Embed Size (px)
Citation preview
i
Date 28 May 2015
INMOBILIARIA COLONIAL, S.A. (incorporated in the Kingdom of Spain)
€750,000,000 1.863 per cent. Notes due 2019
€500,000,000 2.728 per cent. Notes due 2023
Issue Price of the 4 Year Notes 100 per cent.
Issue Price of the 8 Year Notes 100 per cent.
The €750,000,000 1.863 per cent. Notes due 2019 (the "4 Year Notes") and the €500,000,000 2.728 per cent. Notes due 2023 (the "8 Year Notes", together with the
4 Year Notes, the "Notes") will be issued by Inmobiliaria Colonial, S.A. (the "Issuer", "Colonial" or the "Company").
As described in the Terms and Conditions of the 4 Year Notes and the Terms and Conditions of the 8 Year Notes, the 4 Year Notes bear interest at the rate of 1.863
per cent. per annum and the 8 Year Notes bear interest at the rate of 2.728 per cent. per annum. The rate of interest of the 4 Year Notes and the 8 Year Notes may be
increased from time to time by the Step-up as further described under "Terms and Conditions of the 4 Year Notes - Interest" and "Terms and Conditions of the 8
Year Notes - Interest". Interest on the Notes is payable annually in arrear on 5 June in each year. Payments on the Notes will be made without deduction for or on
account of taxes of the Kingdom of Spain to the extent described under "Terms and Conditions of the 4 Year Notes — Taxation" and "Terms and Conditions of the 8
Year Notes — Taxation".
The 4 Year Notes mature on 5 June 2019 and the 8 Year Notes mature on 5 June 2023. The Notes may be redeemed in whole before then at the option of the Issuer
at any time (i) at their principal amount plus accrued interest, in the event of certain tax changes as defined and further described under "Terms and Conditions of the
4 Year Notes - Redemption and Purchase - Redemption for taxation reasons" and "Terms and Conditions of the 8 Year Notes - Redemption and Purchase -
Redemption for taxation reasons"; and (ii) at the Make Whole Amount as defined and further described under "Terms and Conditions of the 4 Year Notes -
Redemption and Purchase - Redemption at the option of the Issuer" and "Terms and Conditions of the 8 Year Notes - Redemption and Purchase - Redemption at the
option of the Issuer". In addition, upon the occurrence of a Change of Control of the Issuer or a Change of Control of SFL (as defined in "Terms and Conditions of
the 4 Year Notes - Redemption and Purchase - Redemption at the option of the Noteholders" and "Terms and Conditions of the 8 Year Notes - Redemption and
Purchase - Redemption at the option of the Noteholders") plus the relevant changes to the credit rating of the Notes in the case of a Change of Control of the Issuer
(as described in Condition 6(c)(i)(B)) holders of the Notes may require the Issuer to redeem all or some of the Notes at their principal amount plus accrued interest
as further described under "Terms and Conditions of the 4 Year Notes - Redemption and Purchase - Redemption at the option of the Noteholders" and "Terms and
Conditions of the 8 Year Notes - Redemption and Purchase - Redemption at the option of the Noteholders". See "Terms and Conditions of the 4 Year Notes -
Redemption and Purchase" and "Terms and Conditions of the 8 Year Notes - Redemption and Purchase".
The Notes will constitute obligations of the Issuer. See "Terms and Conditions of the 4 Year Notes - Status" and "Terms and Conditions of the 8 Year Notes -
Status".
This prospectus (the "Prospectus") has been approved by the Central Bank of Ireland (the "Central Bank"), as competent authority under Directive 2003/71/EC, as
amended (including by Directive 2010/73/EU, to the extent that such amendments have been implemented in a relevant member state of the European Economic
Area) (the "Prospectus Directive").
