were partially offset by (1) a $15 million increase in ICPNH´s net cash flows from operating activities primarily as a result of full year of
ICPNH´s operations and increased revenue from Amayo I and Amayo II as a result of better wind conditions; (2) a $9 million increase in CEPP’s net cash flows
from operating activities, primarily as a result of the collection of $32 million from its accounts receivable as a result of the debt recognition and payment
agreement signed by CEPP, the Dominican Regulator and three distribution companies in September 2015; (3) a $7 million increase in Inkia’s net cash flows from
operating activities primarily as a result of lower legal expenses during 2015; and (4) a $3 million increase in Chilean´s net cash flows from operating activities
primarily as a result of better 2015 operating results in Central Cardones and Colmito.
IC
Power’s
Cash
Flows
Used
in
Investing
Activities
Net cash flows used in IC Power’s investing activities increased by 64% to $621 million for 2015 from $378 million for 2014.
During 2015, investing activities for which IC Power used cash primarily consisted of (1) acquisitions of property, plant and equipment of $518 million, of
which $225 million was used in the construction of Samay I, $187 million was used in the construction of CDA’s plant, and $29 million was used in Kanan’s
project installation and interconnection to Panama’s power system; (2) $83 million for short-term deposits and restricted cash, net, principally related to the funds
received by IC Power Distribution Holdings Pte. Ltd., or ICPDH, which holds indirect equity interests in DEORSA, DEOCSA, RECSA and Guatemel, in
connection with the short-term loan for the acquisition of such businesses; and (3) $17 million related to the acquisition of intangibles.
During 2014, cash flows used in IC Power’s investing activities primarily consisted of acquisitions of property, plant and equipment of $426 million, of
which $260 million was used in connection with the construction of CDA’s plant and $85 million was used in connection with the construction of Samay I;
(2) $221 million for short-term deposits and restricted cash, net, in connection with the opening of time deposits related to the proceeds from Edegel sale; and
(3) $70 million (net of cash received) to complete the acquisitions of ICPNH, JPPC, Surpetroil and Puerto Quetzal. The effects of these expenditures were partially
offset by $360 million of net proceeds received by IC Power in connection with its sale of its indirect equity interest in Edegel in September 2014.
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Table of Contents
IC
Power’s
Cash
Flows
Provided
by
Financing
Activities
Net cash flows provided by IC Power’s financing activities increased by 87% to $88 million for 2015 compared to $47 million for 2014.
During 2015, IC Power received aggregate proceeds of $226 million from its incurrence of long-term debt and $6 million from equity investments from
certain of its partners, as follows:
•
•
•
•
$138 million borrowed under the Samay I Finance Facility;
$85 million borrowed under the CDA Finance Facility;
$3 million borrowed under Tipitapa Power’s loan agreement; and
$6 million from the investment of Energía del Pacífico in CDA and the investment of the minority partner in Surenergy.
The receipt of such proceeds were offset by repayments of long-term notes, debentures and capital notes of $138 million in 2015.
During 2014, IC Power received aggregate proceeds of $667 million from IC Power’s issuance of long-term debt and $20 million from equity investments
from certain of IC Power’s partners, as follows:
•
•
•
•
•
•
•
•
$319 million borrowed under the CDA Finance Facility;
$153 million borrowed under the Samay I Finance Facility;
$102 million borrowed under ICPI’s credit facility;
$43 million from the issuance of the COBEE bonds;
$25 million from the issuance of the CEPP bonds;
$23 million borrowed under Colmito’s credit facility;
$2 million borrowed under Tipitapa Power’s loan agreement; and
$20 million from the investment of Energía del Pacífico in Samay I.
In addition, in 2014, IC Power made payments of $300 million to IC, IC Power’s former parent. In May 2014, IC Power repaid $168 million of
intercompany debt owed to IC. In June 2014, IC Power repaid $95 million of capital notes owed to IC and declared and distributed dividends of $37 million to IC.
Year
Ended
December
31,
2014
Compared
to
Year
Ended
December
31,
2013
The following table sets forth IC Power’s summary cash flows from its operating, investing and financing activities for the years ended December 31, 2014
and 2013:
Year Ended December 31,
2014
2013
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows provided by financing activities
Net change in cash in period
Cash—opening balance
Effect of exchange rate on the cash
Cash—closing balance
226
$
$
413
(378)
47
82
517
(16)
583
($ millions)
$
272
(258)
320
334
184
(1)
517
$
Table of Contents
IC
Power’s
Cash
Flows
Provided
by
Operating
Activities
Net cash flows provided by IC Power’s operating activities increased by 52% to $413 million for 2014 from $272 million for 2013. This increase was
primarily driven by a $141 million increase in OPC’s net cash flows from operating activities, reflecting a full year of commercial operations of OPC during 2014,
as compared to approximately six months of commercial operations in 2013.
IC
Power’s
Cash
Flows
Used
in
Investing
Activities
Net cash flows used in IC Power’s investing activities increased by 47% to $378 million for 2014 from $258 million for 2013.
Investing activities for which IC Power used cash in 2014 are set forth above.
During 2013, investing activities for which IC Power used cash primarily consisted of acquisitions of property, plant and equipment of $294 million, of
which $185 million was used in connection with the construction of CDA’s plant, $57 million was used to complete the construction of OPC’s combined cycle
plant, and $28 million was used to complete the acquisition of Colmito. The effects of these expenditures were partially offset by IC Power’s receipt of proceeds in
connection with the maturity of $74 million in time deposits.
IC
Power’s
Cash
Flows
Provided
by
Financing
Activities
Net cash flows provided by IC Power’s financing activities decreased by 85% to $47 million for 2014 from $320 million for 2013. This change was
primarily driven by IC Power’s receipt of long-term loans, the issuance of debentures, the receipt of short-term credit from banks and the payments made to IC.
IC Power’s cash flows provided by financing activities for the year ended December 31, 2014 are set forth above.
During 2013, IC Power received aggregate proceeds of $323 million from its issuance of long-term debt, $125 million from short-term borrowings and $28
million from equity investments from certain of IC Power’s partners, as follows:
•
•
•
•
•
$143 million borrowed under the CDA Finance Facility;
$163 million from the issuance of the Inkia bonds;
$17 million borrowed under the OPC financing agreement;
$125 million borrowed under Inkia’s short-term credit facility; and
$28 million from the investment of Energía del Pacífico in CDA.
Net cash flows provided by financing activities in 2014 and 2013 included the repayments of long-term loans and debentures of $111 million (excluding
interest payments of $95 million) and $67 million (excluding interest payments of $60 million), respectively.
Potential
Projects
IC Power is constantly monitoring and considering development and acquisition opportunities and is currently assessing approximately 25 projects in Israel
and various Latin American countries, such as in Chile, Jamaica, Colombia, Guatemala, Mexico, Peru, Panama, the Dominican Republic, and Nicaragua. IC Power
expects to finance its development and acquisition activity through a combination of cash generated by financing activities, in particular, the entry into new debt
financings, which are generally stand-alone, secured, project-specific, and with no or limited recourse, cash generated from operating activities.
IC
Power’s
Material
Indebtedness
As of December 31, 2015, IC Power’s total outstanding consolidated indebtedness was $2,565 million, consisting of $179 million of short-term
indebtedness, including the current portion of long-term indebtedness, and $2,386 million of long-term indebtedness. IC Power had no outstanding loans or notes
owed to Kenon as of December 31, 2015.
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Table of Contents
Other than with respect to the OPC Financing Agreement and the ICPI mezzanine financing agreement, Surpetroil’s debt, and certain of COBEE’s
indebtedness (representing an aggregate of $557 million of IC Power’s outstanding indebtedness), IC Power’s outstanding consolidated indebtedness is primarily
denominated in, indexed to, or is the subject of interest rate swaps tied to, the U.S. Dollar.
The following table sets forth selected information regarding IC Power’s principal outstanding short-term and long-term debt, as of December 31, 2015:
IC Power:
Hapoalim
Inkia:
Inkia notes
OPC:
Financing agreement 1
IC Power Distribution Holdings credit agreement
IC Power Israel 3 :
Tranche A
Tranche B
Cerro del Águila:
Tranche A
Tranche B
Tranche D1
Tranche D2
Samay I
Kallpa:
Kallpa I lease
Kallpa II lease
Kallpa III lease
Las Flores lease
Kallpa bonds
Outstanding
Principal
Amount as of
December 31,
2015
Interest Rate
Final maturity
Amortization
($ millions)
12
448
1.25%
8.375%
2016
Bullet payment at final maturity
April 2021
Bullet payment at final maturity
3772
4.85% - 5.36%
July 2031
Quarterly principal payments
commencing in 2013–maturity
117
LIBOR+4.00%
December 2016 Bullet payment at final maturity
41
55
4.85% - 7.75%
January 2016
7.75%
2029
310
LIBOR+4.25% - 5.50%
August 2024
Bullet payment no later than final
maturity
Annual principal payments 2017–
maturity
33 quarterly principal payments
commencing in August 2016
167
38
21
285
2
29
38
94
149
August 2027
LIBOR+2.75% - 3.60%
LIBOR+4.25% - 6.25% August 2024 Bullet payment at final maturity
33 quarterly principal payments
LIBOR+2.75% - 3.60%
commencing in August 2016–
maturity
12 quarterly principal payments
commencing in May 2024–
maturity
29% principal in 23 quarterly
payments commencing in July
2016–maturity
December 2021
August 2027
LIBOR+2.125% - 2.625%
LIBOR+3.00%
March 2016
LIBOR+2.05%
December 2017
7.57%
7.15%
8.50%
July 2018
October 2023
May 2022
228
71% principal in bullet payment at
final maturity
Monthly principal payments to
maturity
Monthly principal payments to
maturity
Monthly principal payments to
maturity
Quarterly principal payments to
maturity
Between 0.25 and 5.00% of
principal payable on a quarterly
basis commencing in May 2013–
maturity
Table of Contents
Kallpa syndicated loan
COBEE:
COBEE III bonds 4
COBEE IV bonds 6
CEPP:
CEPP bonds
Central Cardones:
Tranche 1
Tranche 2
Colmito:
Banco Bice
JPPC:
Royal Bank of Canada
Burmeister & Wain Scandinavian Contractor
ICPNH:
Amayo I
Amayo II
Tipitapa Power
Corinto
Puerto Quetzal:
Banco Industrial
Surpetroil:
Surpetroil leases
Veolia Energy Israel Ltd. Capital Note
Outstanding
Principal
Amount as of
December 31,
2015
Interest Rate
59
LIBOR+6.00%
Final maturity
($ millions)
October 2019
Amortization
Monthly principal payments
January 2013–maturity
235
Various
Various
42
Various
Various
Four annual principal payments
commencing in February 2017
Series A: bullet payment at final
maturity
Series B: 4 semi-annual principal
payments commencing in July
2018
Series C: 8 semi-annual principal
payments commencing in July
2020
10
6.00%
January-March
2019
Bullet payment at final maturity
26
LIBOR+1.90%
18 LIBOR+2.75%
August 2021
24 semi-annual principal payments
to maturity
February 2017 Bullet payment at final maturity
16
7.9%
December 2028
Semi-annual principal payments to
maturity
4
1
47
34
9
9
LIBOR+5.5%
March 2017
3.59%
August 2018
Various
October 2022
Various
November 2025
8.35%
November 2018
8.35%
December 2018
Quarterly principal payments to
maturity
Monthly principal payments to
maturity
Quarterly principal payments to
maturity
Quarterly principal payments to
maturity
Quarterly principal payments to
maturity
Quarterly principal payments to
maturity
15
LIBOR+4.5%
September
2019
Quarterly principal payments to
maturity
Various
2015-2017
1
5
—
2016
2016
Monthly principal payments to
maturity
This capital note has no
amortization schedule
These loans have no amortization
schedule
Short Term Loans from Banks
62
Various
Total
2,565
229
Table of Contents
1.
2.
3.
4.
5.
6.
The consortium includes Bank Leumi Le-Israel B.M. and institutional entities from the following groups: Clal Insurance Company Ltd.; Amitim Senior
Pension Funds; Phoenix Insurance Company Ltd.; and Harel Insurance Company Ltd.
Represents NIS 1,469 million converted into U.S. Dollars at the exchange rate for New Israeli Shekels into U.S. Dollars of NIS 3.902 to $1.00. All debt has
been issued in Israeli currency (NIS) linked to CPI.
The mezzanine financing agreement also includes a Tranche C, pursuant to which up to NIS 350 million, at an interest rate of 11% per annum, may be
drawn, subject to certain conditions, and only to cover shortfall amounts. No Tranche C debt was outstanding under this facility as of December 31, 2015.
Represents $3.5 million of 6.50% notes due 2017, $5.0 million of 6.75% notes due 2017, Bs.44.2 million ($6.3 million) of 9.00% notes due 2020, and
Bs.42.9 million ($6.2 million) of 7.00% notes due 2022.
Includes Bs.44.2 million ($6.3 million), the aggregate principal amount outstanding of COBEE’s 9.00% notes due 2020 as of December 31, 2015, and
Bs.42.9 million ($6.2 million), the aggregate principal amount outstanding of COBEE’s 7.00% notes due 2022, in each case converted into U.S. Dollars at
the exchange rate for Bolivianos into U.S. Dollars of Bs.6.96 to $1.00 as reported by the Bolivian Central Bank ( Banco
Central
de
Bolivia
) on
December 31, 2015. Includes premium of $2.3 million.
Represents $4.0 million of 6.0% notes due 2018, $4.0 million of 7.0% notes due 2020, Bs.84 million ($12.0 million) of 7.8% notes due 2024, $5.0 million of
6.70% notes due 2019 and Bs.105 million ($15.0 million) of 7.8% notes due 2024. Includes premium of $2 million.
Some of the debt instruments to which IC Power’s operating companies are party require that Inkia, Kallpa, OPC, COBEE, CEPP and JPPC comply with
financial covenants, semi-annually or quarterly. For further information, see Note 15 to our financial statements included in this annual report. Under each of these
debt instruments, the creditor has the right to accelerate the debt or restrict the company from declaring and paying dividends if, at the end of any applicable period
the applicable entity is not in compliance with the defined financial covenants ratios.
The instruments governing a substantial portion of the indebtedness of IC Power’s operating companies contain clauses that would prohibit these companies
from paying dividends or making other distributions in the event that the relevant entity was in default on its obligations under the relevant instrument.
As of December 31, 2015, substantially all of the assets of Kallpa, other than the Kallpa I, Kallpa II, Kallpa III and Las Flores turbines, which are under
leasing agreements with financial institutions, are mortgaged or pledged as security for the financing agreements to which Kallpa is a party.
IC Power has entered into hedging arrangements with respect to a portion of IC Power’s long term debt, swapping variable interest for fixed rate interest.
Inkia
Notes
In April 2011, Inkia issued and sold $300 million aggregate principal amount of its 8.375% Senior Notes due 2021, which are listed on the Global Exchange
Market of the Irish Stock Exchange. Interest on these notes is payable semi-annually in arrears in April and October of each year and these notes mature in April
2021. Inkia used the net proceeds of the sale of these notes to finance a portion of its equity contributions to CDA, to repurchase all of its secured indebtedness, and
for working capital and general corporate purposes.
In September 2013, Inkia issued and sold $150 million aggregate principal amount of its 8.375% Senior Notes due 2021, which constituted additional notes
under the indenture governing the 8.375% Senior Notes due 2021 issued in 2011. Inkia used the net proceeds of the sale of these notes to fund its projects under
construction, both through greenfield projects and acquisitions, and for working capital and general corporate purposes.
As of December 31, 2015, the aggregate principal amount outstanding under these notes, including a premium, was $457 million ($448 million net of
transaction costs).
OPC
Financing
Agreement
In January 2011, OPC entered into a financing agreement with a consortium of lenders led by Bank Leumi LeIsrael Ltd., or Bank Leumi, for the financing of
its power plant project. As part of the financing agreement, the lenders committed to provide OPC a long-term credit facility (including a facility for variances in
the construction costs), a working capital facility, and a facility for financing the debt service, in the overall amount of NIS 1,800 million (approximately $460
million). As part of the financing agreement, certain restrictions were provided with respect to distributions of dividends and repayments of shareholders’ loans,
commencing from the third year after the completion of OPC’s power plant. In October 2015, OPC and the consortium of lenders agreed to shorten the “lock-up
period” (which restricted the payment of dividends and any type of distributions until the third anniversary of the completion of the OPC plant’s construction) from
December 31, 2016 to June 30, 2015. The loans are CPI-linked and are repayable on a quarterly basis beginning in the fourth quarter of 2013 until 2031.
230
Table of Contents
IC Power has provided a guarantee to the lending consortium and provided cash collateral for the benefit of the lending consortium. As of December 31,
2015, the outstanding amount of the loan is NIS 1,469 million (approximately $377 million).
IC
Power
Distribution
Holdings
Credit
Agreement
In December 2015, IC Power, through its subsidiary ICPDH entered into a credit agreement with Credit Suisse AG for $120 million to finance its acquisition
of Energuate and two smaller related businesses. The loan is guaranteed by Inkia and fully secured by a pledge provided by ICPDH, which indirectly holds IC
Power’s interests in DEORSA, DEOCSA, RECSA and Guatemel. The pledged property includes ICPDH’s indirect equity interests in DEORSA, DEOCSA,
RECSA and Guatemel.
The principal of the loan will accrue interest at a rate per annum of LIBOR + 4.00%, and matures on December 29, 2016. IC Power fully drew down this
facility in connection with the completion of its acquisition of Energuate, RECSA and Guatemel. As of December 31, 2015, the aggregate principal amount
outstanding under these facilities was $120 million ($117 million net of transaction costs).
ICPI
Mezzanine
Financing
Agreement
In June 2014, IC Power, through IC Power’s subsidiary ICPI, entered into a mezzanine financing agreement for NIS 350 million to repay capital notes owed
to IC. The agreement was entered into with Mivtachim the Workers Social Insurance Fund and Makefet Fund Pension and Provident Center. The loan is secured by
all of ICPI’s assets (excluding the assets that are pledged to secure certain senior debt) and the free cash flow deriving from OPC and is composed of three
facilities: Facility A for NIS 150 million (which was fully repaid in January 2016), Facility B for NIS 200 million, and Facility C (only to cover shortfall amounts)
for NIS 350 million. Facility C has not been used. All facilities are CPI-linked.
The principal of Facility B Loan will bear interest at a rate of 7.75% per year and accrue annually. Principal and any linkage differentials thereon shall be
paid in consecutive equal annual installments until March 31, 2029, commencing on the earlier of: (i) the final maturity date of Facility A and (ii) the first
anniversary after the end of OPC’s “lock-up period.” As of December 31, 2015, the aggregate principal amount outstanding under these facilities was $97 million.
CDA
Finance
Facility
In August 2012, CDA, as borrower, Sumitomo Mitsui Banking Corporation, as administrative agent, certain financial institutions, as lenders, and other
parties thereto, entered into a senior secured syndicated credit facility in an aggregate principal amount not to exceed $591 million to finance the construction of
CDA’s plant. Loans under this facility were disbursed in three tranches.
Tranche A loans under this facility, in an aggregate principal amount of up to $305 million, initially bear interest at the rate of LIBOR plus 4.25% per
annum, increasing over time beginning on the date after the interest payment date occurring after August 2017 to LIBOR plus 5.50% per annum. Principal of the
Tranche A loans will be payable in 33 quarterly installments commencing on the first quarterly payment date occurring after the project acceptance by CDA.
Tranche A loans will be guaranteed by Corporación Financiera de Desarollo S.A., or COFIDE.
Tranche B loans under this facility, in an aggregate principal amount of up to $184 million, initially bear interest at the rate of LIBOR plus 4.25% per annum,
increasing over time beginning on the date after the interest payment date occurring after August 2017 to LIBOR plus 6.25% per annum. Principal of the Tranche B
loans will be payable in August 2024. Tranche B loans will be will be guaranteed by COFIDE.
Tranche D loans under this facility, in an aggregate principal amount of up to $65 million, initially bear interest at the rate of LIBOR plus 2.75% per annum,
increasing over time beginning on the date after the interest payment date occurring after August 2017 to LIBOR plus 3.60% per annum. Principal of the Tranche D
loans will be payable in 45 quarterly installments commencing on the first quarterly payment date occurring after the project acceptance by CDA. Tranche D loans
will be secured by a credit insurance policy provided by SACE S.p.A.—Servizi Assicurativi del Commercio Estero, or SACE.
All loans under this facility are secured by:
•
pledges of CDA’s movable assets and offshore and onshore collateral accounts;
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Table of Contents
•
•
•
•
a pledge of 100% of the equity interests in CDA;
mortgages of the CDA plant and CDA’s generation and transmission concessions;
a collateral assignment of insurances and reinsurances in respect of CDA; and
a conditional assignment of CDA’s rights under certain contracts, including the CDA EPC contract and CDA’s PPAs.
In connection with the January 2015 spin-off of Kenon from IC, IC Power provided the syndicate of lenders a guarantee under the CDA Finance Facility. As
of December 31, 2015, the aggregate principal amount outstanding under this facility was $547 million ($536 million net of transaction costs).
Samay
I
Finance
Facility
In December 2014, Samay I entered into a $311 million, seven-year syndicated secured loan agreement with a syndicate including The Bank of Tokyo-
Mitsubishi, as administrative agent, and certain financial institutions, as lenders, and other parties thereto, or the Samay I Finance Facility, to build an open-cycle
diesel and natural gas (dual-fired) thermoelectric plant in Mollendo, Arequipa (southern Peru), with an installed capacity of approximately 600 MW. The loan
initially bears interest at a rate of LIBOR plus 2.125% per annum, ultimately increasing to LIBOR plus 2.625% per annum from the date after the interest payment
date occurring at the end of 2020 through maturity; 29% of the total principal is payable in 23 quarterly payments commencing in July 2016; the other 71% of the
total principal is payable at maturity. As of December 31, 2015, the aggregate principal amount outstanding under this facility was $291 million ($285 million net
of transaction costs). Loans under this facility are secured by pledges of Samay I’s movable assets and onshore collateral accounts; a pledge over 100% of the
equity interests in Samay I; mortgages of the Samay I real estate property, plant and generation and transmission concessions; collateral assignments of insurances
and reinsurances in respect of Samay I; a conditional assignment of Samay I rights under certain contracts, including Samay I’s EPC contract; and trust agreement
over certain cash flows of Samay I.
Kallpa
Leases
In March 2006, Kallpa entered into separate capital lease agreements with Citibank del Perú, Citileasing and Banco de Crédito del Perú, each amended in
November 2006, December 2007 and July 2008, followed by a leaseback agreement with Citibank del Perú in April 2007, amended in December 2007 and July
2008, under which the lessors provided financing for the construction of the Kallpa I facility in an aggregate amount of $56 million. Under these lease agreements,
Kallpa will make monthly payments to the lessors through the expiration of these leases in March 2016. Upon expiration of these leases, Kallpa has an option to
purchase the property related to the Kallpa I plant for a nominal cost. These leases are secured by substantially all of the assets of Kallpa, including Kallpa’s sales
under its PPAs.
In December 2007, Kallpa entered into a capital lease agreement with Banco de Crédito del Perú under which the lessor provided a total amount of
approximately $82 million for the construction of the Kallpa II turbine. Under this lease agreement, Kallpa makes aggregate monthly payments to the lessors
through the expiration of this lease in December 2017. Upon expiration of this lease, Kallpa has an option to purchase the property related to the Kallpa II plant for
a nominal cost. This lease is secured by substantially all of the assets of Kallpa, including Kallpa’s sales under its PPAs.
In July 2008, Kallpa entered into a capital lease agreement with Scotiabank Perú under which the lessor provided financing for the construction of the Kallpa
III turbine in an aggregate amount of $88 million. Under this lease agreement, Kallpa makes monthly payments to the lessors through the expiration of this lease in
July 2018. Upon expiration of this lease, Kallpa has an option to purchase the property related to the Kallpa III plant for a nominal cost. This lease is secured by
substantially all of the assets of Kallpa, including Kallpa’s sales under its PPAs.
In April 2014, Kallpa entered into a capital lease agreement with Banco de Crédito del Perú under which the lessor provided financing for the acquisition of
Las Flores from Duke Energy Corp. in an aggregate amount of $108 million. Under this lease agreement, Kallpa will make quarterly payments to the lessors
through the expiration of this lease in October 2023.
As of December 31, 2015, the aggregate principal amount outstanding under these leases was $163 million.
Kallpa
Bonds
In November 2009, Kallpa issued $172 million aggregate principal amount of its 8.50% bonds due 2022. Holders of these bonds are required to make
subscription payments under a defined payment schedule during the 21 months following the
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date of issue. Kallpa received proceeds of these bonds in the aggregate amount of $19 million, $36 million and $117 million in 2009, 2010 and 2011, respectively.
The proceeds of these bonds were used for capital expenditures related to Kallpa’s conversion of its open-cycle turbines to a combined-cycle plant. Interest on these
bonds is payable quarterly. Principal amortization payments under these bonds in amounts varying between 0.25% and 5.00% of the outstanding principal amount
of these bonds commenced in May 2013 and will continue until maturity in May 2022. These bonds are secured by Kallpa’s combined-cycle plant and substantially
all of Kallpa’s other assets, including Kallpa’s sales under its PPAs. As of December 31, 2015, the aggregate principal amount outstanding under these bonds was
$149 million.
Kallpa
Syndicated
Loan
In November 2009, Kallpa entered into a secured credit agreement with The Bank of Nova Scotia, Banco de Crédito del Perú and German Investment and
Development Corporation (DEG) in the aggregate amount of $105 million to finance capital expenditures related to Kallpa’s combined-cycle plant. The loans
under this credit agreement are secured by Kallpa’s combined-cycle plant and substantially all of Kallpa’s other assets, including Kallpa’s sales under its PPAs. The
loans under this credit agreement bear interest payable monthly in arrears at a rate of LIBOR plus a margin of 5.50% per annum through November 2012,
5.75% per annum from November 2012 through November 2015 and 6.00% from November 2015 through maturity in October 2019. Scheduled amortizations of
principal are payable monthly commencing in January 2013 through maturity in October 2019. As of December 31, 2015, the aggregate principal amount
outstanding under these loans was $59 million.
COBEE
Bonds
COBEE III Bonds . In February 2010, COBEE approved a bond program under which COBEE is permitted to offer bonds in aggregate principal amount of
up to $40 million in multiple series. In March 2010, COBEE issued and sold three series of notes in the aggregate principal amount of $14 million. The aggregate
gross proceeds of these notes, which were issued at a premium, were $17 million. COBEE will amortize the premium of these notes over the respective terms of
these notes, reducing the interest expense related to these notes. The Series A Notes, in the aggregate principal amount of $4 million pay interest semi-annually at
the rate of 5.00% per annum through maturity in February 2014. Principal on these notes is payable at maturity. The Series B Notes, in the aggregate principal
amount of $4 million, pay interest semi-annually at the rate of 6.50% per annum through maturity in February 2017. Principal on these notes will be paid in two
equal annual installments commencing in February 2016. The Series C Notes, in the principal amount of Bs.44.2 million ($6 million), pay interest semi-annually at
the rate of 9.00% per annum through maturity in January 2020. Principal on these notes will be paid in four equal annual installments commencing in February
2017.
In April 2012, COBEE issued and sold two additional series of notes in the aggregate principal amount of $11 million. The aggregate gross proceeds of these
notes, which were issued at a premium, were $13 million. IC Power will amortize the premium of these notes over the respective terms of these notes, reducing the
interest expense related to these notes. The first series of these notes, in the aggregate principal amount of $5 million pays interest semi-annually at the rate of
6.75% per annum through maturity in March 2017. Principal on these notes is payable at maturity. The second series of these notes, in the aggregate principal
amount of Bs.43 million ($6 million), pays interest semi-annually at the rate of 7% per annum through maturity in February 2022. As of December 31, 2015, the
outstanding amount of these notes was $23 million (including a $2 million premium).
COBEE IV Bonds . In May 2013, COBEE approved a bond program under which COBEE is permitted to offer bonds in aggregate principal amount of up to
$60 million in multiple series. In February 2014, COBEE issued and sold three series of notes in the aggregate principal amount of $20 million. The aggregate
gross proceeds of these notes, which were issued at a premium, were $21 million. The Series A Notes, in the aggregate principal amount of $4 million pay interest
semi-annually at the rate of 6.0% per annum through maturity in January 2018. Principal on the Series A Notes is payable at maturity. The Series B Notes, in the
aggregate principal amount of $4 million pay interest semi-annually at the rate of 7.0% per annum through maturity in January 2020. Principal on the Series B
Notes will be paid in four equal semi-annual installments commencing in July 2018. The Series C Notes, in the aggregate principal amount of Bs. 84 million pay
interest semi-annually at the rate of 7.8% per annum through maturity in January 2024. Principal on the Series C Notes will be paid in eight semi-annual
installments commencing in July 2020.
In November 2014, COBEE issued and sold two series of notes in the aggregate principal amount of $20 million. The aggregate gross proceeds of these
notes, which were issued at a premium, were $22 million. The first series of these notes, in the aggregate principal amount of $5 million, pays interest semi-
annually at the rate of 6.70% per annum through maturity in October 2019. The second series of these notes in the aggregate principal amount of Bs.105 million
(approximately $15 million), pays interest semi-annually at the rate of 7.80% per annum through maturity in October 2024. As of December 31, 2015, the
outstanding amount of these notes was $42 million (including a $2 million premium).
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CEPP
Bonds
In December 2010, CEPP approved a program bond offering under which CEPP is permitted to offer bonds in aggregate principal amount of up to $25
million in multiple series. In 2011 and 2010, CEPP issued and sold $20 million and $5 million of its 7.75% bonds due in 2013 and 2014. CEPP used the proceeds
of this offering to finance its continuing operations and repay intercompany debt. Interest on these bonds was payable monthly and principal of these bonds is due
at maturity in May 2014. During the first quarter of 2014, CEPP issued $25 million of its 6.00% bonds due in January 2019. Part of these funds were used to prepay
$15 million of its 7.75% bonds outstanding due in May 2014. As of December 31, 2015, the aggregate principal amount outstanding under these bonds was $10
million.
Central
Cardones
In connection with IC Power’s acquisition of Central Cardones in December 2011, IC Power consolidated the amounts outstanding under Central Cardones’
credit agreement entered with Banco de Crédito e Inversiones and Banco Itaú Chile. The loans under this credit agreement were issued in two tranches of $37
million and $21 million, respectively. Loans under the first tranche bear interest at the rate of LIBOR plus 1.9% per annum, and the principal of this tranche is
payable in 24 semi-annual installments through maturity in August 2021. Loans under the second tranche bear interest at the rate of LIBOR plus 2.75% per annum,
interest is payable semi-annually, and the loan matures in February 2017. As of December 31, 2015, the aggregate principal amount outstanding under these loans
was $44 million.
Colmito
In January 2014, Colmito entered into a 12,579 million Chilean pesos (approximately $24 million) 14-year credit agreement with Banco Bice. The loan
under this facility bears interest at a rate of 7.9% Chilean pesos per annum and is paid semi-annually through maturity in December 2028. Principal on this facility
is payable semi-annually. In February 2014, Colmito entered into a cross-currency swap closing at a fixed interest rate of 6.025% in U.S. Dollars. As of
December 31, 2015, the aggregate principal amount outstanding under this loan was 11,592 million Chilean pesos (approximately $16 million).
JPPC
In March 2012, JPPC entered into a five-year $20.5 million syndicated loan agreement with RBC Royal Bank (Trinidad and Tobago) Limited, RBC Royal
Bank (Jamaica) Limited and RBC Merchant Bank (Caribbean) Limited. The loan under this facility bears interest at a rate of LIBOR + 5.5% per annum and is
payable in quarterly installments. Principal on this facility is payable in quarterly payments. JPPC entered into an interest rate swap contract to fix its interest at a
rate of 6.46% per annum. As of December 31, 2015, the aggregate principal amount outstanding under this loan was $4 million.
ICPNH
In October 2007, Amayo I entered into a 15-year $71.25 million loan agreement with Banco Centroamericano de Integración Económica, or CABEI. The
term loan is secured by a first degree mortgage over all of the improvements executed on Amayo I’s project site, cessation of all of the project contracts, and the
creation and maintenance of a reserve account for $2.4 million, to be controlled by CABEI. The loans under this facility bear interest at a rate of 8.45% or LIBOR +
4.00% per annum and are payable in quarterly installments.
In November 2010, Amayo II entered into a 15-year $45 million syndicated loan agreement with Nederlandse Financierings-Maatschappij Voor
Ontwikkelingslanden N.V. (FMO) and CABEI. The syndicated loan is secured by a first and second lien mortgage agreement, a first and second lien industrial
pledge agreement, and a first and second lien contract pledge agreement. The loans under this facility bears interest at a rate of 10.76% (Mezzanine Loan), 8.53%
(FMO Senior Loan) and a variable interest rate of LIBOR + 5.75% per annum and are payable in quarterly installments.
In November 2013 and November 2014, Tipitapa Power entered into a five-year $7.2 million loan agreement and a four-year $4.6 million loan agreement,
respectively, with Banco de América Central, or BAC. The term loans are secured by a commercial lien, industrial lien and a mortgage on the property. The loans
under this facility bear interest at a rate of 8.35% and are payable in quarterly installments.
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In December 2013, Corinto entered into a five-year $14.5 million loan agreement with BAC. The term loan is secured by a commercial lien and a mortgage
on the barge Margarita II. The loan under this facility bears interest at a rate of 8.35% and is payable in quarterly installments.
As of December 31, 2015, the aggregate principal amount outstanding under these loans was $99 million.
Short-Term
Loans
IC Power’s consolidated short term debt was $353 million as of December 31, 2015, including $174 million for the current portion of IC Power’s long-term
indebtedness.
Kallpa, CEPP, COBEE, Puerto Quetzal and Nejapa have entered into lines of credit with financial institutions in Peru, the Dominican Republic, Bolivia,
Guatemala and El Salvador, respectively, pursuant to which they are permitted to borrow up to $60 million, $37 million, $13 million, $25 million and $41 million,
respectively, expiring between 2016 and 2019, as applicable. Each of these lines of credit are used to finance their operating activities.
Qoros’
Liquidity
and
Capital
Resources
Qoros’ cash and cash equivalents was RMB257 million as of December 31, 2015, compared to approximately RMB752 million as of December 31, 2014.
We have a 50% equity interest in Qoros and, and we do not exercise control over Qoros’ cash and cash equivalents.
Qoros’ principal sources of liquidity are cash inflows received from financing activities, including long-term loans, short-term facilities and inflows received
in connection with the capital contributions (in the form of equity contributions, or convertible or non-convertible shareholder loans). Qoros has substantially drawn
its RMB3 billion syndicated credit facility, RMB1.2 billion syndicated credit facility and its RMB700 million credit facility, and will require additional financing,
including the renewal or refinancing of its working capital facilities, to fund its development and operations.
Qoros has historically relied upon capital contributions, loans, and bank guarantees from its shareholders (Chery and Kenon) to fund its development and
operations. As of December 31, 2015, Qoros’ shareholders have made equity contributions in the aggregate amount of RMB8.3 billion and loans of RMB1.5
billion. In January and February 2016, Kenon made further loans to Qoros of RMB275 million, using cash on hand and drawdowns under the IC Credit Facility,
and Chery provided RMB275 million shareholder loans on similar conditions as well.
In April 2016, Ansonia, which owns approximately 46% of the outstanding shares of Kenon, entered into a loan agreement to provide loans of up to $50
million to Qoros to support Qoros’ ordinary course working capital requirements, subject to Wuhu Chery making corresponding loans. Ansonia and Wuhu Chery
are each expected to initially fund approximately $25 million of these loans, with remaining amounts at the discretion of Ansonia and Wuhu Chery. In light of the
investments made by Kenon in Qoros, including guarantees of Qoros’ indebtedness, and Kenon’s strategy to refrain from material “cross-allocation” (i.e., investing
returns from one business into another), Kenon will not make any loans or other investments in Qoros as part of this transaction. For more information see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Recent
Developments—Qoros—Ansonia’s
Agreement
to
Invest
in
Qoros.
” Qoros is continuing to seek additional
financing for its operations.
Kenon has provided back-to-back guarantees to Chery of RMB1,100 million principal amount of Qoros’ indebtedness, plus certain interest and fees. These
back-to-back guarantees consist of (i) a back-to-back guarantee of one-half of the principal amount of Chery’s guarantee of RMB1.5 billion with respect to Qoros’
RMB3 billion facility; Kenon’s obligation is limited to RMB750 million, but in the event that Chery’s obligations under its guarantee exceed RMB1.5 billion (e.g.,
as a result of interest and fees), Kenon has agreed to negotiate with Chery in good faith to find a solution so that Kenon’s and Chery’s liabilities in respect of the
RMB3 billion credit facility are equal in proportion; and (ii) a back-to-back guarantee of one-half of the principal amount of Chery’s guarantee of Qoros’ RMB700
million facility. Kenon’s guarantee is for RMB350 million principal amount, but it also extends to interest and fees of up to RMB60 million. In the event that
Chery’s obligations under its guarantee exceed those of Kenon’s under the back-to-back guarantee, Kenon has agreed to discuss the matter amicably with Chery to
find a solution acceptable for both parties, but without any obligation on Kenon to be liable for more than the amount set forth in its back-to-back guarantee to
Chery.
As of December 31, 2015, Qoros had total loans and borrowings (excluding shareholder loans) of RMB6.0 billion and current liabilities (excluding
shareholder loans) of RMB4.3 billion, including trade and other payables of RMB2.6 billion, and current assets of RMB1.5 billion, including cash and cash
equivalents of RMB257 million. Qoros actively manages its trade payables, accrued expenses and other operating expenses in connection with the management of
its liquidity requirements and
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Table of Contents
available resources. For further information on the risks related to the effect of Qoros’ liquidity situation on its relationship with its supplies, see “ Item
“3.D.
Risk
Factors—Risk
Factors
Related
to
Our
Interest
in
Qoros
— Qoros
is
dependent
upon
its
suppliers.
”
Qoros is continuing to experience losses and negative operating cash flow and expects that this will continue until it achieves significantly higher levels of
sales. Qoros will need to secure additional financing to meet its operating expenses (including accounts payable) and debt service requirements. If Qoros is not able
to raise additional financing as required, it may be unable to continue operations, in which case Kenon may lose its entire investment in Qoros and Kenon may be
required to make payments under its back-to-back guarantees to Chery in respect of Qoros’ bank debt.
Alternatively, Chery or other investors may choose to make additional investments in Qoros (without a corresponding Kenon investment) which may result a
dilution of Kenon’s interest. For information on the risks related to Qoros’ liquidity, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros
depends
on
additional
financing
to
further
its
development
and,
until
it
achieves
significant
sales
levels,
to
meet
its
operating
expenses,
financing
expenses,
and
capital
expenditures
.”
Qoros’ consolidated financial statements have been prepared on a going concern basis, based upon certain assumptions, including the availability of liquidity
and funding for Qoros and Qoros is of the opinion that the assumptions which are included in the cash flow forecast are reasonable. For further information, see
Note 2(b) to Qoros’ consolidated financial statements, included in this annual report.
Material
Indebtedness
As of December 31, 2015, Qoros had total loans and borrowings (excluding shareholder loans) of RMB6.0 billion, consisting of non-current loans and
borrowings of RMB4.7 billion and current loans and borrowings of RMB1.3 billion (excluding shareholder loans). Set forth below is a discussion of Qoros’
material indebtedness.
RMB3
Billion
Syndicated
Credit
Facility
On July 23, 2012, Qoros entered into a consortium financing agreement with a syndicate of banks for the ability to draw down loans, in either RMB or USD,
up to an aggregate maximum principal amount of RMB3 billion. The RMB loans bear interest at the 5-year interest rate quoted by the People’s Bank of China from
time to time and the USD loans bear interest at LIBOR + 4.8% per annum. Outstanding loans are repayable within ten years from July 27, 2012, the first draw
down date. The first and second scheduled repayment dates were in July 2015 and January 2016, respectively. Subsequent repayment dates occur every six months
after the preceding repayment date.
Qoros’ RMB/USD dual currency fixed rate credit facility is secured by Qoros’ manufacturing facility, the land use right for the premises on which such
manufacturing facility is located, and its equipment, and properties, and several guarantees, including a joint, but not several, guarantee from each of Chery and
Changshu Port. Loans under this facility are severally guaranteed by (i) Changshu Port for up to 50% of amounts outstanding under this loan, or up to RMB1.5
billion, plus related interest and fees and (ii) Chery for up to 50% of amounts outstanding under this loan, or up to RMB1.5 billion, plus related interest and fees.
Kenon has provided Chery with a back-to-back guarantee of RMB750 million in respect of Chery’s guarantee of this facility. Additionally, in the event that
Chery’s liability under its guarantee exceeds RMB1.5 billion, Kenon has committed to negotiate with Chery in good faith to find a solution so that Kenon’s and
Chery’s liabilities for the indebtedness of Qoros under this credit facility are equal in proportion.
Qoros’ syndicated credit facility contains financial, affirmative and negative covenants, events of default or mandatory prepayments for contractual breaches,
including certain changes of control, and for material mergers and divestments, among other provisions. Although Qoros’ debt-to-asset ratio is currently higher, and
its current ratio is lower, than the allowable ratios set forth in the terms of the syndicated credit facility, in 2014 the syndicated consortium recognized Qoros’
ongoing transition to commercial sales and operations and waived Qoros’ compliance with the financial covenants under this facility through the first half of the
2017 fiscal year. As a result, Qoros will not be required to comply with these financial covenants until July 2017 (or later, if additional waivers are granted). The
waiver also provides that, after Qoros enters into a continuous and sustained operating period, a request for adjustment of the financial covenants, as necessary, can
be submitted to the syndicated loan group for its consideration. Should Qoros’ debt-to-asset ratio continue to exceed, or its current ratio continue to be less than, the
permitted ratio in any period after June 30, 2017, and Qoros’ syndicated lenders do not waive such non-compliance or revise such covenants so as to ensure Qoros’
compliance, Qoros’ lenders could accelerate the repayment of borrowings due under Qoros’ syndicated credit facility.
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Table of Contents
For further information on the risks related to Qoros’ indebtedness, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros
is
significantly
leveraged
.”
As of December 31, 2015, the aggregate amount outstanding on this loan was approximately RMB2.8 billion, at an interest rate of 4.90%.
RMB1.2
Billion
Syndicated
Credit
Facility
In July 2014, Qoros entered into a consortium financing agreement with a syndicate of banks for the ability to draw loans, in either RMB or USD, up to an
aggregate maximum principal amount of RMB1.2 billion for the research and development of C-platform derivative models. The RMB loans bear interest at the 5-
year interest rate quoted by the People’s Bank of China from time to time + 10.0% and the USD loans bear interest at LIBOR + 5.0% per annum. Outstanding loans
are repayable within ten years from August 19, 2014, the first draw down date. The first scheduled repayment date is August 19, 2017, (or 36 months after the first
draw down date) with subsequent repayment dates occurring every six months after the preceding repayment date.
Up to 50% of the indebtedness incurred under this facility is secured by Quantum’s pledge of 28.4% of its equity interests in Qoros, including dividends
deriving therefrom. Wuhu Chery has also pledged 28.4% of its equity interest in Qoros, including dividends derived therefrom, to secure up to 50% of the
indebtedness incurred under this facility. The pledge agreement under which Quantum has pledged its equity interest in Qoros includes provisions setting forth,
among other things, (i) minimum ratios relating to the value of Quantum’s pledged securities, (ii) Quantum’s ability to replace the pledge of its equity interest in
Qoros with a pledge of cash collateral or to pledge cash collateral instead of pledging additional shares, representing up to 100% of Quantum’s equity interest in
Qoros, and (iii) the events (e.g., Qoros’ default under the syndicated facility) that entitle the Chinese bank to enforce its lien on Quantum’s equity interest.
The syndicated loan agreement includes covenants (including financial covenants) and events of default and early payment for violation provisions.
For further information on the risks related to Qoros’ indebtedness, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros
is
significantly
leveraged
.”
As of December 31, 2015, the aggregate amount outstanding on this loan was approximately RMB1.2 billion, at an interest rate of 5.39%.
RMB700
Million
Syndicated
Credit
Facility
In May 2015, Qoros entered into a RMB 700 million facility with a bank consortium for the purpose of research and development into a hybrid electric
vehicle. Under the facility, Qoros can draw down loans in either RMB or USD, up to an aggregate principal amount of RMB 700 million. The loan agreement
covers a period of 102 months starting in May 2015, and is secured by a guarantee by Chery and a pledge over Qoros’ 90 vehicle patents. The RMB loan bears the
5-year interest rate quoted by the People’s Bank of China +10%, and the USD loan bears interest of LIBOR+3.5% per annum.
We provided a back-to-back guarantee to Chery for RMB350 million, plus RMB 54.6 million for interest and RMB5.4 million fees. We have no obligation
beyond these limits; however, the guarantee requires that in the event that the limits for interest or fees are breached, the parties will discuss the matter amicably to
find a solution acceptable for both parties.
As of December 31, 2015, Qoros drew down a total of RMB700 million. The facility includes covenants and event of default provisions.
For further information on the risks related to Qoros’ indebtedness, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros
is
significantly
leveraged
.”
As of December 31, 2015, the aggregate amount outstanding on this loan was approximately RMB700 million, at an interest rate of 5.39%.
Working
Capital
Facilities
Qoros is party to various short-term and working capital facilities. As of December 31, 2015, the balance of these facilities was RMB 284 million.
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Qoros will require additional financing, including the renewal or refinancing of its working capital facilities. If Qoros is unable to renew or refinance its
working capital facilities, Qoros may be unable to meet its operating expenses (including accounts payable) and debt service requirements. For further information
on the risks related to Qoros’ liquidity, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
Qoros—Qoros
depends
on
additional
financing
to
further
its
development
and,
until
it
achieves
significant
sales
levels,
to
meet
its
operating
expenses,
financing
expenses,
and
capital
expenditures
.”
Shareholder
Loans
As of the date of this annual report, Qoros’ shareholders have provided Qoros with RMB2.1 billion in shareholder loans. These shareholder loans are
expected to be converted into equity.
In April 2016, Ansonia and Wuhu Chery entered into an agreement to provide additional loans of up to $100 million. Ansonia and Wuhu Chery are each
expected to initially fund approximately $25 million of these loans, with remaining amounts at the discretion of Ansonia and Wuhu Chery. For further information
on these loans, see “ —Recent
Developments—Qoros—Ansonia’s
Agreement
to
Invest
in
Qoros.
”
ZIM’s Liquidity and Capital Resources
As of December 31, 2015, ZIM had an aggregate amount of $219 million in cash and cash equivalents, as compared to $231 million of cash and cash
equivalents as of December 31, 2014.
During the year ended December 31, 2015, ZIM generated $173 million from operating activities, $104 million from investing activities and used $283
million in financing activities.
ZIM has a large amount of debt and other liabilities. As of December 31, 2015, ZIM had approximately $1.5 billion of outstanding loans and liabilities to be
repaid between 2015 through 2027, of which $114 million constituted short-term debt. On July 16, 2014, ZIM completed its financial restructuring, reducing ZIM’s
outstanding indebtedness and liabilities (face value, including future off-balance sheet commitments in respect of operational leases and with respect to those
parties participating in the restructuring) from approximately $3.4 billion to a remaining balance of approximately $2 billion, and revising its minimum liquidity,
fixed charge coverage ratio, and total leverage ratio covenants, which were further amended in September 2015 and March 2016. For further information on the
risks related to ZIM’s indebtedness, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Interest
in
ZIM—ZIM
is
highly
leveraged
and
may
be
unable
to
comply
with
its
financial
covenants
or
meet
its
debt
service
or
other
obligations.
ZIM’s
failure
to
comply
with
these
covenants
or
meet
such
obligations,
including
as
a
result
of
events
beyond
its
control,
could
adversely
affect
its
business,
financial
condition,
results
of
operations
and
liquidity
.”
In August 2015, ZIM entered into a receivables-backed facility arrangement with a financial institution. The facility is for up to $100 million available until
February 2018. The actual amount that can be drawn under the facility is dependent on the certain criteria of the securing receivables. The facility has customary
termination provisions for certain triggering events. ZIM has made drawings of $35 million under this facility, with such drawings having been made in 2016.
ZIM expects to finance its debt obligations and other liabilities through expected cash flow generation from operating activities, in addition to cash on hand.
ZIM may also obtain funds from additional sources including debt issuance and/or other financing transactions and/or sale of assets and/or fund raising activities,
including initial public offerings or listings and/or re-finance its debt obligations by engaging potential new lenders and existing lenders in order to exchange
existing maturities to debt vehicles with longer maturities.
ZIM is continuing to implement its comprehensive strategy that is designed to improve ZIM’s commercial and operational processes, and aims to reduce
ZIM’s operational expenses and improve ZIM’s profitability. However, there is no assurance as to the extent of the effectiveness such activities or when, if at all,
the results of such activities will be reflected in ZIM’s liquidity and capital resources. For further information on the risks related to ZIM’s liquidity, see “Item
3.D
Risk
Factors—Risks
Related
to
Our
Other
Businesses—Risks
Related
to
our
Interest
in
ZIM—ZIM
is
highly
leveraged
and
may
be
unable
to
comply
with
its
financial
covenants
or
meet
its
debt
service
or
other
obligations.
ZIM’s
failure
to
comply
with
these
covenants
or
meet
such
obligations,
including
as
a
result
of
events
beyond
its
control,
could
adversely
affect
its
business,
financial
condition,
results
of
operations
and
liquidity.
”
Primus’ Liquidity and Capital Resources
As of December 31, 2015, Primus had cash and cash equivalents of approximately $2.4 million.
The implementation of Primus’ business plan requires additional capital to enable Primus to continue to develop its commercial operations. Primus expects
such funding to be provided by additional shareholder funding (either through capital
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Table of Contents
contributions or shareholder loans) provided by us or by new investors in Primus. Primus’ principal liquidity requirements relate to its operating expenses and
investments in various development projects. A lack, or delay, of financing could delay, or prevent completely, Primus’ research and commercial development or
result in its immediate liquidation or dissolution.
In connection with Primus’ further development and our efforts to maximize its value, we may provide additional capital to Primus, in the form of debt or
equity financing, if deemed appropriate to facilitate Primus’ operational and development capital requirements. In October 2014, we entered into an investment
agreement with Primus pursuant to which we, through our wholly-owned subsidiary IC Green, may lend Primus, at our discretion, up to $25 million via a series of
convertible notes through December 31, 2015. As of December 31, 2015, through this investment agreement, we have invested in Primus an aggregate of $16.5
million through convertible notes issued to Kenon. The amounts, and timing, of any additional convertible notes issued by Primus to Kenon under the terms of the
investment agreement shall be determined exclusively by Kenon.
Primus is currently seeking to raise capital from new investors. However, there is no certainty that additional financing will be provided to Primus, either by
us or new investors in Primus. Additionally, should Primus raise capital via equity issuances in the future without Kenon’s participation in such financing, we
would experience a dilution in our existing ownership interest.
Material
Indebtedness
Primus does not have any material indebtedness, other than related party indebtedness. For further information on this indebtedness, see “ —Kenon’s
Liquidity
and
Capital
Resources—Debt
Owed
to
Kenon
from
Subsidiaries
.”
C.
Research and Development, Patents and Licenses, Etc.
Kenon did not have significant research and development expenses during the years ended December 31, 2015, 2014 and 2013.
D.
Trend Information
The following key trends contain forward-looking statements and should be read in conjunction with “ Special
Note
Regarding
Forward-Looking
Statements
” and “ Item
3.D
Risk
Factors
.” For further information on the recent developments of Kenon and our businesses, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Recent
Developments.
”
Trend Information
Peru
Power
Market
As a result of the completion of various plants in Peru in recent years and others expected to enter into operation during 2016 and 2017 (including IC
Power’s new units, which will add 1,110 MW to the market), the generation capacity in Peru increased at a faster rate than the demand for such electricity, resulting
in an oversupply of capacity in the Peruvian market and therefore a corresponding downward pressure on energy and capacity prices. IC Power expects this trend in
energy prices to continue in 2016 and for the next few years. IC Power’s Peruvian energy and capacity is mainly sold pursuant to long-term PPAs and does not
have any major PPAs scheduled to expire prior to 2017. However, for the next few years, IC Power will face the current soft energy price market for any upcoming
new PPA negotiations and for spot market sales. Currently no significant new additions of base load units are expected to be completed for the Peruvian system
other than those contemplated for 2016 and 2017, and as a result energy prices are anticipated to recover progressively over the next few years as the system energy
demand increases, with demand expected to increase by 4% to 6% annually.
Qoros
For the year ended December 31, 2015, Qoros sold approximately 14,250 vehicles, as compared to 7,000 in 2014. Qoros sold approximately 4,900 vehicles
in the first three months of 2016, as compared to approximately 2,490 vehicles in the same period in 2015. Qoros believes that its sales figures will continue to
fluctuate in the near-term. Qoros’ sales are subject to conditions in the Chinese passenger vehicle market. For a discussion of recent trends in the Chinese passenger
vehicle market, see “ Item
4B.
Business
Overview—Our
Businesses—Qoros—Overview
of
the
Chinese
Passenger
Vehicle
Market—Chinese
Passenger
Vehicle
Market
Update.”
As of December 31, 2015, Qoros’ dealerships included 86 fully operational points of sales, 7 additional points of sales under construction and Memorandums
of Understanding with respect to the potential development of 3 additional points of sales.
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Table of Contents
Qoros is continuing to expand its dealer network and open new points of sales. As of March 31, 2016, Qoros’ dealerships included 86 fully operational points
of sales, 8 additional points of sales under construction, and Memorandums of Understanding with respect to the potential development of 9 additional points of
sales. As part of its strategy to increase its sales, Qoros intends to increase the size of its dealer network by creating incentives for its high-performing dealers to
open additional points of sales.
ZIM
Bunker prices fell considerably during the year ended December 31, 2015, with prices continuing to decline during the first quarter of 2016. Lower bunker
prices are expected to result in a decrease in operating costs and a decrease in revenues, which is reflected in the forecast earnings downgrades across the liner
shipping sector.
Given the oversupply of global container ship capacity, liner shippers may be required to pass on any cost savings from lower bunker prices to their
customers in the form of lower freight rates. Freight rates, which are primarily driven by containerized demand and supply balance, have historically been highly
volatile. Although freight rates have fluctuated significantly, freight rates generally declined overall in each of 2013, 2014 and 2015. Additionally, vessel capacity
growth increased during the year ended December 31, 2015 and is expected to continue to increase during 2016, notwithstanding the current oversupply of vessel
capacity within the container shipping industry. Any such increase in container volume growth will result in the downward pressure on freight rates within the
industry.
The container shipping industry is volatile and experienced a sustained cyclical downturn in 2015, which has continued so far in 2016. A continuation of this
trend could negatively affect the container shipping industry and also affect ZIM’s business, financial position, results of operations, cash flows and ZIM’s
compliance with certain financial covenants under its various debt instruments.
E.
Off-Balance Sheet Arrangements
Neither Kenon nor any of its subsidiaries are party to off-balance sheet arrangements.
F.
Tabular Disclosure of Contractual Obligations
Kenon
The following table sets forth Kenon’s contractual obligations (including future interest payments) and commercial commitments as of December 31, 2015:
Kenon’s stand-alone contractual obligations 1
IC Power’s consolidated contractual obligations
Total contractual obligations and commitments
Payments Due by Period
Total
Less than
One Year
One to
Three Years
($ millions)
Three to
Five Years
More than
Five Years
$ 118
7,736
$7,854
$ —
1,076
$ 1,076
$
$
—
1,193
1,193
$ —
1,194
1,194
$
$
$
118
4,273
4,391
1.
Represents $110 million, plus interest and fees of $8 million, outstanding under the IC Credit Facility as of December 31, 2015. In January 2016 and April
2016, Kenon drew down $40 million and $50 million under the IC Credit Facility, respectively. As of the date of this annual report, the aggregate amount
outstanding under the IC Credit Facility was $200 million, plus interest and fees of $10 million.
For a breakdown of IC Power’s total contractual obligations, see “ Item
5.F
Tabular
Disclosure
of
Contractual
Obligations—IC
Power
” below.
Kenon has provided back-to-back guarantees to Chery of RMB1,100 million, plus interest and certain fees, in respect of certain of Qoros’ indebtedness. In
addition, Kenon has committed to negotiate with Chery in good faith to find a solution so that Kenon’s and Chery’s liabilities for the indebtedness of Qoros under
Qoros’ RMB3 billion credit facility are equal in proportion and Kenon has similarly agreed to try to find an acceptable solution in respect of Kenon’s and Chery’s
liabilities for the indebtedness of Qoros under Qoros’ RMB700 million facility, but without any obligation on Kenon to be liable for more than the amount set forth
in its back-to-back guarantee to Chery; however, the guarantee requires that in the event that the limits for interest or fees are breached, the parties will discuss the
matter amicably to find a solution acceptable for both parties. For further information on, an overview of, and the risks related to each of the guarantees provided
by Kenon in respect of Qoros’ debt, see “ Item
5.B
Liquidity
and
Capital
Resources—Kenon’s
Liquidity
and
Capital
Resources—Kenon’s
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Table of Contents
Commitments
and
Obligations—Back-to-Back
Guarantees
Provided
to
Chery
” and “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Diversified
Strategy
and
Operations—Kenon
has
significant
“back-to-back”
guarantee
obligations
to
Chery
in
respect
of
guarantees
that
Chery
has
given
for
Qoros’
bank
debt
and
has
pledged
a
portion
of
its
interests
in
Qoros
to
secure
Qoros’
bank
debt
.”
IC Power
The following table sets forth IC Power’s contractual obligations (including future interest payments) and commercial commitments as of December 31,
2015, on a consolidated basis.
Payments Due by Period
Credit from banks and others
Loans from banks and others, debentures, and lease agreements 1
Trade payables
Other payables and credit balances
Purchase obligations 2
Operating and maintenance agreements 3
Obligations under EPC Contract Retirement 4
Total contractual obligations and commitments
Total
$ 187
3,326
144
85
3,608
320
66
$7,736
Less than
One Year
$
187
309
144
85
260
25
66
$ 1,076
$
One to Three
Years
($ millions)
—
591
—
—
559
43
—
1,193
$
Three to Five
Years
More than
Five Years
$
$
—
555
—
—
594
45
—
1,194
$ —
1,871
—
—
2,195
207
—
4,273
$
1.
2.
3.
4.
Consists of estimated future payments of principal, interest and premium on loans from banks and others, debentures, and lease agreements, calculated based
on interest rates and foreign exchange rates applicable as of December 31, 2015 and assuming that all amortization payments and payments at maturity on
loans from banks and others, debentures, and lease agreements, will be made on their scheduled payment dates. Also includes the interest rate swaps relating
to these obligations, which are calculated based on the LIBOR interest rate set forth in the applicable interest rate swap contract plus the applicable fixed
spread.
Consists of purchase commitments for natural gas and gas transportation pursuant to binding obligations which include all significant terms, including fixed
or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Based upon the
applicable purchase prices as of December 31, 2015.
Consists of future payments to be made under services contract with Siemens based on its projections of the hours of service of Kallpa’s turbines.
Consists of future payments to be made under EPC contract, assuming that all progress and completion payments will be made on their scheduled payment
dates.
Additionally, in connection with CDA’s entry into the CDA Finance Facility, IC Power committed to make up to $44 million of additional equity
contributions in CDA (which represents our proportionate interest of the $59 million of additional equity contributions requested by the lenders to CDA’s
shareholders). IC Power’s $44 million obligation is supported by a customary letter of credit. Any equity contributions made by IC Power in CDA, including any
equity contributions made pursuant to the settlement agreement with the EPC contractors, will result in a corresponding reduction in IC Power’s $44 million
contribution commitment. As a result of $7 million equity contributions made by IC Power in CDA during 2015, this commitment decreased to $37 million.
Qoros
The following table sets forth Qoros’ contractual obligations (including future interest payments) and commercial commitments as of December 31, 2015:
Loans and borrowings 1
Trade and other payables
Total contractual obligations
Payments Due by Period
Less Than
One Year
One to Two
Years
Two to Five
Years
More than
Five Years
(in
millions
of
RMB)
3,147
2,616
5,763
654
—
654
2,648
—
2,648
2,341
—
2,341
Total
8,790
2,616
11,406
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Table of Contents
1.
Includes RMB1.5 billion of shareholder loans as of December 31, 2015, which are expected to be converted into equity in 2016.
G.
Safe Harbor
See “ Special
Note
Regarding
Forward-Looking
Statements
. ”
ITEM 6. Directors, Senior Management and Employees
A.
Directors and Senior Management
Board of Directors
The following table sets forth information regarding our board of directors:
Name
Kenneth Cambie
Laurence N. Charney
Cyril Pierre-Jean Ducau
N. Scott Fine
Aviad Kaufman
Ron Moskovitz
Elias Sakellis
Vikram Talwar
Age
53
69
Function
Chairman of the Board,
Chairman of the Nominating and Corporate Governance Committee
Compensation Committee Member
Chairman of the Audit Committee
Compensation Committee Member
36 Board Member
58 Audit Committee Member
45 Board Member
52 Chairman of the Compensation Committee
38 Nominating and Corporate Governance Committee Member
66
Audit Committee Member
Nominating and Corporate Governance Committee Member
Date
Appointed
2015
Term
Expires
2016
2015
2016
2015
2015
2015
2015
2015
2015
2016
2016
2016
2016
2016
2016
Our constitution provides that, unless otherwise determined by a general meeting, the minimum number of directors is five and the maximum number is 12.
Senior
Management
Name
Yoav Doppelt
Robert Rosen
Tzahi Goshen
Barak Cohen
Biographies
Directors
Age
Position
46 Chief Executive Officer
43 General Counsel
40 Chief Financial Officer
34 Vice President of Business Development and Investor Relations
Kenneth
Cambie.
Mr. Cambie is the Chief Financial Officer of Quantum Pacific Shipping Services Pte. Ltd., which may be associated with the ultimate
beneficiary, Mr. Idan Ofer. From 2007 to 2013, Mr. Cambie was an Executive Director and the Chief Financial Officer of Orient Overseas Container Liner, or
OOCL. During this time, Mr. Cambie also chaired OOCL’s Finance and Share Committee and was a member of OOCL’s Executive Committee and Compliance
Committee. Prior to joining OOCL, Mr. Cambie held various positions at Citibank from 1986 to 2007, including as Director, Transportation, Asia Pacific Corporate
Banking in Hong Kong, where Mr. Cambie was responsible for meeting the banking and financing needs of a range of shipping, port, airline and airport companies
in the Asia and Pacific regions. Prior to moving to Hong Kong in mid-2001, Mr. Cambie was the corporate banking head for Citibank, New Zealand for seven
years and had also spent several years with the bank in Australia in corporate banking and leveraged finance roles. Mr. Cambie served as a market manager at
Broadbank from 1985 to 1986 and as an auditor in Touche Ross from 1984 to 1985. Mr. Cambie is a member of the New Zealand Institute of Chartered
Accountants and holds a Master of Commerce degree (first class honors) from Auckland University in New Zealand.
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Table of Contents
Laurence
N.
Charney.
Mr. Charney currently serves as the chairman of our audit committee. Mr. Charney retired from Ernst & Young LLP, or Ernst &
Young, in June 2007, where, over the course of his more than 35-year career, he served as Senior Audit Partner, Practice Leader and Senior Advisor. Since his
retirement from Ernst & Young, Mr. Charney has served as a business strategist and financial advisor to boards, senior management and investors of early stage
ventures, private businesses and small to mid-cap public corporations across the consumer products, energy, high-tech/software, media/entertainment, and non-
profit sectors. His most recent affiliations include board tenure with Pacific Drilling S.A. and IC Power Pte. Ltd., along with Kenon, as well as Marvel
Entertainment, Inc. (through December 2009) and TG Therapeutics, Inc. (from March 2012 through the current date). Mr. Charney is a graduate of Hofstra
University with a Bachelor’s Degree in Business Administration (Accounting), and has also completed an Executive Master’s program at Columbia University.
Mr. Charney maintains active membership with the American Institute of Certified Public Accountants and the New York State Society of Certified Public
Accountants.
Cyril
Pierre-Jean
Ducau
. Mr. Ducau is the Managing Director of Quantum Pacific Ventures Limited and a member of the board of directors of Pacific
Drilling S.A., Quantum Pacific Shipping Services Pte. Ltd., Ansonia Holdings Singapore B.V. and IC Power Pte. Ltd., each of which may be associated with the
same ultimate beneficiary, Mr. Idan Ofer, as well as other private companies. He was previously Head of Business Development of Quantum Pacific Advisory
Limited in London from 2008 to 2012. Prior to joining Quantum Pacific Advisory Limited, Mr. Ducau was Vice President in the Investment Banking Division of
Morgan Stanley & Co. International Ltd. in London and, during his tenure there from 2000 to 2008, he held various positions in the Capital Markets, Leveraged
Finance and Mergers and Acquisitions teams. Prior to that, Mr. Ducau gained experience in consultancy working for Arthur D. Little in Munich and investment
management with Credit Agricole UI Private Equity in Paris. Mr. Ducau graduated from ESCP Europe Business School (Paris, Oxford, Berlin) and holds a Master
of Science in business administration and a Diplom Kaufmann.
N.
Scott
Fine
. Mr. Fine has been an investment banker for over 35 years, and formerly served as the Vice Chairman and Lead Director of Central European
Distribution Corporation, or CEDC, a multi-billion U.S. Dollar alcohol and beverage company domiciled in Delaware with the majority of its operations in Eastern
Europe. Mr. Fine served as a director of CEDC for over a decade, during which time he co-managed its IPO and listing on NASDAQ, and led the CEDC Board’s
successful efforts in 2013 to restructure the company through a pre-packaged Chapter 11 process whereby CEDC was acquired by the Russian Standard alcohol
group. Mr. Fine has been involved in corporate finance for over 30 years and has considerable experience in the medical and medical device sectors, having served
as an advisor for companies such as Research Medical, Derma Sciences, and Interleukin Genetics, among many others. Mr. Fine also acts as Chairman and Lead
Director of CTD Holdings, Inc., a specialty biopharmaceutical manufacturing and marketing company. Mr. Fine is the sole director of Better Place, Inc., an electric
car company, where he was brought in to design, oversee and manage the orderly liquidation of the Delaware holding company of the Better Place group. He is also
a director of Operation Respect, an anti-bullying education non-profit organization.
Aviad
Kaufman
. Mr. Kaufman is the Chief Financial Officer of Quantum Pacific (UK) LLP and is also a board member of IC, Israel Chemicals Ltd. and IC
Power Pte. Ltd., each of which may be associated with the same ultimate beneficiary, Mr. Idan Ofer. From 2008 until 2012, Mr. Kaufman served as Chief Financial
Officer of Quantum Pacific Advisory Limited. From 2002 until 2007, Mr. Kaufman served as Director of International Taxation and fulfilled different senior
corporate finance roles at Amdocs Ltd. Previously, Mr. Kaufman held various consultancy positions with KPMG. Mr. Kaufman is a certified public accountant and
holds a Bachelor’s Degree in Accounting and Economics from the Hebrew University in Jerusalem (with distinction), and a Master’s of Business Administration in
Finance from Tel Aviv University.
Ron
Moskovitz.
Mr. Moskovitz is the Chief Executive Officer of Quantum Pacific (UK) LLP and the Chairman of IC and Pacific Drilling S.A., each of which
may be associated with the same ultimate beneficiary, Mr. Idan Ofer. From July 2008 until December 2012, Mr. Moskovitz served as Chief Executive Officer of
Quantum Pacific Advisory Limited. From July 2002 until November 2007, Mr. Moskovitz served as Senior Vice President and Chief Financial Officer of Amdocs
Limited. From 1998 until July 2002, he served as Vice President of Finance at Amdocs. Between 1994 and 1998, Mr. Moskovitz held various senior financial
positions at Tower and served on Tower’s board of directors from 2007 to September 2011. Mr. Moskovitz is a CPA in Israel and holds a BA in Accounting and
Economics from Haifa University and a Master of Business Administration from Tel Aviv University.
Elias
Sakellis
. Mr. Sakellis is the Managing Director of Business Development of Quantum Pacific (UK) LLP and serves as a director of Pacific Drilling
S.A., each of which may be associated with the same ultimate beneficiary, Mr. Idan Ofer. From May 2012 until December 2012, Mr. Sakellis served as Managing
Director of Quantum Pacific Advisory Limited. Prior to joining Quantum Pacific Advisory Limited, Mr. Sakellis worked at Goldman, Sachs & Co. in London from
2000 to
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Table of Contents
2012. During his tenure at Goldman, Sachs & Co., he held various positions in the Investment Banking Division and in the Equities Division. Prior to joining
Goldman, Sachs & Co., Mr. Sakellis gained experience in the banking sector by working as an analyst for Lehman Brothers in London from 1999 to 2000.
Mr. Sakellis is a graduate of Imperial College London with a Master of Science in Finance and a Master of Engineering in Mechanical Engineering. He also holds a
Master of Business Administration from INSEAD.
Vikram
Talwar
. In 1999, Mr. Talwar founded EXL Service Holdings, Inc., or EXL Service, a leading global Business Process Outsourcing company, in the
US. EXL Service was listed on NASDAQ in 2006. Mr. Talwar was the CEO of EXL Service until May 2008 when he was elevated to the position of Executive
Chairman of the Board. In April 2011, Mr. Talwar relinquished all his executive responsibilities and became the Non-Executive Chairman of the Board. After
having served 13 years on the Board, Mr. Talwar retired in December 2013. Prior to founding Exl Service, Mr. Talwar served as the Chief Executive Officer and
Managing Director of Ernst and Young Consulting India from 1998 to 1999. Earlier, Mr. Talwar had served in various senior capacities at Bank of America,
including Country Manager in India and other Asian countries from 1970 to 1996. In the past five years, Mr. Talwar has served on the boards of directors of a
public company in India and the U.K. and several private companies. He also holds a Master of Business Administration.
Senior
Management
Yoav
Doppelt.
Mr. Doppelt is our Chief Executive Officer and has served in this capacity since our inception in 2014. Mr. Doppelt also served as the Chief
Executive Officer of XT Investments Group (formerly known as Ofer Investments Group) from its inception in 2007 to 2014 and served as the Chief Executive
Officer of XT Capital (formerly known as Ofer Hi-Tech) from 2001 to 2014. Mr. Doppelt joined the XT Group (formerly known as Ofer Group) in 1996 and has
been with XT Capital since its inception in 1997, defining the vision and operational methodology of its private equity and high-tech investments. Mr. Doppelt has
held various finance and managerial positions in the XT Group since joining. Mr. Doppelt has previously served as a member of the board of directors of a number
of public companies and was actively involved in numerous investments within the private equity and high-tech arenas. Currently, Mr. Doppelt serves as the
chairman of the board of IC Power Pte. and a member of the board of directors of ZIM. Mr. Doppelt has extensive operational and business experience in growth
companies and has successfully led several private equity exit transactions. Recently, Mr. Doppelt has been actively involved in the public offering of equity and
debt instruments in the U.S. Mr. Doppelt holds a Bachelor’s Degree in Economics and Management from the Faculty of Industrial Management at the Technion—
Israel Institute of Technology, Haifa, Israel and a Master’s of Business Administration from Haifa University, Israel.
Robert
Rosen
. Prior to joining Kenon as General Counsel, Mr. Rosen spent 15 years in private practice with top tier law firms, including Linklaters LLP and
Milbank, Tweed, Hadley and McCloy LLP. During his time in private practice, Mr. Rosen was primarily involved in cross-border public and private capital
markets offerings and other securities transactions, as well as with the purchase and sale of US and international distressed assets, private equity investments,
structured finance transactions and SEC filings and related advice. Mr. Rosen is admitted to the Bar in the state of New York and holds a Bachelor’s degree with
honors from Boston University and a JD and MBA, both from the University of Pittsburgh, where he graduated with high honors.
Tzahi
Goshen
. Mr. Goshen is our Chief Financial Officer and has served in this capacity since our inception in 2014. Prior to joining Kenon as Chief
Financial Officer, Mr. Goshen served as the Controller of IC since 2008. Mr. Goshen was responsible for all aspects of IC’s financial reporting as a public
company. Mr. Goshen also served as the Controller of Gemini Israel Funds Ltd., a venture capital fund, from 2006 to 2008. Mr. Goshen has vast experience in
overseeing the corporate financial activities of traded companies, including acquisitions, tax planning, accounting and reporting, and internal auditing. Mr. Goshen
also serves as a member of IC Power Pte. Ltd.’s board of directors. Mr. Goshen holds a Bachelor’s Degree in Accounting from the College of Management and is a
certified public accountant in Israel.
Barak
Cohen
. Mr. Cohen is our Vice President of Business Development and Investor Relations. Prior to joining Kenon as Vice President of Business
Development and Investor Relations, Mr. Cohen worked in various capacities at IC since 2008, most recently as the Senior Director of Business Development and
Investor Relations of IC. In this capacity, Mr. Cohen supported and monitored the development of key growth companies throughout various stages of their
lifecycles, contributed to the development of IC’s corporate investment strategy, evaluated new investment opportunities, assisted in transaction execution.
Additionally, Mr. Cohen headed IC’s global investor relations activity. Prior to joining IC, Mr. Cohen held positions at Lehman Brothers (UK) and Ernst & Young
(Israel). Mr. Cohen holds bachelor’s degrees in Economics, summa cum laude, and Accounting & Management, magna cum laude, both from Tel Aviv University.
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B.
Compensation
For the year ended December 31, 2015, the aggregate compensation paid (comprising remuneration and the aggregate fair market value of equity awards
granted) to our directors and executive officers was approximately $5 million. No amounts in respect of pensions, retirement or similar benefits have been accrued
in any of the periods presented in this annual report.
For further information on Kenon’s Share Incentive Plan 2014 and Share Option Plan 2014, see “ Item
6.E
Share
Ownership
.”
C.
Board Practices
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the
NYSE’s rules for domestic U.S. issuers, provided that we disclose which requirements we are not following and describe the equivalent home country requirement.
However, notwithstanding our ability to follow the corporate governance practices of our home country Singapore, we have elected to apply the corporate
governance rules of the NYSE that are applicable to U.S. domestic registrants.
In connection with its filing of a registration statement on Form F-1 and its contemplated initial public offering, our subsidiary IC Power Singapore has
undertaken measures to implement corporate governance policies and practices consistent with that of a NYSE-listed U.S. domestic company. In particular, IC
Power Singapore has established an audit committee which is compliant with relevant NYSE and SEC standards, a nominating and corporate governance
committee and a compensation committee. In addition, IC Power Singapore has recently appointed independent directors with industry experience to serve on its
board of directors. IC Power Singapore has also adopted various corporate governance policies, including a code of ethics.
Board of Directors
Our constitution gives our board of directors general powers to manage our business. The board of directors, which consists of eight directors, and of which
Kenneth Cambie serves as our Chairman, oversees and provides policy guidance on our strategic and business planning processes, oversees the conduct of our
business by senior management and is principally responsible for the succession planning for our key executives.
Director
Independence
Pursuant to the NYSE’s listing standards, listed companies are required to have a majority of independent directors. Under the NYSE’s listing standards, (i) a
director employed by us or that has, or had, certain relationships with us during the last three years, cannot be deemed to be an independent director, and
(ii) directors will qualify as independent only if our board of directors affirmatively determines that they have no material relationship with us, either directly or as
a partner, shareholder or officer of an organization that has a relationship with either us or IC. Ownership of a significant amount of our shares, by itself, does not
constitute a material relationship.
Although we are permitted to follow home country practice in lieu of the requirement to have a board of directors comprised of a majority of independent
directors, we have determined that we are in compliance with this requirement and that a majority of our board of directors is independent according to the NYSE’s
listing standard. Our board of directors has affirmatively determined that each of Kenneth Cambie, Laurence N. Charney, Cyril Pierre-Jean Ducau, N. Scott Fine,
Ron Moskovitz, Elias Sakellis and Vikram Talwar, representing all of our seven directors, are currently “independent directors” as defined under the applicable
rules and regulations of the NYSE.
Election
and
Removal
of
Directors
See “ Item
10.B
Constitution
.”
Service
Contracts
None of our board members have service contracts with us or any of our businesses providing for benefits upon termination of employment.
Indemnifications
and
Limitations
on
Liability
For information on the indemnification and limitations on liability of our directors, see “ Item
10.B
Constitution.
”
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Committees of our Board of Directors
We have established three committees, which report regularly to our board of directors on matters relating to the specific areas of risk the committees
oversee: the audit committee, the nominating and corporate governance committee, and the compensation committee. Although we are permitted to follow home
country practices with respect to our establishment of audit, nominating and corporate governance and compensation committees, we have determined that we are
in compliance with the NYSE’s requirements in these respects.
Audit
Committee
We have established an audit committee to review and discuss with management significant financial, legal and regulatory risks and the steps management
takes to monitor, control and report such exposures; our audit committee also oversees the periodic enterprise-wide risk evaluations conducted by management.
Specifically, our audit committee oversees the process concerning:
•
•
•
•
•
the quality and integrity of our financial statements and internal controls;
the appointment, compensation, retention, qualifications and independence of our independent registered public accounting firm;
the performance of our internal audit function and independent registered public accounting firm;
our compliance with legal and regulatory requirements; and
related party transactions.
The members of our audit committee, Laurence N. Charney, N. Scott Fine and Vikram Talwar, are independent directors and meet the requirements for
financial literacy as defined under the applicable rules and regulations of each of the SEC and the NYSE. Our board of directors has determined that Laurence N.
Charney is an audit committee financial expert, as defined under the applicable rules of the SEC, and that each of our audit committee members has the requisite
financial sophistication as defined under the applicable rules and regulations of the NYSE. Our audit committee operates under a written charter that satisfies the
applicable standards of each of the SEC and the NYSE.
Nominating
and
Corporate
Governance
Committee
Our nominating and corporate governance committee oversees the management of risks associated with board governance, director independence and
conflicts of interest. Specifically, our nominating and corporate governance committee is responsible for identifying qualified candidates to become directors,
recommending to the board of directors candidates for all directorships, overseeing the annual evaluation of the board of directors and its committees and taking a
leadership role in shaping our corporate governance.
Our nominating and corporate governance committee will consider candidates for director who are recommended by its members, by other board members
and members of our management, as well as those identified by any third-party search firms retained by it to assist in identifying and evaluating possible
candidates. The nominating and corporate governance committee will also consider recommendations for director candidates submitted by our shareholders. The
nominating and corporate governance committee will evaluate and recommend to the board of directors qualified candidates for election, re-election or
appointment to the board, as applicable.
When evaluating director candidates, the nominating and corporate governance committee seeks to ensure that the board of directors has the requisite skills,
experience and expertise and that its members consist of persons with appropriately diverse and independent backgrounds. The nominating and corporate
governance committee will consider all aspects of a candidate’s qualifications in the context of our needs, including: personal and professional integrity, ethics and
values; experience and expertise as an officer in corporate management; experience in the industry of any of our portfolio businesses and international business and
familiarity with our operations; experience as a board member of another publicly traded company; practical and mature business judgment; the extent to which a
candidate would fill a present need on the board of directors; and the other ongoing commitments and obligations of the candidate. However, the nominating and
corporate governance committee does not have any minimum criteria for director candidates. Consideration of new director candidates will typically involve a
series of internal discussions, review of information concerning candidates and interviews with selected candidates.
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As a foreign private issuer, we are permitted to follow home country practice in lieu of the requirement to have a nominating and corporate governance
committee comprised entirely of independent directors. Nonetheless, we have determined that we are in compliance with this requirement and that the members of
our nominating and corporate governance committee, Kenneth Cambie, Elias Sakellis and Vikram Talwar, are independent directors as defined under the
applicable rules and regulations of the NYSE. Our nominating and corporate governance committee operates under a written charter that satisfies the applicable
standards of the NYSE.
Compensation
Committee
Our compensation committee assists our board in reviewing and approving the compensation structure of our directors and officers, including all forms of
compensation to be provided to our directors and officers. The compensation committee is responsible for, among other things:
•
•
•
•
reviewing and determining the compensation package for our Chief Executive Officer and other senior executives;
reviewing and making recommendations to our board with respect to the compensation of our non-employee directors;
reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other senior executive,
including evaluating their performance in light of such goals and objectives; and
reviewing periodically and approving and administering stock options plans, long-term incentive compensation or equity plans, programs or similar
arrangements, annual bonuses, employee pension and welfare benefit plans for all employees, including reviewing and approving the granting of
options and other incentive awards.
As a foreign private issuer, we are permitted to follow home country practice in lieu of the requirement to have a compensation committee comprised
entirely of independent directors. Nonetheless, we have determined that we are in compliance with this requirement and that the members of our compensation
committee, Kenneth Cambie, Laurence N. Charney and Ron Moskovitz, are independent directors as defined under the applicable rules and regulations of the
NYSE. Our compensation committee operates under a written charter that satisfies the applicable standards of the NYSE.
Code of Ethics and Ethical Guidelines
Our board of directors has adopted a code of ethics that describes our commitment to, and requirements in connection with, ethical issues relevant to
business practices and personal conduct.
D.
Employees
As of December 31, 2015, we, and our consolidated businesses, employed 1,361 individuals, as follows:
Company
IC Power
Primus
Kenon
Total
IC Power
Number of Employees
as of December 31,
2015
1,309
41
11
1,361
As of December 31, 2015, IC Power employed approximately 1,309 employees, of which 95% and 5% were located within Latin America and Israel,
respectively.
Qoros
As of December 31, 2015, Qoros employed 1,772 employees, consisting of 554 headquarter and 1,218 factory employees within and outside China.
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Table of Contents
ZIM
As of December 31, 2015, ZIM employed approximately 4,050 employees (including employees of its subsidiaries), according to the following distribution:
•
•
Seamen
—Approximately 120 Israeli officers and approximately 309 “rankings” and foreign officers; and
Coast
workers
—Approximately 3,621 employees, 852 of which are Israeli and 2,769 of which are foreign.
A significant number of ZIM’s Israeli employees are unionized and ZIM is party to numerous collective agreements with respect to its employees. For
further information on the risks related to ZIM’s unionized employees, see “ Item
3.D
Risk
Factors—Risks
Related
to
the
Industries
in
Which
Our
Businesses
Operate—Our
businesses
may
be
adversely
affected
by
work
stoppages,
union
negotiations,
labor
disputes
and
other
matters
associated
with
our
labor
force.
”
Other
As of December 31, 2015, Primus employed 41 employees, all of whom are located in the U.S.
E.
Share Ownership
Interests of our Directors and our Employees
Kenon has established the Share Incentive Plan 2014 and the Share Option Plan 2014 for its directors and management. The Share Incentive Plan 2014 and
the Share Option Plan 2014 provide grants of Kenon’s shares, and stock options in respect of Kenon’s shares, respectively, to management and directors of Kenon,
or to officers of Kenon’s subsidiaries or associated companies, as well as to officers of IC, pursuant to awards, which may be granted by Kenon from time to time.
The total number of shares underlying awards which may be granted under the Share Incentive Plan 2014 or delivered pursuant to the exercise of options granted
under the Share Option Plan 2014 shall not, in the aggregate, exceed 3% of the total issued shares (excluding treasury shares) of Kenon. Kenon granted awards of
shares to certain members of its management under the Share Incentive Plan 2014 in 2014 which vested in January 2015 upon the satisfaction of certain conditions,
including the recipient’s continued employment in a specified capacity and Kenon’s listing on the NYSE and the TASE. The aggregate number of shares granted
was based upon the aggregate fair market value of the Kenon shares underlying the award granted, as determined in the award documents, divided by the average
closing price of Kenon’s shares over their first three trading days. The aggregate fair value of the shares granted was $6,384 thousand.
For further information on the compensation of our directors and executive officers, see “ Item
6.B
Compensation
” and for further information on our
shareholders and related party transactions policy, see “ Item
7.
Major
Shareholders
and
Related
Party
Transactions
.”
Equity Awards to Certain Executive Officers—Subsidiaries and Associated Companies
Kenon is a party to consulting agreements for executives of some of its subsidiaries and associated companies, which provide for cash payments or equity
compensation based on equity of the relevant business or associated company. Additionally, Kenon’s subsidiaries and associated companies may, from time to
time, adopt equity compensation arrangements for officers and directors of the relevant entity. Kenon expects any such arrangements to be on customary terms and
within customary limits (in terms of dilution).
ITEM 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth information regarding the beneficial ownership of our ordinary shares as of April 22, 2016, by each person or entity known to
us to beneficially own 5% or more of our ordinary shares, based upon the 53,693,975 ordinary shares outstanding as of such date, which represents our entire issued
and outstanding share capital as of the date of this annual report.
To our knowledge, as of April 22, 2016, we had one shareholder of record in the United States holding approximately 99% of our outstanding ordinary
shares. Such numbers are not representative of the portion of our shares held in the United States nor are they representative of the number of beneficial holders
residing in the United States, since such ordinary shares (which includes the ordinary shares held by the TASE for trading on the TASE) were held of record by one
U.S. nominee company, CEDE & Co, which holds all of our shares traded on the NYSE and the TASE indirectly.
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Table of Contents
All of our ordinary shares have the same voting rights.
Beneficial Owner (Name/Address)
Ansonia Holdings Singapore B.V. 1
Bank Leumi Le-Israel B.M 2
XT Investments Ltd. 3
Directors and Executive Officers 4
Ordinary Shares Owned
24,856,869
7,533,614
5,727,128
—
Percentage of Ordinary Shares
46.3%
14.0%
10.7%
—
1.
2.
3.
4.
Based solely on the Schedule 13 D/A (Amendment No. 2) filed by Ansonia Holdings Singapore B.V. with the SEC on January 11, 2016. A foreign
discretionary trust in which Mr. Idan Ofer is the beneficiary is the indirect ultimate owner of Ansonia.
Based solely upon the Schedule G/A (Amendment No. 1) filed by Bank Leumi Le-Israel B.M with the SEC on February 8, 2016.
Based solely upon the Schedule D/A (Amendment No. 1) filed by XT Investments Ltd with the SEC on January 12, 2016. XT Investments is owned by XT
Holdings Group Ltd., or XT Holdings; 50% of the ordinary shares of XT Holdings are owned by Orona Investments Ltd. (which is indirectly controlled by
Mr. Ehud Angel) and the remaining 50% of the ordinary shares of XT Holdings are owned by Lynav Holdings Ltd. (which is controlled by a foreign
discretionary trust in which Mr. Idan Ofer is a prime beneficiary).
Each individual beneficially owns less than 1% of Kenon’s ordinary shares.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, we have included shares that such person has the right to acquire within 60 days, including through the
exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage
ownership of any other person.
We are not aware of any arrangement that may, at a subsequent date, result in a change of our control.
B.
Related Party Transactions
Kenon
Pursuant to its charter, the audit committee must review and approve all related party transactions. The audit committee has a written policy with respect to
the approval of related party transactions. In addition, we have undertaken that, for so long as we are listed on the NYSE, to the extent that we or our subsidiaries
will enter into transactions with related parties, such transactions will be considered and approved by us or our wholly-owned subsidiaries in a manner that is
consistent with customary practices followed by companies incorporated in Delaware and shall be reviewed in accordance with the requirements of Delaware law.
We are party to numerous related party transactions with certain of our affiliates. Set forth below is a summary of these transactions.
Ansonia’s
Agreement
to
Invest
in
Qoros
On April 22, 2016, Ansonia, which owns approximately 46% of the outstanding shares of Kenon, entered into a Loan Agreement to provide loans in an
aggregate amount of up to $50 million to Qoros to support Qoros’ ordinary course working capital requirements, subject to Wuhu Chery’s provision of loans in the
same amount and on similar conditions to Qoros.
In light of Qoros’ financing needs, Kenon believes that the transactions described above, including Ansonia’s provision of loans of up to $50 million to
Quantum to facilitate on-loans in an aggregate amount of up to RMB300 million (approximately $50 million) to Qoros, are in the best interests of Kenon and its
shareholders. As Ansonia is a major shareholder in Kenon, this transaction has been reviewed and approved by Kenon in accordance with its related party
transaction policy.
For further information on Ansonia’s agreement to invest in Qoros, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Recent
Developments—
Qoros—Ansonia’s
Agreement
to
Invest
in
Qoros
” and the full text of the related Loan Agreement and the Undertaking Agreement, copies of which are filed as
Exhibits 4.17 and 4.18 to this annual report and are incorporated by reference herein.
IC
Credit
Facility
In connection with the consummation of the spin-off, IC provided a $200 million credit facility to us, bearing interest at a rate of 12-Month LIBOR+ 6% per
annum. For further information on the terms of the IC Credit Facility, see “ Item
5.B
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Table of Contents
Liquidity
and
Capital
Resources—Kenon’s
Commitments
and
Obligations—IC
Credit
Facility.
” For information on the risks related to Kenon’s ability to repay,
and compliance with, the IC Credit Facility, see “ Item
3.D
Risk
Factors—Risks
Related
to
Our
Diversified
Strategy
and
Operations—Kenon
has
significant
repayment
obligations
under
the
IC
Credit
Facility
.”
IC
Power
Singapore
Reorganization
In March 2016, Kenon announced an internal restructuring pursuant to which IC Power Singapore, which was a holding company with no material assets,
acquired IC Power. As a result of such transaction, IC Power Singapore is now the parent holding company of Kenon’s power generation and distribution
businesses. In connection with the reorganization of IC Power Singapore, IC Power Singapore issued notes of $145 million and $75 million payable to Kenon.
Kenon had pledged 66% of the IC Power shares to secure the IC Credit Facility. In connection with the internal reorganization, this pledge over IC Power
shares was released and the IC Power shares were transferred to IC Power Singapore, which pledged 66% of the transferred IC Power shares to IC. In addition,
Kenon also pledged to IC 66% of the shares of IC Power Singapore and the $145 million note owing from IC Power Singapore to Kenon. The pledge over the
shares of IC Power is expected to be released in connection with an IPO of IC Power Singapore. In addition, the pledge over the shares of IC Power Singapore and
the $145 million note can be released upon an IPO of IC Power Singapore, subject to Kenon’s meeting of a financial ratio.
$220
Million
of
Notes
from
IC
Power
Singapore
In connection with the reorganization of IC Power Singapore, IC Power Singapore issued notes of $145 million and $75 million payable to Kenon. The
proceeds of the notes were applied by IC Power Singapore towards paying the purchase consideration for the acquisition of Kenon’s entire equity interest in IC
Power. The notes both bear interest at a rate of LIBOR + 6% per annum until the date the notes are fully paid.
Separation
and
Distribution
Agreement
In connection with the spin-off, we entered into a Separation and Distribution Agreement with IC which set forth, among other things, our agreements with
IC regarding the principal transactions necessary to separate our businesses from IC and its other businesses.
Transfer
of
Assets
and
Assumption
of
Liabilities
The Separation and Distribution Agreement identifies the assets transferred, the liabilities retained by IC or assumed by Kenon, and the contracts retained by
IC or assigned to Kenon in connection with the spin-off. IC also assigned and transferred to Kenon IC’s full rights and obligations according to, and in connection
with, certain loans it provided to, and certain undertakings it made in respect of, the businesses it transferred to Kenon in connection with the spin-off.
Release
of
Claims
Except with respect to (i) those legal proceedings pending against IC at the time of the consummation of the spin-off and relating to any of the businesses
transferred to Kenon, and (ii) certain other exceptions set forth in the Separation and Distribution Agreement, Kenon assumed liability for the claims of each of the
businesses transferred to it, including such claims that arose out of, or relate to events, circumstances or actions occurring or failing to occur, or with respect to any
conditions existing prior to, the spin-off.
Indemnification
and
Legal
Matters
Kenon and IC agreed to indemnify each other against certain liabilities incurred in connection with their respective businesses, and as otherwise allocated in
the Separation and Distribution Agreement. Additionally, Kenon agreed to indemnify IC for any liabilities arising after the consummation of the spin-off as a result
of legal matters relating to the businesses Kenon received in the spin-off.
Other
Matters
Governed
by
the
Separation
and
Distribution
Agreement
Other matters governed by the Separation and Distribution Agreement include access to financial and other information, access to and provision of records,
intellectual property, confidentiality, treatment of outstanding guarantees and similar credit support and dispute resolution procedures.
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Table of Contents
The foregoing summary of the Separation and Distribution Agreement is subject to, and is qualified in its entirety by, the full text of the Separation and
Distribution Agreement, a copy of which was filed as Exhibit 4.1 to Kenon’s Registration Statement Form 20-F filed in connection with this spin-off and is
incorporated by reference herein.
Registration
Rights
Agreements
In connection with the spin-off, we entered into registration rights agreements with certain significant shareholders with regard to the shares that will be
owned by such shareholders, as well as in respect of any shares they may purchase in the future (all such shares, the “Registrable Securities”). Under the
registration rights agreements, these significant shareholders will have the right to cause us to register under the Securities Act and applicable state securities laws
the offer and sale of the Registrable Securities. Subject to the terms and conditions of our registration rights agreements, these registration rights allow these
significant shareholders or certain qualified assignees holding any Registrable Securities to require registration of such Registrable Securities and to include any
such Registrable Securities in a registration by us of common shares, including common shares offered by us or by any shareholder. In connection with any
registration of common shares held by these significant shareholders or certain qualified assignees, we have agreed to indemnify each shareholder participating in
the registration and its officers, directors and controlling persons from and against any liabilities under the Securities Act or any applicable state securities laws
arising from the registration statement or prospectus. We have agreed to bear all costs and expenses incidental to any registration, excluding any underwriting
discounts.
The foregoing summary of the registration rights agreements is subject to, and is qualified in its entirety by, the full text of each registration rights
agreement, copies of which were filed as Exhibits 2.2, 2.3 and 2.4 to Kenon’s Registration Statement Form 20-F filed in connection with the spin-off and are
incorporated by reference herein.
IC Power
Sales
of
Electricity
and
Gas
OPC sells electricity through PPAs to some entities that may be considered to be related parties (as they may be considered to be under common control with
it). OPC recorded revenues from related parties in the amount of NIS 570 million (approximately $146 million) in the year ended December 31, 2015.
OPC and AIE also sell an immaterial amount of gas to some entities that may be considered related parties.
Bank
Leumi
Bank Leumi, which holds approximately 14% of our ordinary shares, is the arranger of, and lender under, OPC’s NIS 1,800 million financing agreement.
Additionally, OPC makes deposits in the ordinary course of its business in a deposit account maintained at Bank Leumi on commercially reasonable terms.
For further information on OPC’s financing agreement, see “ Item
5.B
Liquidity
and
Capital
Resources—IC
Power’s
Liquidity
and
Capital
Resources—IC
Power’s
Material
Indebtedness—OPC
Financing
Agreement
” and the full text of OPC’s financing agreement, a copy of which is attached hereto as Exhibit 4.10
and is incorporated by reference herein.
Qoros
Qoros sources its engines and certain spare parts from Chery in the ordinary course of Qoros’ business. Additionally, Qoros entered into a platform sharing
agreement with Chery, pursuant to which Qoros provides Chery with a license to utilize Qoros’ platform in exchange for a fee.
For further information on Qoros’ commercial arrangements with Chery, see Note 29 to Qoros’ consolidated financial statements, included in this annual
report.
C.
Interests of Experts and Counsel
Not applicable.
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Table of Contents
ITEM 8. Financial Information
A.
Consolidated Statements and Other Financial Information
For information on the financial statements filed as a part of this annual report, see “ Item
18.
Financial
Statements
.” For information on export sales as well
as our legal proceedings, see “ Item
4.B
Business
Overview
.” For information on our dividend policy, see “ Item
10.B
Constitution
.”
B.
Significant Changes
For information on any significant changes that may have occurred since the date of our annual financial statements, see “ Item
5.
Operating
and
Financial
Review
and
Prospects—Recent
Developments
.”
ITEM 9. The Offer and Listing
A.
Offer and Listing Details.
The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on the NYSE.
Annual Since January 6, 2015 Listing:
Year ended December 31, 2015
Quarterly Since January 6, 2015 Listing:
Three months ended March 31, 2015
Three months ended June 30, 2015
Three months ended September 30, 2015 1
Three months ended December 31, 2015
Three months ended March 31, 2016
Monthly
October 2015
November 2015
December 2015
January 2016
February 2016
March 2016
April 2016 (through April 21, 2016)
Price per ordinary share
($)
High
Low
22.13
21.00
22.13
21.10
14.67
10.02
14.67
13.00
10.89
10.02
8.87
8.00
8.05
9.66
16.01
19.26
13.19
9.66
7.46
12.69
11.03
9.66
8.70
8.02
7.46
7.40
1.
On July 23, 2015, we completed the pro rata distribution in specie of 18,030,041 ordinary shares of Tower, representing 23% of the then currently
outstanding Tower shares and substantially all of our interest in Tower, to holders of our ordinary shares. The closing price of Tower on NASDAQ on
July 23, 2015 was $14.16.
The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on the TASE.
Annual Since January 6, 2015 Listing:
Year ended December 31, 2015
Quarterly Since January 6, 2015 Listing:
Three months ended March 31, 2015
Three months ended June 30, 2015
Three months ended September 30, 2015 1
252
Price per ordinary share
(NIS)
High
Low
84.98
81.99
84.98
80.04
37.75
63.00
74.75
51.51
Table of Contents
Three months ended December 31, 2015
Three months ended March 31, 2016
Monthly
October 2015
November 2015
December 2015
January 2016
February 2016
March 2016
April 2016 (through April 21, 2016)
Price per ordinary share
(NIS)
High
55.93
40.00
Low
37.75
29.13
55.93
51.60
41.71
40.00
34.96
31.64
30.32
50.45
42.12
37.75
34.99
31.52
29.13
28.10
1.
On July 23, 2015, we completed the pro rata distribution in specie of 18,030,041 ordinary shares of Tower, representing 23% of the then currently
outstanding Tower shares and substantially all of our interest in Tower, to holders of our ordinary shares. The closing price of Tower on the TASE on
July 23, 2015 was NIS53.00.
B.
Plan of Distribution
Not applicable.
C. Markets
Our ordinary shares are listed on each of the NYSE and the TASE under the symbol “KEN.”
D.
Selling Shareholders
Not applicable.
E.
Dilution.
Not applicable.
F.
Expenses of the Issue
Not applicable.
ITEM 10. Additional Information
A.
Share Capital
Not applicable.
B.
Constitution
Following certain amendments to the Singapore Companies Act, which took effect in phases on July 1, 2015 and January 3, 2016, our memorandum and
articles of association have been merged into one document called the “constitution” by operation of law on the latter date. The following description of our
constitution is a summary and is qualified by reference to the constitution, a copy of which has previously been filed with the SEC.
New Shares
Under Singapore law, new shares may be issued only with the prior approval of our shareholders in a general meeting. General approval may be sought from
our shareholders in a general meeting for the issue of shares. Approval, if granted, will lapse at the earlier of:
•
•
the conclusion of the next annual general meeting;
the expiration of the period within which the next annual general meeting is required by law to be held (i.e., within 18 months from our incorporation
date (and in the case of subsequent periods, 15 months)) or six months from our financial year end, being December 31, whichever is earlier; or
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•
the subsequent revocation or modification of approval by our shareholders acting at a duly convened general meeting.
Our shareholders have provided such general authority to issue new shares until the conclusion of our 2016 annual general meeting. Subject to this and the
provisions of the Singapore Companies Act and our constitution, all new shares are under the control of the directors who may allot and issue new shares to such
persons on such terms and conditions and with the rights and restrictions as they may think fit to impose.
Preference Shares
Our constitution provides that we may issue shares of a different class with preferential, deferred, qualified or other special rights, privileges or conditions as
our board of directors may determine. Under the Singapore Companies Act, our preference shareholders will have the right to attend any general meeting insofar as
the circumstances set forth below apply and on a poll at such general meeting, to have at least one vote for every preference share held:
•
•
upon any resolution concerning the winding-up of our company; and
upon any resolution which varies the rights attached to such preference shares.
We may, subject to the prior approval in a general meeting of our shareholders, issue preference shares which are, or at our option, subject to redemption
provided that such preference shares may not be redeemed out of capital unless:
•
•
all the directors have made a solvency statement in relation to such redemption; and
we have lodged a copy of the statement with the Singapore Registrar of Companies.
Further, the shares must be fully paid-up before they are redeemed.
Transfer of Ordinary Shares
Subject to applicable securities laws in relevant jurisdictions and our constitution, our ordinary shares are freely transferable. Shares may be transferred by a
duly signed instrument of transfer in any usual or common form or in a form acceptable to our directors. The directors may decline to register any transfer unless,
among other things, evidence of payment of any stamp duty payable with respect to the transfer is provided together with other evidence of ownership and title as
the directors may require. We will replace lost or destroyed certificates for shares upon notice to us and upon, among other things, the applicant furnishing evidence
and indemnity as the directors may require and the payment of all applicable fees.
Election and Re-election of Directors
Under our constitution, our shareholders by ordinary resolution, or our board of directors, may appoint any person to be a director as an additional director or
to fill a casual vacancy, provided that any person so appointed by our board of directors shall hold office only until the next annual general meeting, and shall then
be eligible for re-election.
Our constitution provides that, subject to the Singapore Companies Act, no person other than a director retiring at a general meeting is eligible for
appointment as a director at any general meeting, without the recommendation of the Board for election, unless (a) in the case of a member or members who in
aggregate hold(s) more than fifty percent of the total number of our issued and paid-up shares (excluding treasury shares), not less than ten days, or (b) in the case
of a member or members who in aggregate hold(s) more than five percent of the total number of our issued and paid-up shares (excluding treasury shares), not less
than 120 days, before the date of the notice provided to members in connection with the general meeting, a written notice signed by such member or members
(other than the person to be proposed for appointment) who (i) are qualified to attend and vote at the meeting for which such notice is given, and (ii) have held
shares representing the prescribed threshold in (a) or (b) above, for a continuous period of at least one year prior to the date on which such notice is given, is lodged
at our registered office. Such a notice must also include the consent of the person nominated.
Shareholders’ Meetings
We are required to hold an annual general meeting each year. Our first annual general meeting was held on June 30, 2015. Subsequent annual general
meetings must be held not more than 15 months after the holding of the last preceding annual general meeting, and in each case, not later than six months from our
financial year end, being December 31. The directors may convene an extraordinary general meeting whenever they think fit and they must do so upon the written
request of shareholders representing not less than one-tenth of the paid-up shares as at the date of deposit carries the right to vote at general meetings
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(disregarding paid-up shares held as treasury shares). In addition, two or more shareholders holding not less than one-tenth of our total number of issued shares
(excluding our treasury shares) may call a meeting of our shareholders. The Singapore Companies Act requires not less than:
•
•
14 days’ written notice to be given by Kenon of a general meeting to pass an ordinary resolution; and
21 days’ written notice to be given by Kenon of a general meeting to pass a special resolution,
to every member and the auditors of Kenon. Our constitution further provides that in computing the notice period, both the day on which the notice is served, or
deemed to be served, and the day for which the notice is given shall be excluded.
Unless otherwise required by law or by our constitution, voting at general meetings is by ordinary resolution, requiring the affirmative vote of a simple
majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the resolution. An ordinary resolution suffices, for example,
for appointments of directors. A special resolution, requiring an affirmative vote of not less than three-fourths of the shares present in person or represented by
proxy at the meeting and entitled to vote on the resolution, is necessary for certain matters under Singapore law, such as an alteration of our constitution.
Voting Rights
Voting at any meeting of shareholders is by a show of hands unless a poll is duly demanded before or on the declaration of the result of the show of hands. If
voting is by a show of hands, every shareholder who is entitled to vote and who is present in person or by proxy at the meeting has one vote. On a poll, every
shareholder who is present in person or by proxy or by attorney, or in the case of a corporation, by a representative, has one vote for every share held by him or
which he represents.
Dividends
We have no current plans to pay annual or semi-annual cash dividends. However, as part of our strategy, we may, in the event that we divest a portion of, or
our entire equity interest in, any of our businesses, distribute such cash proceeds or declare a distribution-in-kind of shares in our investee companies. No dividend
may be paid except out of profits and we currently do not have distributable profits from which dividends may be declared. Any dividends would be limited by the
amount of available distributable reserves, which, under Singapore law, will be assessed on the basis of Kenon’s standalone unconsolidated accounts (which will be
based upon the SFRS). Under Singapore law, it is also possible to effect a capital reduction exercise to return cash and/or assets to our shareholders. The
completion of a capital reduction exercise may require the approval of the Singapore Courts, and we may not be successful in our attempts to obtain such approval.
Additionally, because we are a holding company, our ability to pay cash dividends, or declare a distribution-in-kind of the ordinary shares of any of our
businesses, may be limited by restrictions on our ability to obtain sufficient funds through dividends from our businesses, including restrictions under the terms of
the agreements governing the indebtedness of our businesses. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion
of our board of directors and will depend upon such factors as earnings levels, capital requirements, contractual restrictions, our overall financial condition,
available distributable reserves and any other factors deemed relevant by our board of directors. Generally, a final dividend is declared out of profits disclosed by
the accounts presented to the annual general meeting, and requires approval of our shareholders. However, our board of directors can declare interim dividends
without approval of our shareholders.
Bonus and Rights Issues
In a general meeting, our shareholders may, upon the recommendation of the directors, capitalize any reserves or profits and distribute them as fully paid
bonus shares to the shareholders in proportion to their shareholdings.
Takeovers
The Singapore Code on Take-overs and Mergers, the Singapore Companies Act and the Securities and Futures Act, Chapter 289 of Singapore regulate,
among other things, the acquisition of ordinary shares of Singapore-incorporated public companies. Any person acquiring an interest, whether by a series of
transactions over a period of time or not, either on his own or together with parties acting in concert with such person, in 30% or more of our voting shares, or, if
such person holds, either on his own or together with parties acting in concert with such person, between 30% and 50% (both amounts inclusive) of our voting
shares, and if such person (or parties acting in concert with such person) acquires additional voting shares representing
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more than 1% of our voting shares in any six-month period, must, except with the consent of the Securities Industry Council in Singapore, extend a mandatory
takeover offer for the remaining voting shares in accordance with the provisions of the Singapore Code on Take-overs and Mergers.
“Parties acting in concert” comprise individuals or companies who, pursuant to an agreement or understanding (whether formal or informal), cooperate,
through the acquisition by any of them of shares in a company, to obtain or consolidate effective control of that company. Certain persons are presumed (unless the
presumption is rebutted) to be acting in concert with each other. They include:
•
•
•
•
•
•
•
•
a company and its related companies, the associated companies of any of the company and its related companies, companies whose associated
companies include any of these companies and any person who has provided financial assistance (other than a bank in the ordinary course of business)
to any of the foregoing for the purchase of voting rights;
a company and its directors (including their close relatives, related trusts and companies controlled by any of the directors, their close relatives and
related trusts);
a company and its pension funds and employee share schemes;
a person and any investment company, unit trust or other fund whose investment such person manages on a discretionary basis but only in respect of
the investment account which such person manages;
a financial or other professional adviser, including a stockbroker, and its clients in respect of shares held by the adviser and persons controlling,
controlled by or under the same control as the adviser and all the funds managed by the adviser on a discretionary basis, where the shareholdings of the
adviser and any of those funds in the client total 10% or more of the client’s equity share capital;
directors of a company (including their close relatives, related trusts and companies controlled by any of such directors, their close relatives and related
trusts) which is subject to an offer or where the directors have reason to believe a bona fide offer for the company may be imminent;
partners; and
an individual and such person’s close relatives, related trusts, any person who is accustomed to act in accordance with such person’s instructions and
companies controlled by the individual, such person’s close relatives, related trusts or any person who is accustomed to act in accordance with such
person’s instructions and any person who has provided financial assistance (other than a bank in the ordinary course of business) to any of the
foregoing for the purchase of voting rights.
Subject to certain exceptions, a mandatory takeover offer must be in cash or be accompanied by a cash alternative at not less than the highest price paid by
the offeror or parties acting in concert with the offeror during the offer period and within the six months preceding the acquisition of shares that triggered the
mandatory offer obligation.
Under the Singapore Code on Take-overs and Mergers, where effective control of a company is acquired or consolidated by a person, or persons acting in
concert, a general offer to all other shareholders is normally required. An offeror must treat all shareholders of the same class in an offeree company equally. A
fundamental requirement is that shareholders in the company subject to the takeover offer must be given sufficient information, advice and time to consider and
decide on the offer. These legal requirements may impede or delay a takeover of our company by a third-party.
In October 2014, the Securities Industry Council of Singapore waived application of the Singapore Code on Take-overs and Mergers to the Company,
subject to certain conditions. Pursuant to the waiver, for as long as Kenon is not listed on a securities exchange in Singapore, and except in the case of a tender offer
(within the meaning of U.S. securities laws) where the offeror relies on a Tier 1 exemption to avoid full compliance with U.S. tender offer regulations, the
Singapore Code on Take-overs and Mergers shall not apply to Kenon.
Insofar as the Singapore Code on Take-overs and Mergers applies to Kenon, the Singapore Code on Take-overs and Mergers generally provides that the
board of directors of Kenon should bring the offer to the shareholders of Kenon in accordance with the Singapore Code on Take-overs and Mergers and refrain
from an action which will deny the shareholders from the possibility to decide on the offer.
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Liquidation or Other Return of Capital
On a winding-up or other return of capital, subject to any special rights attaching to any other class of shares, holders of ordinary shares will be entitled to
participate in any surplus assets in proportion to their shareholdings.
Limitations on Rights to Hold or Vote Ordinary Shares
Except as discussed above under “ —Takeovers
,” there are no limitations imposed by the laws of Singapore or by our constitution on the right of non-
resident shareholders to hold or vote ordinary shares.
Limitations of Liability and Indemnification Matters
Our constitution currently provides that, subject to the provisions of the Singapore Companies Act, every director, secretary or other officer of our company
or our subsidiaries and affiliates shall be entitled to be indemnified by our company against all costs, charges, losses, expenses and liabilities incurred by him or her
in the execution and discharge of his or her duties (and where he serves at our request as a director, officer, employee or agent of any of our subsidiaries or
affiliates) or in relation thereto and in particular and without prejudice to the generality of the foregoing, no director, secretary or other officer of our company shall
be liable for the acts, receipts, neglects or defaults of any other director or officer or for joining in any receipt or other act for conformity or for any loss or expense
happening to our company through the insufficiency or deficiency of title to any property acquired by order of the directors for or on behalf of our company or for
the insufficiency or deficiency of any security in or upon which any of the moneys of our company shall be invested or for any loss or damage arising from the
bankruptcy, insolvency or tortious act of any person with whom any moneys, securities or effects shall be deposited or left or for any other loss, damage or
misfortune whatever which shall happen in the execution of the duties of his or her office or in relation thereto unless the same shall happen through his or her own
negligence, default, breach of duty or breach of trust.
The limitation of liability and indemnification provisions in our constitution may discourage shareholders from bringing a lawsuit against directors for
breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful,
might benefit us and our shareholders. A shareholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors
and officers pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our
directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.
Comparison of Shareholder Rights
We are incorporated under the laws of Singapore. The following discussion summarizes material differences between the rights of holders of our ordinary
shares and the rights of holders of the common stock of a typical corporation incorporated under the laws of the state of Delaware which result from differences in
governing documents and the laws of Singapore and Delaware.
This discussion does not purport to be a complete statement of the rights of holders of our ordinary shares under applicable law in Singapore and our
constitution or the rights of holders of the common stock of a typical corporation under applicable Delaware law and a typical certificate of incorporation and
bylaws.
Delaware
Singapore—Kenon Holdings Ltd.
Board of Directors
A typical certificate of incorporation and bylaws would provide that the number of
directors on the board of directors will be fixed from time to time by a vote of the
majority of the authorized directors. Under Delaware law, a board of directors can
be divided into classes and cumulative voting in the election of directors is only
permitted if expressly authorized in a corporation’s certificate of incorporation.
The constitution of companies will typically state the minimum and
maximum number of directors as well as provide that the number of
directors may be increased or reduced by shareholders via ordinary
resolution passed at a general meeting, provided that the number of directors
following such increase or reduction is within the maximum and minimum
number of directors provided in our articles and the Singapore Companies
Act, respectively. Our constitution provides that, unless otherwise
determined by a general meeting, the minimum number of directors is five
and the maximum number is 12.
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Delaware
Singapore—Kenon Holdings Ltd.
Limitation on Personal Liability of Directors
A typical certificate of incorporation provides for the elimination of personal
monetary liability of directors for breach of fiduciary duties as directors to the
fullest extent permissible under the laws of Delaware, except for liability (i) for any
breach of a director’s loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation Law
(relating to the liability of directors for unlawful payment of a dividend or an
unlawful stock purchase or redemption) or (iv) for any transaction from which the
director derived an improper personal benefit. A typical certificate of incorporation
would also provide that if the Delaware General Corporation Law is amended so as
to allow further elimination of, or limitations on, director liability, then the liability
of directors will be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law as so amended.
Pursuant to the Singapore Companies Act, any provision (whether in the
constitution, contract or otherwise) purporting to exempt a director (to any
extent) from any liability which would otherwise attach to him in connection
with any negligence, default, breach of duty or breach of trust in relation to
Kenon will be void except as permitted under the Singapore Companies Act.
Nevertheless, a director can be released by the shareholders of Kenon for
breaches of duty to Kenon, except in the case of fraud, illegality, insolvency
and oppression or disregard of minority interests.
Our constitution currently provides that, subject to the provisions of the
Singapore Companies Act and every other act for the time being in force
concerning companies and affecting Kenon, every director, auditor,
secretary or other officer of Kenon and its subsidiaries and affiliates shall be
entitled to be indemnified by Kenon against all liabilities incurred by him in
the execution and discharge of his duties and where he serves at the request
of Kenon as a director, officer, employee or agent of any subsidiary or
affiliate of Kenon or in relation thereto, including any liability incurred by
him in defending any proceedings, whether civil or criminal, which relate to
anything done or omitted or alleged to have been done or omitted by him as
an officer or employee of Kenon, and in which judgment is given in his
favor (or the proceedings otherwise disposed of without any finding or
admission of any material breach of duty on his part) or in which he is
acquitted, or in connection with an application under statute in respect of
such act or omission in which relief is granted to him by the court.
Interested Shareholders
There are no comparable provisions in Singapore with respect to public
companies which are not listed on the Singapore Exchange Securities
Trading Limited.
Section 203 of the Delaware General Corporation Law generally prohibits a
Delaware corporation from engaging in specified corporate transactions (such as
mergers, stock and asset sales, and loans) with an “interested stockholder” for three
years following the time that the stockholder becomes an interested stockholder.
Subject to specified exceptions, an “interested stockholder” is a person or group
that owns 15% or more of the corporation’s outstanding voting stock (including
any rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and stock
with respect to which the person has voting rights only), or is an affiliate or
associate of the corporation and was the owner of 15% or more of the voting stock
at any time within the previous three years.
A Delaware corporation may elect to “opt out” of, and not be governed by, Section
203 through a provision in either its original certificate of incorporation, or an
amendment to its original certificate or bylaws that was approved by majority
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stockholder vote. With a limited exception, this amendment would not become
effective until 12 months following its adoption.
Delaware
Singapore—Kenon Holdings Ltd.
Removal of Directors
A typical certificate of incorporation and bylaws provide that, subject to the rights
of holders of any preferred stock, directors may be removed at any time by the
affirmative vote of the holders of at least a majority, or in some instances a
supermajority, of the voting power of all of the then outstanding shares entitled to
vote generally in the election of directors, voting together as a single class. A
certificate of incorporation could also provide that such a right is only exercisable
when a director is being removed for cause (removal of a director only for cause is
the default rule in the case of a classified board).
According to the Singapore Companies Act, directors of a public company
may be removed before expiration of their term of office with or without
cause by ordinary resolution (i.e., a resolution which is passed by a simple
majority of those shareholders present and voting in person or by proxy).
Notice of the intention to move such a resolution has to be given to Kenon
not less than 28 days before the meeting at which it is moved. Kenon shall
then give notice of such resolution to its shareholders not less than 14 days
before the meeting. Where any director removed in this manner was
appointed to represent the interests of any particular class of shareholders or
debenture holders, the resolution to remove such director will not take effect
until such director’s successor has been appointed.
Our constitution provides that Kenon may by ordinary resolution of which
special notice has been given, remove any director before the expiration of
his period of office, notwithstanding anything in our constitution or in any
agreement between Kenon and such director and appoint another person in
place of the director so removed.
Filling Vacancies on the Board of Directors
A typical certificate of incorporation and bylaws provide that, subject to the rights
of the holders of any preferred stock, any vacancy, whether arising through death,
resignation, retirement, disqualification, removal, an increase in the number of
directors or any other reason, may be filled by a majority vote of the remaining
directors, even if such directors remaining in office constitute less than a quorum,
or by the sole remaining director. Any newly elected director usually holds office
for the remainder of the full term expiring at the annual meeting of stockholders at
which the term of the class of directors to which the newly elected director has
been elected expires.
The constitution of a Singapore company typically provides that the
directors have the power to appoint any person to be a director, either to fill
a vacancy or as an addition to the existing directors, but so that the total
number of directors will not at any time exceed the maximum number fixed
in the articles. Any newly elected director shall hold office until the next
following annual general meeting, where such director will then be eligible
for re-election. Our articles provide that the shareholders may by ordinary
resolution, or the directors may, appoint any person to be a director as an
additional director or to fill a vacancy provided that any person so appointed
by the directors will only hold office until the next annual general meeting,
and will then be eligible for re-election.
Amendment of Governing Documents
Under the Delaware General Corporation Law, amendments to a corporation’s
certificate of incorporation require the approval of stockholders holding a majority
of the outstanding shares entitled to vote on the amendment. If a class vote on the
amendment is required by the Delaware General Corporation Law, a majority of
the outstanding stock of the class is required, unless a greater proportion is
specified in the certificate of incorporation or by other provisions of the Delaware
General
259
Our constitution may be altered by special resolution (i.e., a resolution
passed by at least a three-fourths majority of the shares entitled to vote,
present in person or by proxy at a meeting for which not less than 21 days
written notice is given). The board of directors has no right to amend the
constitution.
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Delaware
Singapore—Kenon Holdings Ltd.
Corporation Law. Under the Delaware General Corporation Law, the board of
directors may amend bylaws if so authorized in the charter. The stockholders of a
Delaware corporation also have the power to amend bylaws.
Meetings of Shareholders
Annual
and
Special
Meetings
Annual
General
Meetings
Typical bylaws provide that annual meetings of stockholders are to be held on a
date and at a time fixed by the board of directors. Under the Delaware General
Corporation Law, a special meeting of stockholders may be called by the board of
directors or by any other person authorized to do so in the certificate of
incorporation or the bylaws.
All companies are required to hold an annual general meeting once every
calendar year. The first annual general meeting was required to be held
within 18 months of Kenon’s incorporation and subsequently, annual
general meetings must be held not more than 15 months after the holding of
the last preceding annual general meeting, and in each case, not later than
six months from Kenon’s financial year end.
Extraordinary
General
Meetings
Any general meeting other than the annual general meeting is called an
“extraordinary general meeting.” Two or more members (shareholders)
holding not less than 10% of the total number of issued shares (excluding
treasury shares) may call an extraordinary general meeting. In addition, the
constitution usually also provides that general meetings may be convened in
accordance with the Singapore Companies Act by the directors.
Notwithstanding anything in the constitution, the directors are required to
convene a general meeting if required to do so by requisition (i.e., written
notice to directors requiring that a meeting be called) by shareholder(s)
holding not less than 10% of the total number of paid-up shares of Kenon
carrying voting rights.
Our constitution provides that the directors may, whenever they think fit,
convene an extraordinary general meeting.
Quorum
Requirements
Quorum
Requirements
Under the Delaware General Corporation Law, a corporation’s certificate of
incorporation or bylaws can specify the number of shares which constitute the
quorum required to conduct business at a meeting, provided that in no event shall a
quorum consist of less than one-third of the shares entitled to vote at a meeting.
Our constitution provides that shareholders entitled to vote holding 33 and
1/3 of our issued and paid-up shares, present in person or by proxy at a
meeting, shall be a quorum. In the event a quorum is not present, the
meeting may be adjourned for one week.
Indemnification of Officers, Directors and Employers
Under the Delaware General Corporation Law, subject to specified limitations in
the case of derivative suits brought by a corporation’s stockholders in its name, a
corporation may indemnify any person who is made a party to any third-party
action, suit or proceeding on account of being a director, officer, employee or agent
of the corporation (or was serving at the
The Singapore Companies Act specifically provides that Kenon is allowed
to:
• purchase and maintain for any officer insurance against any liability
attaching to such officer in respect of any negligence, default, breach of
duty or breach of trust in relation to Kenon;
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request of the corporation in such capacity for another corporation, partnership,
joint venture, trust or other enterprise) against expenses, including attorney’s fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with the action, suit or proceeding through, among
other things, a majority vote of a quorum consisting of directors who were not
parties to the suit or proceeding, if the person:
• acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation or, in some circumstances,
at least not opposed to its best interests; and
• in a criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
Delaware corporate law permits indemnification by a corporation under similar
circumstances for expenses (including attorneys’ fees) actually and reasonably
incurred by such persons in connection with the defense or settlement of a
derivative action or suit, except that no indemnification may be made in respect of
any claim, issue or matter as to which the person is adjudged to be liable to the
corporation unless the Delaware Court of Chancery or the court in which the action
or suit was brought determines upon application that the person is fairly and
reasonably entitled to indemnity for the expenses which the court deems to be
proper.
To the extent a director, officer, employee or agent is successful in the defense of
such an action, suit or proceeding, the corporation is required by Delaware
corporate law to indemnify such person for reasonable expenses incurred thereby.
Expenses (including attorneys’ fees) incurred by such persons in defending any
action, suit or proceeding may be paid in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of that
person to repay the amount if it is ultimately determined that that person is not
entitled to be so indemnified.
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• indemnify such officer against liability incurred by a director to a
Singapore—Kenon Holdings Ltd.
person other than Kenon except when the indemnity is against (i) any
liability of the director to pay a fine in criminal proceedings or a sum
payable to a regulatory authority by way of a penalty in respect of non-
compliance with any requirement of a regulatory nature (however
arising); or (ii) any liability incurred by the officer (1) in defending
criminal proceedings in which he is convicted, (2) in defending civil
proceedings brought by Kenon or a related company of Kenon in which
judgment is given against him or (3) in connection with an application
for relief under specified sections of the Singapore Companies Act in
which the court refuses to grant him relief.
• indemnify any auditor against any liability incurred or to be incurred
by such auditor in defending any proceedings (whether civil or
criminal) in which judgment is given in such auditor’s favor or in
which such auditor is acquitted; or
• indemnify any auditor against any liability incurred by such auditor in
connection with any application under specified sections of the
Singapore Companies Act in which relief is granted to such auditor by
a court.
In cases where, inter alia, an officer is sued by Kenon the Singapore
Companies Act gives the court the power to relieve directors either wholly
or partially from the consequences of their negligence, default, breach of
duty or breach of trust. However, Singapore case law has indicated that such
relief will not be granted to a director who has benefited as a result of his or
her breach of trust. In order for relief to be obtained, it must be shown that
(i) the director acted reasonably; (ii) the director acted honestly; and (iii) it is
fair, having regard to all the circumstances of the case including those
connected with such director’s appointment, to excuse the director.
Our constitution currently provides that, subject to the provisions of the
Singapore Companies Act and every other act for the time being in force
concerning companies and affecting Kenon, every director, auditor,
secretary or other officer of Kenon and its subsidiaries and affiliates shall be
entitled to be indemnified by Kenon against all liabilities incurred by him in
the execution and discharge of his duties and where he serves at the request
of Kenon as a director, officer, employee or agent of any subsidiary or
affiliate of Kenon or in relation thereto, including any liability incurred by
him in defending any proceedings, whether civil or criminal, which relate to
anything done or omitted or alleged to have been done or omitted by him as
an officer or employee of Kenon, and in which judgment is given in his
favor (or the proceedings
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Delaware
Singapore—Kenon Holdings Ltd.
otherwise disposed of without any finding or admission of any
material breach of duty on his part) or in which he is acquitted,
or in connection with an application under statute in respect of
such act or omission in which relief is granted to him by the
court.
Shareholder Approval of Business Combinations
Generally, under the Delaware General Corporation Law, completion of a merger,
consolidation, or the sale, lease or exchange of substantially all of a corporation’s
assets or dissolution requires approval by the board of directors and by a majority
(unless the certificate of incorporation requires a higher percentage) of outstanding
stock of the corporation entitled to vote.
The Delaware General Corporation Law also requires a special vote of stockholders
in connection with a business combination with an “interested stockholder” as
defined in section 203 of the Delaware General Corporation Law. For further
information on such provisions, see “— Interested
Shareholders
” above.
The Singapore Companies Act mandates that specified corporate actions
require approval by the shareholders in a general meeting, notably:
• notwithstanding anything in Kenon’s constitution , directors are not
permitted to carry into effect any proposals for disposing of the whole
or substantially the whole of Kenon’s undertaking or property unless
those proposals have been approved by shareholders in a general
meeting;
• subject to the constitution of each amalgamating company, an
amalgamation proposal must be approved by the shareholders of each
amalgamating company via special resolution at a general meeting; and
• notwithstanding anything in Kenon’s constitution, the directors may
not, without the prior approval of shareholders, issue shares, including
shares being issued in connection with corporate actions.
Shareholder Action Without a Meeting
Under the Delaware General Corporation Law, unless otherwise provided in a
corporation’s certificate of incorporation, any action that may be taken at a meeting
of stockholders may be taken without a meeting, without prior notice and without a
vote if the holders of outstanding stock, having not less than the minimum number
of votes that would be necessary to authorize such action, consent in writing. It is
not uncommon for a corporation’s certificate of incorporation to prohibit such
action.
There are no equivalent provisions under the Singapore Companies Act in
respect of passing shareholders’ resolutions by written means that apply to
public companies listed on a securities exchange.
Shareholder Suits
Under the Delaware General Corporation Law, a stockholder may bring a
derivative action on behalf of the corporation to enforce the rights of the
corporation. An individual also may commence a class action suit on behalf of
himself or herself and other similarly situated stockholders where the requirements
for maintaining a class action under the Delaware General Corporation Law have
been met. A person may institute and maintain such a suit only if such person was a
stockholder at the time of the transaction which is the subject of the suit or his or
her shares thereafter devolved upon him or her by operation of law. Additionally,
under Delaware case law, the plaintiff generally must be a stockholder not only at
the time of the transaction which is the subject of the suit, but also through the
duration of the derivative suit. The Delaware General Corporation Law also
requires that the derivative plaintiff make
Derivative
actions
The Singapore Companies Act has a provision which provides a mechanism
enabling shareholders to apply to the court for leave to bring a derivative
action on behalf of Kenon.
Applications are generally made by shareholders of Kenon or individual
directors, but courts are given the discretion to allow such persons as they
deem proper to apply (e.g., beneficial owner of shares).
It should be noted that this provision of the Singapore Companies Act is
primarily used by minority shareholders to bring an action in the name and
on
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Delaware
a demand on the directors of the corporation to assert the corporate claim before the
suit may be prosecuted by the derivative plaintiff, unless such demand would be
futile.
Singapore—Kenon Holdings Ltd.
behalf of Kenon or intervene in an action to which Kenon is a party for the
purpose of prosecuting, defending or discontinuing the action on behalf of
Kenon.
Class
actions
The concept of class action suits, which allows individual shareholders to
bring an action seeking to represent the class or classes of shareholders,
generally does not exist in Singapore. However, it is possible as a matter of
procedure for a number of shareholders to lead an action and establish
liability on behalf of themselves and other shareholders who join in or who
are made parties to the action.
These shareholders are commonly known as “lead plaintiffs.” Further, there
are circumstances under the provisions of certain Singapore statutes where
shareholders may file and prove their claims for compensation in the event
that Kenon has been convicted of a criminal offense or has a court order for
the payment of a civil penalty made against it.
Additionally, for as long as Kenon is listed in the U.S. or in Israel, Kenon
has undertaken not to claim that it is not subject to any derivative/class
action that may be filed against it in the U.S. or Israel, as applicable, solely
on the basis that it is a Singapore company.
Dividends or Other Distributions; Repurchases and Redemptions
The Delaware General Corporation Law permits a corporation to declare and pay
dividends out of statutory surplus or, if there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or for the preceding fiscal year as
long as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a preference
upon the distribution of assets.
Under the Delaware General Corporation Law, any corporation may purchase or
redeem its own shares, except that generally it may not purchase or redeem these
shares if the capital of the corporation is impaired at the time or would become
impaired as a result of the redemption. A corporation may, however, purchase or
redeem out of capital shares that are entitled upon any distribution of its assets to a
preference over another class or series of its shares if the shares are to be retired
and the capital reduced.
The Singapore Companies Act provides that no dividends can be paid to
shareholders except out of profits.
The Singapore Companies Act does not provide a definition on when profits
are deemed to be available for the purpose of paying dividends and this is
accordingly governed by case law. Our constitution provides that no
dividend can be paid otherwise than out of profits of Kenon.
Acquisition
of
a
company’s
own
shares
The Singapore Companies Act generally prohibits a company from
acquiring its own shares subject to certain exceptions. Any contract or
transaction by which a company acquires or transfers its own shares is void.
However, provided that it is expressly permitted to do so by its constitution
and subject to the special conditions of each permitted acquisition contained
in the Singapore Companies Act, Kenon may:
• redeem redeemable preference shares (the redemption of these shares
will not reduce the capital of Kenon). Preference shares may be
redeemed out of capital if all the directors make a solvency statement in
relation to such redemption in accordance with the Singapore
Companies Act;
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Singapore—Kenon Holdings Ltd.
• whether listed on a securities exchange (in Singapore or outside
Singapore) or not, make an off-market purchase of its own shares in
accordance with an equal access scheme authorized in advance at a
general meeting;
• whether listed on a securities exchange (in Singapore or outside
Singapore), make a selective off-market purchase of its own shares in
accordance with an agreement authorized in advance at a general
meeting by a special resolution where persons whose shares are to be
acquired and their associated persons have abstained from voting; and
• whether listed on a securities exchange (in Singapore or outside
Singapore) or not, make an acquisition of its own shares under a
contingent purchase contract which has been authorized in advance at a
general meeting by a special resolution.
Kenon may also purchase its own shares by an order of a Singapore court.
The total number of ordinary shares that may be acquired by Kenon in a
relevant period may not exceed 20% of the total number of ordinary shares
in that class as of the date of the resolution pursuant to the relevant share
repurchase provisions under the Singapore Companies Act. Where,
however, Kenon has reduced its share capital by a special resolution or a
Singapore court made an order to such effect, the total number of ordinary
shares shall be taken to be the total number of ordinary shares in that class as
altered by the special resolution or the order of the court. Payment must be
made out of Kenon’s distributable profits or capital, provided that Kenon is
solvent. Such payment may include any expenses (including brokerage or
commission) incurred directly in the purchase or acquisition by Kenon of its
ordinary shares.
Financial
assistance
for
the
acquisition
of
shares
Kenon may not give financial assistance to any person whether directly or
indirectly for the purpose of:
• the acquisition or proposed acquisition of shares in Kenon or units of
such shares; or
• the acquisition or proposed acquisition of shares in its holding
company or ultimate holding company, as the case may be, or units of
such shares.
Financial assistance may take the form of a loan, the giving of a guarantee,
the provision of security, the release of an obligation, the release of a debt or
otherwise.
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Delaware
Singapore—Kenon Holdings Ltd.
However, it should be noted that Kenon may provide financial assistance for
the acquisition of its shares or shares in its holding company if it complies
with the requirements (including, where applicable, approval by the board of
directors or by the passing of a special resolution by its shareholders) set out
in the Singapore Companies Act. Our constitution provides that subject to
the provisions of the Singapore Companies Act, we may purchase or
otherwise acquire our own shares upon such terms and subject to such
conditions as we may deem fit. These shares may be held as treasury shares
or cancelled as provided in the Singapore Companies Act or dealt with in
such manner as may be permitted under the Singapore Companies Act. On
cancellation of the shares, the rights and privileges attached to those shares
will expire.
Transactions with Officers and Directors
Under the Delaware General Corporation Law, some contracts or transactions in
which one or more of a corporation’s directors has an interest are not void or
voidable because of such interest provided that some conditions, such as obtaining
the required approval and fulfilling the requirements of good faith and full
disclosure, are met. Under the Delaware General Corporation Law, either (a) the
stockholders or the board of directors must approve in good faith any such contract
or transaction after full disclosure of the material facts or (b) the contract or
transaction must have been “fair” as to the corporation at the time it was approved.
If board approval is sought, the contract or transaction must be approved in good
faith by a majority of disinterested directors after full disclosure of material facts,
even though less than a majority of a quorum.
Under the Singapore Companies Act, the chief executive officer and
directors are not prohibited from dealing with Kenon, but where they have
an interest in a transaction with Kenon, that interest must be disclosed to the
board of directors. In particular, the chief executive officer and every
director who is in any way, whether directly or indirectly, interested in a
transaction or proposed transaction with Kenon must, as soon as practicable
after the relevant facts have come to such officer or director’s knowledge,
declare the nature of such officer or director’s interest at a board of
directors’ meeting or send a written notice to Kenon containing details on
the nature, character and extent of his interest in the transaction or proposed
transaction with Kenon.
In addition, a director or chief executive officer who holds any office or
possesses any property which, directly or indirectly, duties or interests might
be created in conflict with such officer’s duties or interests as director or
chief executive officer, is required to declare the fact and the nature,
character and extent of the conflict at a meeting of directors or send a
written notice to Kenon containing details on the nature, character and
extent of the conflict.
The Singapore Companies Act extends the scope of this statutory duty of a
director or chief executive officer to disclose any interests by pronouncing
that an interest of a member of the director’s or, as the case may be, the
chief executive officer’s family (including spouse, son, adopted son, step-
son, daughter, adopted daughter and step-daughter) will be treated as an
interest of the director.
There is however no requirement for disclosure where the interest of the
director or chief executive officer (as
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Singapore—Kenon Holdings Ltd.
the case may be) consists only of being a member or creditor of a
corporation which is interested in the proposed transaction with Kenon if the
interest may properly be regarded as immaterial. Where the proposed
transaction relates to any loan to Kenon, no disclosure need be made where
the director or chief executive officer has only guaranteed or joined in
guaranteeing the repayment of such loan, unless the constitution provides
otherwise.
Further, where the proposed transaction is to be made with or for the benefit
of a related corporation (i.e. the holding company, subsidiary or subsidiary
of a common holding company) no disclosure need be made of the fact that
the director or chief executive officer is also a director or chief executive
officer of that corporation, unless the constitution provides otherwise.
Subject to specified exceptions, including a loan to a director for
expenditure in defending criminal or civil proceedings, etc. or in connection
with an investigation, or an action proposed to be taken by a regulatory
authority in connection with any alleged negligence, default, breach of duty
or breach of trust by him in relation to Kenon, the Singapore Companies Act
prohibits Kenon from: (i) making a loan or quasi-loan to its directors or to
directors of a related corporation (each, a “relevant director”); (ii) giving a
guarantee or security in connection with a loan or quasi-loan made to a
relevant director by any other person; (iii) entering into a credit transaction
as creditor for the benefit of a relevant director; (iv) giving a guarantee or
security in connection with such credit transaction entered into by any
person for the benefit of a relevant director; (v) taking part in an
arrangement where another person enters into any of the transactions in (i)
to (iv) above or (vi) below and such person obtains a benefit from Kenon or
a related corporation; or (vi) arranging for the assignment to Kenon or
assumption by Kenon of any rights, obligations or liabilities under a
transaction in (i) to (v) above. Kenon is also prohibited from entering into
the transactions in (i) to (vi) above with or for the benefit of a relevant
director’s spouse or children (whether adopted or naturally or step-children).
Dissenters’ Rights
Under the Delaware General Corporation Law, a stockholder of a corporation
participating in some types of major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which the stockholder may
receive cash in the amount of the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction.
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There are no equivalent provisions under the Singapore Companies Act.
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Delaware
Singapore—Kenon Holdings Ltd.
Under the Delaware General Corporation Law, a corporation
may adopt in its bylaws that its directors shall be elected by
cumulative voting. When directors are elected by cumulative
voting, a stockholder has the number of votes equal to the number
of shares held by such stockholder times the number of directors
nominated for election. The stockholder may cast all of such votes
for one director or among the directors in any proportion.
Cumulative Voting
There is no equivalent provision under the Singapore
Companies Act in respect of companies incorporated in
Singapore.
Anti-Takeover Measures
Under the Delaware General Corporation Law, the certificate of incorporation of a
corporation may give the board the right to issue new classes of preferred stock
with voting, conversion, dividend distribution, and other rights to be determined by
the board at the time of issuance, which could prevent a takeover attempt and
thereby preclude shareholders from realizing a potential premium over the market
value of their shares.
The constitution of a Singapore company typically provides that the
company may allot and issue new shares of a different class with
preferential, deferred, qualified or other special rights as its board of
directors may determine with the prior approval of the company’s
shareholders in a general meeting. Our constitution provides that our
shareholders may grant to our board the general authority to issue such
preference shares until the next general meeting. For further information, see
“ Item
3D.
Risk
Factors—Risks
Relating
to
Our
Ordinary
Shares—Our
directors
have
general
authority
to
allot
and
issue
new
shares
on
terms
and
conditions
and
with
any
preferences,
rights
or
restrictions
as
may
be
determined
by
our
board
of
directors
in
its
sole
discretion,”
and
“Item
10B.
Memorandum
and
Articles
of
Association—Preference
Shares.
”
In addition, Delaware law does not prohibit a corporation from adopting a
stockholder rights plan, or “poison pill,” which could prevent a takeover attempt
and also preclude shareholders from realizing a potential premium over the market
value of their shares.
Singapore law does not generally prohibit a corporation from adopting
“poison pill” arrangements which could prevent a takeover attempt and also
preclude shareholders from realizing a potential premium over the market
value of their shares.
However, under the Singapore Code on Take-overs and Mergers, if, in the
course of an offer, or even before the date of the offer announcement, the
board of the offeree company has reason to believe that a bona fide offer is
imminent, the board must not, except pursuant to a contract entered into
earlier, take any action, without the approval of shareholders at a general
meeting, on the affairs of the offeree company that could effectively result in
any bona fide offer being frustrated or the shareholders being denied an
opportunity to decide on its merits.
For further information on the Singapore Code on Take-overs and Mergers,
see “ Item
10B.
Memorandum
and
Articles
of
Association—Takeovers
.”
C. Material Contracts
For information concerning our material contracts, see “ Item
4.
Information
on
the
Company”
and
“Item
5.
Operating
and
Financial
Review
and
Prospects
.”
D.
Exchange Controls
There are currently no exchange control restrictions in effect in Singapore.
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E.
Taxation
The following summary of the United States federal income tax and Singapore tax consequences of ownership of our ordinary shares is based upon laws,
regulations, decrees, rulings, income tax conventions (treaties), administrative practice and judicial decisions in effect at the date of this annual report. Legislative,
judicial or administrative changes or interpretations may, however, be forthcoming that could alter or modify the statements and conclusions set forth herein. Any
such changes or interpretations may be retroactive and could affect the tax consequences to holders of our ordinary shares. This summary does not purport to be a
legal opinion or to address all tax aspects that may be relevant to a holder of our ordinary shares. Each prospective holder is urged to consult its tax adviser as to the
particular tax consequences to such holder of the ownership and disposition of our ordinary shares, including the applicability and effect of any other tax laws or
tax treaties, of pending or proposed changes in applicable tax laws as of the date of this annual report, and of any actual changes in applicable tax laws after such
date.
U.S. Federal Income Tax Considerations
The following summarizes U.S. federal income tax considerations of owning and disposing of our ordinary shares. This summary applies only to U.S.
Holders that hold our ordinary shares as capital assets (generally, property held for investment) and that have the U.S. Dollar as their functional currency.
This summary is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder and on judicial and
administrative interpretations of the Code and the Treasury regulations, all as in effect on the date hereof, and all of which are subject to change, possibly with
retroactive effect. This summary does not purport to be a complete description of the consequences of the transactions described in this annual report, nor does it
address the application of estate, gift or other non-income federal tax laws or any state, local or foreign tax laws. The tax treatment of a holder of our ordinary
shares may vary depending upon that holder’s particular situation. Moreover, this summary does not address certain holders that may be subject to special rules not
discussed below, such as (but not limited to):
•
•
•
•
•
•
•
•
•
•
•
persons that are not U.S. Holders;
persons that are subject to alternative minimum taxes;
insurance companies;
tax-exempt entities;
financial institutions;
broker-dealers;
persons that hold our ordinary shares through partnerships (or other entities classified as partnerships for U.S. federal income tax purposes);
pass-through entities;
persons that actually or constructively own 10% or more of the total combined voting power of all classes of our voting stock;
traders in securities that elect to apply a mark-to-market method of accounting, holders that hold our ordinary shares as part of a “hedge,” “straddle,”
“conversion,” or other risk reduction transaction for U.S. federal income tax purposes; and
individuals who receive our ordinary shares upon the exercise of compensatory options or otherwise as compensation.
Moreover, no advance rulings have been or will be sought from the U.S. Internal Revenue Service, or IRS, regarding any matter discussed in this annual
report, and counsel to Kenon has not rendered any opinion with respect to any of the U.S. federal income tax consequences relating to the transactions addressed
herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below.
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HOLDERS AND PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE APPLICATION OF THE
U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX
CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of our ordinary shares that is, for U.S. federal income tax purposes:
•
•
•
•
an individual who is a citizen or resident of the United States;
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws
of the United States, any state thereof or the District of Columbia;
an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial
decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
If a partnership (or other entity taxable as a partnership for U.S. federal income tax purposes) holds our ordinary shares, the tax treatment of a partner in such
partnership will generally depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership holding our ordinary
shares, you should consult your tax advisor.
Taxation
of
Dividends
and
Other
Distributions
on
the
Ordinary
Shares
The gross amount of any distribution made to a U.S. Holder with respect to our ordinary shares, including the amount of any non-U.S. taxes withheld from
the distribution, generally will be includible in income on the day on which the distribution is actually or constructively received by a U.S. Holder as dividend
income to the extent the distribution is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. A
distribution in excess of our current and accumulated earnings and profits (as determined for U.S. federal income tax purposes), including the amount of any non-
U.S. taxes withheld from the distribution, will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted basis in our ordinary shares
and as a capital gain to the extent it exceeds the U.S. Holder’s basis. We do not expect to maintain calculations of our earnings and profits under U.S. federal
income tax principles, therefore, U.S. Holders should expect that distributions generally will be treated as dividends for U.S. federal income tax purposes. Such
dividends will not be eligible for the dividends-received deduction generally allowed to U.S. corporations.
Distributions treated as dividends that are received by a non-corporate U.S. Holder (including an individual) from “qualified foreign corporations” generally
qualify for a reduced maximum tax rate so long as certain holding period and other requirements are met. Dividends paid on our ordinary shares, should qualify for
the reduced rate if we are treated as a “qualified foreign corporation.” For this purpose, a qualified foreign corporation means any foreign corporation provided that:
(i) the corporation was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a PFIC (as discussed
below), (ii) certain holding period requirements are met and (iii) either (A) the corporation is eligible for the benefits of a comprehensive income tax treaty with the
United States that the IRS has approved for the purposes of the qualified dividend rules or (B) the stock with respect to which such dividend was paid is readily
tradable on an established securities market in the United States. The United States does not currently have a comprehensive income tax treaty with Singapore.
However, the ordinary shares should be considered to be readily tradable on established securities markets in the United States if they are listed on the NYSE.
Therefore, we expect that our ordinary shares should generally be considered to be readily tradable on an established securities market in the United States, and we
expect that dividends with respect to such ordinary shares should qualify for the reduced rate. U.S. Holders are encouraged to consult their tax advisors regarding
the availability of the lower rate for dividends paid with respect to our ordinary shares.
If the dividends with respect to our ordinary shares are paid in foreign currency, such dividends will be included in the gross income of a U.S. Holder in an
amount equal to the U.S. Dollar value of the foreign currency received calculated by reference to the spot exchange rate in effect on the date the dividend is
actually or constructively received by the U.S. Holder, regardless of whether the foreign currency is converted into U.S. Dollars. If the foreign currency received as
a dividend is not converted into U.S. Dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. Dollar value on the
date of actual or constructive receipt. Any gain or loss recognized by a U.S. Holder on a subsequent conversion or other disposition of the foreign currency
generally will be foreign currency gain or loss, which is treated as U.S. source ordinary income or loss, and will not be treated as a dividend. If dividends paid in
foreign currency are converted into U.S. Dollars on the day they are actually or constructively received, the U.S. Holder generally will not be required to recognize
foreign currency gain or loss in respect of the disposition of the foreign currency.
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Dividends on our ordinary shares received by a U.S. Holder will generally be treated as foreign source income for U.S. foreign tax credit purposes. The rules
with respect to foreign tax credits are complex and U.S. Holders should consult their tax advisors regarding the availability of the foreign tax credit in their
particular circumstances.
Taxation
of
Dispositions
of
the
Ordinary
Shares
A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of our ordinary shares in an amount equal to the difference between the
amount realized on such sale or other taxable disposition and such U.S. Holder’s adjusted tax basis in our ordinary shares. The initial tax basis of our ordinary
shares to a U.S. Holder that received such ordinary shares in the distribution generally will equal the fair market value (in U.S. Dollars) of such ordinary shares on
the distribution date. Such gain or loss generally will be long-term capital gain (taxable at a reduced rate for non-corporate U.S. Holders) or loss if, on the date of
sale or disposition, such ordinary shares were held by such U.S. Holder for more than one year. The deductibility of capital losses is subject to significant
limitations. Gain or loss, if any, recognized by a U.S. Holder generally will be treated as U.S. source gain or loss, as the case may be for foreign tax credit purposes.
The amount realized on a sale or other disposition of our ordinary shares for foreign currency generally will equal the U.S. Dollar value of the foreign
currency at the spot exchange rate in effect on the date of sale or other disposition or, if the ordinary shares are traded on an established securities market (such as
the NYSE or the TASE), in the case of a cash method or electing accrual method U.S. Holder of our ordinary shares, the settlement date. A U.S. Holder will have a
tax basis in the foreign currency received equal to the U.S. Dollar amount realized. Any gain or loss realized by a U.S. Holder on a subsequent conversion or other
disposition of the foreign currency will be foreign currency gain or loss, which is treated as U.S. source ordinary income or loss for foreign tax credit purposes.
Passive
Foreign
Investment
Company
In general, a non-U.S. corporation will be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable
year in which either (i) 75% or more of its gross income consists of certain types of “passive” income or (ii) 50% or more of the fair market value of its assets
(determined on the basis of a quarterly average) produce or are held for the production of passive income. For this purpose, cash is categorized as a passive asset
and our unbooked intangibles will be taken into account and generally treated as non-passive assets. We will be treated as owning our proportionate share of the
assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the shares.
We do not believe that we were a PFIC for the taxable year ended December 31, 2015. We do not anticipate being a PFIC for our current taxable year or in
the foreseeable future, although we can make no assurances in this regard. Our status as a PFIC in any year depends on our assets and activities in that year. We
have no reason to believe that our assets or activities will change in a manner that would cause us to be classified as a PFIC for the current taxable year or for any
future year. Because, however, PFIC status is factual in nature and generally cannot be determined until the close of the taxable year, there can be no assurance that
we will not be considered a PFIC for any taxable year.
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares, the U.S. Holder will generally be subject to imputed
interest taxes, characterization of any gain from the sale or exchange of our ordinary shares as ordinary income, and other disadvantageous tax treatment with
respect to our ordinary shares unless the U.S. Holder makes a mark-to-market election (as described below). Further, if we are classified as a PFIC for any taxable
year during which a U.S. Holder holds our ordinary shares and any of our non-U.S. subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a
proportionate amount (by value) of the shares of each such non-U.S. subsidiary classified as a PFIC (each such subsidiary, a lower tier PFIC) for purposes of the
application of these rules. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election. A mark-to-market election may
be made with respect to our ordinary shares, provided they are actively traded, defined for this purpose as being traded on a “qualified exchange,” other than in de
minimis quantities, on at least 15 days during each calendar quarter. We anticipate that our ordinary shares should qualify as being actively traded, but no
assurances may be given in this regard. If a U.S. Holder of our ordinary shares makes this election, the U.S. Holder will generally (i) include as income for each
taxable year the excess, if any, of the fair market value of our ordinary shares held at the end of the taxable year over the adjusted tax basis of such ordinary shares
and (ii) deduct as a loss the excess, if any, of the adjusted tax basis of our ordinary shares over the fair market value of such ordinary shares held at the end of the
taxable year, but only to
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the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in our ordinary shares
would be adjusted to reflect any income or loss resulting from the mark-to-market election. In addition, any gain such U.S. Holder recognizes upon the sale or other
disposition of our ordinary shares will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount
previously included in income as a result of the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as
a PFIC and such corporation ceases to be classified as a PFIC, the U.S. Holder will not be required to take into account the gain or loss described above during any
period that such corporation is not classified as a PFIC. In the case of a U.S. Holder who has held our ordinary shares during any taxable year in respect of which
we were classified as a PFIC and continues to hold such ordinary shares (or any portion thereof) and has not previously made a mark-to-market election, and who is
considering making a mark-to-market election, special tax rules may apply relating to purging the PFIC taint of such ordinary shares. Because a mark-to-market
election cannot be made for any lower tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s
indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
We do not intend to provide the information necessary for U.S. Holders of our ordinary shares to make qualified electing fund elections, which, if available,
would result in tax treatment different from the general tax treatment for PFICs described above.
If a U.S. Holder owns our ordinary shares during any taxable year that we are a PFIC, such U.S. Holder may be subject to certain reporting obligations with
respect to our ordinary shares, including reporting on IRS Form 8621.
Each U.S. Holder should consult its tax adviser concerning the U.S. federal income tax consequences of purchasing, holding, and disposing of our ordinary
shares if we are or become classified as a PFIC, including the possibility of making a mark-to-market election.
Material Singapore Tax Considerations
The following discussion is a summary of Singapore income tax, goods and services tax, or GST, stamp duty and estate duty considerations relevant to the
acquisition, ownership and disposition of our ordinary shares by an investor who is not tax resident or domiciled in Singapore and who does not carry on business
or otherwise have a presence in Singapore. The statements made herein regarding taxation are general in nature and based upon certain aspects of the current tax
laws of Singapore and administrative guidelines issued by the relevant authorities in force as of the date hereof and are subject to any changes in such laws or
administrative guidelines or the interpretation of such laws or guidelines occurring after such date, which changes could be made on a retrospective basis. The
statements made herein do not purport to be a comprehensive or exhaustive description of all of the tax considerations that may be relevant to a decision to acquire,
own or dispose of our ordinary shares and do not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as dealers
in securities) may be subject to special rules. Prospective shareholders are advised to consult their tax advisers as to the Singapore or other tax consequences of the
acquisition, ownership of or disposal of our ordinary shares, taking into account their own particular circumstances. The statements below are based upon the
assumption that Kenon is tax resident in Singapore for Singapore income tax purposes. It is emphasized that neither Kenon nor any other persons involved in this
annual report accepts responsibility for any tax effects or liabilities resulting from the acquisition, holding or disposal of our ordinary shares.
Income
Taxation
Under
Singapore
Law
Dividends
or
Other
Distributions
with
Respect
to
Ordinary
Shares
Under the one-tier corporate tax system which currently applies to all Singapore tax resident companies, tax on corporate profits is final, and dividends paid
by a Singapore tax resident company will be tax exempt in the hands of a shareholder, whether or not the shareholder is a company or an individual and whether or
not the shareholder is a Singapore tax resident.
Capital
Gains
upon
Disposition
of
Ordinary
Shares
Under current Singapore tax laws, there is no tax on capital gains. There are no specific laws or regulations which deal with the characterization of whether a
gain is income or capital in nature. Gains arising from the disposal of our ordinary shares may be construed to be of an income nature and subject to Singapore
income tax, if they arise from activities which the Inland Revenue Authority of Singapore regards as the carrying on of a trade or business in Singapore. However,
under Singapore tax laws, any gains derived by a divesting company from its disposal of ordinary shares in an investee company between June 1, 2012 and May 31,
2022 are generally not taxable if immediately prior to the date of the relevant disposal, the investing company has held at least 20% of the ordinary shares in the
investee company for a continuous period of at least 24 months.
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Table of Contents
Goods
and
Services
Tax
The issue or transfer of ownership of our ordinary shares should be exempt from Singapore GST. Hence, the holders would not incur any GST on the
subscription or subsequent transfer of the shares.
Stamp
Duty
Where our ordinary shares evidenced in certificated forms are acquired in Singapore, stamp duty is payable on the instrument of their transfer at the rate of
0.2% of the consideration for or market value of our ordinary shares, whichever is higher.
Where an instrument of transfer is executed outside Singapore or no instrument of transfer is executed, no stamp duty is payable on the acquisition of our
ordinary shares. However, stamp duty may be payable if the instrument of transfer is executed outside Singapore and is received in Singapore. The stamp duty is
borne by the purchaser unless there is an agreement to the contrary.
On the basis that any transfer instruments in respect of our ordinary shares traded on the NYSE and the TASE are executed outside Singapore through our
transfer agent and share registrar in the United States for registration in our branch share register maintained in the United States (without any transfer instruments
being received in Singapore), no stamp duty should be payable in Singapore on such transfers.
Tax
Treaties
Regarding
Withholding
Taxes
There is no comprehensive avoidance of double taxation agreement between the United States and Singapore which applies to withholding taxes on
dividends or capital gains.
F.
Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H.
Documents on Display
We are subject to the information reporting requirements of the Exchange Act applicable to foreign private issuers, and under those requirements will file
reports with the SEC. Those other reports or other information and this annual report may be inspected without charge at 1 Temasek Avenue #36-01, Millenia
Tower, Singapore 039192 and inspected and copied at the public reference facilities of the SEC located at 100 F Street, N.E., Washington, D.C. 20549. You may
also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains a website at http://www.sec.gov from which certain
filings may be accessed.
As a foreign private issuer, we will be exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our
officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange
Act. In addition, we will not be required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or
as promptly as United States companies whose securities are registered under the Exchange Act. However, for so long as we are listed on the NYSE, or any other
U.S. exchange, and are registered with the SEC, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by
the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and will submit to the SEC,
on a Form 6-K, unaudited quarterly financial information for the first three quarters of each year.
We maintain a corporate website at http://www.kenon-holdings.com. Information contained on, or that can be accessed through, our website does not
constitute a part of this annual report on Form 20-F. We have included our website address in this annual report solely as an inactive textual reference.
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Table of Contents
I.
Subsidiary Information
Not applicable.
ITEM 11. Quantitative and Qualitative Disclosures about Market Risk
Our multinational operations expose us to a variety of market risks, which embody the potential for changes in the fair value of the financial instruments or
the cash flows deriving from them. Our risk management policies and those of each of our businesses seek to limit the adverse effects of these market risks on the
financial performance of each of our businesses and, consequently, on our consolidated financial performance. Each of our businesses bear responsibility for the
establishment and oversight of their financial risk management framework and have adopted individualized risk management policies to address those risks specific
to their operations.
Our primary market risk exposures are to:
•
•
•
•
currency risk, as a result of changes in the rates of exchange of various foreign currencies (in particular, the Euro and the New Israeli Shekel) in
relation to the U.S. Dollar, our functional currency and the currency against which we measure our exposure;
index risk, as a result of changes in the Consumer Price Index;
interest rate risk, as a result of changes in the market interest rates affecting certain of our businesses’ issuance of debt and related financial
instruments; and
price risk, as a result of changes in market prices, such as the price of certain commodities (e.g., natural gas and heavy fuel oil).
For further information on our market risks and the sensitivity analyses of these risks, see Note 30—Financial Instruments to our financial statements
included in this annual report.
ITEM 12. Description of Securities Other than Equity Securities
A.
Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C.
Other Securities
Not applicable.
D.
American Depositary Shares
Not applicable.
ITEM 13. Defaults, Dividend Arrearages and Delinquencies
None.
PART II
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
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Table of Contents
ITEM 15. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this annual report, as required by
Rule 13a-15(b) under the Exchange Act. Based upon this evaluation, our management, with the participation of our chief executive officer and chief financial
officer, has concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective in ensuring that the
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in by the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Rules 13a-15(f) and 15d-
15(f) under the Exchange Act. These rules define internal control over financial reporting as a process designed by, or under the supervision of, a company’s chief
executive officer and chief financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Our management has assessed the design and operating effectiveness of our internal control over financial reporting as of December 31, 2015. This
assessment was performed under the direction and supervision of our chief executive officer and chief financial officer, and based on criteria established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation,
management concluded that as of December 31, 2015, our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by our independent registered public accounting
firm and their report thereon is included elsewhere in this annual report.
Changes in Internal Control over Financial Reporting
In 2015, we commenced our plan to strengthen our internal controls over financial reporting within the Kenon group as part of our implementation of
Section 404 of the Sarbanes-Oxley Act. As part of this process, we formalized (i) financial reporting policies for various key areas, including, disclosure controls
and procedures; (ii) processes to promote effective upward communication between us and our subsidiaries and associated companies; and (iii) management review
controls to identify, record, process and summarize both financial and non-finacial information.
We believe these steps have enhanced the quality of our internal controls and procedures as of December 31, 2015.
Inherent Limitations of Disclosure Controls and Procedures in Internal Control over Financial Reporting
It should be noted that any system of controls, however well-designed and operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.
Projections regarding the effectiveness of a system of controls in future periods are subject to the risk that such controls may become inadequate because of
changes in conditions or deterioration in the degree of compliance with the policies or procedures.
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ITEM 16. [RESERVED]
ITEM 16A. Audit Committee Financial Expert
Our board of directors has determined that Mr. Laurence N. Charney is an “audit committee financial expert” as defined in Item 16A of Form 20-F under the
Exchange Act. Our board of directors has also determined that Mr. Laurence N. Charney satisfies the NYSE’s listed company “independence” requirements.
ITEM 16B. Code of Ethics
We have adopted a Code of Ethics that applies to all our employees, officers and directors, including our chief executive officer and our chief financial
officer. Our Code of Conduct is available on our website at www.kenon-holdings.com.
ITEM 16C. Principal Accountant Fees and Services
In 2015, KPMG LLP, a member firm of KPMG International, was appointed as our independent registered public accounting firm for the audit of the fiscal
year ending December 31, 2015, for which audited financial statements appear in this annual report.
