Separate-Company Financial Information (Unaudited)
Separate-Company Financial Information Unaudited Contents Page Auditors Special Report regarding the Separate-Company Financial Information 2 Financial statements: Condensed Interim Data regarding Financial Position 3 4 Condensed Interim Data regarding Income 5 Condensed Interim Data regarding Comprehensive Income 6 Condensed Interim Data regarding Cash Flows 7 8 Additional Information with respect to the Condensed Interim Separate-Company Financial Information 9 15
To: The Shareholders of Africa Israel Investments Ltd. Dear Sirs: Re: Special Report of the Auditor regarding the Interim Separate-Company Financial Information in accordance with Regulation 38D of the Securities Regulations (Periodic and Immediate Reports), 1970 We have reviewed the interim separate-company financial information presented in accordance with Regulation 38D of the Securities Regulations (Periodic and Immediate Reports), 1970, of Africa Israel Investments Ltd. (hereinafter the Company ) as at March 31, 2016 and for the three-month period then ended. The interim separate-company financial information is the responsibility of the Company s Board of Directors and Management. Our responsibility is to express a conclusion on the interim separate-company financial information for this interim period based on our review. The information included in the separate-company financial information relating to the carrying value of the Company s investments and its share in the income of investee companies is based on financial statements some of which were reviewed by other auditors and our conclusion, to the extent it relates to amounts included in respect of those companies, is based on the review reports of the other auditors. Scope of the Review We conducted our review in accordance with Review Standard 1, Review of Financial Information for Interim Periods Performed by the Independent Auditor of the Entity of the Institute of Certified Public Accountants in Israel. A review of financial information for interim periods consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in Israel and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review and on the review reports of other auditors, nothing has come to our attention that causes us to believe that the above-mentioned financial information was not prepared, in all material respects, in accordance with the provisions of Regulation 38D of the Securities Regulations (Periodic and Immediate Reports), 1970. Without qualifying our above-mentioned opinion, we direct attention to that stated in Note 2A to the financial statements regarding: 1. The Company s financial positon in light of the impact of the situation of the Russian economy and the consequences thereof on the Company s activities with emphasis on the significant financial deterioration that has plagued the subsidiary, AFI Development, which conducts the Group s activities in Russia, against the background of the possibility that loans, in the amount of $611 million, will be called for immediate repayment or, alternatively, delivery of significant core assets of AFI Development, having a value of about $877 million, and as a practical result of which such loans have been classified as part of the current liabilities. These factors raise significant doubts regarding the continued existence of AFI Development as a going concern and have an adverse impact on the Company s ability to meet its liabilities in the long run. 2. The deficit in the working capital, in the amount of NIS 4,988 million, the significant negative value of the assets and the existence of grounds for calling the Company s debentures for immediate repayment. As practical result of these grounds, the liabilities to the holders of the debentures, in the amount of about NIS 2.7 billion, have been classified as part of the current liabilities. 3. The decision of the Board of Directors to take action in order to formulate an arrangement with the holders of the debentures and suspension of Management s plans to sell additional core assets. These factors, together with other factors detailed in the above-mentioned Note, raise significant doubts regarding the continued existence of the Company as a going concern. These financial statements do not include any adjustments to the value of the assets and liabilities and the classification thereof, which may be necessary if the Company is not able to continue operating as a going concern. Somekh Chaikin Certified Public Accountants (Isr.) Breitman Almagor Zohar & Co. Certified Public Accountants (Isr.) May 29, 2016 2