The Central Bank only approves this Prospectus as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. Application has
been made to the Irish Stock Exchange for the Notes to be admitted to the official list (the "Official List") and trading on its regulated market (the "Main Securities
Market"). The Main Securities Market is a regulated market for the purposes of Directive 2004/39/EC. Such approval relates only to the Notes which are to be
admitted to trading on the Main Securities Market or other regulated markets for the purposes of Directive 2004/39/EC or which are to be offered to the public in
any member state of the European Economic Area. This Prospectus (together with the documents incorporated by reference herein) is available for viewing on the
website of the Irish Stock Exchange (www.ise.ie). For the avoidance of doubt, references in this Prospectus to the "Irish Stock Exchange" (and all related
references) shall mean the regulated market of the Irish Stock Exchange plc.
This Prospectus constitutes a prospectus for the purposes of Article 3 of the Prospectus Directive and has been prepared in accordance with, and including the
information required by, Regulation (EC) No. 809/2004. This Prospectus is only addressed to, and directed at, persons who are qualified investors within the
meaning of Article 2.1(e) of the Prospectus Directive.
The denomination of the Notes shall be €100,000.
Each series of Notes will initially be represented by a Temporary Global Note, without interest coupons, which will be issued in new global note ("NGN") form and
will be delivered on or prior to 5 June 2015 to a common safekeeper (the "Common Safekeeper") for Euroclear Bank S.A./N.V. ("Euroclear") and Clearstream
Banking, société anonyme ("Clearstream, Luxembourg"). Each Temporary Global Note will be exchangeable for interests recorded in the records of Euroclear and
Clearstream, Luxembourg in a Global Note, without interest coupons, on or after a date which is expected to be 15 July 2015, upon certification as to non-U.S.
beneficial ownership. Each Global Note will be exchangeable for definitive Notes in bearer form in the denomination of €100,000 not less than 60 days following
the request of the Issuer or the holder in the circumstances set out in it. See "Summary of Provisions relating to the Notes while in Global Form".
The Notes are expected to be rated BBB- by Standard & Poor's Credit Market Services Europe Limited, a division of The McGraw-Hill Companies Inc. ("S&P"). A
rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.
S&P is established in the EU and registered under Regulation (EC) No. 1060/2009 (the "CRA Regulation"). A list of registered credit rating agencies is published
at the European Securities and Market Authority’s website: www.esma.europa.eu.
Prospective investors should have regard to the factors described under the section headed "Risk Factors" in this Prospectus.
Sole Structuring Adviser, Sole Global Co-ordinator and Lead Manager
Morgan Stanley
Joint Lead Managers
Banco Bilbao Vizcaya Argentaria, S.A. Banco Sabadell CaixaBank
Crédit Agricole CIB ING J.P. Morgan
A13 - 5.1
ii
IMPORTANT NOTICES
This Prospectus comprises a prospectus for the purposes of the Prospectus Directive and for the purpose of
giving information with regard to the Issuer, the Issuer and its consolidated subsidiaries taken as a whole (the
"Group" or the "Colonial Group"), and the Notes which according to the particular nature of the Issuer and
the Notes, is necessary to enable investors to make an informed assessment of the assets and liabilities,
financial position, profit and losses and prospects of the Issuer. The Issuer accepts responsibility for the
information contained in this Prospectus. To the best of the knowledge and belief of the Issuer (which has
taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in
accordance with the facts and does not omit anything likely to affect the import of such information.
This Prospectus is to be read in conjunction with all the documents which are incorporated herein by
reference (see "Documents Incorporated by Reference").
This Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer or the Joint Lead
Managers (as defined in "Subscription and Sale" below) to subscribe or purchase, any of the Notes. The
distribution of this Prospectus and the offering of the Notes in certain jurisdictions may be restricted by law.
Persons into whose possession this Prospectus comes are required by the Issuer and the Joint Lead Managers
to inform themselves about and to observe any such restrictions.
For a description of further restrictions on offers and sales of Notes and distribution of this Prospectus, see
"Subscription and Sale" below.
Each potential purchaser of Notes should determine for itself the relevance of the information contained in
this Prospectus and its purchase of Notes should be based upon such investigation as it deems necessary. In
making an investment decision, investors must rely on their own examination and analysis of the Issuer and
the terms of the Notes, including the merits and risks involved.