Our audit committee charter requires that all audit and non-audit services provided by our independent auditors are pre-approved by our audit committee,
provided that certain de minimis non-audit services provided by our independent auditors do not need to be approved by our audit committee.
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by KPMG LLP, and
other member firms within the KPMG network, for the period ended December 31, 2015 and by Somekh Chaikin, a member firm of KPMG International, and
other member firms within this network, for the period ended December 31, 2014:
Year ended December 31,
2015
2014
Audit Fees 1
Audit-Related Fees 2
Tax Fees 3
All Other Fees
Total
$
$
$
$
(in
thousands
of
USD)
4,189
1,030
394
—
5,613
$
$
930
—
158
—
1,088
1.
2.
3.
Includes fees billed or accrued for professional services rendered by the principal accountant, and member firms in their respective network, for the audit of
our annual financial statements, and those of our consolidated subsidiaries, as well as additional services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements, except for those not required by statute or regulation. The above audit fees for the year
ended December 31, 2014 do not include fees of $150,000 billed or accrued in connection with the principal accountant’s PCAOB audit of ZIM for the years
2012-2014 in connection with Kenon’s statutory and regulatory filings or engagements.
The audit-related fees for the year ended December 31, 2015 include fees billed or accrued in connection with IC Power Singapore’s filing of a registration
statement on Form F-1 and its contemplated initial public offering.
Tax fees consist of fees for professional services rendered during the fiscal year by the principal accountant mainly for tax compliance and assistance with
tax audits and appeals.
ITEM 16D. Exemptions from the Listing Standards for Audit Committees
None.
ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 16F. Change in Registrant’s Certifying Accountant
In connection with our spin-off from IC, upon the recommendation of our audit committee and board of directors, on May 28, 2014, Kenon appointed
Somekh Chaikin, or KPMG Israel, a member firm of KPMG International and IC’s principal auditor, to serve as the independent registered public accounting firm
for the audit of our combined carve-out financial statements for the years ended December 31, 2013 and 2012. These financial statements appeared in our
Registration Statement on Form 20-F, dated as of January 5, 2015, which we filed with the SEC in connection with the initial listing of our common shares on the
NYSE.
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Table of Contents
On May 29, 2014, upon the recommendation of our audit committee and board of directors, Kenon appointed KPMG LLP, or KPMG Singapore, to serve as
the statutory auditor for the audit of our standalone financial statements for the period ended December 31, 2014. Kenon consulted KPMG Singapore on customary
matters relating to this audit and, upon its completion of the audit, KPMG Singapore delivered an independent auditors’ report regarding Kenon’s standalone
financial statements for the period ended December 31, 2014, which report was filed as Exhibit 99.3 to Kenon’s Report on Form 6-K, dated as of June 12, 2015.
On February 16, 2015, in connection with the preparation and audit of our financial statements for the year ended December 31, 2014, and upon the
recommendation of our audit committee and board of directors, Kenon appointed KPMG Israel to serve as the independent registered public accounting firm for the
audit of our combined carve-out financial statements for the years ended December 31, 2014, 2013 and 2012. These financial statements appeared in our Annual
Report on Form 20-F for the year ended December 31, 2014.
On May 19, 2015, in connection with the preparation and audit of our financial statements for the year ended December 31, 2015, which financial statements
appear in this Form 20-F, Kenon, upon the recommendation of our audit committee and board of directors, re-appointed KPMG Singapore to serve as the statutory
auditor for the audit of our standalone financial statements for the year ended December 31, 2015. Kenon also appointed KPMG Singapore to serve as the
independent registered public accounting firm for the audit of our consolidated financial statements for the year ended December 31, 2015, and this appointment
constituted a dismissal of KPMG Israel as of such date.
Neither of KPMG Israel’s report for our combined carve-out financial statements for the years ended December 31, 2014, 2013 and 2012 nor KPMG Israel’s
report for our combined carve-out financial statements for the years ended December 31, 2013 and 2012 contained an adverse opinion or a disclaimer of opinion, or
was qualified or modified as to uncertainty, audit scope, or accounting principles. Additionally, from the date of Kenon’s incorporation in March 2014, there were
no disagreements between Kenon and KPMG Israel on any matter of accounting principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of KPMG Israel, would have caused KPMG Israel to make reference to the subject matter of such disagreement
in connection with its report. None of the “reportable events” described in Item 16F(a)(1)(v) of Form 20-F have occurred since Kenon’s incorporation in March
2014.
Other than as disclosed above, prior to May 19, 2015 (the date on which Kenon appointed KPMG Singapore to serve as the independent registered public
accounting firm for the audit of our consolidated financial statements for the year ended December 31, 2015), neither Kenon nor anyone acting on its behalf
consulted KPMG Singapore regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion
that might be rendered on Kenon’s financial statements, and KPMG Singapore did not provide either a written report or oral advice to Kenon that was an important
factor considered by Kenon in reaching a decision as to any accounting, auditing, or financial reporting issue. Kenon has provided KPMG Israel with a copy of the
foregoing disclosure and has requested that KPMG Israel furnish a letter addressed to the SEC stating whether KPMG Israel agrees with such disclosure and, if not,
stating the respects in which KPMG Israel does not agree. A copy of KPMG Israel’s letter is filed herewith as Exhibit 15.6.
ITEM 16G. Corporate Governance
None.
ITEM 16H. Mine Safety Disclosure
Not applicable.
ITEM 17. Financial Statements
Not applicable.
ITEM 18. Financial Statements
PART III
The financial statements and the related notes required by this Item 18 are included in this annual report beginning on page F-1.
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Table of Contents
ITEM 19. Exhibits
Exhibit
Number
Index to Exhibits
Description of Document
1.1
2.1
2.2
2.3
2.4
4.1
4.2*
4.3
4.4
4.5*
4.6
4.7†
4.8†
4.9
4.10
Kenon Holdings Ltd.’s Constitution (Incorporated by reference to Exhibit 1.1 to Amendment No. 1 to Kenon’s Registration Statement on Form 20-
F, filed on December 19, 2014)
Form of Specimen Share Certificate for Kenon Holdings Ltd.’s Ordinary Shares (Incorporated by reference to Exhibit 2.1 to Kenon’s Annual
Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)
Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and Millenium Investments Elad Ltd. (Incorporated by
reference to Exhibit 99.5 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)
Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and Bank Leumi Le-Israel B.M. (Incorporated by
reference to Exhibit 99.6 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)
Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and XT Investments Ltd. (Incorporated by reference to
Exhibit 99.7 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)
Sale, Separation and Distribution Agreement, dated as of January 7, 2015, between Israel Corporation Ltd. and Kenon Holdings Ltd. (Incorporated
by reference to Exhibit 99.2 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)
Loan Agreement, dated as of January 7, 2015, between Israel Corporation Ltd. and Kenon Holdings Ltd, as supplemented by Supplement No. 1 to
the Loan Agreement, dated March 17, 2016
English translation of Natural Gas Supply Agreement, dated as of January 2, 2006, as amended, among Kallpa Generación S.A., Pluspetrol Peru
Corporation S.A., Pluspetrol Camisea S.A., Hunt Oil Company of Peru L.L.C. Sucursal del Peru, SK Corporation Sucursal Peruana, Sonatrach Peru
Corporation S.A.C., Tecpetrol del Peru S.A.C. and Repsol Exploración Peru Sucursal del Peru (Incorporated by reference to Exhibit 4.3 to
Amendment No. 1 to Kenon’s Draft Registration Statement on Form 20-F, filed on August 14, 2014)
English translation of Natural Gas Transportation Agreement, dated as of December 10, 2007, as amended, between Kallpa Generación S.A. and
Transportadora de Gas del Peru S.A. (Incorporated by reference to Exhibit 4.4 to Amendment No. 1 to Kenon’s Draft Registration Statement on
Form 20-F, filed on August 14, 2014)
Turnkey Engineering, Procurement and Construction Contract, dated as of November 4, 2011, among Cerro del Águila S.A., Astaldi S.p.A. and
GyM S.A., as amended
English translation of Contract of Concession, dated as of October 23, 2010, as amended, between the Government of Peru and Kallpa Generación
S.A., relating to the provision of electric energy services to the public (Incorporated by reference to Exhibit 4.6 to Amendment No. 1 to Kenon’s
Draft Registration Statement on Form 20-F, filed on August 14, 2014)
Joint Venture Contract, dated as of February 16, 2007, as amended, between Wuhu Chery Automobile Investment Co., Ltd. and Quantum (2007)
LLC (Incorporated by reference to Exhibit 4.7 to Amendment No. 1 to Kenon’s Registration Statement on Form 20-F, filed on December 19, 2014)
Gas Sale and Purchase Agreement, dated as of November 25, 2012, among Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership,
Isramco Negev 2 Limited Partnership, Avner Oil Exploration Limited Partnership, Dor Gas Exploration Limited Partnership, and O.P.C. Rotem
Ltd. (Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to IC Power Pte. Ltd.’s Form F-1, filed on November 2, 2015)
Indenture, dated as of April 4, 2011, between Inkia Energy Limited, as issuer, and Citibank, N.A.as trustee, relating to Inkia Energy Limited’s
8.375% Senior Notes due 2021 (Incorporated by reference to Exhibit 4.9 to Kenon’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2014, filed on March 31, 2015)
Facility Agreement, dated as of January 2, 2011, among O.P.C. Rotem Ltd., as borrower, Bank Leumi Le-Israel B.M., as arranger and agent, Bank
Leumi Le-Israel Trust Company Ltd., as security trustee, and the senior lenders named therein (Incorporated by reference to Exhibit 4.10 to
Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)
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Table of Contents
Exhibit
Number
4.11
Credit Agreement, dated as of August 17, 2012, among Cerro del Águila S.A., as borrower, Sumitomo Mitsui Banking Corporation, as administrative
agent, and other parties party thereto (Incorporated by reference to Exhibit 4.11 to Kenon’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2014, filed on March 31, 2015)
Description of Document
4.12*
Guarantee Contract, dated as of June 9, 2015, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd.
4.13*
Guarantee Contract, dated as of November 5, 2015, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd.
4.14*
Stock Purchase Agreement, dated as of December 29, 2015, among IC Power Distribution Holdings PTE, Limited, as Purchaser, Inkia Energy,
Limited, as Purchaser Guarantor, DEORSA-DEOCSA Holdings Limited, as Seller, and Estrella Cooperatief BA
4.15*
Pledge Agreement, dated as of March 17, 2016, between Israel Corporation Ltd. and IC Power Pte. Ltd.
4.16*
Security over Shares Agreement, dated as of March 17, 2016, between Israel Corporation Ltd. and Kenon Holdings Ltd.
4.17*
Loan Agreement, dated as of April 22, 2016, between Quantum (2007) LLC, as borrower, and Ansonia Holdings Singapore B.V., as lender
4.18*
Undertaking Agreement, dated as of April 22, 2016, among Qoros Automotive Co., Ltd., Quantum (2007) LLC, Kenon Holdings Ltd., Wuhu Chery
Automobile Investment Co., Ltd., Chery Automobiles Limited, and Ansonia Holdings Singapore B.V.
4.19*
Second Amended and Restated Limited Liability Company Agreement of Quantum (2007) LLC, dated as of April 22, 2016
8.1*
List of subsidiaries of Kenon Holdings Ltd.
12.1*
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
12.2*
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
13.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
15.1*
Consent of KPMG LLP, Independent Registered Public Accounting Firm of Kenon Holdings Ltd.
15.2*
Consent of Somekh Chaikin, a Member Firm of KPMG International
15.3*
Consent of KPMG Huazhen LLP, Independent Auditor of Qoros Automotive Co., Ltd.
15.4*
Consent of Caipo y Asociados S. Civil de R.L., Independent Auditors of Generandes Perú S.A.
15.5*
Consent of Brightman Almagor Zohar & Co., a Member Firm of Deloitte Touche Tohmatsu, independent auditor of Tower Semiconductor Ltd.
15.6*
Letter from Somekh Chaikin, a Member Firm of KPMG International, Regarding Item 16F
99.1
Unaudited consolidated financial Statements of Generandes Perú S.A. as of December 31, 2014 and 2013 and for the years ended December 31, 2014
and 2013, and the audited consolidated financial statements of Generandes Perú S.A. as of December 31, 2013, 2012 and 2011 and for the years
ended December 31, 2013 and 2012, and the related independent auditors’ report thereon, all included on pages F-120 – F-268 of IC Power Pte.
Ltd.’s Amendment No. 1 to Registration Statement on Form F-1 (File No. 333-206667), filed on November 2, 2015, and incorporated by reference
herein
* Filed herewith.
† Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Exchange Act. Omitted information has been
filed separately with the SEC.
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Table of Contents
Kenon Holdings Ltd and subsidiaries
Consolidated Financial Statements
As at December 31, 2015 and for the year then ended
Kenon Holdings Ltd and combined entities
Combined Financial Statements
As at December 31, 2014 and for the years ended December 31, 2014 and 2013
Table of Contents
Kenon Holdings Ltd
Consolidated Financial Statements
as at December 31, 2015 and for the year then ended
Combined Financial Statements
as at December 31, 2014 and for the years ended December 31, 2014 and 2013
Contents
Reports of Independent Registered Public Accounting Firms
Consolidated Statement of Financial Position and Combined Statement of Financial Position
Consolidated Statement of Profit & Loss and Combined Statements of Profit & Loss
Consolidated Statement of Other Comprehensive Loss and Combined Statements of Other Comprehensive Loss
Consolidated Statement of Changes in Equity
Combined Statements of Changes in Former Parent Company Investment
Consolidated Statement of Cash Flows and Combined Statements of Cash Flows
Notes to the consolidated/combined financial statements
Affiliate Financial Statements Filed Pursuant to Rule 3-09 of Regulation S-X
Qoros Automotive Co., Ltd.
Consolidated Financial Statements for the Year Ended December 31, 2015
Independent Auditors’ Report
Consolidated Statement of Financial Position
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Page
F-1 – F-4
F-5 – F-6
F-7
F-8
F-9
F-10 – F-11
F-12 – F-13
F-14 – F-108
F-110 – F-111
F-112 – F-113
F-114
F-115
F-116 – F-117
F-118 – F-165
Table of Contents
The Board of Directors and Shareholders
Kenon Holdings Ltd.:
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated statement of financial position of Kenon Holdings Ltd. (the “Company”) and subsidiaries as of December 31,
2015, and the related consolidated statements of profit and loss, other comprehensive loss, changes in equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kenon Holdings Ltd. and
subsidiaries as of December 31, 2015, and the results of their operations and their cash flows for the year then ended, in conformity with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Kenon Holdings Ltd.’s internal
control over financial reporting as of December 31, 2015, based on criteria established in Internal
Control
-
Integrated
Framework
(2013)
issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated April 8, 2016 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
/s/ KPMG LLP
Singapore
April 8, 2016
F-1
Table of Contents
The Board of Directors and Shareholders
Kenon Holdings Ltd.:
Report of Independent Registered Public Accounting Firm
We have audited Kenon Holdings Ltd.’s internal control over financial reporting as of December 31, 2015, based on Internal
Control
–
Integrated
Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Kenon Holdings Ltd.’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
In our opinion, Kenon Holdings Ltd. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal
Control
–
Integrated
Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial
position of Kenon Holdings Ltd. and subsidiaries as of December 31, 2015, and the related consolidated statements of profit and loss, other comprehensive loss,
changes in equity, and cash flows for the year then ended, and our report dated April 8, 2016 expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG LLP
Singapore
April 8, 2016
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Kenon Holdings Ltd.:
We have audited the accompanying combined carve-out statements of financial position of the carved-out operations of certain holdings of Israel Corporation Ltd.
(“Kenon Holdings, Carve-out”) as of December 31, 2014 and the related combined carve-out statements of income, other comprehensive income, changes in parent
company investment and cash flows for each of the years in the two-year period ended December 31, 2014. These combined carve-out financial statements are the
responsibility of Kenon Holdings, Carve-out’s management. Our responsibility is to express an opinion on these combined carve-out financial statements based on
our audits.
We did not audit the financial statements of Tower Semiconductor Ltd. (Tower), (a 29% and 32% owned unconsolidated associated company as of December 31,
2014 and 2013, respectively). Kenon Holdings, Carve-out’s investment in Tower at December 31, 2014 was $14 million and its equity in profit of Tower was $18.3
million for the year 2014, and its equity in losses in the amount of $31 million for the year 2013. The financial statements of Tower were audited by other auditors
whose reports were furnished to us, and our opinion, insofar as it relates to the amounts included for Tower, is based solely on the reports of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the combined carve-out financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined carve-out financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and on the report of the other auditors, the combined carve-out financial statements referred to above present fairly, in all
material respects, the financial position of Kenon Holdings, Carve-out, as defined in Note 1C, as of December 31, 2014, and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 2014, in conformity with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
/s/ Somekh Chaikin
Somekh Chaikin
Certified Public Accountants (Isr)
A member firm of KPMG International
Tel Aviv, Israel
March 31, 2015
Somekh Chaikin, an Israeli partnership and member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity.
F-3
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the shareholders of
Tower Semiconductor Ltd.
We have audited the accompanying consolidated balance sheets of Tower Semiconductors Ltd. (the “Company”) and its subsidiaries as of December 31, 2015 and
2014, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended
December 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects the consolidated financial position of the Company and its subsidiaries as
of December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31,
2015, in conformity with accounting principles generally accepted in the United States of America.
As described in Note 23, the consolidated financial statements include a reconciliation of the company’s financial statements from the accounting principles
generally accepted in the United States of America to International Financial Reporting Standards.
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Member of Deloitte Touche Tohmatsu Limited
Tel Aviv, Israel
February 29, 2016
F-4
Table of Contents
Kenon Holdings Ltd and subsidiaries
Consolidated Statement of Financial Position as at December 31, 2015
Kenon Holdings Ltd and combined entities
Combined Statement of Financial Position as at December 31, 2014
Current assets
Cash and cash equivalents
Short-term investments and deposits
Trade receivables, net
Other current assets
Income tax receivable
Inventories
Total current assets
Non-current assets
Investments in associated companies
Deposits, loans and other receivables, including financial instruments
Deferred taxes, net
Property, plant and equipment, net
Intangible assets, net
Total non-current assets
Total assets
(*)
Revised – see Note 31.
As at December 31
2014*
2015
Note
US$ thousands
5 383,953 610,056
6 308,702 226,830
7 123,273 181,358
59,064
45,260
8
3,418
3,926
55,335
50,351
915,465 1,136,061
9
10 369,022 435,783
74,658
88,475
12
25
25,743
2,693
13 2,959,878 2,502,787
14 147,244 144,671
3,567,312 3,183,642
4,482,777 4,319,703
The accompanying notes are an integral part of the consolidated/ combined financial statements.
F-5
Table of Contents
Kenon Holdings Ltd and subsidiaries
Consolidated Statement of Financial Position as at December 31, 2015, continued
Kenon Holdings Ltd and combined entities
Combined Statement of Financial Position as at December 31, 2014, continued
Current liabilities
Loans and debentures
Trade payables
Other payables, including derivative instruments
Provisions
Income tax payable
Total current liabilities
Non-current liabilities
Loans, excluding current portion
Debentures, excluding current portion
Derivative instruments
Deferred taxes, net
Other non-current liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Former Parent company investment
Translation reserve
Capital reserve
Accumulated deficit
Equity attributable to owners of the Company
Non-controlling interests
Total equity
Total liabilities and equity
(*)
Revised – see Note 31.
As at December 31
2015
2014*
Note
US$ thousands
15 352,668 161,486
16 145,454 144,488
17 108,873 114,165
69,882
41,686
18
6,766
4,705
653,386 496,787
15 1,709,063 1,528,930
15 655,847 686,942
17
21,045
35,625
25 138,083 132,010
16,291
27,218
2,565,836 2,385,218
3,219,222 2,882,005
20B
20C
20A 1,267,210
—
— 1,227,325
28,440
(16,916)
(25,274)
2,212
—
(191,292)
1,061,214 1,230,491
202,341 207,207
1,263,555 1,437,698
4,482,777 4,319,703
The accompanying notes are an integral part of the consolidated/ combined financial statements.
F-6
Table of Contents
Kenon Holdings Ltd and subsidiaries
Consolidated Statement of Profit & Loss for the year ended December 31, 2015
Kenon Holdings Ltd and combined entities
Combined statements of Profit & Loss for the years ended December 31, 2014 and 2013
Continuing Operations
Revenues from sale of electricity
Cost of sales and services (excluding depreciation)
Depreciation
Gross profit
Selling, general and administrative expenses
Gain from distribution of dividend in kind
Gain from disposal of investees
Gain on bargain purchase
Asset impairment
Dilution gains from reductions in equity interest held in associates
Other expenses
Other income
Operating profit from continuing operations
Financing expenses
Financing income
Financing expenses, net
Share in losses of associated companies, net of tax
Profit from continuing operations before income taxes
Income taxes
Profit/(loss) for the year from continuing operations
Profit/(loss) for the year from discontinued operations
Profit/(loss) for the year
Attributable to:
Kenon’s shareholders
Non-controlling interests
Profit for the year
Basic/diluted profit/(loss) per share attributable to Kenon’s shareholders (in dollars):
Basic/diluted profit/(loss) per share
Basic/diluted profit/(loss) per share from continuing operations
Basic/diluted profit/(loss) per share from discontinued operations
(*)
Revised – see Note 31.
Note
21
22
For the year ended December 31
2014*
2015
US$ thousands
2013*
1,289,068 1,372,230 873,394
(862,855) (981,141) (593,802)
(110,917) (100,434) (70,404)
315,296 290,655 209,188
(103,823) (131,118) (72,955)
—
—
1,320
—
—
(5,338)
4,327
455,845 374,107 136,542
—
— 157,137
68,210
—
(47,844)
(6,541)
—
32,829
(13,970)
(7,076)
51,037
15,450
10.C.c 209,710
10.C.d
11.A.1.e
10.C.c
23
23
24
24
10
25
27
26
26
26
(124,228) (110,179) (68,779)
13,412
16,243
4,789
(93,936) (63,990)
(110,816)
(186,759) (170,897) (126,690)
158,270 109,274 (54,138)
(62,378) (103,341) (49,291)
95,892
5,933 (103,429)
— 470,421 (512,489)
95,892 476,354 (615,918)
72,992 458,161 (631,140)
22,900
18,193 15,222
95,892 476,354 (615,918)
1.36
1.36
—
8.58
(0.23)
8.81
(11.82)
(2.13)
(9.69)
The accompanying notes are an integral part of the consolidated/ combined financial statements.
F-7
Table of Contents
Kenon Holdings Ltd and subsidiaries
Consolidated Statement of Other Comprehensive Loss for the year ended December 31, 2015
Kenon Holdings Ltd and combined entities
Combined Statements of Other Comprehensive Loss for the years ended December 31, 2014 and 2013
Profit/(loss) for the year
Items that will be subsequently reclassified to profit or loss
Foreign currency translation differences in respect of foreign operations
Foreign currency translation differences in respect of foreign operations recognised in profit or loss
Change in fair value of derivatives used to hedge cash flows
Group’s share in other comprehensive income/(loss) of associated companies
Income taxes in respect of components other comprehensive income/(loss)
Components of net other comprehensive loss in respect from discontinued operations
Total
Items that will not be reclassified to profit or loss
Group’s share in net other comprehensive loss of associate companies
Components of other comprehensive loss in respect of discontinued operations
Total other comprehensive loss for the year
Total comprehensive income/(loss) for the year
Attributable to:
Kenon’s shareholders
Non-controlling interests
Total comprehensive income/(loss) for the year
(*)
Revised – see Note 31.
For the year ended December 31
2014*
2015
US$ thousands
95,892 476,354 (615,918)
2013*
(18,132) (10,782) (20,624)
—
— (24,891)
(6,365) (13,144) (18,582)
9,322
(623)
5,554
773
(5,168)
—
(24,347) (57,845) (29,498)
(7,306)
2,303
(4,025)
—
(3,978)
—
(3,409)
— —
(24,347) (61,823) (32,907)
71,545 414,531 (648,825)
52,423 400,815 (660,579)
19,122 13,716 11,754
71,545 414,531 (648,825)
The accompanying notes are an integral part of the consolidated/ combined financial statements.
F-8
Table of Contents
Kenon Holdings Ltd and subsidiaries
Consolidated Statement of Changes in Equity
For the year ended December 31, 2015
Attributable to the Kenon’s shareholders
Non-
controlling
interests
Total
Share
Capital
Note
Former
Parent
company Translation Capital Accumulated
investment
reserves
reserve
deficit
Total
$ thousands
Balance at January 1, 2015 *
Share based payments
Dividend to holders of non-controlling interests in a
subsidiary
Acquisition of non- controlling interest in subsidiary
Reclassification of net loss (pre spin-off)
Contribution from former parent company
—
—
1,227,325
—
28,440
—
(25,274)
556
—
—
1,230,491
556
207,207
320
1,437,698
876
—
—
—
—
—
—
8,552
34,271
—
—
—
—
—
—
—
—
—
(1,222)
(8,552)
—
—
(1,222)
—
34,271
(12,340)
(18,078)
—
—
(12,340)
(19,300)
—
34,271
Issuance of shares of subsidiary to holders of non-
controlling interests
Distribution of dividend in kind
Issuance of common stock and reclassification of
former parent company investment in connection
with the spin-off
Post spin-off adjustment *
Total comprehensive income for the year
Net profit for the year
Other comprehensive (loss)/income for the year, net
of tax
Balance at December 31, 2015
(*)
Revised – see Note 31.
10.C.c
—
(14,062)
—
—
—
498
—
—
—
(241,741)
—
(255,305)
6,110
—
6,110
(255,305)
1,281,272
—
(1,283,550)
13,402
(28,440)
—
30,718
—
—
(13,402)
—
—
—
—
—
—
—
—
1,267,210
—
—
—
—
—
72,992
72,992
22,900
95,892
(17,414)
(3,788)
633
(20,569)
(3,778)
(24,347)
(16,916)
2,212
(191,292)
1,061,214
202,341
1,263,555
The accompanying notes are an integral part of the consolidated/ combined financial statements.
F-9
Table of Contents
Kenon Holdings Ltd and combined entities
Combined Statements of Changes in Former Parent Company Investment
For the years ended December 31, 2014 and 2013
Balance at January 1, 2014 *
Acquisition of shares of subsidiary from holders of rights not conferring
control
Dividend to holders of non-controlling interests in a subsidiary
Loss of control in a subsidiary
Non-controlling interest in respect of business combination
Non-controlling shareholder contribution
Share based payments in a subsidiary
Share based payments in Kenon
Contribution from former parent company
Payments to former parent company
Transactions with controlling shareholders
Total comprehensive income for the year
Income for the year *
Other comprehensive loss for the year, net of tax
Attributable to the Kenon’s shareholders
Former
Parent
company Translation Capital
reserves
reserve
investment
$ thousands
(21,205)
658,654
72,181
Non-
controlling
interests
Total
Total
709,630
236,180
945,810
—
—
—
—
—
—
—
414,649
(300,047)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,444
—
—
—
—
—
—
—
—
—
5,444
414,649
(300,047)
—
5,550
(17,518)
(86,743)
35,800
19,577
428
—
—
—
217
5,550
(17,518)
(86,743)
35,800
19,577
428
5,444
414,649
(300,047)
217
Share
Capital
Note
—
—
—
—
—
—
—
—
—
—
—
—
—
458,161
(4,092)
—
(43,741)
—
(9,513)
458,161
(57,346)
18,193
(4,477)
476,354
(61,823)
Balance at December 31, 2014 *
—
1,227,325
28,440
(25,274)
1,230,491
207,207
1,437,698
(*)
Revised – see Note 31.
The accompanying notes are an integral part of the combined financial statements.
F-10
Table of Contents
Kenon Holdings Ltd and combined entities
Combined Statements of Changes in Former Parent Company Investment, continued
For the years ended December 31, 2014 and 2013
Attributable to the Kenon’s shareholders
interests
Total
Parent
Non-
controlling
Balance at January 1, 2013 *
Dividend to holders of non-controlling interests in a subsidiary
Loss of control in subsidiary
Issuance of shares of subsidiary to holders of non-controlling interests
Share-based payments in a subsidiary
Contribution from former parent company
Transactions with controlling shareholder
Total comprehensive income for the year
Net loss for the year *
Other comprehensive loss for the year, net of tax
Share company Translation Capital
Capital investment
reserve
Total
reserves
$ thousands
Note
— 1,136,296
—
—
—
—
—
—
—
—
— 154,482
1,431
—
91,000 (13,000) 1,214,296 236,309 1,450,605
(28,250)
(12,575)
27,602
1,340
— 154,482
1,431
—
—
— —
—
— —
—
— —
— —
—
— — 154,482
1,431
— —
(28,250)
(12,575)
27,602
1,340
— (631,140)
(2,415)
—
— — (631,140)
(29,439)
(18,819) (8,205)
15,222 (615,918)
(32,907)
(3,468)
Balance at December 31, 2013 *
— 658,654
72,181 (21,205) 709,630 236,180 945,810
(*)
Revised – see Note 31.
The accompanying notes are an integral part of the combined financial statements.
F-11
Table of Contents
Kenon Holdings Ltd and subsidiaries
Consolidated Statement of Cash Flows
For the year ended December 31, 2015
Kenon Holdings Ltd and combined entities
Combined Statements of Cash Flows
For the years ended December 31, 2014 and 2013
Cash flows from operating activities
Profit/(loss) for the year
Adjustments:
Depreciation and amortization
Impairment of tangible assets and other investments
Derecognition of payments on account of vessels
Financing expenses, net
Share in losses of associated companies, net
Capital gains, net
Gain from changes in interest held in associates
Gain from distribution of dividend in kind
Share-based payments
Gain on bargain purchase
Income taxes
Change in inventories
Change in trade and other receivables
Change in trade and other payables
Change in provisions and employee benefits
Cash generated from operating activities
Income taxes paid, net
Dividends received from investments in associates
Net cash provided by operating activities
(*)
Revised – see Note 31.
For the year ended December 31
2014*
2013*
2015
US$ thousands
95,892 476,354 (615,918)
6,541
—
47,844
—
4,506 (767,216)
(32,829)
—
(209,710)
—
8,413
876
— (68,210)
62,378 112,825
120,047 188,171 238,621
7,000
71,646
110,816 195,405 377,157
186,759 168,044 116,715
(67,230)
—
—
4,463
(1,320)
70,703
345,276 361,630 201,837
16,932
21,991
4,361
35,491 (21,523) (122,186)
29,830 128,682
(29,800)
(33,426)
26,030
49,872
321,902 441,800 251,295
(47,441)
(36,218) (66,198)
53,111
34,774
290,171 410,376 256,965
4,487
The accompanying notes are an integral part of the consolidated/ combined financial statements.
F-12
Table of Contents
Kenon Holdings Ltd and subsidiaries
Consolidated Statement of Cash Flows, continued
For the year ended December 31, 2015
Kenon Holdings Ltd and combined entities
Combined Statements of Cash Flows, continued
For the years ended December 31, 2014 and 2013
Cash flows from investing activities
Proceeds from refund of payments on account vessels
Proceeds from sale of property, plant and equipment and intangible assets
Short-term deposits and loans, net
Cash paid for businesses purchased, less cash acquired
Disposal of subsidiary, net of cash disposed of and exit from combination
Investment in associates
Sale of securities held for trade and available for sale, net
Acquisition of property, plant and equipment
Acquisition of intangible assets
Cash disbursed – long-term loans
Interest received
Exit from the combination and transition to associate company less cash eliminated (See Note 27 (a))
Proceeds from sale of associate company
Payments for derivative investments used for hedging, net
Payment of consideration retained
Settlement of derivatives
Net cash used in investing activities
Cash flows from financing activities
Dividend paid to non-controlling interests
Proceeds from issuance of shares to holders of non-controlling interests in subsidiaries
Receipt of long-term loans and issuance of debentures
Repayment of long-term loans and debentures
Short-term credit from banks and others, net
Contribution from former parent company
Payments for transactions in derivative for hedging, net
Payment to the former parent company
Purchase of non-controlling interest
Interest paid
Net cash provided by financing activities
(Decrease) / Increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Effect of exchange rate fluctuations on balances of cash and cash equivalents
Cash and cash equivalents at end of the year
Significant non-cash investing transactions:
Acquisition of fixed assets under lease contract
Purchase of fixed assets on credit and others
For the year ended December 31
2014
2013
2015
US$ thousands
—
—
13,217
—
539
—
17,449
(83,408) (253,097)
(9,441) (67,180)
1,758
30,000
95,934
62,112
(27,850)
2,405
(129,241) (179,355) (154,492)
—
(515,838) (425,184) (311,517)
(9,135)
(16,844) (11,496)
(628)
—
3,949
3,934
—
— (310,918)
49,780
— 359,891
(7,575)
— (16,100)
—
—
(10,615)
(2,038)
(736,887) (882,336) (277,632)
(3,795)
—
—
7,924
6,110
(12,340) (17,518)
19,577
(28,250)
27,602
333,549 744,183 360,552
(138,270) (173,868) (213,758)
123,053 (86,072) 171,637
34,271 414,649 154,482
(126)
—
(20,000)
—
(93,858) (170,885) (191,199)
232,515 429,592 280,940
—
(427)
— (300,047)
—
(214,201) (42,368) 260,273
610,056 670,976 411,079
(376)
(11,902) (18,552)
383,953 610,056 670,976
— (107,688)
(9,000)
(46,327)
—
(17,923)
Significant non-cash investing and financing activity during the year ended December 31, 2015 relating to transfer of certain business interests to Kenon Holdings
Ltd from Israel Corporation Ltd and the issuance of common stock and reclassification of former parent company investment in connection with the spin-off – refer
to Note 1.B.
The accompanying notes are an integral part of the consolidated/ combined financial statements.
F-13
Table of Contents
Kenon Holdings Ltd.
Notes to the consolidated/ combined financial statements
Note 1 – Financial Reporting Principles and Accounting Policies
A.
The Reporting Entity
Kenon Holdings Ltd (the “Company” or “Kenon”) was incorporated on March 7, 2014 in the Republic of Singapore under the Singapore Companies Act.
Our registered office and principal place of business is located at 1 Temasek Avenue #36-01, Millenia Tower, Singapore 039192.
The Company is a holding company and was incorporated to receive investments spun-off from its former parent company, Israel Corporation Ltd. (“IC”).
The Company was formed to serve as the holding company of the businesses (together referred to as the “Group”). The primary focus will be to continue to
grow and develop the primary businesses, I.C. Power Asia Development Ltd. (formerly known as I.C. Power Ltd.) (“I.C. Power”) and Qoros Automotive
Co., Ltd. (“Qoros”).
B.
The split-up of Israel Corporation’s holdings
The split-up of IC’s holdings on January 7, 2015 involved the contribution of IC’s holdings in I.C. Power, Qoros, ZIM Integrated Shipping Services Ltd
(“ZIM”), Tower Semiconductor Ltd. (“Tower”) and other assets and entities, to Kenon, in exchange for shares of Kenon. Kenon’s shares were, in turn,
distributed on January 9, 2015 to the shareholders of IC as a “dividend in kind”. IC’s debt to banks and debenture holders remain in IC, and were not
transferred to Kenon.
The split-up was completed on January 7, 2015 and subsequently, Kenon shares were traded on New York Stock Exchange (NYSE) and on Tel Aviv Stock
Exchange (TASE) (NYSE and TASE: KEN).
After the split-up the primary subsidiary that Kenon holds is I.C. Power. I.C. Power, through its operating subsidiaries and associates, provides electricity
generation using different technologies such as hydroelectric, natural gas and diesel turbines and heavy fuel oil engines in Peru, Chile, Colombia, Dominican
Republic, Bolivia, El Salvador, Jamaica, Nicaragua, Guatemala and Israel.
The split-up included:
1)
2)
IC’s undertaking in the separation agreement (as detailed in Note 29G) with its then wholly owned subsidiary, Kenon, which included (among
other things): (i) transfer of the holdings in the companies being transferred to Kenon, as stated above, and transfer of certain rights and
liabilities in connection with the companies being transferred from IC to Kenon; (ii) execution of an investment in the capital of Kenon in the
amount of $35 million and (iii) issuance of shares of Kenon to IC in respect of the assets and rights to be transferred from IC to Kenon and
IC’s undertaking in a loan agreement whereby, among other things, IC provided Kenon a credit framework in an aggregate amount of up to
$200 million, Kenon would pay an annual commitment fee equal to 2.1% of the undrawn amount of the credit facility and an annual interest of
Libor+6% interest on the drawn amount, and in the framework thereof it will be provided that in a case of realization of guarantees that IC will
remain responsible for with respect to Qoros, the amount for which IC will be liable in a case of realization of these guarantees will be
considered a debt of Kenon to IC and the provisions of the loan agreement will apply to it. In 2015, Kenon drewdown $110 million under its
credit facility from IC and IC’s back-to-back guarantee of Qoros’ debt was fully released; on January 4, 2016, after the date of this report,
Kenon drewdown $40 million under this credit facility from IC; and on March 10, 2016, Kenon submitted a drawdown notice to IC for an
additional $50 million; and
3)
Distribution to IC’s shareholders as a dividend in kind of the shares of Kenon; including registration of these shares for trading, both on NYSE
and on TASE;
C.
The reporting periods prior to January 1, 2015
The reporting periods prior to January 1, 2015 are presented as combined carve-out financial statements which have been derived from the consolidated
financial statements of IC. The combined carve-out financial statements reflect the assets, liabilities, revenues and expenses directly attributable to the
Company and its Combined Entities, as well as allocations deemed reasonable by management, to present the combined financial position, profit or loss and
other comprehensive income, changes in former parent company investment and cash flows of the Company and its Combined Entities.
Outstanding balances, investments, transactions and cash flows between Group entities have been eliminated. Certain balances that were eliminated in the
consolidation of the financial statements of IC were reinstated in the combined financial statements when they relate to transactions with entities held by IC
that were not transferred to the Group.
The Combined Carve-out Financial Statements may not necessarily be indicative of Kenon’s financial position, results of operating activities or cash flows
had it operated as a separate entity throughout the period presented or for future periods.
F-14
Table of Contents
Note 1 – Financial Reporting Principles and Accounting Policies (Cont’d)
Significant allocation and assumptions of the comparative financial information (prior to January 1, 2015):
The assumptions in this report are based on the terms of the separation agreement between IC and Kenon with respect to the assets and liabilities that were
transferred to Kenon. Management has used the following assumptions in developing the carve-out financial statements.
Allocation
of
expenses
– Management allocated IC general and administrative expenses to the Group for the years ended December 31, 2014 and 2013 based
on the time invested by IC management in the Group’s respective holdings. In addition, the general and administrative expenses includes specific split
expenses such as registration expenses were allocated to Kenon.
Debt
and
financial
instruments
– IC’s outstanding debt at the holding company level, other financial instruments and related finance expenses will not be
transferred to Kenon and therefore were not reflected in the combined financial statements.
Guarantees,
Loans
and
Capital
notes
from
IC
– Guarantees and loans (including capital notes) from IC to the Group companies that were transferred to
Kenon, were reflected in the combined financial statements. Kenon did not use this credit facility in the reporting period.
Contingent
Liabilities
– Existing IC contingent liabilities, including those related to litigation, were not transferred to Kenon.
Associates
– Investments in associates which were transferred to Kenon are included in the combined financial statements.
Investments
– Investments that have been made by IC in investee companies that were transferred to Kenon, and the financing of the Group, including
holding company expenses, for the periods shown, were treated as Contributions from former parent company in the statement of changes in former parent
company investment.
Profit
(loss)
per
share
– On January 7, 2015, the split-up was completed and 53,383,015 ordinary shares were issued by Kenon. Therefore, the Profit (loss)
per share in the combined financial statements is based on this number of shares (in 2014 and 2013).
D.
Definitions
In these consolidated/ combined financial statements –
1.
2.
3.
4.
5.
Subsidiaries – Companies whose financial statements are fully consolidated with those of Kenon, directly or indirectly.
Combined Entities – Companies other than Kenon whose financial statements are fully combined with those of Kenon directly or indirectly.
Associates – Companies in which Kenon has significant influence and Kenon’s investment is stated, directly or indirectly, on the equity basis.
Investee companies – subsidiaries and/or associated companies.
Related parties – within the meaning thereof in International Accounting Standard (“IAS”) 24 “Related
Parties”
.
F-15
Table of Contents
Note 2 – Basis of Preparation of the Financial Statements
A.
Declaration of compliance with International Financial Reporting Standards (IFRS)
The consolidated/ combined financial statements were prepared by management of the Group in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated/ combined financial statements were approved for issuance by the Company’s Board of Directors on April 1, 2016.
B.
Functional and presentation currency
These consolidated/ combined financial statements are presented in US dollars, which is Kenon’s functional currency, and have been rounded to the nearest
thousand, except when otherwise indicated. The US dollar is the currency that represents the principal economic environment in which Kenon and most of its
investees operate.
C.
Basis of measurement
The consolidated/ combined financial statements were prepared on the historical cost basis, with the exception of the following assets and liabilities:
• Derivative financial instruments.
• Deferred tax assets and liabilities.
• Provisions.
• Assets and liabilities in respect of employee benefits.
• Investments in associates.
For additional information regarding measurement of these assets and liabilities – see Note 3 “Significant Accounting Policies”.
D.
Use of estimates and judgment
The preparation of consolidated/ combined financial statements in conformity with IFRS requires management to make judgments, 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.
The preparation of accounting estimates used in the preparation of the consolidated/ combined financial statements requires management of the Group to
make assumptions regarding circumstances and events that involve considerable uncertainty. Management prepares the estimates on the basis of past
experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected.
Information about assumptions made by management of the Group with respect to the future and other reasons for uncertainty with respect to estimates that
have a significant risk of resulting in a material adjustment to carrying amounts of assets and liabilities in the next financial year are set forth below:
1.
Useful life of property, plant and equipment
Property, plant and equipment is depreciated using the straight-line method over its estimated useful life.
At every year-end, or more often if necessary, management examines the estimated useful life of the property, plant and equipment by comparing it to the
benchmark in the relevant industry, taking into account the level of maintenance and functioning over the years. If necessary, on the basis of this evaluation,
the Group adjusts the estimated useful life of the property, plant and equipment. A change in estimates in subsequent periods could materially increase or
decrease future depreciation expense.
F-16
Table of Contents
Note 2 – Basis of Preparation of the Financial Statements (Cont’d)
2.
Recoverable amount of non-financial assets and Cash Generating Units
Each reporting date, the management of the Group examines whether there have been any events or changes in circumstances which would indicate
impairment of one or more of its non-financial assets or Cash Generating Units (“CGUs”). When there are indications of impairment, an examination is
made as to whether the carrying amount of the non-financial assets or CGUs exceeds their recoverable amount, and if necessary, an impairment loss is
recognized. Assessment of the impairment of goodwill and of other intangible assets having an indeterminable life is performed at least once a year or when
signs of impairment exist.
The recoverable amount of the asset or CGU is determined based on the higher of the fair value less selling costs of the asset or CGU and the present value
of the future cash flows expected from the continued use of the asset or CGU in its present condition, including the cash flows expected upon retiring the
asset from service and its eventual sale (value in use).
The future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset or CGU.
The estimates regarding future cash flows are based on past experience with respect to this asset or similar assets (or CGUs), and on the Group’s best
possible assessments regarding the economic conditions that will exist during the remaining useful life of the asset or CGU.
The estimate of the future cash flows relies on the Group’s budget and other forecasts. Since the actual cash flows may differ, the recoverable amount
determined could change in subsequent periods, such that an additional impairment loss needs to be recognized or a previously recognized impairment loss
needs to be reversed.
3.
Fair value of derivative financial instruments
The Group is a party to derivative financial instruments used to hedge foreign currency risks, interest risks and price risks. The derivatives are recorded
based on their respective fair values. The fair value of the derivative financial instruments is determined using acceptable valuation techniques that
characterize the different derivatives, maximizing the use of observable inputs. Fair value measurement of long-term derivatives takes into account the
counterparties credit risks. Changes in the economic assumptions and/or valuation techniques could give rise to significant changes in the fair value of the
derivatives.
4.
Separation of embedded derivatives
Management of the Group exercises significant judgment in determining whether it is necessary to separate an embedded derivative from a host contract. If it
is determined that the embedded derivative is not closely related to the host contract and that it is necessary to separate the embedded derivative, this
component is measured separately from the host contract as a financial instrument at fair value through profit or loss. Otherwise, the entire instrument is
measured in accordance with the measurement principles applicable to the host contract.
Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss, as financing income or expenses.
5.
Income Taxes
Deferred tax assets are recorded in connection with unutilized tax losses, as well as with respect to deductible temporary differences. Since such deferred tax
assets may only be recognized where it is probable that there will be future taxable income against which said losses may be utilized, use of discretion by
management of the Group is required in order to assess the probability that such future taxable income will exist. Management’s assessment is re-examined
on a current basis and deferred tax assets are recognized if it is probable that future taxable income will permit recovery of the deferred tax assets.
F-17
Table of Contents
Note 3 – Significant Accounting Policies
The principal accounting policies applied in the preparation of these consolidated/ combined financial statements are set out below. The Group has
consistently applied the following accounting policies to all periods presented in these consolidated/ combined financial statements, unless otherwise stated.
A.
(1)
Basis for consolidation/ combination
Business combinations
The Group accounts for all business combinations according to the acquisition method.
The acquisition date is the date on which the Group obtains control over an acquiree. Control exists when the Group is exposed, or has rights, to variable
returns from its involvement with the acquiree and it has the ability to affect those returns through its power over the acquiree. Substantive rights held by the
Group and others are taken into account when assessing control.
The Group recognizes goodwill on acquisition according to the fair value of the consideration transferred less the net amount of the fair value of identifiable
assets acquired less the fair value of liabilities assumed.
If the Group pays a bargain price for the acquisition (meaning including negative goodwill), it recognizes the resulting gain in profit or loss on the
acquisition date.
Furthermore, goodwill is not adjusted in respect of the utilization of carry-forward tax losses that existed on the date of the business combination.
Costs associated with acquisitions that were incurred by the acquirer in the business combination such as: finder’s fees, advisory, legal, valuation and other
professional or consulting fees are expensed in the period the services are received.
(2)
Subsidiaries
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control is lost. The accounting policies of subsidiaries have been changed when necessary to align them with
the policies adopted by the Company.
The Company has no interest in structured entities as of December 31, 2015 and 2014.
(3)
Non-Controlling Interest (“NCI”)
NCI comprises the equity of a subsidiary or combined entity that cannot be attributed, directly or indirectly, to the parent company, and they include
additional components such as: share-based payments that will be settled with equity instruments of the subsidiaries and options for shares of subsidiaries.
NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Transactions
with
NCI,
while
retaining
control
Transactions with NCI while retaining control are accounted for as equity transactions. Any difference between the consideration paid or received and the
change in NCI is included in the directly in equity.
Allocation
of
comprehensive
income
to
the
shareholders
Profit or loss and any part of other comprehensive income are allocated to the owners of the Group and the NCI. Total comprehensive income is allocated to
the owners of the Group and the NCI even if the result is a negative balance of NCI.
Furthermore, when the holding interest in the subsidiary changes, while retaining control, the Group re-attributes the accumulated amounts that were
recognized in other comprehensive income to the owners of the Group and the NCI.
Cash flows deriving from transactions with holders of NCI while retaining control are classified under “financing activities” in the statement of cash flows.
F-18
Table of Contents
Note 3 – Significant Accounting Policies (Cont’d)
(4)
Loss of control
Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any NCI and the other components of equity related to the
subsidiary. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. The
difference between the sum of the proceeds and fair value of the retained interest, and the derecognized balances is recognized in profit or loss under other
income or other expenses. Subsequently, the retained interest is accounted for as an equity-accounted investee or as an available-for-sale asset depending on
the level of influence retained by the Group in the relevant company.
The amounts recognized in capital reserves through other comprehensive income with respect to the same subsidiary are reclassified to profit or loss or to
retained earnings in the same manner that would have been applicable if the subsidiary had itself realized the same assets or liabilities.
(5)
Investments in equity-accounted investees
The Group’s interests in equity-accounted investees comprise interests in associates and a joint-venture.
Associates are entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is
presumed to exist when the Group holds between 20% and 50% of another entity. In assessing significant influence, potential voting rights that are currently
exercisable or convertible into shares of the investee are taken into account.
Joint-venture is an arrangement in which the Group has joint control, whereby the Group has the rights to assets of the arrangement, rather than rights to its
assets and obligations for its liabilities.
Associates and joint-venture are accounted for using the equity method (equity accounted investees) and are recognized initially at cost. The cost of the
investment includes transaction costs. The consolidated financial statements include the Group’s share of the income and expenses in profit or loss and of
other comprehensive income of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that
significant influence commences until the date that significant influence ceases.
When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term interests
that form part thereof, is reduced to zero. When the Group’s share of long-term interests that form a part of the investment in the investee is different from its
share in the investee’s equity, the Group continues to recognize its share of the investee’s losses, after the equity investment was reduced to zero, according
to its economic interest in the long-term interests, after the aforesaid interests were reduced to zero. When the group’s share of losses in an associate equals
or exceeds its interest in the associate, including any long-term interests that, in substance, form part of the entity’s net investment in the associate, the
recognition of further losses is discontinued except to the extent that the Group has an obligation to support the investee or has made payments on behalf of
the investee.
(6)
Loss of significant influence
The Group discontinues applying the equity method from the date it loses significant influence in an associate and it accounts for the retained investment as a
financial asset, as relevant.
On the date of losing significant influence, the Group measures at fair value any retained interest it has in the former associate. The Group recognizes in
profit or loss any difference between the sum of the fair value of the retained interest and any proceeds received from the partial disposal of the investment in
the associate or joint venture, and the carrying amount of the investment on that date.
Amounts recognized in equity through other comprehensive income with respect to such associates are reclassified to profit or loss or to retained earnings in
the same manner that would have been applicable if the associate had itself disposed the related assets or liabilities.
(7)
Change in interest held in equity accounted investees while retaining significant influence
When the Group increases its interest in an equity accounted investee while retaining significant influence, it implements the acquisition method only with
respect to the additional interest obtained whereas the previous interest remains the same.
F-19
Table of Contents
Note 3 – Significant Accounting Policies (Cont’d)
When there is a decrease in the interest in an equity accounted investee while retaining significant influence, the Group derecognizes a proportionate part of
its investment and recognizes in profit or loss a gain or loss from the sale under other income or other expenses.
Furthermore, on the same date, a proportionate part of the amounts recognized in equity through other comprehensive income with respect to the same equity
accounted investee are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the associate had itself
realized the same assets or liabilities.
(8)
Intra-group Transactions
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains
arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee.
Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment
B.
(1)
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated into 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 translated into the functional currency at the exchange rate at that
date. Non-monetary items measured at historical cost would be reported using the exchange rate at the date of the transaction.
Foreign currency differences are generally recognized in profit or loss, except for differences relating to qualifying cash flow hedges to the extent the hedge
is effective which are recognized in other comprehensive income.
(2)
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into US dollars at
exchange rates at the reporting date. The income and expenses of foreign operations are translated into US dollars at exchange rates at the dates of the
transactions.
Foreign operation translation differences are recognized in other comprehensive income.
When the foreign operation is a non-wholly-owned subsidiary of the Group, then the relevant proportionate share of the foreign operation translation
difference is allocated to the NCI.
When a foreign operation is disposed of such that control or significant influence is lost, the cumulative amount in the translation reserve related to that
foreign operation is reclassified to profit or loss as a part of the gain or loss on disposal.
Furthermore, when the Group’s interest in a subsidiary that includes a foreign operation changes, while retaining control in the subsidiary, a proportionate
part of the cumulative amount of the translation difference that was recognized in other comprehensive income is reattributed to NCI.
The Group disposes of only part of its investment in an associate that includes a foreign operation, while retaining significant influence, the proportionate
part of the cumulative amount of the translation difference is reclassified to profit or loss.
Generally, foreign currency differences from a monetary item receivable from or payable to a foreign operation, including foreign operations that are
subsidiaries, are recognized in profit or loss in the consolidated financial statements.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned
nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognized in other comprehensive income,
and are presented within equity in the translation reserve.
F-20
Table of Contents
Note 3 – Significant Accounting Policies (Cont’d)
C.
Financial instruments
The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit and loss, held-to-maturity
financial assets, loans and receivables and available-for-sale financial assets.
The Group classifies non- financial liabilities into the other financial liabilities categories.
(1)
Non-derivative financial assets and financial liabilities – recognition and de-recognition
The Group initially recognizes loans and receivables and debt securities issued on the date that they are originated. All other financial assets and financial
liabilities are recognized initially on the trade date.
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the
contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership and does not retains control over the transferred asset.
Any interest in such derecognized financial asset that is created or retained by the Group is recognized as a separate asset or liability.
The Group derecognizes a financial liability when its contractual obligations are discharged, or cancelled or expire.
Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the
Group currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the
liability simultaneously.
(2)
Non-derivative financial assets – measurement
Financial assets at fair
value through profit and
loss
A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such
on initial recognition. Directly attributable transaction costs are recognized in profit or loss as incurred. Financial assets at
fair value through profit or loss are measured at fair value, and changes therein, including any interest or dividend income,
are recognized in profit or loss.
Held-to-maturity financial
assets
These assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial
recognition, they are measured at amortized cost using the effective interest method.
Loans and receivables
These assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial
recognition, they are measured at amortized cost using the effective interest method, less any impairment losses.
Available-for-sale
financial assets
These assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial
recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency
differences on debt instruments, are recognized in Other Comprehensive Income (“OCI”) and accumulated in the fair value
reserve. When these assets are derecognized, the gain or loss accumulated in equity is reclassified to profit or loss.
(3)
Non-derivative financial liabilities—Measurement
Non-derivative financial liabilities include loans and credit from banks and others, debentures, trade and other payables and finance lease liabilities.
Non-derivative financial liabilities are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these
liabilities are measured at amortized cost using the effective interest method.
(4)
Derivative financial instruments and hedge accounting
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures.
Derivatives are recognized initially at fair value; any directly attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial
recognition, derivatives are measured at fair value, and changes therein are generally recognized in profit or loss.
F-21
Table of Contents
Note 3 – Significant Accounting Policies (Cont’d)
(5)
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in OCI
and accumulated in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or
loss.
The amount accumulated in equity is retained in OCI and reclassified to profit or loss in the same period or periods during which the hedged item affects
profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then
hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the amount accumulated in equity is
reclassified to profit or loss.
(6)
Financial guarantees
A financial guarantee is initially recognized at fair value. In subsequent periods a financial guarantee is measured at the higher of the amount recognized in
accordance with the guidelines of IAS 37 Provisions,
Contingent
Liabilities
and
Contingent
Assets
and the liability initially recognized after being amortized
in accordance with the guidelines of IAS 18 Revenue
. Any resulting adjustment of the liability is recognized in profit or loss.
D.
Cash and Cash Equivalents
In the consolidated/ combined statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term
highly liquid investments with original maturities of three months or less.
E.
(1)
Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment comprise mainly power station structures, power distribution facilities and related offices. These items are measured
at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the
acquisition of the items.
• The cost of materials and direct labor;
• Any other costs directly attributable to bringing the assets to a working condition for their intended use;
• When the Group has an obligation to remove the assets or restore the site, an estimate of the costs of dismantling and removing the items and
restoring the site on which they are located; and
• Capitalized borrowing costs.
If significant parts of an item of property, plant and equipment items have different useful lives, then they are accounted for as separate items (major
components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss in the year the asset is derecognized.
(2)
Subsequent Cost
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Group, and its
cost can be measured reliably.
(3)
Depreciation
Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method
over their estimated useful lives, and is generally recognized in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful
lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.
F-22
Table of Contents
Note 3 – Significant Accounting Policies (Cont’d)
The following useful lives shown on an average basis are applied across the Group:
Roads, buildings and leasehold improvements
Installation, machinery and equipment:
Thermal power plants
Hydro-electric plants
Wind power plants
Power generation and electrical
Dams
Office furniture, motor vehicles and other equipment
Years
3 – 50
10 – 35
70 – 90
25
20
18
3 – 16
Depreciation methods, useful lives and residual values are reviewed by management of the Group at each reporting date and adjusted if appropriate.
F.
(1)
Intangible assets
Recognition and measurement
Goodwill
Research and
development
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. In respect of equity
accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment; and any
impairment loss is allocated to the carrying amount of the equity investee as a whole.
Expenditures on research activities is recognized in profit and loss as incurred.
Development activities involve expenditures incurred in connection with the design and evaluation of future power plant
projects before the technical feasibility and commercial viability is fully completed, however the Group intends to and has
sufficient resources to complete the development and to use or sell the asset.
At each reporting date, the management of the Group performs an evaluation of each project in order to identify facts and
circumstances that suggest that the carrying amount of the assets may exceed their recoverable amount.
Customer relationships
Intangible assets acquired as part of a business combination and are recognized outside of goodwill if the assets are separable
or arise from contractual or other legal rights and their fair value can be measured reliably. Customer relationships are
measured at cost less accumulated amortization and any accumulated impairment losses.
Other intangible assets
Other intangible assets, including licenses, patents and trademarks, which are acquired by the Group and have finite useful
lives are measured at cost less accumulated amortization and any accumulated impairment losses.
(2)
Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other
expenditure, including expenditure on internally generated goodwill is expensed as incurred.
(3)
Amortization
Amortization is calculated to write-off the cost of intangible assets less their estimated residual values using the straight-line method over their useful lives,
and is generally recognized in profit or loss. Goodwill is not amortized.
F-23
Table of Contents
Note 3 – Significant Accounting Policies (Cont’d)
The estimated useful lives for current and comparative year are as follows:
• Customer relationships
• Technology
• Software costs
• Others
1-12 years
5 years
5 years
5-27 years
Amortization methods and useful lives are reviewed by management of the Group at each reporting date and adjusted if appropriate.
G.
(1)
Leases
Determining whether an arrangement contains a lease
At inception of an arrangement, management of the Group determines whether the arrangement is or contains a lease. At inception or on reassessment of an
arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for
the other elements on the basis of their relative fair values. If the Group concludes for a finance lease that is impracticable to separate the payments reliably,
then an asset and a liability are recognized at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are
made and an imputed finance cost on the liability is recognized using the Group’s incremental borrowing rate.
(2)
Leased assets
Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The
leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to
initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.
Asset held under other leases are classified as operating leases and are not recognized in the Group’s consolidated statement of financial position.
(3)
Lease payments
Payments made under operating leases, other than conditional lease payments, are recognized in profit or loss on a straight-line basis over the term of the
lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance
expense is allocated to each period during the lease term so as to produce a constant periodic rate if interest on the remaining balance of the liability.
H.
Inventories
Inventories are measured at the lower of cost and net realizable value. Inventories consist of fuel, spare parts, materials and supplies. Cost is determined by
using the average cost method.
I.
Trade Receivable
Trade receivables are amounts due from customers for the energy and capacity in the ordinary course of business. If collection is expected in one year or less
(or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
J.
Borrowing costs
Specific and non-specific borrowing costs are capitalized to qualifying assets throughout the period required for completion and construction until they are
ready for their intended use. Non-specific borrowing costs are capitalized in the same manner to the same investment in qualifying assets, or portion thereof,
which was not financed with specific credit by means of a rate which is the weighted-average cost of the credit sources which were not specifically
capitalized. Foreign currency differences from credit in foreign currency are capitalized if they are considered an adjustment of interest costs. Other
borrowing costs are expensed as incurred.
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Note 3 – Significant Accounting Policies (Cont’d)
K.
(1)
Impairment
Non-derivative financial assets
Financial assets not classified as at fair value through profit or loss, including an interest in an equity- account investee, are assessed by management of the
Group at each reporting date to determine whether there is objective evidence of impairment.
Objective evidence that financial assets are impaired includes:
• Default or delinquency by a debtor;
• Restructuring of an amount due to the Group on terms that the Group would not consider otherwise;
• Indications that a debtor or issuer will enter bankruptcy;
• Adverse changes in the payment status of borrowers or issuers;
• The disappearance of an active market for a security; or
• Observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets.
For an investment in an equity security, objective evidence of impairment includes a significant or prolonged decline in its fair value below its cost.
Financial Assets
measured at
amortized costs
The Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually
significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any
impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively
assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics.
In assessing collective impairment, the group uses historical information on the timing of recoveries and the amount of loss incurred,
and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser
than suggested by historical trends.
An impairment loss is calculated as the difference between an asset’s carrying amount and the present value of the estimated future
cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in an
allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are
written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring
after the impairment was recognized, then the previously recognized impairment loss is reversed through profit or loss.
Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses accumulated in the fair value
reserve to profit or loss. The amount reclassified is the difference between the acquisition cost (net of any principal repayment and
amortization) and the current fair value, less any impairment loss previously recognized in profit or loss. If the fair value of an
impaired available-for-sale debt security subsequently increases and the increase can be related objectively to an event occurring
after the impairment loss was recognized, then the impairment loss is reversed through profit or loss; otherwise, it is reversed through
OCI
Available-for-sale
financial assets
Equity-account
investees
An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment
with its carrying amount. An impairment loss is recognized in profit or loss, and is reversed if there has been a favorable change in
the estimates used to determine the recoverable amount and only to the extent that the investment’s carrying amount, after the
reversal of the impairment loss, does not exceed the carrying amount of the investment that would have been determined by the
equity method if no impairment loss had been recognized.
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Note 3 – Significant Accounting Policies (Cont’d)
(2)
Non-financial Assets
At each reporting date, management of the Group reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to
determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested
annually for impairment or whenever impairment indicators exist.
For impairment testing, assets are grouped together into smallest group of assets that generates cash inflows from continuing use that are largely independent
of the cash inflows of other assets or CGU. Goodwill arising from a business combination is allocated to CGUs or group of CGUs that are expected to
benefit from these synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future
cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset or CGU.
An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to
reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an assessment is performed at each reporting date for any indications that these
losses have decreased or no longer exist. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount
and is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortization, if no impairment loss had been recognized.
L.
(1)
Employee benefits
Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group
has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be
estimated reliably. The employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits depending on
when the Group expects the benefits to be wholly settled.
(2)
Bonus plans transactions
The fair value of amount payable to employees in respect of Share Appreciation Rights (“SARs”), which are settled in cash, is recognized as an
expense with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to payment. The
liability is remeasured at each reporting date and at settlement date based on the fair value of the SARs. Any changes in the liability are recognized in
profit or loss.
I.C Power’s senior executives receive remuneration in the form of SARs, which can only be settled in cash (cash-settled transactions). The cost of
cash-settled transactions is measured initially at the grant date. With respect to grants made to the I.C. Power’s senior executives, or the executives of
certain of the I.C Power’s subsidiaries, this benefit is calculated by dividing the price paid by the Former Parent Company for Inkia ($543 million) by
the number of Inkia shares outstanding on the grant date and is expensed over the period until the vesting date with recognition of a corresponding
liability. With respect to grants made to OPC Rotem Ltd’s (“OPC”) senior executives, this benefit is calculated by determining the present value of the
settlement (execution) price set forth in the plan. The liability is re-measured at each reporting date and at the settlement date based on the formulas
described above. Any changes in the liability are recognized as operating expenses in profit or loss. For further information on the characteristics of
the SARs provided to certain of the I.C Power’s senior executives, see Note 17(c).
F-26
Table of Contents
Note 3 – Significant Accounting Policies (Cont’d)
(3)
Termination Benefits
Severance pay is charged to income statement when there is a clear obligation to pay termination of employees before they reach the customary age of
retirement according to a formal, detailed plan, without any reasonable chance of cancellation, The benefits given to employees upon voluntary
retirement are charged when the Group proposes a plan to the employees encouraging voluntary retirement, it is expected that the proposal will be
accepted and the number of employee acceptances can be estimated reliably.
(4)
Defined Contribution Plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no
legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an
employee benefit expense in profit or loss in the periods during which related services are rendered by employees.
(5)
Share-based compensation plans
Qualifying employees are awarded grants of the Company’s shares under the Company’s 2014 Share Incentive Plan. The fair value of the grants are
recognized as an employee compensation expense, with a corresponding increase in equity. The expense is amortised over the service period – the
period that the employee must remain employed to receive the benefit of the award. At each balance sheet date, the Company revises its estimates of
the number of grants that are expected to vest. It recognises the impact of the revision of original estimates in employee expenses and in a
corresponding adjustment to equity over the remaining vesting period.
M.
Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation it is probable that an outflow of economic
benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
N.
(1)
Revenue recognition
Revenue from electricity
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue
comprises the fair value for the sale of electricity, net of value-added-tax (“VAT”), rebates and discounts and after eliminating sales within the Group.
Revenues from the sale of energy are recognized in the period during which the sale occurs. The revenues from the generation business are recorded based
upon output delivered and capacity provided at rates specified pursuant to Power Purchase Agreements (“PPAs”), or at marginal costs determined on the spot
market, if the sales are made on the spot market.
Revenues are determined substantially by long-term, U.S. dollar-linked PPAs. PPAs are usually entered into at prices that are equivalent to, or higher than,
the prevailing spot market rates, the majority of which are indexed to the underlying fuel cost of the related long-term supply agreements. Under the terms of
the majority of our PPAs, the power purchaser is contractually obligated to purchase its energy requirements, and sometimes capacity and/or ancillary
services, from the power generator based upon a base price (denominated either in U.S. Dollars or in the local currency) that is generally adjusted for a
combination of some of the following: (1) fluctuations in exchange rates, (2) the U.S. inflation index, (3) a local inflation index, (4) fluctuations in the cost of
operating fuel, (5) supply costs of natural gas, and (6) transmission costs. Additionally, in Peru, PPAs include provisions that change the contractual unitary
energy prices in the case of an interruption of the supply or transportation of natural gas through the use of a methodology based on spot prices existing on
the dates in which the interruption event occurred. Many of the prices in our PPAs differentiate between peak and off-peak periods. As of December 31,
2015, the weighted average remaining life of our PPAs based on firm capacity was 10 years (including the remaining life of the PPAs for our assets in
advanced stages of construction: Cerro del Aguila (“CDA”), Samay I and Kanan).
F-27
Table of Contents
Note 3 – Significant Accounting Policies (Cont’d)
(2)
Revenue from shipping services and related expenses (in associated company)
Revenue from cargo traffic is recognized in profit or loss in proportion to the stage of completion of the transaction at the balance sheet date. The stage
of completion is assessed for each cargo by the reference to the time-based proportion. The operating expenses related to cargo traffic are recognized
immediately as incurred. If the incremental expenses related to the cargo exceed the related revenue, the loss is recognized immediately in income
statement.
(3)
(i)
Revenue from vehicles (in associated company)
Sales of vehicles
Revenue from the sale of vehicles in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of
VAT or other sales taxes, returns or allowances, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually
in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customers, recovery of the
consideration is probable, the associated costs and possible return of vehicles can be estimated reliably, there is no continuing management
involvement with the goods, and the amount of revenue can be measured reliably.
(ii)
Rental income of vehicles
Rental income from operating leases is recognized as revenue on a straight-line basis over the term of the lease. Lease incentives granted are
recognized as an integral part of the total rental income, over the term of the lease.
(iii) Licensing income
License fee and royalties received for the use of the Group’s assets (such as platform technology and patent) are normally recognized in accordance
with the substance of the agreement on a straight-line basis over the life of the platform.
(4)
Revenue from biodiesel
Revenues are recorded if the material risks and rewards associated with ownership of the goods/merchandise sold have been assigned to the buyer.
This usually occurs upon the delivery of products and merchandise.
Revenue is recorded to the extent that it is probable that the economic benefits will flow to the Group and the amount of the revenues can be reliably
measured.
O.
Financing Income and Expenses
Financing income includes income from interest on amounts invested and gains from exchange rate differences. Interest income is recognized as accrued,
using the effective interest method.
Financing expenses include interest on loans received, commitment fees on borrowings, and changes in the fair value of derivatives financial instruments
presented at fair value through profit or loss, and exchange rate losses. Borrowing costs, which are not capitalized, are recorded in the income statement
using the effective interest method.
In the statements of cash flows, interest received is presented as part of cash flows from investing activities. Dividends received are presented as part of cash
flows from operating activities. Interest paid and dividends paid are presented as part of cash flows from financing activities. Accordingly, financing costs
that were capitalized to qualifying assets are presented together with interest paid as part of cash flows from financing activities. Gains and losses from
exchange rate differences and gains and losses from derivative financial instruments are reported on a net basis as financing income or expenses, based on
the fluctuations on the rate of exchange and their position (net gain or loss).
P.
Income Taxes
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items
recognized directly in equity or in OCI.
F-28
Table of Contents
Note 3 – Significant Accounting Policies (Cont’d)
(i) Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in
respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax liability
arising from dividends.
Current tax assets and liabilities are offset only if certain criteria are met.
(ii) Deferred tax
Deferred tax is recognized 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 recognized 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 associates where the Group is able to control the timing of the reversal of the temporary
differences and it is not probable that they will reverse it in the foreseeable future; and
• Taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognized for unused tax losses, unused 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 used. 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 realized; such reductions are reversed when the probability of future taxable profit improves.
Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will
be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively
enacted at 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 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 realized simultaneously.
Management of the Group regularly reviews its deferred tax assets for recoverability, taking into consideration all available evidence, both positive and
negative, including historical pre-tax and taxable income, projected future pre-tax and taxable income and the expected timing of the reversals of existing
temporary differences. In arriving at these judgments, the weight given to the potential effect of all positive and negative evidence is commensurate with the
extent to which it can be objectively verified.
Management believes the Group’s tax positions are in compliance with applicable tax laws and regulations. Tax benefits are recognized only for tax
positions that are more likely than not to be sustained upon examination by tax authorities. The Group believes that its liabilities for unrecognized tax
benefits, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts
ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could
have a material impact on our tax provision, net income and cash flows.
(iii) Uncertain tax positions
A provision for uncertain tax positions, including additional tax and interest expenses, is recognized when it is more probable than not that the Group will
have to use its economic resources to pay the obligation.
Q.
Earnings per share
The Group presents basic and diluted earnings per share data for its ordinary share capital. The basic earnings per share are calculated by dividing income or
loss allocable to the Group’s ordinary equity holders by the weighted-average number of ordinary shares outstanding during the period. The diluted earnings
per share are determined by adjusting the income or loss allocable to ordinary equity holders and the weighted-average number of ordinary shares
outstanding for the effect of all potentially dilutive ordinary shares including options for shares granted to employees.
F-29
Table of Contents
Note 3 – Significant Accounting Policies (Cont’d)
R.
Share Capital – Ordinary Shares
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognized as a deduction from equity.
Distribution of Non-Cash Assets to owners of the Company
The Group measures a liability to distribute non-cash assets as a dividend to the owners of the Group at the fair value of the assets to be distributed. The
carrying amount of the dividend is remeasured at each reporting date and at the settlement date, with any changes recognized directly in equity as
adjustments to the amount of the distribution. On settlement of the transaction, the Group recognized the difference, if any, between the carrying amounts of
the assets distributed and the carrying amount of the liability in profit or loss. Distribution of non-cash assets are distributed to shareholders when the
shareholder is given a choice of taking cash in lieu of the non-cash assets.
S.
Discontinued operation
A discontinued operation is a component of the Group´s business, the operations and cash flows of which can be clearly distinguished from the rest of the
Group and which:
• Represents a separate major line of business or geographic area of operations,
• Is part of a single coordinated plan to dispose of a separate major line of business or geographic area of operations; or
• Is a subsidiary acquired exclusively with a view to re-sell.
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale. When an
operation is classified as a discontinued operation, the comparative statement of profit or loss and other comprehensive income is re-presented as if the
operation had been discontinued from the start of the comparative year.
In the cash flow, the cash balance from discontinued operation is disclosed in a separate line. The changes based on operating, investing and financing
activities are reported in Note 27.
T.
Transactions with Controlling Shareholders
Assets, liabilities and benefits with respect to which a transaction is executed with the controlling shareholders are measured at fair value on the transaction
date. The Group records the difference between the fair value and the consideration in equity.
U.
Standards required to be applied in Later Periods
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2016, and have not
been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial
statements of the Group, except the following set out below:
1)
2)
International Financial Accounting Standard IFRS 9 (2014) “ Financial
Instruments
” – replaces the existing guidance in IAS 39 Financial
Instruments:
Recognition
and
Measurement
. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new
expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the
guidance on recognition and derecognition of financial instruments from IAS 39.
The Standard is to be applied for annual periods commencing on or after January 1, 2018, with the possibility of early adoption. The Standard is to be
applied retroactively, except in a number of circumstances. Management of the Group is examining the effects of IFRS 9 (2014) on the financial
statements with no plans for early adoption.
International Financial Accounting Standard IFRS 15 “Revenues
from
Contracts
with
Customers”
– the Standard replaces the presently existing
guidelines regarding recognition of revenue from contracts with customers and provides two approaches for recognition of revenue: at one point in
time or over time. The model includes five stages for analysis of transactions in order to determine the timing of recognition of the revenue and the
amount thereof. In addition, the Standard provides new disclosure requirements that are more extensive that those currently in effect.
F-30
Table of Contents
Note 3 – Significant Accounting Policies (Cont’d)
The Standard is to be applied for annual periods commencing on January 1, 2018, with the possibility of early adoption. The Standard includes various
alternatives with respect to the transitional rules, such that companies may choose one of the following alternatives when applying the Standard for the
first time: full retroactive application, full retroactive application with practical relaxations or application of the Standard commencing from the initial
application date, while adjusting the balance of the retained earnings as at this date for transactions that have not yet been completed. Management of
the Group has not yet commenced examining the impacts of adoption of the Standard on its financial statements.
3)
International Financial Accounting Standard IFRS 16 “ Leases
” The standard replaces IAS 17 – Leases and its related interpretations. The
standard’s instructions annul the existing requirement from lessees to classify leases as operating or finance leases. Instead of this, for lessees, the new
standard presents a unified model for the accounting treatment of all leases according to which the lessee has to recognize an asset and liability in
respect of the lease in its financial statements. Similarly, the standard determines new and expanded disclosure requirements from those required at
present. The standard will become effective for annual periods commencing on or after January 1, 2019, with the possibility of early adoption, so long
as the Group has also early adopted IFRS 15 – Revenue from contracts with customers. The standard includes a number of alternatives for the
implementation of transitional provisions, so that companies can choose one of the following alternatives at the implementation date: full retrospective
implementation or implementation from the effective date while adjusting the balance of retained earnings at that date. Management of the Group has
not yet commenced examining the effects of adopting the amendments on the financial statements.
There are no other IFRSs or International Financial Reporting Interpretations Committee (“IFRIC”) interpretations that are not yet effective that would be
expected to have a material impact on the Group.
Note 4 – Determination of Fair Value
As part of its accounting policies and disclosure requirements, management of the Group is required to determine the fair value of both financial and non-
financial assets and liabilities. The fair values have been determined for purposes of measurement and/or disclosure based on the following methods.
Additional information regarding the assumptions used in determining the fair values is disclosed in the notes relating to that asset or liability. A number of
the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
The Group has an established control framework with respect to the measurement of fair values.
When relevant observable market data does not exist, or when observable inputs require significant adjustment based on unobservable inputs, fair values are
determined using a valuation technique based primarily on the Company’s internal assumptions about future cash flows and appropriately risk-adjusted
discount rates. Regardless of the valuation technique used, that technique should not ignore relevant information and reflect appropriate risk adjustments that
market participants would make for credit and liquidity risks.
Based on each valuation scenario, management of the Group will decide on the use of observable transaction prices to the extent they represent the fair value
of the instrument and consider using unobservable inputs when it is more appropriate than using observable inputs. If they do not represent the fair value of
the instrument, and significant adjustments need to be made to the observable transaction prices, it might be more appropriate for the Group to use a
valuation technique based on unobservable inputs.
In other scenarios, multiple inputs from different sources may collectively provide the best evidence of fair value with the expected cash flows considered
alongside such information. The weighting of these inputs in the fair value measurement would depend on the extent to which they provide information
about the fair value of the instrument and are relevant in developing a reasonable estimate of fair value.
A.
Cash Generating Unit for impairment testing
See Note 14.C.
B.
Derivatives
See Note 30 regarding “Financial Instruments”.
F-31
Table of Contents
C.
Non-derivative financial liabilities
Non-derivative financial liabilities are measured at their respective fair values, at initial recognition and for disclosure purposes, at each reporting date. Fair
value for disclosure purposes, is determined based on the quoted trading price in the market for traded debentures, whereas for non-traded loans, debentures
and other financial liabilities is determined by discounting the future cash flows in respect of the principal and interest component using the market interest
rate as at the date of the report.
Note 5 – Cash and Cash Equivalents
Cash in banks
Time deposits (a)
Cash and cash equivalents for purposes of the statement of cash flows
As at December 31
2014
2015
US$ thousands
277,442
106,511
383,953
420,391
189,665
610,056
(a)
Time deposits corresponds to short-term investments made for periods ranging from one day to three months, depending on immediate cash requirements of
the Group, and earn interest at short-term deposit rates in US Dollars and other currencies ranging from 0.23% to 10.55% per annum.
The Group’s exposure to credit risk, interest rate risk and currency risk and a sensitivity analysis with respect to the financial assets and liabilities is detailed in
Note 30 “Financial Instruments”.
Note 6 – Short-Term investments and deposits
Short-term bank deposits (a)
Restricted Cash (b)
Other
As at December 31
2014
2015
US$ thousands
50,000
251,955
301,955
6,747
308,702
119,915
88,330
208,245
18,585
226,830
(a)
(b)
Corresponds to 180-day time deposits set by Inkia Americas Holdings Ltd from the proceeds of the Inkia Holdings Limited (“Acter sale”) (See Note 10.C.d).
Corresponds to amounts held in escrow accounts as collateral for loans and contractual obligations, such as debt service reserve accounts and time deposits
that guarantee letters of credit. These amounts held in escrow earn interest at market interest rates of 0.03% to 6.2%. This is comprising mainly of:
(i) $117,395 thousand, I.C. Power Distribution Holdings Pte. Ltd.’s reserve for the acquisition of four acquired businesses (“Energuate”) (See Note 32.C.2);
and, (ii) $50,231 thousand, OPC’s guarantee for the amortization of mezzanine Loan-Tranche A under ICPI.
Note 7 – Trade Receivables, Net
Trade Receivables
Less – allowance for doubtful debts
F-32
As at December 31
2014
2015
US$ thousands
123,377
(104)
123,273
194,337
(12,979)
181,358
Table of Contents
Note 8 – Other Current Assets
Government agencies (a)
Insurance recoveries (b)
Advances to suppliers
Prepaid expenses
Other receivables
As at December 31
2014
2015
US$ thousands
23,267
3,944
306
9,489
8,254
45,260
31,848
8,040
26
10,922
8,228
59,064
a.
b.
The balance corresponds mainly to the VAT incurred in the construction of CDA and Samay I (“Puerto Bravo”) projects. Both projects have the tax benefit
of recovering the VAT incurred during the construction stage on a regular basis.
As of December 31, 2015, the amount comprises of receivables recorded in Amayo II and Cobee in connection with their insurance claims for business
interruption and property damage of $ 1,615 thousand and $ 2,329 thousand, respectively ($8,040 thousand relates mainly to Amayo II insurance claims in
relation to the damage of three wind towers in 2014).
Note 9 – Inventories
Fuel (a)
Spare parts (b)
As at December 31
2014
2015
US$ thousands
5,786
44,565
50,351
11,873
43,462
55,335
a.
b.
The plants in El Salvador, Nicaragua, Guatemala, Jamaica and Dominican Republic consume heavy fuel and the plants in Chile consume diesel for the
generation of electric energy. These plants purchase fuel in the international market and import it into the respective countries taking into considerations
transportation costs and timeliness of purchases, demand and supply of the market.
Corresponds to spare parts held in storage to be used in maintenance work.
During 2015, the Group recognized fuel inventory write-downs to net realizable value of $623 thousand in cost of sales ($1,991 thousand and $558 thousand
during 2014 and 2013 respectively).
F-33
Table of Contents
Note 10 – Investment in Associated Companies
A.
1.
Condensed information regarding significant associated companies
Condensed financial information with respect to the statement of financial position
Principal place of business
Proportion of ownership interest
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Non-controlling interests
Total net assets attributable to the Group
Share of Group in net assets
Adjustments:
Excess cost
Loans
Non-controlling interests
Others
Book value of investment
ZIM**
2015
2014
International
32%
32%
Tower***
As at December 31
2014
US$ thousands
International
29%*
Qoros****
2015
2014
China
50%
50%
616,279
(610,933)
762,507
1,296,035 1,393,767
(788,626)
(1,222,639) (1,288,258)
(7,118)
72,272
(3,976)
74,766
394,084 235,084
342,357
479,650 1,430,156 1,467,668
(325,947) (888,354) (1,005,603)
(664,034)
(412,335) (746,740)
—
—
140,388
30,146
9,418
144,870
23,925
23,127
42,012
15,073
70,194
177,360
—
—
—
201,285
167,942
—
—
—
191,069
4,524
—
— 109,393
—
34,263
14,061 158,729
(32,475)
—
—
129,134
—
21,710
221,038
The ownership percentage assumes the impact of the conversion of convertible capital notes and shares.
Became an associate in 2014 (See Note 10.C.a).
Distributed as dividend-in-kind in July 2015 (See Note 10.C.c).
*
**
***
**** Qoros is a joint venture (See Note 10.C.b). The current assets include cash and cash equivalent of $39,610 thousand (2014: $121,215 thousand). The
current and non-current liabilities excluding trade and other payables and provisions amount to $1,229,166 thousand (2014: $1,210,875 thousand).
F-34
Table of Contents
Note 10 – Investment in Associated Companies (Cont’d)
2.
Condensed financial information with respect to results of operations
ZIM*
Tower**
Qoros****
Generandes***
For the year ended December 31
2015
2014
2015
2014
2013
US$ thousands
2015
2014
2013
2014
2013
Revenues
2,991,135 1,667,107 461,778 828,008 505,009 232,114 138,260
Income (loss)
Other comprehensive income (loss)
Total comprehensive income (loss)
Kenon’s share of comprehensive income (loss)
Adjustments
Kenon’s share of comprehensive income (loss) presented in the
2,253
(1,948)
305
98
9,418
(72,515)
(70,116)
(22,437)
9,665
2,399 —
2,170 193,000 512,685
(737) 24,723 (108,786) (392,427) (349,612) (255,420) 29,628 85,855
(25) 21,990 — —
(737) 16,436 (121,437) (392,446) (349,637) (233,430) 29,628 85,855
4,696 (38,860) (196,223) (174,818) (116,715) 11,554 33,483
(189)
(3,394)
(609) 13,687
(8,287) (12,651)
7,852
—
—
(19)
(12)
12
books
9,516
(12,772)
(798) 18,383 (31,008) (196,223) (174,806) (116,715) 11,542 30,089
Became an associate in 2014, hence, results of operations for 2013 is not presented (See Note 10.C.a).
Distributed as dividend-in-kind in July 2015 (see Note 10.C.c). Results of operations for the current period are for the six months ended June 30, 2015.
Sold in 2014. (See Note 10.C.e)
*
**
***
**** Qoros is a joint venture (See Note 10.C.d). The depreciation and amortization, interest income, interest expense and income tax expenses recorded by
Qoros during the year were $74,509 thousand, $2,109 thousand, $2,137 thousand and $92 thousand (2014: $32,465 thousand, $2,804 thousand, $35,224
thousand and $86 thousand; 2013: $7,853 thousand, $2,951 thousand, $3,483 thousand and $32 thousand) respectively.
F-35
Table of Contents
Note 10 – Investment in Associated Companies (Cont’d)
B.
Associated companies that are individually immaterial
C.
a.
1.
Book value of investments as at December 31
Share of Group in income
Share of Group in other comprehensive (loss)/income
Share of Group in total comprehensive (loss)/income
Additional information
ZIM
Associated Companies
As at December 31
2014
US$ thousands
9,615
2015
9,008
2013
123
—
123
8,334
(10,398)
(2,064)
2,348
2,375
4,723
Upon completion of the debt arrangement in ZIM, on July 16, 2014, the Group declined to a rate of holdings of 32% of ZIM’s equity and as a result it
ceased to control ZIM. Commencing from this date, IC presents its investment in ZIM as an associated company. ZIM’s results up to the completion
date of the debt arrangement, together with the income due to loss of control and the loss due to waiving all ZIM’s debts, were presented separately in
the consolidated profit and loss statements in the category “profit for the year from discontinued operations”.
ZIM’s debt restructuring, which was completed on July 16, 2014 (“the effective date of the restructuring”), involved representatives of the majority of
ZIM’s financial creditors, related parties and additional stakeholders. As a result of the restructuring, among other things, ZIM’s outstanding
indebtedness and liabilities (face value, including future commitments in respect of operating leases, and with regard to those parties participating in
the restructuring) were reduced from approximately $ 3.4 billion to approximately $ 2 billion.
As part of this restructuring the financial creditors and ship owners received shares amounting, in aggregate, to 68% of ZIM’s issued share capital
(post-restructuring, after IC’s investment in ZIM as set forth in (1) below). All of ZIM’s existing shares and options, including any such shares held by
IC, became null and void.
IC’s participation in the restructuring is as follows:
1.
2.
3.
IC invested an amount of $200 million in ZIM’s share capital, such that following the completion of the restructuring IC holds
approximately 32% of ZIM’s issued share capital. This investment will be transferred to Kenon; and
IC waived and discharged all ZIM’s liabilities towards it. Such liabilities arose mainly from the 2009 restructuring of ZIM and
comprised subordinated debt with a nominal face value of $240 million.
A waiver in the amount of approximately $12 million (NIS 45 million) deferred debt owed by IC to ZIM in connection with a certain
derivative claim shall be terminated, although the debt will be reinstated if the court determines that the waiver was not valid. In such
an event, the debt would be repaid following the full repayment of debts under the restructuring (Tranche A, the Series C Notes, the
Series D Notes and Tranche E); and
IC has further agreed to provide a receivable-backed credit line of $50 million (“IC’s credit line obligation”) for a period of two years
as of the restructuring date. It was also agreed that IC has the right to terminate IC’s credit line obligation following the lapse of nine
months from the restructuring date (i.e., April 15, 2015) if certain conditions set forth in the respective agreement were not met. This
credit line was not transferred to Kenon.
F-36
Table of Contents
Note 10 – Investment in Associated Companies (Cont’d )
In addition, all previous covenants were cancelled and a new set of financial covenants was agreed as follows:
(i)
(ii)
Minimum
Liquidity
: ZIM is required to meet monthly minimum liquidity (including amounts held in the reserve account available for general
corporate purposes) in an amount of at least $125 million (tested on the last business day of each calendar month).
Fixed
Charge
Cover
: ZIM is required to have a certain Fixed Charge Cover ratio, which is defined as Consolidated EBITDAL to Fixed
Charges. EBITDAL means Consolidated EBITDA (ZIM’s Consolidated EBITDA after certain adjustments as specifically defined in the
facility agreements), after adding back charter hire lease costs. Fixed Charges mean mainly cash interest, scheduled repayments of
indebtedness and charter hire lease costs.
This ratio will gradually increase from 1.02:1 on December 31, 2015 to 1.07:1 on December 31, 2018 (based on the previous twelve-month
periods). Ratio levels will be tested quarterly from December 31, 2015;
(iii)
Total
Leverage
: ZIM is required to have a certain Total Leverage ratio, which is defined as Total Debt to Consolidated EBITDA. This ratio
will gradually decrease from 8.8:1 on June 30, 2015 to 4.9:1 on December 31, 2018 (based on the previous twelve-month periods). Ratio
levels will be tested quarterly from June 30, 2015.
During 2015, due to deteriorating market conditions, ZIM obtained amendments to the financial covenants described above, valid as from
September 30, 2015. Following the balance sheet date, as a result of further deterioration in the market, ZIM obtained further amendments valid from
March 31, 2016 through (and including) December 31, 2017. Accordingly, below are the current financial covenants that is required of ZIM:
1)
Fixed Charge Cover ratio – During 2016 and through (and including) September 30, 2016 all prior requirements are waived. On December 31,
2016 and as of each quarter end during 2017, ZIM will be required to stand a minimum Fixed Charge Cover ratio ranging from 0.82 to 0.84.
During 2018, the required ratio will gradually increase from 0.96:1 to 0.99:1 and remain in that level thereafter.
2)
Total Leverage ratio – During 2016, and through (and including) September 30, 2016 all prior requirements are waived. On December 31,
2016 and as of each quarter end during 2017, ZIM will be required to stand a maximum Total Leverage ratio ranging from 17.17:1 to 11.73:1.
During 2018, the required ratio will gradually decrease from 7.68:1 to 6.64:1 and remain in that level thereafter.
3)
Minimum Liquidity – This covenant was amended as from March 31, 2016 to include all cash and cash equivalents available to ZIM without
any restrictions, in addition, during 2016 and through (and including) September 30, 2016 ZIM will be required to stand a minimum liquidity
of $ 150 million. Starting December 31, 2016 the minimum Liquidity required will be reinstated at $ 125 million.
Under these amendments, it was also determined that if ZIM’s performance improves and certain conditions are met, the Fixed Cover ratio levels and
the Total Leverage ratio levels, as agreed at the restructuring, will be reinstated.
As at December 31, 2015, ZIM is in compliance with its financial covenants. According to its consolidated financial statements, ZIM’s liquidity
amounts to $220 million (Minimum Liquidity required is $ 125 million), the Fixed Charge Cover ratio amounts was 1.01:1 (Fixed Charge cover as at
December 31, 2015 should not be lower than 0.94:1) and the Total Leverage ratio was 6.85:1 (Total Leverage ratio as at December 31, 2015 should
not exceed 10.28:1).
Furthermore, ZIM is obligated under the Tranche A agreements to have a committed receivable-backed credit facility either from IC or from an alternative
source for a period of two years as of the restructuring date (“the period”). During 2015, agreements were amended to allow ZIM to arrange the alternative
credit facility for the period by September 30, 2015 instead of April 15, 2015.
F-37
Table of Contents
Note 10 – Investment in Associated Companies (Cont’d )
On April 15, 2015, IC’s credit line obligation was terminated. However, during the reported period, Tranche A agreements were amended to allow
ZIM to arrange the alternative credit facility by September 30, 2015 instead of April 15, 2015. In 2015, the alternative facility was concluded.
In the opinion of ZIM management, and its Board of Directors, the updated forecast enables ZIM to meet its liabilities and operational needs and to
comply with the new set of financial covenants for a period of at least 12 months after the balance sheet date.
Execution of IC’s part in the restructuring (as described above) was subject, inter alia, to updating the terms of the Special State Share, such that it will
not restrict the transfer of ZIM’s shares and will not prevent completion of the restructuring with all its conditions due to the restrictions provided by
the Special State Share relating to the holding of a minimum fleet of ships owned by ZIM.
Upon completion of the debt arrangement in ZIM, on July 16, 2014, IC ceased to control ZIM and, therefore, in the third quarter of 2014 IC recorded
income in the amount of $796 million as a result of loss of control of ZIM and presentation of its investment in ZIM as an associated company based
on its fair value as derived from the amount of IC’s investment in ZIM’s equity in accordance with the arrangement, and also recorded a loss of $187
million due to IC’s waiver of all of ZIM’s debts, as noted above. The resulting amount of the income created, in the amount of $609 million, as stated,
was presented in the statement of profit and loss in the category “profit for the year from discontinued operations”.
As part of the debt arrangement, as stated above, IC invested $200 million in the shareholders’ equity of ZIM. Based on a PPA (purchase price
allocation) study made by an external appraiser, the excess cost was allocated, primarily, as follows: negative excess cost to ships, in the amount of
$104 million, negative excess cost in respect of unfavorable operating lease contracts, in the amount of $39 million, positive excess cost in respect of
containers and equipment, in the amount of $30 million, positive excess cost in respect of a brand name, in the amount of $80 million, and goodwill, in
the amount of $219 million.
2.
Following the recent trends in the shipping industry, in particular the decline in freight rates that also have an adverse effect on ZIM’s results, Kenon
performed a valuation of its 32% equity investment in ZIM as of December 31, 2015 in accordance with IAS 36 Impairment
of
Assets
and IAS 28
Investments
in
Associates
. Kenon concluded that, as of December 31, 2015, the recoverable amount of its investment in ZIM exceeded the carrying
amount and, therefore, Kenon did not recognize an impairment in its financial statements in respect of its investment in ZIM.
For the purposes of management’s impairment evaluation of the Group’s investment, ZIM, which operates integrated network liner activity, has one
CGU, which consists of all of ZIM’s assets. The recoverable amount is based on the higher of the value in use and the fair value less costs to sell
(“FVLCTS”). The valuation is predominantly based on publically available information and set of accounts as at December 31, 2015.
ZIM’s valuation was based on a variety of valuation multiples that is applicable to ZIM’s peers in the wider container shipping industry and the extent
these multiples are applicable to ZIM.
• Applying an increase to the mid-point analysis of 2014 Valuation, which was based on detailed cash flow forecast for 5 years based upon ZIM’s
business plan with other factors like bunker price, freight rates, average Twenty-Foot Equivalent Unit (“TEU”) chartered rates and long-term
growth.
• Application of EBITDA multiple range of 10.5x to 11.5x to the normalized EBITDA of $170 million where the multiples used are within the lower
range of peers;
• Share prices: according to comparable quoted shipping companies -9% over 12 months ended December 31, 2015;
• Forward average Enterprise Value (“EV”) / EBITDA: multiples of comparable companies increased 14% from 14.8x to 16.8x – mainly due to
share prices decrease not proportionate to decline in EBITDA;
• Broker forecasts of comparable peer EBITDA margins for the year ended December 31, 2015, where ZIM’s performance is in the middle of this
range and expected to outperform its peers.
F-38
Table of Contents
Note 10 – Investment in Associated Companies (Cont’d )
3.
4.
5.
6.
b.
1.
2.
3.
In 2015, ZIM recognized an impairment of the vessels held for sale in an amount of $7 million as impairment under other operating expenses.
As part of the July 2014 group debt restructuring, ZIM undertook to scrap eight vessels during the period of 16 months from the effective date of the
restructuring. In 2015, ZIM disposed two vessels, and obtained an extension through December 16, 2015, to dispose the last vessel. As of
December 31, 2015 all of such vessels were disposed.
Upon the effective date of the restructuring, those vessels were classified as held for sale and as a result, an impairment loss in an amount of $
110 million was recorded under other operating expenses (as included in the Day 1 Effect).
The container shipping industry is volatile and has been experiencing a sustained cyclical downturn in the recent period, which continues subsequent
to the balance sheet date. Continuation of this trend could negatively affect the entire industry and also affect ZIM’s business, financial position,
results of operations, cash flows and ZIM’s compliance with certain financial covenants.
During 2015, ZIM sold all of its holdings in an associated company which resulted in a disposal gain of $32 million recognized in ZIM’s financial
statements. Kenon’s share of the disposal gain is $10 million and is recognized in share of net income and losses from associated companies.
Qoros Automotive Co. Ltd. (“Qoros”)
As at December 31, 2015, the Group holds, through a wholly-owned and controlled company, Quantum (2007) LLC (“Quantum”) the equity interest
of Qoros in a 50/50 agreement with a Chinese vehicle manufacturer – Chery Automobiles Limited (“Chery”), which is engaged in manufacture of
vehicles using advanced technology, and marketing and distribution of the vehicles worldwide under a quality brand name.
As at December 31, 2015, the balance of Kenon’s investment in Qoros amounts to $159 million (December 31, 2014 – $221 million).
During 2015, Kenon and Chery each, through a subsidiary, provided a RMB800 million ($130 million) convertible loan to Qoros to support its
ongoing development. Subsequent to date of the report, in January and February 2016, Kenon invested an additional accumulated amount of about $40
million in Qoros.
4.
Set forth below is an overview of the guarantees provided by Kenon in respect of Qoros’ debt:
Date Granted
Spin-Off / November 2015
May and November 2015
Total
Qoros Credit Facility
Kenon Guarantee Amount
RMB3 billion credit facility
RMB750 million ($115 million), see (5) below
RMB700 million EXIM
Bank loan facility
RMB350 million ($54 million), plus interest and fees of up
to RMB60 million ($10 million), see (6) below
RMB 1,160 million ($179 million)
F-39
Table of Contents
Note 10 – Investment in Associated Companies (Cont’d )
5.
In July 2012, Chery provided a guarantee to the banks, in the amount of RMB1.5 billion ($242 million), in connection with an agreement with the
banks to provide Qoros a loan, in the amount of RMB3 billion ($482 million). In November 2015, Kenon has provided back-to-back guarantees to
Chery of RMB750 million (approximately $115 million) in respect of certain of Qoros’ indebtedness and has committed to negotiate with Chery in
good faith to find a solution so that Kenon’s and Chery’s liabilities for the indebtedness of Qoros under Qoros’ RMB3 billion credit facility are equal
in proportion; Kenon has similarly agreed to try to find an acceptable solution in respect of Kenon’s and Chery’s liabilities for the indebtedness of
Qoros under Qoros’ 1.5 RMB billion facility, but without any obligation on Kenon to be liable for more than the amount set forth in its back-to-back
guarantee to Chery. As a result, if Qoros is unable to meet its operating expenses or is unable to comply with the terms of certain of its debt
agreements, Kenon may be required to make payments under its guarantees to Chery. In a back-to-back arrangement Kenon committed to Chery to
pay half of every amount it will be required to pay with respect to the above-mentioned guarantee (“the 2012 Guarantee”). The fair value of the
guarantee has been recorded in the financial statements.
Prior to Kenon’s spin-off from IC, IC provided the 2012 Guarantee to Qoros. This guarantee by IC is a back-to-back guarantee of Chery’s guarantee of
up to RMB1.5 billion (approximately $240 million) under this credit facility, and the obligation of IC under this back-to-back guarantee is up to
RMB888 million (approximately $142 million), including related interest and fees. In connection with Kenon’s spin-off from IC, IC continued to
provide this guarantee and Kenon entered into a $200 million credit facility with IC, and to the extent that IC is required to make payments under its
back-to-back guarantee in respect of Qoros’ credit facility, the amount of the loans owed by Kenon to IC under the credit facility will be increased
accordingly.
On February 12, 2015, Kenon has agreed to provide a RMB400,000 thousand ($64,360 thousand) loan to Qoros to support its ongoing development,
and in connection with the provision of this loan, IC’s back-to-back guarantee of Qoros’ debt was released in full. Chery’s guarantee under the Qoros
facility of up to RMB1.5 billion (approximately $240 million) is not being released in connection with the release of IC’s back-to-back guarantees
and, as described above, in November 2015 Kenon has provided back-to-back guarantees to Chery of RMB750 million.
6.
On May 12, 2015, Qoros has signed a Consortium Loan Agreement with the Export-Import Bank of China, and China Construction Bank Co., LTD,
Suzhou Branch, concerning the Project of Research and Development of Hybrid Model (“Loan Agreement”), for an amount of RMB700 million ($108
million) or in USD not exceeding the equivalent to RMB480 million ($78 million) (the “Facility”).
On June 15, 2015, this Facility was secured by Chery Automobile Co., Ltd (“Chery Guarantee Deed”) and pledged with Qoros’ 90 vehicle patents
with an appraisal value of minimum RMB3.1 billion ($0.5 billion). The Loan Agreement’s term of 102 months bears a 5-years interest rate quoted by
the People’s Bank of China in RMB at LIBOR+10%, or in USD at LIBOR+3.50% per annum.
With relation to the above, Kenon provided a RMB350 million ($54 million) guarantee of this financing agreement to Chery for up to 50% of Chery’s
Guarantee. As at December 31, 2015, Qoros had drawn down the Facility of RMB700 million ($108 million) with an interest rate of 5.39%. The fair
value of the guarantee has been recorded in the financial statements.
7.
On May 15, 2015, Kenon and Chery each provided a RMB400 million ($65 million) loan to Qoros to support its ongoing development. RMB25
million ($5 million) of each loan can be converted into equity on conditions set out in the agreement. As a result, Kenon’s ownership percentage in
Qoros will not increase upon Qoros’ full, or partial, conversion of Kenon’s RMB400 million ($65 million) shareholder loan into equity.
Kenon expects all, or a portion, of the shareholder loans to convert into additional equity in Qoros upon the satisfaction of certain conditions,
including the approval by the relevant Chinese authority.
Kenon funded the RMB400 million ($65 million) shareholder loan through drawdowns of $65 million under a Credit Facility with its former parent,
IC as disclosed in Note 1.B.(2). Under the terms of the Credit Facility, these drawdowns required Kenon to pledge an additional 6.50% of its interest
in I.C. Power to IC. As a result of these drawdowns, the aggregate drawdowns under the Credit Facility is $110 million and an aggregate 59.50% of
Kenon’s equity interest in I.C. Power will be pledged to IC.
F-40
Table of Contents
Note 10 – Investment in Associated Companies (Cont’d )
8.
On July 31, 2014, in order to secure additional funding for Qoros of approximately RMB 1.2 billion ($200 million as of August 7, 2014) IC pledged a
portion of its shares (including dividends derived therefrom) in Qoros, in proportion to its share in Qoros’s capital, in favor of the Chinese bank
providing Qoros with such financing. Simultaneously, the subsidiary of Chery that holds Chery’s rights in Qoros also pledged a proportionate part of
its rights in Qoros. Such financing agreement includes, inter alia, liabilities, provisions regarding covenants, events of immediate payment and/or early
payment for violations and/or events specified in the agreement. The lien agreement includes, inter alia, provisions concerning the ratio of securities
and the pledging of further securities in certain circumstances, including pledges of up to all of Quantum’s shares in Qoros (or cash), provisions
regarding events that would entitle the Chinese Bank to exercise the lien, certain representations and covenants, and provisions regarding the
registration and approval of the lien.
As of December 31, 2015 Kenon and Chery have each pledged 28% of its equity interest in Qoros.
9.
Qoros incurred a net loss of RMB 2.48 billion and had net current liabilities of approximately RMB 4.24 billion as of and for the year ended
31 December 2015.
Qoros had given careful consideration to the future of liquidity of Qoros and its available sources of finance in assessing whether Qoros will have
sufficient financial resources to continue as a going concern.
10.
In September 2014, Qoros’ board of directors reviewed a new business development plan for the next ten years Subsequently, Qoros’ board of
directors approved a five-year business plan, which reflected lower forecasted sales volumes and assumed the minimal level of capital expenditure
necessary for such sales volumes. Based on 2014 business plan which was updated in 2015, Qoros management performed impairment tests in
October 2015 and February 2016 on Qoros’ operating assets (primarily its Property, Plant and Equipment (“PP&E”) and intangible assets).
Qoros, has one CGU, which consists of all of Qoros’ assets. The carrying amount of the CGU’s assets (adjusted for depreciation and amortization) was
approximately RMB9.3 billion ($1.4 billion) as of December 31, 2015.
Qoros concluded that the recoverable amount of its CGU was higher than the carrying amount of its CGU (adjusted for depreciation and amortization).
The recoverable amount was estimated based on fair value of Qoros’ assets less the costs of disposal and its value in use, using discounted cashflow
method. Therefore, no impairment was recognized in Qoros’ December 31, 2015 financial statements in respect of its CGU.
Although Qoros believes the assumptions used to evaluate the potential impairment of its assets are reasonable and appropriate, such assumptions are
highly subjective. There can be no assurance as to future levels of cars produced or sold by Qoros, the development of Qoros’ distribution and dealer
network, and Qoros’ utilization of its facility.
The analysis for the impairment test is sensitive to variances in each of the assumptions used and if the assumptions used by Qoros to evaluate the
potential impairment of its assets change, Qoros may recognize significant impairment charges in its financial statements in the future. Qoros
management has determined that the forecasted volume of sales and Qoros’ receipt of certain subsidies from local Chinese governments are the most
important elements of Qoros’ business plan and accordingly are the most sensitive key assumptions for which there reasonably could be a possible
change that could cause the carrying amount of Qoros’ CGU to exceed the recoverable amount.
F-41
Table of Contents
Note 10 – Investment in Associated Companies (Cont’d )
c.
1.
2.
3.
4.
Tower
In March 2015, Tower accelerated the conversion of $80 million of its outstanding Series F Bonds into ordinary shares of Tower. As a result of the
issuance of shares, Kenon’s interest in Tower was reduced from 29% to 23% of Tower’s equity and Kenon realized a dilution gain of $32 million.
On May 27, 2015, Kenon’s shareholders approved a capital reduction, contingent upon the approval of the High Court of the Republic of Singapore, to
enable Kenon to distribute, on a pro rata basis, some, or all, of the 18,030,041 ordinary shares of Tower held by Kenon, as well as 1,669,795 ordinary
shares of Tower underlying the 1,669,795 Series 9 Warrants of Tower held by Kenon, to holders of Kenon’s ordinary shares. On June 25, 2015, the
High Court of the Republic of Singapore approved the reduction of Kenon’s issued share capital, enabling Kenon to declare a distribution of some, or
all, of its interest in Tower by distribution in specie. On June 30, 2015, the investment in Tower was reclassified to Assets held for distribution.
On July 7, 2015, Kenon’s board of directors declared a pro rata distribution (the “Distribution”) in specie of 18,030,041 ordinary shares of Tower (the
“Tower Shares”) to Kenon’s shareholders of record as of the close of trading on July 20, 2015 (the “Record Date”). The Distribution occurred on
July 23, 2015 (the “Distribution Date”) and is one of the first key steps in the implementation of Kenon’s strategy, which provided Kenon
Shareholders with direct access to Tower, which Kenon believes is in the best interests of its shareholders.
The Tower Shares to be distributed in the Distribution represent all of the shares in Tower owned by Kenon, excluding the 1,669,795 shares in Tower
underlying certain warrants held by Kenon. As of July 7, 2015, Kenon had 53,682,994 ordinary shares outstanding. Accordingly, each Kenon
Shareholder as of the Record Date received approximately 0.335861 of a Tower Share for every Kenon Share held by such shareholder as of the
Record Date. The fair value of the distribution in kind amounts to $255 million. As a result of this distribution, the Group recognized a gain from
distribution of dividend in kind of $210 million. The gain arose from the difference between the fair value of the distribution and the carrying amount
of the investment as required by IFRIC 17 Distributions
of
non-cash
assets
to
owners
.
5.
After the distribution, Kenon beneficially owns 1,669,795 Warrants representing approximately 2.0% of outstanding Ordinary Shares of Tower as of
December 31, 2015.
d.
Generandes Peru S.A
During the last quarter of 2013, Inkia announced its decision to sell its 39.01% direct equity in Generandes Peru S.A. (Holding of Edegel S.A.A.)
In April 2014, the board of directors of I.C. Power approved the sale of Generandes Peru S.A. I.C. Power recorded its investment in Generandes Peru
S.A. as an associate, applying the equity method until April 30, 2014.
On April 30, 2014, Inkia Americas Holdings Ltd. (the “Seller”) and I.C. Power Ltd as guarantor of the Seller, signed a share purchase agreement with
Enersis SA (Enersis) for the sale of its shares in Inkia Holdings (Acter) Limited that owns 21.14% indirect equity in Edegel S.A.A. for a sale price of
$413,000 thousand.
On September 3, 2014, Inkia Americas Holdings Ltd. completed the sale of its shares in Inkia Holdings (Acter) Limited, that had directly the
equivalent of 39.01% of Generandes Peru S. A., see note 11A.1.g.
As a result of this sale the Group recorded a capital gain of $132,246 thousand (net of tax $84,981 thousand). In addition, the Group recorded a gain
from recycling of foreign exchange of $24,891 thousand.
D.
Details regarding securities registered for trading
Shares of Tower
No Tower shares in 2015 due to distribution of dividend in-kind (See 10.C.c.4)
F-42
As at
December 31, 2014
Book
value
Market
value
US$ thousands
14,062
240,340
Table of Contents
Note 10 – Investment in Associated Companies (Cont’d )
E.
Details regarding dividends received from associated companies
From associated companies
F.
Restrictions
Qoros
For the Year Ended
December 31
2014
US$ thousands
32,227
2015
4,487
2013
45,217
Qoros has restrictions with respect to distribution of dividends and sale of assets deriving from legal and regulatory restrictions, restrictions under the
joint venture agreement and the Articles of Association and restrictions stemming from credit received.
ZIM
The holders of ordinary shares of ZIM are entitled to receive dividends when declared and are entitled to one vote per share at meetings of ZIM. All
shares rank equally with regard to the ZIM’s residual assets, except as disclosed below.
In the framework of the process of privatizing ZIM, all the State of Israel’s holdings in ZIM (about 48.6%) were acquired by IC pursuant to an
agreement from February 5, 2004. As part of the process, ZIM allotted to the State of Israel a special State share so that it could protect the vital
interests of the State.
On July 14, 2014 the State and ZIM have reached a settlement agreement (the “Settlement Agreement”) that has been validated as a judgment by the
Supreme Court. The Settlement Agreement provides, inter alia, the following arrangement shall apply: State’s consent is required to any transfer of the
shares in ZIM which confers on the holder a holding of 35% and more of the ZIM’s share capital. In addition, any transfer of shares which confers on
the holders a holding exceeding 24% but not exceeding 35%, shall require prior notice to the State. To the extent the State determines that the transfer
involves a potential damage to the State’s security or any of its vital interests or if the State did not receive the relevant information in order to
formulate a decision regarding the transfer, the State shall be entitled to inform, within 30 days, that it objects to the transfer, and it will be required to
reason its objection. In such an event, the transferor shall be entitled to approach a competent court on this matter.
The Special State Share, and the permit which accompanies it, also imposes transferability restrictions on our equity interest in ZIM. Furthermore,
although there are no contractual restrictions on any sales of our shares by our controlling shareholders, if major shareholders’ ownership interest in
Kenon (controlling shareholders of Kenon) is less than 36%, or major shareholders cease to be the controlling shareholder, or sole controlling
shareholder of Kenon, then Kenon’s rights with respect to its shares in ZIM (e.g., Kenon’s right to vote and receive dividends in respect of its ZIM
shares),will be limited to the rights applicable to an ownership of 24% of ZIM, until or unless the State of Israel provides its consent, or does not
object to, this decrease in major shareholders’ ownership or “control” (as defined in the State of Israel consent received by IC in connection with the
spin-off). The State of Israel may also revoke Kenon’s permit if there is a material change in the facts upon which the State of Israel’s consent was
based, upon a breach of the provisions of the Special State Share by Kenon, Mr. Ofer, or ZIM, or if the cancellation of the provisions of the Special
State Share with respect to a person holding shares in ZIM contrary to the Special State Share’s provisions apply (without limitation).
The Special State Share is non-transferable. Except for the rights attached to the said share, it does not confer upon its holder voting rights or any share
capital related rights.
F-43
Table of Contents
Note 11 – Subsidiaries
A.
Investments
1.
a.
1.
i.
ii.
b.
1.
I.C. Power
Subsidiaries acquired in 2015
Advanced Integrated Energy Ltd.
On June 8, 2015 I.C. Power executed an agreement with Hadera Paper Ltd (“Hadera Paper”)., pursuant to which I.C. Power agreed to acquire
from Hadera Paper 100% of the shares in Advanced Integrated Energy Ltd. (“AIE”) and the Hadera Paper’s energy center. AIE holds a
conditional license for the construction of a 120MW cogeneration power station in Israel. The total payment amounts to NIS 60
million (approximately $15.7 million) which involves two transactions:
A business combination in the amount of NIS 36,000 thousand ($ 9,441 thousand) as follows: (i) On August 10, 2015, after fulfilling the
conditions precedent contemplated in the aforementioned agreement, I.C. Power completed the acquisition of AIE and paid NIS
1,755 thousand (approximately $ 460 thousand) to Hadera Paper Ltd. for the acquisition of the shares. (ii) I.C. Power through AIE paid NIS
34,245 thousand (approximately $ 8,981 thousand) for the repayment of the loan between Hadera Paper Ltd. and its former shareholder.
The following table summarizes the recognized amounts of assets acquired and liabilities assumed at the date of acquisition:
Property, plant and equipment
Intangible
Deferred income tax liabilities
Total net assets
Total consideration
Goodwill
US$
thousands
8,981
464
(123)
9,322
(9,441)
119
AIE acquired Hadera Paper’s energy center in the aggregate amount of NIS 24,000 (approximately $ 6,294 thousand). The Hadera Paper’s
energy center generates electricity with a 18MW steam turbine.
Additional investments by I.C. Power will be required to enable AIE to complete construction of the power plant, which is expected to
commence operations in the second half of 2018.
During 2014, I.C. Power acquired the following companies:
AEI Nicaragua Holdings Ltd., AEI Jamaica Holdings Ltd.
On February 18, 2014, I.C.Power entered into an agreement with AEI Power Ltd. to acquire all of the shares of AEI Nicaragua Holdings Ltd.
and AEI Jamaica Holdings Ltd. for a purchase price of $54,144 thousand. On March 12, 2014, Inkia took control of AEI Nicaragua Holdings
and paid $36,644 thousand to AEI Power Ltd. in connection with the acquisition. As a result of the post-closing purchase price adjustments,
AEI Power Ltd. refunded $6,523 thousand to I.C. Power on April 14, 2014, therefore, the final purchase price of AEI Nicaragua Holdings was
$30,121 thousand.
On May 30, 2014, I.C.Power took control of AEI Jamaica Holdings and paid $17,500 thousand to AEI Power Ltd. in connection with the
acquisition. As a result of the post-closing purchase price adjustments, I.C. Power paid an additional $3,177 thousand to AEI Power Ltd. on
July 1, 2014; therefore, the final purchase price of AEI Jamaica Holdings was $20,677 thousand.
F-44
Table of Contents
Note 11 – Subsidiaries (Cont’d)
As of result of this transaction, I.C. Power increased its ownership from 15.57% to 100% in Jamaica Private Power Company (a subsidiary of
AEI Jamaica Holdings). The measurement to fair value of I.C. Power’s pre-existing share in Jamaica Power Company resulted in a gain of
$2,674 thousand ($6,044 thousand less $3,370 thousand carrying amount of such investment at the acquisition date).
2.
Surpetroil S.A.S (“Surpetroil”)
On March 12, 2014, I.C. Power through its subsidiary Samay III signed a share purchase agreement to acquire a 60% stake of Surpetroil,
involved in power generation, natural gas transport and distribution using Colombia’s stranded gas, as well as a 60% stake in two companies:
Surenergy S.A.S. E.S.P. (Colombia) and Surpetroil S.A.S. (Peru) for a total purchase price of $18,000 thousand. On March 28, 2014, I.C.
Power took control of Surpetroil and paid $12,000 thousand at closing. The remaining $6,000 thousand has been retained by I.C. Power to be
reinvested by the minority shareholders in new projects.
3.
AEI Guatemala Holdings Ltd.
On August 13, 2014, I.C. Power entered into an agreement with AEI Power Ltd. to acquire all of the shares of AEI Guatemala Holdings Ltd
for a purchase price of $29,000 thousand. On September 17, 2014, I.C. Power completed the acquisition of AEI Guatemala Holdings and paid
$29,000 thousand to AEI Power Ltd.
On October 22, 2014, I.C. Power paid an additional of $5,568 thousand as a result of the post-closing purchase price adjustments, and $350
thousand for reorganization costs. Therefore, the final purchase price of AEI Guatemala Holdings was $34,918 thousand.
c.
Identifiable assets acquired and liabilities assumed
The following table summarizes the recognized amounts of assets acquired and liabilities assumed at the date of acquisition:
Property, plant and equipment
Intangible
Deferred income tax assets
Trade receivables, net
Other assets
Short-term borrowings
Long-term debt
Deferred income tax liabilities
Other liabilities
Non-controlling interest
Total net assets
Fair value of pre-existing share
Total consideration
Gain on bargain purchase
Goodwill
Cash consideration
Consideration retained by I.C. Power
Total consideration transferred
Cash and cash equivalent acquired
Net cash flow on acquisition
AEI
AEI
Nicaragua
Jamaica Surpetroil
AEI
Guatemala
Total
2,375
$ thousands
157,211 39,585 15,173 60,896 272,865
925 30,181
20,783 3,305 5,168
201
2,831
76
179
29,072 5,998
900 31,939 67,909
40,716 24,325 1,835 38,777 105,653
— (1,722) (2,361) (17,500) (21,583)
(115,241) (10,199) (2,390) (23,021) (150,851)
(33,722) (1,102) (2,671)
(7,550) (45,045)
(16,804) (9,532) (2,901) (29,181) (58,418)
(30,618) — (5,182) — (35,800)
53,772 50,837 7,772 55,361 167,742
(6,044)
— (6,044) — —
(30,121) (20,677) (18,000) (34,918) (103,716)
23,651 24,116 — 20,443 68,210
— — 10,228 — 10,228
30,121 20,677 12,000 34,918 97,716
6,000
— — 6,000 —
30,121 20,677 12,000 34,918 97,716
(2,881) (27,730)
(19,310) (5,371)
10,811 15,306 11,832 32,037 69,986
(168)
d.
Measurement of fair values
I.C. Power has established the value of the acquired assets, liabilities, and contingent liabilities considering the fair value basis on March 12,
2014; March 28, 2014; May 30, 2014; and on September 17, 2014, dates in which
F-45
Table of Contents
Note 11 – Subsidiaries (Cont’d)
I.C. Power took control of AEI Nicaragua Holdings, Surpetroil, AEI Jamaica Holdings and AEI Guatemala Holdings, respectively. The
criteria considered to establish the fair value of the main items were the following:
• Fixed assets were valued considering the market value established by an appraiser;
• Intangibles consider the valuation of its PPAs;
• Contingent liabilities were determined over the average probability established by third party legal processes;
• Deferred tax was valued over the temporary differences between the accounting and tax basis of the business combination; and,
• Non-controlling interest was calculated over a proportional basis of the net assets identified on the acquisition date.
e.
Gain of bargain purchase
After reviewing and analyzing the fair values of the Nicaraguan, Jamaican and Guatemalan assets and compare them to the carrying value, a
gain on bargain purchase of $23,651 thousand, $24,116 thousand and $20,443 thousand, respectively, was determined. The differences
between fair value and carrying value are derived in principal:
• Seller´s need to complete transaction.
• Lack of alternative buyers.
• Regions low interest from international power players.
f.
Recognition of Revenues and Profit or Loss
During the period from the acquisition date to December 31, 2014, the revenues and profit or loss contributed by these acquired companies to
the consolidated results are as follows:
Companies acquired
AEI Nicaragua Holdings Ltd
Surpetroil S.A.S.
AEI Jamaica Holdings Ltd.
AEI Guatemala Holdings Ltd.
Total
Control Date
Revenues
Profit
(loss)*
March 12, 2014
March 28, 2014
May 30, 2014
September 17, 2014
US$ thousands
124,578
9,263
40,752
33,302
207,895
5,874
1,759
(2,242)
(1,028)
4,363
* These figures do not include any effect arising from the purchase price allocation adjustments and from non-controlling interest.
g.
On September 3, 2014, Inkia Americas Holdings Ltd. (the “Seller”), and I.C. Power as guarantor of the Seller, closed the sale of its shares in
Inkia Holdings (Acter) Limited (“Acter”), that indirectly holds the equivalent of 39.01% of Generandes Peru SA, the holding company of
Edegel SAA for a total consideration of $413,000 thousand in cash.
As a consequence of the sale of Acter, I.C. Power transferred all the following companies to Enersis: Southern Cone Power Ltd., Latin
America Holding I Ltd., Latin America Holding II Ltd. and Southern Cone Power Peru S.A.A.
Pursuant to the terms of the Share Purchase Agreement, prior to the consummation of the Acter Disposition, Acter was required to repay the
outstanding indebtedness (the “Acter Debt”) held with Credit Suisse AG, Cayman Islands Branch. In order to repay the Acter Debt, Seller
received a short-term loan from I.C. Power on August 26, 2014 in an amount of $125,000 thousand (the “Acter Contribution”), and used the
proceeds to repay the Acter Debt on September 22, 2014.
On April 30, 2015, Inkia received $3,850 thousand as a final dividend from Enersis equivalent to the remaining portion on 2014 Generandes’
earnings as of September 3, 2014.
F-46
Table of Contents
Note 11 – Subsidiaries (Cont’d)
h.
i.
2.
a.
b.
c.
d.
In May and June 2014, I.C. Power repaid $167,811 thousand of intercompany debt owed to IC, repaid $94,865 thousand of capital notes to IC,
and made a dividend distribution to IC of $37,324 thousand. As a result of I.C. Power’s $167,811 thousand repayment of loans and $94,865
thousand repayment of capital notes to IC, no debt currently exists between I.C. Power and IC. In this report this amount (approximately $300
million) was recorded as a payment to former parent company.
In September 2014, a subsidiary of Inkia updated its five-year budget as a result of a downward trend in its results combined with anticipated
impacts of recent political changes in the country in which the subsidiary operates, which affects the power generation business therein, and
expectations of an increase in operating costs and unchanged electricity prices, which will lead to a decrease in its profitability. As a result,
Inkia considered a potential impairment in this subsidiary and conducted an impairment analysis using the value in use method and a discount
rate of 7.6%. Accordingly, Inkia determined that the book value of the subsidiary’s assets exceeded its recoverable amount and therefore
recorded an impairment loss of $34,673 thousand.
I.C. Green
On December 9, 2014, I.C. Green Energy (“ICG”) signed an agreement for the sale of all its holdings (about 69%) in the shares of
Petrotec AG (“Petrotec”), a public company traded on the Frankfurt stock exchange, to the Renewable Energy Group (“REG”), a public
company traded on the NASDAQ. As part of the agreement, REG paid ICG in exchange for Petrotec’s shares, the amount of $20.9 million, by
means of an issuance of shares of REG, along with payment of an additional amount in cash, of $15.8 million, in respect of the balance of
loans and accrued interest ICG granted to Petrotec. The number of shares REG issued to ICG is 2 million shares (about 4.6% of REG’s
capital). The shares issued will be restricted for trading and will be released in three equal portions after six, nine and twelve months from the
issuance date.
On December 24, 2014 (“the Closing Date”), all the approvals required for execution of the agreement were received and the Group ceased to
control Petrotec.
The fair value of the restricted shares was $18 million. As a result of the sale, the Group reported a capital loss of $5 million in its financial
statements.
During 2014, ICG received 2,070,538 REG shares at a price of $10.1133 per share. Due to restrictions on the shares, they were recorded in
ICG’s books in a value of $18,439 thousands.
During 2015, ICG sold 1,380,358 shares in a total sum of $12,670 thousands and ICG recorded a finance income of $587 thousands from
adjustment of REG shares to fair value.
The value of REG shares in ICG’s books as of December 31, 2015 is $6,412 thousands.
In 2014, due a lack of sufficient sources of financing for 2015, the Board of Directors of HelioFocus decided to reduce HelioFocus’ activities
and to maintain only a minimum number of personnel until new investors are recruited.
As a result, the Group examined the amount of its investment in HelioFocus and decided to write down the balance to the amount of about
$1.5 million in 2014, representing the cash equivalents less the pension liabilities. As a result of the write down, the Group recorded a capital
loss of $13,171 thousand in 2014.
As of December 31, 2015, ICG held 90.85% of the shares of Primus Green Energy Inc. (“PGE”), the total convertible loans including interest,
owed by PGE to ICG, were consolidated to a convertible bridge financing agreement of $11 million with interest of 7% annually and will be
repayable on July 1, 2016.
PGE’s future is highly dependent on combination of factors, such as the timeliness and successful completion of additional financing; the
success of its research and development activities; designing, constructing and operating successful production plants; and continued
accessibility to funding from investment agreement with ICG and subject to price of available technologies and energy sources. As a result of
above uncertainties, ICG decided to write-off its goodwill in PGE in the amount of $6 million in 2015.
F-47
Table of Contents
Note 11 – Subsidiaries (Cont’d)
3.
I.C. Power Pte Ltd
On August 31, 2015, I.C. Power Pte Ltd (“I.C. Power Singapore”) a wholly-owned subsidiary of Kenon and intended holding company of I.C.
Power, filed a Registration Statement on Form F-1 (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the
“SEC”) relating to the proposed initial public offering (“IPO”) of ordinary shares of I.C. Power Singapore (the “Ordinary Shares”).
The number and price of the shares has yet to be determined. I.C. Power Singapore intends to use the net proceeds of the proposed IPO, along
with readily available cash, to develop greenfield projects, acquire companies or assets in the electricity sector, repay an intercompany note
payable by I.C. Power Singapore to Kenon of up to $220 million (which note will be issued by I.C. Power to Kenon prior to the IPO), and for
general corporate purposes.
The proposed IPO represents a key step in Kenon’s implementation of its strategy to provide its investors with direct access to its primary
businesses. Following the proposed IPO, Kenon will remain the majority shareholder of I.C. Power Singapore.
I.C. Power Singapore filed Amendment No.1 to above Registration Statement with SEC on November 2, 2015. The amendment contains new
and updated business, regulatory, operating and financial information relating to I.C. Power’s businesses.
F-48
Table of Contents
Note 11 – Subsidiaries (Cont’d)
B.
The following table summarizes the information relating to each of the Group’s subsidiaries in 2015 and combined entities in 2014
and 2013 that has material NCI:
2015
2014
2013
Samay
I.S.A
Nicaragua
Energy
Holding
Kallpa
Generacion
S.A.
Cerro del
Aguila
S.A.
Samay
I.S.A
Nicaragua
Energy
Holding
Kallpa
Generacion
S.A.
Cerro del
Aguila
S.A.
Kallpa
Generacion
S.A.
Cerro del
Aguila
S.A.
As at and for the year ended December 31
US$ thousands
NCI percentage
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Carrying amount of NCI
25.10%
35.42%
25.10%
25.10%
35.42%
47,766
344,052
(36,075)
(289,560)
66,183
16,612
43,390
172,917
(22,044)
(121,142)
73,121
25,899
25.10%
92,120
638,325
(188,291)
(356,900)
185,254
46,499
23,841
847,015
(25,909)
(556,277)
288,670
72,456
138,153
102,668
(18,713)
(144,679)
77,429
19,435
52,850
172,240
(23,376)
(131,327)
70,387
24,931
25.10%
25.10%
83,954
645,927
(153,302)
(405,360)
171,219
42,976
128,242
662,055
(25,138)
(460,081)
305,078
76,575
25.10%
25.10%
71,948
541,079
(113,532)
(352,515)
146,980
36,892
72,670
378,012
(30,767)
(114,864)
305,051
76,568
Revenues
Profit/(loss)
Other comprehensive income (loss)
Profit attributable to NCI
OCI attributable to NCI
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities excluding
dividends paid to non-controlling interests
Dividends paid to non-controlling interests
Effect of changes in the exchange rate on cash and
cash equivalents
Net increase (decrease) in cash equivalents
—
(4,049)
(6,057)
(1,016)
(1,520)
—
(236,207)
111,428
14,469
—
5,125
—
42,480
(5,088)
447,679
44,088
(53)
11,066
(13)
120,438
(13,589)
—
(8,579)
(1,079)
(2,153)
(271)
—
(180,771)
—
(311)
(245)
(78)
(62)
—
(88,644)
124,578
4,472
—
1,584
—
16,605
19,522
436,673
53,090
1,150
13,326
289
116,915
(26,259)
—
6,964
(6,938)
1,748
(1,742)
—
(247,724)
394,055
43,665
1,396
10,960
350
142,495
(16,566)
—
264
(13,805)
66
(3,465)
—
(178,664)
138,000
—
(26,139)
(4,401)
(91,084)
(7,530)
95,000
—
195,135
—
(20,445)
—
(78,982)
—
296,868
—
(135,043)
(23,266)
235,090
—
(3,266)
(101,473)
(489)
6,363
(5,334)
2,901
(2,929)
(88,700)
(265)
106,226
411
16,093
(824)
10,850
—
49,144
(1,245)
(33,625)
—
56,426
F-49
Table of Contents
Note 11 – Subsidiaries (Cont’d)
C.
Restrictions
I.C. Power
Inkia´s subsidiaries have no restrictions to transfer cash or other assets to the parent company as long as each subsidiary is in compliance with the
covenants derived from the borrowing agreements described in note 15.
OPC originally had restrictions to transfer cash or paid dividends up to the third anniversary of Construction Completion. On October 13, 2015, OPC
and its senior lenders amended this restriction in order to allow OPC to transfer cash and pay dividends. Therefore, on October 19, 2015, OPC paid
NIS 295,000 thousand (equivalent to $76,783 thousand). Out of this total, NIS222,496 thousand (equivalent to $57,912 thousand) was paid as
repayment of capital notes and NIS 72,504 thousand (equivalent to $18,871 thousand) as intercompany loan. As of December 31, 2015 and 2014, the
cash and cash equivalents at OPC´s financial statements amounted to $111,301 thousands and $157,668 thousands respectively.
Inkia has restrictions to transfer cash or other assets to I.C. Power. Pursuant to its senior notes agreement, dividend payments are treated as restricted
payments and are subject to mainly the following conditions:
• Inkia is able to incur at least $1.00 of additional indebtedness pursuant to satisfying a covenant test (unconsolidated interest coverage ratio is equal
or greater than 2.0 to 1.0); and
• The amount (dividend payments) cannot exceed the sum of: 100% of cumulative consolidated net income of I.C. Power accrued on a cumulative
basis, beginning on January 1, 2011 to the end of the most recent fiscal quarter, deducting any non-cash charges or expense (other than depreciation
and amortization), non-cash gains and the cumulative effect of changes in accounting principles.
Note 12 – Deposits, Loans and Other Receivables, including Financial Instruments
Composition:
Deposits in banks and others – restricted cash
Financial derivatives not used for hedging
Tower-series 9 options (1)
Other receivables (2)
As at December 31
2014
2015
US$ thousands
16,521
2,863
12,175
56,916
88,475
29,700
322
10,056
34,580
74,658
(1)
(2)
1,669,795 series 9 options of Tower are held by Kenon to purchase 1,699,795 shares of Tower exercisable up to June 27, 2017 at an exercise price of $7.33
per option.
As of December 31, 2015 and 2014, other receivables correspond mainly to non-current prepaid expenses (connecting to high voltage and gas contract) in
OPC.
F-50
Table of Contents
Note 13 – Property, Plant and Equipment, Net
A.
Composition
Cost
Roads, buildings and leasehold improvements
Installations, machinery and equipment
Dams
Office furniture and equipment, motor vehicles and other
equipment
Plants under construction
Spare parts for installations
Accumulated depreciation
Roads, buildings and leasehold improvements
Installations, machinery and equipment
Dams
Office furniture and equipment, motor vehicles and other
equipment
Prepayments on account of property, plant & equipment
Balance at
beginning
of year
Additions Disposals
reserves
Differences
in
translation
Companies
entering the
combination
Transfers and
Reclassifications
Balance at
end of year
As at December 31, 2015
US$ thousands
280,618
1,779,476
138,260
4,792
35,148
—
(144)
(5,775)
(929)
43,381
2,241,735
789,681
27,084
3,058,500
9,140
49,080
477,231
48,078
574,389
(1,866)
(8,714)
(176)
(116)
(9,006)
64,473
429,499
45,489
6,744
102,214
1,499
(34)
(2,077)
(224)
20,829
560,290
3,499
113,956
(1,661)
(3,996)
(503)
(4,954)
—
(508)
(5,965)
(393)
(40)
(6,398)
(56)
(677)
—
(95)
(828)
—
—
—
—
—
8,981
—
8,981
—
—
—
—
—
3,775
36,859
979
288,538
1,840,754
138,310
1,977
43,590
(14,949)
(30,707)
(2,066)
52,124
2,319,726
1,260,375
44,299
3,624,400
826
1,365
—
71,953
530,324
46,764
(1,034)
1,157
21,538
670,579
2,498,210
460,433
(5,010)
(5,570)
8,981
(3,223)
2,953,821
4,577
2,502,787
F-51
6,057
2,959,878
Table of Contents
Note 13 – Property, Plant and Equipment, Net (Cont’d)
Cost
Roads, buildings and leasehold improvements
Installations, machinery and equipment
Dams
Office furniture and equipment, motor vehicles and other equipment
Vessels
Containers
Plants under construction
Spare parts for installations
Accumulated depreciation
Roads, buildings and leasehold improvements
Installations, machinery and equipment
Dams
Office furniture and equipment, motor vehicles and other equipment
Vessels
Containers
Prepayments on account of property, plant & equipment
B.
Depreciated balances
Balance at
beginning
of year
Additions Disposals
24,991
110,413
—
6,803
3,545
3,208
148,960
405,771
28,677
583,408
7,538
94,657
1,674
5,154
44,017
23,266
176,306
407,102
(511)
(8,704)
(278)
(3,129)
—
(11,891)
(24,513)
(314)
(861)
(25,688)
(222)
(2,205)
(30)
(1,328)
—
(8,886)
(12,671)
(13,017)
297,115
1,513,921
138,538
90,788
2,317,153
683,311
5,040,826
387,773
17,438
5,446,037
81,719
360,101
28,944
58,959
714,828
341,011
1,585,562
3,860,475
—
3,860,475
As at December 31, 2014
Differences
in
translation
reserves
Impairment
US$ thousands
Companies
entering the
combination
Companies
exiting the
combination
Balance at
end
of year
—
—
—
—
—
—
—
—
—
—
2,229
17,356
14,901
187
—
—
34,673
(34,673)
(4,935)
(58,677)
—
(1,651)
—
—
(65,263)
(23)
(1,099)
(66,385)
(193)
(3,596)
—
(95)
—
—
(3,884)
(62,501)
7,062
259,194
—
3,707
—
—
269,963
480
3,004
273,447
(43,104)
(36,671)
—
(53,137)
(2,320,698)
(674,628)
(3,128,238)
(4,006)
(20,075)
(3,152,319)
52
—
—
267
—
—
319
273,128
(26,650)
(36,814)
—
(42,315)
(758,845)
(355,391)
(1,220,015)
(1,932,304)
280,618
1,779,476
138,260
43,381
—
—
2,241,735
789,681
27,084
3,058,500
64,473
429,499
45,489
20,829
—
—
560,290
2,498,210
4,577
2,502,787
Roads, buildings and leasehold improvements
Installations, machinery and equipment
Dams
Office furniture and equipment, motor vehicles and other equipment
Plants under construction
Spare parts for installations
F-52
As at December 31
2015
2014
US$ thousands
216,585
1,310,430
91,546
30,586
1,260,375
44,299
2,953,821
216,145
1,349,977
92,771
22,552
789,681
27,084
2,498,210
Table of Contents
Note 13 – Property, Plant and Equipment, Net (Cont’d)
C.
During the period ended December 31, 2015, the Group acquired assets with a cost of $574,389 thousand, mainly for the construction of the CDA,
Samay I and Kanan projects.
During the period ended December 31, 2014, the Group acquired assets with a cost of $583,408 thousand, mainly for the construction of the CDA and
Samay I projects, the acquisition of Las Flores power plant, and $272,865 thousand in connection with AEI Nicaragua Holdings Ltd, AEI Jamaica
Holdings Ltd, AEI Guatemala Holdings Ltd and Surpetroil business combinations, see note 11.A.1.b.
CDA is a run-of-the-river hydroelectric project on the Mantaro River located in Huancavelica, in central Peru. The plant will have an installed
capacity of 510 MW. Construction of the hydroelectric plant is underway (approximately 90% advanced as of December 31, 2015). It is expected that
CDA will commence commercial operation during the second half of 2016 and it is estimated to cost approximately $959,000 thousand. The CDA
Project is financed with a $591,000 thousand syndicated credit facility, representing 62% of the total estimated cost of the project, with export credit
agencies, development banks and private banks, and is collateralized by the assets of the project. The remaining 38% of the CDA Project’s cost will be
financed with equity from each of Inkia and Energía del Pacífico (the minority shareholder of Kallpa, CDA and Samay I), in proportion to their
ownership interests in CDA. As of December 31, 2015, CDA shareholders has already funded $328,000 thousand.
On November 29, 2013, Samay I won a public bid auction conducted by the Peruvian Investment Promotion Agency to build an open cycle diesel and
natural gas (dual-fired) thermoelectric plant in Mollendo, Arequipa (southern Peru), with an installed capacity of approximately 600 MW at an
estimated cost of $380,000 thousand, approximately 82% of which is to be financed with a $311,000 thousand seven-year syndicated secured loan
agreement with Bank of Tokyo, Sumitomo and HSBC and approximately 18% of which has been financed with equity from each of Inkia and Energía
del Pacífico. Samay I’s agreement with the Peruvian government is for a 20-year period, with fixed monthly capacity payments and pass-through of all
variable costs. Construction of Samay I’s thermoelectric plant is in its early stages and it is expected that Samay I will commence commercial
operations in mid-2016, in accordance with the terms of its agreement with the Peruvian government.
In April 2014, Kallpa Generacion S.A., a subsidiary of Inkia, completed its $114,000 thousand purchase of the 193 MW single turbine natural gas
fired plant “Las Flores”, located in Chilca, Peru. Las Flores, which commenced its commercial operation in May 2010, permits for a future 190 MW
gas-fired expansion and has sufficient space to locate such a facility, as well as a combined cycle expansion, on its existing premises.
D.
In September 2014, a subsidiary of Inkia updated its five-year budget; as a result of a downward trend in its results combined with anticipated impacts
of recent political changes in the country in which the subsidiary operates, which affects the power generation business therein, and expectations of an
increase in operating costs and unchanged electricity prices, which will lead to a decrease in its forecast profitability. As a result, Inkia considered a
potential impairment in this subsidiary and conducted an impairment analysis using the value in use method and a discount rate of 7.6%. Accordingly,
Inkia determined that the book value of the subsidiary’s assets exceeded its recoverable amount and therefore recorded an impairment loss of $34,673
thousand. At the end of 2015, Inkia performed an impairment test on the long lived assets of this subsidiary in order to identify whether the
impairment loss is reversed or whether an additional impairment loss is required. As a result of this, no additional impairment loss is required as of
December 31, 2015. However, due to the sensitively of the assumptions used, I.C. Power management believes that minor changes in the key
assumptions may affect materially the carrying value of this subsidiary in the future.
E.
The amount of borrowing costs capitalized during 2015 was $31,596 thousand ($52,124 thousand during 2014).
F-53
Table of Contents
Note 13 – Property, Plant and Equipment, Net (Cont’d)
F.
In I.C. Power, property, plant and equipment includes assets acquired through financing leases. As at December 31, 2015 and 2014, the cost and
corresponding accumulated depreciation of such assets are as follows:
US$ thousand
As of December 31, 2015
Accumulated
depreciation Net cost Cost
Cost
42,281
275,674
317,955
(5,545) 36,736 42,280
(104,401) 171,273 277,272
(109,946) 208,009 319,552
As of December 31, 2014
Accumulated
Depreciation Net cost
(4,488) 37,792
(88,679) 188,593
(93,167) 226,385
Roads, buildings and leasehold improvements
Installations, machinery and equipment
G.
The composition of the depreciation expense is as follows:
Depreciation charged to results
Depreciation charged to fixed assets*
* Depreciation expenses on motor vehicles of projects under construction (CDA and Samay I) are capitalized.
Depreciation charged to cost of sales
Depreciation charged to general, selling and administrative expenses
Depreciation charged to results
Amortization of intangibles
Depreciation and amortization
H.
The Group has fully depreciated assets that are still in operation. As at December 31, 2015, the original cost of such assets was $88,804 thousand
($66,387 as at December 31, 2014).
F-54
As at December 31
2014
2015
$ thousands
114,855
(899)
113,956
104,337
298
104,635
As at December 31
2014
2015
$ thousands
105,725
9,130
114,855
5,192
120,047
96,920
7,417
104,337
4,076
108,413
Table of Contents
Note 14 – Intangible Assets
A.
Composition:
Cost
Balance as at January 1, 2015
Acquisitions as part of business combinations
Acquisitions – self development
Disposals
Reclassification
Translation differences
Balance as at December 31, 2015
Amortization and impairment
Balance as at January 1, 2015
Amortization for the year
Acquisitions – business combination
Disposals
Reclassification
Impairment
Translation differences
Balance as at December 31, 2015
Carrying value
As at January 1, 2015
As at December 31, 2015
Customer
Goodwill
relationship* Software Others**
US$ thousands
Total
81,484
119
—
—
—
(2,022)
79,581
15,537
—
—
—
—
5,918
—
21,455
41,074
—
—
—
—
—
41,074
1,522
—
194
(8)
71
(3)
1,776
53,459
464
15,070
—
(177)
(10)
68,806
177,539
583
15,264
(8)
(106)
(2,035)
191,237
12,591
4,297
—
—
—
—
—
16,888
709
214
—
(8)
22
—
—
937
4,031
681
—
—
—
—
1
4,713
32,868
5,192
—
(8)
22
5,918
1
43,993
65,947
58,126
28,483
24,186
813
839
49,428
64,093
144,671
147,244
*
**
Comprise mainly identified intangible assets as a result of the business combination such as the acquisition of “customer relationships” and others in the
purchase of its subsidiaries and associates.
The 2015 additions in the caption “others” include mainly development cost. Expenditures incurred in the design and evaluation of future power plant
facilities in the countries in which the I.C. Power currently operates.
As of December 31, 2015, balance of “others” intangible assets mainly corresponds to cost incurred in the construction and improvements of public access
roads in connection with the CDA project.
F-55
Table of Contents
Note 14 – Intangible Assets (Cont’d)
A.
Composition (Cont’d)
Cost
Balance as at January 1, 2014
Acquisitions as part of business combinations
Acquisitions – self development
Disposals
Reclassification
Translation differences
Balance as at December 31, 2014
Amortization and impairment
Balance as at January 1, 2014
Amortization for the year
Acquisitions – business combination
Disposals
Reclassification
Impairment
Translation differences
Balance as at December 31, 2014
Carrying value
As at January 1, 2014
As at December 31, 2014
Customer
Goodwill
relationship* Technology* Software Others**
US$ thousands
Total
85,650
25,765
—
—
(28,367)
(1,564)
81,484
12,931
—
—
—
(12,931)
15,537
—
15,537
16,601
24,473
—
—
—
—
41,074
9,196
3,395
—
—
—
—
—
12,591
—
—
—
50,534 114,855 37,685 305,325
137 5,708 56,083
2,939 15,537 18,476
(196)
(196) —
(50,534) (116,142) (5,472) (200,515)
(1,634)
1,522 53,459 177,539
—
—
(71)
1
5,513
843
—
—
109 —
(196) —
47,436 67,883 6,296 143,742
747 10,498
109
(196)
(48,986) (72,582) (3,012) (137,511)
— — 15,537
(18) —
689
709 4,031 32,868
—
707
—
72,719
65,947
7,405
28,483
3,098 46,972 31,389 161,583
813 49,428 144,671
—
*
**
Comprise mainly identified intangible assets as a result of the business combination such as the acquisition of “customer relationships” and others in the
purchase of its subsidiaries and associates.
The 2014 additions in the caption “others” include mainly development cost. Expenditures incurred in the design and evaluation of future power plant
facilities in the countries in which the I.C. Power currently operates.
As of December 31, 2014, balance of “others” intangible assets mainly corresponds to cost incurred in the construction and improvements of public access
roads in connection with the CDA project.
F-56
Table of Contents
Note 14 – Intangible Assets (Cont’d)
B.
The total carrying amounts of intangible assets with a finite useful life and with an indefinite useful life or not yet available for use
Intangible assets with a finite useful life
Intangible assets with an indefinite useful life or not yet available for use
As at December 31
2014
2015
US$ thousands
25,673
121,571
147,244
30,002
114,669
144,671
C.
Examination of impairment of cash generating units containing goodwill
For the purpose of testing impairment, goodwill is allocated to the Group’s cash-generating units that represent the lowest level within the Group at
which the goodwill is monitored for internal management purposes.
The aggregate carrying amounts of goodwill is allocated to the cash-generating units are as follows:
Goodwill
I.C. Power and its subsidiaries
Other
* Goodwill arises from the following Group entities in I.C. Power (cash generating unit):
Nejapa
Kallpa
Surpetroil
AIE
As at December 31
2015
2014
US$ thousands
58,126
—
58,126
60,029*
5,918**
65,947
As at December 31
2014
2015
US$ thousands
40,693
10,934
6,383
116
58,126
40,693
10,934
8,402
—
60,029
*
**
Goodwill in Colombia and Israel’s subsidiary recorded in Columbian pesos and New Israeli shekels, respectively; translated into US dollars at the exchange
rate at the reporting date.
Goodwill in PGE of $6 million was impaired in 2015 (See Note 11.A.2.d)
D.
Impairment testing
The recoverable amount of each CGU is based on the estimated value in use using discounted cash flows. The cash flows are derived from the 5-year
budget.
The key assumptions used in the estimation of the recoverable amount are shown below. The values assigned to key assumptions represent
management of the Group´s assessment of future trends in the power sector and have been based on historic data from external and internal sources.
Discount rate
Peru
El Salvador
Colombia
Terminal value growth rate
2015
2014
In percent
7.4
10.0
9.2
1.2-2.0
6.9
9.2
11.1
1.2-2.0
The discount rate is a post-tax measure based on the characteristics of each CGU with a possible debt leveraging of 48% in 2015 and 43% in 2014.
F-57
Table of Contents
Note 14 – Intangible Assets (Cont’d)
The cash flow projections included specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate was determined
based on management of the Group´s estimate of the long term inflation.
In addition to the discount and growth rates, the key assumptions used to estimate future cash flows, based on past experience and current sector
forecasts, are as follows:
• Existing PPA signed
• Investment schedule – The management has used the updated investment schedule in countries in which those companies operate, in order that the
supply satisfies the demand growth in an efficient manner.
• The production mix of each country was determined using specifically-developed internal forecast models that consider factors such as prices and
availability of commodities, forecast demand of electricity, planned construction or the commissioning of new capacity in the country’s various
technologies.
• Fuel prices have been calculated based on existing supply contracts and on estimated future prices including a price differential adjustment specific
to every product according to local characteristics.
• Assumptions for energy sale and purchase prices and output of generation facilities are made based on complex specifically-developed internal
forecast models for each country.
• Demand – Demand forecast has taken into consideration the most probable economic performance as well as growth forecasts of different sources.
• Technical performance- The forecast take into consideration that the power plants have an appropriate preventive maintenance that permits their
proper functioning.
Sensitivity to changes in assumptions
With regard to the assessment of value in use of the CGUs, the management of the Group believes that minor changes in the above key assumptions
may affect materially the recoverable amount of Surpetroil such that the carrying value ($6,383 thousand as of December 31, 2015) may exceed its
recoverable amount. Other than that, management of the Group believes that no reasonably possible change in any of the above key assumptions
would cause the recoverable amounts to be materially below the respective carrying values of Nejapa, Kallpa and AIE.
F-58
Table of Contents
Note 15 – Loans and Debentures
Following are the contractual conditions of the Group’s interest bearing loans and credit, which are measured based on amortized cost. Additional information
regarding the Group’s exposure to interest risks, foreign currency and liquidity risk is provided in Note 30, in connection with financial instruments.
Current liabilities
Short-term credit:
Short-term loans from banks and financial institutions
Current maturities of long-term liabilities:
Loans from banks and financial institutions
Non-convertible debentures
Liability in respect of financing lease
Total current liabilities
Non-current liabilities
Loans from banks and financial institutions
Non-convertible debentures
Liability in respect of financing lease
Other long-term balances*
Total other long-term liabilities
Less current maturities
Total non-current liabilities
As at December 31
2014
2015
US$ thousands
179,317
179,317
58,137
58,137
132,222
15,400
25,729
56,757
17,010
29,582
173,351 103,349
352,668 161,486
1,550,480 1,373,245
671,247 703,952
163,774 193,538
152,760
48,486
2,538,261 2,319,221
(173,351) (103,349)
2,364,910 2,215,872
* Included in the Other long-term balances were mainly the loan payable of $118,497 thousand to IC (See Note 1.B.2) and financial guarantees liability of
$34,263 thousand (See Note 19.A.1)
F-59
Table of Contents
Note 15 – Loans and Debentures (Cont’d)
Following are the contractual conditions of the Group’s interest bearing loans and credit, which are measured based on amortized cost. Additional information
regarding the Group’s exposure to interest risks, foreign currency and liquidity risk, is provided in Note 30, in connection with financial instruments.
A.
Composition of I.C. Power loans from Banks and Others
Short-term loans from banks and financial institutions
I.C.
Power
Distribution
Holdings
Credit Suisse (D)
Compañía
de
Electricidad
de
Puerto
Plata
(“CEPP”)
BHD Bank
Kallpa
Generación
Banco de Crédito del Perú
Banco de Crédito del Perú
Scotiabank Perú
Cobee
Various entities
Nejapa
Scotiabank El Salvador
Banco America Central
I.C.
Power
Chile
Inv
Scotiabank
Cenergica
Banco America Central
Surpetroil
Various entities
PQP
Banco Industrial Guatemala
Subtotal
Long-term loans from Banks and others
Financial institutions:
Cerro
del
Aguila
(E)
Tranche A
Tranche B
Tranche 1D
Tranche 2D
Samay
I
(F)
Sumitomo /HSBC / Bank of Tokyo
Kallpa
Generación
(G)
Syndicated Loan – Various entities
Central
Cardones
(H)
Tranche One
BCI / Banco Itaú
Nominal annual
Interest rate
Currency Maturity Current
Non-
Current Current
Non-
Current
As at
December 31, 2015
$ thousands
As at
December 31, 2014
$ thousands
LIBOR + 4%
USD
2016
117,334
—
—
—
2.48% / 3.80%
USD
2016/2015
3,000
—
5,000
—
1.15%
0.69%
0.63%
USD
USD
USD
2015
2016
2016
—
30,000
15,000
—
—
—
29,107
—
—
—
—
—
5.50% / 6.00%
BOB
2016/2015
4,525
—
12,503
—
5.50%
4.25%
USD
USD
2016
2016
5,000
1,200
—
—
—
—
—
—
TAB + 1.20%
CLP
2016
489
—
—
—
4.25%
USD
2016
700
—
—
—
DTF+2.95%/4.15%
IBR+4.25%
4.75%
COP
USD
2016/2015
2015
2015
2,069
—
1,527
—
—
179,317
—
—
10,000
58,137
—
—
LIBOR+4.25% –
LIBOR +5.50%
LIBOR+4.25% –
LIBOR +6.25%
LIBOR+2.75% –
LIBOR +3.60%
LIBOR+2.75% –
LIBOR +3.60%
LIBOR+2.125% –
LIBOR +2.625%
USD
2024
4,199
306,064
—
257,022
USD
2024
2,261
164,803
—
138,396
USD
2024
519
37,827
—
31,766
USD
2027
280
20,369
—
17,105
USD
2021
3,030
282,369
—
144,636
LIBOR+6.00%
USD
2019
17,384
41,279
13,895
58,663
LIBOR+1.9%
USD
2021
3,535
22,008
3,276
25,536
F-60
Table of Contents
Note 15 – Loans and Debentures (Cont’d)
A.
Composition of I.C. Power loans from Banks and Others (Cont’d)
Tranche Two
BCI / Banco Itaú
Colmito
(I)
Banco Bice
Consorcio
Eólico
Amayo,
S.A.
(J)
Banco Centroamericano de Integración Económica
Consorcio
Eólico
Amayo
(Fase
II),
S.A.
(K)
Various entities
Empresa
Energética
Corinto,
Ltd.
Banco de América Central (BAC)
Tipitapa
Power
Company,
Ltd.
Banco de América Central (BAC)
Jamaica
Private
Power
Company
Royal Bank of Canada
Burmeister & Wain Scandinavian Contractor A/S
PQP
(L)
Banco Industrial
Surpetroil
S.A.S
Banco Corpbanca Colombia S.A
Banco Pichincha
OPC
Rotem
Ltd
Lenders Consortium (M)
Veolia Energy Israel Ltd. (N)
I.C.
Power
Israel
Ltd
(O)
Facility A – Amitim and Menora Pension Funds
Facility B – Amitim and Menora Pension Funds
I.C.
Power
Ltd
Bank Hapoalim New York
AGS
Veolia Energy Israel Ltd
Sub total
Liabilities in respect of finance leases:
Kallpa Generación
Banco de Crédito del Perú/ Citibank (P)
Banco de Crédito del Perú (Q)
Scotiabank Perú (R)
Banco de Crédito del Perú (S)
Surpetroil S.A.S.
Banco de Occidente S.A.
Sub total
As at
December 31, 2015
$ thousands
As at
December 31, 2014
$ thousands
Nominal annual
Interest rate
Currency Maturity Current
Non-
Current
Current
Non-
Current
LIBOR+2.75%
USD
2017 —
17,884 —
19,384
7.90%
CLP
2028
524
15,799
622
19,176
8.45% -LIBOR +4%
USD
2023
4,428
42,704 4,533
47,147
LIBOR+5.75%,8.53%,10.76% USD
2025
2,930
31,279 2,838
34,209
8.35%
8.35%
USD
2018
2,865
6,527 2,634
9,392
USD
2018
2,568
6,130 1,951
5,781
LIBOR + 5.50%
3.59%
USD
USD
2017
2018
4,011
326
— 2,983
315
571
3,990
897
LIBOR + 4.50%
USD
2019
4,268
10,743 4,757
17,034
3.95%
7.33%
COP
COP
2015 —
128
2017
—
135
95 —
—
—
4.85% - 5.36%
NIS
2031 16,272 360,295 18,818 381,246
19,060
2016
— —
5,080
4.85%/7.75%
7.75%
NIS
NIS
2016 41,313
4,251
2029
— —
51,020 —
39,902
53,203
1.25%
NIS
2016 12,000
— —
12,003
NIS
2017 —
—
132,172 1,418,180 56,757 1,335,548
414 —
LIBOR+3.00%
LIBOR+2.05%
7.57%
7.15%
USD
USD
USD
USD
2016
2017
2018
2023
2,334
8,802
7,508
6,624
— 8,901
19,865 6,473
30,248 7,140
87,816 6,624
2,335
28,667
37,755
94,440
DTF + 3.5%
COP
F-61
2017
461
759
116
25,729 138,045 29,582 163,956
444
Table of Contents
Note 15 – Loans and Debentures (Cont’d)
A.
Composition of I.C. Power loans from Banks and Others (Cont’d)
Debentures
Cobee
Bonds Cobee II (T)
Bonds Cobee III-1B (U)
Bonds Cobee III-1C (bolivianos) (U)
Bonds Cobee III-2 (U)
Bonds Cobee III-3 (bolivianos) (U)
Bonds Cobee IV-1A (V)
Bonds Cobee IV-1B (V)
Bonds Cobee IV-1C (bolivianos) (V)
Cobee Bonds-IV Issuance 3 (V)
Cobee Bonds-IV Issuance 4 (bolivianos) (V)
Kallpa Generación
Kallpa Bonds (W)
Inkia Energy Ltd
Inkia Bonds (X)
Cepp
Cepp Bonds (Y)
Cobee
Cobee Bonds (Premium)
Subtotal
Total
Nominal annual
Interest rate
Currency Maturity Current
Non-
Current
Current
Non-
Current
As at
December 31, 2015
$ thousands
As at
December 31, 2014
$ thousands
9.40%
6.50%
9.00%
6.75%
7.00%
6.00%
7.00%
7.80%
6.70%
7.80%
8.50%
USD
USD
BOB
USD
BOB
USD
USD
BOB
USD
BOB
2015
2017
2020
2017
2022
2018
2020
2024
2019
2024
—
1,750
—
—
—
—
—
—
—
—
—
6,803
1,750 —
6,343 —
5,000 —
6,160 —
3,977 —
3,972 —
12,023 —
4,961 —
15,035 —
—
3,500
6,343
5,000
6,160
3,967
3,964
12,020
4,950
15,029
USD
2022
13,650 135,455 10,207 149,105
8.375%
USD
2021
— 447,524 — 447,357
6.00%
USD
2019
—
9,924 —
24,755
USD-BOB 2017-2024 —
3,723 —
4,792
15,400 655,847 17,010 686,942
352,618 2,212,072 161,486 2,186,446
DTF: “ Depósitos
a
Término
Fijo
”. Fixed-term deposits rate calculated by Colombia’s Central Bank.
IBR: “ Indicador
Bancario
de
Referencia
”. Bank Indicator of Reference calculated by Colombia’s Central Bank.
TAB: “ Tasa
Activa
Bancaria
”. Short-term credits average interest rate calculated by Chile’s Bank’s Association.
TRE: “Tasa
de
Referencia”
. Weighted average for time deposits rates, calculated by Bolivia’s Central Bank.
F-62
Table of Contents
Note 15 – Loans and Debentures (Cont’d)
B.
Classification based on currencies and interest rates
Current liabilities (without current maturities)
Short-term loans from financial institutions
In dollars
In other currencies
Long-term liabilities (including current maturities)
Non-convertible debentures
In dollars
In other currencies
Loans from financial institutions
In dollars
In unlinked shekels
In other currencies
Weighted-
average
interest rate
December 31
2015
%
As at December 31
2015
2014
US$ thousands
3.57%
6.13%
172,234
7,083
179,317
15,000
43,137
58,137
8.21%
6.14%
629,014
42,233
671,247
661,200
42,752
703,952
5.10%
5.69%
7.87%
1,043,289
490,645
16,546
1,550,480
860,145
493,169
19,931
1,373,245
2,221,727
2,077,197
C.
Liability in respect of financing lease
Information regarding the financing lease liability broken down by payment dates is presented below:
Less than one year
From one year to five years
More than five years
As at December 31, 2015
As at December 31, 2014
Minimum
future
lease
rentals
Interest
component
Present
value of
minimum
lease
rentals
Minimum
future
lease
rentals
US$ thousands
Present
value of
minimum
lease
rentals
Interest
component
35,501
134,976
31,454
201,931
9,772 25,729 40,722
26,053 108,923 153,396
2,332 29,122 48,725
38,157 163,774 242,843
11,140 29,582
33,122 120,274
5,043 43,682
49,305 193,538
F-63
Table of Contents
Note 15 – Loans and Debentures (Cont’d)
Short-term loans from banks
D.
Credit
Suisse
– On December 29, 2015, I.C. Power Distribution Holdings Pte. Ltd., together with certain of its subsidiaries, executed a one-year secured
credit agreement with Credit Suisse AG in an aggregate principal amount of $ 120,000 thousand to finance a portion of the acquisition of Estrella
Cooperatief B.A., a holding company that indirectly owns 90.6% and 92.7% of two operating companies that operate an electricity distribution business in
Guatemala and 100% of two smaller related businesses (the acquired businesses are referred to as “Energuate”). The loan under this facility bears interest on
a quarterly basis at LIBOR plus a margin of 4% per annum and was secured with the shares of Estrella Cooperatief B.A. For additional information see Note
32.