Separate-Company Data regarding Financial Position At March 31 At December 31 2016 2015 2015 (Unaudited) (Audited) In Thousands of New Israeli Shekels Current Assets Cash and cash equivalents 63,810 203,697 474,386 Short-term investments 25 160,301 78,931 Marketable securities 9,932 Trade receivables 9 2,159 39 Other receivables and debit balances 9,381 3,851 12,693 Receivables investee companies 9,716 13,852 12,172 Income taxes receivable 97 Inventory of buildings held for sale 5,205 11,097 5,053 88,146 404,986 583,274 Non-Current Assets Investments in investee companies 4,011,691 5,337,758 4,009,965 Loans to investee companies 235,849 275,864 243,722 Property, plant and equipment 35 379 121 Investment property 24,940 73,920 24,940 Long-term investments 360 80,695 160 Inventory of real estate 1,812 1,812 1,812 Intangible assets 640 855 682 4,275,327 5,771,283 4,281,402 4,363,473 6,176,269 4,864,676 The additional information attached to the separate-company financial information in an integral part thereof. 3
Separate-Company Data regarding Financial Position At March 31 At December 31 2016 2015 2015 (Unaudited) (Audited) In Thousands of New Israeli Shekels Current Liabilities Debentures 2,714,515 197,071 Credit from banks 9,432 53,077 17,660 Contractors and suppliers 463 845 221 Other payables and credit balances, including financial derivatives 17,866 45,320 51,359 Payables investee companies 16,073 10,662 10,267 Advances from customers 6,772 15,703 4,196 Provisions 11,854 8,846 11,854 2,776,975 134,453 292,628 Long-Term Liabilities Loans from investee companies 291,589 22,688 315,861 Debentures 2,967,159 2,860,782 Liabilities to banks 13,614 Excess of losses over investments in investee companies 86 61 69 Other liabilities 295 100,303 30,292 Liability for deferred taxes 44,344 37,009 44,344 Employee benefits 1,902 1,808 1,902 338,216 3,142,642 3,253,250 Equity Share capital 384,867 384,867 384,867 Premium on shares 4,492,059 4,492,059 4,492,059 Capital reserves (2,155,293) (2,302,671) (2,125,483) Retained earnings (1,473,351) 324,919 (1,432,645) Total equity attributable to the owners of the Company 1,248,282 2,899,174 1,318,798 4,363,473 6,176,269 4,864,676 Lev Leviev Avraham Novogrocki Menashe Sagiv Chairman of the Board of Directors CEO CFO Approval date of the financial statements: May 29, 2016 The additional information attached to the separate-company financial information in an integral part thereof. 4
Separate-Company Data regarding Income For the Three Months Ended Year Ended March 31 December 31 2016 2015 2015 (Unaudited) (Audited) In Thousands of New Israeli Shekels Revenues Construction and real estate transactions 3,976 15,002 32,275 Rental and operation of properties 255 1,225 4,107 Income from investee companies, net 29,791 54,640 Other income 876 1,011 64,218 34,898 ---------- 71,878 ---------- 100,600 Cost and expenses Construction and real estate transactions 2,067 6,344 15,346 Maintenance, supervision and management of real estate and properties 44 46 646 Loss from investee companies, net 1,507,530 Decline in fair value of investment property, net 18 43 2,803 Administrative and general expenses 4,836 7,188 25,253 Other expenses 178 69 324 7,143 ---------- 13,690 ---------- 1,551,902 Operating income (loss) 27,755 58,188 (1,451,302) ---------- ---------- Financing expenses (71,464) (52,093) (335,958) Financing income 3,053 3,437 43,701 Financing expenses, net (68,411) ---------- (48,656) ---------- (292,257) Income (loss) before taxes on income (40,656) 9,532 (1,743,559) Taxes on income (50) (896) (8,381) Income (loss) for the period attributable to the owners of the Company (40,706) 8,636 (1,751,940) The additional information attached to the separate-company financial information in an integral part thereof. 5
Separate-Company Data regarding Comprehensive Income For the Three Months Ended Year Ended March 31 December 31 2016 2015 2015 (Unaudited) (Audited) In Thousands of New Israeli Shekels Income (loss) for the period attributable to the owners of the Company (40,706) --------- 8,636 --------- (1,751,940) - Items of other comprehensive income (loss) where after their initial recognition in comprehensive income were transferred or will be transferred to the statement of income Currency translation differences in respect of foreign activities and other reserves in respect of investee companies (29,810) (76,677) *(215,334) Foreign currency translation differences in respect of foreign activities recorded in the statement of income *384,535 Total other comprehensive income (loss) for the period where after its initial recognition in comprehensive income was transferred or will be transferred to the statement of income, net of tax (29,810) --------- (76,677) --------- 169,201 ------------ Items of other comprehensive income (loss) that will not be transferred to the statement of income Re-measurement of defined benefit plan (408) 1,136 Total other comprehensive income (loss) for the year that will not be transferred to the statement of income, net of tax --------- (408) --------- 1,136 - Total comprehensive loss for the period (70,516) (68,449) (1,581,603) * Reclassified see Note 2C. The additional information attached to the separate-company financial information in an integral part thereof. 6
