CAPITAL SHOPPING CENTRES (JERSEY) LIMITED. 300,000, per cent. Guaranteed Convertible Bonds due 2018 CAPITAL SHOPPING CENTRES GROUP PLC

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1 Listing Particulars dated 9 January 2013 CAPITAL SHOPPING CENTRES (JERSEY) LIMITED (a limited liability public company incorporated in Jersey with registered number ) 300,000, per cent. Guaranteed Convertible Bonds due 2018 guaranteed by and convertible into ordinary shares in CAPITAL SHOPPING CENTRES GROUP PLC (incorporated and registered under the laws of England and Wales with registered number ) A

2 This listing particulars (the Listing Particulars ) comprises listing particulars in compliance with the listing rules (the Listing Rules ) made under Section 73A of the Financial Services and Markets Act 2000 (the FSMA ) by the UK Listing Authority (the UKLA ). Applications have been made for the 300,000, per cent. Guaranteed Convertible Bonds due 2018 (the Bonds ) issued by Capital Shopping Centres (Jersey) Limited (the Issuer ) and guaranteed by Capital Shopping Centres Group PLC (the Guarantor or CSC ) to be admitted to the official list maintained by the UKLA for the purposes of Part VI of the FSMA (the Official List ) and to be admitted to trading on the Professional Securities Market of the London Stock Exchange plc (the London Stock Exchange ). The Professional Securities Market is an unregulated market for the purposes of Directive 2004/39/EC (the Markets in Financial Instruments Directive). The Guarantor intends to apply to have its ordinary shares (the Ordinary Shares ) issued upon conversion of the Bonds and exchange of the Preference Shares (defined below) admitted to the Official List and admitted to trading on the Regulated Market of the London Stock Exchange. This Listing Particulars is to be read in conjunction with all the documents which are incorporated by reference herein (see Documentation incorporated by reference ). The Guarantor and its subsidiaries (as defined in Section 1159 of the Companies Act 2006) taken as a whole are referred to in this Listing Particulars as the Group. The Guarantor has unconditionally and irrevocably guaranteed the due and punctual payment of all amounts at any time becoming due and payable in respect of the Bonds and the due and punctual performance by the Issuer of all of the Issuer s other obligations in respect of the Bonds (the Guarantee ). Each of the Issuer and the Guarantor accepts responsibility for the information contained in this Listing Particulars. To the best of the knowledge and belief of the Issuer and the Guarantor (each of whom has taken all reasonable care to ensure that such is the case), the information contained in this Listing Particulars is in accordance with the facts and does not omit anything likely to affect the import of such information. Neither the Issuer nor the Guarantor has authorised the making or provision of any representation or information regarding the Issuer, the Guarantor, the Bonds, the Preference Shares or the Ordinary Shares other than as contained in this Listing Particulars or as approved for such purpose by the Issuer and the Guarantor. Any such representation or information should not be relied upon as having been authorised by or on behalf of the Issuer or the Guarantor. This Listing Particulars is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by the Issuer or the Guarantor that any recipient of this Listing Particulars should purchase any of the Bonds. Each investor contemplating purchasing Bonds should make its own independent investigation of the financial condition and affairs of, and its own appraisal of the creditworthiness of, the Issuer and the Guarantor. Neither the delivery of this Listing Particulars nor the offering, sale or delivery of the Bonds shall in any circumstances constitute a representation or create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the affairs or condition (financial or otherwise) of the Issuer or the Guarantor since the date of this Listing Particulars or that the information contained in this Listing Particulars is correct as at any time subsequent to its date. In making an investment decision, each investor must rely on its own examination, analysis and enquiry of the Issuer, the Guarantor, the terms and conditions of the Bonds, and the Preference Shares and the Ordinary Shares, including the merits and risks involved. This Listing Particulars does not constitute an offer to sell, or a solicitation of an offer to buy, or an invitation by or on behalf of the Issuer or the Guarantor to subscribe or purchase, any Bonds, Preference Shares or Ordinary Shares. The Bonds are represented by a global bond in registered form (the Global Bond ), without interest coupons, which was deposited with a common depositary on behalf of Clearstream Banking, société anonyme A i

3 ( Clearstream, Luxembourg ) and Euroclear Bank S.A./N.V. ( Euroclear ) systems on or about 4 October The Global Bond will be exchangeable for definitive Bonds in registered form in the denomination of 100,000 in the limited circumstances set out in it. See Summary of Provisions relating to the Bonds in Global Form. The Bonds, the Guarantee, the Preference Shares and the Ordinary Shares have not been, and will not be, registered under the U.S. Securities Act of 1933 (the Securities Act ) and are subject to U.S. tax law requirements. Subject to certain exceptions, Bonds may not be offered, sold or delivered within the United States. The Jersey Financial Services Commission (the Commission ) has given, and has not withdrawn, its consent under Article 4 of the Control of Borrowing (Jersey) Order 1958 to the issue of the Bonds by the Issuer and the circulation of the term sheet prepared in connection with the Bonds, and under Article 2 of the Control of Borrowing (Jersey) Order 1958 to the issue of the Preference Shares by the Issuer. The Commission has also given, and has not withdrawn, its consent under Article 1 of the Control of Borrowing (Jersey) Order 1958 to the Guarantor raising monies in Jersey by the issue of the Ordinary Shares. The Commission is protected by the Control of Borrowing (Jersey) Law 1947 against liability arising from the discharge of its functions under that Law. A copy of this Listing Particulars has been delivered to the Jersey registrar of companies in accordance with Article 5 of the Companies (General Provisions) (Jersey) Order 2002, and the registrar has given, and not withdrawn, his consent to its circulation. It must be distinctly understood that, in giving these consents, neither the Jersey registrar of companies nor the Commission takes any responsibility for the financial soundness of the Issuer or for the correctness of any statements made, or opinions expressed, with regard to it. Each potential investor in the Bonds must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (i) (ii) (iii) (iv) have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the merits and risks of investing in the Bonds and the information contained or incorporated by reference in this Listing Particulars or any applicable supplement; have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Bonds and the impact such investment will have on its overall investment portfolio; understand thoroughly the terms of the Bonds and be familiar with the behaviour of financial markets in which they participate; and be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks. Any individual intending to invest in any investment described in this Listing Particulars should consult his or her professional adviser and ensure that he or she fully understands all the risks associated with making such an investment and has sufficient financial resources to sustain any loss that may arise from it. Prospective investors should read the entire document and, in particular, the section headed Risk Factors, when considering an investment in the Issuer. A ii