As of December 31, 2015, the outstanding principal amount under this facility was $ 120,000 thousand. ($ 117,334 thousand, net of transaction costs).
Long term loans from banks and others
E.
In August 2012, CDA, as borrower, Sumitomo Mitsui Banking Corporation, as administrative agent, Sumitomo Mitsui Banking Corporation, as SACE agent,
the Bank of Nova Scotia, as Offshore Collateral Agent, Scotiabank Perú, S.A.A., as onshore collateral agent, and certain financial institutions, as lenders,
entered into a senior secured syndicated credit facility for an aggregate principal amount not to exceed $ 591,000 thousand to finance the construction of
CDA’s project. Loans under this facility will be disbursed in three tranches.
The loans under this credit agreement are secured by CDA’s power plant and related assets, comprise three tranches and bear interest payable on quarterly
basis in arrears at a rate of LIBOR plus a margin. The margin applicable to each tranche is as follows:
Tranche
A
B
D
* Up
to
Amount*
($)
341,843
184,070
65,000
From July 2014
to August 2017
From August 2017
to August 2020
From August 2020
to August 2023
From August 2023
to maturity
4.25%
4.25%
2.75%
4.75%
5.00%
3.25%
5.25%
5.75%
3.60%
5.50%
6.25%
3.60%
Tranche A loans under this facility, in an aggregate principal amount of up to $ 341,843 thousand, will initially bear interest at the rate of LIBOR plus
4.25% per annum, increasing over time beginning on the date after the interest payment date occurring after August 17, 2017 to LIBOR plus 5.50% per
annum from the date after the interest payment date occurring after August 17, 2023 through maturity. Principal of the Tranche A loans will be payable in 33
quarterly installments commencing on the first quarterly payment date occurring after the project acceptance by CDA. Tranche A loans will be guaranteed by
Corporación Financiera de Desarollo S.A. (COFIDE).
Tranche B loans under this facility, in an aggregate principal amount of up to $ 184,070 thousand, will initially bear interest at the rate of LIBOR plus
4.25% per annum, increasing over time beginning on the date after the interest payment date occurring after August 17, 2017 to LIBOR plus 6.25% per
annum from the date after the interest payment date occurring after August 17, 2023 through maturity. Principal of the Tranche B loans are payable on
August 17, 2024. Tranche B loans are guaranteed by COFIDE.
F-64
Table of Contents
Note 15 – Loans and Debentures (Cont’d)
Long term loans from banks and others (cont´d)
Tranche D loans under this facility, in an aggregate principal amount of up to $ 65,000 thousand, are divided in two parts: Tranche 1D, in an aggregate
principal amount of up to $ 42,250 thousand and Tranche 2D, in an aggregate principal amount of up to $ 22,750 thousand. Both parts will initially bear
interest at the rate of LIBOR plus 2.75% per annum, increasing over time beginning on the date the interest payment date occurring after August 17, 2017 to
LIBOR plus 3.60% per annum from the date after the interest payment date occurring after August 17, 2023 through maturity. Principal of Tranche 1D and
Tranche 2D will be payable in 33 and 12 quarterly installments, respectively. Tranche 1D payments will commence on the first quarterly payment date
occurring after the project acceptance by CDA and Tranche 2D payments will commence 33 quarters after project acceptance by CDA. All Tranche D loans
are secured by a credit insurance policy provided by SACE S.p.A. – Servizi Assicurativi del Commercio Estero, or SACE.
On August 17, 2013 CDA entered into interest rate swap closings: 100% of Tranche A was swapped at a fixed all-in interest rate of 7.2450% until August
2024 and 50% of Tranche B was swapped at a fixed all-in interest rate of 5.3777% until February 2016.
As of December 31, 2015, CDA has received proceeds from these facilities in the aggregate amount of $ 547,000 thousand ($ 85,000 thousand, $
319,000 thousand and $ 143,000 during 2015, 2014 and 2013, respectively). This amount is shown net of $ 10,678 thousand of transaction costs.
F.
G.
H.
In December 2014, Samay I S.A. signed a project finance credit agreement with: The Bank of Tokyo-Mitsubishi, Sumitomo Mitsui Banking Corporation and
HSBC Bank in order to finance $ 311,000 thousand, approximately 82% of the total cost of the project. This loan will initially bear interest at the rate of
LIBOR plus 2.125% per annum, increasing to LIBOR plus 2.375% in December 2017 and to LIBOR plus 2.625% in December 2020 through maturity in
December 2021. On December 18, 2014 Samay entered into an interest rate swap closing at a fixed all-in interest rate of 2.919% (Libor at 0.794 plus
2.125%) for 40% of total notional and only during the construction period. On September 16, 2015 Samay entered into an interest rate swap closing at a
fixed all-in interest rate of 4.2343% for 93% of total notional beginning after the construction period. Samay has received proceeds from this facility in the
aggregate amount of $ 291,000 thousand ($ 138,000 thousand and $ 153,000 thousand, during 2015 and 2014, respectively). This amount is shown net of $
5,601 thousand of transaction costs.
Kallpa
Syndicated
Loan
-
In November 2009, Kallpa entered into a secured credit agreement in the aggregate amount of $ 105,000 thousand to finance
capital expenditures related to Kallpa’s combined-cycle plant. The loans under this credit agreement are secured by Kallpa’s combined-cycle plant
substantially all of Kallpa’s other assets, including Kallpa’s revenues under its PPAs. The loan under this credit agreement bears interest payable monthly in
arrears at a rate of LIBOR plus a margin of 5.50% per annum through November 2012, 5.75% per annum from November 2012 through November 2015 and
6.00% from November 2015 through maturity in October 2019. Scheduled amortizations of principal are payable monthly commencing in February 2013
through maturity in October 2019. As of December 31, 2015, the outstanding balance under this credit agreement was $ 58,663 thousand ($ 72,558 thousand
as of December 31, 2014).
In connection with Inkia´s acquisition of Central Cardones in December 2011, Inkia consolidated the amounts outstanding under Central Cardones’ credit
agreement entered with Banco de Crédito e Inversiones and Banco Itaú Chile. The loans under this credit agreement were issued in two tranches of $
37,296 thousand and $ 20,884 thousand, respectively. Loans under the first tranche bear interest at the rate of LIBOR plus 1.9% per annum, and the principal
of this tranche is payable in 20 semi-annual installments through maturity in August 2021. Interest rate under these loans is swapped at an all-in rate of
6.80%. Loans under the second tranche bear interest at the rate of LIBOR plus 2.75% per annum, interest is payable semi-annually, and the loan matures in
February 2017. As of December 31, 2015, the outstanding principal amount under these loans was $ 43,427 thousand ($ 48,196 thousand as of December 31,
2014).
F-65
Table of Contents
Note 15 – Loans and Debentures (Cont’d)
Long term loans from banks and others (cont´d)
I.
J.
K.
L.
In January 2014, Colmito Spa signed a credit agreement with Banco Bice in an aggregate amount of Chilean pesos 12,579,160 thousand ($ 22,600 thousand).
This loan bears an interest rate of 7.9% in Chilean pesos and is paid semiannually until final maturity in December 2028. In February 2014 Colmito entered
into a cross currency swap closing at a fixed interest rate of 6.025% in U.S. Dollars. As of December 31, 2015, the outstanding balance under this loan was $
16,323 thousand ($ 19,798 thousand as of December 31, 2014).
Consorcio Eolico Amayo S.A. – In October 2007, Amayo I entered into a 15 year $ 71,250 thousand loan agreement with Banco Centroamericano de
Integración Economica (CABEI). This loan is secured by a first degree mortgage over all the improvements executed on Amayo I´s project site, cessation of
all the project contracts and the creation and maintenance of a reserve account for $ 2,400 thousand, to be controlled by CABEI. Part of this loan ($ 50,343
thousand) bears an interest rate of 8.45% and the other part ($ 20,907 thousand) an interest rate of LIBOR+4%, and is payable in quarterly installments until
final maturity in February 2023. As of December 31, 2015, the outstanding balance under this loan was $ 47,131 thousand ($ 51,680 thousand as of
December 31, 2014).
Consorcio
Eolico
Amayo
(Fase
II)
S.A.
–
In November 2010, Amayo II entered into a 15 year $ 45,000 thousand loan agreement with Nederlandse
Financierings-Maatschappij Voor Ontwikkelingslanden N.V (FMO) Banco Centroamericano de Integración Economica (CABEI). This syndicated loan is
secured by a list of guarantees. Loans under this credit agreement bear interest rates of 10.76%, 8.53% and LIBOR+5.75%. Loans with variable interest rate
are swapped at an all-in rate of 8.31% until December 2019 and 8.25% from December 2019 until September 2022. All three loans are payable in quarterly
installments until final maturity in September 2025. As of December 31, 2015, the outstanding balance under this loan was $ 34,210 thousand ($
37,047 thousand as of December 31, 2014).
Puerto Quetzal Power LLC – In March 2012, Puerto Quetzal Power LLC (“PQP”) signed a loan agreement with seven financial institutions for an amount of
$ 35.0 million. The loan is payable in quarterly installments until September 2019. Interest is accrued at LIBOR plus 4.5% annually. PQP entered into an
interest rate swap contract to fix its interest at a rate of 6.0% per annum. The loan is secured by a pledge of substantially all of the assets of PQP and Poliwatt
Ltd (“Poliwatt”), including PQP and its subsidiaries shares. As of December 31, 2015, the outstanding balance under this loan was $ 15,011 thousand ($
21,791 thousand as of December 31, 2014).
M. OPC
Lenders
Consortium
In January 2011, OPC entered into a financing agreement with a consortium of lenders led by Bank Leumi L’Israel Ltd (“Bank Leumi”) (shareholder of
Kenon – 14% shareholding) for the financing of its power plant project. The financing consortium includes Bank Leumi and institutional entities from the
following groups: Clal Insurance Company Ltd.; Amitim Senior Pension Funds; Phoenix Insurance Company Ltd.; and Harel Insurance Company Ltd
(“OPC’s lenders”). As part of the financing agreement, the lenders committed to provide OPC a long-term credit facility (including a facility for variances in
the construction costs), a working capital facility, and a facility for financing the debt service, in the overall amount of approximately NIS 1,800 million
(approximately $460 million). The loans are CPI linked and are repaid on a quarterly basis beginning in the fourth quarter of 2013 until 2031. As part of the
financing agreement, OPC had certain restrictions to make distributions of dividends and repayments of shareholders’ loans, only after the third year after the
completion of OPC’s power plant. On October 13, 2015, OPC and the senior lenders amended the Facility Agreement to remove this restriction.
As part of the Facility Agreement, OPC is required to keep a Debt Service Reserve equivalent to the following two quarterly debt payments (hereinafter- “the
reserve”) within the period of two years following power plant construction completion. As of December 31, 2015 the amount of the reserve is NIS
66,210 thousand (equivalent to $ 16,968 thousand).
As of December 31, 2015 and 2014, the outstanding balance under this facility was NIS 1,469,363 thousand ($ 376,567 thousand) and NIS
1,555,847 thousand ($ 400,064 thousand), respectively.
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Table of Contents
Note 15 – Loans and Debentures (Cont’d)
N.
Veolia
Energy
Israel
Ltd.
–
It corresponds to equity contributions made by Veolia Energy Israel Ltd. (previously Dalkia Israel Ltd.) (OPC´s minority
shareholder) and presented as a capital note.
On October 19, 2015, OPC paid to its shareholders in the amount of NIS 222,496 thousands (approximately $ 57,911 thousand) as repayment of these capital
notes, of which NIS 59,000 thousand (approximately $ 15,357 thousand) were paid to Veolia Energy Israel Ltd.
As of December 31, 2015 and 2014 the balance of the capital notes is NIS 19,821 thousands ($ 5,080 thousand) and NIS 71,649 thousands ($ 19,060
thousand), respectively.
O.
I.C.
Power
Israel
Ltd.
(“ ICPI”)
– On June 22, 2014, ICPI entered into a mezzanine financing agreement with Mivtachim Social Insurance and Makefet
Fund Pension (“Amitim Pension Funds”) and Menora Mivtachim Insurance Ltd in the aggregate amount of NIS 350,000 thousand ($ 93,105 thousand),
consisting of three Facilities: (i) Tranche A bridge loan for NIS 150,000 thousand, bearing interest of 4.85% p.a. to be repaid until March 31, 2017;
(ii) Tranche B long-term loan for NIS 200,000 thousand, bearing interest of 7.75% p.a., repayable on annual basis until March 2029; and (iii) Tranche C
(only to cover shortfall amounts) for NIS 350,000 thousand. As of December 31, 2015, no disbursements have been made under Tranche C. These loans are
linked to CPI.
As of December 31, 2015 and 2014, the outstanding balance under this facility was NIS 376,872 thousand ($ 96,584 thousand) and NIS 362,085 thousand ($
93,105 thousand), respectively.
During January 2016, Tranche A was prepaid for a total of NIS 161,746 thousand (approximately $ 40,680 thousand).
Liabilities in respect of finance leases
P.
Q.
R.
S.
Citibank Perú and Banco de Crédito del Perú—In March 2006, Kallpa entered into a capital lease agreement with Citibank del Perú S.A., Citileasing S,A.
and Banco de Crédito del Perú under which the lessors provided financing for the construction of the Kallpa I facility at Chilca in an aggregate amount of $
56,000 thousand. Under the lease agreements, Kallpa will make monthly payments beginning in December 2007 until the expiry of the lease in March 2016.
These leases are secured by the assets of Kallpa in Peru. As of December 31, 2015, the aggregate outstanding principal amount under this lease was $
2,334 thousand ($ 11,236 thousand as of December 31, 2014). The lease bears an interest rate of 90 day LIBOR plus 3.00%.
Banco
de
Crédito
del
Perú
-
In December 2007, Kallpa entered into a capital lease agreement with Banco de Crédito del Perú under which the lessor
provided financing for the construction of the Kallpa II turbine in an aggregate amount of $ 81,500 thousand. Under the lease agreement, Kallpa will make
monthly payments beginning in December 2009 until the expiry of the lease in December 2017. These leases are secured by the assets of Kallpa in Peru. As
of December 31, 2015, the aggregate outstanding principal amount under this lease was $ 28,667 thousand ($ 35,140 thousand as of December 31, 2014).
The lease bears an interest rate of 90 day LIBOR plus 2.05%. Kallpa entered into an interest rate swap to fix the interest rate at an all-in rate of 6.55%, see
note 17(b).
Scotiabank
-
In October 2008, Kallpa entered into a capital lease agreement with Scotiabank Perú under which the lessor provided financing for the
construction of the Kallpa III turbine in an aggregate amount of $ 88,000 thousand. Under the lease agreement, Kallpa will make monthly payments
beginning in September 2010 until the expiry of the lease in July 2018. As of December 31, 2015, the aggregate outstanding principal amount under this
lease was $ 37,756 thousand ($ 44,895 thousand as of December 31, 2014). The lease bears a fixed interest rate of 7.57% p.a.
In April 2014, Kallpa entered into a capital lease agreement with Banco de Crédito del Perú for $ 107,688 thousand in order to finance the acquisition of the
193MW single turbine natural gas fired plant Las Flores from Duke Energy. Under the lease agreement, Kallpa will make quarterly payments beginning in
July 2014 until the expiry of the lease in October 2023. As of December 31, 2015, the aggregate outstanding principal amount under this lease was $
94,440 thousand ($ 101,064 thousand as of December 31, 2014). The lease bears a fixed interest rate of 7.15% p.a.
F-67
Table of Contents
Note 15 – Loans and Debentures (Cont’d)
Debentures
T.
U.
V.
Bonds Cobee II – In October 2008, COBEE issued and sold in the Bolivian market $ 20,403 thousand aggregate principal amount of its 9.40% notes due
2015 Interest is escrowed monthly by the trustee and is paid semiannually. Principal on these notes is payable in three equal installments in 2013, 2014 and
2015. As of December 31, 2015, the total principal amount under these bonds was fully paid (the aggregate outstanding principal amount was $
6,803 thousand as of December 31, 2014).
Bonds Cobee III – In February 2010, COBEE approved a bond program under which it is permitted to offer bonds in aggregate principal amounts of up to $
40,000 thousand in multiple series. On March 12, 2010, COBEE issued and sold in the Bolivian market three series of notes in the aggregate principal
amount of $ 13,844 thousand.
The aggregate gross proceeds of these notes, which were issued at a premium, were $ 17,251 thousand. The Series A Notes, in the aggregate principal
amount of $ 4,000 thousand pay interest semi-annually at the rate of 5.00% per annum through maturity in February 2014. Principal on these notes is payable
at maturity. The Series B Notes, in the aggregate principal amount of $ 3,500 thousand, pay interest semi-annually at the rate of 6.50% per annum through
maturity in February 2017. Principal on these notes will be paid in two equal annual installments commencing in February 2016. The Series C Notes, in the
principal amount of Bs. 44.2 million ($ 6,343 thousand), pay interest semi-annually at the rate of 9.00% per annum through maturity in January 2020.
Principal on these notes will be paid in four equal annual installments commencing in February 2017.
In April 2012, COBEE issued and sold two additional series of notes in the aggregate principal amount of $ 11,160 thousand. The aggregate gross proceeds
of these notes, which were issued at premium, were $ 12,919 thousand. COBEE will amortize the premium reducing the interest expense related to these
notes. The first series of these notes, in the aggregate of $ 5,000 thousand pays interest semi-annually at the rate of 6.75% per annum through final maturity
in April 2017. Principal on these notes is payable at maturity. The second series of these notes in the aggregate principal amount of Bs. 43 million ($ 6,160
thousand), pays interest semi-annually at the rate of 7% per annum through maturity in February 2022. These funds were used mainly to pay a tranche of
Bolivian bonds due in June 2012.
Bonds Cobee IV – In May 2013, COBEE approved a bond program under which COBEE is permitted to offer bonds in aggregate principal amount of up to $
60,000 thousand in multiple series. In February 2014, COBEE issued and sold three series of notes in the aggregate principal amount of $ 19,934 thousand.
The aggregate gross proceeds of these notes, which were issued at a premium, were $ 20,617 thousand. The Series A Notes, in the aggregate principal
amount of $ 3,967 thousand pay interest semi-annually at the rate of 6.0% per annum through maturity in January 2018. The Series B Notes, in the aggregate
principal amount of $ 3,964 thousand pay interest semi-annually at the rate of 7.0% per annum through final maturity in January 2020. The Series C Notes,
in the aggregate principal amount of Bs. 84 million ($ 12,020 thousand) pay interest semi-annually at the rate of 7.8% per annum through maturity in January
2024.
In November 2014, COBEE issued and sold two series of notes in the aggregate principal amount of $ 20,086 thousand. The aggregate gross proceeds of
these notes, which were issued at a premium, were $ 22,100 thousand. The first series of these Notes, in the aggregate principal amount of $ 4,950 thousand
pay interest semi-annually at the rate of 6.70% per annum through maturity in October 2019. The second series of these notes in the aggregate principal
amount of Bs. 105 million ($ 15,029 thousand) pay interest semi-annually at the rate of 7.80% per annum through maturity in October 2024.
F-68
Table of Contents
Note 15 – Loans and Debentures (Cont’d)
W. Kallpa Bonds – In November 2009, Kallpa issued $ 172,000 thousand aggregate principal amount of its 8.5% Bonds due 2022. Holders of these bonds are
required to make subscription payments under a defined payment schedule during the 21 months following the date of issue. The proceeds of these bonds
were used for capital expenditures related to Kallpa’s combined-cycle plant. Interest on these bonds accrues based on the principal received by Kallpa and is
payable quarterly. Principal amortization payments under these bonds in amounts varying between 0.25% and 5.00% of the outstanding principal amount of
these bonds commenced in May 2014 and will continue until maturity in May 2022. These bonds are secured by Kallpa’s combined-cycle plant and related
assets. As of December 31, 2015, the aggregate outstanding principal amount of these bonds was $ 149,105 thousand ($ 159,312 thousand as of
December 31, 2014).
X.
Inkia Bonds – On April 4, 2011, Inkia issued senior unsecured notes for an aggregate principal amount of $ 300,000 thousand in the international capital
market under the rule 144A Regulation S. These notes accrue interest at a rate of 8.375% and will be payable semi-annually with final maturity in April 2021
and were recognized initially at fair value plus any directly attributable transaction costs. The proceeds from this issue were used mainly to finance Inkia’s
equity contribution in the construction of the CDA Project and to repurchase all of the Inkia Bonds.
On September 9, 2013, Inkia reopened its 8.375% senior notes due 2021 for an aggregate principal amount of $ 150,000 thousand. The new notes have terms
and conditions identical to the initial $ 300,000 thousand notes issued on April 4, 2011 and were issued at 104.75% plus accrued interest from April 4, 2013,
resulting in gross proceeds of $ 157,125 thousand plus $ 5,653 thousand of accrued interest. The proceeds from this issue will be used mainly for working
capital and general corporate purposes. Subsequent to initial recognition, these notes are measured at amortized cost using the effective interest method. As
of December 31, 2015, the outstanding principal amount under these notes was $ 447,524 thousand ($ 447,357 thousand as of December 31, 2014).
On September 5, 2014, Inkia requested the consents to its bondholders regarding certain proposed amendments to the Indenture: (i) Perform the IC split
without being required to repurchase the bonds at a price equal to 101% of the aggregate principal; (ii) Request the repayment of the $ 150,000 thousand
Credit Suisse/I.C. Power/Inkia Loan from the net proceeds of the Edegel sale; and (iii) Extend the investment period of the net proceeds from the Edegel sale
from 12 to 30 months.
On September 16, 2014, the I.C.Power received the consent to reinvest the Net Cash Proceeds related to the Acter Disposition within 30 months (originally
was 365 days) of such asset sale.
Inkia must reinvest the net cash proceeds from the Edegel sale ($235 million). As of December 31, 2015, Inkia has used $96 million of these net proceeds, to
reinvest or to repay qualifying debt pursuant to the terms of such indenture. As a result of Energuate acquisition in January 2016, described in Note 32, Inkia
has fully invested the net cash proceeds from the Edegel Sale.
Y.
In December 2010, CEPP approved a program bond offering under which CEPP is permitted to offer bonds in aggregate principal amount of up to $
25,000 thousand in multiple series. In 2011 and 2010, CEPP issued and sold $ 20,326 thousand and $ 4,674 thousand of its 7.75% Bonds. CEPP used the
proceeds of this offering to finance its continuing operations and repay intercompany debt. Interest on these bonds is payable monthly and principal of these
bonds is due at maturity in May 2014. During the first quarter of 2014, CEPP issued and sold $ 25,000 thousand of its 6.00% Bonds due in January and
March 2019. Part of these funds was used to prepay $ 15,000 thousand of its 7.75% Bonds outstanding due in May 2014. In October 2015, $
15,000 thousand in CEPP’s bonds were repurchased. As of December 31, 2015, the outstanding principal amount net of transaction costs under these notes
was $ 9,924 thousand ($ 24,755 thousand as of December 31, 2014).
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Table of Contents
Note 15 – Loans and Debentures (Cont’d)
Z.
As at December 31, 2015 and 2014, the main covenants that certain Group entities must comply with during the term of the debts are as follows:
Group entities
Kallpa Generación S.A.
COBEE (Bonds)
Central Cardones
JPPC (Jamaica)
Amayo I (Nicaragua)
Amayo II (Nicaragua)
Shareholder
equity
Debt service
to coverage ratio
Maximum leverage
Interest rate
hedging
Covenant
Not less than 1.20
No more than 3.0
Required
Not required
Not required
Not required
Not required
>=1.2
>=1.1
<=1.2
Not required
Not less than 1.10
Debt to capital no more
than 40%
Not required
Not required
Not required
Not required
Not required
Not required
Not less than 1.25
Not required
Not required
Not less than 1.20
Financial debt to Net
Worth not in excess of
70:30
Corinto (Nicaragua)
Not required
Not required
Tipitapa (Nicaragua)
Not required
Not required
Maximum debt to EBITDA
of 3.0
Not required
Maximum debt to EBITDA
of 2.75.
Not required
Nejapa (El Salvador)
>= US$
40 million
>=1.50
<=3.0
Not required
Other than with respect to the covenants referred to above, and the restrictions set forth in Note 11.C, there are no significant restrictions on the ability of I.C.
Power’s subsidiaries to repay loans or advances or to transfer funds to I.C. Power.
Compliance with the covenants referred to above is overseen by the I.C. Power management. As of December 31, 2015, JPPC (Jamaica) does not comply with their
Debt service to coverage covenant. Therefore, its financial debt has been classified as current liability. Other than JPPC, in the I.C. Power management opinion, the
obligations have been complied with as of December 31, 2015 and 2014.
Note: Inkia has to comply only with incurrence ratios when it plans to issue new debt.
F-70
Table of Contents
Note 16 – Trade Payables
Trade Payables
Other Payables
Note 17 – Other Payables including Derivatives Instruments
Current liabilities:
Financial derivatives not used for hedging (b)
Financial derivatives used for hedging (b)
The State of Israel and government agencies
Employees and payroll-related agencies
Customer advances and deferred income
Accrued expenses
Employee benefits (c)
Interest payable
Other(a)
Non-current liabilities:
Financial derivatives not used for hedging (b)
Financial derivatives used for hedging (b)
As at December 31
2014
2015
US$ thousands
145,443
11
145,454
144,333
155
144,488
As at December 31
2014
2015
US$ thousands
1,080
11,480
4,504
4,229
1,483
10,819
—
22,307
52,971
108,873
1,318
14,868
562
3,039
1,526
16,369
1,750
17,260
57,473
114,165
2,196
33,429
35,625
2,798
18,247
21,045
(a)
(b)
It corresponds mainly to payables related to CDA and Puerto Bravo projects in the amount of $36 million and $30 million in 2015 and 2014 respectively.
As of December 31, 2015 and 2014, the derivatives maintained by the Group are as follow:
Hedge derivatives (i)
Interest rate swap (a)
Interest rate swap (b)
Interest rate swap (c)
Interest rate swap (d)
Interest rate swap (e)
Exchange rate swap (f)
Trading derivatives (ii)
Interest rate swap (g)
Interest rate swap (h)
Interest rate swap (i)
In thousands of $
Notional
amount
Fair value
2015
2014
67,500
384,093
100,683
124,400
15,553
158,270
—
(30,979)
(196)
(9,004)
(3,880)
(850)
(44,909)
(607)
(23,514)
(718)
(351)
(2,523)
(5,402)
(33,115)
42,000
14,500
8,443
(2,994)
(7)
(275)
(48,185)
(3,769)
(29)
(318)
(37,231)
F-71
Table of Contents
Note 17 – Other Payables including Derivatives Instruments (Cont’d)
(i)
Hedge derivatives
(a)
(b)
(c)
(d)
(e)
(f)
(ii)
(g)
(h)
(i)
Entity
Kallpa
CDA
CDA
Samay I
Colmito
CDA
Financing
Kallpa II lease
Syndicated
Syndicated
Syndicated
Loan
EPC payments in
Peruvian Nuevo Sol
Underlying item
Libor plus 2.05%
Libor plus 4.25%
Libor plus 4.25%
Libor plus 2.125%
7.90% in Chilean Pesos
Spot exchange rate in
Peruvian Nuevo Sol
Description
83% Kallpa II debt
100% -Tranche A
50% - Tranche B
93% total debt
69% total debt
S/403 million
Fixed rate
6.55%
7.25-8.50%
5.38%
4.23%
6.025% in $
S/2.546 for each $1
Expiration
May 2015
Aug 2024
Feb 2016
Dec 2021
Jun 2028
Jan 2016
The Group has three additional interest swap agreements that are accounted for as trading derivatives because these derivatives were already in place when
Inkia took control of the subsidiaries:
Entity
Cardones
JPPC
Amayo II
Amayo II
Financing
Syndicated
Loan
Syndicated
Syndicated
Underlying item
Description
Libor plus 1.9% 100% - Tranche I
Libor plus 5.5%
Libor plus 5.75% 84% - BCIE facility
Libor plus 5.75% 49% - BCIE facility
71%
Fixed rate
6.80%
6.46%
8.31%
8.25%
Expiration
Aug 2021
Mar 2017
Dec 2019
Sep 2022 (*)
(*)
starts in Dec 2019
The gain arising from the volatility of the fair value of these interest rate swaps (See Note 24). During 2015, 2014 and 2013, the Group recorded
gains/(losses) of $3,400 thousand, $(592) thousand and $2,645 thousand, respectively.
(c)
On December 27, 2011, OPC established a SARs plan (the “OPC Plan”) for a group of senior executives. The OPC Plan provides senior executives with the
economic benefit of up to 0.9% to the increase in appreciation between the base price at grant date of $194 per unit and the resulting valuation at the
settlement date (“exercise date”) of the OPC plan. The OPC Plan is subject to a vesting period which ended on December 31, 2012 and the lockup period
matures on December 31, 2016. The exercise date price is based on the value resulting from multiplying eight times of OPC’s EBITDA (earnings before
income tax during the preceding four fiscal quarters) less net financial liabilities (debt with financial institutions including accrued interest net of cash, part
of the restricted cash, and cash equivalents) and less $120 million. By the end of December 2013, OPC had granted 3,600 units. During 2014, 2,293 units
were exercised and $ 2,486 thousand of share appreciation rights payments were paid. As of December 31, 2014, the liability for the OPC Plan amounted to
$1,396 thousand. The OPC Plan was settled in full in 2015.
Note 18 – Provisions
A provision was recognized by an I.C. Power subsidiary as a result of a regulator charge. Expenses related to this provision were recognized in the cost of sales in
the amount of $(31,762) thousand and $51,875 thousand in 2015 and 2014, respectively.
Balance at January 1, 2015
Provision made during the year
Provision reversed to cost of sales during the year (see note19(g))
Effects of foreign currency
Balance at December 31, 2015
F-72
US$
thousands
69,882
14,657
(46,419)
3,566
41,686
Table of Contents
Note 19 – Contingent Liabilities, Commitments and Concessions
A.
Guarantees
1.
Financial guarantees
The Company has provided financial guarantees to Chery, in respect of an obligation of Qoros, in the amount of $179 million (see Note 10.C.b.3.).
The financial guarantees had a fair value of $34 million which was based on the inputs and the assumption that Qoros has a certain amount of risk-free
debt that will be repaid at a later date. The significant unobservable inputs used in the valuation are Qoros’ assets value, debt exercise price and the
volatility of its assets based on quoted prices in the market.
B.
Claims
1.
I.C. Power
a.
Nejapa Power Company, LLC
Legal process with a Minority shareholder
Crystal Power (“Crystal”), Nejapa’s minority shareholder brought claims against Nejapa Holdings and Inkia Salvadorian, Limited,
collectively, the Inkia Defendants, as well as against the majority shareholder of Nejapa Holdings, and certain subsidiaries of El Paso
Corporation (the former owner of Inkia’s interest in Nejapa Holdings), before the Court of the State of Texas at Brazoria County. The claims
against the Inkia Defendants included claims relating to an issuance of new shares to Crystal by Nejapa Holdings, and allegations that Crystal
had taken actions (i) preventing Nejapa Holdings from making distributions into an account opened by a New York Court as a result of an
interpleader action filed by Nejapa Holdings, (ii) causing Nejapa to distribute dividends disproportionately and (iii) causing Inkia Salvadorian,
Limited to use its majority position to harm Crystal. Crystal did not specify the amount of monetary damages against the Inkia Defendants.
The Inkia Defendants have asserted defenses in respect of these claims.
The plaintiff filed a request for partial summary judgment before the Texas State District Court of Brazoria County. The Brazoria Court
denied the motion. The Inkia Defendants filed a claim against the plaintiff in the Texas State District Court of Harris County requesting the
court to order the plaintiff to withdraw its claims pursuant to contractual undertakings under a settlement agreement entered into with El Paso
Corporation.
The Parties were ordered by the Brazoria Court to assist a mediation hearing during July 2014. No settlement resulted from such hearing. A
second mediation session was ordered by the Brazoria Court on October 30, 2014.
On December 31, 2014, the parties reached a settlement agreement in application of which the Inkia Defendants bought the shares of Crystal
in Nejapa Holdings for a consideration of $20,000 thousand which become effective on January 6, 2015. The parties agreed to file the
dismissal motions and judgments to the courts for filing and entry. The parties have agreed to release, discharge and forever hold harmless the
other party and each of their present and former parents, subsidiaries, affiliates, predecessors, managing agents, employees, among others. As
a result of this agreement, Inkia owns 100% of the shares in Nejapa Power LLC.
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Table of Contents
Note 19 – Contingent Liabilities, Commitments and Concessions (Cont’d)
b.
Cerro del Aguila (CDA)
Rio Mantaro Claim
In March 2015, CDA and the CDA EPC (engineering, procurement and construction) contractors amended the CDA EPC to address the claim
delivered by the EPC contractors to CDA in April 2014, which demanded a six-month extension for the construction of the CDA Project and
an approximately $92 million increase in the total contract price of the CDA Project. Pursuant to the amendment, the CDA EPC contractors
shall renounce any and all past, existing, or future claims against CDA, based on facts or events that occurred or were known, on or before the
date of the amendment, in exchange for CDA’s (i) payment of $40 million, subdivided into 4 payments over the course of the remaining
construction period and subject to the achievement of certain milestones, and (ii) grant of the extensions of the CDA Project construction
schedule that were previously requested by the CDA EPC contractors, which range between four and six months in length, depending upon
the applicable CDA unit.
The amendment to the CDA EPC was subject to the approval of the lenders under the CDA Project Finance Facility. Upon the receipt of such
approval, CDA paid the first of the four $10 million payments owed to the CDA EPC Contractors under the amendment on May 21, 2015. The
payment of the remaining $30 million will be contingent upon the CDA EPC contractors’ satisfaction of certain construction milestones
specified in the amendment to the CDA EPC.
CDA is expected to commence commercial operation in the second half of 2016. As a result of the settlement with the CDA EPC contractors,
the estimated cost of the CDA Project is not expected to exceed $960 million.
c.
Compañía Boliviana de Energía Electrica (“COBEE”)
Energy Tariff Adjustment in Bolivia
As a result of a tariff review conducted by Autoridad de Fiscalización y Control Social (“AE”), the Bolivian electricity supervisory authority,
the AE concluded that COBEE had collected excessive electricity tariffs equal to an amount of $ 7,300 thousand and as a result, the AE
determined COBEE’s account in the electricity price stabilization fund (the “Stabilization Account”) should be debited with said excess.
After several filings, the amount of the excess was reduced to approximately $ 5,219 thousand and the Stabilization Account was credited in
proportion to said reduction. COBEE continues to challenge this conclusion.
In September 2013, the AE issued Resolution 498-2014 (“Resolution VIII”), revoking resolutions V and VII and calculating an aggregate
adjustment amount of $ 5,400 thousand. Cobee challenged this last ruling, claiming review and recognition of $ 500 thousand as last
discussion item.
As of the date herein, the AE has issued Resolution 20-2014 (“Resolution IX”), accepting COBEE’s petition, in part, and ruling a $
5,000 thousand as aggregate adjustment amount for the tariffs period 2006-2008.
I.C. Power management considers that the result of these proceedings is uncertain. However, the risk derived from this process is immaterial
because COBEE has not recorded the net revenues assigned in the stabilization account due to COBEE’s inability to collect such balances.
These revenues offset the contingency described above.
d.
Kallpa Generación S.A.
Import Tax Assessment against Kallpa.
Since 2010, the Peru Customs Authority (known as “SUNAT” for its abbreviation in Spanish) issued tax assessments to Kallpa and its lenders
for payment of import taxes allegedly owed by Kallpa in connection with imported equipment for installation and construction of Kallpa I, II,
III and IV. The assessments were made on the basis that Kallpa did not include the value of the engineering services rendered by the
contractor of the project in the tax base of import taxes. Kallpa disagrees with this tax assessment on the grounds that the engineering services
rendered include the design of the plant and not the design of the imported equipment. Kallpa appealed the tax assessments before SUNAT in
first instance and before the Peruvian Tax Court (known as “Tribunal Fiscal”) in second instance. SUNAT and the Peruvian Tax Court are
administrative institutions under the Ministry of Economy and Finance. As of December 31, 2014, the decisions of the Peruvian Tax Court on
this matter were pending.
F-74
Table of Contents
Note 19 – Contingent Liabilities, Commitments and Concessions (Cont’d)
In January 2015, Kallpa was notified that the Tax Court rejected Kallpa’s appeal regarding the Kallpa I assessment. Kallpa disagrees with the court´s decision and
filed an appeal before the Superior Court of Lima in April 2015. In order to appeal, Kallpa had to pay under protest the tax assessment of Kallpa I in the amount of
approximately S/. 37.9 million ($12.3 million), include interests and fines.
As of the end of December 2015, the total tax exposure related to these assessments is as follows:
Kallpa I (1)
Kallpa II
Kallpa III
Kallpa IV (2)
Stage
Superior Court of Lima
Peruvian Tax Court
Peruvian Tax Court
SUNAT
Amount
(In million S/.)
32.5
22.2
21.4
30.0
106.1
Amount
(In million US$)
9.6
6.5
6.3
8.8
31.2
(1)
(2)
Amount recorded as a long-term account receivable, originally S/. 37.9 million but S/. 5.4 million (that corresponded to VAT) was recovered.
Amount reduced to S/. 0.8 million (S/. 0.5 million without interest) on January 27, 2016
On January 27, 2016, the amount of the claim in connection with Kallpa IV was reduced by S/. 17.2 million ($ 5.0 million) without interests, from S/. 17.7 million
to S/. 0.5 million (from $ 5.1million to $ 0.1million). On February 12, 2016, Kallpa filed an appeal against the part of the resolution that referred to insurance. As of
the date herein, such appeal is pending to be submitted by SUNAT to the Tax Court.
Management and the Company´s legal advisors are of the opinion that Kallpa´s appeals will be more likely than not successful; accordingly, no provision was
recorded in the financial statements.
C.
Commitments
I.C. Power
a.
I.C. Power Ltd
Guarantee party
OPC Rotem Ltd.
OPC Rotem Ltd.
OPC Rotem Ltd.
OPC Rotem Ltd.
OPC Rotem Ltd.
Advanced Integrated Energy Ltd.
Advanced Integrated Energy Ltd.
Advanced Integrated Energy Ltd.
Advanced Integrated Energy Ltd.
Description
Exposure of non-payment default resulting from “Ex post payments”
Facility agreement
Ensure payments of IPP Rotem Operation and Maintenance Ltd.
PUA/EA Standards requirements – infrastructure services
PUA/EA Standards requirements – infrastructure services
Conditional license
INGL agreement
GSPA agreement
Supply and generation licenses
As of December 31, 2015, I.C. Power has issued guarantees for a total amount of $ 42,349 thousand, as follows:
Amount
(In thousand NIS)
12,000
45,000
N/A
38,595
32,235
822
295
N/A
4,471
Amount
(In thousand)
3,184
11,940
350
10,240
8,553
218
78
6,600
1,186
Cash
Collateral
(In thousand)
—
22,500
—
—
—
—
—
—
—
In 2011, IC Power Israel Ltd. together with Israel Corporation, and Dalkia Israel Ltd, together with Dalkia International S.A, provided an owner’s guarantees of
NIS 80,000 thousand ($20,571 thousand) and NIS 20,000 thousand ($5,143 thousand), respectively, as part of the Facility Agreement. These guarantees are linked
to the CPI of November 2010. As of December 31, 2014, the amount of the guarantees was NIS 106,000 thousand ($27,256 thousand). In December 2014, in light
of Israel Corporation spinoff, OPC replaced IC guarantee with one from IC Power as well as NIS 45,000 thousand ($ 11,571 thousand) cash deposit as collateral.
F-75
Table of Contents
Note 19 – Contingent Liabilities, Commitments and Concessions (Cont’d)
b.
Inkia Energy Ltd
As of December 31, 2015, Inkia has issued standard by letters of credit for a total amount of $ 94,240 thousand (2014: $79,925 thousand) for
guarantee, as follows:
Guarantee party
Kanan overseas I, Inc
Kanan overseas I, Inc
Lihuen S.A.
Samay I S.A.
Cerro del Aguila S.A.
Kanan overseas I, Inc
Kanan overseas I, Inc
Kanan overseas II, Inc
Cerro del Aguila S.A.
Description
Power Purchase agreement
Storage and handling agreement
Bid Process in Chile
Bond performance
Contingent equity for over costs
Construction execution
Bid process in Panama
Bid process in Panama
Power Purchase agreement
As at December 31
2015
2014
Amount
(US$
Thousand)
18,334
600
1,300
15,000
36,701
9,200
2,475
8,750
376
Cash
Collateral
9,220(1)
—
902(2)
—
—
—
—
—
—
Amount
(US$
Thousand)
18,334
—
1,300
15,000
44,191
—
1,100
—
—
Cash
Collateral
9,200
—
—
—
—
—
1,100
—
—
(1)
(2)
Present as part of restricted cash non-current in the consolidated statement of financial position
Cash collateral for storage and handling agreement and Bid process in Chile
c.
Cobee, Bolivia
Concession from the Bolivia Government
As of December 2010, COBEE was engaged in the generation of electricity under a concession granted to it by the Government of Bolivia, in October 1990
for a period of 40 years. The Bolivian government unilaterally transformed by supreme decree, all concessions to generate, transmit and distribute electricity
to special temporary licenses. However, to date, the government has not issued regulations nor approved any procedure or guideline to convert such special
temporary licenses into permanent licenses.
Consolidation of COBEE Financial Statements
The Bolivian government under the mandate of Evo Morales has nationalized companies that were privatized during President Gonzalo Sánchez de Lozada’s
1993-1997 administration and some other companies that were never owned by the Bolivian government.
As of the date of this report, the Bolivian government has not taken any specific action nor threatened to take any specific action against COBEE. Currently,
I.C.Power has full control of COBEE´s operations and maintains all the associated economic rights and risks. Therefore, COBEE´s financial statements are
consolidated in the accompanying consolidated financial statements.
Power Purchase Agreement (PPA)
In March 2008, COBEE signed a long-term PPA agreement with Minera San Cristobal. Pursuant to the agreement, COBEE will supply 43 MW of
availability and energy, commencing from December 22, 2008. The PPA agreement provides a fixed price for availability, and an energy price that is linked
to the price of natural gas for production of electricity in Bolivia. Surplus energy and availability are sold in the spot market. The PPA agreement is
scheduled to expire in 2017.
In December 2011, the Bolivian Government amended the applicable law to prohibit generation companies from entering new PPAs. Therefore, COBEE will
be unable to extend or replace this PPA.
F-76
Table of Contents
Note 19 – Contingent Liabilities, Commitments and Concessions (Cont’d)
d.
Kallpa, Peru
Power Purchase Agreements (PPA)
As of December 31, 2015, Kallpa has entered into twenty seven PPAs with unregulated consumers to provide capacity and the associated energy of 522 MW
(twenty three PPAs of 510 MW as of December 31, 2014). These contracts have various commencement dates, and vary in duration between 2013 and 2028.
Also, as of December 31, 2015, Kallpa has signed twenty eight PPAs with 8 distribution companies for 660 MW (thirteen PPAs with 7 distribution
companies for 580 MW as of December 31, 2014).
The Peruvian market functions on the marginal cost method in which the generators bid their marginal cost to the market regulator who instructs the most
efficient generators to produce electricity for the system. In the event Kallpa is not capable to meet its commitments under the contracts, Kallpa will be
required to purchase energy in the spot market.
Gas Supply and Transportation
Kallpa purchases natural gas for its generation facilities from the Camisea consortium under an exclusive natural gas supply agreement dated January 2,
2006, as amended. Under this agreement, the Camisea Consortium agreed to supply Kallpa’s natural gas requirements, subject to a daily maximum amount
and Kallpa agreed to acquire natural gas exclusively from the Camisea Consortium.
The Camisea consortium is obligated to provide a maximum of 4,250,000 cubic meters of natural gas per day to our Kallpa plant and Kallpa is obligated to
purchase a minimum of approximately 2,225,000 cubic meters of natural gas per day as follows:
First gas turbine
Second gas turbine
Third gas turbine
Combined cycle
Total
Cubic meters per day
To be
provided by
Consortium
1,200,000
1,300,000
1,300,000
450,000
4,250,000
Minimum
Purchase
648,000
702,000
650,000
225,000
2,225,000
In the event that Kallpa does not consume the contracted minimum on any given day, Kallpa is permitted to use that lacking quantity on any day during the
course of the following 18 months from the day of under-consumption.
The price that Kallpa pays to the Camisea consortium for the natural gas supplied is based on a base price in U.S. dollars set on the date of the agreement,
indexed monthly based on a basket of market prices for heavy fuel oil, with discounts available based on the volume of natural gas consumed. This
agreement expires in June 2022.
Kallpa’s natural gas transportation services are rendered by Transportadora de Gas del Peru S.A. (“TGP”) pursuant to a natural gas firm transportation
agreement dated December 2007, as amended. In April 2014, this agreement was further modified to include the transportation agreement between Duke
Energy Egenor S. en C. por A. and Las Flores. Pursuant to the modified agreement, TGP is obligated to transport up to 3,354,182 cubic meters of natural gas
per day from the Camisea Consortium’s delivery point located at the Camisea natural gas fields to Kallpa’s facilities. This obligation will be reduced, first,
by approximately 199,312 cubic meters per day beginning in March 2020 and, second, 206,039 cubic meters per day beginning in April 2030 as follows:
From August 14, 2010 to March 31, 2014
From April 1, 2014 to March 20, 2020
From March 21, 2020 to March 31, 2030
From April 1, 2030 to December 31, 2033
F-77
Cubic
meters
per day
3,154,870
3,354,182
3,154,870
2,948,831
Table of Contents
Note 19 – Contingent Liabilities, Commitments and Concessions (Cont’d)
This agreement expires in December 2033. Additionally, Kallpa is party to two additional gas transportation agreements, to become effective at the
completion of the expansion of TGP’s pipeline facilities (which is currently expected to occur during the second half of 2016). Pursuant to the first
agreement, TGP will be obligated to transport up to 565,130 cubic meters of natural gas per day from the Camisea Consortium’s delivery point located at the
Camisea natural gas fields to Kallpa’s facilities. This agreement expires in April 2030. Pursuant to the second agreement, TGP will be obligated to transport
up to 935,000 cubic meters of natural gas per day from the Camisea Consortium’s delivery point located at the Camisea natural gas fields to Kallpa’s
facilities. This agreement expires in April 2033. Additionally on April 1, 2014, Kallpa entered into an agreement with TGP to cover the period up to the
completion of the expansion of TGP’s pipeline facilities. Pursuant to this agreement, TGP is obligated to transport up to 120,679 cubic meters of natural gas
per day from the Camisea Consortium’s delivery point located at the Camisea natural gas fields to Kallpa’s facilities. Pursuant to the terms of each of these
agreements, Kallpa pays a regulated tariff approved by the OSINERGMIN (Power Regulatory Entity in Peru).
e.
Samay I, Peru
Power Node Bid Awarded
On November 29, 2013, Samay I won one of the public bid auctions promoted by the Peruvian Investment Promotion Agency (“Proinversion”) to build an
open cycle diesel and natural gas (dual-fired) thermoelectric plant in Mollendo, Arequipa (southern Peru), with an installed capacity of approximately
600MW. The project has two operational stages: (i) cold reserve plant operating in diesel until natural gas becomes available in the area; and (ii) natural gas-
fired power plant operating once a new natural gas pipeline is built and natural gas is available. The agreement with the Peruvian government is for a 20-year
period with fixed monthly capacity payments and pass-through of all variable costs during the cold reserve phase.
The total investment for this plant is expected to be around $ 380 million and to be funded with around 82% of debt and the remaining 18% with equity. The
power plant is required to enter into commercial operation no later than April 30, 2016. As of December 31, 2015, Samay I has reached a level of completion
of 97%.
f.
CDA, Peru
Power Purchase Agreements (PPA)
As of December 31, 2015, CDA has entered into three PPAs and the associated energy of 483 MW of capacity. A 15-year PPA with ElectroPerú to provide
200 MW of capacity and the associated energy that commences during second half of 2016, a 10-year PPA with distribution companies (Luz del Sur S.A.A.,
Edelnor and Edecañete) awarded in December 2011 to provide 202 MW of capacity and the associated energy that commences in January 2018 with final
expiration in December 2030, and a 10-year PPA with Edelnor awarded in December 2015 to provide 83 MW of capacity and the associated energy that
commences in January 2022 with final expiration in December 2031.
g.
OPC, Israel
Power Purchase Agreements (PPA)
On November 2, 2009, OPC signed a PPA with IEC whereby OPC undertook to construct a power plant within 49-52 months from the PPA signing date,
while IEC undertook to purchase capacity and energy from OPC., over a period of twenty (20) years from the commencement date of COD of the plant. The
PPA is a “capacity and energy” agreement, meaning, a right of OPC to provide the plant’s entire production capacity to IEC, and to produce electricity in the
quantities and on the dates as required by IEC.
Power Purchase Agreements with end users
The PPA with IEC provides OPC with the option to allocate and sell the generated electricity of the power station directly to end users. OPC has exercised
this option and sells all of its energy and capacity directly to end users. Most of the agreements are for a period of 10 years. The consideration tariff, are
based on the time of use electricity tariff (“TAOZ”), the generation component of the time of use electricity tariff, less a discount from the generation
component. Both the TAOZ and the generation component are determined by the Public Utility Authority—Electricity (“PUA”) and are updated from time
to time.
If the consideration is less than a minimum tariff of the generation component, I.C.Power has the right to terminate the agreements.
F-78
Table of Contents
Note 19 – Contingent Liabilities, Commitments and Concessions (Cont’d)
Natural supply gas agreement
On November 25, 2012, OPC signed an agreement with Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership, Isramco Negev 2 Limited
Partnership, Avner Oil Exploration Limited Partnership and Dor Gas Exploration Limited Partnership (“Tamar Partners”) regarding the natural gas supply to
the power plant. The agreement shall terminate upon the earlier of: a 16 years term as from the date of gas flow to the power plant or until OPC has
consumed the entire contractual quantity .In addition, each party has the right to extend the period of the agreement for a period of up two additional years
under certain conditions or until the date of consuming the total contract quantity, whichever is earlier (“Tamar Agreement”).
The price of the gas is linked to changes in the “Production Cost” Tariff, which is part of TAOZ, and partially linked to the USD representative exchange
rate, and includes “a floor price”. According to the Tamar Agreement, OPC shall purchase natural gas with a total contractual quantity of 10.6 BCM (billions
of cubic meters). OPC is under a “take or pay” obligation regarding a certain annual quantity of natural gas based on a mechanism set forth in the Tamar
Agreement. The Tamar Agreement contains certain conditions that provide in the future flexibility to reduce the minimum annual quantity.
On December 28, 2015, the agreement received the Israeli Antitrust Authority, (“Authority”) approval.
In July 2013, the PUA published a Decision updating the existing “Production Cost” Tariff by indicating two new tariffs. The PUA indicated in the Decision
that the existing “Production Cost” Tariff shall be replaced by the tariff equal to 33.32 Agurot/KWh. On September 3, 2013 the Tamar Partners informed
I.C.Power that following their review of the new tariffs, they concluded that the relevant tariff for calculating the natural gas price was 38.60 Agurot/KWh
(which is the second tariff published by the PUA in its July 2013 Decision), and therefore the contract price for the natural gas should be calculated
accordingly. Based on the clarification published by the PUA on October 20, 2013, stating that the definition replacing the “Production Cost” Tariff reflects
a tariff equal to 33.32 Agurot/KWh and I.C. Power legal advisors, I.C.Power is of the opinion that the lower tariff in the amount of 33.32 Agurot/KWh shall
apply for the purpose of calculating the contract price under the natural gas supply agreement and therefore rejects the Tamar Partners’ position and does not
include a provision in the financial statements.
In January 2015, the PUA updated the generation component of the TAOZ. This tariff is the basis for the price calculation between OPC and the end users,
and for the natural gas price indexation according to the gas purchase agreement. According to the tariff update, the generation component will be divided
into a number of different tariffs. In this decision, the PUA clarified that the generation component that replaces the former component is 33.32 Agurot/Kwh.
The weighted average generation component according the update is 30.09 Agurot/Kwh. As a result of this adjustment, the generation component was
reduced by approximately 10% starting February 2015.
Israeli Electricity Reform
In July 2013, the Government of Israel appointed a steering committee (“the Steering Committee”) for the purpose to reform IEC and the Israeli electricity
industry. Pursuant to the document appointing the Steering Committee, its tasks include examination of the optimum structure for the electricity industry and
IEC, while placing emphasis on the encouragement of competition in the electricity industry, ensuring the financial strength of IEC, consideration of an
efficiency plan for IEC and a proposal of an overall reform for the electricity industry and IEC. At the end of December 2015 no final decision as to the
manner and nature of the reform of IEC and the electricity market has been determined by the Israeli government.
System Management Charges
In August 2015, the PUA published a Decision that Independent Power Producers (IPPs) in Israel would be obligated to pay the system management service
charges, retroactively effective as of June 1, 2013. According to the PUA Decision, the amount of the system management service charges payable by OPC
from the effective date of July 6, 2013 to June 2015, is approximately NIS 163 million ($43 million), including interest rate and linkage costs.
In OPC’s opinion, due to the PUA Decision, it is more likely than not that OPC will not be charged more than the amount that was indicated in the PUA
Decision. Therefore, OPC reversed the provisions amounting to $46 million as of September 30, 2015 such that the total balance of the provision as of
September 30, 2015 is equal to OPC’s estimation regarding the amount of system management service charge that would be charged to OPC with respect to
the period between July 6, 2013 to June 2015, equal to approximately NIS163 million ($43 million).
F-79
Table of Contents
Note 19 – Contingent Liabilities, Commitments and Concessions (Cont’d)
In August 2015 the PUA published for public hearings a tariff update. Such tariff reflects a decline in the average tariff by approximately 7%. OPC charges
privately negotiated tariffs to sell electricity to end users under its PPAs. Such tariffs are expressed as a discount to the generation component tariff included
within the PUA tariff, therefore a decline in public tariffs will result in a corresponding decline in OPC’s tariffs and accordingly its revenues. OPC’s main
cost of sales is natural gas and prices for the natural gas under the supply agreement with the Tamar Group are indexed to the PUA generation component
tariff and NIS/ $ exchange rate. However the supply agreement also contains a floor price and as a result of above mentioned declines in the PUA generation
component tariff, OPC will soon begin to pay the floor price, which will result in a decline in OPC’s margins. The new tariffs became effective as of
September 9, 2015
h.
Nejapa El Salvador
Power Purchase Agreements (PPA)
In May 2013, Nejapa entered into two PPAs that were awarded as a result of two tenders for 71.2 MW and 38.8 MW of capacity, with 54-month and 48-
month terms, respectively. Each PPA was divided among the seven distribution companies that conducted the tenders. The term of each PPA commenced in
August 2013.
In December 2014, Nejapa entered into PPA with seven distribution companies for 30 MW of capacity with 36-month term starting from January 2015.
i.
Poliwatt, Guatemala
Power Purchase Agreements (PPA)
As of December 31, 2015, Poliwatt has entered into twelve PPAs to provide capacity and energy of 166 MW. These contracts have various commencement
dates, and vary in duration between 2016 and 2017.
j.
I.C. Power Nicaragua, Nicaragua
Power Purchase Agreements (PPA)
As of December 31, 2015, Tipitapa Power Company and Empresa Energetica Corinto have entered into two PPAs with Distribuidora de Electricidad del
Norte (“DISNORTE”) and Distribuidora de Electricidad del Sur (“DISSUR”) to supply and sell energy and capacity.
In addition, Consorcio Eólico Amayo and Consorcio Eólico Amayo (Fase II) also entered into PPAs with these distribution companies, and are committed to
supply and sell all the energy at the supply node as part of the wholesale market.
These contracts have various commencement dates, and vary in duration, as follows:
Company
Tipitapa Power Company
Empresa Energetica Corinto
Consorcio Eólico Amayo
Consorcio Eólico Amayo (Fase II)
k.
Kanan Overseas I, Inc, Panama
Power Purchase Agreement
Commencement
June 1999
April 1999
March 2009
March 2010
Expiration
December 2018
December 2018
March 2024
March 2025
Contracted
Capacity
(MW)
51
50
40
23
In October 2014, Kanan was awarded a contract to supply energy with a maximum contractual capacity of 86 megawatts with distributions companies for a 5
year term that effectively started in December, 2015. For such purpose, Kanan is installing a power plant to operate thermal generation units with a total
capacity of 92 megawatts. Kanan is expected to reach commercial operations in March 2016.
D.
Liabilities secured by liens
I.C. Power
The majority of I.C. Power’s loans are secured by I.C. Power’s power plant and related assets.
F-80
Table of Contents
Note 20 – Share Capital and Reserves
A.
Share Capital
Authorised and in issue at 7 March 2014 (date of incorporation)
Issued during the year
Authorised and in issue at 31 December 2014
Authorised and in issued as part of the spin-off from IC
Issued for share plan
Authorised and in issue at 31 December 2015
Company
No. of shares
(’000)
—
23,500
23,500
29,883
53,383
311
53,694
All shares rank equally with regards to Company’s residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to
time, and are entitled to one vote per share at meetings of the Company. All issued share are fully paid with no par value.
The capital structure of the Company comprises of issued capital and accumulated profits. The management manages its capital structure to ensure that the
Company will be able to continue to operate as a going concern. The Company is not subjected to externally imposed capital requirement.
Issuance of ordinary shares
On the date of incorporation, the Company issued 1 ordinary share at $1 per share.
In June 2014, the Company issued 19,999,999 bonus ordinary shares with no consideration.
In September 2014, the Company issued 2,500,000 ordinary shares at $1 per share.
In December 2014, the Company issued 1,000,000 ordinary shares at $1 per share.
On January 7, 2015, the Company issued 29,883,015 ordinary shares at $1 per share to IC as part of the spin-off (see note 1.B).
On January 11, 2015, the Company’s shares commenced trading on the Tel Aviv Stock Exchange and on 15 January 2015 in the New York Stock Exchange.
In 2015, 310,960 ordinary shares were granted under the Share Incentive Plan to key management at an average price of $19.76 per share.
B.
Translation reserve
The translation reserve includes all the foreign currency differences stemming from translation of financial statements of foreign activities as well as from
translation of items defined as investments in foreign activities commencing from January 1, 2007 (the date IC first adopted IFRS).
C.
Capital reserves
Capital reserves reflect the unrealized portion of the effective part of the accrued net change in the fair value of hedging derivative instruments that have not
yet been recorded in the statement of profit or loss.
D.
Kenon’s share plan
Kenon has established a share incentive plan for its directors and management. The plan provides grants of Kenon shares, as well as stock options in respect
of Kenon’s shares, to directors and officers of the Company, and IC pursuant to awards, which may be granted by Kenon from time to time, representing up
to 3% of the total issued shares (excluding treasury shares) of Kenon. During 2015 and 2014, Kenon granted awards of shares to certain members of its
management. Such shares are vested upon the satisfaction of certain conditions, including the recipient’s continued employment in a specified capacity and
Kenon’s listing on each of the NYSE and the TASE. The aggregate fair value of the shares granted is $940 thousand (2014: $5,444 thousand) and was
determined based on the fair value of Kenon’s shares on the grant date. Kenon recognized $566 thousand as general and administrative expenses in 2015
(2014: $5,444 thousand).
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Table of Contents
Note 21 – Cost of Sales and Services
Payroll and related expenses
Manufacturing, operating expenses and subcontractors
Fuel, gas and lubricants (a)
Intermediation fees (b)
Other
For the Year Ended December 31
2013
2014
2015
US$ thousands
31,369
276,652
502,170
—
170,950
981,141
35,635
292,242
468,343
6,223
60,412
862,855
21,817
243,410
286,484
—
42,091
593,802
(a)
(b)
Fuel cost is primarily heavy fuel oil consumed by the thermal plants in El Salvador, the Dominican Republic, Jamaica, Nicaragua and Guatemala.
Fees paid by Kallpa in connection with the profit shared on certain PPAs signed with distribution companies.
Note 22 – Selling, General and Administrative Expenses
Payroll and related expenses
Depreciation and amortization
Professional fees
Other expenses
For the Year Ended December 31
2014
2013
2015
US$ thousands
57,669
7,724
37,944
27,781
131,118
45,731
9,130
23,377
25,585
103,823
38,161
4,202
8,598
21,994
72,955
The 2015 reduction in professional fees is mainly explained by the settlement agreement signed with Crystal on December 31, 2014. During 2014, Inkia incurred in
$7 million in legal fees in connection with Crystal legal process.
Note 23 – Other Income and Expenses
Other Income
From changes in interest held in associate (See Note 10)
Insurance claims (a)
Dividend income from other companies (b)
Other
Gain on sale of property, plant and equipment
Other expenses
Loss from sale of interest in subsidiaries, associates and dilution
Other
(a)
(b)
Corresponds mainly to Consorcio Eolico Amayo (Fase II) claim in relation to three wind towers damaged.
In 2014, it corresponds to dividends received from Edegel/ Generandes.
F-82
For the Year Ended
December 31
2014
US$ thousands
2015
2013
—
6,917
3,850
4,669
14
15,450
19,553
7,452
18,178
5,854
—
51,037
—
—
—
4,284
43
4,327
—
7,076
7,076
—
13,970
13,970
4,630
708
5,338
Table of Contents
Note 24 – Financing Income (Expenses), Net
Financing income
Interest income from bank deposits
Net changes in fair value of Tower options series 9
Net change in fair value of derivative financial instruments
Other income
Financing income
Financing expenses*
Interest expenses to banks and others
Net change in fair value of derivative financial instruments
Net change from change in exchange rates
Other expenses
Financing expenses
For the Year Ended December 31
2013
2014
2015
US$ thousands
2,675
2,119
3,400
5,218
13,412
2,226
8,350
—
5,667
16,243
438
1,706
2,645
—
4,789
(107,419)
—
(12,554)
(4,255)
(124,228)
(108,224)
(592)
—
(1,363)
(110,179)
(67,741)
—
—
(1,038)
(68,779)
* The Group capitalized financing expenses to property, plant and equipment, in the amount of approximately $32 million, $52 million and $ 17 million in 2015,
2014 and 2013, respectively.
Note 25 – Income Taxes
A. Components of the Income Taxes
Current taxes on income
In respect of current year
Deferred tax income
Creation and reversal of temporary differences
Total taxes on income
For the Year Ended December 31
2014
2015
US$ thousands
2013
29,215
93,734
36,075
33,163
62,378
9,607*
103,341
13,216*
49,291
In 2014, $1,518 thousand of previously unrecognized tax losses was used to reduce our current tax expense in Israel. No previously unrecognized tax benefits were
used in 2015 or 2013 to reduce our current tax expense.
* Revised – See Note 31.
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Table of Contents
Note 25 – Income Taxes (Cont’d)
B.
Reconciliation between the theoretical tax expense (benefit) on the pre-tax income (loss) and the actual income tax expenses
Profit/(loss) before taxes on income
Statutory tax rate
Tax computed at the statutory tax rate
Increase (decrease) in tax in respect of:
Elimination of tax calculated in respect of the Group’s share in losses of associated
companies
Income subject to tax at a different tax rate
Non-deductible expenses
Tax in respect of foreign dividend
Exempt income (1)
Taxes in respect of prior years
Impact of change in tax rate
Changes in temporary differences in respect of which deferred taxes are not recognized
Tax losses and other tax benefits for the period regarding which deferred taxes were not
recorded
Differences between the measurement base of income reported for tax purposes and the
income reported in the financial statements (2)
Other differences
Taxes on income included in the statement of profit and loss
For the Year Ended December 31
2015
2014*
2013*
158,270
US$ thousands
109,274
(54,138)
17.00%
26.50%
25%
26,906
28,958
(13,535)
52,148
(3,209)
7,818
—
(41,160)
(294)
—
580
45,288
12,846
8,442
8,047
(21,145)
(1,518)
(3,131)
(3,795)
34,051
8,023
8,522
—
(422)
61
50
—
8,335
16,183
81
12,133
(879)
62,378
12,519
647
103,341
7,361
5,099
49,291
* Revised – see Note 31
1.
2.
C.
1.
$41,160 thousand of exempt income effect comprise mainly of $5,509 thousand of exempt income effect in Amayo I and Amayo II in Nicaragua in 2015
($219 thousand in 2014) and $35,651 thousand of exempt income effect related to gain in distribution of dividend in kind. $21,145 thousand and $422
thousand of exempt income effect related to gain on bargain purchase in 2014 and 2013, respectively.
Deferred tax related to the temporary difference arising from exchange rate differences on non-monetary assets and liabilities are measured in functional
currency while the tax base is determined in a different currency. In 2014 and 2013, I.C. Power corrected its financial statements and recorded additional
deferred income tax expenses in connection with this effect of $12,519 thousand and $7,361 thousand (See Note 31).
Deferred tax assets and liabilities
Deferred tax assets and liabilities recognized
The deferred taxes are calculated based on the tax rate expected to apply at the time of the reversal as detailed below. Deferred taxes in respect of
subsidiaries were calculated based on the tax rates relevant for each country.
F-84
Table of Contents
Note 25 – Income Taxes (Cont’d)
The deferred tax assets and liabilities are derived from the following items:
Balance of deferred tax asset (liability) as at January 1, 2014*
Changes recorded on the statement of profit and loss
Changes recorded to equity reserve
Translation differences
Reclassification and adjustments*
Changes in respect of business combinations
Exit from the consolidation
Balance of deferred tax asset (liability) as at December 31, 2014*
Changes recorded on the statement of profit and loss
Changes recorded to equity reserve
Translation differences
Changes in respect of business combinations
Balance of deferred tax asset (liability) as at December 31, 2015
2.
The deferred taxes are presented in the statements of financial position as follows:
As part of non-current assets
As part of non-current liabilities
(*)
Revised – see Note 31.
D.
Taxation of companies in Israel
Property
plant and
equipment
Employee
benefits
Carryforward
of losses and
deductions
for tax
purposes
US$ thousands
Other
Total
(345,477) 24,817
(27)
(24,081)
— —
(46)
4,576
9,919 —
(35,243)
76
263,557 (23,996)
824
(126,749)
2,429
(222)
— —
352
(1)
— —
601
(123,968)
(2,481)
283,516 (19,930) (57,074)
7,400
26,493 5,015
2,303
— 2,303
2,005
(44)
— (22,438) (12,519)
34 (7,082) (42,215)
(6,167)
46,771 (27,113) (106,267)
(260,791) 15,063
15,325 (50,695) (33,163)
3,081
1,083
(124)
61,943 (73,966) (135,390)
— 3,081
885
(153)
(124)
—
As at December 31
2015
2014*
US$ thousands
2,693
(138,083)
(135,390)
25,743
(132,010)
(106,267)
On August 5, 2013, the Israeli Government passed the Law for Changes in National Priorities (Legislative Amendments for Achieving Budget Objectives in
the Years 2013 and 2014) – 2013. As part of the legislation, I.C. Power’s tax rate was raised by 1.5% to a rate of 26.5% as from 2014.
Current taxes for the reported periods are calculated according to the tax rates presented above.
(a)
On January 5, 2016, Amendment 216 to the Income Tax Ordinance (New Version) – 1961 (“the Ordinance”) was passed in the Knesset. As part of the
amendment, I.C. Power’s tax rate would be reduced by 1.5% to a rate of 25% as from 2016. If the law had been substantively enacted before December 31,
2015, the effect of the change on the financial statements as at December 31, 2015 would have been reflected in a decrease in the deferred tax liabilities in
the amount of $2,303 thousand. The effect of the change in the deferred tax balances would have been recognized against deferred tax expenses in the
amount of $2,303 thousand.
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Table of Contents
Note 25 – Income Taxes (Cont’d)
(b)
On February 4, 2010, Amendment 174 to the Ordinance was published. The amendment added Section 87A to the Ordinance (“temporary order”), which
provides a temporary order whereby Accounting Standard No. 29 “Adoption of IFRS” that was issued by the Israel Accounting Standards Board shall not
apply when determining the taxable income for the 2007 through 2009 tax years even if the standard was applied in preparing the financial statements. On
January 12, 2012, an amendment to the Ordinance was issued by which the temporary order was amended so that the Standard 29 shall not apply when
determining taxable income for 2010 and 2011. On July 31, 2014, another amendment was published to extend the temporary ordinance to the 2012 and
2013 tax years.
(c)
In June 2011, OPC received an approval from the Taxes Authority in Israel such that the electricity production activities will be considered manufacturing
activities and I.C. Power’s power station will constitute an “Industrial Companies” as defined in the Law for Encouragement of Industry upon fulfillment of
the all the conditions provided by the Taxes Authority in Israel.
“Industrial Companies” as defined in the Law for the Encouragement of Industry (Taxes) – 1969 are entitled to benefits of which the most significant ones
are as follows:
i.
ii.
iii.
iv.
Higher rates of depreciation.
Amortization in three equal annual portions of issuance expenses when registering shares for trading as from the date the shares of OPC were
registered.
An 8-year period of amortization for patents and know-how serving in the development of the enterprise.
The possibility of submitting consolidated tax returns by companies in the same line of business.
E.
Taxation of companies outside of Israel
Non-Israeli subsidiaries are assessed based on the tax laws in their resident countries. Withholding tax rates shown below are provided based on domestic
legislation of relevant countries and may be decreased under tax treaties.
Current income tax from operations in El Salvador includes income tax from the consolidation of Nejapa Power Branch and Cenergica. Income tax rate in El
Salvador is 30% for the years ended December 31, 2015, 2014 and 2013. In addition, a 5% to 25% withholding tax is applicable depending on whether the
payments are to countries with preferential tax regimes or nil taxes. Currently, Nejapa´s and Cenergica´s parent company is domiciliated in Panama and
therefore is subject to 5% withholding tax.
In the Dominic Republic, CEPP was subject to the greater of 27%, 28% and 29% income tax rate on taxable income in 2015, 2014 and 2013, or 1% of
taxable assets. During 2015, 2014, and 2013 CEPP qualified to pay income tax on the basis of taxable income; and a 10% withholding tax on dividend
distribution.
In Bolivia, I.C. Power has 25% income tax and a 12.5% withholding tax on the Bolivian branch profits credited to the shareholder.
In December 2014, a tax reform Law was enacted in Peru. Among other changes, the Law decreases corporate income tax rates and increases withholding
tax rates on dividends. The corporate income tax rate will reduce from 30% in 2014 to: 28%, in 2015 and 2016, to 27%, in 2017 and 2018 and to 26%
starting 2019. The withholding tax rates will increase from 4.1% in 2014 to: 6.8% in 2015 and 2016, 8.0% in 2017 and 2018; and 9.3% starting 2019. Kallpa,
CDA and Samay I have signed tax stability agreements that expire in 2020, 2022 and 2024, respectively. Only after these tax agreements expire, Kallpa,
CDA and Samay I will be affected by the changes in income tax and withholding tax rates described above.
In September 2014, a tax reform in Chile was enacted, which makes substantial changes to the Chilean tax system, including two alternative mechanisms for
computing shareholder-level income taxation beginning on January 1, 2017 (accrued income and cash-basis methods), additional corporate tax rate increases,
and other substantial modifications. The selection should be made before the end of 2016 and it will remain in effect for 5 years.
F-86
Table of Contents
Note 25 – Income Taxes (Cont’d)
Taxation of companies outside of Israel (Cont’d)
a)
Accrued income basis: shareholders would be taxed on income attributed to them as of the end of the year in which the income is generated. These
profits would be taxed at the shareholders level whether or not they are distributed. The underlying corporate income tax paid at the entity level may
be used by shareholders as a credit to reduce the Chilean shareholder tax. Therefore, the combined total Bolivia company and shareholder Chilean
income tax burden remains at 35%. Future distributions are not subject to taxation.
Therefore, under this method the taxation of a Chilean entity is performed in two stages:
• Company: 25% of accrued profits (using the maximum corporate income tax applicable for 2018).
• Shareholders: 35% of accrued profits (whether or not distributions received, with 100% of corporate income tax paid, resulting in an effective tax rate to
shareholders of 10%).
b)
Cash basis: A company pays corporate income tax based on its annual result. Shareholders will only pay in Chile the relevant tax on effective profit
distributions and will be entitled to use the tax paid as credit with certain limitations. Only 65% of the corporate income tax is creditable and reduces
the 35% shareholder level tax (as opposed to 100% under the accrued income basis). Taxation under this mechanism is also performed in two stages:
• Company: 27% of accrued profits (using the maximum corporate income tax applicable for 2018).
• Shareholders: 35% of cash disbursement (65% of corporate income tax is creditable against the shareholder level tax, resulting in an effective tax
rate to shareholders of 17.5%. However, if the shareholder is a resident company of a country with a tax treaty in effect with Chile, 100% of the tax
is creditable, resulting in an effective tax rate to shareholders of 8%).
As a result, the corporate income tax rate increased gradually from 20% in 2013 to: 21% in 2014; 22.5% in 2015; and it will increase to 24% in 2016; and
25% in 2017 for shareholders on the accrued income method, and 25.5% in 2017 for shareholders on the cash-basis method. Starting 2018 onwards, the
income tax rate will be 25% for shareholders on the accrued income method and 27% for shareholders on the cash-basis method.
In Nicaragua, Empresa Energética Corinto and Tipitapa Power Company are subject to 25% income tax, based on a Foreign Investment Agreement signed in
June 2000, which protect the companies from any unfavorable changes in the tax Law. In addition, Consorcio Eólico Amayo S.A and Consorcio Eólico
Amayo Fase II, are tax exempt from income tax payments up to a period of seven years since the beginning of operations of the plants, in accordance with
Law No. 532 for Electric Power Generation with Renewable Sources Incentive. In addition, a 10% to 17% withholding tax is applicable depending on
whether the payments are to countries with preferential tax regimes or nil taxes.
In Guatemala, PQP was subject to a 25% and 28% income tax rate in 2015 and 2014, respectively, and a 5% withholding tax on dividend distributions.
In January 2013, a tax reform was enacted in Colombia, which established an income tax rate of 25%, except for those contributors that by express
disposition handle special rates, not less than 3% of the net worth of the shareholders’ equity on the last day of the immediately previous taxable period. In
addition, a 9% equity income tax (CREE) was created as a contribution to generate employment and social investment.
In Singapore, under its one-tier corporate taxation system, profits are taxed at the corporate level at 17% and this is a final tax. Dividends paid by a
Singapore resident company under the one-tier corporate tax system should not be taxable.
A Company is liable to pay tax in Singapore on income that is:
• Accrued in or derived from Singapore; or
• Received in Singapore from outside of Singapore.
Certain categories of foreign sourced income including,
• dividend income;
• trade or business profits of a foreign branch; or
• service fee income derived from a business, trade or
• profession carried on through a fixed place of operation in a foreign jurisdiction.
may be exempted from tax in Singapore.
F-87
Table of Contents
Note 25 – Income Taxes (Cont’d)
Taxation of companies outside of Israel (Cont’d)
Tax exemption should be granted when all of the three conditions below are met:
1.
2.
3.
The highest corporate tax rate (headline tax rate) of the foreign jurisdiction from which the income is received is at least 15% at the time the foreign
income is received in Singapore;
The foreign income had been subjected to tax in the foreign jurisdiction from which they were received (known as the “subject to tax” condition). The
rate at which the foreign income was taxed can be different from the headline tax rate; and
The Tax Comptroller is satisfied that the tax exemption would be beneficial to the person resident in Singapore.
The Comptroller will regard the “subject to tax” condition as having met if the income is exempt from tax in the foreign jurisdiction due to tax incentive
granted for substantive business activities carried out in that jurisdiction.
Deferred tax liability on undistributed earnings
Subsidiaries pay dividends on quarterly basis as long as they are in compliance with covenants derived from the borrowings agreements described in Note
15. Deferred tax is recognized for temporary differences related to undistributed earnings in subsidiaries that will reverse it in the foreseeable future. During
2015, the Group recorded an expense of $ 2,681 thousand in connection with this timing difference.
Distributions of the earnings of foreign subsidiaries are subject to the withholding taxes imposed by the foreign subsidiaries´ jurisdictions of incorporation.
I.C.Power does not have funds designated for, or subject to, permanent reinvestment in any country in which it operates.
Note 26 – Earnings per Share
Data used in calculation of the basic / diluted earnings per share
A.
Income (loss) allocated to the holders of the ordinary shareholders
Income (loss) for the year attributable to Kenon’s shareholders
Income (loss) for the year from discontinued operations (after tax)
Less: NCI
Income (loss) for the year from discontinued operations (after tax) attributable to Kenon’s
shareholders
For the Year Ended December 31
2015
72,992
—
—
2014*
$ thousands
458,161
470,421
(3,495)
2013*
(631,140)
(512,489)
(4,724)
—
466,926
(517,213)
Income (loss) for the year from continuing operations attributable to Kenon’s shareholders
72,992
(8,765)
(113,927)
* Revised – see Note 31
B.
Number of ordinary shares
Weighted Average number of shares used in calculation of basic / diluted earnings per share (See
Note 1.B.)
* The number of shares used in calculation is 53,383,015 ordinary shares which were in issue on January 7, 2015.
F-88
For the Year Ended
December 31
2014 *
2015
2013 *
Thousands of ordinary shares
53,649
53,383
53,383
Table of Contents
Note 27 – Discontinued Operations
(a)
ZIM
Upon completion of the debt arrangement in ZIM, on July 16, 2014, Kenon declined to a rate of holdings of 32% of ZIM’s equity and as a result it ceased to
control ZIM. Commencing from this date, Kenon presents its investment in ZIM as an associated company (for details with respect to the debt arrangement –
see Note 10.C.a.1. above). ZIM’s results up to the completion date of the debt arrangement, together with the income due to loss of control and the loss due
to waiving all ZIM’s debts, were presented separately in the statements of profit and loss in the category “profit/(loss) for the year from discontinued
operations”.
Set forth below are the results attributable to the discontinued operations
Sales
Cost of sales
Gross profit (loss)
Operating loss
Loss before taxes on income
Taxes on income
Loss after taxes on income
Income from realization of discontinued operations
Income (loss) for the period from discontinued operations
Net cash flows provided by operating activities
Net cash flows provided by (used in) investing activities
Net cash flows used in financing activities
Impact of fluctuations in the currency exchange rate on the balances of cash and cash equivalents
Cash and cash equivalents used in discontinued operations
Set forth below is the impact on the statement of financial position
Cash and cash equivalents
Short-term investments, deposits and loans
Trade receivables and other receivables and debit balances
Inventory
Vessels, containers, property, plant and equipment and intangible assets
Other assets
Credit from banks and others
Trade payables
Long-term loans from banks and others
Other liabilities
Holders of non-controlling interests
Net liabilities
Payment made in cash
Balance of cash eliminated
Exit from the consolidation, less cash eliminated
F-89
Six Months
Ended
June 30,
2014
Year Ended
December 31,
2013
US$ thousands
1,741,652 3,682,241
(1,681,333) (3,770,354)
(88,113)
(190,610)
60,319
(17,694)
(119,168)
(9,735)
(128,903)
608,603
479,700
41,031
(24,104)
(28,480)
(801)
(12,354)
(496,554)
(22,861)
(519,415)
—
(519,415)
11,753
134,007
(208,967)
(1,061)
(64,268)
July 1, 2014
US$ thousands
110,918
50,817
290,969
106,266
1,962,434
65,103
(1,968,475)
(515,825)
(498,603)
(131,600)
(79,775)
(607,771)
(200,000)
(110,918)
(310,918)
Table of Contents
Note 27 – Discontinued Operations (Cont’d)
(b)
Petrotec AG
In December 2014, ICG sold its equity interest (69%) in Petrotec, ICG received shares of REG, a NASDAQ-listed entity. Petrotec’s results up to the
completion date of the sale, together with the loss from the sale were presented separately in the statements of profit and loss in the category “profit/(loss) for
the year from discontinued operations”.
Set forth below are the results attributable to the discontinued operations
Sales
Expenses
Operating results before taxes on sales
Taxes on sales
Results after taxes
Loss from realisation of discontinued operation
Income (loss) for the period from discontinued operations
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Impact of fluctuations in the currency exchange rate on the balances of cash and cash equivalents
Cash and cash equivalents used in discontinued operations
Year Ended
December 31
2014
2013
221,791 256,816
(226,323) (251,339)
5477
1,449
6926
—
6,926
(4,532)
252
(4,280)
(4,999)
(9,279)
15,214
(3,263)
(8,644)
(1,753)
1,554
15,498
(1,884)
(7,267)
571
6,918
In addition to the cash, ICG received shares of Renewable Energy Group Ltd (“REG”) in value of $18,400 thousands. ICG is subject to a lock-up restriction
with respect to the REG shares.
Set forth below is the impact on the statement of financial position
Cash and cash equivalents
Trade and other receivables
Inventory
Tangible and intangible assets
Trade payables
Accounts payable
Assets and liabilities, net
Consideration received in cash and cash equivalents
Subtracted balance of cash and cash equivalents
Positive cash flow, net
F-90
December 31, 2014
US$ thousands
13,501
9,718
9,254
25,414
(8,158)
(19,774)
29,955
15,259
(13,501)
1,758
Table of Contents
Note 28 – Segment Information
A.
General
Commencing from July 16, 2014, upon completion of the debt arrangement in ZIM, The Group ceased controlling ZIM, and commencing from this
date, ZIM is accounted for using the equity method of accounting in the financial statements. Upon completion of the debt arrangement and loss of the
control, the marine shipping lines by means of containers that are incorporated under ZIM, which were previously included as a separate reportable
segment, are presented, commencing from the period of the report, as part of other segments.
The Group has two reportable segments, as described below, which form the Group’s strategic business units. The strategic business units are
comprised of different legal entities, and the allocation of resources and evaluation of performance are managed separately. For each of the strategic
business units, the Group’s chief operating decision maker (CODM), which is the Board of Directors, reviews internal management reports on at least
a quarterly basis.
The two reportable segments are I.C. Power segment and Qoros segment. I.C. Power and its subsidiaries are aggregated to form one reportable
segment under the I.C. Power legal entity, taking into consideration of the economic characteristics of individual entities.
The following summary describes the legal entities in each of the Group’s operating segments:
1)
2)
3)
I.C. Power Ltd. – I.C. Power through its subsidiary companies, is engaged in the production, operation and sale of electricity in countries in
Latin America, the Caribbean region and Israel. It also is engaged in the construction and operation of power stations in Latin America.
Qoros Automotive Co., Ltd – A China-based automotive company that is jointly-owned with a subsidiary of Chery, a state controlled
holding enterprise and large Chinese automobile manufacturing company.
Other – In addition to the segments detailed above, the Group has other activities, such as a shipping services and renewable energy
businesses.
Evaluation of the operating segments performance is based on Adjusted EBITDA. Adjusted EBITDA is defined as the net income (loss)
excluding depreciation and amortization, financing income, income taxes and other items as presented in the tables below.
Information regarding the results of the activity segments is detailed below. Inter-segment pricing is determined based on transaction prices
during the ordinary course of business.
F-91
Table of Contents
Note 28 – Segment Information (Cont’d)
B.
Information regarding reportable segments
Information regarding activities of the reportable segments is set forth in the following table.
2015
Sales to external customers
Inter-segment sales
Elimination of inter-segment sales
Total sales
Adjusted EBITDA
Depreciation and amortization
Financing income
Financing expenses
Other items:
Share in losses (income) of associated companies
Gain from distribution of dividend in kind
Asset impairment
Income (loss) before taxes
Income Taxes
Income (loss) from continuing operations
Segment assets
Investments in associated companies
Segment liabilities
Capital expenditure
* Associated Company – See Note 10.A.2, 10.C.b.
I.C. Power Qoros* Other
Adjustments
Total
1,283,624
5,115
1,288,739
(5,115)
1,283,624
372,356
119,427
(10,684)
114,713
US$ thousands
—
—
—
—
—
—
—
—
—
329
861
1,190
(861)
329
367
620
(2,728)
9,515
(274) 196,223
—
—
(9,190)
— (209,710)
6,541
—
223,182 196,223 (204,952)
149,174 (196,223) 205,319
62,353
25
86,821 (196,223) 205,294
—
4,068,951
— 44,804
8,993 158,729 201,300
3,062,580
532,544
— 156,642
138
—
— 1,283,953
—
5,976
— 1,289,929
(861)
5,115
5,115 1,289,068
— 372,723
— 120,047
(13,412)
—
— 124,228
— 186,759
— (209,710)
6,541
—
— 214,453
— 158,270
62,378
—
95,892
—
— 4,113,755
— 369,022
4,482,777
— 3,219,222
— 532,682
F-92
Table of Contents
Note 28 – Segment Information (Cont’d)
2014
Sales to external customers
Inter-segment sales
Elimination of inter-segment sales
Total sales
Adjusted EBITDA
Depreciation and amortization
Financing income
Financing expenses
Other items:
Share in losses (income) of associated companies
Asset impairment
Gain from disposal of investee
Gain on bargain purchase
Income (loss) before taxes
Income Taxes
Income (loss) from continuing operations
Segment assets
Investments in associated companies
Segment liabilities
Capital expenditure
2013
Sales to external customers
Inter-segment sales
Elimination of inter-segment sales
Total sales
Adjusted EBITDA
Depreciation and amortization
Financing income
Financing expenses
Other items:
Share in losses (income) of associated companies
Income (loss) before taxes
Income Taxes
Income (loss) from continuing operations
Capital expenditure
*
**
Associated Company – See Note 10.A.2, 10.C.b.
Revised – see Note 31.
I.C. Power
**
Qoros * Other Adjustments
US$ thousands
Total
1,358,174
14,056
1,372,230
(14,056)
1,358,174
347,937
108,413
(8,858)
131,883
— —
— —
— —
— —
— —
— 1,358,174
—
14,056
— 1,372,230
14,056
—
14,056 1,372,230
— (43,175)
—
(255)
— (38,622)
9,533
—
— 304,762
— 108,158
31,237
(16,243)
(31,237) 110,179
(13,542) 174,806
34,673
(157,137)
(68,210)
27,222 174,806
9,633
— 13,171
— —
— —
(6,540)
320,715 (174,806) (36,635)
4,487
221,861 (174,806) (41,122)
98,854
—
— 170,897
—
47,844
— (157,137)
—
(68,210)
— 195,488
— 109,274
— 103,341
5,933
—
3,832,012
— 836,596
9,625 221,038 205,120
2,860,358
592,388
— 806,335
— 12,377
(784,688) 3,883,920
— 435,783
4,319,703
(784,688) 2,882,005
— 604,765
866,370
7,000
873,370
(7,000)
866,370
247,064
75,081
(5,543)
85,694
— —
— —
— —
— —
— —
— 866,370
—
7,000
— 873,370
—
7,000
7,000 873,370
— (30,624)
4,817
—
— (31,307)
— 15,146
— 216,440
79,898
—
(4,789)
32,061
68,779
(32,061)
(32,018) 127,012 31,696
123,214 127,012 20,352
123,850 (127,012) (50,976)
49,398
(107)
74,452 (127,012) (50,869)
—
— 126,690
— 270,578
(54,138)
—
—
49,291
— (103,429)
351,143
— —
— 351,143
F-93
Table of Contents
Note 28 – Segment Information (Cont’d)
C.
Information at the entity level
Major customers
In 2015 and 2014, the Group does not have any major customers. In 2013, revenues from major customer, Luz del sur, represented $150,332 thousand
of the total sales attributable to the I.C. Power operating segment.
Information based on geographic areas
In determining of the information to be presented on a geographic basis, the consolidated revenues are based on the geographic location of the
customer and consolidated non-current assets are based on the geographic location of the assets.
The Group’s consolidated revenues are as follows:
2015
For the year ended December 31
2014
US$ thousands
2013
Peru
Israel
Central America
Others
Singapore
Total revenues
The Group’s non-current assets on the basis of geographic location:
Peru
Israel
Central America
Others
Singapore
Total assets
Composed of property, plant and equipment and intangible assets.
Note 29 – Related-party Information
A.
Identity of related parties:
447,679
326,061
336,873
178,455
—
1,289,068
436,673
413,578
307,618
214,361
—
1,372,230
394,055
187,421
147,397
144,521
—
873,394
As at December 31
2015
2014
US$ thousands
1,803,233
456,456
242,905
604,239
289
3,107,122
1,378,719
413,578
247,535
607,716
—
2,647,548
The Group’s related parties are as defined in IAS 24 – Related
Party
Disclosures
and included: Kenon’s beneficial owners and Kenon’s subsidiaries,
affiliates and associates companies.
In the ordinary course of business, some of the Group’s subsidiaries and affiliates engage in business activities with each other.
Ordinary course of business transactions are aggregated in this Note. Other than disclosed elsewhere in the consolidated financial statements during
the period, the Group engaged the following material related party transactions.
Key management personnel of the Company are those persons having the authority and responsibility for planning, directing and controlling the
activities of the Company. The directors, chief executive officer, chief financial officer, general counsel and vice president of business development,
are considered as key management personnel of the Company.
F-94
Table of Contents
Note 29 – Related-party Information (Cont’d)
B.
Transactions with directors and officers (Kenon’s directors and officers):
B. Key management personnel compensation
Short-term benefits
Share-based payments
Defined contribution plans
C.
D.
Regarding the ZIM’s restructuring and IC’s part in the restructuring, see note 10.C.a.
Transactions with related parties (excluding associates):
All the transactions are at market terms unless otherwise indicated.
2015
US $ thousands
2014
4,113
556
—
4,669
309
5,444
—
5,753
Sales from shipping*
Sales of electricity
Operating expenses of voyages and services*
Administrative expenses
Other income, net
Financing expenses, net
* Presented under discontinued operations.
E.
Transactions with associates:
For the year ended December 31
2014
2013
2015
US$ thousands
7,138
—
20,126
135,655
124,636
90,216
—
37,511
189,525
329
2,000
—
33
2,081
1,962
10,716
17,443
31,957
Sales of electricity
Operating expenses
Other income, net
5,115
US$ thousands
14,056
7,300
204
—
12,572
95
—
—
F-95
For the year ended December 31
2013
2014
2015
Table of Contents
Note 29 – Related-party Information (Cont’d)
F.
Balances with related parties:
Cash and short-term deposit
Trade receivables
Long-term credit
In US dollar or linked thereto
Weighted-average interest rates (%)
In CPI-linked Israeli currency
As at December 31
2015
As at December 31
2014
Associates
Other
related
parties*
Total
Bank
Leumi
Group
Associates
Other
related
parties*
Total
US$ thousands
—
7,148
197,777
214,557
US$ thousands
—
22,859
237,416
—
13,462
13,462
—
1,250
16,667
17,917
—
118,497
118,497
—
—
—
—
—
6.68%
6.68%
—
—
—
—
—
—
41,677
62,228
—
—
62,228
Bank
Leumi
Group
190,629
—
—
—
41,677
Weighted-average interest rates (%)
4.94%
—
—
4.94%
5.00%
—
—
5.00%
Repayment years
Current maturities
Second year
Third year
Fourth year
Fifth year
Sixth year and thereafter
1,833
2,218
2,353
1,888
2,610
30,775
41,677
118,497
118,497
2,925
2,560
3,155
3,348
2,686
47,554
62,228
* IC, Israel Chemicals Ltd (“ICL”), Oil Refineries Ltd (“ORL”).
These balances relate to amounts with entities that are related to Kenon’s beneficial owners.
G.
The separation agreement
The following summarizes the material provisions of the Separation and Distribution Agreement between Kenon and IC in connection with the
consummation of the spin-off. The Separation and Distribution Agreement sets forth, among other things, Kenon agreements with IC in respect of the
principal transactions which separated Kenon’s businesses from IC and its other businesses. The Separation and Distribution Agreement also sets forth
other agreements that govern the distribution, as well as certain aspects of our relationship with IC after the consummation of the spin-off. See Note
1.B.2 for transactions between Kenon and IC since the spin-off.
Transfer
of
Assets
and
Assumption
of
Liabilities
The Separation and Distribution Agreement identified the assets to be transferred, the liabilities to be retained by IC or assumed by Kenon, and the
contracts to be retained by IC or assigned to Kenon in connection with the spin-off and transfer of IC’s interests, direct or indirect, in each of I.C.
Power, Quantum (the holder of IC’s 50% equity interest in Qoros), ZIM, Tower and ICG to Kenon.
Concurrent with the transfer of the aforementioned businesses to Kenon, IC assigned and transferred to Kenon, IC’s full rights and obligations
according to, and in connection with, certain loans it has provided to, and certain undertakings it had made in respect of, these businesses. Set forth
below is a summary of the material rights and obligation that IC transferred to Kenon in connection with the spin-off:
F-96
Table of Contents
Note 29 – Related-party Informaiton (Cont’d)
Business
Instrument
Qoros
Capital note issued by Quantum to IC
Financial Instruments
$626 million
Outstanding Amount as of
December 31, 2014
I.C. Green
Capital note issued by ICG to IC
Loan borrowed by ICG
NIS 508 million (approximately $131 million)
22 million Euro (approximately $27 million)
Qoros
Shareholder loan to be provided to Qoros
In February 2015, Kenon provided RMB400 million (approximately $65 million) as a
shareholder loan to Qoros, subject to the release of IC’s back-to-back guarantees in
respect of certain of Qoros’ indebtedness.
Additionally, certain guarantees and undertakings made by IC in connection with OPC’s financing agreement shall not be transferred to Kenon and, instead,
have been replaced with guarantees or undertakings of I.C. Power, as well as a provision of cash collateral, so that IC is released from its obligations under
the existing guarantee or undertaking, as applicable.
Representations
and
Warranties
Other than certain limited corporate representations and warranties made by Kenon and IC, neither Kenon nor IC make any representations or warranties
regarding any assets or liabilities transferred or assumed, any consents or approvals that may be required in connection with such transfers or assumptions,
the value or freedom from any lien or other security interest of any assets transferred, the absence of any defenses relating to any claim of either party or the
legal sufficiency of any conveyance documents, or any other matters. Except as expressly set forth in the Separation and Distribution Agreement or in any
ancillary agreement, all assets were transferred on an “as is,” “where is” basis.
Termination
The Separation and Distribution Agreement provides that it may be terminated by IC at any time in its sole discretion prior to the consummation of the spin-
off.
Release
of
Claims
Except with respect to (i) those legal proceedings pending against IC at the time of the consummation of the spin-off, and that relate to any of the businesses
to be transferred to Kenon, and (ii) certain other exceptions set forth in the Separation and Distribution Agreement, Kenon shall be liable for the claims of
each of the businesses being transferred to it as part of the spin-off, including such claims that arose out of, or relate to events, circumstances or actions
occurring or failing to occur, or with respect to any conditions existing prior to, the distribution date.
Indemnification
Kenon and IC agree to indemnify each other against certain liabilities incurred in connection with Kenon respective businesses, and as otherwise allocated to
each of us in the Separation and Distribution Agreement. These indemnities are principally designed to place financial responsibility for the obligations and
liabilities of our business, and each of our businesses, with us and financial responsibility for the obligations and liabilities of IC and its business with IC.
The Separation and Distribution Agreement also specifies procedures with respect to claims subject to indemnification and related matters.
Legal
Matters
Kenon agrees to indemnify IC for any liabilities arising after the consummation of the spin-off as a result of legal matters relating to the businesses Kenon
will receive in the spin-off.
Allocation
of
Spin-Off
Expenses
The Separation and Distribution Agreement provides that IC will be responsible for all fees, costs and expenses relating to it and will finance all fees, costs
and expenses related to Kenon, in each case as incurred prior to the distribution date in connection with the spin-off.
F-97
Table of Contents
Note 29 – Related-party Informaiton (Cont’d)
Other
Matters
Governed
by
the
Distribution
Agreement
Other matters governed by the Separation and Distribution Agreement include access to financial and other information, access to and provision of records,
intellectual property, confidentiality, treatment of outstanding guarantees and similar credit support and dispute resolution procedures.
Conditions
The Separation and Distribution Agreement provides that the distribution of our ordinary shares is subject to several conditions that must be satisfied or
waived prior to the distribution. Each of IC and Kenon may, in their sole discretion, waive the conditions precedent applicable to their entry into the
Separation and Distribution Agreement. IC may, in its sole discretion, at any time prior to the record date of the distribution, decide to abandon the
distribution.
Major
Shareholders
Beneficial Owner (Name/Address)
Ansonia Holdings Singapore B.V. 1
Bank Leumi Le-Israel B.M.
XT Investments Ltd. 2
Ordinary
Shares
Owned
24,856,869
7,533,614
5,727,128
Percentage
of
Ordinary
Shares
46.3%
14%
10.7%
1
2
On January 9, 2015, or the Acquisition Date: (i) Millenium, in which Ansonia indirectly owns an 80% equity interest, transferred 20,235,298 of the ordinary
shares it received from IC in connection with the spin-off, to Ansonia, (ii) Kirby Enterprises Inc., which is indirectly held by the discretionary trust that is the
indirect ultimate owner of Ansonia, transferred 399,378 ordinary shares, representing all of the shares it received from IC in connection with the spin-off, to
Ansonia, (iii) Mr. Idan Ofer transferred 2,076,193 ordinary shares, representing all of the shares he received from IC in connection with the spin-off, to
Ansonia, and (iv) XT Investments Ltd. agreed to transfer 1,780,623 ordinary shares (the “Ansonia Shares”) to Ansonia. The Ansonia Shares were placed in
escrow, to be released to Ansonia upon satisfaction of a condition, as set forth in the share purchase agreement (the “Ansonia Share Purchase Agreement”).
Pursuant to the terms of the Ansonia Share Purchase Agreement, Ansonia had the right to vote the Ansonia Shares while the Ansonia Shares were held in
escrow. As such, Ansonia was deemed to be a beneficial owner of the Ansonia Shares and the Ansonia Shares were therefore reflected in Ansonia’s
ownership interest in the above table. However, in January 2016, the Ansonia Shares were released from escrow and returned to XT, as the Ansonia Share
Purchase Agreement had expired, according to its terms, and the condition precedent relating to the sale of the Ansonia Shares had not been satisfied. A
foreign discretionary trust in which Mr. Idan Ofer is the beneficiary is the indirect ultimate owner of Ansonia.
XT Investments Ltd., or XT Investments, received 668,304 shares from IC in connection with the spin-off. On the Acquisition Date: (i) Millenium
transferred 5,058,824 of the ordinary shares it received from IC in connection with the spin-off, to XT Investments, (ii) XT Investments agreed to transfer the
Ansonia Shares to Ansonia (as set forth above), and (iii) XT Investments agreed to transfer 1,780,623 ordinary shares (the “A.A.R. Shares”) to A.A.R.
Kenon Holdings Ltd. The A.A.R Shares have been placed in escrow, to be released to A.A.R. upon satisfaction of a condition, as set forth in the share
purchase agreement (the “A.A.R. Share Purchase Agreement”). Pursuant to the terms of the A.A.R. Share Purchase Agreement, A.A.R. has the right to vote
the A.A.R Shares while the A.A.R. Shares are held in escrow. Although A.A.R. has the power to direct the voting of the A.A.R. Shares while such shares are
held in escrow, XT Investments may still be deemed to be a beneficial owner of such shares as well. This beneficial interest is reflected in XT Investment’s
ownership interest in the above table. Upon the satisfaction of the aforementioned condition, XT Investment’s beneficial interest in Kenon will decrease by
the amount of A.A.R. Shares currently held in escrow. In January 2016, the Ansonia Shares were released from escrow and returned to XT, as the Ansonia
Share Purchase Agreement had expired, according to its terms, and the condition precedent relating to the sale of the Ansonia Shares had not been satisfied.
XT Investment’s beneficial interest in the Ansonia Shares is reflected in XT Investment’s ownership interest in the above table. XT Investments is owned by
XT Holdings Group Ltd., or XT Holdings; 50% of the ordinary shares of XT Holdings are owned by Orona Investments Ltd. (which is indirectly controlled
by Mr. Ehud Angel) and the remaining 50% of the ordinary shares of XT Holdings are owned by Lynav Holdings Ltd. (which is controlled by a foreign
discretionary trust in which Mr. Idan Ofer is a prime beneficiary).
F-98
Table of Contents
Note 30 – Financial Instruments
A.
General
The Group has extensive international activity in which it is exposed to credit, liquidity and market risks (including currency, interest, inflation and
other price risks). In order to reduce the exposure to these risks, the Group holds derivative financial instruments, (including forward transactions,
interest rate swap (“SWAP”) transactions, and options) for the purpose of economic (not accounting) hedging of foreign currency risks, inflation risks,
commodity price risks, interest risks and risks relating to the price of inputs. Furthermore, I.C. Power holds derivative financial instruments to hedge
its risk in respect of changes in the cash flows of issued bonds, and such instruments are accounting hedges.
This note presents information about the Group’s exposure to each of the above risks, and the Group’s objectives, policies and processes for
measuring and managing the risk.
The risk management of the Group companies is executed by them as part of the ongoing current management of the companies. The Group
companies monitor the above risks on a regular basis. The hedge policies with respect to all the different types of exposures are discussed by the
boards of directors of the companies.
The comprehensive responsibility for establishing the base for the risk management of the Group and for supervising its implementation lies with the
Board of Directors and the senior management of the Group.
B.
Credit risk
Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if a counterparty defaults on their
obligations under the contract. This includes any cash amounts owed to the Group by those counterparties, less any amounts owed to the counterparty
by the Group where a legal right of set-offs exist and also includes the fair values of contracts with individual counterparties which are included in the
financial statements. The maximum exposure to credit risk at each reporting date is the carrying value of each class of financial assets mentioned in
this note.
(1)
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
Cash and cash equivalents
Short term Deposits and restricted cash
Trade receivables
Other receivables
Deposits and other long-term receivables including derivative instruments
As at December 31
2014
2015
US$ thousands
Carrying amount
383,953
308,702
123,273
12,339
40,993
869,260
610,056
226,830
181,358
16,537
44,041
1,078,822
The maximum exposure to credit risk for trade receivables, as of the date of the report, by geographic region was as follows:
Israel
South America
Other regions
F-99
As at December 31
2014
2015
$ thousands
31,306
53,325
38,642
123,273
41,260
52,809
87,289
181,358
Table of Contents
Note 30 – Financial Instruments (Cont’d)
(2)
Aging of debts and impairment losses
Set forth below is an aging of the trade receivables:
Not past due
Past due up to 3 months
Past due 3 – 6 months
Past due 6 – 9 months
Past due 9 – 12 months
Past due more than one year
C.
Liquidity risk
As at December 31, 2015
As at December 31, 2014
For which impairment
was not recorded
For which
impairment
was not
recorded
For which
impairment was
recorded
For which
impairment
was not
recorded
Gross
US$ thousands
—
—
—
—
—
104
104
Impairment
—
—
—
—
—
(104)
(104)
109,502
12,210
301
101
932
227
123,273
Gross
US$ thousands
8,057
127
—
293
—
4,502
12,979
133,443
25,445
—
22,188
—
282
181,358
Impairment
(8,057)
(127)
—
(293)
—
(4,502)
(12,979)
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity
is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and adverse credit and
market conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group manages the liquidity risk by means of holding cash balances, short-term deposits, other liquid financial assets and credit lines.
Set forth below are the anticipated repayment dates of the financial liabilities, including an estimate of the interest payments. This disclosure does not
include amounts regarding which there are offset agreements:
As at December 31, 2015
Book value
Projected
cash flows
Up to 1
year
US$ thousands
1-2 years 2-5 years
More than
5 years
Non-derivative financial liabilities
Loans from banks and others *
Trade payables
Other payables
Non-convertible debentures **
Loans from banks and others **
Liabilities in respect of financing lease
Financial guarantee ***
Financial liabilities – hedging instruments
Interest SWAP contracts
Forward exchange rate contracts
Financial liabilities not for hedging
Interest SWAP contracts and options
87,572
179,317 187,484 187,484 — —
145,454 145,454 145,454 — —
87,572 87,572 — —
—
—
—
671,247 951,308 69,115 62,267 261,256 558,670
1,668,977 2,331,220 204,100 214,583 490,088 1,422,449
48,724
163,774 201,929 35,501 49,955 67,749
—
34,263 179,073 179,073 — —
44,059
850
44,059 10,630
9,474 16,514
850 — —
7,441
—
850
3,276
175
2,998,789 4,132,225 920,859 337,360 836,547 2,037,459
3,276
1,081
1,080
940
*
**
***
Excludes current portion of long-term liabilities and long-term liabilities which were classified to short-term.
Includes current portion of long-term liabilities and long-term liabilities which were classified to short-term.
Financial Guarantees contractual period in Qoros is dependent on Qoros’s timeliness to meet the obligation of current loans payable. $179,073 thousand is
the maximum projected cash flow in connection with the financial guarantees provided to Chery with respect to the obligation of Qoros.
F-100
Table of Contents
Note 30 – Financial Instruments (Cont’d)
Non-derivative financial liabilities
Loans from banks and others *
Trade payables
Other payables
Non-convertible debentures **
Loans from banks and others **
Liabilities in respect of financing lease
Loans and capital notes from the parent company
Financial liabilities – hedging instruments
Interest SWAP contracts
Forward exchange rate contracts
Financial liabilities not for hedging
Interest SWAP contracts and options
As at December 31, 2014
Book value
Projected
cash flows
Up to 1
year
US$ thousands
1-2 years 2-5 years
More than
5 years
58,137
58,646 58,646 — —
144,488 144,488 144,488 — —
90,618 90,618 — —
—
—
—
703,952 1,058,547 74,800 71,816 259,191 652,740
1,373,245 1,950,227 134,568 141,343 520,034 1,154,282
90,618
193,538 242,842 40,722 35,529 89,425
592 — —
592
592
77,166
—
27,713
5,402
27,713 10,105
4,763
5,402
7,018
7,164
639 —
3,426
—
4,116
423
2,601,801 3,583,191 560,620 257,330 877,204 1,888,037
1,390
4,116
1,318
985
*
**
Excludes current portion of long-term liabilities and long-term liabilities which were classified to short-term.
Includes current portion of long-term liabilities and long-term liabilities which were classified to short-term.
D. Market risks
Market risk is the risk that changes in market prices, such as foreign exchange rates, the CPI, interest rates and prices of capital products and
instruments will affect the fair value of the future cash flows of a financial instrument.
The Group buys and sells derivatives in the ordinary course of business, and also incurs financial liabilities, in order to manage market risks. All such
transactions are carried out within the guidelines set by the Boards of Directors of the companies. For the most part, the Group companies enter into
hedging transactions for purposes of avoiding economic exposures that arise from their operating activities. Most of the transactions entered into do
not meet the conditions for recognition as an accounting hedge and, therefore, differences in their fair values are recorded on the statement of profit
and loss.
(1)
CPI and foreign currency risk
Currency risk
The Group’s functional currency is the U.S. dollar. The exposures of the Group companies are measured with reference to the changes in the exchange
rate of the dollar vis-à-vis the other currencies in which it transacts business.
The Group is exposed to currency risk on sales, purchases, assets and liabilities that are denominated in a currency other than the respective functional
currencies of the Group entities. The primary exposure is to the shekel, euro, pound, Peruvian Nuevo Sol and yuan (RMB).
The Group uses options and forward exchange contracts on exchange rates for purposes of hedging short-term currency risks, usually up to one year,
in order to reduce the risk with respect to the final cash flows in dollars deriving from the existing assets and liabilities and sales and purchases of
goods and services within the framework of firm or anticipated commitments, including in connection with future operating expenses.
The Group is exposed to currency risk in connection with loans it has taken out and debentures it has issued in currencies other than the dollar. The
principal amounts of these bank loans and debentures have been hedged by swap transactions the repayment date of which corresponds with the
payment date of the loans and debentures.
F-101
Table of Contents
Note 30 – Financial Instruments (Cont’d)
Inflation risk
The Group has CPI-linked loans. The Group is exposed to high payments of interest and principal as the result of an increase in the CPI. It is noted that part
of the Group’s anticipated revenues will be linked to the CPI. The Group does not hedge this exposure beyond the expected hedge included in its revenues.
(a)
Exposure to CPI and foreign currency risks
The Group’s exposure to CPI and foreign currency risk, based on nominal amounts, is as follows:
Non-derivative instruments
Cash and cash equivalents
Short-term investments, deposits and loans
Trade receivables
Other receivables
Long-term deposits and loans
Total financial assets
Loans from banks and others
Trade payables
Other payables
Long-term loans from banks and others and debentures
Loans and capital notes from the parent company
Total financial liabilities
Total non-derivative financial instruments, net
Derivative instruments
Net exposure
Non-derivative instruments
Cash and cash equivalents
Short-term investments, deposits and loans
Trade receivables
Other receivables
Long-term deposits and loans
Total financial assets
Loans from banks and others
Trade payables
Other payables
Long-term loans from banks and others and debentures
Loans and capital notes from the parent company
Total financial liabilities
Total non-derivative financial instruments, net
Derivative instruments
Net exposure
F-102
As at December 31, 2015
Foreign currency
Shekel
Unlinked CPI linked Other
103,844
73,112
31,306
12,789
19,565
240,616
— 39,892
—
5,305
— 40,456
—
4,537
— 17,865
— 108,055
—
(31,045)
(2,484)
(7,083)
—
— (20,856)
(2,469) (11,384)
(5,494) (473,151) (59,356)
— —
—
(39,023) (475,620) (98,679)
201,593 (475,620)
—
201,593 (475,620)
9,376
— —
9,376
As at December 31, 2014
Foreign currency
Shekel
Unlinked CPI linked Other
157,940
30,124
41,260
1,249
—
230,573
—
55,237
1,935
— 40,639
—
5,691
— 49,821
— 36,592
— 27,321
— 160,064
— 43,137
— 26,376
— 31,248
— 493,168 63,884
— —
57,764 493,168 164,645
592
172,809 (493,168)
—
172,809 (493,168)
(4,581)
— —
(4,581)
Table of Contents
Note 30 – Financial Instruments (Cont’d)
(b)
Sensitivity analysis
A strengthening of the dollar exchange rate by 5%–10% against the following currencies and change of the CPI in rate of 5%–10% would have
increased (decreased) the net income or net loss and the equity by the amounts shown below. This analysis assumes that all other variables, in
particular interest rates, remain constant. The analysis is performed on the same basis for 2014.
Non-derivative instruments
Shekel/dollar
CPI
Dollar/other
Non-derivative instruments
Shekel/dollar
CPI
Dollar/other
(2)
Interest rate risk
10% increase
5% increase
5% decrease
10% decrease
As at December 31, 2015
US$ thousands
40,718
(56,247)
1,017
21,596
(28,123)
482
(24,415)
28,123
(436)
(52,081)
56,247
(833)
10% increase
5% increase
5% decrease
10% decrease
As at December 31, 2014
US$ thousands
40,110
(57,731)
(2,813)
21,286
(28,865)
(1,333)
(25,237)
28,865
(1,206)
(50,865)
57,731
2,302
The Group is exposed to changes in the interest rates with respect to loans bearing interest at variable rates, as well as in connection with swap
transactions of liabilities in foreign currency for dollar liabilities bearing a variable interest rate.
The Group has not set a policy limiting the exposure and it hedges this exposure based on forecasts of future interest rates.
The Group enters into transactions mainly to reduce the exposure to cash flow risk in respect of interest rates. The transactions include interest rate
swaps and “collars”. In addition, options are acquired and written for hedging the interest rate at different rates.
Type of interest
Set forth below is detail of the type of interest borne by the Group’s interest-bearing financial instruments:
Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
F-103
As at December 31
2015
2014
Carrying amount
US$ thousands
401,671
(1,431,787)
(1,030,116)
239,629
(1,479,700)
(1,240,071)
29,363
(1,132,904)
(1,103,541)
26,682
(849,172)
(822,490)
Table of Contents
Note 30 – Financial Instruments (Cont’d)
Type of interest (Cont’d)
The Group’s assets and liabilities bearing fixed interest are not measured at fair value through the statement of profit and loss and the Group does not
designate derivatives interest rate swaps as hedging instruments under a fair value hedge accounting model. Therefore, a change in the interest rates as
at the date of the report would not be expected to affect the income or loss with respect to changes in the value of fixed – interest assets and liabilities.
A change of 100 basis points in interest rate at reporting date would have increased/(decreased) profit and loss before tax by the amounts below. This
analysis assumes that all variables, in particular foreign currency rates, remain constant.
Variable rate instruments
Variable rate instruments
E.
(1)
Fair value
Fair value compared with book value
As at
December 31, 2015
100bp
increase
100 bp
decrease
US$ thousands
(11,035) 11,035
As at
December 31, 2014
100bp
increase
100 bp
decrease
US$ thousands
(8,225) 8,225
The Group’s financial instruments include mainly non-derivative assets, such as: cash and cash equivalents, investments, deposits and short-term
loans, receivables and debit balances, investments and long-term receivables; non-derivative liabilities: such as: short-term credit, payables and credit
balances, long-term loans, finance leases and other liabilities; as well as derivative financial instruments.
Due to their nature, the fair value of the financial instruments included in the Group’s working capital is generally identical or approximates the book
value.
The following table shows in detail the carrying amount and the fair value of financial instrument groups presented in the financial statements not in
accordance with their fair value.
Non-convertible debentures
Long-term loans from banks and others (excluding interests)
Non-convertible debentures
Long-term loans from banks and others
As at December 31, 2015
Carrying
amount
Level 2
Discount
Rate
(range)
US$ thousands
671,247 764,878
5% - 8%
2,003,443 2,197,177 1% - 13%
As at December 31, 2014
Carrying
amount
Level 2
US$ thousands
703,952 819,572
1,643,980 1,772,052
Discount
Rate
(range)
5% - 8%
1% - 9%
* The fair value is measured using the technique of discounting the future cash flows with respect to the principal component and the discounted interest using the
market interest rate on the measurement date.
F-104
Table of Contents
Note 30 – Financial Instruments (Cont’d)
(2) Hierarchy of fair value
The following table presents an analysis of the financial instruments measured at fair value, using an evaluation method. The various levels were
defined as follows:
– Level 1: Quoted prices (not adjusted) in an active market for identical instruments.
– Level 2: Observed data, direct or indirect, not included in Level 1 above.
– Level 3: Data not based on observed market data.
Assets
Marketable securities held for trade
Tower-series 9 options
Derivatives not used for accounting hedge (a)
Liabilities
Financial guarantee
Derivatives used for accounting hedge
Derivatives not used for accounting hedge
As at December 31, 2015
Level 1 Level 2 Level 3
US$ thousands
As at
December 31,
2014
Level 2
US$
6,412
12,175
—
18,587
—
—
2,864
2,864
—
—
—
—
—
—
—
—
—
44,909
3,276
48,185
34,263
—
—
34,263
18,515
—
322
18,837
—
33,115
4,116
37,231
(a) Includes $ 2,703 thousand AIE’s embedded derivative not used for hedging. This embedded derivative corresponds to the fair value of AIE’s gas
agreement which lets AIE to resell its not-used gas on the corresponding market to a third party.
(3)
Data and measurement of the fair value of financial instruments at Level 2
Level 2
The fair value of forward contracts on foreign currency is determined using trading programs that are based on market prices. The market price is
determined based on a weighting of the exchange rate and the appropriate interest coefficient for the period of the transaction along with an index of
the relevant currencies.
The fair value of contracts for exchange (SWAP) of interest rates and fuel prices is determined using trading programs which incorporate market
prices, the remaining term of the contract and the credit risks of the parties to the contract.
The fair value of currency and interest exchange (SWAP) transactions is valued using discounted future cash flows at the market interest rate for the
remaining term.
The fair value of transactions used to hedge inflation is valued using discounted future cash flows which incorporate the forward CPI curve, and
market interest rates for the remaining term.
If the inputs used to measure the fair value of an asset or liability might be categorized in different levels of the fair value hierarchy, then the fair value
measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire
measurement.
The fair value of marketable securities held for trade is determined using the ‘Discounts for Lack of Marketability’ (“DLOM”) valuation method,
which is a method used to calculate the value of restricted securities. The method purports that the only difference between a company’s common
stock and its restricted securities is the lack of marketability of the restricted securities which is derived from the price difference between both prices.
F-105
Table of Contents
Note 30 – Financial Instruments (Cont’d)
The following table shows the valuation techniques used in measuring Level 2 fair values as at December 31, 2015 and 2014, as well as the significant
unobservable inputs used.
Type
Valuation technique
Significant
unobservable data
Inter-relationship
between
significant unobservable
inputs
and fair value
measurement
Interest rate Swaps
Foreign Exchange Forwards
Credit from banks, others and debentures
The Group applies standard valuation
techniques such as: discounted
cash
flows
for fixed and variables coupons
(estimated with forward curves) using
as discounted rates the projected
LIBOR
zero
coupon
curve
. The
observable inputs are obtained through
market information suppliers.
The Group applies standard valuation
techniques which include market
observable parameters such as the
implicit exchange rate calculated with
forward points. These variables are
obtained through market information
suppliers.
Discounted cash flows with market
interest rate
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Marketable Securities held for trade
DLOM valuation method
Not applicable
Not applicable
(4)
Data and measurement of the fair value of financial instruments at Level 3
Level 3
The fair value of financial guarantee was based on the Merton model using the method known as Monte Carlo Simulation “MCS”. MCS approximates
the probability of certain outcomes by running multiple simulations, using various inputs. The MCS performed over the financial guarantee was based
on the inputs and the assumption that Qoros has a certain amount of risk-free debt that will be repaid at a later date. The significant unobservable
inputs used in the valuation are Qoros’ assets value, debt exercise price and the volatility of its assets. The estimated fair value would increase if the
asset value decreased, debt exercise price increased and volatility of its assets in the market increased.
(5)
Transfer between levels
The Group recognizes transfers between levels of the fair values hierarchy at the end of the reporting period during which the change has occurred.
For the year ended December 31, 2015, marketable securities held for trade (“REG shares”) with a carrying value of $6.4 million were transferred
from Level 2 to Level 1 because these REG shares were transferred from restricted to non-restricted. The fair value of such restricted shares are based
on quoted prices in the market.
F-106
Table of Contents
Note 31 – Revision to the combined financial statements for the years ended December 31, 2014 and 2013
During 2015, immaterial errors were identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-
monetary assets in previous years in I.C. Power. Management of the Group revised the combined financial statements for the year ended
December 31, 2014 and 2013 to correct these immaterial errors.
The total effect of the adjustment on the total equity attributable to owners of the Company in 2014 was a decrease of $13,402 thousand and the effect
of the adjustment on the profit/ (loss) attributable to Kenon’s shareholders in 2014 and 2013 was a decrease in profit of $9,377 thousand and $5,513
thousand respectively as compared to the previously reported amounts.
Note 32 – Events Occurring Subsequent to the Period of the Report
A.
Kenon
1)
Kenon announces an amendment to its loan agreement with IC and related pledge arrangements to accommodate a new holding
company within the Group
On March 21, 2016, an internal restructuring announced pursuant to one of its subsidiaries, I.C. Power Singapore, which was a holding company with
no material assets, has acquired Kenon’s subsidiary I.C. Power which is the holding company for Kenon’s energy generation and distribution business.
As a result, I.C. Power Singapore is now the parent holding company of Kenon’s power generation and distribution businesses.
In connection with the reorganization of I.C. Power Singapore, I.C. Power Singapore issued a $145 million note and $75 million note payable to
Kenon. The proceeds of the notes were applied by I.C. Power Singapore towards paying the purchase consideration for the acquisition of Kenon’s
entire equity interest in I.C. Power. The notes both bear interest at a rate of LIBOR+6% per annum until the date the notes are fully paid.
Kenon is party to a loan agreement with IC. This loan agreement provides for loans up to $200 million for a pledge of 66% of I.C. Power shares held
by Kenon. In connection with the internal reorganization above, the pledge over I.C. Power shares will remain as Kenon will pledge 66% of its shares
in I.C. Power Singapore to IC. Kenon will also pledge 66% of certain intercompany debt receivables owing from I.C. Power Singapore to Kenon,
which receivables resulted from this internal restructuring.
The pledge over the shares of I.C. Power is expected to be released in connection with an IPO of I.C. Power Singapore. In addition, the pledge over
the shares of I.C. Power Singapore and the related intercompany debt receivables can be released upon an IPO of I.C. Power Singapore, subject to
Kenon’s meeting of a financial ratio.
2)
Extension of Safe-Habour under Singapore Budget 2016
Based on the prelude to Budget 2016, the Singapore Government’s intention to extend safe habour, the non-taxation of equity divestments till 2022,
would provide a continuous upfront tax certainty and boost for companies intending to pursue restructuring exercises or divestment strategies.
B.
Qoros
Regarding an investment in Qoros, in the amount of $40 million – see Note 10.C.b.3.
C.
I.C. Power
1)
Advanced Integrated Energy Ltd.
On January 21, 2016 AIE contracted with SerIDOM Servicios Integrados IDOM, S.A.U (“SerIDOM”) for the design, engineering, procurement and
construction of combined cycle cogeneration power plant on a lump sum, turnkey basis. In accordance with the EPC contract, SerIDOM committed to
complete construction of the power plant by July 2018. The cost of the contract is approximately $150 million.
Payment of the consideration is based on progress of the construction and compliance with milestones. SerIDOM committed to compensate AIE in a
case of delay or non-compliance with any of its contractual obligations up to the amounts stipulated in the EPC contract, and provided AIE a bank
guarantee and a parent company guarantee to secure these commitments.
F-107
Table of Contents
Note 32 – Events Occurring Subsequent to the Period of the Report
2)
Acquisition of Energuate
On January 22, 2016, I.C. Power Distribution Holdings Pte. Ltd executed an agreement with Deorsa-Deocsa Holdings an investment company of
Actis,LLP, to acquire 100% of Estrella Cooperatief B.A. which indirectly owns 90.6% and 92.7% of two electricity distribution companies in
Guatemala and 100% of two smaller related businesses (the four acquired businesses are collectively referred to as “Energuate”), for a total
consideration of $265 million, using a combination of cash on hand and a $120 million loan facility, which I.C. Power entered into in December 2015
(see note 15), and assumed its debt of $289 million.
Energuate’s two electricity distribution companies provide services for approximately 1.6 million households in Guatemala (representing
approximately 55% of Guatemala’s distribution clients in 2014) and distribute energy across an approximately 100,000 km 2 area in Guatemala.
As of the date of the approval of the financial statements, the initial accounting for the business combination is incomplete. Therefore, Kenon did not
present all the disclosures otherwise required under IFRS 3.
3)
Cerro del Aguila
On February 3, 2016 and February 4, 2016, CDA received proceeds in the aggregate amount of $ 43,913 thousand under its finance credit facility.
After this disbursement, CDA has drawn $ 590,913 thousand (equivalent to 100% of the total debt approved).
4)
Samay I
On February 6, 2016 Samay I received proceeds in the aggregate amount of $ 20,000 thousand under its finance credit facility. After this
disbursement, Samay I has drawn $ 311,000 thousand (equivalent to 100% of the total debt approved).
5)
Kallpa Generación S.A.
On February 15, 2016, as a result of 2012 income tax audit performed by the SUNAT, SUNAT issued a preliminary income tax assessment for
approximately S/. 22 million ($6.5 million) on the basis that certain interest accrued on Kallpa’s debt and some maintenance expenses should not have
been deducted from the 2012 Kallpa’s taxable income but rather treated as an asset. On March 11, 2016, SUNAT issue a final tax assessment for
approximately S/. 16.5 million ($4.8 million) related to the interest expenses accrued during construction. Kallpa will appeal this assessment before
SUNAT.
Kallpa’s management and its tax counsel consider that its appeal will be more likely than not be successful on the basis that the Peruvian Tax Court
has issued precedent that admits the deduction of interest expenses in similar circumstances based on the clear language of article 37a) of the Peruvian
Income Tax Law; accordingly, no provision was recorded in the financial statements.
6)
I.C. Power repaid Tranche A facility
In January 2016, I.C. Power repaid Tranche A facility in amount of NIS 161,746 thousand ($40,680 thousand) including the interest accrued.
F-108
Table of Contents
Qoros Automotive Co., Ltd.
Consolidated financial statements
31 December 2015
F-109
Table of Contents
The Board of Directors:
Qoros Automotive Co., Ltd.:
Independent Auditors’ Report
We have audited the accompanying consolidated financial statements of Qoros Automotive Co., Ltd. and its subsidiaries, which comprise the consolidated
statements of financial position as of 31 December 2015 and 2014, and the related consolidated statements of profit or loss and other comprehensive income,
changes in equity, and cash flows for each of the years in the three-year period ended 31 December 2015, and the related notes to the consolidated financial
statements.
Management’s
Responsibility
for
the
Consolidated
Financial
Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting
Standards as issued by the International Accounting Standard Board; this includes the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’
Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing
standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
F-110
Table of Contents
Opinion
In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of Qoros Automotive Co., Ltd.
and its subsidiaries as of 31 December 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended
31 December 2015 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Shanghai, China
29 March 2016
F-111
Table of Contents
Consolidated statement of financial position
31 December
In
thousands
of
RMB
Assets
Property, plant and equipment
Intangible assets
Prepayments for purchase of equipment
Lease prepayments
Trade and other receivables
Equity-accounted investee
Non-current assets
Inventories
VAT recoverable
Trade and other receivables
Prepayments
Pledged deposits
Cash and cash equivalents
Current assets
Total assets
The notes on pages F-118 to F-165 form part of these financial statements.
F-112
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Note
2015
2014
14
15
16
17
18
17
19
20
4,275,167
4,656,474
59,276
203,716
92,202
2,032
9,288,867
244,854
832,503
42,645
36,431
113,167
257,270
1,526,870
4,039,948
4,638,364
117,922
208,128
96,533
2,025
9,102,920
197,522
662,391
67,515
154,655
290,840
752,088
2,125,011
10,815,737
11,227,931
Table of Contents
Consolidated statement of financial position (continued)
31 December
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
In
thousands
of
RMB
Equity
Paid-in capital
Reserves
Accumulated losses
Total equity
Liabilities
Loans and borrowings
Deferred income
Provisions
Non-current liabilities
Loans and borrowings
Trade and other payables
Deferred income
Current liabilities
Total liabilities
Total equity and liabilities
The notes on pages F-118 to F-165 form part of these financial statements.
F-113
Note
2015
2014
21
22
23
24
22
25
23
8,331,840
(44)
(8,135,997)
195,799
6,531,840
(26)
(5,660,541)
871,273
4,659,718
169,396
20,964
4,850,078
2,829,470
2,615,541
324,849
5,769,860
3,928,703
179,982
12,971
4,121,656
3,376,201
2,833,459
25,342
6,235,002
10,619,938
10,356,658
10,815,737
11,227,931
Table of Contents
Consolidated statement of profit or loss and other comprehensive income
For the year ended 31 December
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
In
thousands
of
RMB
Revenue
Cost of sales
Gross loss
Other income
Research and development expenses
Selling and distribution expenses
Administrative expenses
Other expenses
Operating loss
Finance income
Finance costs
Net finance costs
Share of profit of equity-accounted investee, net of nil tax
Loss before tax
Income tax expense
Loss for the year
Other comprehensive income
Items that are or may be reclassified to profit or loss
Foreign operations – foreign currency translation differences
Other comprehensive income, net of nil tax
Total comprehensive income for the year
The notes on pages F-118 to F-165 form part of these financial statements.
F-114
Note
7 1,459,339
2015
(253,704)
36,690
(278,008)
(819,807)
(740,188)
(74,174)
2014
864,957
(1,713,043) (1,019,264)
(154,307)
37,349
(264,019)
(927,211)
(591,611)
(62,716)
2013
13,135
(29,256)
(16,121)
19,073
(408,196)
(269,696)
(864,813)
(6,113)
(2,129,191) (1,962,515) (1,545,866)
18,125
(29,190)
(11,065)
13,429
(359,126)
(345,697)
25,822
(217,337)
(191,515)
8
9
10
11
12(a)
12(a)
12(a)
7
(123)
—
(2,474,881) (2,154,153) (1,556,931)
(196)
(2,475,456) (2,154,686) (1,557,127)
(533)
(575)
13
(18)
(18)
(154)
(154)
(19)
(19)
(2,475,474) (2,154,840) (1,557,146)
Table of Contents
Consolidated statement of changes in equity
For the year ended 31 December
In
thousands
of
RMB
Balance at 1 January 2013
Loss for the year
Other comprehensive income
Total comprehensive income
Capital injection from investors
Total contributions
Balance at 31 December 2013
Balance at 1 January 2014
Loss for the year
Other comprehensive income
Total comprehensive income
Capital injection from investors
Total contributions
Balance at 31 December 2014
Balance at 1 January 2015
Loss for the year
Other comprehensive income
Total comprehensive income
Conversion of shareholders’ loan to capital (Note 21)
Total contributions
Balance at 31 December 2015
The notes on pages F-118 to F-165 form part of these financial statements.
F-115
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Paid-in
capital
4,231,840
—
—
—
1,700,000
1,700,000
Capital
reserve
74
—
—
—
50
50
Translation
reserve
—
—
(19)
(19)
—
—
Accumulated
losses
(1,948,728)
(1,557,127)
—
(1,557,127)
—
—
Total
2,283,186
(1,557,127)
(19)
(1,557,146)
1,700,050
1,700,050
5,931,840
124
(19)
(3,505,855)
2,426,090
5,931,840
—
—
—
600,000
600,000
124
—
—
—
23
23
(19)
—
(154)
(154)
—
—
(3,505,855)
(2,154,686)
—
(2,154,686)
—
—
2,426,090
(2,154,686)
(154)
(2,154,840)
600,023
600,023
6,531,840
147
(173)
(5,660,541)
871,273
6,531,840
—
147
—
—
1,800,000
1,800,000
—
—
—
(173)
—
(18)
(18)
—
—
(5,660,541)
(2,475,456)
—
(2,475,456)
—
—
871,273
(2,475,456)
(18)
(2,475,474)
1,800,000
1,800,000
8,331,840
147
(191)
(8,135,997)
195,799
Table of Contents
Consolidated statement of cash flows
For the year ended 31 December
In
thousands
of
RMB
Cash flows from operating activities
Loss for the year
Adjustments for:
Depreciation
Amortisation of
- intangible assets
- lease prepayments
Impairment losses on inventories
Impairment losses on other receivables
Net finance costs
Tax expense
Share of profit of equity-accounted, investee, net of tax
Loss on disposal of property, plant, and equipment
Deferred income
Changes in:
- inventories
- trade and other receivables
- VAT recoverable
- prepayments
- trade and other payables
- deferred income
Net cash used in operating activities
Cash flows from investing activities
Interest received
Proceeds from disposal of available-for-sale financial assets
Collection of pledged deposits
Placement of pledged deposits
Acquisition of property, plant and equipment and intangible assets
Acquisition of available-for-sale financial assets
Acquisition of equity in associate
Development expenditures
Net cash used in investing activities
The notes on pages F-118 to F-165 form part of these financial statements.
F-116
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Note
2015
2014
2013
(2,475,456) (2,154,686) (1,557,127)
227,477
143,586
34,871
236,223
4,412
—
9,493
345,697
575
(7)
4,813
(11,079)
8,940
4,413
5,654
—
3,264
196
—
—
4,218
(1,657,852) (1,763,705) (1,495,571)
52,315
4,413
—
—
200,600
533
—
172
(10,638)
(172,870)
(47,332)
(221,610)
(322,106)
—
170,112
(86,398)
118,224
525,310
560,055
300,000
—
(878,899) (1,576,010) (1,451,139)
(30,306)
(235,444)
—
(51,116)
504,561
—
15,019
175,000
508,093
(330,420)
(652,351)
(175,000)
—
16,479
15,771
23,000
32,000
162,259
60,393
(190,840)
(296,714)
(497,891) (1,517,499)
(55,000)
—
(851,090)
(1,142,164) (2,028,604) (2,518,565)
—
(2,025)
(682,505) (1,446,012)
Table of Contents
Consolidated statement of cash flows (continued)
for the year ended 31 December
In
thousands
of
RMB
Cash flows from financing activities
Capital injection from investors
Proceeds from borrowings
Repayment of borrowings
Interest paid
Collection of guarantee deposit
Placement of guarantee deposit
Net cash from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of foreign exchange rate changes
Cash and cash equivalents at 31 December
The notes on pages F-118 to F-165 form part of these financial statements.
F-117
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Note
2015
2014
2013
—
— 1,700,050
5,564,733 5,442,286 2,577,342
(3,644,550) (1,649,847) (369,440)
(325,157) (174,782)
—
—
1,526,346 3,498,802 3,733,170
(393,837)
100,219
(100,219)
31,520
—
(494,717)
752,088
(101)
257,270
(105,812) (236,534)
857,900 1,094,434
—
752,088 857,900
—
Table of Contents
Notes to the consolidated financial statements
1
Reporting entity
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Qoros Automotive Co., Ltd. (“the Company”) is a sino-foreign joint equity enterprise established on 24 December 2007 in the People’s Republic of China
(“PRC”) by Wuhu Chery Automobile Investment Co., Ltd (“Wuhu Chery”) and Quantum (2007) LLC (“Quantum”). The Company’s registered office is
Changshu, Jiangsu Province, PRC. The Company has two wholly-owned subsidiaries, Qoros Automotive Europe GmbH incorporated in Germany and Qoros
Car Sales Co., Ltd. incorporated in Changshu (“the Subsidiaries”). These consolidated financial statements comprise the Company and the Subsidiaries
(together referred to as the “Group”).
The Group’s principal activities are research and development, manufacture and sale of automobiles and spare parts.
2
Basis of preparation
(a)
Basis
of
accounting
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”), which collective
terms includes International Accounting Standards and related interpretations, promulgated by the International Accounting Standards Board
(“IASB”). They were authorised for issue by the Group’s board of directors on 29 March 2016.
(b)
Going
concern
basis
of
accounting
The Group incurred a net loss of RMB 2.48 billion and had net current liabilities of approximately RMB 4.24 billion as of and for the year ended
31 December 2015, including shareholder loans of 1.5 billion that is planned to be converted to capital in 2016.
The Group management has given careful consideration to the future liquidity of the Group and its available sources of finance in assessing whether
the Group will have sufficient financial resources to continue as a going concern.
Bank
Financing
The Company had unused bank loan facilities of RMB 284 million as at 31 December 2015 (Note 22). In addition, the Company plans to refinance
most of its short-term loans in 2016.
F-118
Table of Contents
2
Basis of preparation (Continued)
(b)
Going
concern
basis
of
accounting
(continued)
Shareholders’
loans
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Included in the current liabilities were loans from shareholders of RMB 1.5 billion as at 31 December 2015. Shareholders also lent additional loans of
RMB 550 million to the Company in January and February 2016. In 2016, all these shareholder loans of RMB 2 billion will be converted to capital
upon the approval of the relevant Chinese authority.
Based on the Group’s 2016 business plan, cash flow forecast, unutilised bank loan facilities and the plan to refinance the existing short term loans, we
believe the Group will generate sufficient cash flows to meet its liabilities as and when they fall due in the next twelve months from 31 December
2015. In preparing the cash flow forecast, we took into account the unused bank loan facilities of RMB 284 million, the roll forward of its short term
loans from banks and the additional RMB 550 million from the shareholders, and are of the opinion that the assumptions which are included in the
cash flow forecast are reasonable. Accordingly, the consolidated financial statements have been prepared on a going concern basis. If for any reason
the Group is unable to continue as a going concern, then this could have a material impact on the Group’s ability to realise assets at their recognised
values and to extinguish liabilities in the normal course of business at the amounts stated in the consolidated financial statements.
(c)
Basis
of
measurement
The consolidated financial statements have been prepared on the historical cost basis except that the financial instruments classified as available-for-
sale are measured at their fair value (see Note 4 (l)(ii)).
(d)
Functional
and
presentation
currency
These consolidated financial statements are presented in Renminbi (“RMB”, the “presentation currency”), which is also the Company’s functional
currency. All amounts have been rounded to the nearest thousand unless otherwise stated.
F-119
Table of Contents
3
Change in accounting policy
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Except for the changes below, the Group has consistently applied the accounting policies to all periods presented in these consolidated financial statements.
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date
of initial application of 1 January 2015.
•
•
•
Amendments to IAS 19, Employee benefits: Defined benefit plans: Employee contributions
Annual Improvements to IFRSs 2010-2012 Cycle
Annual Improvements to IFRSs 2011-2013 Cycle
Amendments to IAS 19, Employee benefits: Defined benefit plans: Employee contributions
The amendments introduce a relief to reduce the complexity of accounting for certain contributions from employees or third parties under defined benefit
plans. When the contributions are eligible for the practical expedient provided by the amendments, a Group is allowed to recognise the contributions as a
reduction of the service cost in the period in which the related service is rendered, instead of including them in calculating the defined benefit obligation. The
amendments do not have an impact on these financial statements as no defined benefit plans are operated by the Group.
Annual Improvements to IFRSs 2010-2012 Cycle and 2011-2013 Cycle
These two cycles of annual improvements contain amendments to nine standards with consequential amendments to other standards. Among them, IAS 24,
Related party disclosures has been amended to expand the definition of a “related party” to include a management entity that provides key management
personnel services to the reporting entity, and to require the disclosure of the amounts incurred for obtaining the key management personnel services
provided by the management entity. These amendments do not have an impact on the Group’s related party disclosures as the Group does not obtain key
management personnel services from management entities.
F-120
Table of Contents
4
Significant accounting policies
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Except for the changes described in Note 3, the accounting polices set out below have been applied consistently to all periods presented in these financial
statements.
(a)
Basis
of
consolidation
(i)
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity.
(ii)
Interests in equity-accounted investee
The Group has significant influence over, but does not control or jointly control, the financial and operating policies of Fund & Liberty car
rental & leasing Co., Ltd. (“Fund”), an entity which the Group held a 25% and 25% as of December 31, 2014 and 2015.
The Group accounts for its investment in Fund using the equity method. Under the equity method, interests in equity-accounted investees are
initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include
the share of the profit or loss and other comprehensive income (“OCI”) of equity-accounted investees, until the date on which significant
influence ceases.
(iii)
Transaction eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated.
Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the interest in
the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of
impairment.
F-121
Table of Contents
4
Significant accounting policies (continued)
(b)
Revenue
(i)
Sale of goods
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net
of value-added tax (“VAT”), consumption tax and other sales taxes, returns or allowances, trade discounts and rebates. Revenue is recognised
when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have
been transferred to the customers, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated
reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.
(ii)
Rental income
Rental income from operating leases is recognised as revenue on a straight-line basis over the term of the lease. Any lease incentives granted
are recognised as an integral part of the total rental income, over the term of the lease.
(iii)
Licencing income
Licence fee and royalties received for the use of the Group’s assets (such as platform technology and patent) are normally recognised in
accordance with the substance of the agreement.
(c)
Government
grants
Government grants are initially recognised as deferred income at fair value if there is reasonable assurance that they will be received and the Group
will comply with the conditions associated with the grant; they are then recognised in profit or loss as other income on a systematic basis over the
useful life of the asset.
Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the periods in which the expenses are
recognised.
F-122
Table of Contents
4
Significant accounting policies (continued)
(d)
Finance
income
and
finance
costs
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Finance income comprises interest income on funds invested (including available-for-sale financial assets) and net foreign currency exchange gain
(Note (e)(i))
Finance costs comprise interest expense on borrowings and net foreign currency exchange losses (Note (e)(i)) .
Interest income is recognised using the effective interest method. Borrowing costs that are not directly attributable to the acquisition, construction or
production of a qualifying asset are recognised in profit or loss using the effective interest method.
(e)
Foreign
currency
(i)
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Group companies at exchange rates at the dates
of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting
date. Foreign currency differences are generally recognised in profit or loss. Non-monetary items that are measured based on historical cost in
a foreign currency are not translated.
(ii)
Foreign operations
The functional currency of Qoros Automotive Europe GmbH is Euros. The assets and liabilities of Qoros Automotive Europe GmbH, are
translated into RMB at exchange rates at the reporting date. The income and expenses of foreign operations are translated into RMB at the
exchange rates at the dates of the transactions.
Foreign currency differences are recognised in OCI and accumulated in the translation reserve.
F-123
Table of Contents
4
Significant accounting policies (continued)
(f)
Employee
benefits
(i)
Short-term employee benefits
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability
is recognised for the amount expected to be paid if the Group has a present legal or constructive obligations to pay this amount as a result of
past service provided by the employee, and the obligation can be estimated reliably.
(ii)
Contributions to defined contribution retirement plans in the PRC
Contributions to local retirement schemes pursuant to the relevant labour rules and regulations in the PRC are recognised as an expense in
profit or loss as incurred.
(iii)
Termination benefits
Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group
recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are
discounted.
F-124
Table of Contents
4
Significant accounting policies (continued)
(g)
Income
tax
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Income tax expense comprises current and any deferred tax. Income tax expense 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.
(i)
Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or
receivable in respect of previous years. Current tax is measured using tax rates enacted or substantively enacted at the reporting date. Current
tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if certain criteria are met.
(ii)
Deferred tax
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 equity method investees to the extent that the Group is able to control
the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
F-125
Table of Contents
4
Significant accounting policies (continued)
(g)
Income
tax
(continued)
(ii)
Deferred tax (continued)
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Deferred tax assets are recognised for unused tax losses, unused 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 used. 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, such reductions are reversed when the
probability of future taxable profits improves.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future
taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or
substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the
reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if certain criteria are met.
(h)
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted-average principle, and includes
expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred to bring them to their existing location and
condition. In the case of manufactured inventories and work in progress, cost includes direct labour and an appropriate share of production overheads
based on normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
F-126
Table of Contents
4
Significant accounting policies (continued)
(i)
Property,
plant
and
equipment
(i)
Recognition and measurement
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the followings:
•
•
•
•
the cost of materials and direct labour;
any other costs directly attributable to bringing the assets to a working condition for their intended;
when the Group has an obligation to remove the asset or restore the site, an estimate of the costs of dismantling and removing the items
and restoring the site on which they are located; and
capitalised borrowing costs.
If significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major
components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal
and the carrying amount of the item) is recognised in profit or loss.
(ii)
Subsequent costs
Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to
the Group. Ongoing repairs and maintenance is expensed as incurred.
F-127
Table of Contents
4
Significant accounting policies (continued)
(i)
Property,
plant
and
equipment
(continued)
(iii)
Depreciation
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use, or in respect of internally
constructed assets, from the date that the asset is completed and ready for use.
Except for toolings, depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual
values using the straight-line basis over their estimated useful lives and is generally recognised in profit or loss. Leased assets are depreciated
over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the
lease term. No depreciation is provided on construction in progress.
The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:
• Buildings
• Equipment
• Leasehold improvements
30 years
3 - 20 years
3 years
Toolings are depreciated on a systematic basis based on the quantity of related products produced.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
F-128
Table of Contents
4
Significant accounting policies (continued)
(j)
Intangible
assets
(i)
Research and development
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is
recognised in profit or loss as incurred.
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development
expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible,
future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the
asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the
asset for its intended use, and capitalised borrowing costs. Other development expenditure is recognised in profit or loss as incurred
subsequent to initial recognition. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated
impairment losses. Capitalised development costs are amortised systematically over the estimated product life following the start of
production.
F-129
Table of Contents
4
Significant accounting policies (continued)
(j)
Intangible
assets
(continued)
(ii)
Other intangible assets
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any
accumulated impairment losses.
(iii)
Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.
All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.
(iv)
Amortisation
Amortisation is calculated to write off the cost of intangible assets less their estimated residual values from the date they are available for use
using the straight-line method over their estimated useful lives or other systematic basis, and is generally recognised in profit or loss.
Except for capitalised development costs, the estimated useful lives of intangible assets are as follows:
• Software
10 years
Capitalised development costs are amortised on a systematic basis based on the quantity of related products produced.
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
(k)
Lease
prepayments
All land in PRC is state-owned and no private land ownership exists. The Group acquired the right to use certain land and the amounts paid for such
right are recorded as lease prepayment. Lease prepayment is carried at historical cost less accumulated amortisation and any impairment losses.
Amortisation is calculated on a straight-line basis over the respective periods of the rights.
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4
Significant accounting policies (continued)
(l)
Financial
instruments
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
The Group classifies non-derivative financial assets into the following categories: loans and receivables and available-for-sale financial assets.
The Group classifies non-derivative financial liabilities into the following categories: financial liabilities at fair value through profit or loss and other
financial liabilities category.
(i)
Non-derivative financial assets and financial liabilities—recognition and derecognition
The Group initially recognises loans and receivables and debt securities issued on the date when they are originated. All other financial assets
and financial liabilities are initially recognised on the trade date when the entity becomes a party to the contractual provision of the
instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive
the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or
it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred assets.
Any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset or liability.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group
has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability
simultaneously.
(ii)
Non-derivative financial assets—measurement
Loans
and
receivables
Loans and receivables are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition,
they are measured at amortised cost using the effective interest method.
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4
Significant accounting policies (continued)
(l)
Financial
instruments
(continued)
(ii)
Non-derivative financial assets—measurement (continued)
Available-for-sale
financial
assets
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Available-for-sale financial assets are initially measured at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses are recognised in other
comprehensive income and accumulated in the fair value reserve. When these assets are derecognised, the gain or loss accumulated in equity
is reclassified to profit or loss.
(iii)
Non-derivative financial liabilities—measurement
A financial liability is classified as at fair value through profit or loss if it is classified as held-to-trading or is designated as such on initial
recognition. Directly attributable transaction costs are recognised in profit or loss as incurred. Financial liabilities at fair value through profit
or loss are measured at fair value and changes therein, including any interest expenses, are recognised in profit or loss.
Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to
initial recognition, these liabilities are measured at amortised cost using effective interest method.
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4
Significant accounting policies (continued)
(m)
Impairment
(i)
Non-derivative financial assets
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Financial assets not classified as at fair value through profit or loss, including an interest in an equity-accounted investee, are assessed at each
reporting date to determine whether there is objective evidence of impairment.
Objective evidence that financial assets are impaired includes:
•
•
•
•
•
•
default or delinquency by a debtor;
restructuring of an amount due to the Group on terms that the Group would not consider otherwise;
indications that a debtor or issuer will enter bankruptcy;
adverse changes in the payment status of borrowers or issuers;
the disappearance of an active market for a security;
observable date indicating that there is measureable decrease in expected cash flows from a group of financial assets.
For an investment in an equity security, objective evidence of impairment includes a significant or prolonged decline in its fair value below its
cost. The Group considers a decline of 20% to be significant and a period of nine months to be prolonged.
Financial
assets
measured
at
amortised
costs
The Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant
assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has
been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment.
Collective assessment is carried out by grouping together assets with similar risk characteristics.
In assessing collective impairment, the Group uses historical information on the timing of recoveries and the amount of loss incurred, and
make an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by
historical trends.
F-133
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4
Significant accounting policies (continued)
(m)
Impairment
(continued)
(i)
Non-derivative financial assets (continued)
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
An impairment loss is calculated as the difference between its carrying amount and the present value of the estimated future cash flows
discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the
Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment
loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the
previously recognized impairment loss is reversed through profit or loss.
Available-for-sale
financial
assets
Impairment losses on available-for-sale financial assets are recognised by reclassifying the loss accumulated in the fair value reserve to profit
or loss. The amount reclassified is the difference between the acquisition cost (net of any principal repayment and amortisation), and the
current fair value, less any impairment losses recognised previously in profit or loss. If the fair value of an impaired available-for-sale debt
security subsequently increases and the increase can be related objectively to an event occurring after the impairment loss was recognised,
then the impairment loss is reversed through profit or loss. Impairment losses recognised in profit or loss for an investment in an equity
instrument classified as available-for-sale are not reversed through profit or loss.
(ii)
Non-financial assets
The carrying amounts of the Group’s non-financial assets (other than inventories) are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. In addition, intangible
assets that are not yet available for use are tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset
or its related cash-generating unit (CGU) exceeds its estimated recoverable amount.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or CGUs.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the
estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset or CGU.
F-134
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4
Significant accounting policies (continued)
(m)
Impairment
(continued)
(ii)
Non-financial assets (continued)
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the
CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(n) Warranty
costs
A provision for warranties is recognised when the underlying products or services are sold, based on estimate by the Group’s technicians and by
reference to industrial data.
(o)
Provision
and
contingent
liabilities
Provisions are recognised for other liabilities of uncertain timing or amount when the Group or the Company has a legal or constructive obligation
arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can
be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed
as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed
by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of
economic benefits is remote.
(p)
Leases
The Company’s leases are classified as operating leases and are not recognised in the Group’s statement of financial position.
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are
recognised as an integral part of the total lease expenses, over the term of the lease.
F-135
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4
Significant accounting policies (continued)
(q)
Related
parties
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
(a)
A person, or a close member of that person’s family, is related to the Group if that person:
(i)
has control or joint control over the Group;
(ii)
has significant influence over the Group; or
(iii)
is a member of the key management personnel of the Group or the Group’s parent or ultimate controlling shareholders.
(b)
An entity is related to the Group if any of the following conditions applies:
(i)
The entity and the Group are members of the same Group;
(ii) One entity is an associate or joint venture of the other entity (or an associate of joint venture of a member of a Group of which the other
entity is a member);
(iii) Both entities are joint ventures of the same third party;
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v)
The entity is a post-employment benefit plan for the benefit of employees of the Group or an entity related to the Group;
(vi) The entity is controlled or jointly controlled by a person identified in (a);
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or
of a parent of the entity);
(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the group or to the group’s
parent.
Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their
dealings with the entity.
F-136
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4
Significant accounting policies (continued)
(r)
Standards
and
interpretation
issued
but
not
yet
adopted
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Up to date of issue of the Financial Statements, the IASB has issued a number of amendments and new standards which are not yet effective for the year
ended 1 January 2015 and which have not been adopted in the Financial Statements. These include the following which may be relevant to the Group.
• Annual Improvements to IFRSs 2012-2015 Cycle
• Amendments to IFRS 10 and IAS 28, Sale or contribution of assets between an investor and its associate or joint venture
• Amendments to IFRS11, Accounting for acquisition of interests in joint operations
• Amendments to IAS 1, Disclosure initiative
• Amendments to IAS 16 and IAS 38, Clarification of acceptable methods of depreciation and amortisation
• IFRS 9, Financial instruments
• IFRS 15, Revenue from contracts with customers
• IFRS 16, Leases
Effective for
accounting periods
beginning on or after
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2018
1 January 2018
1 January 2019
The Group is in the process of making an assessment of what the impact of these amendments is expected to be in the period of initial application. So far it
has concluded that the adoption of them is unlikely to have a significant impact on the Group’s results of operations and financial position, except for the
following.
IFRS 15 Revenue from contracts with customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue
recognition guidance, including IAS18 Revenue, IAS11 Construction contracts and IFRIC 13 Customer Loyalty Programmes. It also includes guidance on
when to capitalise costs of obtaining or fulfilling a contract not otherwise addressed in other standards, and includes expanded disclosure requirements.
F-137
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4
Significant accounting policies (continued)
(r)
Standards
and
interpretation
issued
but
not
yet
adopted
(continued)
IFRS 16 Leases
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
IFRS 16 provides comprehensive guidance for the identification of lease arrangements and their treatment by lessees and lessors. In particular, IFRS16
introduces a single lessee accounting model, whereby assets and liabilities are recognised for all leases, subject to limited exceptions. It replaces IAS 17
Leases and the related interpretations including IFRIC 4 Determining whether an arrangement contains a lease.
The Group does not plan to early adopt the above new standards or amendments. With respect to IFRSs 15 and 16, given the Group has not completed its
assessment of their full impact on the Group, their possible impact on the Group’s results of operations and financial position has not been quantified.
5
Use of estimates and judgements
In preparing these consolidated financial statements, the management has made judgements, estimates and assumptions that affect the application of the
Group’s 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 estimates are recognised prospectively.
(a)
Judgements
(i)
Research and development costs
Determining capitalisation of development costs involves management judgements in assessing whether a product is technically and
commercially feasible, and whether the Group has sufficient resources to complete development and to use or sell the asset.
F-138
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5
Use of estimates and judgements (continued)
(b)
Assumptions
and
estimation
uncertainties
(i)
Research and development costs
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
During the process of formulation of relevant cash flow forecasts for quantifying the future economic benefits generated from the
development costs for the new product, a variety of assumptions, bases and estimations including market popularity of the products, the
pricing trend of raw materials acquired, and etc. would have to be made by the management. Thus, any significant deviations from these
assumptions, bases as well as estimations made by the management would have impact on determining whether the related development costs
incurred should be capitalised or expensed.
(ii)
Depreciation and amortisation
Property, plant and equipment, intangible assets and lease prepayments are depreciated/amortised on a straight-line basis over the estimated
useful lives or other systematic basis, after taking into account the estimated residual value. The Group reviews annually the useful life of an
asset and its residual value, if any. The useful lives are based on the management’s knowledge and historical experience with similar assets
and taking into account anticipated technology changes. The depreciation and amortisation expenses for future periods are adjusted if there are
significant changes from previous estimates.
(iii)
Net realisable value of inventories
The management reviews the carrying amounts of the inventories at each reporting period end date to determine whether the inventories are
carried at the lower of cost and net realisable value. Management estimates the net realisable value based on the current market situation and
their historical experience on similar inventories. Any change in the assumptions would increase or decrease the amount of inventories write-
down or the related reversals of write-downs and affect the Group’s net asset value.
(iv) Impairment for non-current assets
If circumstances indicate that the carrying value of property, plant and equipment, lease prepayments, intangible assets may not be
recoverable, their recoverable amounts are estimated. An impairment loss is recognised when the recoverable amount has declined below the
carrying amounts in accordance with IAS 36, “ Impairment
of
assets
”. In addition, for intangible assets that are not yet available for use, the
recoverable amount is estimated annually whether or not there is an indication of impairment.
F-139
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5
Use of estimates and judgements (continued)
(b)
Assumptions
and
estimation
uncertainties
(continued)
(iv)
Impairment for non-current assets (continued)
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Determining the recoverable amount requires an estimation of the fair value less costs of disposal or the value in use of these assets or the
CGU to which these assets belong. It is difficult to precisely estimate fair value of these assets because quoted market prices for most of these
assets are not readily available. In determining the value in use, expected cash flows generated by the asset are discounted to their present
value, which requires significant judgment relating to level of sales volume, sales revenue and amount of operating costs. The Group uses all
readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based
on reasonable and supportable assumptions and projections of sales volume, sales revenue and amount of operating costs.
6
Segment reporting
IFRS 8, Operating Segments, requires identification and disclosure of operating segment based on internal financial reports that are regularly reviewed by the
Group’s chief operating decision maker for the purpose of resources allocation and performance assessment. On this basis, the Group has determined that it
have only one operating segment and the amount of each significant category of revenue is disclosed in Note 7.
No revenue derived from sales to a single customer individually accounted for over 10% of the Group’s total revenue for the year.
Substantially all (99%) of the Groups plant and equipment, intangible assets and lease prepayments are located in Mainland China.
F-140
Table of Contents
7
Revenue
In
thousands
of
RMB
Sales of goods
Rendering of service
-Rental income
-Others
Total
8
Research and development expenses
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
2015
2014
1,435,136
822,630
2013
7,416
12,009
12,194
1,459,339
41,747
580
864,957
5,719
—
13,135
Research and development expenses are the expenses incurred for the research and development activities of car platform and models as follows:
In
thousands
of
RMB
CF1X
CF11
CF14 and CF14K
CF16
CF18
Diesel
TGDI
Qloud
Total
9
Selling and distribution expenses
In
thousands
of
RMB
Advertising
Marketing and promotion
Consulting fees
Personnel expenses
Others
Total
2015
169,432
16,355
43,296
5,415
—
—
11,777
31,733
278,008
2014
8,964
123,721
30,490
74,776
—
20,419
5,649
—
264,019
2013
145,440
41,492
3,807
195,043
22,414
—
—
—
408,196
2015
2014
357,032
205,444
105,387
116,515
35,429
819,807
453,586
120,872
192,292
117,958
42,503
927,211
2013
130,860
73,166
34,379
19,243
12,048
269,696
F-141
Table of Contents
10
Administration expenses
In
thousands
of
RMB
Personnel expenses
Consulting fees
Office expenses
Depreciation and amortisation
Rental expenses
Travelling expenses
Recruiting expenses
Taxes and duties
Testing expenses
IT expense
Warranty
Logistics
Production support
Others
Total
11
Other expenses
In
thousands
of
RMB
Impairment loss on other receivables
Penalty charges in terms of minimum purchase volume (Note 29(c))
Other taxes and surcharges
Others
Total
F-142
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
2015
2014
205,778
36,341
16,668
205,144
30,903
15,771
13,950
22,660
14,650
56,420
25,687
25,856
31,158
39,202
740,188
194,943
84,856
15,451
74,221
46,403
16,076
13,593
14,287
21,281
64,462
12,978
12,386
—
20,674
591,611
2013
336,003
280,749
57,649
33,666
41,028
17,691
19,410
4,749
699
25,158
—
—
—
48,011
864,813
2015
9,493
42,877
8,066
13,738
74,174
2014
—
—
46,386
16,330
62,716
2013
—
—
1,199
4,914
6,113
Table of Contents
12
Loss before income tax
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Loss for the year is arrived at after charging:
In
thousands
of
RMB
(a) Net finance costs:
Interest income from available-for-sale financial assets
Interest income from bank deposits
Net foreign exchange gain
Finance income
Interest on bank loans
Less: interest expenses capitalised into property, plant and equipment, and
development costs
Net foreign exchange loss
Finance costs
Net finance costs
(b) Personnel expenses:
Contributions to defined contribution retirement plan
Salaries, wages and other benefits
F-143
2015
2014
2013
39
13,390
—
13,429
(386,376)
720
16,583
8,519
25,822
(301,908)
2,079
16,046
—
18,125
(214,010)
92,975
(65,725)
(359,126)
84,571
—
(217,337)
192,621
(7,801)
(29,190)
(345,697)
(191,515)
(11,065)
(34,928)
(448,836)
(483,764)
(36,710)
(490,120)
(526,830)
(21,498)
(341,341)
(362,839)
Table of Contents
12
Loss before income tax (continued)
(c) Other items:
In
thousands
of
RMB
Amortisation
- lease prepayment
- intangible assets
Depreciation
- property, plant and equipment
Operating lease charges
- hire of office rentals
- hire of cars
Write down of inventory to the net realisable value
13
Income taxes
(a)
Amounts recognised in profit or loss
In
thousands
of
RMB
Current tax expense – Germany Income Tax
Current year
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
2015
2014
2013
(4,412)
(236,223)
(240,635)
(4,413)
(52,315)
(56,728)
(4,413)
(8,940)
(13,353)
(227,477)
(143,586)
(34,871)
(28,579)
(3,515)
(32,094)
(53,340)
(4,714)
(58,054)
(45,006)
(4,312)
(49,318)
—
—
(5,654)
2015
2014
2013
575
533
196
Under the Corporate Income Tax Law of the PRC (the “CIT Law”), the statutory corporate income tax rate of the Group and its subsidiary, Qoros
Automotive Sales Co., Ltd., is 25% (2014: 25%).