Separate-Company Data regarding Cash Flows For the Three Months Ended Year Ended March 31 December 31 2016 2015 2015 (Unaudited) (Audited) In Thousands of New Israeli Shekels Cash flows from operating activities Net income (loss) for the period attributable to the owners of the Company (40,706) 8,636 (1,751,940) Adjustments: Depreciation and amortization 146 260 864 Gain on sale of investee companies (58,701) Change in fair value of investment property 18 43 2,803 Financing expenses, net 69,202 48,005 310,320 Share of Company in results of investee companies, net (29,791) (54,640) 1,507,530 Loss (gain) on marketable securities, net 219 (20,995) Share-based payment transactions 37 149 Taxes on income (tax benefit) 50 896 8,381 Change in inventory of buildings held for sale (152) 5,862 11,906 Change in trade receivables and other receivables and debits 3,702 (1,913) (13,253) Change in advances from customers 2,576 (11,893) (23,400) Change in trade payables and other payables and credits (4,236) 2,003 2,112 Change in provisions and employee benefits (2,200) (227) 1,445 Income taxes paid, net (50) (51) (59) Net cash used in operating activities before transactions with investee companies (1,441) (2,763) (22,838) Net cash from operating activities in respect of investee companies 5,689 (7,855) (3,187) Net cash provided by (used in) operating activities 4,248 (10,618) (26,025) ----------- ----------- The additional information attached to the separate-company financial information in an integral part thereof. 7
Separate-Company Data regarding Cash Flows For the Three Months Ended Year Ended March 31 December 31 2016 2015 2015 (Unaudited) (Audited) In Thousands of New Israeli Shekels Cash flows from investing activities Interest received 511 623 32,251 Dividends received 3,185 5,326 170,803 Proceeds from sale of investee companies 53,135 Investment in long-term deposits and loans (200) (2,593) (2,593) Acquisition of property, plant and equipment (12) (90) (181) Acquisition of intangible assets (6) (11) (93) Investment in investment property (18) (43) (73) Proceeds from sale of investment property 1,000 42,400 Investment in investment companies (140,198) Short-term investments, net 78,928 304,803 466,798 Net cash provided by investing activities before transactions with investee companies 83,388 308,015 622,249 Net cash from investing activities in respect of transactions with investee companies 1,035 1,538 (22,733) Net cash provided by investing activities 84,423 309,553 599,516 ----------- ----------- Cash flows from financing activities Repayment of loans and debentures (388,454) (273,117) (392,148) Proceeds from sale of options for shares 16 16 Dividend paid to shareholders (9) (10) Interest paid (89,459) (63,543) (247,389) Short-term credit net 8,200 Net cash used in financing activities before transactions with investee companies (477,913) (336,653) (631,331) Net cash from financing activities in respect of transactions with investee companies (21,218) 291,557 Net cash used in financing activities (499,131) (336,653) (339,774) ----------- ----------- Increase (decrease) in cash and cash equivalents (410,460) (37,718) 233,717 Cash and cash equivalents at beginning of the period 474,386 239,869 239,869 Effect of exchange rate fluctuations on balances of cash and cash equivalents (116) 1,546 800 Cash and cash equivalents at the end of the period 63,810 203,697 474,386 The additional information attached to the separate-company financial information in an integral part thereof. 8
Additional Information with respect to the Financial Data (1) General Set forth below is condensed financial data from the Group s interim condensed consolidated financial statements as at March 31, 2016 (hereinafter the Consolidated Statements ) published as part of the Periodic Reports, which relate to the Company itself (hereinafter the Separate Interim Condensed Financial Information ) which is presented in accordance with Regulation 38D of the Securities Regulations (Periodic and Immediate Reports), 1970, the Separate Interim Condensed Financial Information of a company. The Separate Interim Condensed Financial Information should be read together with separate-company financial information as at and for the year ended December 31, 2015 and together with the interim consolidated financial statements as at March 31, 2016. In this interim separate-company financial information: A. The Company Africa Israel Investments Ltd. B. Subsidiaries companies, including a partnership, the financial statements of which are fully consolidated, directly or indirectly, with those of the Company. C. Investee Companies subsidiaries and companies, including a partnership or a joint venture, the Company s investment in which is included, directly or indirectly, in the financial statements based on the equity method of accounting. (2) Significant additional information required for understanding the interim separate-company financial information A. The Company s financial position 1. Impact of the Economic Situation in Russia on the Group s Activities During 2014, a political conflict broke out between and Ukraine and Russia. The political conflict resulted in imposition of sanctions by the United States and other countries against Russia, and vice-versa, a decline in foreign investments in Russia and an adverse impact on the exchange rate of the ruble. The uncertain political situation and the increased sanctions during the year