4 TABLE OF CONTENTS PRESENTATION OF INFORMATION... 4 DOCUMENTATION INCORPORATED BY REFERENCE... 6 RISK FACTORS... 8 TERMS AND CONDITIONS OF THE BONDS SUMMARY OF PROVISIONS RELATING TO THE BONDS WHILE IN GLOBAL FORM USE OF PROCEEDS DESCRIPTION OF CAPITAL SHOPPING CENTRES (JERSEY) LIMITED DESCRIPTION OF CAPITAL SHOPPING CENTRES GROUP PLC DESCRIPTION OF THE ORDINARY SHARES GENERAL INFORMATION A iii

5 PRESENTATION OF INFORMATION Presentation of Financial Information The Guarantor publishes its financial statements in pounds sterling ( or pounds sterling ). The references to pence and p represent pence in the United Kingdom. References to USD, dollars or $ are to US dollars. The references to cents represent cents in the United States. All references to South African rand or Rand are to the lawful currency of South Africa. The financial information presented in a number of tables in, or incorporated by reference in, this Listing Particulars has been rounded to the nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in, or incorporated by reference in, this Listing Particulars reflect calculations based upon the underlying information prior to rounding, and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers. As required by the UK Companies Act 2006 (the Companies Act ) and Article 4 of the European Union IAS Regulation, the consolidated financial statements of the Guarantor and its subsidiaries and affiliates taken as a whole (the Group ) are prepared in accordance with IFRS issued by the IASB and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB as adopted by the European Union. The consolidated financial statements of the Group also comply with IFRS as issued by the IASB. In this Listing Particulars, the Group presents certain financial measures, such as underlying profit before tax; adjusted earnings per share; net assets per share (adjusted, diluted); as well as revenue, net rental income and certain other income statement figures that are adjusted on a like-for-like income basis, and net external debt, which are not recognised by IFRS. These measures are presented because the Group believes that they and similar measures are widely used in the Group s industry as a means of evaluating financial and operating performance. These measures may not be comparable with similarly titled measures used by other companies and are not measurements under IFRS or any other body of generally accepted accounting principles. Further, certain of these measures do not reflect the impact of items which the directors have determined to be exceptional. Consequently, these measures should not be considered substitutes for the information contained in the audited consolidated financial statements of the Guarantor as at and for the financial years ended 31 December 2011 and 2010 and the notes thereto which are incorporated herein by reference (the Accounts ). Forward-looking statements Some of the statements in this Listing Particulars include forward-looking statements which reflect the Group s current views with respect to financial performance, business strategy, plans and objectives of management for future operations (including development plans relating to the Group s products and services). These statements include forward-looking statements both with respect to the Group and the sectors and industries in which the Group operates. Statements which include the words expects, intends, plans, believes, projects, anticipates, will, targets, aims, may, would, could, continue and similar statements are of a future or forward-looking nature. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause the Group s actual results to differ materially from those indicated in these statements. These factors are more fully described in the part of this Listing Particulars entitled Risk Factors, which should be read in conjunction with the other cautionary statements that are included in this Listing Particulars. Any forward-looking statements in this document reflect the Group s current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the A

6 Group s operations, results of operations, strategy and liquidity. Given these uncertainties investors are cautioned not to place any undue reliance on such forward-looking statements. These forward-looking statements speak only as of the date of this Listing Particulars. Subject to any obligations under the Listing Rules, or as otherwise required by law, the Guarantor undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. All subsequent written and oral forward-looking statements attributable to the Group or individuals acting on behalf of the Group are expressly qualified in their entirety by this paragraph. Prospective investors should specifically consider the factors identified in this document which could cause actual results to differ before making an investment decision. Market, Economic and Industry Data Market data used in this Listing Particulars has been obtained from the Investment Property Databank ( IPD ). For the avoidance of doubt, the IPD information on page 9 is the only third party information contained in this Listing Particulars. The Group confirms that the information sourced from the IPD has been accurately reproduced, and as far as the Group is aware and has been able to ascertain from information published by the IPD, no facts have been omitted which would render the reproduced information inaccurate or misleading. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy of such information is not guaranteed and that the projections they contain are based on a number of significant assumptions. In many cases the Group has made statements in this Listing Particulars regarding its industry and its position in the industry based on internal surveys as well as its own experience. A

7 DOCUMENTATION INCORPORATED BY REFERENCE This Listing Particulars should be read and construed in conjunction with the documents listed below each of which has been previously published and which has been approved by the Financial Services Authority or filed with it. Such documents shall be incorporated in, and form part of, this Listing Particulars, save that any statement contained in a document which is incorporated by reference herein shall be modified or superseded for the purpose of this Listing Particulars to the extent that a statement contained herein, or contained in another document incorporated by reference herein, modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this Listing Particulars. Those parts of the documents listed below which are not specifically incorporated by reference in this Listing Particulars are either not relevant for prospective investors in the Bonds or the relevant information is included elsewhere in this Listing Particulars. Any information and/or documents themselves incorporated by reference or cross-referred to in the documents incorporated by reference in this Listing Particulars shall not form part of this Listing Particulars. These documents are available for inspection in accordance with paragraph 10 of the General Information section of this document. These documents are also available on the Guarantor s website at Other than those parts of the documents listed below, no information available on the Guarantor s website is incorporated by reference in this Listing Particulars. Consolidated financial statements of the Group Accounts for the period as at and ended 31 December 2011 contained in the 2011 Annual Report of the Guarantor Consolidated income statement... page 86 Balance sheet... page 88 Statement of comprehensive income... page 87 Statement of cash flows... page 92 Principal accounting policies... N/A 1 Notes to the accounts... pages Independent auditors report... page 85 Accounts for the period as at and ended 31 December 2010 contained in the 2010 Annual Report of the Guarantor Consolidated income statement... page 62 Balance sheet... page 64 Statement of comprehensive income... page 63 Statement of cash flows... page 68 1 Principal accounting policies can be found in Note 2 (at pages 93-96) to the audited financial statements contained in the 2011 Annual Report. A