The statutory corporate income tax rate of Qoros Automotive Europe GmbH, the Group’s subsidiary incorporated in Germany, is 15%.
Under the CIT Law and its relevant regulations, qualified R&D expenses are subject to income tax deductions at 150% on the amount actually incurred.
F-144
Table of Contents
13
Income taxes (continued)
(b) Reconciliation of effective tax rate
In
thousands
of
RMB
Loss before tax
Income tax credit at the applicable PRC income tax rate of 25%
Effect of tax rate differential
Effect of tax losses not recognised
Effect of other temporary differences not recognised
Non-deductible expenses
Income tax expense
(c)
Unrecognised deferred tax assets
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
2015
2014
(2,474,881)
(618,720)
155
521,005
98,021
114
575
(2,154,153)
(538,538)
91
448,814
89,857
309
533
2013
(1,556,931)
(389,233)
15
314,590
40,735
34,089
196
Deferred tax assets have not been recognised in respect of the following items because it is not probable that future taxable profit will be available against
which the Group can utilise the benefits therefrom:
In
thousands
of
RMB
Tax losses
Other temporary differences
Total
2015
5,457,817
2,513,187
7,971,004
31
December
2014
3,373,796
2,121,104
5,494,900
2013
1,690,380
1,761,674
3,452,054
Under current tax legislation, the above deductible tax losses will expire in the following years:
In
thousands
of
RMB
2016
2017
2018
2019
2020
31
December
2015
111,156
—
—
2,476,346
2,870,315
5,457,817
F-145
Table of Contents
14
Property, plant and equipment
In
thousands
of
RMB
Cost
Balance at 1 January 2014
Additions
Transfer
Disposal
Balance at 31 December 2014
Additions
Transfer
Adjustment
Disposal
Balance at 31 December 2015
Depreciation
Balance at 1 January 2014
Depreciation for the year
Written off on disposal
Balance at 31 December 2014
Depreciation for the year
Written off on disposal
Balance at 31 December 2015
Carrying amount
Balance at 31 December 2013
Balance at 31 December 2014
Balance at 31 December 2015
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Leasehold
improvements Equipment
Building
Construction
in
progress
Total
18,076 1,568,809 1,258,439
—
4,914
—
— 933,383
—
(352)
—
22,990 2,501,840 1,283,280
—
2,765
18,421
(843)
13,901
—
(36,294)
(47,788)
—
—
(5,202)
—
41,411 2,465,516 1,246,143
947,617 3,792,941
714,922 719,836
24,841 (1,222,544) (264,320)
(352)
439,995 4,248,105
530,405 551,591
—
(13,058)
(84,082)
—
(5,202)
—
957,342 4,710,412
—
(11,962)
(8,045)
—
(47,273)
(95,959)
180
(20,007) (143,052)
(6,435) (180,009)
389
(26,442) (322,672)
—
(5,516)
(39,582)
—
(45,098)
(41,033)
—
(86,131)
—
(64,751)
— (143,586)
180
—
— (208,157)
— (227,477)
—
389
— (435,245)
6,114 1,521,536 1,252,923
947,617 3,728,190
2,983 2,358,788 1,238,182
439,995 4,039,948
14,969 2,142,844 1,160,012
957,342 4,275,167
Leased plant and machinery
The Group leases pressing machinery as a lessor under operating leases. As at 31 December 2015, the net carrying amount of leased machinery was RMB
73,391 thousand (31 December 2014: RMB 82,083 thousand).
Property, plant and equipment under construction
Included in additions of construction in progress is an amount of RMB 59,900 thousand representing borrowing costs capitalised during 2015, (2014: RMB
24,432 thousand; 2013: RMB 112,303 thousand), using a capitalisation rate of 5.72% per annum (2014: 7.56%; 2013: 4.64%).
As at 31 December 2015, all equipment and properties were pledged to bank as security as required by a consortium financing agreement. (Note 22(a)(i))
F-146
Table of Contents
14
Property, plant and equipment (Continued)
Impairment test
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Management performed an impairment test of the Group’s operating assets (primarily its property, plant and equipment and intangible assets) as of
31 December 2015, based upon the Group’s 2014 business plan, which was updated in 2015.
See Note 15 for the result of impairment test.
F-147
Table of Contents
15
Intangible assets
In
thousands
of
RMB
Cost
Balance at 1 January 2014
Additions
Transfer
Balance at 31 December 2014
Additions
Balance at 31 December 2015
Amortisation
Balance at 1 January 2014
Amortisation for the year
Balance at 31 December 2014
Amortisation for the year
Balance at 31 December 2015
Carrying amount
Balance at 31 December 2013
Balance at 31 December 2014
Balance at 31 December 2015
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Software
Development
costs
Total
154,382
14,491
264,320
433,193
1,659
434,852
3,282,022
987,935
—
4,269,957
252,674
4,522,631
3,436,404
1,002,426
264,320
4,703,150
254,333
4,957,483
(10,058)
(30,439)
(40,497)
(43,960)
(84,457)
(2,413)
(21,876)
(24,289)
(192,263)
(216,552)
(12,471)
(52,315)
(64,786)
(236,223)
(301,009)
144,324
3,279,609
3,423,933
392,696
4,245,668
4,638,364
350,395
4,306,079
4,656,474
The amortisation of software and capitalised development cost is included in administration expenses and cost of sales, respectively, in the consolidated
statement of profit or loss and other comprehensive income.
See Note 25 for payables for research and development activities as at reporting date.
Included in capitalised development costs is an amount of RMB 33,075 thousand representing borrowing costs capitalised during 2014, (2014: RMB
60,138 thousand, 2013: RMB 79,763 thousand), using a capitalisation rate of 5.72% (2014: 7.56%; 2013: 4.64%).
F-148
Table of Contents
15
Intangible assets (continued)
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
The intangible assets not yet available for use are allocated to the Group’s only cash-generating unit (“CGU”) which is identified according to country of
operation and reportable segment. The recoverable amount of the CGU containing the intangible asset not yet available for use is determined based on fair
value less costs of disposal using discounted cash flow projections. These calculations use cash flow projections based on business plan approved by
management covering an eight-year period ending 31 December 2023 and the terminal value. Cash flows beyond the eight-year period are extrapolated using
an estimated weighted average growth rate of 3% which is consistent with the forecasts included in independent expert report. The growth rates used do not
exceed the long-term average growth rates for the business in which the CGU operates. The discount rates applied to the cash flow projections is 15.5% as at
31 December 2015.
As the result of the impairment test showed the recoverable amount of the CGU higher than its book value as at 31 December 2015, no impairment loss is
recognised.
16
Lease prepayments
In
thousands
of
RMB
Cost
Balance at 1 January and 31 December
Amortisation
Balance at 1 January
Amortisation for the year
Balance at 31 December
Carrying amount
Balance at 1 January
Balance at 31 December
2015
2014
220,631
220,631
(12,503)
(4,412)
(16,915)
(8,090)
(4,413)
(12,503)
208,128
212,541
203,716
208,128
As at 31 December 2015 and 2014, the Group’s lease prepayments represented the lease prepayments of land use rights located in Changshu, Jiangsu
Province. Such lease prepayments were pledged to bank as security for a consortium financing agreement (Note 22(a)(i)).
F-149
Table of Contents
17
Trade and other receivables
(a)
Trade
and
other
receivables
in
the
consolidated
statement
of
financial
position
comprised:
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
In
thousands
of
RMB
Trade receivables
Deposits
Deferred expenses
Receivables due from employees
Receivables due from related parties
Others
Less: allowance for doubtful debts
Non-current
Current
(b)
Impairment
of
trade
and
other
receivables
In
thousands
of
RMB
Balance at 1 January
Impairment loss recognised
Balance at 31 December
F-150
Note
29(c)
31
December
2015
5,257
74,623
31,052
15,080
8,638
10,086
144,736
(9,889)
134,847
2014
12,558
70,270
35,829
28,196
5,065
12,526
164,444
(396)
164,048
92,202
42,645
134,847
96,533
67,515
164,048
31
December
2015
(396)
(9,493)
(9,889)
2014
(396)
—
(396)
Table of Contents
18
Inventories
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
(a)
Inventory
in
the
consolidated
statement
of
financial
position
comprised:
In
thousands
of
RMB
Raw materials and consumables
Work in progress
Finished goods
Total
31
December
2015
60,181
5,482
179,191
244,854
2014
44,484
3,279
149,759
197,522
(b)
The
analysis
of
the
amount
of
inventories
recognised
as
an
expense
and
included
in
profit
or
loss
as
follow:
In
thousands
of
RMB
Carrying amount of inventories sold
Write down of inventories
Total
19
Pledged deposits
31
December
2015
1,704,515
—
1,704,515
2014
999,439
—
999,439
Bank deposits of RMB 113,167 thousand (31 December 2014: RMB 290,840 thousand) have been pledged as security for bank guarantees and a letter of
credit facility. The pledge in respect of the bank deposits will be released with the expiration of the relevant bank guarantees and the letter of credit facilities,
which is less than one year.
20
Cash and cash equivalents
In
thousands
of
RMB
Bank deposits with maturity of 3 months or less
Cash at bank
31
December
2015
1,528
255,742
257,270
2014
1,566
750,522
752,088
F-151
Table of Contents
21
Paid-in capital
In
thousands
of
RMB
Wuhu Chery
Quantum (2007) LLC.
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
31
December
2015
4,165,920
4,165,920
8,331,840
2014
3,265,920
3,265,920
6,531,840
During the year, Wuhu Chery and Quantum (2007) LLC. increased paid-in capital of the Company by converting the loan of RMB 1.8 billion due from the
Company.
22
Loans and borrowings
In
thousands
of
RMB
Denominated in:
RMB
USD
Non-current
Current
Note
2015
2014
December
6,595,866
893,322
7,489,188
4,659,718
2,829,470
7,489,188
5,948,020
1,356,884
7,304,904
3,928,703
3,376,201
7,304,904
22(a)
22(b)
F-152
Table of Contents
22
(a)
Loans and borrowings (continued)
Non-current
loan
and
borrowings
In
thousands
of
RMB
Consortium loan I
Consortium loan II
Consortium loan III
Total
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Note
(1)
(2)
(3)
Banking
facility
3,000,000
1,200,000
700,000
4,900,000
Accumulated
drawdown
2,906,000
1,200,000
700,000
4,806,000
Accumulated
repayment
(49,396)
—
—
(49,396)
Reclassified
to
current
(96,886)
—
—
(96,886)
Balance
as
at
31
December
2015
2,759,718
1,200,000
700,000
4,659,718
Details of non-current loans and borrowings are set out below.
(i)
Consortium loan I: On 23 July 2012, the Company entered into a consortium financing arrangement with a Group of banks. Under the arrangement,
the Company can draw down loans in either RMB or USD, up to an aggregate maximum principal amount of RMB 3 billion. The RMB loan bears the
5-year interest rate quoted by the People’s Bank of China from time to time and the USD loan bears interest rate of LIBOR+4.8% per annum. The
repayment schedule of loans is based on the instalments schedule as set out in the agreement within 10 years from the first draw down date. The
arrangement is secured by the Company’s land use right, equipment, properties and construction in progress and is guaranteed by Wuhu Chery and
Changshu Port Development and Construction Co., Ltd (“CPDC”) respectively. Each party provides guarantee to an aggregate principal amount of no
more than RMB 1.5 billion or its equivalent. The guarantee from Wuhu Chery and CPDC are several but not joint. In connection with CPDC’s
guarantee, the Company made a guarantee deposit of RMB 100 million to CPDC and Wuhu Chery also entered into an agreement to provide a
counter-guarantee to CPDC in September 2012. The guarantee deposit was treated as deferred expenses and carried at amortised cost.
As at 31 December 2015, the Company has drawn down RMB loans of RMB 2,906 million (31 December 2014: RMB 2,866 million) with an interest
rate of 4.90%.
The loans drawn down from this consortium arrangement contains financial related covenants. In 2013, the Company obtained a confirmation from
the banks that compliance of the financial covenants is not required for 2013 and 2014. In September 2014, the banks further extended the covenant
waiver to July 2017.
(ii)
Consortium loan II: On 31 July 2014, the Company entered into an additional consortium financing arrangement with a bank consortium. Under this
arrangement, the Company can draw down loans in either RMB or USD, up to an aggregate maximum principal amount of RMB 1.2 billion. The
RMB loan bears the 5-year interest rate quoted by the People’s Bank of China with 10% mark-up and the USD loan bears interest rate of LIBOR+5%
per annum. The repayment schedule of loans is based on the instalment schedule as set out in the agreement within 10 years from the first draw down
date.
F-153
Table of Contents
22
(a)
Loans and borrowings (continued)
Non-current
loan
and
borrowings
(continued)
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Wuhu Chery Automobile Investment Co., Ltd. and Quantum, shareholders of the Company, have each pledged 17.5% of its then equity interest in the
Company, which is being equivalent to a registered capital of RMB 1.1 billion respectively to the bank consortium.
During 2015, the Company drew down in full an amount of RMB 1.2 billion (31 December 2014: RMB 1.11 billion) with the interest rate of 5.39%.
(iii) Consortium loan III: On 12 May 2015, the Company entered into a financing arrangement with a bank consortium. Under the arrangement, the
Company can draw down loans in either RMB or USD, up to an aggregate maximum principal amount of RMB 700 million. The loan agreement
covers a period of 102 months starting from 15 May 2015, secured by Chery Automobile Co., Ltd (“Chery”) and pledged by the Company’s 90
vehicle patents with an appraisal value totalling no less than RMB 3.1 billion. The RMB loan bears the 5-year interest rate quoted by the People’s
Bank of China with 10% mark-up and the USD loan bears interest of LIBOR+3.5% per annum. Kenon Holdings Ltd. (“Kenon”) provided a back-to-
back guarantee to Chery for RMB 350 million, plus up to RMB 60 million of related fees, in connection with the Company’s drawdown of RMB 700
million.
As at 31 December 2015, the Company drew down in full an amount of RMB 700 million with the interest rate of 5.39%.
(b)
Current
loan
and
borrowings
Current loans and borrowings represented unsecured bank loans with maturity period within one year of RMB 1.2 billion with the interest rates from 1.90%
to 6.58% and shareholder loans from Wuhu Chery and Quantum totalling RMB 1.5 billion.
As at 31 December 2015, the Company has unutilised loan facilities of RMB 284 million (31 December 2014: RMB 824 million).
F-154
Table of Contents
23
Deferred income
In
thousands
of
RMB
Balance at 1 January
Addition for the year
Income for the year
Balance at 31 December
Non-current
Current
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
2015
205,324
300,000
(11,079)
494,245
169,396
324,849
494,245
2014
215,962
403
(11,041)
205,324
179,982
25,342
205,324
In November 2012, the Group received RMB 213.5 million from the Management Committee of Changshu Economic & Technology Development Zone, as
a result of the Group’s investment in the Development Zone. Such government grant was initially recognised as “deferred income” upon receipt and is
amortised and recognised as “other income” over the Group’s expected remaining period of operation.
In 2015, the Group received RMB 300 million from Chery Auto as a payment in connection with the licence agreement for the use of the Group’s platform
technology and patent, which is recognised as “deferred income” and is amortised and recognised as “other income” in accordance with the substance of the
agreement.
24
Provision
The provision balance as at 31 December 2015 mainly represents warranties related to cars sold as of 31 December 2015. As no adequate historical warranty
data associated with cars sold is available, the Group accrues warranty provisions based on the estimation made by the Group’s technical department taking
into account available warranty data of similar cars in the market.
F-155
Table of Contents
25
Trade and other payables
In
thousands
of
RMB
Trade payables
Bills payables
Other payables for
-research and development activities
-property, plant and equipment
-services
Accrued payroll and other employee benefits
Interest payable
POS (“Point of sales”) subsidy
Payables due to related parties
Others
All the balances are repayable on demand.
F-156
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
At
31
December
2015
638,241
138,303
2014
321,258
217,208
362,402
322,817
673,637
111,651
10,145
35,533
106,887
215,925
2,615,541
825,309
624,545
673,004
64,952
17,606
—
24,087
65,490
2,833,459
Table of Contents
26
Financial risk management and fair values of financial instruments
Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business.
The Group’s exposure to these risks and the financial risk management policies and practice used by the Group to manage these risks are described below.
(a)
Credit
risk
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and
arises principally from the Group’s receivables from counterparties and the Group’s deposits with banks (including available-for-sale financial assets).
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main
components of this allowance are a specific loss component that relates to individually significant exposures.
The management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. Individual credit evaluations
are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments
when due and current liability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in
which the customer operates. Trade debtors are mainly due within 30 days to 360 days from the date of billing.
The Group limits its exposure to credit risk by investing only in liquid investment products issued by financial institutions. Management actively
monitors credit ratings and given that the Group only has invested in investment products with high credit ratings, management does not expect any
counterparty to fail to meet its obligations.
The carrying amounts of cash and cash equivalents, pledged deposits, other receivables and available-for-sale financial assets represent its maximum
credit exposure on these assets.
F-157
Table of Contents
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
26
Financial risk management and fair values of financial instruments (continued)
(b)
Liquidity
risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by
delivering cash or another financial asset.
The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient
reserves of cash and readily realisable marketable securities and adequate committed lines of funding from major financial institutions and/or from
two shareholders to meet the liquidity requirements in the short and long term.
The following are the remaining contractual maturities at the end of the reporting period of financial liabilities, including estimated interest payments
and excluding the impact of netting agreements:
As
at
31
December
2015
Trade and other payables
Loans and borrowings
Total
As
at
31
December
2014
Trade and other payables
Loans and borrowings
Total
Contractual
undiscounted
cash
flow
Within
1
year
or
on
demand
More
than
1
year
but
less
than
2
years
More
than
2
years
but
less
than
5
years
More
than
5
years
Carrying
amount
at
balance
sheet
date
Total
2,615,541 —
— 2,615,541 2,615,541
3,147,205 653,642 2,647,693 2,341,573 8,790,113 7,489,188
5,762,746 653,642 2,647,693 2,341,573 11,405,654 10,104,729
—
2,833,459 —
— 2,833,459 2,833,459
3,713,616 332,291 1,940,001 3,007,045 8,992,953 7,304,904
6,547,075 332,291 1,940,001 3,007,045 11,826,412 10,138,363
—
F-158
Table of Contents
26
Financial risk management and fair values of financial instruments (continued)
(c) Market
risk
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its
holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable
parameters, while optimising the return.
•
Currency risk
The Group is exposed to currency risk on purchases relating to research and development activities, bank borrowings as well as normal productions
that are denominated in currencies other than the functional currencies. The currencies in which these transactions primarily are denominated are
RMB, US dollars (“USD”) and Euros (“EUR”). The functional currency of the Company is RMB.
In respect of monetary assets and liabilities denominated in foreign currencies, the Group’s policy is to ensure that its net exposure is kept to an
acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.
Exposure
to
currency
risk
The summary quantitative data about the Group’s exposure to currency risk as reported to the management of the Group is as follows:
EUR
Cash and cash equivalent
Prepayments
Trade and other payables
Net statement of financial position exposure
USD
Cash and cash equivalent
Prepayments
Trade and other payables
Loans and borrowings
Net statement of financial position exposure
F-159
At
31
December
2015
RMB’000
5,419
898
(18,400)
(12,083)
2014
RMB’000
612
854
(16,170)
(14,704)
At
31
December
2015
RMB’000
6,484
3,624
(331)
(993,321)
(983,544)
2014
RMB’000
395,034
25,848
(6,420)
(995,132)
(580,670)
Table of Contents
26
Financial risk management and fair values of financial instruments (continued)
(c) Market
risk
(continued)
•
Currency risk (continued)
The following significant exchange rates have been applied during the year:
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
EUR
USD
Average
rate
2015
7.2754
6.3063
2014
7.9373
6.1080
Year
end
spot
rate
2015
7.0952
6.4936
2014
7.4556
6.1190
A reasonably possible strengthening (weakening) of the Euro and US dollar against RMB at 31 December would have affected the measurement of
financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. The analysis assumes that
all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.
EUR (10% movement)
USD (10% movement)
•
Interest rate risk
Profile
At
31
December
2015
2014
Strengthening
RMB’000
(1,207)
(98,355)
Weakening
RMB’000
1,207
98,355
Strengthening
RMB’000
(1,470)
(58,067)
Weakening
RMB’000
1,470
58,067
The Group’s interest rate risk arises primarily from bank deposits and bank loans. The Group’s policy is to obtain the most favourable interest rates
available in respect of its bank loans. The Group has not used any derivatives to mitigate its interest rate risk exposure.
Bank deposits are with fixed interest rates ranging from 0.35%~3.00%, 0.35%~3.30%, 0.35%~3.25% per annum as at 31 December 2015, 2014 and
2013 respectively.
The Group’s interest-bearing borrowings and interest rates as at 31 December 2015 and 2014 are set out as follows:
Borrowings
Loan interest rates are disclosed in Note 22.
F-160
At
31
December
Interest
rate
2015
nil% - 7.32%
RMB’000
7,488,709
2014
RMB’000
7,302,884
Table of Contents
26
Financial risk management and fair values of financial instruments (continued)
(c) Market
risk
(continued)
•
Interest rate risk (continued)
Sensitivity
analysis
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
A change of 100 basis points in interest rates would have increased or decreased equity by RMB 91,934 thousand (2014: RMB 92,915 thousand; 2013:
RMB 31,922 thousand).
(d)
Fair
value
The fair value of each financial instrument is categorised in its entirety based on the lowest level of input that is significant to that fair value
measurement. The levels are defined as follows:
•
•
•
Level 1: (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments;
Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which
all significant inputs are directly or indirectly based on observable market data;
Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data.
If the input used to measure the fair value of an assets or a liability fall into different levels of the fair value hierarchy, then the fair value measurement
is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
As at 31 December 2015, the Company had no financial instruments carried at fair value.
During the years ended 31 December 2015, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3. The group’s
policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur.
(e)
Capital
management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of
the business. Capital consists of paid in capital and retained earnings.
There were no changes in the Group’s approach to capital management during the year.
F-161
Table of Contents
27
Operating leases
(a)
Leases
as
lessee
Non-cancellable operating lease rentals are payable as follows:
In
thousands
of
RMB
Within 1 year
After 1 year but within 5 years
After 5 years
(b)
Leases
as
lessor
The Group leases out its part of machinery.
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
At
31
December
2015
30,206
82,009
72,481
184,696
2014
22,638
341
—
22,979
As at 31 December, the future minimum lease payments under non-cancellable leases are receivable as follows:
In
thousands
of
RMB
Within 1 year
After 1 year but within 5 years
28
Commitments
Capital commitments outstanding not provided for in the financial statements:
In
thousands
of
RMB
Contracted for
Authorised but not contracted for
F-162
At
31
December
2015
9,367
—
9,367
2014
15,389
9,367
24,756
At
31
December
2015
652,587
—
652,587
2014
954,515
23,309
977,824
Table of Contents
29
Related parties
(a)
Parent
and
ultimate
controlling
party
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
As at 31 December 2015, 2014 and 2013, the Company was jointly-controlled by Wuhu Chery and Quantum (2007) LLC. Chery Automobile Co., Ltd.
(“Chery Auto”) is the ultimate parent company of Wuhu Chery and Kenon Holdings Ltd. is the immediate parent company of Quantum (2007) LLC.
The following is a summary of principal related parties transactions carried out by the Group with the related parties for the year presented.
(b)
Transactions
with
key
management
personnel
In
thousands
of
RMB
Salaries, benefit and contribution to the defined contribution retirement plan
2015
19,700
2014
10,941
2013
13,215
(c)
Other
related
party
transactions
The Group entered into the following material related party transactions:
In
thousands
of
RMB
Loan from Wuhu Chery
Loan from Quantum (2007)
Conversion of Wuhu Chery’s loan to capital
Conversion of Quantum (2007)’s loan to capital
Car sales to Chery Auto
Car sales to Fund & Liberty Car Rental/Leasing Co., Ltd. (“Fund”)
Rental expenses paid to Chery Auto’s subsidiary
Service fee paid to Chery Auto
Service fee paid to Shanghai SICAR Vehicle Technology Development Co., Ltd. (“SICAR”)
Charge for licence agreement
Purchase from Chery Auto
Penalty charge from Chery Auto
Other expense charged to
- Kenon Holdings Ltd.
- Chery Huiyin Motor Finance Service Co., Ltd. (“Huiyin”)
Note
2015
2014
1,662,783
800,000
900,000
900,000
6,717
1,153
18
42,339
4,453
300,000
189,754
42,877
800,000
750,000
—
50,000
—
4,520
80
8,495
13,182
—
90,306
—
23
11
2013
—
—
—
—
—
—
—
12,863
13,395
—
13,856
—
2,167
16,821
1,321
1,777
1,292
—
F-163
Table of Contents
29
Related parties (continued)
(c)
Other
related
party
transactions
(continued)
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
In addition to the above transactions, guarantees provided by Wuhu Chery and Kenon in respect of the consortium financing agreement were disclosed
in Note 22.
The outstanding balances arising from the above transactions at the end of the reporting periods are as follows:
In
thousands
of
RMB
Amounts due from related parties
- trade receivables from Fund
- trade receivables from Chery Auto’s subsidiary
- other receivables from Chery Auto
- other receivables from Chery Auto’s subsidiary
- other receivables from Kenon Holdings Ltd.
- prepayments to Chery Auto
- prepayments to Huiyin
Amounts due to related parties
-loan payable to Wuhu Chery
-loan payable to Quantum (2007) LLCs
-payables to Chery Auto
-payables to Kenon Holdings Ltd.
-payables to Fund
-payables to Chery Auto’s subsidiary
-payables to SICAR
F-164
At
31
December
2015
At
31
December
2014
3,790
1,832
3,011
5
—
8,638
—
—
—
8,638
3,664
—
75
5
1,321
5,065
86,000
1,645
87,654
92,719
762,783
745,917
103,454
176
771
916
1,570
1,615,587
800,000
800,000
22,523
—
—
7
1,557
1,624,087
Table of Contents
Qoros
Automotive
Co.,
Ltd.
Consolidated
financial
statements
for
the
year
ended
31
December
2015
29
Related parties (continued)
(d)
Relationship
with
the
related
parties
under
the
transactions
stated
in
29(c)
above
Name
of
the
entities
Kenon Holdings Ltd.
Wuhu Chery
Quantum (2007) LLC
Wuhu Chery Car Rental Co., Ltd
Huiyin
SICAR
Fund
F-165
Relationship
with
the
Group
Immediate parent company of Quantum
Parent Company
Parent Company
Chery Auto’s subsidiary
Chery Auto’s subsidiary
Joint venture invested by Chery Auto
Associate invested by the Group
Table of Contents
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
Date: April 22, 2016
Kenon Holdings Ltd.
By:
/s/ Yoav Doppelt
Name: Yoav Doppelt
Title: Chief Executive Officer
Table of Contents
ITEM 19. Exhibits
Exhibit
Number
Index to Exhibits
Description of Document
1.1
2.1
2.2
2.3
2.4
4.1
4.2*
4.3
4.4
4.5*
4.6
4.7†
4.8†
4.9
4.10
Kenon Holdings Ltd.’s Constitution (Incorporated by reference to Exhibit 1.1 to Amendment No. 1 to Kenon’s Registration Statement on Form 20-
F, filed on December 19, 2014)
Form of Specimen Share Certificate for Kenon Holdings Ltd.’s Ordinary Shares (Incorporated by reference to Exhibit 2.1 to Kenon’s Annual
Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)
Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and Millenium Investments Elad Ltd. (Incorporated by
reference to Exhibit 99.5 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)
Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and Bank Leumi Le-Israel B.M. (Incorporated by
reference to Exhibit 99.6 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)
Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and XT Investments Ltd. (Incorporated by reference to
Exhibit 99.7 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)
Sale, Separation and Distribution Agreement, dated as of January 7, 2015, between Israel Corporation Ltd. and Kenon Holdings Ltd. (Incorporated
by reference to Exhibit 99.2 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)
Loan Agreement, dated as of January 7, 2015, between Israel Corporation Ltd. and Kenon Holdings Ltd, as supplemented by Supplement No. 1 to
the Loan Agreement, dated March 17, 2016
English translation of Natural Gas Supply Agreement, dated as of January 2, 2006, as amended, among Kallpa Generación S.A., Pluspetrol Peru
Corporation S.A., Pluspetrol Camisea S.A., Hunt Oil Company of Peru L.L.C. Sucursal del Peru, SK Corporation Sucursal Peruana, Sonatrach Peru
Corporation S.A.C., Tecpetrol del Peru S.A.C. and Repsol Exploración Peru Sucursal del Peru (Incorporated by reference to Exhibit 4.3 to
Amendment No. 1 to Kenon’s Draft Registration Statement on Form 20-F, filed on August 14, 2014)
English translation of Natural Gas Transportation Agreement, dated as of December 10, 2007, as amended, between Kallpa Generación S.A. and
Transportadora de Gas del Peru S.A. (Incorporated by reference to Exhibit 4.4 to Amendment No. 1 to Kenon’s Draft Registration Statement on
Form 20-F, filed on August 14, 2014)
Turnkey Engineering, Procurement and Construction Contract, dated as of November 4, 2011, among Cerro del Águila S.A., Astaldi S.p.A. and
GyM S.A., as amended
English translation of Contract of Concession, dated as of October 23, 2010, as amended, between the Government of Peru and Kallpa Generación
S.A., relating to the provision of electric energy services to the public (Incorporated by reference to Exhibit 4.6 to Amendment No. 1 to Kenon’s
Draft Registration Statement on Form 20-F, filed on August 14, 2014)
Joint Venture Contract, dated as of February 16, 2007, as amended, between Wuhu Chery Automobile Investment Co., Ltd. and Quantum (2007)
LLC (Incorporated by reference to Exhibit 4.7 to Amendment No. 1 to Kenon’s Registration Statement on Form 20-F, filed on December 19, 2014)
Gas Sale and Purchase Agreement, dated as of November 25, 2012, among Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership,
Isramco Negev 2 Limited Partnership, Avner Oil Exploration Limited Partnership, Dor Gas Exploration Limited Partnership, and O.P.C. Rotem
Ltd. (Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to IC Power Pte. Ltd.’s Form F-1, filed on November 2, 2015)
Indenture, dated as of April 4, 2011, between Inkia Energy Limited, as issuer, and Citibank, N.A.as trustee, relating to Inkia Energy Limited’s
8.375% Senior Notes due 2021 (Incorporated by reference to Exhibit 4.9 to Kenon’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2014, filed on March 31, 2015)
Facility Agreement, dated as of January 2, 2011, among O.P.C. Rotem Ltd., as borrower, Bank Leumi Le-Israel B.M., as arranger and agent, Bank
Leumi Le-Israel Trust Company Ltd., as security trustee, and the senior lenders named therein (Incorporated by reference to Exhibit 4.10 to
Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)
Table of Contents
Exhibit
Number
4.11
Credit Agreement, dated as of August 17, 2012, among Cerro del Águila S.A., as borrower, Sumitomo Mitsui Banking Corporation, as administrative
agent, and other parties party thereto (Incorporated by reference to Exhibit 4.11 to Kenon’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2014, filed on March 31, 2015)
Description of Document
4.12*
Guarantee Contract, dated as of June 9, 2015, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd.
4.13*
Guarantee Contract, dated as of November 5, 2015, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd.
4.14*
Stock Purchase Agreement, dated as of December 29, 2015, among IC Power Distribution Holdings PTE, Limited, as Purchaser, Inkia Energy,
Limited, as Purchaser Guarantor, DEORSA-DEOCSA Holdings Limited, as Seller, and Estrella Cooperatief BA
4.15*
Pledge Agreement, dated as of March 17, 2016, between Israel Corporation Ltd. and IC Power Pte. Ltd.
4.16*
Security over Shares Agreement, dated as of March 17, 2016, between Israel Corporation Ltd. and Kenon Holdings Ltd.
4.17*
Loan Agreement, dated as of April 22, 2016, between Quantum (2007) LLC, as borrower, and Ansonia Holdings Singapore B.V., as lender
4.18*
Undertaking Agreement, dated as of April 22, 2016, among Qoros Automotive Co., Ltd., Quantum (2007) LLC, Kenon Holdings Ltd., Wuhu Chery
Automobile Investment Co., Ltd., Chery Automobiles Limited, and Ansonia Holdings Singapore B.V.
4.19*
Second Amended and Restated Limited Liability Company Agreement of Quantum (2007) LLC, dated as of April 22, 2016
8.1*
List of subsidiaries of Kenon Holdings Ltd.
12.1*
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
12.2*
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
13.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
15.1*
Consent of KPMG LLP, Independent Registered Public Accounting Firm of Kenon Holdings Ltd.
15.2*
Consent of Somekh Chaikin, a Member Firm of KPMG International
15.3*
Consent of KPMG Huazhen LLP, Independent Auditor of Qoros Automotive Co., Ltd.
15.4*
Consent of Caipo y Asociados S. Civil de R.L., Independent Auditors of Generandes Perú S.A.
15.5*
Consent of Brightman Almagor Zohar & Co., a Member Firm of Deloitte Touche Tohmatsu, independent auditor of Tower Semiconductor Ltd.
15.6*
Letter from Somekh Chaikin, a Member Firm of KPMG International, Regarding Item 16F
99.1
Unaudited consolidated financial Statements of Generandes Perú S.A. as of December 31, 2014 and 2013 and for the years ended December 31, 2014
and 2013, and the audited consolidated financial statements of Generandes Perú S.A. as of December 31, 2013, 2012 and 2011 and for the years
ended December 31, 2013 and 2012, and the related independent auditors’ report thereon, all included on pages F-120 – F-268 of IC Power Pte.
Ltd.’s Amendment No. 1 to Registration Statement on Form F-1 (File No. 333-206667), filed on November 2, 2015, and incorporated by reference
herein
* Filed herewith.
† Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Exchange Act. Omitted information has been
filed separately with the SEC.
Exhibit 4.2
Final
Form
LOAN AGREEMENT
This Loan Agreement (this “ Agreement ”) is made and entered into as of the 7 th day of January, 2015 by and between Israel Corporation Ltd. (“ IC ”) and
Kenon Holdings Ltd. (“ Kenon ”). IC and Kenon shall each be referred to as a “ Party ”, and collectively, the “ Parties ”.
WHEREAS , IC intends to consummate a structural change of the holdings of its portfolio companies, under which its holdings in certain of its portfolio
companies, including (subject to such changes or variations in the implementation of such structural change as may be executed) IC Power Limited, Zim Integrated
Shipping Services Limited, IC Green Energy Limited, Tower Semiconductor Limited and Quantum (2007) LLC, which holds 50% of the interests in Qoros
Automotive Co Limited (“ Qoros ”), will be transferred to Kenon, and IC will distribute, inter
alia
, the shares in Kenon to its then-current shareholders,
whereupon, inter
alia
, Kenon shall cease to be a subsidiary of IC (the “ Change of Holdings ”); and
WHEREAS , pursuant to Guarantee Contracts entered into between IC and Chery Automobile Co. Ltd. (“ Chery ”) dated July 23 2012 and August 2014
(subject to Section 2.2.1 hereto) (the “ Qoros Guarantees ”), IC has provided certain guarantees to Chery in respect of up to 50% of the obligations guaranteed by
Chery pursuant to (i) a Guarantee Deed between Chery and China Construction Bank Co., LTD, Suzhou Branch as agent for a syndicate of Chinese banks and (ii) a
counter-guarantee contract between Chery and Changshu Port Development and Construction Co. Ltd., in each case of (i) and (ii) provided in respect of the
indebtedness of Qoros under that Syndicated Renminbi/US Dollars Agreement for Fixed Assets Investment with an Aggregate Equivalent Amount of RMB Three
Billion dated July 23 2012, between Qoros and said syndicate of Chinese banks (the “ Qoros Loan Agreement ”); and
WHEREAS , Kenon has requested IC to make available to it, subject to and concurrently with the consummation of the Change of Holdings, one or more
loans, and IC is willing to provide such loans to Kenon, subject to and in accordance with the terms and conditions set forth in this Agreement;
NOW, THEREFORE , the Parties hereby agree as follows:
1.
Interpretation; Definitions
1.1.
1.2.
The preamble to this Agreement forms an integral and a binding part of this Agreement.
In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement (including the preamble and any schedules,
exhibits or appendices hereto) the following terms shall have the meanings given to them in this Section:
1.2.1.
“ Availability Period ” means the period commencing on the Effective Date and ending on the fifth anniversary thereof, or if
earlier, the Loans Repayment Date, and with respect to any unutilized amount of the Loan Facility cancelled in accordance with
this Agreement, the date that such cancellation becomes effective;
1.2.2.
1.2.3.
1.2.4.
1.2.5.
1.2.6.
1.2.7.
1.2.8.
1.2.9.
“ Business Day ” means a day on which commercial banks are open for general business in Israel and Singapore, except in
relation to any date for the transfer, payment or purchase of USD, a day (other than a Saturday or Sunday) which is also a day on
which commercial banks are open for general business, including FX dealings and effecting delivery of USD, in accordance with
the market practice on the London interbank market;
“ Commitment Fee ” means a fee calculated at a rate equal to 2.1% per annum of any unutilized amount of the Loan Facility,
accrued and payable in accordance with this Agreement;
“ Default ” means an Event of Default or any event or circumstance specified in Section 8 ( Events
of
Default
) which would
(with the expiry of a grace period, the giving of notice, the making of any determination or any combination of any of the
foregoing) be an Event of Default;
“ Distributions ” shall mean any dividends or other similar payment (in cash or in-kind) on, or in respect of, any share capital, or
any repayment, prepayment or payment (in cash or in-kind) of the principal of, or interest (whether or not capitalized) or any
other amount on, or in respect of any shareholders loans (including by way of set-off);
“ Dollars ”, “ USD ” and “ US$ ” mean the lawful currency of the United States of America;
“ Effective Date ” means the date of the closing of the Change of Holdings as shall be designated by IC and specified in its
public filings to the stock exchange;
“ Final Repayment Date ” means the date falling 10 (ten) years from the Effective Date (or if such day is not a Business Day,
the next following Business Day);
“ Financial Indebtedness ” means, at any time, Kenon’s indebtedness in respect of or pursuant to: (a) moneys borrowed or
raised in any other way having the commercial effect of borrowing or receiving other financing, credit facilities (whether or not
utilized), including principal, interest and any and all fees and other amounts owing in respect thereof; (b) moneys raised by the
sale of receivables, invoices, bills or notes or other financial assets provided that recourse may be had to the vendor in the event
of non-payment of such receivables, invoices, bills or financial assets when due; (c) the net sum of the termination values of
derivative transactions entered into in connection with protection against or benefit from fluctuation in any rate or price payable
(taking into account only the marked to market value); and (d) the amount of any liability in respect of any guarantee, indemnity
or other instrument to assure payment of, or against loss in respect of non-payment of, any indebtedness referred to in (a), (b) and
(c) above (without double counting). The foregoing shall be calculated by reference to the data appearing in the most recent
unconsolidated financial statements of Kenon, including, for the avoidance of doubt, any amount owing under this Agreement
(including, for the avoidance of doubt, (A) the Loan Facility, the outstanding Loans, interest related thereto (including interest at
the Default Rate, if any), any Commitment Fee Cancellation Accrual Amount outstanding and
2
outstanding Commitment Fees and (B) the aggregate liability amount for which IC would be liable under the Qoros Guarantees
(including, without limitation, amounts in respect of loans, interest and any fees and expenses) and including the outstanding
aggregate Qoros Guarantee Liability Amount (without double counting), provided
that
, for the purposes hereof, any amount of
the Qoros Guarantee Liability Amount outstanding at that time shall be calculated at 100% and any amount of the liability under
the Qoros Guarantees outstanding at that time for which no IC Guarantee Demand has been issued in accordance with this
Agreement shall be calculated at 50%, in each case less any amounts repaid or prepaid in accordance with this Agreement, any
unutilized amount of the Loan Facility cancelled in accordance with this Agreement and any amount of the Qoros Guarantees
that IC has confirmed to Kenon in writing has been either irrevocably cancelled or recovered, as the case may be).
“ Holdings Value ” means, on any day, the product of (i) the average official closing price of a share of IC Power on the New
York Stock Exchange (or, if such shares cease to be listed thereon, on the relevant exchange on which they are listed) (expressed
in US$) during the 5 (five) most recent exchange business days prior to the relevant date, multiplied by (ii) the total number of
shares of IC Power held by Kenon.
“ IC Power ” means IC Power Ltd., a company organized under the laws of the State of Israel, with company registration number
51-437498-2;
“ ICP Interests ” means (i) shares of IC Power and any other securities or rights convertible into, exercisable for or otherwise
conferring the right to acquire, shares of IC Power, in each case on a fully diluted basis, and (ii) any other means of control
(within the meaning of that term under the Israeli Securities Law, 1968) in IC Power, either directly or indirectly, by virtue of the
holding of any security, by agreement or otherwise.
“ Interest Capitalization Period ” means a period commencing on the Effective Date and ending on the fifth anniversary of the
Effective Date (or if such day is not a Business Day, the next following Business Day);
“ Interest Period ” means (i) the period from the date on which a Loan is provided by IC or a Qoros Guarantee Liability Amount
is demanded by IC pursuant to Section 2.2, as applicable, to (and excluding) the next following anniversary of the Effective Date
(or if such day is not a Business Day, the next following Business Day), (ii) each successive period of 12 months thereafter (each
such period ending on a date which is an anniversary of the Effective Date, or if such day is not a Business Day, the next
following Business Day), provided
that
the last such period shall end on the Final Repayment Date;
1.2.10.
1.2.11.
1.2.12.
1.2.13.
1.2.14.
1.2.15.
“ Interest Rate ” means a rate equal to LIBOR plus 6% per annum (calculated in accordance with actual/360);
1.2.16.
“ IPO ” means, in respect of IC Power, an initial public offering of its shares or equity securities convertible into shares, or the
listing thereof for trading, as the case may be, on any recognized exchange in any jurisdiction;
3
1.2.17.
1.2.18.
1.2.19.
“ LIBOR ” means the London interbank offered rate administered by the ICE Benchmark Administration Limited (or any other
person which takes over the administration of that rate) for USD and for a period equal to the Interest Period for that Loan or the
Qoros Guarantee Liability Amount (as applicable) as of the date which falls two (2) business days on the relevant interbank
market prior to the commencement date of each Interest Period, as displayed on the relevant pages of any internationally
recognized information service which publishes that rate from time to time (such as Reuters or Bloomberg) reasonably selected
by IC, or if no rate is available on such information service, a rate quoted to IC at its request by a bank operating in the London
interbank market. The Interest Rate so determined will apply for the period from the commencement of the relevant Interest
Period until its expiration.
“ Loan Facility Cap Amount ” means an amount equal to (i) US$200,000,000 (two hundred million US Dollars), provided
that
for the purpose of determining the Loan Facility Cap Amount any amounts capitalized to or accrued on any Loan pursuant to this
Agreement shall be disregarded;
“ Loans Repayment Date ” means the date falling on the last day of the Interest Capitalization Period, as such date may be
extended in accordance with Section 4.1 (and if such day is not a Business Day, the next following Business Day), provided
that
,
notwithstanding anything to the contrary in this Agreement (including the provisions of Section 4.1), if an IPO is consummated at
any time prior to the date which is then designated as the Loans Repayment Date, then the Loans Repayment Date shall
automatically be extended or shortened, as applicable, to the date which is the earlier of (i) the date falling 18 months after the
closing date of the IPO, and (ii) the Final Repayment Date.
1.2.20.
“ Net Debt ” shall mean, at any time, the aggregate amount of all obligations of Kenon for or in respect of Financial Indebtedness
at that time, less
cash, cash equivalents and short-term deposits of Kenon, all as appearing in the most recent unconsolidated
financial statements of Kenon.
The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this
Agreement.
All references in this Agreement to Sections and annexes or schedules shall, unless otherwise provided, refer to Sections hereof and to
annexes or schedules attached hereto. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
Unless the context otherwise requires, references to (or to any specified provision of) this Agreement or any other document shall be
construed as references to that provision or that document as in force for the time being and as amended, supplemented, modified or replaced
in accordance with the terms thereof.
References to a law or to a specific section thereof shall be construed as a reference to such law, including any rules or regulations
promulgated thereunder, or section, as the same may have been, or may from time to time be, amended, succeeded or re-enacted.
1.3.
1.4.
1.5.
1.6.
1.7.
The obligations of IC under this Agreement shall be effective as of the Effective Date.
4
2.
The Loan Facility and Qoros Guarantee Indemnity
2.1.
The Loan Facility .
2.1.1.
2.1.2.
In reliance of the representations and undertakings of Kenon hereunder and subject to the terms and conditions of this
Agreement, IC makes available to Kenon a USD facility in an aggregate amount not to exceed the Loan Facility Cap Amount
(the “ Loan Facility ”).
Subject to the terms and conditions of this Agreement (including the conditions set out in Section 2.1.3), Kenon may, from time
to time during the Availability Period, request to drawdown one or more loan(s) (each, a “ Loan ”) under the Loan Facility, by
submitting to IC, not less than 10 (ten) Business Days (or such shorter period as IC may in its absolute discretion agree) before
any Loan is requested to be made, a notice substantially in the form attached hereto as Schedule 1 (the “ Drawdown Notice ”).
2.1.3.
Kenon may submit a Drawdown Notice, which will not be regarded as having been duly completed unless all of the following
conditions are satisfied -
(a)
(b)
the date specified in the Drawdown Notice for the drawdown of the Loan falls within the Availability Period; and
Kenon has created the relevant pledges in accordance with Section 7.3.1, and has delivered duly executed security
documents in accordance with Section 7.3.1 in form and substance agreed between the Parties and satisfactory to IC
together with evidence agreed between the Parties and satisfactory to IC that each pledge granted pursuant hereto (or
any amendment thereto, as applicable) has been duly filed for registration with the applicable public registry in all
relevant jurisdictions.
Subject to the terms and conditions of this Agreement, IC shall provide the Loan requested by Kenon in a Drawdown Notice in
accordance with this Agreement, by bank transfer to Kenon’s bank account in accordance with transfer instructions to be
specified in the Drawdown Notice.
Kenon may apply all amounts borrowed by it under the Loan Facility towards its general corporate purposes or any other purpose
approved by its directors. IC shall not be bound or responsible to monitor or verify the application of any amount borrowed
pursuant to this Agreement.
Kenon may request to cancel any unutilized amount of the Loan Facility by submitting a written notice to IC, not less than 5
(five) Business Days (or such shorter period as IC may in its absolute discretion agree) before such cancellation is requested to be
made, specifying the requested cancellation date of the Loan Facility and the unutilized amount of the Loan Facility to be
cancelled, and as of such date all rights and obligations of the Parties under this Agreement with respect to such unutilized
amount of the Loan Facility.
2.1.4.
2.1.5.
2.1.6.
5
2.2.
The Qoros Guarantee Indemnity .
2.2.1.
2.2.2.
2.2.3.
2.2.4.
2.2.5.
IC agrees not to amend the terms of any Qoros Guarantee which would extend the duration thereof or increase the amounts for
which IC may be liable under any Qoros Guarantee, without the prior written consent of Kenon.
Without derogating from the provisions of Section 2.2.1 above, Kenon shall notify IC, promptly upon becoming aware, and
otherwise at the request of IC, of any restructuring, material change or amendment to the Qoros Loan Agreement or any
agreement entered into by any guarantor, credit support provider and/or by Quantum (2007) LLC in connection thereof.
Kenon agrees and undertakes to indemnify and reimburse IC in full for any and all amounts actually paid by IC in connection
with any Qoros Guarantee for any reason whatsoever together with any reasonable out-of-pocket cost or expense (including
reasonable legal fees) paid or incurred by IC in that respect, including in responding to, evaluating, negotiating or complying with
any demand or requirement in respect of any of the Qoros Guarantees (the “ Qoros Guarantee Liability Amount ”).
IC shall notify Kenon in writing as soon as reasonably practicable after receiving any demand to pay any amount pursuant to any
Qoros Guarantee specifying the amount demanded together with copy of the demand, and to the extent reasonably practicable to
do so shall liaise with Kenon prior to making any payment in respect of such demand, provided
however
that
nothing herein shall
limit IC nor hinder or interfere with the performance of its obligations under law or any contract as it may determine in its sole
discretion.
Kenon shall pay any amount under the Qoros Guarantee Liability Amount following receipt of a written demand from IC (an “
IC Guarantee Demand ”) as follows: (i) if such IC Guarantee Demand is issued prior to the Final Repayment Date, no later than
the Final Repayment Date (including interest accrued thereon in accordance with this Agreement), and in case that prior to the
delivery of such IC Guarantee Demand IC has declared that any or all of the Loans and the Qoros Guarantee Liability Amount
then outstanding under the Agreement be immediately due and payable prior to their specified maturity, within 14 Business Days
of receipt of such IC Guarantee Demand; and (ii) if such IC Guarantee Demand is issued on or after the Final Repayment Date
(and without prejudice to the repayment obligation of Kenon in accordance with the provisions of Section 4.2), within 14
Business Days of receipt of such IC Guarantee Demand. For the avoidance of doubt, however without prejudice to the indemnity
undertakings of Kenon hereunder and without imposing on IC any duty or obligation to mitigate or eliminate the effect of any
circumstances resulting in an amount becoming payable by it or to take any action to recover any amount, any amount actually
recovered by IC from any third party (including Qoros or Chery) in respect of amounts paid by it in connection with the Qoros
Guarantees shall be reduced from the Qoros Guarantee Liability Amount (that is, there shall be no double recovery).
6
2.2.6.
2.2.7.
2.2.8.
The indemnity undertakings of Kenon hereunder shall continue in full force and effect and be binding upon Kenon (and its
successors, including liquidators, judicial managers, administrators and trustees) until the expiration of the Qoros Guarantees and
the final and irrevocable discharge and/or termination of any and all obligations and liabilities of IC or that IC may incur in
connection with the Qoros Guarantees (the “ Qoros Guarantee Liability Termination ”). For avoidance of doubt, the indemnity
undertakings shall not be considered satisfied by any intermediate payment or recovery of all or any amount under this
Agreement or any settlement of account in respect thereof, and shall not be prejudiced and the liability of Kenon shall not be
affected, as a consequence of an acceleration or declaration by IC of any amount due and payable prior to its specified maturity,
by the pursuit or of any right or remedy available to IC or by any invalidity, incapacity or defect in any collateral, security or
other credit support or with respect to any indebtedness/liability whatsoever of any person or in any other document signed or to
be signed by any person for or in connection with any amount underlying the Qoros Guarantee Liability Amount or any part
thereof.
For the avoidance of doubt, the indemnity undertakings of Kenon hereunder shall be without prejudice to any right or remedy that
IC may have against Kenon (including in connection with any breach or default (howsoever defined) under this Agreement or
under any other agreement) or against any other person, including Qoros or Chery (subject to the provisions of Section 2.2.8
below), any other agreement or under applicable law, provided
that
in no event shall the availability of any other right or remedy
of IC against any person affect the obligations of Kenon under this Agreement.
Without prejudice to the foregoing, if reasonably practicable to do so and to the extent permitted by law or any relevant
agreement, and subject to receipt of the consent of third parties required under such agreements, if needed, IC shall assign to
Kenon, and Kenon undertakes to assume (at Kenon’s sole expense), any and all rights (if any) of IC against Chery and Qoros in
connection with the amounts to be indemnified for pursuant hereto in respect of the Qoros Guarantee Liability Amount, and the
parties shall use commercially reasonable efforts (at Kenon’s sole expense) to execute, upon written request of Kenon, any
instrument reasonably necessary to evidence such assignment. Kenon undertakes to use commercially reasonable efforts to
preserve and enforce all of the rights available to it, including those assigned to it pursuant hereto, to recover any amounts paid
by IC in connection with the Qoros Guarantees. Kenon further undertakes to apply, in priority to any other amount (other than
payments mandatorily preferred in accordance with applicable law) any amounts actually recovered by it from Qoros, Chery or
any third party through the pursuit or enforcement of rights available to it under law or contract, including those assigned to it by
IC pursuant hereto, to pay off amounts owing to IC pursuant to the indemnity hereunder in accordance with the provisions of this
Agreement.
7
In the event that IC shall determine that it is impossible or inadvisable to assign any rights it may have against Qoros or Chery in
accordance with this Section 2.2.8, IC shall notify Kenon of such determination and the Parties shall consult with one another
and cooperate (at Kenon’s sole expense) with regard to the pursuit and enforcement of the rights available to IC to recover any
amounts paid by IC in connection with the Qoros Guarantees. If, following such consultation between the Parties, Kenon shall
notify IC that it wishes to pursue the enforcement of any such rights, IC may (without any obligation) issue Kenon a revocable
power of attorney authorizing and empowering Kenon to take action, at its sole expense, in this respect. In the event Kenon
notifies IC that it does not wish to enforce such rights (or in the event that Kenon has failed to so notify IC and IC has given
Kenon a ten (10) Business Days’ notice (or such shorter notice, if IC believes that further delay may materially prejudice the
pursuit and enforcement of its rights and/or its ability to recover any amounts paid in connection with the Qoros Guarantees), IC
shall be entitled (but not obligated) to do so, at Kenon’s expense. Nothing herein shall limit IC’s right to join as a party to any
legal proceedings, including without limitation where it believes that there may be a conflict of interests that may impair or
adversely affect its rights or interests. Any amount actually recovered by IC from Qoros, Chery or any third party through the
pursuit or enforcement of rights available to it under law or contract shall be reduced from the Qoros Guarantee Liability Amount
(that is, there shall be no double recovery).
2.2.9.
In no circumstances whatsoever shall IC be liable to Kenon for any action taken or not taken by it in connection with the Qoros
Guarantees, or for any delay or partial performance thereof other than with respect to willful malicious acts or omissions of IC or
anyone on its behalf. Kenon may not take any proceedings against IC, any of its directors, officers, employees or anyone acting
on its behalf in respect of any act or omission of any kind by any of them in connection with the Qoros Guarantees, other than
with respect to willful malicious acts or omissions. The directors, officers, employees and anyone acting on behalf of IC may rely
on this Section and enforce its terms.
3.
Interest, Fees and Other Payments
3.1.
Commitment Fee .
3.1.1.
On each day a Loan is made to Kenon under the Loan Facility in accordance with this Agreement, an amount equal to the
Commitment Fee accrued in respect of the amount of that Loan (but for the avoidance of doubt, not any other unutilized portion
of the Loan Facility, if any), shall be calculated for the period from the Effective Date to the drawdown date of that Loan in
accordance with this Agreement, and be capitalized to that Loan on the drawdown date of that Loan, and shall thereafter be
deemed to be a Loan for all intents and purposes hereunder.
8
3.1.2.
In the event that any portion of the Loan Facility is cancelled in accordance with this Agreement, an amount equal to the
Commitment Fee accrued in respect of the unutilized portion of the Loan Facility so cancelled shall be calculated for the period
from the Effective Date to the date of cancellation of such portion of the Loan Facility in accordance with this Agreement (such
amount, a “ Commitment Fee Cancellation Accrual Amount ”). On the last day of the Interest Capitalization Period, the
Commitment Fee in respect of any unutilized amount of the Loan Facility then remaining shall be calculated for the period from
the Effective Date to (and including) that date, and shall constitute a Commitment Fee Cancellation Accrual Amount. For
avoidance of doubt, each Commitment Fee Cancellation Accrual Amount shall be deemed to be a Loan for all intents and
purposes hereunder (including, without limitation, that it shall become due and payable on the Loans Repayment Date).
Each Commitment Fee Cancellation Accrual Amount shall accrue interest at the Interest Rate, calculated daily (in accordance
with actual/360) from the date of cancellation of such portion of the Loan Facility to (and including) the last day of each Interest
Period during the Interest Capitalization Period, and such interest shall be capitalized to that Commitment Fee Cancellation
Accrual Amount on the last day of each such Interest Period (other than the last date of the Interest Capitalization Period if such
day is the Loans Repayment Date).
3.2.
Interest .
3.2.1.
3.2.2.
3.2.3.
The outstanding amount of each Loan and the outstanding amount of the Qoros Guarantee Liability Amount outstanding
(including, in each case, interest amounts previously capitalized thereto in accordance with this Agreement), shall bear interest at
the Interest Rate, which shall be calculated in accordance with Section 3.2.2 below with respect to each Interest Period from the
date of which each such Loan is provided by IC or that such amount under the Qoros Guarantee Liability Amount is demanded
by IC pursuant to Section 2.2, as applicable, and until the date of the final repayment of that Loan or the Qoros Guarantee
Liability Amount, as applicable, provided
that
it shall not extend beyond the Final Repayment Date.
Interest as aforesaid in Section 3.2.1 above shall be calculated at the Interest Rate and accrue daily (in accordance with
actual/360) from the date on which each such Loan is provided by IC or that amount under the Qoros Guarantee Liability
Amount is demanded by IC pursuant to Section 2.2 (or, in the case of amounts capitalized to that Loan or Qoros Guarantee
Liability Amount in accordance with this Agreement, from the date on which such amount is so capitalized thereto), as
applicable, to (and including) the last day of each Interest Period during the Interest Capitalization Period, and capitalized to the
relevant Loan or the Qoros Guarantee Liability Amount, as applicable, on the last day of each such Interest Period (other than the
last date of the Interest Capitalization Period if such day is the Loans Repayment Date).
Interest on any Loan and the Qoros Guarantee Liability Amount outstanding, as applicable (including, in each case, interest
amounts capitalized thereto in accordance with this Agreement), shall be calculated at the Interest Rate, shall accrue daily (in
accordance with actual/360) during each Interest Period following the Interest Capitalization Period, and shall be payable on the
last day of each such Interest Period (and in any event on the Loans Repayment Date).
9
3.3.
3.4.
Default interest . In the event that Kenon fails to pay any amount owing by it hereunder on the due date therefor (subject to any applicable
grace or cure periods set forth in this Agreement), and IC has declared any amounts accrued or outstanding under the Agreement
immediately due and payable, additional interest shall accrue on the overdue amount from the due date up to the date of actual payment (both
before and after judgment) at a rate of 3% per annum (the “ Default Rate ”). Any interest accruing at the Default Rate under this Section
shall be immediately payable by Kenon upon demand by IC.
Costs and expenses . Kenon shall pay to IC on demand all costs and expenses reasonably incurred by IC, including reasonable fees and
expenses of IC’s legal advisors, in connection with any default or the enforcement of, or preservation of rights under this Agreement
(including with respect to the contemplation of any enforcement and preparation therefor, and the creation, perfection and preservation of
any pledge granted pursuant hereto).
4.
Repayment and Prepayment
4.1.
4.2.
4.3.
Extension of the Loans Repayment Date . Kenon shall have the right to notify IC, on or prior to the date which is one month prior to the then
designated Loans Repayment Date (an “ Extension Notice Date ”), and provided
that
an IPO has not been consummated on or prior to that
Extension Notice Date, that the Loans Repayment Date be extended to the date which is the earlier of (i) the date falling no later than 2 years
after the date which is then designated as the Loans Repayment Date, and (ii) the Final Repayment Date.
Repayment . Subject to Section 4.3, Kenon shall (i) on the Loans Repayment Date, repay to IC an amount equal to one hundred percent
(100%) of the then-outstanding Loans and any Commitment Fee Cancellation Accrual Amounts and (ii) on the Final Repayment Date, pay to
IC an amount equal to one hundred percent (100%) of the Qoros Guarantee Liability Amount then outstanding, in each case including
interest amounts capitalized in accordance with this Agreement, together with any accrued interest and all other amounts owing hereunder
which then remain unpaid.
Prepayment . Kenon shall have the option to prepay to IC all or any part of the then outstanding Loans, Qoros Guarantee Liability Amount
and Commitment Fee Cancellation Accrual Amounts without being required to pay any make-whole or similar payments. Kenon shall
deliver a notice to IC of its election to make such prepayment at least three (3) Business Days prior to the proposed prepayment date (which
notice shall specify the prepayment amount and the proposed date for prepayment which must be a Business Day). Kenon shall pay the
prepayment amount specified in its notice on the proposed date for prepayment.
4.4.
No Reborrowing . Kenon shall not be entitled to reborrow under this Agreement any part of any Loan which is repaid or prepaid hereunder.
10
5.
Payment Mechanics
5.1.
5.2.
Payments . All payments to be made by Kenon to IC shall be made in Dollar by bank transfer to an account designated by IC (if Kenon has
not received instructions regarding details of such account at least 5 Business Days prior to the relevant payment date, it shall notify IC
thereof and request such instructions).
No Set-Off . All payments to be made by Kenon to IC under this Agreement shall be calculated and made without (and free and clear of any
deduction for) set-off or counterclaim.
5.3.
Taxes .
5.3.1.
5.3.2.
5.3.3.
5.3.4.
If a deduction or withholding for or on account of tax (other than Israeli income tax of IC) from a payment under this Agreement
is required by law to be made by Kenon (“ Tax Deduction ”), then the amount of the payment due from Kenon shall be increased
to an amount which (following such Tax Deduction) leaves an amount equal to the payment which would have been due if no
such Tax Deduction had been required.
Kenon shall make, in consultation with IC, any such Tax Deduction and any payment required in connection therewith, within
the time allowed and in the minimum amount required by law, and shall deliver to IC, as soon as reasonably practicable
thereafter, evidence reasonably satisfactory to IC that the Tax Deduction has been made or (as applicable) any appropriate
payment paid to the relevant taxing authority.
Without derogating from the foregoing, IC and Kenon shall cooperate in good faith in completing any procedural formalities
necessary for Kenon to apply (at Kenon’s cost) for authorization to make that payment without a (or with a reduced) Tax
Deduction under the Singapore-Israel Treaty for the Avoidance of Double Taxation (the “ Treaty ”). Such cooperation shall only
extend to assisting Kenon, on a best efforts basis, with any documentation reasonably required in order to qualify for the Treaty
(including a Certificate of Residence from the Israeli tax authorities) and otherwise assist in any procedures reasonably required
for Kenon in claiming the benefits under the Treaty and to obtain authorization to make any payment with no (or with a reduced)
Tax Deduction. Kenon shall timely transfer the withheld taxes to the Singapore tax authorities, and as soon as practicable
thereafter shall deliver to IC all relevant documents and information in connection therewith.
If any payment is increased in accordance with Section 5.3.1, and IC actually receives a tax refund which is attributable to a Tax
Deduction borne by Kenon under this Agreement, IC shall reimburse Kenon, within 30 days or receipt of such tax refund, an
amount equal to the lower of (i) the amount by which any payment is increased in connection with said Tax Deduction in
accordance with Section 5.3.1 and (ii) the amount of the tax refund actually received by IC. IC shall promptly notify Kenon of
any tax refund obtained (if obtained) in Israel for such Tax Deduction. IC shall not be required to disclose any information
relating to the administration of its tax affairs.
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5.4.
5.5.
VAT . Unless expressly stated otherwise, all amounts payable by Kenon specified in this Agreement do not include value added tax or goods
and services tax, to the extent applicable under applicable law of any jurisdiction. Kenon shall pay to IC all value added tax, if any, payable
in respect of any payment to be made by Kenon under the Loan Agreement and shall bear any goods and services tax, if any, payable on any
supply made by IC to Kenon under this Agreement.
Application of Payments . If IC and/or any receiver, administrator, administrative receiver, judicial manager, trustee or other similar officer,
receives a payment that is insufficient to discharge all the amounts then owed or due and payable by Kenon under this Agreement, such
amount shall be applied towards the obligations of Kenon under this Agreement in the following order or in such other order as IC may deem
fit (notwithstanding any appropriation made (if made) by Kenon):
5.5.1.
5.5.2.
5.5.3.
first,
in or towards payment of all expenses with respect to the collection of any amount, including any unpaid fees of any
receiver, judicial manager, administrator, trustee or other similar officer, in the amount determined by IC pursuant to this
Agreement or by the relevant court, execution office or any other relevant authority;
second,
in or towards payment of any unpaid costs and expenses of IC under this Agreement;
third,
in or towards payment of any other amount owing under this Agreement to IC but unpaid, other than principal of the Loans
and the Qoros Guarantee Liability Amount, in such order as IC deems fit; and
5.5.4.
fourth,
in or towards payment to IC on account of the principal of the Loans and the Qoros Guarantee Liability Amount.
6.
Representations and warranties of Kenon
Kenon represents and warrants to IC (which representations will be deemed to be repeated on each day), in each case from the date of this Agreement
and until all amounts owed or payable under this Agreement have been irrevocably paid in full and until the Qoros Guarantee Liability Termination, as
follows and acknowledges that IC is entering into this Agreement in full reliance thereof:
6.1.
6.2.
6.3.
6.4.
Status . It is a company, duly incorporated and validly existing under the law of its jurisdiction of incorporation, and has the power to carry
on its business as it is being conducted from time to time.
Capacity . It has the right, power, authority and capacity to execute and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations under this Agreement.
Authorization and binding obligations . This Agreement has been authorized by all necessary corporate action on its part, has been duly
executed and delivered by it through its authorized officers, and it represents valid and binding obligations enforceable against it in
accordance with its terms.
Consents . No consent, approval or authorization of, exemption by, or filing with, any governmental or regulatory authority or any third party
is required in connection with the execution, delivery and performance by Kenon of this Agreement and the consummation of the
transactions contemplated herein other than filing or other actions required for the perfection of the pledges and security interests under
Section 7.3 hereto.
12
6.5.
6.6.
6.7.
6.8.
Non-conflict . Its entry into, and performance by it of, this Agreement does not and will not conflict with, or result in a violation of (i) its
organizational documents, (ii) any other agreement to which it is a party, (iii) any order, judgment, award, injunction, decree, ordinance or
regulation or any other restriction by which it is bound, or (iv) any authorization, consent to which it is subject.
Governmental regulation . It is not subject to regulation or other legal impediment under any applicable law which may limit its ability to
incur indebtedness or which may otherwise render all or any portion of the obligations under this Agreement illegal, invalid or
unenforceable.
No filing or stamp taxes . It is not necessary, under the laws of Kenon’s jurisdiction of incorporation that this Agreement be filed, recorded
or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to this
Agreement or the transactions contemplated by this Agreement other than in relation to the perfection of pledges and security interests under
Section 7.3 hereto by (i) a statement containing particulars of charge in respect of the security documents to be filed and lodged with the
Accounting and Corporate Regulatory Authority of Singapore, and (ii) the payment of stamp duty (which on the date hereof is in the amount
of Singapore $500) payable in Singapore in respect of the stamping of security documents to be executed in respect of such pledges and
security interests.
Financial statements . The financial statements of Kenon are and will be prepared in accordance with generally accepted accounting
principles, including International Financial Reporting Standards, consistently applied and truly and fairly represent the financial condition
of Kenon for the relevant financial period referred to therein.
6.9.
Governing law and enforcement .
6.9.1.
6.9.2.
The choice of the law of the state of Israel as the governing law of this Agreement and the submission by Kenon hereunder to the
jurisdiction of the courts of Tel-Aviv-Jaffa, Israel will be recognized and enforced in Singapore, except, in respect of the choice
of law provisions and solely in the case of enforcement of the provisions hereof in any court in Singapore, to the extent that such
court determines any such provision to be illegal or contrary to public policy or applicable mandatory law in Singapore or that
any matters of procedure including questions of set-off and counter-claim, interest chargeable on judgment debts, priorities,
measure of damages, limitation of actions and submissions to the jurisdiction of foreign courts would be governed by the laws of
Singapore to the exclusion of the relevant expressed governing law.
Any judgment obtained in the courts in Tel-Aviv-Jaffa, Israel in relation to this Agreement will be recognized in Singapore, and
will be enforced in Singapore, provided it is a final and conclusive, monetary judgment for a fixed sum (other than for the
payment of taxes, a fine or penalty), and subject to the following conditions: (i) the relevant court had jurisdiction over Kenon in
that Kenon was, at the time such proceeding was instituted, resident in the jurisdiction in which such proceeding had been
commenced or had submitted to the jurisdiction of the relevant court; (ii) that judgment was not obtained by fraud; (iii) the
enforcement of that judgment would not be contrary to public policy of Singapore; and (iv) the judgment had not been obtained
in contravention of the principles of natural justice.
6.10.
Pari passu ranking . Its payment obligations under this Agreement will rank at all times at least pari
passu
with the claims of all its other
unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.
13
7.
Undertakings and Covenants of Kenon
Kenon undertakes in favor of IC from the date of this Agreement and until the later of: (a) the date of final repayment of all amounts owed or payable
under this Agreement and (b) the Qoros Guarantee Liability Termination, as follows:
7.1.
Information undertakings.
7.1.1.
7.1.2.
7.1.3.
to supply to IC as soon as the same are issued, the audited consolidated and unconsolidated annual financial statements as of the
end of and for the previous financial year of Kenon, and in respect of each of the first three financial quarters of each financial
year of Kenon, the unaudited consolidated and unconsolidated interim financial statements for that financial quarter of Kenon, in
each case prepared in accordance with generally accepted accounting principles, including International Financial Reporting
Standards, consistently applied;
to supply, as soon as the same are issued and become available, the audited consolidated annual financial statements (and if
issued and when the same becomes available, the audited unconsolidated annual financial statements) as of the end of and for the
previous financial year, and in respect of each of the first three financial quarters of each financial year of IC Power and Qoros,
the unaudited consolidated interim financial statements (and if issued and when the same becomes available, the unaudited
unconsolidated interim financial statements) for each financial quarter, of each of IC Power and Qoros, respectively, in each case
prepared in accordance with generally accepted accounting principles, including International Financial Reporting Standards,
consistently applied; and
to promptly provide information and/or documentation regarding the financial condition, business and operations of each of
Kenon, IC Power and Qoros, as IC may reasonably request, including financial statements as of and for any financial period
(whether before or after the Effective Date), in each case (including in respect of financial statements provided pursuant to
Sections 7.1.1 or 7.1.2) together with all reports, management’s letters, legal opinions and accountants/auditors’ comfort letters
and consents for the inclusion of the foregoing in IC’s public regulatory filings ( provided
that
, the provision of third party letters
and opinions so requested is consistent with market practice), and any other information and/or documentation, and provided
further
that
the aforesaid is required for fulfillment by IC of any legal or regulatory requirements, including for disclosure in any
periodic report (including annual and quarterly reports and such other reports) and/or immediate report, according to applicable
regulatory reporting obligations to which IC will be subject and under any applicable law, or in the course of preparing and filing
of public offerings of any kind (prospectuses, shelf prospectuses, registration statements and the like) or other corporate filings in
any jurisdiction required under any applicable law or regulations (in which case the request for such information shall be deemed
to be reasonable).
14
Without prejudice to the foregoing, it is agreed that where the financial statements of Kenon, IC Power or Qoros have been filed with the
Securities and Exchange Commission, failure to deliver such financial statements shall not constitute a breach of this undertaking unless IC
has requested Kenon to deliver copies of such financial statements and Kenon has not delivered them to IC within 5 (five) Business Days of
such request.
Notwithstanding anything to the contrary in this Agreement, following the Final Repayment Date, Kenon undertakes to promptly provide to
IC, any of the aforesaid information and documents in accordance with Section 7.1.3 reasonably required by IC in order to comply with its
filing obligations under applicable law (including financial statements). Notwithstanding the aforesaid, following the Qoros Guarantee
Liability Termination, Kenon will be required to provide the aforesaid information and documents in relation to Qoros only to the extent
these are required by IC in order to fulfill its filing obligations under applicable law. The provisions of this Section 7.1 shall survive the
termination of this Agreement.
7.2.
Notifications .
7.2.1.
7.2.2.
7.2.3.
Kenon shall notify IC, promptly upon becoming aware, and otherwise at the request of IC, of the occurrence of any Default,
breach of or non-compliance with any undertaking or condition contained in this Agreement (save as would be considered to be
de
minimis
), and the steps, if any, being taken to remedy it.
Kenon shall notify IC, as soon as reasonably practicable after the occurrence of any acquisition or disposition of any material
asset, any public offering or private placement of shares or other securities, or any restructuring, rehabilitation or rescheduling of
indebtedness, reorganization, scheme of arrangement or any similar event (including the commencement of negotiations with
creditors or other stakeholders in connection therewith), commencement of any proceedings for liquidation, bankruptcy,
insolvency, winding-up or other proceedings affecting creditors’ rights generally, in each case by or in respect of any of Kenon,
IC Power (including any subsidiary thereof which is material to its business), Quantum (2007) LLC or Qoros. The report
hereunder will contain a description of such events. Kenon’s obligations to notify IC in connection with IC Power (including its
subsidiary as aforesaid), Quantum (2007) LLC or Qoros as aforesaid shall be subject to the information being available to Kenon
and within its knowledge.
Kenon shall notify IC, promptly upon becoming aware, and otherwise at the request of IC, of (i) any restructuring, material
change or amendment to the Qoros Loan Agreement or any agreement entered into by any guarantor, credit support provider
and/or by Quantum (2007) LLC in connection thereof, and (ii) the occurrence of any default or breach by Qoros pursuant to the
Qoros Loan Agreement and/or by any guarantor, credit support provider and/or by Quantum (2007) LLC pursuant to any other
agreement or document entered in connection therewith, and shall provide IC any relevant information in that respect.
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7.3.
Security interest over ICP Interests .
7.3.1.
Prior to the consummation of an IPO, Kenon undertakes to grant the following pledges and security interest in favor of IC as
security for the full and punctual payment of all amounts owing by Kenon to IC from time to time under this Agreement:
(a)
(b)
as soon as reasonably practicable following the Effective Date (and prior to the utilization of the Loan Facility in
accordance with this Agreement (as a condition to the drawdown of the initial Loan hereunder)), create a first ranking
priority fixed pledge and security interest in favor of IC with respect to ICP Interests comprising no less than 40% of
all ICP Interests then issued and outstanding; and
prior to the utilization of any Loan under the Loan Facility in accordance with this Agreement (as a condition to the
drawdown of any Loan thereunder), create, or ensure the existence of, for each amount of US$50,000,000 (or part
thereof) out of the aggregate principal amount of all the Loans to be outstanding following the draw-down of such
Loan, a first ranking priority fixed pledge and security interest in favor of IC with respect to ICP Interests comprising
6.5% of all ICP Interests then issued and outstanding, provided
that
, the aggregate percentage of ICP Interests that
shall be pledged hereunder shall not exceed 66% of all ICP Interests then outstanding.
By way of illustration: (I) the utilization of a Loan under the Loan Facility in a principal amount of US$80,000,000
(assuming no Loans had been previously made) shall be subject to the creation of a pledge pursuant hereto with
respect to ICP Interests comprising in the aggregate 53% of all ICP Interests then outstanding; (II) the utilization of a
Loan under the Loan Facility such that the aggregate principal amount of all Loans previously utilized together with
the Loan to be utilized would exceed US$150,000,000 shall be subject to the creation or existence of a pledge(s)
pursuant hereto with respect to ICP Interests comprising in the aggregate 66% of all ICP Interests then outstanding),
in each case, pursuant to security documents in form agreed by the parties prior to the draw-down of the initial Loan ( mutatis
mutandis
according to the security interest pledged with respect to each Loan), provided that prior to the draw-down of future
Loans, IC shall be entitled to amend the form of the pledge documents to be executed by Kenon to the extent required as a result
of changes in applicable law.
7.3.2.
Kenon shall execute and deliver to IC, no later than the dates referred to herein, all documents that are necessary for the purpose
of registering or otherwise perfecting each pledge and security interest granted pursuant hereto in accordance with applicable law
in any relevant jurisdiction (including the recordation or registration thereof in any public registry in such jurisdiction), and shall
pay all fees and charges (if any) in connection with such registration or perfection and any stamp duty payable in Singapore in
respect of the stamping of said security
16
7.3.3.
7.3.4.
7.3.5.
7.3.6.
documents. At the request of IC, Kenon shall provide, upon the registration of any pledge (or an amendment thereto, as may be
applicable), a legal opinion of its Singaporean external legal counsel regarding the legality, validity and perfection of the pledge
and security interest (and any amendment or extension thereof, as the case may be) under Singaporean law in form satisfactory to
IC.
Without prejudice to the foregoing, Kenon shall, promptly following the request of IC, execute all documents and take all steps as
IC may reasonably require in order to ensure that the pledges granted pursuant hereto shall be valid and binding against third
parties, and to execute and/or deliver to IC any additional and/or new pledge or amendment of, or supplement to, the foregoing
pledges and any other documents as IC shall require for this purpose.
In the event that any Transaction permitted by Section 7.5.2 is effected or consummated prior to the consummation of an IPO,
Kenon undertakes to ensure that the closing or completion of such Transaction shall be subject to the creation and registration of
a pledge and security interest over the corresponding shares of the Purchasing Entity (together with any related rights and other
rights of Kenon as a shareholder in such entity), on substantially the same terms as the pledge granted over the ICP Interests
pursuant hereto ( provided
however
that
IC may require to include or modify any term which it reasonably believes is necessary
to protect its interest and enable it to exercise any rights or remedies with respect to such pledge in accordance with applicable
law), and Kenon shall execute such documents, complete such procedures and take all such actions as required by Sections 7.3.2
and 7.3.3 (including the registration of the pledge and security interest and the delivery of a legal opinion at the request of IC). If
Kenon shall notify IC that it is a condition to the closing or to the completion of the foregoing Transaction that any pledge(s) and
security interest created and registered in favor of IC over any ICP Interests shall be released, IC shall execute and deliver to
Kenon a release in respect of such pledge(s) and security interest, which IC may subject by the creation and registration of the
pledge and security interest referred to above upon or immediately following the closing or completion of said Transaction.
For the avoidance of doubt, the provisions of this Section 7.3 shall not be construed as limiting or restricting the grant of any
security interest by IC Power over its assets including any shares or interests in its subsidiaries.
Following the consummation of an IPO, IC shall, within 3 (three) Business Days of Kenon’s request, and provided
that
no
Default, breach of or non-compliance with any material undertaking or material condition contained in this Agreement under this
Agreement is then continuing and the ratio of Holdings Value to Net Debt on such day is at least equal to 2:1, confirm in writing
to Kenon that the pledges created pursuant hereto shall be released, and IC shall within such 3 Business Day period sign and
deliver to Kenon the documents required in order to delete or deregister such pledges from any public registry in which they were
recorded, in each case at the expense of Kenon.
17
7.4.
Incurrence of Indebtedness . Following the consummation of an IPO, Kenon shall not incur nor assume any Financial Indebtedness (other
than the drawdown of Loans under the Loan Facility in accordance with the terms of this Agreement, the Qoros Guarantee Liabilities
Amounts, Commitment Fee Cancellation Accrual Amounts and any other indebtedness under this Agreement), unless
the ratio of Holdings
Value to Net Debt is at least equal to 2:1 as of immediately following such incurrence (as calculated immediately prior to such incurrence,
taking into account and giving effect to such incurrence. In determining the effect of such incurrence, the net cash proceeds to be received
under the Financial Indebtedness so incurred or assumed by Kenon shall not be taken into account in the calculation of the ratio of Holdings
Value to Net Debt unless
it is either (A) actually applied (in whole or in part, as may be applicable) in exchange for, or to renew, refund,
refinance, replace or discharge, any other Financial Indebtedness (in whole or in part), or (B) deposited in a segregate account and pledged in
favor of IC under a first ranking fixed pledge until application of any amount thereof in accordance with (A) above, in each case to the extent
required to satisfy the required ratio of Holdings Value to Net Debt).
7.5.
Transactions in IC Power or in ICP Interests .
7.5.1.
Following the consummation of an IPO, Kenon shall not enter into nor permit, cause or agree to the entry into or consummation
of, any transaction or a series of related transactions, including (but not limited to) any sale, transfer, assignment, issuance, tender
offer, share exchange, merger, reverse merger, repurchase or other transaction(s) or as a result of any corporate restructuring or
reorganization of IC Power, in each case involving the sale or issuance of any ICP Interests and/or the sale, transfer, conveyance,
lease or other disposal of all of the assets of IC Power (a “ Transaction ”) in which Kenon receives any cash proceeds as
consideration under the Transaction, unless
the ratio of Holdings Value to Net Debt is at least equal to 2:1 as of immediately
following such Transaction (as calculated immediately prior to the consummation thereof, taking into account and giving effect
to such Transaction. In determining the effect of such Transaction, any amount of the net cash proceeds to be received by Kenon
in the sale or issuance of ICP Interests (as opposed to the sale, transfer, conveyance, lease or other disposal of IC Power’s assets
as aforesaid) shall not be taken into account in the calculation of the ratio of Holdings Value to Net Debt unless
it is either (A)
actually applied (in whole or in part, as may be applicable) in exchange for, or to renew, refund, refinance, replace or discharge,
any Financial Indebtedness (in whole or in part), or (B) deposited in a segregate account and pledged in favor of IC under a first
ranking fixed pledge until application of any amount thereof in accordance with (A) above, in each case to the extent required to
satisfy the required ratio of Holdings Value to Net Debt).
18
7.5.2.
Kenon shall not, enter into or effect a Transaction which would result in Kenon acquiring shares of another entity (including an
entity formed by or surviving any merger, consolidation, amalgamation or combination with or into IC Power) (the “ Purchasing
Entity ”) in consideration of, in exchange for or against the tendering of, its shares in IC Power or in consideration of the sale,
transfer, conveyance, lease or other disposition of all or substantially all of the assets of IC Power to the Purchasing Entity, unless
all of the following conditions are satisfied (without prejudice to the provisions of Section 7.3.4):
(a)
(b)
before the consummation of an IPO, the Purchasing Entity is organized in a country which has diplomatic ties with
the State of Israel; and
following the consummation of an IPO, the shares of the Purchasing Entity acquired by Kenon in such Transaction
are listed for trading on any recognized exchange in any jurisdiction.
In the event that a Transaction permitted under this Section is effected or consummated, the provisions of this Agreement that
apply to shares in IC Power or to ICP Interests shall apply, mutatis
mutandis
, to the shares of the Purchasing Entity (and, where
applicable, references to IC Power and to ICP Interests, including for the avoidance of doubt under the definition of Holdings
Value and for the purpose of the undertakings under Sections 7.1 ( Information
undertakings
) and 7.2 ( Notifications
), shall be
construed as references to the Purchasing Entity and to the shares in the Purchasing Entity, and for the avoidance of doubt such
provisions shall thereupon cease to apply to IC Power and to ICP Interests).
7.5.3.
Notwithstanding anything to the contrary herein, Kenon shall not enter into any transaction or a series of related transactions
following the consummation of an IPO, as a result of which the shares of IC Power cease or will cease to be listed or traded on a
recognized exchange.
7.6.
Distributions by Kenon . It will not make, nor resolve to make or permit, cause or agree to the payment of, any Distributions other than as set
out below:
7.6.1.
7.6.2.
7.6.3.
prior to the consummation of an IPO, Kenon may resolve or approve a Distribution in-kind to its shareholders consisting solely of
shares of Zim Integrated Shipping Services Limited and/or shares of Renewable Energy Group, Inc and/or shares of Tower
Semiconductor Limited held by Kenon;
following the consummation of an IPO, Kenon may make, resolve to make or permit, cause or agree to the payment of, any
Distributions, provided
that
upon payment of such Distributions and immediately after giving effect to payment of such
Distributions, the ratio of Holdings Value to Net Debt is at least equal to 2:1; and
IC agrees that in the event that Kenon meets its undertakings under this Section 7.6 but does not have sufficient retained earnings
in order to make any non-cash distribution in-kind (but, for the avoidance of doubt, not any cash distribution (in whole or in
part)), IC will not object to Kenon’s application for a capital reduction, if so needed in order to enable the making of such
Distribution, provided
however
that
such agreement shall not prejudice any other obligation of Kenon hereunder nor constitute a
waiver by IC of any of its rights under this Agreement, including for the avoidance of doubt, any rights which arise following any
breach by Kenon or a default under this Agreement.
19
8.
Events of Default
Each of the events or circumstances set out in this Section 8 is an “ Event of Default ” (whether or not caused by any reason outside the control of
Kenon or of any other person):
8.1.
8.2.
8.3.
8.4.
Non-payment . Kenon does not pay on the due date any amount payable pursuant to this Agreement, unless payment is made as soon as
practicable and in any event within 5 (five) Business Days of its due date (other than any payments due on the Loans Repayment Date (as
may be extended in accordance with Section 4.1 hereto) or the Final Repayment Date, as applicable, for which there shall be no grace or cure
period).
Breach of Certain Undertakings . Kenon does not comply with any of the covenants or undertakings in Sections 7.4 ( Incurrence
of
Indebtedness
), 7.5 ( Transactions
in
IC
Power
or
in
ICP
Interests
), and 7.6 ( Distributions
by
Kenon
).
Cross default . Any Financial Indebtedness of Kenon is declared to be or otherwise becomes due and payable prior to its specified maturity
as a result of an event of default (however described), provided
that
the aggregate amount of such Financial Indebtedness exceeds
individually or in aggregate US$50,000,000 (fifty million US Dollars) (or its equivalent in any other currency or currencies) and such
Financial Indebtedness remains unpaid for, or has not been discharged or stayed within, 14 consecutive days thereafter.
Insolvency . Kenon is unable to pay its debts as they fall due, commences negotiations with its creditors with a view to the general
readjustment, rehabilitation or rescheduling of its indebtedness (excluding, for the avoidance of doubt, any bona
fide
refinancing of then
existing debt), makes a general assignment for the benefit of a rehabilitation scheme with its creditors, or is declared by a competent court or
a governmental authority as being insolvent for the purposes of any applicable insolvency or bankruptcy law.
8.5.
Insolvency proceedings .
Any corporate action, legal proceedings or other procedure or step is taken in relation to:
8.5.1.
8.5.2.
8.5.3.
The winding-up, dissolution, administration, judicial management, rehabilitation or reorganization (by way of voluntary
arrangement, scheme of arrangement or otherwise) of Kenon;
the appointment of a liquidator, receiver, trustee, administrator, judicial manager, compulsory manager or other similar officer in
respect of Kenon or any of its assets; or
enforcement of any security or attachment over any assets of Kenon in each case in respect of indebtedness exceeding
individually or in aggregate US$50,000,000 (fifty million US Dollars),
or any analogous procedure or step is taken in any jurisdiction or an application for the recognition of foreign proceedings under applicable
law is made in respect of Kenon.
No Event of Default will occur under this Section 8.5 by reason of any legal proceedings or other procedure or step (or analogous procedure
or step taken in any jurisdiction) presented or taken by any person other than by Kenon, as applicable, which is being contested in good faith
and is fully cancelled or discharged within 45 (forty-five) Business Days of its commencement or presentation.
20
On and at any time after the occurrence of an Event of Default which is continuing, IC may, by written notice to Kenon: (i) cancel the Loan Facility or
any part thereof whereupon it shall immediately be cancelled; (ii) declare that all or part of the Loans and the Qoros Guarantee Liability Amount then
outstanding, together with accrued interest, and all other amounts accrued or outstanding under the Agreement be immediately due and payable,
whereupon they shall become immediately due and payable; and/or (iii) declare that all or part of the Loans and the Qoros Guarantee Liability Amount
then outstanding, together with accrued interest, and all other amounts accrued or outstanding under the Agreement be payable on demand, whereupon
they shall immediately become payable on demand by IC.
In the event that all or any part of the Loans and the Qoros Guarantee Liability Amount have been declared payable pursuant hereto, IC shall be entitled
to take all steps it deems fit in order to collect all sums owed by Kenon, including, to enforce any pledges granted pursuant to Section 7.3 and to realize
all or any of the assets pledged under the security documents to recover any amounts owing by Kenon. For avoidance of doubt, the Events of Default set
out in this Section 8 shall be in addition to, and nothing in this Section shall operate or be construed so as to prejudice or derogate from, any other rights,
causes of action, remedies and relief available to IC under this Agreement or by applicable law.
Kenon acknowledges and agrees that any payment received by any of the foregoing (including following the enforcement or realization of any pledge
and security interest created or granted to IC by Kenon in accordance with this Agreement) at a time when all amounts owing or that may become due
and payable under this Agreement have not yet become due and payable, including in respect of any obligations, claims, charges and other liabilities of
IC or that IC may incur in connection with the Qoros Guarantees, may be deposited by IC (or anyone acting on its behalf) in a weekly interest bearing
cash deposit in a bank account at IC’s name, and shall thereafter be applied towards the payment of any such amounts owing or that may become due
and payable under this Agreement, including amounts actually paid by IC in connection with any Qoros Guarantee, in accordance with Section 5.5.
Following the full payment of all amounts due to IC under this agreement and following the Qoros Guarantee Liability Termination, the balance
remaining in the aforementioned bank account (including all interest and proceeds accrued thereon) shall be paid to Kenon.
9.
Miscellaneous
9.1.
Announcements . The Parties agree to use reasonable efforts to coordinate in advance any public announcement or filing in respect of this
Agreement or the transactions contemplated hereby required by applicable law or by the regulations of any applicable stock exchange, and
otherwise neither Party shall communicate with any media without the prior written consent of the other party, provided
that
nothing herein
shall prevent either Party from making such disclosures in any manner as it shall determine are required by applicable law. The foregoing
notwithstanding, Kenon acknowledges that information provided by it in connection with this Agreement may be disclosed by IC in its
public filings.
9.2.
Entire Agreement . This Agreement constitutes the entire agreement between the Parties hereto pertaining to the subject matter hereof, and
any and all other written or oral agreements relating to the subject matter hereof existing between the Parties hereto are expressly cancelled.
21
9.3.
9.4.
Amendment . Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Parties.
Limitation of Liability . In no circumstances shall IC be required to pay nor be liable to Kenon for any consequential, indirect or punitive
damages, opportunity costs or lost profits (whether arising from its negligence or breach of contract or otherwise), save only that nothing
herein shall exclude liability for fraud.
9.5.
Assignment .
9.5.1.
IC may, at any time, and without the consent of Kenon, assign or transfer all or any of its rights, benefits and obligations under
the Agreement to any Financial Institution, provided
that
: (i) the transferee will take upon itself all such rights and obligations so
transferred or assigned pursuant hereto and (ii) the assignment will not derogate from Kenon’s rights under this Agreement and
will not impose on Kenon any further or increased liability whatsoever to indemnify the other party or to pay for any tax
liabilities in pursuant to this Agreement that are not applicable to it prior to such assignment.
In this Section, “ Financial Institution ” means any bank, insurer, trust, fund (including pension funds, provident funds and
investment funds) or any other entity, incorporated in any jurisdiction, which is regularly engaged in or established for the
purpose of making, purchasing or investing in loans, securities or other financial assets and which is supervised by a
governmental body in the country of its incorporation.
If as a result of circumstances existing at the date of the assignment or transfer, Kenon would be obliged to make an increased
payment to the transferee in accordance with Section 5.3.1, then the transferee will only be entitled to receive payment under
Section 5.3.1 to the same extent as the transferring party would have been if the assignment or transfer had not occurred.
9.5.2.
Kenon’s rights and obligations under this Agreement shall not be assigned, transferred or delegated without IC’s prior written
consent, except
that
Kenon may assign its obligations under this Agreement to any affiliate thereof (being any person or entity
which is directly or indirectly controlling or controlled by or under direct or indirect common control with Kenon), provided
that
Kenon shall remain liable for all such obligations, jointly and severally with such transferee and without prejudice to any rights of
IC under this Agreement (for the purpose hereof Kenon irrevocably waives any defense it may have and any right of first
requiring to proceed against or enforce any other rights or security or claim payment from any person before claiming payment
from Kenon, irrespective of any law or the provision of any agreement to the contrary), and provided
further
that
such transfer
shall not prejudice any rights of IC under this Agreement. Any assignment or attempted assignment without IC’s written consent
shall be void and of no force or effect.
22
9.6.
9.7.
9.8.
9.9.
Successors and Assigns . Without prejudice to the provisions of Section 9.5 ( Assignment
), this Agreement shall inure to the benefit of, and
be binding upon, the successors and assigns of the Parties hereto.
Remedies . No failure to exercise, nor any delay in exercising, on the part of a party hereto, any right or remedy hereunder or under law shall
operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the
exercise of any other right or remedy. The rights and remedies provided to the Parties under this Agreement are cumulative and not
exhaustive or exclusive of any rights or remedies provided under applicable law. Specifically, the rights and remedies afforded to IC in
Section 8 are not exhaustive or exclusive of any other causes of action in respect of breach (material or otherwise) or non-compliance which
IC may claim against and/or remedies it may pursue in respect thereof. Any extension of time or waiver given, or compromise made, with
respect to a specific event by IC, shall apply only with respect to such specific event and shall not be interpreted as applying to any other
event and shall not derogate from IC’s rights under this Agreement or under applicable law (save as expressly stated in such waiver or
compromise).
No Third Party Beneficiaries . This Agreement is made for the Parties hereto, and no third party shall have any right hereunder or be deemed
a beneficiary hereof (except as expressly set forth herein to the contrary).
Notices . Any notice, demand or other communication required to be given by one Party to another under this Agreement shall be in writing
and shall be deemed to have been served: (i) if personally delivered, when actually delivered; or (ii) if sent by facsimile or e-mail, on the day
sent (and if such day is not a Business Day, the Business Day immediately following) subject to receipt of confirmation of transmission; or
(iii) 5 (five) Business Days after being mailed by certified or registered mail, postage prepaid (for the purposes of proving such service, it
being sufficient to prove that such notice was properly addressed and posted) to the respective addresses of the Parties set out herein:
if to IC:
Address :
Millennium Tower, 23 Aranha Street, P.O.B
20456, Tel Aviv, 61204, Israel
e-mail :
mayaak@israelcorp.com
natany@israelcorp.com
Attention : Legal Department; Financial Department
if to Kenon:
Address :
1 Temasek Avenue #36-01
Millenia Tower
Singapore 039192
e-mail :
RobertR@kenon-holdings.com
TzahiG@kenon-holdings.com
Attention : Legal Department, Finance Department
23
9.10.
9.11.
or at such other address or email as any Party shall have furnished to the other in writing in accordance with this Section.
Governing Law . The internal laws of the State of Israel, without regard to its conflict of laws rules, shall govern the validity, the
construction of its terms and the interpretation of the rights and duties of the Parties hereunder.
Jurisdiction and Service of process . The appropriate courts in Tel-Aviv-Jaffa, Israel shall have exclusive jurisdiction over any dispute or
claim in connection with this Agreement or any of the transactions contemplated hereby, and the Parties hereby irrevocably submit to such
jurisdiction.
The parties agree that this Section is made for the benefit of IC only. As a result, IC shall not be prevented from taking proceedings to settle
any matter, dispute or relating to this Agreement or to enforce any right or remedy it may have in connection herewith in any courts with
jurisdiction in Singapore or in any jurisdiction in which Kenon has assets, as it may deem appropriate and necessary in its sole discretion. To
the extent allowed by law, the taking of proceedings in one jurisdiction shall not limit preclude the taking of proceedings (whether
concurrently or not) in any other jurisdiction.
Kenon hereby agrees that the process by which any suit, action or proceedings be initiated or conducted may be served on it by being
delivered in connection with any such proceedings in Israel to IC Green Energy Ltd. (“ IC Green ”).
A copy of the appointment letter and the consent of IC Green to act as agent for service is attached hereto as Exhibit A . If the appointment
of IC Green ceases to be effective, the undersigned shall immediately appoint another person or entity in Israel to accept service of process
on its behalf in Israel and, failing such appointment within 21 (twenty one) days, service to the law firm of Meitar Liquornik Geva Leshem
Tal Law Offices, to the attention of any two of the following: Advs. Dan Geva, Michael Rimon, Judith Gal-Or, Assaf Oz, Tomer Sela and
David Glatt (or, in their absence, to any partner in that law firm) will constitute due service of process to Kenon. Nothing contained herein
shall affect the right to serve process in any other manner permitted by applicable law.
9.12.
Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the Parties
actually executing such counterparts, and all of which together shall constitute one instrument.
[ Signature
Page
to
Follow
]
24
IN WITNESS WHEREOF, the Parties have executed this LOAN AGREEMENT as of the date first above written.
ISRAEL CORPORATION LTD.
/s/ Nir Gilad
By:
Nir Gilad
Title: CEO
/s/ Avisar Paz
By:
Avisar Paz
Title: CFO
KENON HOLDINGS LTD.
/s/ Yoav Doppelt
By:
Yoav Doppelt
Title: CEO
SIGNATURE
PAGE
OF
THE
LOAN
AGREEMENT
SCHEDULE 1
DRAWDOWN NOTICE
From: Kenon Holdings Ltd.
To:
Dated:
Israel Corporation Ltd.
[ ]
Dear Sirs,
We refer to the loan agreement with you dated [ ], 2015 (the “ Agreement ”). Capitalized terms have the meanings given to them in the Agreement. We wish
to borrow a Loan on the following terms:
(a)
(b)
Amount : US$[ ]
Date on which a Loan is to be made : [ ], (or, if that date is not a Business Day, the next Business Day), such date being a date falling within
the Availability Period.
(c)
Payment delivery details for proceeds of the Loan:
[ ]
We confirm that each of the conditions for submission of this Drawdown Notice as set forth by the Agreement is satisfied on the date of the requested drawdown
(after giving effect thereto, if applicable).
Yours faithfully,
KENON HOLDINGS LTD.
IC Green Energy Ltd.
19 Ha’arba’a St., Hatichon Tower
Tel-Aviv 61204, Israel
Attention: [●]
Dear Sirs,
EXHIBIT A
Kenon Holdings Ltd.
1Temasek Avenue #36-01, Millenia Tower
Singapore 039192
[●][●], 2015
Re: Appointment of Process Agent
1. We refer to the Loan Agreement dated day of January 2015, by and between Israel Corporation Ltd. (“ IC ”) and Kenon Holdings Ltd. (“ Kenon ”), as
may be amended, supplemented, modified or replaced (the “ Loan Agreement ”). Terms used hereinafter and hereinabove shall have the meanings ascribed
to them in the Loan Agreement (including any Schedules or Exhibits thereto), unless explicitly dictated otherwise herein.
2. We hereby appoint you as our agent for service of process by which any suit, action or proceeding is begun in the courts of the State of Israel arising out of
or in connection with the Loan Agreement, on the terms set out in this letter.
3.
Your appointment shall cease only upon receipt of notice of confirmation from IC (or any successor, assignee or representative thereof).
If the Loan Agreement is extended, amended, restated or otherwise modified, your appointment will, nonetheless, be extended and continued accordingly.
4.
On receipt of service of process addressed to us by which any suit, action or proceeding is begun in the courts of the State of Israel arising out of or in
connection with the Loan Agreement, you shall:
4.1
4.2
accept service on our behalf;
notify in writing by email or by fax to the email address or the number stated in this letter, as applicable (or another email address or fax number
notified in writing to you by us from time to time), in either case containing the following:
(a)
(b)
the date on which you accepted service of process on our behalf.
a request by you for the name of the law firm in the State of Israel to whom the originals of the document(s) served on you should be sent. but
need not contain any other information nor details of the nature or substance of the claim made against us.
4.3 You shall also send a copy of the notice referred to in paragraph 4.2 to us by mail or courier to the address stated in this letter (or another address
notified in writing to you by us from time to time) with a copy of the process served.
5.
6.
7.
8.
Your dispatch of the notice referred to in paragraph 4.2 or paragraph 4.3 is a good discharge of your obligations contained in the relevant paragraph, whether
or not we receive the relevant notice and whether or not you are aware that we may not have received a notice previously sent to us by you. If, in your
opinion, your dispatch or our receipt of either of the notices to be sent to us pursuant to paragraph 4.2 or paragraph 4.3 might be prevented, hindered or
delayed by a cause beyond your control (including, without limitation, interruptions in postal or other communications services) your obligations under those
paragraphs are suspended until, in your opinion, dispatch will not be prevented, hindered or delayed in that way. While your obligations are suspended you
shall, if the relevant telephone services are operating normally, use reasonable efforts to give us the information referred to in paragraph 4.2 by telephone call
to the number stated in this letter (or another number notified in writing to you by us from time to time).
You are instructed to notify us and IC of any change in your name or address as well as of any proposed change in your status that could lead to your
winding-up or dissolution or of any contemplated cessation in maintaining an office or place of business in Israel.
This letter and any obligations arising out of or in connection with it are governed by, and shall be construed in accordance with, Israeli law. The competent
courts of Tel-Aviv-Jaffa, Israel shall have exclusive jurisdiction on any matters arising out of or in connection with this letter.
Please acknowledge your acceptance of the terms of this letter by signing the acknowledgement below. We shall notify the parties to the Loan Agreement
that you have accepted the terms of this letter and provide them with a copy of this letter and your acceptance.
Yours faithfully
a duly authorized representative of Kenon Holdings Ltd.
We acknowledge receipt of your letter of which this is a true copy. We accept the appointment as agent for service process described in the letter on the terms the
letter sets out, and undertake to comply with such terms.
a duly authorized representative of IC Green Energy Ltd.
SUPPLEMENT NO. 1
TO THE LOAN AGREEMENT
(Execution
Version)
This Supplement No. 1 (the “ Supplement ”) to the Loan Agreement dated 7 January 2015 is made and entered into as of the 17 th day of March 2016, by
and between Israel Corporation Ltd. (“ IC ”) and Kenon Holdings Ltd. (“ Kenon ”). IC and Kenon shall each be referred to as a “ Party ”, and collectively, the “
Parties ”.
WHEREAS , the Parties have entered into a Loan Agreement dated 7 January 2015 (the “ Loan Agreement ”);
WHEREAS , as security for its obligations under the Loan Agreement, Kenon pledged in first ranking pledge 6,600,066 ordinary shares of IC Power par
value NIS 0.01 each (comprising 66% of the issued and outstanding share capital of IC Power) in favor of IC pursuant to Pledge Agreements dated 7 January 2015,
29 January 2015, 4 May 2015 and 7 October 2015 (the “ Existing Pledges ”);
WHEREAS , Kenon wishes to restructure its holdings in IC Power, by introducing ICPS (as defined below), a newly incorporated wholly-owned subsidiary
of Kenon, as a new tier holding company to which all of the ICP Interests will be transferred under the ICPS IPO Restructuring (as defined below) pursuant to the
Share Transfer Agreement (as defined below) and in consideration for the New ICPS Shares (as defined below) and undertaking to repay the Vendor Loans (as
defined below), and which will seek to launch an initial public offering of its ordinary shares on the New York Stock Exchange (which offering will, when
completed, constitute an IPO for the purposes of the Loan Agreement);
WHEREAS , pursuant to Section 7.5.2 of the Loan Agreement, the ICPS IPO Restructuring qualifies as a “Transaction” (as defined therein) which Kenon is
permitted to enter into, subject to the terms set forth in the Loan Agreement;
WHEREAS , pursuant to Section 7.3.4 of the Loan Agreement, Kenon is required to grant (or cause to be granted) a pledge and security interest over ICPS
Interests (and all related rights, including distributions thereon, benefits and proceeds in respect thereof or derived therefrom) in accordance with the terms of the
Loan Agreement and the Existing Pledges;
WHEREAS , the parties further agreed to substitute for the Existing Pledges a security interest granted by ICPS over ICP Interests in favour of IC, as
required in order to facilitate the ICPS IPO Restructuring, and further agreed that Kenon would grant IC with a security interest in respect of the Vendor Loans the
subject of the 145M Loan Agreement (as defined below) and any ICPS Interests that may be issued in conversion thereof, and to add to, and implement certain
terms of, the Loan Agreement, all set forth in this Supplement;
NOW, THEREFORE , the Parties hereby agree as follows:
1.
Definitions and Interpretation
1.1.
1.2.
The preamble and any schedules, exhibits or appendices hereto form an integral part of this Supplement.
In addition to the terms defined elsewhere in this Supplement, the following terms shall have the meanings given to them in this paragraph:
1.2.1.
“ Supplement 1 Date ” means the date upon which IC notifies Kenon in writing that it has received all of the Schedule 1
Documents (as defined below);
1
(Execution
Version)
1.2.1.
1.2.2.
1.2.3.
1.2.4.
1.2.5.
1.2.6.
“ ICPS ” means IC Power Pte. Ltd., (Company Registration Number: 201511865D), a company incorporated in Singapore and
having its registered office at 80 Raffles Place, #26-01, UOB Plaza, Singapore 048624; and
“ ICPS Interests ” means (i) shares of ICPS and any other securities or rights convertible into, exercisable for or otherwise
conferring the right to acquire, shares of ICPS, in each case on a fully diluted basis, and (ii) any other means of control (within
the meaning of that term under the Israeli Securities Law, 1968) in ICPS, either directly or indirectly, by virtue of the holding of
any security, by agreement or otherwise.
“ Vendor Loans ” means loans in an aggregate amount of US$220,000,000 to be provided by Kenon to ICPS, pursuant to the
145M Loan Agreement and the 75M Loan Agreement, in connection with financing the acquisition by ICPS of the ICP Interests
from Kenon pursuant to the Share Transfer Agreement.
“ Vendor Loan Agreements ” means the 145M Loan Agreement and the 75M Loan Agreement.
“ 145M Loan Agreement ” means one of two loan agreements (the other being the 75M Loan Agreement) to be entered into by
Kenon and ICPS pursuant to which ICPS will received Vendor Loans to finance a portion of the cash consideration payable by it
to Kenon for the acquisition of the ICP Interests from Kenon pursuant to the Share Transfer Agreement.
“ 75M Loan Agreement ” means one of two loan agreements (the other being the 145M Loan Agreement) to be entered into by
Kenon and ICPS pursuant to which ICPS will received Vendor Loans to finance a portion of the cash consideration payable by it
to Kenon for the acquisition of the ICP Interests from Kenon pursuant to the Share Transfer Agreement.
1.3.
1.4.
Terms, words and expressions defined in the Loan Agreement, and not otherwise defined herein, shall bear the same meaning as in the Loan
Agreement. All references in this Supplement to paragraphs are references to paragraphs of this Supplement and references to Sections are
references to sections of the Loan Agreement.
The provisions of the Loan Agreement concerning principles of construction or interpretation shall apply to this Supplement as if set out
herein.
2.
Application of Certain Provisions of the Loan Agreement with regard to the ICPS IPO Restructuring
Effective as of the Supplement 1 Date, the Loan Agreement shall be supplemented as follows:
2.1.
2.2.
2.3.
The definitions set out in this Supplement (including in paragraph 1.2 thereof) shall be read and construed as if set out in the Loan
Agreement.
Without derogating from the generality of Section 2.6 below, the definition of “IPO” in Section 1.2.16 of the Loan Agreement shall refer to
an initial public offering of the shares or equity securities of ICPS and references to such term in Section 7.5 of the Loan Agreement shall be
construed accordingly.
Pursuant to Section 7.3.4 of the Loan Agreement, Kenon undertakes to grant (or cause to be granted) the following pledges and security
interest in favor of IC as security for the full and punctual payment of all amounts owing by Kenon to IC from time to time under this
Agreement:
(a)
a first ranking priority fixed pledge and security interest in favor of IC with respect to ICP Interests comprising 66% of all ICP
Interests issued and outstanding as of the Supplement 1 Date, in substitution for the Existing Pledges substantially in the form of
the security documents used by the parties in connection with the Existing Pledges;
2
(b)
(c)
a first ranking priority fixed pledge and security interest in favor of IC with respect to ICPS Interests comprising 66% of all ICPS
Interests issued and outstanding as of the Supplement 1 Date (including the New ICPS Shares), substantially in the form of the
Security over Shares Agreement (as defined in Schedule 1 hereto); and
a security assignment in respect of the rights, title and interest of Kenon under the 145M Loan Agreement for the benefit of IC,
including with respect to any future ICPS Interests that may be issued to Kenon upon conversion of the Vendor Loans pursuant to
such 145M Loan Agreement from time to time, substantially in the form of the Security Assignment Agreement (as defined in
Schedule 1 hereto).
2.4.
It is expressly ackowledged that IC shall not have a security interest in the rights of Kenon under the 75M Loan Agreement. Nowithstanding
the foregoing, pursuant to Section 7.3.4 of the Loan Agreement, Kenon undertakes that:
(Execution
Version)
(a)
(b)
(c)
it shall not cause ICPS to prepay any amounts under the 75M Loan Agreement if such prepayment would result in the occurrence
of an Event of Default (as such term is defined in Loan Agreement);
not to exercise any Conversion Right under the Vendor Loans if the exercise of such right results in the shares of ICPS that are
subject to the Security over Shares Agreement and the Security over Shares Agreement to be entered into pursuant to Security
Assignment Agreement constituting less than 66% of all the issued and outstanding shares of ICPS as of the date of such
conversion ; and
following the occurrence of an event of default (being an Event of Default as defined under the Loan Agreement) and while it is
continuing, not to cause ICPS to repay in cash, nor enforce any of its rights under the Vendor Loan Agreements so as to result in,
ICPS repaying in cash any part of the principal amounts owing under either of the Vendor Loan Agreements unless such
repayments are in the same proportion to the principal amounts outstanding under each of the Vendor Loan Agreements.
For the purpose of this Section, a Conversion Right means a right to convert amounts owed to it under the terms of the Vendor Loan
Agreements (as the case may be) into shares of ICPS.
2.5.
The Parties hereby agree that in the event that Kenon shall notify IC that ICPS has printed a Red Herring Prospectus in connection with the
commencement of a roadshow in respect of the IPO (the date of Kenon’s notice of same, a “ Red Herring Date ”), the following shall apply:
(a)
(b)
The pledge and security interest in respect of ICP Interests granted by ICPS shall be released effective immediately, subject to the
undertakings of Kenon under this Section.
Kenon shall be entitled and authorized to (and shall be responsible for) date and use the Red Herring Release Documents (as
defined below) to strike out the pledge and security interest over ICP Interests from any public registry and to instruct IC Power
to remove any record of such pledge and security interest made in its shareholder register and for the purpose hereof, to request of
the Escrow Agent to release the Red Herring Release Documents (as defined below) in accordance with the terms of the Escrow
Instructions (as defined below).
3
(Execution
Version)
(c)
(d)
Upon the occurrence of the following condition (the “ Pledge Reinstatement Condition ”): an IPO has not been consummated
by the expiry of eight (8) weeks from the Red Herring Date (or such other date as the Parties may agree in writing) (such date, an
“ Offering Launch Expiry Date ”), Kenon and ICPS will thereupon reinstate (and Kenon will cause ICPS to so reinstate) the
pledge and security interest over 66% of ICP Interests in favour of IC substantially in the form of the security documents used by
the parties in connection with the Existing Pledges and in accordance with the security documents agreed between the Parties,
and shall take all action and deliver all documents required in respect thereof in accordance with the Loan Agreement and the ICP
Share Pledge Agreement (as defined in Schedule 1 hereto). For the purpose aforesaid, Kenon or ICPS will deliver to MLG&LB
Trust Ltd. (the “ Escrow Agent ”) on the Red Herring Date an undated executed set of ICP Pledge Reinstatement Documents (as
defined below). Within seven (7) days from receiving a letter signed by IC confirming the occurrence of the Pledge
Reinstatement Condition (a copy of which will be delivered concurrently to Kenon and ICPS) and if not legally barred by order
of a competent court, the Escrow Agent shall deliver the ICP Pledge Reinstatement Documents to IC and IC is hereby authorized
and empowered to date the ICP Pledge Reinstatement Documents (with the Offering Launch Expiry Date) and submit the
documents required for the filing and registration of the ICP Share Pledge Agreement, and the pledge and security interest
constituted thereby, with the Israeli Registrar of Pledges and with ACRA.
Until the earlier of the consummation of an IPO and the reinstatement of the pledge and security interest over the ICP Interests in
accordance with paragraph (c) of this Section 2.5, Kenon and ICPS will not (and Kenon will ensure that ICPS will not) (i) sell,
assign, transfer (by operation of law or otherwise), or otherwise dispose of, or grant any option with respect to, any of the ICP
Interests, nor (ii) create or permit to exist any lien, security interest, option or other charge or encumbrance upon or with respect
to any of the ICP Interests.
In this Section -
“ Red Herring Prospectus ” means a preliminary prospectus in connection with the IPO, in which the expected price range for
the shares to be offered to the public thereunder is completed on the cover page of such preliminary prospectus and on the basis
of which ICPS shall conduct its roadshow (or use some other manner of collecting binding purchase orders) for such offering.
2.6.
2.7.
2.8.
All references in the Loan Agreement to IC Power and to ICP Interests shall be read and construed as references to ICPS and to ICPS
Interests, respectively (and shall cease to apply to IC Power and to ICP Interests), save for such references contained in any recital
paragraphs and in Sections 1.2.11, 1.2.12, 7.3.1, 7.3.1A and 7.3.5 of the Loan Agreement (which will continue to apply to IC Power and to
ICP Interests only) and in Sections 7.1 (which will cease to apply to ICP once the ICP Interests are no longer pledged) and 7.2.2 (which will
be read and construed as referring to both ICPS and IC Power). It is hereby agreed that reference in Section 7.3.6 to the Loan Agreement to
the release of the pledges created under the Loan Agreement shall be read and construed as reference also to the securities created under
Sections 2.3(c) hereto.
Until the consummation of an IPO, the events of default set out in Sections 8.3, 8.4 and 8.5 of the Loan Agreement shall be construed such
that any reference therein to Kenon shall be read as a reference to each of Kenon or ICPS, as may be applicable.
Kenon undertakes that before effecting or entering into any Transaction (including an initial public offering) in respect of IC Power or the
pledged ICP Interests (as applicable) prior to an IPO it shall notify IC thereof and the Parties shall consult in good faith to determine what
adjustment is likely to be appropriate to account for the effect of such Transaction and to achieve the outcome that would have applied had
the Parties not effected the arrangements pursuant to this Supplement.
4
3.
Representations
The representations and warranties set out in Section 6 of the Loan Agreement are true and correct as of the date hereof and the Supplement 1 Date as if
made on such dates with reference to the facts and circumstances then existing, and such that references to the Loan Agreement therein shall be
construed as references which include this Supplement.
(Execution
Version)
4.
Completion of ICPS IPO Restructuring and Conditions Subsequent
4.1.
On the Supplement 1 Date, being the date on which IC notifies Kenon in writing that it has received all of the documents listed in paragraph
1 of Schedule 1 (the “ Schedule 1 Documents ”), all of the following will be completed, satisfied and complied with:
4.1.1.
4.1.2.
4.1.3.
4.1.4.
4.1.5.
Kenon will transfer 10,000,100 ordinary shares of IC Power par value NIS0.01 each, comprising all of the issued and outstanding
share capital of IC Power (of which 6,600,066 ordinary shares (66%) are subject to the Existing Pledges and as of the Supplement
1 Date shall be subject to the pledge and security interest created by the ICP Share Pledge Agreement), to ICPS, a wholly-owned
subsidiary of Kenon.
In consideration for the transfer to it by Kenon of the ICP Interests, ICPS shall (i) issue to Kenon 559,309 ordinary shares in the
capital of ICPS (the “ New ICPS Shares ”), which together with one ordinary share of ICPS issued and outstanding and owned
by Kenon as of the date hereof, will constitute the entire (100%) ICPS Interests, free and clear of any charge, pledge, lien or other
security interest (other than pursuant to the ICPS Share Pledge Agreement), options, third party rights or any restrictions or
limitations on transfer; and (ii) undertake to repay the Vendor Loans pursuant to the 145M Loan Agreement and the 75M Loan
Agreement (the transactions under paragraphs 4.1.1 and 4.1.2, the “ ICPS IPO Restructuring ”).
IC will deliver to Kenon executed pledge annulment notification forms for the removal of the Existing Pledges from the public
registry maintained by the Israeli Registrar of Pledges and by ACRA.
IC will deliver to Kenon and IC Power a notice of its consent to the transfer of all of the shares in IC Power that are subject to the
Existing Pledges from Kenon to ICPS in the form attached hereto as Annex 4.1.4 .
IC will deliver to the Escrow Agent (i) undated executed pledge annulment notification forms in respect of the pledge and
security interest over ICP Interests registered with the Israeli Pledges Registrar under the ICP Share Pledge Agreement; (ii)
undated executed pledge annulment notification forms in respect of the pledge and security interest over ICP Interests registered
with ACRA under the ICP Share Pledge Agreement; and (iii) undated executed instructions to IC Power that it may delete the
annotation entered in its internal shareholder register in respect of such pledge (together, the “ Red Herring Release Documents
”) all in the form attached hereto as Annex 4.1.5A . The Red Herring Release Documents will be held by the Escrow Agent in
escrow and may be used in accordance with the escrow instructions in form attached hereto as Annex 4.1.5B (the “ Escrow
Instructions ”).
5
(Execution
Version)
4.1.6.
Kenon will deliver to the Escrow Agent (i) an undated executed pledge agreement in the form of the ICP Share Pledge
Agreement in respect of the pledge and security interest over ICP Interests to be reinstated in accordance with Section 2.5(c)
above; (ii) undated executed pledge notification forms in respect of such pledge to be registered with the Israeli Pledges
Registrar; (iii) undated executed statement containing particulars of charge in relation to the charge of and security interest over
the ICP Interests which will be filed with ACRA; (iv) an authorisation letter authorising ICPS’s legal counsel to file the above
statement containing particulars of charge with ACRA; and (v) undated executed instructions to IC Power to reinstate the
annotation in its internal shareholder register in respect of such pledge (together, the “ ICP Pledge Reinstatement Documents
”). The ICP Pledge Reinstatement Documents will be held by the Escrow Agent in escrow and may be used in accordance with
the Escrow Instructions.
For the purpose of Section 4.1 hereto, delivery of the Schedule 1 Document shall be deemed completed by Kenon and ICPS by emailing of
signed and scanned versions of the Schedule 1 Documents with a written confirmation from Adv. Robert Rosen that the originals of the
executed Schedule 1 Documents are duly signed and will be promptly sent by express courier to IC.
For the purpose of Section 4.1.5 hereto, delivery of the ICP Pledge Reinstatement Documents shall be deemed completed by emailing of
signed and scanned versions thereof to the Escrow Agent with a written confirmation from Adv. Robert Rosen that the originals of the
executed ICP Pledge Reinstatement Documents are duly signed and will be promptly sent by express courier to the Escrow Agent.
Kenon will pay to IC on or before the Supplement 1 Date the amount of all costs and expenses (including legal fees) reasonably incurred by
IC in connection with the negotiation, preparation and entry into this Supplement, not exceeding an amount of US$115,000.
Kenon undertakes to deliver the documents set out in paragraph 2 of Schedule 2 (or cause the same to be delivered) to IC as soon as
reasonably practicable, but not later than 7 Business Days following the Supplement 1 Date.
ICPS undertakes to deliver the documents set out in paragraph 3 of Schedule 3 (or cause the same to be delivered) to IC as soon as
reasonably practicable, but not later than 10 Business Days following the Supplement 1 Date.
Notwithstanding the provisions of Section 9.9 (Notices), and in addition to the provisions of Section 9.11 (Jurisdiction and Service of
process), of the Loan Agreement, any notice, demand or other communication required to be given by IC to Kenon and/or ICPS under the
Loan Agreement and this Supplement will be sent, and copies of any documents served on IC Green or any other service of agent for process
will also be sent, to Kenon and ICPS to their respective addresses set out herein by email to all email addresses set out below together with
registered mail or hand delivery:
4.2.
4.3.
4.4.
5.
Notices
5.1.
if to Kenon:
Address :
1 Temasek Avenue #36-01
Millenia Tower
Singapore 039192
6
e-mail :
RobertR@kenon-holdings.com
TzahiG@kenon-holdings.com
yoavd@kenon-holdings.com
Attention :
Legal Department, Finance Department
if to ICPS:
Address :
e-mail :
1 Temasek Avenue #36-01
Millenia Tower
Singapore 039192
RobertR@kenon-holdings.com
TzahiG@kenon-holdings.com
yoavd@kenon-holdings.com
Attention :
Legal Department, Finance Department
or at such other address or email as such Parties shall have furnished to the other in writing in accordance with this Section and Section 9.9
of the Loan Agreement.
6.
General Provisions
6.1.
6.2.
6.3.
6.4.
This Supplement shall be read and construed together with the Loan Agreement as one agreement, and, save as expressly amended by this
Supplement, all terms and conditions of the Loan Agreement shall remain unaltered and in full force and effect.
Nothing in this Supplement shall constitute a waiver by IC of any of the rights or remedies available to it under the Loan Agreement or any
security.
This Supplement shall be construed in accordance with, and governed in all respects by, the internal laws of the State of Israel, without
regard to its conflict of laws rules.
This Supplement may be executed in any number of counterparts (including by fax transmission and email) all of which, taken together, shall
constitute one and the same Supplement and any parties may enter into this Supplement by executing a counterpart.
[ Signature
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IN WITNESS WHEREOF, the Parties have executed this SUPPLEMENT NO. 1 to the LOAN AGREEMENT as of the date first above written.
ISRAEL CORPORATION LTD.
KENON HOLDINGS LTD.
By:
Adv. Maya Alcheh-Kaplan
Title: Executive V.P., General Counsel and Company Secretary
By:
Title:
By:
Mr. Sagi Kabla
Title: CFO
Acceptance and undertaking of ICPS
We, the undersigned, IC Power Pte. Ltd. , hereby accept and undertake in favour of IC, without prejudice to the obligations and liabilities of Kenon, to comply
with and to observe the terms of the Loan Agreement. We confirm that this acceptance and undertaking has been duly signed by our authorised signatories, and is
binding on us for all intents and purposes in accordance with its terms.
IC POWER PTE. LTD.
By:
Title:
IN WITNESS WHEREOF, the Parties have executed this SUPPLEMENT NO. 1 to the LOAN AGREEMENT as of the date first above written.
ISRAEL CORPORATION LTD.
KENON HOLDINGS LTD.
By:
Title:
Acceptance and undertaking of ICPS
By:
KENNETH GILBERT CAMBIE
Title: DIRECTOR
We, the undersigned, IC Power Pte. Ltd. , hereby accept and undertake in favour of IC, without prejudice to the obligations and liabilities of Kenon, to comply
with and to observe the terms of the Loan Agreement. We confirm that this acceptance and undertaking has been duly signed by our authorised signatories, and is
binding on us for all intents and purposes in accordance with its terms.
IC POWER PTE. LTD.
By:
Tzahi Goshen
Title:
Director
Schedule 1 - Conditions to Supplement
1.
Conditions Precedent
1.1.
A copy of:
1.1.1.
1.1.2.
1.1.3.
the share certificates in respect of the ICPS Interests;
the stock transfer forms or equivalent duly executed by Kenon in blank in relation to the ICPS Interests; and
the register of members of ICPS extracted from the Accounting and Corporate Regulatory Authority in Singapore (“ ACRA ”).
1.2.
1.3.
1.4.
1.5.
1.6.
1.7.
1.8.
1.9.
1.10.
1.11.
1.12.
1.13.
A copy of a charge agreement granting a first ranking charge and security interest in favor of IC over the ICPS Interests in the form of the
Security over Shares Agreement attached hereto as Annex 1.2 (the “ Security over Shares Agreement ”) duly executed by Kenon and IC.
A copy of the 145M Loan Agreement in the form attached hereto as Annex 1.3, duly executed by each of Kenon and ICPS.
A copy of the 75M Loan Agreement in the form attached hereto as Annex 1.4, duly executed by each of Kenon and ICPS.
A copy of a Security Assignment of Intercompany Loan Agreement in respect of the rights, title and interest of Kenon under the 145 M Loan
Agreement entered into by Kenon for the benefit of IC in the form attached hereto as Annex 1.5 (the “ Security Assignment Agreement ”)
duly executed by Kenon and IC.
A copy of a pledge agreement granting a first ranking pledge and security interest in favor of IC over the ICP Interests in the form delivered
with respect to the Existing Pledges (the “ ICP Share Pledge Agreement ”) duly executed by ICPS and IC.
A copy of the share transfer agreement in the form of the Share Transfer Agreement attached hereto as Annex 1.3 (the “ Share Transfer
Agreement ”) duly executed by Kenon and ICPS.
The documents required for the filing and registration of the ICP Share Pledge Agreement, the Security over Shares Agreement, the Security
Assignment Agreement, and the pledges, charges and security interests constituted thereby with ACRA.
The notice required for the filing and registration of the ICP Share Pledge Agreement and the pledge and security interest constituted thereby
with the Israeli Registrar of Pledges.
Executed instructions of ICPS to IC Power pursuant to the ICP Share Pledge Agreement.
A copy of the updated shareholder register of IC Power (evidencing the pledge and security interest created by the ICP Share Pledge
Agreement).
A copy of the constitutional documents of Kenon and ICPS.
A copy of the resolutions of the board of directors of ICPS:
1.13.1.
approving the terms of, and the transactions contemplated by, this Supplement, the ICP Share Pledge Agreement, the Share
Transfer Agreement, the 145M Loan Agreement, the 75M Loan Agreement and the Security Assignment Agreement (the “ ICPS
Documents ”) and resolving that it executes the ICPS Documents;
1.13.2.
authorising a specified person or persons to execute the ICPS Documents on its behalf; and
1.13.3.
authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices to be signed and/or
despatched by it under or in connection with the ICPS Documents.
1.14.
A copy of a certificate under Section 76A(6) of the Companies Act, Chapter 50 of Singapore in relation to compliance with the Singapore
financial assistance whitewash procedures by ICPS.
1.15.
A copy of the resolutions of the board of directors of Kenon:
1.15.1.
approving the terms of, and the transactions contemplated by this Supplement, the Security Over Shares Agreement, the Share
Transfer Agreeement, the 145M Loan Agreement, the 75M Loan Agreement and the Security Assignment Agreement (the “
Kenon Documents ”) and resolving that it executes the Kenon Documents;
1.15.2.
authorising a specified person or persons to execute the Kenon Documents; and
1.15.3.
authorising a specified person or persons, on its behalf, to sign and/or despatch all documents to be signed and/or despatched by it
under or in connection with the Kenon Documents.
1.16.
1.17.
A copy of the resolutions in writing of the sole shareholer of the issued shares in ICPS approving the terms of, and the transactions
contemplated by, the ICPS Documents.
A certificate, in the form attached hereto as Annex 1.17 , signed by duly authorised signatory/ies of Kenon confirming that as of the
Supplement 1 Date, no Default, breach of or non-compliance with any material undertaking or material condition contained in the Loan
Agreement has occurred and is continuing.
2.
Conditions Subsequent
Schedule 2 - Conditions to Supplement
2.1.
2.2.
2.3.
Evidence of the filing with ACRA of the documents referred to in paragraph 1.8 of Schedule 1.
Evidence of the filing with Israeli Registrar of Pledges of the documents referred to in paragraph 1.9 of Schedule 1.
Evidence of payment of stamp duty and any and all fees and charges payable in Singapore in respect of the documents referred to in
paragraph 1.8 of Schedule 1.
2.4.
A legal opinion of Allen & Gledhill LLP with respect to:
2.4.1.
the Security over Shares Agreement and the Security Assignment Agreement and the charges and security interests constituted
thereby; and
2.4.2.
the capacity of ICPS to enter into the ICP Share Pledge Agreement,
in each case, in the form attached hereto as Annex 2.4.
3.
Conditions Subsequent (ICPS)
Schedule 3 - Conditions to Supplement
3.1.
A copy of a resolution signed by all the holders of the issued shares in ICPS adopting such changes to the constitutional documents of ICPS
as IC reasonably requires to, among other things, remove any restriction on any transfer of shares in ICPS pursuant to any enforcement of the
Security over Shares Agreement in the form attached hereto as Annex 3.1 .
TURNKEY ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT FOR
THE CERRO DEL AGUILA HYDROELECTRIC POWER PLANT
Exhibit 4.5
between
Cerro del Aguila SA
and
A joint venture comprising Astaldi S.p.A. and GyM SA
I.
INTERPRETATION
1.1 Definitions
1.2 Headings
1.3 Interpretation
II. OWNER
2.1 Access to and Possession of the Project Areas
2.2 Permits, Licenses or Approvals
2.3 Owner’s Right to do Work
III. OWNER’S REPRESENTATIVE
3.1 Owner’s Representatives Duties and Authority
3.2 No Implied Waiver
3.3 Owner’s Representative’s Authority to Delegate
3.4 Owner’s Representative’s Instructions
IV. SUPERVISOR
4.1 General Obligations
4.2 Supervisor’s Rights
4.3 Control and Monitoring of the Project Schedule
4.4 Reporting
4.5 Supervisor’s duties during Warranty Period
V. CONTRACTOR
5.1 General Obligations
5.2 Contractor’s Representative
5.3 Coordination of the Works
5.4 Subcontractors
5.5 Assignment of Subcontractor’s Obligations
5.6 Setting Out
5.7 Quality Assurance/Quality Control (QA/QC)
5.8 Existing Project Data
5.9 Foundations and Tunnels
5.10 Access to the Concession Area
5.11 Project Schedule
5.12 Progress Reports and Meetings
5.13 Contractor’s Equipment
5.14 Safety Precautions
5.15 Protection of the Environment
5.16 Public Relations with the Local Communities
5.17 Clearance of Project Areas
5.18 Security of the Project Areas
5.19 Contractor’s Operations on Project Areas
5.20 Remains
Table of Contents
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15
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5.21 Use of Explosives
5.22 Water Borne Traffic
5.23 Training Program
5.24 Participation
VI.
DESIGN
6.1 Design of the Works
6.2 Construction Documents and Workbook
6.3 Contractor’s Undertaking
6.4 Technical Standards and Regulations
6.5 Samples
6.6 As-Built Drawings
6.7 Operation and Maintenance Manuals
6.8 Error by Contractor
6.9 Patent Rights
VII. STAFF AND LABOR
7.1 Engagement of Staff and Labor
7.2 Rates of Wages and Conditions of Labor
7.3 Persons in the Service of Others
7.4 Labor Laws
7.5 Working Hours
7.6 Facilities for Staff and Labor
7.7 Health and Safety
7.8 Contractor’s Superintendence
7.9 Contractor’s Personnel
7.10 Disorderly Conduct
7.11 Alcoholic Liquor or Drugs
7.12 Contractor’s Organizational Chart
7.13 Labor Actions
VIII. MATERIALS AND WORKMANSHIP
8.1 Manner of Execution
8.2 Delivery to the Concession Area
8.3 Inspection
8.4 Testing
8.5 Rejection
8.6 Ownership of Major Items of Equipment, Materials or Other Works
IX.
COMMENCEMENT, DELAYS AND SUSPENSION
9.1 Time for Completion
9.2 Extension of Time for Completion
9.3 Extension of the Time for Completion –
9.5 Rate of Progress
9.6 Liquidated Damages for Delay and Bonuses
9.7 Suspension of Works
9.8 Consequences of Suspension
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35
35
35
35
36
37
38
38
38
39
39
39
39
39
40
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47
49
50
51
52
53
Prolonged Suspension
9.9
9.10 Resumption of Works
9.11 Burden of Proof
X.
PERFORMANCE TESTS
10.1 Contractor’s Obligations
10.2 Preparation and Timing for Performance Tests
10.3 Punch List
10.4 Conduct of Performance Tests
10.5 Failure to Achieve Performance Guarantee Level
10.6 Interference with Performance Tests
10.7 Issuance of Certificates
10.8 Modifications to Achieve Passage of Performance Tests
10.9 Early Operation
10.10 Increased Capacity Bonuses and Spill Water Generator Bonus
XI.
PARTIAL TAKING-OVER, FINAL TAKING-OVER AND ACTUAL PROJECT ACCEPTANCE
11.1 Partial Taking-Over Certificate and Final Taking-Over Certificate
11.2 Operation by Owner after Partial Taking-Over
11.3 Buy-Down Amount
11.4 Actual Project Acceptance
11.5 Issuance of Certificates
XII. CONTRACTOR’S REPRESENTATIONS AND WARRANTIES
12.1 Representations and Warranties
XIII. DEFECTS LIABILITY
13.1 Completion of Outstanding Works and Remedying Defects
13.2 Cost of Remedying Defects
13.3 Notice to Correct
13.4 Extension of Warranty Period
13.5 Removal of Defective Works
13.6 Further Tests
13.7 Contractor to Search
13.8 Final Acceptance Certificate
13.9 Unfulfilled Obligations
XIV. CONTRACT PRICE AND PAYMENT
14.1 The Lump Sum Price
14.2 Taxes and Duties
14.3 Customs and Import Duty -
14.4 Owner’s Right to Withhold or Set Off Payment
14.5 Invoicing Documentation
14.6 Security
iii
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XV.
VARIATIONS
15.1 Right to Vary
15.2 Variation Procedure
XVI.
SUSPENSION OF WORKS
16.1 Contractor’s Entitlement to Suspend Works
XVII. TERMINATION
17.1 Termination by Owner -
17.2 Termination by Contractor
17.3 Payment on Termination
17.4 Cessation of Works and Removal of Contractor’s Equipment
XVIII. RISK AND RESPONSIBILITY
18.1 Indemnity
18.2 Contractor’s Care of the Works
18.3 Employees
18.4 Limitation of Contractor’s Liability
18.5 Liability
XIX.
INSURANCE
19.1 General
19.2 Polices Obtained by the Contractor
19.3 Requirements in Respect of Contractor’s Insurance
19.4 Policies Obtained by Owner
19.5 General Requirements for All Insurance
19.6 Deductibles & Claims Management
19.7 Subcontractor Insurance
XX.
FORCE MAJEURE
20.1 Definition of Force Majeure
20.2 Effect of Force Majeure Event
20.3 Contractor’s Responsibility
20.4 Owner’s Responsibility
20.5 Payment to the Contractor
XXI.
CLAIMS, DISPUTES AND ARBITRATION
21.1 Procedure for Claims
21.2 Payment of Claims
21.3 Negotiation between Senior Executives
21.4 Arbitration
XXII. MISCELLANEOUS
22.1 Law and Language
iv
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22.2 Communications
22.3 Validity and Enforceability
22.4 Documents on Site
22.5 Construction Documents
22.6 Contractor’s Use of Owner’s Documents
22.7 No Technology Transfer
22.8 Confidential Details
22.9 Remedies Non-Exclusive
22.10 Waiver
22.11 Third-Party Beneficiaries
22.12 Counterparts
22.13 Entire Agreement
22.14 Conflicting Provisions
22.15 Joint Responsibility for Drafting
22.16 Notice of Objection
22.17 Compliance with Statutes, Regulations and Applicable Laws
22.18 Rights of Assignment
22.19 Financing Requirements
22.20 Information for Lender’s Representative
22.21 Documentation and Right of Audit
Exhibits
Technical Specifications
Performance Guarantee Levels
Performance Test Protocol
Project Data
Contractor’s Organizational Chart
Contractor and Owner Permits
Main Spare Parts
Concession and Project Areas
Measurements & Payments – Risk Sharing Mechanism
Schedules
Preliminary Project Schedule
Subcontractors List
Advance Payment Bond
Performance Bond
Warranty Letter of Credit
Preliminary Schedule of Payments
Monthly Payment Certificate
Punch List Bank Guarantee
Performance Test Certificate
Partial Taking-Over Certificate
Final Taking-Over Certificate
Actual Project Acceptance Certificate
Final Acceptance Certificate
Final Payment Certificate
Reserved
Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Exhibit F
Exhibit G
Exhibit H
Exhibit I
Schedule 1
Schedule 2
Schedule 3
Schedule 4
Schedule 5
Schedule 6
Schedule 7
Schedule 8
Schedule 9
Schedule 10
Schedule 11
Schedule 12
Schedule 13
Schedule 14
Schedule 15
v
Owner’s Parent Guaranty
Variation Order Proposal
Reserved
Contractor Safety Plan
Contractor Quality Assurance Program
Reserved
Form of Proof of Subcontractor Payment
Form of Labor Obligations’ Certificate
Schedule 16
Schedule 17
Schedule 18
Schedule 19
Schedule 20
Schedule 21
Schedule 22
Schedule 23
vi
This TURNKEY ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT FOR CERRO DEL AGUILA
HYDROELECTRIC POWER PLANT , dated as of November 4 th , 2011 (this “Contract”), is by and between:
Cerro del Aguila SA (“Owner”); and
Astaldi S.p.A. (“Astaldi”) and
GyM SA (“GyM”)
Astaldi and GyM (jointly with Astaldi and GyM, the “Contractor” and jointly with the Owner, the “Parties” including
their successors and assignees as permitted herein).
WHEREAS , Owner desires to build, own and operate a 504 MW hydroelectric power plant (as hereinafter described) to be located in the districts of
Surcubamba and Colcabamba, department of Huancavelica, Peru (the “Plant”), in order to fulfill its obligations with the Ministry of Energy and Mines established
in the Concession Contract (as hereinafter defined);
WHEREAS , the Contractor desires to provide all the goods and services necessary for the design, engineering, procurement, construction,
W I T N E S S E T H :
commissioning and testing of the Plant, on a turnkey basis;
WHEREAS , Owner intends to obtain financing for the Plant;
NOW , THEREFORE , in consideration of the mutual premises contained herein, the Parties, intending to be legally bound, hereby agree as follows:
I.
INTERPRETATION
1.1
Definitions - In this Contract (as defined below) the words and expressions defined below shall have the meanings assigned to them.
1.1.1
1.1.2
1.1.3
“Access Contract” means the contract to be executed by a Governmental Authority that provides terms and conditions
that will govern the design, procurement and construction of some or all of the Access Roads and Accessways as set
forth in Section 5.11.
“Access Roads” means the permanent roads, bridges and any infrastructure that the Contractor might need to build, alter
or modify within the Concession Area for the execution of the Works, as further described in the Technical
Specifications.
“Access Routes” means the existing roads, bridges and any infrastructure, outside the Concession Area, that the
Contractor might need to alter or modify in order to access or execute the Works, as further described in the Technical
Specifications.
1
1.1.4
1.1.5
1.1.6
1.1.7
1.1.8
1.1.9
1.1.10
“Accessway” means the temporary roads, bridges and any infrastructure, within the Concession Area, that the Contractor
might need to build, alter or modify for the execution of the Works, as further described in the Technical Specifications.
“Actual Project Acceptance Certificate” means the certificate issued by Owner under Section 11.4 in the form set forth in
Schedule 12.
“Actual Project Acceptance Date” means the date after the Final Taking-Over Date when the Contractor has
accomplished all the criteria described in Section 11.4.
“Additional Installed Capacity Bonus” means (a) the difference between the Low Net Electric Output and the High Net
Electric Output multiplied by (b) US$ 450.00 per kilowatt.
“Advance Payment Bond” means the bank guaranty to be provided by Contractor substantially in the form set forth in
Schedule 3.
“Affiliate” means a Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, another Person. A Person “controls” any Person in which it has the power to vote, directly
or indirectly, five percent (5%) or more of the voting interest in such Person or, in the case of a partnership, if it is the
general partner.
“Applicable Laws” means all legally binding laws, statutes, orders, treaties, ordinances, judgments, decrees, injunctions,
writs and orders of any court, arbitrator or governmental agency or authority applicable to, and legally binding rules,
regulations, orders and interpretations of any governmental instrumentality or agency (including COES), court or other
body having jurisdiction over:
(a)
(b)
(c)
the Contractor’s or Owner’s (as applicable) obligations to be performed hereunder;
the provision of energy or capacity from the Plant; or
the execution of the Works;
all as such may be in effect from time to time.
1.1.11
“Applicable Permits” means all licenses, authorizations, consents, decrees, permits, waivers, privileges or approvals
required to be obtained or maintained in connection with the Contractor’s and Owner’s obligations to be performed
hereunder, the provision of energy, capacity or the performance of the Works, as may be in effect from time to time and
includes the Environmental Impact Assessment.
1.1.12
“Astaldi” has the meaning ascribed to it in the introduction.
2
1.1.13
1.1.14
1.1.15
1.1.16
1.1.17
1.1.18
1.1.19
1.1.20
1.1.21
1.1.22
1.1.23
1.1.24
1.1.25
“Auxiliary Services” means the drainage system, illumination, air conditioning, fire prevention and other similar services
required in connection with the Contractor’s performance of the Works, described in the Technical Specifications.
“Base Date” means the date fifteen (15) days prior to the Effective Date.
“Business Day” means any day that is not Saturday or Sunday, or a non working day for government employees in Peru
pursuant to the Applicable Laws. With respect to any payment obligation by a Party under the Contract, shall mean a day
on which the banks operating in Lima, Peru are open for the processing of transfer of funds.
“Buy-Down Amount” means the sum due and payable by the Contractor to Owner calculated with reference to
Section 11.3.
“Center” means the center for dispute resolution of the International Chamber of Commerce.
“Change in Law” means changes to any Applicable Laws or Applicable Permits that directly affect the Contractor’s
lawful design, construction or execution of the Works, commissioning and testing of the Plant which are issued, adopted,
amended, modified, repealed, reinterpreted, promulgated or enacted by any Peruvian Government Authority after the
Base Date.
“COES” means “Comité de Operación Económica del Sistema Interconectado Nacional”.
“Concession Area” means the geographical area identified as such and described in Exhibit H.
“Concession Contract” means the contract executed between Owner and the Ministry of Energy and Mines of Peru dated
June 24, 2011, as it may be assigned or amended.
“Contract” is defined in the Preamble hereof and includes the Schedules, the Technical Specifications and the Exhibits
and such documents as may be expressly incorporated herein.
“Commencement Date” means the date on which Owner’s Representative issues the Limited Notice to Commence to the
Contractor.
“Confidential Information” has the meaning defined in Section 22.8.
“Consortium Agreement” means the consortium agreement to be entered by and between Astaldi and GyM.
3
1.1.26
1.1.27
1.1.28
1.1.29
1.1.30
1.1.31
1.1.32
1.1.33
1.1.34
1.1.35
1.1.36
1.1.37
“Construction Documents” means all drawings, calculations, samples, patterns, models, operation and maintenance
manuals, and other manuals and information of a similar nature, to be submitted by the Contractor as required hereby
including all engineering and construction documentation required by the Technical Specifications.
“Contractor” is defined in the introduction hereof.
“Contractor’s Equipment” means all machinery, apparatus and other things (other than Temporary Works) required for
the execution and completion of the Works and the remedying of any Defects or Deficiencies, but does not include Major
Items of Equipment, Materials, or other things intended to form or forming part of the Permanent Works.
“Contractor’s Permits” means the permits described in Exhibit F.
“Contractor’s Organizational Chart” means the organizational chart included in Exhibit E.
“Contractor’s Representative” means the Person named as such in this Contract or other Person appointed from time to
time by the Contractor under Section 5.2.
“Cost” means (a) all expenditure properly incurred or to be incurred by Contractor, whether on or off the Project Areas,
plus ten percent (10%) for head office costs and any similar concepts and (b) excluding Profit unless expressly so
provided herein.
“Cure Period” has the meaning specified in Section 10.5.
“Dangerous Substance” means any natural or artificial substance, whether in the form of solid, liquid or gas, alone or in
combination with each other or any other substance, or radiation in each of the foregoing cases capable of causing harm
to man or any other living organism, or capable of damaging the environment or public health or welfare, including but
not limited to, controlled, special, hazardous, toxic or dangerous waste, and whether or not subject to regulation,
licensing or permitting under any Applicable Laws or otherwise.
“Defects, Deficiencies, Deficient or Deficiency” means any portion of the Works which, on the date when any such
works are completed by the Contractor, do not conform to the Technical Specifications, the Construction Documents or
the warranties given in the Contract or is defective or deficient including defects in materials, workmanship or design.
“Detailed Design” means the drawings, calculations and other technical documentation and information to be prepared
by the Contractor for the final design of the Plant.
“Disclosing Party” means (a) a Party that provides Confidential Information to the Receiving Party; (b) such Party’s
Affiliates; and, (c) such Party’s or its Affiliate’s directors, officers, employees, consultants, subcontractors, advisors,
rating agencies, insurers or financial institutions.
4
1.1.38
1.1.39
1.1.40
1.1.41
1.1.42
1.1.43
1.1.44
1.1.45
1.1.46
1.1.47
1.1.48
“Dispute” means any controversy, discussion, demand, difference, disagreement or claim arising from, or related or
connected to this Contract, including but not limited to any controversy, discussion, demand, difference, disagreement or
claim over the validity, interpretation, effectiveness, termination, enforcement or non-performance thereof.
“Dollars” or “US$” means Dollars of the United States of America.
“Early Final Taking Over Bonus” means US$ 65,000.00 per day with respect to the first Generator Set, US$
50,000.00 per day with respect to the second Generator Set and US$ 80,000.00 per day with respect to the Plant.
“Early Operation Extension Period” has the meaning set forth in Section 5.1.
“Easement Rights” means the easement rights or any other right to possess or use land or real estate granted in favor of
Owner by the owners of the land or by any Governmental Authority to execute the Works.
“Effective Date” means the date of this Contract, which is November 4 th , 2011.
“Efficiency Test” means the test (conducted in accordance with Exhibit C) of each of the Generator Sets, meeting at all
times all the other Performance Guarantee Levels, to determine the compliance with the Guaranteed Efficiency or the
Minimum Efficiency Levels.
“Electricity Measuring Point” is the high voltage side of the step up transformers for each Generator Set.
“Eligible Bank” means any bank or financial institution which has non-credited enhanced long-term senior unsecured
debt rated at least A3 by Moody’s Investors Service or A- by Standard & Poor’s Rating Services, and is acceptable to
Owner.
“Environmental Impact Assessment” or “EIA” means the Environmental Impact Assessment attached in Exhibit D, as it
may be amended.
“EST” means the Q System subdivision of different excavation and support types for tunnels to be excavated at the
Works, as determined in Exhibit I.
1.1.49
“Final Acceptance Certificate” means the certificate issued by Owner substantially in the form set forth in Schedule 13.
5
1.1.50
1.1.51
1.1.52
1.1.53
1.1.54
1.1.55
1.1.56
1.1.57
1.1.58
1.1.59
1.1.60
“Final Payment” means the payments made upon approval by Owner of the Final Payment Certificate.
“Final Payment Certificate” means the payment certificate approved by Owner and submitted by the Contractor
substantially in the form set forth in Schedule 14.
“Final Taking-Over Certificate” means a certificate issued under Section 11.1 for the Plant as a whole, in the form set
forth in Schedule 11.
“Final Taking-Over Date” means the date when the Contractor has demonstrated that the Plant, as a whole, meets or
exceeds the Final Taking-Over Levels, which notification date shall be the date acknowledged and stated by Owner’s
Representative in the Final Taking-Over Certificate.
“Final Taking-Over Levels” means the following levels for the Plant as a whole, demonstrated during the Performance
Tests, while it is operating in compliance with all Applicable Laws of Peru and Applicable Permits: (a) the Minimum
Efficiency Levels, (b) the Minimum Functional Levels of Plant Equipment and (c) the Minimum Net Electric Output
Levels.
“Financing Documents” means any collateral or intercreditor agreement, security document, credit agreement, indenture
or contract between Owner and the Lenders and the other parties thereto and also includes all amendments, restatements
and replacements thereof as well as any other document or agreement pursuant to which Owner obtains financing or
refinancing (including any credit enhancement with respect to the issuance of any bonds or notes) for the acquisition,
development, construction, construction loan retirement, modification, repair, or operation of the Plant.
“Force Majeure” is defined in Section 20.1.
“Functional Guarantees over Plant Equipment” means the operational and functional levels applicable to the Plant
Equipment excluding the turbines and the generators, guaranteed by the Contractor according to the Technical
Specifications.
“Functional Test” means the test (conducted in accordance with Exhibit C) to determine the adequate operation and
function of the Plant, including the Major Items of Equipment.
“Generator Set” means each turbine and its transformers and generator in the Plant.
“Governmental Authority” means any federal, regional, national, state, municipal, local, territorial, or other governmental
department, commission, board, bureau, agency, regulatory authority, instrumentality, judicial or administrative body,
domestic or foreign having jurisdiction over the applicable portion of the Works.
6
1.1.61
1.1.62
1.1.63
1.1.64
1.1.65
1.1.66
1.1.67
1.1.68
1.1.69
1.1.70
“Grid” means the Peruvian national electrical grid.
“Guaranteed Deductible” means the deductible payable under the insurance policy referenced under Section 19.4(a)
equal to: (a) US$ 100,000 for each loss classified under the LEG 2/96 clause of such policy, (b) US$ 25,000 for each loss
suffered during land transportation, (c) 250,000 for each loss suffered during hot testing and commissioning, (d) US$
500,000 for losses suffered during the performance of Surface Invasive and Subsurface Civil Work and (e) US$ 500,000
for losses caused by an earthquake that is not considered a Force Majeure event.
“Guaranteed Efficiency” means the efficiency that the Contractor guarantees for each Generator Set excluding the Spill
Water Generator, according to the Technical Specifications.
“Guaranteed Net Electric Output” means the net electric output that the Contractor guarantees for each Generator Set and
for the Plant as a whole of 504 MW using a water flow of 210.5 m3/sec, excluding the Spill Water Generator, according
to the Technical Specifications.
“GyM” has the meaning ascribed to it in the introduction.
“Headrace Tunnel” means the tunnel which conveys water from the water intake to the powerhouse, to be designed and
constructed by Contractor under this Contract.
“High Net Electric Output” means the measured Net Electric Output using a water flow in excess of 210.5 m3/sec.
“Increased Installed Capacity Bonus” means the difference between (a) the Low Net Electric Output and the Guaranteed
Net Electric Output multiplied by (b) US$ 900.00 per kilowatt.
“Lender” means any party to the Financing Documents (including any trustee or agent) other than Owner and its
Affiliates.
“Lender’s Representative” means any Person engaged by or on behalf of Lender in connection with the Financing
Documents whose rights and duties may include, but shall not be limited to: (a) examination of the design, engineering
and technical efficacy of the Construction Documents; (b) examination of substantial changes in such Construction
Documents; (c) periodic inspections of the Works, including confirmation of construction schedule estimates and cost
estimates; (d) attend the Partial Taking-Over Date, the Final Taking-Over Date and the Actual Project Acceptance Date;
and (e) review of the information contained in each of the Progress Reports, Monthly Payment Certificates or the Final
Payment Certificate.
7
1.1.71
1.1.72
1.1.73
1.1.74
1.1.75
1.1.76
1.1.77
1.1.78
1.1.79
1.1.80
“Liability Cap” is defined in Section 18.4.
“LIBOR” means (a) the three-month rate prevailing for deposits in U.S. Dollars in the London Interbank market as of
approximately 11:00 a.m., London Time, as reported by Thomson Reuters appearing on Bloomberg BBAM1 Page (or
any equivalent successor page); or (b) if the rate referenced in the preceding clause (a) is not available, the three-month
rate equal to the British Bankers Association Interest Settlement Rate for deposits in Dollars, determined as of
approximately 11:00 a.m., London Time. For the purpose of this definition, “Bloomberg BBAM1 Page” means the
display so designated on the Reuters Screen or such other page as may replace that page on that service.
“Limited Notice to Commence” means the written notice to the Contractor issued by Owner authorizing and directing
Contractor to perform the Preliminary Works.
“Low Net Electric Output” means the measured Net Electric Output using a water flow of up to 210.5 m3/sec.
“Lump Sum Price” means the fixed lump sum of Four Hundred and Fifty Two Million Seven Hundred and Sixty Five
Thousand Three Hundred and Forty Seven Dollars (US$ 452,765,347) and of Six Hundred and Twenty Four Million
Three Hundred and Fourteen Thousand One Hundred and Seven Peruvian Soles (S/. 624,314,107) as it may be adjusted
pursuant to this Contract.
“Main Spare Parts” means the spare parts described in Exhibit G.
“Major Items of Equipment” means the turbine, the generator, the step-up transformer, equipments and parts thereto,
which form the principal components of the Plant.
“Materials” means things of all kinds to be provided for the Works and/or incorporated in the Permanent Works by the
Contractor, including without limitation Main Spare Parts, equipment and other parts.
“Maximum Deductible” means US$ 500,000.
“Maximum Load” means the maximum load at which each Generator Set individually and the Plant as a whole,
excluding the Spill Water Generator, are able to operate continuously and with the stability recommended for normal,
safe and continuous operation by equipment manufacturers and within all other limits recommended by such vendors and
in accordance with the Detailed Design of the Plant and the Technical Specifications.
8
1.1.81
1.1.82
1.1.83
1.1.84
1.1.85
1.1.86
1.1.87
1.1.88
1.1.89
1.1.90
1.1.91
“Minimum Efficiency Levels” means the minimum efficiency levels that each Generator Set and the Spill Water
Generator must comply with, according to the Technical Specifications.
“Minimum Functional Levels of Plant Equipment” means the minimum operational and functional levels that the Plant
Equipment excluding the turbines and the generators must comply with, according to the Technical Specifications.
“Minimum Net Electric Output Levels” means the minimum electric output levels that each Generator Set and the Plant
as a whole must comply with, according to the Technical Specifications.
“Minimum Spill Water Demonstrated Capacity” means 3 MW.
“Mobilization” means the commencement of Works at the Project Area by the Contractor.
“Monthly Payment Certificate” means a certificate issued under Section 14.1.2., in the form set forth in Schedule 7.
“Net Electric Output” means the sum of the electric output as measured at the Electricity Measuring Point during
Performance Tests, while each or some of the Generator Sets or the Plant as a whole are operating at Maximum Load
(but excluding any generating capacity of the Spill Water Generator). Net Electric Output will be expressed in KW.
“Net Electric Output Test” means a test (conducted in accordance with Exhibit C) of each or some of the Generator Sets
or the Plant as a whole (but excluding any generating capacity of the Spill Water Generator), while they are operating at
Maximum Load meeting at all times all the other Performance Guarantee Levels, to determine the compliance with the
Guaranteed Net Electric Output or the Minimum Net Electric Output Levels.
“Notice to Commence” means the written notice to the Contractor issued by Owner directing the Contractor to begin all
activities necessary to complete the Works as contemplated herein.
“Official” means: (a) any officer or employee of a local or foreign government, department (whether executive,
legislative, judicial or administrative), agency or instrumentality of such government, including a regional governmental
body or a government-owned business, or of a public international organization; (b) any person acting in an official
capacity for or on behalf of such government, department, agency.
“Owner” is defined in the preamble hereto and includes legal successors of such Person, including any assignee of such
Person permitted under Section 22.18 but not (except with the consent of the Contractor provided that such consent may
not be unreasonably withheld or delayed) any subsequent assignee of such Person.
9
1.1.92
1.1.93
1.1.94
1.1.95
1.1.96
1.1.97
1.1.98
1.1.99
1.1.100
1.1.101
1.1.102
1.1.103
“Owner Permits” means the permits described in Exhibit F.
“Owner’s Representative” means any and all Persons appointed from time to time by Owner and notified as such to the
Contractor.
“Parent Guaranty” means each parent guaranty executed by each of Astaldi and GyM substantially in the form set forth
in Schedule 15.
“Partial Taking-Over Certificate” means a certificate issued under Section 11.1 for each Generator Set, in the form set
forth in Schedule 10.
“Partial Taking-Over Date” means the date when the Contractor has demonstrated that each Generator Set, individually,
meets or exceeds the Partial Taking-Over Levels, which notification date shall be the date acknowledged and stated by
Owner’s Representative in the Partial Taking-Over Certificate.
“Partial Taking-Over Levels” means with respect to each Generator Set, no less than eighty percent (80 %) of the
Performance Guarantee Levels for Net Electric Output.
“Parties” has the meaning ascribed to it in the introduction.
“Performance Guarantee Level(s)” means the Guaranteed Efficiency and the Guaranteed Net Electric Output of each
Generator Set and for the Plant as a whole, excluding the Spill Water Generator, and the Functional Guarantees over
other Plant Equipment and Minimum Spill Water Demonstrated Capacity, measured during Performance Tests while the
Works are operating in compliance with all Applicable Laws of Peru and Applicable Permits and in accordance with
Exhibit B.
“Performance Bond” means the letter of credit to be provided by the Contractor substantially in the form set forth in
Schedule 4.
“Performance Test Certificate” means the certificate issued by Owner under Sections 10.4 and 10.7 in the form set forth
in Schedule 9.
“Performance Test Protocol” means the procedures for performance and acceptance testing for each Generator Set and
for the Plant as a whole, set forth in Exhibit C.
“Performance Tests” means the tests specified in this Contract and designated as such, and any other such tests as may be
agreed by Owner’s Representative and the Contractor or instructed as a Variation, which are to be carried out by the
Contractor before the Plant is taken over by Owner, in accordance with Article X hereof and Exhibits A and C.
10
1.1.104
1.1.105
1.1.106
1.1.107
1.1.108
1.1.109
1.1.110
1.1.111
1.1.112
1.1.113
1.1.114
1.1.115
“Permanent Works” means all those components and civil works defined or contemplated in the Technical Specifications
for the Plant, including all related facilities located on, under or around the Project Areas, taken as a whole, including the
dam, the Spill Water Generator, the Access Roads, all underground structures and the substation and transmission line.
“Person” means any individual, corporation, company, partnership, joint venture, association, trust, unincorporated
organization, entity or Governmental Authority.
“Peru” means the Republic of Peru.
“Peruvian Soles” means Nuevos Soles of Peru.
“Plant” has the meaning ascribed to it in the recitals.
“Plant Equipment” means all hydromechanical equipments, mechanical and electrical apparatus and parts which form
part of the Plant, including the Major Items of Equipment.
“Precommissioning” means the acts, tests and procedures involved in checking-out, starting-up and initially operating the
Permanent Works
“Preliminary Schedule of Payments” means Contractor’s referential schedule of payments described in Schedule 6.
“Preliminary Works” means the part of the Works which will be performed by the Contractor between the Limited
Notice to Commence and the Notice to Commence, as described in Exhibit A, and which includes topographic surveys,
geo-physic investigation, geologic investigation, engineering basic design, purchase orders of critical equipment and
plants, construction of Access Roads and Accessways to the dam and powerhouse areas, including mobile working
camps and spoil area preparation, maintenance and conditioning of the Access Routes where necessary to allow safety
transit of the personnel and equipment, commencement of the construction of bridges over the Mantaro river,
commencement of the earth moving activities of the camp sites and of the construction of the temporary electric
transmission line for construction purposes.
“Preliminary Works Lump Sum” means the portion of the Lump Sum Price payable to Contractor for the performance of
the Preliminary Works, as described in the Preliminary Schedule of Payments, for the amount of Forty Million Dollars
(US$ 40,000,000.00).
“Profit” means, with respect to any Cost, an amount equal to five percent (5%) of such Cost.
“Progress Reports” means the progress reports to be delivered by the Contractor as set forth in Section 5.13.