unfavorably impacted the economic activities in Russia during 2014. As a result of that stated above, there has been a deterioration of the Russian economy. During 2014 and particularly in the second half of the year, there was a significant drop in the world oil prices, where fuel is a significant resource for export and production of revenues in the Russian economy. The exchange rate of the ruble against the U.S. dollar dropped by about 72% in 2014 and the international rating companies gradually reduced the Russia s credit rating. During 2015, the exchange rate of the ruble against the U.S. dollar weakened at the rate of about 30% whereas the price of a barrel of oil declined by about 34%. During the first quarter of 2016, the exchange rate of the ruble against the U.S. dollar strengthened by about 7% whereas the change in the price of oil is not significant. Nonetheless, from the date of the statement of financial position and up to shortly before the approval date of the financial statements, the price of a barrel of oil increased by about 35%, while the exchange rate of the ruble against the U.S. dollar did not change materially. 9
Additional Information with respect to the Financial Data (2) Significant additional information required for understanding the interim separate-company financial information (Cont.) A. The Company s financial position (Cont.) 1. Impact of the Economic Situation in Russia on the Group s Activities (Cont.) In light of the devaluation of the Russian ruble, inflationary pressures and instability in the short run, during 2014 the Central Bank of Russia increased the short-term inter-bank interest rate from 5.5% to 17%. In 2015, due to a moderation of the inflationary pressures, the Central Bank of Russia lowered the above-mentioned interest rate to 11%. This interest rate remained unchanged during the first quarter of 2016. Continuation of the above-mentioned events, and/or an increase in the severity thereof, has an adverse effect on various facets of the Group s activities in Russian and/or data appearing in the financial statements, among others, as follows: An unfavorable impact on the revenues in all that relating to the activities in Russia due to a decline in the demand in Russia in the commercial sector and in the residential sector; An increase in the Group s costs with respect to its activities in Russia; A decrease in the value of the real estate properties as a result of the decrease in the revenues and/or an increase in the risk premium in the economy and, in turn, an increase in the discount rate taken into account when determining the value; An increase in the financing expenses and/or an adverse impact on the available sources of financing; From an accounting standpoint, a devaluation of the ruble could have a negative impact on the Company s shareholders equity. As a result of that stated above, the subsidiary, AFI Development, through which the Group s activities in Russia are carried out (hereinafter AFI Development ), recorded in the fourth quarter of 2015 and in the first quarter of 2016, losses in the amount of about NIS 1.7 billion and about NIS 117 million, respectively, which stem mostly from a decline in the value of the investment properties and the investment properties under construction. Against the background of that stated above, on March 29, 2016, AFI Development received notifications from a Russian bank (hereinafter the Russian Bank ) directed to two subsidiaries of AFI Development (hereinafter the Borrowers ) in connection with loans made to the Borrowers in the AFIMALL Shopping Mall project and in the Ozerkovsky 3 project, the balance of which as the date of the statement of financial position was about US$611 million (about NIS 2.3 billion). Pursuant to the notifications of the Russian Bank, it has reached the conclusion that there has been a serious deterioration, in the opinion of the Russian Bank, in the financial position of the Borrowers and there are additional circumstances indicating that the liabilities of the Borrowers based on the financing agreements will not be repaid on their repayment dates. In light of that stated, the Russian Bank proposed that action be taken for purposes of removing the possible unfavorable consequences stemming from the said circumstances within 30 days of the notification and if not, the Russian Bank will exercise its rights under the loan agreements to demand early repayment of the loans. 10