No person is authorised to give any information or to make any representation not contained in this
Prospectus and any information or representation not so contained must not be relied upon as having been
authorised by or on behalf of the Issuer or the Joint Lead Managers. Neither the delivery of this Prospectus
nor any sale made in connection herewith shall, under any circumstances, create any implication that there has
been no change in the affairs of the Issuer or the Group since the date hereof or the date upon which this
Prospectus has been most recently amended or supplemented or that there has been no adverse change in the
financial position of the Issuer or the Group since the date hereof or the date upon which this Prospectus has
been most recently amended or supplemented or that the information contained in it or any other information
supplied in connection with the Notes is correct as of any time subsequent to the date on which it is supplied
or, if different, the date indicated in the document containing the same.
To the fullest extent permitted by law, the Joint Lead Managers accept no responsibility whatsoever for the contents
of this Prospectus or for any other statement, made or purported to be made by a Joint Lead Manager or on its
behalf in connection with the Issuer or the issue and offering of the Notes. Each Joint Lead Manager accordingly
disclaims all and any liability whether arising in tort or contract or otherwise (save as referred to above) which it
might otherwise have in respect of this Prospectus or any such statement.
The Notes have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the
"Securities Act"), and are subject to U.S. tax law requirements. Subject to certain exceptions, the Notes may
not be offered, sold or delivered within the United States or to U.S. persons.
Neither this Prospectus nor any separate Spanish language prospectus (folleto informativo) has been or will be
registered with the Spanish Securities and Exchange Commission (CNMV) and, therefore, the Notes may not
be offered or sold or distributed in Spain except in circumstances which do not qualify as a public offer of the
iii
Notes in Spain in accordance with article 30 bis of the Spanish Securities Market Law (Ley 24/1988, de 28 de
julio, del Mercado de Valores) as amended and restated, or pursuant to an exemption from registration in
accordance with article 41 of the Royal Decree 1310/2005 (Real Decreto 1310/2005, de 4 de noviembre por el
que se desarrolla parcialmente la Ley 24/1988, de 28 de julio, del Mercado de Valores, en materia de
admisión a negociación de valores en mercados secundarios oficiales, de ofertas públicas de venta o
suscripción y del folleto exigible a tales efectos) as amended, and regulations made thereunder.
In connection with the issue of the Notes, Morgan Stanley & Co. International plc (the "Stabilising
Manager") (or any person acting on behalf of the Stabilising Manager) may over-allot Notes or effect
transactions with a view to supporting the market price of the Notes at a level higher than that which might
otherwise prevail. However, there is no assurance that the Stabilising Manager (or any person acting on its
behalf) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which
adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may be ended at any
time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the
date of the allotment of the Notes. Any stabilisation action or over-allotment must be conducted by the
Stabilising Manager (or any person acting on its behalf) in accordance with all applicable laws and rules.
Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly, figures
shown for the same category presented in different tables may vary slightly and figures shown as totals in
certain tables may not be an arithmetic aggregation of the figures which precede them.
The language of this Prospectus is English. Certain legislative references and technical terms have been cited
in their original language so that the correct technical meaning may be ascribed to them under the applicable
law.
iv
CERTAIN TERMS AND CONVENTIONS
As used in this Prospectus:
"Asentia" refers to Asentia Project, S.L.;
"BD" refers to Business District;
"Conditions" refers to the 4 Year Notes terms and conditions and/or the 8 Year Notes terms and conditions,
as applicable;
"EEA" refers to the European Economic Area;
"EPRA" refers to the European Public Real Estate Association;
"EPRA Occupancy" refers to the economic occupancy calculated according to EPRA recommendations
(occupied surface areas multiplied by the market rental prices divided by surfaces in operation at market
rental prices);
"IFRS EU" refers to the International Financial Reporting Standards, as adopted by the European Union;
"Joint Lead Managers" refers to Banco Bilbao Vizcaya Argentaria, S.A., Banco de Sabadell, S.A.,
Caixabank, S.A., Crédit Agricole Corporate and Investment Bank, ING Bank N.V., J.P. Morgan Securities plc
and Morgan Stanley & Co. International plc;
"Property Portfolio" refers to the Company’s consolidated portfolio of properties;
"RICS" refers to the Royal Institute of Chartered Surveyors;
"SFL" refers to Société Foncière Lyonnaise S.A.;
"Shareholders" refers to the shareholders, from time to time, of Colonial;
"Shares" refers to the ordinary shares of Colonial;
"Syndicated Loan Agreement" refers to the syndicated loan agreement entered into between, among others,
Colonial and Crédit Agricole Corporate and Investment Bank, Branch in Spain, acting as the correspondent
bank on 4 April 2014, as amended from time to time, with a principal amount of €1,040 million; and
"VAT" refers to value added tax.