11
1.1.116
1.1.117
1.1.118
1.1.119
1.1.120
1.1.121
1.1.122
1.1.123
1.1.124
“Project Areas” means the geographical areas, within the Concession Area, where the Works are to be executed as
described in Exhibit H.
“Project Data” means the information described in Section 5.8 as set forth in Exhibit D.
“Project Schedule” means Contractor’s detailed schedule for performing the Works pursuant to Section 5.12.
Contractor’s preliminary Project Schedule (summary level) is set forth in Schedule 1.
“Prudent Electrical Practices” means with regard to the design, construction and erection, installation of the Plant, those
practices, methods, standards and equipment as changed, from time to time, that are generally accepted internationally
for use in electric utility industries and that are compatible with the safety and reliability of the Grid, as well as the
employment of competent technical personnel qualified in established and generally accepted electrical engineering
applications and operations, in order to operate the Plant Equipment lawfully, safely, efficiently and with dependability
in accordance with all applicable Peruvian statutes, regulations, codes and standards.
“Prudent Utility Practices” means those practices, methods and equipment, in effect at the time of performance of the
applicable Works, that are commonly used by reputable utilities operating on an international basis in the electric utility
industry and having regard to operational considerations in Peru as prudent to design, construct, equip, operate and
maintain electric power generating equipment lawfully and giving due regard to safety, dependability, efficiency and
economy.
“Punch List” means the list submitted by the Contractor and approved by Owner’s Representative of items that are not
completed as of the date required regarding the Works, such as insulation, painting, final cleanup, final grading and any
other portion of the Works which do not constitute Defects or Deficiencies and which do not affect the operability, safety
or mechanical and electrical integrity of the Plant.
“Q-System” means the Norwegian Geotechnical Institute System classification ( Barton
et
al.,
1974,
1994,
2002
) used to
express the quality of the rock mass classification for Surface Invasive and Subsurface Civil Works.
“Raw Data” means data that has not been processed for use and that is collected as a result of the performance of any
Performance Test pursuant to this Contract.
“Receiving Party” means (a) a Party that receives Confidential Information from the Disclosing Party; (b) such Party’s
Affiliates; and, (c) such Party’s or its Affiliate’s directors, officers, employees, consultants, subcontractors, advisors,
rating agencies, insurers or financial institutions provided that any such person is bound to a duty of confidentiality with
the relevant Party.
12
1.1.125
1.1.126
1.1.127
1.1.128
1.1.129
1.1.130
1.1.131
1.1.132
1.1.133
1.1.134
1.1.135
1.1.136
1.1.137
“Remains” means all fossils, coins, articles of value or antiquity, and structures and other remains or things of geological
or archaeological interest.
“Remedial Plan” is defined in Section 9.3.
“Representatives” means Owner’s Representative, Contractor’s Representative and the Lender’s Representative.
“Review Period” means in connection to any Construction Document, the period required by Owner’s Representative for
review and approval of such Construction Document as provided in Exhibit A.
“RM” means a Q System specific rock class mass condition, as established in Exhibit I.
“Rules” means Rules of Arbitration adopted by the Center, as in effect at the time the party requesting the arbitration
files its request for arbitration.
“Scheduled Final Taking-Over Date” means forty-eight (48) months from the Commencement Date.
“Scheduled Partial Taking-Over Dates” means one thousand three hundred and sixty (1360) days for the first Generator
Set and one thousand four hundred and twenty five (1425) days for the second Generator Set, from Commencement
Date.
“Shipment Notice” has the meanings ascribed to it in Section 8.2.
“Site” means Contractor’s central office to be located within the boundaries of the areas specified in Schedule 21.
“Spill Water Generator” means the electric generator(s) to be powered solely by the ecological flow of the dam approved
by the Peruvian Governmental Authority, with a maximum capacity of the lower of 10 MW or the capacity in megawatts
agreed by the Parties in writing.
“Spill Water Generator Bonus” means an amount equal to the difference between the Tested Spill Water MW Capacity
minus the lower of the Minimum Spill Water Demonstrated Capacity and the maximum capacity of the Spill Water
Generator, multiplied by US$ 1,000.00 per kilowatt.
“Start-Up” means the process of collectively starting and initially operating the aggregate of systems, subsystems, and
components of each Generator Set. A necessary prerequisite of Start-Up is that Pre-commissioning on individual
systems, subsystems, components and auxiliaries for the relevant Generator Set has been safely and successfully
completed. Unless otherwise stated herein, Start-Up will commence at energization of the low voltage bus and will
conclude upon the commencement of the Performance Tests of the relevant Generator Set.
13
1.1.138
1.1.139
1.1.140
1.1.141
1.1.142
1.1.143
1.1.144
1.1.145
1.1.146
1.1.147
“Subcontractor” means any subcontractor, contractor, manufacturer, supplier or other Person engaged in any part of the
Works or any Person to whom a part of the Works has been subcontracted in accordance with Section 5.4, and the legal
successors to such Person, but not any assignee of such Person and for the avoidance of doubt will not include
contractors or subcontractors of Owner. In no case shall Subcontractor include any Person retained by Owner or any third
party to perform work.
“Subcontractor List” means the list of Subcontractors as set forth in Schedule 2.
“Supervisor” means the Person or Persons appointed by Owner to supervise the execution of the Works in accordance
with Section 4.1 hereof.
“Surface Invasive and Subsurface Civil Work” is any part of the Works involving major excavation or tunneling (the
powerhouse cavern, the left half of the dam’s foundation, the Headrace Tunnel, the tailrace tunnel and auxiliary tunnels)
but excludes any work related to the diversion tunnel, Access Routes, Accessways and quarries, as described in Exhibit I.
“Technical Specifications” means the document entitled Technical Specifications included in Exhibit A, including the
Construction Documents, the basic design and the Detailed Design, which contain the technical characteristics and
conditions of the Works.
“Temporary Works” means all temporary works of every kind, other than Contractor’s Equipment, including the
Accessways, required for the execution and completion of the Works and the remedying of any Defects or Deficiencies.
“Termination Fee” means the fees for termination as set forth in Section 17.3.
“Test Procedures” has the meaning ascribed to it in Section 10.4.
“Tested Spill Water MW Capacity” means the Net Electrical Output measured during the Performance Test of the Spill
Water Generator.
“Time for Completion” means the time required herein for achieving the Partial Taking-Over Date, the Final Taking-
Over Date and the Actual Project Acceptance Date, from Commencement Date and includes adjustments (if any) in
accordance with this Contract.
14
1.1.148
1.1.149
1.1.150
1.1.151
1.1.152
1.1.153
1.1.154
“Training Program” means the training program provided by the Contractor for operators of the Plant as set forth in
Exhibit A.
“Variation” means any alteration or modification to this Contract, which is instructed in writing by Owner or approved in
writing as a Variation by Owner, in accordance with Article XV.
“Unit Rates” means the unitary value assigned to Surface Invasive or Subsurface Civil Work as set forth in Exhibit I.
“Unit Values” means the value of all items listed in the bill of quantities detailed in the Preliminary Schedule of
Payments, Schedule 6.
“Warranty Letter of Credit” means the bank guarantee to be provided by Contractor substantially in the form set forth in
Schedule 5.
“Warranty Period” means the period starting on the Final Taking-Over Date and ending on (a) the first anniversary of the
Final Taking-Over Date in the case of all Works which are not civil Works; and (b) the fifth anniversary of the Final
Taking-Over Date in the case of civil Works;
“Works” means the Permanent Works and the Temporary Works concerning the Plant, including engineering and design,
procurement, manufacture, delivery, site clearance, civil works, construction and erection, installation, training, Start-Up
(including calibration, inspection and Start-Up operation), demonstration and testing with respect to the Permanent
Works and Temporary Works to be performed by the Contractor pursuant to the Contract. The term ‘Works’ includes all
or partial portions of the foregoing, including labor, materials, equipment, machinery, tools, transportation, construction
fuels, chemicals, utilities, administration, and any other services or items to be used by the Contractor or its
Subcontractors in the prosecution of this Contract, wherever the same are being performed.
1.1.155
“Workbook” means a numbered book/registry to be maintained by the Contractor in which the Representatives shall
write and sign all the daily incidences, occurrences, orders, questions, consultations and answers to such questions and
consultations during the execution of the Works.
1.2
1.3
Headings - Headings are for ease of reference only and may not be used to determine or interpret the content of the provisions of this
Contract.
Interpretation - Words importing Persons or parties shall include firms and corporations and any organization having legal capacity.
Words importing the singular also include the plural and vice versa where the context requires. Words importing one gender also
include other genders. The words “herein” “hereof” and “hereunder” shall refer to this Contract as a whole and not to any particular
section or subsection of this Contract; and the words “include” “includes” or “including” shall mean “including, but not limited to.”
15
Any reference to the terms “articles”, “clauses”, “sections”, “exhibits” or any similar term generally used to identify specific
subdivisions of a contract or document, shall be deemed to mean an “article”, “clause”, “section”, “exhibit” or any other specific
subdivision of this Contract, as the case may be. References to any document, instrument or agreement shall mean such document,
instrument or agreement, as amended, modified and supplemented from time to time and in effect at any given time.
II.
OWNER
2.1
Access to and Possession of the Project Areas - . Owner shall timely grant the Contractor right of access to and possession of Project
Areas as necessary for the performance of the Works by Contractor in accordance with the Project Schedule.
Owner will be responsible of acquiring the land and/or establish Easement Rights over all areas which are Project Areas and are
required by the Contractor for the construction, alteration or modification of the Works, Accessways and Access Roads, in accordance
with Exhibit H.
Easement Rights and/or acquisition of land and/or permits required for Access Routes will be the exclusive responsibility of the
Contractor. The imposition of Easements Rights and the acquisition of property rights over additional areas within the Concession Area
that are not Project Areas will be the exclusive responsibility of the Contractor.
If the Contractor suffers delay or incurs Cost from failure on the part of Owner to grant right of access to or possession of Project Areas,
in accordance with the previous paragraphs, the Contractor shall give notice to Owner’s Representative within ten (10) days of suffering
such delay or incurring such Cost, and after receipt of such notice and provided that the Owner’s failure to grant right of access to or
possession of Project Areas was not caused by the Contractor, Owner’s Representative shall proceed in accordance with Article XV to
agree or determine:
(a)
(b)
any extension of time to which the Contractor is entitled under Section 9.4; and
the amount of such Cost plus Profit thereon which shall be added to the Lump Sum Price and shall
notify the Contractor accordingly.
For the avoidance of doubt, the granting of possession of Project Areas shall not be treated as creating any legal or other interest over
Project Areas in favor of the Contractor.
If by application of this section, the Contractor acquires title or any legal interest over pieces of land located within the Project Areas,
the Contractor must transfer title of such pieces of land to Owner promptly free and clear of any and all liens, claims, security interests
or other encumbrances.
16
The Contractor shall provide, at his own cost and subject to Owner’s approval, any additional pieces of land, any clearances, temporary
rights of access, rights of way, work space or easement rights outside the Project Areas that are required by it for the purposes of the
Works.
Owner will retain unlimited access for itself, for the Owner’s Representative, for the Lenders, the Lender’s Representative, the insurer
or the insurers and the Supervisor who shall be entitled to enter into and remain at the Project Areas at all times without prior notice and
without the Contractor’s prior consent. Contractor shall also permit unrestricted access to the Project Areas to any Governmental
Authority according to the Applicable Laws.
2.2
Permits, Licenses or Approvals - Owner shall timely obtain all the Owner Permits as necessary for the performance of the Works by
Contractor in accordance with the Project Schedule. Owner will also be responsible for obtaining all authorizations needed to modify or
adjust those permits to the new design of the Works according to the Technical Specifications.
If the Contractor suffers delay or incurs Cost from failure on the part of Owner to obtain Owner’s Permits in accordance with the
previous paragraph, the Contractor shall give notice to Owner’s Representative within ten (10) days of suffering such delay or incurring
such Cost, and after receipt of such notice and provided that the Owner’s failure to obtain Owner’s Permits was not caused by the
Contractor, Owner’s Representative shall proceed in accordance with Article XV to agree or determine:
(a)
(b)
any extension of time to which the Contractor is entitled under Section 9.4; and
the amount of such Cost plus Profit thereon which shall be added to the Lump Sum Price and shall
notify the Contractor accordingly.
Owner shall, at the request of the Contractor, provide reasonable assistance in applying for permits, licenses or approvals which are
required for any part of the Works and required to be obtained by the Contractor for delivery (including clearance through customs) of
Major Items of Equipment, Materials and Contractor’s Equipment, and for the completion of the Works. Such requests may also
include requests for Owner’s assistance in applying for any necessary government consent to the re-export of Contractor’s Equipment
when it is removed from the Project Areas. It is the sole responsibility of the Contractor to timely request such assistance and to provide
all necessary documentation and other information to facilitate the provision of such assistance. The Contractor shall reimburse the
Owner for any documented out of pocket expenses incurred by the Owner in providing the assistance provided by the Owner to the
Contractor pursuant to this Section 2.2.
2.3
Owner’s Right to do Work - If the Contractor fails to commence to furnish sufficient workers of the required skill, or materials of the
required quality or quantity or fails to perform the Work in accordance with the requirements hereof or the Project Schedule, within
fifteen (15) days after written notice specifying such failure, and such failure is affecting the Time for Completion, Owner shall have the
option to supply workers, materials, or both, and perform the Works.
17
Owner shall deduct expenses incurred in engaging other contractors, and supplying workers and material from payments due or which
may become due to the Contractor. If expenses exceed the balance due or which becomes due to the Contractor, the Contractor shall
pay the excess to Owner immediately upon written demand therefor.
The Contractor shall allow other contractors or entities access to their work within the Project Areas. The Contractor shall make no
claims against Owner for additional payment due to delays or other conditions created by the reasonable operations of such other
parties, provided that, if such other parties materially interfere with the Contractor’s reasonable performance of the Works, the
Contractor shall have the right to request a Variation in accordance with Section 15.1 to the extent necessary to overcome the impact of
such interference or hindrance.
Any Work provided by Owner due to the Contractor’s failure to perform shall be charged to the Contractor at Owner’s Cost plus Profit
and shall not relieve the Contractor from any obligation or responsibility provided in this Contract.
2.4
Owner’s Financial Arrangements – The Owner within ten (10) days after the Notice to Commence has been delivered, and up to three
(3) times before the Actual Project Acceptance Date, upon Contractor’s written request, will provide reasonable evidence that financial
arrangements have been made as to enable the Owner to pay the Lump Sum Price in accordance with Section 14. If the Owner makes
any material change to any of Financing Documents, the Owner shall promptly give notice to the Contractor with detailed particulars.
III.
OWNER’S REPRESENTATIVE
3.1
3.2
3.3
Owner’s Representatives Duties and Authority - Owner’s Representative shall carry out the duties and exercise the authority
provided in this Contract. Owner’s Representative shall have no authority to amend this Contract and the Contractor shall have no
obligations to perform any such amendment except pursuant to an executed Variation.
No Implied Waiver
Any proposal, inspection, examination, testing, consent, approval or similar act by Owner’s Representative, including any omission by
Owner’s Representative to disapprove, object or notify any breach of the Contractor’s obligations under this Contract, will not relieve
the Contractor from any duty, responsibility or obligation, including responsibility for errors, omissions, discrepancies, and non-
compliance with Sections 6.3 and 6.4.
Owner’s Representative’s Authority to Delegate - Owner’s Representative may from time to time delegate any of his duties to the
Supervisor or assistants, and may at any time revoke any such delegation. Any such delegation or revocation shall be in writing and
shall not take effect until a copy has been delivered to Owner and the Contractor, specifying the powers, functions and authorities being
delegated or revoked
18
The Supervisor or the assistants shall be suitably qualified persons who are competent to carry out these duties and exercise this
authority.
Any determination, instruction, inspection, examination, testing, consent, approval or similar act by any such assistant of Owner’s
Representative in accordance with the delegation shall have the same effect as though it had been an act of Owner’s Representative.
However:
(a)
(b)
any failure to disapprove any equipment, Materials, Main Spare Part, design or workmanship shall
not prejudice the right of Owner’s Representative to reject (if prior to the start of the Warranty
Period) or make a warranty claim (if the Warranty Period is in effect) on such defective item,
Materials, Main Spare Part, design or workmanship;
if the Contractor questions any determination or instruction of an assistant of Owner’s
Representative, the Contractor may refer the matter to Owner’s Representative who shall confirm,
reverse or vary such determination or instruction.
3.4
Owner’s Representative’s Instructions - The Contractor shall comply with instructions given by Owner’s Representative in
accordance with this Contract.
IV.
SUPERVISOR
4.1
General Obligations –
Owner will communicate to the Contractor the appointment of the Supervisor before the Limited Notice to Commence or the Notice to
Commence, as applicable. However, from the Limited Notice to Commence until the Notice to Commence, the Supervisor’s duties may
be performed by Owner.
Owner may change the Supervisor at any time by notice to Contractor.
The Supervisor will provide assistance to Owner for the observational oversight of this Contract during the construction of the Plant and
until the Actual Project Acceptance.
The observation to be carried out by the Supervisor mainly encompass the following:
(a)
(b)
observe and inventory the engineering and design and the Detailed Design and the Construction
Documents produced by the Contractor;
observe the manufacturing, factory assembling, testing and preparation for shipment of the Plant
Equipment, including the Major Items of Equipment;
19
(c)
(d)
(e)
(f)
(g)
(h)
observe and inventory the methods and procedures to be used in the design and manufacturing by
the Contractor;
observe the execution of the civil works;
observe the quality control of all construction, erection, testing of equipment and the
commissioning activities carried out by the Contractor to determine if such is being performed
properly and according to the terms and conditions of this Contract;
attend the execution of the Performance Tests;
approve the respective payments to the Contractor; and
Issue reports on the above matters to Owner.
4.2
4.3
4.4
Any proposal, inspection, examination, testing, consent, approval or similar act by the Supervisor (including absence of disapproval)
shall not relieve the Contractor from any duty, responsibility or obligation, including responsibility for errors, omissions, discrepancies,
and non-compliance with Sections 6.3 and 6.4.
Supervisor’s Rights – The Supervisor may maintain on the Project Areas throughout the construction of the Plant and until the Actual
Project Acceptance a team of resident engineers and technicians. This team may observe any and all construction, Plant Equipment
erection, testing and commissioning operations of the Contractor, in order to assess the conformity and quality of the Works for Owner.
In addition, the Supervisor or its personnel may carry out at all reasonable times and whenever deemed necessary, inspection visits to
the Project Areas as well as to all workshops, storage facilities and installations where Major Items of Equipment are manufactured,
assembled, tested or prepared for shipment.
All information produced by the Contractor shall be communicated to the Supervisor with the authorization of and information to
Owner.
Control and Monitoring of the Project Schedule – The Supervisor may observe all phases and operations of the Works to see if they
remain organized throughout construction to respect the Project Schedule. The Supervisor may alert the Contractor promptly, whenever
the Supervisor foresees any risk of delays and may request that the Contractor analyze its programs and sequences of work. The
Supervisor may suggest partial or general adaptations of the program whenever it deems necessary.
Reporting – The Supervisor may prepare and submit to Owner monthly progress and site activity reports basically containing all
figures and site measurements, results of quality control, observations and description of factual events occurring on the Project Areas
and in home offices or shops of all Major Items of Equipment, and any other report that Owner may deem appropriate.
20
4.5
Supervisor’s duties during Warranty Period – The Supervisor will provide assistance to Owner during the Warranty Period when
required by Owner. Plant Equipment as well as civil works specialists and experts will be made available to Owner for performing site
visits when needed to provide the technical and contract management services during this period.
V.
CONTRACTOR
5.1
General Obligations - The Contractor shall perform or cause to be performed the Preliminary Works once the Limited Notice to
Commence has been given and Permanent Works and the Temporary Works once the Notice to Commence has been given, including as
applicable, engineering and design, procurement, manufacture, delivery, site clearance, civil works, construction and erection,
installation, training, start-up (including calibration, inspection and start-up operation), demonstration and testing of the Works, and
provide all labor, Major Items of Equipment, Materials, Auxiliary Services, equipment, machinery, tools, transportation, construction
fuels, chemicals required in connection with the Contractor’s performance of any part of the Works, utilities required in connection with
the Contractor’s performance of any part of the Works (except to the extent expressly provided otherwise herein), administration and
other services or items required to complete the Works, all on a lump sum, fixed price (with the exception of Surface Invasive and
Subsurface Civil Work), turnkey basis and otherwise in accordance with this Contract, including without limitation the Technical
Specifications, and in compliance with all Applicable Laws and Applicable Permits which apply to the Works, and generally recognized
professional and industry standards (including Prudent Utility Practices and Prudent Electrical Practices). The Contractor shall further
design, engineer, construct and execute the Works in a manner consistent with the requirements of this Contract and to provide Owner a
complete, integrated and fully functional hydropower generating Plant to be used for base load service.
Owner is relying upon the expertise of the Contractor to furnish the completed Plant in accordance with the terms of this Contract. The
Contractor acknowledges Owner’s reliance upon the expertise of the Contractor as set forth in this Section 5.1.
The Works shall be completed by the Contractor wholly in accordance with this Contract and generally recognized professional and
industry standards (including Prudent Utility Practices and Prudent Electrical Practices), compliant with the Applicable Laws of Peru
and Applicable Permits. The Works shall include any work which is necessary to satisfy the Technical Specifications and Schedules, or
is implied by this Contract, or arises from any obligation of the Contractor, and all works not mentioned in this Contract but which may
be reasonably inferred from this Contract to be necessary for the stability or completion or the safe, reliable and efficient operation of
the applicable Works.
The Contractor shall design, execute and complete the Works, including providing Construction Documents, within the Time for
Completion, each as provided herein, and shall remedy any Defects or Deficiencies that may arise within the Warranty Period
irrespective of whether such Defects or Deficiencies can be remedied during such Warranty Period. The Contractor shall provide all
superintendence, labor, plant, Materials, Main Spare Parts, Contractor’s Equipment, Temporary Works and all other things, whether of
a temporary or permanent nature, required in and for such design, execution, completion and remedying of Defects or Deficiencies.
21
The Contractor shall execute the Works continuously and diligently and shall achieve the Partial Taking-Over Dates and the Final
Taking-Over Date on or before the Scheduled Partial Taking-Over Date and the Scheduled Final Taking-Over Date, and thereafter
achieve the Actual Project Acceptance Date as expeditiously as possible, but not later than one hundred eighty (180) days after the Final
Taking-Over Date, or if Owner exercises its right under Section 10.9, one hundred eighty (180) days after the Contractor is provided
access again to the Works to perform Performance Tests (“Early Operation Extension Period”).
Unless as otherwise stated in the Contract, the Contractor knows and accepts that during the execution of the Works (with the exception
provided in Sections 5.9 and 5.10) it may find geological, hydrological or meteorological or other conditions that could affect
construction costs or the Time for Completion. The Contractor declares that has reviewed the Project Data and made such other
investigations as it deems necessary and has considered all risks (whether related thereto or not) in its derivation of the Lump Sum
Price. As a result, if any such risks arise, the Contractor will not be released from its obligations under the Contract on the basis of a
Force Majeure claim or on any other basis and will not be entitled to a Variation for the adjustment of the Lump Sum Price or the
extension of the Time for Completion. This provision shall not prejudice Contractor’s rights according to Article XX for future
supervening Force Majeure events that are not caused by the conditions existing at the Effective Date.
The Contractor shall satisfy itself prior to the Effective Date regarding the design criteria (if any) included in the Technical
Specifications and the accuracy of any setting-out points, lines and levels of reference specified therein. The Contractor shall make no
claim for additional compensation, extension of the Time for Completion, Variation or otherwise for any alleged error, fault or defect in
the Technical Specifications.
The Contractor shall take full responsibility for the adequacy, stability and safety of the Plant, of all means and methods of construction
by Contractor and its Subcontractors and of all the Works, irrespective of any approval or consent or the lack thereof by Owner’s
Representative or the Supervisor. Once the Works are completed, they shall be fit for purpose as defined under this Contract and the
Technical Specifications.
The intent of this Contract is to relieve Owner of the necessity of engaging or supplying any labor, service or material to complete the
Plant unless the labor, service or material is expressly stated in this Contract as being furnished by Owner.
5.2
Contractor’s Representative - Unless the Contractor’s Representative is named in this Contract, the Contractor shall, within fourteen
(14) days of the Effective Date, submit to Owner’s Representative for consent the name and particulars of the Person the Contractor
proposes to appoint, which shall not be unreasonably delayed or withheld. The Contractor shall not revoke the appointment of the
Contractor’s Representative without the prior consent of Owner’s Representative.
22
The Contractor’s Representative shall be a full time employee of the Contractor dedicated to directing the preparation of the
Construction Documents and the execution of the Works. Except as otherwise stated in this Contract, the Contractor’s Representative
shall receive (on behalf of the Contractor) all notices, instructions, consents, approvals, certificates, determinations and other
communications under this Contract. Whenever the Contractor’s Representative is to be absent, a suitable replacement person shall be
appointed, and Owner’s Representative shall be notified accordingly. Owner will have the right to approve those individuals who will
hold key project positions as defined in Exhibit E. Owner shall have the right at all times to require that any personnel (whether or not
previously approved by Owner) be removed and replaced by personnel acceptable to Owner in the case that any person is not fit, skilled
or capable of performing the work assigned to him or otherwise jeopardizes the safety or efficient performance of any part of the
Works.
Subject to the written consent of Owner’s Representative, the Contractor’s Representative may delegate any of his powers, functions
and authorities to any competent person, and may at any time revoke any such delegation. Any such delegation or revocation shall be in
writing and shall not take effect until Owner’s Representative has received prior notice signed by the Contractor’s Representative,
specifying the powers, functions and authorities being delegated or revoked. The Contractor’s Representative and such persons shall be
fluent for day-to-day communications in written and verbal English and Spanish.
5.3
Coordination of the Works - The Contractor shall be responsible for the coordination and proper execution of the Works, including
cooperation with Owner’s other contractors so as to minimize conflicts with the Works. The Contractor shall, as specified in the
Technical Specifications, afford all reasonable opportunities for carrying out its work to:
(a)
(b)
(c)
any other contractors employed by Owner and their workmen;
the workmen of Owner; and
the workmen of any legally constituted public authorities who may be employed in the execution on
or near the Project Areas of any work not included in this Contract, which Owner may require.
If any part of the Works depends for proper and timely execution or results upon the work of any other contractor, the Contractor shall
inspect and promptly report in writing to Owner any Defects or cause of delay in such work that renders it unsuitable for such proper
and timely execution or results. Failure of the Contractor to do so shall constitute its acceptance of such other work as fit and proper for
the reception of the Works.
23
The Contractor shall timely inform to Owner’s Representative and the Supervisor the scope of works related to Subcontractors and
suppliers who will perform works within the Project Areas.
5.4
Subcontractors - The Contractor shall not subcontract any portion of the Works whose value exceeds five millions Dollars (US$
5,000,000) without the prior written consent of Owner. Unless otherwise stated in this Contract:
(a)
(b)
(c)
the Contractor shall not be required to obtain consent for purchases of new Materials or for
subcontracts for which the Subcontractor is an Affiliate or named in this Contract or identified in
the Subcontractor List set forth in Schedule 2;
the prior consent of Owner’s Representative shall be obtained (and shall not be unreasonably
delayed, withheld or conditioned) to other proposed Subcontractors not set forth in subparagraph
(a) above; and
not less than twenty-eight (28) days before the intended date of each new Subcontractor
commencing work on the Project Areas, the Contractor shall notify Owner’s Representative and the
Supervisor of such intention.
The Contractor shall be responsible for observance by all Subcontractors of all the provisions of this Contract. The Contractor shall be
responsible for the acts or defaults of any Subcontractor, his agents or employees, in the performance of the Works as fully as if they
were the acts or defaults of the Contractor, his agents or employees. Any subcontracting by the Contractor of any portion of the Works
shall not release or discharge the Contractor of any of its responsibilities or obligations under this Contract. Any Subcontractor
warranties extending beyond the Warranty Period (or any longer applicable period agreed to by the Contractor) shall be assigned to
Owner.
All Works performed for the Contractor by a Subcontractor shall be governed by terms and conditions provided in written contracts
executed between Contractor and Subcontractor.
The Contractor agrees to incorporate into each Subcontractor agreement greater than one million five hundred thousand Dollars
(US$1,500,000) in value, terms and conditions substantially equivalent to those in this Contract to the extent applicable to such
Subcontractor’s work. All such Subcontract agreements and purchase orders shall contain a provision providing for assignment of such
subcontracts or purchase orders to Owner in the event of termination of the Contractor’s employment pursuant to the terms of this
Contract. Such assignment will be at the discretion of Owner and at no cost to Owner.
At any time during the execution of the Works, Owner may reasonably require the Contractor to remove any Subcontractor employed
on the Project Areas.
24
5.5
5.6
5.7
5.8
The Contractor shall pay each Subcontractor the amount to which said Subcontractor is entitled under the applicable subcontract.
Contractor shall execute and deliver to Owner a certificate substantially in the form of Schedule 22 (Form of Proof of Subcontractor
Payment) every three (3) months, by which Contractor will represent and warrant to Owner that it paid to the Subcontractors any
amounts due to the Subcontractor that are related to the amounts evidenced in the relevant invoice.
Assignment of Subcontractor’s Obligations - If a Subcontractor has undertaken a continuing obligation to the Contractor for work
designed or executed, or Major Items of Equipment, Materials, Auxiliary Services or other services supplied, by such Subcontractor,
and if such obligation extends beyond the expiry of the Warranty Period, the Contractor shall if permitted under the terms of such
Subcontract, upon the expiry of the Warranty Period, assign the benefit of such obligation to Owner for its unexpired duration at the
request of Owner. The Contractor shall ensure that all of its rights under any Subcontract that is valued at greater than one million five
hundred thousand Dollars (US$1,500,000), are capable of being assign to Owner. Such assignment will be at the discretion of Owner
and at no cost to Owner.
Setting Out - The Contractor shall set out the Works in relation to original points, lines and levels of reference specified in the
Technical Specifications or, if not specified, given by Owner’s Representative in writing. The Contractor shall correct, at his cost, any
error in the positions, levels, dimensions or alignment of the Works. The Contractor shall be responsible for the joining and fitting of all
civil works and parts of the Works in a manner such that the Plant can operate as an integrated power plant, and any checking or
inspection by Owner or the Supervisor shall not relieve the Contractor of any responsibility as to the correctness of the Works.
Quality Assurance/Quality Control (QA/QC) - Unless otherwise stated in this Contract, the Contractor shall institute a quality
assurance system to demonstrate compliance with the requirements of this Contract that conforms to the guidelines provided by
Schedule 20. The implementation of a quality assurance system pursuant to this Section 5.7 will not relieve the Contractor of any of its
duties, obligations or responsibilities with Owner under this Contract.
The Contractor shall make available to Owner’s Representative and the Supervisor all quality assurance or quality control procedures
and compliance documents at the Contractor’s premises before the commencement of each design and execution stage. When any
QA/QC document is issued to Owner’s Representative and the Supervisor, it shall be accompanied by the signed quality statements for
such document, in accordance with the details stated in this Contract. Owner’s Representative may instruct the Contractor to amend any
quality assurance or quality control procedure that does not adhere to the guidelines provided in Schedule 20 and to take any corrective
action that is needed to achieve compliance with such guideline.
Existing Project Data - The Contractor shall be solely responsible for interpreting and using all of the data provided by Owner and
contained in Exhibits A and D, and Owner makes no warranty or representation that such information is accurate, complete or
exhaustive, except as stated below. In case of contradiction between the information contained in Exhibits A and D, Exhibit A will
prevail. Exhibit D shall supplement the omissions that may exist in Exhibit A.
25
The Contractor shall be deemed to have inspected and examined the Concession Area, its surroundings, the Project Data and other
available information, and to have satisfied itself prior to the Effective Date as to:
(a)
(b)
(c)
the form and nature of the Concession Area, including all Concession Area conditions;
unless as otherwise stated in the Contract, all applicable hydrological and climatic conditions,
including those of the Concession Area and Peru;
the extent and nature of the work, labor, manpower, services including Auxiliary Services,
construction equipment, Materials necessary for the execution and completion of the Works, and
the remedying of any Defects or Deficiencies; and
(d)
the means of access to the Project Areas and the accommodation it may require.
The Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and all other circumstances which
may influence or affect the Lump Sum Price or Project Schedule.
The Contractor has thoroughly investigated the Concession Area, including any applicable easements, water sources, access to the
Project Areas, transportation, international and local labor conditions, all Applicable Laws in the locations where Works are to be
performed; and has investigated the Applicable Permits required as of the Effective Date and all attachments hereto; and investigated all
other matters or conditions it deems relevant or that could affect execution of the Works, and the Contractor shall not be entitled to and
shall make any claim for additional compensation, Force Majeure, extension of the Time for Completion, Variation or otherwise, for
any reason relating to any of the foregoing matters (other than as provided in this Contract) or for any matter relating to conditions
encountered above, below on or at the Project Areas on the ground of any allegation or fact that incorrect or insufficient information
was given to them by Owner or any other Person, whether in the employ of Owner or otherwise.
The Owner acknowledges that the Contractor shall design the Plant on the basis of hydrological and water quality data supplied by the
Owner included in Exhibit D and therefore, the Contractor shall not be held liable for the accuracy of such data. Correctness and
Sufficiency of the Lump Sum Price—The Contractor shall be deemed to have satisfied itself as to the correctness and sufficiency of the
Lump Sum Price. Unless otherwise stated in this Contract, the Lump Sum Price (other than with respect to Surface Invasive or
Subsurface Civil Work) shall cover the performance of all its obligations under this Contract.
26
5.9
5.10
Foundations and Tunnels - All Surface Invasive and Subsurface Civil Work, will be subject to the risk sharing mechanism set forth in
Exhibit I. Modifications to the Lump Sum Price and/or an extension of Time for Completion will be granted to the Contractor according
to the geological risk sharing procedures and Unit Rates set forth in Exhibit I, through the execution of a Variation.
Access to the Concession Area - The Contractor shall be responsible for the selection, design and construction of Access Roads and
Accessways and for the alterations or modifications that it may need to introduce in Access Routes, without prejudice to Section 2.1 and
Exhibit F. The Contractor shall maintain and repair all Access Roads and Accessways and shall be responsible for repairing the Access
Routes damaged by the Contractor or his Subcontractors. Such selection, design, construction, alterations, modifications, maintenance
and repair of Access Roads, Access Routes and Accessways, including their use and signaling, shall conform to the Applicable Laws.
The Contractor shall provide any signs or directions which he may consider necessary for the guidance and security of its staff, labor
and others. The Contractor shall obtain any permission that may be required from any Governmental Authority or from any third party
for the construction, modification, alteration or use of such routes, signs and directions.
Owner will not be responsible for any claims which may arise from the use or otherwise of any Access Route, Access Road or
Accessway and the Contractor will defend Owner against and indemnify Owner for any third party claim or sanction imposed by any
Governmental Authority for the use of any such route or for the damages suffered as a result of any such use.
The Contractor shall be deemed to have satisfied himself as to the suitability and availability of the Access Routes, Access Roads and
Accessways he chooses to use in order to reach the Concession Area or the Project Areas, as applicable. Owner does not guarantee the
suitability or availability of any particular route, including those described by reference in the Project Data, and the Contractor shall not
be entitled to any Variation for any non-suitability or non-availability for continuous use during construction of any such route except
(a) as a result of Force Majeure, if applicable, or (b) civil works on any route carried out by a Governmental Authority.
The Contractor shall use reasonable efforts to prevent any of the highways or bridges connecting with or on the route to the Concession
Area from being damaged or injured by any traffic of the Contractor or any of his Subcontractors. The Contractor in particular shall
select routes, choose and use vehicles and restrict and distribute loads so that any extraordinary traffic that will inevitably arise from
moving the Major Items of Equipment and Material from and to the Concession Area shall be limited as far as reasonably possible so
that damage or injury to such highways and bridges shall be minimized or avoided altogether.
Any modification or change in the selection, design or use of any Access Road, Access Route or Accessway shall be previously
approved by Owner.
27
In case that the design and construction of some or all Access Roads and Accessways, are executed by local or regional authorities
within the Concession Area, then the Contractor shall participate in the public bid solicitation processes conducted by such authorities
according to the Applicable Law and the Contractor shall make its best efforts to be awarded the Access Contract. The Contractor shall
be responsible for complying with the rules of the bid solicitation process and for the performance of its obligations under any Access
Contract. The Parties will execute a Variation to reflect the impact in the cost of the Works caused by the construction of such Access
Roads and Accessways under any Access Contract.
5.11
Project Schedule -
The Contractor shall submit a detailed Project Schedule of the execution of the Works to Owner’s Representative, for information,
within forty-five (45) days after the Commencement Date.
The Project Schedule (in the form of a GANTT chart) shall be in a level of detail reasonably acceptable to Owner’s Representative,
shall not substantially deviate from the durations and milestones established in the preliminary Project Schedule set out in Schedule 1
and shall be in accordance with the requirements hereof. The final Project Schedule shall include the following:
(a)
the order (identifying the tasks that are on the critical path) in which the Contractor proposes to
carry out the Works (including each stage of design, procurement, manufacture, delivery to the
Project Areas, construction, erection, testing and Precommissioning, Start-Up and the Performance
Tests);
(b)
the times when submissions and approvals or consents by Owner’s Representative are required, but
only if indicated as required in the Technical Specifications; and
(c)
the Precommissioning, Start-Up and Performance Tests.
The Contractor shall prepare the Project Schedule or any amendment or update to the Project Schedule in Primavera software or
equivalent. The Project Schedule shall include all major events and activities in the production of Construction Documents and the
periods for the pre-construction reviews under Section 6.2. Unless otherwise stated in this Contract, the Project Schedule shall be
developed using critical path method and precedence networking techniques, showing early start, late start, early finish and late finish
dates.
The Contractor shall, whenever required by the Owner’s Representatives or the Supervisor, provide in writing a general description of
the arrangements and methods which the Contractor proposes to adopt for the execution of the Works. If Contractor materially alters
any such actions, obligations or Works, the Contractor shall inform Owner’s Representative. If the progress of the Works does not
conform to the Project Schedule, Owner’s Representative may request the Contractor to revise the Project Schedule, showing the
modifications necessary to achieve completion within the Time for Completion.
28
The Contractor will not be relieved or excused of any obligation undertaken hereunder by the absence or delay of Owner’s acceptance
of the Project Schedule.
5.12
Progress Reports and Meetings – Daily reports shall be prepared by Contractor and submitted to the Representatives and the
Supervisor electronically on the following day. The daily report shall include all occurrences of the last twenty four (24) hours together
with a description of the labour and Materials which have been incorporated in the Works.
Monthly progress reports shall be prepared by the Contractor and submitted to the Owner’s Representatives and the Supervisor
electronically. One physical copy shall be delivered to Owner. The first report shall cover the period up to the end of the calendar
month after that in which the Commencement Date occurred; reports shall be submitted monthly thereafter, on or before the fifth (5 th
) Business Day of each calendar month. Reporting shall continue until the Contractor has completed all Works which are known to be
outstanding at the completion date stated in the Final Taking-Over Certificate. Each monthly report shall include:
(a)
(b)
(c)
(d)
(e)
(f)
photographs and detailed descriptions of progress, including each stage of design, procurement,
manufacture, delivery to Project Areas, construction, erection, testing and Precommissioning, Start-
Up and Performance Tests;
charts showing the status of Construction Documents, purchase orders, manufacture and
construction;
for the manufacture of each Major Item of Equipment, Materials and Spare Parts, the name of
manufacturer, manufacture location, percentage progress and the actual or expected dates of
commencement of manufacture, Contractor’s inspections, tests and delivery;
records of personnel and Contractor’s Equipment on the Project Areas;
log of quality assurance documents, test results and certificates of Materials and equipment issued
during the prior month;
safety statistics, including details of any hazardous incidents and activities relating to environmental
aspects and public relations;
29
(g)
(h)
(i)
comparisons of actual and planned progress (including a summary of the Works expected to be
completed during the ensuing calendar month), with details of any aspects which may jeopardize
the completion in accordance with the Project Schedule and this Contract, and the measures being
(or to be) adopted to overcome such aspects (including material quantities installed, tables and
charts for comparison versus total quantities for complete installation);
any and all unresolved claims or disputes that involve requests for extension to the Time for
Completion, or adjustment to any other date or milestone set forth in this Contract or increases in
the Lump Sum Price; and
any additional information that Owner’s Representative or any Governmental Authority may
request.
5.13
5.14
Notwithstanding the obligations provided in this Section 5.13, the Contractor shall promptly deliver any information reasonably
requested by Owner or any Governmental Authority regarding the execution of the Works.
Weekly meetings will be held at the Site between the Contractor, Owner’s Representative and the Supervisor to review the status of the
Works and all issues relating to the performance of Contractor’s obligations hereunder.
Once a month the Contractor, Owner’s Representative and the Supervisor shall attend a meeting in order to discuss the previous
monthly progress report. Owner will inform seven (7) days in advance the date and location of the meeting.
The Contractor shall attend any other meeting reasonably requested by Owner or the Supervisor.
Contractor’s Equipment - The Contractor shall provide all Contractor’s Equipment necessary to complete the Works within the Time
for Completion. Contractor guarantees that all equipment and materials listed on Exhibit A will be on site at the times and in at least the
quantities listed therein. All Contractor’s Equipment shall, when brought on to the Project Areas, be deemed to be exclusively intended
for the execution of the Works in order to comply with the Technical Specifications. The Contractor shall not remove from the Project
Areas any such Contractor’s Equipment without the consent of Owner’s Representative, which shall not be unreasonably withheld.
Safety Precautions - The Contractor shall comply with all applicable safety laws and regulations in his design, access arrangements
and operations on the Project Areas, including, without limitation, Applicable Laws of Peru, Applicable Permits, the Equator Principles
based on the International Finance Corporation Performance Standards and particularly the EIA, Reglamento
de
Seguridad
y
Salud
en
el
Trabajo
de
las
Actividades
Eléctricas
(RM No. 161-2007-MEM-DM del 13 de abril de 2007) and the most recent revisions of standards
published by the International Organization for Standardization for the Protection of the Environment and Human Health and Safety.
The Contractor shall, from the commencement of Works on the Project Areas until the Final Taking-Over Date, provide the following
in relation to on-site activities at the Project Areas:
(a)
fencing, lighting, guarding, watching and protecting the Works;
30
(b)
(c)
(d)
(e)
(f)
(g)
temporary roadways, footways, flagmen, warning signs, guards and fences which may be necessary
for the accommodation and protection of owners and occupiers of adjacent land, the public and
others;
reasonable measure for the prevention of fires;
the elimination of excessive dust or smoke;
the protection of overhead utility lines, underground pipes, conduit or cables clearly identified with
full description thereof in Exhibits A and D;
protection of adjacent properties from subsidence, collapse, discharge, and from dust, smoke, fire
and chemical or other intrusion from the performance of the Works;
personnel protection equipment for the Contractor’s personnel, Owner’s personnel and the
Supervisor’s personnel; and
(h)
first aid facilities for the Contractor’s personnel, Owner’s personnel and the Supervisor’s personnel.
Should Owner request that Contractor provide safeguards reasonably required by Applicable Laws or Applicable Permits for the
protection of persons or property as required by this Section 5.15 and should the Contractor fail to comply with such request within a
reasonable time, Owner may provide such safeguards and the Contractor shall reimburse Owner for the reasonable costs thereof.
5.15
Protection of the Environment - The Contractor shall comply with all Applicable Laws in the locations where Works are being
performed and the portions of Applicable Permits which apply to Contractor’s performance of Works, particularly the Environmental
Management Plan contained in the EIA and other EIA regulations concerning construction, in its design, access arrangements and
operations on the Concession Area. During construction, the Contractor shall take all necessary steps to protect the environment (both
on and off the Project Areas) pursuant to the Applicable Permits and the Applicable Laws in force in Peru from time to time.
The Contractor shall provide properly designed storage areas which are impermeable to leakage into the surrounding soil for storage of
oils, lubricants or other hazardous wastes. Such storage will also be covered and protected from inundation and overflow by rainfall into
the surrounding soil. Dangerous Substances generated during completion of the Works will be properly disposed of by the Contractor.
31
The Contractor shall be responsible only for Dangerous Substances which the Contractor brings onto the Concession Area to use in the
performance of the Works or which are generated by the Contractor at the Project Areas and shall not be responsible for Dangerous
Substances nor any other environmental liabilities which exist at the Concession Area on or before the Limited Notice to Commence.
Contractor shall remove any Dangerous Substances from the Concession Area before returning any part thereof to Owner.
The Contractor shall, immediately upon discovery of any Dangerous Substance for which Owner is responsible, notify Owner’s
Representative, who may issue instructions to the Contractor regarding the removal of such Dangerous Substance. If the Contractor
suffers delay or incurs Cost as a result of the execution of Owner’s Representative instructions to remove Dangerous Substance, the
Contractor shall give notice to Owner’s Representative of such delay or of the incurrence of such Costs, with a copy to Owner and
Owner’s Representative shall promptly thereafter agree or determine pursuant to Article XV:
(a)
(b)
the extension of time to which the Contractor is entitled under Section 9.4; and
the amount of such Cost, which shall be added to the Lump Sum Price, and shall notify the
Contractor accordingly.
5.16
5.17
Public Relations with the Local Communities - During the execution of the Works the Contractor, its personnel and its
Subcontractors shall undertake best efforts to keep and maintain good relations with the local communities located within the
Concession Area, respecting their customs and traditions. The Contractor must comply with the Community Relations Plan contained in
the EIA in coordination with Owner.
The Contractor shall appoint a person with experience in community relations management to liaise with Owner on the management of
relations with communities established in areas surrounding the Concession Area. The Contractor may not execute agreements or
undertake commitments with stakeholders of the Works, including but not limited to Governmental Authorities, community leaders,
unions and others, without the prior written consent of Owner and once it executes any such agreement or assumes any such
commitment, it shall comply with the obligations it has assumed therein.
Clearance of Project Areas - During the execution of the Works, the Contractor shall keep the Project Areas free from all unnecessary
obstruction, and shall store or dispose of any Contractor’s Equipment or surplus materials. The Contractor shall clear away and remove
from the Project Areas any wreckage, rubbish or Temporary Works no longer required. Clearance of the Project Areas by the
Contractor must comply with the Applicable Laws and particularly with any environmental regulation.
32
Upon the issue of the Final Taking-Over Certificate, the Contractor shall clear away and remove, from that part of the Project Areas, all
Contractor’s Equipment, surplus material, wreckage, rubbish and Temporary Works. The Contractor shall leave the Project Areas, the Works,
the Access Routes and the Access Roads in a clean, safe and good condition to the reasonable satisfaction of Owner’s Representative, except
that, the Contractor shall be entitled to retain on the Project Areas, until the expiry of the Warranty Period, such Contractor’s Equipment,
Materials and Temporary Works as reasonably required by it for the purpose of fulfilling its obligations under this Contract.
Owner will have the option to purchase for one (1) dollar the work camps infrastructure and buildings installed by the Contractor on the
Project Areas for itself or for the local communities, or to instruct the Contractor to remove such camps and leave the Project Areas in a clean
condition.
If the Contractor fails to remove from the Project Areas, by twenty-eight (28) days after the issue of the Actual Project Acceptance Certificate,
any remaining Contractor’s Equipment, surplus material, wreckage, rubbish and Temporary Works or camp infrastructure, Owner may sell or
otherwise dispose of such items. Owner shall be entitled to retain, from the proceeds of such sale, a sum sufficient to meet the costs incurred
in connection with the sale or disposal, and in restoring the Project Areas. Any balance of the proceeds remaining after Owner has reimbursed
itself of disposal costs pursuant to this Section 5.18, shall be paid by Owner to the Contractor.
5.18
Security of the Project Areas - Unless otherwise stated herein:
(a)
(b)
the Contractor shall be responsible for keeping unauthorized encroachment or persons off the
Project Areas and shall not be entitled to a Variation if such occurs and damage or theft results
therefrom and such shall not be considered Force Majeure; and
authorized persons shall be limited to the employees of the Contractor, employees of
Subcontractors, employees of the Supervisor and persons authorized by Owner or the
Representatives.
The Contractor shall allow Owner, Owner’s Representative, the Supervisor and any other Person notified to the Contractor by Owner,
Owner’s Representative or the Supervisor to inspect the Works at all times.
5.19
Contractor’s Operations on Project Areas - The Contractor shall confine his operations for Works to the Project Areas. The
Contractor shall take all necessary precautions to keep his personnel, equipment and Subcontractors within the Project Areas, and to
keep and prohibit them from encroaching on adjacent land.
33
5.20
Remains - The Contractor may not claim any property interest or rights of any other nature over the Remains discovered by the
Contractor on the Project Areas. The Contractor shall take reasonable precautions to prevent its staff, labor or other Persons from
removing or damaging any Remain discovered in the Project Areas.
The Contractor shall, immediately upon discovery of a Remain of archeological nature, suspend the Works and advise Owner’s
Representative, who may issue instructions how to proceed regarding such findings. The Contractor shall advise Owner’s
Representative of the estimated costs of removing any such Remain promptly after receiving instructions to remove the relevant remain
and shall not commence the removal of the Remains until it receives written approval from Owner’s Representative. If the Contractor
suffers delay or incurs Cost as a result of the finding of the Remains or the execution of Owner’s Representative’s instructions
regarding the Remains, the Contractor shall give notice to Owner’s Representative of such delay or of the incurrence of such Costs with
a copy to Owner and Owner’s Representative shall promptly thereafter agree or determine pursuant to Article XV:
(a)
(b)
the extension of time to which the Contractor is entitled under Section 9.4; and
the amount of such Cost, which shall be added to the Lump Sum Price, and shall notify the
Contractor accordingly.
The Contractor will be responsible of obtaining all permits and authorizations necessary for the exploitation of the quarries needed for
the executions of the Works.
The Contractor shall immediately inform Owner of any discovery of minerals and seek instructions for dealing with them. The
manipulation and disposal of minerals shall be done in compliance with the corresponding rules of the EIA and the Applicable Laws.
The Contractor, its Subcontractors, their Affiliates, agents, staff and labor shall not file any application, petition or request to be granted
an authorization, permission or concession to explore or exploit minerals within the Concession Area and surrounding areas that could
interfere with the proper execution of the Works.
5.21
Use of Explosives - The Contractor shall comply with the Technical Specifications and with all Applicable Laws and internationally
accepted practices related to the acquisition, transportation, storage, handling and use of explosives for the execution of the Works. The
Contractor shall build adequate explosives storage facilities on the Project Areas duly approved by the competent Government
Authority. The acquisition, transportation, storage, handling and use of explosives shall be executed by the Contractor according to a
written proceeding protocol previously delivered by the Contractor and approved by Owner. The Contractor shall obtain all Applicable
Permits and shall be the only responsible for the acquisition, transportation, storage, handling and use of explosives in the Works,
including all security issues and safety precautions thereto.
34
5.22
5.23
The Contractor shall inform the communities located in the Concession Area the dates and times of programmed use of explosives, the
recommended safety measures and any other information relevant to guarantee their security and safety, pursuant to a communication
plan previously approved by Owner.
Water Borne Traffic - Where the nature of the Works is such that Contractor elects to use of water borne transport, the Contractor
shall use reasonable efforts to prevent any of the locks, docks, sea walls or other structures related to a waterway from being damaged
or injured by any traffic of the Contractor or any of his Subcontractors. The Contractor in particular shall select routes, choose and use
crafts and restrict and distribute loads so that any extraordinary traffic that will inevitably arise from moving the Major Items of
Equipment and Material from and to the Concession Area shall be limited as far as reasonably possible so that damage or injury to such
waterway structures shall be minimized or avoided altogether.
Training Program - The Contractor shall provide, at no additional cost to Owner, training at the Plant for the operators of the Plant
pursuant to the Training Program set forth in Exhibit A. Such training shall commence ninety (90) days prior to the first Partial Taking-
Over Date.
5.24
Participation - The Contractor shall and shall cause each of its Subcontractors carrying out Works in Peru:
(a)
(b)
to the maximum extent possible, give preference to the use of construction equipment and other
equipment, materials and products produced and manufactured in Peru; and
to the maximum extent possible, give preference to the use in the performance of its obligations
under this Contract to local labor (both skilled and unskilled), local supervisory, professional and
other personnel, local services and local contractors.
VI.
DESIGN
6.1
Design of the Works - The Contractor shall carry out and be responsible for all the design of the Works. Detailed Design shall be
prepared by qualified designers who are engineers or other professionals and who are also internationally experienced designers. Once
approved by Owner’s Representative, in accordance with Exhibit A, Detailed Design will become part of the Technical Specification.
Any examination, comment or approval to the Detailed Design by Owner’s Representative or the Supervisor will not relieve the
Contractor from any duty, responsibility or obligation under this Contract.
35
For each part of the Works, the prior written consent of Owner’s Representative shall be obtained before any design engineer or design
Subcontractor, if they are not named as such in this Contract or identified in the Subcontractor List set forth in Schedule 2. Nothing
contained in this Contract shall create any contractual relationship or professional obligations between any design engineer or a design
Subcontractor (including in each case, between their respective employee or employers) and Owner.
The Contractor represents and warrants to the Owner that the Contractor, its designers and design Subcontractors have the experience
and capability necessary for the design of the Plant. The Contractor shall make available all designer engineers for discussions with
Owner’s Representative and the Supervisor at any time prior to the expiration of the Warranty Period and promptly after the receipt of a
request from Owner.
6.2
Construction Documents and Workbook – The Contractor shall prepare Construction Documents which must satisfy the Technical
Specifications (Exhibit A), all Applicable Laws, Applicable Permits and all regulatory approvals, to provide Contractor’s suppliers and
construction personnel sufficient instruction to execute the Works, and to describe the operation of the completed Works.
Construction Documents shall, when considered ready for use, be submitted to Owner’s Representative for review and approval when
required in accordance with Exhibit A. The Contractor shall issue at least one counterpart of each Construction Document in Spanish
and shall be approved as required by Applicable Law.
If Owner’s Representative, within the applicable Review Period, notifies the Contractor that a proposed Construction Document is
deficient, such Construction Document shall be rectified and resubmitted by the Contractor for review in accordance with this Section
at the Contractor’s expense.
For each part of the Works:
(a)
(b)
(c)
construction shall not commence prior to either the date on which Owner’s Representative gives its
final review comments and such have been addressed by the Contractor in a manner satisfactory to
the Owner’s Representative or the expiry of the Review Periods (whichever is earlier) (including, to
the extent required by Exhibit A, the receipt of Owner’s Representative’s approval within such
Review Period) for the Construction Documents which are relevant to the design and construction
of such part as indicated in Exhibit A;
construction shall be strictly in accordance with such Construction Documents; and
if the Contractor modifies any Construction Document which has previously been submitted for
such pre-construction review, the Contractor shall immediately in writing notify Owner’s
Representative of the change and provide Owner with a copy of the modified Construction
Document, which shall be submitted for pre-construction review within a new Review Period.
36
Errors, omissions, ambiguities, inconsistencies, inadequacies and other Defects in the Construction Documents or arising therefrom
shall be rectified by the Contractor at its sole cost and risk.
6.2.1
No Relief from Liability - Neither:
(a)
(b)
the examination, review or approval of Construction Documents under this Section 6.2 or the
making of objections, representations, comments or suggestions, or failure to make the same in
relation to the said Construction Documents, the Workbook or any other aspect of the Works; nor
any other act or omission of Owner, the Representatives, the Supervisor or of any other Person
acting or purporting to act on its behalf in relation to any aspect of the Works (including without
limitation the issue of any payment certificate or other certificate or the issue of any order or
instruction pursuant to this Contract);
shall relieve the Contractor in whole or in part of any duty, obligation or liability undertaken by the Contractor in relation
to the Works under this Contract or otherwise, or diminish or vary any such duty, obligation or liability, whether by way
of contribution or otherwise. Neither Owner nor the Representatives or the Supervisor shall be under any duty or
obligation to warn or notify the Contractor of the breach of any duty or obligation owed by the Contractor hereunder or
otherwise in relation to the Works of which Owner, the Supervisor or the Representatives are aware.
6.2.2
No Variation - Neither any review of Construction Documents or the Workbook by the Representatives or the
Supervisor under this Section 6.2 nor any modification as a result of such review shall be capable of constituting a
Variation pursuant to Article XV and no additional payment of any kind or extension of Time for Completion shall be
awarded in respect of the time taken for, or other circumstances whatsoever surrounding, review of the Construction
Documents by Owner’s Representative and the Supervisor or the subsequent carrying out of the Works.
6.3
Contractor’s Undertaking - The Contractor represents and warrants that the design, the Construction Documents, the execution and
the completed Works will be in accordance with the following, in order of priority:
(a)
(b)
(c)
the Applicable Permits;
the Applicable Laws of Peru; and
the documents forming this Contract, as altered or modified by Variations.
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The Contractor shall not, under any circumstances, deviate from the requirements of (a) and (b) above without Owner’s prior written
approval. The Contractor shall make no claim for any additional compensation, extension of the Time for Completion, Variation or
otherwise for any such deviations due to legal or physical impossibility except and only to the extent expressly permitted by this
Contract. The Contractor further represents and warrants that as of the Base Date, it is not aware of any conflict between the Applicable
Laws in Peru and the requirements of this Contract. The above additional compensation does not include any indemnification for loss or
damages arising from Owner’s breach of Contract.
6.4
Technical Standards and Regulations - The design, the Construction Documents, the execution and the completed Works shall
comply with the technical standards specified in the Technical Specifications and Schedules or as defined by Applicable Laws and
Applicable Permits including requirements of local utility providers and the electric transmission grid. References in this Contract to
such specifications and other matters shall be understood to be references to the edition applicable on the Base Date, unless explicitly
stated otherwise herein. If a Change in Law occurs after the Base Date, the Contractor, if it does so within thirty (30) days after
knowledge of such Change in Law, may submit proposals for compliance to Owner’s Representative and upon Owner’s
Representative’s acceptance of the technical solution included in such proposal the Contractor shall be entitled to a Variation in
accordance with Article XV.
6.5
Samples - The Construction Documents shall include the following samples and any relevant information, which the Contractor shall
submit for pre-construction review by Owner’s Representative in accordance with Section 6.2:
(a)
(b)
(c)
samples (if any) specified in the Technical Specifications;
additional samples instructed by Owner’s Representative under Article XV; and,
additional samples proposed or requested by the Contractor.
Each sample shall be labeled as to origin and intended use in the Works.
6.6
As-Built Drawings - The Contractor shall prepare and keep up-to-date a complete set of “as-built” records of the execution of the
Works pursuant to Applicable Law, showing the exact as-built locations, sizes and details of the Works as executed. These records shall
be kept on the Site.
“As-built” records shall be submitted to the Owner’s Representatives and the Supervisor prior to the commencement of the
Performance Tests for the Plant. The Works shall not be considered to be completed for the purposes of issuing the Final Taking-Over
Certificate under Article XI until such “as-built” records have been submitted to Owner’s Representative and the Supervisor.
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Two (2) full-size original copies and six (6) printed copies of the relevant ‘as-built drawings’ and digital support of such as-built
drawings, all of which must be compatible with the latest version of AUTOCAD and shall be available at the Site, shall be provided to
Owner’s Representative and the Supervisor within ninety (90) days after the Final Taking-Over Date. As-built drawing requirements
are as specified in the Technical Specifications.
Operation and Maintenance Manuals - The Contractor shall prepare operation and maintenance manuals for all equipment included
in the Works and of the Plant’s control system and shall deliver two (2) printed and one (1) electronic copies to Owner’s Representative
no later than thirty (30) days prior to the commencement of the Training Program. The manuals referenced herein shall be drafted in
English and in Spanish pursuant to the Contract and shall contain sufficient detail to enable Owner to operate, maintain, adjust and
repair the Works. The Works shall not be considered to be completed for the purposes of issuing the Final Taking-Over Certificate
under Article XI until such operation and maintenance manuals have been submitted to Owner’s Representative and the Supervisor.
Prior to the Actual Project Acceptance Date, the Contractor shall provide to Owner and the Supervisor with final versions of said
operation and maintenance manuals reflecting any revisions that are required according to the conclusions of the testing, Start-Up,
Precommissioning and Performance Tests processes. The Contractor shall assist Owner in preparing operating procedures for the
Works.
Error by Contractor - If errors are found in the Construction Documents and a warranty claim made prior to the expiration of the
Warranty Period, they and any resulting Defective Works shall be corrected promptly at the Contractor’s cost.
Patent Rights - The Contractor shall indemnify Owner and its Affiliates against all claims of infringement of any patent, registered
design, copyright, trade mark or trade name, or other intellectual property right if the claim or proceedings arises out of the design,
construction, manufacture or use of the Works.
6.7
6.8
6.9
VII.
STAFF AND LABOR
7.1
Engagement of Staff and Labor - The Contractor shall make its own arrangements for the engagement of all staff and labor, local or
otherwise, and for its payment, housing, feeding, security, and transport.
The Contractor may import such staff, artisans, and laborers as are required to execute the Works. The Contractor is solely responsible
for ensuring that all such staff and labor are provided with the required migratory condition and work permits, and shall be responsible
for their safety and security while under its employ. The Contractor shall be responsible for the return to the place where they were
recruited or to the domicile of all persons whom the Contractor recruited and employed for the purposes of or in connection with the
Works and this Contract. The Contractor shall be responsible for such persons until they have left the Project Areas and shall cause any
person employed by it who is not a citizen of Peru to leave the territory of Peru when required by such person’s migratory condition
pursuant to Applicable Law.
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7.2
7.3
7.4
The Contractor shall defend the Owner against any threatened or actual claim brought by any employee of the Contractor or its
Subcontractors or any person engaged by any of the latter for the performance of the Works relating to the breach of any obligations of
the Contractor or its Subcontractors under this section 7.1 and shall indemnify the Owner and hold the Owner harmless of any loss or
damage suffered by the Owner of the result of any such claim.
Rates of Wages and Conditions of Labor - For the Works being carried out in Peru, the Contractor shall pay rates of wages and
observe conditions of labor not less favorable than those established for the Applicable Law. If no such established rate or conditions
are applicable, the Contractor shall pay rates of wages and observe conditions not less favorable than the general level of wages and
conditions observed by other countries in Latin America which have labor conditions similar to those of Peru and in any case, no less
favorable than those imposed by Applicable Law. On each date on which wages are paid, the Contractor shall deliver to each employee
in Peru receiving wages a copy of the payroll slip evidencing the amounts withheld by Contractor pursuant to Applicable Law and the
Contractor shall require all Subcontractors to provide each of its employees in Peru with such payroll slip upon payment of wages.
Persons in the Service of Others - Any Party shall not recruit, or attempt to recruit, its staff and labor from amongst persons in the
service of the other Party, its Representatives, Supervisor or Owner’s consultants.
Labor Laws - The Contractor shall comply, and shall cause its Subcontractors to comply, with all the relevant labor laws applying to
their employees, and shall duly pay and afford to them all their legal rights under Applicable Laws and Applicable Permits. The
Contractor shall require all such employees and Subcontractors to obey all Applicable Laws and regulations concerning safety and
health at work.
The Contractor shall submit detailed reports showing the supervisory staff and the numbers of the several classes of labor from time to
time employed by the Contractor and Subcontractors on the Project Areas. The reports shall be submitted in such form and at such
intervals as Owner’s Representative may prescribe.
The Contractor shall submit details in the prescribed forms to the appropriate manpower agencies having jurisdiction over the
Concession Area showing supervisory staff and the numbers of the several classes of labor from time to time employed by the
Contractor and the Subcontractors on the Project Areas. The forms shall be submitted in such manner and at such intervals as prescribed
under the labor laws of Peru and other applicable regulations, with copies to Owner’s Representative and the Supervisor.
In addition, Contractor shall deliver to Owner a certificate substantially in the form of Schedule 23 (Form of Labor Obligations’
Certificate), enclosed to each invoice to be issued by the Owner, by which Contractor will represent and warrant to Owner that the
Contractor and any Subcontractor have complied with all of their obligations pursuant to applicable labor legislation with respect to
employees performing activities at the Site related to the amounts evidenced in the relevant invoice.
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Whenever threatened or actual picketing, slowdowns, work stoppages, strikes or other forms of labor dispute may threaten to or cause
delay or otherwise affect the Works, the Contractor shall immediately notify Owner in writing about the existence of any such dispute.
Such notice shall include all relevant information regarding the labor dispute, its background, its estimated impact and the steps the
Contractor proposes to take to resolve or prevent its occurrence.
In the event of a labor dispute directed at the Contractor, the Contractor shall promptly take action, whether to initiate proceedings in
such administrative, judicial, or arbitral forum having jurisdiction, or to otherwise resolve, or minimize the impact of the labor dispute.
No such labor dispute directed at the Contractor shall constitute Force Majeure unless expressly within the coverage of Section 20.1 or
entitle the Contractor to a Variation or any other relief.
The Contractor’s obligations in the event of any labor dispute shall include taking all reasonable steps necessary to have pickets or any
other obstruction to the Works removed.
Working Hours - The Contractor shall be permitted to work at the Project Areas at any time or hour, as permitted by Applicable Laws
and Applicable Permits. The Contractor’s Representative or a qualified supervisor shall be present during all periods, including
overtime and second and third shifts, when work is in progress at the Project Areas.
The Contractor shall in dealings with its staff and labor have due regard to all recognized festivals, days of rest and religious or other
customs observed by its staff and labor and in Peru all of which shall remain the exclusive responsibility of Contractor, and none of the
latter shall have an impact in the Project Schedule or the Lump Sum Price.
Facilities for Staff and Labor - The Contractor shall provide and maintain all necessary accommodation and welfare facilities for its,
its Subcontractor’s, Owner’s and the Supervisor’s staff and labor, as may be required under Applicable Laws or hereby, as well as
accommodation and welfare facilities for the Lender’s Representative. The Contractor shall not permit any of its employees or any of
the employees of Subcontractors to maintain any temporary or permanent living quarters within the structures forming part of the
Works.
Health and Safety - Precautions shall be taken by the Contractor to ensure the health and safety of its staff and labor. The Contractor
agrees to abide by the undertakings assumed by Owner with the competent Governmental Authority and all applicable standards issued
by the World Health Organization as applicable to the practices prevailing in Peru. The Contractor shall, in collaboration with and to the
requirements of the local health authorities, ensure that medical staff, first aid facilities, sick bay and ambulance service are available at
the staff’s accommodation and on the Project Areas during all times the Works are being executed and that suitable arrangements are
made for all necessary welfare and hygiene requirements provided by Applicable Law, including but not limited to material and
procedures necessary for the prevention of epidemics.
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7.5
7.6
7.7
The Contractor shall maintain records and make reports concerning health, safety and welfare of persons, and damage to property, as
Owner’s Representative may reasonably require.
The Contractor shall appoint a member of its staff at the Site to be responsible for maintaining the safety, and protection against
accidents, of personnel on the Project Areas. This person shall be qualified to perform such function, shall be a full time employee of
the Contractor and shall have the authority to issue instructions and take protective measures to prevent accidents. The Contractor shall
send to Owner’s Representative and the Supervisor details of any accident as soon as possible (but in any event within twenty-four
(24) hours) after its occurrence.
The Contractor shall at all times take the necessary precautions to protect all staff and labor employed on the Project Areas from any
health hazard that may be caused by insects, animals or any pest nuisance. The Contractor shall cause any competent third party to
spray thoroughly all buildings erected on the Project Areas with an insecticide whose use is permissible under Applicable Laws of Peru,
at least twice each month or as instructed by such authorities.
In the event of any outbreak of illness of an epidemic nature, the Contractor shall comply with and carry out such regulations, orders
and requirements as may be made by the government of Peru, or the local medical or sanitary authorities, for the purpose of dealing
with and overcoming the same.
The Contractor agrees to comply with any and all safety and health requirements established by Owner and provided in this Contract
and in Applicable Law.
Contractor’s Superintendence - The Contractor shall provide all necessary superintendence during the design and execution of the
Works, and as long thereafter as Owner’s Representative may consider necessary for the proper fulfilling of the Contractor’s obligations
under this Contract. Such superintendence shall be given by sufficient and suitably qualified persons having adequate knowledge of the
operations to be carried out (including the methods and techniques required, the hazards likely to be encountered and methods of
preventing accidents) for the satisfactory and safe execution of the Works. For proper superintendence, the Contractor’s Construction
Manager shall dedicate sufficient attention to her or his responsibilities regarding the Works.
Contractor’s Personnel - The Contractor shall employ (or cause to be employed) only persons who are careful and appropriately
qualified, skilled and experienced in their respective trades or occupations. Owner’s Representative may reasonably require the
Contractor to remove (or cause to be removed) any person employed on the Project Areas or Works, including the Contractor’s
Representative, who in the opinion of Owner’s Representative:
(a)
persists in any misconduct;
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7.8
7.9
7.10
7.11
7.12
7.13
(b)
(c)
(d)
is incompetent or negligent in the performance of her or his duties;
fails to conform with any provisions of this Contract; or
persists in any conduct which is prejudicial to safety, health, or the protection of the environment.
If appropriate, the Contractor shall then appoint (or cause to be appointed), at Contractor’s sole cost, a suitable replacement person.
Disorderly Conduct - The Contractor shall cause its staff and labor to comply with Owner’s policies and procedures and at all times
take all reasonable precautions to prevent any unlawful, riotous or disorderly conduct by or amongst its staff and labor and the staff and
labor of its Subcontractors, and to preserve peace and protection of persons and property in the Concession Area against such conduct,
including offsite locations, and no such conduct shall be considered Force Majeure or entitle the Contractor to a Variation. The
Contractor shall be responsible for observance by the Subcontractors of the foregoing.
Alcoholic Liquor or Drugs - The Contractor shall not, otherwise in accordance with the statutes, ordinances and government
regulations or orders or under any Applicable Laws, import, sell, give, barter or otherwise dispose of any alcoholic liquor or drugs, or
permit or suffer any such importation, sale, gift, barter or disposal by its Subcontractors, agents, staff and labor. The Contractor shall be
responsible for observance by the Subcontractors of the foregoing.
Contractor’s Organizational Chart - None of the individuals identified in the Contractor’s Organizational Chart as key individuals
may be withdrawn from the Plant without prior notification to Owner and all such listed individuals shall dedicate appropriate attention
to their responsibilities regarding the Works. No such withdrawal shall be made if it will jeopardize successful completion of the Works
within the Time for Completion.
Labor Actions - The Contractor shall establish and maintain for each Project Areas a primary access gate and an access policy. The
Contractor shall also establish and maintain at all times for the each Project Areas a reserve gate. The Contractor shall be obligated and
shall ensure that all Subcontractors continue the proper performance of the work and meet all reasonable manning requirements
notwithstanding the use of pickets at the reserve gate established for use by the Contractor and any of the Subcontractors or at any other
location or entrance at or near the Project Areas. The Contractor shall ensure that its Subcontractors and all persons entering the Project
Areas enter and exit the gate designated for their use and will instruct all persons exiting and entering the Project Areas as to the proper
gates. If for any reason the Contractor fails to perform any condition contained in this Section 7.13, and thereafter fails to remedy such
condition within thirty (30) days after notice from Owner, the Contractor shall be in default of its obligations under this Contract and the
Contractor shall not be entitled to an adjustment in any amounts payable under this Contract or the Time for Completion. The
Contractor and all Subcontractors shall comply with and observe all terms and conditions of any collective bargaining or labor
agreements to which any of them is a party.
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VIII.
MATERIALS AND WORKMANSHIP
8.1
8.2
Manner of Execution - All Major Items of Equipment and Materials to be supplied shall be manufactured and all work to be done shall
be executed in the manner set out in this Contract. The Contractor shall supply only new Materials to Owner. Owner may reject the
delivery, installment or use of any previously used Materials. The Works shall be executed in a proper, workmanlike and careful
manner with properly equipped facilities and non-hazardous Materials (except for those fluids, lubricants and materials routinely used
by Contractor in this type of work and whose use is permissible under Applicable Laws of Peru and to Applicable Permits), in
accordance with recognized good practice and Prudent Utility Practices.
Delivery to the Concession Area - The Contractor shall be responsible for procurement, transport, receiving, unloading and safe
keeping of all Major Items of Equipment, Materials, Contractor’s Equipment and other things required for the completion of the Works.
At least thirty (30) days prior to the first shipment of Contractor’s Equipment, the Contractor shall submit to Owner a shipping schedule
giving the proposed month of shipment of each of the Major Items of Equipment, Materials as well as Contractor’s Equipment. The
Contractor may from time to time revise such shipping schedule to take account of any changes and supply to Owner each such revised
schedule within five (5) days of its revision. Not later than four (4) days before departure of any shipment of a Major Item of Equipment
or relevant Materials which shipment is covered by an insurance policy of Owner, the Contractor shall provide Owner with a written
notice (a “Shipment Notice”) forwarded by facsimile specifying:
(a)
(b)
(c)
(d)
(e)
the item to be shipped;
the date of shipment;
the point of loading or transfer of each shipment;
the anticipated date of arrival in Peru and at the Project Areas of each shipment; and
the name of the carrier and the name of the ship (or other means of transport) of each shipment.
The Contractor shall confirm to Owner the details referred to in paragraphs (a) through (e) above by facsimile immediately after
departure of each shipment or in any case no later than (a) by the close of business in Peru of the fourth day after departure of each
shipment or (b) on the last date by which Owner would be able to forward the information contained in the Shipment Notice to its
insurer or insurers pursuant to the insurance policy or policies covering such shipment, whichever is earlier.
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8.3
Inspection - To the extent provided herein or to the extent there exists reasonable justification therefor under the circumstances at the
time, Owner, the Supervisor and the Owner’s Representatives shall be entitled, during manufacture, lubrication and preparation at any
places where work is being carried out (but only at reasonably agreed witness or hold points in the case of Subcontractors who are not
Affiliates of the Contractor), to inspect, examine and test the materials and workmanship, and to check the progress of manufacture, of
all Major Items of Equipment and Materials to be supplied under this Contract. In furtherance of the foregoing, the Contractor shall
within ninety (90) days of the Notice to Commence submit to Owner and the Supervisor a detailed plan of all inspections concerning
any subcontracted or purchased portion of the Works which would be dictated by Prudent Utility Practices and give the foregoing
parties full opportunity to inspect, examine, measure and test any work on the Project Areas or wherever carried out. All costs related to
the inspections under this Section 8.3 shall be at Owner’s expense.
The Contractor shall give due notice (but in any event, not more than seven (7) days’ prior Notice) to the Owner’s Representatives and
the Supervisor whenever work subject to the above witness plan coverage is ready, before packaging, covering up or putting out of view
such work. The Owner’s Representatives and the Supervisor shall then witness the inspection, examination, measurement or testing
without unreasonable delay, or notify the Contractor that it is considered unnecessary. If the Contractor fails to give such notice, it shall,
when required by the Representatives, uncover such work and thereafter reinstate and make good at its own cost.
8.4
Testing - If this Contract specifies some tests, the Contractor shall provide all documents and other information necessary for testing
and such assistance, labor, materials, electricity, stores, apparatus and instruments as are necessary to carry out such tests efficiently.
The Contractor shall notify Owner’s Representative and the Supervisor the time and place for the testing of any equipment and other
parts of the Works as specified in this Contract. Owner’s Representative and the Supervisor shall give the Contractor written notice of
their intention to attend the tests not less than twenty-four (24) hours prior to the time in which the test is schedule to occur.
If the Owner does not attend or does not notify the Contractor as specified above, at the time and place agreed, the Contractor will
proceed with the tests.
The Contractor’s notification pursuant to this paragraph shall be made no later than the fifteenth Business Day prior to the date in which
the relevant test is scheduled. The Contractor shall provide sufficient suitably qualified and experienced staff to carry out the tests
specified in this Contract.
The Contractor shall promptly make available at the place of testing to Owner’s Representative and the Supervisor duly certified reports
of the tests and copies of the data upon which the reports are based. When the specified tests have been passed, Owner’s Representative
shall endorse the Contractor’s test certificate, or issue a certificate to them, certifying that the test was passed as of the date on which
the tests were passed.
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8.5
Rejection - If, as a result of inspection, examination or testing made prior to the start of the Warranty Period, it is determined that any
item or service provided has Defects or Deficiencies or otherwise is not in accordance with this Contract, Owner’s Representative may
reject such item or service and shall notify the Contractor promptly, stating its reasons. The Contractor shall then promptly remedy the
Defects or Deficiencies and ensure that the item complies with this Contract at its sole cost and risk of delay.
If Owner’s Representative requires such defective item of Works or service rejected under this Section 8.5 to be retested, the tests shall
be repeated under the same terms and conditions. If such correction and retesting cause Owner to incur additional costs, such costs shall
be recoverable from the Contractor by Owner, and may be deducted by Owner from any monies due, or to become due, to the
Contractor.
8.6
Ownership of Major Items of Equipment, Materials or Other Works - Title to each Major Items of Equipment, Materials or Works
shall pass to Owner at Final Taking Over Date.
The Contractor warrants and guarantees that legal title to all Materials, equipment, tools and supplies furnished by the Contractor,
Subcontractors or their agents which are being shipped to the Project Areas, incorporated in the Works or in storage at the Project
Areas, shall pass free and clear of any and all liens, claims, security interests or other encumbrances. Without derogating from the
generality of the foregoing, the Contractor hereby irrevocably waives the right to assert any contractor’s lien over the Works, the Plant
or the Project Areas. If at any time prior to the expiry of the Warranty Period there is evidence of any lien or claim for which Owner
might be or become liable and to which the Works or any part thereof, the Plant or the Project Areas might become subject and which
arises from any act or omission on the part of the Contractor or any debt or liability of the Contractor, the Contractor shall indemnify
Owner against all losses suffered by Owner as a result thereof. Owner may retain an amount (not to exceed the amount of the claim in
respect of which the lien was placed) as security until Owner is satisfied that such lien or claim is invalid unless such lien or claim is
delaying the Partial Taking-Over Date or the Final Taking-Over Date or adversely affects the Owner’s ability to operate the Plant, in
which case, Owner may after giving Contractor seven (7) days’ prior written notice, pay and discharge the same and deduct the amount
so paid from any amount due and payable to the Contractor under the Contract or otherwise recover the same as a debt due from the
Contractor.
Notwithstanding transfer of title or ownership, risk of loss or damage shall be as stated in Article XVIII.
IX.
COMMENCEMENT, DELAYS AND SUSPENSION
Commencement of Works – The Limited Notice to Commence authorizes and directs the Contractor to perform the Preliminary
Works. The Limited Notice to Commence shall be issued by Owner no later than December 30, 2011. If Owner gives the
Limited Notice to Commence after December 30, 2011, the Contractor shall be entitled to a Variation of the Time for
Completion and Lump Sum Price in accordance with Article XV.
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The Contractor shall commence the execution of the Works immediately after the receipt of (a) the Notice to Commence issued by
Owner’s Representative and (b) the information required under Section 2.4. The Contractor shall then proceed with the Works with due
expedition and without delay until completion. Owner shall be under no obligation or liability to give the Notice to Commence.
If Owner does not give the Notice to Commence by the end of the sixth month after the Commencement Date the Parties shall negotiate
for a term of thirty (30) days changes to the Time for Completion and Lump Sum Price. For such purpose the right of Owner under
Section 15.2 shall not apply. If such changes are not agreed within the term above, this Contract shall be automatically terminated upon
the receipt by a Party of written notice from the other Party indicating its decision to terminate. Such termination shall be without any
further liability to the Parties, except for payment of the Preliminary Works Lump Sum that is due hereunder as of the date of
termination and reimbursement of Costs incurred by Contractor until the date of termination of the Contract; provided, that Contractor
shall reimburse Owner for the roads included in the Preliminary Works paid but not performed by such date, according to and only for
their Unit Values. The remaining balance of the Preliminary Works Lump Sum after such reimbursement is made, will be retained by
the Contractor. During such thirty (30) day period Contractor shall not perform any Works nor enter into any purchase or similar orders
and shall limit all its actions to maintaining a stand-by status minimizing any costs associated thereto.
Time for Completion - The Contractor guarantees that the Partial Taking-Over Date will be achieved on or before the Scheduled
Partial Taking-Over Date and that the Final Taking-Over Date will be achieved on or before the Schedule Final Taking-Over Date. The
Contractor further agrees that it shall use its best efforts to achieve the Actual Project Acceptance Date as expeditiously as possible, but
in no event later than one hundred eighty (180) days after the Final Taking-Over Date (as such time may be extended under
Section 5.1). If the Partial Taking-Over Date or the Final Taking-Over Date do not occur on or before the Scheduled Partial Taking-
Over Date or the Scheduled Final Taking-Over Date, then the Contractor shall, within fifteen (15) days of Schedule Partial Taking-Over
Date or the Scheduled Final Taking-Over Date, submit to Owner a detailed technical and narrative analysis of the root causes that
prevented the achievement of Partial Taking-Over Date or Final Taking-Over Date and a detailed plan (the “Remedial Plan”)
designating the new expected date for Partial Taking-Over Date or Final Taking-Over Date and setting out the technical steps necessary
for such.
9.1
9.2
Extension of Time for Completion -
9.2.1
Causes for extension of Time for Completion - In addition to any extension provided under Section 5.1, the Contractor
may apply for an extension of the Time for Completion if any of the following events effectively causes a delay in the
Works:
(a)
a Variation (unless an adjustment to the Time for Completion is agreed under Section 15.2);
47
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
a Force Majeure event (as defined in Section 20.1);
interference by Owner with Contractor’s performance of Performance Tests to the extent permitted
under Section 10.6;
delays in the execution or performance of Access Contracts due to causes not attributable to the
Contractor;
failure by Owner to perform any of its obligations in accordance with Section 2.1 of this Contract;
a Change in Law;
if the Contractor suffers delays due to failure on Owner’s part to remove any Dangerous Substance
or as a result of the execution of Owner’s Representative’s instructions to remove Remains in
accordance with Section 5.16 or 5.21; or
Suspension of Works in accordance with Section 9.7;
delay in obtaining the Owner’s Permits, as eventually modified or adjusted in accordance with
Section 2.2;
the presence or discovery of Remains which delay or interfere with the Works;
non availability of the COES for connection of the Works at the time for testing or commissioning,
for more than seven (7) days regarding the last Generator Set to be subject to Performance Tests;
insufficient water flows to perform the Performance Tests during any period in which the
Contractor is required to perform such tests under the Contract;
the Owner directing tests under Section 8.4 and Section X that are additional to those specified in
this Contract; and
physical action of Governmental Authority where such physical action prevents the Contractor from
carrying out any portion of the Works and which is not due to the (i) negligence or lack of due
diligence or reasonable efforts of the Contractor to overcome such physical action and/or omissions
on the part of Contractor with respect to the action or inaction claim or (ii) failure to wait a
reasonable and customary period for such action to be resolved; and
(o)
delay in obtaining Owner’s Representative approval of Construction Documents as provided by
Exhibit A.
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9.2.2
Exclusions for Extension of Time for Completion – Except where otherwise expressly specified in the Contract
including Section 20.1, the Contractor is expressly precluded from any extension of the Time for Completion due to:
(a)
(b)
(c)
actions or inactions of (i) any Governmental Authority if caused by or attributable to the
Contractor’s failure to make due and timely application for an Applicable Permit for which it is
responsible under Section 2.2 in accordance with the procedures laid down by the relevant
Governmental Authority or (ii) the Contractor, including the lapse of any Applicable Permit;
delays in obtaining labor or delivery of goods or services from any Subcontractor unless such is
caused by a Force Majeure event affecting such Subcontractor;
physical conditions at or under the Project Areas of any kind or character (except in accordance
with Sections 5.10 and 5.11); or
(d)
any other reason attributable to the Contractor that has caused a delay to the progress of the Works.
9.3
Extension of the Time for Completion –
The Contractor shall be entitled to an extension of the Time for Completion by the time the Contractor is delayed by any
one or more of the events identified in Section 9.3.1 above, provided (i) notice is given as hereinafter provided, (ii) the
delay is on the critical path as determined by the final Project Schedule submitted under Section 5.12 in the form
approved by Owner (but taking into account all Variations that have been executed) and is outside the reasonable control
of the Contractor or its Subcontractors; (iii) there is no concurrent delay or interruption according to 9.3.2 above; (iv) the
Contractor and its Subcontractors, in view of all the circumstances, have exercised all reasonable efforts to avoid and
minimize the delay; and (v) the Final Taking-Over Date is actually delayed by such events. In the event of a concurrent
delay under item (iii) above, the amount of such concurrent delay shall be deducted from the aggregate of the time the
Contractor would otherwise be entitled to receive as an extension under this Section 9.4.
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If the Contractor intends to apply for an extension of the Time for Completion, the Contractor must give notice to
Owner’s Representative and of such intention as soon as possible and in any event no later than the seventh day after the
date in which it acquired or should acquire knowledge of the start of the event giving rise to the delay, together with any
other notice required by this Contract and relevant to such cause. If the Contractor cannot submit all relevant details
within such period because the cause of delay continued for a period exceeding twenty-eight (28) days, the Contractor
shall submit interim details at intervals of not more than twenty-eight (28) days (from the first day of its knowledge of
such delay) and full and final supporting details of his application within twenty-one (21) days of the last day of delay.
The Contractor is further required to submit to Owner, as part of its request for an extension of the Time for Completion,
an acceleration schedule on a “fragnet” basis to demonstrate how such delay can be overcome. The Contractor shall keep
such contemporary records as may be necessary to substantiate any application, either on the Site or at another location
acceptable to Owner’s Representative, and such other records as may reasonably be requested by Owner’s
Representative. The Contractor shall permit Owner’s Representative and the Supervisor to inspect all such records and
shall provide Owner’s Representative and the Supervisor with copies as required.
Compliance by the Contractor with the conditions of this Section 9.4 is a condition precedent to the Contractor’s right or
entitlement to any extension of the Time for Completion.
Owner’s Representative shall proceed in accordance with Article XV to agree or determine either prospectively or
retrospectively such extension of the Time for Completion as may be due. Owner’s Representative shall notify the
Contractor accordingly. When determining each extension of time, Owner’s Representative shall review his previous
determinations and may revise, but shall not decrease, the total extension of time.
Any extension of time granted (above or below) by Owner’s Representative to the Contractor shall, except as expressly
provided elsewhere in this Contract, be deemed to be in full and final compensation and satisfaction for and in respect of
any actual or probable loss or injury sustained or sustainable by the Contractor in respect of any matter or thing in
connection with which such extension shall have been granted. If Contractor disagrees with the determination of
Owner’s Representative, it shall be entitled to submit such dispute for resolution under Article XXI.
9.5 Rate of Progress - If at any time the Contractor’s actual progress (measured in physical executed volumes) falls
behind the Project Schedule referred to in Section 5.12, or it becomes apparent that it will so fall behind schedule that it is likely
to be unable to meet the Time for Completion (as applicable) within fifteen (15) days after the date shown in the Project Schedule
(as adjusted under the Contract), the Contractor shall immediately submit to Owner’s Representative and the Supervisor a revised
Project Schedule taking into account the prevailing circumstances. The Contractor
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shall, at the same time, notify Owner’s Representative and the Supervisor of the steps being taken to expedite progress, so as to
achieve completion for the Works within the Time for Completion. The costs of implementing such steps or of revising the
Project Schedule as herein noted, shall be solely for the Contractor’s account.
If any steps taken by the Contractor in meeting its obligations under this Section 9.5 require Owner to incur additional costs, such costs
shall be recoverable from the Contractor by Owner, and may be deducted by Owner from any monies due, or to become due, to the
Contractor.
If the Contractor falls behind the critical path identified in the Project Schedule so as to delay achieving the Partial Taking-Over Date or
the Final Taking-Over Date by the Scheduled Partial Taking-Over Date or the Scheduled Final Taking-Over Date for the Plant, except
to the extent the Contractor is entitled hereunder to an extension of the time therefor, the Contractor shall, upon written notice by
Owner’s Representative and at no additional cost to Owner, develop and submit to Owner a detailed written recovery plan and schedule
and work such hours (including night shifts, weekends and holidays) and furnish such additional labor and equipment as necessary to
overcome the effects of such delay.
9.6
Liquidated Damages for Delay and Bonuses -
If the Partial Taking-Over Date of the first Generator Set is not achieved by the Scheduled Partial Taking-Over Date for such Generator
Set, the Contractor shall pay Owner liquidated damages in the amount of US$ 130,000.00 for each day of delay until the Partial Taking-
Over Date is achieved.
If the Partial Taking-Over Date of the second Generator Set is not achieved by the Scheduled Partial Taking-Over Date for such
Generator Set, the Contractor shall pay Owner liquidated damages in the amount of US$ 100,000 for each day of delay until the Partial
Taking-Over Date is achieved.
If the Partial Taking-Over Date of the last Generator Set is not achieved by the Scheduled Final Taking-Over Date, the Contractor shall
pay Owner liquidated damages in the amount of US$ 160,000.00 for each day of delay until the Partial Taking-Over Date is achieved.
If any Generator Set stop working or reduce their output after their Partial Taking-Over Date and such outage or reduction of output is
caused by a Defect or by a Contractor’s request, then the Contractor shall pay Owner liquidated damages in the amount of US$
100,000.00 for each day of outage or reduction in output excluding the first day in aggregate in which an outage or reduction in output
occurred.
If the Contractor achieves the Partial Taking-Over Date of the first Generator Set before the one hundredth day prior to the fourth
anniversary of the Commencement Date, Contractor will be entitled to the Early Final Taking Over Bonus for such Generator Set.
If the Contractor achieves the Partial Taking-Over Date of the second Generator Set before the fiftieth day prior to the fourth
anniversary of the Commencement Date, Contractor will be entitled to the Early Final Taking Over Bonus for such Generator Set.
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If Contractor achieves the Final Taking Over Date before the fourth anniversary of the Commencement Date, Contractor will be entitled
to the Early Final Taking Over Bonus for the Plant.
The liquidated damages provided in this Section 9.6 shall be in lieu of all liability of Contractor to Owner for any and all extra costs,
losses or expenses of whatsoever nature incurred or to be incurred by Owner as a result of any delay in achieving the Partial Taking-
Over Date or the Final Taking-Over Date, and shall be the sole and exclusive remedy to the Owner in case of delay. The forgoing
liquidated damages shall be paid within twenty (20) days of written demand therefor and if not so paid, may be collected by Owner
from any amount then owed to the Contractor.
The above liquidated damages are a reasonable forecast of the actual costs, losses and expenses incurred by Owner as a result of delays
in achieving the Partial Taking-Over Date and the Final Taking-Over Date by the Time for Completion and therefore, do not constitute
a penalty. The parties, having bargained in good faith for such specific damages, are estopped from contesting the validity or
enforceability of such damages.
The payment or deduction of such liquidated damages shall not relieve the Contractor from its obligation to complete the Works and
achieve the Final Taking-Over Levels, remedy any Defects or Deficiencies or from any other of its outstanding duties, obligations or
responsibilities under this Contract.
The Contractor shall issue an invoice evidencing the applicable bonuses within thirty (30) days after the issuance of the Final Taking-
Over Certificate. Payment of such invoice shall occur in accordance with Section 14.3.
9.7
Suspension of Works - Owner may at any time instruct the Contractor in writing to slow or suspend progress of part or all of the
Works. During suspension or slowing, the Contractor shall continue to guard, protect, store and secure such part of the Works against
any deterioration, loss or damage at Owner’s expense.
Promptly upon providing the Contractor with written instructions regarding the slowing or suspension, Owner shall meet with the
Contractor to review the progress of the completed Works and the status of Works that are in progress. In addition, Owner and the
Contractor shall meet to review the advantages and disadvantages of having the Contractor complete during the suspension period
certain Works that are in progress. The Contractor shall follow Owner’s written instructions with respect to performing Works during
any slowing or suspension period and the Contractor shall be paid for such Works in accordance with the applicable Monthly Payment
Certificate as reasonably adjusted to take into account such slowing or the suspension while preserving any profit the Contractor would
have been expected to earn on such reductions.
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9.8
Consequences of Suspension - If the Contractor suffers delay and/or incurs Costs in following Owner’s instructions under Section 9.7
or in resumption of the Works, the Contractor shall give prompt written notice thereof to the Owner’s Representatives and the
Supervisor, with a copy to Owner. After receipt of such notice Owner shall proceed to agree or determine:
(a)
(b)
any extension of time to which the Contractor is entitled under Section 9.4; and
the amount of such Cost plus Profit thereon which shall be added to the Lump Sum Price and shall
notify the Contractor accordingly.
The Contractor shall not be entitled to any extension of time or payment of Cost if the suspension is due to a cause attributable to the
Contractor, or required as a result of a Contractor’s risk under this Contract.
The Contractor shall not be entitled to extension of time for, or payment of the Costs incurred in, making good any deterioration, defect
or loss caused by faulty design, workmanship or Materials, or by the Contractor’s failure to take the measures specified in Section 9.7.
Prolonged Suspension - If suspension under Section 9.7 has continued for more than either (i) eighty-four (84) consecutive days, or
(ii) one hundred twenty-six (126) non-consecutive days and the suspension is not due to a cause attributable to the Contractor, the
Contractor may by notice to Owner require permission to proceed within fourteen (14) days. If permission is not granted within that
time, the Contractor may, at its sole discretion, either (i) treat the suspension as a Variation under Article XV regarding the affected part
of the Works or (ii) terminate this Contract pursuant to Section 17.2.
Resumption of Works - After receipt of permission or of a written instruction to proceed, the Contractor shall, after notice to Owner
and the Supervisor, and together with Owner and the Supervisor, examine the Works and Materials affected by the suspension. The
Contractor shall at Owner’s cost make good any deterioration or defect in or loss of the Works or Materials, which has occurred during
the suspension.
If Owner has taken over risk and responsibility for the suspended Works, risk and responsibility shall revert to the Contractor fourteen
(14) days after receipt of the permission or instruction to resume Works.
Burden of Proof - In case of a dispute regarding the application of the provisions of this Article IX, including any dispute as to whether
the Contractor is entitled to an extension of the Time for Completion, the Contractor shall have the burden of proof as to its entitlement
to relief under this Article IX.
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9.9
9.10
9.11
X.
PERFORMANCE TESTS
10.1
Contractor’s Obligations - The Contractor shall carry out the Performance Tests in accordance with Exhibits A and C, this
Section 10.1, and Section 8.4, after providing the documents in accordance with Sections 6.6 and 6.7. The Contractor shall propose to
the Owner’s Representatives a date in which the Performance Tests would be carried out no later than ninety (90) days in advance of the
proposed date. Such proposed date can be updated by the Contractor forty five (45) days thereafter. The Owner’s Representatives shall
promptly after receipt of such proposal respond to the Contractor by scheduling a date for the performance of the Performance Tests
which shall not be later than fourteen (14) days after the date proposed by the Contractor as provided herein.
Specific Performance Tests are identified in the Technical Specifications (Exhibit A) and in the Performance Test Protocol (Exhibit C),
and are generally categorized as: (i) Efficiency Test, (ii) Net Electric Output Test; and (iii) Functional Test.
The Raw Data that is obtained by the Contractor as a result of the Performance Tests shall be delivered to Owner promptly after the
Performance Tests have been completed.
As soon as the Works have passed the Performance Tests, the Contractor shall provide the Representatives, the Supervisor and Owner
with a certified report of the results of all such Tests.
If during any Performance Tests it is discovered that the Works cannot be operated in a safe manner in accordance with Prudent Utility
Practices and Prudent Electrical Practice, the Performance Test shall be stopped and the Deficient system or component promptly
replaced or repaired by the Contractor at its expense, whereupon the Performance Test shall start over from hour one.
10.2
Preparation and Timing for Performance Tests - Performance Tests shall be performed by the Contractor utilizing Owner’s normal
complement of operating personnel and the Contractor’s employees under the Contractor’s direction and supervision.
The Performance Tests shall be carried out at the times authorized by COES. Owner shall request the authorization of COES for the
performance of the Performance Tests with sufficient advance written notice to COES. Any limitations or scheduled restrictions
imposed by COES shall not constitute Force Majeure or serve to postpone the Scheduled Partial Taking-Over Date or the Scheduled
Final Taking-Over Date unless such delays is more than seven (7) days on the last Generator Set that is within the critical path, in the
case of either the applicable Scheduled Partial Taking-Over Date or the Scheduled Final Taking-Over Date and are not as result of
Contractor’s failure to comply with a request or rule of COES.
10.3
Punch List - The Partial Taking-Over Certificate or the Final Taking-Over Certificate will not be issued until such time as the Punch
List has been prepared and agreed upon as set out below. Contractor and Owner’s Representative shall jointly prepare the Punch List
prior to the anticipated Partial Taking-Over Date or Final Taking-Over Date. The Contractor shall provide it to Owner and Owner’s
Representative together with an estimate of the cost and time required to complete or correct each Punch List item. Owner’s
Representative shall
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10.4
notify the Contractor whether it accepts such Punch List and estimate or shall otherwise state its reasons for disagreement therewith in
reasonable detail; provided, however, that acceptance or rejection thereof shall not relieve the Contractor of its liability to complete or
correct the Punch List items. Owner may withhold from amounts otherwise payable hereunder an amount equal to one hundred fifty
percent (150%) of the estimated value of each Punch List item until the Contractor has completed that item. Alternatively the
Contractor may provide a bank guarantee in the form of Schedule 8 equal to the above referred value. If the Contractor fails to complete
all Punch List items once it has been given ninety (90) days of access to the Works after the Partial Taking-Over Date or the Final
Taking-Over Date, Owner may complete, or cause to be completed, any item which the Contractor has so failed to complete at the
Contractor’s expense including third party costs and costs of Owner for such item.
Conduct of Performance Tests - Guidelines for the conduct of Precommissioning and Start-Up are set forth in Exhibit A. The
Performance Test Protocols shall be in accordance with Exhibit C. No later than ninety (90) days prior to the commencement of the
Performance Tests, the Contractor will submit to the Representatives and the Supervisor its proposed detailed testing procedures, which
shall complement and be in accordance with Exhibit C (the “Test Procedures”) for the conduct of Performance Tests. The Owner’s
Representatives and the Supervisor will review and respond to the Contractor’s proposed Test Procedures within thirty (30) days of the
submission, and the Parties, and the Supervisor shall meet to finalize the Test Procedures within five (5) days of the Owner’s
Representatives’ and the Supervisor’s response. The Contractor will submit the final version of the Test Procedures to the
Representatives and the Supervisor not more than fifteen (15) days prior to the commencement of the Performance Tests.
The Net Electric Output Test shall define the capacity in KW as a single value measured in KW and shall not allow for any tolerance.
Allowances are only those set forth in the Technical Specifications.
The Contractor shall use plant instrumentation and non-plant instrumentation as specified and calibrated in accordance with the
approved protocol, the Technical Specifications, and applicable codes and standards and no tolerances will be permitted. Employees of
Owner will witness all Performance Tests. The Contractor shall be solely responsible for directing such employees in implementing
such tests.
Upon completion of any Performance Test, regardless of the test results or when the test was performed, the Contractor shall prepare
and deliver to Owner’s Representative and the Supervisor for information a Performance Tests report to document the results of the
test. Each Party shall have the right to perform data collection for each Performance Test. The Parties shall agree on the data to be used
for analysis, and the analysis will be performed by the Contractor. Owner may direct that the Performance Test be stopped and restarted
after appropriate corrective action has been taken by the Contractor at the Contractor’s sole cost and expense, if (a) Owner observes any
Defects or Deficiencies in any Plant Equipment or the Plant or their performance during any Performance Test, (b) Owner has notified
the Contractor in writing promptly thereafter, and (c) in Owner’s reasonable judgment such Defect or Deficiency calls into question the
validity of the Performance Test or poses any risk of damage or injury to property or persons.
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Once Performance Tests are completed and Partial Taking-Over Levels or Final Taking-Over Levels have been accomplished by
Contractor, a Performance Test Certificate shall be requested by Contractor to Owner and Owner shall issue the requested Performance
Test Certificate substantially in the form set forth in Schedule 9.
The Performance Tests shall be deemed to be successfully completed when the Contractor has successfully completed all of the criteria
specified in Exhibit C at levels meeting or exceeding the Partial Taking-Over Levels or the Final Taking-Over Levels. If the Partial
Taking-Over Levels or the Final Taking-Over Levels are not met, the Contractor is obligated to conduct additional work as necessary in
an attempt to meet such levels.
Once the Contractor has successfully completed the Performance Tests, the Contractor may request that Owner issue to the Contractor a
Final Taking-Over Certificate, substantially in the form set forth in Schedule 10 and in Schedule 11 accordingly.
The Contractor is entitled to the issuance of the Partial Taking-Over Certificate by the Owner after both Parties verify that the relevant
Generation Set has accomplished the Partial Taking-Over Levels measured by the measuring instrument of the Generator Set pursuant
to Section 11.1. For this purpose, an additional Performance Test is not required. The Contractor is entitled to the issuance of the
FinalTaking-Over Certificate by the Owner after both Parties verify that the Generation Sets have accomplished the FinalTaking-Over
Levels measured by the measuring instruments of the Generator Sets pursuant to Section 11.1. For this purpose, an additional
Performance Test is not required.
The Performance Test described in Exhibit A shall be completed by the Contractor prior to the date of issuance of the Final Taking-
Over Certificate and the Performance Test described in Exhibit C shall be completed by the Contractor no later than sixty days after the
date of issuance of the Final Taking-Over Certificate. The provisions contained in the three last paragraphs of this Section 10.4 prevail
over any other provision of this Contract.
10.5
Failure to Achieve Performance Guarantee Level - In the event the Contractor has failed, as of the Partial Taking-Over Date or the
Final Taking-Over Date, to successfully complete Performance Tests at levels meeting or exceeding the Partial Taking-Over Levels or
Performance Guarantee Level(s), respectively, the Contractor shall (unless commercially unreasonable to do so) conduct additional
testing and work in an attempt to meet such Partial Taking-Over Levels or Performance Guarantee Level(s), respectively. The
Contractor shall have one hundred and twenty (120) days from the Partial Taking-Over Date or the Final Taking-Over Date,
respectively, to achieve the Partial Taking-Over Levels or Performance Guarantee Level(s), respectively (the “Cure Period”).
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10.6
10.7
10.8
10.9
Performance Tests carried out within such period, if any, cannot be corrected by degradation curves. The Contractor and Owner shall
use their best efforts to minimize the economic impact on Owner during periods of repairs or Performance Tests carried out during such
period, if any. Failure of the Contractor to successfully complete Performance Tests at levels meeting or exceeding the Partial Taking-
Over Levels or Performance Guarantee Level(s), respectively, within the above-referenced period (as extended by Section 5.1, if
applicable) shall require the payment on demand to Owner by the Contractor of the Buy-Down Amount (but only for Guaranteed Net
Elective Output in the case of the Partial Taking-Over Date). If the Buy-Down Amount is not paid on demand, Owner may withhold
such sums and set off such sums against any amount then owed to the Contractor, or resort to any other remedy available to it in law or
equity for the recovery of the Buy-Down Amount.
Interference with Performance Tests - If the Contractor is prevented from carrying out the Performance Tests by Owner’s failure to
perform its obligations hereunder or due to Owner’s breach of this Contract the Contractor may request an extension of the Time for
Completion, pursuant to Section 9.4. If the Contractor incurs additional Cost as a result of this delay in carrying out the Performance
Tests, such Cost plus Profit thereon shall be determined mutually by Owner’s Representative and Contractor’s Representative pursuant
to the provisions of Article XV and such Cost and Profit shall be added to the Lump Sum Price.
Issuance of Certificates - Owner agrees to promptly issue any certificate required under this Article X if the criteria for the issuance of
such a certificate have been satisfied to Owner’s satisfaction and to certify in such certificate, the date in which the event giving rise to
the certification was completed.
Modifications to Achieve Passage of Performance Tests - Owner and the Contractor shall confer and mutually agree upon any
corrective measures or modifications to the Plant to be taken by the Contractor to achieve passage of the Performance Tests. No
automatic controls or safety protections may be temporarily avoided to achieve passage of the Performance Tests.
Early Operation - If the Partial Taking-Over Date or the Final Taking-Over Date do not occur by the Scheduled Partial Taking-Over
Date or the Scheduled Final Taking-Over Date, respectively, Owner may, at its sole option, place any Generator Set or the Plant as a
whole into service at any time provided that it is completed such that it can be operated safely; and further provided, that, if requested
by Contractor, Owner will provide Contractor the opportunity to perform Performance Tests and reparations of any Defects, if any,
within a mutual agreed schedule. Such placement into service shall not be deemed to be the Partial Taking-Over Date nor the Final
Taking-Over Date for all purposes under this Contract and the associated Monthly Payment Certificate due upon the Partial Taking-
Over Date or the Final Taking-Over Date shall be paid to the Contractor, unless there are any sums due by Contractor to Owner, in
which case Owner will have the right to withhold such sums from any amount then owed to the Contractor, until the Contractor
complies with its obligations under this Contract.
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The Contractor shall cooperate with Owner so that it may operate the relevant Generator Set or the Plant. The Contractor shall not be
relieved from any of its obligations hereunder (including testing for achieving the Actual Project Acceptance Date) so long as Owner
follows proper safety procedures and conforms to the Contractor’s directions in the receipt, handling, storage, protection, installation,
maintenance, inspection and operation of the relevant Generator Set or the Plant. Once Owner is operating any Generator Set or the
Plant, all risks, care, custody and control thereof shall pass to Owner and Owner shall thereby bear the associated risk of loss.
If, in any case above, the Contractor shall fail or refuse to give Owner operating instructions as aforesaid, Owner shall follow accepted
operating practices with respect to its operation of the relevant Generator Set or the Plant.
Owner will act reasonably in allowing the Contractor continued access to the Plant to fulfill its obligations to achieve the Performance
Guarantee Levels and the Actual Project Acceptance Date. If Contractor is not permitted to complete Performance Tests within six
(6) months after the Partial Taking-Over Date nor the Final Taking-Over Date, then the Actual Project Acceptance Date shall be
deemed to have occurred for all purposes under this Contract.
10.10
Increased Capacity Bonuses and Spill Water Generator Bonus - If the final installed capacity of the Plant, measured on the Final
Taking-Over Date or during the Cure Period at the bushings of the high voltage step-up transformer, is above 504 MW, the Contractor
shall be entitled to the Increased Installed Capacity Bonus if the final installed capacity is measured using a water flow of up to 210.5
m3/sec and to the Additional Installed Capacity Bonus if the final installed capacity is measured using a water flow higher than 210.5
m3/sec.
If the Tested Spill Water MW Capacity measured on the Final Taking-Over Date or during the Cure Period at the bushings of the high
voltage step-up transformer, is above the Minimum Spill Water Demonstrated Capacity, the Contractor shall be entitled to the Spill
Water Generator Bonus.
XI.
PARTIAL TAKING-OVER, FINAL TAKING-OVER AND ACTUAL PROJECT ACCEPTANCE
11.1
Partial Taking-Over Certificate and Final Taking-Over Certificate – Each Generator Set and the Plant shall be taken over by
Owner when it has been completed in accordance with this Contract and has passed the Performance Tests and Partial Taking-Over
Certificate or a Final Taking-Over Certificate for the Works has been issued or deemed to have been issued in accordance herewith and
pursuant to the last paragraph of Section 10.4 and it can be placed into operation for dispatch by COES.
58
The Contractor may apply by notice to Owner’s Representative for a Partial Taking-Over Certificate or a Final Taking-Over Certificate
not earlier than fourteen (14) days before the Works will, in the Contractor’s opinion, be complete and ready for Partial Taking-Over or
Final Taking-Over. Owner shall, within twenty-eight (28) days after the receipt of the Contractor’s application:
(a)
(b)
issue the Partial Taking-Over Certificate or the Final Taking-Over Certificate to the Contractor,
stating the date on which the Works were completed in accordance with this Contract (except for
work described in the Punch List) including passing the Performance Tests; or
reject the application, giving its reasons and specifying the work required to be done by the
Contractor to enable the Partial Taking-Over Certificate or the Final Taking-Over Certificate to be
issued and the Contractor shall then complete such work before issuing a further notice under this
Section 11.1.
If Owner fails either to issue the Partial Taking-Over Certificate or the Final Taking-Over Certificate or to reject the Contractor’s
application on or before the twenty-eighth day after the receipt of the Contractor’s application for the issuance of such certificate, and if
the Works are complete in accordance with this Contract (except for work described in the Punch List), free of Defects or Deficiencies,
the Partial Taking-Over Certificate or the Final Taking-Over Certificate shall be deemed to have been issued on the date of delivery of
the Contractor’s application.
11.2
Operation by Owner after Partial Taking-Over – After the Partial Taking-Over of any Generator Set, Owner will be entitled to place
the relevant Generator Set into service. The Contractor shall cooperate with Owner for a period not exceeding the Final Taking-Over
Date so that it may operate the relevant Generator Set.
Owner will provide Contractor the opportunity to perform any works, tests and reparations necessary to complete the Plant, within a
mutual agreed schedule.
The Contractor shall not be relieved from any of its obligations hereunder so long as Owner follows proper safety procedures and
conforms to the Contractor’s directions in the receipt, handling, storage, protection, installation, maintenance, inspection and operation
of the relevant Generator Set. If, in any case above, the Contractor shall fail or refuse to give Owner operating instructions as aforesaid,
Owner shall follow accepted operating practices with respect to its operation of the relevant Generator Set.
11.3
Buy-Down Amount - The Parties agree that the following formula will be used to calculate liquidated damages due to Owner by the
Contractor as a result of the Contractor’s failure to achieve the Performance Guarantee Levels applicable to any Generator Set, the Plant
as a whole or the Minimum Spill Water Demonstrated Capacity. The sum is referred to singularly and in the aggregate as the “Buy-
Down Amount”. The Contractor must attempt to achieve the Performance Guarantee Levels and the Minimum Spill Water
Demonstrated Capacity until the end of the Cure Period after the Partial Taking-Over Date of a Generator Set and the Final Taking-
Over Date.
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In the event the Contractor has failed to demonstrate the Performance Guarantee Levels at the end of the above-referenced period and
complying with all Applicable Laws and Applicable Permits, the Contractor shall pay Owner the Buy-Down Amount in accordance
with Section 10.5, which amount shall be equal to the Guaranteed Net Electric Output minus the Net Electric Output of the Plant
multiplied by US$ 1,800.00 per kilowatt.
In the event the Contractor has failed to demonstrate the Minimum Spill Water Demonstrated Capacity at the end of the above-
referenced period, the Contractor shall pay Owner the Spill Water Generator Buy-Down Amount, which amount shall be equal to the
Minimum Spill Water Demonstrated Capacity minus the Tested Spill Water MW Capacity multiplied by US$ 2,400.00 per kilowatt.
The Parties agree that the Buy-Down Amount specified in this Section 11.3 constitutes liquidated damages to compensate Owner for
the losses it is likely to suffer or damages it is likely to incur as a result of the Contractor’s failure to achieve the Performance
Guarantee Levels, and such Buy-Down Amount shall be in lieu of all liability for any and all extra costs, losses, or expenses incurred by
Owner as a result of the Contractor’s failure to achieve the Performance Guarantee Levels once the Partial Taking-Over Date or the
Final Taking-Over Date has been achieved and constitutes the sole and exclusive remedy to the Owner in case of such failure. These
liquidated damages are a reasonable forecast of the actual costs, losses and expenses Owner will incur as a result of such Contractor’s
failure and do not constitute a penalty. The Parties, having bargained in good faith for such specific damages and are therefore estopped
from contesting the validity or enforceability of such damages.
The payment or deduction of such liquidated damages shall not relieve the Contractor from its obligation to complete the Works
achieve the Final Taking-Over Levels, remedy any Defects or Deficiencies or from any other of its outstanding duties, obligations or
responsibilities under this Contract.
11.4
Actual Project Acceptance - Actual Project Acceptance shall be deemed to occur when the Contractor has: (a) successfully met the
criteria specified in Exhibits A and B at level meeting or exceeding the Performance Guarantee Levels or, if the Contractor has been
unable to meet or exceed the Performance Guarantee Levels, paid the Buy-Down Amount; (b) fully completed all the Works, including
the Punch List, free of Defects or Deficiencies and no Variations concerning the Works remain unsettled; (c) paid any liquidated
damages for delay, as well as any other obligations then owed by the Contractor to Owner, which date shall be the date acknowledged
and stated by Owner’s Representative in the Actual Project Acceptance Certificate; (d) delivered to Owner all final drawings, as-built
drawings and manuals required under this Contract; and (e) the Warranty Letter of Credit is in full force and effect.
Upon the Contractor achieving Actual Project Acceptance, Owner shall issue a Actual Project Acceptance Certificate in the form set
forth in Schedule 12.
11.5
Issuance of Certificates - With respect to Owner’s obligations to issue certificates pursuant to this Article XI, Owner agrees to
promptly issue the certificate indicating the date in which the event giving rise to the certification was completed, if the criteria for the
issuance of such a certificate have been satisfied.
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XII.
CONTRACTOR’S REPRESENTATIONS AND WARRANTIES
12.1
Representations and Warranties
Each of Astaldi and GyM represents and warrants to Owner that, as of the date of this Contract and the Notice to Commence date:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
the Consortium Agreement is valid, binding and has been legally executed in accordance with the
Applicable Laws;
is a duly organized and legally existing corporation under the laws of the jurisdiction of
incorporation;
has authority to and has obtained all corporate approvals necessary for the execution of this
Contract;
this Contract constitutes a binding obligation of the Contractor, and both Astaldi and GyM are
jointly and severally responsible before the Owner for all obligations assumed by the Contractor
under this Contract;
the execution of this Contract by the Contractor will not cause the Contractor to breach any legal or
contractual obligation assumed by the Contractor:
has thoroughly examined this Contract and have become familiar with its terms;
has full experience and proper qualifications to perform the Works and to construct the Plant;
other than with respect to subsurface conditions and antiquities, they have ascertained the nature
and location of the Works, the character and accessibility of the Project Areas and its surrounding
areas, the quality and quantity of water to execute the Works and the on-Site access thereto without
prejudice to Section 5.9, the availability of lay-down areas for Contractor’s Equipment and tools,
the existence of visually apparent obstacles to construction (other than underground obstacles, if
any, or other conditions referred to in this Contract), the availability of facilities and utilities, the
location and character of existing or adjacent work or structures, the conditions as of the Base Date
of roads and waterways in the vicinity of the Project Areas, including the conditions affecting
shipping and transportation (such as the limitations of bridges and tunnels), access, disposal,
handling and storage of Materials, the surface conditions and other general and local conditions,
including labor, safety, weather, environmental conditions (other than Dangerous Substances which
are not known to the Contractor), geological conditions, if any, noted in and attached to this
Contract;
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(i)
(j)
(k)
each company, and its Subcontractors are, fully qualified and capable of performing the Works to
complete the Plant in accordance with the terms of this Contract and no proceeding has been
commenced or has been threatened to be commenced against or by the Contractor that could
materially impair the Contractor’s ability to perform the Works to complete the Plant;
all services provided and procedures followed by the Contractor hereunder to engineer, design,
procure, construct, commission, start-up and test the Works shall be done in a workmanlike manner
and in accordance with the requirements of this Contract;
it is familiar with all necessary facilities for delivering, handling and storing all Contractor’s
Equipment and other parts of the Works;
(l)
the Contractor will design the Plant based on a useful life objective of at least fifty (50) years;
(m)
(n)
(o)
has satisfied as to the means of communication with and access to and through the Concession Area
and accommodations it may require to use in the Project Areas after the Contractor shall have been
given unrestricted access thereto and the precautions and times and methods of working necessary
to prevent any Person under the direction of the Contractor from creating any nuisance or
interference, whether public or private, which might give rise to any legal action;
the Applicable Laws of Peru in effect on the Base Date and all Applicable Laws in existence on the
Effective Date that, by their terms, are effective and applicable to the Contractor or the Works to be
performed by Contractor as of the Base Date, have been taken into account in its calculation of the
Lump Sum Price and shall be reflected in the design of the Plant and the Works.
has received from Owner and has thoroughly examined the data available provided to Contractor by
the Owner on topographical, geological, hydrological and sub-surface conditions at, under and
around the Project Areas, and studies on environmental impact which have been obtained by or on
behalf of Owner from investigations for the Works, which information is described in Exhibits A
and D; and
(p)
is financially capable of performing its obligations contained in this Contract;
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XIII.
DEFECTS LIABILITY
13.1
Completion of Outstanding Works and Remedying Defects - The Contractor warrants:
(a)
(b)
the Works shall be free from Defects and Deficiencies in accordance with the Contract; and
that the Works shall be new and unused when installed; the services provided will be performed in
accordance with the standards and requirements specified in this Contract; the Works shall be
designed, engineered and constructed to meet the requirements of this Contract and to produce a
fully functional facility that is capable of demonstrating the Performance Guarantee Levels (taking
into account the Buy Down Amounts paid), and the Plant (including design and engineering) will
conform to the Technical Specifications.
In order that the Construction Documents and the Works comply with the warranties and conditions required by this Contract, (fair
wear and tear excepted) by the expiry date of the Warranty Period, the Contractor shall:
(i) complete any Works which is outstanding on the date stated in a Partial Taking-Over Certificate
or a Final Taking-Over Certificate, as applicable, as soon as practicable after such date; and
(ii) execute all Works of amendment, reconstruction, and remedying Defects or Deficiencies,
promptly or as may otherwise be instructed by Owner or Owner’s Representative.
13.2
13.3
If any Defect or Deficiency appears, Owner or Owner’s Representative shall promptly notify the Contractor in writing within the
applicable Warranty Period.
Cost of Remedying Defects - All work referred to in Section 13.1 shall be executed by the Contractor at its own cost. All costs
incidental to the Contractor’s performance of its obligations, including the removal, replacement and reinstallation of Materials which
Materials were part of the Works necessary to gain access to Defects or Deficiencies and retesting of repaired or replaced portions of
the Works (if appropriate in accordance with industry standards) shall be borne by the Contractor. Any duties or taxes assessable for the
importation of items required to meet the Contractor’s obligations herein shall also be borne by the Contractor.
Notice to Correct - If the Contractor fails to carry out any of its obligations, including to remedy any Defect or Deficiency within the
times permitted under this Contract, or if no specific time is provided, a reasonable time, or if the Contractor is not executing the Works
in accordance with this Contract, Owner may give notice to the Contractor requiring it to make good such failure and remedy the same
provided that no individual claim may be inferior to US$ 50,000 and provided further that after the second anniversary of the Final
Taking-Over Date the Owner may only require the repair of Defects or Deficiencies of civil Works that in the aggregate cost more than
US$ 2,000,000 if such Defects or Deficiencies can be attributed to the same cause or more than US$ 4,000,000 if such Defects or
Deficiencies can not be attributed to the same cause.
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The construction of Access Roads and Accessways are not subject to the provisions of this Section 13.3.
In the event the Contractor neglects to make good such failure and remedy the same within the time agreed upon by Owner and the
Contractor or, if no such time is agreed upon, within thirty (30) days from the Contractor’s receipt of notice, Owner may, without
prejudice to other remedies Owner may have, undertake such work at the Contractor’s cost but the Contractor shall not have
responsibility for this work and deduct the cost thereof, from any payments then or thereafter due to the Contractor. If payments then or
thereafter due to the Contractor are not sufficient to cover such amounts, the Contractor shall pay the difference to Owner on demand.
Extension of Warranty Period - The applicable Warranty Period for the Works or any portion of them repaired or replaced by the
Contractor shall be extended for a term of one (1) year from the date any such repair or replacement is completed. Without derogating
from the foregoing, the Warranty Period shall be extended during any period in which the Plant is unavailable for service or de-rated by
reason of any Defect or Deficiency. In case of unavailability of the Plant, the extension shall be on a day-by-day basis. In the case of de-
rated, the extension shall be equal to the number of de-rated days multiplied by the de-rated factor.
However, the total Warranty Period shall not be extended for more than one (1) year from the date of expiry of the original applicable
Warranty Period.
Removal of Defective Works - If the Defect or Deficiency is such that it cannot be remedied expeditiously on the Concession Area, the
Contractor may, with the consent of Owner’s Representative or Owner, remove from the Project Areas for the purposes of repair any
part of the Works which is defective or damaged at the risk of loss and expense of the Contractor.
Further Tests - If the remedying of any Defect or Deficiency or damage is such that it may affect the performance of the Works,
Owner may require that the related portion of Performance Tests be repeated to the extent necessary to demonstrate that the Defect or
Deficiency has been remediated. The requirement shall be made by written notice within twenty-eight (28) days after the Defect or
Deficiency or damage is remedied. Such Performance Tests shall be carried out pursuant to Article X utilizing plant instrumentation and
at the cost of the Contractor.
Contractor to Search - The Contractor shall, if directed by Owner’s Representative, search for the root cause of any Defect or
Deficiency. If a Defect or Deficiency is present, the Contractor shall be liable for all such Costs.
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13.4
13.5
13.6
13.7
Within twenty four (24) hours from receipt of Owner’s request or as soon as reasonably practicable, the Contractor shall deliver to the
Project Areas qualified personnel and shall immediately proceed to identify and analyze the root cause of the Defect or Deficiency
found. The Defect or Deficiency will not be considered remedied and the Contractor will not be released from its obligations and
responsibilities under this Contract until a detailed root cause analysis is submitted to Owner providing that the Defect or Deficiency
found has been or will be adequately addressed and corrected.
13.8
Final Acceptance Certificate - The obligations of Contractor for the Works shall not be considered to be completed until the Final
Acceptance Certificate has been signed by Owner’s Representative and delivered to the Contractor, stating the date on which the
Contractor completed its obligations under this Contract.
The Final Acceptance Certificate shall be issued and delivered by Owner’s Representative substantially in the form set forth in
Schedule 13 no later than the twenty-eighth day after the expiry of the Warranty Period, or as soon after such date as the Contractor has
provided all the Construction Documents and completed and tested all the Works, including remedying any Defects or Deficiencies,
whichever is earlier.
If the Owner fails to issue the Final Acceptance Certificate accordingly, the Final Acceptance Certificate shall be deemed to have been
issued on the date 28 days after the date on which it should have been issued, as required by this Section, unless a Dispute regarding a
Defect or Deficiency remains outstanding by such date.
13.9
Unfulfilled Obligations - The Final Acceptance Certificate issuance shall not release the Contractor or Owner from any unfulfilled
obligation under this Contract.
XIV.
CONTRACT PRICE AND PAYMENT
14.1
The Lump Sum Price
14.1.1
The Lump Sum Price - The Lump Sum Price shall be the full and sole compensation of the Contractor for all the
engineering and design services, procurement and transportation services, civil works, construction, erection and
installation services and obligations hereunder, but may be adjusted by additions or deletions expressly provided under
this Contract. Except otherwise stated herein:
(a)
(b)
the Lump Sum Price shall not be adjusted for changes in costs or any other matters; and
any quantities which may be set out in any Schedule of this Contract are only estimated quantities
and are not to be taken as the actual and correct quantities of the Works to be executed by the
Contractor in fulfillment of his obligations under this Contract.
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If any part of the Works performed pursuant to a Variation under Article XV hereof is to be paid according to quantity
supplied or Works done, the provisions for measurement and valuation shall be as stated herein.
14.1.2
Monthly Payment Certificate – Together with the monthly Progress Report Contractor shall prepare and submit a
Monthly Payment Certificate, specifying the progress of the Works achieved in the previous calendar month and
identifying the applicable amount of the Lump Sum Price to be paid by Owner for such progress. The applicable progress
of the Works shall be demonstrated with the corresponding monthly Progress Report.
14.1.3
The Contractor may submit a Monthly Payment Certificate in four (4) copies to the Owner’ Representative in the form
set forth in Schedule 7.
The Monthly Payment Certificate shall also include any other sums, including those arising out of Variations, that the
Contractor certifies are due and owing since the last Monthly Payment Certificate and a certification that all insurance
required to be maintained by the Contractor under this Contract is in full force and effect.
Payment - Upon receipt of a Monthly Payment Certificate, the Owner’s Representative will, within ten (10) days,
determine whether the applicable Monthly Payment Certificate is in accordance with the payment required by the
Contractor and the Progress Report submitted. Once approved, if such is the case, the Owner’s Representative will
countersign the Monthly Payment Certificate and upon receipt thereof by the Contractor, the Contractor may submit such
countersigned Monthly Payment Certificate together with invoices (for the portion of the Lump Sum Price) requesting
payment for such Monthly Payment Certificate in the corresponding amount set forth therein, and Owner will pay the
Contractor the entire amount due in respect of such Monthly Payment Certificate within thirty (30) days subject to the
next subparagraph below, minus any amounts owed by the Contractor to Owner and minus any amounts that Owner shall
withhold pursuant to the Applicable Law. Owner’s determination of the Monthly Payment Certificate shall be final and
conclusive absent manifest error.
As a condition precedent to payment of such amounts, the Contractor shall deliver to Owner: (a) the certificate
mentioned in Section 5.4 of the Contract in the form of Schedule 22 (Form of Proof of Subcontractor Payment), (b) the
certificate mentioned in Section 7.4 of the Contract in the form of Schedule 23 (Form of Labor Obligations’ Certificate),
(c) a copy of any tax return filed by the Contractor related to any taxes assessed or levied in connection to the execution
of the Works that are the subject matter of such invoice, and (D) a written release of liens of the contractor against owner
and their property, agents and employees for demands for payment or compensation for equipment, materials or services
in connection with the monthly payment certificate.
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14.1.4
14.1.5
14.1.6
14.1.7
In addition, the Contractor shall execute and furnish to Owner supporting documents as will establish title in and to the
Works. No payment made hereunder shall be considered an approval or acceptance of any Works or constitute a waiver
of any claim or right that Owner may have at that time or thereafter, including claims and rights relating to warranty and
indemnification obligations of the Contractor.
Form and Manner of Payments - All payments owed by Owner to the Contractor hereunder shall be made in Dollars
and Peruvian Soles, as applicable, by wire transfer of immediately available funds to the bank account the Contractor
may designate from time to time in writing by notice to Owner given not less than five (5) Business Days prior to the
next payment date to which such payment instructions are to apply.
If the date for any payment called for under this Contract should fall on a day that is not a Business Day at the location
designated for receipt of such payment, then such payment may be made on the next succeeding Business Day in such
location with the same effect as if made on the date due.
Delayed Payment - Any sum owed by Owner under Section 14.1.6 that is not paid when due will accrue interest at a rate
per annum equal to LIBOR + 2% from the date in which the payment came due to the date in which the amount is paid in
full.
Application for Final Payment Certificate - The Contractor shall be entitled to request payment of its final Monthly
Payment Certificate, which shall include all sums due and outstanding to the Contractor for Works executed in
accordance with the Contract, upon having successfully completed the criteria specified in Article XI herein (or
whenever such criteria is deemed completed under Section 11.1) at levels meeting or exceeding the Performance
Guarantee Levels or having paid the Buy-Down Amount in accordance with Section 11.3 hereof and so long as no
Variation claims remain outstanding.
The Contractor shall submit to the Owner’s Representative the final Monthly Payment Certificate with supporting
documents, showing the value of all work done in accordance with the Contract and all other sums due and outstanding
to the Contractor under the Contract, and Owner shall then make payment in accordance with Section 14.1.3.
Discharge - When submitting its request for Final Payment in accordance with Section 14.1.6, the Contractor shall
submit a Final Payment Certificate in the form set forth in Schedule 14 which confirms that Owner’s Final Payment shall
represent a full and final settlement of all monies due to the Contractor for Works done under this Contract and shall
release all claims of the Contractor and Subcontractors against Owner and its property, agents, and employees for
demands for payment or compensation for equipment, materials or services.
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This certificate shall state that it becomes effective when the Contractor has received the securities provided under
Sections 14.6.1 and 14.6.2 and the outstanding balance and the Final Payment Certificate in which event the discharge
shall be effective on such date.
14.1.8
Cessation of Owner’s Liability - Owner shall not be liable to the Contractor for any matter concerning the cost of the
Works after Final Payment has been made.
14.2
Taxes and Duties
14.2.1
14.2.2
14.2.3
14.2.4
Taxes - The Lump Sum Price includes all taxes, duties and other charges imposed by any country or any political
subdivision thereof other than Peruvian value-added tax and custom and import duties. Owner shall not be responsible
for any income taxes of any kind which may now or hereafter be applicable to, measured by, or imposed upon the
Contractor as a result of the transactions hereunder. Also, the Parties recognize that all monetary amounts referred to in
this Contract do not include Peruvian value-added tax.
Owner’s Right to Withhold: Tax Certificates - With respect to payment for any services provided hereunder by the
Contractor, Owner may withhold or deduct from the payment of any amount otherwise payable to the Contractor under
this Contract as Owner may be required to withhold or deduct under the laws of Peru or any other country or political
subdivision or taxing authority or agency thereof, and Owner shall promptly furnish the Contractor with appropriate tax
certificates/receipts of all sums so withheld or deducted.
Other Taxes – Owner shall be responsible for the administration and payment of any property taxes in connection with
the Project Areas, all corporate income taxes with respect to Owner’s profits and all taxes related to the employment of
Owner’s personnel.
Adjustment of Lump Sum Price - The Lump Sum Price cannot be changed or adjusted except pursuant to a Variation.
Contractor shall complete the Works and achieve the Actual Project Acceptance Date irrespective of the cost of
achieving such.
14.3
Customs and Import Duty -
Owner is responsible for the payment of any import duties imposed on or as consequence of the importation of Major Items of
Equipment and Materials into Peru and Owner shall reimburse Contractor such concept without affecting the Lump Sum Price and
through the invoices issued by Contractor provided that the imposition of any such import duties, import surcharges do not result from
an error attributable to the Contractor in such importation or in the filing of any
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return or in performing any formality in connection to such importation. Owner shall pay such invoices within five (5) Business Day
after receiving them. The Contractor shall be responsible for handling the clearance customs procedures of all Major Items of
Equipment and Materials entering Peru.
14.4
Owner’s Right to Withhold or Set Off Payment - Contractor and Owner shall have the right to set-off from monies and securities
otherwise due to the Contractor or Owner any claims or charges that Owner or the Contractor have against the other Party under this
Contract.
The obligation of Owner to make any payment to the Contractor for Works performed shall be subject to the right of Owner to withhold
an amount equal to the amount of any outstanding claims or charges as stated above against the Contractor.
14.5
Invoicing Documentation .
The Contractor shall address to Owner each notice, request, invoice, statement or other such document issued by it for the payment of
an amount due to it from Owner or both in accordance with this Article XIV and shall at the time of such issuance provide copies
thereof to each of Owner, and Owner’s Representative.
14.6
Security .
As security for the Contractor’s obligations under this Contract, the Contractor shall provide Owner with the Advance Payment Bond,
the Performance Bond, the Warranty Letter of Credit and a Parent Guaranty in the form attached as Schedule 15.
Should any security, collateral or guarantee delivered hereunder have a stated maturity date that falls prior to the expiry of the
obligations covered thereby, respectively, Owner may foreclose on any such security, collateral or guarantee and maintain the amounts
received therefrom as for security of the obligations caused by such securities, collateral or guarantees and may apply such funds to
cover any obligation covered thereby as if no such foreclosure had occurred. If any security, collateral or guarantee is foreclosed
hereunder, the Contractor shall replace it with a new one executed in the same terms and conditions. Upon delivery to Owner of the
new security, collateral or guarantee, Owner shall promptly return such amounts. Owner shall not pay interest.
14.6.1
Advance Payment Bond - Contractor shall deliver to Owner four (4) standby letter of credits in substantially the form of
Schedule 3 issued by an Eligible Bank in a stated amount equal to US$ 20,000,000 each, in accordance with the
Preliminary Schedule of Payments, and the Contractor shall deliver the first standby letter of credit no later than five
(5) Business Day after the date on which Owner issues the Notice to Commence.
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14.6.2
14.6.3
The amount of this Advance Payment Bond shall be reduced every three (3) months after its issuance in proportion to the
percentage of the payments of the Lump Sum Price made by Owner in accordance with Section 14.1.4, which is to be
ultimately certified by Owner.
The cost of obtaining and maintaining the Advance Payment Bond shall be borne by the Contractor. If any bank that has
issued an Advance Payment Bond fails to be an Eligible Bank, within ten (10) Business Days of such failure, the
Contractor shall cause another Advance Payment Bond to be posted by an Eligible Bank or Owner may demand payment
under such Advance Payment Bond and the Contractor will be deemed to be in default hereunder.
Performance Bond - No later than one (1) Business Day after the delivery of the Notice to Commence, the Contractor
shall deliver to Owner an irrevocable standby letter of credit in substantially the form of Schedule 4 (the “Performance
Bond”) issued by an Eligible Bank, in a stated amount equal to fifteen per cent (15%) of the Lump Sum Price, which
shall expire no earlier than the fifteenth day after the Final Taking-Over Date. The cost of obtaining and maintaining the
Performance Bond, if any, shall be borne by the Contractor. Owner shall return the Performance Bond to the Contractor
within ten (10) Business Days from the Final Taking-Over Date, provided that Owner has received the Warranty Letter
of Credit on or before such date. The Performance Bond may be partially or totally drawn upon by Owner to satisfy any
unsatisfied obligation of Contractor which has matured hereunder.
In the case where Owner draws on the Performance Bond, the Contractor shall, within ten (10) Business Days after
Owner’s drawing, ensure that the Performance Bond is restored to the full value which it had immediately prior to
Owner’s drawing.
The Contractor’s failure to restore the Performance Bond to its full value as aforesaid within the aforesaid ten
(10) Business Days shall constitute an event of default and a fundamental breach of this Contract which shall entitle
Owner to terminate this Contract.
Warranty Guarantee – No later than the Final Taking-Over Date, the Contractor shall deliver to Owner an irrevocable
standby letter of credit in substantially the form of Schedule 5, issued by an Eligible Bank, in a stated amount equal to
five per cent (5%) of the Lump Sum Price plus any unpaid liquidated damages for delay (determined pursuant to
Section 9.6) and any unpaid Buy-Down Amount, which expires no earlier than the thirtieth day after the end of the
Warranty Period applicable to all Works which are not civil works. Owner shall return the Warranty Letter of Credit to
the Contractor within ten (10) Business Days from the issuance of the Final Acceptance Certificate. The cost of obtaining
and maintaining the Warranty Letter of Credit, if any, shall be borne by the Contractor.
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14.6.4
14.6.5
Parent Guaranty - No later than the Commencement Date, the Owner shall deliver to Contractor a Parent Guaranty in
substantially the form of Schedule 16, which expires on the Final Taking-Over Date.
Right to Draw - Owner may draw upon either the Performance Bond or the Warranty Letter of Credit or the Advance
Payment Bond or the Parent Guaranty should Contractor, after ten (10) days written notice, fail to comply with any
obligation hereunder.
XV.
VARIATIONS
15.1
Right to Vary - Variations may be initiated by (a) Owner at any time prior to its taking over the portion of the Works in question, by a
request for the Contractor to submit a proposal or (b) by the Contractor at any time prior to the Partial Taking-Over Date or the Final
Taking-Over Date in connection with the operation of the provisions of this Contract expressly permitting a Variation. Such a Variation
may provide for a change in, addition to, or deletion from the Works, an adjustment in the pricing, Project Schedule or other terms of
this Contract, including but not limited to changes:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
in the Technical Specifications;
in the method or manner of performance of the Works;
in the Owner-furnished services;
directing acceleration or deceleration in the performance of the Works;
adjusting the Partial Taking-Over Date or the Final Taking-Over Date;
adjusting the Lump Sum Price; or
Change in Law that causes a material increase in the costs of performance of any obligation
hereunder.
The Contractor shall not be required to make any alteration or modification of the Works unless and until Owner approves a Variation,
unless the Construction Documents or Works do not conform with the provisions of this Contract, in which case the Contractor shall
rectify the Construction Documents or Works and any such rectification shall not constitute a Variation.
The Contractor shall provide to Owner such information as Owner may reasonably request in connection to any Variation request or
proposal made by Owner or by the Contractor, including but not limited to, identifications of the country of origin of equipment to be
incorporated into the Works. Detailing of or refinements to the Construction Documents shall not constitute a Variation.
Except as otherwise provided in a Variation, no order, instruction, proposal, suggestion, consent, approval, statement, or conduct of
Owner, Owner’s Representative or the Supervisor shall constitute a change to this Contract or entitle the Contractor to an adjustment to
the Lump Sum Price.
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15.2
Variation Procedure - If Owner requests a proposal for a Variation or the Contractor requests a Variation to which it is entitled under
Section 15.1, the Contractor shall prepare at its expense and submit as soon as practicable:
(a)
(b)
(c)
(d)
a written description of the proposed design or work to be performed and a program for its
execution in the form of Schedule 17;
the Contractor’s proposal for any necessary modifications when such proposal impacts the critical
path schedule to the Project Schedule according to Section 5.12;
the Contractor’s proposal for adjustment of the Lump Sum Price, Time for Completion or
modifications to this Contract, accompanied by detailed pricing and a proposed payment schedule
therefor; and
a statement whether and the extent to which, in its opinion, the proposed Variation would,
notwithstanding the exercise of all due skill and care, result in defective design or construction or
prevent the Contractor from performing its obligations under this Contract, including Defects
liability and the Performance Guarantee Levels.
As soon as practicable after receipt of such proposals, Owner shall review this estimate with the Contractor for the purpose of
determining whether to proceed with the Variation and, if so, for the purpose of agreeing on the matters set forth therein, including a
mutually acceptable adjustment to the Lump Sum Price or the Project Schedule, if any, if the proposed change requires a modification
of the Technical Specifications.
Compliance by the Contractor with the provisions of this Section 15.2 is a condition precedent to the Contractor’s entitlement to an
extension of time or adjustment to the Lump Sum Price.
Variations whether initiated by Owner or by Contractor, must be mutually and expressly agreed upon. No order, instruction, proposal,
suggestion, consent, approval, statement, or conduct of Owner, Owner’s Representative or the Supervisor shall be construed as an
implied Variation.
In the event the Owner or the Contractor requests a Variation over a task that is on the critical path of the Works, Owner shall determine
whether to proceed with the Variation within forty five (45) days after the receipt of such request. If no answer is given by Owner
within such forty five (45) days period, the relevant Variation shall be deemed approved.
Once a Variation is agreed, then both Owner and the Contractor shall proceed to agree or determine adjustments to the Lump Sum
Price, the amount of the guarantees provided in Section 14.6, Time for Completion and schedule of payment for such adjustment, if
applicable.
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On receipt of an order for a Variation, the Contractor shall forthwith proceed to carry out the Variation and be bound by this Contract in
so doing as if such Variation was stated in this Contract. In case of disagreement between the Parties regarding the adjustment of the
Lump Sum Price or an extension of the Time for Completion resulting from such order, the Contractor shall continue to carry out the
works comprised by the order for a Variation. In this case Contractor shall keep records of such Variation and of time expended
thereon. Such records shall be open to inspection by Owner’s Representative and the Supervisor at all reasonable times.
Once Owner and the Contractor execute a Variation with respect to any matter, the Contractor shall not be entitled to make any claim or
any claim for a price adjustment, schedule extension or variation or modification of any other item that was included in such Variation,
nor will any subsequent Variation be construed to alter a prior Variation except to the extent expressly set forth in such subsequent
Variation.
In no event shall the Contractor be entitled to:
(a)
(b)
recover any damages or additional compensation from Owner or Owner’s contractors; or
any extension of time, or relief for, its performance hereunder;
on account of any delay, obstruction or interference attributable to any Person or cause, unless such delay, obstruction or interference is
grounds for and results in a Variation, in which case the Contractor shall only be entitled to such relief as is specified in such Variation
and the Contractor hereby expressly waives any and all rights, on its own behalf as well as on behalf of all the Contractor’s agents,
servants, Subcontractors and employees, to any claim against Owner for damages or additional compensation or extension of time or
excuse for performance as a result thereof under any legal or equitable theory including common law principles of, mistake, frustration,
or impossibility of performance.
Any disputes or disagreements between the Contractor and Owner regarding the approval and execution of a Variation shall be resolved
according to the provisions of Article XXI.
XVI.
SUSPENSION OF WORKS
16.1
Contractor’s Entitlement to Suspend Works - The Contractor may suspend the performance of its duties under the Contract in whole
or in part, or reduce the rate of such performance, if Owner fails to (i) pay any amount owed to the Contractor when due after the fifth
Business Day after the date in which Owner received a written demand of payment from the Contractor or (ii) provide to the Contractor
reasonable evidence that financial arrangements have been made in accordance with Section 2.4. The remedy provided in this
Section 16.1 is without prejudice to other remedies available to the Contractor under this Contract and by operation of law.
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Notwithstanding, this Section 16.1 may not be construed as to limit or restrict Owner’s right to set off under Section 14.4 nor entitle the
Contractor to suspend the performance of its obligations under this Contract if Owner refuses to make a payment of any amount due on
the basis that such amount has been set off pursuant to Section 14.4 with an amount owed by the Contractor to Owner.
If the Contractor suspends work or reduce the rate of work, and Owner subsequently pays the amount due plus interest accrued over
such amount then the Contractor shall promptly resume normal working progress.
If the Contractor suffers delay or incur Cost as a result of suspending the performance of its duties under the Contract or reducing the
rate of work in accordance with this Section 16.1, the Contractor shall give written notice to Owner of any such delay or Cost. After
receipt of such notice, Owner shall proceed to agree or determine:
(a)
(b)
any extension of time to which the Contractor is entitled under Section 9.4; and
the amount of such Cost plus Profit thereon shall be added to the Lump Sum Price, and shall notify
the Contractor accordingly.
XVII.
TERMINATION
17.1
Termination by Owner -
17.1.1
Events of Termination by Default - If the Contractor:
(a)
(b)
(c)
fails to comply any obligation under this Contract within a reasonable time, but in no case more
than thirty (30) days after notice under Section 13.3 is given by the Owner provided that such thirty
(30) day period shall be extended for an additional period of not more than thirty (30) days so long
as according to Owner’s sole discretion, the Contractor is diligently pursuing remediation of any
such failure and provided further that the foregoing sixty (60) day period shall be extended by the
time reasonably required to procure and deliver to the Project Areas any defective part or
component on commercially reasonable terms taking into account the financial harm that Owner
will suffer;
abandons or repudiates Works or fails to replace a Performance Bond whose issuer is no longer an
Eligible Bank within twenty eight (28) days of such occurrence;
continues to fail to employ sufficiently diligent measures in its performance of the Works such that
completion could reasonably be expected to be achieved within the Time for Completion after the
forty fifth day following the date on which Owner delivered to the Contractor written notice
demanding the employment of diligent measures to ensure the completion of the Works by the
Time of Completion;
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(d)
(e)
(f)
(g)
(h)
(i)
(j)
becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made
against it, compounds with his creditors, or carries on business under a receiver, trustee or manager
for the benefit of its creditors, or if any act is done or event occurs which (under any Applicable
Laws) has a similar effect to any of these acts or events;
fails to comply with a notice issued under Section 8.5 within twenty-eight (28) days after having
received it;
assigns this Contract or subcontracts the Works without Owner’s prior written consent;
fails to achieve the Final Taking-Over Date within one hundred and eighty (180) days after the
Scheduled Final Taking-Over Date as such date may be extended from time to time under
Section 9.4;
continues to fail to comply with the requirements of any Applicable Laws and Applicable Permits
after the thirtieth day following the date on which Owner delivered to the Contractor the written
notice demanding that the Contractor comply with the requirements of any Applicable Laws or
Applicable Permits, provided that the Contractor shall have an additional thirty (30) day period
thereafter so long as they are diligently pursuing the cure of such failure;
fails to maintain in full effect the Parent Guaranty required of the Contractor pursuant to
Section 14.6 hereof;
any of its Subcontractors at any tier, agents or servants pays or gives or offers to pay or give any
inappropriate or illegal consideration or incentive to any officer, agent, employee or consultant of
any Government Authority with the purpose of influencing the decision of any Government
Authority in connection with the performance of the Works or this Contract; or
(k)
fails to maintain and keep in effect the insurance as is required hereunder.
then Owner may terminate this Contract by advising the Contractor in writing of its decision fourteen (14) days in advance of the date
of termination and the Contractor shall no later than on such date (i) turn over to Owner’s Representative all Works in process;
(ii) transfer title to Owner over any pieces of land acquired by the Contractor for the purposes of the Works for one (1) dollar;
(iii) remove all Contractor’s Equipment from the Project Areas (unless Owner requires that the Contractor refrain from such removal);
(iv) assign to Owner, in the manner, at the times, and to the extent directed in writing by Owner’s Representative, all of the rights and
duties, title and interest of the Contractor under any Subcontract or purchase order relating to the Works that are specifically identified
in such directive for one (1) dollar (v) indemnify Owner for any direct damages suffered by Owner as a result of the termination of this
Contract; and (vi) deliver all Construction Documents, and other design documents made by or for him, to Owner’s Representative.
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Upon completion of all of the foregoing obligations, the Contractor shall be released from any of its obligations or liabilities under this
Contract, except for material failure of the Works performed by the Contractor until the termination of this Contract becomes effective,
discovered within two (2) years thereafter. Owner may upon such termination complete the Works itself or by any other contractor.
Owner or such other contractor may use for such completion so much of the Construction Documents, other design documents made by
or on behalf of the Contractor, Contractor’s Equipment, Temporary Works and Materials as it or they may think proper. Upon
completion of the Works, or at such earlier date as Owner’s Representative thinks appropriate, Owner’s Representative shall give notice
that the Contractor’s Equipment and Temporary Works will be released to the Contractor at or near the Site. The Contractor shall
remove or arrange removal of the same from such place without delay and at his cost. The obligations of the Contractor and the rights
and remedies to which Owner is entitled pursuant to this Section 17.1 shall survive the termination of this Contract.
If it is subsequently found that Owner was not entitled to terminate under this Section 17.1, this Contract shall be deemed to have been
terminated under Section 17.1.4.
17.1.2
17.1.3
Valuation at Date of Termination - Owner’s Representative shall, as soon as possible after termination under this
Section 17.1, reasonably determine and advise the Contractor of the value of the Construction Documents, Major Items
of Equipment, Materials, Contractor’s Equipment and Works in excess of the portion of the Lump Sum Price that has
been previously paid to the Contractor.
Payment after Termination - After termination under Section 17.1, Owner shall not be liable to make any further
payments to the Contractor for Works except the payment provided in the Section 17.1.2 after taking into account the
cost recovery provided in the next sentence which will not be due until the costs of design, execution, completion and
remedying of any Defects or Deficiencies, liquidated damages for delay in completion (if any), Buy-Down Amounts (if
any) and all other actual and documented costs (if any) incurred by Owner have been established and paid in full.
Owner shall be entitled to recover from the Contractor the costs in excess of the unpaid portion of the Lump Sum Price
involved in completing the Works after allowing for any sum due to the Contractor under Section 17.1.2.
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17.1.4.
Termination without cause - Unless Owner is in breach of any of its obligations under this Contract, Owner will be
entitled to terminate this Contract at its convenience at any time by a written notice executed and delivered by Owner to
the Contractor. In the event of such termination, the Contractor:
(a)
(b)
shall proceed in accordance with Section 17.4; and
shall be paid by Owner the Termination Fee set forth in Section 17.3 provided that this Contract is
terminated pursuant to this Section 17.1.4 after the issuance of the Notice to Commence.
In the event this Contract terminates under this Section 17.1.4 prior to having issued the Notice to Commence, the
Contractor shall have no rights to be paid any monies by Owner or make any claim for costs arising out of or relating to
this Contract, except for any portion of the Preliminary Works Lump Sum owed by Owner to the Contractor, in
accordance with the Preliminary Schedule of Payments. Contractor shall reimburse the Owner for any portion of the
Preliminary Works Lump Sum paid for any Preliminary Works not performed as of the date in which this Contract is
terminated as provided herein.
Termination by Contractor – If:
the Contractor is not paid any amount due, excluding any disputed amounts within forty-two (42) days after the expiry of
the time stated in Section 16.1 within which payment is to be made (except for a deduction that Owner is entitled to make
under this Contract);
the Contractor does not receive the reasonable evidence within forty-two (42) days after giving notice under Section 16.1
in respect of a failure to comply with Section 2.4;
the Owner fails to comply with Section 22.18;
a prolonged suspension affects the whole of the Works as described in Section 9.9; or
the Owner becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against
him, compounds with his creditors, or carries on business under a receiver, trustee or manager for the benefit of his
creditors, or if any act is done or event occurs which (under Applicable Laws) has a similar effect to any of these acts or
events, provided that Lenders or an Owner’s Affiliate do not assume the rights and obligations of the Owner under this
Contract within ninety (90) days since the occurrence of any such event.
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17.2
(a)
(b)
(c)
(d)
(e)
17.3
then the Contractor may terminate its employment under this Contract by giving notice to Owner, with a copy to the Representatives.
Such notice shall take effect fourteen (14) days after the giving of the notice. The Contractor’s election to terminate the Contract shall
not prejudice any other right or remedy of the Contractor under the Contract.
Payment on Termination – After termination under Section 17.2, Owner shall pay the Contractor a Termination Fee amount equal to
(i) Contractor’s actual and documented costs (including for this purpose, reasonable home office overhead and allocated profit thereon
of five percent (5%)), as audited and accepted by an independent quality surveying firm of international reputation selected by Owner
and reasonably acceptable to Contractor, incurred and which could not be avoided in connection with the performance by Contractor of
the Work hereunder as of the date of such termination and which were not previously paid by Owner, and (ii) with respect to Materials,
equipment or supplies to be incorporated into the Works which have been ordered, but have not been delivered to the Project Areas
either (a) all documented costs incurred by Contractor in connection with such materials, equipment or supplies, for which Contractor
has not been paid, provided that such materials, equipment or supplies are delivered to Owner at the Project Areas together with all
documents necessary to transfer good and unencumbered title thereto Owner, if Owner has elected (in its sole discretion) in writing to
take possession of such materials, equipment or supplies, or (b) all actual, documented, reasonable and customary cancellation charges
payable by the Contractor to its Subcontractors for such materials, equipment or supplies as a result of such cancellation, to the extent
that such charges are not mitigated despite best efforts to do so by Contractor, if Owner has in its sole discretion elected in writing not
to take possession of such materials, equipment or supplies. (iii) any other Cost or liability which in the circumstances was reasonably
incurred by the Contractor in the expectation of completing the Works, (iv) the Cost of removal of Temporary Works and Contractor’s
Equipment from the Concession Area and the return of these items to the Contractor’s works in his country (or to any other destination
at no greater cost) and (v) the Cost of repatriation of the Contractor’s staff and labor employed wholly in connection with the Works at
the date of termination of this Contract. Payment of this Termination Fee shall be the sole and exclusive liability of Owner, and the sole
and exclusive remedy of Contractor, with respect to the termination of this Contract.
In no event the Termination Fee to be paid by Owner will be higher than the Lump Sum Price, as amended, minus any payments
already made. After termination under Section 17.2 has taken effect, the Owner shall promptly:
(a)
(b)
return the securities provided under Section 14.6;
pay the Contractor in accordance with this Section 17.3 above.
17.4
Cessation of Works and Removal of Contractor’s Equipment - After termination under Section 17.1.4 or Section 17.2, the
Contractor shall do the following:
(a)
cease all further work, except for such work as may be necessary and instructed by Owner’s
Representative for the purpose of ensuring the safety or protecting those parts of the Works already
executed, and any work required to leave the Project Areas in a clean and safe condition;
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(b)
(c)
(d)
(e)
transfer possession and title over all Construction Documents, Major Items of Equipment and
Materials for which the Contractor have received payment;
transfer possession and title over those other parts of the Works executed by the Contractor up to
the date of termination;
transfer possession and title over any pieces of land acquired by Contractor for the purposes of the
Works; and
remove all Contractor’s Equipment which is on the Concession Area and repatriate all its staff and
labor from the Project Areas.
Any such termination shall be without prejudice to any other right or remedy of the Contractor under this Contract.
XVIII.
RISK AND RESPONSIBILITY
18.1
18.2
Indemnity - Contractor shall defend, indemnify and hold Owner, Owner’s Representative, the Supervisor, Lender’s Representative and
its representatives and all of the foregoing Persons’ respective Affiliates, contractors, agents and employees harmless from and against
all claims, damages, losses and expenses (including reasonable attorneys’ fees) to the extent resulting from the Contractor’s or any
Subcontractor’s negligence.
Contractor’s Care of the Works - The Contractor shall bear the risk of loss and take full responsibility for the care, custody and
control of the Works and of the Project Areas and any Major Items of Equipment, Materials, Temporary Works, whether delivered to or
placed on the Project Areas or elsewhere in connection with or for the purpose of the Works, from the Commencement Date until the
Final Taking-Over Date when responsibility therefor shall pass to Owner.
If any loss or damage happens to the Works arising from any cause during the period for which the Contractor is responsible, the
Contractor shall as promptly as practicable rectify such loss or damage, at its cost, so that the Works conform to this Contract. The
Contractor shall also be liable for any loss or damage to the Works caused by any operations carried out by the Contractor after the
Final Taking-Over Date.
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18.3
18.4
18.5
Employees - No Party nor its directors, officers, employees, agents, Affiliates or representatives, nor any independent contractor
engaged by it in connection with the performance of this Contract, shall be deemed an employee of the other Party. No Party shall bring
any claim against the other Party or its directors, officers, Affiliates, agents, representatives, employees or independent contractors with
respect to any liability for compensation under any Applicable Laws.
Limitation of Contractor’s Liability - The Contractor’s total liability for all claims of any kind, whether as a result of breach of
contract, delays, warranty, tort, negligence, strict liability or otherwise, for any loss or damage arising out of, connected with, or
resulting from the Works, shall in no case exceed a sum equal to one hundred percent of the Lump Sum Price; provided, however, that
the foregoing limitation shall not apply to any liability arising from gross negligence, fraud or willful misconduct of Contractor, or any
of their employees or agents (the “Liability Cap”). The limitations of liability of Contractor hereunder shall not limit its obligations to
perform the Works and achieve completion as provided under this Contract including achieving the Final Taking-Over Levels.
The Contractor’s liability for liquidated damages under Section 9.6 shall not exceed twelve (12) percent of the Lump Sum Price and
under Section 11.3 shall not exceed eight (8) percent of the Lump Sum Price and under both Sections 9.6 and 11.3 in the aggregate shall
not exceed fifteen (15) percent of the Lump Sum Price. Notwithstanding the payment by the Contractor of any indemnification under
this Contract, the Contractor shall complete the Works and achieve the Actual Project Acceptance Date. In any case, the Contractor’s
liability shall not be limited, and no credit shall be issued against the Liability Cap, for:
(a)
(b)
(c)
(d)
the Contractor’s indemnification obligations (except as to claims of Owner’s customers for loss of
service) under the applicable sections of this Contract;
the costs incurred by the Contractor in achieving the Partial Taking-Over Date at the Partial Taking-
Over Levels or the Final Taking-Over Date at the Final Taking-Over Levels;
any loss or damage arising out of or connected with the Contractor’s gross negligence or willful
misconduct; or
any risks insured through insurance required under this Contract, it being the Parties’ specific intent
that the Liability Cap shall not provide any relief or satisfaction of any obligation of the
Contractor’s insurers or guarantors.
Liability - Except to the extent that damages specifically provided for in Sections 9.6 and 11.3 of this Contract, neither Party nor its
officers, directors, agents, employees, or Affiliates, shall be liable to the other Party, its subsidiaries, Affiliates, officers, directors,
agents, employees, successors or assignees, for claims for incidental, indirect or consequential damages of, or in any nature connected
with or resulting from, performance or non-performance of this Contract, including, inter alia, claims for loss of profit or revenue, loss
of use of equipment, and cost of capital or return on capital irrespective of whether such claims are based upon warranty, negligence,
strict liability, contract, operation of law or otherwise; provided, however, that the foregoing provisions shall neither affect nor impair
the rights or remedies of either Party to recover, in addition to any other remedies under this Contract, “direct damages” (for the
avoidance of doubt “direct damages” in this section means “daño emergente” according to Peruvian law) for a breach of this Contract
for which liquidated damages do not apply, and subject to the limitation established in Section 18.4.
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XIX.
INSURANCE
19.1
19.2
General - The provisions of this Article XIX do not modify or change or abrogate any responsibility of the Contractor or any
Subcontractor stated elsewhere in this Contract. Owner assumes no responsibility for the solvency of any insurer or the failure of any
insurer to settle any claim. Requirements of the Contractor’s and Owner’s insurance policies are set forth below.
Polices Obtained by the Contractor - The Contractor shall maintain in force during its performance of the Works and until the Actual
Project Acceptance Date, at its cost, insurance policies with company(s) approved by Owner (such approval not to be unreasonably
withheld), in compliance with the laws of Peru, of the types and in the amounts as follows.
(a)
(b)
(c)
Workers’ Compensation Insurance or any other similar form of employees’ social insurance which is required by
Applicable Laws. The Contractor expressly agrees to comply with all provisions of the Workers’ Compensation Laws or
similar employee benefit laws of Peru, or wherein said Works are to be performed, or of the countries from which its
personnel are employed, where required, if applicable.
The Contractor shall effect and maintain insurance against losses and claims arising from the death or injury to any
person employed by the Contractor or any Subcontractor. For a Subcontractor’s employees, such insurance may be
effected by the Subcontractor, but the Contractor shall be responsible for compliance with this Section 19.2.
Automobile Liability Insurance with companies approved or licensed to do business in Peru including owned, hired,
rented or non-owned vehicles for bodily injury and property damage with a Combined Single Limit Each Occurrence:
one million Dollars (US$1,000,000) or amount required by Applicable Laws, whichever is greater.
All policies pursuant to this Section 19.2 shall contain appropriate no-fault insurance provisions or other endorsements as
are required under Applicable Laws and Applicable Permits.
Aircraft and Watercraft Liability Insurance is required if the Contractor or any Subcontractor utilizes aircraft or
watercraft while performing the Works. Aircraft liability insurance, which shall include passenger liability, or Watercraft
Liability Insurance shall each have a minimum limit of coverage of fifteen million Dollars (US$15,000,000) per
occurrence and in the annual aggregate.
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(d)
(e)
Third Party Liability Insurance excess over the coverage provided by Owner under Clause 19.4(b) for losses arising
out of or in connection with the Works at the Project Areas and primary for losses arising away from the Project Areas.
Such insurance shall provide contractual coverage in respect of the Contractor’s commercial activities, including the
Contractor’s indemnity obligations to Owner and shall include broad form property damage, sudden and accidental
pollution and personal injury coverage. Such insurance shall have a limit of coverage of ten million Dollars (US$
10,000,000) per occurrence and in the annual aggregate.