Additional Information with respect to the Financial Data (2) Significant additional information required for understanding the interim separate-company financial information (Cont.) A. The Company s financial position (Cont.) 1. Impact of the Economic Situation in Russia on the Group s Activities (Cont.) It is noted that the two loans are secured by liens created in favor of the Russian Bank on the AFIMALL Shopping Mall project and on the Ozerkovsky 3 project, as well as liens on shares of the Borrowers, respectively, and AFI Development is a guarantor for repayment of the loan to Ozerkovsky 3. For additional details regarding the loans, collaterals and guarantees of AFI Development see Notes 4(A)(2)(b) and 18(D) to the Company s annual financial statements. Taking into account that stated above, the AFIMALL loan, the balance of which as at the date of the statement of financial position amounted to about US$420 million (about NIS 1.6 billion), was classified in the financial statements of AFI Development as at March 31, 2016, as a current liability (this being in addition to the Ozerkovsky 3 loan, the balance of which as at the date of the statement of financial position amounted to about US$191 million (about NIS 719 million), which due to violation of financial covenants had already been classified as a current liability during 2015). Further to that stated above, as part of the discussions and the advanced negotiations being carried on between the management of AFI Development and the Russian Bank, the parties are examining the possibility whereby the loans will be settled against transfer to the Russian Bank of a number of significant properties of AFI Development (hereinafter the Exchange Transaction ). AFI Development examined this proposal after it looked into the feasibility of other financing alternates, which were found to be inapplicable (including, contacts made by AFI Development with other banks for receipt of financing and after it contacted the Company in order to receive its position regarding the possibility of an inflow of equity from the Company, and it having received a negative response taking into account the Company s financial position and its limited sources). On May 26, 2016, AFI Development published that the Russian Bank delivered to it written notification of its intention to act to realize its rights as part of the loan agreements to call the loans for immediate repayment unless the Exchange Transaction is completed by June 10, 2016. As part of the notification the Russian Bank noted that the parties must reach agreement regarding the full and final version of the Exchange Transaction agreements no later than June 1, 2016. At this stage, the structure of the Exchange Transaction is expected to include release of AFI Development and its subsidiaries (hereinafter together the AFI Development Group ) from the loans against delivery to the Bank of the AFIMALL Shopping Mall property, the Ozerkovsky 3 office building and the Aquamarine Hotel (hereinafter together the Transfer Properties ). As at March 31, 2016, the cumulative value of the Transfer Properties in the books of AFI Development amounted to about US$877 million (about NIS 3.3 billion). Accordingly, AFI Development estimates that as a result of the Exchange Transaction, the equity of AFI Development will decline by an estimated amount of about US$266 million (and based on the rate of the Company s holdings in AFI Development, the Company s equity will decline by an estimated amount of about US$173 million). It is clarified that this data item is not final, since it does not take into account various possible aspects impacting the structure of the Exchange Transaction, which have not yet been agreed to, such as, taxation, Value Added Tax and balances of deferred taxes. 11
Additional Information with respect to the Financial Data (2) Significant additional information required for understanding the interim separate-company financial information (Cont.) A. The Company s financial position (Cont.) 1. Impact of the Economic Situation in Russia on the Group s Activities (Cont.) Taking into account the scope of the Exchange Transaction, pursuant to the rules of the London Stock Exchange it generally requires publication of a report summoning a General Meeting of the shareholders of AFI Development, including a description of the transaction, for purposes of its approval by the shareholders of AFI Development. Nonetheless, in light of the timetables stated in the notification of the Russian Bank, AFI Development is not able to publish a summons report and a description, as stated, and to hold a General Meeting of its shareholders prior to June 10, 2016. Therefore, AFI Development intends to make use of an exception that exists in the rules of the London Stock Exchange, which permits a company experiencing serious financial difficulties to sell assets with an exemption from obtaining the approval of its shareholders, in certain circumstances, subject to the consent of English Regulator (hereinafter the Exemption ). If the Exchange Transaction is not completed by June 10, 2016, and the Russian Bank exercises its rights pursuant to the loan agreements, there is a high probability that this will have a significant adverse impact on the ability the AFI Development Group to continue to maintain its business as well as on the value of AFI Development s shares. AFI Development estimates that it is capable of completing all the required steps in order to enter into a contractual undertaking with the Russian Bank within the timetables stipulated in the notification of the Russian Bank, and it intends to contact the English Regulator in the near future with a request for use of the Exemption. In the estimation of its management, AFI