v
CAUTIONARY STATEMENT REGARDING UNAUDITED MANAGEMENT MEASURES
This Prospectus contains certain management measures, such as EBIT, EBITDA and EPRA NAV, among
others, which are used by the Company’s management to evaluate its overall performance. These
management measures are not audited and are not measurements required by, or presented in accordance with,
IFRS EU or Spanish Generally Accepted Accountancy Principles. These management measures are not
measurements of the financial performance of the Company under IFRS EU or Spanish Generally Accepted
Accountancy Principles and should not be considered as alternatives to the information in the Issuer’s
Consolidated Financial Statements (as defined in "Documents Incorporated by Reference") or to any
performance measures prepared in accordance with IFRS EU or Spanish Generally Accepted Accountancy
Principles. Further, these management measures, as defined and calculated by the Company, may not be
comparable to other similarly-titled measures used by other companies. These management measures should
not be considered in isolation. Investors are advised to review them in conjunction with the Issuer’s
Consolidated Financial Statements included elsewhere in this Prospectus. Accordingly, investors are
cautioned not to place undue reliance on these unaudited management measures.
vi
DOCUMENTS INCORPORATED BY REFERENCE
This Prospectus should be read and construed in conjunction with the audited consolidated financial
statements of the Issuer for the financial years ended 31 December 2014 and 31 December 2013, respectively,
together in each case with the audit report thereon (the "Issuer’s 2014 Consolidated Financial Statements"
and the "Issuer’s 2013 Consolidated Financial Statements", respectively, and together the "Issuer’s
Consolidated Financial Statements") and the unaudited quarterly condensed financial information as of 31
March 2015 (the "Issuer’s 2015 Q1 Consolidated Condensed Financial Information") which have been
previously published or are published simultaneously with this Prospectus. Such documents shall be
incorporated in, and form part of, this Prospectus, save that any statement contained in a document which is
incorporated by reference herein shall be modified or superseded for the purpose of this Prospectus to the
extent that a statement contained 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 Prospectus. Where information incorporated by reference constitutes only
certain parts of a document, the parts of such document not incorporated into this Prospectus are either (i) not
relevant to an investor in the Notes or (ii) covered elsewhere in this Prospectus. Any documents themselves
incorporated by reference in the documents incorporated by reference in this Prospectus shall not form part of
this Prospectus.
Copies of documents incorporated by reference in this Prospectus may be obtained (without charge) from the
Issuer’s website (www.inmocolonial.com/en). In particular, the Issuer’s 2014 Consolidated Financial
Statements may be obtained from http://www.inmocolonial.com/wp-
content/themes/colonial/cuenta.php?des=73722, the Issuer’s 2013 Consolidated Financial Statements may be
obtained from http://www.inmocolonial.com/wp-content/themes/colonial/cuenta.php?des=72971 and the
Issuer’s 2015 Q1 Consolidated Condensed Financial Statements may be obtained from
http://www.inmocolonial.com/wp-content/themes/colonial/cuenta.php?des=73932.
The tables below set out the relevant page references for the Issuer’s Consolidated Financial Statements and
the Issuer’s 2015 Q1 Consolidated Condensed Financial Information, respectively, as set out in the Issuer’s
Consolidated Financial Statements and the Issuer’s 2015 Q1 Consolidated Condensed Financial Information.