Regarding coverage in respect of liability for claims arising out of products and completed operations, a third parties’
liability coverage shall be granted until twenty four (24) months after the Final Taking-Over Date. Such insurance shall
have a limit of liability of three million Dollars (US$ 3,000,000) per occurrence and in the annual aggregate.
Excess Liability / Umbrella Liability Insurance this policy must provide following form coverage excess of the
policies contained in this Section 19.2(a) to (d) with a minimum limit of liability of ten million Dollars (US$
10,000,000) per occurrence and in the annual aggregate.
19.3
Requirements in Respect of Contractor’s Insurance - In regards to each policy described under Section 19.2 the following shall
apply:
(a)
(b)
(c)
(d)
The amounts of insurance may be satisfied by purchasing coverage in the amounts specified or by
any combination thereof, so long as the total amounts of insurance meet the requirements specified.
The Contractor shall provide to Owner’s Representative promptly upon request a certificate of
insurance providing evidence of each such insurance upon the terms required hereunder and make
available for Owner’s inspection all other policies in which Owner is included as an insured. The
Contractor shall furnish Owner such evidence as may reasonably request from time to time
regarding the establishment and maintenance of insurance by any Subcontractor.
Each policy under Section 19.2, with the exception of Workers’ Compensation, shall specify Owner
as additional insureds.
Each policy under Section 19.2 shall be placed and maintained with reputable insurers or reinsurer
of sound financial standing as approved by Owner provided that such approval shall not to be
unreasonably withheld by Owner.
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(e)
(f)
(g)
(h)
(i)
(j)
Each insurance policy shall provide that the cancellation, non renewal or amendment of the policy
shall be effective thirty (30) days’ after the date in which the insurer has advised Owner in writing
of any such cancellation, non renewal or amendment provided that if any such notice is sent to or
from an office outside Peru, it will be sent by reputable international courier.
All policies obtained by the Contractor or any Subcontractor shall include a waiver by the insurer of
any right of subrogation it may have against Owner or any of its employees, agents, directors, and
shareholders.
Except as provided for in Section 19.2(e), the above described insurance, with the exception of
Worker’s Compensation Insurance referenced by Section 19.2(a), shall be considered primary
insurance with respect to the obligations assumed by the Contractor hereunder and all insurance
carried by Owner, its agents, representatives, or Lenders shall be considered secondary and non-
contributory in relation thereto.
The insurance policies described in section 19.2 shall cover the risk derived from the
Subcontractors’ activities.
At Contractor’s request, Owner will contract the insurance policies described in section 19.2 above
and Contractor will reimburse Owner the cost of maintaining such policies.
The Contractor shall comply with all terms, conditions and warranties of policies procured by
Owner pursuant to the following Section 19.4.
19.4
Policies Obtained by Owner -, Owner shall maintain in force until the Final Taking-Over Date at its cost:
(a)
Construction/ Erection All Risk Insurance, effective on the date in which the Contractor has advised
Owner in writing that it will commence Mobilization, provided that such notice has to be received
by Owner with at least thirty (30) Business Days in advance to such date. If Owner fails to maintain
Construction/ Erection All Risk insurance then Contractor shall have the right to seek
indemnification for any losses it should incur by reason of Owner’s failure to maintain such
insurance. Such insurance shall include Contractor, Subcontractors and their Affiliates as insureds
and provide for waivers of subrogation against Contractor, Subcontractors and their Affiliates. Such
policy shall be governed by Peruvian law and the issuer of such policies shall submit to the
jurisdiction of Peruvian courts;
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(b)
Third Party Liability up to five million Dollars (US$5,000,000) per occurrence and in the annual
aggregate, effective on the date in which the Contractor has advised Owner in writing that it will
commence Mobilization, provided that such notice has to be received by Owner with at least thirty
(30) Business Days in advance to such date, in respect of claims by third parties arising out of or in
connection with the Works at the Project Areas; and
(c) Marine Cargo (including Air & Inland transit), effective on the date of the first shipment (which
coverage shall be at DDU per Incoterms 2000), provided that Contractor notifies Owner in writing
the shipment information as stated in Section 8.2 above, on an All Risk basis with limits sufficient
to provide replacement cost of the single highest value shipment.
The Owner may divide the coverage described above in separate polices to ensure coverage for the scope of the Preliminary Works and
for the scope of the Works scheduled to be performed after the Notice to Commence. The Owner shall promptly thereafter give written
notice to the Contractor providing reasonable details of the coverage.
Owner shall ensure that any minor activities with a value not to exceed one million Dollars (US$ 1,000,000) per activity, to be
performed by the Contractor on the Project Areas prior to Mobilization, including but not limited to bench mark studies and
geotechnical investigations, are covered by Owner’s existing all risk and third party liability insurance policies.
The Contractor shall not be liable for any loss or damage to the Works in the case that insurance proceeds under the policies listed in
19.4(a) and 19.4(c) are paid to Owner and then not made promptly available to the Contractor. Contractor acknowledges that Owner
may elect to insure the Works for less than their full replacement value subject to the condition that in such case Contractor shall not be
liable for any loss or damage to the Works to the extent such loss or damage exceeds the insurer’s limit of liability thereof.
If the Final Taking-Over of the Plant by Owner does not occur by the Scheduled Final Taking-Over Date, for any reason attributable to
the Contractor, then the Contractor shall be responsible for the additional costs to be incurred by Owner for extending the enforceability
of the Construction/Erection All Risk Insurance and the Contractor shall reimburse Owner for the resulting additional insurance costs.
19.5
General Requirements for All Insurance - The following provisions shall apply to all insurance policies required pursuant hereto.
(a)
The Contractor and Owner shall immediately procure replacement coverage for all its canceled
policies required hereunder. If a Party fails to effect and keep in force any of the insurances
required under this Contract, the other Parties
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(b)
(c)
(d)
(e)
shall have the right but not the obligation to, without prejudice to any other right or remedy, effect
insurance for the coverage relevant to such default, and pay the premiums due. Such payments shall
be recoverable from the breaching Party and may be deducted from any sums due, or to become
due, hereunder.
Nothing in this Section 19.5 limits the obligations, liabilities or responsibilities of the Contractor or
Owner under the other terms of this Contract or otherwise.
Each Party shall deliver to the other Party, prior to the commencement of the Works, certificates of
insurance evidencing the insurance coverages required herein.
All policies listed in Section 19.4 obtained by Owner shall contain a waiver by the issuer of its
rights of subrogation against the Contractor, its Affiliates and any Subcontractor. All policies listed
in Section 19.4 shall include the Contractor, Subcontractors and their Affiliates as named insureds
for their respective interests (except for the Delay in Start-up insurance), and will provide that the
cancellation, non renewal or amendment of the policy will be effective on the thirtieth day after the
insurer advices the Contractor of any such cancellation, nonrenewal or amendment, provided
however that the Construction/Erection All Risk Insurance shall not be subject to cancellation
except for non payment of premium. These policies with the exception of the Contractor’s offsite
liability policy, will all be primary and further be endorsed to specify that they are primary to and
not excess to or on a contributing basis with any insurance maintained by the Contractor or any
Subcontractor in the case any other policies exist for such coverage. The Construction/Erection All
Risk Insurance shall provide that the interests of the Contractor, Affiliates and their Subcontractors
and the other interests shall not be invalidated by any action or inaction of Owner and shall insure
the Contractor, Affiliates and their Subcontractors notwithstanding the breach of any
representations, warranties or policy conditions by Owner.
All policies obtained by the Contractor shall contain a waiver by the insurer of any subrogation
rights against Owner, shall include Owner as an insured for their respective interests with the
exception of the Worker’s Compensation, as provided for in Section 19.3(c), will provide that the
cancellation, non renewal or amendment of the policy will be effective on the thirtieth day after the
insurer advices the Contractor of any such cancellation, nonrenewal or amendment. These policies
will further be endorsed to specify that they are primary to and not excess to or on a contributing
basis with any insurance maintained by Owner with the exception of the Third Party Liability
Insurance required under Section 19.2(e) and Section 19.2(d) .
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(f)
All policies, except Workers’ Compensation, shall contain severability of interest or standard cross
liability clauses and shall respond to claims or lawsuits that are brought worldwide, including
within the United States of America.
19.6
Deductibles & Claims Management - Notwithstanding any other provision of this Article XIX, any deductible(s) or self-insured
retention payable under insurance policies required under Section 19.2 hereof shall be the sole responsibility of the Contractor. In
addition, with respect to the insurance policy described under Section 19.4(a), the Contractor shall be responsible for the Guaranteed
Deductible (inclusive of legal expenses) on all covered incidents or occurrences thereunder, excluding Force Majeure events, after
which the remaining deductible amount will be paid by Owner which shall not exceed the Maximum Deductible. The Owner will
assume the cost of the applicable deductible if the loss is caused by a Force Majeure event. The deductible for Marine Cargo insurance
shall not exceed one percent (1%) per shipment, for physical damage losses, with a minimum of US$25,000.
The Contractor shall be responsible for filing and prosecuting claims and administering the requirements of the insurance purchased by
the Contractor and Owner as defined in Section 19.2 and 19.4 as such requirements relate to engineering, procurement, construction and
shipping activities such as loss control surveys, shipping notices and schedules, reporting claims, developing information required for
claims adjustment, preparation of necessary reports and preparation of insurance reports of cargo shipments.
The Contractor shall notify Owner in writing of any actual or potential casualty or claim under any insurance policy, promptly after
acquiring knowledge thereof. Such written notice of claim shall be given by the Contractor whether or not the amount of such claim is
within the deductible limits of the applicable insurance coverage.
If a loss is sustained, the Contractor and Owner shall work together jointly for the purpose of adjusting the amount of the loss with the
insurance companies. Subject to Owner’s consent, the Contractor shall repair or replace any loss or damage and complete the Works in
accordance with this Contract; provided, however, that the Contractor is relieved of its obligation to the extent that any claims
settlement is solely vitiated or otherwise materially compromised because of some material act or omission on behalf of Owner.
19.7
Subcontractor Insurance - The Contractor shall use all reasonable endeavors to ensure that its Subcontractors maintain insurance
similar to the insurance required of the Contractor in Section 19.2 provided, however, that lesser limits may be required of such
Subcontractor insurance if reasonably deemed appropriate by Contractor given consideration to such Subcontractor’s scope of work.
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XX.
FORCE MAJEURE
20.1
Definition of Force Majeure - In this Article XX, “Force Majeure” means an event, condition, or circumstance, which is not
foreseeable to either Owner or the Contractor on or prior to the Base Date, is of such a nature no Person can prevent or avoid it, is
demonstrably beyond the control of Owner and the Contractor and its Subcontractors, which makes it impossible or illegal for any Party
to perform hereunder, and includes without limitation, to the extent consistent with the foregoing:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
epidemic officially declared by the World Health Organization after the Limited Notice to
Commence, with proven impact over the Works, lightning strikes, hurricane, storms of unusual
severity (provided that the first five (5) days of severe weather in any calendar month shall not be
considered Force Majeure), or floods of the Mantaro river occurred during the construction of the
Works greater than the twenty year flood affecting the Project Area provided that the Constructor
has reasonably mitigated the risk and that the damages to the Works would not have occurred if the
flood where lower than the twenty year flood;
earthquakes causing material damages to the Works provided that such damages where not caused
by the Contractor’s failure to act as a prudent contractor acting in a severe seismic zone.
war, hostilities (whether war be declared or not), invasion, act of foreign enemies, government
requisition, or embargo;
rebellion, revolution, insurrection, or military or usurped power, or civil war;
contamination by radioactivity from any nuclear fuel, or from any nuclear waste from the
combustion of nuclear fuel, radioactive toxic explosive, or other hazardous properties of any
explosive nuclear assembly or nuclear component of such assembly;
riot, commotion or disorder, unless solely restricted to employees of the Contractor or of its
Subcontractors; and
unforeseeable labor strikes that affect a specific trade on a national or industrial scale that are not
caused by the acts of omissions of the Contractor or its Subcontractors.
The Parties expressly recognize that labor and Material and equipment shortages and acts or omissions of Subcontractors of any tier
shall not be deemed an “event beyond the control of the Contractor” unless the Contractor can demonstrate that the actual event giving
rise to the Force Majeure would be an event specifically enumerated in any of the clause (a), (b), (c), (d), (e), (f) or (g) of this
Section 20.1 if the Contractor was carrying out the portion of the Works so subcontracted.
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Collapse of any Temporary Works or any condition affecting the Access Roads in any way whatsoever shall never be Force Majeure.
20.2
Effect of Force Majeure Event - Neither Owner nor the Contractor shall be considered in default or in contractual breach to the extent
that performance of obligations is prevented by a Force Majeure event which arises after the Effective Date and prevents, delays or
interrupts an activity on the critical path as set forth on the original Project Schedule.
Changes in market conditions and changes in the financial condition of any Subcontractor shall not be considered a Force Majeure and
neither shall the condition of waterways, roads, bridges or tunnels which are inadequate for transportation of equipment and materials
be considered Force Majeure, unless such inadequate condition is a result of an event that would otherwise constitute Force Majeure.
Force Majeure shall never excuse a payment obligation provided that the obligation of the other Party which gives rise to the payment
obligation in question has been performed.
If a Force Majeure event which prevents the continuance of every aspect of the Works occurs and is in effect for a period of eighty-four
(84) consecutive days, either Owner or Contractor may give to the other a notice of termination which shall take effect thirty (30) days
after the giving of such notice. If, at the end of the thirty (30) days period, the effect of the Force Majeure continues, this Contract shall
terminate. In the event of termination under this Section, the total amount that the Contractor shall be entitled to for its performance
under this Contract shall be the payment provided in the Section 17.3 excluding the profit provided in such Section.
Contractor’s Responsibility - Upon occurrence of an event considered by the Contractor to constitute Force Majeure and which may
affect performance of its obligations, it shall promptly notify Owner’s Representative pursuant to Section 9.4 and shall continue to
perform its obligations as far as reasonably practicable. The Contractor shall also notify Owner’s Representative of any proposals,
including any reasonable alternative means for performance, but shall not effect proposals without the consent of Owner’s
Representative.
Owner’s Responsibility - Upon occurrence of an act considered by Owner to constitute Force Majeure and which may affect
performance of their obligations, they shall promptly notify the Contractor and the Lender’s Representative, and shall continue to
perform their obligations as far as reasonably practicable. Owner’s Representative shall also notify the Contractor of any proposals with
the objectives of completing the Works and mitigating any increased costs to Owner and the Contractor, if applicable, provided that the
Contractor shall not have the obligation to execute any such Proposals.
Payment to the Contractor - If as a result of a Force Majeure event, the Works suffer loss or damage, the Contractor shall be entitled
to include, in a Monthly Payment Certificate, the Cost of work performed prior to the occurrence of the Force Majeure event. Any
additional Cost incurred by the Contractor in
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20.3
20.4
20.5
complying with the proposals made by it and approved by Owner’s Representative under Section 20.3 shall be added by Owner’s
Representative to the Lump Sum Price, as applicable. Other than as specifically set forth herein, the Contractor shall be entitled to no
other payments as a result of the occurrence of a Force Majeure event. Under no circumstances shall the Contractor be entitled to
compensation, after the Final Taking-Over Date, for a Force Majeure event which occurred before the Final Taking-Over Date.
If as a result of a Force Majeure the Contractor suffers delay and/or incurs Cost by reason of such Force Majeure, the Contractor shall
be entitled to:
(a)
(b)
an extension of time for any such delay, if completion is or will be delayed under Section 9.4; and
if the event or circumstance is of the kind described in Section 20.1, payment of any such Cost.
XXI.
CLAIMS, DISPUTES AND ARBITRATION
21.1
Procedure for Claims - If the Contractor intends to claim any additional payment as expressly permitted under any provision of this
Contract, the Contractor shall give written notice to Owner as soon as possible and in any event within twenty-eight (28) days of the day
in which the Contractor discovered or reasonably should have discovered the event giving rise to the claim.
The notice must include a written statement setting forth the general nature of such claim. Failure to provide such written statement
within such times shall constitute a presumption that no payment or adjustment of the Lump Sum Price is claimed or warranted.
Notwithstanding the existence of a claim or any other matter in dispute between the Parties, the Contractor shall proceed diligently with
performance of this Contract and follow the instructions of Owner or Owner’s Representative, as the case may be, in accordance with
the terms of this Contract unless otherwise agreed to in writing. If Owner disputes such claim, the Contractor’s sole recourse will be to
pursue its rights under Sections 21.3 and 21.4 of this Contract.
The Contractor shall keep such contemporary records as may be necessary to substantiate any claim, either on the Site or at another
location acceptable to Owner’s Representative. Without admitting Owner’s liability, Owner’s Representative shall, on receipt of such
notice, inspect such records and may instruct the Contractor to keep further contemporary records. The Contractor shall permit Owner’s
Representative to inspect all such records and shall (if instructed) submit copies to Owner’s Representative.
Within twenty-eight (28) days of such notice, or such other time as may be agreed by Owner’s Representative, the Contractor shall send
to Owner’s Representative an account, giving detailed particulars of the amount and basis of the claim. Where the event giving rise to
the claim has a continuing effect, such account shall be considered as interim.
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21.2
21.3
The Contractor shall then, at such intervals as Owner’s Representative may reasonably require, send updated interim accounts giving
the accumulated amount of the claim and any applicable particulars. Where interim accounts are sent to Owner’s Representative, the
Contractor shall send a final account no later than the twenty-eighth day after the day in which the effects resulting from the event.
If the Contractor fails to comply with this Section 21.1, its claims shall cease to be valid immediately after such failure.
Payment of Claims - The Contractor shall be entitled to have included in any Monthly Payment Certificate such amount for any claim
as Owner’s Representative considers due. Unless and until the particulars supplied are insufficient to substantiate the whole of the
claim, the Contractor shall be entitled to payment for such part of the claim as has been substantiated to the reasonable satisfaction of
Owner’s Representative.
Negotiation between Senior Executives - The Parties will attempt in good faith to resolve any Dispute promptly by negotiation
between senior executives of the Parties who have authority to settle the controversy or claim. In the event a Party intends to invoke
such negotiation process, it shall give the other Party written notice of such intent and specify in writing the specific nature of the
dispute. Within fifteen (15) days of receipt of said notice, the receiving party shall submit to the other a written response. The
executives representing the Parties shall meet at a mutually acceptable time and place within thirty (30) days of the receiving Party’s
notice and thereafter as often as they reasonably deem necessary to exchange relevant information and to attempt to resolve the dispute.
In the event such dispute is not resolved by such negotiations within thirty (30) days, the Parties shall proceed to arbitration in
accordance with Section 21.4. The notices called for within this Section 21.3 shall not be deemed a substitute for any other notice
requirement set forth in this Contract.
21.4
Arbitration - In the event the Parties are unable to resolve any Dispute, through the procedures set forth in Section 21.3, the resolution
of such Dispute shall be solved in an arbitration at law governed by the Rules of the International Chamber of Commerce, and the
award issued as a result of such arbitration shall be final and binding on the Parties.
The arbitration shall be conducted by an arbitral tribunal composed of three (3) arbitrators. The Party requesting the commencement of
the arbitration shall nominate an arbitrator in its notice of arbitration, while the Party served with such notice of arbitration shall
nominate an arbitrator within 20 days of the date on which it was served with the notice of arbitration. The arbitrators nominated by the
Parties shall appoint the third member of the arbitral tribunal, who shall act as chairman. This last appointment shall be made within 20
days of the date on which the Center confirms the appointment of the last party-nominated arbitrator.
In the event that any of the Parties fails to nominate its arbitrator within the term established in the previous paragraph or the two
arbitrators appointed by the Parties fail to appoint the third arbitrator within the term established in the foregoing paragraph, the Center
shall appoint the remaining arbitrator(s) pursuant to the Rules.
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The seat of the arbitration shall be the city of New York, New York, United Stated of America and shall be conducted in the English
language under the rules of the Center.
Any arbitration resulting from a Dispute, including, without limitation, any settlement which the Parties may reach in the course of the
arbitration; any awards, orders, or rulings issued by the Tribunal; and any pleadings, briefs, submissions, and documents filed by the
Parties, as well as their contents, shall be confidential and may not be disclosed by the Parties or their agents, representatives,
employees, directors, administrators and lawyers to third parties, unless such information is necessary for the enforcement of the
relevant award or its disclosure is necessary according to the applicable laws. Any proceeding under the Parent Guaranty may be
consolidated with any arbitration hereunder at the option of the Owner.
The decision of the arbitrators shall be final and binding upon the Parties. Judgment upon the award rendered by the arbitrator (s) may
be entered in any court having jurisdiction thereof. The prevailing Party may enforce such award or judgment in any jurisdiction,
including any jurisdiction where the other Party’s assets may be located. Except as the Parties otherwise agree in writing pending the
final resolution of any claim or controversy or arbitration proceeding, Contractor shall proceed diligently with the performance of the
Works under this Contract and in compliance with Owner’s Representative’s directions in accordance with the terms of this Contract.
XXII.
MISCELLANEOUS
22.1
22.2
Law and Language - This Contract shall be governed by and construed in accordance with the laws of Peru. The language for all
communications and notices hereunder shall be English regardless of any course of dealing of the Parties.
Communications - Wherever provision is made for the giving or issue of any notice, instruction, invoice, consent, approval, certificate
or determination by any Person, unless otherwise specified such communication shall be in writing in the language specified in Exhibit
A and shall not be unreasonably withheld or delayed.
Wherever provision is made for a communication to be written, or in writing, this means any hand-written, type-written or printed
communication, including facsimile.
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All certificates, invoices, notices or written orders to be given hereunder shall either be delivered by hand against written
acknowledgment of receipt or be sent by reputable international courier service. The addresses for the receipt of such communications
shall be as follows:
If to Owner:
Cerro del Aguila SA
Av. Victor Andres Belaunde 147 Torre Real 5 piso 11
Lima 27, Peru
Attention: Javier García-Burgos Benfield
Phone: +51 1 7067878
If to the Contractor:
Astaldi S.p.A.
Calle Los Nardos 1018, Piso 2,
Lima 27, Peru
Attention: Giacomo Orsatti
Phone: +51 1 206 4300
and
GyM SA
Av. Paseo de la Republica 4675
Lima 34, Peru
Attention: Juan Manuel Lambarri Hierro
Phone: +51 1 2130444
If to Owner’s Representative:
As designated in writing by Owner.
If to Lender’s Representative:
As designated in writing by the Lenders.
If to the Supervisor:
As designated in writing by the Supervisor.
22.3
22.4
Validity and Enforceability - The invalidity or unenforceability of any portion or provision of this Contract shall not affect the validity
or enforceability of any other portion or provision. Any invalid or unenforceable portion or provision shall be deemed severed from this
Contract, and the balance of this Contract shall be construed and enforced as if this Contract did not contain such invalid or
unenforceable portion or provision. Notwithstanding the provisions of the preceding sentence, should any term or provision of this
Contract be found invalid by any Governmental Authority having jurisdiction thereof, the Parties shall immediately renegotiate in good
faith such term or provision of this Contract to eliminate such invalidity.
Documents on Site - The Contractor shall keep on the Site one complete set of the documents applicable hereto when under
construction and forming this Contract. This includes the Construction Documents and the Workbook. Owner, Owner’s Representative,
the Supervisor and assistants shall have the right to use such documents at all reasonable times.
The Contractor may keep records in some or all the Project Areas in order to register the incidences relative to works performed in such
locations. However, for the purposes of this Contract, the official and binding record of such occurrences will be the Workbook.
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22.5
22.6
22.7
22.8
Construction Documents - The Construction Documents shall be in the custody and care of the Contractor. The Contractor shall
provide a sufficient number of copies for the use of Owner’s Representative or the Supervisor, or as specified herein.
Contractor’s Use of Owner’s Documents - Copyright and ownership of (i) all items contained in the request for proposals issued by
Owner in connection with the Plant and other documents and computer programs issued by Owner or Owner’s Representative to the
Contractor shall (as between the Parties) be the property of Owner. The Contractor may, at its cost, copy, use and communicate any
such documents (including making and using modifications) for the purposes of this Contract and the Contractor shall not, without
Owner’s written consent, use such documents for purposes other than those related to the Works. They shall not, without Owner’s
consent, be used, copied or communicated to a third party by the Contractor, except as necessary for the purposes of this Contract.
Effective upon the Commencement Date, the Contractor hereby grants to Owner and its successors and assignees for the lifetime of the
Plant an irrevocable, royalty-free license to use any Construction Documents or computer programs furnished by the Contractor
hereunder for the purpose of maintaining and operating the Plant.
No Technology Transfer - For the avoidance of doubt, Owner understands that the foregoing is not and shall not be deemed to be a
technology transfer to Owner of any technology or intellectual property rights relating to the Construction Documents or equipment and
the Contractor shall retain all rights, title and interest in the Contractor’s and its Affiliates proprietary technology, patents, trade secrets
and shop drawings.
Confidential Details - All documents, plans, drawings, specifications, and the subject matter contained therein and any information
provided by a Disclosing Party to the Receiving Party in connection with the performance of this Contract which is in writing and
marked, stamped or otherwise identified in writing by the Disclosing Party as being proprietary, secret, or confidential (hereinafter
“Confidential Information”), shall be held confidential by the Receiving Party and shall not be used or disclosed by the Receiving Party
for any purposes other than those for which they have been prepared or supplied, unless otherwise permitted with the prior written
consent of the Disclosing Party. As a condition to receiving such Confidential Information, the Receiving Party agrees to hold all such
Confidential Information confidential and not to use, discuss or disclose such Confidential Information with or to third parties for a
period of four (4) calendar years following the date of disclosure by the Disclosing Party, without the prior written consent of the
Disclosing Party. For purposes of this Section 22.8, the entire content of this Contract shall be Confidential Information.
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This Section 22.8 shall not prevent the Receiving Party from disclosing such Confidential Information of the Disclosing Party pursuant
to: (a) a subpoena issued by a court of competent jurisdiction, (b) other requirements of law or judicial or administrative order, or
(c) activities related to the development, construction and financing of the Works; provided, however, that prior to making such a
disclosure pursuant to (a) and (b), the Receiving Party will provide the Disclosing Party with timely advance written notice of its intent
to so disclose, to the extent reasonably practical, and prior to making such a disclosure pursuant to (c) to any Person not bound by
confidentiality obligations at least as restrictive as those contained in this Section 22.8, the Receiving Party will obtain from such
Person a confidentiality agreement consistent with this Section 22.8.
The Receiving Party shall have no obligation hereunder with respect to any portion of the Confidential Information received by it from
the Disclosing Party that: (a) has been made public, unless such Confidential Information was made public by or with the assistance of
the Receiving Party in violation of this Contract; (b) becomes part of the public domain by publication or otherwise, after disclosure to
the Receiving Party, unless such Confidential Information was made public by or with assistance of the Receiving Party in violation of
this Contract; (c) shall otherwise lawfully become available to the Receiving Party on a non-confidential basis from a third party who
has not received the Confidential Information directly or indirectly from the Disclosing Party; (d) was or is independently developed by
the Receiving Party, and such fact can be proven by reasonable written documentation, and such Confidential Information was not
acquired directly or indirectly from the Disclosing Party; or (e) was already rightfully in the Receiving Party’s possession at the time it
was disclosed to the Receiving Party.
The Parties agree that, as far as possible and unless needed for the proper execution of their responsibilities under this Contract, they
will keep confidential the terms of this Contract. In addition, unless otherwise required by Applicable Laws, the Contractor shall not,
without the prior written consent of Owner, issue any public statement, press release, publicity handout, photograph or other material
relating to or disclosing in any way whatsoever to any Person other than a prospective Subcontractor the award to the Contractor of this
Contract or the scope, extent or value of the Works, or any details as to the Major Items of Equipment, Materials and other equipment
to be used or installed by the Contractor, or anything whatsoever relating to the Works or any part thereof. Without in any way
restricting the generality of the foregoing, the Contractor shall not invite or permit any reporter, photographer, television camera crew,
commercial radio broadcaster or any other such Person to enter upon the Project Areas without the express prior written consent of
Owner.
Remedies Non-Exclusive - Except as expressly provided herein with respect to (a) breach of Article XIII (Defects Liability);
(b) liquidated damages for failure to achieve the Partial Taking-Over Date or the Final Taking-Over Date by the Scheduled Partial
Taking-Over Date or the Scheduled Final Taking-Over Date and failure to achieve the Performance Guarantee Levels once the Final
Taking-Over Levels have been achieved; and (c) damages as provided in Section 17.1 upon termination hereof, or (d) any other section
of this Contract which expressly provides for an exclusive or sole remedy, all remedies provided in this Contract shall be deemed
cumulative and not in lieu of, or exclusive of, each other or of any other remedy available to either Party under this Contract, at law or
in equity, and the exercise of any remedy, or the existence herein of other remedies, shall not prevent the exercise of any other remedy,
provided that the Contractor shall not have any right to suspend its performance or terminate this Contract except as expressly provided
in Articles XVI and XVII.
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22.9
22.10
22.11
22.12
22.13
22.14
22.15
Waiver - The waiver of any breach or failure to enforce any of the terms, covenants or conditions of this Contract shall not in any way
affect, limit, modify or waive the future enforcement of such terms, covenants or conditions.
Third-Party Beneficiaries - Except with respect to indemnification obligations contained herein in favor of third parties and as
expressly provided herein, the provisions of this Contract are intended for the sole benefit of the Parties, and there are no third-party
beneficiaries other than assignees contemplated by the terms herein.
Counterparts - This Contract may be executed in any number of counterparts and by each of the Parties in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Contract.
Entire Agreement - Any of the Works described in this Contract which were performed or caused to be performed by the Contractor
prior to the execution of this Contract shall be deemed to have been performed under this Contract. This Contract sets forth the full and
complete understanding of the parties relating to the subject matter hereof as of the date first above stated, and supersedes any and all
negotiations, agreements and representations made or dated prior thereto. Subsequent to the Effective Date, this Contract may be
supplemented, modified or otherwise amended by mutual agreement or only in accordance with the terms of this Contract; provided that
any such supplements, modifications and amendments to this Contract, if any, must be in the form of a written amendment to this
Contract, and signed by authorized representatives of all Parties to this Contract.
Under no circumstances shall any Party be liable for any oral clarifications, instructions, or interpretations of this Contract. Owner shall
not be liable for any misinterpretation or misunderstanding of this Contract on the part of the Contractor, or for any failure by the
Contractor to acquaint itself fully with all circumstances relating to the Works. The Contractor represents that it has carefully and
completely read and examined the entire Contract, including all plans, drawings, specifications and all exhibits thereto and other
documents referenced herein.
Conflicting Provisions - Any Party, upon becoming aware of any conflict or inconsistency among any of the components of this
Contract shall promptly notify the other Parties in writing of such conflict or inconsistency.
Joint Responsibility for Drafting - This Contract was negotiated and prepared by the Parties with advice of counsel to the extent
deemed necessary by each Party; the Parties have agreed to the wording of this Contract; and none of the provisions hereof shall be
construed against one Party on the ground that such Party is the author of this Contract or any part thereof.
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22.16
22.17
Notice of Objection - Owner hereby gives notice of its objection to any different or additional terms and conditions than those
contained in this Contract. This Contract is expressly conditioned on the Contractor’s assent to the terms and conditions stated herein.
Compliance with Statutes, Regulations and Applicable Laws - The Contractor shall, in all matters arising in the performance of this
Contract, comply with, give all notices under, and pay all fees required by, the provisions of any national or local statute, ordinance,
decree or other law, the portions of the EIA concerning construction activities, or any regulation, decree or decision of any legally
constituted public authority having jurisdiction over the Works, including all Applicable Laws and Applicable Permits . Except for
those permits, licenses, or approvals listed on Exhibit F or required to be obtained by Owner in its name for the operation of the Plant
(“Owner Permits”) the Contractor shall obtain in a timely manner (not to delay any portion of the Works), secure, pay for and maintain
in full force and effect any and all permits, licenses, consents or approvals required for the Contractor to carry out any part of the Works
(“Contractors Permits”), sufficient time in advance, taking account of the times for import of any Contractor’s Equipment, obtaining
visas or work permits for any Contractor’s personnel, delivery of the Major Items of Equipment and Materials for completion of the
Works. The Contractor has made a thorough and complete investigation of all Applicable Laws and Applicable Permits or consents
required from or by any Governmental Authority in Peru or elsewhere respecting design, construction, performance and testing of the
Works, including those permits and consents set forth in the Technical Specification. The Contractor warrants that the listing of required
permits and consents contained in the Technical Specification is accurate and complete, but such listing shall not operate to diminish or
limit the Contractor’s responsibilities under this Section 22.17. In the event it is subsequently discovered that (other than Owner
Permits) additional permits or consents are required to be obtained by the Contractor to carry out any part of the Works, the Contractor
assumes full responsibility for any additional cost and delay that is incurred by the Contractor as a result of the requirement to obtain, to
secure, pay for and maintain in full force and effect any such additional permits or consents provided that such additional permits or
consents are not a result of a Change in Law. The Contractor shall be entitled to a Variation in accordance herewith if the additional
permits or consents referred to herein are a result of a Change in Law. Lapse of any Contractor Permit shall not be considered as an
Event of Force Majeure nor entitle Contractor to a Variation.
The Contractor shall comply with the laws of Peru and of each jurisdiction where activities are performed in connection with the
Works. The Contractor shall not nor shall it allow any of its Affiliates or their respective directors, officers, shareholders, employees or
agents shall make or offer, in respect of the performance of the Works, any loan, gift or other payment, directly or indirectly, whether in
cash or in kind, for the use or benefit of an Official for the purposes of influencing any act or decision of such Official in its official
capacity, or
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22.18
inducing such Official to do or omit to do any act in order to obtain or retain business or otherwise to secure any improper advantage.
The Contractor shall indemnify, defend and hold Owner and the Lenders harmless from any and all liabilities, costs, penalties, fines,
and attorney’s fees costs associated to its breach of any of the foregoing. The Contractor shall cause its Subcontractors to comply with
the provisions of this Section 22.17.
Rights of Assignment - Neither this Contract nor any right, privilege or delegation hereunder may be assigned or transferred in whole
or in part by any Party without the prior written consent of all other Parties, and any attempted assignment or transfer without such
written consent shall be void. Notwithstanding the above, Owner is allowed to assign its rights under this Contract, in whole or in part,
to any of its Affiliates or to the Lender, without approval of Contractor. The Contractor agrees, if required by any Lender, within five
(5) Business Days to enter into agreements evidencing its consent to assignment of this Contract, or to enter into a direct agreement with
the Lenders or the agent, which shall include terms and conditions customary for an agreement of this type, including the right of the
Lenders or the agent to assume the obligations of Owner hereunder or to assign or transfer these obligations to a third party nominated
by the Lenders or the agent, to require the Contractor to make any payments due to Owner pursuant to this Contract directly into a
collateral security account maintained by or on behalf of the Lenders and to provide notice to such parties and a reasonable opportunity
for such parties to remedy the event giving rise to a right of termination prior to exercising any such right and to allow the agent or the
Lenders to exercise any right of termination hereunder.
22.19
Financing Requirements - The Contractor shall cooperate with Owner in the negotiation and execution of any reasonable amendment
to or modification of this Contract required by any Lender or other entity providing financing for this Contract, Works or Plant,
including, without limitation, an amendment or modification:
(a)
(b)
(c)
extending the Contractor’s indemnities to such Lender or other entity and its engineer;
providing that such Lender or other entity be named as loss payee, and that it and Lenders’
Representative be named as additional insureds, under the insurance policies required to be
maintained hereunder; and
generally making provision for the Lenders’ Representative to be included in the construction
review process.
The Contractor will promptly provide an opinion of outside counsel, in each case, to the extent required by Lender or agent concerning
this Contract or any agreement referred to in Section 22.18.
22.20
Information for Lender’s Representative - The Contractor shall (subject to the non-disclosure requirements of Section 22.8) provide
such documents and other technical assistance as Lender’s Representative may reasonably request in connection with obtaining
financing for the Plant. During the performance of
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the Works, the Contractor shall make available to Lender’s Representative information relating to the status of the Works including, but
not limited to, information relating to the design, engineering, construction and testing of the Plant and such other matters as Lender’s
Representative may reasonably request. Lender’s Representative shall have the right to participate in all inspections conducted by
Owner under this Contract and to attend all Performance Tests which may be witnessed by Owner. Owner shall cause all such persons
to observe the Contractor’s security and safety regulations at all applicable locations and to refrain from interfering with the
Contractor’s performance of the Works.
22.21
Documentation and Right of Audit
22.21.1
22.21.2
Where the Contractor performs any work on a time and material basis in connection with a Variation, Owner and their
duly authorized representatives and the Supervisor shall have access, at all reasonable times, during the course of the
Works and for a period of six (6) months after the completion of the Variation work to all applicable Contractor’s books
and records for the purpose of auditing and verifying costs of services. The Contractor is required to maintain supporting
data and accounting records in accordance with the generally accepted accounting principles utilized in Peru, as
applicable, all consistently applied regardless of the location of any work performed. In all cases Owner and the
Supervisor shall have the right to verify compliance with Sections 13.5 and 22.17 of this Contract.
Subject to the confidentiality provisions of this Contract, the Contractor shall provide the above mentioned records in
computer readable format, if available, as well as an original hard copy. Owner and their representatives and the
Supervisor shall have the right to reproduce any of the aforesaid documents, always subject to Section 22.8, and shall be
provided adequate and appropriate work space in order to conduct audits in compliance with this audit provision. Any
adjustments or payments which must be made as a result of any such audit or inspection of the Contractor’s invoices or
records shall be made within a reasonable amount of time (not to exceed thirty (30) days) from presentation of the
findings to the Contractor. The Contractor will not charge for its costs incurred with the audit.
22.21.3
The Contractor will cooperate fully and cause all related parties and all Subcontractors to cooperate fully in furnishing or
in making available to Owner and the Supervisor from time to time, whenever requested and in an expeditious manner,
any and all such information, materials and data.
[signature page follows]
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IN WITNESS WHEREOF, the Parties have caused this Contract to be executed as of the date first above written.
Astaldi S.p.A.
/s/ Giacomo Orsatti
By:
Name: Giacomo Orsatti
Title: Representante Legal
GyM SA
/s/ Juan Manuel Lambarri
By:
Name: Juan Manuel Lambarri
Title:
GyM SA
/s/ Hernando Graña
By:
Name: Hernando Graña
Title:
Cerro del Aguila SA
/s/ Javier Garcia
By:
Name: Javier Garcia
Title: CEO
Cerro del Aguila SA
/s/ Juan Carlos Camogliano
By:
Name: Juan Carlos Camogliano
Title:
Exhibits
Technical Specifications
Performance Guarantee Levels
Performance Test Protocol
Project Data
Contractor’s Organizational Chart
Contractor and Owner Permits
Main Spare Parts
Concession and Project Areas
Measurements & Payments – Risk Sharing Mechanism
Schedules
Preliminary Project Schedule
Subcontractors List
Advance Payment Bond
Performance Bond
Warranty Letter of Credit
Preliminary Schedule of Payments
Monthly Payment Certificate
Punch List Bank Guarantee
Performance Test Certificate
Partial Taking-Over Certificate
Final Taking-Over Certificate
Actual Project Acceptance Certificate
Final Acceptance Certificate
Final Payment Certificate
Reserved
Owner’s Parent Guaranty
Variation Order Proposal
Reserved
Contractor Safety Plan
Contractor Quality Assurance Program
Reserved
Form of Proof of Subcontractor Payment
Form of Labor Obligations’ Certificate
EXHIBITS & SCHEDULES
Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Exhibit F
Exhibit G
Exhibit H
Exhibit I
Schedule 1
Schedule 2
Schedule 3
Schedule 4
Schedule 5
Schedule 6
Schedule 7
Schedule 8
Schedule 9
Schedule 10
Schedule 11
Schedule 12
Schedule 13
Schedule 14
Schedule 15
Schedule 16
Schedule 17
Schedule 18
Schedule 19
Schedule 20
Schedule 21
Schedule 22
Schedule 23
VARIATION ORDER No. 1
1. Introduction . This Variation Order No. 1 (this “Variation”) is agreed to pursuant to the Turnkey Engineering, Procurement and Construction Contract for the
Cerro del Aguila Hydroelectric Power Plant, dated November 4, 2011 (the “Contract”) by and between Astaldi and GyM (“Contractor”) and Cerro del Aguila S.A.
(“Owner”). Capitalized terms used but not defined herein shall have the meaning given to them in the Contract. This Variation as submitted by one Party to the
other shall constitute a request for a Variation. Upon its countersignature in the space provided below, this Variation shall constitute a Variation within the meaning
of the Contract.
2. Scope of Change .
The Owner has proposed to amend sections 22.1 and 21.4 of the Contract as set forth below.
3. Changes.
Owner and Contractor hereby agree that section 22.1 and 22.4 will be restated and replaced in their entirety as follows:
21.4
Arbitration - In the event the Parties are unable to resolve any Dispute, through the procedures set forth in Section 21.3, the resolution
of such Dispute shall be solved in an arbitration at law governed by the Rules of the International Chamber of Commerce, and the
award issued as a result of such arbitration shall be final and binding on the Parties.
The arbitration shall be conducted by an arbitral tribunal composed of three (3) arbitrators fluent in English and Spanish.
The Party requesting the commencement of the arbitration shall nominate an arbitrator in its notice of arbitration, while the Party served
with such notice of arbitration shall nominate an arbitrator within 20 days of the date on which it was served with the notice of
arbitration. The arbitrators nominated by the Parties shall appoint the third member of the arbitral tribunal, who shall act as chairman.
This last appointment shall be made within 20 days of the date on which the Center confirms the appointment of the last party-
nominated arbitrator.
In the event that any of the Parties fails to nominate its arbitrator within the term established in the previous paragraph or the two
arbitrators appointed by the Parties fail to appoint the third arbitrator within the term established in the foregoing paragraph, the Center
shall appoint the remaining arbitrator(s) pursuant to the Rules.
The seat of the arbitration shall be the city of New York, New York, United Stated of America and shall be conducted in the English
language under the rules of the Center. Notwithstanding, the arbitral tribunal will not require the translation of any document drafted in
Spanish as a requirement to admit such document into evidence.
Any arbitration resulting from a Dispute, including, without limitation, any settlement which the Parties may reach in the course of the
arbitration; any awards, orders, or rulings issued by the Tribunal; and any pleadings, briefs, submissions, and documents filed by the
Parties, as well as their contents, shall be confidential and may not be disclosed by the Parties or their agents, representatives,
employees, directors, administrators and lawyers to third parties, unless such information is necessary for the enforcement of the
relevant award or its disclosure is necessary according to the applicable laws. Any proceeding under the Parent Guaranty may be
consolidated with any arbitration hereunder at the option of the Owner.
The decision of the arbitrators shall be final and binding upon the Parties. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. The prevailing Party may enforce such award or judgment in any jurisdiction,
including any jurisdiction where the other Party’s assets may be located. Except as the Parties otherwise agree in writing pending the
final resolution of any claim or controversy or arbitration proceeding, Contractor shall proceed diligently with the performance of the
Works under this Contract and in compliance with Owner’s Representative’s directions in accordance with the terms of this Contract.
22.1
Law and Language - This Contract shall be governed by and construed in accordance with the laws of Peru. The language for all
communications and notices hereunder shall be in English and Spanish regardless of any course of dealing of the Parties.
4. Other Terms and Conditions . Except as otherwise specifically provided in section 3 of this Variation, all other terms and conditions of the Contract shall remain
in full force and effect.
5. Execution . This request for Variation is hereby submitted by the Owner on December 08 th , 2011. By its countersignature below, both parties hereby agree to
this Variation.
Cerro del Aguila S.A.
Astaldi S.p.A.
By:
/s/ Javier Garcia
Javier Garcia
Name:
Title: CEO
Date: 12/1/12
By:
/s/ Giacomo Orsatti
Name: Giacomo Orsatti
Title: Representante Legal
Date: 8/12/2011
By: /s/ JC Camogliano
Name:
Title:
Date:
JC Camogliano
12/01/12
GyM S.A.
By: /s/ Jimmy Masciotti
Name:
Title:
Date:
Jimmy Masciotti
Director
11/01/12
By: /s/ Jorge Monaco
Jorge Monaco
Cerro Del Aguila S.A. Ing. Project Manager
Name:
Title:
Date:
VARIATION ORDER No. 2
This Variation Order No. 2 (this “Variation No. 2”) is agreed to pursuant to the Turnkey Engineering, Procurement and Construction Contract for the Cerro del
Aguila Hydroelectric Power Plant, dated as of November 4, 2011 (the “Contract”) by and between Astaldi and GyM (jointly, the “Contractor”) and Cerro del
Aguila S.A. (“Owner”). Capitalized terms used but not defined herein shall have the meaning given to them in the Contract.
1. Background
The Owner issued the Limited Notice to Commence on November 4 th 2011 which represents the Commencement Date for the Contract.
The Owner has submitted a request for a Variation to the Contractor as a consequence of the delayed issuance of the Notice to Commence foreseen on or before the
end of the sixth month after the Commencement Date.
The Contractor presented its proposal by letter Ref. AGM-CHCA-071-12 dated May 11 th 2012 stating the conditions on which the Variation shall be based and
including the adjustment to the Lump Sum Price and to the Time for Completion.
The Owner and the Contractor agree on the following Conditions and Changes
2. Conditions
(a)
(b)
(c)
The applications necessary to obtain the CIRA and the environmental permits in connection to the construction of the road that connects Tacana with
the area designated for the Project’s powerhouse and the road being constructed by the Contractor under the terms of a certain construction agreement
entered with the Municipality of Colcabamba and that connects Intivilca with the area designated for the Project’s dam to be filed before the
competent authority by the 18 th of May 2012 and the Owner shall deliver to the Contractor copy of the applications with evidence of receipt by the
relevant authorities by such date.
Owner will provide the Contractor formal handing over of 100% of the land, specified in the Exhibit H that are required to perform the Preliminary
Works according to the Project Schedule by the 1 st of June 2012. Exception is made for the land in Exhibit H of the Contract and in the Jatuspata area
described in Attachment 1 that will be handed over on 15 th of June, 2012.
Owner will provide to the Contractor access and possession rights over the land area in Exhibit H of the Contract and in Llocce, Barropata and
Fundición and adjacent to Uyarico, Platanal and Limonal described in Attachment 1, sufficient to store air lifted equipment, no later than on the 18 th
of May 2012. Exception is made for the land in Exhibit H of the Contract and in the Jatuspata area described in Attachment 1 that will be handed over
on 15 th of June, 2012.
3. Scope of Change .
Pursuant to Article IX of the Contract, the deadline to issue and deliver the Notice to Commence, the Time for Completion and the Lump Sum Price are adjusted by
amending and restating sections 1.1.75, 1.1.112, 1.1.113, 1.1.131, 1.1.132, 14.6.1, the first sentence of the third paragraph of Article IX, Schedule 1 and Schedule 6
in their entirety as provided in section 4 of this Variation No. 2.
4. Changes.
(a) Owner and Contractor hereby agree that sections 1.1.75, 1.1.112, 1.1.113, 1.1.131, 1.1.132, 14.6.1, the first sentence of the third paragraph of Article IX,
Schedule 1 and the Schedule 6 will be amended and restated in their entirety by replacing their text by the following:
(i)
Section 1.1.75
1.1.75
“Lump Sum Price” means the fixed lump sum of Four Hundred and Fifty Five Million Seven Hundred Sixty Five Three
Hundred Forty Eight Dollars (US$ 455,765,348) and of Six Hundred and Twenty Eight Million Three Hundred
Seventeen Thousand One Hundred and Two Nuevos Soles (S/. 628,317,607) as it may be adjusted pursuant to this
Contract.
(ii)
Section 1.1.112
1.1.112
“Preliminary Works” means the part of the Works which will be performed by the Contractor between the Limited
Notice to Commence and the Notice to Commence, as described in Exhibit A, and which includes topographic surveys,
geo-physic investigation, geologic investigation, engineering basic design, purchase orders of critical equipment and
plants, construction of Access Roads and Accessways to the dam and powerhouse areas, including mobile working
camps and spoil area preparation, maintenance and conditioning of the Access Routes where necessary to allow safety
transit of the personnel and equipment, commencement of the construction of bridges over the Mantaro river,
commencement of the earth moving activities of the camp sites and of the construction of the temporary electric
transmission line for construction purposes as well as any other portion of the Works to be performed by the Contractor
prior to the issuance of the Notice to Commence according to Schedule 1 Preliminary Project Schedule.
(iii)
Section 1.1.113
1.1.113
“Preliminary Works Lump Sum” means the portion of the Lump Sum Price payable to Contractor in accordance with
Schedule 6 Preliminary Schedule of Payment for the amount of Twenty Five Million Six Hundred Thirty Seven
Thousand Six Hundred Eleven Dollars (US$ 25,637,611.00) and Thirty nine Million six Hundred Forty Thousand One
Hundred and ninety three Nuevos Soles (S/. 39,640,193.00) plus the additional amount determined pursuant to
Section 4(b) of Variation No. 2.
Section 1.1.131
1.1.131
“Scheduled Final Taking-Over Date” means fifty one (51) months from the Commencement Date.
Section 1.1.132
(iv)
(v)
1.1.132
“Scheduled Partial Taking-Over Dates” means one thousand four hundred and fifty (1450) days for the first Generator
Set and one thousand five hundred and fifteen (1515) days for the second Generator Set, from Commencement Date.
(vi)
First sentence of the third paragraph of Article IX
If Owner does not give the Notice to Commence by September 4, 2012, the Parties shall negotiate for a term of thirty (30) days changes
to the Time for Completion and Lump Sum Price. In the event the Notice to Commence is not be given by the end of the 10th month
after the Commencement Date and the Parties agree upon the changes to the Time for Completion and Lump Sum Price, such changes
shall take into consideration the hydrological constraints (“ ventana
hidrologica
”) for the performance of the tunnel diversion.
(vii)
First sentence of the first paragraph of Section 14.6.1 Advance Payment Bond
Contractor shall deliver to Owner four (4) stand by letter of credits in substantially the form of Schedule 3 issued by an Eligible Bank in
the amount equal to the value of each advance payment in accordance with the Schedule 6, and the Contractor shall deliver the first
standby letter of credit no later than ten (10) Business day before the end of the month on which the Advance Payment is due.
(viii)
Schedule 1–Preliminary Project Schedule
Schedule 1 of the Contract is amended and restated in its entirety by replacing it with a new Schedule 1 attached to the present
Variation Order as Attachment N. 2.
(ix)
Schedule 6–Preliminary Schedule of Payment
Schedule 6 of the Contract is amended and restated in its entirety by replacing it with a new Schedule 6 attached to the present
Variation Order as Attachment N. 3.
(b) During the period between the date of execution of this Variation 2 and the date that is the earlier of September 4, 2012 and the date in which the Owner
delivers the Notice to Commence to the Contractor, the Owner shall pay the Contractor the Direct Costs equal to the unitary value of the Works performed by the
Contractor and evidenced in a Monthly Payment Certificate prepared and submitted by the Contractor to the Owner on the month of the relevant Preliminary
Works Payment Date pursuant to section 14.1.2 of the Contract and verified by the Owner pursuant to section 14.1.3 of the Contract plus the monthly Indirect Costs
provided that the amount to be paid during this period for Direct Cost shall not exceed Twenty Eight Million Dollars (USD 28,000,000.00) and the amount to be
paid for Indirect Cost shall not exceed Six Million Five Hundred Thousand Dollars (USD 6,500,000.00).
(c) Insert in the Contract, sections 1.1.7A, 1.1.36A and 1.1.68A with the following text:
(i)
Section 1.1.7A
1.1.7A “Advance Payments” means the portion of the Lump Sum Price to be paid by the Owner to the Contractor according to the Schedule 6.
(ii)
Section 1.1.36A
1.1.36A “Direct Costs” means the portion of the Lump Sum Price payable by the Owner to the Contractor pursuant to section 14.1.3 of the Contract
and determined in the Bill of Quantities contained in Schedule 6 equal to Three Hundred Eighty Six Million Two Hundred and Thirty Thousand Six Hundred Ten
Dollars with Seventy Six Cents (USD 386,230,610.76) and Four Hundred Sixty Three Million Seven Hundred Thirteen Thousand Nine Hundred Sixty One Nuevos
Soles (S/. 463,713,961.00).
(iii)
Section 1.1.68A
1.1.68A “Indirect Costs” means the portion of the Lump Sum Price payable by the Owner and the Contractor pursuant to the Preliminary Schedule of
Payments contained in Schedule 6 that is equal to Sixty Nine Million Five Hundred Thirty Four Thousand Seven Hundred Thirty Six Dollars (USD 69,534,736.00)
and One Hundred Sixty Four Million Seven Hundred Forty Thousand One Hundred Forty Three Nuevos Soles (S/. 164,740,143.00).
5. Other Terms and Conditions . Except as otherwise specifically provided in section 4 of this Variation, all other terms and conditions of the Contract shall remain
in full force and effect.
6. Waiver . Each Party hereby irrevocably waives any right that it has or might have under the Contract or at Law to commence or file any claim, demand, action or
any request for financial compensation, additional money and extension of time against the other Party concerning the Project for any causes whatsoever based on
facts that occurred prior to the date of execution of this Variation No. 2.
7. Execution . On May 18, 2012, by its countersignature below, both parties hereby agree to terms and conditions contained in this Variation Order.
Astaldi S.p.A.
/s/ Giacomo Orsatti
By: /s/ Giacomo Orsatti
Name: Giacomo Orsatti
Title:
Date:
Representante Legal
18/05/2012
Cerro del Aguila S.A.
/s/ Javier Garcia
By: /s/ Javier Garcia
Name: Javier Garcia
Title: CEO
Date: 18/5/2012
By: /s/ Juan Carlos Camogliano
Juan Carlos Camogliano
18/05/12
Name:
Title:
Date:
GyM S.A.
/s/ Juan Manuel Lambarri
By: /s/ Juan Manuel Lambarri
Name:
Title:
Date:
Juan Manuel Lambarri
18/05/2012
By: /s/ Hernando Graña
Name:
Title:
Date:
Hernando Graña
18/05/2012
VARIATION ORDER N° 3
This Variation Order N° 3 (this “Variation N° 3”) is agreed to pursuant to the Turnkey Engineering, Procurement and Construction Contract for the Cerro del
Aguila Hydroelectric Power Plant, dated November 4, 2011 (the “Contract”) by and between Astaldi and GyM (“Contractor”) and Cerro del Aguila S.A.
(“Owner”). Capitalized terms used but not defined herein shall have the meaning given to them in the Contract.
The Owner and the Contractor agree on the following Variation:
1. Purpose of the Variation . The Owner and the Contractor hereby agree to settle that the Owner shall pay the amount of five hundred and eighty thousand three
hundred and eighty dollars (USD 580,380.00) to the Contractor as a compensation caused by the suspension of some activities, required by the Owner, of the
Contractor’s Equipment since the Commencement Date until to the date of execution of this Variation, inclusive. Within fifteen (15) Business Days after reception
of invoice submitted by the Contractor, the Owner shall pay to the Contractor the referred amount.
The Owner and the Contractor hereby agree that the referred amount shall not be added to the Lump Sum Price and the suspension period shall not affect the Time
for Completion.
2. Other Terms and Conditions . Except as otherwise specifically provided in section 1 of this Variation N° 3, all other terms and conditions of the Contract shall
remain in full force and effect.
3. Waiver . Each Party hereby irrevocably waives any right that it has or might have under the Contract or at Law to commence or file any claim, demand, action or
any request for financial compensation, additional money and extension of time against the other Party concerning the Project for any causes whatsoever based on
facts that occurred prior to the date of execution of this Variation N° 3.
4. Execution . On June 15, 2012], by its countersigned below, both parties hereby agree to terms and conditions contained in this Variation N° 3.
Astaldi S.p.A.
/s/ Giacomo Orsatti
By: /s/ Giacomo Orsatti
Name: Giacomo Orsatti
Title:
Date: 15/06/2012
Cerro del Águila S.A.
/s/ Javier Garcia
By: /s/ Javier Garcia
Name: Javier Garcia
Title: CEO
Date: 2/7/12
By: /s/ Rosa María Flores Araoz
Name:
Title:
Date:
Rosa María Flores Araoz
CERRO DEL AGUILA S.A.
/s/ Jorge Monaco
CERRO DEL AGUILA S.A.
Ing. JORGE MONACO
Project Manager
GyM S.A.
/s/ Juan Manuel Lambarri
By: /s/ Juan Manuel Lambarri
Name: Juan Manuel Lambarri
Title:
Date: 15/06/2012
By: /s/ Hernando Graña
Name: Hernando Graña
Title:
Date: 15/06/2012
/s/ Jorge Monaco
CERRO DEL AGUILA S.A.
Ing. JORGE MONACO
Project Manager
Variation No. 4 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
VARIATION ORDER No. 4
This Variation Order No. 4 (this “Variation No. 4”) is agreed to pursuant to the Turnkey Engineering, Procurement and Construction Contract for the Cerro del
Aguila Hydroelectric Power Plant, dated as of November 4, 2011 (the “Contract”) by and between Astaldi S.p.A. and GyM S.A. (jointly, the “Contractor”) and
Cerro del Aguila S.A. (“Owner”). Capitalized terms used but not defined herein shall have the meaning given to them in the Contract.
1.
Purpose of the variation: The Owner and the Contractor hereby agree to:
(a)
(b)
(c)
Amend Schedule 6 of the Contract by substituting the bill of quantities included therein by the new bill of quantities attached herein as
Annex 1 to adapt the Unit Values to the new basic consolidated engineering developed by the Contractor for the Project;
Modify the Preliminary Project Schedule included in Schedule 1 of the Contract by replacing it with the new Preliminary Project
Schedule attached herein as Annex 2; and
Amend Exhibit I of the Contract by replacing TABLES No. 1, 2, 3, 4 and 5 with TABLES, 1a, 2a, 3a, 4a, 5a - attached herein as Annex
3 and by amending its Section 2.2.2 as provided below:
(i)
Incorporate the following paragraph as the last paragraph immediately preceding the first Example of Section 2.2.2. of
Exhibit I:
“If
the
overall
total
cost
of
excavating
the
tunnels
changes
with
respect
to
the
estimated
amount
indicated
in
Table
1a,
due
to
the
difference
in
the
length
of
the
individual
tunnel’s
support
sections,
then
the
resulting
adjustment
to
the
Lump
Sum
Price
(increase
or
decrease)
will
be
made
to
reflect
the
difference
between
the
cost
estimation
indicated
in
Table
1a
and
the
cost
effectively
incurred
by
the
Contractor
during
the
excavation
of
the
tunnels.”
(ii)
Incorporate the following paragraph as the fourth paragraph of the first Example of Section 2.2.2. of Exhibit I:
Variation No. 4 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
“Following
the
completion
of
all
the
Surface
Invasive
and
Subsurface
Civil
Work,
it
will
be
possible
to
calculate
the
total
amount
applicable
to
the
tunnels,
considering
that
in
the
case
in
which
better
than
expected
rock
conditions
are
found
in
those
tunnels
and
additional
lengths
introduced
in
this
variation,
and
therefore
a
saving
is
generated,
only
80%
of
the
reduction
will
be
applied
to
the
overall
final
calculation.”
2. Other Terms and Conditions . Except as otherwise specifically provided in section 1 of this Variation, all other terms and conditions of the Contract and of
Exhibit I shall remain in full force and effect.
4. Execution . On May 8, 2013, by its countersignature below, both parties hereby agree to terms and conditions contained in this Variation Order.
Cerro del Aguila S.A.
By: /s/ Javier Garcia Burgos
Name: Javier Garcia Burgos
Title: Director
Date:15/5/13
GyM S.A.
By: /s/ Hernando Graña
Name:
Title:
Date:
Astaldi S.p.A.
Cerro del Aguila S.A.
By: /s/ JC Camogliano
Name: JC Camogliano
Title: Director
Date: 15/5/13
GyM S.A.
By: /s/ Juan Manuel Lambarri
Name:
Title:
Date:
Astaldi S.p.A.
Variation No. 4 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
By:
Name:
Title:
Date
By: /s/ G. Orsatti
Name: G. Orsatti
Title:
Date:
Variation No. 4 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
VARIATION ORDER No. 4-A
This Variation Order No. 4-A (this “Variation No. 4-A”) is agreed to pursuant to the Turnkey Engineering, Procurement and Construction Contract for the Cerro
del Aguila Hydroelectric Power Plant, dated as of November 4, 2011 (the “Contract”) by and between Astaldi S.p.A. and GyM S.A. (jointly, the “Contractor”) and
Cerro del Aguila S.A. (“Owner”). Capitalized terms used but not defined herein shall have the meaning given to them in the Contract.
1.
Purpose of the variation: The Owner and the Contractor hereby agree to:
(a)
(b)
Amend Schedule 6 of the Contract by substituting the Preliminary Payment Schedule included therein by the new Preliminary Payment
Schedule attached herein as Annex 1 only to register an advance payment that will be done by Owner; and
Incorporate a set of additional milestones to the development of the Works, included herein as Annex 2, which are hereby incorporated
to the Contract. Milestones included in Annex 2 attached hereto are additional to those set forth on the Preliminary Project Schedule
included in Schedule 1 of the Contract, which is not replaced nor amended herein.
2.
3.
4.
Additional Considerations . This Variation Order doesn’t affect the Project Schedule nor the Contract Price.
Other Terms and Conditions . Except as otherwise specifically provided in section 1 of this Variation, all other terms and conditions of the Contract
shall remain in full force and effect.
Execution . On June 17, 2013, by its countersignature below, both parties hereby agree to terms and conditions contained in this Variation Order.
Cerro del Aguila S.A.
Cerro del Aguila S.A.
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
Variation No. 4 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
GyM S.A.
By: /s/ Hernando Graña
Name:
Title:
Date:
Astaldi S.p.A.
By:
/s/ Giacomo Orsatti
Name:
Giacomo Orsatti
Title:
Date:
Representante Legal
GyM S.A.
By: /s/ Juan Manuel Lambarri
Name:
Title:
Date:
Variation No. 4 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
ANNEX 1
Preliminary Payment Schedule
Variation No. 4 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
No.
1
2
3
4
5
6
7
ANNEX 2
Additional Milestones to be achieved by Contractor
MILESTONE
Complete access road to Power House
Complete main access tunnel to Power House excavation
Complete Adit 2 tunnel excavation up to headrace tunnel
Complete Power House cavern excavation
Complete river diversion tunnel excavation
Initiate Dam body concrete pouring
Complete excavation of Headrace tunnel up to at least 1800 m
DUE DATE
31.12.2013
31.12.2013*
31.12.2013*
30.06.2014*
31.12.2013
30.11.2013
31.12.2013*
* Due Date is based on expected class of rock mass distribution mentioned on Exhibit I of the Contract. Such due date might vary in case rock mass found during
excavation differs from the distribution mentioned on Exhibit I of the Contract.
Variation No. 5 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
VARIATION ORDER No. 5
This Variation Order No. 5 (this “Variation No. 5”) is agreed to pursuant to the Turnkey Engineering, Procurement and Construction Contract for the Cerro del
Aguila Hydroelectric Power Plant, dated as of November 4, 2011 (as amended, the “Contract”) by and between Astaldi S.p.A. and GyM S.A. (jointly, the
“Contractor”) and Cerro del Aguila S.A. (“Owner”) on the day and year written in Section 14 below (hereinafter, the “Execution Date”). Capitalized terms used but
not defined herein shall have the meaning given to them in the Contract.
1.
2.
3.
Purpose of the Variation: The Owner and the Contractor hereby agree to resolve any and all disputes they may or might have in relation to or arising
from the Contract and the Project which arose on or before the Execution Date and subject to the terms and conditions set forth in this Variation No. 5.
Waiver of rights: Contractor irrevocably waives and releases any right it may have to pursue any existing or past claim it made or could have made,
and future claim it may have made or may make against Owner or to request additional payments or time extensions based on facts or events that
occurred or were known on or before the Execution Date, including but not limited to, the claims asserted or referenced in letters CRM-CDA-R-1-14
and N° CRM-CDA-R-2-14, dated as of April 15, 2014 and as of May 26, 2014, respectively.
Owner irrevocably waives and releases any right it may have to pursue any existing or past claim it made or could have made, and future claim it may
have made or may make against Contractor based on facts or events occurred or known on or before the Execution Date of this Variation No. 5.
Amendments to the Contract: In consideration for the waiver and release granted hereby by the Parties, the Parties hereby agree to amend the
Contract as follows:
3.1
Lump Sum Price .
(a)
Section 1. 1.75 is hereby amended and restated in its entirety as follows:
“1.1.75 “Lump Sum Price” means the fixed lump sum of four hundred and ninety five million seven hundred and sixty
five thousand three hundred and forty eight Dollars (US$ 495,765,348) and of Six Hundred and Twenty Eight Million
three hundred and seventeen thousand six hundred and seven Nuevos Soles (S/. 628,317,607) as it may be adjusted
pursuant to this Contract.”
(b)
The following text is added at the end of Section 14.1.3:
Page 1 of 11
Variation No. 5 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
“Notwithstanding the above, a portion of the Lump Sum Price equal to USD 40,000,000 (forty million Dollars), Peruvian
VAT excluded, will be paid by Owner to Contractor as follows:
(a)
(b)
(c)
(d)
The amount of USD 10,000,000 (ten million Dollars) upon the tenth day after the date in which the
Lenders’ consent to this Variation No. 5 has been obtained.
The amount of USD 10,000,000 (ten million Dollars) upon the tenth day after the occurrence of the Partial
Taking-Over Date of the first Generator Set.
The amount of USD 10,000,000 (ten million Dollars) upon the tenth day after the occurrence of the Partial
Taking-Over Date of the second Generator Set; and
The amount of USD 10,000,000 (ten million Dollars) upon the tenth day after the occurrence of the Final
Taking-Over Date.
Contractor will be released from the waivers it granted under Section 2 of Variation No. 5 executed between the Parties
and therefore, may exercise any of the rights waived under such provision if Owner continues to fail to pay any of the
portion of the Lump Sum Price as provided in the previous subclauses (a), (b), (c) and (d) thirty days after Contractor
demanded payment in writing of any amount set forth therein.”
3.2
Scheduled Partial Taking-Over Dates .
Section 1.1.132 is hereby amended and restated in its entirety as follows:
“1.1.132 “Scheduled Partial Taking-Over Dates” means February 28, 2016 for the first Generator Set and April 30, 2016
for the second Generator Set.”
3.3
Scheduled Final Taking-Over Date .
Section 1.1.131 is hereby amended and restated in its entirety as follows:
“1.1.131 “Scheduled Final Taking-Over Date” means July 30, 2016.”
3.4
Liquidated Damages and Early Final Taking Over Bonus .
(a)
Section 9.6 is hereby amended and restated in its entirety as follows:
Page 2 of 11
Variation No. 5 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
‘’If the Partial Taking-Over Date of the first Generator Set is not achieved by March 15, 2016 for such Generator Set, the
Contractor shall pay Owner liquidated damages in the amount of US$ 130,000,00 for each day of delay from such date
until the Partial Taking-Over Date of the first Generator Set is achieved.
If the Partial Taking-Over Date of the second Generator Set is not achieved by the Scheduled Partial Taking Over Date
for such Generator Set, the Contractor shall pay Owner liquidated damages in the amount of US$ 100,000 for each day
of delay from such date until the Partial Taking-Over Date of the second Generator Set is achieved.
If the Final Taking-Over Date of the Plant is not achieved by July 30, 2016, the Contractor shall pay Owner liquidated
damages in the amount of US$ 160,000.00 for each day of delay from such date until the Final Taking-Over Date is
achieved.
If any Generator Set stop working or reduce their output after their Partial Taking-Over Date and such outage or
reduction of output is caused by a Defect or by a Contractor’s request, then the Contractor shall pay Owner liquidated
damages in the amount of US$ 100,000,00 for each day of outage or reduction in output excluding the first day in
aggregate in which an outage or reduction in output occurred.
If the Contractor achieves the Partial Taking-Over Date of the first Generator Set before the Scheduled Partial Taking-
Over Date for the first Generator Set, Contractor will be entitled to the Early Final Taking Over Bonus for such
Generator Set.
If the Contractor achieves the Partial Taking-Over Date of the second Generator Set before the Scheduled Partial Taking
Over Date for the second Generator Set, Contractor will be entitled to the Early Final Taking Over Bonus for such
Generator Set.
The liquidated damages provided in this Section 9.6 shall be in lieu of all liability of Contractor to Owner for any and all
extra costs, losses or expenses of whatsoever nature incurred or to be incurred by Owner as a result of any delay in
achieving the Partial Taking-Over Date or the Final Taking-Over Date, and shall be the sole and exclusive remedy to the
Owner in case of delay. The forgoing liquidated damages shall be paid within twenty (20) days of written demand
therefor and if not so paid, may be collected by Owner from any amount then owed to the Contractor.
Page 3 of 11
Variation No. 5 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
The above liquidated damages are a reasonable forecast of the actual costs, losses and expenses incurred by Owner as a
result of delays in achieving the Partial Taking-Over Date and the Final Taking-Over Date by the Time for Completion
and therefore, do not constitute a penalty. The parties, having bargained in good faith for such specific damages, are
estopped from contesting the validity or enforceability of such damages.
The payment or deduction of such liquidated damages shall not relieve the Contractor from its obligation to complete the
Works and achieve the Final Taking-Over Levels, remedy any Defects or Deficiencies or from any other of its
outstanding duties, obligations or responsibilities under this Contract.
The Contractor shall issue an invoice evidencing the applicable bonus for the first Generator Set or the second Generator
Set, as applicable, within thirty (30) days after the issuance of the Final Taking-Over Certificate. Payment of such
invoice shall occur in accordance with Section 14.3.”
(b)
Section 1.1.40 is hereby amended and restated in its entirety as follows
“1.1.40 “Early Final Taking Over Bonus” means an amount equal to US$ 65,000.00 for each day prior to the Scheduled
Partial
Taking-Over
Date
for
the
first
Generator
Set,
in which Partial
Taking-Over
Date
of
the
first
Generator
Set
is
achieved by Contractor or US$ 50,000.00 for each day prior to the Scheduled
Partial
Taking-Over
Date
for
the
second
Generator
Set,
in which Partial
Taking-Over
Date
of
the
second
Generator
Set
is achieved by Contractor. For the
avoidance of doubt, Parties agree that there will be no Early Final Taking Over Bonus associated to the third Generator
Set.”
3.5
Punch List.
The following text is added at the end of Section 1.1.121:
“Notwithstanding the above, the items included under Annex I to Variation No.5 can be included in the Punch List and
will not be considered as a valid reason for disputing the achievement of the Partial Taking-Over Dates or the Final
Taking Over-Date provided that the failure to provide such items by the Partial Taking Over Dates or the Final Taking
Over Date does not materially impair the ability to safely operate the relevant Generator Set or the Plant as a whole.”
Page 4 of 11
Variation No. 5 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
4.
5.
Project Schedule: Within 30 calendar days after the Execution Date, Contractor will submit for Owner’s approval a new Project Schedule, both on
Primavera and PDF formats, including the Scheduled Partial Taking-Over Dates and Scheduled Final Taking-Over Date agreed on this Variation
No. 5. Such Project Schedule will include in detail (level 3) all engineering, procurement and construction works to be completed and will clearly
indicate all tasks that are on the critical path.
Access: Owner accepts the modifications to the access to the Project Area and the Concession Area that are set forth below:
5.1
Access Road Construction .
The Contractor is relieved from the construction of the Access Road that connects Quintao with Jatuspata and the bypass that connects
the Access Road to the dam area with Durasnuyoc and the Owner therefore waives any right it may have to demand the construction of
such Access Roads or to seek compensation for such Access Roads not being performed.
5.2
Access Route Alteration or Modification .
The Contractor is relieved from the alteration or modification of the Access Route that connects Andaymarca with Durasnuyoc and the
Access Route that connects Durasnuyoc, Suylloc and Quintao and the Owner therefore waives any right it may have to demand the
alteration or modification of such Access Routes or to seek compensation for such Access Routes not being performed.
5.3
Access Road from the powerhouse to Jatuspata .
Contractor will build, at no additional cost to Owner, an Access Road which shall be at least 4 meters wide, connecting the powerhouse
of the Project and Jatuspata. Compensation to the Contractor for the performance of such Access Road will be regulated under
Section 5.4.
5.4
Bill of quantities modification .
The currently unpaid amounts allocated in the bill of quantities, detailed in the Preliminary Schedule of Payments, Schedule 6 of the
Contract (the “Bill of Quantities”) for the performance of the portion of the Works which have been relieved from the Contractor’s
obligations pursuant to Sections 5.1, 5.2 and 5.3 of this Variation No. 5, equals to an amount of USD 3,477,521 (three million four
hundred and seventy seven thousand five hundred and twenty one Dollars) plus Peruvian Nuevos Soles 12,279,591 (twelve million two
hundred and seventy nine thousand five hundred and ninety one). Such amounts will be re-assigned for the execution of the Access
Road indicated on Section 5.3 of this Variation No. 5 and will be paid in accordance with the progress of the said portion of the Works
in the Monthly Payment Certificates.
Page 5 of 11
Variation No. 5 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
5.5
Transitability of accesses from Pampas to powerhouse and dam areas
Contractor agrees to perform and pay for all necessary Works and take all necessary actions so as to guarantee safe transit by the
accesses that connect the location of Pampas with the powerhouse and the dam of the Project. Contractor further accepts that it will not
file any claims or requests for additional payments or time extensions of any kind which relate to the maintenance and removal of
debris resulting from landslides affecting such accesses and therefore waives and releases any claims and rights it may have to make,
file or prosecute any legal action of any nature to pursue any such claim, with the sole exception of the events occurring when (i) large
landslides occur that block a section of an access mentioned on this Section 5; and (ii) the debris and/or damages caused by such
landslides cannot be removed or repaired with the use of the set of equipment detailed below despite Contractor’s reasonable efforts
within a period of 10 days from the date of occurrence of any such event.
i.
ii.
iii.
iv.
v.
vi.
vii.
1 large excavator (excavadora
grande
)
1 large front loader (cargador
frontal
grande)
1 large tractor (Tractor
grande)
1 compactionroll (rodillo
compactador)
1 grader (motoniveladora)
6 dump trucks (Camiones
volquetes)
1 tanker truck (Camión
cisterna)
Only upon the occurrence of events that comply with the conditions set forth in (a) and (b) above, the Contractor is entitled to an
increase of the Lump Sum Price and an extension of time pursuant to Section 20.5 of the Contract.
The increase of the Lump Sum Price as provided in the previous paragraph will include direct and indirect costs (no overheads)
incurred by the Contractor to restore the safe transit by such access.
Contractor declares and guarantees that all Equipment necessary to complete the Works will be received at the Project site no later than
November 30, 2015 and that therefore, after November 30, 2015, the Contractor will not have any need to transport any Materials and
Major Items of Equipment to the Project site for the completion of the Works and that therefore, the Contractor irrevocably waives any
right it may have to pursue any claim to extend the Time for Completion or to increase the Lump Sum Price in connection to any delay
suffered in the transportation of Materials and Major Items of Equipment to the Project site after November 30, 2015.
Page 6 of 11
Variation No. 5 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
5.6
Works on the Imperial—Pampas Access Route .
Contractor declares, guarantees and irrevocably waives its right to that it will not file any claims or requests for additional payments or
time extensions of any kind that in any way relate to transit limitations that might affect the Access Route Imperial—Pampas as a result
of works performed by any other person or entity and therefore waives and releases any claims and rights it may have to make, file or
prosecute any legal action of any nature to pursue any such claim. Contractor acknowledges and agrees to observe the following transit
times applicable for such Access Route:
i.
Until April 15, 2015:
•
•
from 12:00 to 13.30 and from 18:00 to 07:00 of every day, for the transit of all kinds
of vehicles.
from 10:00 to 11:00 from Mondays to Fridays, for the transit of vehicles that
transport personnel.
ii.
Starting on April 16, 2015 until December 1, 2015:
•
from 12:00 to 13.00 and from 18:00 to 19:00 of every day, for the transit of all kinds
of vehicles. Regarding these timeframes, Parties agree that they will make their
reasonable commercial efforts to get authorizations to extend them, however
Contractor agrees and accepts that these timeframes will apply and no claims will be
made or asserted in the event that the Parties are unable to extend them.
6.
Pending tunnel excavation works: Contractor acknowledges and accepts that the amendment to Section 1.1.132 of the Contract provided in
Section 3.2 of this Variation No. 5 was agreed based on the assumption that the portion of the headrace tunnel that is pending to be excavated as of the
Execution Date, has rock quality C2. Therefore, Contractor waives and releases any claims and rights it may have to request or demand an extension
of Time for Completion under Section 5.9 of the Contract in connection to the rock quality found in the headrace tunnel unless the following
conditions are satisfied: (i) the portion of the headrace tunnel that is still to be excavated requires support of type D, E, E1 or E2 specified in Exhibit I
of the Contract; and (ii) Contractor demonstrates that the part of the tunnel affected by a lower than expected rock quality would cause a delay of the
Scheduled Partial Taking Over Dates and/or Scheduled Final Taking-Over Date as a result of such works having an impact on the critical path
identified in the Project Schedule required to be delivered in section 4 of this Variation No. 5.
Page 7 of 11
Variation No. 5 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
7.
8.
9.
10.
Security Logistics: Contractor will provide at its own cost and as part of its obligations under the Contract, all food and transport to the military and
police personnel that have been assigned to the powerhouse and dam areas of the Project, up to a maximum number of 32 persons per each such
locations. In the event that the number of military and police personnel will exceed the 32 units per location—powerhouse or dam area-, the
Contractor will be entitled to be reimbursed for the additional costs incurred.
Works on the Substation:
(a)
(b)
Expansion and Modification Works .
Contractor will perform, as part of its obligations under the Contract, any and all expansion and modification works to be carried out at
the Campo Armiño Substation and shall execute such works in accordance with the terms of the Contract and engineering provided by
Owner and developed by Siemens PTD, at the Contractor’s sole cost.
Commitments with Third Parties .
Contractor declares and guarantees that it will fulfill and complete, in a timely manner, any and all obligations undertaken with local
communities and Electroperu, especially those relating to the pavement within the site of the Campo Armiño Substation.
Perimeter fence of Campamento
Limonal:
Contractor will perform all necessary Works to build, as part of its obligations under the Contract and at
its sole cost, a perimeter fence in Campamento
Limonal,
in accordance with the terms and conditions of Contractor’s letter N° C-AGM-CDA-119-15
dated February 16, 2015.
Effectiveness: This Variation No. 5 will be in full force and effect as of the date in which the Lenders have expressed their consent in writing to this
Variation No. 5 as provided in the Financing Documents.
Immediately upon the Execution Date, the Owner shall submit to the Lenders for consent this Variation No. 5 and give evidence thereof to the
Contractor. Upon receipt of Lenders’ position, the Owner must promptly provide a written notice to the Contractor stating that position.
The Owner will use its best endeavors to ensure that the above conditions are satisfied by 45 days after the Execution Date.
In the event the Lender’s consent to this Variation No. 5 has not been expressed in writing on or before 45 days from the Execution Date, Contractor
may decide, at its own discretion, to terminate this Variation order No.5, which will become null and void upon written notification thereof by the
Contractor to the Owner.
Page 8 of 11
Variation No. 5 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
Notwithstanding the above, Sections 4, 5.1, 5.2, 5.3, 5.4, 10, 11, 12, 13 and 14 of this Variation No. 5 shall come into full force and effect immediately
upon the Execution Date, provided that the delivery of a new Project Schedule pursuant to Section 4 will not be deemed to be an extension of the Time
for Completion until Section 3 is effective.
11.
12.
13.
14.
Mutual Concessions: Each Party declares that this Variation No. 5 is the result of mutual concessions granted by each Party in favor of the other
pursuant to Article 1302 of the Peruvian Civil Code and has the purpose of finishing any existing disputes on the subject matter thereof and avoiding
any future disputes based on facts or events occurred or known on or before the Execution Date of this Variation No. 5.
Legal Nature: In accordance with article 1302 of the Peruvian Civil Code, Parties hereby irrevocably agree that this Variation No. 5 has the effects of
a transacción
extrajudicial.
Other Terms and Conditions: Except as otherwise specifically provided in this Variation No. 5, all other terms and conditions of the Contract shall
remain in full force and effect.
Execution Date . On March 27, 2015, by its countersignature below, both Parties hereby agree to the terms and conditions contained in this Variation
No. 5.
Cerro del Aguila S.A.
By:
/s/ Javier Garcia
Javier Garcia
Name:
Title: Director
Date: 27/3/2015
GyM S.A.
By:
/s/ Ricardo Canturin Cano
Name:
Title:
Ricardo Canturin Cano
Representante Legal
Date: 27.03.2015
Cerro del Aguila S.A.
By:
/s/ Rosa María Flores Araoz
Name: Rosa María Flores Araoz
Title:
Date: 27.03.2015
GyM S.A.
By:
/s/ Renato Rojas
Name:
Title:
Renato Rojas
Gerente General
Date: 27.03.2015
Page 9 of 11
Variation No. 5 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
Astaldi S.p.A.
By: /s/ Matteo Bordin
Name:
Title:
Date:
Matteo Bordin
27/03/2015
Page 10 of 11
Variation No. 5 to the Turnkey Engineering, Procurement and Construction Contract entered into by Cerro del Aguila S.A. and Astaldi SpA and GyM S.A. dated as
of November 4, 2011
As specified in the aforementioned Section 3.5, the following items may be included in the Punch List at the Partial Taking Over Dates and/or the Final Taking -
Over Date:
ANNEX 1
•
•
•
•
•
•
•
•
•
•
Completion of HVAC (Heating Ventilation and Air Conditioning)
Completion of Fire-detection and Fire-fighting Systems. The correspondent service will be limited to guarantee essential safety features necessary for
starting operations (For instance deluge for transformers and extinguishers will be guaranteed).
Completion of Lighting System
Completion of Maintenance Shops.
Completion of Compressed Air System.
Completion of MCC (Motor Control Center) for Balance of Plant.
Completion of Control System.
Provision of Spares Parts.
Completion of O&M (Operation and Maintenance).
Completion of As-built and Construction Documents.
Under the terms defined in Section 1.1.121 of the Contract and as mentioned in Section 3.5 of this Variation Order No. 5, the above items will not constitute any
kind of defect or deficiency as they not affect the operability, safety or mechanical and electrical integrity of the Plant.
Page 11 of 11
Exhibit 4.12
GUARANTEE CONTRACT
Between
Kenon Holdings Ltd.
And
Chery Automobile Co. Ltd.
9 June, 2015
This guarantee contract (“ Guarantee Contract ”) is entered into on the date first above written by and between:
(1)
Kenon Holdings Ltd. a limited liability company duly organized and validly existing under the laws of Singapore with its legal address at 1 Temasek
Avenue, #36-01 Millenia Tower, Singapore 039192 (“ Kenon ”), represented by Mr. Yoav Doppelt and Mr. Dan Cohen, and
(2)
Chery Automobile Co. Ltd., a company limited by shares duly organized and validly existing under the laws of the People’s Republic of China (“PRC”),
with its legal address at 8 Changchun Road, Economic & Technology Development Zone, Wuhu, Anhui, China, 241009, represented by Mr. Yin Tongyue
(“Chery”)
(Kenon and Chery are hereinafter individually referred to as “Party” or jointly referred to as “Parties”.)
WHEREAS:
(A) Kenon is the parent company of Quantum (2007) LLC (“ Quantum ”) and Chery is a major shareholder of Wuhu Chery Automobile Investment Co., Ltd. (“
Wuhu Chery ”) and Quantum and Wuhu Chery are equal shareholders of the Sino-foreign equity joint venture company Qoros Automotive Co., Ltd. (“
Qoros ” or “ Borrower ”).
(B) Qoros has signed a Consortium Loan Agreement concerning Project of Research and Development of Hybrid Model (the “ Loan Agreement ”) on 12 May,
2015 with the Export-Import Bank of China (the “ Lender ”), China Construction Bank Co., LTD, Suzhou Branch (the “ Agent ”), in which the Lender
agrees to make available to Qoros an aggregate principal amount of equivalent to RMB 700,000,000 (Seven Hundred Million) among which the
2
USD facility shall not exceed an amount of equivalent to RMB 480,000,000 (RMB Four Hundred and Eighty Million) long term loan facility pursuant to the
provisions of the Loan Agreement (the “ Facility ”).
(C) As a condition precedent for the Lender to make the Facility available for Qoros, Chery has provided an irrevocable, unconditional and joint guarantee for
the indebtedness of Qoros, including the draw downs and other payable amounts with a loan term of 102 months to the Lender, for the liabilities of Qoros
under the Loan Agreement pursuant to the terms and conditions set forth in the “Guarantee Contract for RMB 0.7 Billion Consortium Loan Agreement
concerning Project of Research and Development of Hybrid Model of Qoros Automotive Co., Ltd.” between Chery and the Lender dated 12 May 2015 (“
Chery Guarantee Deed ”).
(D)
This Guarantee Contract directly correlates with Loan Agreement specified in Whereas (B) and Chery Guarantee Deed specified in Whereas (C), provided
that this Guarantee Contract is entered into based on the common understanding between the Parties and Qoros as agreed in the “ Agreement regarding the
Shareholders’ Guarantee for Qoros ” dated 7 May 2015.
3
In accordance with relevant laws and regulations of the PRC and after an amicable negotiation based on mutual consents, the Parties agree as follows:
Chapter 1 Scope of Guarantee, Guaranteed Indebtedness and Term of Guarantee
Clause 1 Pursuant to the provisions of the Chery Guarantee Deed, Chery has agreed to provide an irrevocable, unconditional and joint guarantee to the Lender for
100% of the indebtedness of Qoros under the Loan Agreement subject to the clauses of the Chery Guarantee Deed. Such guarantee provided by Chery under the
Chery Guarantee Deed shall include but not limited to:
(1) Principal in the consortium loan under Loan Agreement which is equivalent to RMB Seven Hundred Million (RMB 700,000,000);
(2) Interest incurred by principal in the consortium loan (including legal interest, contract interest, compound interest and default interest);
(3) Payment is not made by Borrower as regulated by Loan Agreement;
(4) Compensation, penalty and damage awards incurred due to the noncompliance with any provisions in the Loan Agreement by Borrower;
(5) Notary fee, audit fee, expert verification fee, property preservation fee, brief fee, attorney fee and execution fee as well as other relevant fees paid by Lender for
the implementation of creditor’s rights;
4
Chery shall bear joint liability of all debts for Borrower within the purview of guarantee outlined in Clause 1 above, including debt cleared off in advance by
Borrower due to its default at the request of Lender according to Loan Agreement (collectively the “ Chery Secured Indebtedness ”).
Clause 2 Pursuant to the provisions of this Guarantee Contract, Kenon agrees to provide an irrevocable and – in accordance with this Guarantee Contract—
unconditional guarantee to Chery for up to 50% of the Chery Secured Indebtedness under the Chery Guarantee Deed (such 50% of the Chery Secured Indebtedness
under the Chery Guarantee Deed hereinafter referred to as the “ Kenon Secured Indebtedness ”), provided that Qoros shall request the Lender to drawdown up to
RMB 350,000,000 (three hundred fifty million) pursuant to the Loan Agreement, the “Agreement regarding the Shareholders’ Guarantee for Qoros” and the Qoros
2015 BOD Resolution No. 7.
The Kenon Secured Indebtedness shall include but be limited to:
(i)
(ii)
(iii)
50% of the principal drawn down by Qoros from the Lender in relation to the Facility granted to Qoros under the Loan Agreement;
50% of the unpaid or accumulated interest in relation to the Facility granted to Qoros under the Loan Agreement (however, such unpaid or
accumulated interest guaranteed by Kenon under this Guarantee Contract shall be, at maximum, RMB 27,300,000); and
50% of any and all related fees payable arising from such principal (however, such related fees guaranteed by Kenon under this Guarantee Contract
shall be, at maximum, RMB 2,700,000).
The amounts specified under Item (i), Item (ii) and Item (iii) shall, in total, be collectively referred to hereinafter as the “ Total Amount” , and may be adjusted in
accordance with Clause 12 below. If the amount specified either in Item (ii) or Item (iii) is exceeded, Kenon and Chery will discuss the matter amicably and try to
find a solution acceptable for both Parties but without any right or obligation for either Party to claim or be liable in excess beyond the amounts specified either in
Items (i) to (iii) above under this Guarantee Contract.
5
If a portion of the fees under Items (ii) and (iii) is attributed to the noncompliance with the representations, warranties and covenants solely by Chery under the
Chery Guarantee Deed, Kenon shall not be liable for that portion.
The Parties acknowledge that in an Event of Default by Qoros under the Loan Agreement (as defined therein) and amounts payable in respect of such Event of
Default could exceed the limits specified above (in the sole discretion of Chery), Chery may make any payments in respect of the Facility or related expenses under
the Loan Agreement whether voluntarily or at the request of the Lender and Kenon shall be obligated to pay 50% of that payment to Chery, subject to the limits set
forth under Items (i), (ii) and (iii) above.
The Parties enter into this Guarantee Contract based on the understanding that they both need to approve any drawdowns by Qoros under the Loan Agreement
beyond RMB 350,000,000 (three hundred fifty million). The Parties agree that they will not authorize Qoros to drawdown additional amounts beyond RMB
350,000,000 (three hundred fifty million) under the Loan Agreement unless (a) Kenon agrees to provide an additional guarantee in respect of 50% of such
additional drawdowns (i.e. up to RMB 175 million of the principal Facility as well as any additional amounts, such as interest and fees in respect thereof, subject
however to the limits specified in items (ii) and (iii) above) and (b) Chery and Kenon approve in writing of any Qoros drawdown.
For the avoidance of doubt, any drawdowns of Qoros under the Loan Agreement beyond RMB 350,000,000 (three hundred fifty million) will require the aforesaid
prior written approval of Kenon in order for the guarantee by Kenon in respect to those amounts to be effective and binding upon Kenon in respect of this
Guarantee Contract.
6
Clause 3 In case Qoros fails to pay any due and payable Chery Secured Indebtedness on any due date or any Event of Default under the Loan Agreement occurs
and the payment ability of Qoros could be strongly affected, and in each case Chery pays off such Chery Secured Indebtedness to the Lender in accordance with the
Chery Guarantee Deed, Kenon shall pay to Chery 50% (and not more than the Total Amount or an adjusted ratio or amount in accordance with Clause 12 below) of
the amount of the Chery Secured Indebtedness actually paid by Chery to the Lender within thirty (30) Business Days upon the receipt of a written notice from
Chery to a bank account designated by Chery. If Kenon pays the Kenon Secured Indebtedness in USD, Kenon shall ensure that the amount received by Chery shall
be the RMB equivalent of 50% of the sums paid by Chery to the Lender for Chery Secured Indebtedness.
7
Clause 4 Chery shall provide Kenon with all documents to prove the Chery Secured Indebtedness paid off to the Lender for the purpose of Kenon’s guarantee
payable under this Guarantee Contract and that the amount of the Chery Secured Indebtedness paid by Chery to Lender has reduced the amount payable by Qoros
in respect of the Loan Agreement and the Facility.
Clause 5 The term of this Guarantee Contract shall commence from the effectiveness of the Chery Guarantee Deed (a signed and sealed execution copy of which
together with a signed and sealed execution copy of the Loan Agreement must be provided by Chery to Kenon prior to the Parties executing this Guarantee
Contract) or the effective date of this Guarantee Contract, whichever is earlier, until ten (10) days after the Chery Guarantee Term under the Chery Guarantee Deed,
or two (2) years after Chery performs the Chery Secured Indebtednesses owed by Chery under the Chery Guarantee Deed, whichever is later. This Guarantee
Contract will become null and void after the term of this Guarantee Contract as set forth above is expired. Clause 18 and 19 shall remain valid and survive the
expiration of the term of this Guarantee Contract.
8
Chapter 2 Nature and Effectiveness of Guarantee
Clause 6 The guarantee under this Guarantee Contract is an exclusive guarantee with continuance and full effectiveness provided by Kenon to Chery and shall not
be a joint and several guarantee to the Chery Guarantee Deed which Chery provided to the Lender a and/or any other guarantee or security provided to the Lender
or the Lender in relation to the Loan Agreement. Chery may only claim against Kenon under this Guarantee Contract if and after Chery has fulfilled its obligations
and actually paid its guaranteed amount towards the Lender under the Chery Guarantee Deed and shown that the amount of the Chery Secured Indebtedness paid
by Chery to Lender has reduced the amount payable by Qoros in respect of the Loan Agreement and the Facility.
Kenon’s guarantee obligation under this Guarantee Contract supplements and replaces Kenon’s promises under the “Agreement regarding the Shareholders’
Guarantee for Qoros”. For no intents and purposes shall Kenon’s guarantee obligation under this Guarantee Contract and under the “Agreement regarding the
Shareholders’ Guarantee for Qoros” be considered additional to one another.
Clause 7 The effectiveness of this Guarantee Contract shall not be affected by either of the liquidation, merger, spin-off, restructuring, bankruptcy or any other
form of change of the organizational chart of Kenon or other arrangements made to Qoros’s indebtedness. This Guarantee Contract shall terminate as of the date
Quantum ceases to be a shareholder of Qoros, provided that the assignee of Quantum’s equity in Qoros unconditionally undertakes the liability and obligation of
Kenon hereunder pro rata in accordance with the equity ratio assignment and based on equal terms with this Guarantee Contract with Chery’s consent in writing.
Also, the ratio and Total Amount of the Kenon Secured Indebtedness shall be adjusted pro rata in accordance with any adjustment of the equity ratio held by
Quantum in Qoros during the term of the Guarantee Contract (e.g. if the equity of Quantum in Qoros adjusts to 40%, Kenon shall only guarantee for 40% of the
Chery Secured Indebtedness under the Chery Guarantee Deed) subject to the written
9
agreement among Kenon, Chery and the assignee in question. However, a written agreement is not necessary once the shareholding of Quantum and Wuhu Chery
in Qoros is decreased due to dilution (decrease of shareholdings due to issuance of new securities) in case of an IPO of Qoros.
Clause 8 This Guarantee Contract is independent of the Loan Agreement but is dependent on the effectiveness of the Chery Guarantee Deed. The effectiveness of
this Guarantee Contract and the obligations and liabilities of Kenon hereunder shall not be affected by the fact that the Loan Agreement becomes null or rescinded
for whatsoever reason. The effectiveness of this Guarantee Contract and the obligations and liabilities of Kenon hereunder shall be null and void if the Chery
Guarantee Deed becomes null or rescinded for whatsoever reason.
Clause 9 This Guarantee Contract and any of the rights and obligations of the Parties hereunder shall not be transferred by a Party hereof to any third party without
prior written consent of the other Party.
Chapter 3 Representations and Warranties
Clause 10 Chery represents and warrants that Chery will comply with its representations, warranties and covenants under the Chery Guarantee Deed.
10
Kenon represents and warrants to Chery with respect to the then facts and situations on the effective date of this Guarantee Contract, every Utilization Notice date,
every Utilization Date and every Date of Interest Payment as follows:
1.
2.
3.
It is a legal person that has been legally incorporated and validly existing pursuant to the laws and regulations of its incorporation place.
It has the necessary civil capacities and rights to own its assets, to operate its businesses, and to make and perform this Guarantee Contract.
It has obtained all the internal corporate authorizations necessary for entering into and performing this Guarantee Contract with such authorizations still in
full force and effect; and this Guarantee Contract has been duly and effectively executed by the authorized representatives of Kenon.
4.
All approvals, permits, consents, registrations and filings currently required for its legal performance of this Guarantee Contract have been duly obtained and
are still in full force and effect.
5.
The obligations set forth in this Guarantee Contract are legal, effective and binding upon on Kenon, and it shall be fully performed accordingly.
6.
The formation and performance of this Guarantee Contract by Kenon for itself do not and will not violate or contradict with any of the following:
11
(a)
Any contracts, agreements or other documents that are of binding effect on it or its assets; which results or would result in a material adverse effect on
its ability to perform its obligations under this Guarantee Contract;
(b)
Any of its constitutional corporate documents; and/or
(c)
Any laws and regulations it is subject to.
There is no existing litigation, arbitration, administrative proceeding, judicial or administrative enforcement proceeding or other legal proceeding of the
similar kind initiated against Kenon, which have led or would, if adversely determined, lead to a material adverse effect on its ability to perform its
obligations under this Guarantee Contract.
It has not entered into any proceeding of business suspension, dissolution, liquidation, bankruptcy, restructuring, reconciliation, reorganization or other
similar legal proceedings.
Under judicial proceedings in any jurisdiction, to the best knowledge of Kenon, Kenon do not have any immunity and privilege in respect of suing,
judgment, enforcement, preservation and other judicial procedures.
12
7.
8.
9.
10.
It has carefully read and fully understood and accepted the contents set forth in this Guarantee Contract and this Guarantee Contract will be made and
performed by Kenon based on its will and true intention.
11.
This Guarantee Contract is directly binding upon Kenon.
Chapter 4 Covenants
Clause 11 Before any Kenon Secured Indebtedness under the Guarantee Contract is fully discharged and before any of the Chery Secured Indebtedness under the
Chery Guarantee Deed is fully discharged, Kenon shall strictly fulfill and observe following covenants:
1.
Kenon shall ensure that, the respective creditor’s rights of Chery to Kenon under this Guarantee Contract shall at least rank pari passu with the creditor’s
rights (without priority) of the other unsecured creditors of Kenon except for obligations mandatorily preferred by applicable insolvency laws.
2.
3.
Kenon shall maintain its legal status, continuous and effective existence, and ensure it has necessary civil capacities and rights to perform this Guarantee
Contract.
Kenon shall timely obtain and maintain all approvals, permissions, consents, registrations and filings necessary for the performance of this Guarantee
Contract, if any, and maintain the full force and effect hereof.
13
4.
Kenon procures that all materials provided to the other Party in relation to this Guarantee Contract are true, complete and effective.
Clause 12 If any change and/or amendment and/or novation of the Loan Agreement and/or the Chery Guarantee Deed or any of their terms alleviate the obligations
of Kenon stipulated in this Guarantee Contract, the prior written consent of Kenon shall not be required, and Kenon shall continue to bear guarantee liability
thereafter. However, Chery shall notify such change and/or amendment and/or novation of the Loan Agreement and/or the Chery Guarantee Deeds to Kenon in
writing.
If any change and/or amendment and/or novation of the Loan Agreement and/or the Chery Guarantee Deed or any of their terms intensify the obligations of Kenon,
the prior written consent of Kenon to such change and/or amendment and/or novation shall be necessary to make them effective and binding upon Kenon in respect
to this Guarantee Contract.
Clause 13 Chery herewith undertakes irrevocably and unconditionally towards Kenon (subject only to conditions in the Chery Guarantee Deed, if any) to pay off
such Chery Secured Indebtedness and to hold Kenon and/or Quantum harmless from any and all direct and indirect damages and losses incurred by Kenon and/or
Quantum in case Chery does not comply with its obligation to pay off the Chery Secured Indebtedness in full and on time in accordance with the Chery Guarantee
Deed .
14
Chery shall be obliged to pay to Kenon, without further notice by Kenon, simultaneously and on a pro rata basis, 50% of any amounts Chery may receive or may
otherwise recover (including by operation of any set-off, deduction or counterclaim) from Qoros and/or any other third party in respect of any payment made by
Chery under the Chery Guarantee Deed, provided however that Kenon has in advance made its payments to Chery under this Guarantee Contract; these rights and
obligations shall be and remain binding on Qoros whether or not (i) Kenon remains a shareholder of Quantum or (ii) Quantum remains a shareholder of Qoros or
(iii) Chery remains a shareholder of Wuhu Chery or (iv) Wuhu Chery remains a shareholder of Qoros.
Kenon shall be entitled to claim from Qoros and Qoros shall be obliged to pay on demand to Kenon any amounts equal to all and any payments made by Kenon
under this Guarantee Contract to Chery; these rights and obligations shall be and remain binding on Qoros whether or not (i) Kenon remains a shareholder of
Quantum or (ii) Quantum remains a shareholder of Qoros.
15
Chapter 5 Event of Default
Clause 14 Any material breach of obligation under this Guarantee Contract by Kenon shall constitute an event of default under this Guarantee Contract by Kenon
and Kenon shall be liable to compensate Chery for all and any direct losses and damages incurred by such breach of contract (indirect and consequential losses and
damages shall be excluded).
Clause 15 Notwithstanding the aforesaid, after the occurrence of an event of default under this Guarantee Contract and in case Kenon is the defaulting Party,
Kenon shall, directly or at the request of Chery observe one or more of the obligations listed below:
1.
2.
3.
4.
rectifying the default;
providing additional securities.
undertaking guarantee liabilities; and/or
performing any other obligations under this Guarantee Contract.
Clause 16 Any expenses in connection with the negotiation, conclusion and performance of this Guarantee Contract shall be borne by each Party for itself.
Chapter 6 Fees and Indemnities
Chapter 7 Effectiveness
Clause 17 Subject to the provisions of Clause 5 above, this Guarantee Contract shall come into force on the date when the legal or authorized representatives of
Kenon and Chery have affixed their respective signatures together with the company seal of Chery on this Guarantee Contract and when the legal or authorized
representatives of Kenon and Qoros have affixed their respective signatures together with the company seal of Qoros on the Addendum to this Guarantee Contract.
16
Clause 18 This Guarantee Contract shall be governed by and construed in accordance with the laws of the PRC.
Chapter 8 Governing Law and Dispute Resolution
Clause 19 In the event a dispute between the Parties arising out of or in relation to this Guarantee Contract, the Parties shall in the first instance each designate one
or more representatives who shall promptly meet to attempt to resolve such dispute through friendly consultations.
If the dispute is not resolved through consultations within sixty (60) days after one Party has served a written notice on the other Party requesting the
commencement of consultations, then the Parties shall refer and submit the dispute for final resolution by arbitration to the Hong Kong International Arbitration
Center (HKIAC) in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL Arbitration Rules”) as at
present in force save as the same may be amended by this Article and the UNCITRAL Arbitration Rules shall be construed accordingly. The place of arbitration
shall be Hong Kong. The arbitration shall be settled by three (3) arbitrators. Each Party shall appoint one arbitrator within the time stipulated in the UNCITRAL
Arbitration Rules, failing which the appointment shall be made by HKIAC. The third arbitrator, who will act as the presiding arbitrator, shall be appointed by the
HKIAC. The appointing authority shall be the HKIAC. The language of the arbitration proceedings shall be English, provided that either Party may introduce
evidence or testimony in languages other than English. The arbitrators may refer to both the English and Chinese texts of this Contract. The award of the arbitration
tribunal will be final and binding on each of the Parties and may be enforced in any court of competent jurisdiction.
17
The arbitral tribunal shall have the authority and power to make such orders for interim relief, including injunctive relief, as it may deem just and equitable. A
request for interim measures or equitable remedies, including injunctive relief, by a Party to a court shall not be deemed to be or construed as incompatible with, or
a waiver of, this agreement to arbitrate.
The arbitration shall be kept confidential and the existence of the proceeding and any element of it (including but not limited to any pleadings, submissions or other
documents submitted or exchanged, any evidence and any awards) shall not without prior consent by all Parties be disclosed beyond the Parties to the arbitration
and their representatives, the arbitral tribunal, the administering institution (if any) and any person necessary to the conduct of the proceeding, except as may be
lawfully required (under any jurisdiction the Parties are subject to) whether in judicial proceedings or otherwise in the normal course of business of the Parties.
The Parties will use their best efforts to effect the prompt execution of any such awards and will render whatever assistance as may be necessary to this end,
including, if necessary, compliance with the enforcement procedures stipulated in the United Nations
18
Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Arrangements Concerning Mutual Enforcement of Arbitration Awards
between the Mainland and the Hong Kong Special Administrative Region.
The costs of arbitration including attorneys’ fees shall be borne by the losing Party unless otherwise decided in the arbitral award.
Clause 20 Unless otherwise defined in this Guarantee Contract, any reference to the bold and underlined terms herein shall have the same meaning as provided in
the paragraph 1.1 (Definitions) under Clause 1 (Definitions and Interpretation) of the Loan Agreement.
Chapter 9 Others
19
Clause 21 Neither tolerance, grace period, privileges or delays that one Party has granted to the other Party under this Guarantee Contract, shall affect, impact or
restrict any rights of such one Party under this Guarantee Contract and arising out of the operation of laws, and nor shall these be deemed as a waiver of any rights
or interests under this Guarantee Contract by such one Party, and nor shall these affect the obligations and liabilities to be borne by the other Party.
Clause 22 This Guarantee Contract may be amended or supplemented by mutual written agreement of the Parties. Any amendment or supplement to this Guarantee
Contract shall constitute an integral part of this Guarantee Contract.
Clause 23 This Guarantee Contract is made solely for the benefit of Kenon and Chery and shall not be construed to confer any rights to any third party (including,
without limitation, Qoros, the Agent and the Lender).
Clause 24 Any notice, demand or other documents to be given by one Party to any other Party hereto shall be in writing in English and delivered or sent to the
recipient(s) at the address specified in the first page of this Guarantee Contract. Any Party hereto shall timely notify the other Party of any change of its address.
Such notice, demand or documents will be deemed as delivered: if sent by person, at the time of actual delivery; if posted by registered mail, at the time of 17:00 of
the fifth (5) Business Day after such registered mail is posted; if sent by PDF-email or fax, at the time when a confirmation report is received by the sender.
20
Clause 25 This Guarantee Contract is signed in English and Chinese languages with both language versions equally binding. In case of any discrepancy between
the two languages versions, the English version shall prevail.
Clause 26 This Guarantee Contract is executed in two (2) originals. Chery and Kenon will each hold one (1) original. Each original is equally binding with the
same legal force.
Clause 27 Kenon shall be entitled to disclose any information in terms of its obligation under this Guarantee Contract to the extent to satisfy the legal regulation
requirement imposed on a public listed company.
21
Kenon: Kenon Holdings Ltd.
Name: Yoav Doppelt
: Yoav Doppelt
Position: CEO
CEO
Name: Dan Cohen
Dan Cohen
Position: Authorized Signatory
Authorized Signatory
Signature:
Signature:
Chery: Chery Automobile Co. Ltd.,
Name: Yin Tongyue
Position: Chairman & CEO
Signature:
Company Seal
22
ADDENDUM I TO GUARANTEE CONTRACT Kenon – CHERY
This addendum to the guarantee contract (“Addendum) between Kenon and Chery dated 9 June, 2015 is entered into on the date of such Guarantee Contract (as
defined below) by and between:
Kenon Holdings Ltd. a limited liability company duly organized and validly existing under the laws of the Republic of Singapore with its legal address at 1
Temasek Avenue, #36-01 Millenia Tower, Singapore 039192 (“Kenon”), and
Qoros Automotive Co., Ltd. , a limited liability company duly organized and validly existing under the laws of the PRC with its legal address at 88 Tonggang
Road, Riverside International Building Room 501, Economic Development Area of Changshu City, Jiangsu Province, PRC.
(Kenon and Qoros are hereinafter individually referred to as “Party” or jointly referred to as “Parties”)
WHEREAS Kenon and Chery Automobile Co. Ltd. have entered into a guarantee contract dated 9 June, 2015 pursuant to which Kenon agrees to provide an
irrevocable and – in accordance with such Guarantee Contract—unconditional guarantee to Chery for up to 50% of the Chery Secured Indebtedness (as defined
under the Guarantee Contract) under the Chery Guarantee Deed (as defined under the Guarantee Contract).
In accordance with relevant laws and regulations of the PRC and after an amicable negotiation based on mutual consents, the Parties agree as follows:
Qoros herewith acknowledges the Guarantee Contract and agrees irrevocably and unconditionally in particular to the specific obligations of Qoros under such
Guarantee Contract (including but not limited with respect to Clause 13 as it relates to Qoros’ obligation to repay to Kenon any amounts Kenon paid to Chery under
this Guarantee Contract).
Kenon is entitled to be repaid simultaneously with Chery from Qoros in any amount based on pro rata based on the amount actually paid which is divided among
Chery and Kenon, if Chery and Kenon fully perform their obligations under the Chery Guarantee Deed and this Guarantee Contract, respectively.
23
Qoros acknowledges and agrees that its drawdowns from the Lender under the Loan Agreement are capped at RMB 350,000,000 (three hundred fifty million) and
that any drawdown beyond such RMB 350,000,000 (three hundred fifty million) shall require the prior written approval of Kenon and Chery.
This Addendum shall come into force on the date when the legal or authorized representatives of Kenon and Chery have affixed their respective signatures together
with the company seal of Chery on the Guarantee Contract and when the legal or authorized representatives of Kenon and Qoros have affixed their respective
signatures together with the company seal of Qoros on this Addendum.
This Addendum shall be governed by and construed in accordance with the laws of the PRC. Clause 19 of the Guarantee Contract (HKIAC dispute resolution) shall
apply mutatis mutandis to this Addendum and in relation to Qoros and Kenon hereunder,
24
Kenon: Kenon Holdings Ltd.
Name: Yoav Doppelt
Yoav Doppelt
Position: CEO
CEO
Name: Dan Cohen
Dan Cohen
Position: Authorized Signatory
Authorized Signatory
Signature:
Signature:
Qoros: Qoros Automobile Co. Ltd.,
Name: CHEN ANNING
Position: Chairman & CEO
Name:
Position:
Signature:
Signature:
Company Seal
This Addendum and Qoros’ obligations thereunder being acknowledged by Chery:
Chery: Chery Automobile Co. Ltd.,
Name: Yin Tongyue
Position: Chairman & CEO
Signature:
Company Seal
25
Exhibit 4.13
GUARANTEE CONTRACT
Between
Kenon Holdings Ltd.
And
Chery Automobile Co. Ltd.
5 November, 2015
This guarantee contract (“ Guarantee Contract ”) is entered into on the date first above written by and between:
(1)
Kenon Holdings Ltd. a limited liability company duly organized and validly existing under the laws of Singapore with its legal address at 1 Temasek
Avenue, #36-01 Millenia Tower, Singapore 039192 (“ Kenon ”), represented by Mr. Yoav Doppelt and Mr. Dan Cohen, and
(2)
Chery Automobile Co. Ltd., a company limited by shares duly organized and validly existing under the laws of the People’s Republic of China (“ PRC ”),
with its legal address at 8 Changchun Road, Economic & Technology Development Zone, Wuhu, Anhui, China, represented by Mr. Yin Tongyue (“ Chery
”)
(Kenon and Chery are hereinafter individually referred to as “ Party ” or jointly referred to as “ Parties ”)
WHEREAS:
(A) Kenon is the parent company of Quantum (2007) LLC (“Quantum”) and Chery is a major shareholder of Wuhu Chery Automobile Investment Co., Ltd. (“
Wuhu Chery ”) and Quantum and Wuhu Chery are equal shareholders of the Sino-foreign equity joint venture company Qoros Automotive Co., Ltd. (“
Qoros ”).
2
(B) Qoros has signed a Syndicated Renminbi/US Dollars Agreement for Fixed Assets Investment with an Aggregate Equivalent Amount of RMB Three Billion
(the “ Loan Agreement ”) with Contract No. of YT41121230018 on July 23, 2012 with the Export-Import Bank of China (the “ Arranger ”), China
Construction Bank Co., LTD, Suzhou Branch (the “ Agent ”) and several banks listed under the Loan Agreement as the lenders (the “ Lenders ”) in which
the Lenders agree to make available to Qoros an aggregate amount not exceeding RMB 3,000,000,000 (Three Billion) equivalent RMB/USD dual currency
long term loan facility pursuant to the provisions of the Loan Agreement (the “ Facility ”).
(C) As a condition precedent for the Lenders to make the Facility available for Qoros, Chery and Changshu Port Development and Construction Co. Ltd. (“ CS
Port ”) agreed that Chery and CS Port each separately provide an irrevocable and unconditional guarantee covering 50% of the indebtedness of Qoros,
including the draw downs and other payable amounts with a Loan Term of 120 months to all Bank Consortium Members for the liabilities of Qoros under the
Loan Agreement pursuant to the terms and conditions set forth in the Guarantee Deed (No. YT41121230018 (A)) between Chery and the Agent (“ Chery
Guarantee Deed ”) and another Guarantee Deed (No. YT41121230018(B)) made between CS Port and the Agent (“ CS Port Guarantee Deed ”), both
dated July 23, 2012 (the Chery Guarantee Deed and the CS Port Guarantee Deed hereinafter referred to as the “ Guarantee Deeds ”)). For the purpose of
clarification, Chery and CS Port provide their individual Guarantee Deeds on a pro-rata basis respectively. Chery shall under the Chery Guarantee Deed not
assume any joint and several liabilities in connection with the CS Port Guarantee Deed and vice versa.
3
(D)
This Guarantee Contract directly correlates with Loan Agreement specified in Whereas (B) and Guarantee Deeds specified in Whereas (C).
In accordance with relevant laws and regulations of the PRC and after an amicable negotiation based on mutual consents, the Parties agree as follows:
Chapter 1 Scope of Guarantee, Guaranteed Indebtedness and Term of Guarantee
Clause 1 Pursuant to the provisions of the Chery Guarantee Deed, Chery has agreed to provide an irrevocable and unconditional guarantee to all Bank Consortium
Members for 50% of the indebtedness of Qoros under the Loan Agreement subject to the clauses of the Chery Guarantee Deed. Such guarantee provided by Chery
under the Chery Guarantee Deed covers: all the present and future obligations and indebtedness that Qoros shall be liable to all of the Bank Consortium Members
(or any of the Bank Consortium Member) pursuant to the Loan Agreement (or any clause thereof) (including but not limited to the draw downs, interests (including
statutory interests, contractual interests, overdue interests and default interests), liquidated damages, compensations, processing charges, costs and any others
reasonable and necessary expenditures incurred for the purpose of enforcing the creditor’s rights by a Bank Consortium Member, inter alia collection fees, disposal
fees, taxes and fees, court fees, notarization fees, preservation fees, public announcement fees, reasonable and necessary enforcement fees, auction fees, reasonable
and necessary legal fees, traveling expenses and others etc. as specified in this Clause 1) (collectively the “ Chery Secured Indebtedness ”).
4
Clause 2 Pursuant to the provisions of this Guarantee Contract, Kenon agrees to provide an irrevocable and – in accordance with this Guarantee Contract -
unconditional guarantee to Chery for up to 50% of the Chery Secured Indebtedness under the Chery Guarantee Deed, subject to the limitations set forth below
(such 50% of the Chery Secured Indebtedness under the Chery Guarantee Deed subject to the limitations set forth below shall hereinafter be referred to as the “
Kenon Secured Indebtedness ”.
The Kenon Secured Indebtedness shall include but be limited to RMB 750 Million for (i) draw downs in relation to the Facility granted to Qoros under the Loan
Agreement, (ii) interest in relation to the Facility granted to Qoros under the Loan Agreement and (iii) of any and all related fees. If Chery will have to bear
liabilities under the Chery Guarantee Deed exceeding RMB 1.5 billion, Kenon is committed to negotiate with Chery in good faith to find a solution so that Kenon
and Chery will assume liabilities for the related indebtedness of Qoros under the Loan Agreement in equal proportion. The amount of RMB 750 million specified
in the first sentence of this paragraph together with the amount, if any, agreed to be assumed by Kenon in the immediately preceding sentence, shall be collectively
referred to hereinafter as the “ Total Amount ”, and may be adjusted in accordance with Clauses 7 and 12 below. If a portion of the interest and fees under items
(ii) and (iii) listed above is attributed to the noncompliance with the representations, warranties and covenants by Chery under the Chery Guarantee Deed and/or
this Guarantee Contract, Kenon shall not be liable for that portion to Chery.
5
Clause 3 In case Qoros fails to pay any due and payable Chery Secured Indebtedness on any due date or any Event of Default under the Loan Agreement occurs
and the payment ability of Qoros could be strongly affected, and in each case Chery pays off such Chery Secured Indebtedness to the Agent in accordance with the
Chery Guarantee Deed, Kenon shall pay to Chery 50% (but not more than the Total Amount or an adjusted ratio or amount in accordance with Clauses 7 and/or 12
below) of the amount of the Chery Secured Indebtedness actually paid by Chery to the Agent within thirty (30) Business Days upon the receipt of a written notice
from Chery to a bank account designated by Chery. If Kenon pays the Kenon Secured Indebtedness in USD, Kenon shall ensure that the amount received by Chery
shall be the RMB equivalent of 50% of the sums paid by Chery to the Agent for Chery Secured Indebtedness (but not more than the Total Amount or an adjusted
ratio or amount in accordance with Clauses 7 and/or 12 below), determined by reference to midrate of exchange by the People’s Bank of China on the date on
which the relevant amount is received by Chery.
Clause 4 Chery shall provide Kenon with all documents to prove the Chery Secured Indebtedness paid off to the Agent for the purpose of Kenon’s guarantee
payable under this Guarantee Contract.
6
Clause 5 The term of this Guarantee Contract shall commence from the effectiveness of the Guarantee Deeds or the effective date of this Guarantee Contract,
whichever is earlier, until ten (10) days after the Chery Guarantee Term under the Chery Guarantee Deed, or two (2) years after Chery performs the Chery Secured
Indebtedness owed by Chery under the Chery Guarantee Deed, whichever is later. This Guarantee Contract will become null and void after the term of this
Guarantee Contract as set forth above is expired. Clauses 18 and 19 shall remain valid and survive the expiration of the term of this Guarantee Contract.
Chapter 2 Nature and Effectiveness of Guarantee
Clause 6 The guarantee under this Guarantee Contract is an exclusive guarantee with continuance and full effectiveness provided by Kenon to Chery and shall not
be a joint and several guarantee to the Chery Guarantee Deed which Chery provided to the Agent and/or the CS Port Guarantee Deed and/or any other guarantee or
security provided to the Agent or any of the Bank Consortium Members in relation to the Loan Agreement. Chery may only claim against Kenon under this
Guarantee Contract if and after Chery has fulfilled its obligations and actually paid its guaranteed amount pro rata towards the Agent under the Guarantee Deeds.
Clause 7 The effectiveness of this Guarantee Contract shall not be affected by either of the liquidation, merger, spin-off, restructuring, bankruptcy or any other
form of change of the organizational chart of Kenon or other arrangements made to Qoros’s indebtedness. This Guarantee Contract shall terminate as of the date
Quantum ceases to be a shareholder of Qoros, provided that the assignee of Quantum’s equity in Qoros unconditionally undertakes the liability and obligation of
Kenon hereunder pro rata in accordance with the equity ratio assignment and based on equal terms with this Guarantee Contract with Chery’s consent in writing.
Also, the ratio and Total Amount of
7
the Kenon Secured Indebtedness shall be adjusted pro rata in accordance with any adjustment of the equity ratio held by Quantum in Qoros during the term of the
Guarantee Contract (e.g. if the equity of Quantum in Qoros adjusts to 40%, Kenon shall only guarantee for 40% of the Chery Secured Indebtedness under the Chery
Guarantee Deed, subject to the limitation of the Total Amount) subject to the written agreement among Kenon, Chery and assignee in question. However written
agreement is not necessary once shareholding is decreased due to dilution (decrease of shareholdings due to issuance of new securities) in case of an IPO of Qoros.
Clause 8 This Guarantee Contract is independent of the Loan Agreement but is dependent on the effectiveness of the Chery Guarantee Deed. The effectiveness of
this Guarantee Contract and the obligations and liabilities of Kenon hereunder shall not be affected by the fact that the Loan Agreement becomes null or rescinded
for whatsoever reason. The effectiveness of this Guarantee Contract and the obligations and liabilities of Kenon hereunder shall be null and void if the Chery
Guarantee Deed becomes null or rescinded for whatsoever reason.
Clause 9 This Guarantee Contract and any of the rights and obligations of the Parties hereunder shall not be transferred by a Party hereof to any third party without
prior written consent of the other Party.
8
Chapter 3 Representations and Warranties
Clause 10 Chery represents and warrants to Kenon that Chery will (a) comply with its representations, warranties and covenants under the Chery Guarantee Deed,
(b) to the extent Chery becomes aware that Qoros has failed to comply with any of its payment obligations under the Loan Agreement, to immediately notify
Kenon and (c) immediately upon Qoros failing to comply with all or any of its payment obligations under the Loan Agreement and upon the request of Kenon, start
to pay all and any due amounts (a “ Kenon Requested Repayment ”) in accordance with the Chery Guarantee Deed as to avoid any increase of interest, fees or
other amounts payable under the Loan Agreement and to take all and any reasonable and legally required measures to ensure that Chery’s liabilities under the
Chery Guarantee Deed are at all times kept at the lowest possible level, provided that (i) prior to the payment by Chery of any Kenon Requested Repayment, Kenon
and Chery will, for a period of 30 days, negotiate in good faith for the interest of both parties to identify and agree on alternatives to repayment which could reduce
Qoros’ liabilities under the Loan Agreement, and (ii) at the end of such 30 day period, Kenon shall first make its corresponding proportional payments to Chery in
respect of such Kenon Requested Repayment as calculated in accordance with this Guarantee Contract, and immediately upon receipt of such amounts, Chery shall
make such Kenon Requested Repayment in accordance with this Guarantee Contract. Notwithstanding the foregoing, at any time beginning when Kenon has
requested a Kenon Requested Repayment and prior to the expiry of such 30 day period, Kenon may, in its sole discretion, pay its corresponding proportional
payments to Chery in respect of such Kenon Requested Repayment as calculated in accordance with this Guarantee Contract, and upon the receipt by Chery of such
amounts, Kenon shall be deemed to have fully satisfied its obligations with respect to the Kenon Secured Indebtedness in a sum equal to such amounts and the
Total Amount shall be deemed to be reduced by such amounts, but Kenon shall remain liable under its remaining obligations under this Guarantee Contact,
provided that Kenon shall not be responsible for any penalty interest, fees or other related charges related to any such failure to comply with payment obligations
accruing after the date of such payment by Kenon in respect of such amounts.
9
Kenon represents and warrants to Chery with respect to the then facts and situations on the effective date of this Guarantee Contract, every Utilization Notice date,
every Utilization Date and every Date of Interest Payment as follows:
1.
2.
3.
It is a legal person that has been legally incorporated and validly existing pursuant to the laws and regulations of its incorporation place.
It has the necessary civil capacities and rights to own its assets, to operate its businesses, and to make and perform this Guarantee Contract.
It has obtained all the internal corporate authorizations necessary for entering into and performing this Guarantee Contract with such authorizations still in
full force and effect; and this Guarantee Contract has been duly and effectively executed by the authorized representatives of Kenon.
10
4.
All approvals, permits, consents, registrations and filings currently required for its legal performance of this Guarantee Contract have been duly obtained and
are still in full force and effect.
5.
The obligations set forth in this Guarantee Contract are legal, effective and binding upon on Kenon, and it shall be fully performed accordingly.
6.
The formation and performance of this Guarantee Contract by Kenon for itself do not and will not violate or contradict with any of the following:
(a)
Any contracts, agreements or other documents that are of binding effect on it or its assets; which results or would result in a material adverse effect on
its ability to perform its obligations under this Guarantee Contract;
(b)
Any of its constitutional corporate documents; and/or
(c)
Any laws and regulations it is subject to.
7.
There is no existing litigation, arbitration, administrative proceeding, judicial or administrative enforcement proceeding or other legal proceeding of the
similar kind initiated against Kenon, which have led or would, if adversely determined, lead to a material adverse effect on its ability to perform its
obligations under this Guarantee Contract.
11
8.
9.
It has not entered into any proceeding of business suspension, dissolution, liquidation, bankruptcy, restructuring, reconciliation, reorganization or other
similar legal proceedings.
Under judicial proceedings in any jurisdiction, to the best knowledge of Kenon, Kenon do not have any immunity and privilege in respect of suing,
judgment, enforcement, preservation and other judicial procedures.
10.
It has carefully read and fully understood and accepted the contents set forth in this Guarantee Contract and this Guarantee Contract will be made and
performed by Kenon based on its will and true intention.
11.
This Guarantee Contract is directly binding upon Kenon.
12.
To the extent Kenon becomes aware that Qoros has failed to comply with any of its payment obligations under the Loan Agreement, to immediately notify
Chery.
Chapter 4 Covenants
Clause 11 Before any Kenon Secured Indebtedness under the Guarantee Contract is fully discharged and before any of the Chery Secured Indebtedness up to an
amount equal to the Total Amount (or an adjusted ratio or amount in accordance with Clauses 7 and/or 12 below) under the Chery Guarantee Deed is fully
discharged, Kenon shall strictly fulfill and observe following covenants:
12
1.
Kenon shall ensure that, the respective creditor’s rights of Chery to Kenon under this Guarantee Contract shall at least rank pari passu with the creditor’s
rights (without priority) of the other unsecured creditors of Kenon except for obligations mandatorily preferred by applicable insolvency laws.
2.
3.
Kenon shall maintain its legal status, continuous and effective existence, and ensure it has necessary civil capacities and rights to perform this Guarantee
Contract.
Kenon shall timely obtain and maintain all approvals, permissions, consents, registrations and filings necessary for the performance of this Guarantee
Contract, if any, and maintain the full force and effect hereof.
4.
Kenon procures that all materials provided to the other Party in relation to this Guarantee Contract are true, complete and effective.
13
Clause 12 If any change and/or amendment and/or novation of the Loan Agreement and/or either of the Guarantee Deeds or any of their terms alleviate the
obligations of Kenon stipulated in this Guarantee Contract, the prior written consent of Kenon shall not be required, and Kenon shall continue to bear guarantee
liability thereafter. However, Chery shall notify such change and/or amendment and/or novation of the Loan Agreement and/or either of the Guarantee Deeds to
Kenon in writing.
Any change and/or amendment and/or novation of the Loan Agreement and/or either of the Guarantee Deeds or any of their terms intensify the obligations of
Kenon, the prior written consent of Kenon to such change and/or amendment and/or novation shall be necessary to make them effective and binding upon Kenon in
respect to this Guarantee Contract.
Clause 13 Chery herewith undertakes irrevocably and unconditionally towards Kenon (subject only to conditions in the Chery Guarantee Deed, if any) to pay off
such Chery Secured Indebtedness and to hold Kenon and/or Quantum harmless from any and all direct and indirect damages and losses incurred by Kenon and/or
Quantum in case Chery does not comply with its obligation to pay off the Chery Secured Indebtedness in full and on time in accordance with the Chery Guarantee
Deed .
Chery shall be obliged to pay to Kenon, without further notice by Kenon, simultaneously and on a pro rata basis, 50% of any amounts Chery may receive or may
otherwise recover (including by operation of any set-off, deduction or counterclaim) from Qoros and/or any other third party in respect of any payment made by
Chery under the Chery Guarantee Deed, provided however that Kenon has in advance made its payments to Chery under this Guarantee Contract; these rights and
obligations shall be and remain binding on Qoros whether or not (i) Kenon remains a shareholder of Quantum or (ii) Quantum remains a shareholder of Qoros or
(iii) Chery remains a shareholder of Wuhu Chery or (iv) Wuhu Chery remains a shareholder of Qoros.
14
Kenon shall be entitled to claim from Qoros and Qoros shall be obliged to pay on demand to Kenon any amounts equal to all and any payments made by Kenon
under this Guarantee Contract to Chery; these rights and obligations shall be and remain binding on Qoros whether or not (i) Kenon remains a shareholder of
Quantum or (ii) Quantum remains a shareholder of Qoros.
Chapter 5 Event of Default
Clause 14 Any material breach of obligation under this Guarantee Contract by Kenon shall constitute an event of default under this Guarantee Contract by Kenon
and Kenon shall be liable to compensate Chery for all and any direct losses and damages incurred by such breach of contract (indirect and consequential losses and
damages shall be excluded).
Clause 15 Notwithstanding the aforesaid, after the occurrence of an event of default under this Guarantee Contract and in case Kenon is the defaulting Party,
Kenon shall, directly or at the request of Chery observe one or more of the obligations listed below:
1.
2.
rectifying the default;
providing additional securities.
15
3.
4.
undertaking guarantee liabilities; and/or
performing any other obligations under this Guarantee Contract.
Clause 16 Any expenses in connection with the negotiation, conclusion and performance of this Guarantee Contract shall be borne by each Party for itself.
Chapter 6 Fees and Indemnities
Chapter 7 Effectiveness
Clause 17 Subject to the provisions of Clause 5 above, this Guarantee Contract shall come into force on the date when the legal or authorized representatives of
Kenon and Chery have affixed their respective signatures together with the company seal of Chery on this Guarantee Contract and when the legal or authorized
representatives of Kenon and Qoros have affixed their respective signatures together with the company seal of Qoros on the Addendum to this Guarantee Contract.
16
Clause 18 This Guarantee Contract shall be governed by and construed in accordance with the laws of the PRC.
Chapter 8 Governing Law and Dispute Resolution
Clause 19 In the event a dispute between the Parties arising out of or in relation to this Guarantee Contract, the Parties shall in the first instance each designate one
or more representatives who shall promptly meet to attempt to resolve such dispute through friendly consultations.
If the dispute is not resolved through consultations within sixty (60) days after one Party has served a written notice on the other Party requesting the
commencement of consultations, then the Parties shall refer and submit the dispute for final resolution by arbitration to the Hong Kong International Arbitration
Center (HKIAC) in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL Arbitration Rules”) as at
present in force save as the same may be amended by this Article and the UNCITRAL Arbitration Rules shall be construed accordingly. The place of arbitration
shall be Hong Kong. The arbitration shall be settled by three (3) arbitrators. Each Party shall appoint one arbitrator within the time stipulated in the UNCITRAL
Arbitration Rules, failing which the appointment shall be made by HKIAC. The third arbitrator, who will act as the presiding arbitrator, shall be appointed by the
HKIAC. The appointing authority shall be the HKIAC. The language of the arbitration proceedings shall be English, provided that either Party may introduce
evidence or testimony in languages other than English. The arbitrators may refer to both the English and Chinese texts of this Contract. The award of the arbitration
tribunal will be final and binding on each of the Parties and may be enforced in any court of competent jurisdiction.
17
The arbitral tribunal shall have the authority and power to make such orders for interim relief, including injunctive relief, as it may deem just and equitable. A
request for interim measures or equitable remedies, including injunctive relief, by a Party to a court shall not be deemed to be or construed as incompatible with, or
a waiver of, this agreement to arbitrate.
The arbitration shall be kept confidential and the existence of the proceeding and any element of it (including but not limited to any pleadings, submissions or other
documents submitted or exchanged, any evidence and any awards) shall not without prior consent by all Parties be disclosed beyond the Parties to the arbitration
and their representatives, the arbitral tribunal, the administering institution (if any) and any person necessary to the conduct of the proceeding, except as may be
lawfully required (under any jurisdiction the Parties are subject to) whether in judicial proceedings or otherwise in the normal course of business of the Parties.
The Parties will use their best efforts to effect the prompt execution of any such awards and will render whatever assistance as may be necessary to this end,
including, if necessary, compliance with the enforcement procedures stipulated in the United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards and the Arrangements Concerning Mutual Enforcement of Arbitration Awards between the Mainland and the Hong Kong Special Administrative
Region.
The costs of arbitration including attorneys’ fees shall be borne by the losing Party unless otherwise decided in the arbitral award.
18
When any dispute occurs and when any dispute is under arbitration, except for the matters under dispute, the Parties shall continue to exercise their other respective
rights and fulfill their other respective obligations under this Guarantee Contract. In any arbitration proceeding or legal proceeding to enforce an arbitral award, in
any other legal action between the Parties relating to this Guarantee Contract, each Party waives the defense of sovereign immunity and any other defense solely
based upon the fact or allegation that it is a political subdivision, agency or instrumentality of a sovereign state.
Clause 20 Unless otherwise defined in this Guarantee Contract, any reference to the capitalized, bold and/or underlined terms herein shall have the same meaning
as provided in the paragraph 1.1 (Definitions) under Clause 1 (Definitions and Interpretation) of the Loan Agreement.
Chapter 9 Others
Clause 21 Neither tolerance, grace period, privileges or delays that one Party has granted to the other Party under this Guarantee Contract, shall affect, impact or
restrict any rights of such one Party under this Guarantee Contract and arising out of the operation of laws, and nor shall these be deemed as a waiver of any rights
or interests under this Guarantee Contract by such one Party, and nor shall these affect the obligations and liabilities to be borne by the other Party.
19
Clause 22 This Guarantee Contract may be amended or supplemented by mutual written agreement of the Parties. Any amendment or supplement to this Guarantee
Contract shall constitute an integral part of this Guarantee Contract.
Clause 23 This Guarantee Contract is made solely for the benefit of Kenon and Chery and shall not be construed to confer any rights to any third party (including,
without limitation, Qoros, CS Port, the Agent or the Bank Consortium Members).
Clause 24 Any notice, demand or other documents to be given by one Party to any other Party hereto shall be in writing in English and delivered or sent to the
recipient(s) at the address specified in the first page of this Guarantee Contract. Any Party hereto shall timely notify the other Party of any change of its address.
Such notice, demand or documents will be deemed as delivered: if sent by person, at the time of actual delivery; if posted by registered mail, at the time of 17:00 of
the fifth (5) Business Day after such registered mail is posted; if sent by PDF-email or fax, at the time when a confirmation report is received by the sender.
Clause 25 This Guarantee Contract is signed in English and Chinese languages with both language versions equally binding. In case of any discrepancy between
the two languages versions, the English version shall prevail.
20
Clause 26 This Guarantee Contract is executed in two (2) originals. Chery and Kenon will each hold one (1) original. Each original is equally binding with the
same legal force.
Clause 27 Kenon shall be entitled to disclose any information in terms of its obligation under this Guarantee Contract to the extent to satisfy the legal regulation
requirement imposed on a public listed company.
21
Kenon: Kenon Holdings Ltd..
Name: Yoav Doppelt
Yoav Doppelt
Position: CEO
CEO
Signature:
Chery: Chery Automobile Co. Ltd.,
Name: Yin Tongyue
Position: Chairman & CEO
Signature:
Company Seal
Name: Dan Cohen
Dan Cohen
Position: Authorized Signatory
Authorized Signatory
Signature:
22
ADDENDUM TO GUARANTEE CONTRACT Kenon – CHERY
This addendum to the guarantee contract (“Addendum) between Kenon and Chery dated 5 November 2015 is entered into on the date of such Guarantee Contract
(as defined below) by and between:
Kenon Holdings Ltd. a limited liability company duly organized and validly existing under the laws of the Republic of Singapore with its legal address at 1
Temasek Avenue, #36-01 Millenia Tower, Singapore 039192 (“Kenon”), and
Qoros Automotive Co., Ltd., a limited liability company duly organized and validly existing under the laws of the PRC with its legal address at 88 Tonggang
Road, Riverside International Building Room 501, Economic Development Area of Changshu City, Jiangsu Province, PRC.
(Kenon and Qoros are hereinafter individually referred to as “Party” or jointly referred to as “Parties”)
WHEREAS Kenon and Chery Automobile Co. Ltd. have entered into a guarantee contract dated 5 November 2015 pursuant to which Kenon agrees to provide an
irrevocable and – in accordance with such Guarantee Contract—unconditional guarantee to Chery for the Total Amount (as defined under the Guarantee Contract)
under the Chery Guarantee Deed (as defined under the Guarantee Contract).
In accordance with relevant laws and regulations of the PRC and after an amicable negotiation based on mutual consents, the Parties agree as follows:
Qoros herewith acknowledges the Guarantee Contract and agrees irrevocably and unconditionally in particular to the specific obligations of Qoros under such
Guarantee Contract (including but not limited with respect to Clause 13 as it relates to Qoros’ obligation to repay to Kenon any amounts Kenon paid to Chery under
this Guarantee Contract).
23
Kenon is entitled to be repaid simultaneously with Chery and CS Port from Qoros in any amount based on pro rata based on the amount actually paid which is
divided among Chery, CS Port and Kenon, if Chery, CS Port and Kenon fully perform their obligations under the CS Port Guarantee Deed, the Chery Guarantee
Deed and this Guarantee Contract, respectively.
This Addendum shall come into force on the date when the legal or authorized representatives of Kenon and Chery have affixed their respective signatures together
with the company seal of Chery on the Guarantee Contract and when the legal or authorized representatives of Kenon and Qoros have affixed their respective
signatures together with the company seal of Qoros on this Addendum.
This Addendum shall be governed by and construed in accordance with the laws of the PRC. Clause 19 of the Guarantee Contract (HKIAC dispute resolution) shall
apply mutatis mutandis to this Addendum and in relation to Qoros and Kenon hereunder,
Clauses 20 to 26 of the Guarantee Contract shall apply mutatis mutandis to this Addendum and in relation to Qoros and Kenon hereunder.
24
Name: Dan Cohen
Dan Cohen
Position: Authorized Signatory
Authorized Signatory
Signature:
Name:
Position: Vice Chairman
Signature:
Kenon: Kenon Holdings Ltd.
Name: Yoav Doppelt
Yoav Doppelt
Position: CEO
CEO
Signature:
Qoros: Qoros Automobile Co. Ltd.,
Name: CHEN ANNING
Position: Chairman
Signature:
Company Seal
This Addendum and Qoros’ obligations thereunder being acknowledged by Chery:
Chery: Chery Automobile Co. Ltd.,
Name: Yin Tongyue
Position: Chairman & CEO
Signature:
Company Seal
25
Exhibit 4.14
EXECUTION VERSION
STOCK PURCHASE AGREEMENT
among
IC POWER DISTRIBUTION HOLDINGS PTE, LIMITED
as Purchaser
and
INKIA ENERGY, LIMITED,
as Purchaser Guarantor
and
DEORSA-DEOCSA HOLDINGS LIMITED,
as Seller
and
ESTRELLA COOPERATIEF BA
Dated as of December 29, 2015
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
Section 1.1.
Section 1.2.
Definitions
Other Defined Terms
ARTICLE II PURCHASE AND SALE OF MEMBERSHIP INTERESTS
Section 2.1.
Section 2.2.
Section 2.3.
Section 2.4.
Section 2.5.
Purchase and Sale
Purchase Price
Closing
Closing Deliveries by the Purchaser
Closing Deliveries by the Seller
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING THE SELLER
Section 3.1.
Section 3.2.
Section 3.3.
Section 3.4.
Section 3.5.
Section 3.6.
Section 3.7.
Section 3.8.
Corporate Existence; Standing
Authorization
Non-Contravention
Membership Interest Ownership
Government Approvals
Legal Proceedings
Brokers
Dutch Tax matters
ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING THE GROUP COMPANIES
Section 4.1.
Section 4.2.
Section 4.3.
Section 4.4.
Section 4.5.
Section 4.6.
Section 4.7.
Section 4.8.
Section 4.9.
Section 4.10.
Corporate Existence; Standing
Authorization
Non-Contravention
Capitalization of the Group Companies
Government Approvals
Compliance with Laws; Permits
Legal Proceedings
Financial Statements
Absence of Certain Changes and Events
Real Property
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Section 4.11.
Section 4.12.
Section 4.13.
Section 4.14.
Section 4.15.
Section 4.16.
Section 4.17.
Section 4.18.
Section 4.19.
Section 4.20.
Section 4.21.
Section 4.22.
Section 4.23.
Title to Assets
Contracts
Insurance
Intellectual Property
Suppliers, Customers, etc.
Employment Matters
Anti-Money Laundering
Foreign Corrupt Practices Act
Tax Matters
Directors, Officers and Employees
Related Person Transactions
Environmental Matters
Records
ARTICLE V REPRESENTATIONS AND WARRANTIES REGARDING THE PURCHASER
Section 5.1.
Section 5.2.
Section 5.3.
Section 5.4.
Section 5.5.
Section 5.6.
Section 5.7.
Section 5.8.
Section 5.9.
Section 5.10.
Section 5.11.
Corporate Existence; Standing
Authorization
Non-Contravention
Financing
Government Approvals
Legal Proceedings
Brokers
Anti-Money Laundering
Knowledge of Misrepresentations
Opportunity for Independent Investigation
Qualified Transferee
ARTICLE VI COVENANTS
Section 6.1.
Section 6.2.
Section 6.3.
Section 6.4.
Section 6.5.
Section 6.6.
Section 6.7.
Section 6.8.
Confidentiality
Breach of Confidentiality
Transfer Taxes
Public Announcements
Intercompany Arrangements
Further Assurances; Post-Closing Cooperation
Nominee Holder
No Liquidation
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Section 6.9.
Section 6.10.
Section 6.11.
Section 6.12.
Section 6.13.
Section 6.14.
Conduct of Business
Changes in Circumstances; Access
Transition Services
KYC Information
Letter of Credit
Support Letter
ARTICLE VII SURVIVAL; INDEMNIFICATION
Section 7.1.
Section 7.2.
Section 7.3.
Section 7.4.
Section 7.5.
Section 7.6.
Section 7.7.
Survival of Representations, Warranties, Covenants and Agreements
Indemnification of the Purchaser
Indemnification of the Seller
Limitations
Method of Asserting Claims
Character of Indemnity Payments
Exclusive Remedy, etc.
ARTICLE VIII CONDITIONS PRECEDENT
Section 8.1.
Section 8.2.
Section 8.3.
Conditions to the Seller and the Purchaser’s Obligation to Effect the Transactions
Conditions to Obligations of the Purchaser
Conditions to Obligations of the Seller
ARTICLE IX TERMINATION
Section 9.1.
Section 9.2.
Termination
Effect of Termination
ARTICLE X MISCELLANEOUS
Section 10.1.
Section 10.2.
Section 10.3.
Section 10.4.
Section 10.5.
Section 10.6.
Section 10.7.
Section 10.8.
Section 10.9.
Section 10.10.
Section 10.11.
Section 10.12.
No Other Representations or Warranties
Notices
Entire Agreement
Expenses
Waiver
Amendment
No Third-Party Beneficiary
Assignment; Binding Effect
Specific Performance
Invalid Provisions
Governing Law
Arbitration
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Section 10.13.
Section 10.14.
Section 10.15.
Section 10.16.
Section 10.17.
Counterparts
Disclosure Schedules
Non-Recourse
Purchaser Parent Guarantee
Conversion of Local Currency Amounts
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SCHEDULES:
Schedule 1.1
Schedule 1.1(a)
Schedule 1.1(b)
Schedule 2.2(b)
EXHIBITS:
Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Details of the Group Companies
Target Working Capital, Target Cash, Target Indebtedness and Target Tariff Liability
Calculation of Working Capital, Cash and Indebtedness
Closing Statement
Membership Transfer Certificate
Resignation Letters and Mutual Releases
Accession Letter
Escrow Agreement
Letter of Credit
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 29, 2015, among IC Power Distribution Holdings Pte, Limited, a company organized and
existing under the laws of Singapore (the “ Purchaser ”), Inkia Energy, Limited, a company organized and existing under the laws of Bermuda (the “ Purchaser
Guarantor ”), DEORSA-DEOCSA HOLDINGS LIMITED, a company organized and existing under the laws of Mauritius (the “ Seller ”), and Estrella Cooperatief
BA, a cooperative with limited liability, with seat in Amsterdam, the Netherlands, having its office address at De Boelelaan 7, 1083 HJ Amsterdam, the
Netherlands, and registered with the Dutch Commercial Register under number 52429342 (the “ Company ”).
BACKGROUND
WHEREAS, the Company, directly or indirectly, owns: (i) all of the issued and outstanding shares of capital stock of the Owned Companies (as
hereinafter defined), (ii) 90.62% of the issued and outstanding shares of capital stock of DEOCSA (as hereinafter defined), and (iii) 92.68% of the issued and
outstanding shares of capital stock of DEORSA (as hereinafter defined); and
WHEREAS, the Seller wishes to sell, and cause Actis Infrastructure GP Limited, a private limited company existing under the laws of the United
Kingdom (the “ Nominee Holder ”), to sell, and the Purchaser wishes to purchase, and cause the Nominee Purchaser (as hereinafter defined) to purchase, the
Membership Interests (as hereinafter defined) on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and intending to be
legally bound by them, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions .
(a) As used in this Agreement, the following terms shall have the following meamngs:
“ Accountants ” means Ernst & Young or (if unable or unwilling to be retained) such other independent public accounting firm (not engaged by the
any of the parties or their Affiliates in the three (3) years prior to being appointed to serve as the Accountants) upon whom the Purchaser and the Seller may
mutually agree.
“ Action ” means any and all actions, complaints, demands, hearings, audits, sub-poenas, suits, arbitrations or proceedings, whether civil, criminal,
regulatory, administrative or investigative.
“ Actis Fund ” means any fund, investment vehicle or other entity formed or incorporated in any jurisdiction which is managed or advised by any
entity in the Actis Manager Group.
“ Actis Group ” means (i) Affiliates of the Seller; (ii) debt providers and investors in any Affiliate of the Seller (including any member of such
investors’ group undertaking); (iii) directors, officers, employees, advisers, managers, investment advisers, partners, general partners, agents and consultants of any
person named in (i) or (ii) above; and (iv) any third party with an interest in co-investing with any Affiliate of the Seller.
“ Actis Manager Group ” means (i) Actis LLP; (ii) Actis GP LLP or any of its successor entities which is responsible for managing or advising any
fund, investment vehicle or other entity formed or incorporated in any jurisdiction; and (iii) any unincorporated body, body corporate or partnership which is the
subsidiary, subsidiary undertaking or holding company or parent undertaking of any of the persons referred to in (i) or (ii) above and each unincorporated body,
body corporate or partnership which is a subsidiary or subsidiary undertaking of the holding company or parent undertaking of any of the persons referred to in
(i) or (ii) above but excluding, for the avoidance of doubt, any investor in any Actis Fund and any portfolio company of any Actis Fund.
“ Adjustment Amount ” means the amount, which may be positive or negative, equal to (i) the Closing Working Capital, minus (ii) the Target
Working Capital, minus (iii) Adjustment Net Cash, minus (iv) the Company Expenses, minus (v) the Company Employee Payables, plus (vi) the Target Tariff
Liability, minus (vii) the Relevant Proportion of the Tariff Liability as of the Closing.
“ Adjustment Amount Accounting Policies ” means the Applicable Accounting Standards as applied by each of the Group Companies in connection
with the preparation of the Financial Statements in relation to each of the items forming an element of the Adjustment Amount, including the determination of the
amount of each of the items included in the Closing Working Capital, the Adjustment Net Cash, the Company Expenses, the Company Employee Payables and the
Relevant Proportion of the Tariff Liability as of the Closing.
“ Adjustment Net Cash ” means the amount, which may be positive or negative, equal to (a) the Target Cash minus the Target Indebtedness; minus
(b) the Net Cash.
“ Affiliate ” means, with respect to (a) any Person (other than the Seller), any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with the Person specified; and (b) the Seller, (i) a member of the Actis Manager Group;
(ii) any Actis Fund; and/or (iii) any subsidiary or subsidiary undertaking of any Actis Fund.
“ Agreed Policy Allocation ” means the sum of (i) 50% of the underwriting fees paid by the Purchaser in connection with the issuance of the Special
Policy (including 50% of any Taxes payable by Purchaser allocable to such underwriting fees) and (ii) the premium and all other costs of issuing the Special Policy
(including any Taxes payable by Purchaser allocable thereto), up to a maximum (in the case of both clauses (i) and (ii)) of $1,472,000.
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“ Agreement ” means this Stock Purchase Agreement, together with the Schedules and Exhibits attached hereto and each of the Seller Disclosure
Schedule, the Company Disclosure Schedule and the Purchaser Disclosure Schedule.
“ Anti-Money Laundering Laws ” means, collectively, (i) the USA Patriot Act of 2001 (Pub. L. No. 107-56), (ii) the U.S. Money Laundering Control
Act of 1986, as amended, and (iii) any other Law of any relevant jurisdiction having the force of Law and relating to anti-money laundering.
“ Applicable Accounting Standards ” means (i) with respect to DEOCSA, DEORSA, Redes Eléctricas de Centroamérica, S.A. and Comercializadora
Guatemalteca Mayorista de Electricidad, S.A., IFRS and (ii) with respect to the Company and the Holding Companies, Dutch GAAP.
“ Arthasan ” means Arthasan, S.A., a company incorporated under the laws of the Republic of Guatemala.
“ Arthasan Service Agreement ” means the service agreement dated May 19, 2011 as amended on November 24, 2014 among Arthasan, S.A.,
Distribuidora de Electricidad de Occidente, S.A., Distribuidora de Electricidad de Oriente, S.A., Redes Eléctricas de Centroamérica, S.A., Comercializadora
Guatemalteca Mayorista, S.A. and Generación Limpia Guatemala, S.A.
“ Base Purchase Price ” means the amount equal to $274,500,000 minus the Agreed Policy Allocation.
“ Board ” means, with respect to an entity, the board of directors, board of managers or corresponding governing body of such entity, including, if
duly acting in such capacity, the general partner or managing member.
“ Business Day ” means any day other than a Saturday, Sunday or any day on which banks located in New York, New York are authorized or required
to be closed for the conduct of regular banking business.
“ Business Material Adverse Effect ” means any material adverse effect on (x) the ability of the Seller or the Company to perform its obligations under
this Agreement or to consummate the Transactions or (y) the business, assets or financial condition of the Company and the other Group Companies taken as a
whole, other than, in the case of (y), any change, effect, event or condition due to or resulting from (a) general economic or market conditions, (b) matters generally
affecting the industries in which the Company or the other Group Companies operate, (c) acts of war, armed hostilities or terrorism, (d) changes in commodity,
credit, security or financial markets, including currency exchange rates or interest rates, (e) changes after the date hereof in Laws or the interpretation thereof that in
each case are generally applicable, (f) changes after the date hereof in generally accepted accounting principles or financial reporting standards (including the
Applicable Accounting Standards) or the interpretation thereof, (g) this Agreement or the Transactions or the announcement thereof, (h) any act or omission by the
Seller or the Group Companies taken with the consent of or at the direction or request of the Purchaser provided; provided, however, that the exclusions in clauses
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(a)-(d) above shall be inapplicable to the extent that any such change, effect, event or condition impacts the Company or the other Group Companies taken as a
whole in a disproportionate manner relative to other Persons engaged in similar industries and geographic areas as the Company and the other Group Companies.
“ Cash ” means all cash and cash equivalents determined in accordance with the Adjustment Amount Accounting Policies.
“ Closing ” means the closing of the sale and purchase of the Membership Interests as contemplated by this Agreement.
“ Closing Working Capital ” means the Working Capital of the Group Companies as of 12:01 a.m. New York City time on the Closing Date,
expressed in Dollars at the spot rate of exchange in effect on the Reference Date, which shall be determined in accordance with the Adjustment Amount
Accounting Policies.
“ Company Employee ” means any Person that is or was an employee, director or consultant of the Company or any other Group Company on or prior
to the Closing Date.
“ Company Employee Payables ” means any transaction bonuses, severance or other amounts of a similar nature that become payable to Company
Employees by the Group Companies pursuant to an obligation in effect as of the Closing Date which is triggered in whole or in part (in such case only to the
proportional part thereof) by, or as a direct consequence of, the consummation of the Transactions.
“ Company Expenses ” means the Expenses of the Group Companies that are incurred but unpaid as of the Closing.
“ Consent ” means any approval, consent, waiver, Order, authorization, registration, declaration, filing, report or notice of, with, by, or to any Person.
“ Contract ” of a Person means all agreements, contracts, instruments, obligations, offers, commitments, leases, licenses, purchase orders, security
arrangements, and any other understandings, written or oral, in each case as amended, supplemented, waived or otherwise modified.
“ Control ” (including the terms “controlling,” “controlled by” and “under common control with”) means possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
“ Controlled Companies ” means each of DEOCSA and DEORSA.
“ Data Room ” means the electronic documentation site established by the Seller with Intralinks in relation to the Transactions containing the
documents made available on such site, as listed in the index attached to the Seller Disclosure Schedule as Section 1.1.
- 4 -
“ DEOCSA ” means Distribuidora de Electricidad de Occidente, S.A., a company duly incorporated under the laws of the Republic of Guatemala and
an indirect subsidiary of the Company and having the details set forth in Schedule 1.1.
“ DEORSA ” means Distribuidora de Electricidad de Oriente, S.A., a company duly incorporated under the laws of the Republic of Guatemala and an
indirect subsidiary of the Company and having the details set forth in Schedule 1.1.
“ Dutch GAAP ” means generally accepted accounting principles in The Netherlands.
“ Dutch Tax Ruling ” means the Advance Tax Ruling dated March 20, 2011 obtained from the Dutch Tax Authorities on behalf of the Seller and the
Company.
“ Encumbrances ” means any (i) mortgage, pledge, lien, attachment, charge, hypothecation, security interest, or other encumbrance, or trust securing
any obligation of any Person; (ii) real estate easement, restrictive covenant or encroachment; or (iii) option or right of first offer or refusal giving another Person a
right to acquire an asset or property; or (iv) agreement to create or effect any of the foregoing, other than a Permitted Encumbrance.
“ Environmental Law ” means any applicable Law relating to (i) the protection of the environment (including air, water, soil and natural resources), or
(ii) the use, storage, handling, release or disposal of Hazardous Substances, in each case, as in effect on the date of this Agreement.
“ Escrow Additional Amount ” means an amount equal to (i) the Estimated Adjustment Amount minus (ii) the Reference Amount.
“ Escrow Agreement ” means the escrow agreement to be executed by and among the Escrow Agent, the Seller and the Purchaser on or prior to the
Closing Date in the form set forth in Exhibit D.
“ Escrow Amount ” means $10,000,000; provided that to the extent that the Escrow Additional Amount is greater than zero, the Escrow Amount will
be increased by an amount equal to the Escrow Additional Amount.
“ Expenses ” means, with respect to any Person, all third party fees and expenses incurred by or on behalf of such Person in connection with the
evaluation, authorization, preparation, negotiation, execution and performance of the Transaction Documents, including the fees and disbursements of investment
bankers, financing sources, accountants, legal counsel, and other consultants and advisors.
“ Fraud ” means, (i) with respect to the Seller, an actual and intentional fraud with respect to the making of the representations and warranties pursuant
to Article III, provided that such actual and intentional fraud of the Seller shall be deemed to exist only if any of the individuals included in the definition of
Knowledge (as it relates to the Seller) had actual knowledge (as opposed to imputed or constructive knowledge) that such representations and warranties, as
qualified by the Seller Disclosure Schedule, were actually breached when made,
- 5 -
with the intention that the Purchaser would rely thereon to its detriment, (ii) with respect to the Company, an actual and intentional fraud with respect to the making
of the representations and warranties pursuant to Article IV, provided that such actual and intentional fraud of the Company shall be deemed to exist only if any of
the individuals included in the definition of Knowledge (as it relates to the Company) had actual knowledge (as opposed to imputed or constructive knowledge)
that such representations and warranties, as qualified by the Company Disclosure Schedule, were actually breached when made, with the intention that the
Purchaser would rely thereon to its detriment and (iii) with respect to the Purchaser, an actual and intentional fraud with respect to the making of the representations
and warranties pursuant to Article V, provided that such actual and intentional fraud of the Purchaser shall be deemed to exist only if any of the individuals
included in the definition of Knowledge (as it relates to the Purchaser) had actual knowledge (as opposed to imputed or constructive knowledge) that such
representations and warranties were actually breached when made, with the intention that the Seller would rely thereon to its detriment.
“ Fundamental Representations ” means with respect to the Seller, any of the representations and warranties contained in Section 3.1 (Corporate
Existence; Standing), Section 3.2 (Authorization), Section 3.4 (Membership Interest Ownership) and Section 3.7 (Brokers).
“ Governmental Authority ” means any court, governmental commission, board or other regulatory authority or agency.
“ Group Companies ” means, collectively, the Company, the Owned Companies and the Controlled Companies.
“ Hazardous Substance ” shall mean any substance to the extent presently listed, defined, designated or classified as hazardous, toxic or radioactive
under any applicable Environmental Law, including, but not limited to petroleum and any petroleum derivatives or by-products, polychlorinated biphenyls,
methane, asbestos, and radon.
“ Holding Companies ” means, collectively, Deocsa, B.V., Deorsa, B.V., Recsa, B.V. and Guatemel, B.V., each being a company duly incorporated
under the laws of the Netherlands and a direct subsidiary of the Company having the respective details set forth on Schedule 1.1.
“ IFRS ” means international financial reporting standards as adopted and applied in the applicable jurisdiction.
“ Indebtedness ” with respect to a Person means, without duplication, the unpaid principal amount of, and accrued interest on, (a) all obligations for
borrowed money, (b) all obligations evidenced by bonds, debentures, notes or similar instruments, and (c) other financial obligations reflected, or required to be
reflected according to Adjustment Amount Accounting Policies, in the line item identified as “ otras
obligaciones
financieras
” in the financial statements of each
of the Group Companies.
“ Indemnified Party ” means any Person claiming indemnification under any provision of Article VII.
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“ Indemnifying Party ” means any Person against whom a claim for indemnification is being asserted under any provision of Article VII.
“ Information ” means all information, received or obtained, whether before, on or after the date of this Agreement (including that which is disclosed
orally or in writing or represented by computer data or any other form of media) which is used in or otherwise relates to (i) the Company or any Group Company;
(ii) the business of the Company or any Group Company; (iii) the documents and information contained or made available in the Data Room; (iv) any other party
including, where that other party is the Seller, a member of the Actis Group and, where that other party is the Purchaser, any Affiliate of the Purchaser; (v) the
provisions or the subject matter of this Agreement and/or any claim or potential claim hereunder; (vi) the negotiations relating to this Agreement; and/or (vii) the
Transactions and any other information received or obtained as a result of entering into or performing the Transactions.
“ Intra-Group Payables ” means the aggregate of the amounts owing from the Group Companies to any Affiliate of the Seller (other than the Group
Companies) as of 12:01 a.m. New York City time on the Closing Date, expressed in Dollars at the spot rate of exchange in effect on the Reference Date.
“ Intra-Group Receivables ” means the aggregate of the amounts owing from the Affiliates of the Seller (other than the Group Companies) to the
Group Companies as of 12:01 a.m. New York City time on the Closing Date, expressed in Dollars at the spot rate of exchange in effect on the Reference Date.
“ Knowledge ” with respect to (i) the Seller, means the actual knowledge, after good faith inquiry, of Michael Till and Michael Harrington; (ii) the
Company, means the actual knowledge, after good faith inquiry, of Jaime Tupper, Adrián Ratner and Daniel Bernardez; and (iii) the Purchaser, means the actual
knowledge, after good faith inquiry, of Javier Garcia, Alberto Triulzi, Joaquin Coloma and Daniel Urbina.
“ Laws ” means, collectively, all laws, statutes, ordinances, codes, rules, regulations, decrees, orders, or judicial, arbitral, administrative or regulatory
judgments, decisions, rulings or awards issued by any Governmental Authorities.