Development will be able to complete the Exchange Transaction, without it impacting AFI Development s other projects that are in various stages of construction (such as Odinburg and Pablitzkia Stage two) or that are in advanced planning stages (such as Potztovia), in such a manner that the financing for the development of these other projects will be received on the cash flows anticipated from them. Nonetheless, as things go, realization of the estimates and the feasibility of that described above involve uncertainty, which raises a significant doubt regarding the assumption of AFI Development s ability to meet its liabilities as they come due. Accordingly, in the Review Report of the auditing CPAs of AFI Development with reference to the financial statements of AFI Development as at March 31, 2016, a direction of attention (caveat) was included in connection with significant doubts regarding continuation of its activities as a going concern. It is noted that taking into account the uncertainty existing against the background of the events described above, the subsidiary, AFI Development, is examining the development plans of its various projects and the timing thereof. Since AFI Development constitutes a very holding of the Company, an adverse impact on its business results and the value of its assets has a very material impact on the results of the Company s business operations and on its financial position. 12
Additional Information with respect to the Financial Data (2) Significant additional information required for understanding the interim separate-company financial information (Cont.) A. The Company s financial position (Cont.) 2. Management s Plans regarding the Company s Financial Position Since the Company s entry into the debt arrangement in May 2010, as stated in Note 1C to the annual financial statements, Company Management has adamantly acted to sell properties at appropriate prices in order to ensure its ability to pay its extensive financial liabilities. In addition, during the above-mentioned period, the Company s shareholders invested a cumulative amount of NIS 1.35 billion (of which the share of the Company s controlling shareholder amounted to about NIS 765 million). As is known, AFI Development was (and continues to be) a very significant subsidiary of the Company. This being the case, the fact may not be ignored that continuation of the economic crisis in Russia, on the one hand, and on the other hand, the unequivocal dependency of the ability to repay the Company s liabilities on its success in selling assets over an extended period of years in the future (including at the level of AFI Development), magnify the uncertainties the Company is presently facing. So much more so, when considering the significant deterioration in the financial position of AFI Development against the background of the possibility of calling loans in the amount of about US$611 million (about NIS 2.3 billion) for immediate repayment, along with AFI Development entering into a position of insolvency in the immediate future or, alternatively, delivery of significant core assets of AFI Development, developments that have an extreme unfavorable impact on the chances of the occurrence of the forecasts regarding the Company s ability to meet its liabilities in the long-term, as stated in Note 1B(1), above. In addition to that stated above, as at the date of the statement of financial position: The Company has working capital in the amount of NIS 4,988 million. The amount of the cash required by the Company for purposes of repayment of its liabilities significantly exceeds its cash balances. The net value of the Company s net assets (based on the present market prices of its marketable holdings plus the book value of its other assets and less it financial liabilities) is a large negative amount. The yield rate of the Company s debentures is two-digit, which practically removes the possibility of refinancing its financial liabilities by means of raising capital. As stated below, there are grounds for calling the Company s debentures (Series Z, ZA and ZB) for immediate repayment, and as a result in the statement of financial position the liability in respect of the debentures, in the amount of NIS 2.7 billion, was classified as a current liability. 13
Additional Information with respect to the Financial Data (2) Significant additional information required for understanding the interim separate-company financial information (Cont.) A. The Company s financial position (Cont.) 2. Management s Plans regarding the Company s Financial Position (Cont.) In light of all that stated above, the Company s Board of Directors reached a decision that at the present time there is a lack of clarity regarding the Company s ability to meet its liabilities and from a well-considered perspective, in order to provide a proper response to the risks described above, as well as to additional unfavorable changes that may occur as time goes on, and as a practical result, in order to improve the Company s chances of successfully coping with payment of its liabilities, the responsible thing