8 Principal accounting policies... N/A 1 Notes to the accounts... pages Independent auditors report... page 61 Interim Report of the Guarantor for the Half Year ended 30 June 2012 The Interim Report for the Half Year ended 30 June 2012 shall be incorporated in, and form part of this Listing Particulars. Interim Management Statement of the Guarantor for the period from 1 July to 6 November 2012 The Interim Management Statement for the period from 1 July to 6 November 2012 shall be incorporated in, and form part of this Listing Particulars, save for the second sentence in paragraph 2 under the heading Financing on page 5, which shall not be incorporated in, and shall not form part of this Listing Particulars. 1 Principal accounting policies can be found in Note 2 (at pages 69-72) to the audited financial statements contained in the 2010 Annual Report. A

9 RISK FACTORS Prospective investors should consider carefully the risks set forth below and the other information contained in this Listing Particulars prior to making any investment decision with respect to the Bonds. Each of the risks highlighted below could have a material adverse effect on the business, operations, financial condition or prospects of the Group, which, in turn, could have a material adverse effect on the amount of principal and interest which investors will receive in respect of the Bonds. In addition, each of the risks highlighted below could adversely affect the trading price of the Bonds or the Ordinary Shares or the rights of investors under the Bonds, the Preference Shares or the Ordinary Shares and, as a result, investors could lose some or all of their investment. The risks described herein represent those risks which are considered to be material to the Bonds and which may affect the Issuer and the Guarantor s ability to fulfil their obligations under the Bonds. Prospective investors should note that the risks described below are not the only risks the Group faces. There may be additional risks that the Group currently considers not to be material or of which the Group is not currently aware, and any of these risks could have the effects set forth above. Prospective investors should read the entire Listing Particulars, together with the documents incorporated by reference herein. Words and expressions defined in the Terms and Conditions of the Bonds below or elsewhere in this Listing Particulars have the same meanings in this section. Investing in the Bonds involves certain risks. An investment in the Bonds is suitable only for sophisticated investors who have sufficient financial resources to sustain any losses from such investment and who are in a position to commit funds for a considerable period of time. Prospective investors should consider, among other things, the following: Risks related to the Issuer and the Guarantor Declines in the UK retail real estate market and economic conditions could have an adverse impact on the Group s business, financial condition and results of operations. The Group is subject to the risks of ownership, development and management of property in the UK. In particular, the Group has considerable exposure to the risks of ownership, development and management of shopping centres. The Group derives most of its revenue from the UK and is therefore sensitive to fluctuations in the UK economy. UK regional shopping centres accounted for approximately 99 per cent. of the market value of the Group s investment properties at 31 December 2011 and 30 June The performance of the Group (including the value of its properties) is influenced by the economic conditions of the countries in which it operates, particularly the UK. Following the significant challenges experienced by the global financial system since the middle of 2007, and in the aftermath of recessions across a number of the world s largest economies, including the UK, the economic outlook remains uncertain. The current difficult economic conditions, or any further deterioration, could adversely affect the Group s business, financial condition and/or results of operations and accordingly the Guarantor s ability to fulfil its obligations under the Bonds. The precise nature of all the risks the Group faces as a result of current global financial and economic conditions cannot be predicted and many of these risks are outside the Group s control. Furthermore, the Group remains subject to governments strategy in managing the economy, most notably in the UK. The ongoing cuts to public expenditure in the UK may present a significant threat to the growth of the country s economy. A

10 The value of the Group s portfolio increased by 1.0 per cent. on a like-for-like basis over the 12 months ended 31 December The Trafford Centre which was acquired on 28 January 2011 is treated on a like-for-like basis using the 28 January 2011 valuation. Property values in the UK have on average increased since July 2009, evidenced by Investment Property Databank ( IPD ), all UK property values rising 13.6 per cent. between 1 July 2009 and 31 October 2012, with retail property values rising by 14.9 per cent. during this period. However, there is evidence in recent months of a fall in capital values, with IPD retail property values in the UK recording a reduction of 1.3 per cent. for the three months to 31 October Any significant decline in the valuation of the properties the subject of such valuation reports would have an adverse impact on the Group s business, financial condition and/or results of operations and therefore on the Guarantor s ability to fulfil its obligations under the Bonds. Deterioration in the real estate market and general economic conditions could have an impact on the Group s revenue. Return from an investment in property depends largely upon the amount of rental income generated from the property versus the expenses incurred in the construction or redevelopment and management of the property, as well as changes in its market value. The Group s ability to generate revenues from its portfolio is linked to occupancy levels and scope for rental increases. These factors are themselves determined by the underlying performance of the tenants that rent space in those properties, which is influenced by consumer spending and a number of other general economic factors outside of the Group s control, including, but not limited to: the solvency of retailers, the availability of lending and consumer credit, the level of consumer indebtedness, consumer and business confidence, gross domestic product growth, infrastructure quality, financial performance and productivity of industry, levels of employment, interest rates, trends in house prices, fluctuations in weather, taxation, regulatory changes and oil prices. In addition, as the Group manages its properties to maintain occupancy levels to minimise void costs and service charges, in a weak economic environment it may be required to accept lower rents. Both rental income and the value of properties may also be affected by other factors specific to the real estate market, such as competition from other property owners, the perception by prospective tenants of the attractiveness, convenience and safety of properties, the inability to collect rent because of the bankruptcy or insolvency of tenants or otherwise, the periodic need to renovate, repair and release space and the costs thereof, the costs of maintenance and insurance, and increased operating costs. Negative changes in the financial condition of a significant number of the Group s tenants, including actual tenant failure could result in a substantial decrease in the Group s rental income, which would have an adverse impact on the Group s business, financial condition and/or results of operations. As a result, the Guarantor s ability to fulfil its obligations under the Bonds may be adversely affected. Retail tenants (including anchor or multiple tenants), who provide a significant portion of the Group s rental income, are exposed to deteriorating consumer spending in periods of economic uncertainty. The Group derives a substantial portion of its rental income from retail tenants whose revenues are exposed to declining consumer spending in periods of economic uncertainty. Retail sales are affected by, among other things, general economic conditions and the resulting level of consumer spending, consumer confidence in the face of an economic downturn, seasonal earnings and increasing competition from discount and internet retailers. Multiple retailers represent over 90 per cent. of the Group s rent roll. Bankruptcy, insolvency or a downturn in the business of any of the Group s anchor or multiple tenants, or the failure of any anchor tenant or multiple tenant to renew its lease when it expires, could adversely affect the Group s business, financial condition A