“ Loan Facility Agreements ” means (i) the Amended and Restated Credit Agreement dated as of April 23, 2015, among inter
alios
, Distribuidora de
Electricidad de Occidente, S.A., a sociedad
anónima
organized under the laws of the Republic of Guatemala, Deocsa, B.V., a private company with limited liability
( besloten
vennootschap
met
beperkte
aansprakelijkheid
) organized under the laws of The Netherlands, the lenders party thereto and Banco Agromercantil de
Guatemala, S.A. as administrative agent; (ii) the Amended and Restated Credit Agreement dated as of April 23, 2015, among inter
alios,
Distribuidora de
Electricidad de Oriente, S.A., a sociedad
anónima
organized under the laws of the Republic of Guatemala, Deorsa, B.V., a private company with limited liability (
besloten
vennootschap
met
beperkte
aansprakelijkheid
) organized under the laws of The Netherlands, the lenders party thereto and Banco Agromercantil de
Guatemala, S.A. as administrative agent; and (iii) the security agreements, ancillary agreements and any other agreements and documents executed under the
agreements referred to in (i) and (ii) herein.
- 7 -
“ Losses ” means the Relevant Proportion of any and all losses, fines, fees, penalties, deficiencies, damages, liabilities, claims, demands, judgments,
settlements and costs and expenses (including reasonable attorneys’ fees and disbursements).
“ Material Contract ” means any of the following types of Contracts to which a Group Company is party as of the date hereof (other than any such
Contract terminated after the date hereof for any reason except due to a breach thereof or default thereunder by the Group Company party thereto): (i) for any item
of Indebtedness in excess of $250,000; (ii) with a supplier for the purchase of products or services involving payments during the 2015 calendar year in excess of
$250,000, other than any contract that is terminable without liability on ninety (90) or fewer days’ notice; (iii) for capital expenditures involving payments during
the 2015 calendar year in excess of $250,000, other than any contract that is terminable without liability on ninety (90) or fewer days’ notice; (iv) relating to the
acquisition or disposition of (x) any business (whether by merger, consolidation or other business combination, sale of securities, sale of assets or otherwise) or
(y) any asset with a value in excess of $250,000 other than acquisitions or dispositions of assets in the Ordinary Course; (v) that has granted “most favored nation”
pricing provisions or exclusive marketing or distribution rights relating to any products, services or territory; (vi) containing terms that materially restrict or
prohibit (x) the business activity or limit the freedom of any Group Company to engage in any line of business or to compete with, or solicit business from or the
employment of, any Person, in each case, in any geographical area or (y) the payment of dividends; (vii) relating to any Encumbrance (other than Encumbrances
incurred in the Ordinary Course) affecting any of the assets or properties thereof; (viii) that is a Related Person Contract other than any Related Person Contract
that is terminated pursuant to Section 8.2(e); (ix) relating to the service of any individual as a director, officer, employee, independent contractor or consultant
involving the payment of $250,000 or more during the 2015 calendar year; (x) settling or compromising any Action involving a payment in excess of $250,000;
(xi) relating to an obligation to indemnify any Person; or (xii) any material Contract with any Governmental Authority.
“ Membership Interests ” means the rights, collectively, of the Seller and the Nominee Holder to each such member’s entire legal relationship with the
Company, including the balances of its capital and reserve accounts and all rights and obligations relating to its membership in the Company and all ancillary rights
pertaining thereto.
“ Net Cash ” means the amount, which may be positive or negative, determined as of 12:01 a.m. New York City time on the Closing Date, expressed
in Dollars at the spot rate of exchange in effect on the Reference Date, equal to (i) the Relevant Proportion of the Cash of the Group Companies, minus (ii) the
Relevant Proportion of the Indebtedness of the Group Companies (in each case without double-counting any amounts included in such Indebtedness or the
Company Expenses).
“ Nominee Purchaser ” means Verde Securities Ltd.
“ Order ” means any order, writ, injunction, award, judgment, decision, directive, ruling, assessment, stipulation or decree of, with or by any
Governmental Authority.
- 8 -
“ Ordinary Course ” means the ordinary course of the business of the Group Companies, consistent with the past practices thereof, including with
respect to scope, nature, quantity and frequency, and without regard to the Transactions.
“ Organizational Documents ” means, with respect to any Person, as applicable, the certificate of incorporation, articles of incorporation,
memorandum and articles of association, shareholders agreement, certificate of formation, by-laws, articles of organization, limited liability company agreement,
limited partnership agreement, formation agreement, joint venture agreement, general partnership agreement or other similar organizational documents of such
Person.
“ Owned Companies ” means, collectively, (i) the Holding Companies and (ii) each of Redes Eléctricas de Centroamérica, S.A. and Comercializadora
Guatemalteca Mayorista de Electricidad, S.A., each being a company duly incorporated under the laws of the Republic of Guatemala and an indirect subsidiary of
the Company having the respective details set forth on Schedule 1.1.
“ Permitted Encumbrances ” means (i) Encumbrances for Taxes and other governmental charges and assessments that are not yet due and payable, and
Encumbrances for current Taxes and other charges and assessments of any Governmental Authority that may thereafter be paid without penalty or that are being
contested in good faith by appropriate proceedings and for which adequate reserves have been established on any Group Company’s books and records,
(ii) Encumbrances of landlords, carriers, warehousemen, mechanics and materialmen and other like Encumbrances arising in the Ordinary Course securing
payments not yet due and payable or being contested in good faith by appropriate proceedings and for which adequate reserves have been established on any Group
Company’s books and records, (iii) Encumbrances of record identified in any title reports or Organizational Documents made available to the Purchaser, (iv) all
applicable local and other building, environmental and zoning Laws now or hereafter in effect, (v) any Encumbrances or other encroachments, covenants,
restrictions, state of facts that would be disclosed by an accurate survey or inspection of the applicable real property, or other title imperfections that, in each case,
would not materially interfere with the use of the applicable properties or the business operations of the Group Companies thereat and (vi) any other Encumbrances
that do not materially impair the use of the underlying property in the Ordinary Course.
“ Person ” means any natural person, corporation, general partnership, limited partnership, limited or unlimited liability company, proprietorship, trust,
joint venture, other business entity or Governmental Authority.
“ Plan ” means any employment, union, guild, works council, consulting, bonus, incentive compensation, deferred compensation, pension, profit
sharing, retirement, superannuation, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, equity (or equity-based), leave of
absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, medical, dental, vision, welfare, accident, disability, workmen’s
compensation or other insurance, employee loan, severance, separation, retention termination, change of control, collective bargaining or other fringe or benefit
plan, understanding, agreement, practice, policy or arrangement of any kind, whether written or oral, formal or informal; provided that the foregoing shall not
include any such plan that was established or is administered or maintained by any Governmental Authority.
- 9 -
“ Purchaser Material Adverse Effect ” means a material adverse effect on the enforceability of the Purchaser’s obligations under this Agreement, the
Purchaser’s ability to perform its obligations under this Agreement in a timely manner or the ability of the Purchaser and the Nominee Purchaser to consummate
the transactions contemplated by this Agreement without material delay.
“ Reference Amount ” means an Estimated Adjustment Amount of $(17,800,000) (i.e., negative $17.8 million).
“ Reference Date ” means the last Business Day prior to the delivery of the Closing Statement by the Seller to the Purchaser.
“ Related Person ” means, with respect to any Person, (i) the Affiliates of such Person, (ii) the Family members of such Person and (iii) any other
Person in whom such Person or any Person described in clauses (i) or (ii) holds a Material Interest. For purposes of this definition, “ Family ” means, with respect
to any Person, such Person, such Person’s spouse and each of their parents, children and siblings, including adoptive relationships and relationships through
marriage, or any other relative of such Person that resides with such Person; and “ Material Interest ” means beneficial ownership (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of securities representing at least 20% of the voting power or equity interests in a Person.
“ Related Person Contract ” means any Contract between or among any Group Company, on the one hand, and the Seller, any Board member or senior
executive officer of the Seller or any Group Company, or any Related Person of the Seller or any Board member or senior executive officer of the Seller or any
Group Company, on the other hand, in each case other than between or among the Group Companies.
“ Relevant Proportion ” means: (a) in respect of DEOCSA, 90.62%, (b) in respect of DEORSA, 92.68%, (c) in respect of the Owned Companies, one
hundred percent (100%), and (c) in respect of any other Person, unless otherwise specified, one hundred percent (100%).
“ Representatives ” means, with respect to a Person, such Person’s employees, officers, Board members, managers, accountants, counsel, consultants,
advisors and other representatives.
“ Sanctions Target ” means any Person on the Specially Designated Nationals and Blocked Persons List issued by the United States Treasury
Department, Office of Foreign Assets Control (http://www.treas.gov/offices/enforcement/ofac/sdn/index.html) or any other Person that because of its domicile or
ownership is targeted under any of the Trading With the Enemy Act, the International Emergency Economic Powers Act, the United Nations Participation Act, or
the Syria Accountability and Lebanese Sovereignty Act, all as amended, or any of the foreign assets control regulations of the United States Treasury Department
(31 C.F.R., Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto, as collectively interpreted and applied by the United
States government at the prevailing point in time.
- 10 -
“ Seller Material Adverse Effect ” means a material adverse effect on the enforceability of the Seller’s obligations under this Agreement, the Seller’s
ability to perform its obligations under this Agreement in a timely manner or the ability of the Seller and the Nominee Holder to consummate the Transactions
contemplated by this Agreement without material delay.
“ Seller’s Account ” means the bank account in the name of the Seller with Barclays Bank PLC, International Banking Division, 1 st Floor, Barclays
House, 68-68A, Cybercity Ebene, Mauritius, account number (IBAN) MU 06 BARC 03 05 00000 7009209 OOOUSD and SWIFT code BARCMUMUOBU with
correspondent bank being Barclays Bank PLC, 200 Park Avenue, New York, NY 10166, USA, ABA No. 026002574 and SWIFT code BARCUS33.
“ Special Policy ” means the Buyer-Side Representations and Warranties Insurance Policy, issued on or about the date hereof, by AIG to the
Purchaser.
“ Support Letter ” means the shareholder support letter executed and delivered by certain shareholders of the Seller on the date hereof.
“ Target Cash ” means $16,995,787, which is equal to the Relevant Proportion of Cash computed as of (i) March 31, 2015 for the Controlled
Companies, and (ii) December 31, 2014 for Redes Electricas de Centroamérica, S.A. and Comercializadora Guatemalteca Mayorista de Electricidad, S.A.,
expressed in Dollars, calculated as set out in Schedule 1.1(a).
“ Target Indebtedness ” means $222,643,663, which is equal to the Relevant Proportion of Indebtedness computed as of (i) March 31, 2015 for the
Controlled Companies, and (ii) December 31, 2014 for Redes Eléctricas de Centroamérica, S.A. and Comercializadora Guatemalteca Mayorista de Electricidad,
S.A., expressed in Dollars, calculated as set out in Schedule 1.1(a).
“ Target Tariff Liability ” means $50,399,197, which is equal to the Relevant Proportion of Tariff Liability computed as of March 31, 2015 for the
Controlled Companies expressed in Dollars, calculated as set out in Schedule 1.1(a).
“ Target Working Capital ” means $36,821,993, which is equal to the Relevant Proportion of Working Capital computed as of (i) March 31, 2015 for
the Controlled Companies, and (ii) December 31, 2014 for Redes Electricas de Centroamérica, S.A. and Comercializadora Guatemalteca Mayorista de Electricidad,
S.A., expressed in Dollars, calculated as set out in Schedule 1.1(a).
“ Tariff Liability ” means the regulatory liability (pasivo
regulatorio)
as reflected in the accounting records of each of the Controlled Companies.
“ Tax ” means (i) all federal, state, local or non-U.S. taxes, charges, fees, imposts, levies or other assessments, including all net income, alternative
minimum, gross receipts, windfall profits, production, capital, paid-up capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital
stock, license, greenmail, withholding (including liability as a withholding agent), payroll, employment, social security, unemployment, excise, severance, stamp,
occupation, premium, escheat, environmental, property and estimated taxes,
- 11 -
customs duties, fees, assessments and charges of any kind whatsoever; and all interest, penalties, fines, additions to tax or other additional amounts imposed by any
Tax Authority with respect thereto, whether disputed or not, and (ii) any amount described in clause (i) for which a Person is liable (A) as a transferee or successor,
or (B) under applicable Law.
“ Tax Authority ” means any legislature, agency, bureau, branch, department, division, regulatory authority, commission, court, tribunal, magistrate,
justice, multi-national organization, quasi-governmental body, or other similar recognized organization or body of any federal, state, county, municipal, local, or
foreign government or other similar recognized organization or body exercising similar powers authorized to impose any interest, penalty, addition or Tax.
“ Tax Return ” means all returns, reports, forms, declarations, statements and information returns (including any attached schedules, supplements and
additional or supporting material) supplied or required to be supplied to a Tax Authority relating to Taxes, including any claim for refund, amended return or
declaration of estimated Taxes (and including any amendments with respect thereto) and returns or reports with respect to backup withholding and other payments
to third parties.
“ Transaction Documents ” means this Agreement, the Escrow Agreement, the Letter of Credit and any and all other agreements, certificates and
instruments required to be delivered by the parties thereto.
“ Transactions ” means the transactions contemplated by the Transaction Documents.
“ Transition Services ” means the following services provided by Arthasan to the Group Companies pursuant to the Arthasan Service Agreement:
management services, directorate services, assistance and support services, general advice on project management, support on certain legal, tax, accounting and
insurance advisory matters.
“ Transition Services Fee ” means $60,000.
“ U.S.$ ”, “ $ ” or “ Dollars ” means the lawful currency of the United States of America.
“ Working Capital ” means the aggregate amount, which may be positive or negative, equal to (i) the Relevant Proportion of the current assets of the
Group Companies calculated in the manner set out in Schedule 1.1(b), minus (ii) the Relevant Proportion of the current liabilities (including accrued but unpaid
Taxes as of the Closing Date) of the Group Companies calculated in the manner set out in Schedule 1.1(b), in each case determined in accordance with the
Adjustment Amount Accounting Policies using the same methodologies used in preparing the Financial Statements, provided, however, that (a) the amount
calculated pursuant to the foregoing clause (i) shall not include any Cash included in the determination of Net Cash or any Intra-Group Receivables and (b) the
amount calculated pursuant to the foregoing clause (ii) shall not include any Indebtedness included in the determination of Net Cash, the Company Expenses, the
Company Employee Payables, any Intra-Group Payables or the Tariff Liability.
- 12 -
Section 1.2. Other Defined Terms .
(a) Other terms defined are in the other parts of this Agreement indicated below:
“ 2014 Financial Statements ”
“ Accountants Ruling ”
“ Adjustment Dispute Notice ”
“ Adjustment Statement ”
“ Admitted Liability ”
“ Anti-Bribery Laws ”
“ Bankruptcy and Equity Exception ”
“ Claimant ”
“ Closing Date ”
“ Closing Payment ”
“ Closing Statement ”
“ Company ”
“ Company Disclosure Schedule ”
“ Company Intellectual Property Rights ”
“ Company Leases ”
“ Company Plan ”
“ Deferred Payment ”
“ Dispute ”
“ Dispute Statement ”
“ Escrow Agent ”
“ Estimated Adjustment Amount ”
“ Financial Statements ”
“ Group Company Shares ”
“ ICC ”
“ Indemnity Amount ”
“ Intellectual Property Rights ”
“ Interim Balance Sheet ”
“ Leased Real Property ”
“ Letter of Credit ”
“ Local Currency ”
“ Nominee Holder ”
“ Owned Real Property ”
“ Payment ”
“ Permitted Liquidation Date ”
“ Permits ”
“ Purchase Price ”
“ Purchaser ”
“ Purchaser Adjustment ”
“ Purchaser Disclosure Schedule ”
“ Purchaser Guarantor ”
“ Purchaser Guaranteed Obligations ”
“ Purchaser Indemnified Parties ”
- 13 -
Section 4.8(a)
Section 2.2(f)
Section 2.2(f)
Section 2.2(e)
Section 7.5(c)
Section 4.18
Section 3.2
Section 10.12(a)
Section 2.3
Section 2.2(c)
Section 2.2(b)
Preamble
Article IV
Section 4.14
Section 4.10(a)
Section 4.16(c)
Section 2.2(d)
Section 10.12(a)
Section 7.5(d)
Section 2.2(c)
Section 2.2(b)
Section 4.8(a)
Section 4.4(a)
Section 10.12(a)
Section 7.4
Section 4.14
Section 4.8(a)
Section 4.10(a)
Section 6.13
Section 10.17
Recitals
Section 4.10(a)
Section 4.18
Section 6.8
Section 4.6(b)
Section 2.2
Preamble
Section 2.2(h)
Article V
Preamble
Section 2.2
Section 7.2
“ Real Property ”
“ Respondent ”
“ Restraints ”
“ Rules ”
“ Seller ”
“ Seller Disclosure Schedule ”
“ Seller Indemnified Parties ”
“ Transfer Instruments ”
“ Unaudited Financial Statements ”
Section 4.10(a)
Section 10.12(a)
Section 8.1(a)
Section 10.12(a)
Preamble
Article III
Section 7.3
Section 2.5(c)
Section 4.8(a)
(b) For the purposes of this Agreement, except to the extent that the context otherwise requires:
(i) for the purposes of the definitions of “Actis Manager Group” and “Affiliate”, (A) a “subsidiary” or “holding company” is to be construed in
accordance with section 1159 (and Schedule 6) of the English Companies Act 2006 (the “Act”) and, for the purposes of this definition, a person shall
be treated as a member of another person if any of that person’s subsidiaries is a member of that other person or, if any shares in that other person are
held by a person acting on behalf of it or any of its subsidiaries and (ii) a “subsidiary undertaking” or “parent undertaking” is to be construed in
accordance with section 1162 (and Schedule 7) of the Act. A subsidiary and a subsidiary undertaking shall include any person the shares or ownership
interests in which are subject to security and where the legal title to the shares or ownership interests so secured are registered in the name of the
secured party or its nominee pursuant to such security;
(ii) when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated;
(iii) the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or
interpretation of this Agreement;
(iv) whenever the words “include,” “includes” or “including” (or similar terms) are used in this Agreement, they are deemed to be followed by
the words “without limitation”;
(v) the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole
and not to any particular provision of this Agreement;
(vi) all terms defined in this Agreement have their defined meanings when used in any certificate or other document made or delivered pursuant
hereto, unless otherwise defined therein;
- 14 -
(vii) the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms;
(viii) if any action is to be taken by any party hereto pursuant to this Agreement on a day that is not a Business Day, such action shall be taken
on the next Business Day following such day;
(ix) references to a Person are also to its permitted successors and assigns;
(x) the use of “or” is not intended to be exclusive unless expressly indicated otherwise;
(xi) after the Closing, any reference to the “Affiliates of the Seller”, the “Actis Group” and the “Actis Manager Group” shall not include the
Company or any Group Company.
(c) This Agreement is the product of negotiation by the parties having the assistance of counsel and other advisors. It is the intention of the parties that
no party shall be considered the drafter hereof and that this Agreement not be construed more strictly with regard to one party than to any other.
ARTICLE II
PURCHASE AND SALE OF MEMBERSHIP INTERESTS
Section 2.1. Purchase and Sale . At the Closing, upon the terms and subject to the conditions of this Agreement, the Seller shall, and shall cause the
Nominee Holder to, sell, transfer, assign, convey and deliver to the Purchaser, and the Purchaser shall, and shall cause the Nominee Purchaser to, purchase and
accept from the Seller and the Nominee Holder, the Membership Interests, free and clear of all Encumbrances, for the Purchase Price.
Section 2.2. Purchase Price .
(a) Consideration.
As consideration for the Membership Interests, the Purchaser shall pay to the Seller, in the manner described herein, an amount (the
“ Purchase Price ”) equal to (i) the Base Purchase Price, plus (ii) the Deferred Payment, plus (iii) the final Adjustment Amount.
(b) Estimated
Adjustment
Amount.
Not less than three (3) Business Days prior to Closing, the Seller shall prepare and deliver to the Purchaser a
closing statement (the “ Closing Statement ”) calculated in the manner set out in Schedule 2.2(b), certified by an appropriate officer of the Seller, setting forth the
Seller’s good faith estimate of the Adjustment Amount (such estimate, the “ Estimated Adjustment Amount ”) together with reasonably detailed back-up data to
support the Seller’s estimate of each item from which such amount is calculated. The Estimated Adjustment Amount shall be prepared in accordance with the
Adjustment Amount Accounting Policies using the same methodologies used in preparing the Financial Statements. Without limiting the generality of
Section 6.10(b), the Seller shall afford Purchaser
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and its Representatives with reasonable access upon reasonable prior notice during normal business hours to the books, records, properties and assets of the Group
Companies for the purpose of verifying the computation of the Estimated Adjustment Amount and shall meet with the Purchaser prior to the delivery of the
Estimated Adjustment Amount to explain its calculations.
(c) Closing
Payment
and
Escrow.
At the Closing, the Purchaser shall (x) pay the Seller, an amount (the “ Closing Payment ”) equal to (i) the Base
Purchase Price, plus (ii) the Estimated Adjustment Amount, minus (iii) the Escrow Amount, plus (iv) the Transition Services Fee, by wire transfer of immediately
available funds to the Seller’s Account; and (y) deposit the Escrow Amount in escrow with Citibank, N.A. (the “ Escrow Agent ”) pursuant to the Escrow
Agreement.
(d) Deferred
Payment.
On or before April 15, 2016, the Purchaser shall pay the Seller an amount equal to $23,750,000 (the “ Deferred Payment ”), by
wire transfer of immediately available funds to the Seller’s Account.
(e) Post-Closing
Adjustment.
Within sixty (60) calendar days following the Closing, the Purchaser shall prepare and deliver to the Seller a statement
calculated in the manner set out in Schedule 2.2(b) (the “ Adjustment Statement ”) setting forth the Purchaser’s calculation of the Adjustment Amount. The
Adjustment Statement shall refer exclusively to the Purchaser’s calculation of each line item as set out in Schedule 2.2(b) and be prepared in accordance with the
Adjustment Amount Accounting Policies using the same methodologies used in preparing the Financial Statements. The Adjustment Statement shall not take into
account any events occurring after the Closing.
(f) Dispute.
The Seller shall have thirty (30) calendar days following receipt of the Adjustment Statement to deliver to the Purchaser a written notice
(an “ Adjustment Dispute Notice ”) that the Seller disputes the Purchaser’s calculation of any of the amounts set forth therein, which Adjustment Dispute Notice
shall set forth in reasonable detail the basis for each element of such dispute. If the Seller does not deliver an Adjustment Dispute Notice on or before the expiration
of such thirty-day (30-day) period (or if the Seller notifies the Purchaser in writing that there is no such dispute), the calculations prepared by the Purchaser shall be
deemed to be final, binding and conclusive. In the event the Seller delivers an Adjustment Dispute Notice with respect to only certain of the amounts set forth in the
Adjustment Statement but not others, then any undisputed amount shall be deemed to be final, binding and conclusive. In the event the Seller delivers an
Adjustment Dispute Notice to the Purchaser, then the Seller and the Purchaser shall cooperate in good faith for a period of thirty (30) calendar days commencing
the date of delivery of the Adjustment Dispute Notice to resolve any such dispute as promptly as possible. During such thirty-day (30-day) period, the Purchaser
shall provide the Seller reasonable access to the Purchaser’s and the Group Companies’ personnel, properties, Contracts, documents, books, records, files and other
data (including Tax Returns) relevant to the calculation of the Adjustment Amount (subject to the execution of customary work paper access letters if requested). In
the event that (i) there is no disagreement with respect to the Adjustment Amount or (ii) the Purchaser and the Seller are able to resolve any disagreements on or
before the thirtieth (30th) calendar day following the delivery of such Adjustment Dispute Notice, the Seller and the Purchaser shall, no later than two (2) Business
Days after the date on which the
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Adjustment Amount has been determined, jointly instruct the Escrow Agent to release all or a part of the Escrow Amount to the Seller or the Purchaser, as
appropriate pursuant to Section 2.2(h). In the event that the Purchaser and the Seller are unable to resolve all such disagreements on or before the thirtieth
(30th) calendar day following the delivery of such Adjustment Dispute Notice, the Purchaser and the Seller shall retain the Accountants to resolve all such
disagreements. The Accountants (i) may only resolve disagreements as to matters covered by the Adjustment Dispute Notice (which disagreements shall refer to
the specific the line items set out in Schedule 2.2(b)); (ii) shall base their determination solely on (x) the written submissions of the parties and shall not conduct an
independent investigation and (y) the Adjustment Amount Accounting Policies; and (iii) shall not assign any value with respect to a disputed amount that is greater
than the highest value for such amount claimed by either the Seller or the Purchaser or that is less than the lowest value for such amount claimed by either the
Seller or the Purchaser. The Accountants shall be instructed to render a determination as soon as reasonably possible (which the parties hereto agree should not be
later than thirty (30) calendar days following the day on which the disagreement is referred to the Accountants). The Accountants shall conduct the determination
activities in a manner wherein (x) each of the Seller and the Purchaser promptly provide their assertions regarding the Adjustment Amount to the Accountants and
to each other, substantially simultaneously and (y) all materials submitted are held in confidence and shall not be disclosed to any third parties. The determination
by the Accountants shall be final, binding and conclusive on both the Seller and the Purchaser (the “ Accountants Ruling ”). The parties agree that judgment may be
entered upon the determination of the Accountants in any court having jurisdiction over the party against which such determination is to be enforced.
(g) Dispute
Expenses.
The Purchaser and the Seller shall each pay the fees and disbursements of their separate Representatives incurred in the initial
preparation, review and final determination of the Adjustment Amount. All fees and expenses relating to the work, if any, to be performed by the Accountants shall
be borne fifty percent (50%) by the Seller and fifty percent (50%) by the Purchaser.
(h) Adjustment
Payment
and
Release
of
the
Escrow
Amount
.
(i) Within five (5) Business Days after the final determination of the Adjustment Amount:
(A) if the Adjustment Amount is greater than the Estimated Adjustment Amount, (x) the Purchaser shall pay the Seller the amount of
such difference and (y) the Escrow Amount shall be released by the Escrow Agent to the Seller;
(B) if the Estimated Adjustment Amount is greater than the Adjustment Amount, (x) all or a part (as applicable) of the Escrow Amount
corresponding to the amount of such difference (the “ Purchaser Adjustment ”) shall be released by the Escrow Agent to the Purchaser and
(y) the remainder, if any, of the Escrow Amount shall be released by the Escrow Agent to the Seller; and
(C) if the Purchaser Adjustment exceeds the Escrow Amount, the Seller shall pay the Purchaser the amount of such difference.
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(ii) The Escrow Agreement shall provide that all or any portion of the Escrow Amount shall be released by the Escrow Agent to the Seller or the
Purchaser, as appropriate, on the earlier of (x) delivery of joint instructions from the Seller and the Purchaser to the Escrow Agent (which the Seller
and the Purchaser shall give no later than two (2) Business Days after the date on which the Adjustment Amount has been determined as set out in
Section 2.2(f)), or (y) delivery of notice by any of the Seller or the Purchaser of the Accountants Ruling requiring such release. Any fees and expenses
of the Escrow Account and the Escrow Agent shall be borne equally between the Purchaser and the Seller.
(iii) Any payment required under this Section 2.2(h) shall be made by wire transfer of immediately available funds to the account or accounts
designated in writing by the payee.
(i) Payments.
All payments to be made by the Purchaser pursuant to this Agreement shall be made without deduction, set-off or counter-claim of any
kind and shall be made free and clear of any withholding or deduction for or on account of Taxes (including any interest, charges, penalties and expenses in
connection therewith).
Section 2.3. Closing . The Closing shall be held at the offices of Clifford Chance US LLP, 31 West 52 nd Street, New York, New York 10019, at 10:00
a.m. local time, on January 22, 2016 provided that all of the conditions set forth in Article IX have been satisfied or waived (other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), or at such other time or place as the Purchaser and the
Seller mutually agree in writing (the “ Closing Date ”). Except as otherwise provided in this Agreement, all actions and all documents to be executed and delivered
at the Closing shall be deemed to have been taken, delivered and executed simultaneously, and no such action shall be deemed taken nor any such documents
deemed executed or delivered until all have been taken, delivered and executed.
Section 2.4. Closing Deliveries by the Purchaser . At the Closing, the Purchaser shall deliver or cause to be delivered to the Seller:
(a) the Purchase Price by wire transfer of immediately available funds to such account as the Seller may direct by written notice to the Purchaser;
(b) a membership transfer certificate for the Membership Interests, in the form attached as Exhibit A, duly executed by the Purchaser and the Nominee
Purchaser;
(c) an accession letter, in the form attached as Exhibit C, duly executed by the Purchaser and the Nominee Purchaser;
(d) resolutions replacing any members of the Board or other such governing body of each of the Company and the Group Companies as are designated
by the Purchaser to resign, effective as of the Closing; and
(e) duly executed counterparts of each Transaction Document which is to be executed at the Closing and to which the Purchaser or the Nominee
Purchaser is a party.
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Section 2.5. Closing Deliveries by the Seller . At the Closing, the Seller shall deliver or cause to be delivered to the Purchaser:
(a) a copy of a duly signed written resolution of the management board of the Company approving the admission of the Purchaser and the Nominee
Purchaser, in accordance with article 4.2(a) of the Company’s articles of association;
(b) a copy of a duly signed written resolution of the general meeting of the Company pursuant to which the Seller and the Nominee Holder approve
the admission of the Purchaser and the Nominee Purchaser, in accordance with article 4.2(b)(ii) of the Company’s articles of association;
(c) a membership transfer certificate for the Membership Interests, in the form attached as Exhibit A, duly executed by the Seller and the Nominee
Holder, and any other assignment or transfer instruments or documents necessary to transfer the Membership Interests to the Purchaser and the Nominee Purchaser
(the “ Transfer Instruments ”);
(d) evidence of the registration of the transfer of the Membership Interests to the Purchaser in the register of members of the Company;
(e) resignation letters and mutual releases, in substantially the form attached as Exhibit B, duly executed by (i) the directors and officers of each of the
Group Companies set forth in Section 2.5(e) of the Seller Disclosure Schedule, and (ii) the Company and the other Group Companies, effective as of the Closing;
and
(f) duly executed counterparts of each Transaction Document which is to be executed at the Closing and to which the Seller or any of the Group
Companies is a party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
REGARDING THE SELLER
Except as set forth in and as qualified by the correspondingly numbered section or subsection of the disclosure schedule delivered by the Seller to the
Purchaser simultaneously with the execution of this Agreement (the “ Seller Disclosure Schedule ”) (it being agreed that the disclosure of any item in one section or
subsection thereof shall be deemed to include any other section or subsection to which the relevance of such item is reasonably apparent on its face), the Seller
represents and warrants to the Purchaser as of the date of this Agreement and as of the Closing Date as follows:
Section 3.1. Corporate Existence; Standing .
(a) Each of the Seller and the Nominee Holder is duly organized, validly existing and in good current standing under the Laws of its jurisdiction of
organization.
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(b) Each of the Seller and the Nominee Holder has the requisite power and authority to enter into and deliver the Transaction Documents to which it is
a party and to perform its obligations under such Transaction Documents and to consummate the Transactions.
(c) Each of the Seller and the Nominee Holder is neither in bankruptcy, liquidation or receivership (and no order or resolution therefore has been
presented and no notice of appointment of any liquidator, receiver, administrative receiver or administrator has been given), nor, to the Knowledge of the Seller, is
there any valid grounds or circumstances on the basis of which any such procedure may be requested on a voluntary or involuntary basis by any entity.
Section 3.2. Authorization . The execution, delivery and performance by each of the Seller and the Nominee Holder of the Transaction Documents to
which it is a party and the consummation by such Person of the Transactions have been duly authorized by all necessary corporate action on the part of such Person
and no other action on the part of such Person is necessary to authorize this Agreement or the consummation of the Transactions. Each of the Transaction
Documents to be executed by the Seller and the Nominee Holder, as applicable, have been, or as of the Closing will be, duly executed and delivered by such Person
and, assuming due authorization, execution and delivery by the other parties thereto, each such Transaction Document constitutes, or as of the Closing will
constitute, the legally valid and binding obligations of the Seller and/or the Nominee Holder, as applicable, enforceable against such Person in accordance with its
terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar Laws of
general application affecting or relating to the enforcement of creditors’ rights generally and (ii) is subject to general principles of equity, whether considered in a
proceeding at Law or in equity (the “ Bankruptcy and Equity Exception ”).
Section 3.3. Non-Contravention . The execution, delivery and performance by each of the Seller and the Nominee Holder of the Transaction
Documents to which it is a party, and the consummation by each of the Seller and the Nominee Holder of the Transactions do not and will not (i) conflict with or
violate any provisions of its Organizational Documents or any resolutions adopted by such Person’s shareholders or its Board; (ii) violate, conflict with, result in a
breach of or constitute a default under any of the terms, conditions or provisions of any Contract to which it is a party; or (iii) violate, conflict with or result in a
breach of any Law, judgment, writ or injunction of any Governmental Authority applicable to it, except, in the case of clauses (ii) and (iii), as would not reasonably
be expected to have a Seller Material Adverse Effect.
- 20 -
Section 3.4. Membership Interest Ownership .
(a) The Seller and the Nominee Holder are the only legal, record and beneficial owners of the Membership Interests and each of the Seller and the
Nominee Holder has good and valid title to their respective portion of the Membership Interests free and clear of any Encumbrance. Upon delivery at the Closing
by each of the Seller and the Nominee Holder to the Purchaser and the Nominee Purchaser of the Transfer Instruments to make effective the Transactions, the
Purchaser and the Nominee Purchaser will acquire good and valid title to the Membership Interests, free and clear of any Encumbrance. Except as set forth in
Section 3.4(a) of the Seller Disclosure Schedule, the Company, directly or indirectly, has good and valid title to the Group Company Shares free and clear of any
Encumbrances.
(b) The Membership Interests comprise all of the rights to membership in the Company and are fully paid or credited as fully paid, and have not been
issued in violation of any preemptive rights, rights of first refusal or similar rights.
(c) Except for this Agreement and the Organizational Documents of the Company, there are no voting trusts, proxies, membership agreements or other
agreements or understandings to which the Seller or the Nominee Holder is a party or by which either the Seller or the Nominee Holder is bound with respect to the
ownership, disposition, voting, issuance or transfer of the Membership Interests or other capital stock (or other equity interests) of the Company.
Section 3.5. Government Approvals . The execution, delivery and performance of the Transaction Documents to which it is a party and consummation
of the Transactions by each of the Seller and the Nominee Holder do not and will not require any Consents of any Governmental Authority, other than such
Consents that, if not obtained, made or given, would result in a Seller Material Adverse Effect.
Section 3.6. Legal Proceedings . There are no Actions pending, or, to the Knowledge of the Seller, threatened, against, relating to or involving the
Seller or the Nominee Holder that would reasonably be expected to result in a Seller Material Adverse Effect.
Section 3.7. Brokers . No agent, broker, investment banker, financial advisor or other firm or Person (except for Citigroup Global Markets Inc.) is
entitled to any brokerage, finder’s, financial advisor’s or other similar fee or commission in connection with the Transactions as a result of any action taken by or
on behalf of the Seller or any of its Affiliates for which the Purchaser or its Affiliates (which, for the purposes of the Purchaser shall include the Group Companies
after the Closing) could be liable.
Section 3.8. Dutch Tax matters . The facts and assumptions (including “Kritische
veronderstellingen”)
on which the Dutch Tax Ruling is based are
complete and correct in all material respects.
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REPRESENTATIONS AND WARRANTIES REGARDING THE GROUP COMPANIES
ARTICLE IV
Except as set forth in and as qualified by the correspondingly numbered section or subsection of the disclosure schedule delivered by the Company to
the Purchaser simultaneously with the execution of this Agreement (the “ Company Disclosure Schedule ”) (it being agreed that the disclosure of any item in one
section or subsection thereof shall be deemed to include any other section or subsection to which the relevance of such item is reasonably apparent on its face), the
Company represents and warrants to the Purchaser as of the date of this Agreement and as of the Closing Date (except for representations and warranties that speak
as of a certain date, in which case, as of such date) as follows:
Section 4.1. Corporate Existence; Standing .
(a) Each of the Group Companies is duly organized, validly existing and in good current standing under the Laws of its jurisdiction of organization
and has the requisite power and authority to own, operate and lease its properties, as applicable, and carry on its business as currently conducted. Each of the Group
Companies is duly licensed or qualified to do business and, if applicable, is in good standing in each jurisdiction in which such licensing or qualification is
necessary, except for such failures to be licensed, qualified and in good standing as would not reasonably be expected to have a Business Material Adverse Effect.
(b) The Company has the requisite power and authority to enter into the Transaction Documents to which it is a party and to perform its obligations
under such Transaction Documents and to consummate the Transactions.
(c) None of the Group Companies is in bankruptcy, liquidation or receivership (and no order or resolution therefore has been presented and no notice
of appointment of any liquidator, receiver, administrative receiver or administrator has been given), nor, to the Knowledge of the Company, are there any valid
grounds or circumstances on the basis of which any such procedure may be requested on a voluntary or involuntary basis by any Person.
Section 4.2. Authorization . The execution, delivery and performance by the Company of the Transaction Documents to which it is a party and the
consummation by the Company of the Transactions have been duly authorized by all necessary corporate action on the part of the Company and, except as
otherwise contemplated herein, no other action on the part of the Company is necessary to authorize this Agreement or the consummation of the Transactions. The
Transaction Documents to be executed by the Company have been, or as of the Closing will be, duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by the other parties thereto, each such Transaction Document constitutes, or as of the Closing will constitute, the legally valid
and binding obligations of the Company, enforceable against the Company in accordance with their terms, except that such enforceability is subject to the
Bankruptcy and Equity Exception.
- 22 -
Section 4.3. Non-Contravention . The execution, delivery and performance by the Company of the Transaction Documents to which it is a party, and
the consummation by the Company of the Transactions do not and will not (i) conflict with or violate any provisions of the Organizational Documents of any
Group Company or any resolutions adopted by the Company’s or any other Group Company’s shareholders or Board; (ii) violate, conflict with, result in a breach of
or constitute a default under any of the terms, conditions or provisions of any Material Contract; or (iii) violate, conflict with or result in a breach of any Law,
judgment, writ or injunction of any Governmental Authority applicable to it, except, in the case of clauses (ii) and (iii), as would not reasonably be expected to have
a Business Material Adverse Effect.
Section 4.4. Capitalization of the Group Companies .
(a) Section 4.4(a) of the Company Disclosure Schedule sets forth, as of the date hereof, the name, jurisdiction of organization, number and percentage
of issued and outstanding shares of capital stock of each of the Owned Companies and the Controlled Companies, as well as the Company’s direct or indirect
ownership interest in each of the Owned Companies and the Controlled Companies (the “ Group Company Shares ”). The shares of capital stock (or other equity
interests) described on Section 4.4(a) of the Company Disclosure Schedule across from the name of each of the Owned Companies and the Controlled Companies
comprise all of the issued and outstanding capital stock (or other equity interests) of such Person. All of the Group Company Shares have been duly authorized and
validly issued and are fully paid or credited as fully paid, and have not been issued in violation of any preemptive rights, rights of first refusal or similar rights.
(b) The sole assets of each of the Company and the Holding Companies consist of the Group Company Shares directly or indirectly owned by it as
reflected in Section 4.4(a) of the Company Disclosure Schedule. None of the Company and the Holding Companies has conducted any business other than
incidental to the ownership of the Group Company Shares owned by it.
(c) Except for this Agreement and the Organizational Documents, there are no outstanding or authorized options, convertible securities, warrants,
subscription or other rights, agreements, arrangements or commitments of any character to which any Group Company is a party or by which it is bound relating to
the sale, issuance or voting of, or the granting of rights to acquire, any capital stock (or other equity interests) in any Group Company or any securities convertible
or exchangeable into or evidencing the right to purchase any capital stock (or other equity interests) in any Group Company, and there are no plans or arrangements
that authorize or permit the issuance or grant to any Person of options or any other rights to any capital stock (or other equity interests) with respect to any Group
Company.
(d) Except for this Agreement and the Organizational Documents of the Group Companies, there are no voting trusts, proxies, membership agreements
or other agreements or understandings to which any of the Group Companies is a party or by which any of the Group Companies is bound with respect to the
ownership, disposition, voting, issuance or transfer of the Group Company Shares. The Group Companies are not subject to any obligation to (A) repurchase,
redeem or otherwise acquire any of their capital stock (or other equity interests), (B) make any investment (in the form of a loan, capital contribution or otherwise)
in any Person or (C) declare dividends or make any other distributions with respect to their capital stock (or other equity interests) or refrain from making any such
distributions.
- 23 -
Section 4.5. Government Approvals . The execution, delivery and performance of the Transaction Documents to which the Company is a party and
consummation of the Transactions by the Company do not and will not require any Consents of any Governmental Authority, other than such Consents that, if not
obtained, made or given, would not result in a Business Material Adverse Effect.
Section 4.6. Compliance with Laws; Permits . Except as would not reasonably be expected to have a Business Material Adverse Effect:
(a) Each of the Group Companies is, and since July 1, 2014 has been, in compliance in all material respects with all Laws applicable to it.
(b) Each of the Group Companies holds all material permits, licenses, franchises, approvals, consents, registrations, clearances, variances, exemptions,
orders, certificates or authorizations by or of any Governmental Authority (collectively, “ Permits ”) necessary for the lawful conduct of its business as presently
conducted, all such Permits are in full force and effect and none of the Group Companies or any of their respective assets is in any material respect in violation of
or is being operated in violation of the terms of any such Permit and, to the Knowledge of the Company, no written notice has been received relating to the
termination, cancellation or withdrawal thereof.
Section 4.7. Legal Proceedings . Except as set forth in Section 4.7 of the Company Disclosure Schedule, there are no Actions pending or, to the
Knowledge of the Company, threatened against, relating to or involving any Group Company that would reasonably be expected to have a Business Material
Adverse Effect, and no legally binding injunction, order, judgment, ruling or decree has been imposed upon any of the Group Companies affecting any Group
Company or any of its respective assets in any material adverse respect. There are no Actions pending, or, to the Knowledge of the Company, threatened, against,
relating to or involving any of the Group Companies that would reasonably be expected to impair in any material respect the ability of the Company to perform its
obligations hereunder or prevent or materially delay the consummation of the Transactions.
Section 4.8. Financial Statements .
(a) Section 4.8(a) of the Company Disclosure Schedule sets forth: (i) the audited balance sheets of each of DEOCSA, DEORSA, Redes Electricas de
Centroamerica, S.A. and Comercializadora Guatemalteca Mayorista de Electricidad, S.A. as at December 31, 2014, and the respective related statements of income,
cash flow and changes in equity for each of the fiscal years then ended, together with the report thereon of Deloitte, independent accounting firm; (ii) the unaudited
balance sheet of each of the Company and the Holding Companies as at December 31, 2014, and the related statements of income, cash flow and changes in equity
for each of the fiscal years then ended (collectively, the “ 2014 Financial Statements ”); and (iii) the unaudited interim balance sheets (the “ Interim Balance Sheet
”) of each of the Group Companies as at March 31, 2015 and the related unaudited statements of income, cash flow and changes in
- 24 -
equity for the three (3) fiscal months then ended (together with the Interim Balance Sheet, the “ Unaudited Financial Statements ” and, together with the 2014
Financial Statements, the “ Financial Statements ”). The Unaudited Financial Statements were prepared from the books and records of the Group Companies in a
manner consistent with the 2014 Financial Statements. The Financial Statements fairly present in all material respects the unconsolidated financial position and
results of operations of each of the Group Companies as at the respective dates thereof and for the periods therein referred to, all in accordance with the Applicable
Accounting Standards (except as otherwise indicated in the notes thereto).
(b) None of the Group Companies has any liability required by the Applicable Accounting Standards to be reflected on a balance sheet, other than
liabilities (i) reflected in, reserved against or disclosed in the Financial Statements; (ii) incurred in the Ordinary Course since the date of the Interim Balance Sheet;
(iii) arising under the Transaction Documents or otherwise in connection with the Transactions; (iv) disclosed in Section 4.8(b) or Section 4.9 of the Company
Disclosure Schedule; (v) owing to the Group Companies; or (vi) which will be reflected in the Adjustment Amount.
Section 4.9. Absence of Certain Changes and Events . Since June 30, 2015, the Group Companies have conducted their businesses in all material
respects in the Ordinary Course and, except as expressly contemplated by this Agreement or any other Transaction Document, there has not been any action,
omission, change, effect, event or condition that has had, or would reasonably be expected to have, a Business Material Adverse Effect. Since June 30, 2015
through the date hereof, there has not been any action, omission, change, effect, event or condition that, if occurring during the period from the date hereof through
the Closing Date, would constitute a default under Section 6.9 hereof.
Section 4.10. Real Property .
(a) Section 4.10(a) of the Company Disclosure Schedule sets forth a true and complete list of all material real properties owned by the Group
Companies (the “ Owned Real Property ”) and all material real properties leased by the Group Companies (the “ Leased Real Property ” and, together with the
Owned Real Property, the “ Real Property ”) as of the date of this Agreement. True, correct and complete copies of all leases and related guaranties (collectively,
the “ Company Leases ”) for the Leased Real Property have been made available to the Purchaser.
(b) With respect to the Leased Real Property: (i) no Group Company is, and, to the Knowledge of the Company, no other party is in breach or
violation of, or default under, any Company Lease; (ii) no event has occurred that would result in a breach or violation of, or a default under, any Company Lease
by any Group Company or, to the Knowledge of the Company, any other party thereto (in each case, with or without notice or lapse of time); and (iii) each
Company Lease is valid, binding and enforceable in accordance with its terms and is in full force and effect with respect to the applicable Group Company and, to
the Knowledge of the Company, with respect to the other parties thereto, except as may be limited by the Bankruptcy and Equity Exception.
(c) No condemnation or rezoning proceeding is pending or, to the Knowledge of the Company, threatened with respect to any Real Property.
- 25 -
(d) There are (i) no unexpired option to purchase agreements, rights of first refusal or first offer or any other rights to purchase or otherwise acquire
any Real Property or any portion thereof, and (ii) no other outstanding rights or agreements to enter into any contract for sale, ground lease or letter of intent to sell
or ground lease any Real Property or any portion thereof.
(e) All material tangible properties and assets owned or leased by the Group Companies are in good condition and repair, ordinary wear and tear
excluded.
Section 4.11. Title to Assets . Except as would not reasonably be expected to have a Business Material Adverse Effect:
(a) Each of the Group Companies has valid title to all of its owned assets (including the assets reflected on the balance sheets within the Financial
Statements), free from all Encumbrances that would affect the value thereof or interfere with the use made or to be made thereof by it;
(b) Each of the Group Companies holds all leased assets under valid and enforceable leases with no terms or provisions that would interfere in any
material respect with the use made or to be made thereof by it during the terms of such leases; and
(c) The assets owned or leased by each of the Group Companies constitute (i) all those material assets currently used or held for use by the Group
Companies, and (ii) are sufficient to continue to conduct its business as currently operated after the Closing.
Section 4.12. Contracts .
(a) Section 4.12(a) of the Company Disclosure Schedule sets forth a complete and accurate list of all Material Contracts as of the date of this
Agreement. A complete and accurate copy of each Material Contract has been made available to the Purchaser prior to the date hereof.
(b) Each Material Contract is valid, binding and enforceable against the applicable Group Company in accordance with its terms and, to the
Knowledge of the Company, the other parties thereto, in each case in accordance with its terms, subject to the Bankruptcy and Equity Exception. None of the
Group Companies is or, to the Knowledge of the Company, has been alleged to be, in material default with respect to any Material Contract. To the Knowledge of
the Company, no other party thereto is in material default with respect to any Material Contract. As of the date of this Agreement, no Group Company has received
written notice that any other party to any Material Contract intends to cancel or terminate such Material Contract.
Section 4.13. Insurance . Each of the Group Companies is covered by insurance policies which are prudent in light of its activities and with limits and
deductibles customarily carried by companies of comparable size and scope and type of business, and such policies comply with the requirements of applicable
Laws. Section 4.13 of the Company Disclosure Schedule sets forth a complete and accurate list of each policy of insurance (including property, casualty, liability,
life, health, accident, workers’ compensation, disability insurance and bonding arrangements) owned by, or maintained for the benefit of, or respecting which, any
premiums are
- 26 -
paid directly or indirectly by any Group Company as of the date of this Agreement, in each case identifying: (i) the respective issuers and expiration dates thereof;
and (ii) their coverage. None of the Group Companies is in material default under any such insurance policy. All premiums due have been paid on such insurance
policies. Except as set forth on Section 4.13 of the Company Disclosure Schedules, with respect to each such insurance policy, to the Knowledge of the Company,
(i) such insurance policy will be in full force and effect following consummation of the Transactions, and (ii) no written notice of cancellation or termination has
been received with respect to any such insurance policy.
Section 4.14. Intellectual Property . The execution, delivery and performance of this Agreement and the consummation of the Transactions will not
result in the loss, forfeiture, termination, license, or impairment of, or give rise to a right to limit, terminate, or consent to the continued use of any patents, patent
applications, patent rights, trademarks, trademark applications, trademark rights, trade names, trade name rights, service marks, service mark applications, service
mark rights, copyrights, computer programs (including source code and object code), trade secrets, know-how and other proprietary intellectual property rights
(collectively, the “ Intellectual Property Rights ”) that are material to the conduct of the business of the Group Companies (the “ Company Intellectual Property
Rights ”) as currently conducted. No claims are pending for which any of the Group Companies has received written notice or, to the Knowledge of the Company,
threatened (a) that it is infringing the rights of any Person with regard to any Intellectual Property Right, or (b) that any Company Intellectual Property Right is
invalid or unenforceable, except for any claims which would not reasonably be expected to have a Business Material Adverse Effect. To the Knowledge of the
Company, no Person is infringing, misappropriating or using without authorization the Company Intellectual Property Rights, except for any infringement,
misappropriation or use which is not reasonably likely to have a Business Material Adverse Effect.
Section 4.15. Suppliers, Customers, etc .
(a) Suppliers . Section 4.15(a) of the Company Disclosure Schedule sets forth a list of the twenty (20) suppliers and vendors from whom DEOCSA
and DEORSA made the most purchases (in terms of monetary amounts) during the 2015 calendar year. As of the date of this Agreement, neither DEOCSA nor
DEORSA has received written notice that any such supplier intends to cancel or terminate its agreements with DEOCSA or DEORSA (as applicable);
(b) Customers . Section 4.15(b) of the Company Disclosure Schedule sets forth a list of the twenty (20) customers to whom DEOCSA and DEORSA
made the most sales (in terms of monetary amounts) during the 2015 calendar year. As of the date of this Agreement, neither DEOCSA nor DEORSA has received
written notice that any such customer intends to cancel or terminate its agreements with DEOCSA or DEORSA (as applicable);
(c) Billing Practice . Except as would not reasonably be expected to have a Business Material Adverse Effect, all charges made by each of DEOCSA
and DEORSA to its customers for electricity distribution services have been made in accordance with the terms and conditions set forth in applicable Law and any
Contract with the Guatemalan Electricity Commission ( Comisión
Nacional
de
Energia
Electrica
) and the Guatemalan Institute of Electrification ( Instituto
Nacional
de
Electrificación
).
- 27 -
Section 4.16. Employment Matters .
(a) Except as set forth on Section 4.16(a) of the Company Disclosure Schedule, (i) the Group Companies are not party to any collective bargaining
agreements with any union and (ii) none of the employees of the Group Companies is represented by any labor union or similar labor organization with respect to
their employment, and to the Knowledge of the Company, there are no pending efforts to establish collective representation of any such employees. No labor strike
or other material labor dispute is pending or, to the Knowledge of the Company, threatened against the Group Companies.
(b) Each of the Group Companies is in compliance in all material respects with all applicable Laws respecting employment and employment practices,
including all Laws respecting terms and conditions of employment, wages, hours, and working conditions, and there is no employment related Action pending or,
to the Knowledge of the Company, threatened against any of the Group Companies that would reasonably be expected to have a Business Material Adverse Effect.
(c) Section 4.16(c) of the Company Disclosure Schedule sets forth a list of each material Plan that is sponsored, maintained, administered or
contributed to by any of the Group Companies for the benefit of its current or former directors, officers, employees or other service providers (each, a “ Company
Plan ”). Each Company Plan has been maintained, administered and contributed to in compliance with its terms and the requirements of any applicable Laws.
(d) Each Company Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities
and is approved by any applicable Tax Authority to the extent such approval is required by applicable Law.
(e) No Group Company has any express or implied commitment (i) to create, incur liability with respect to or cause to exist any new employee benefit
plan, program or arrangement that would be considered a Company Plan, or (ii) to modify, change or terminate any Company Plan, other than with respect to a
modification, change or termination required by applicable Laws. Where employees may be subject to statutory social insurance schemes or similar government-
sponsored social insurance programs, (i) the applicable Group Company has registered its employees within these programs and correctly classified them and
(ii) without limiting other provisions set forth in this Agreement, all employer and employee contributions to such programs have been made.
(f) Each Company Plan required by applicable Laws or the applicable Company Plan to be funded, insured and/or book-reserved is funded, insured
and/or book-reserved, as appropriate, based upon reasonable actuarial assumptions.
(g) There are no Actions pending or, to the Knowledge of the Company, threatened (other than routine claims for benefits), against any Company Plan
and there is no correspondence or any requests, audits, interrogatories, filings, notices or similar communications received by any of the Group Companies from
any Governmental Authority with respect to any Company Plan.
- 28 -
(h) The execution and delivery of and the performance by the Company of its obligations under this Agreement and the Transaction Documents to
which it is a party and the consummation of the Transactions do not or will not (either alone or together with any other related event, including any termination of
employment) (i) result in any payment (including severance payments) becoming payable by any of the Group Companies to any of its current or former directors,
officers, employees or contractors under any Company Plan or otherwise, (ii) increase any benefits otherwise payable under, or require funding of, any Company
Plan, (iii) result in any acceleration of the time of payment or vesting of any benefits or rights under any Company Plan, or (iv) trigger the forgiveness of
indebtedness owing to any of the Group Companies by any of their respective directors, officers or employees. No compensation or benefit payable to any current
or former director, officer or employee of any Group Company (whether in cash or property or the vesting of property) will result in a loss of deduction under
applicable Tax Law or will be subject to an excise tax under applicable Tax Law.
(i) Except as set forth on Section 4.16(i) of the Company Disclosure Schedule, since June 30, 2015 through the date hereof, no Group Company has
hired or engaged any new employees or officers whose current annual compensation exceeds $100,000.
Section 4.17. Anti-Money Laundering . Each of the Group Companies is in compliance in all material respects with the applicable requirements of the
Anti-Money Laundering Laws. No Group Company or any of its officers, directors or shareholders is a Sanctions Target.
Section 4.18. Foreign Corrupt Practices Act .
(a) Neither any Group Company nor, to the Company’s Knowledge, any current director, officer, employee, agent, representative or any other Person
acting for or on behalf of any Group Company (i) has been convicted of any offense under the U.S. Foreign Corrupt Practices Act of 1977, as amended, the UK
Bribery Act 2010, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed December 17, 1997, or
any corresponding Law (or a predecessor Law) (collectively, the “ Anti-Bribery Laws ”), nor, to the Company’s Knowledge, are they the subject of, or in any way
involved in, any investigation, inquiry or enforcement Actions by any Governmental Authority in any country in which any Group Company does business, and no
such investigation is pending or threatened.
(b) Neither any Group Company nor, to the Company’s Knowledge, any current director, officer, employee, agent, representative or any other Person
acting for or on behalf of any Group Company has made any unlawful payment, offer, promise or authorized the payment of money or other assets (collectively,
the “ Payments ”) to any Governmental Authority or official thereof where such Payment was made (x) to or for the use or benefit of such Governmental Authority
or official thereof in violation of Anti-Bribery Laws; or (z) to induce or reward the improper performance of their duties to their employer or in relation to a
function of a public nature, connected with a business, or on behalf of any other organization where such Payment violated any Laws in the country or countries of
such Person or applicable to such Persons or the Anti-Bribery Laws in order to assist the Group Companies in obtaining or retaining business or directing business
to a third party.
- 29 -
(c) Neither any Group Company nor, to the Company’s Knowledge, any current director, officer, agent, employee, or any other Person acting for or on
behalf of any Group Company has accepted or received any Payment in violation of Anti-Bribery Laws.
Section 4.19. Tax Matters .
(a) Each of the Group Companies has timely filed, or joined in the filing of, all Tax Returns required to be filed in accordance with applicable Laws by
or with respect to it before the date of this Agreement, taking into account any extension of time to file. All such Tax Returns are true, accurate and complete in all
material respects. All amounts of Taxes shown to be due in such Tax Returns have been or will be timely paid, collected or withheld, as the case may be.
(b) Each of the Group Companies has withheld and paid over all Taxes required to have been withheld and paid over and complied with all
information reporting and backup withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or
owing to any employee, creditor, independent contractor, Affiliate, or other third party.
(c) No audits, claims or other administrative proceedings or court proceedings are pending as of the date of this Agreement with regard to any Taxes
or Tax Returns of any Group Company, no Group Company has received any written notice prior to the date of this Agreement of any such audits, claims or
proceedings, and, to the Knowledge of the Company, there are no threatened audits or proceedings of such kind.
(d) No extensions or waivers of statutes of limitation have been given or requested with respect to any Taxes of the Group Companies. There is no
power of attorney granted with respect to Taxes relating to any of the Group Companies.
(e) Seller has made available to the Purchaser true, correct and complete copies of all Tax Returns filed by, or with respect to the income of each of the
Group Companies for all taxable periods for the past three years, and all examination reports, and statements of deficiencies assessed against or agreed to by Seller
or the Group Companies with respect to such taxable periods. The Company has never filed or been included in a combined, consolidated or unitary Tax Return,
other than a Tax Return in which the Company was the common parent.
(f) No claim has been made in writing by any Governmental Authority in a jurisdiction where any Group Company does not file Tax Returns that such
Group Company is or may be subject to any Taxes assessed by such jurisdiction.
(g) None of the Group Companies is a party to or otherwise bound by any Tax sharing agreement or any similar agreement, arrangement or practice
with respect to Taxes (including any agreement relating to Taxes with a Tax authority).
- 30 -
(h) There are no Encumbrances for Taxes on any of the assets of the Group Companies.
(i) All transactions entered into by any Group Company, on the on hand, and the Seller or any of its Affiliates (other than a Group Company), on the
other hand, have been entered into on arm’s length terms.
(j) Section 4.19(j) of the Company Disclosure Schedule sets forth a true and complete list of all Tax exemptions and preferential Tax treatments (if
any) granted to any Group Company that are in effect as of the date of this Agreement or could be subject to forfeiture, repayment or other liability or penalty with
respect to past periods. No submissions made to any Governmental Authority in connection with obtaining such Tax exemptions and preferential Tax treatments
contained any misstatement or omission that would have materially affected the granting of such Tax exemptions or preferential Tax treatments. No Group
Company has received any written notice with respect to the repeal, cancellation or revocation of any such Tax exemptions or preferential Tax treatments or has
any reason to believe that any such Tax exemptions or preferential Tax treatments is reasonably likely to be repealed, cancelled or revoked.
(k) No Guatemala income or capital gains Tax will be imposed on any Group Company as a result of the transfer of the Membership Interests to the
Purchaser contemplated by this Agreement.
(1) All liabilities for Taxes have been accrued in the balance sheets of each Group Company included in the Financial Statements in accordance with
the Applicable Accounting Standards.
(m) The transactions contemplated by Section 8.2(e) will not give rise to any Tax liability except to the extent included in the determination of the
Estimated Adjustment Amount or the Adjustment Amount.
(n) In the past six (6) calendar years, no transactions or deemed transactions between the relevant Group Companies have taken place as a result of
which article 15ai of the Dutch Corporate Income Tax Act 1969 ( Wet
op
de
vennootschapsbelasting
1969
) may be invoked partly or in full upon a termination of
the fiscal unity for Dutch corporate income tax purposes.
- 31 -
Section 4.20. Directors, Officers and Employees .
(a) Section 4.20(a) of the Company Disclosure Schedule sets forth the following information for each natural person acting, as of the date of this
Agreement, as director, officer, employee, consultant and independent contractor of any Group Company whose aggregate compensation for the last fiscal year
exceeded $150,000 or whose current annual rate of compensation exceeds such amount (including each such person on leave or layoff status): (i) employer and
location of employment; (ii) name and job title; (iii) current annual rate of compensation (identifying bonuses separately) and any change in compensation since
June 30, 2015; and (iv) eligibility to participate in applicable Company Plans; provided that, where the disclosure of such information would be prohibited by
applicable privacy Laws without the individual’s consent, Section 4.20(a) of the Company Disclosure Schedule shall specify such legal prohibition and shall
provide such information in de-identified form in compliance with applicable Laws.
(b) To the Knowledge of the Company, except for customary confidentiality agreements with former employers, none of the Group Companies’
directors, officers or management employees listed on Section 4.20(a) of the Company Disclosure Schedule is a party to, or is otherwise bound by, any agreement
or arrangement (including any confidentiality, non-competition or proprietary rights agreement), with any Person other than a Group Company that in any way
materially affects or will materially affect the performance of his or her duties. Except as set forth in Section 4.20(b) of the Company Disclosure Schedule, to the
Knowledge of the Company, none of the Group Companies’ directors or officers is (a) subject to voluntary or involuntary petition under any bankruptcy/insolvency
Law; (b) convicted in a criminal proceeding or named in a pending criminal proceeding (excluding traffic violations other than driving while under the influence);
(c) subject to any court order enjoining such Person from engaging, or otherwise imposing limits on engaging, in any type of business or acting as an officer or
director of a public company; or (d) found by a Governmental Authority to have violated any securities, commodities, or unfair trade practices Law.
Section 4.21. Related Person Transactions .
(a) Except for those Related Person Contracts terminated prior to or on Closing or which are not required to be terminated pursuant to the terms of this
Agreement, the Group Companies are not party to or bound by any other Related Person Contracts.
(b) None of the Seller or any of its directors and officers has a claim against any Group Company, other than (i) claims for unpaid compensation or
pursuant to indemnification obligations existing on the date hereof, (ii) claims arising pursuant to the Related Person Contracts, and (iii) claims being terminated or
released pursuant to the Transaction Documents.
- 32 -
Section 4.22. Environmental Matters . Except as set forth in Section 4.22 of the Company Disclosure Schedule or as would not reasonably be likely to
have a Business Material Adverse Effect:
(a) None of the Group Companies has (i) received any written communication from any Governmental Authority that alleges that it is not in
compliance with any Environmental Law or subject to liability under any Environmental Law, or (ii) notice or knowledge (understood as the Knowledge of the
Company) of any Action relating to or arising under any Environmental Law that is pending or threatened against it or any Real Property;
(b) None of the Group Companies has entered into any order, settlement, judgment, injunction or decree involving uncompleted, outstanding or
unresolved obligations, liabilities or requirements relating to or arising under Environmental Laws;
(c) Each of the Group Companies holds, and is in compliance with, all Permits required for it to conduct its business under Environmental Laws and is
in compliance with all Environmental Laws;
(d) None of the Group Companies has any known or suspected asbestos-containing materials on, at or under any Real Property;
(e) None of the Group Companies has disposed of or arranged for the disposal of Hazardous Substances at any Real Property in violation of applicable
Environmental Laws; and
(f) There has been no release, spill, emission, disposal, discharge, or leaching of Hazardous Substances at, from, to, on or under any Real Property
giving rise to any reporting or remediation obligations under Environmental Law; provided that, to the extent this representation relates to events other than actions
taken by or on behalf of any Group Company (including by any contractor, subcontractor or Representative thereof), it is given solely to the Knowledge of the
Company.
Section 4.23. Records . Each of the Group Companies keeps record of all Contracts, documents, books, records, ledgers, files and other data (including
Tax Returns) that it is required to keep in its records pursuant to applicable Law.
REPRESENTATIONS AND WARRANTIES REGARDING THE PURCHASER
ARTICLE V
Except as set forth in and as qualified by the disclosure schedule delivered by the Purchaser to the Seller simultaneously with the execution of this
Agreement (the “ Purchaser Disclosure Schedule ”) (it being agreed that the disclosure of any item in one section or subsection thereof shall be deemed to include
any other section or subsection to which the relevance of such item is reasonably apparent on its face), the Purchaser represents and warrants to the Seller as of the
date of this Agreement and as of the Closing Date as follows:
- 33 -
Section 5.1. Corporate Existence; Standing .
(a) Each of the Purchaser and the Nominee Purchaser is duly organized, validly existing and in good current standing under the Laws of its jurisdiction
of organization.
(b) Each of the Purchaser and the Nominee Purchaser has the requisite power and authority to enter into and deliver the Transaction Documents to
which it is a party and to perform its obligations under such Transaction Documents and to consummate the Transactions.
(c) Each of the Purchaser and the Nominee Purchaser is neither in bankruptcy, liquidation or receivership (and no order or resolution therefore has
been presented and no notice of appointment of any liquidator, receiver, administrative receiver or administrator has been given), nor, to the Knowledge of the
Purchaser, is there any valid grounds or circumstances on the basis of which any such procedure may be requested on a voluntary or involuntary basis by any
entity.
Section 5.2. Authorization . The execution, delivery and performance by each of the Purchaser and the Nominee Purchaser of the Transaction
Documents to which it is a party and the consummation by such Person of the Transactions have been duly authorized by all necessary corporate action on the part
of such Person and no other action on the part of such Person is necessary to authorize this Agreement or the consummation of the Transactions. The Transaction
Documents to be executed by each of the Purchaser and the Nominee Purchaser have been, or as of Closing will be, duly executed and delivered by such Person
and, assuming due authorization, execution and delivery by the other parties thereto, each Transaction Document constitutes, or as of the Closing will constitute,
the legally valid and binding obligations of the Purchaser and/or the Nominee Purchaser, as applicable, enforceable against such Person in accordance with its
terms, except that such enforceability is subject to the Bankruptcy and Equity Exception.
Section 5.3. Non-Contravention . The execution, delivery and performance by each of the Purchaser and the Nominee Purchaser of the Transaction
Documents to which it is a party, and the consummation by each of the Purchaser and the Nominee Purchaser of the Transactions do not and will not (i) conflict
with or violate any provisions of its Organizational Documents or any resolutions adopted by such Person’s shareholders or its Board; (ii) violate, conflict with,
result in a breach of or constitute a default under any of the terms, conditions or provisions of any Contract to which it is a party; or (iii) violate, conflict with or
result in a breach of any Law, judgment, writ or injunction of any Governmental Authority applicable to it, except, in the case of clauses (ii) and (iii), as would not
reasonably be expected to have a Purchaser Material Adverse Effect.
Section 5.4. Financing . The Purchaser has funds sufficient to pay the Purchase Price at the Closing.
Section 5.5. Government Approvals . The execution, delivery and performance of the Transaction Documents to which it is a party and consummation
of the Transactions by each of the Purchaser and the Nominee Purchaser do not and will not require any Consents of any Governmental Authority, other than such
Consents that, if not obtained, made or given, would result in a Purchaser Material Adverse Effect.
- 34 -
Section 5.6. Legal Proceedings . There are no Actions pending, or, to the Knowledge of the Purchaser, threatened, against, relating to or involving the
Purchaser that would reasonably be expected to result in a Purchaser Material Adverse Effect.
Section 5.7. Brokers . No agent, broker, investment banker, financial advisor or other firm or Person is entitled to any brokerage, finder’s, financial
advisor’s or other similar fee or commission in connection with the Transactions as a result of any action taken by or on behalf of the Purchaser or any of its
Affiliates for which the Seller or its Affiliates could be liable.
Section 5.8. Anti-Money Laundering . The Purchaser is in compliance in all material respects with the applicable requirements of the Anti-Money
Laundering Laws. None of the Purchaser or any of its officers, directors or shareholders is a Sanctions Target.
Section 5.9. Knowledge of Misrepresentations . As of the date hereof, the Purchaser has no Knowledge that any of the representations and warranties
regarding the Seller, the Company or any of the Group Companies in this Agreement is not true and correct in all material respects.
Section 5.10. Opportunity for Independent Investigation .
(a) The Purchaser recognizes that investment in the Membership Interests involves substantial risks. The Purchaser is (or its advisors are) experienced
and knowledgeable in the power distribution business and aware of the risks of such business. The Purchaser acknowledges that it has conducted such review and
investigation as the Purchaser has deemed necessary in its sole judgment to evaluate the Transactions and the Group Companies and their respective assets,
business, condition (financial and otherwise) and prospects. In making its decision to execute this Agreement and to purchase the Membership Interests, the
Purchaser has relied and will rely solely upon (i) the results of such independent review and evaluation and (ii) the express representations and warranties of the
Seller contained in this Agreement.
(b) Notwithstanding anything contained in this Agreement to the contrary, the Purchaser understands and agrees that the Seller has not made, and is
not making, any representation or warranty whatsoever, express or implied, with respect to the Transactions or the Seller, any member of the Actis Group, the
Company, the Group Companies or their respective assets, properties, business, financial condition and prospects or any other matter, other than those
representations and warranties of the Seller expressly set forth in Article III. The Purchaser acknowledges that it has carefully reviewed and, after such consultation
with counsel as it has deemed necessary, agreed to the limitations and disclaimers set forth in Section 10.1, which it hereby agrees are conspicuously disclosed.
Section 5.11. Qualified Transferee . The parent company of the Purchaser is a Person that (a) has either (i) a long-term unsecured indebtedness rating
or financial strength rating of at least “BBB-” from Standard & Poor’s Ratings Services and “Baa3” from Moody’s Investors Service, Inc. or (ii) not less than
$200,000,000 of issued and paid in common equity (or, in the case of a fund, a net asset value of not less than $500,000,000), (b) has, for not less than
- 35 -
the two years preceding the Closing Date, directly or indirectly Controlled (i) one or more electric distribution companies operating in Latin America with net sales
of not less than $400,000,000 in the aggregate or (ii) power generation projects in Latin America with an aggregate capacity of not less than 400 megawatts, (c) is
not, and none of its Affiliates is, currently in breach or default under any other transaction in which any lender under the Loan Facility Agreements has been or is
currently involved, (d) is not, and none of its Affiliates is, listed on the World Bank List of Debarred Firms, (e) has not been sanctioned in connection with the
United Nations Security Council Resolutions adopted pursuant to Chapter VII of the Charter of the United Nations or any other UN sanctions list promulgated
pursuant to the UN Security Council resolutions in connection with money laundering or anti-terrorism measures, as updated from time to time, and (f) is not a
Person to which any lender under the Loan Facility Agreements is unable to extend loans or credit by reason of exposure limits to it (or its Affiliates) or for any
reason which such lender (acting reasonably) may determine. As used in this Section 5.11, “ Control ” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlled
” has the meaning correlative thereto.
Section 6.1. Confidentiality .
ARTICLE VI
COVENANTS
(a) Subject to Section 6.1(b), the Seller undertakes to the Purchaser and the Purchaser undertakes to the Seller for itself and for each other member of
the Actis Group that it will keep confidential and will not disclose or divulge the Information.
(b) Section 6.1(a) does not apply to disclosure by a party of any Information: (i) which is required to be disclosed by Law, by a rule of a listing
authority or securities or stock exchange to which such party or, in the case of the Seller, any member of the Actis Group, and in the case of the Purchaser, any
Affiliate of the Purchaser, is subject or submits or by a Governmental Authority or other authority with relevant powers to which such party is subject or submits,
whether or not the requirement has the force of Law provided that the disclosure shall, so far as is practicable, be made after consultation with the Seller, in the case
of the Purchaser, or the Purchaser in the case of the Seller and after taking into account that other party’s reasonable requirements as to its timing, content and
manner of making or dispatch; (ii) to an adviser for the purposes of advising in connection with the Transactions provided that such disclosure is essential for these
purposes and is on the basis that the disclosing party procures that such adviser keeps such information confidential on terms equivalent to this Section 6.1; (iii) to
the extent that the information is disclosed on a strictly confidential basis to the professional advisers, auditors, insurers, custodians and/or bankers or other funders
of or investors in any member of the Actis Group and the Seller procures that such advisers, auditors, insurers, custodians and/or bankers or other funders or
investors keep such information confidential on terms equivalent to this Section 6.1; (iv) to the extent that the information is disclosed by the Seller or a member of
the Actis Group on a strictly confidential basis to any actual or proposed investor or participant in an Actis Fund or a third party with a co-investment or an interest
in co-investing with any member of the Actis Group or any Actis Fund in any acquisition target or other project and the
- 36 -
Seller procures that such recipient keeps such information confidential on terms equivalent to this Section 6.1; (v) to the extent that such disclosure is necessary to
enable that party to enforce its rights under this Agreement; or (vi) to a director, officer or employee of the Purchaser or any of its Affiliates or the Seller or any
member of the Actis Group whose function requires him to have the relevant information provided that such disclosure is on the basis that the disclosing party
procures that each such director, officer or employee keeps such information confidential on terms equivalent to this Section 6.1.
Section 6.2. Breach of Confidentiality . For purposes of Section 6.1, each party acknowledges and agrees that money damages might not be a
sufficient remedy for any breach or threatened breach of Section 6.1 by such party or its Representatives. Therefore, in addition to all other remedies available at
Law (which no party waives by the exercise of any rights hereunder), the non-breaching party shall be entitled to seek specific performance and injunctive and
other equitable relief as a remedy for any such breach or threatened breach.
Section 6.3. Transfer Taxes . All transfer, registration, stamp, documentary, value added, sales, use and similar Taxes (including all applicable real
estate transfer or gains Taxes and transfer Taxes, but for the avoidance of doubt, excluding any Guatemala capital gains Tax imposed on any Group Company as a
result of the transfer of the Membership Interests to the Purchaser under this Agreement), any penalties, interest and additions to Tax, and fees incurred in
connection with the Transactions shall be borne fifty percent (50%) by the Seller and fifty percent (50%) by the Purchaser. The Seller and the Purchaser shall
cooperate in the timely making of all filings, returns, reports and forms as may be required in connection therewith.
Section 6.4. Public Announcements . The Purchaser and the Seller, and their respective Affiliates, shall consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release or other public statement with respect to this Agreement or the Transactions and
shall not issue any such press release or make any such public statement without the advance approval of the other party following such consultation (such approval
not to be unreasonably withheld or delayed), except as may be required by applicable Law, court process or by the requirements of any securities exchange.
Section 6.5. Intercompany Arrangements . Except as otherwise provided in Section 6.11, prior to the Closing Date, the Seller and the Actis Group
shall be entitled to terminate the Related Person Contracts set forth on Section 8.2(e) of the Seller Disclosure Schedule. From and after the Closing Date, the Seller
shall be under no obligation to maintain, or to cause the Group Companies to maintain, any insurance policy with or for the benefit of the Group Companies.
Following the Closing, the Purchaser shall (i) cause itself to be substituted as a guarantor or obligor under any guarantee (including for performance under any
contract or agreement), support agreement, credit agreement or the like for the benefit of the Company and the Group Companies or, if it is not able to do so, shall
indemnify and hold harmless the Seller and the Actis Group on demand for any and all Losses arising under or otherwise relating thereto, and (ii) reimburse the
Seller on a dollar for dollar basis for any returned premium received by the Purchaser, its Affiliates or any Group Company that was paid in advance by the Seller
or the Group Companies under any insurance policy maintained by or for the benefit of the Group Companies that was terminated as of the Closing Date.
- 37 -
Section 6.6. Further Assurances; Post-Closing Cooperation .
(a) From time to time after the Closing, without additional consideration, each of the parties hereto will (or, if appropriate, cause their Affiliates to)
execute and deliver such further instruments and take such other action as may be necessary to make effective the Transactions. If any party to this Agreement
following the Closing shall have in its possession any asset or right that under this Agreement should have been delivered to the other, such party shall promptly
deliver such asset or right to the other.
(b) Following the Closing, the Purchaser and the Seller will afford the other party and its representatives (i) such access as the other party may
reasonably request to all books, records and other data and information relating to the Company and the Group Companies and (ii) the right to make copies and
extracts therefrom at the cost of the party requesting such copies and extracts. Further, the Purchaser and the Seller each agrees for a period extending five years
after the Closing Date not to destroy or otherwise dispose of any such books, records and other data unless such party shall first offer in writing to surrender such
books, records and other data to the other party and such other party shall not agree in writing to take possession thereof during the ten-day (10-day) period after
such offer is made.
Section 6.7. Nominee Holder . The Seller will cause the Nominee Holder to sell its portion of the Membership Interests to the Purchaser or the
Nominee Purchaser pursuant to this Agreement.
Section 6.8. No Liquidation . Beginning on the date of this Agreement and continuing until the later of (x) the one (1) year anniversary of the Closing
Date and (y) the resolution of all pending claims previously asserted by the Purchaser against the Seller pursuant to Article VII (the “ Permitted Liquidation Date
”), the Seller shall not voluntarily commence or institute any proceedings with respect to its dissolution, liquidation or winding up.
Section 6.9. Conduct of Business . From the date hereof until the Closing Date, except as (i) contemplated or permitted by the Transaction Documents,
(ii) required by applicable Law, (iii) set forth in Section 6.9 of the Seller Disclosure Schedule, or (iv) the Purchaser otherwise consents in writing (such consent
shall not be unreasonably withheld or delayed), the Seller shall cause each of the Group Companies to (i) maintain its organizational existence, (ii) operate its
respective business in the Ordinary Course and in compliance with all applicable Laws in all material respects, (iii) use commercially reasonable efforts to preserve
intact in all material respects the organization of its business (including its rights and assets), and (iv) maintain their books and records in the Ordinary Course
consistent with past practice and policy used in the preparation of the Financial Statements. Without limiting the generality of the foregoing, from the date hereof
until the Closing, except as (i) contemplated or permitted by the Transaction Documents, (ii) required by applicable Law, (iii) set forth in Section 6.9 of the Seller
Disclosure Schedule, without the prior written consent of the Purchaser, the Seller shall exercise the voting, governance and contractual powers available to it to
cause each Group Company not to:
(a) amend any of its Organizational Documents;
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(b) issue, grant, sell, transfer, or authorize the issuance, granting, sale or transfer of, any capital stock (or other equity interests) or any securities
convertible into, or exercisable or exchangeable for the same;
(c) declare, set aside or pay any dividend or other distribution, with respect to its capital stock (or other equity interests), other than any dividends by
any direct or indirect subsidiary to the Company;
(d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock (or other equity
interests) or other securities;
(e) acquire (including by merger, consolidation, tender offer, acquisition of stock (or other equity interests) or assets, or any other business
combination) any Person or assets or business thereof (including by forming a partnership or joint venture therewith), other than (i) such acquisitions as (x) would
not reasonably be expected to delay, impede or affect the consummation of the Transactions and (y) do not involve consideration, in the aggregate, having a fair
market value exceeding $1,000,000, (ii) in the Ordinary Course, and (iii) capital expenditures not exceeding $2,000,000 per each calendar month;
(f) sell, assign, transfer, convey, lease, license or otherwise dispose of any material asset or property with a book value in excess of $150,000;
(g) make any loan, advance, capital contribution to, or any investment in, any Person except in the Ordinary Course,
(h) create or permit any Encumbrance on any material asset or property except Encumbrances incurred in the Ordinary Course;
(i) incur, assume or otherwise become liable for any Indebtedness or enter into any Contract relating to interest rate protection or amend, settle, satisfy,
defease, refinance, purchase, pay or prepay any Indebtedness other than the Ordinary Course;
(j) (A) modify the compensation payable or to become payable or the benefits provided to its directors, officers, consultants, contractors or employees,
(B) grant or modify any severance or termination pay to, or enter into or modify any vesting, employment, bonus, consulting, change of control or severance
arrangement with any current or former director, officer, consultant, contractor or employee, or (C) establish, adopt, enter into, modify or terminate any Company
Plan except (i) as required by the terms thereof or (ii) solely with respect to employees, consultants and natural persons acting as contractors, where the aggregate
annualized compensation does not exceed $100,000, in the Ordinary Course;
(k) announce, implement or effect any material reduction in labor force, lay-off, early retirement program, severance program or other program or
effort concerning the termination of employment of employees of the Company or any direct or indirect subsidiary other than routine terminations of employees,
consultants and natural persons acting as contractors whose aggregate annualized compensation does not exceed $100,000 in the Ordinary Course;
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(1) enter into, amend, waive or terminate any Material Contract (or Contract that, if in effect on the date hereof, would be a Material Contract) other
than Contracts that would be deemed to be Material Contracts pursuant to clauses (ii) or (xi) of the definition thereof entered into after the date hereof in the
Ordinary Course;
(m) make any material change in policies or procedures relating to procurement, inventory, advertising or product pricing (including the use of any
promotions, coupons, rebates, discounts or price increases);
(n) make or rescind any material Tax election or settle or compromise any material Tax liability;
(o) except for changes required by reason of a change in the Applicable Accounting Standards or applicable Law, change independent accountants or
any accounting methods, principles or practices;
(p) fail to pay insurance premiums with respect to any policy naming the Company as a beneficiary or a loss payee outside the Ordinary Course, or
permit any such insurance policy to lapse or be cancelled or terminated;
(q) commence, defend or settle any material Action;
(r) become subject to a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization;
(s) enter into any new line of business or materially change the corporate purpose of any Group Company (except as may be required by Law); or
(t) authorize, commit or agree to take any of the foregoing actions.
To the extent the Seller requests consent from the Purchaser pursuant to Section 6.9 and the Purchaser has not responded within five (5) Business Days
of the Purchaser receiving written notice of such request, the Purchaser shall be deemed to have consented for the relevant matter.
Section 6.10. Changes in Circumstances; Access .
(a) During the period from the date of this Agreement until the Closing Date,
(i) the Seller shall, and shall cause the Group Companies to, give notice to the Purchaser, as soon as reasonably practicable, of (i) the
occurrence of any event, that would reasonably be expected to cause any representation or warranty of the Seller or the Company in this Agreement to be untrue or
inaccurate at or prior to the Closing in a manner that causes the condition in Section 8.2(a) to not be satisfied, (ii) any failure of such party to comply with its
covenants and other obligations in a manner that would reasonably be expected to cause the condition in Section 8.2(b) to not be satisfied, or (iii) the occurrence of
an event that has had or would reasonably be expected to have, in the aggregate, a Seller Material Adverse Effect; and
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(ii) the Purchaser shall give notice to the Seller, as soon as reasonably practicable, of (i) the occurrence of any event, that would reasonably be
expected to cause any representation or warranty of the Purchaser in this Agreement to be untrue or inaccurate at or prior to the Closing in a manner that causes the
condition in Section 8.3(a) to not be satisfied, (ii) any failure of such party to comply with its covenants and other obligations in a manner that would reasonably be
expected to cause the condition in Section 8.3(b) to not be satisfied, or (iii) the occurrence of an event that has had or would reasonably be expected to have, in the
aggregate, a Purchaser Material Adverse Effect.
(b) During the period from the date of this Agreement until the Closing Date, the Seller shall, and shall cause the Group Companies to,
provide the Purchaser with reasonable access to the business, assets and properties of the Group Companies as the Purchaser may reasonably request, as well as
keep the Purchaser informed in all material respects and on a reasonably timely basis about any material developments with regard to such matters, if any, as the
Purchaser may reasonably inquire about; provided , however , that nothing contained in this Section 6.10 shall require the Seller or any Group Company to provide
any information or access that the Seller believes is necessary to preserve the attorney-client privilege or to comply with regulatory restrictions, Law or any
confidentiality restrictions with third parties.
(c) For the avoidance of doubt, nothing contained in this Section 6.10 or otherwise in this Agreement, including the delivery of any notice, any
access, any Information, or any investigation, pursuant to this Section 6.10 or otherwise, shall operate as a waiver or otherwise affect any representation, warranty,
covenant or agreement given or made by Seller in this Agreement nor shall it (i) cure any inaccuracy in any representation or warranty or (ii) limit or otherwise
affect any remedies available to a Purchaser Indemnified Party contained in this Agreement (including for purposes of determining whether conditions to Closing
have been satisfied or in respect of indemnification rights).
Section 6.11. Transition Services .
(a) Through the tenth (10 th ) Business Day following the Closing Date, the Seller shall, and shall cause Arthasan to (i) maintain the Arthasan
Service Agreement in force and (ii) make available, in connection with the performance thereof, the services of the individuals set forth on Section 6.11 of the
Purchaser Disclosure Schedule. Following the tenth (10th) Business Day after the Closing Date, the Arthasan Service Agreement shall expire automatically.
(b) In consideration of the Transition Services, the Purchaser shall, or shall cause the Group Companies to, pay the Transition Services Fee.
Such fee is non-refundable and shall be payable in advance on the Closing Date in accordance with Section 2.2(c). If the Purchaser elects to cause one of the Group
Companies to pay the Transition Services Fee, such amount shall be disregarded for the purposes of calculating the Adjustment Amount.
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Section 6.12. KYC Information .
(a) The Purchaser shall (i) provide the Seller with all information listed in Section 6.12(a) of the Seller Disclosure Schedule regarding the Purchaser,
the Purchaser Guarantor, the Nominee Purchaser and their respective Affiliates (and their respective direct and indirect shareholders) and (ii) use its commercially
reasonable efforts to provide the Seller with any further information regarding the Purchaser, the Purchaser Guarantor, and the Nominee Purchaser and their
respective Affiliates (and their respective direct and indirect shareholders) as the Seller may request in order to satisfy their respective “know your customer”
requirements.
(b) Each of the Purchaser and the Seller shall use its commercially reasonable efforts to provide the Escrow Agent with any information as the Escrow
Agent may reasonably request in order to satisfy their respective “know your customer” requirements.
(c) For the purpose of this Section 6.12, “commercially reasonable efforts” by the Purchaser or the Seller, as appropriate, shall include providing
assistance in resolving any positive matches on the standard sanctions and other screening checks and information on the indirect or direct shareholders of such
party, its respective Affiliates and their respective direct and indirect shareholders.
Section 6.13. Letter of Credit . No later than five (5) Business Days prior to the Closing Date, the Purchaser shall procure a letter of credit for the
benefit of the Seller in an amount equal to the Deferred Payment and in the form set forth in Exhibit E (the “ Letter of Credit ”). No later than three (3) Business
Days following receipt of the Deferred Payment, the Seller shall return the original Letter of Credit to the Purchaser and shall take such further actions as may
reasonably be requested by the Purchaser to authorize the issuing bank to terminate the same.
Section 6.14. Support Letter . The Seller agrees to enforce, and take such actions to enforce, any and all of the Seller’s rights pursuant to the Support
Letter. If any provision of the Support Letter is not performed in accordance with its specific terms or is otherwise breached, the Purchaser shall be entitled to seek
specific performance by the Seller in accordance with Section 10.9 , including specific performance requiring the Seller to enforce its rights under the Support
Letter.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival of Representations, Warranties, Covenants and Agreements .
(a) The representations, warranties, covenants and agreements of the Seller, the Company and the Purchaser contained in this Agreement (including
any certificate contemplated hereby) and in the other Transaction Documents will not survive the Closing, except that: (i) all such representations and warranties
shall survive the Closing solely for purposes of the Special Policy, until the expiration of the term of the Special Policy, (ii) the covenants and agreements of the
Seller, the Fundamental Representations, and the representations, warranties, covenants and agreements of the Purchaser contained in this Agreement (including
any certificate contemplated hereby) and in the other Transaction Documents shall survive the Closing and will continue in full force and effect for a period from
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the date hereof until the date that is the one (1) year anniversary from the Closing Date (except those covenants and agreements, which by their terms extend past
such date, which shall survive for the period specified thereof), and (iii) any claim for indemnification asserted prior to the end of the time period contemplated by
the foregoing clauses (i) and (ii) shall survive until the resolution of such claim.
(b) For purposes of this Agreement, the Seller’s representations and warranties shall be deemed to include the Seller Disclosure Schedule, the
Company’s representations and warranties shall be deemed to include the Company Disclosure Schedule and the Purchaser’s representations and warranties shall
be deemed to include the Purchaser Disclosure Schedule.
Section 7.2. Indemnification of the Purchaser . The Seller shall indemnify and hold harmless the Purchaser, its Affiliates and their respective
successors and their respective shareholders, officers, directors, employees and agents (collectively, the “ Purchaser Indemnified Parties ”) from and against any
and all Losses that may be asserted against, or paid, suffered or incurred by any Purchaser Indemnified Party that arise out of or result from (i) any inaccuracy in or
any breach of any Fundamental Representation of the Seller, and (ii) any failure by the Seller or the Company to perform or fulfill any of the covenants or
agreements required to be performed by it under this Agreement.
Section 7.3. Indemnification of the Seller . The Purchaser shall indemnify and hold harmless the Seller and its Affiliates and their respective
successors and their respective shareholders, officers, directors, employees and agents (collectively, the “ Seller Indemnified Parties ”) from and against any and all
Losses that may be asserted against, or paid, suffered or incurred by any Seller Indemnified Party that arise out of or result from (a) the inaccuracy of any
representation or warranty made by the Purchaser in this Agreement, and (b) any failure by the Purchaser to perform or fulfill any of its covenants or agreements
required to be performed by the Purchaser under this Agreement.
Section 7.4. Limitations .
(a) The maximum aggregate liability of the Seller under this Agreement and any Transaction Document shall not exceed the Purchase Price.
(b) For the avoidance of doubt, the Purchaser may seek indemnification pursuant to Section 7.2 prior to or in addition to making a claim with respect
to the applicable breach under the Special Policy but in no event shall be entitled to recover more than once for any particular amount of Loss or series of related
Losses.
(c) Subject to the last sentence of this paragraph, the obligations of an Indemnifying Party to defend and hold harmless an Indemnified Party pursuant
to Section 7.2 or Section 7.3 (as the case may be) will terminate when the applicable representation, warranty, covenant or agreement expires pursuant to
Section 7.1(a). As such and notwithstanding anything herein to the contrary, an Indemnified Party must give notice to the relevant Indemnifying Party of any claim
for indemnification with respect thereto under this Article VII in writing setting forth the specific claim and the basis therefor in reasonable detail prior to such date.
Notwithstanding the foregoing, as to Sections 7.2 and 7.3, the obligations to indemnify, defend
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and hold harmless will not terminate with respect to any individual item as to which an Indemnified Party shall have, before the expiration of the applicable period,
previously made a claim by delivering a notice (stating in reasonable detail the basis of such claim) to the applicable Indemnifying Party, according to the method
of asserting claims established in Section 7.5.
(d) An Indemnified Party shall use all reasonable efforts to mitigate its Losses hereunder. Any Losses shall be computed net of any insurance proceeds
(net of direct collection expenses, self-insurance costs, premiums and deductibles) actually received by the Indemnified Party on account of such Losses.
Section 7.5. Method of Asserting Claims . All claims for indemnification by any Indemnified Party under this Article VII shall be asserted and
resolved as follows:
(a) If an Indemnified Party intends to seek indemnification under this Article VII, it shall promptly notify the Indemnifying Party in writing of such
claim. The failure to provide such notice will not affect any rights hereunder except to the extent the Indemnifying Party is materially prejudiced thereby.
(b) The Indemnified Party and its Affiliates (which, for the purposes of the Purchaser shall include the Group Companies after the Closing) shall
afford to the Indemnifying Party and its Affiliates reasonable access during normal business hours, to all their respective personnel who may have knowledge of the
facts and circumstances, and to all their respective properties, books, contracts, commitments and records, relating to any claim by an Indemnified Party pursuant to
Section 7.2 or Section 7.3 (as applicable) and otherwise reasonably cooperate with the Indemnifying Party and its Affiliates in investigating any such claim.
(c) In the event the Indemnifying Party does not dispute the claim or only disputes a portion thereof, then the amount of the claim or the portion
thereof not disputed shall be deemed to be admitted (an “ Admitted Liability ”). Upon the occurrence of an Admitted Liability, the Indemnifying Party shall
promptly pay to the Indemnified Party an amount equal to the Admitted Liability by wire transfer of immediately available funds.
(d) In the event the Indemnifying Party shall dispute the validity of all or any amount of a claim, the Indemnifying Party shall, within thirty (30) days
of its receipt of the claim, execute and deliver to the Indemnified Party a notice setting forth with reasonable particularity the grounds and the basis upon which the
claim or any portion thereof is disputed (the “ Dispute Statement ”). If the Indemnifying Party delivers a Dispute Statement, then the amount of the claim disputed
by the Indemnifying Party in such Dispute Statement shall not be payable to the Indemnified Party until either (i) the Purchaser and the Seller agree in writing to
the resolution of the amount of the claim disputed by the Indemnifying Party in such Dispute Statement or (ii) an arbitral panel or a court of competent jurisdiction
in accordance with Section 10.12 enters a final non-appealable order directing the payment to such Indemnified Party of the amount of the claim disputed by the
Indemnifying Party in such Dispute Statement. Upon such written agreement or final order, as the case may be, the Indemnifying Party shall promptly pay to the
Indemnified Party an amount equal to the amount of such claim so agreed or ordered to be paid by wire transfer of immediately available funds.
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(e) If a claim involves a claim by a third party against the Indemnified Party, the Indemnifying Party may, within ten (10) days after receipt of such
notice and upon notice to the Indemnified Party, assume, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the
Indemnifying Party, the settlement or defense thereof; provided , that the Indemnified Party may participate in such settlement or defense through counsel chosen
by it at its sole expense. If the Indemnified Party determines in good faith that representation by the Indemnifying Party’s counsel of both the Indemnifying Party
and the Indemnified Party may present such counsel with a conflict of interest, then the Indemnifying Party shall pay the reasonable fees and expenses of the
Indemnified Party’s counsel. Notwithstanding the foregoing, (i) the Indemnified Party may take over the control of the defense or settlement of a third-party claim
at any time if it irrevocably waives its right to indemnity under this Article VII with respect to such claim and (ii) the Indemnifying Party may not, without the
consent of the Indemnified Party, settle or compromise any action or consent to the entry of any judgment, such consent not to be unreasonably withheld. The
Indemnified Party shall not pay or settle any such claim without the Indemnifying Party’s consent, such consent not to be unreasonably withheld.
Section 7.6. Character of Indemnity Payments . The parties agree that any indemnification payments made with respect to this Agreement shall be
treated for all Tax purposes as an adjustment to the Purchase Price unless otherwise required by applicable Law.
Section 7.7. Exclusive Remedy, etc .
(a) To the fullest extent permitted by applicable Law, the indemnification provided in this Article VII, the Purchase Price adjustment provisions in
Section 2.2, specific performance pursuant to Section 10.9 and the remedies available to the Purchaser pursuant to the Special Policy shall be the sole and exclusive
remedies available to each of the parties following the Closing for any matters in connection with this Agreement and the Transactions, except in the case of Fraud.
No party shall have any obligation to indemnify pursuant to this Article VII to the extent any such claimed Losses were the subject of the Purchase Price
adjustment in Section 2.2.
(b) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IN NO EVENT SHALL ANY PARTY BE LIABLE UNDER
THIS AGREEMENT FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL, PUNITIVE, OR EXEMPLARY DAMAGES, REGARDLESS OF
THE FORM OF ACTION THROUGH WHICH SUCH DAMAGES ARE SOUGHT; PROVIDED, HOWEVER, THAT NOTHING IN THIS AGREEMENT OR
IN ANY TRANSACTION DOCUMENT SHALL LIMIT OR PRECLUDE ANY INDEMNIFICATION OR RECOVERY WITH RESPECT TO: (A) ANY
DAMAGES THAT MAY BE AWARDED IN CONNECTION WITH A THIRD-PARTY CLAIM FOR WHICH A PARTY IS ENTITLED TO BE
INDEMNIFIED, OR (B) ANY DIRECT DAMAGES (INCLUDING LOSS OF PROFITS TO THE EXTENT CONSTITUTING A DIRECT DAMAGE).
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ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1. Conditions to the Seller and the Purchaser’s Obligation to Effect the Transactions . The respective obligations of each of the Seller and the
Purchaser to effect the Closing shall be subject to the satisfaction or waiver (to the extent permissible under applicable Law) at or prior to the Closing of the
following conditions:
(a) No
Injunctions
or
Restraints.
No Law, injunction, judgment or ruling enacted, promulgated, issued, entered, amended or enforced by any
Governmental Authority (collectively, “ Restraints ”) shall be in effect enjoining, restraining, preventing or prohibiting consummation of the Transactions or
making the consummation of the Transactions illegal and no Action shall be pending that, if successful, would result in any such Restraint.
(b) No
Termination
Events.
None of the events or conditions entitling a party to terminate this Agreement under Article IX shall have occurred and be
continuing.
Section 8.2. Conditions to Obligations of the Purchaser . The obligations of the Purchaser to effect the Closing are further subject to the satisfaction or
waiver at or prior to the Closing of the following conditions:
(a) Representations
and
Warranties.
Each of (i) the Fundamental Representations made by the Seller in this Agreement shall be true and correct in
each case at and as of the Closing (except those representations and warranties that expressly speak as of a specified date or time, provided, however, that such
representations and warranties shall have been true and correct as of such date or time), and (ii) the other representations and warranties made by the Seller and the
Company in this Agreement (without giving effect to any “Seller Material Adverse Effect”, “Business Material Adverse Effect” or similar materiality qualification
therein) shall be true and correct in each case at and as of the Closing (except those representations and warranties that expressly speak as of a specified date or
time, provided, however, that such representations and warranties shall have been true and correct as of such date or time), except where the failure to be so true
and correct would not reasonably be expected to have a Seller Material Adverse Effect or a Business Material Adverse Effect.
(b) Performance
of
Obligations
of
the
Seller.
The Seller shall have performed and complied with, in all material respects, the agreements, covenants
and all obligations required to be performed by the Seller under this Agreement at or prior to the Closing.
(c) Seller
Certificate.
The Purchaser shall have received a certificate signed on behalf of the Seller by an executive officer of the Seller certifying that
the conditions set forth in Section 8.2(a) and Section 8.2(b) and have been satisfied.
(d) Deliveries.
The Seller shall have caused each of the documents and instruments required by Section 2.5 to have been executed (where applicable)
and delivered, and each such document and instrument shall be in full force and effect.
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(e) Termination
of
Related
Person
Contracts.
The Seller shall have provided to the Purchaser evidence of termination of each of the Related Person
Contracts set forth on Section 8.2(e) of the Seller Disclosure Schedule (including the settlement of all payables and receivables owing to or from any Group
Company, on the one hand, from or to any Related Person that is not a Group Company, on the other hand), without additional cost to or liability of the Purchaser
or any Group Company (other than the Transition Services Fee and any liabilities included in the calculation of the Adjustment Amount).
Section 8.3. Conditions to Obligations of the Seller . The obligations of the Seller to effect the Closing are further subject to the satisfaction or waiver
at or prior to the Closing of the following conditions:
(a) Representations
and
Warranties.
Each of the representations and warranties made by the Purchaser in this Agreement (without giving effect to any
“Purchaser Material Adverse Effect” or similar materiality qualification therein) shall be true and correct in each case at and as of the Closing (except those
representations and warranties that expressly speak as of a specified date or time, provided, however, that such representations and warranties shall have been true
and correct as of such date or time), except where the failure to be so true and correct would not reasonably be expected to have a Purchaser Material Adverse
Effect.
(b) Performance
of
Obligations
of
the
Purchaser.
The Purchaser shall have performed and complied with, in all material respects, the agreements,
covenants and all obligations required to be performed by the Purchaser under this Agreement at or prior to the Closing (including all documents and evidence
reasonably required by the Seller pursuant to Section 6.12 so as to enable the Seller and the Escrow Agent to carry out and be satisfied with the results of their
“know your customer” requirements).
(c) Purchaser
Certificate.
The Seller shall have received a certificate signed on behalf of the Purchaser by an executive officer of the Purchaser
certifying that the conditions set forth in Section 8.3(a) and Section 8.3(b) and have been satisfied.
(d) Deliveries.
The Purchaser shall have caused each of the documents and instruments required by Section 2.4 to have been executed (where
applicable) and delivered, and each such document and instrument shall be in full force and effect.
ARTICLE IX
TERMINATION
Section 9.1. Termination . This Agreement may be terminated and the Transactions abandoned at any time prior to the Closing by:
(a) the mutual written consent of the Seller and the Purchaser;
(b) the Seller or the Purchaser if the Closing shall not have occurred on or before February 29, 2016 unless the failure to consummate the Closing is
due to the failure to act by the terminating party (or its Affiliates);
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(c) the Seller or the Purchaser if any Restraint enjoining, restraining, preventing or prohibiting consummation of the Transactions or making the
consummation of the Transactions illegal shall be in effect and shall have become final and non-appealable;
(d) the Purchaser, if there has been a violation or breach by the Seller or the Company of any representation, warranty, covenant or agreement of the
Seller or the Company contained in this Agreement that would prevent the satisfaction of any condition to the obligations of the Purchaser at the Closing, and such
violation or breach has not been waived by the Purchaser, or cured by the Seller or the Company within sixty (60) days after receipt of written notice thereof from
the Purchaser; provided , however , that a willful breach or violation shall not be subject to notice or cure hereunder and the Purchaser shall be entitled to terminate
this Agreement immediately by providing written notice of such willful violation or breach to the Seller; and
(e) the Seller, if there has been a violation or breach by the Purchaser of any representation, warranty, covenant or agreement of the Purchaser
contained in this Agreement that would prevent the satisfaction of any condition to the obligations of the Seller at the Closing, and such violation or breach has not
been waived by the Seller, or cured by the Purchaser within sixty (60) days after receipt of written notice thereof from the Seller; provided , however , that a willful
breach or violation shall not be subject to notice or cure hereunder and the Seller shall be entitled to terminate this Agreement immediately by providing written
notice of such willful violation or breach to the Purchaser.
Section 9.2. Effect of Termination . Any party seeking to terminate this Agreement as provided in Section 9.1 shall send written notice thereof to the
other party, specifying the provision hereof pursuant to which such termination is made. In the event of termination of this Agreement, this Agreement shall
forthwith become null and void (other than Section 6.1, Section 6.2, Section 6.4 and Article X, which shall survive in accordance with their terms) and there shall
be no liability on the part of any party to this Agreement or its Affiliates or its or their directors, officers or employees, except that nothing shall relieve any party
from liability for Fraud or any willful breach of this Agreement.
Section 10.1. No Other Representations or Warranties
ARTICLE X
MISCELLANEOUS
(a) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IT IS THE EXPLICIT INTENT OF EACH PARTY, AND
THE PARTIES HEREBY AGREE, THAT NONE OF THE PARTIES OR ANY OF THEIR RESPECTIVE AFFILIATES OR REPRESENTATIVES HAS MADE
OR IS MAKING, AND THE SELLER (ON BEHALF OF ITSELF, ITS AFFILIATES AND REPRESENTATIVES) HEREBY DISCLAIMS, ANY
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING ANY IMPLIED REPRESENTATION
OR WARRANTY AS TO THE CONDITION, MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, WITH
RESPECT TO THE
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MEMBERSHIP INTERESTS OR THE COMPANY, THE GROUP COMPANIES OR THEIR RESPECTIVE ASSETS, PROPERTIES, BUSINESS, CONDITION
(FINANCIAL OR OTHERWISE) OR PROSPECTS, EXCEPT THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS
AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE
SELLER (ON BEHALF OF ITSELF, ITS AFFILIATES AND REPRESENTATIVES) EXPRESSLY DISCLAIMS ANY REPRESENTATIONS OR
WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO (I) THE OWNERSHIP, MARKETABILITY, CONDITION, VALUE OR
QUALITY OF THE MEMBERSHIP INTERESTS OR THE COMPANY, THE GROUP COMPANIES OR THEIR RESPECTIVE ASSETS AND PROPERTIES
OR (II) THE PROSPECTS (FINANCIAL OR OTHERWISE) AND RISKS RELATED TO THE MEMBERSHIP INTERESTS OR THE COMPANY, THE
GROUP COMPANIES AND THEIR RESPECTIVE ASSETS AND PROPERTIES.
(b) THE PARTIES MAKES NO REPRESENTATION OR WARRANTY TO THE PURCHASER AS TO THE ACCURACY OR
REASONABLENESS OF ANY FINANCIAL PROJECTIONS OR FORECASTS RELATING TO THE MEMBERSHIP INTERESTS OR THE COMPANY,
THE GROUP COMPANIES OR THEIR RESPECTIVE ASSETS, PROPERTIES, BUSINESS OR PROSPECTS, EXCEPT AS PROVIDED IN THIS
AGREEMENT.
(c) NONE OF THE SELLER, ANY OF ITS AFFILIATES, OR ANY OF THEIR RESPECTIVE REPRESENTATIVES MAKES ANY
REPRESENTATION AS TO THE ACCURACY OR COMPLETENESS OF, OR WILL HAVE, OR BE SUBJECT TO, ANY LIABILITY TO THE
PURCHASER OR ANY OTHER PERSON RESULTING FROM THE DISTRIBUTION TO THE PURCHASER OR ITS AFFILIATES OR
REPRESENTATIVES OF, OR THE PURCHASER’S USE OF, ANY INFORMATION RELATING TO THE MEMBERSHIP INTERESTS, THE COMPANY,
THE GROUP COMPANIES OR THEIR RESPECTIVE BUSINESS, ASSETS OR LIABILITIES OR ANY OTHER MATTER RELATING TO THE
TRANSACTIONS, INCLUDING ANY DESCRIPTIVE MEMORANDA, SUMMARY BUSINESS DESCRIPTIONS OR INFORMATION, DOCUMENTS OR
MATERIAL MADE AVAILABLE TO THE PURCHASER OR ITS AFFILIATES OR REPRESENTATIVES, WHETHER ORALLY OR IN WRITING, IN
CERTAIN “DATA ROOMS,” MANAGEMENT PRESENTATIONS, FUNCTIONAL “BREAK-OUT” DISCUSSIONS, RESPONSES TO QUESTIONS
SUBMITTED ON BEHALF OF THE PURCHASER OR ANY OTHER FORM, IN EXPECTATION OF THE TRANSACTIONS, EXCEPT, IN EACH CASE, AS
PROVIDED IN THIS AGREEMENT.
(d) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THE MEMBERSHIP INTERESTS, THE COMPANY, THE GROUP
COMPANIES AND THEIR RESPECTIVE ASSETS AND PROPERTIES BEING TRANSFERRED THROUGH THE SALE OF THE MEMBERSHIP
INTERESTS ARE BEING TRANSFERRED “AS IS, WHERE IS, WITH ALL FAULTS.”
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Section 10.2. Notices . All notices, requests and other communications under this Agreement must be in writing and will be deemed to have been duly
given upon receipt to the parties at the following addresses (or at such other address for a party as shall be specified by the notice):
If to the Seller:
DEORSA-DEOCSA Holdings Limited
Les Cascades Building
Edith Cavell Street
Port Louis, Mauritius
Attention: Bhavana Banymandhub
With a copy (which shall not constitute notice) to:
Actis GP LLP
2 More London Riverside
London SE1 2JT United Kingdom
Attention: General Counsel
and
Clifford Chance US LLP
31 West 52 nd Street
New York, NY 10019
United States
Attention: David Brinton
If to the Purchaser or the Purchaser Guarantor:
Inkia Energy, Limited
Av. Santo Toribio 115, Piso 7
San Isidro, Lima, Peru
Attention: Daniel Urbina and Javier Garcia-Burgos
With a copy (which shall not constitute notice) to:
Morrison & Foerster LLP
250 West 55 th Street
New York, NY 10019
United States
Attention: Jeff Bell
If to the Company:
Estrella Cooperatief BA
De Boelelaan 7
1083 HJ Amsterdam, the Netherlands
Attention: S. Stacie
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With a copy (which shall not constitute notice) to:
Actis GP LLP
2 More London Riverside
London SE1 2JT United Kingdom
Attention: General Counsel
and
Clifford Chance US LLP
31 West 52 nd Street
New York, NY 10019
United States
Attention: David Brinton
Section 10.3. Entire Agreement . This Agreement and the exhibits and schedules hereto supersede all prior and contemporaneous discussions and
agreements, both written and oral, among the parties with respect to the subject matter of this Agreement and constitute the sole and entire agreement among the
parties to this Agreement with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous agreements and understandings,
written or oral, with respect to the subject matter hereof.
Section 10.4. Expenses . Except as otherwise expressly provided in this Agreement, whether or not the Transactions are consummated, each party
shall pay its own costs and expenses incurred in connection with the negotiation, execution and closing of this Agreement and the Transactions.
Section 10.5. Waiver . Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
Section 10.6. Amendment . This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf
of each party to this Agreement.
Section 10.7. No Third-Party Beneficiary . The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and
their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than any
Person entitled to indemnity under Article VII and the Actis Group pursuant to Section 6.1, Section 6.2 and Section 6.5.
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Section 10.8. Assignment; Binding Effect . Neither this Agreement nor any right, interest or obligation under this Agreement may be assigned by any
party to this Agreement by operation of Law or otherwise without the prior written consent of the other parties to this Agreement and any attempt to do so will be
void. Subject to the foregoing, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties to this Agreement and their respective
successors and assigns.
Section 10.9. Specific Performance . The parties hereto agree that if any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at Law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at Law or equity.
Section 10.10. Invalid Provisions . If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law,
and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid
and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.
Section 10.11. Governing Law . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF (OTHER THAN
SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
Section 10.12. Arbitration .
(a) Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity
thereof, including the determination of the scope or applicability of this Agreement to arbitrate, and also including claims sounding in contract, tort, statutory or
otherwise (each, a “ Dispute ”) shall be finally resolved and decided by binding arbitration pursuant to the then-applicable Rules of Arbitration (the “ Rules ”) of
the International Chamber of Commerce (the “ ICC ”), which Rules are deemed to be incorporated by reference into this Agreement. Any party shall refer the
Dispute to arbitration by sending a written notice of such Dispute to the other parties and shall simultaneously file a Request for Arbitration in accordance with the
Rules. The Dispute shall be resolved by three (3) arbitrators to be selected in the following manner. Within thirty (30) days after the date of the notice initiating
arbitration, one arbitrator shall be selected by the petitioning party (the “ Claimant ”) and one arbitrator shall be selected by the party defending the arbitration (the
“ Respondent ”), within thirty (30) days thereafter, failing which such arbitrator shall be appointed by the ICC pursuant to the Rules. The third arbitrator shall be
selected by the two (2) arbitrators selected by the Claimant and the Respondent, or, if such arbitrators cannot agree within thirty (30) days on the third arbitrator,
such arbitrator will be selected by the ICC pursuant to the Rules. The seat of the arbitration proceeding shall be in New York, New York. The official language of
arbitration shall be English.
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(b) The decision of the arbitral panel shall be in writing and shall set forth in detail the facts of the Dispute and the reasons for the decision. The
arbitral panel shall not have the authority to award punitive damages to any injured party. The arbitral award shall be final and binding on the parties from the day it
is made. In the event that the losing party fails or refuses to comply with the arbitral award within fourteen (14) days following the date of receipt of notice of the
award, then the prevailing party may immediately proceed to request the judicial approval necessary for execution and enforcement of the award before a
competent court or before any other court where such party or its assets and properties may be found, and the parties agree not to oppose the immediate
domestication and enforcement of the award in any such court, including without limitation the courts of the United States or any other country. For the avoidance
of doubt, each party waives in respect of both itself and its property, any defense it may have as to, or based on, lack of jurisdiction, improper venue or
inconvenient forum.
(c) Notwithstanding the foregoing, nothing in this Section shall be construed as preventing any party from seeking conservatory or similar interim
relief in any court of competent jurisdiction. For purposes of any such application for conservatory or similar interim relief, each of the parties hereby irrevocably
submits to the non-exclusive jurisdiction of the Federal or State courts of New York, New York, save that this submission shall not affect the right of any party to
make such application in any other court of competent jurisdiction.
(d) All of the expenses that arise from the arbitral proceeding as well as the fees of the arbitrators shall be paid by the losing party, if any, as
determined by the arbitrators. Said losing party shall reimburse the prevailing party the amounts deposited by the prevailing party at the commencement of the
arbitration or thereafter as required by the arbitrators. The parties shall each bear the costs and fees of their respective counsel, irrespective of the outcome of the
arbitration.
Section 10.13. Counterparts . This Agreement may be executed in any number of counterparts, all of which will constitute one and the same
instrument.
Section 10.14. Disclosure Schedules . The disclosure of any item or matter in the Seller Disclosure Schedule or the Company Disclosure Schedule
shall not be deemed to constitute an admission by the Seller or the Company that such item or matter is material for purposes of this Agreement.
Section 10.15. Non-Recourse . No past, present or future director, officer, employee, incorporator, member, partner, stockholder, Affiliate, agent,
attorney or representative of any party shall have any liability for any obligations or liabilities of such party under this Agreement or for any claim based on, in
respect of, or by reason of, the Transactions.
Section 10.16. Purchaser Parent Guarantee . In consideration of, and as an inducement to the Seller entering into this Agreement and performing its
obligations hereunder, the Purchaser Guarantor hereby irrevocably, absolutely and unconditionally guarantees to the Seller the full performance and payment by the
Purchaser and the Nominee Purchaser of the
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covenants, obligations, monetary or otherwise, and undertakings of the Purchaser and the Nominee Purchaser pursuant to or otherwise in connection with this
Agreement and the Transaction Documents, and the consummation of the Transactions (the “ Purchaser Guaranteed Obligations ”). Any breach of, or other failure
to perform, any representation, warranty, covenant, obligation, agreement or undertaking of the Purchaser and the Nominee Purchaser shall also be deemed to be a
breach or failure to perform by the Purchaser Guarantor, and the Seller shall have the right, exercisable in its sole discretion, to pursue any and all available
remedies it may have arising out of any such breach or nonperformance directly against either or all of the Purchaser, the Nominee Purchaser and the Purchaser
Guarantor in the first instance. In this respect, for the avoidance of doubt, the Purchaser Guarantor confirms that it is bound by the provisions of Section 10.11 and
Section 10.12 as if it were a “party” therein, including but not limited to its agreement to have the Purchaser Guaranteed Obligations submitted to arbitration as part
of any Dispute between the Seller, the Company and the Purchaser. This guarantee is a guarantee of performance and not exclusively of collection. Without
limiting any defenses that would be available to the Purchaser Guarantor if it were a direct obligor hereunder or any defenses that the Purchaser has hereunder,
(a) to the fullest extent permitted by Law, the Purchaser Guarantor hereby expressly waives any and all rights or defenses arising by reason of any Law that would
otherwise require any election of remedies by the Seller and the Company and (b) except for notices specifically required by the terms of the Transaction
Documents, the Purchaser Guarantor waives promptness, diligence, notice of the acceptance of this guaranty and of the Purchaser Guaranteed Obligations,
presentment, demand for payment, notice of non-performance, default, dishonor and protest, notice of any Purchaser Guaranteed Obligations incurred and all other
notices of any kind, all defenses which may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect, any right
to require the marshalling of assets of the Purchaser or the Nominee Purchaser, and all suretyship defenses generally. The Purchaser Guarantor acknowledges that it
will receive substantial direct and indirect benefits from the Transactions and that the waivers set forth in this Section 10.16 are knowingly made in contemplation
of such benefits.
Section 10.17. Conversion of Local Currency Amounts . For purposes of the references to Dollar amounts in the following provisions of this
Agreement, to the extent such amounts initially are incurred, determined or otherwise measured in a currency other than Dollars (“ Local Currency ”), they will be
converted into Dollars as follows:
(a) Section 4.8(b) (Undisclosed Liabilities) and Section 4.12 (Contracts) . Local Currency amounts will be converted into Dollars at the spot rate of
exchange in effect on the date of this Agreement.
(b) Section 6.9 (Conduct of Business) . Local Currency amounts will be converted into Dollars at the spot rate of exchange in effect on date of the
applicable action or omission that is subject to Section 6.9.
(c) Article VII (Survival; Indemnification) . Indemnifiable Losses that are incurred in a Local Currency will be converted into Dollars at the spot rate
of exchange in effect on the Business Day prior to the applicable payment.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
DEORSA-DEOCSA HOLDINGS LIMITED
By: /s/ Kishore Sunil Banymandhub
Name: Kishore Sunil Banymandhub
Title:
Director
Stock Purchase Agreement
IC POWER DISTRIBUTION HOLDINGS PTE, LIMITED
By: /s/ Joaquin Coloma
Name: Joaquin Coloma
Title:
Authorized Officer
By: /s/ Daniel Urbina
Name: Daniel Urbina
Title:
Authorized Officer
Stock Purchase Agreement
ESTRELLA COOPERATIEF BA
By: /s/ Sidney Stacie
Name: Sidney Stacie
Title: Managing Director
Stock Purchase Agreement
INKIA ENERGY, LIMITED
By: /s/ Joaquin Coloma
Name: Joaquin Coloma
Title: Authorized Officer
By: /s/ Daniel Urbina
Name: Daniel Urbina
Title: General Counsel
Stock Purchase Agreement
Exhibit 4.15
Execution Version
PLEDGE AGREEMENT
This Pledge Agreement (this “ Agreement ”) is made and entered into as of the 17 th day of March, 2016 by IC Power Pte. Ltd. ( “ ICPS ” ) in favor of
Israel Corporation Ltd. (“ IC ”). IC and ICPS shall each be referred to as a “ Party ”, and collectively, the “Parties”.
WHEREAS, IC and Kenon Holdings Ltd. (“ Kenon ”) entered into a Loan Agreement dated the 7 th day of January, 2015 and which was supplemented on
or around the 17 th day of March, 2016 (the “ Loan Agreement ”, and such supplement, the “ Supplement ”); and
WHEREAS, as security for its obligations under the Loan Agreement, Kenon pledged by way of a first ranking pledge an aggregate of 6,600,066 ordinary
shares of IC Power Ltd. (“ IC Power ”) nominal value NIS 0.01 each (comprising 66% of the issued and outstanding share capital of IC Power) in favor of IC
pursuant to Pledge Agreements dated 7 January 2015, 29 January 2015, 4 May 2015 and 7 October 2015 (the “ Existing Pledges ”);
WHEREAS , Kenon wishes to restructure its holdings in IC Power, by introducing ICPS, a newly incorporated wholly-owned subsidiary of Kenon, as a new
tier holding company to which all of Kenon’s interests in IC Power are to be transferred and which will seek to launch an initial public offering of its ordinary
shares on the New York Stock Exchange;
WHEREAS , pursuant to the Loan Agreement, Kenon is required to cause ICPS, as the recipient of such interests in IC Power, to grant a pledge and security
interest over such transferred interests;
WHEREAS , in implementation of the Loan Agreement, as amended and supplemented on or around the 17 th of March, 2016, as a condition to IC
consenting to the transfer by Kenon of its interests in IC Power to ICPS (subject to the Existing Pledges) and as a condition to the continuation of the Loans in
accordance with the Loan Agreement, ICPS, as a wholly owned subsidiary of Kenon, the borrower under the Loan Agreement, and as the holder of 100% of the
issued and outstanding share capital of IC Power has undertaken, inter
alia,
to pledge and assign by way of pledge the Pledged Assets in favor of IC in accordance
with and subject to the terms of this Agreement as a security for the full and punctual payment of all amounts owing by Kenon to IC under the Loan Agreement and
in substitution for the Existing Pledges;
NOW, THEREFORE , the Parties hereby agree as follows:
1.
Interpretation; Definitions
1.1. The preamble to this Agreement forms an integral and a binding part of this Agreement.
1.2. All capitalized terms which are not otherwise defined herein, shall have the meaning ascribed to them in the Loan Agreement. In addition to the terms
defined elsewhere in this Agreement, for all purposes of this Agreement (including the preamble and any schedules, exhibits or appendices hereto) the
following terms shall have the meanings given to them in this Section:
1.2.1.
“ Event of Default ” means an event specified as such in the Loan Agreement.
1.2.2.
“ Existing Pledge Agreements ” means:
(a)
(b)
(c)
(d)
the pledge agreement dated 7 January 2015 made between the Chargor and the Lender;
the pledge agreement dated 29 January 2015 made between the Chargor and the Lender;
the pledge agreement dated 4 May 2015 made between the Chargor and the Lender; and
the pledge agreement dated 7 October 2015 made between the Chargor and the Lender,
pursuant to which shares in IC Power are charged in favour of IC.
1.2.3.
“ Finance Document ” means the Loan Agreement, this Agreement, the Share Transfer Agreement, the Existing Pledge Agreements, the
Security over Shares Agreement and any other document designated as a “Finance Document” by IC and ICPS.
1.2.4.
“ Pledge ” means the pledge created under this Agreement.
1.2.5.
“ Pledge Law ” means the Israeli Pledge Law, 5727-1967, as amended from time to time.
1.2.6.
1.2.7.
1.2.8.
“ Pledged Assets ” means the Pledged Shares, the Related Rights, and to the extent not included in the foregoing, any and all proceeds,
products and benefits deriving from such Pledged Assets, including, without limitation, those received upon the sale or other disposition of
such Pledged Assets and any property into which such Pledged Assets are converted, whether cash or non-cash.
“ Pledged Shares ” means all of ICPS’s present and future rights, title and interest in such number of shares of IC Power as set forth in
Exhibit A hereto, along with any other shares in the share capital in IC Power which constitute Related Rights of such shares from time to
time.
“ Related Rights ” means any asset or right distributable, accruing, offered, issued or deriving at any time in connection with the Pledged
Shares including but not limited to all dividends, interest and other monies payable in respect of the Pledged Shares and all other rights,
benefits and proceeds in respect of or derived from the Pledged Shares (whether by way of redemption, bonus, preference, option, substitution,
conversion or otherwise).
1.2.9.
“ S$ ” mean the lawful currency of Singapore.
1.2.10. “ Secured Obligations ” means all present and future obligations and liabilities (whether actual or contingent and whether owed jointly or
severally or in any other capacity whatsoever) owing or incurred by Kenon to IC under or in connection with the Loan Agreement or with this
Agreement, together with all reasonable costs and expenses (including reasonable legal fees) incurred by IC or payable in accordance with this
Agreement.
1.2.11. “ Security Interest ” means any mortgage, charge, pledge, lien, attachment or other security securing any obligation of any person or any
other agreement or arrangement having a similar effect.
2
1.2.12. “ Security over Shares Agreement ” means security over shares agreement between Kenon and IC in relation to the shares in ICPS dated on
or around March 17 th , 2016.
1.3. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
1.4. All references in this Agreement to Sections and annexes or schedules shall, unless otherwise provided, refer to Sections hereof and to annexes or
schedules attached hereto. The words “hereof’, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
1.5. Unless the context otherwise requires, references to (or to any specified provision of) this Agreement or any other document shall be construed as
references to that provision or that document as in force for the time being and as amended, supplemented, modified or replaced in accordance with
the terms thereof.
1.6. References to a law or to a specific section thereof shall be construed as a reference to such law, including any rules or regulations promulgated
thereunder, or section, as the same may have been, or may from time to time be, amended, succeeded or re-enacted.
2.
Security
2.1. Creation of Security .
As a continuing security for the full and punctual payment and performance when due (whether at stated maturity, acceleration or otherwise) of the
Secured Obligations, ICPS hereby absolutely and unconditionally pledges in favor of IC by way of first ranking fixed pledge or, as may be applicable,
assigns in favor of IC by way of pledge, in each case not limited in amount, the Pledged Assets.
2.2. Rights of ICPS .
2.2.1. Unless and until an Event of Default has occurred and IC has notified ICPS that it intends to exercise any right afforded to it hereunder, ICPS
shall have the right to exercise all of its rights and powers in relation to each of the Pledged Assets (including the right to exercise any and all
voting and/or other rights relating to the Pledged Assets).
2.2.2. Unless and until a Default has occurred and IC has notified ICPS that it intends to exercise any right afforded to it hereunder, ICPS may
receive from IC Power any cash dividends distributed thereby with respect to the Pledged Shares.
2.2.3. As of the date on which an Event of Default has occurred and IC has notified ICPS that it intends to exercise any right afforded to it
hereunder, and to the extent permitted by applicable law (i) IC shall be entitled (but not obliged) to exercise all (or, in its discretion, any part)
of the rights conferred upon ICPS as set forth in Section 2.2.1 above, and such rights may not be exercised by ICPS if IC provides ICPS with a
notice to that effect; and (ii) any dividend (whether in cash or in kind) distributed with respect to the Pledged Shares by IC Power shall be
treated as shall be instructed by IC at its sole discretion, including (without limitation) deposit of such dividends with a bailee, a trustee, a
receiver (if appointed) or with IC itself, the use of such dividend for repayment of
3
any Secured Obligations, and the investment of such dividend in any manner IC, or such bailee, trustee or receiver (as the case may be) deem
fit. For the avoidance of any doubt, such dividend and any interest and other proceeds accrued thereon shall be considered Pledged Assets
hereunder.
3.
No Redemption
Kenon or ICPS shall not be entitled to discharge any or all of the Pledged Assets from the Pledge, except as expressly permitted in the Loan Agreement and
under the terms set forth therein. Neither Kenon nor ICPS nor any third party (including a third party having a right which may be affected by the charges
hereby created or the realization thereof) shall have any right under Section 13(b) of the Pledge Law or any similar rights under any statutory provisions, in
addition to Section 13(b) of the Pledge Law or in substitution therefor.
4.
Preservation of Security
4.1. Continuing Security .
The Pledge shall remain in force as continuing security for the payment and discharge of the Secured Obligations and shall remain in force and subject
to Section 4.4 (Avoidance
of
Payments)
, shall be released and discharged only: (a) in accordance with the provisions of Section 2.4 of the Supplement
or (b) upon the execution by IC of a written release of the Pledge created by this Agreement (such release to be provided by IC promptly upon full
payment of all the Secured Obligations); and IC will not be bound to enforce any other Security Interests created or any right belonging to it under the
Loan Agreement before enforcing this Pledge.
4.2. Nature of Securities .
4.2.1. All Pledges created under this Agreement (or any part thereof) and/or any other document shall be independent of one another.
4.2.2.
IC may, at its sole discretion, deposit all or any of the Pledged Assets created under this Agreement with a bailee of its own choosing, and may
substitute such bailee with another from time to time. IC may instruct ICPS to register all or any of such collateral with any competent
authority in accordance with any applicable law and/or in any public register, as permitted by applicable law.
4.3. Liability of Kenon .
4.3.1. Kenon will remain liable to observe and perform all of the conditions and obligations relating to or constituting the Secured Obligations or the
Pledged Assets and IC will not be under any obligation or liability with respect to the Secured Obligations or the Pledged Assets by reason of,
or arising out of, this Agreement. IC will not be required in any manner to perform or fulfil any of the obligations of Kenon in respect of the
Secured Obligations or the Pledged Assets, or to make any payment, or to make any enquiry as to the nature or sufficiency of any payment
received by it, or to present or file any claim or take any action or to collect any amount or enforce any right or remedy hereunder.
4
4.3.2. The exercise by IC of any of the rights or remedies hereunder shall not release Kenon from any of its liabilities or obligations under the Loan
Agreement, this Agreement or any other agreement or instrument included in the Pledged Assets; for the avoidance of doubt, the application
of the Pledged Assets to satisfy part of the Secured Obligations shall not release Kenon from its obligations to pay and perform the Secured
Obligations in full.
4.4. Avoidance of Payments .
Where any release, discharge or other arrangement in respect of any Secured Obligation or any Security Interest IC may have for such Secured
Obligation is given or made in reliance on any payment or other disposition which is avoided or must be repaid, whether in an insolvency, liquidation
or otherwise, and whether or not IC has conceded or compromised any claim that any such payment or other disposition will or should be avoided or
repaid, this Pledge shall continue as if such release, discharge or other arrangement had not been given or made.
4.5. Registration Fee
Kenon shall pay, and forthwith on demand indemnify IC against any liability incurred by IC in respect of any stamp, registration and similar tax which
is or becomes payable in connection with the entry into, registration, recording, performance or enforcement of this Pledge.
5.
Representations and Warranties
ICPS represents and warrants to IC (which representations will be deemed to be repeated on each day until the release of the Pledge in accordance with the
terms hereof) as follows, and acknowledges that IC is entering into this Agreement in full reliance thereof:
5.1.
Status .
It is a company, duly incorporated and validly existing under the law of its jurisdiction of incorporation, and has the power to carry on its business as it
is being conducted from time to time.
5.2. Capacity .
It has the right, power, authority and capacity to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations under this Agreement.
5.3. Authorization and binding obligations .
This Agreement has been authorized by all necessary corporate action on its part, has been duly executed and delivered by it through its authorized
officers, and it represents valid and binding obligations enforceable against it in accordance with its terms.
5.4. Consents .
No consent, approval or authorization of, exemption by, or filing with, any governmental or regulatory authority or any third party is required in
connection with the execution, delivery and performance by ICPS of this Agreement and the consummation of the transactions contemplated herein,
including the creation and perfection of the Pledges save for (i) the making of the appropriate registrations of
5
this Agreement with the Accounting and Corporate Regulatory Authority of Singapore; and (ii) the payment of stamp duty in the amount of S$500
payable in Singapore in respect of the stamping of this Agreement, (iii) registration of the Pledge with the Israel Pledges Registrar; all of which shall
be completed by ICPS within the time periods set forth in this Agreement.
5.5.
Non-conflict .
Its entry into, and performance by it of this Agreement does not and will not conflict with, or result in a violation of (i) its or IC Power’s or any of its
direct or indirect subsidiaries’ constitutional documents, (ii) any other agreement to which any of the above is a party, (iii) any order, judgment,
award, injunction, decree, ordinance or regulation or any other restriction by which any of the above is bound, (iv) any authorization or consent to
which any of the above is subject; or (v) any applicable law.
5.6.
No Winding-up .
Neither ICPS nor IC Power or any of their direct or indirect subsidiaries has taken any corporate action, nor have any other steps been taken or legal
proceedings been started or (to the best of its knowledge) threatened against either of them, in any jurisdiction, for winding-up, dissolution, judicial
management administration or reorganization (by way of voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a
liquidator, receiver, administrator, administrative receiver, judicial manager, compulsory manager, trustee or similar officer of either of them or of
any or all of their assets or revenues.
5.7.
Title to Assets .
Subject only to the Pledge, ICPS has good, valid and marketable title to the Pledged Assets, no other person has any legal or beneficial interest (or
any right to claim any such interest), and there is no competing or adverse right in the Pledged Assets.
5.8.
The Pledged Shares .
The Pledged Shares are validly issued, fully paid and are free and clear of any Security Interest (other than pursuant to this Pledge), options, third
party rights or any restrictions or limitations on transfer, including pursuant to the articles of association of IC Power and any relevant law or
contract.
5.9.
Security Interest .
The provisions of this Agreement are effective to create, in favor of IC a legal, valid and binding, not limited in amount, fixed pledge which is not
subject to any prior or other security and is not liable to be set aside on the insolvency of ICPS, and an assignment by way of pledge over the Pledged
Assets, first ranking, perfected and enforceable in accordance with the terms hereof.
5.10.
Taxes .
Full payment of all taxes levied against or with respect to the Pledged Assets and/or the income accruing thereon under any applicable law has been
made.
5.11.
Solvency .
ICPS does not, at the time of entry into of this Agreement and the transfers herein, and would not at any time resulting from the performance or
carrying out of obligations and entry into any of the transactions hereunder, have (a) entered into or
6
initiated or has initiated against it any process for any scheme of arrangement or compromise, (b) initiated or has initiated against it any corporate
voluntary arrangements or entered into any composition agreement with its creditors, (c) been in a position where it is or maybe, unable, or where it
has ceased to, pay its debts (including any contingent and prospective debts and liabilities whatsoever), or its assets are less than its debts and
liabilities (including any contingent and prospective debts and liabilities whatsoever), (d) been declared insolvent, (e) commenced or been the subject
of any winding-up procedure whatsoever, (f) requested or been subject to the appointment of, or any application being made for the appointment of,
any receiver (including a receiver and manager), trustee, judicial manager, liquidator, statutory manager, scheme manager or administrator,
sequestrator, administrative receiver, administrator or similar officer, (g) been in a position where it is otherwise insolvent or has become insolvent
by reason of the entering into or completion of the transactions contemplated by the Finance Documents (the word “insolvent” having the meaning
under Section 100(4) of the Bankruptcy Act, Chapter 20 of Singapore (the “ Bankruptcy Act ”)), (h) been unable to pay its debts or has become
unable to pay its debts by reason of the entering into or the completion of the transactions contemplated by the Finance Documents (the phrase
“being unable to pay its debts” being within the meaning of sections 254(1)(e) and 254(2) of the Companies Act, Chapter 50 of Singapore (the “
Companies Act ”)), or (i) been subject to any event similar to any of the above under the laws of any jurisdiction.
5.12. Good faith
ICPS (including its respective agents, employees, officers and advisors) in entering into, and carrying out, each transaction and transfer herein, did
so, and will do so, on arms-length commercial terms, in good faith, for the purpose of carrying on ICPS’s business and there were reasonable
grounds for believing the transaction(s) would benefit ICPS at the time ICPS entered into the transaction(s) and be reasonably be in the best interests
of ICPS.
5.13. Non-petition agreements
ICPS shall not institute, or join any other person in instituting, against IC or any of its assets, any winding-up, amalgamation, reconstruction,
administration, judicial management, dissolution, liquidation, composition, merger, arrangement, scheme or consolidation or any analogous
procedure or step, in any jurisdiction.
5.14.
Pledged Shares
The value of the Pledged Shares, taking into account the fact that the Pledged Shares are subject to the Existing Pledges and that ICPS would be
undertaking obligations in connection with the transfer of the Pledged Shares pursuant to Clause 2 of the Share Transfer Agreement, is no less than
the sum of the aggregate subscription price of the New Shares (as defined in the Share Transfer Agreement) and the obligations undertaken in
relation to the loans as stated in Clause 2.2(a) and Clause 2.2(b) of the Share Transfer Agreement respectively.
7
6.
Undertakings
6.1. Undertakings
ICPS undertakes to IC until the release of the Pledge in accordance with the terms hereof, except as expressly permitted herein:
6.1.1.
6.1.2.
6.1.3.
6.1.4.
6.1.5.
6.1.6.
6.1.7.
not to create a Security Interest over, or permit the creation of, a Security Interest, in any manner, over the Pledged Assets without the prior
written consent of IC;
not to sell, assign, transfer or otherwise dispose of any of the Pledged Assets and not to grant any right therein without the prior written
consent of IC, except as expressly permitted in Section 7.5.2 of the Loan Agreement and pursuant to its terms;
not to enter into any conflicting obligation affecting the Pledged Assets or any part thereof, or create or permit to arise any overriding
interest whatsoever without the prior written consent of IC;
to defend the Pledged Assets against, and to take, at its expense, any action necessary to remove any Security Interest (other than Security
Interests created by or pursuant to the Loan Agreement) over any of the Pledged Assets, and to defend the rights and interest of IC in and to
the Pledged Assets against the claims of any other persons;
to maintain all Security Interests created or purported to be created hereunder in connection with the Pledged Assets and to effect all
registrations relating thereto in accordance with the terms hereof;
upon first demand of IC, to promptly do any acts and execute and deliver to IC any document that IC reasonably requires from time to time
for the protection of this Pledge or the Pledged Assets;
to be liable towards IC for any defect in the title to the Pledged Assets and to bear the responsibility for the authenticity and correctness of all
the signatures, endorsements and particulars of any bills, documents, instruments and securities which have been or may be delivered to IC
by ICPS in connection with this Agreement;
6.1.8.
to comply with the provisions of all applicable laws relating to the Pledged Assets or their use;
6.1.9.
to pay when due all taxes levied against or with respect to the Pledged Assets and/or the income accruing thereon under any applicable law
and to furnish IC, at its request, with all the receipts for such payments, provided that ICPS shall be entitled to exercise its legal rights to
appeal the levy of such taxes and/or defer payment thereof;
6.1.10.
not to institute any proceedings whatsoever in respect of the Secured Obligations or with respect to the Pledged Assets which could have an
adverse effect on the ability of IC to realize the Pledged Assets or any part thereof without the prior written consent of IC;
8
6.1.11.
as soon as possible after the execution of this Agreement or any amendment thereof under which additional pledges in IC Power are to be
pledged (if any), and as a condition to the provision of Loans in accordance with the Loan Agreement:
(a)
(b)
(c)
to procure that the following annotation in respect of all Pledged Shares be entered on the shareholders’ register of IC Power; “[ number
of
Pledged
Shares
] ordinary shares of the Company par value NIS 0.01 each, and registered in the name of IC Power Pte. Ltd. are
pledged in favor of Israel Corporation Ltd., pursuant to the Agreement dated [ the
date
hereof
], as amended from time to time” and to
deliver a copy of such register to IC promptly following the execution of this Agreement;
to procure a statement containing particulars of charge in respect of this Pledge in the form agreed between the Parties (the “ Statement
”) to be filed and lodged with the Accounting and Corporate Regulatory Authority of Singapore within three (3) Business Day of this
Agreement and deliver a copy of the filed Statement to IC evidencing to the full satisfaction of IC, that the relevant filings, submissions
and registrations required under Singapore law have been completed; and
to procure (i) the filing of a Pledge Notice (tofes
1
) in the form agreed between the Parties with the Israeli Pledges Registrar within one
Business Day as of the date hereof, and (ii) that original certificates of registration of the Pledge and extracts within seven Business
Days to be delivered to IC from a search of ICPS at the Israeli Pledges Registry, evidencing to the full satisfaction of IC, that the
relevant filings, submissions and registrations required under Israeli law have been completed;
Without derogating from ICPS’s undertakings hereunder, concurrently with the execution of this Agreement, ICPS is executing an
authorisation letter in the form agreed between the Parties, for the purpose authorising IC’s Singapore legal counsel to file such Statement
with the Accounting and Corporate Regulatory Authority of Singapore.
6.1.12.
6.1.13.
not to become a party to any arrangement relating to the Pledged Assets that could reasonably likely adversely affect the Pledged Assets,
ICPS’s ability to perform its obligations hereunder, or the rights and remedies of IC in relation to the Pledged Assets, including any
shareholder agreement or voting agreement, without the prior written consent of IC;
except as expressly consented by IC in advance in writing, not to amend, terminate or breach, or otherwise cause the amendment,
termination or breach of any provision of any contract, organizational documents of IC Power, or any other instrument (collectively, the “
Contracts ”), (i) that is related in any way to the Pledged Assets or the rights of ICPS which are pledged under this Agreement, or (ii) in any
manner which could reasonably be expected to adversely affect the rights or remedies of IC under this Agreement or contravene the
obligations of ICPS hereunder;
9
6.1.14.
6.1.15.
6.1.16.
except as expressly permitted under the Loan Agreement or as consented by IC in advance in writing, ICPS shall not exercise any voting or
other rights nor shall it take any other action and will oppose any action which will or may result in: (i) any issuance of any shares,
securities, or rights in connection with the share capital of IC Power, or any direct or indirect dilution of the equity interest of ICPS in IC
Power, or its economic, voting, or other interests in IC Power (other than to ICPS, and provided that all of ICPS’s rights in respect of such
shares or other securities shall be fully pledged in favour of IC in accordance with the provisions of this Agreement); (ii) any merger,
demerger, consolidation, reorganization, restructuring or any similar transaction, of IC Power; (iii) the liquidation, winding-up, or dissolution
of IC Power, or any procedures related thereto; (iv) any of IC Power’s shares being repurchased, cancelled, exchanged, replaced, substituted,
split, divided, consolidated or converted; or (v) any occurrence or event with similar consequences or results, or otherwise any harm,
damage, prejudice, or adverse effect to the rights of IC under this Agreement, the ability of IC to exercise such rights, or to the validity or
enforceability of this Agreement or the Security Interests hereunder;
forthwith, upon the execution of this Agreement, to deliver to IC: (i) the irrevocable instructions letter from ICPS to IC Power in the form
attached hereto as Exhibit B duly signed by ICPS; (ii) the acknowledgment and undertaking of IC Power, duly signed by IC Power;
obtain, maintain in full force and effect and comply with the terms of, and supply certified copies to the IC of, any authorizations, approvals,
permits, licenses and consents required at the relevant time under any law or contract to enable it to perform and comply with its obligations
hereunder, or for the validity, legality, perfection or enforceability of the Pledge
6.1.17.
agree to be bound by the terms of the Existing Pledges as if it were the existing pledgor under each such Existing Pledge, and that the
security interests created thereunder remain in full force and effect.
6.2. Notification
ICPS undertakes to notify IC forthwith upon it becoming aware of (i) any adverse claim proceeding or litigation relating to the Pledged Assets,
including the imposition of any Security Interest, or an attempt to impose any Security Interest, or any execution proceedings, or of any application for
the appointment of a receiver or any other officer of similar role, and shall immediately notify the party which imposed or attempted to impose such
Security Interest or issued such execution proceedings or application, of the Pledge, and forthwith take, at the expense of ICPS, all steps necessary for
the prompt and final discharge or cancellation of such Security Interest execution proceedings or appointment, as the case may be; and (ii) any other
development, event or circumstance of which it becomes aware which could be reasonably expected to materially and adversely affect the Pledged
Assets.
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6.3.
IC’s Right to Perform
If ICPS for any reason whatsoever fails to duly and punctually comply with any of its obligations under this Agreement, IC shall have the power, on
behalf of or in the name of ICPS or otherwise, to perform the obligation and to take any steps which IC may, in its absolute discretion, consider
appropriate with a view to remedying, or mitigating the consequences of the failure, but without in any way becoming liable therefor and provided that
the exercise of this power, or the failure to exercise it, shall in no circumstances prejudice IC’s rights hereunder.
Nothing in this Section 6 shall derogate from any undertaking of Kenon under the Loan Agreement or otherwise.
7.
Enforcement
7.1.
IC’s Powers
If an Event of Default has occurred, and for so long as it is continuing,:
7.1.1.
IC shall be entitled to take all steps as it sees fit to realize, at Kenon’s expense , any of the Security Interests created under this Agreement by
any means allowed by applicable law, including, without limitation, the appointment or application to the competent court or the execution
office for appointment of a receiver (as set out in Section 7.2 ( Appointment
of
Receiver
)) below.
7.1.2. To the extent permitted by applicable law, all or any of the powers, authorities and discretions which are conferred by this Agreement (either
expressly or implicitly) upon a receiver may be exercised by IC without first appointing a receiver or notwithstanding the appointment of a
receiver.
7.1.3.
IC shall have all powers that it may, in its full discretion, determine to be desirable or necessary to preserve its rights with respect to the
Pledged Assets and the Security Interests created hereby and to take all such steps for such purpose at Kenon’s expense.
7.2. Appointment of Receiver
7.2.1. The appointed receiver shall have all powers conferred by applicable law. Kenon alone shall be responsible for the receiver’s remuneration. In
no event shall IC be responsible for the acts and omissions of the receiver or for the receiver’s remuneration.
7.2.2. Should the payment date of the Secured Obligations or any part thereof not yet have fallen due at the time of the sale of the Pledged Assets, or
the Secured Obligations be due to IC or receiver on a contingent basis only, then IC or receiver shall be entitled to recover out of the proceeds
of the sale an amount sufficient to cover the Secured Obligations (or such part thereof) and the amount so recovered and yet to be appropriated
to the discharge of the amounts due shall be charged to IC or receiver as security for, and be held by IC or receiver until the discharge in full
of, the Secured Obligations.
11
8.
Set-Off and Other Rights
All payments required to be made by Kenon or ICPS under this Agreement shall be calculated without reference to any set-off or counterclaim, and shall be
made free and clear of, and without any deduction for, or on account of, any set-off or counterclaim.
9.
Further Action
Each of ICPS and Kenon further covenants with IC from time to time upon demand, at Kenon’s cost to execute any document or do any act or thing which in
the reasonable determination of IC is necessary to (i) create, perfect, register or give effect to any Security Interest created or intended to be created by this
Agreement over or in connection with the Pledged Assets, (ii) preserve or protect any of the rights of IC under this Agreement, or (iii) facilitate the exercise,
or the proposed exercise, of any powers or rights of IC under this Agreement.
10.
Power of Attorney
ICPS hereby irrevocably for a period of 12 years from the date hereof, but only for as long as the Security Interests under this Agreement are in effect
appoints IC as its true and lawful attorney, with full power of substitution, in respect of this Agreement, to act in ICPS’s name and at Kenon’s expense in
order to do any such act, including, without limitation, to sign in the name of ICPS any and all documents, as may in the sole discretion of IC be necessary in
order to secure the rights of IC against third parties in respect of the Security Interests contemplated by this Agreement pursuant to the terms hereof
(including as set forth in Section 9 above). In addition to, and without derogating from the foregoing, ICPS hereby irrevocably appoints IC as its true and
lawful attorney , with full power of substitution, to participate and vote in ICPS’s name and on its behalf in all general meetings of IC Power, whether by
way of written resolution or by way of meeting, so long as an Event of Default is continuing, or as otherwise set forth in the Loan Agreement.
11.
Protection of IC
11.1.
11.2.
11.3.
IC, or any of its respective agents, managers, officers, employees, delegates, or advisers shall not be liable for any claim, demand, liability, loss,
damage, cost or expense which arises out of the exercise or the attempted or purported exercise or the failure to exercise any of its respective rights,
powers and discretions under this Agreement in the absence of gross negligence or willful misconduct.
None of IC, the receiver, or any of their respective agents, managers, officers, employees, delegates, or advisers shall be under any duty to exercise
any of their respective rights, powers and discretions under this Agreement.
To the extent permitted by applicable law, ICPS hereby waives any requirements with respect to notice, form or the terms of the exercise by IC, the
receiver, or any of their respective agents, managers, officers, employees, delegates, or advisers of their respective rights, powers and discretions
under this Agreement, except as expressly provided otherwise herein or in the Loan Agreement.
12. Costs and Expenses
All reasonable out-of-pocket fees, costs and expenses incurred by IC or the receiver appointed in connection with this Pledge in connection with this
Agreement, as in force from time to time, including without limitation, in connection with the creation, registration or perfection of this Pledge or any other
document relating thereto, any reasonable out-of-pocket costs and expenses incurred in connection with any default or the breach by or failure of ICPS to
observe any of the provisions hereof or with the enforcement of, or preservation
12
of rights under this Agreement (including with respect to the contemplation of any enforcement and preparation therefor), and any reasonable out-of-pocket
costs and expenses incurred in the realization of the Pledged Assets and/or institution of proceedings for collection, insurance, safe-keeping, and maintenance
of the Pledged Assets (including, without limitation, reasonable fees of legal counsel and other advisors in any jurisdiction) shall be paid by Kenon to IC or
the receiver as the case may be following its first demand, together with interest at the Default Rate, as defined in the Loan Agreement from the date on
which a demand therefor was first made on Kenon until the date of actual payment. All the above costs, expenses and liabilities together with interest thereon
shall constitute part of the Secured Obligations.
13.
Indemnity
13.1. Kenon shall forthwith on demand indemnify IC and the receiver (the “ Indemnified Persons ”) against any reasonable fees, costs and expenses
borne as a consequence of:
13.1.1.
any action done by or on behalf of an Indemnified Person under this Agreement as a result of any failure by Kenon or ICPS to comply with
its obligations under this Agreement or otherwise in connection therewith;
13.1.2.
any payment in respect of the Secured Obligations made by Kenon or by ICPS being void for any reason whatsoever;
13.1.3.
the exercise, or attempted exercise, by or on behalf of an Indemnified Person of any of the rights or powers of an Indemnified Person or
any other action taken by or on behalf of an Indemnified Person with a view to or in connection with the recovery by any Indemnified
Person, of the Secured Obligations from Kenon or ICPS; or
13.1.4.
the carrying out of any other act or matter which IC or the receiver or any other Person acting on their behalf may consider to be necessary
for the preservation of the Pledged Assets,
provided that Kenon shall not be obligated to indemnify an Indemnified Person for any loss or liability incurred solely as a consequence of the
willful misconduct or gross negligence of such Indemnified Person.
13.2. Any amount payable under Section 13.1 above shall bear interest at the Default Rate in accordance with the provisions of the Loan Agreement, from
the date on which a demand therefor was first made on Kenon until the date of actual payment and such amounts and interest shall form part of the
Secured Obligations.
13.3. All indemnities set forth in this Agreement shall survive the execution and delivery of the Loan Agreement and this Agreement, any cancellation or
termination of the Loan Facility, the termination of the Loan Agreement and this Agreement and any transfer of the rights and obligations of IC
under the Loan Agreement and this Agreement or any Pledged Asset.
14.
Pledge Securing Third Party’s Debt
14.1.
It is hereby agreed that this pledge is without any recourse to ICPS, and that ICPS is in no way required to pay any of the Secured Obligations other
than out of the proceeds of realization of the Pledged Assets in accordance with the terms hereunder.
13
14.2. Notwithstanding the foregoing, ICPS irrevocably waives any and all claims and/or rights, of any kind whatsoever, it may have as a guarantor of
Kenon pursuant to or in accordance with Sections 1-3, 4(b)-6, 7(b)-13 and/or 15-17 (inclusive) of the Guarantee Law, 5727-1967 (and/or any other
provision of law, whether Israeli or foreign, with similar intent or effect) that may discharge ICPS from its liability to pay IC any amount under this
Agreement.
14.3. Without derogating from Kenon’s rights under the Loan Agreement and/or any other agreement between Kenon and IC, IC may at all times as it
thinks fit, without prejudice to this Agreement and without discharging or in any way affecting the liability of ICPS hereunder and without the
consent of ICPS:
14.3.1.
Increase, renew, reduce, terminate and/or amend in any other manner, any Loan provided or which shall be provided by IC to Kenon under
the Loan Agreement, as shall be amended and/or restated from time to time, in accordance with its terms;
14.3.2. Grant extension of time or other indulgence to Kenon in respect thereof;
14.3.3. Compromise, waive or settle in any manner whatsoever with Kenon or with any other guarantor of Kenon or other person; and/or
14.3.4. Amend or vary, or agree to amend or vary, the conditions of, and exchange, renew, release, modify or abstain from perfecting or enforcing
any collateral or guarantees which IC, may now or hereafter hold to secure the repayment of the Secured Obligations.
ICPS agrees that the doing of any of the above acts or omissions by IC, will not give ICPS any right to vary and/or to cancel this Agreement and/or
any of its undertakings hereunder.
14.4.
The validity of this Agreement shall not be harmed further to or as a result of the fact that IC did not receive or shall not receive any collateral or
guarantees whatsoever, or further to or as a result of the invalidity, defect, flaw or deficiency in any of the collateral or guarantees whatsoever as
security for the repayment of the Secured Obligations, or any part thereof, (if IC has received or shall receive collateral or guarantees whatsoever) or
in any obligation or undertaking whatsoever of Kenon towards IC and/or in any document that was signed or shall be signed by Kenon or by others
further to or in relation with the Secured Obligations or any part thereof or further to and/or as a result from a claim of prescription, lack of legal
capacity or lack of authority of Kenon.
14.5.
ICPS shall not be entitled to claim the benefit of or any right or share in any other collateral or guarantees which IC on anyone on its behalf may now
or hereafter hold from Kenon or from any other person as collateral for the Secured Obligations or to claim the transfer or assignment of any such
other collateral or guarantees except after the Pledged Assets shall have been realised and the proceeds thereof shall have been applied in discharge
of the Secured Obligations, and only to the extent any surplus proceeds exist.
14
14.6.
ICPS hereby declares that, prior to the full, final and irrevocable discharge and release of all Secured Obligations, it shall not receive from Kenon
any collateral whatsoever providing it with any recourse to Kenon in relation to any of its obligations and liabilities under this Agreement, and
hereby undertakes not to receive or accept any such collateral without receiving the prior written consent of IC.
15. Miscellaneous
15.1.
Entire Agreement . This Agreement constitutes the entire agreement between the Parties hereto pertaining to the subject matter hereof, and any and
all other written or oral agreements relating to the subject matter hereof existing between the Parties hereto, other than the Loan Agreement and its
ancillary documents, are expressly cancelled.
15.2. Amendment . Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the written consent of both Parties.
15.3. Assignment . ICPS’s rights and obligations under this Agreement shall not be assigned or delegated without IC’s prior written consent, except
that
ICPS may assign its obligations under this Agreement if Kenon has assigned its obligations under the Loan Agreement, and to such assignee, in
accordance with the terms therewith. IC may, at any time, and without the consent of Kenon and ICPS, assign or transfer all or any of its rights,
benefits and obligations under this Agreement, in accordance with the provisions of Section 9.5 of the Loan Agreement.
15.4.
Successors and Assigns . Without prejudice to the provisions of Section 15.3 (Assignment),
this Agreement shall inure to the benefit of, and be
binding upon, the successors and assigns of the Parties hereto.
15.5. Remedies . No failure to exercise, nor any delay in exercising, on the part of a party hereto, any right or remedy hereunder or under law shall operate
as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any
other right or remedy. The rights and remedies provided under this Agreement are cumulative and not exhaustive or exclusive of any rights or
remedies provided under applicable law. Any extension of time or waiver given, or compromise made, with respect to a specific event by IC, shall
apply only with respect to such specific event and shall not be interpreted as applying to any other event and shall not derogate from IC’s rights
under this Agreement or under applicable law (save as expressly stated in such waiver or compromise).
15.6. Notices . Any notice, demand or other communication required to be given by one Party to another under this Agreement shall be in writing and shall
be deemed to have been served if sent by email to all email addresses set out below together with registered mail or hand delivery as follows: (i) if
personally delivered, when actually delivered; or (ii) if sent by facsimile or e-mail, on the day sent (and if such day is not a Business Day, the
Business Day immediately following) subject to receipt of confirmation of transmission; (iii) 5 (five) Business Days after being mailed by certified
or registered mail, postage prepaid (for the purposes of proving such service, it being sufficient to prove that such notice was properly addressed and
posted) to the respective addresses of the Parties set out herein:
15
if to IC :
Address :
e-mail:
Millennium Tower, 23 Aranha Street, P.O.B
20456, Tel Aviv, 61204, Israel
mayaak@israelcorp.com
natany@israelcorp.com
Attention:
Legal Department; Financial Department
if to ICPS :
Address :
IC Power Pte Ltd.,
1 Temasek Avenue, #36-01 Millenia Tower,
Singapore 039192
email :
TzahiG@kenon-holdings.com ;
RobertR@kenon-holdings.com ;
yoavd@kenon-holdings.com
Attention:
Tzahi Goshen, Robert Rosen, Yoav Doppelt
Tel: +65 6351-1780
Fax: +65 6351-1798
If to Kenon :
Address:
e-mail:
Kenon Holdings Ltd.,
1 Temasek Avenue, #36-01 Millenia Tower, Singapore 039192
RobertR@kenon-holdings.com ;
TzahiG@kenon-holdings.com ;
yoavd@kenon-holdings.com
Attn: Robert Rosen, Tzahi Goshen, Yoav Doppelt
Tel: +65 6351-1780
Fax: +65 6351-1798
or at such other address or email as any Party shall have furnished to the other in writing in accordance with this Section 15.6.
15.7. Governing Law; Jurisdiction . The internal laws of the State of Israel, without regard to its conflict of laws rules, shall govern the validity, the
construction of its terms and the interpretation of the rights and duties of the Parties hereunder. The appropriate courts in Tel-Aviv-Jaffa, Israel shall
have exclusive jurisdiction over any dispute or claim in connection with this Agreement or any of the transactions contemplated hereby, and the
Parties hereby irrevocably submit to such jurisdiction.
The parties agree that this Section is made for the benefit of IC only. As a result, IC shall not be prevented from taking proceedings to settle any
matter, dispute or relating to this Agreement or to enforce any right or remedy it may have in connection herewith in any courts with jurisdiction in
Singapore or in any jurisdiction in which ICPS has assets, as it may deem appropriate and necessary in
16
its sole discretion. To the extent allowed by law, the taking of proceedings in one jurisdiction shall not limit preclude the taking of proceedings
(whether concurrently or not) in any other jurisdiction.
ICPS hereby agrees that the process by which any suit, action or proceedings be initiated or conducted may be served on it by being delivered in
connection with any such proceedings in Israel to IC Green Energy Ltd. (“IC Green”). A copy of any documents so served shall be concurrently
delivered to ICPS as set out in Section 15.6 above.
A copy of the appointment letter and the consent of the IC Green to act as agent for service is attached hereto as Exhibit C. If the appointment of IC
Green ceases to be effective, the undersigned shall immediately appoint another person or entity in Israel to accept service of process on its behalf in
Israel and, failing such appointment within 21 (twenty one) days, service to the law firm of Meitar Liquornik Geva Leshem Tal Law Offices, to the
attention of any two of the following: Advs. Dan Geva, Michael Rimon, Judith Gal-Or, Assaf Oz, Tomer Sela and David Glatt (or, in their absence,
to any partner in that law firm) will constitute due service of process to ICPS. Nothing contained herein shall affect the right to serve process in any
other manner permitted by applicable law.
15.8. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the Parties actually
executing such counterparts, and all of which together shall constitute one instrument.
[ Signature
Page
to
Follow
]
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IN WITNESS WHEREOF, the Parties have executed this PLEDGE AGREEMENT as of the date first above written.
ISRAEL CORPORATION LTD.
By:
/s/ Maya Alchen Kaplan
Adv. Maya Alchen Kaplan
Title: Executive V.P., General Counsel and Company Secretary
By:
/s/ Mr. Sagi Kabla
Mr. Sagi Kabla
Title: CFO
IC POWER PTE. LTD.
By:
Title:
I, the undersigned, , Advocate, acting as the legal advisor of IC Power Pte. Ltd. (the “ Corporation ”), hereby confirm that this Agreement has been
duly signed and executed by the Corporation in accordance with its constitutional documents. Furthermore I hereby confirm that this Agreement was signed by the
Corporation’s duly authorized signatories and as such binds the Corporation in all respects.
Signature and Seal: Date:
IN WITNESS WHEREOF, the Parties have executed this PLEDGE AGREEMENT as of the date first above written.
ISRAEL CORPORATION LTD.
By:
Title:
IC POWER PTE. LTD.
By:
/s/ Tzahi Goshen
Tzahi Goshen
Title: Director
I, the undersigned, CHAN WEI LING, CHRISTINE JESSIE (ZENG WEILING), Advocate, acting as the legal advisor of IC Power Pte. Ltd. (the “ Corporation
”), hereby confirm that this Agreement has been duly signed and executed by the Corporation in accordance with its constitutional documents. Furthermore I
hereby confirm that this Agreement was signed by the Corporation’s duly authorized signatories and as such binds the Corporation in all respects.