to do is to commence negotiations as soon as possible with the holders of the Company s debentures, in order to formulate a plan for reorganizing the Company s liabilities to all of the holders of its debentures, which will include, among other things, strengthening of the Company s capital base, including, a request from the Company s controlling shareholder to invest monies in the Company subject to completion of the arrangement as stated. The Company s Board of Directors instructed Company Management to take action to formulate an arrangement as stated within accelerated and intensive timetables, with an undertaking to maintain fairness and unbiased treatment as between the holders of the debentures, taking into account the terms of each debenture series, the existing assurances for securing them and the rate of the unsecured debt to them. Accordingly, the Company contacted the trustees for the debentures with a request to urgently convene General Meetings of the holders of the debentures in order to appoint joint representatives for the three series of the Company s debentures. In addition, for purposes of re-examining the Company s plans, the Company s Board of Directors believes that the best interest of the Company (as well as the best interest of the debenture holders) supports suspension of Management s plans to sell additional significant core assets of the Company until the negotiation processes, as stated, are completed and the situation is clarified. As a practical result, taking into account the scope of the liquid balances held by the Company, and so long as the negotiations for formulation of the arrangement are continuing, the Company will not be able to continue making principal and interest payments with respect to its debts to its financial creditors based on the existing repayment schedules. On May 22, 2016, at the Company s request the trustee for the holders of the Company s debentures convened an urgent meeting of the General Meetings of the holders of the Company s debentures in order to discuss, among other things, appointment of a joint representative body for the three series of the Company s debentures and, accordingly, on May 23, 2016, the trustee summoned General Meetings of the holders of the Company s debentures, without actually convening, in order to make decisions in connection with appointment of a representative body for the holders of the Company s debentures. On May 26, 2016, the holders of the Company s debentures decided to set up a joint representative body for the debentures (Series Z and Series ZA) and a separate representative body for the holders of the debentures (Series ZB). 14
Additional Information with respect to the Financial Data (2) Significant additional information required for understanding the interim separate-company financial information (Cont.) A. The Company s financial position (Cont.) 2. Management s Plans regarding the Company s Financial Position (Cont.) On May 29, 2016, the trustees for the holders of the debentures summoned General Meetings of the holders of the debentures where on the Day s Agenda is discussion and consultation with respect to provision of instructions to the trustees to summon a General Meeting in order to call the debt for immediate repayment, pursuant to the provisions of the trust indentures, and with reference to provision of instructions to the trustees to notify the Company of cancellation of the power of attorney granted to the Company by the trustees relating to the securities of AFI Development that are pledged in favor of the trustees. The sum total of all of these events and circumstances raise significant doubts regarding the continued existence of the Company as a going concern. In these financial statements no reclassifications or adjustments have been included to the value of the Company s assets and liabilities, which may be necessary if the Company is not able to continue operating as a going concern. B. Proposal for an Interim Framework with the Holders of the Debentures Further to that stated in Note 1B(3) to the annual financial statements regarding an interim framework formulated between the Company and the holders of the debentures (Series Z, ZA and ZB) (hereinafter together the Debentures ) for the period up to November 17, 2016, on March 14, 2016, the Company made NIS 361 million in payments of principal and interest with respect to the debentures (Series Z and ZA) and NIS 78.5 million in payments of principal and interest with respect to the debentures (Series ZB). C. Reclassification In the statement of comprehensive income for the year ended December 31, 2015, the amount of about NIS 218 million was reclassified from the category foreign currency translation differences in respect of foreign activities and other reserves in respect of investee companies to the category foreign currency translation differences in respect of foreign activities which was recorded in the statement of income. D. Regarding additional significant information see Notes 1, 4A(2), 4F, 8A, 9A 9F, and 9I to the condensed interim consolidated financial statements. 15