11 and/or results of operations, and therefore the Guarantor s ability to fulfil its obligations under the Bonds, as the directors of the Guarantor regard anchor and multiple tenants as playing an important part in generating customer traffic and making shopping centres desirable locations. Such a default, in particular by one of the Group s top 20 tenants, would result in a loss of rental income, void costs, an increase in bad debts and decrease the value of the relevant property. If the financial condition of tenants suffers, the Group may take steps or make arrangements with such tenants to pro-actively manage these situations, for example by agreeing monthly rental payments or temporary reductions in rent. Such steps could also have an adverse effect on the Group s business, financial condition and/or results of operations and accordingly on the Guarantor s ability to fulfil its obligations under the Bonds. The Group faces inherent risks relating to property investment and development activities. Revenue earned from the properties held by the Group, the value of properties held by the Group and the operating expenses of the Group are subject to a number of inherent risks, which include: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) a competitive rental market, which may affect rental levels and/or occupancy levels at the Group s properties and therefore the Group s revenues; the amount of rent and the terms on which lease renewals and new leases are agreed being less favourable than current leases, which may affect the Group s revenues; the periodic need to renovate, repair and re-lease space, and the consequential cost thereof, which may affect the Group s operating expenses; the Group s ability to collect rent and service charge payments from tenants on a timely basis or at all, which may affect the Group s revenues; the Group s ability to manage increases in the cost of services provided by third-party providers and/or increases in the cost of maintaining properties including, but not limited to, unforeseen capital expenditure, which may generate an increase in the Group s operating and other expenses; tenants seeking the protection of bankruptcy laws which could result in delays in receipt of rental and other contractual payments, inability to collect such payments, the termination of a tenant s lease or the failure of a tenant to vacate a property, all of which could hinder or delay the sale or re-letting of a property and therefore may impact the Group s revenues; changes in laws and governmental regulations in relation to real estate, including those governing permitted and planning usage, taxes and government charges (including those relating to health and safety and environmental compliance). Such changes may lead to an increase in property management expenses or unforeseen capital expenditure to ensure compliance. Rights related to particular properties may also be restricted by legislative actions, such as revisions to existing laws or the enactment of new laws; and the Group s ability to obtain adequate maintenance or insurance services on commercial terms and at acceptable premiums or at all. To the extent that these factors generate an increase in operating and other expenses that is not matched by an increase in revenues or are otherwise not recoverable from tenants, they could have an adverse effect on the Group s business, financial condition and/or results of operations. As a result, the Guarantor s ability to fulfil its obligations under the Bonds may be adversely affected. A

12 The valuation of the Group s property is inherently subjective and uncertain and is based on assumptions which may prove to be inaccurate. The valuation of the Group s properties is inherently subjective due to, among other factors, the individual nature of each property, its location and the expected future rental revenues from that particular property. The Group s property portfolio has been valued as at 30 June 2012 on the basis of Market Value in accordance with the Valuation Standards, Seventh Edition published by the RICS (the Red Book ) and with IVS I of International Valuation Standards defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. In determining Market Value, DTZ Debenham Tie Leung Limited, CB Richard Ellis Ltd., Cushman and Wakefield LLP, Knight Frank LLP and Jones Lang La Salle Limited (together, the Valuers ) are required to make certain assumptions. Such assumptions may prove to be inaccurate. Incorrect assumptions or flawed assessments underlying a valuation report could negatively affect the Group s financial condition and potentially inhibit the Group s ability to realise a sale price that reflects the stated valuation. This is particularly so in periods of volatility or when there has been limited transactional evidence against which property valuations can be benchmarked. Despite recent stability in the UK property market, there can be no assurance that these valuations will be reflected in the actual transaction prices, even where any such transactions occur shortly after the relevant valuation date, or that the estimated yield and annual rental income will prove to be attainable. Further, if the Group acquires properties based on inaccurate valuations, the Group s net assets and results of operations may be materially adversely affected. There is no assurance that the valuations of the Group s current and prospective properties will be reflected in the actual transaction prices, even where any such transactions occur shortly after the relevant valuation date, or that estimated yield and annual rental income will prove to be attainable. In addition, property valuations are dependent on the level of rental income received and anticipated to be received on that property in the future and as such, continuing declines in rental income could have an adverse impact on revenue and the value of the Group s properties. Any of the foregoing factors could have an adverse impact on the Group s business, financial condition and/or results of operations and therefore on the Guarantor s ability to fulfil its obligations under the Bonds. The Group s credit facilities contain various covenants which, if not complied with, could require accelerated repayment, thereby materially adversely affecting the Group s business, financial condition and results of operations. The Group s financing facilities contain covenants requiring the Group to maintain certain specified financial ratios. The Guarantor expects to be able to maintain these financial ratios, or be able to cash cure any possible breach, for at least the next 12 months. If market conditions deteriorate significantly in the longer term, there is a risk that existing financial covenants could be breached, particularly covenants based on loan to value ratios (for example, if property valuations fall significantly), interest cover ratios (for example, if income falls or non-hedged interest rises significantly) and net worth covenants (for example, if the net worth of the Group falls). Breach of such covenants, whether as a result of declining property values or otherwise, could, subject to any applicable waiver or agreement, result in the facilities being withdrawn or becoming repayable, potentially requiring the Group to dispose of assets at significantly less than full value. Any cross-default provisions in the Group s corporate facilities could magnify the effect of an individual default if such a provision were exercised by the Group s lenders. Generally, however, the terms of the Group s asset-specific facilities (whose covenant ratios vary from facility to facility) permit the Group to remedy any breach by setting aside additional capital. In the event that there is any such breach, withdrawal, repayment or remedy, it could have an adverse impact on the Group s business, financial condition and/or results of operations in the A

