Kardan N.V. — Audit Report / Information 2015

Jul 13, 2015

STANDARD & POOR'S INCREASES RATING OF KARDAN TO ilB

Amsterdam, July 13, 2015 - Kardan N.V. ("Kardan" / "the Company"), active in Real Estate, Water Infrastructure and Financial Services in emerging markets announces that Maalot, the Israeli subsidiary of Standard & Poor's ("S&P"), has reported today that it has adjusted the rating of Kardan upwards to ilB with outlook Negative, and to ilB for its Debentures Series A and Series B.

S&P has increased the rating of Kardan and its Debentures Series A and series B from ilCCC to ilB following the completion of the debt settlement as announced by the Company on July 3.

The Release of S&P is attached as an annex to this Press Release.

DISCLAIMER

This press release contains forward-looking statements and information, for example concerning the financial condition, results of operations, businesses and potential exposure to market risks of Kardan N.V. and its group companies (jointly "Kardan Group"). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements (including "forward looking statements" as defined in the Israeli Securities Law). Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. These forward-looking statements are identified by the use of terms and phrases such as ''anticipate'', ''believe'', ''could'', ''estimate'', ''expect'', ''intend'', ''may'', ''plan'', ''objectives'', ''outlook'', ''probably'', ''project'', ''will'', ''seek'', ''target'', ''risks'', ''goals'', ''should'' and similar terms and phrases. A variety of factors, many of which are beyond Kardan Group's control, affect our operations, performance, business strategy and results and could cause the actual results, performance or achievements of Kardan Group to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. For Kardan Group, particular uncertainties arise, amongst others but not limited to and not in any order of importance, (i) from dependence on external financing with the risk that insufficient access to capital threatens its capacity to grow, execute its business model, and generate future financial returns (ii) from concentration of its business in Central Eastern Europe and China as a result of which Kardan Group is strongly exposed to these particular markets (iii) from risks related to the financial markets as a result of Kardan N.V.'s listings on Euronext Amsterdam and the Tel Aviv Stock Exchange and (iv) from it being a decentralized organization with a large number of separate entities spread over different geographic areas in emerging markets, so that Kardan Group is exposed to the risk of fraudulent activities or illegal acts perpetrated by managers, employees, customers, suppliers or third parties which expose the organization to fines, sanctions and loss of customers, profits and reputation etc. and may adversely impact Kardan Group's ability to achieve its objectives and (v) from any of the risk factors specified in Kardan N.V.'s Annual Report and in the related "Periodic Report" (published by Kardan N.V. in Israel) published in April, and which is also available at the Kardan website. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the relevant forward-looking statement as expected, anticipated, intended, planned, believed, sought, estimated or projected. Kardan N.V. does not intend or assume any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated.

About Kardan

Kardan identifies and develops assets in promising emerging markets, mainly in Asia (predominantly China), Africa and selected CEE and CIS countries. Its activities are mainly focused on three sectors that benefit from the rising middle class: Real Estate, Water Infrastructure and Banking & Retail Lending. Company headquarters are in the Netherlands. Kardan aims at holding controlling interests in its investments and is actively involved in the definition and implementation of their strategy through its local business platforms. Total assets as of March 31, 2015 amounted to EUR 1 billion; revenues totalled EUR 49 mn in the first quarter of 2015. Kardan is listed on Euronext Amsterdam and the Tel Aviv Stock Exchange.

For further information please contact: Kardan N.V. Sandra Christiaan +31 (0)20 305 0010

"This press release contains regulated information (gereglementeerde informatie) as defined in the Dutch Act on Financial Supervision (Wet op het financieel toezicht)"

Kardan N.V.

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July 13, 2015

Rating Update

Rating Upgraded To 'ilB' Following Implementation Of Debt Restructuring Agreement

Primary Credit Analyst

Zvi Boimer,972-3-7539736 zvi.boimer@standardandpoors.com

Secondary Credit Analyst

Matan Benjamin, 972-3-7539731 matan.benjamin@standardandpoors.com

Table of Contents

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Summary Rating Action Rationale

Outlook

Related Criteria And Research

Ratings List

Please note that this translation was made for the company's use only and under no circumstances obligates Standard & Poor's Maalot. In the case of any discrepancy with the official Hebrew version published on July 13, 2015, the Hebrew version shall apply.

Rating Update

Rating Upgraded To 'ilB' Following Implementation Of Debt Restructuring Agreement

Summary

• Following the completion of Kardan's debt restructuring in July 2015, the principal payment dates for the company's two bond series were postponed to February 2017 and beyond, thus eliminating the immediate threat of a non-payment default.
• We believe that the company has no recurring cash flow to repay its debt maturities in the medium term, and is therefore still completely dependent on asset liquidations.
• We are upgrading our rating on Dutch holding company, Kardan N.V., and of its series A and B bonds, to 'ilB' from 'ilCCC'.
• The negative outlook reflects the ongoing significant challenges the company faces in order to meet its obligations, given a very weak liquidity profile and the need to liquidate private assets in emerging markets.

Rating Action

On July 13, 2015, Standard & Poor's Maalot raised the rating on Dutch operating holding company, Kardan N.V. and on its Series A and B bonds, to 'ilB' from 'ilCCC'. The rating outlook is negative.