Signature and Seal:
Date: 17 MARCH 2016
CHAN WEI LING, CHRISTINE JESSIE (ZENG WEILING)
Advocate & Solicitor
Singapore
Acceptance and undertaking of Kenon
We, the undersigned, Kenon Holdings Ltd. , hereby accept and undertake in favour of IC, without prejudice to the obligations and liabilities of IC Power Pte. Ltd.,
to comply with and to observe the terms of the Pledge Agreement and represent and warrant, with respect to ourselves, the warranties and representations set out in
Sections 5.1, 5.2 and 5.11 thereof. We confirm that this acceptance and undertaking has been duly signed by our authorised signatories, and is binding on us for all
intents and purposes in accordance with its terms.
KENON HOLDINGS LTD.
By:
/s/ Kenneth Gilbert Cambie
Kenneth Gilbert Cambie
Title: Director
6,600,066 (six million, six hundred thousand, sixty six) Ordinary Shares of IC Power Ltd. par value 0.01 each (and their Related Rights).
Exhibit A
Number of Pledged Shares
Exhibit B
Irrevocable Instructions and Notice to IC Power Ltd.
Date: 2016
To:
IC Power Ltd.
23 Aranha St., Tel Aviv
(“ IC Power ”)
Dear Sirs,
1.
The undersigned, IC Power Pte. Ltd. (“ ICPS ”), has entered into that certain Pledge Agreement dated as of the date hereof (the “ Pledge Agreement
”), pursuant to which it has created in favor of Israel Corporation Ltd. (including any assignee thereof pursuant to the Loan Agreement, “ IC ”) a first
ranking fixed pledge or, as may be applicable, assignment by way of pledge, in each case not limited in amount over the Pledged Assets, as defined
therein, which include: (i) all of ICPS’s present and future rights, title and interest in 6,600,066 (six million, six hundred thousand, sixty six) ordinary
shares par value NIS 0.01 of IC Power Ltd. (“ IC Power ”), along with any other shares in the share capital in IC Power which constitute Related
Rights (as defined therein) of such shares from time to time (the “ Pledged Shares ”); and (ii) all Related Rights (as defined therein);
2. We hereby irrevocably instruct you:
2.1
2.2
2.3
Except with the prior written consent of IC, not to approve or register any sale, lease, assignment, license, transfer or otherwise disposal in any
manner of any Pledged Shares or any Related Rights thereto, or any interest therein (a “Transfer”), except if the Transfer is expressly
permitted in Section 7.5.2 of the Loan Agreement and pursuant to its terms.
Unless IC informs you, in writing, otherwise, ICPS shall continue to have the right to exercise all of its rights and powers in relation to each of
the Pledged Assets (including the right to exercise any and all voting and/or other rights relating to the Pledged Assets).
Unless IC informs you, in writing, otherwise, to pay all monies, distributions, dividends and any other Related Rights and any and all
payments in connection with the Pledged Shares to ICPS, and as of and subject to the IC notice to the contrary - to pay the same to an account
the details of which will be provided by IC (and in the absence of such details, not to make any such payments and to immediately notify IC
that such details are required), and otherwise treat the same in accordance with IC’s written instructions.
3.
Each of ICPS and IC shall be entitled from time to time to jointly notify you that additional shares in IC Power have been pledged in favor of IC under the
Pledge Agreement, or similar instruments to be entered into from time to time (the “ Additional Shares ”), and upon receipt of such notice by you, these
instructions shall apply for all purposes and intents to the Additional Shares and any of the rights referred to in Section 1 above relating to the Additional
Shares.
4.
This notice is irrevocable and shall not be amended or cancelled without the prior written consent of IC.
Kind regards,
IC Power Pte. Ltd.
To:
Israel Corporation Ltd.
IC Power Pte. Ltd.
Dear Sirs,
1. We hereby acknowledge receipt of the above notice and confirm that we shall comply with the irrevocable instructions thereof.
2.
The Board of Directors of IC Power Ltd. has approved the creation of the security over the Pledged Assets, including the Pledged Shares, any Additional
Shares and the Related Rights, pursuant to the Pledge Agreement (as these terms are defined in the above notice) or (with respect to the Additional Shares) -
similar instruments to be entered into from time to time; upon IC’s demand.
3. We shall enter the following annotation in respect of all Pledged Shares on the shareholders’ register of IC Power Ltd.; “6,600,066 (six million, six hundred
thousand, sixty six) ordinary shares of the Company par value NIS 0.01 each, registered in the name of IC Power Pte. Ltd. are pledged in favor of Israel
Corporation Ltd., pursuant to the Pledge Agreement dated _ March 2016, as may be amended from time to time.
4. We hereby irrevocably waive any lien or set-off right that we may have (if at all) with respect to the Related Rights in relation to the Pledged Shares and any
Additional Shares that IC will instruct us not to transfer directly to ICPS in accordance with the above instructions.
Kind regards,
IC Power Ltd.
Date:
I, the undersigned, , Advocate, acting as the legal advisor of IC Power Ltd. (the “Corporation” ), hereby confirm that this notice has been duly signed
and executed by the Corporation in accordance with its constitutional documents. Furthermore I hereby confirm that this notice was signed by the Corporation’s
duly authorized signatories and as such binds the Corporation in all respects.
Signature and Seal: Date:
IC Green Energy Ltd.
19 Ha’arba’a St., Hatichon Tower
Tel-Aviv 61204, Israel
Attention:
Dear Sirs,
EXHIBIT C
IC Power Pte. Ltd.
1 Temasek Avenue #36-01 Millenia Tower, Singapore 039192
, 2015
Re: Appointment of Process Agent
1. We refer to the Pledge Agreement dated th day of March, 2016, by and between Israel Corporation Ltd. (“ IC ”) and IC Power Pte. Ltd. (“ ICPS ”), as
may be amended, supplemented, modified or replaced (the “ Pledge Agreement ”). Terms used hereinafter and hereinabove shall have the meanings
ascribed to them in the Pledge Agreement (including any Schedules or Exhibits thereto), unless explicitly dictated otherwise herein.
2. We hereby appoint you as our agent for service of process by which any suit, action or proceeding is begun in the courts of the State of Israel arising out of
or in connection with the Pledge Agreement, on the terms set out in this letter.
3.
Your appointment shall cease only upon receipt of notice of confirmation from IC (or any successor, assignee or representative thereof).
If the Pledge Agreement is extended, amended, restated or otherwise modified, your appointment will, nonetheless, be extended and continued accordingly.
4.
On receipt of service of process addressed to us by which any suit, action or proceeding is begun in the courts of the State of Israel arising out of or in
connection with the Pledge Agreement, you shall:
4.1
4.2
accept service on our behalf;
notify in writing by email or by fax to the email address or the number stated in this letter, as applicable (or another email address or fax number
notified in writing to you by us from time to time), in either case containing the following:
(a)
(b)
the date on which you accepted service of process on our behalf.
a request by you for the name of the law firm in the State of Israel to whom the originals of the document(s) served on you should be sent.
but need not contain any other information nor details of the nature or substance of the claim made against us.
4.3 You shall also send a copy of the notice referred to in paragraph 4.2 to us by mail or courier to the address stated in this letter (or another address
notified in writing to you by us from time to time) with a copy of the process served.
Your dispatch of the notice referred to in paragraph 4.2 or paragraph 4.3 is a good discharge of your obligations contained in the relevant paragraph, whether
or not we receive the relevant notice and whether or not you are aware that we may not have received a notice previously sent to us by you. If, in your
opinion, your dispatch or our receipt of either of the notices to be sent to us pursuant to paragraph 4.2 or paragraph 4.3 might be prevented, hindered or
delayed by a cause beyond your control (including, without limitation, interruptions in postal or other communications services) your obligations under those
paragraphs are suspended until, in your opinion, dispatch will not be prevented, hindered or delayed in that way. While your obligations are suspended you
shall, if the relevant telephone services are operating normally, use reasonable efforts to give us the information referred to in paragraph 4.2 by telephone call
to the number stated in this letter (or another number notified in writing to you by us from time to time).
You are instructed to notify us and IC of any change in your name or address as well as of any proposed change in your status that could lead to your
winding-up or dissolution or of any contemplated cessation in maintaining an office or place of business in Israel.
This letter and any obligations arising out of or in connection with it are governed by, and shall be construed in accordance with, Israeli law. The competent
courts of Tel-Aviv-Jaffa, Israel shall have exclusive jurisdiction on any matters arising out of or in connection with this letter.
Please acknowledge your acceptance of the terms of this letter by signing the acknowledgement below. We shall notify the parties to the Pledge Agreement
that you have accepted the terms of this letter and provide them with a copy of this letter and your acceptance.
5.
6.
7.
8.
Yours faithfully
a duly authorized representative of IC Power Pte. Ltd.
We acknowledge receipt of your letter of which this is a true copy. We accept the appointment as agent for service process described in the letter on the terms the
letter sets out, and undertake to comply with such terms.
a duly authorized representative of IC Green Energy Ltd.
Exhibit 4.16
Execution Copy
DATED THIS 17th DAY OF March 2016
Between
KENON HOLDlNGS LTD.
(Registration Number: 201406588W)
as Chargor
and
ISRAEL CORPORATION LTD.
(Company Registration Number: 520028010)
as Lender
SECURITY OVER SHARES AGREEMENT
WONGPARTNERSHIP LLP
12 Marina Boulevard Level 28
Marina Bay Financial Centre Tower 3
Singapore 018982
Tel: +65 6416 8000
Fax: +65 6532 5711 /+ 65 6532 5722
Email: contactus@wongpartnership.com
Website: http ://www.wongpartnership.com
CLAUSE
HEADING
PAGE
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SCHEDULE 1
SCHEDULE 2
INTERPRETATION
SECURITY
RESTRICTIONS AND FURTHER ASSURANCE
CHARGED SHARES
GENERAL UNDERTAKINGS
REPRESENTATIONS AND WARRANTIES
ENFORCEMENT
APPOINTMENT AND RIGHTS OF RECEIVERS
LENDER’S RIGHTS
ORDER OF DISTRIBUTIONS
LIABILITY OF LENDER, RECEIVERS AND DELEGATES
POWER OF ATTORNEY
PROTECTION OF THIRD PARTIES
SAVING PROVISIONS
DISCHARGE OF SECURITY
ENFORCEMENT EXPENSES
PAYMENTS
MISCELLANEOUS INDEMNITIES
RIGHTS, AMENDMENTS, WAIVERS AND DETERMINATIONS
PARTIAL INVALIDITY
BENEFIT OF SECURITY
NOTICES
COUNTERPARTS
GOVERNING LAW
ENFORCEMENT
RIGHTS OF RECEIVER
SHARES
2
Share Charge (IC Power Singapore) (Exe)
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THIS SECURITY OVER SHARES AGREEMENT (this “Deed”) is made on 17 March 2016
BETWEEN :
(1) KENON HOLDINGS LTD . (Company Registration Number: 201406588W), a company incorporated in Singapore and having its registered office at 80
Raffles Place, #26-01, UOB Plaza, Singapore 048624 (the “ Chargor ”); and
(2)
ISRAEL CORPORATION LTD . (Company Registration Number: 520028010), a company incorporated in the State of lsrael and having its registered
office at Millennium Tower, 23 Aranha Street, P.O.B 20456, Tel Aviv, 61204, lsrael (the “ Lender ”),
(collectively, the “ Parties ” and each, a “ Party ”)
WHEREAS:
(A)
The Chargor has requested the Lender to provide and the Lender has provided the Chargor with a loan facility in an aggregate amount up to
US$200,000,000, on the terms and subject to the conditions set out in the loan agreement dated 7 January 2015, as amended, (the “ Loan Agreement ” )
entered into between the Chargor and the Lender.
(B)
ln connection with the Loan Agreement, the Chargor entered into the Pledge Agreements (hereinafter defined) in respect of an aggregate of 6,600,066 shares
in l.C. Power Ltd., a company incorporated in the State of lsrael with company registration number 51-437498-2 ( “ IC Power ” ).
(C) As at the date of this Deed, the Chargor is the legal and beneficial owner of the entire issued and paid-up capital of the Company.
(D)
ln connection with a Supplement No. 1 dated 17 March 2016 to the Loan Agreement:
(a)
(b)
the Chargor is required to execute this Deed; and
the shares subject to the Pledge Agreements (hereinafter defined) are to be released from the Pledge Agreements and transferred to the Company,
which would enter into a substitute pledge agreement,
both as continuing security for the full and punctual payment of the Secured Obligations (hereinafter defined).
IT IS AGREED as follows:
1.
INTERPRETATION
1.1 Definitions and Constructions
ln this Deed, unless a contrary indication appears and except where defined below, capitalised terms used in the Loan Agreement shall have the same
meanings and construction and, in addition:
“ Acts ” means the Companies Act and the Property Act.
“ Cash Dividends ” means, in relation to any Share, all present and future Dividends received or receivable in the form of cash in respect of that Share.
Share Charge (IC Power Singapore) (Exe)
“ Charged Assets ” means the Shares, the Related Rights, and to the extent not included in the foregoing, any and all proceeds, products and benefits
deriving from such Charged Assets, including, without limitation, those received upon the sale or other disposition of such Charged Assets and any property
into which such Charged Assets are converted, whether cash or non-cash.
“ Charges ” means the security created or expressed to be created over the Charged Assets by or pursuant to this Deed.
“ Company ” means IC Power Pte. Ltd. (Company Registration Number: 201511865D), a company incorporated in Singapore and having its registered
office at 80 Raffles Place, #26-01, UOB Plaza, Singapore 048624.
“ Companies Act ” means the Companies Act (Chapter 50 of Singapore).
“ Delegate ” means a delegate or sub-delegate appointed under Clause 9.2 ( Delegation
).
“ Dividends ” means, in relation to any Share, all present and future:
(a)
(b)
(c)
(d)
dividends and distributions of any kind and any other sum received or receivable in respect of that Share;
rights, benefits, proceeds, shares, money or other assets accruing or offered by way of redemption, bonus, preference, option, substitution, conversion
or otherwise in respect of that Share;
allotments, offers and rights accruing or offered in respect of that Share; and
other rights and assets attaching to, deriving from or exercisable by virtue of the ownership of, that Share.
“ Finance Document ” means the Loan Agreement and this Deed.
“ IC Power ” shall have the meaning ascribed to it in Recital (B).
“ IPO ” means, in respect of the Company, an initial public offering of its ordinary shares and listing on the New York Stock Exchange.
“ Loan Agreement ” shall have the meaning ascribed to it in Recital (A).
“ Pledge Agreements ” means:
(a)
(b)
(c)
(d)
the pledge agreement dated 7 January 2015 made between the Chargor and the Lender;
the pledge agreement dated 29 January 2015 made between the Chargor and the Lender;
the pledge agreement dated 4 May 2015 made between the Chargor and the Lender; and
the pledge agreement dated 7 October 2015 made between the Chargor and the Lender, pursuant to which shares in IC Power were charged in favour
of the Lender.
Share Charge (IC Power Singapore) (Exe)
2
“ Propertv Act ” means the Conveyancing and Law of Property Act (Chapter 61 of Singapore).
“ Receiver ” means a receiver and manager or other receiver appointed in respect of the Charged Assets.
“ Related Rights ” means any asset or right distributable, accruing, offered, issued or deriving at any time in connection with the Shares including but not
limited to all Dividends, interest and other monies payable in respect of the Shares and all other rights, benefits and proceeds in respect of or derived from
the Shares (whether by way of redemption, bonus, preference, option, substitution, conversion or otherwise).
“ Secured Obligations ” means all present and future obligations and liabilities (whether actual or contingent and whether owed jointly or severally or in
any other capacity whatsoever) owing or incurred by the Chargor to the Lender under or in connection with the Finance Documents, together with all
reasonable costs and expenses (including reasonable legal fees) incurred by the Lender or payable in accordance with this Deed.
“ Security ” means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement
having a similar effect.
“ Shares ” means 369,145 shares in the share capital of the Company legally and beneficially owned by the Chargor, representing 66% of the issued share
capital of the Company, as described in Schedule 2 ( Shares
).
1.2
Third Party Rights
(a)
(b)
Save for any Receiver, any Delegate or any attorney or nominee of the Lender or any Receiver and any person appointed by any of them under this
Deed and unless expressly provided to the contrary in this Deed, a person who is not a Party has no right under the Contracts (Rights of Third Parties)
Act (Chapter 53B of Singapore), to enforce or to enjoy the benefit of any term of this Deed.
Notwithstanding any term of this Deed, the consent of any third party is not required for any variation (including any release or compromise of any
liability under) or termination of this Deed.
2.
SECURITY
2.1
Charge
The Chargor, as absolute, legal and beneficial owner of the Shares, and as a continuing security for the full and punctual payment and performance of all
Secured Obligations, charges and agrees to charge in favour of the Lender by way of first fixed charge, and assigns and agrees to assign absolutely to the
Lender, free from all Security, the Charged Assets.
2.2
Share Certificates etc.
(a)
The Chargor shall on the date of this Deed deliver to the Lender, or as it directs, all certificates representing such Shares and transfers of such Shares
executed in blank and shall promptly deliver to the Lender, or as it directs, any other documents relating to such Shares which the Lender requires.
Share Charge (IC Power Singapore) (Exe)
3
(b)
The Chargor will at the request of the Lender made after an Event of Default while it is continuing, procure the registration of the transfer forms
specified in paragraph (a) above in the books of the Company and the entry of the Lender and/or its nominee in the register of members in the
Company as the holder of the Shares.
2.3
Release of Share Certificates
(a)
(b)
If, in connection with the IPO, the Chargor is required to deliver any share certificate representing any Shares to any depository or stock exchange or
any of their agents or nominees, the Lender shall deliver such certificates then in its possession to the Chargor or as it may direct.
If, in connection with any sub-division of the Shares, the Chargor is required to cancel existing share certificates representing any Shares in lieu of
fresh share certificates being issued, the Lender shall deliver such certificates then in its possession to the Chargor or as it may direct, [provided that
against delivery of such certificates the Chargor delivers to the Lender all new certificates representing such Shares to the Lender or as it directs.
3.
RESTRICTIONS AND FURTHER ASSURANCE
3.1
Security
The Chargor undertakes to the Lender until the release of the Charges in accordance with the terms hereof, not to create, or permit the creation of Security, in
any manner, over the Charged Assets without the prior written consent of the Lender.
3.2 Disposal
The Chargor undertakes to the Lender until the release of the Charges in accordance with the terms hereof, not to sell, lease, license, sub-license, assign,
transfer or otherwise dispose of any of the Charged Assets and not to grant any right therein without the prior written consent of the Lender, except as
expressly permitted by Section 7.5.2 of the Loan Agreement and pursuant to its terms.
3.3
Calls, etc.
The Chargor shall, duly and promptly pay all calls, subscription moneys and/or other moneys payable on or in respect of the Charged Assets. lf the Chargor
does not do so, the Lender may do so and, if the Lender does so, the Chargor shall promptly indemnify the Lender against such payment together with
interest thereon for the period beginning on the date of such payment and ending on the date on which the Lender has been indemnified in full by the
Chargor calculated at the rate of 3% per annum.
3.4
Further Assurance
The Chargor shall at its own cost and expense, upon demand, execute any document or do any act or thing which in the reasonable determination of the
Lender is necessary:
(a)
(b)
at any time during the continuance of this Deed, to perfect or protect the Charges or the priority of the Charges;
to preserve or protect any of the rights of the Lender under this Deed; or
Share Charge (IC Power Singapore) (Exe)
4
(c)
to facilitate the realisation of the Charged Assets or the exercise of any rights vested in the Lender or any Receiver in accordance with the provisions
of this Deed,
including executing an authorisation letter in the form agreed between the Chargor and the Lender authorizing the Chargor’s legal counsel to file the
Statement Containing Particulars of Charge with the Accounting and Corporate Regulatory Authority of Singapore and executing any transfer, conveyance,
charge, assignment or assurance of the Charged Assets (whether to the Lender or its nominees or otherwise), making any registration and giving any notice,
order or direction.
4.
CHARGED ASSETS
4.1 Voting
(a)
Prior to the occurrence of an Event of Default and the Lender notifying the Chargor that the Lender intends to exercise any rights conferred on the
Lender hereunder, the Chargor shall be entitled to exercise or direct the exercise of the voting and other rights in respect of any of the Charged Assets
provided that, except as expressly permitted under the Loan Agreement, the Chargor shall not exercise any voting or other rights nor shall it take any
other action and will oppose any action with respect to the Charged Assets, including such action which will or may result in:
(i)
(ii)
(iii)
(iv)
(v)
(save for the purpose of the IPO) any issuance of any shares, securities, or rights in connection with the share capital of the Company, or any
direct or indirect dilution of the equity interest of the Chargor in the Company, or its economic, voting, or other interests in the Company
(other than to the Chargor, and provided that all of the Chargor’s rights in respect of such shares or other securities shall be subject to the
Security created hereunder in favour of the Lender in accordance with the provisions of this Deed);
any merger, demerger, consolidation, reorganization, restructuring or any similar transaction, of the Company;
the liquidation, winding-up, or dissolution of the Company, or any procedures related thereto;
(save for in respect of a sub-division of the Shares or in connection with the consummation of the IPO) any of the Company’s shares being
repurchased, cancelled, exchanged, replaced, substituted, split, divided, consolidated or converted; or
any occurrence or event with similar consequences or results, or otherwise any harm, damage, prejudice, or adverse effect to the rights of the
Lender under this Deed, the ability of the Lender to exercise such rights, or to the validity or enforceability of this Deed or the Security created
hereunder.
4.2 Upon the occurrence of an Event of Default and after the Lender has notified the Chargor that it intends to exercise any rights conferred on the Lender
hereunder and to the extent permitted by applicable law, the Lender may, without being under any obligations so to do and without prejudice to the
provisions of Clause 4.1 exercise or cause to be exercised at the Lender’s discretion in the Chargor’s name or otherwise at any time whether before or after
the power of sale herein has arisen (and without the Chargor’s further consent or authority), in respect of any of the Charged Assets hereby charged, the
voting rights as if the Lender was
Share Charge (IC Power Singapore) (Exe)
5
the registered holder and beneficial owner thereof including the power to attend or speak at any general meeting of the company of any of the shares
comprised in the Charged Assets from time to time and (where applicable) to appoint a proxy therefor and to exercise all other powers and rights of any
nature whatsoever of a shareholder of the Company under its articles of association or at law, and such rights may not be exercised by the Chargor, if the
Lender provided the Chargor a notice to that effect.
4.3 Dividends
(a)
(b)
Prior to the occurrence of an Event of Default and the Lender having notified the Chargor that it intends to exercise any rights conferred on the Lender
hereunder, the Chargor shall be entitled to receive any Cash Dividend.
Upon the occurrence of an Event of Default and the Lender having notified the Chargor that it intends to exercise any rights conferred on the Lender
hereunder, and until the full and final repayment of the Secured Obligations, the Chargor shall hold any Dividend received by it on trust for the Lender
and pay the same immediately to:
(i)
(ii)
any bailee, trustee or receiver of the Lender as may be instructed by the Lender in its sole discretion; or
the Lender towards the payment of the Secured Obligations.
The Lender shall be entitled to apply the same as it sees fit towards the payment of the Secured Obligations.
5.
GENERAL UNDERTAKINGS
5.1
The Chargor undertakes to the Lender until the release of the Charges in accordance with the terms hereof, except as expressly permitted herein.
(a)
(b)
(c)
(d)
(e)
not to enter into any conflicting obligation affecting the Charged Assets or any part thereof, or create or permit to arise any overriding interest
whatsoever without the prior written consent of the Lender;
to defend the Charged Assets against, and to take, at its expense, any action necessary to remove any Security (other than Security created by or
pursuant to the Loan Agreement) over any of the Charged Assets, and to defend the rights and interest of the Lender in and to the Charged Assets
against the claims of any other persons;
to maintain all Security created or purported to be created hereunder in connection with the Charged Assets and to effect all registrations (including
making filings with the Accounting and Corporate Regulatory Authority of Singapore) relating thereto in accordance with the terms hereof;
upon first demand of the Lender, to promptly do any acts and execute and deliver to the Lender any document that the Lender reasonably requires
from time to time for the protection of the Charges or the Charged Assets;
to be liable towards the Lender for any defect in the title to the Charged Assets and to bear the responsibility for the authenticity and correctness of all
the signatures, endorsements and particulars of any bills, documents, instruments and securities which have been or may be delivered to the Lender by
the Chargor in connection with this Deed;
Share Charge (IC Power Singapore) (Exe)
6
(f)
(g)
(h)
(i)
(j)
(k)
to comply with the provisions of all applicable laws relating to the Charged Assets or their use;
to pay when due all taxes levied against or with respect to the Charged Assets and/or the income accruing thereon under any applicable law and to
furnish the Lender, at its request, with all the receipts for such payments, provided that the Chargor shall be entitled to exercise its legal rights to
appeal the levy of such taxes and/or defer payment thereof;
not to institute any proceedings whatsoever in respect of the Secured Obligations or with respect to the Charged Assets which could have an adverse
effect on the ability of the Lender to realize the Charged Assets or any part thereof without the prior written consent of the Lender;
not to become a party to any arrangement relating to the Charged Assets that could reasonably likely adversely affect the Charged Assets, the
Chargor’s ability to perform its obligations hereunder, or the rights and remedies of the Lender in relation to the Charged Assets, including any
shareholder agreement or voting agreement, without the prior written consent of the Lender;
except as expressly consented by the Lender in advance in writing or for the purpose of an lPO, not to amend, terminate or breach, or otherwise cause
the amendment, termination or breach of any provision of any contract, organizational documents of the Company, or any other instrument, (i) that is
related in any way to the Charged Assets or the rights of the Chargor which are charged under this Deed, or (ii) in any manner which could reasonably
be expected to adversely affect the rights or remedies of the Lender under this Deed or contravene the obligations of the Chargor hereunder; and
obtain, maintain in full force and effect and comply with the terms of, and supply certified copies to the Lender of, any authorisations, approvals,
permits, licenses and consents required at the relevant time under any law or contract to enable it to perform and comply with its obligations
hereunder, or for the validity, legality, perfection or enforceability of the Charges.
5.2
The Chargor undertakes to notify the Lender forthwith upon it becoming aware of (a) any adverse claim proceeding or litigation relating to the Charged
Assets, including the imposition of any Security, or an attempt to impose any Security, or any execution proceedings, or of any application for the
appointment of a receiver or any other officer of similar role, and shall immediately notify the party which imposed or attempted to impose such Security or
issued such execution proceedings or application, of the Charges, and forthwith take, at the expense of the Chargor, all steps necessary for the prompt and
final discharge or cancellation of such Security execution proceedings or appointment, as the case may be; and (b) any other development, event or
circumstance of which it becomes aware which could be reasonably expected to materially and adversely affect the Charged Assets.
Nothing in this Section 5 shall derogate from any undertaking of the Chargor under any Finance Document or otherwise.
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7
6.
REPRESENTATIONS AND WARRANTIES
Without derogating from any representation or warranty of the Chargor under the Loan Agreement or otherwise, the Chargor represents and warrants to the
Lender (which representations will be deemed to be repeated on each day until the release of the Charges in accordance with the terms hereof) as set out in
this Clause 6, and acknowledges that the Lender is entering into this Deed in full reliance thereof.
6.1
Status
It is a company, duly incorporated and validly existing under the law of its jurisdiction of incorporation, and has the power to carry on its business as it is
being conducted from time to time.
6.2
Capacity
It has the right, power, authority and capacity to execute and deliver this Deed, to consummate the transactions contemplated hereby and to perform its
obligations under this Deed.
6.3 Authorisation and binding obligations
This Deed has been authorised by all necessary corporate action on its part, has been duly executed and delivered by it through its authorised officers, and it
represents valid and binding obligations enforceable against it in accordance with its terms.
6.4
Consents
No consent, approval or authorisation of, exemption by, or filing with, any governmental or regulatory authority or any third party is required in connection
with the execution, delivery and performance by the Chargor of this Deed and the consummation of the transactions contemplated herein, including the
creation and perfection of the Charges save for (a) the making of the appropriate registrations of this Deed with the Accounting and Corporate Regulatory
Authority of Singapore; and (b) the payment of stamp duty in the amount of S$500 payable in Singapore in respect of the stamping of this Deed, which shall
be completed by the Chargor within the time periods prescribed by law.
6.5 Non-conflict
The Chargor’s entry into, and performance by it of this Deed does not and will not conflict with, or result in a violation of (i) its or the Company’s or any of
its direct or indirect subsidiaries’ constitutional documents, (ii) any other agreement to which any of the above is a party, (iii) any order, judgment, award,
injunction, decree, ordinance or regulation or any other restriction by which any of the above is bound, (iv) any authorisation or consent to which any of the
above is subject; or (v) any applicable law.
6.6 No Winding-up
Neither the Chargor nor the Company or any of its direct or indirect subsidiaries has taken any corporate action, nor have any other steps been taken or legal
proceedings been started or (to the best of its knowledge) threatened against either of them, in any jurisdiction, for winding-up, dissolution, judicial
management administration or reorganization (by way of voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a liquidator,
receiver, administrator, administrative receiver, judicial manager, compulsory manager, trustee or similar officer of either of them or of any or all of their
assets or revenues.
Share Charge (IC Power Singapore) (Exe)
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6.7
Title to Assets
The Chargor will be on and from the date of this Deed the sole legal and beneficial owner of the Charged Assets and no other person has any legal or
beneficial interest (or any right to claim any such interest), and there is no competing or adverse right in the Charged Assets.
6.8
The Shares
The Shares are duly authorised, validly issued, fully paid, non-assessable and are free and clear of any Security (other than pursuant to the Charges), options,
third party rights or any restrictions or limitations on transfer, other than as expressly set out in the articles of association of the Company.
6.9
Security
The provisions of this Deed are effective to create, in favour of the Lender a legal, valid and binding, not limited in amount, fixed charge which is not subject
to any prior or other security and is not liable to be set aside on the insolvency of the Chargor, and an assignment by way of charge over the Charged Assets,
first ranking, perfected and enforceable in accordance with the terms hereof.
6.10 Taxes
Full payment of all taxes levied against or with respect to the Charged Assets and/or the income accruing thereon under any applicable law has been made.
6.11 Solvency
Neither the Chargor nor the Company has, at the time of entry into of this Deed and the transfers herein, and would not at any time resulting from the
performance or carrying out of obligations and entry into any of the transactions hereunder, have (a) entered into or initiated or has initiated against it any
process for any scheme of arrangement or compromise, (b) initiated or has initiated against it any corporate voluntary arrangements or entered into any
composition agreement with its creditors, (c) been in a position where it is or may be, unable, or where it has ceased to, pay its debts (including any
contingent and prospective debts and liabilities whatsoever), or its assets are less than its debts and liabilities (including any contingent and prospective debts
and liabilities whatsoever), (d) been declared insolvent, (e) commenced or been the subject of any winding-up procedure whatsoever, (f) requested or been
subject to the appointment of, or any application being made for the appointment of, any receiver (including a receiver and manager), trustee, judicial
manager, liquidator, statutory manager, scheme manager or administrator, sequestrator, administrative receiver, administrator or similar officer, (g) been in a
position where it is otherwise insolvent or has become insolvent by reason of the entering into or completion of the transactions contemplated by the Finance
Documents (the word “insolvent” having the meaning under Section 100(4) of the Bankruptcy Act , Chapter 20 of Singapore (the “ Bankruptcy Act ”)),
(h) been unable to pay its debts or has become unable to pay its debts by reason of the entering into or the completion of the transactions contemplated by the
Finance Documents (the phrase “being unable to pay its debts” being within the meaning of sections 254(1)(e) and 254(2) of the Companies Act, Chapter 50
of Singapore (the “ Companies Act ”)), or (i) been subject to any event similar to any of the above under the laws of any jurisdiction.
Share Charge (IC Power Singapore) (Exe)
9
6.12 Good faith
The Chargor and the Company in entering into, and carrying out, each transaction and transfer herein, did so, and will do so, on arms-length commercial
terms, in good faith, for the purpose of carrying on the Chargor’s, or as the case may be, the Company’s business and there were reasonable grounds for
believing the transaction(s) would benefit the Chargor, or as the case may be, the Company at the time the Chargor, or as the case may be, the Company
entered into the transaction(s) and be reasonably be in the best interests of the Chargor, or as the case may be, the Company.
6.13 IC Power shares
The transfer of the Chargor’s entire shareholding interests in IC Power (the “ IC Power Shares ”) to the Company pursuant to the Share Transfer Agreement
is:
(a)
(b)
for consideration reflective of market and did not involve any undervaluation by the Chargor, and
at a value, taking into account the fact that the IC Power Shares are subject to the existing Pledge Agreements and that the Company would be
undertaking obligations in connection with the transfer of the IC Power Shares pursuant to Clause 2 of the Share Transfer Agreement, of no less than
the sum of the aggregate subscription price of the New Shares (as defined in the Share Transfer Agreement) and the obligations undertaken in relation
to the loans as stated in Clause 2.2(a) and Clause 2.2(b) of the Share Transfer Agreement.
6.14 Non-petition agreements
The Chargor shall not institute, or join any other person in instituting, against the Company or any of its assets, any winding-up, amalgamation,
reconstruction, administration, judicial management, dissolution, liquidation, composition, merger, arrangement, scheme or consolidation or any analogous
procedure or step, in any jurisdiction.]
7.
ENFORCEMENT
7.1
Power of Sale
The statutory power of sale, of appointing a receiver and the other statutory powers conferred on mortgagees by Section 24 of the Property Act as varied and
extended by this Deed shall arise on the date of this Deed and may be exercised by the Lender free from the restrictions imposed by Section 25 of the
Property Act.
7.2
Enforceability of Security
The Charges shall become immediately enforceable, and the power of sale and other powers conferred by Section 24 of the Property Act, to the extent
applicable (as varied and extended by this Deed) and all the other powers conferred on the Lender by this Deed shall be immediately exercisable at any time
upon the occurrence of an Event of Default.
7.3
Consolidation
Section 21 of the Property Act shall not apply to this Deed.
10
Share Charge (IC Power Singapore) (Exe)
7.4
Section 25 of the Property Act
Section 25 of the Property Act shall not apply to this Deed.
7.5 No Liability as mortgagee in possession
Nothing done by or on behalf of the Lender pursuant to this Deed shall render it liable to account as a mortgagee in possession for any sums other than actual
receipts.
8.
APPOINTMENT AND RIGHTS OF RECEIVERS
8.1 Appointment of receivers
If:
(a)
(b)
(c)
requested by the Chargor;
any corporate action, legal proceedings or other procedure or step is taken in relation to the administration of the Chargor; or
at any time after the Charged Assets have become enforceable pursuant to Clause 7.2 (Enforceability of Security) above,
without any notice or further notice , the Lender may, by deed, or otherwise in writing signed by any officer or manager of the Lender or any person
authorised for this purpose by the Lender, appoint one or more persons to be a Receiver. The Lender may similarly remove any Receiver and appoint any
person instead of any Receiver. lf the Lender appoints more than one person as Receiver, the Lender may give those persons power to act either jointly or
severally.
8.2
Scope of appointment
Any Receiver may be appointed Receiver of all of the Charged Assets or Receiver of a part of the Charged Assets specified in the appointment. In the latter
case, the rights conferred on a Receiver as set out in Schedule 1 ( Rights
of
Receivers
) shall have effect as though every reference in that Schedule to any
Charged Assets were a reference to the part of those assets so specified or any part of those assets.
8.3
Rights of Receivers
Any Receiver appointed pursuant to this Clause 8 shall have the rights, powers, privileges and immunities conferred by the Acts on receivers duly appointed
under the Acts, and shall also have the rights set out in Schedule 1 ( Rights
of
Receivers
).
8.4 Agent of Chargor
Any Receiver shall be the agent of the Chargor for all purposes. The Chargor alone shall be responsible for the Receiver’s contracts, engagements, acts,
omissions, defaults and losses and for liabilities incurred by the Receiver.
8.5
Remuneration
The Lender may determine the remuneration of any Receiver and direct payment of that remuneration out of moneys he receives as Receiver. The Chargor
shall be liable for the remuneration and all other costs, losses, liabilities and expenses of the Receiver. In no event shall the Lender be responsible for the acts
and omissions of the receiver or for the receiver’s remuneration.
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11
8.6 Use of Proceeds
Should the payment date of the Secured Obligations or any part thereof not yet have fallen due at the time of the sale of the Charged Assets, or the Secured
Obligations be due to the Lender or the receiver on a contingent basis only, then the Lender or the receiver shall be entitled to recover out of the proceeds of
the sale an amount sufficient to cover the Secured Obligations (or such part thereof) and the amount so recovered and yet to be appropriated to the discharge
of the amounts due shall be charged to the Lender or the receiver as security for, and be held by the Lender or the receiver until the discharge in full of, the
Secured Obligations.
9.
LENDER’S RIGHTS
9.1
Same rights as Receiver
Any rights conferred by any Finance Document upon a Receiver may be exercised by the Lender after the Charges become enforceable, whether or not the
Lender shall have taken possession or appointed a Receiver of the Charged Assets.
9.2 Delegation
The Lender may at any time and from time to time delegate by power of attorney or in any other manner to any person or persons or fluctuating body of
persons all or any of the powers, authorities and discretions which are for the time being exercisable by the Lender under this Deed in relation to the Charged
Assets and any such delegation may be made upon such terms and conditions (including power to sub-delegate) and subject to such regulations as the Lender
may think fit and the Lender shall not be in any way liable or responsible to the Chargor for any loss or damage arising from any act, default, omission or
misconduct on the part of any such delegate or sub-delegate in the absence of gross negligence or willful misconduct of the Lender. Any third party referred
to in this Clause 9.2 may enjoy the benefit or enforce the terms of this Clause in accordance with the provisions of the Contracts (Rights of Third Parties)
Act, Chapter 53B of Singapore.
10. ORDER OF DISTRIBUTIONS
10.1 Application of proceeds
All amounts received or recovered by the Lender or any Receiver or Delegate in the exercise of their rights under this Deed shall, subject to the rights of any
creditors having priority, be applied in the order provided in Clause 10.2 ( Order
of
distributions
).
10.2 Order of distributions
The order referred to in Clause 10.1 ( Application
of
proceeds
) is:
(a)
in or towards the payment of all costs, losses, liabilities and expenses incurred by the Lender in enforcement of the Security created pursuant to this
Deed, including costs, losses, liabilities and expenses of and incidental to the appointment of any Receiver or Delegate and the exercise of any of his
rights, including his remuneration and all outgoings paid by him;
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12
(b)
(c)
in or towards the payment of the Secured Obligations; and
in payment of any surplus to the Chargor or other person entitled to it.
11.
LIABILITY OF LENDER, RECEIVERS AND DELEGATES
11.1 Possession
lf the Lender, any Receiver or any Delegate takes possession of the Charged Assets, it may at any time relinquish possession.
11.2 Lender’s Liability
Neither the Lender nor any Receiver or Delegate shall (either by reason of taking possession of the Charged Assets or for any other reason and whether as
mortgagee in possession or otherwise) be liable to the Chargor or any other person for any costs, losses, liabilities or expenses relating to the realisation of
any Charged Assets or from any act, default, omission or misconduct of the Lender, any Receiver or Delegate or their respective officers, employees or
agents in relation to the Charged Assets or in connection with the Finance Documents except to the extent caused by its or his own gross negligence or wilful
misconduct. Any third party referred to in this Clause 11 may enjoy the benefit or enforce the terms of this Clause in accordance with the provisions of the
Contracts (Rights of Third Parties) Act, Chapter 53B of Singapore.
12.
POWER OF ATTORNEY
12.1 Appointment
The Chargor hereby irrevocably, for a period of 12 years from the date hereof but not to exceed the period during which the Security contemplated by this
Deed is in effect, appoints the Lender as its true and lawful attorney, with full power of substitution, in respect of this Deed, to act in the Chargor’s name and
at the Chargor’s expense in order to do any such act, including, without limitation, to sign in the name of the Chargor any and all documents, as may in the
sole discretion of the Lender be necessary in order to secure the rights of the Lender against third parties in respect of the Security contemplated by this Deed
pursuant to the terms hereof (including as set forth in Clause 3.4 above). In addition to, and without derogating from the foregoing, the Chargor hereby
irrevocably appoints the Lender as its true and lawful attorney, with full power of substitution, to participate and vote in the Chargor’s name and on its behalf
in all general meetings of the Company, whether by way of written resolution or by way of meeting, so long as an Event of Default is continuing, or as
otherwise set forth in the Loan Agreement.
12.2 Ratification
The Chargor ratifies and confirms and agrees to ratify and confirm whatever any such attorney shall do in the exercise or purported exercise of the power of
attorney granted by it in Clause 12.1 ( Appointment
). Any third party referred to in this Clause 12.2 may enjoy the benefit or enforce the terms of this Clause
in accordance with the provisions of the Contracts (Rights of Third Parties) Act, Chapter 53B of Singapore.
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13
13.
PROTECTION OF THIRD PARTIES
13.1 No Duty to Enquire
No person dealing with the Lender, any Receiver or any Delegate shall be concerned to enquire:
(a)
(b)
(c)
whether the rights conferred by or pursuant to any Finance Document are exercisable;
whether any consents, regulations, restrictions or directions relating to such rights have been obtained or complied with;
otherwise as to the propriety or regularity of acts purporting or intended to be in exercise of any such rights (including whether or not any delegation
shall have lapsed for any reason or has been revoked); or
(d)
as to the application of any money borrowed or raised.
13.2 Protection to Purchasers
Upon any sale or disposal of the Charged Assets or any part thereof which the Lender, any Receiver or any Delegate shall make or purport to make under the
provisions of this Deed, a statement in writing from the Lender, any Receiver or any Delegate that the security created by the Deed has become enforceable
and that the power of sale has become exercisable shall be conclusive evidence of the fact in favour of any purchaser or other person to whom any of the
Charged Assets may be transferred and such purchaser or other person will take the same free of any rights of the Chargor.
The Chargor undertakes to indemnify the Lender, each Receiver and each Delegate against any claim which may be made against the Lender, that Receiver
or that Delegate by such purchaser or any other person by reason of any defect in its title to the Charged Assets. Any Receiver or Delegate referred to in this
Clause 13 may enjoy the benefit or enforce the terms of this Clause 13 in accordance with the provisions of the Contracts (Rights of Third Parties)
Act, Chapter 53B of Singapore.
14.
SAVING PROVISIONS
14.1 Continuing Security
Subject to Clause 15 ( Discharge
of
Security
), the Charges are continuing Security and will extend to the ultimate balance of the Secured Obligations
regardless of any intermediate payment or discharge in whole or in part.
14.2 Reinstatement
lf any payment by the Chargor or any discharge given by the Lender (whether in respect of the obligations of the Chargor or any security for those
obligations or otherwise) is avoided or reduced as a result of insolvency or any similar event:
(a)
(b)
the liability of the Chargor and the Charges shall continue as if the payment, discharge, avoidance or reduction had not occurred; and
the Lender shall be entitled to recover the value or amount of that security or payment from the Chargor, as if the payment, discharge, avoidance or
reduction had not occurred.
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14
14.3 Waiver of Defences
Neither the obligations of the Chargor under this Deed nor the Charges will be affected by an act, omission, matter or thing which, but for this Clause, would
reduce, release or prejudice any of its obligations under any Finance Document or any of the Charges (without limitation and whether or not known to it or
the Lender) including:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
any time, indulgence, waiver or consent granted to, or composition with, the Chargor or other person;
the release of the Chargor or any other person under the terms of any composition or arrangement with any creditor of the Chargor or such other
person;
the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security
over assets of, the Chargor or other person or any non-presentation or non-observance of any formality or other requirement in respect of any
instrument or any failure to realise the full value of any Security;
any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of the Chargor or any other person;
any amendment, novation, supplement, extension, restatement (however fundamental and whether or not more onerous) or replacement of a Finance
Document or any other document or security including without limitation any change in the purpose of, any extension of or any increase in any facility
or the addition of any new facility under the Loan Agreement or other Finance Document;
any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security;
any insolvency or similar proceedings;
any Finance Document or any other document not being executed by or binding against any other person; or
any postponement, discharge, reduction, non-provability or other similar circumstance affecting any obligation of any other person under any Finance
Document resulting from any insolvency, liquidation or dissolution proceedings or from any law, regulation or order.
14.4 Immediate Recourse
The Chargor waives any right it may have of first requiring the Lender (or any trustee or agent on its behalf) to proceed against or enforce any other rights or
Security or claim payment from any person before claiming from the Chargor under this Deed. This waiver applies irrespective of any law or any provision
of a Finance Document to the contrary.
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14.5 Appropriations
Until all the Secured Obligations have been irrevocably paid in full and all facilities which might give rise to Secured Obligations have terminated, the
Lender (or any trustee or agent on its behalf) may:
(a)
(b)
refrain from applying or enforcing any other moneys, Security or rights held or received by the Lender (or any trustee or agent on its behalf) in respect
of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and the Chargor
shall not be entitled to the benefit of the same; and
hold in a suspense account (interest-bearing, if applicable) any moneys received from the Chargor or on account of the Chargor’s liability under this
Deed, and in particular, if any part of the Secured Obligations are not then finally determined to be actually due and payable, any amount received
from the Chargor and yet to be appropriated towards the discharge of the amounts due hereunder may be held in such suspense account by the Lender
(or any trustee or agent on its behalf) until the discharge in full of, the Secured Obligations.
Provided that the Lender (or any trustee or agent on its behalf) may only exercise such rights or powers if any moneys received from the Chargor for the full
payment of the Secured Obligations then due and payable is insufficient to discharge such Secured Obligations.
14.6 Deferral of Chargor’s Rights
Until all the Secured Obligations have been irrevocably paid in full and all facilities which might give rise to Secured Obligations have terminated and unless
the Lender otherwise directs, the Chargor will not exercise any rights which it may have by reason of performance by it of its obligations under the Finance
Documents or by reason of any amount being payable, or liability arising, under this Deed:
(a)
(b)
(c)
(d)
(e)
(f)
to be indemnified by the Company;
to claim any contribution from any other provider of Security or any guarantor of the Company’s obligations under the Finance Documents;
to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Lender under the Finance Documents or of
any other guarantee or security taken pursuant to, or in connection with, the Finance Documents by the Lender;
to bring legal or other proceedings for an order requiring the Company to make any payment, or perform any obligation, in respect of which the
Chargor had given a guarantee, an undertaking or indemnity;
to exercise any right of set-off against the Company; and/or
to claim or prove as a creditor of the Company in competition with the Lender.
lf the Chargor receives any benefit, payment or distribution in relation to such rights it shall hold that benefit, payment or distribution to the extent necessary
to enable all amounts which may be or become payable to the Lender by the Company under or in connection with the Finance Documents to be repaid in
full on trust for the Lender and shall promptly pay or transfer the same to the Lender or as the Lender may direct for application in accordance with Clause
10 ( Order
of
distributions
).
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16
14.7 Additional Security
The Charges are in addition to and are not in any way prejudiced by any other guarantees or Security now or subsequently held by the Lender.
15. DISCHARGE OF SECURITY
15.1 Final Redemption
Subject to Clause 15.2 ( Retention
of
Security
), Clause 15.3 ( Discharge
) and without prejudice to paragraph (b) of Clause 21.2 ( the
Chargor
), if the
Lender is satisfied that all the Secured Obligations have been irrevocably paid in full and that all facilities or other obligations or liabilities which might give
rise to Secured Obligations have terminated or discharged, the Lender shall at the request and cost of the Chargor release, reassign or discharge (as
appropriate) the Charged Assets from the Charges and effect a complete revocation of the power of attorney contained herein.
15.2 Retention of Security
lf any amount paid or credited to the Lender under any Finance Document is capable of being avoided or otherwise set aside, that amount shall not be
considered to have been paid for the purposes of determining whether all the Secured Obligations have been irrevocably paid.
15.3 Discharge
Following the consummation of an IPO (as the term is defined in the Loan Agreement and in accordance with its terms), and subject to the provisions of
Section 7.3.6 of the Loan Agreement (including any conditions specified thereunder), the Lender shall, within 3 (three) Business Days of the written request
by, and at the expense of, the Chargor, release and discharge the Charges on or over all or any part of the Charged Assets and effect a complete revocation of
the power of attorney contained herein.
16.
EXPENSES
16.1 Expenses
The Chargor shall from time to time on demand of the Lender, the Receiver or any Delegate, reimburse the Lender, the Receiver or any Delegate for all
reasonable out-of-pocket fees, costs and expenses (including legal fees) and all applicable goods and services tax thereon incurred by the Lender in the
preparation, execution, administration and enforcement of this Deed and the transactions herein contemplated. In the event not paid upon first demand, such
amount shall be paid by the Chargor together with interest at rate of 3% per annum from the date on which a demand therefor was first made until the date of
actual payment. All the above costs, expenses and liabilities together with interest thereon shall constitute part of the Secured Obligations.
16.2 Stamp taxes
The Chargor shall on demand, indemnify the Lender against any cost, loss or liability the Lender incurs in relation to all stamp duty, stamp duty land tax,
registration and other similar Taxes payable in respect of this Deed.
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17
17.
PAYMENTS
17.1 Demands
Any demand for payment made by the Lender shall be valid and effective even if it contains no statement of the relevant Secured Obligations or an
inaccurate or incomplete statement of them.
17.2 Payments
All payments by the Chargor under this Deed (including damages for its breach) shall be made in the US Dollars and to such account, with such financial
institution and in such other manner as the Lender may direct.
17.3 Continuation of Accounts
At any time after:
(a)
(b)
the receipt by the Lender of notice (either actual or otherwise) of any subsequent Security affecting the Charged Assets of the Chargor; or
the presentation of a petition or the passing of a resolution in relation to the winding-up of the Chargor,
the Lender may open a new account in the name of the Chargor with the Lender (whether or not it permits any existing account to continue). lf the Lender
does not open such a new account, it shall nevertheless be treated as if it had done so when the relevant event occurred. No moneys paid into any account,
whether new or continuing, after that event shall discharge or reduce the amount recoverable pursuant to any Finance Document to which the Chargor is
party.
18. MISCELLANEOUS INDEMNITIES
18.1 Indemnities separate
Each indemnity in each Finance Document shall:
(a)
(b)
(c)
(d)
constitute a separate and independent obligation from the other obligations in that or any other Finance Document;
give rise to a separate and independent cause of action;
apply irrespective of any indulgence granted by the Lender;
continue in full force and effect despite any judgment, order, claim or proof for a liquidated amount in respect of any Liability or any other judgment
or order; and
(e)
apply whether or not any claim under it relates to any matter disclosed by the Chargor or otherwise known to the Lender.
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18.2 Other Indemnities
(a)
(b)
The Lender, every Receiver and every Delegate shall be indemnified by the Chargor from and against all actions, losses, claims, proceedings,
demands, liabilities and reasonable out-of-pocket fees, costs and expenses which may be suffered by the Lender, any Receiver or any Delegate (i) by
reason of any failure of the Chargor to perform any of its obligations under this Deed or (ii) (except to the extent caused by the gross negligence or
willful default of the Lender, such Receiver or such Delegate) in or by reason of the execution or purported execution of any of the rights, powers,
remedies, authorities or discretions vested in, or the carrying out of any act or matter by, the Lender, any Receiver or any Delegate under or pursuant
to this Deed or as it may consider to be necessary for the preservation of the Charged Assets; or (iii) due to any payment in respect of the Secured
Obligations made by the Chargor being void for any reason whatsoever.
lf the Lender sees fit to implement its rights hereunder or if the Lender makes any payment under or in connection with any of the Charged Assets all
moneys so reasonably expended by the Lender for the purposes aforesaid shall be as soon as reasonably practicable repaid by the Chargor to the
Lender upon demand together with interest thereon at the rate of 3% per annum for the period beginning on the date of such payment by the Lender
and ending on the date on which the Chargor has repaid such amount in full.
19. RIGHTS, AMENDMENTS, WAIVERS AND DETERMINATIONS
19.1 Ambiguity
The powers and protections conferred by this Deed in relation to the Charged Assets or any part thereof on the Lender shall be in addition to and not in
substitution for the powers and protections conferred on mortgagees or chargees under the Property Act, which shall apply to the Charges except in so far as
they are expressly or impliedly excluded. Where there is any ambiguity or conflict between the rights conferred by law or contained in the Property Act and
those conferred by or pursuant to any Finance Document, the terms of that Finance Document shall prevail.
19.2 Exercise of rights
No failure to exercise, nor any delay in exercising, on the part of the Lender, Receiver or Delegate, any right or remedy under any Finance Document shall
operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or
remedy. The rights and remedies provided in this Deed are cumulative and not exclusive of any rights or remedies provided by law.
19.3 Amendments and waivers
Any term of this Deed may be amended or waived only with the written consent of the Lender and the Chargor and any such amendment or waiver will be
binding on both Parties.
19.4 Determinations
Any certification or determination by or certificate of the Lender or any Receiver or Delegate under any Finance Document is, in the absence of manifest
error, conclusive evidence of the matters to which it relates.
19.5 Separate and Independent Obligations
The Security created by the Chargor by or in connection with any Finance Document is separate from and independent of the Security created or intended to
be created by any other person by or in connection with any Finance Document.
Share Charge (IC Power Singapore) (Exe)
19
20.
PARTIAL INVALIDITY
lf, at any time, any provision of this Deed is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality,
validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will
in any way be affected or impaired.
21.
BENEFIT OF SECURITY
21.1 Benefit and Burden
This Deed shall be binding upon and enure to the benefit of the Parties, their assignees and their successors. Any reference in this Deed to any party shall be
construed accordingly.
21.2 The Chargor
(a)
(b)
Subject to paragraph (b) of this Clause, the Chargor shall not (nor shall it purport to) assign, transfer, charge or otherwise deal with all or any of its
rights under this Deed nor grant, declare or dispose of any right or interest in it without the prior written consent of the Lender.
The Chargor may transfer by novation its obligations under this Deed to such party (“ Transferee ”) if the Chargor has assigned its obligations under
the Loan Agreement, in accordance with the provisions of the Loan Agreement and the Lender shall upon the written request by, and at the expense of
the Chargor, release and discharge the Charges over all of the Charged Assets in exchange for the Transferee executing a security over shares
agreement on terms similar to this Deed (only with the necessary modifications which are agreed to between the Transferee and the Lender as being
necessary for the legaility, validity or enforceability of the Security).
21.3 The Lender
The Lender may assign all or part of its rights under this Deed or transfer all or part of its obligations under this Deed (despite any amalgamation or merger
however effected relating to the Lender) to any party in accordance with the provisions of Section 9.5 of the Loan Agreement without the consent of the
Chargor. Any such assignee or transferee shall be entitled to the full benefit of this Deed to the same extent as if it were an original party in respect of the
rights or obligations assigned or transferred to it.
22. NOTICES
Communications under this Deed shall be made in accordance with Section 9.9 ( Notices
) of the Loan Agreement.
23. COUNTERPARTS
This Deed may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of this
Deed.
Share Charge (IC Power Singapore) (Exe)
20
24. GOVERNING LAW
This Deed shall be governed by Singapore law.
25.
SET-OFF AND OTHER RIGHTS
All payments required to be made by the Chargor under this Agreement shall be calculated without reference to any set-off or counterclaim, and shall be
made free and clear of, and without any deduction for, or on account of, any set-off or counterclaim.
26.
ENFORCEMENT
26.1 Jurisdiction of Singapore courts
The courts of Singapore have non-exclusive jurisdiction to settle any dispute arising out of or in connection with this Deed (including a dispute relating to the
existence, validity or termination of this Deed or any non-contractual obligation arising out of or in connection with this Deed) (a “ Dispute ”).
26.2 Venue
(a)
(b)
The Parties agree that the courts of Singapore are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to
the contrary.
This Clause 25 is for the benefit of the Lender only. As a result, the Lender shall not be prevented from taking proceedings relating to a Dispute in any
other courts with jurisdiction. To the extent allowed by law, the Lender may take concurrent proceedings in any number of jurisdictions.
Share Charge (IC Power Singapore) (Exe)
21
SCHEDULE 1
RIGHTS OF RECEIVER
Any Receiver appointed pursuant to Clause 8 ( Appointment
and
rights
of
Receivers
) shall have the right, either in its own name or in the name of the Chargor or
otherwise and in such manner and on such terms and conditions as the Receiver thinks fit, and either alone or jointly with any other person:
1.
Enter into possession
to take possession of, get in and collect the Charged Assets and to require payment to it of all Dividends;
2.
Deal with Charged Assets
to sell, transfer, assign, exchange, lend or otherwise dispose of or realise the Charged Assets to any person either by public offer or auction, tender or private
contract and for a consideration of any kind (which may be payable or delivered in one amount or by instalments spread over a period or deferred);
3.
Borrow money
to borrow or raise money either unsecured or on the security of the Charged Assets (either in priority to the Charges or otherwise);
4.
Claims
to settle, adjust, refer to arbitration, compromise and arrange any claims, accounts, disputes, questions and demands with or by any person who is or claims
to be a creditor of the Chargor or relating to the Charged Assets;
5.
Legal actions
to bring, prosecute, enforce, defend and abandon actions, suits and proceedings in relation to the Charged Assets or any business of the Chargor;
6.
Redemption of Security
to redeem any Security (whether or not having priority to the Charges) over the Charged Assets and to settle the accounts of any person with an interest in
the Charged Assets;
7.
Rights of ownership
to exercise and do (or permit the Chargor or any nominee of it to exercise and do) all such rights and things as the Lender would be capable of exercising or
doing if it were the absolute beneficial owner of the Charged Assets; and
8.
Other powers
to do anything else it may think fit for the realisation of the Charged Assets or incidental to the exercise of any of the rights conferred on the Receiver under
or by virtue of any Finance Document to which the Chargor is party or the Property Act.
Share Charge (IC Power Singapore) (Exe)
22
SCHEDULE 2
SHARES
369,145 ordinary shares in the Company
as evidenced by Share Certificate number(s) 2
23
Share Charge (IC Power Singapore) (Exe)
IN WITNESS WHEREOF this Deed has been executed by the parties hereto.
The Chargor
The Common Seal of
KENON HOLDINGS LTD.
was affixed hereto
in the presence of:
)
)
)
)
/s/ Cyril Ducau
Cyril Ducau
Director
/s/ Kenneth Gilbert Cambie
Kenneth Gilbert Cambie
Director
Share Charge (IC Power Singapore) (Exe)
24
The Lender
The Common Seal of
ISRAEL CORPORATION LTD.
was affixed hereto
in the presence of:
)
)
)
)
/s/ Maya Alchen Kaplan
Adv. Maya Alchen Kaplan,
Director
Executive V. P., General Counsel and Company Secretary
/s/ Mr. Sagi Kabla
Mr. Sagi Kabla, CFO
Secretary / Authorised Signatory
Share Charge (IC Power Singapore) (Exe)
25
Exhibit 4.17
DATED 22 April 2016
LOAN AGREEMENT
between
QUANTUM (2007) LLC
as Borrower
and
ANSONIA HOLDINGS SINGAPORE B.V.
as Lender
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
40 Bank Street
Canary Wharf
London E14 5DS
Clause
Page
CONTENTS
Interest
Conversion
Tax and other deductions
Costs and Expenses
Representations and warranties
Information Undertakings
Definitions and Interpretation
The Facility
Purpose
Drawdown
Repayment and mandatory prepayment
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
SCHEDULE 1 Conditions Precedent to initial utilization
SCHEDULE 2 Form of Utilisation Request
EXHIBIT A Form of Qoros Security Agreement
General Undertakings
Events of Default
Trigger Events
Secondary Sale
Limited Recourse
Administration
Assignment and Transfer
Notices
Calculations and Certificates
Partial Invalidity
Remedies and Waivers
Amendments and Waivers
Counterparts
Entire Agreement
Governing Law and Enforcement
1
7
7
7
8
10
11
12
12
12
13
14
16
20
21
21
22
22
23
23
24
24
24
24
24
25
26
28
29
THIS AGREEMENT is dated 22 April 2016 and made between:
(1)
(2)
QUANTUM (2007) LLC , a Delaware limited liability company with file number 4300667 and having its registered office at 16192 Coastal Highway,
Lewes, Delaware 19958, United States of America (the “ Borrower ”); and
ANSONIA HOLDINGS SINGAPORE B.V ., incorporated under the laws of the Netherlands (Besloten
vennootschap
met
beperkte
aansprakelijkheid)
and having its registered office at 1 Temasek Avenue #38-01, Millenia Tower, Singapore 039192 (the “ Lender ”).
BACKGROUND:
(A)
(B)
(C)
The Lender intends to make available to the Borrower the Loans (as defined below) in order to enable the Borrower to make corresponding loans to Qoros
pursuant to the Qoros Loan Agreement and on the condition that Wuhu Chery Automobile Investment Co. Ltd. make corresponding loans to Qoros, such
that the total amount of loans made available to Qoros, subject to the terms and conditions herein and in the applicable Chery Loan Agreement (defined
below), will be up to $100 million.
The Lender intends that the Loans (and corresponding loans to Qoros) will enable Qoros to meet its working capital requirements and enable Qoros to seek
additional financing, including a Qualified Financing.
The terms of this Agreement shall enable the Borrower to repay the Loans (as described herein) at par plus accrued interest, including upon any new
financing at Qoros that results in a repayment of the corresponding loan under the the Qoros Loan Agreement. In addition, upon any disposition by the
Borrower of its interest in Qoros, the net proceeds will be applied to repay amounts outstanding under the Loans (or, if the Loans have been converted into
Class A Interests, to redeem such interests).
IT IS AGREED as follows:
1.
1.1
DEFINITIONS AND INTERPRETATION
Definitions
In this Agreement:
“ Additional Chery Loan Agreement ” means the term loan facility agreement entered into between Wuhu Chery Automobile Investment Co. Ltd. as
lender, the Industrial and Commercial Bank of China Limited, Changshu Sub-Branch (中国工商银行股份有限公司常熟支行) as entrusted bank and
Qoros as borrower with aggregate commitments of up to an amount equal to the RMB equivalent of USD 24,000,000. for the purposes of Qoros’ ordinary
course working capital requirements with terms that are the same as those contained in the Initial Chery Loan Agreement.
“ Available Commitments ” means, in relation to a Facility, the then undrawn amount of the Commitment relating to that Facility minus, in relation to any
proposed Loan under that Facility, the amount of any other Loan under that Facility that is due and to be made on or before the proposed Utilisation Date.
“ Assignment Agreement ” means the English law governed assignment agreement granted by the Borrower in favour of the Lender under which the
Borrower’s rights under the Qoros Security Agreement and Qoros Loan Agreement are assigned to the Lender.
“ Business Day ” means a day (other than a Saturday or Sunday) on which banks are open for general business in London, Singapore and Beijing and, in
respect of any day on which payment is to be made under this Agreement, New York City.
“ Chery Loan Agreement ” means:
(a)
(b)
the Initial Chery Loan Agreement; and
the Additional Chery Loan Agreement.
“ Class A Interests ” means Class A membership interests in the Borrower.
“ Class B Interests ” means Class B membership interests in the Borrower.
“ Commitment ” means:
(a)
(b)
with respect to Facility A, $25,000,000; and
with respect to Facility B, $25,000,000.
“ Conversion Date ” means the date on which the Lender’s Class B Interests are converted to Class A Interests pursuant to Clause 7(a).
“ Default ” means an Event of Default or any event or circumstance specified in Clause 13 ( Events
of
Default
) which would (with the expiry of a grace
period or the giving of notice, making of any determination or the satisfaction of any other condition) be an Event of Default.
“ Event of Default ” means any event or circumstance specified as such in Clause 13 ( Events
of
Default
).
“ EXIM Loan Agreement No. 1 ” means the 1,200,000,000 RMB Equivalent Syndicated Loan Agreement concerning the Project of Research and
Development of C Platform Derivative Model of Qoros Automotive Co., Ltd. dated 31 July 2014 between, among others, Qoros Automotive Co., Ltd. as
Borrower, Export-Import Bank of China, as arranger, and Bank of China Limited Su Zhou Branch, as agent (as amended and/or restated from time to time).
“ EXIM Loan Agreement No. 2 ” means the loan agreement expected to be entered into between, among others, Qoros Automotive Co., Ltd. as Borrower,
and Export-Import Bank of China, as arranger (as amended and/or restated from time to time) or a similar loan agreement.
2
“ Exim Pledges ” means:
(a)
(b)
the equity pledge contract dated 31 July 2014 granted by the Borrower in favour of Bank of China Limited Su Zhou Branch, as agent, (as amended
and/or restated from time to time, including the amendments approved as set out in the Changshu Economic and Technological Development Zone
Management Committee approval dated 13 July 2015) in respect of a portion of the Borrower’s equity interests in Qoros, which equity pledge was
granted to secure the obligations owing in respect of EXIM Loan Agreement No. 1; and
any other pledge granted by the Borrower in favour of the agent or lenders under the EXIM Loan Agreement No. 2, following the date of this
Agreement, in respect of a portion of the Borrower’s equity interests in Qoros (as amended and / or restated from time to time), which equity
pledge will be granted to secure the obligations owing in respect of EXIM Loan Agreement No. 2.
“ Facility ” means Facility A or Facility B, as the case may be.
“ Facility A ” means the term loan facility made available under this Agreement as described in Clause 2.1 ( Facility
A
).
“ Facility B ” means the term loan facility made available under this Agreement as described in Clause 2.2 ( Facility
B
).
“ Finance Document ” means this Agreement, the Assignment Agreement and any other document designated as such by the Lender and the Borrower in
writing.
“ Financial Indebtedness ” means any obligation to pay or repay money, present or future, whether actual or contingent, sole or joint and any guarantee or
indemnity of any of those obligations.
“ Initial Chery Loan Agreement ” means the term loan facility agreement dated on or about the date of this Agreement between Wuhu Chery Automobile
Investment Co. Ltd. as lender, the Industrial and Commercial Bank of China Limited, Changshu Sub-Branch(中国工商银行股份有限公司常熟支行) as
entrusted bank and Qoros as borrower, with aggregate commitments of up to an amount equal to the RMB equivalent of USD 24,000,000.
“ Kenon ” means Kenon Holdings Ltd., a company incorporated under the laws of Singapore.
“ Legal Reservations ” means:
(a)
the principle that equitable remedies may be granted or refused at the discretion of a court and the limitation of enforcement by laws relating to
insolvency, reorganisation and other laws generally affecting the rights of creditors;
3
(b)
the time barring of claims under relevant legislation, the possibility that an undertaking to assume liability for or indemnity a person against non-
payment of stamp duty may be void and defences of set-off or counterclaim; and
(c)
similar principles, rights and defences under the laws of any applicable jurisdiction.
“ LLC Agreement ” means the Second Amended and Restated Limited Liability Company Agreement, dated as of the date hereof, between Robert Rosen,
as the manager, and Kenon Holdings Ltd. and the Borrower, as the members, as amended and/or restated from time to time.
“ Loan ” means the loan to be made under a Facility or the principal amount outstanding for the time being of such loan.
“ Material Adverse Effect ” means any event or circumstance which, taking into account all relevant circumstances, has a material adverse effect on:
(a)
(b)
(c)
the business, assets or financial condition of the Borrower; or
the ability of the Borrower to perform its payment obligations under the Finance Documents; or
the validity, enforceability or effectiveness or priority or ranking of any Finance Document, the Qoros Loan Agreement or the Qoros Security
Agreement.
“ Party ” means a party to this Agreement.
“ People’s Republic of China ” and “ PRC ” means the People’s Republic of China excluding Taiwan, Macau and Hong Kong.
“ Qoros ” means Qoros Automotive Co., Ltd, a company incorporated under the laws of the People’s Republic of China.
“ Qoros Default ” means a “Default” as defined in the Qoros Loan Agreement.
“ Qoros Loan Agreement ” means the term loan facility agreement dated on or about the date of this agreement between the Borrower as lender and Qoros
as borrower for the purposes of Qoros’ ordinary course working capital requirements with aggregate commitments of up to an amount equal to the RMB
equivalent of USD 48,000,000.
“ Qoros Security Agreement ” means the PRC law governed patent right pledge agreement dated on or about the date of this Agreement between Qoros,
the Borrower and Wuhu Chery Automobile Investment Co. Ltd in substantially the form of Exhibit A attached hereto or otherwise in a form acceptable and
satisfactory to the Lender.
“ Qualified Financing ” means a financing pursuant to which a third party investor subscribes (or, in the case of a financing by way of instrument that is
convertible into equity, will on conversion of such instrument subscribe) for an equity interest in Qoros in an aggregate amount of not less than the
Qualified Financing Amount excluding the amount of any conversion of Financial Indebtedness into equity in Qoros undertaken pursuant to the terms of
this agreement.
4
“ Qualified Financing Amount ” has the meaning given to that term in the Qoros Loan Agreement.
“ Security Interest ” means any mortgage, pledge, lien, charge (fixed or floating), assignment, hypothecation, set-off or trust arrangement for the purpose
of creating security, reservation of title or security interest or any other agreement or arrangement having a similar effect.
“ Tax ” means any tax, levy, impost, duty or other charge, deduction or withholding of a similar nature to tax (and any related penalty, cost, charge or
interest).
“ Termination Date ” means the date falling 9 months after the first Utilisation Date.
“ Total Commitment ” means $50,000,000 to the extent not cancelled or reduced by the Lender under this Agreement.
“ Trigger Event ” means any event or circumstance specified as such in Clause 14 ( Trigger
Events
).
“ Unpaid Sum ” means any sum due and payable but unpaid by the Borrower under the Finance Documents.
“ US Bankruptcy Law ” means the United States Bankruptcy Code of 1978 (Title 11 of the United States Code), any other United States federal or state
bankruptcy, insolvency or similar law.
“ Utilisation Date ” means the date on which a Loan is to be made or, as the context requires, was made.
“ Utilisation Request ” means a notice substantially in the form set out in Schedule 2 ( Form
of
Request
).
1.2
Construction
(a)
Unless a contrary indication appears, any reference in this Agreement to:
(i)
(ii)
(iii)
the “ Borrower ” or the “ Lender ” shall be construed so as to include its successors in title, heirs, permitted assigns and permitted
transferees;
“ assets ” includes present and future properties, revenues and rights of every description;
a “ Finance Document ” or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument
as amended, novated, supplemented, extended or restated;
5
(iv)
(v)
(vi)
“ indebtedness ” includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether
present or future, actual or contingent;
a “ person ” includes any person, firm, corporation, government, state or agency of a state or any association, trust or partnership
(whether or not having separate legal personality) or two or more of the foregoing;
a “ regulation ” includes any regulation, rule, official directive, request or guideline (whether or not having the force of law, but if not
having the force of law being one with which it is the practice of the relevant person to comply) of any governmental, intergovernmental
or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation;
(vii)
a “ Clause ” or a “ Schedule ” is a reference to a clause of, or a schedule to, this Agreement;
(viii)
“ $ , “ USD ” and “ US dollar ” denote the lawful currency of the United States of America;
(ix)
(x)
(xi)
“ RMB ” denotes the lawful currency of the People’s Republic of China;
a provision of law is a reference to that provision as amended or re-enacted; and
a time of day is a reference to London time.
(b)
(c)
(d)
Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance
Document has the same meaning in that Finance Document or notice as in this Agreement.
Clause and Schedule headings are for ease of reference only.
A Default or Event of Default is “ continuing ” if it has not been waived in writing.
1.3
Third party rights
(a)
(b)
Unless expressly provided to the contrary in this Agreement a person who is not a Party has no right under the Contracts (Rights of Third Parties)
Act 1999 to enforce or to enjoy the benefit of any term of this Agreement.
Notwithstanding any term of this Agreement the consent of any person who is not a Party is not required to rescind or vary this Agreement at any
time.
6
2.
2.1
THE FACILITY
Facility A
Subject to the terms of this Agreement, the Lender makes available to the Borrower a US dollar term loan facility in an aggregate amount equal to the
Facility A Commitment.
2.2
Facility B
Subject to the terms of this Agreement, the Lender makes available to the Borrower a US dollar term loan facility in an aggregate amount equal to the
Facility B Commitment.
3.
PURPOSE
(a)
The Borrower shall only apply the amounts borrowed by it under each Facility to finance amounts requested to be borrowed by Qoros pursuant to
the terms of the Qoros Loan Agreement; it is understood that such amounts are intended only to be used by Qoros for its ordinary course working
capital requirements and not for any other purpose.
(b)
The Lender is not bound to monitor or verify the application of any amount borrowed pursuant to this Agreement.
4.
4.1
DRAWDOWN
Initial Conditions Precedent
The Lender will only be obliged to advance a Loan to the Borrower if:
(a)
(b)
(c)
the Lender has received all of the documents and other evidence listed in Schedule 1 ( Conditions
Precedent
to
initial
utilisation
) in form and
substance satisfactory to the Lender (acting reasonably) save to the extent that the Lender has waived receipt of the same;
no Default (and no Qoros Default under the Qoros Loan Agreement) is continuing or would result from the proposed Loan; and
each of the representations and warranties set out in Clause 10 ( Representations
and
Warranties
) is true and correct on the date of this Agreement
and on the Utilisation Date.
4.2
Conditions Precedent to utilisation of a Facility B Loan
In addition to satisfaction of the conditions set out in Clause 4.1 ( Initial
Conditions
Precedent
) above, the Lender will only be obliged to advance a Loan
to the Borrower under Facility B if:
(a)
the proposed Loan is required to fund an amount requested to be borrowed by Qoros pursuant to the Qoros Loan Agreement;
7
(b)
(c)
(d)
the Lender has received a copy of the executed Additional Chery Loan Agreement;
the Lender in its sole discretion has agreed and consented to the advance of such Loan; and
the Lender has received evidence that the amount requested to be borrowed by Qoros under the Qoros Loan Agreement is equal to the amount to be
drawn by Qoros under the Additional Chery Loan Agreement.
4.3
Drawdown
(a)
(b)
(c)
(d)
The Borrower may borrow a Loan by giving the Lender a duly completed Utilisation Request. Unless the Lender otherwise agrees, the latest time
for receipt by the Lender of such Utilisation Request is 9.30 a.m. (London time) three Business Days before the proposed Utilisation Date.
No more than one Loan may be drawn under Facility A.
No more than 10 Loans may be drawn under Facility B.
A Utilisation Request for a Loan is irrevocable and will not be regarded as having been duly completed unless:
(i)
(ii)
(iii)
it specifies a Utilisation Date that is a Business Day prior to the Termination Date;
with respect to a Facility A Loan, the amount of the Loan requested is $25,000,000;
with respect to a Facility B Loan, the amount of the Loan requested is a minimum of $100,000 or, if less, the Available Commitments;
and
(iii)
the currency of the Loan is USD;
(e)
Subject to satisfaction or waiver of the conditions precedent set out in Clause 4.1 ( Conditions
Precedent
) and 4.2 ( Conditions
Precedent
to
utilisation
of
a
Facility
B
Loan
), the Lender shall advance the Loan to the Borrower.
4.4
Issuance of Class B Interests
On the first Utilisation Date, the Borrower shall issue to the Lender Class B Interests representing all of the Class B Interests in accordance with the LLC
Agreement.
5.
5.1
REPAYMENT AND MANDATORY PREPAYMENT
Repayment of Loans
Subject to Clause 16 ( Limited
Recourse
), unless the Loans have been converted into Class A Interests of the Borrower pursuant to the terms of this
Agreement and the LLC Agreement, the Borrower shall repay each Loan in full on the Termination Date.
8
5.2
No reborrowing
The Borrower may not reborrow any part of any Loan which is repaid or pre-paid.
5.3
Voluntary Prepayment
The Borrower may, by giving not less than 3 Business Days’ prior notice to the Lender, prepay the whole or any part of any Loan.
5.4
Mandatory Prepayment – Excess Loan Amount
If the amount of a Loan (the “ Relevant Loan ”) advanced to the Borrower in connection with the Qoros Loan Agreement exceeds the amount advanced by
the Borrower to Qoros under the Qoros Loan Agreement (the “ Relevant Qoros Loan ”) (the amount of such excess being the “ Excess Loan Amount ”),
the Borrower shall, within 5 Business Days of the drawdown of the Relevant Qoros Loan, apply an amount equal to the Excess Loan Amount in
prepayment of the Relevant Loan.
5.5
Mandatory Prepayment – Qoros repayment
(a)
Subject to Clause 16 ( Limited
recourse
), if the Borrower receives any amount from Qoros (1) as repayment or prepayment of any amounts owing
by Qoros to the Borrower under the Qoros Loan Agreement or (2) in connection with the Borrower’s enforcement of its rights under the Qoros
Security Agreement, the Borrower shall, as soon as practicable (and in any case, within 3 Business Days of receipt of such amount), apply such
amount converted into US dollars (a “ Converted Amount ”) in prepayment of the Loans in the following order:
(i)
(ii)
(iii)
firstly, in prepayment of the Facility A Loan;
secondly, in prepayment of any Facility B Loan (pro-rata); and
thirdly, in prepayment of any other amount outstanding under the Finance Documents.
For the avoidance of doubt, if any Converted Amount is greater than the amount required to prepare the Facilities (or any relevant part thereof), the
Borrower shall still be required to pay any such excess amount to the Lender (and the Lender shall be entitled to be paid the same), notwithstanding
any provisions to the contrary in the Finance Documents.
(b)
Subject to Clause 16 ( Limited
recourse
), if, in any applicable jurisdiction, it becomes unlawful for the Lender to perform any of its obligations
under any of the Finance Documents to which it is a party or to fund or maintain any Loan, the Lender shall promptly notify the Borrow on
becoming aware of that event and the Borrower shall within 3 Business Days repay such Loan.
9
5.6
Deemed Repayment
If:
(a)
(b)
then:
(i)
(ii)
(iii)
(iv)
(v)
the Qoros Loan Agreement is (or deemed, pursuant to Clause 7 ( Conversion
)) repaid in full; and
the Borrower has applied all amounts it has received from Qoros under the Qoros Loan Agreement in the prepayment of the Facilities in
accordance with Clause 5.5 ( Mandatory
Prepayment
),
all outstanding Loans shall be deemed to be repaid in full;
the Facilities shall be terminated and cancelled in full;
all obligations and amounts owing by the Borrower under the Finance Documents shall be deemed satisfied and discharged in full other than the
obligations pursuant to Clause 15, which shall survive;
the obligations owing by the Borrower under the Assignment Agreement shall be released and discharged in full (and the Lender undertakes to the
Borrower that it will execute and deliver any termination, release or other document, and take all other commercially reasonable actions, required
by the Borrower to give effect to the release and discharge of the Assignment Agreement); and
any Class B Interests issued to the Lender pursuant to the terms of this Agreement (including any rights attaching thereto) shall be cancelled in
accordance with the LLC Agreement.
6.
6.1
INTEREST
Calculation of interest
The rate of interest payable on a Loan is 6.00% per annum.
6.2
Accrued interest
Interest shall accrue daily (calculated on the basis of a 360 day year) and shall be payable on the Termination Date and on any date a Loan is repaid or
prepaid (but only in respect of the interest that has accrued on the amount of such Loan paid or repaid) .
6.3
Interest Rate Limitation
Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any utilisation, together with all fees, charges and other
amounts which are treated as interest on such utilisation under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “
Maximum Rate ”) which may be contracted for, charged, taken, received or reserved by the Lender holding such utilisation in accordance with applicable
law, the rate of interest payable in
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respect of such utilisation, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest
and Charges that would have been payable in respect of such utilisation but were not payable as a result of the operation of this Clause 6.3 shall be
cumulated and the interest and Charges payable to such Lender in respect of other utilisation or periods shall be increased (but not above the Maximum
Rate therefor) until such cumulated amount, together with interest thereon at the Maximum Rate (to the extent permitted by applicable law) to the date of
repayment, shall have been received by such Lender.
7.
CONVERSION
(a)
Whilst any amounts owing by the Borrower under this Agreement are outstanding, and subject to paragraph (c) below and the terms of the LLC
Agreement, upon completion of a Qualified Financing (other than a Qualified Financing that results in repayment of all of the outstanding Loans),
the Class B Interests held by the Lender shall automatically convert into Class A Interests (the “ Class B Conversion ”) with the Lender’s
percentage of Class A Interests following the Class B Conversion calculated in accordance with the following formulation:
A = (B + C) / D
where,
A = the percentage of the Lender’s Class A Interests;
B = the aggregate principal amount of all outstanding Loans as at the Conversion Date;
C = the amount of all accrued and unpaid interest on all outstanding Loans as at the Conversion Date;
D = the implied equity value of the Borrower based upon (i) the ownership interest of the Borrower in Qoros after giving effect to the Qualified
Financing and (ii) the implied equity value of Qoros as set out in the Qualified Financing as agreed by the Borrower and the Lender (or, where the
Qualified Financing involves an investment or financing by a method or means other than the subscription of equity interests in Qoros, the stated
equity value of Qoros as set out in such Qualified Financing as agreed by the Borrower and the Lender), (iii) less a discount of 10%,
with (B + C) / D expressed as a percentage.
(b)
Upon the Class B Conversion pursuant to paragraph (a) above and the LLC Agreement:
(i)
(ii)
all outstanding Loans shall be deemed to be repaid in full;
the Facilities shall be terminated and cancelled in full;
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(iii)
(iv)
(v)
all obligations and amounts owing by the Borrower under the Finance Documents shall be deemed satisfied and discharged in full other
than the obligations pursuant to Clause 15, which shall survive;
the obligations owing by the Borrower under the Assignment Agreement shall be released and discharged in full (and the Lender
undertakes to the Borrower that it will execute and deliver any termination, release or other document, and take all other commercially
reasonable actions, required by the Borrower to give effect to the release and discharge of the Assignment Agreement); and
any Class B Interests issued to the Lender pursuant to the terms of this Agreement (including any rights attaching thereto) shall be
cancelled.
(c)
If, upon completion of a Qualified Financing, the Qoros Loan Agreement is repaid in full:
(i)
(ii)
Clause 7(a) shall not apply and there shall be no Class B Conversion;
the amounts received by the Borrower from Qoros as a result of the repayment of the Qoros Loan Agreement shall be applied in
accordance with Clause 5.5 ( Mandatory
Prepayment
) (and, for the avoidance of doubt, Clause 5.6 ( Deemed
Repayment
) shall apply).
8.
TAX AND OTHER DEDUCTIONS
Each Party shall pay all its own present and future Tax as may be levied by a respective government or governmental body in relation to the Finance
Documents.
9.
COSTS AND EXPENSES
Each Party shall pay its own costs and expenses that it incurs in connection with the negotiation, preparation and execution of this agreement and/or the
other Finance Documents.
10.
REPRESENTATIONS AND WARRANTIES
The Borrower makes the representations and warranties set out in this Clause 10 to the Lender on the date of this Agreement and on each Utilisation Date
by reference to the facts and circumstances then existing.
10.1
Status
(a)
(b)
It is a limited liability company, duly formed and validly existing under the laws of the State of Delaware.
It has the power to own its assets and carry on its business as it is being conducted.
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10.2
Binding obligations
Subject to the Legal Reservations, the obligations expressed to be assumed by it in each Finance Document, the Qoros Security Agreement and the Qoros
Loan Agreement are legal, valid, binding and enforceable obligations.
10.3
Non-conflict with other obligations
The entry into and performance by it of, and the transactions contemplated by, each of the Finance Documents, the Qoros Loan Agreement, the Qoros
Security Agreement and any other material contract or agreement to which it is a party do not conflict with:
(a)
(b)
any law or regulation applicable to it; or
the constitutional documents of the Borrower.
10.4
Power and authority
It has the power to enter into, perform and deliver, and has taken all necessary action to authorise the entry into, performance and delivery of:
(a)
(b)
each Finance Document to which it is a party and the transactions contemplated by those Finance Documents; and
the Qoros Loan Agreement and Qoros Security Agreement and the transactions contemplated by the Qoros Loan Agreement and Qoros Security
Agreement.
10.5
Approval of this Loan Agreement as a related party transaction
The Loans and other transactions contemplated by this Agreement and related agreements have been approved by Kenon in accordance with (a) all
applicable laws and regulations, (b) its policies and procedures applicable to related party transactions, as described in Kenon’s annual report on Form 20-F
for the fiscal year ended 31 December 2014 filed with the U.S. Securities and Exchange Commission on 31 March 2015 and (c) all applicable stock
exchange rules applicable to the approval of related party transactions.
11.
INFORMATION UNDERTAKINGS
The undertakings in this Clause 11 remains in force from the date of this Agreement for so long as any amount is outstanding under this Agreement.
11.1
Notification of default
The Borrower shall notify the Lender of:
(a)
(b)
any Default (and the steps, if any, being taken to remedy it);
any Qoros Default under the Qoros Loan Agreement or any default under the Qoros Security Agreement,
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in each case, promptly upon becoming aware of its occurrence.
11.2
Information: miscellaneous
The Borrower shall supply to the Lender:
(a)
(b)
promptly upon becoming aware of them, the details of any litigation, arbitration or administrative proceedings which are current, threatened or
pending against the Borrower or Qoros, and which, if adversely determined, are reasonably likely to have a Material Adverse Effect; and
promptly on request, such further information regarding the financial condition, assets and operations of the Borrower and, to the extent (i) such
information is available to the Borrower and (ii) disclosure of such information would not breach the terms of any agreement or arrangement
entered into by the Borrower, Qoros as the Lender may reasonably request.
12.
GENERAL UNDERTAKINGS
The undertakings in this Clause 12 remain in force from the date of this Agreement for so long as any amount is outstanding under this Agreement.
12.1
Compliance with laws
The Borrower shall comply in all respects with all laws to which it may be subject, if failure so to comply would impair its ability to perform its obligations
under the Finance Documents, the Qoros Security Agreement or the Qoros Loan Agreement.
12.2
Acquisitions
The Borrower shall not, without the prior written consent of the Lender:
(a)
acquire a company or any shares or securities or a business or undertaking (or, in each case, any interest in any of them) (other than shares in
Qoros); or
(b)
incorporate a company.
12.3
Disposals
(a)
(b)
The Borrower shall not enter into a single transaction or a series of transactions (whether related or not) and whether voluntary or involuntary to
sell, lease, transfer or otherwise dispose of any asset, including all or a portion of its legal or beneficial interests in Qoros.
Paragraph (a) above does not apply to any sale, lease, transfer or other disposal made by the Borrower pursuant to the terms of the Finance
Documents or the LLC Agreement or to the Exim Pledges.
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12.4 Holding company status
The Borrower undertakes that:
(a)
(b)
it is and will remain a special purpose, holding company; and
it will not incur any liabilities except (i) as contemplated in the Finance Documents, the LLC Agreement, the Qoros Loan Agreement, the Qoros
Security Agreement and any other agreement entered into by the Borrower in connection with the aforementioned documents (including the
“finance documents” as defined in the Qoros Loan Agreement) and (ii) for liabilities that arise in the ordinary course of acting as a special purpose,
holding company.
12.5 Membership interests
The Borrower shall not issue any membership interests except:
(a)
(b)
as permitted pursuant to the terms of a Finance Document; or
in accordance with the terms of the LLC Agreement.
12.6
Change of business
The Borrower shall ensure that no substantial change is made to the general nature of the business of the Borrower from that carried on at the date of this
Agreement.
12.7 Qoros Security Agreement
(a)
(b)
The Borrower shall not (and shall not take any action to) enforce, discharge, release or terminate any of its rights under the Qoros Security
Agreement except (i) in accordance with and pursuant to Clause 14.3 ( Enforcement
under
Qoros
Security
Agreement
) or (ii) with the prior written
consent of the Lender.
The Borrower shall notify the Lender promptly on becoming aware of any request to enforce, discharge, release or terminate any of the Borrower’s
rights under the Qoros Security Agreement other than a request to enforce, discharge, release or terminate from the Lender pursuant to Clause 14.3
( Enforcement
under
Qoros
Security
Agreement
).
12.8 Qoros Loan Agreement
The Borrower shall:
(a)
(b)
not amend the terms of, or waive any of its rights under, the Qoros Loan Agreement without the prior written consent of the Lender;
not waive any default or event of default (howsoever described) that has occurred under the Qoros Loan Agreement without the prior written
consent of the Lender;
15
(c)
(d)
not take any other action in connection with the Qoros Loan Agreement that may adversely affect the rights and interests of the Lender; and
use any amounts borrowed by it under each Facility to finance amounts requested to be borrowed by Qoros pursuant to the terms of the Qoros Loan
Agreement.
12.9
Conditions Subsequent
The Borrower shall:
(a)
(b)
use its best efforts to ensure that within 120 days of the date of this Agreement (the “ CS Period ”), it will provide the Lender with a copy of the
duly executed Qoros Security Agreement;
within 5 days of the date of execution of the Qoros Security Agreement, deliver to the Lender the Assignment Agreement, in a form substantially
the same as that agreed to by the Lender and the Borrower pursuant to Paragraph 3(a) of Schedule 1 ( Conditions
precedent
to
initial
utilisation
),
duly executed by the Borrower,
except that:
(i)
the period between (1) the date a definitive and binding agreement relating to a Qualified Financing is signed and (2) the date on which such
agreement is terminated or it is otherwise apparent that the proposed Qualified Financing will not be consummated (the “ QF Termination Date
”), shall not be accounted for in (and shall be excluded from) the calculation and determination of the CS Period (it being agreed, for the avoidance
of doubt, that any time period after such QF Termination Date shall be accounted for in the calculation and determination of the CS Period); and
(ii)
following the completion of a Qualified Financing, the obligations in paragraphs (a) and (b) above shall not apply.
13.
EVENTS OF DEFAULT
Each of the events or circumstances set out in Clauses 13.1 ( Non-payment
) to 13.14 ( Assignment
Agreement
) (inclusive) is an Event of Default.
13.1
Non-payment
Subject to Clause 5.6 ( Deemed
repayment
) and Clause 16 ( Limited
recourse
), the Borrower does not pay on the due date any amount payable pursuant to
a Finance Document at the place and in the currency in which it is expressed to be payable unless:
(a)
(b)
its failure to pay is caused by administrative or technical error; and
payment is made within 5 Business Days of its due date.
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13.2 Other obligations
(a)
(b)
The Borrower does not comply with any provision of this Agreement (other than those referred to in Clause 13.1 ( Non-payment
), Clause 13.10 (
Disposals
) and Clause 14.2 ( Assignment
Agreement
)).
No Event of Default under paragraph (a) above will occur if the failure to comply is capable of remedy and is remedied within 15 Business Days of
the earlier of (i) the Lender giving notice to the Borrower and (ii) the Borrower becoming aware of the failure to comply.
13.3 Misrepresentation
(a)
(b)
Any representation or statement made or deemed to be made by the Borrower in this Agreement is or proves to have been materially incorrect or
materially misleading when made or deemed to be made.
No Event of Default under paragraph (a) above will occur if the circumstances giving rise to the misrepresentation or misstatement are capable of
remedy and are remedied within 15 Business Days of the earlier of:
(i)
(ii)
the Lender giving written notice of the failure by the Borrower; and
the Borrower becoming aware of the misrepresentation or misstatement.
13.4
Cross default
(a)
(b)
(c)
Any Financial Indebtedness of the Borrower (other than Financial Indebtedness of the Borrower under this Agreement) is not paid when due nor
within any originally applicable grace period.
Any Financial Indebtedness of the Borrower (other than Financial Indebtedness of the Borrower under this Agreement) is declared to be or
otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described).
No Event of Default will occur under this Clause 13.4 if the aggregate amount of Financial Indebtedness falling within paragraphs (a) or (b) above
is less than RMB 50,000,000 (or its equivalent in any other currency or currencies).
13.5
Insolvency
(a)
Subject to Clause 16 ( Limited
Recourse
), the Borrower is unable or admits inability to pay its debts as they fall due or is declared to be unable to
pay its debts under applicable law or, by reason of actual or anticipated financial difficulties, suspends making payments on any of its debts (for the
avoidance of doubt, the application of Clause 16 ( Limited
recourse
) shall not constitute a suspension of the payment of the Borrower’s debt) or
commences negotiations with one or more of its creditors with a view to rescheduling any of its indebtedness (other than with the Lender).
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(b)
A moratorium is declared in respect of any indebtedness of the Borrower.
13.6
Insolvency Proceedings
(a)
The filing of an involuntary proceeding is made in a court of competent jurisdiction in the United States seeking relief under US Bankruptcy Law
in respect of the Borrower and either such proceeding shall continue undismissed for 60 days or an order or decree approving or ordering any of the
foregoing shall be entered or the Borrower shall consent to the institution of, or fail to contest in a timely and appropriate manner, any such
involuntary proceeding.
(b)
The filing of a voluntary petition by the Borrower is made under US Bankruptcy Law.
13.7
Unlawfulness
(a)
(b)
It is or becomes unlawful for the Borrower to perform any of its material obligations under any Finance Document.
Subject to the Legal Reservations, any obligation or obligations of the Borrower under any Finance Document are not or cease to be legal, valid,
binding or enforceable.
(c)
Any Finance Document ceases to be in full force and effect.
13.8
Repudiation
The Borrower repudiates a Finance Document to which it is a party or evidences an intention to repudiate a Finance Document to which it is a party.
13.9
Expropriation
The authority or ability of the Borrower to conduct its business is limited or wholly or substantially curtailed by any seizure, expropriation, nationalisation,
intervention, restriction or other action by or on behalf of any governmental, regulatory or other authority or other person in relation to it or any of its assets
which limitation or curtailment (taking into consideration any compensation or payment received in respect thereof) has, or is reasonably expected to have,
a Material Adverse Effect.
13.10 Disposals
(a)
(b)
The Borrower sells, transfers or otherwise disposes of any portion of its legal or beneficial interests in Qoros in any single transaction or series of
related transactions.
No Event of Default will occur under paragraph (a) above if the sale, transfer or other disposal of the Borrower’s legal or beneficial interests in
Qoros is made by the Borrower pursuant to the terms of the Finance Documents or the LLC Agreement or to the Exim Pledges.
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13.11 Interests in Qoros
The Borrower creates or permits to subsist any Security Interest over its legal or beneficial interests in Qoros except:
(a)
(b)
(c)
as otherwise permitted under this Agreement, any other Finance Document or the LLC Agreement;
pursuant to the Exim Pledges; or
with prior written consent of the Lender.
13.12 Qoros Loan Agreement
The Borrower:
(a)
(b)
amends the terms of, or waives any of its rights under, the Qoros Loan Agreement without the prior written consent of the Lender; or
waives any default or event of default (howsoever described) that has occurred under the Qoros Loan Agreement without the prior written consent
of the Lender.
13.13 Material Adverse Effect
Any event or circumstance occurs which has, or is reasonably expected to have, a Material Adverse Effect.
13.14 Assignment Agreement
The Borrower shall not have delivered to the Lender the Assignment Agreement (in a form substantially the same as that agreed to by the Lender and the
Borrower pursuant to Paragraph 3(a) of Schedule 1 ( Conditions
precedent
to
initial
utilisation
)) duly executed by the Borrower within 5 days of the date
of execution of the Qoros Security Agreement.
13.15 Acceleration
(a)
Subject to Clause 16 ( Limited
Recourse
), whilst an Event of Default is continuing the Lender may, by written notice to the Borrower:
(i)
(ii)
cancel the Facilities whereupon the Facilities shall immediately be cancelled;
declare that all or part of any Loan (to the extent not repaid and to the extent the Class B Conversion has not occurred), together with
accrued and unpaid interest, and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable,
whereupon they shall become immediately due and payable; and/or
19
(iii)
declare that all or part of any Loan (to the extent not repaid) be payable on demand, whereupon it shall immediately become payable on
demand; and/or
(iv)
exercise any or all of its rights, remedies, powers or discretions under the Finance Documents.
(b)
If an Event of Default occurs under Clause 13.6:
(i)
(ii)
the Total Commitments shall immediately be cancelled; and
all of the Loans, together with accrued interest and all other amounts accrued under the Finance Documents, shall be immediately due
and payable,
in each case automatically and without any direction, notice, declaration or other act.
14.
TRIGGER EVENTS
Each of the events or circumstances set out in Clauses 14.1 and 14.2 is a Trigger Event.
14.1
Acceleration of the Qoros Loan Agreement due to certain Events of Default
A Qoros Default pursuant to Section 10.5, 10.6 or 10.7 of the Qoros Loan Agreement has occurred and is continuing.
14.2 Qoros Security Agreement
The Borrower has not delivered to the Lender within 120 days of the date of this Agreement (the “ Relevant Period ”) a copy of the duly executed Qoros
Security Agreement, except that:
(a)
(b)
the period between (1) the date a definitive and binding agreement relating to a Qualified Financing is signed and (2) the QF Termination Date,
shall not be accounted for in (and shall be excluded from) the calculation and determination of the Relevant Period (it being agreed, for the
avoidance of doubt, that any time period after such QF Termination Date shall be accounted for in the calculation and determination of the
Relevant Period); and
following the completion of a Qualified Financing, the events and circumstances described in this Clause 14.2 shall no longer constitute a Trigger
Event.
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14.3
Enforcement under the Qoros Security Agreement
Subject to Clause 16 ( Limited
Recourse
), whilst a Trigger Event is continuing, the Lender may, by written notice to the Borrower:
(a)
request that the Borrower:
(i)
(ii)
(iii)
enforce the Qoros Security Agreement in accordance with the terms of the Qoros Security Agreement; and / or
take any action available to the Borrower under and in accordance with the terms of the Qoros Security Agreement and/or the Qoros
Loan Agreement; and / or
take any actions to cause the Lender to have, or to direct the exercise of, any voting, consent or other similar rights to which the Borrower
has as a creditor of Qoros in respect of the Qoros Loan Agreement,
and the Borrower shall comply with such request as soon as reasonably practicable following such written notice (to the extent permitted under,
and in accordance with, the terms of the Qoros Security Agreement and the Qoros Loan Agreement).
15.
SECONDARY SALE
The Borrower acknowledges and agrees that: (i) pursuant to Clause 12.3 ( Disposals
), the Borrower is restricted from selling, leasing, transferring or
otherwise disposing of any asset, including all or a portion of its legal or beneficial interests in Qoros without the prior written consent of the Lender; and
(ii) to the extent that the Lender provides its prior written consent for any such sale, lease, transfer or disposal, the Company shall be required to use any
such proceeds (the “ Transfer Proceeds ”):
(a)
(b)
if prior to the Class B Conversion, for the repayment of the outstanding amount, together with accrued and unpaid interest, under any Loan prior to
using the Transfer Proceeds for any other purpose; and
if following the Class B Conversion, for the redemption of Class A Interests at the then implied value of the Class A Interests in accordance with
the LLC Agreement prior to using the Transfer Proceeds for any other purpose.
16.
LIMITED RECOURSE
Notwithstanding any other provision of this Agreement or any other Finance Document:
(a)
the Borrower shall only be required to repay or prepay a Loan and pay any other amounts due and payable under the Finance Document from, and
only to the extent of, the amounts the Borrower receives from Qoros under the Qoros Loan Agreement;
21
(b)
(c)
any claim by the Lender and any liability and obligation owing by the Borrower under the Finance Documents is limited to the amounts the
Borrower receives from Qoros under the Qoros Loan Agreement and the assets the subject of the Assignment Agreement (and the Lender shall
have no further rights or remedies against the Borrower, and the Borrower shall have no liability or obligation, for any further sum or amount
under, or in connection with, the Finance Documents (a “ Further Sum ”)); and
the Lender shall not take any steps against the Borrower to recover any Further Sum (in particular, the Lender shall not institute against or join any
person in instituting against the Borrower any bankruptcy, reorganisation, arrangement, insolvency, administration, moratorium, liquidation,
dissolution or similar proceedings, nor shall any such person be entitled to make any claim in respect of, any Further Sum against the assets of the
Borrower).
17.
ADMINISTRATION
17.1
Place of payments
All payments to be made by the Borrower under this Agreement shall be made to such account at such office or bank as the Lender may notify to the
Borrower for this purpose form time to time.
17.2
Business Days
(a)
(b)
Any payment which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same month (if there is
one) or the preceding Business Day (if there is not).
During any extension of the due date for payment of any principal or Unpaid Sum under this Agreement interest is payable on the principal or
Unpaid Sum at the rate payable on the original due date.
17.3
Currency of account
(a)
Subject to paragraph (b) below, and save as otherwise agreed by the Lender and the Borrower in relation to any prepayment due under this
Agreement, USD is the currency of account and payment for any sum due from the Borrower under any Finance Document.
(b)
Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred.
18.
ASSIGNMENT AND TRANSFER
18.1
Lender
The Lender may not assign or transfer any of its rights and obligations under any Finance Document to any person without the prior written consent of the
Borrower.
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18.2
Borrower
The Borrower may not assign or transfer any of its rights and obligations under any Finance Document to any person without the prior written consent of
the Lender.
19.
NOTICES
19.1
Communications in writing
Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by
fax or international express courier service.
19.2
Addresses
The address (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document
to be made or delivered under or in connection with the Finance Documents is that identified with its name in the signature pages of this Agreement or any
fax number or substitute address or department or officer as the Party may notify to the other Party by not less than five Business Days’ notice.
19.3
Delivery
Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:
(a)
(b)
(c)
if by way of fax or email, when received in legible form;
if by way of personal delivery or post, when received; or
if by way of international express courier service, when it has been delivered at the relevant address as evidenced by the courier service records.
19.4
Language
All notices and communications pursuant to the Finance Documents shall be in the English language.
20.
CALCULATIONS AND CERTIFICATES
20.1
Accounts
In any litigation or arbitration proceedings arising out of or in connection with the Finance Documents, the entries made in the accounts maintained by the
Lender are prima facie evidence of the matters to which they relate.
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20.2
Certificates and Determinations
Any certification or determination by the Lender of a rate or amount under the Finance Documents is, in the absence of manifest error, conclusive evidence
of the matters to which it relates.
21.
PARTIAL INVALIDITY
If, at any time, any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other
jurisdiction will in any way be affected or impaired.
22.
REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of the Lender, any right or remedy under the Finance Documents shall operate as a waiver,
nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights
and remedies provided in the Finance Documents are cumulative and not exclusive of any rights or remedies provided by law.
23.
AMENDMENTS AND WAIVERS
Any term of this Agreement may be amended or waived only with the consent of the Lender and the Borrower in writing.
24.
COUNTERPARTS
This Agreement may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy
of this Agreement.
25.
ENTIRE AGREEMENT
(a)
(b)
This Agreement, together with the other Finance Documents, constitutes the entire agreement between the Parties in relation to the obligations of
each Party under this Agreement and supersedes any previous agreement, whether express or implied, between the Parties.
Each Party acknowledges that in agreeing to enter into this Agreement it has not relied on any representation, warranty, collateral contract or other
assurance (except those set out in this Agreement and the documents referred to in it) made by or on behalf of any other Party before the signature
of this Agreement. Each Party waives all rights and remedies which, but for this Clause, might otherwise be available to that Party in respect of any
such representation, warranty, collateral contract or other assurance.
(c)
Nothing in this Clause limits or excludes any liability for fraud.
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26.
GOVERNING LAW AND ENFORCEMENT
26.1 Governing Law
This Agreement and any non-contractual obligations arising out of or in connection with it are governed by, and shall be construed in accordance with,
English law.
26.2
Jurisdiction
(a)
(b)
(c)
The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute
relating to the existence, validity or termination of this Agreement or any non-contractual obligation arising out of or in connection with this
Agreement) (a “ Dispute ”).
The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to
the contrary.
This Clause 26.2 is for the benefit of the Lender only. As a result, the Lender shall not be prevented from taking proceedings relating to a Dispute
in any other courts with jurisdiction. To the extent allowed by law, the Lender may take concurrent proceedings in any number of jurisdictions.
25
SCHEDULE 1
Conditions Precedent to initial utilization
1.
The Borrower
(a)
A copy of the constitutional documents of the Borrower, including:
(i)
(ii)
its certification of formation, certified as of a recent date by the relevant authority of the jurisdiction of organization of the Borrower; and
a certificate as to its existence and good standing as of a recent date from the relevant authority of the jurisdiction of organization of the
Borrower.
(b)
A copy of a resolution of the member of the Borrower:
(i)
(ii)
(iii)
approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party and resolving that it execute
the Finance Documents to which it is a party;
authorising a specified person or persons to execute the Finance Documents to which it is a party on its behalf; and
authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices to be signed and/or despatched
by it under or in connection with the Finance Documents to which it is a party.
A specimen of the signature of each person authorised by the resolution referred to in paragraph (b) above.
A certificate of an authorised signatory of the Borrower certifying that each copy document relating to it specified in this Paragraph 1 of Schedule 1
is correct, complete and in full force and effect as at a date no earlier than 3 Business Days prior to the date of this Agreement.
(c)
(d)
2.
Finance Documents
(a)
(b)
This Agreement duly executed by the Borrower.
The agreed form of the Assignment Agreement, which shall include a completed and final Schedule 1 (as defined in the Assignment Agreement).
3.
Other documents and evidence
(a)
A copy of the executed Qoros Loan Agreement and evidence that the proceeds of the initial drawdown under this Agreement will be applied to
fund the first drawdown under the Qoros Loan Agreement.
26
(b)
(c)
(d)
(e)
A copy of the executed Initial Chery Loan Agreement and evidence or confirmation that an amount equal to the first drawdown amount under this
Agreement will be made available and paid to Qoros under the Initial Chery Loan Agreement simultaneously with, or prior to, the first drawdown
under this Agreement.
A copy of the executed LLC Agreement.
A copy of the executed Undertaking Agreement, dated as of the date hereof, between Qoros, the Borrower, Kenon, Wuhu Chery Automobile
Investment Co. Ltd., Chery Automobiles Limited and the Lender .
The Borrower having obtained all required governmental, creditor and partner consents, including appropriate foreign debt quota or other necessary
regulatory approvals in connection with the Finance Documents, the Qoros Loan Agreement and the Qoros Security Agreement.
27
SCHEDULE 2
Form of Utilisation Request
To:
ANSONIA HOLDINGS SINGAPORE B.V.
as Lender
From: QUANTUM (2007) LLC
as Borrower
Date:
Dear Sirs,
1.
2.
Loan Agreement dated 2016 ( the “Agreement”)
I refer to the Agreement. This is a Utilisation Request. Words and expressions used in this Request shall have the same meaning as are given to them in the
Agreement.
I wish to borrow the Loan on the following terms:
(a)
(b)
(b)
Utilisation Date: [•]
Facility: [A] / [B]
Amount: USD [•]
3.
The proceeds of this Loan should be credited to [ account
].
Yours faithfully
Manager of
QUANTUM (2007) LLC
28
EXHIBIT A
Form of Qoros Security Agreement
29
SIGNATURES
ANSONIA HOLDINGS SINGAPORE B.V.
as Lender
By /s/ Cyril Ducau
Name: Cyril Ducau
Title: Director
30
QUANTUM (2007) LLC
as Borrower
By /s/ Robert L. Rosen
Name: Robert L. Rosen
Title: Manager
31
DATED 22 APRIL 2016
Exhibit 4.18
UNDERTAKING AGREEMENT
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
40 Bank Street
Canary Wharf
London E14 5DS
CONTENTS
CLAUSE
1.
2.
3.
4.
5.
6.
7.
8.
INTERPRETATION
UNDERTAKINGS
FURTHER ASSURANCE
PARTIAL INVALIDITY
CONSENT OF THIRD PARTIES
COUNTERPARTS
GOVERNING LAW
DISPUTE RESOLUTION
ANNEXURE A
ANNEXURE B
ANNEXURE C
ANNEXURE D
ANNEXURE E
SIGNATURES
PAGE
2
3
5
5
6
6
6
6
7
8
9
10
11
12
THIS UNDERTAKING AGREEMENT (the “ Agreement ”) is made on 22 April 2016
BETWEEN:
(1) QOROS AUTOMOTIVE CO., LTD., a sino-foreign joint equity enterprise established on 24 December 2007 in the People’s Republic of China with
address of No.1, Tongda Road, Economic Technology Development Zone, Changshu City, Jiangsu Province, People’s Republic of China (“ Qoros ”);
(2) QUANTUM (2007) LLC , a Delaware limited liability company (file no. 4300667) whose registered office is at 16192 Coastal Highway, Lewes, Delaware
19958, United States of America (“ LLC ”);
(3) KENON HOLDINGS LTD. , a Singapore company with shares listed on the Tel Aviv Stock Exchange and New York Stock Exchange (company
registration no. 201406588W) whose registered office is at 1 Temasek Avenue #36-01, Millenia Tower, Singapore 039192 (“ Kenon ”);
(4) WUHU CHERY AUTOMOBILE INVESTMENT CO., LTD , a limited liability company organized and existing under the laws of the People’s Republic
of China with its legal address at 8 Chengchun Road, Wuhu Economic and Technological Development Area, Anhui Province, People’s Republic of China
(“ Wuhu Chery ”);
(5)
(6)
CHERY AUTOMOBILES LIMITED , a company limited by shares organized and existing under the laws of the People’s Republic of China with its legal
address at 8 Chengchun Road, Wuhu Economic and Technological Development Area, Anhui Province, People’s Republic of China (“ Chery ”); and
ANSONIA HOLDINGS SINGAPORE B.V. , incorporated under the laws of the Netherlands (Besloten
vennootschap
met
beperkte
aansprakelijkheid)
and
having its registered office at 1 Temasek Avenue #38-01, Millenia Tower, Singapore 039192 (“ Ansonia ”),
(each a Party and together, the Parties ).
RECITALS:
(A)
The Parties wish to enter into this Agreement to record certain undertakings, as set out below (the “ Undertakings ”) relating to certain transactions
contemplated in connection with loans provided by the Parties (the “ Transactions ”), including:
(1)
(2)
the loans provided by Ansonia to LLC pursuant to the LLC Loan Agreement (the “ LLC Loan ”);
the loan of the proceeds of the LLC Loan to Qoros pursuant to the LLC-Qoros Loan Agreement (the “ LLC-Qoros Loan ”) at the same time as a
corresponding loan is made by Wuhu Chery to Qoros (the “ W uhu Chery-Qoros Loan ”) (the LLC-Qoros Loan and the Wuhu Chery-Qoros Loan,
together the “ Qoros Loans ”).
(B)
The Qoros Loans will be secured by security granted with respect to certain patents held by Qoros.
IT IS AGREED as follows:
1.
INTERPRETATION
1.1 Definitions
In this Agreement:
“ Additional Chery Loan Agreement ” has the meaning given to that term in the LLC Loan Agreement.
“ Assignment Agreement ” means the security assignment agreement between LLC as assignor and Ansonia as assignee.
“ Business Day ” means a day (other than a Saturday or Sunday) on which banks are open for general business in London, Singapore and the People’s
Republic of China.
“ Class A Interests ” means Class A membership interests in LLC.
“ Class B Interests ” means Class B membership interests in LLC.
“ Initial Wuhu Chery-Qoros Loan Agreement ” means the loan agreement defined in Clause 2.3 ( Wuhu
Chery-Qoros
Loan
Agreement
) of this
Agreement.
“ Interests ” means the Class A Interests and the Class B Interests.
“ LLC Loan Agreement ” means the loan agreement defined in Clause 2.1 ( LLC
Loan
Agreement
) of this Agreement.
“ LLC-Qoros Loan Agreement ” means the loan agreement defined in Clause 2.2 ( LLC-Qoros
Loan
Agreement
) of this Agreement.
“ Qoros Security Agreement ” means the patent right pledge agreement among Qoros as pledgor and LLC and Wuhu Chery as pledgees securing the
obligations owing by Qoros under the Initial Wuhu Chery-Qoros Loan Agreement and LLC-Qoros Loan Agreement.
Qualified Financing ” has the meaning given to it in the LLC-Qoros Loan Agreement.
1.2 Construction
In this Agreement, unless the context otherwise requires, a reference to:
(a)
(b)
(c)
(d)
a person includes a person, firm, company, corporation, government, state or agency of state or any association , trust partnership (whether or not
having a separate legal personality) or two or more of the foregoing and includes a reference to that person’s successors and permitted assignees or
permitted transferees but does not include that person if it has ceased to be a party under this Agreement;
unless otherwise specified, clauses are references to clauses to this Agreement;
any reference to this Agreement shall include its annexures;
(or to any specified provision of) any agreement is to that agreement (or that provision) as amended from time to time;
(e)
(f)
(g)
(h)
a statute, statutory instrument or provision of law is to that statute, statutory instrument or provision of law, as it may be applied, amended or re-
enacted from time to time;
the index and the headings in this Agreement are for convenience only and are to be ignored in construing this Agreement;
words imparting the singular include the plural and vice versa; and
words “best efforts”, in relation to the performance of any act by a party, shall be construed as the standard of endeavours required under English law.
2.
UNDERTAKINGS
2.1
LLC Loan Agreement
At the same time as entering into this Agreement, Ansonia and LLC each undertake to the Parties to execute the loan agreement between LLC as borrower
and Ansonia as lender in substantially the form annexed to this Agreement as Annexure A (the “ LLC Loan Agreement ”).
2.2
LLC-Qoros Loan Agreement
At the same time as entering into this Agreement, LLC and Qoros each undertake to the Parties to execute the loan agreement between Qoros as borrower
and LLC as lender in substantially the form annexed to this Agreement as Annexure B (the “ LLC-Qoros Loan Agreement ”).
2.3 Wuhu Chery-Qoros Loan Agreement
At the same time as entering into this Agreement, Wuhu Chery and Qoros each undertake to the Parties to execute the loan agreement between Qoros as
borrower, the Industrial and Commercial Bank of China Limited, Changshu Sub-Branch (中国工商银行股份有限公司常熟支行) as entrusted bank and
Wuhu-Chery as lender in substantially the form annexed to this Agreement as Annexure C (the “ Initial Wuhu Chery-Qoros Loan Agreement ”).
2.4 Conversion of Class B Interests into Class A Interests
(a)
In connection with the conversion of the LLC Loan provided by Ansonia into Class A Interests pursuant to the terms of the LLC Loan Agreement (the
“ LLC Conversion ”), and to the extent that the LLC Conversion will result in an issuance of Class A Interests to Ansonia in excess of the number of
Interests which LLC may issue to a third-party without violating the terms of the existing joint venture agreement of Qoros (the “Joint Venture
Agreement” ), LLC undertakes that it shall convert the maximum number of Class B Interests into Class A Interests permitted by the Joint Venture
Agreement and shall use its best efforts (including, but not limited to, assisting with obtaining any required governmental or regulatory approvals, but,
for the avoidance of doubt, such efforts shall exclude any requirement to make a repayment or prepayment of any existing indebtedness of Qoros) to
make appropriate amendments to the Joint Venture Agreement, such that, following such amendments, LLC may convert Ansonia’s remaining Class
B Interests into Class A Interests in compliance with LLC’s contractual obligations under the Joint Venture Agreement.
(b)
(c)
For the avoidance of doubt, the LLC Conversion shall be deemed complete only upon the conversion of each of the Class B Interests held by Ansonia
into Class A Interests and the cancellation of each of the Class B Interests, with such conversion and cancellation to be reflected in an adjustment to
Schedule A of the Second Amended and Restated Limited Liability Company Operating Agreement, dated as of April 22, 2016, by and between
Robert Rosen, as manager, and each member party thereto.
Notwithstanding the forgoing, to the extent LLC is not able to convert all of Ansonia’s Class B Interests into Class A Interests pursuant to an LLC
Conversion, LLC, Chery, Wuhu Chery and Qoros undertake to enter into good faith negotiations with Ansonia to take necessary steps to put Ansonia
in the same economic position it would have been in as if all of its Class B Interests were converted into Class A Interests.
2.5 Conversion of Class A Interests into direct ownership of Qoros
(a)
Following the LLC Conversion and until the third anniversary of the LLC Conversion, Ansonia may, at its discretion, request to LLC in writing that it
wishes to convert / exchange its Class A Interests into a direct holding by it of an equity interest in Qoros (the “ Company Conversion ”) based on the
then value of the indirect beneficial ownership in Qoros of such Class A Interests.
(b)
If Ansonia requests a Company Conversion pursuant to paragraph (a) above:
(i)
(ii)
(iii)
(iv)
LLC shall notify each other party to this Agreement of Ansonia’s request;
LLC undertakes that it will use its best efforts (including, but not limited to, assisting with obtaining any required governmental or regulatory
approvals, but, for the avoidance of doubt, such efforts shall exclude any requirement to make a repayment or prepayment of any existing
indebtedness of Qoros) to take any and all steps required to effect the Company Conversion based on the then value of the indirect beneficial
ownership in Qoros of such Class A Interests;
each of Kenon, Chery, Wuhu Chery and Qoros undertake to enter into good faith negotiations with respect to the Company Conversion and,
following the conclusion of such negotiations, to enter into such agreements, and to use best efforts to take all other action, as is required by
LLC and / or Ansonia to give effect to the Company Conversion; and
without prejudice to the generality of Clause 2.5(b)(iii), in respect of a Company Conversion, each of Kenon, Chery and Qoros hereby
undertake to enter into good faith negotiations to make appropriate amendments to the Joint Venture Agreement such that, following the
Company Conversion, each of Wuhu Chery, LLC, Ansonia and any new third party investor is a party to such Joint Venture Agreement and
the Joint Venture Agreement is amended to reflect typical rights and protections for minority investors, including, but not limited to, relating
to anti-dilution, material corporate actions and board representation.
(c)
The undertakings and obligations of Chery and Wuhu Chery in sub-paragraphs (b)(iii) and (b)(iv) above (and compliance thereto) are subject to Chery
and Wuhu Chery obtaining the required:
(i)
internal corporate and board approval; and
(ii)
shareholder approval,
and Chery and Wuhu Chery agree to use best efforts to obtain such approvals at the relevant and appropriate time.
2.6 Qoros Security Agreement and Assignment Agreement
(a) Within 120 days of entering into this Agreement (the “ Relevant Period ”), LLC and Qoros each undertakes to the Parties to execute the Qoros
Security Agreement in substantially the form annexed to this Agreement as Annexure D, except that:
(i)
the period between (1) the date a definitive and binding agreement relating to a Qualified Financing is signed and (2) the date on which such
agreement is terminated or it is otherwise apparent that the proposed Qualified Financing will not be consummated (the “ QF Termination
Date ”), shall not be accounted for in (and shall be excluded from) the calculation and determination of the Relevant Period (it being agreed,
for the avoidance of doubt, that any time period after such QF Termination Date shall be accounted for in the calculation and determination of
the Relevant Period); and
(ii)
following the completion of a Qualified Financing, the obligations under this paragraphs (a) shall not apply.
(b) Within 5 days of entry into the Qoros Security Agreement between LLC and Qoros, LLC and Ansonia each undertakes to the Parties to execute the
Assignment Agreement in substantially the form annexed to this Agreement as Annexure E.
(c)
Qoros undertakes to the Parties that it shall not create or permit to subsist any security over any of the Pledged Property (as defined in the Qoros
Security Agreement) save for the security to be created pursuant to the Qoros Security Agreement.
2.7 Additional Chery Loan Agreement:
Prior to a utilisation of Facility B (as defined in the LLC Loan Agreement) of the LLC Loan Agreement, Wuhu Chery and Qoros each undertake to the
Parties to execute the Additional Chery Loan Agreement in a form substantially the same as the Initial Chery Loan Agreement or in such other form
satisfactory to the Parties.
3.
FURTHER ASSURANCE
Each party to this Agreement shall, and shall use reasonable endeavours to procure that any necessary third party shall, at its own expense, do and execute, or
arrange for the doing and executing of, each necessary act, document and thing reasonably within its power and as may be reasonably requested of it to
implement this Agreement and the transactions contemplated by this Agreement.
4.
PARTIAL INVALIDITY
If, at any time, any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of any other provision of this Agreement nor the legality, validity or enforceability under the law of any other jurisdiction
shall in any way be affected or impaired.
5.
CONSENT OF THIRD PARTIES
Notwithstanding any term of this Agreement, no consent of any third party is required for any amendment (including any release or compromise of any
liability) or termination of this Agreement.
6.
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument.
7.
GOVERNING LAW
This Agreement and any dispute or claim arising out of or in connection with it or its subject matter shall be governed by, and construed in accordance with,
the laws of the People’s Republic of China.
8.
DISPUTE RESOLUTION
Any dispute in connection with this Agreement shall be resolved through friendly negotiation between the Parties. If the dispute is not resolved through
negotiation within sixty (60) calendar days after one Party has served a written notice on the other Parties requesting the commencement of negotiation, then
the Parties shall refer and submit the dispute for final resolution by arbitration to the Hong Kong International Arbitration Center (HKIAC) in accordance
with the Arbitration Rules of the United Nations Commission on International Trade Law (the “ UNCITRAL Arbitration Rules ”) as at present in force
save as the same may be amended by this Agreement and the UNCITRAL Arbitration Rules shall be construed accordingly. The place of arbitration shall be
Hong Kong. The arbitration shall be settled by three (3) arbitrators. Ansonia, Kenon and LLC as one side, and Chery, Wuhu Chery as the other side shall
separately appoint one arbitrator within the time stipulated in the UNCITRAL Arbitration Rules, failing which the appointment shall be made by HKIAC.
The third arbitrator, who will act as the presiding arbitrator, shall be appointed by the HKIAC. The appointing authority shall be the HKIAC. The language
of the arbitration proceedings shall be English, provided that either Party may introduce evidence or testimony in languages other than English. The award of
the arbitration tribunal will be final and binding on each of the Parties and may be enforced, if necessary, in any court of competent jurisdiction. The costs of
arbitration including attorneys’ fees shall be borne by the losing Party unless otherwise decided in the arbitral award. In any arbitration proceeding or legal
proceeding to enforce an arbitral award, in any other legal action between the Parties relating to this Agreement, each Party waives the defense of sovereign
immunity and any other defense solely based upon the fact or allegation that it is a political subdivision, agency or instrumentality of a sovereign state.
IN WITNESS of which the Parties have executed and delivered this document on the date first written above.
ANNEXURE A
Form of LLC Loan Agreement
ANNEXURE B
Form of LLC-Qoros Loan Agreement
ANNEXURE C
Form of Initial Wuhu Chery-Qoros Loan Agreement
ANNEXURE D
Form of Qoros Security Agreement
ANNEXURE E
Form of Assignment Agreement
SIGNATURES
QOROS AUTOMOTIVE CO., LTD.
/s/
Authorized Signatory
Name:
Company Seal:
QUANTUM (2007) LLC
By /s/ Robert L. Rosen
Name: Robert L. Rosen
Title: Manager
KENON HOLDINGS LTD.
By /s/ Yoav Doppelt
Name: Yoav Doppelt
Title: CEO
WUHU CHERY AUTOMOBILE INVESTMENT CO., LTD
/s/ Zhou Biren
Authorized Signatory
Name: Zhou Biren
Company Seal:
CHERY AUTOMOBILE LIMITED
/s/ Yin Tongyue
Authorized Signatory
Name: Yin Tongyue
Company Seal:
ANSONIA HOLDINGS SINGAPORE B.V.
By /s/ Cyril Ducau
Name: Cyril Ducau
Title: Director
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
Quantum (2007) LLC
Exhibit 4.19
This Second Amended and Restated Limited Liability Company Agreement (this “ Agreement ”) of Quantum (2007) LLC (the “ Company ”) is
entered into this 22 nd day of April 2016, by and between Robert Rosen, as the manager (the “ Manager ”), and each member indicated on Schedule A attached
hereto and made part hereof (individually, a “ Member ” and collectively, the “ Members ”), pursuant to and in accordance with the Delaware Limited Liability
Company Act (6 Del.C. § 18-101, et seq. ), as amended from time to time (the “ Act ”), and amends and restates that certain Amended and Restated Limited
Liability Company Agreement entered into on January 7, 2015 between Kenon Holdings Ltd. (the “ Class A Member ”), as the member, and Robert Rosen, as the
manager (the “ Original LLC Agreement ”).
RECITALS
WHEREAS, the Class A Member desires to admit Ansonia Holdings Singapore B.V. (the “ Class B Member ”) as a Member of the Company, within
the meaning of the Act, in connection with, and in consideration for, the Class B Member’s provision of a loan of up to $50 million to the Company, pursuant to
that certain Loan Agreement, dated as of the date hereof, between the Company, as borrower, and the Class B Member, as lender (the “ Loan Agreement ”);
WHEREAS, as set forth in the Loan Agreement, the Class B Member shall receive Class B Interests (as hereinafter defined), which Class B Interests
shall have the rights described in this Agreement; and
WHEREAS, in connection with the creation and issuance of the Class B Interests, the Members and the Manager desire to amend and restate the
Original LLC Agreement in its entirety.
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Class A Member and the Manager, by execution of this Agreement, hereby agree
to amend and restate the Original LLC Agreement in its entirety as follows:
1. Name . The name of the limited liability company governed hereby is Quantum (2007) LLC.
2. Certificates . A certificate of formation for the Company (the “ Certificate of Formation ”) has been filed in the Office of the Secretary of State of
the State of Delaware in conformity with the Act. The Manager or an Officer (as hereinafter defined) shall execute, deliver and file any other certificates (and any
amendments and/or restatements thereof) necessary for the Company to continue to qualify to do business in a jurisdiction in which the Company may wish to
conduct business.
3. Purpose . The Company is formed for the object and purpose of, and the nature of the business to be conducted and promoted by the Company is,
engaging in all lawful activities for which limited liability companies may be formed under the Act.
4. Powers . The Company shall have the power to do any and all acts reasonably necessary, appropriate, proper, advisable, incidental or convenient to
or for the furtherance of the purpose and business described herein and for the protection and benefit of the Company, and shall have, without limitation, any and
all of the powers that may be exercised on behalf of the Company by the Manager pursuant to this Agreement, including Section 18.
5. Principal Business Office . The principal place of business and office of the Company shall be located at, and the Company’s business shall be
conducted from, such place or places as may hereafter be determined by the Manager.
6. Registered Office . The address of the registered office of the Company in the State of Delaware is 16192 Coastal Highway, Lewes, Delaware
19958, in the county of Sussex.
7. Registered Agent . The names and addresses of the registered agents of the Company for service of process on the Company in the State of
Delaware are Harvard Business Services Inc., 16192 Coastal Highway, Lewes, Delaware 19958, in the county of Sussex and National Corporate Research, Ltd.,
615 South DuPont Highway, County of Kent, Dover, Delaware 19901.
8. Members . The names and the mailing addresses of the Members are as follows:
Name
Kenon Holdings Ltd.
Address
1 Temasek Avenue #36-01
Millenia Tower
Singapore 039192
Ansonia Holdings Singapore B.V.
1 Temasek Avenue #38-01
Millenia Tower
Singapore 039192
9. Term . The term of the Company commenced on the date of filing of the Certificate of Formation of the Company in accordance with the Act and
shall continue until dissolution of the Company in accordance with Section 24 of this Agreement.
10. Limited Liability . Except as otherwise provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort
or otherwise, shall be solely the debts, obligations and liabilities of the Company, and none of the Members, the Manager, any Officer, employee or agent of the
Company (including a person having more than one such capacity) shall be obligated personally for any such debt, obligation or liability of the Company solely by
reason of acting in such capacity.
2
11. Capital Structure .
a. Interests . The capital structure of the Company shall consist of two classes of interests, the Class A Interests and the Class B Interests
(collectively, the “ Interests ”). The Class A Member shall own all of the Class A Interests issued and outstanding and the Class B Member shall own all of the
Class B Interests issued and outstanding; provided that, in accordance with Schedule B :
(i)
(ii)
(iii)
following the Repayment Time (as defined in Schedule B ), all Class B Interests then held by the Class B Member (including any rights
attaching thereto) shall, by virtue of the provisions of this Agreement, without any action on the part of the holders thereof, be deemed
cancelled;
following the Class B Conversion Time (as defined in Schedule B ), all Class B Interests then held by the Class B Member (including any
rights attaching thereto) shall, by virtue of the provisions of this Agreement, without any action on the part of the holders thereof, be
automatically converted into Class A Interests; and
following the Qoros Conversion Time (as defined in Schedule B ), all Class A Interests then held by the Class B Member (including any rights
attaching thereto) shall, by virtue of the provisions of this Agreement, without any action on the part of the holders thereof, be deemed
cancelled.
b. Prior Interests . At the time at which this Agreement becomes effective (the “ Effective Time ”), all “limited liability company interests”
and/or “Interests” of the Company in existence immediately prior to the Effective Time shall, by virtue of the provisions of this Agreement, without any action on
the part of the holders thereof, be automatically converted into an aggregate of 100% of the Class A Interests.
c. Rights . Each class of Interests shall have the rights and privileges accorded such class as are set forth in this Agreement.
12. Rights and Duties Attached to the Interests .
at any meeting of the Members.
a. Class A Interest Rights . Each Class A Interest shall rank pari passu with every other Class A Interest and shall entitle its owner to one vote
b. Class B Interest Rights . Each Class B Interest shall rank pari passu with every other Class B Interest and shall entitle its owner to the rights,
powers and duties set forth in Schedule B , attached hereto and made part hereof, until the Class B Interests have been converted and /or cancelled in accordance
with the terms set forth in Schedule B .
13. Additional Capital Contributions . The Members are not required to make additional capital contributions to the Company.
3
14. Capital Accounts . Separate capital accounts shall be maintained for each Member on the books of the Company. Each capital account shall be
adjusted to reflect such Member’s shares of allocations and distributions as provided in Section 15 of this Agreement, and any additional capital contributions to the
Company or withdrawals of capital from the Company. Such capital accounts shall further be adjusted to conform to the Treasury Regulations under Section 704(b)
of the Internal Revenue Code of 1986, as amended (the “ Code ”), as interpreted in good faith by the Manager.
15. Allocations and Distributions .
a. Allocations of Profit and Loss . Subject to Section 16 of this Agreement, all items of income, gain, loss, deduction and credit shall be
allocated to the Class A Member; provided that, following the Class B Conversion Time and the automatic conversion of all Class B Interests then held by the
Class B Member into Class A Interests, and until the Qoros Conversion Time or the Repayment Time, all items of income, gain, loss, deduction and credit shall be
allocated among the Members in accordance with their Percentage Interests (as indicated on Schedule A attached hereto, which schedule shall be adjusted from
time to time in accordance with Clause 7 of the Loan Agreement).
b. Distributions . Subject to Section 16 of this Agreement, distributions shall be made to the Class A Member at such times and in such
amounts as may be determined in the sole discretion of the Manager; provided that, following the Class B Conversion Time and the automatic conversion of all
Class B Interests then held by the Class B Member into Class A Interests, and until the Qoros Conversion Time or the Repayment Time, all distributions shall be
shared among the Members in accordance with their Percentage Interests (as indicated on Schedule A attached hereto, which schedule shall be adjusted from time
to time in accordance with Clause 7 of the Loan Agreement). Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not
make a distribution to any Member on account of their interest in the Company if such distribution would violate Section 18-607 of the Act or other applicable law.
16. Secondary Sale . The Class A Member and the Manager acknowledge and agree that on any sale, lease, transfer or other disposal by the Company
of any asset, including all or a portion of its legal or beneficial interests in Qoros Automotive Co., Ltd. (“ Qoros ”), the Company shall be required to use any net
proceeds from such sale, lease, transfer or disposal (the “ Transfer Proceeds ”) as follows:
unpaid interest, under the Loan Agreement prior to using the Transfer Proceeds for any other purpose; and
a. if prior to the Class B Conversion (as defined in Schedule B ), for the repayment of the outstanding amount, together with accrued and
b. if following the Class B Conversion, but prior to the Qoros Conversion (as defined in Schedule B ), for the redemption of Class A Interests,
at the then implied value of the Class A Interests (based upon the implied value of the Company’s interest in Qoros), prior to using the Transfer Proceeds for any
other purpose, with such redemption to be reflected in an adjustment to Schedule A and the number of Class A Interests, if any, then held by the Class B Member
after such redemption.
4
17. Management . In accordance with Section 18-402 of the Act, and subject to the rights, powers and duties set forth in Schedule B :
a. management of the Company shall be vested in the Manager. The Manager shall have the power to do any and all acts necessary,
convenient or incidental to or for the furtherance of the purposes described herein, including all powers, statutory or otherwise, possessed by managers of a limited
liability company under the laws of the State of Delaware and including all things necessary to carry out the terms and provisions of this Agreement. The Manager
has the authority to bind the Company;
b. subject to the rights and powers of the Manager and the limitations thereon contained herein, the Manager may delegate to any person any
or all of his powers, rights and obligations under this Agreement and may appoint, contract or otherwise deal with any person to perform any acts or services for the
Company as the Manager may reasonably determine;
Company except those expressly granted to it by the terms of this Agreement, or those conferred on it by law;
c. no Member shall participate in the management or control of the business of, or shall have any rights or powers with respect to, the
at which time the Members shall appoint a new manager; and
d. the Manager shall hold office until the earliest to occur of its resignation, termination, dissolution or other inability to act in such capacity,
e. the Manager shall not be compensated for its services as the manager of the Company without the consent of the Members.
18. Officers . The Manager may, from time to time as it deems advisable, appoint officers of the Company (the “ Officers ”) and assign in writing
titles (including, without limitation, President, Vice President, Secretary and Treasurer) to any such person. Unless the Manager decides otherwise, if the title is one
commonly used for officers of a business corporation formed under the Delaware General Corporation Law, the assignment of such title shall constitute the
delegation to such person of the authorities and duties that are normally associated with that office. Any delegation pursuant to this Section 18 may be revoked at
any time by the Manager.
19. Other Business . The Manager and the Members may engage in or possess an interest in other business ventures (unconnected with the Company)
of every kind and description, independently or with others. The Company shall not have any rights in or to such independent ventures or the income or profits
therefrom by virtue of this Agreement.
20. Exculpation and Indemnification . None of the Members, the Manager or Officers (each an “ Indemnified Party ”) shall be liable to the Company
or any other person or entity who has an interest in the Company for any loss, damage or claim incurred by reason of any act or omission performed or omitted by
such Indemnified Party in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such
Indemnified Party by this Agreement, except that an Indemnified Party shall be liable for any such loss, damage or claim incurred by reason of such Indemnified
Party’s gross negligence or willful misconduct. To the full extent permitted by applicable law, an Indemnified Party shall be entitled to indemnification from the
Company for any loss, damage or claim incurred by such Indemnified Party by reason of any
5
act or omission performed or omitted by such Indemnified Party in good faith on behalf of the Company and in a manner reasonably believed to be within the
scope of the authority conferred on such Indemnified Party by this Agreement, except that no Indemnified Party shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Indemnified Party by reason of gross negligence or willful misconduct with respect to such acts or omissions; provided ,
however, that any indemnity under this Section 20 shall be provided out of and to the extent of Company assets only, and neither the Manager nor any Member
shall have personal liability on account thereof.
21. Admission of Additional Members . One (1) or more additional members of the Company may be admitted to the Company with the prior written
consent of the Members.
22. Termination of Membership . Subject to Section 24, the termination, dissolution, death, bankruptcy or adjudicated incompetency of a Member
shall not cause a dissolution of the Company, but the rights of such Member to share in the allocations and distributions, to assign its Interests in the Company
pursuant to Section 23 and to vote on any matter on which the Members have the right to vote shall, on the happening of such an event, devolve on its legal
representative for the purpose of settling its estate or administering its property.
23. Assignments . A Member may not transfer, assign, pledge or hypothecate, in whole or in part, its Interests without the prior written consent of the
Manager which shall not be unreasonably withheld.
24. Dissolution and Winding Up .
a. Dissolution . The Company shall dissolve, and its affairs shall be wound up upon the first to occur of the following: (i) the written consent
of the Members and the Manager, (ii) the death, disability, bankruptcy or withdrawal of the last remaining Member and (iii) the entry of a decree of judicial
dissolution under Section 18-802 of the Act.
b. Winding Up . In the event of dissolution, the Company shall conduct only such activities as are necessary to wind up its affairs (including
the sale of the assets of the Company in an orderly manner).
25. Elections . The Manager shall determine the accounting methods and conventions under the tax laws of any and all applicable jurisdictions as to
the treatment of income, gain, loss, deduction and credit of the Company or any other method or procedure related to the preparation of such tax returns. The
Manager may cause the Company to make or refrain from making any and all elections permitted by such tax laws, and the Manager shall not be liable for any
consequences to any previously admitted or subsequently admitted Members resulting from their making or failing to make any such elections.
26. Separability of Provisions . Each provision of this Agreement shall be considered separable and if for any reason any provision or provisions
herein are determined to be invalid, unenforceable or illegal under any existing or future law, such invalidity, unenforceability or illegality shall not impair the
operation of or affect those portions of this Agreement which are valid, enforceable and legal.
6
27. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original of this Agreement.
28. Entire Agreement . This Agreement constitutes the entire agreement of the Members and the Manager with respect to the subject matter hereof.
29. Governing Law . This Agreement shall be governed by, and construed under, the laws of the State of Delaware (without regard to conflict of laws
principles thereof), and all rights and remedies shall be governed by such laws.
30. Amendments . This Agreement may not be modified, altered, supplemented or amended except pursuant to a written agreement executed and
delivered by the Members and the Manager.
7
IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have duly executed this Agreement as of the date first written
above
MANAGER: Robert Rosen
By: /s/ Robert Rosen
Name: Robert Rosen
CLASS A MEMBER: Kenon Holdings Ltd.
By: /s/ Robert Rosen
Name: Robert Rosen
Title: General Counsel
CLASS B MEMBER: Ansonia Holdings Singapore B.V.
By:
/s/ Cyril Ducau
Name: Cyril Ducau
Title: Director
[Signature Page – Second Amended and Restated LLC Agreement]
SCHEDULE A
(as of April 22, 2016)
Name
Kenon Holdings Ltd.
Ansonia Holdings Singapore B.V.
Capital
Contribution
100
$
N/A
Interest
1,000 Class A Interests
10 Class B Interests
Percentage Interest
100% of Class A Interests
100% of Class B Interests
SCHEDULE B
Terms of Class B Interests
(as of April 22, 2016)
Capitalized terms used in this Schedule B and not otherwise defined herein shall have the meanings assigned in the Agreement.
A. The approval of holders of a majority of the outstanding Class B Interests shall be required for the Company to:
(i) enter into any agreements or consummate any transaction or series of related transactions that would change the Company’s business or result in
the acquisition or disposition of investments by the Company;
(ii) amend the terms of, or provide waivers or consents in respect of, the Loan Agreement, dated as of the date hereof, between the Company and
Qoros (the “ Qoros Loan ”);
(iii) utilize the proceeds derived from the Loan Agreement for purposes other than the funding of the Qoros Loan; it being understood that the Qoros
Loan is intended to be used by Qoros for its ordinary course working capital;
(iv) sell, transfer, otherwise dispose of, or enforce the Company’s rights relating to security interests held by the Company, including the Company’s
security interest in certain assets of Qoros, as reflected in the Qoros Security Agreement (as defined in the Loan Agreement);
(v) enter into any agreements, consummate any transaction or series of related transactions, or take any action in connection with the approval of any
indebtedness or liability at Qoros, the Qoros Loan, or the Company, including amending the terms of the Class B Interests or the Agreement, that may materially
and adversely affect the rights or interests of the Class B Member; and
(vi) issue any class of Interests, or securities convertible into a class of Interests, that ranks senior or pari passu to the Class B Interests with respect to
receipt of distributions or upon liquidation. For the avoidance of doubt, the Percentage Interests of the Class B Member set forth in Schedule A shall not be diluted
without the Class B Member’s consent, provided such Percentage Interests shall be adjusted, as applicable, in accordance with the redemption provisions set forth
in Section 16 of this Agreement and the conversion formulation set forth in Clause 7 of the Loan Agreement at the Class B Conversion Time (as defined below).
B. Repayment Cancellation. Following the repayment (or deemed repayment) of all amounts owed by the Company under the Loan Agreement in
accordance with Clause 5.6 of the Loan Agreement (the “ Repayment Time ”), the Class B Interests held by the Class B Member immediately prior to the
Repayment Time (including any rights attaching thereto) shall, by virtue of the provisions of this Agreement, without any action on the part of the holders thereof,
be deemed cancelled and Schedule A shall be adjusted to reflect the cancellation of the Class B Member’s Class B Interests.
C. Class B Conversion. Upon completion of an equity financing (or financing by way of instrument that is convertible into equity) pursuant to which a
third party investor subscribes (or, in the case of a financing by way of instrument that is convertible into equity, will on conversion of such instrument subscribe)
for an equity interest in Qoros in an aggregate amount not less than the Qualified Financing Amount (as defined in the Qoros Loan), excluding any amount
attributable to the issuance of Class A Interests in connection with the Class B Conversion (as defined below), and other than a transaction pursuant to which all
amounts owed by the Company under the Loan Agreement are (or are deemed to be) repaid (a “ Qualified Financing ”), the Class B Interests shall automatically
convert into Class A Interests (the “ Class B Conversion ”), based on the principal, together with all accrued but unpaid interest, under the Loan Agreement, in
accordance with the conversion formulation set forth in Clause 7 of the Loan Agreement, and Schedule A shall be adjusted to reflect the Class B Member’s
percentage of Class A Interests.
At the time at which a conversion of Class B Interests into Class A Interests becomes effective (the “ Class B Conversion Time ”), all Class B Interests
which are the subject of such conversion (including any rights attaching thereto) shall, by virtue of the provisions of this Agreement, without any action on the part
of the holders thereof, be deemed cancelled and be automatically converted into Class A Interests, which Class A Interests shall be deemed to be issued by the
Company as of the Class B Conversion Time.
Notwithstanding the aforementioned if, upon completion of a Qualified Financing, the outstanding amount owed under the Loan Agreement is repaid in full,
there shall be no Class B Conversion and the Class B Interests held by the Class B Member immediately prior to the Qualified Financing (including any rights
attaching thereto) shall, by virtue of the provisions of this Agreement, without any action on the part of the holders thereof, be deemed cancelled.
D. Qoros Conversion. Following the completion of the Class B Conversion, and until the third anniversary of the Class B Conversion, the Company
has undertaken that, on request from the Lender, it will use its best efforts (including, but not limited to, assisting with obtaining any required governmental or
regulatory approvals, but, for the avoidance of doubt, such efforts shall exclude any requirement to make a repayment or prepayment of any existing indebtedness
of Qoros) to take any and all steps required to convert and/or exchange the Class A Interests held by the Class B Member as a result of the Class B Conversion, into
a direct holding by the Class B Member of an equity interest in Qoros in compliance with contractual obligations (the “ Qoros Conversion ”), based upon the then
value of the indirect beneficial ownership in Qoros represented by the Class A Interests held by the Class B Member at the Qoros Conversion Time (as defined
below). For the avoidance of doubt, the Class B Conversion shall be deemed complete only upon the conversion of each of the Class B Interests held by the Class B
Member into Class A Interests and the cancellation of each of the Class B Interests, with such conversion and cancellation to be reflected in an adjustment to
Schedule A .
At the time at which the conversion of the Qoros Conversion becomes effective (the “ Qoros Conversion Time ”), all Class A Interests held by the Class B
Member immediately prior to the Qoros Conversion Time (including any rights attaching thereto) shall, by virtue of the provisions of this Agreement, without any
action on the part of the holders thereof, be deemed cancelled and Schedule A shall be adjusted to reflect the cancellation of the Class B Member’s Class A
Interests.
Entity Name
I.C. Power Asia Development Ltd.
IC Power Pte. Ltd.
IC Power Distribution Holdings Pte. Ltd.
Compania Boliviana de Energia Electrica S.A.—
Bolivian Power Company Limited
Kallpa Generación S.A.
Cerro del Aguila S.A.
Hidro Chilia S.A.C.
Pacahuasi Energía S.A.
IC Power Southern Terminals S.A.
Nejapa Power Company S.A.
Samay III S.A
Overseas Investments Peru S.A.
Surpetroil SAC
Samay I S.A.
PanaGen, Limited
Verde Securities Limited
Companía de Electricidad Puerto Plata S.A.
Compañía de Energía de Centroamérica, S.A. de C. V.
(Cenergica)
IC Power DR Operations S.A.S.
Central Cardones S.A.
Lihuen S.A.
Cerro El Plomo S.A.
Termoeléctrica Colmito S.A.
OPC Rotem Ltd.
Jamaica Private Power Company Ltd.
Consorcio Eólico Amayo (Fase II) S.A.
Empresa Energética Corinto Ltd.
Tipitapa Power Company Ltd.
Surpetroil S.A.S.
IC Power Trading S.A.S ESP
Surenergy S.A.S ESP
IC Power Development Colombia SAS
Inkia Energy Ltd.
Inkia Americas Ltd.
Inkia Americas Holdings Ltd.
IC Power Holdings (Kallpa) Limited
Inkia Holdings (Cobee) Ltd.
IC Power Holdings (CEPP) Limited
IC Power Holdings (Panama Generation) Limited
Inkia Holdings (JPPC) Limited
IC Power Panama Management S.de R.L.
Inkia Salvadorian Power Ltd.
IC Power Holdings (Nejapa) Limited
Nejapa Holdings Company Ltd.
IC Power Holdings (Cepp—Cayman) Limited
West Indies Development Corporation Ltd.
IC Power Chile Inversiones Ltd.
IC Power Chile SPA
IC Power Holdings (Chile) Limited
Kanan Overseas I Inc.
Kanan Overseas II Inc.
Kanan Overseas III Inc.
Kanan Overseas IV Inc.
Jurisdiction of Incorporation
Israel
Singapore
Singapore
Canada
Peru
Peru
Peru
Peru
Peru
Panama
Peru
Peru
Peru
Peru
Bermuda
Bermuda
Dominican Republic
El Salvador
Dominican Republic
Chile
Chile
Chile
Chile
Israel
Jamaica
Panama
Cayman Islands
Cayman Islands
Colombia
Colombia
Colombia
Colombia
Bermuda
Bermuda
Bermuda
Bermuda
Bermuda
Bermuda
Cayman Islands
Barbados
Panama
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Jamaica
Chile
Chile
Bermuda
Panamá
Panamá
Panamá
Panamá
Exhibit 8.1
Name(s) Under Which it Does Business
IC Power Asia Development Ltd.
IC Power Pte. Ltd.
IC Power Distribution Holdings Pte. Ltd.
Compania Boliviana de Energia Electrica
S.A. – Bolivian Power Company Limited
Kallpa Generación S.A.
Cerro del Aguila S.A.
Hidro Chilia S.A.C.
Pacahuasi Energía S.A.
IC Power Southern Terminals S.A.
Nejapa Power Company S.A.
Samay III
Overseas Investments Peru S.A.
Surpetroil SAC
Puerto Bravo
PanaGen, Limited
Verde Securities Limited
Companía de Electricidad Puerto Plata S.A.
Compañía de Energía de Centroamérica,
S.A. de C. V. (Cenergica)
IC Power DR Operations
Central Cardones S.A.
Lihuen S.A.
Cerro El Plomo S.A.
Termoeléctrica Colmito S.A.
OPC Rotem Ltd.
Jamaica Private Power Company
Consorcio Eolico Amayo (Fase II) S.A.
Empresa Energética Corinto Ltd.
Tipitapa Power Company Ltd.
Surpetroil S.A.S.
IC Power Trading SAS
Surenergy S.A.S ESP
IC Power Development Colombia SAS
Inkia Energy Ltd.
Inkia Americas Ltd.
Inkia Americas Holdings Ltd.
IC Power Holdings (Kallpa) Limited
Inkia Holdings (Cobee) Ltd.
IC Power Holdings (CEPP) Limited
IC Power Holdings (Panama Generation)
Limited
Inkia Holding (JPPC) Limited
IC Power Panama Management S.de R.L.
Inkia Salvadorian Power Ltd.
IC Power Holdings (Nejapa) Limited
Nejapa Holdings Company Ltd.
IC Power Holdings (Cepp—Cayman)
Limited
West Indies Development Corporation Ltd.
IC Power Chile Inversiones Ltd.
IC Power Chile SPA
IC Power Holding (Chile) Limited
Kanan Overseas I Inc.
Kanan Overseas II Inc.
Kanan Overseas III Inc.
Kanan Overseas IV Inc.
Entity Name
Cenérgica Panamá Holdings II, S.A.
Cenérgica Panamá Holdings I, S.A.
PE Panama Energy S.A.
IC Power Holdings (Colombia) Trading Limited
IC Power Israel Ltd.
IC Power Nicaragua Holdings
IC Power Nicaragua S.A
IC Power Jamaica Holdings Ltd.
IC Power Jamaica I Ltd.
IC Power Jamaica II Ltd.
IC Power Jamaica Inc.
Private Power Operators Ltd
IC Power Jamaica III Ltd
Inversiones Waxere S.A
Amayo O&M Services S.A
Nicaragua Energy Holdings Ltd.
Centrans Energy Holdings (Amayo) S.A
Consorcio Eólico Amayo S.A
Arctas Amayo (Fase II) S.A
IC Power Guatemala Limitada
Poliwatt Limitada
IC Power Guatemala Holdings Limited
AGS Rotem Ltd.
Puerto Quetzal Power LLC
IC Power USA Services Corp.
Las Codornices S.A.
Inkia Energy Guatemala Ltd.
Estrella Cooperatief B.A.
Recsal B.V.
Guatemel B.V.
Deorsa B.V.
Deocsa B.V.
Distribuidora de Electricidad Oriente S.A.
Redes Eléctricas de Centro América S.A.
Comercializadora Guatemalteca Mayorista de
Electricidad S.A.
Distribuidora de Electricidad Occidente S.A.
Advanced Integrated Energy Ltd.
Quantum (2007) LLC
I.C. Green Energy Ltd.
Primus Green Energy, Inc.
HelioFocus Ltd.
Heliofocus Technologies INC.
Heliofocus Hong-Kong Ltd.
Heliofocus Solar Power (Alxa) Co., Ltd
I.C.G. Fuel U.S.A. Inc.
ICG Solar 3 Ltd.*
ICG Solar 4 Ltd.*
ICG Solar 5 Ltd.*
Kenon TJ Holdings Pte. Ltd.
*
In voluntary liquidation.
Jurisdiction of Incorporation
Panamá
Panamá
Panamá
Bermuda
Israel
Cayman Islands
Nicaragua
Cayman Islands
Saint Lucia
Saint Lucia
United States
Jamaica
Saint Lucia
Guatemala
Nicaragua
Cayman Islands
Panama
Panama
Panama
Guatemala
Guatemala
Cayman Islands
Israel
United States
United States
Chile
Guatemala
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
Guatemala
Guatemala
Guatemala
Guatemala
Israel
USA
Israel
USA
Israel
USA
China
China
USA
Israel
Israel
Israel
Singapore
2
Name(s) Under Which it Does Business
Cenérgica Panamá Holdings II, S.A.
Cenérgica Panamá Holdings I, S.A.
PE Panama Energy S.A.
IC Power Holdings (Colombia) Trading
Limited
IC Power Israel Ltd.
IC Power Nicaragua Holdings
IC Power Nicaragua S.A
IC Power Jamaica Holdings Ltd.
IC Power Jamaica I Ltd.
IC Power Jamaica II Ltd.
IC Power Jamaica Inc.
Private Power Operators Ltd.
IC Power Jamaica III Ltd
Inversiones Waxere S.A
Amayo O&M Services S.A
Nicaragua Energy Holdings Ltd.
Centrans Energy Holdings (Amayo) S.A
Consorcio Eólico Amayo S.A
Arctas Amayo (Fase II) S.A
IC Power Guatemala Limitada
Poliwatt Limitada
IC Power Guatemala Holdings Limited
AGS Rotem Ltd.
Puerto Quetzal Power (PQP) Company
IC Power USA Services Corp.
Las Codornices S.A.
Inkia Energy Guatemala Ltd.
Estrella Cooperatief B.A.
Recsal B.V.
Guatemel B.V.
Deorsa B.V.
Deocsa B.V.
Distribuidora de Electricidad Oriente S.A.
Redes Eléctricas de Centro América S.A.
Comercializadora Guatemalteca Mayorista
de Electricidad S.A.
Distribuidora de Electricidad
Occidente S.A.
Advanced Integrated Energy Ltd.
Quantum (2007) LLC
IC Green Energy Ltd.
Primus Green Energy, Inc.
HelioFocus Ltd.
Heliofocus Technologies INC.
Heliofocus Hong-Kong Ltd.
Heliofocus Solar Power (Alxa) Co., Ltd
I.C.G. Fuel U.S.A. Inc.
ICG Solar 3 Ltd.
ICG Solar 4 Ltd.
ICG Solar 5 Ltd.
Kenon TJ Holdings Pte. Ltd.
Exhibit 12.1
Certification of the Chief Executive Officer
I, Yoav Doppelt, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Kenon Holdings Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company
and have:
(a)
(b)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the company’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over
financial reporting.
Date:
April 22, 2016
By:
Name:
Title:
/s/ Yoav Doppelt
Yoav Doppelt
Chief Executive Officer
Exhibit 12.2
Certification of the Chief Financial Officer
I, Tzahi Goshen, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Kenon Holdings Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company
and have:
(a)
(b)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the company’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over
financial reporting.
Date:
April 22, 2016
By:
Name:
Title:
/s/ Tzahi Goshen
Tzahi Goshen
Chief Financial Officer
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 20-F (the “Report”) of Kenon Holdings Ltd. (the “Company”) for the fiscal year ended December 31, 2015 as filed
with the U.S. Securities and Exchange Commission (the “SEC”) on the date hereof, Yoav Doppelt, as Chief Executive Officer of the Company, and Tzahi Goshen,
as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of his knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 13.1
/s/ Yoav Doppelt
Name: Yoav Doppelt
Title: Chief Executive Officer
Date: April 22, 2016
/s/ Tzahi Goshen
Name: Tzahi Goshen
Title: Chief Financial Officer
Date: April 22, 2016
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by
the Company and furnished to the SEC or its staff upon request.
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-
Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Kenon Holdings Ltd.:
We consent to the incorporation by reference in the registration statement (No. 333-201716) on Form S-8 of Kenon Holdings Ltd. of our reports dated April 8,
2016, with respect to the consolidated statement of financial position of Kenon Holdings Ltd. as of December 31, 2015, and the related consolidated statements of
profit and loss, other comprehensive loss, changes in equity, and cash flows for the year then ended, and the effectiveness of internal control over financial
reporting as of December 31, 2015, which reports appear in the December 31, 2015 annual report on Form 20-F of Kenon Holdings Ltd.
KPMG LLP
Singapore
April 21, 2016
Exhibit 15.2
Somekh Chaikin
KPMG Millennium Tower
17 Ha’arba’a Street, PO Box 609
Tel Aviv 61006, Israel
+972 3 684 8000
The Board of Directors
Kenon Holdings Ltd.:
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statement (No. 333-201716) on Form S-8 of Kenon Holdings Ltd. (hereinafter - “Kenon”) of our
report dated March 31, 2015, with respect to the combined carve-out statements of financial position as of December 31, 2014 and the related combined carve-out
statements of income, other comprehensive income, changes in parent company investment and cash flows for each of the years in the two-year period ended
December 31, 2014, which report appears in the December 31, 2015 annual report on Form 20-F of Kenon.
/s/ Somekh Chaikin
Certified Public Accountants (Israel)
A Member firm of KPMG International
Tel Aviv, Israel
April 20, 2016
Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
Exhibit 15.3
The Board of Directors
Qoros Automotive Co., Ltd.:
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statement (No.333-201716) on Form S-8 of Kenon Holdings Ltd. of our report dated 29 March
2016, with respect to the consolidated statements of financial position of Qoros Automotive Co., Ltd. as of 31 December 2015 and 2014, and the related
consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended
31 December 2015, which report appears in the 31 December 2015 annual report on Form 20-F of Kenon Holdings Ltd..
Shanghai, China
21 April 2016
KPMG Huazhen LLP, a People’s Republic of China partnership and a member firm of
the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity.
We are authorized to practise under the name of KPMG Huazhen LLP.
Exhibit 15.4
KPMG en Peru
Torre KPMG. Av. Javier Prado Oeste 203
San Isidro. Lima 27, Peru
Tel8fono
Fax
Internet
51 111611 3000
51 (1) 421 6943
www.kpmg.com/pe
Consent of Independent Auditors
The Board of Directors
Generandes Peru S.A:
We consent to the incorporation by reference in the December 31, 2015 annual report on Form 20-F of Kenon Holdings Ltd. of our report dated July 4, 2014, with
respect to the consolidated statements of financial position of Generandes Peru S.A. and subsidiaries as of December 31, 2013, 2012 and 2011, and the related
consolidated statements of income, comprehensive income, changes in equity and cash flows for the years ended December 31, 2013 and 2012 not included herein,
which report appears in the registration statement (No. 33-206667) on Form F-1 of IC Power Pte. Ltd.
Juan José Córdova
Partner
Caipo y Asociados S. Civil de R. L.
Lima, Peru
April 21, 2016
Caipo y Asociados S. Civil de Fl.L., sociedad civil paruana de
rasponsabilidad limitada y firma mlembro de la rad de firmas miambro
independientes de KPMG aliliadas a KPMG International Cooparative
l“KPMG International””). una antldad suiza.
lnscrita an la partida
N° 01681796 del Registro de
Parsonas Jurldicas de Lima.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the annual report on Form 20-F and the registration statement on form S-8 (No. 333-201716) of Kenon Holdings
Ltd. of our report dated February 29, 2016 with respect to the consolidated financial statements of Tower Semiconductor Ltd. and subsidiaries for the years ended
December 31, 2015, 2014 and 2013.
Exhibit 15.5
Sincerely,
Brightman Almagor Zohar& Co.
Certified Public Accountants
A Member of Deloitte Touche Tohmatsu Limited
Tel Aviv, Israel
April 21, 2016
Exhibit 15.6
Somekh Chaikin
KPMG Millennium Tower
17 Ha’arba’a Street, PO Box 609
Tel Aviv 61006, Israel
+972 3 684 8000
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for Kenon Holdings Ltd. and, under the date of March 31, 2015, we reported on the combined carve-out financial
statements of the carved-out operations of certain holdings of Israel Corporation Ltd. (“Kenon Holdings, Carve-out”) as of December 31, 2014 and 2013 and for
each of the years in the three-year period ended December 31, 2014.
On May 19, 2015, we were dismissed. We have read Kenon Holdings Ltd.’s statements included under Item 16F of Kenon Holdings Ltd.‘s Annual Report on Form
20-F for the year ended December 31, 2015, and we agree with such statements, except that we are not in a position to agree or disagree with Kenon Holdings
Ltd.’s statement that, on May 29, 2014, KPMG Singapore had been engaged to serve as Kenon Holdings Ltd.’s statutory auditor or with the statement that KPMG
Singapore was not engaged regarding the application of accounting principles to a specified transaction or the type of audit opinion that might be rendered on
Kenon Holdings Ltd.’s financial statements.
Very truly yours,
/s/ Somekh Chaikin
A member firm of KPMG International
Tel Aviv, Israel
April 20, 2016
Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a
Swiss entity.