13 long term. Consequently, the Guarantor s ability to fulfil its obligations under the Bonds may be adversely affected. Borrowings by Group subsidiaries are secured on Group assets and any failure to meet the requirements of the debts incurred may have an adverse effect on the Group s business, financial condition and results of operations. The investment and development activities of the Group are performed by one or more subsidiaries of the Group. Certain subsidiaries act as borrower for the purposes of the financing requirements of the relevant investment and development activities of the Group. Such borrowings are often made on a secured basis, with the security being granted over the relevant property investment or development assets. Secured borrowings are generally structured on a non-recourse basis to the Guarantor. Any such secured borrowings will rank ahead of the unsecured borrowings of the Group. There can be no assurance that the borrowings of the Guarantor s subsidiaries made in the course of their investment and development activities, and the security granted in respect thereof, will not be substantial. If the lenders force a sale of any of the secured assets of the Group, there is a risk that the value received may be lower than the value at which the investment was previously recorded. If the value received is less than the amount of indebtedness, the borrower s other assets (which in some cases include monies owed to the borrower from the rest of the Group) would be available to the lender. In addition, if the Group s lenders seize secured properties, the Group will likely suffer reputational damage which could result in lender unwillingness to extend additional finance and significantly raise the Group s future borrowing costs. Any of the foregoing factors could have an adverse effect on the Group s business, financial condition and/or results of operations. The Guarantor s ability to fulfil its obligations under the Bonds may therefore be adversely affected. The Group may be unable to access credit markets, or may be able to access them only on unfavourable terms. The property investment and development sector tends to be highly capital intensive. The Group has a number of asset-specific financings and also has general corporate facilities in place to finance its property acquisitions and development activities. The ability of the Group to raise funds on favourable terms depends on a number of factors, including the Group s ability to negotiate new or increased or longer term credit facilities and lenders estimates of the stability of the Group s cash flows, as well as general economic, political and capital market conditions and credit availability. Although the Group has historically been able to obtain financing on reasonable terms, there is no guarantee that future financing will be available on terms that the Group considers acceptable. In particular, the current difficult financial market and economic conditions mean that, should such conditions persist, the Group may have difficulty in repaying, renewing, extending or refinancing its existing financing facilities. It is possible in the current lending environment that the terms of any new facilities entered into by the Group in the future could be more onerous than the terms of the Group s existing financing facilities. Any of the foregoing factors may have an adverse impact on the Group s business, financial condition and/or results of operations and thus on the Guarantor s ability to fulfil its obligations under the Bonds. The Group has a significant amount of indebtedness, which could limit its financial and operational flexibility. At 31 December 2011 and 30 June 2012, the Group had 3,374.2 million and 3,344.4 million, respectively of net external debt outstanding. The Group s obligation to make scheduled payments on its indebtedness and to maintain its covenants could limit its financial and operational flexibility, for example by restricting its ability to develop a property, carry out an extension to an existing property or to pursue active asset management opportunities with tenants. This could have an adverse impact on the Group s business, financial condition and/or results of operations and therefore on the Guarantor s ability to fulfil its obligations under the Bonds. A

14 The Group is exposed to market risk including interest rate and foreign currency risk. An increase in interest rates or an increase in the margins on which finance can be obtained may increase the Group s financing costs and, consequently, adversely affect the Group s business, financial condition and/or results of operations. The Guarantor s ability to fulfil its obligations under the Bonds may therefore be adversely affected. The Group has a number of different borrowing facilities and arrangements in the UK and overseas and has entered into a range of interest rate and currency derivatives to protect itself against fluctuations in interest rates and currency exchange rates. As a significant proportion of the Group s indebtedness has been hedged at a fixed rate of interest, the Group will not fully benefit from the current low interest rate environment. However, the market value of these instruments can fluctuate significantly as can the fair value of these instruments and if such values decrease this will be reflected negatively in the Group s income statements. If there is a substantial decrease in fair value of any of the Group s derivative instruments, this could have an adverse effect on the Group s business, financial condition and/or results of operations and accordingly on the Guarantor s ability to fulfil its obligations under the Bonds. Further, to the extent that the Group incurs variable rate indebtedness which is unhedged, increases in interest rates may increase the cost of borrowing, which will adversely affect the Group s business, financial condition and/or results of operations and the Guarantor s ability to fulfil its obligations under the Bonds. For Group accounting purposes, the cross currency interest rate swaps are designated as hedges. Changes in the fair value of such derivatives that are designated and effective as hedges are recognised directly in reserves, to be transferred to the income statement in the period during which the exchange movement on the hedged item is recognised in the income statement. In relation to interest rates, the Group has entered into interest rate swap contracts. There may be instances where an interest rate swap contract provides for the option of early termination by either the Group or the counterparty. Depending on the interest rate environment, there is a risk that a counterparty to the contracts may elect to terminate early and the market value amount calculated on such termination may result in a net payment to the counterparty from the Group and this could have an adverse effect on the Group s business, financial condition and results of operations. As a result, the Guarantor s ability to fulfil its obligations under the Bonds may be adversely affected. The Group presents its financial statements in, and the majority of its revenues are generated in, pounds sterling. However, it also receives income from its overseas investments in US dollars. The Group s hedging strategies may not adequately protect the Group s results of operations from the effects of currency rate fluctuations or may limit any benefit that it might otherwise receive from favourable movements in currency rates, thereby adversely affecting the Group s business, financial condition and/or results of operations and the Guarantor s ability to fulfil its obligations under the Bonds.. The Group is exposed to counterparty credit risk. The Group is exposed to counterparty credit risk in respect of the surplus funds it has placed on deposit and financial derivatives used to hedge interest rate and currency risk. There is a risk of a loss being sustained by the Group as a result of payment default by the counterparty with whom the Group has placed funds on deposit or entered into hedging transactions to hedge its interest rate and currency exchange rate risks. The extent of the Group s loss could be the full amount of the deposit or, in the case of hedging transactions, the cost of replacing those transactions. Under the Group s treasury risk management policy, the Group only deals with counterparties with certain minimum credit ratings and has set its maximum exposure to each of them with regard to credit ratings. There can be no assurance, however, that the Group will successfully manage this risk or that such payment defaults by counterparties will not adversely affect the Group s business, financial condition and/or results of operations. Consequently, the Guarantor s ability to fulfil its obligations under the Bonds may be adversely affected. A