Rationale

The rating upgrade reflects our assessment that Kardan's new debt structure and the resulting improvement in its liquidity profile, have removed the immediate threat of a default.

On July 13, 2015, Kardan N.V. announced the fulfillment of all suspending conditions for modification of the original bond trusts (series A and series B), and the completion, in practice, of the two-phase debt restructuring agreement which began in December 2014. According to the debt restructuring agreement, the original amortization schedules of Series A and B bonds have been changed, inter alia, such that the next principal payment of both series (~ € 107 million, including interest) is scheduled for February 2017, and then every February until full repayment of the bonds. However, we note that the company will be required to make an interest payment of about € 23 million in February 2016. Currently, we estimate that the company has enough cash to carry out this payment and to cover its current operating expenses until that date.

The current ratings reflect our assessment that the company continues to be exposed to a possible default at the beginning of 2017 (when it will be required to repay principal and interest of about € 107 million) if it fails to make significant asset divestures beforehand. We think that private assets in emerging markets are very difficult to sell. As a result, the company is exposed to significant execution risks of asset liquidation. Despite the respite resulting from the change in its debt amortization tables, we believe that Kardan will continue to face material challenges as early as 2016 when it must prepare for its 2017 debt maturity payments.

We estimate the value of Kardan N.V.'s investment portfolio at about € 438 million (book value of held companies, as of March 31, 2015). Its net debt burden is about € 336 million. We estimate the company's leverage ratio to be about 77%, as of March 31, 2015. We believe this leverage is extremely high. In addition, all of Kardan's assets are fully pledged to bond owners, resulting in minimal financial flexibility. We do not consider debt refinancing as a realistic possibility in the foreseeable future. We also note that the company is operating under a "going concern" disclosure statement in its financial statements since Q2-2014. This in itself may precipitate unexpected, adverse developments. However, the going concern note will be reevaluated by the company's auditors in Q2-2015 financial statements, but at this moment we have no clear indications of the likelihood of its removal.

Liquidity

Kardan N.V.'s liquidity profile is "weak", according to our criteria. In our liquidity scenario, we estimate that as early as Q1 2017, there will be a gap of about € 111 million between the company's sources and its uses. We believe that this is a significant gap which, without any external cash flow sources, makes the company completely dependent on asset liquidation. We note that our liquidity scenario does not include proceeds from asset liquidation, as long as liquidation attempts have not yet matured into binding transactions.

Outlook

The negative outlook and the company's current credit rating (ilB) indicate Kardan's severe liquidity distress in the medium term. We estimate that, as early as 2016, Kardan will be forced to face significant challenges, mostly in liquidating private assets in extremely challenging markets. Therefore, the company is exposed to execution risks on these liquidations.

Downside Scenario

We will downgrade the rating if Kardan does not accomplish, by September 2016, any binding sales agreements, or any other positive development that will bridge its liquidity gap at the beginning of 2017.

Upside Scenario

On the other hand, we will consider a positive rating action if the company announces binding sales agreements on its assets which will significantly improve its liquidity profile and ensure payments of upcoming debt maturities.

Related Criteria And Research

• Criteria For Rating Non-Financial Corporate Issuances On Standard & Poor's Maalot's Local Rating Scale, September 22, 2014.
• Standard & Poor's National And Regional Scale Mapping Tables, September 30, 2014
• Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, October 1, 2012
• Rating Methodology For European Investment Holding And Operating Holding Companies, May 28, 2004
• Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, November 13, 2012
• Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, December 16, 2014
• Methodology: The Connection Between Global And Local Scale Ratings, February 2013
• National And Regional Scale Credit Ratings, September 22, 2014

Ratings List

	Current Rating	Previous Rating
Kardan N.V.
Issuer Credit Rating	ilB/Negative	ilCCC/Negative
Series A Bonds	ilB	ilCCC
Series B Bonds	ilB	ilCCC

Standard & Poor's Maalot ratings are based on information received from the Company and from other sources that Standard & Poor's Maalot believes to be reliable. Standard & Poor's Maalot does not audit the information it receives nor does it verify the correctness or completeness of such information.

It is hereby clarified that Standard & Poor's Maalot rating does not reflect risks relating to and/or arising from breaches, through intent or oversight, of any of the obligations included in the bond documents and/or the incorrectness or inaccuracy of any of the representations contained in the documents relating to the bond offering that is the subject of this rating, Standard & Poor's Maalot report or the facts that form the basis for the opinions expressed to Standard & Poor's Maalot as a condition for the giving of the rating, fraudulent or dishonest acts of commission or omission, or any other act that contravenes the law.

The ratings could be revised as a result of changes to the information received or for other reasons. The rating should not be perceived as expressing any opinion concerning the price of the securities on the primary or secondary market. The rating should not be perceived as expressing any opinion concerning the advisability of buying, selling or holding any security.

© Standard & Poor's Maalot reserves all rights. This summary is not to be copied, photographed, distributed or used for any commercial purpose without Standard & Poor's Maalot consent, except to provide a copy of the whole report (with an acknowledgement of its source) to potential investors in the bonds that are the subject of this rating report for the purpose of their reaching a decision concerning the acquisition of the aforesaid bonds..