15 The market for the Group s real estate investments is relatively illiquid, and may result in low disposal prices or an inability to sell certain properties. The Group s properties, and those in which the Group may invest in the future, are relatively illiquid in that there may not be ready buyers with financing and who are willing to pay fair value at the time the Group desires to sell. In addition, in the case of leasehold properties, consents are often required from landlords and management companies to transfer such properties. Such illiquidity may affect the Group s ability to dispose of, or liquidate part of, its portfolio in a timely fashion and at satisfactory prices in response to changes in economic, real estate market or other conditions. In the case of an accelerated sale or a sale required for compliance with covenants contained in the Group s financing, or in the event of enforcement of security by a lender under one of the Group s non-recourse financings, there may be a significant shortfall between the carrying value of the property on the Group s consolidated balance sheet and the price achieved on the disposal of such property, and there can be no assurance that the price obtained from such a sale would cover the book value of the property sold. Periods of reduced liquidity in the capital markets may also mean that it may be difficult to achieve the sale of property assets at prices reflecting the Group s property valuations. In addition, the lack of relevant transactional evidence increases the possibility of being unable to achieve successful sales of properties at an acceptable price. Failure to achieve successful sales of properties in the future at acceptable prices could have an adverse impact on the Group s business, financial condition and/or results of operations and therefore on the Guarantor s ability to fulfil its obligations under the Bonds. The Group s consolidated balance sheet and income statement may be significantly affected by fluctuations in the fair market value of the Group s properties as a result of revaluations. In accordance with IAS 40, as adopted in the European Union, the Group s properties are independently revalued on a half-yearly basis, and any increase or decrease in the value of its properties is recorded in the Group s income statement in the period during which the revaluation occurs. As a result, the Group can have significant non-cash revenue gains and losses from period to period depending on the change in fair market value of its properties, whether or not such properties are sold, and could have difficulty maintaining its internal target debt to asset ratio and other financial measures. Any such fluctuations could have an adverse impact on the Group s business, financial condition and/or results of operations and on the Guarantor s ability to fulfil its obligations under the Bonds. The Group may not be successful in completing development projects as planned, or on commercially favourable terms. The Group engages in development activities. As at 30 June 2012, the Group was committed to 46.5 million of development expenditure for the purchase, construction, development and enhancement of investment property. Development projects may require substantial capital expenditure for land acquisition and construction and it usually takes a considerable amount of time before projects are completed and become income generating. Certain general risks affect development and refurbishment activities, including risks relating to completion, the possibility of construction overruns (both in terms of time and budget), the risk of not obtaining, or delays in obtaining, necessary administrative permits, statutory consents and planning permissions and risks relating to the financing of the development. Inaccurate assessment of a development opportunity or a decrease in tenant demand due to competition from other commercial real estate properties or adverse market conditions, could result in a substantial proportion of the development remaining vacant after completion and exert pressure on the Group to provide rental or capital incentives to tenants or purchasers. In addition, there are risks associated with failure to obtain title to property and there are obligations in development agreements which may give rise to expenditure commitments and there are also risks of failure by third parties, for instance failure to complete a compulsory purchase order by a local authority. In addition, A

16 the changing economic environment could mean projects no longer meet the Guarantor s criteria for development. Any of these factors could increase the cost of, or could delay or prevent completion of, a project and could result in a delay or loss of revenues or of capital invested. In addition, overruns on any new or existing developments (or the insolvency of sub-contractors or failure of sub-contractors to perform obligations) may have an adverse impact on the financial viability of the scheme and may lead to the need for additional funding. Despite insurance coverage, the development, restructuring and sale of premises may also give rise to actions being brought against the Group, or companies in which the Group owns an interest, in connection with actual or alleged defects in the property. Please see The Group may be insufficiently insured against all losses, damage and limitations of use of its properties below. Consequently, there can be no assurance that the existing or future development of property by the Group will not have an adverse effect on the Group s business, financial condition and/or results of operations. As a result, the Guarantor s ability to fulfil its obligations under the Bonds may be adversely affected. The Group s joint ventures and other forms of co-ownership subject the Group to certain risks of shared ownership and control of the properties affected. Some of the Group s operations or developments are conducted in the context of joint ventures or are jointly owned with other UK and international partners (such as the Metrocentre, the St. David s Centre, Cribbs Causeway and Manchester Arndale). By definition, control of joint ventures is shared with the Group s joint venture partners, and the directors of the companies within the Group will not be able to exclusively direct the strategy and operating decisions, nor do they have direct day-to-day financial control of the joint venture entities. In particular, material decisions relating to the joint ventures are likely to require the consent of both joint venture partners, which may restrict the Group s ability to proceed with a planned operational change, acquisition, disposal or development, or the refinancing or repayment of debt. Conflict with joint venture partners or co-owners may lead to deadlock and result in the Group being unable to pursue its desired strategy or exit the joint venture other than on disadvantageous terms. The Group s understanding of the performance of a joint venture where day-to-day management is undertaken by a joint venture partner is also dependent on the quality of the reporting procedures of its joint venture partners. Should the joint venture partner fail to report correctly then this could affect the Group s results of operations and the Guarantor s ability to fulfil its obligations under the Bonds. There may be various restrictive provisions and rights which govern sales or transfers of interests in the Group s joint ventures. These may affect the Group s ability to dispose of a property at a time that is most advantageous, for instance by giving the joint venture partner a pre-emptive right and/or requiring the approval of the joint venture partner for disposal to a particular purchaser. In addition, in the event of a joint venture partner being unable to make financial commitments to the project, it may be difficult to proceed with the project or the Group may have increased financial exposure as the Group may be jointly and severally liable under the terms of the joint venture agreement with the joint venture partner. The Group s ability to recover any such monies from a joint venture partner may be limited. In addition, the bankruptcy, insolvency or severe financial distress of one of the Group s joint venture partners could materially and adversely affect the relevant joint venture or joint venture property. The Group may have a right to acquire the joint venture or the relevant joint venture property, but the Group may not wish to do so, or may not have sufficient funds available to do so, which could lead to a third party acquiring such interest or the joint venture s insolvency, both of which may have uncertain outcomes for the Group and could have an adverse impact on the Group s business, reputation, financial condition and/or results of operations and thus on the Guarantor s ability to fulfil its obligations under the Bonds. Further if the joint venture has incurred A

17 recourse obligations, the insolvency of a joint venture partner may, in certain circumstances, result in the Group assuming a liability for a greater portion of those obligations than it would otherwise bear. Competition from new shopping centres, other retail premises and other retail sales channels, including the internet, could have an adverse effect on the Group s business, financial condition and results of operations. The Group faces competition from other UK and international property groups and other commercial organisations active in the UK property markets and the other markets in which the Group operates. Competition in the property market may lead to: an oversupply of retail premises through overdevelopment; inflated prices for existing properties or land for development arising from bids by potential purchasers; or difficulty in achieving maximum rents from existing properties due to an oversupply of retail space. The Group s shopping centres compete with other retail offerings within their catchment area. The amount of leasable space in the relevant area, the quality of facilities and the nature of stores at such competing retail offerings could each have a material adverse effect on the Group s ability to retain tenants, lease space and on the level of rent it can obtain. In addition, the existence of such competition may also have a material adverse impact on the Group s ability to acquire properties or develop land at a satisfactory cost. Further, retailers at the Group s shopping centres face increasing competition from other forms of retailing, such as retail parks, supermarkets, discount shopping centres and clubs, outlet malls, catalogues, video and home shopping networks, direct mail, telemarketing and shopping via the internet, all of which impact on the demand for the Group s retail space. Any of the foregoing factors could have an adverse effect on the Group s business, financial condition and/or results of operations and consequently on the Guarantor s ability to fulfil its obligations under the Bonds. External events beyond the control of the Group may have a negative impact on footfall at the Group s shopping centres. Tenancy demand at the Group s shopping centres is affected by customer footfall and a decrease in footfall may therefore adversely affect demand for, and the value of, the Group s properties. For example, the occurrence of events such as adverse weather, an earthquake, an outbreak of an infectious disease, such as avian or swine flu, or any other serious public health concern, could result in a reduction of footfall at the Group s shopping centres. Furthermore, terrorist attacks or war could damage infrastructure or otherwise inhibit or prevent access to the Group s shopping centres or harm the demand for and the value of the Group s properties. Further, terrorist attacks could discourage consumers from shopping in public places including the Group s shopping centres. Any of the foregoing could have an adverse impact on the Group s business, financial condition and/or results of operations and therefore on the Guarantor s ability to fulfil its obligations under the Bonds. The Group is exposed to risks associated with having investments in the US and India. The Group has investments in the US and India. In the US, the Group holds 11.4 million redeemable joint venture units in Equity One, a US Real Estate Investment Trust (as defined in Part 12 of the Corporation Tax Act 2010) (a REIT ). The Group s investments in India comprise a 9.98 per cent. shareholding in Provogue (India) Limited and a per cent. shareholding in Prozone Capital Shopping Centres Limited. As a result of these investments, the Group is exposed to risks typically associated with conducting business in the US and India, many of which are beyond its control and could have a material adverse effect on the Group s business, financial condition and/or results of operations and therefore adversely affect the Guarantor s ability to fulfil its obligations under the Bonds. These risks include: (i) legal uncertainty owing to the overlap of different legal regimes, problems in asserting contractual or other rights across international borders and the burden and expense of complying with the laws and regulations of the US and India, any of which may impact the Group s business and/or results of operations; A

18 (ii) (iii) potentially adverse tax consequences, which may affect the Group s results of operations; and terrorist attacks and other acts of violence or war, an outbreak of an infectious disease or any other serious public health concern, natural disasters and foreign exchange rate exposure, any of which could have a material adverse effect on the Group s business, financial condition and/or results of operations. Furthermore, the consequences arising from these risks may be more difficult for the Group to fully anticipate as they are specific to the US and India. Therefore, should these risks materialise, they could have an adverse impact on the performance of the Group in that market and therefore the Group s results of operations. In addition, legislation in India is still evolving, and current or anticipated policies concerning the establishment and operation of companies may be altered at relatively short notice, which may impact upon the benefits anticipated to be experienced by the Group in these markets. Any of these factors, individually or in aggregate, could have a material adverse effect on the Group s business, financial condition and/or results of operations. As a result, the Guarantor s ability to fulfil its obligations under the Bonds may be adversely affected. The Group may face restrictions or liabilities under laws and regulations in the jurisdictions in which it operates. The Group is required to comply with a variety of laws and regulations of local, regional, national and European Union authorities, including planning, zoning, environmental, fire, health and safety, tax, landlord and tenant and other laws and regulations. If the Group fails to comply with these laws and regulations, the Group may have to pay penalties or private damages awards. For example, there could be changes in retail tenancy laws that limit the Group s recovery of certain property operating expenses, changes or increases in real estate taxes that cannot be recovered from the Group s tenants or changes in environmental laws that require significant capital expenditure. A number of leases entered into by the Group exclude the Landlord and Tenant Act 1954 which gives tenants the right to renew leases through a court system. If there were a change in law affecting the ability to exclude these rights, there is a risk that the Group would not be able to enter into leases which, on expiry, could be re-let on more favourable terms to more attractive tenants, which could affect the rental income of the Group and the overall profitability of the Group in the future. Changes in existing laws or regulations, or in their interpretation or enforcement, could require the Group to incur additional costs in complying with those laws, or require changes to its investment strategy, operations or accounting and reporting systems, leading to additional costs and tax liabilities or loss of revenue, which could materially adversely affect the Group s business, financial condition and/or results of operations and therefore the Guarantor s ability to fulfil its obligations under the Bonds. In addition, any property or part of any property in the UK may, at any time, be compulsorily acquired by a government department or local authority in connection with proposed redevelopment or infrastructure projects. If a compulsory purchase order were made in respect of a property or part of a property, compensation would be payable on the basis of the value of all owners and tenants proprietary interests in that property at the time of the related purchase as determined by reference to a statutory compensation code, but the compensation could be less than the Group s assessment of the property s current market value (or the relevant apportionment of such market value where only part of a property is subject to a compulsory purchase order). In the case of an acquisition of the whole or part of that property, the relevant freehold, heritable or long leasehold estate and any lease would both be acquired. If the amount received from the proceeds of purchase of the relevant freehold, heritable or long leasehold estate were inadequate, the Group s business, financial condition and/or results of operations may be adversely affected. Consequently, the Guarantor s ability to fulfil its obligations under the Bonds may be adversely affected. A

19 The Group is exposed to potential claims relating to its leasing, selling and developing of real estate. The Group has disposed of assets and may dispose of assets in the future and when it disposes of investments it may be required to give representations and warranties about those investments and to pay damages to the extent that any such representations or warranties are proven to be inaccurate. The Group may become involved in disputes or litigation concerning such representations and warranties and may be required to make payments to third parties as a result of such disputes or litigation. Any such cash outflows from the Group could have an adverse impact on the Group s business, financial condition and/or results of operations and therefore adversely affect the Guarantor s ability to fulfil its obligations under the Bonds. The Group s success depends on attracting and retaining key personnel. The Group s success depends, to a significant extent, on the continued services of its executive management team, which has substantial experience in the property industry. In addition, the Group s ability to continue to identify and develop properties depends on the management s knowledge of, and expertise in, the property market. There is no guarantee that any of the executive management team will remain employed by the Group. The loss of the services of one or more members of the executive management team could have an adverse effect on the Group s business, financial condition and/or results of operations and accordingly on the Guarantor s ability to fulfil its obligations under the Bonds. The Group may become subject to disputes with tenants and other commercial parties. The Group may become subject to disputes with tenants, commercial parties with whom it maintains relationships or other commercial parties in the property or related industries. Any such dispute could result in litigation between the Group and such commercial parties. Whether or not any dispute actually proceeds to litigation, the Group may be required to devote significant management time and attention to its successful resolution (through litigation, settlement or otherwise), which would detract from the management s ability to focus on the Group s business. Any such resolution could involve the payment of damages or expenses by the Group which may be significant. In addition, any such resolution could involve the Group agreeing to terms that restrict the operation of its business. Any of the foregoing could have an adverse impact on the Group s business, financial condition and/or results of operations. As a result, the Guarantor s ability to fulfil its obligations under the Bonds may be adversely affected. The Group may be liable for environmental issues relating to its current and former operations and properties. The Group may be liable for the costs of removal, investigation or remediation of hazardous or toxic substances located on or in a property owned by or leased to it. The costs of any required removal, investigation or remediation of such substances may be substantial. The presence of such substances, or the failure to remediate such substances properly, may also adversely affect the Group s ability to sell or lease the real estate or to borrow using the real estate as security. Laws and regulations, as these may be amended over time, may also impose liability for the release of certain materials into the air or water from a current or former real estate investment, including asbestos, and such release can form the basis for liability to third persons for personal injury or other damages. Other laws and regulations can limit the development of, and impose liability for the disturbance of, wetlands or the habitats of threatened or endangered species. Non-compliance with, or liabilities under, existing or future environmental laws and regulations, including failure to hold the requisite permits or licences, could result in fines, penalties, third-party claims and other costs that could have a material adverse effect on the Group s business, financial condition and/or results of operations. The Group may be insufficiently insured against all losses, damage and limitations of use of its properties. The Group s insurance policies are subject to exclusions of liability and limitations of liability both in amount and with respect to the insured loss events. A

20 There are certain types of losses, generally of a catastrophic nature, such as those caused by earthquakes, floods, hurricanes, terrorism or acts of war that may be uninsurable or for example, in the case of terrorism, are not economically insurable. Inflation, changes in building codes and ordinances, environmental considerations and other factors, including terrorism or acts of war, also may result in insurance proceeds, if any, being insufficient to repair or replace a property if it is damaged or destroyed. Under such circumstances, the insurance proceeds, if any, may be inadequate to restore the Group s economic position with respect to the affected real estate. Should an uninsured loss or a loss in excess of insured limits occur, the Group could lose capital invested in the affected property as well as anticipated future revenue from that property. In addition, the Group could be liable to repair damage caused by uninsured risks. The Group would also remain liable for any debt or other financial obligation related to that property. There can be no guarantee that the level of insurance cover for the Group now or in the future will be sufficient. No assurance can be given that material losses in excess of insurance proceeds will not occur in the future or that any insurance proceeds will be received at all. If such losses occur and are not covered by insurance and the Group has to make a payment, there could be an adverse effect on the Group s business, financial condition and/or results of operations and thus on the Guarantor s ability to fulfil its obligations under the Bonds. There is a risk of accidents involving the public at shopping centres and other premises owned by the Group. However, should an accident attract publicity or be of a size and/or nature that is not adequately covered by insurance, the resulting publicity and costs could have an adverse impact on the Group s reputation, business, financial condition and results of operation and therefore adversely affect the Guarantor s ability to fulfil its obligations under the Bonds. In such instance, the Group s ability to put in place public liability insurance cover in the future may also be adversely affected. There are tax and other risks associated with REIT status, substantial shareholding and risk of close company status. On 1 January 2007, the Group became a REIT under the Finance Act 2006 (now rewritten in Chapter 12 of the Corporation Tax Act 2010). This affords the Group significant tax advantages while it continues to qualify as a REIT. Although the directors of the Guarantor believe that the Group will be organised and operate in a manner that will qualify as a REIT, no assurance can be given that the Group will qualify or remain qualified as a REIT. If the Group fails to meet the REIT conditions, the Group could have its REIT status terminated and therefore lose many of the taxation benefits of the REIT regime. Such a change in tax status may give rise to future tax charges which could substantially reduce the cash available to the Guarantor to make distributions to holder(s) of Ordinary Shares ( Shareholders ). The loss of REIT status would affect the tax treatment of profits and distributions payable to Shareholders. If the Group, during any accounting period, fails to meet the REIT conditions, then the taxation benefits of the REIT regime may cease to apply to the Group from the end of the previous accounting period. In addition, the principal company of a group REIT (here, being the Guarantor) may become subject to an additional tax charge if it fails to take reasonable steps to avoid paying a dividend to, or in respect of, a corporate Shareholder that is beneficially entitled, directly or indirectly, to 10 per cent. or more of the Guarantor s dividends or share capital or that controls, directly or indirectly, 10 per cent. or more of the voting rights in the Guarantor (a Substantial Shareholder ). Therefore, the Articles of Association of the Guarantor (a description of which is set out in Description of the Ordinary Shares ) contain provisions designed to avoid the situation where dividends may become payable to a Substantial Shareholder. These provisions provide the directors of the Guarantor with powers to identify Substantial Shareholders and to prohibit the payment of dividends on Ordinary Shares that form part of a Substantial Shareholding, unless certain conditions are met. The Guarantor s Articles of Association also allow its board of directors to require the disposal of Ordinary Shares forming part of a Substantial Shareholding in certain circumstances where the Substantial Shareholder has failed to comply with the above provisions. The Guarantor may also become A