Information contained in the documents incorporated by reference other than information listed in the table
below is for information purposes only, and does not form part of this Prospectus.
Audited consolidated financial statements of the Issuer for the financial year ended 31 December
2014
Auditor’s Report....................................................................................................................... Page 1-2
Statement of Financial Position................................................................................................ Page 1
Statement of Comprehensive Income....................................................................................... Page 2
Statement of Changes in Equity ............................................................................................... Page 3
Statement of Cash flows ........................................................................................................... Page 4
Notes ........................................................................................................................................ Page 5-85
Audited consolidated financial statements of the Issuer for the financial year ended 31 December
2013
Auditor’s Report....................................................................................................................... Page 1-2
Statement of Financial Position................................................................................................ Page 1
Statement of Comprehensive Income....................................................................................... Page 2
vii
Statement of Changes in Equity ............................................................................................... Page 3
Statement of Cash flows ........................................................................................................... Page 4
Notes ........................................................................................................................................ Page 5-108
Unaudited consolidated condensed financial information of the Issuer for the three month period
ended 31 March 2015
Financial Statements ................................................................................................................ Page 8-10
Consolidated balance sheet ...................................................................................................... Page 28
1
Table of Contents
Page
Risk Factors ........................................................................................................................................................ 2
Terms and Conditions of the 4 Year Notes ........................................................................................................22
Terms and Conditions of the 8 Year Notes ........................................................................................................40
Summary of Provisions relating to the Notes while in Global Form .................................................................58
Description of Issuer .........................................................................................................................................62
Use of Proceeds .................................................................................................................................................90
Taxation .............................................................................................................................................................91
Subscription and Sale ........................................................................................................................................99
General Information ........................................................................................................................................101
2
Risk Factors
The Company believes that each of the following risk factors may affect its ability to fulfil its obligations
under the Notes. All of these risk factors are contingencies which may or may not occur, and the Company is
not in a position to express a view on the likelihood of any such contingency occurring.
In addition, risk factors which are material for the purpose of assessing the market risks associated with the
Notes are also described below.
The Company believes that the risk factors described below represent the principal risks inherent in investing
in the Notes, but its inability to pay interest, principal or other amounts on or in connection with the Notes
may occur for other reasons which may not be considered significant risks by the Company based on
information currently available or which the Company may not currently be able to anticipate. Prospective
investors should also read the detailed information set out elsewhere in this Prospectus and reach their own
views prior to making any investment decision.
Before making an investment decision with respect to the Notes, prospective investors should consult their
own stockbroker, bank manager, lawyer, accountant and/or other financial, legal and tax advisers and
carefully review the risks entailed by an investment in the Notes and consider such an investment decision in
light of the prospective investor’s personal circumstances.
Risks relating to the Company and its business
The Company faces numerous risks related to its rental business
The Company’s core business is the leasing of offices and commercial space in properties which form part of
its Property Portfolio. If the Company fails to adequately manage its leased premises, including if it is unable
to retain its current tenants due to the non-renewal of their lease agreements upon expiry and where it is
unable to find new tenants, there is a risk that they will become vacant, resulting in a decrease in its revenues.
Even if the Company enters into new lease agreements with its existing tenants or new tenants, there is a risk
that the Company may have to do so on less favourable terms due to prevailing market conditions at the time
of entering into such new leases or other reasons.
Furthermore, in the real estate business, the acquisition, improvements, construction or refurbishment of the
property to be rented requires large investments, which may not yield a profit where there are unexpected
raises in costs and/or decreases in expected rent income. Moreover, cost associated with real estate ownership
and management (refurbishment costs, management and maintenance, insurance and taxes) may increase
unexpectedly. Notwithstanding the fact that the majority of these costs are passed on to the tenants, according
to the law and contractual conditions applicable to each tenant, these increases could result in a loss of
competitiveness of the Group in the sector and could make the renewal of contracts or the entry of new
tenants more difficult.
As at 31 December 2014, the Property Portfolio had an office occupancy rate of 84%, compared to 80% as at
31 December 2013 and an office EPRA Occupancy of 85% and 81% as at 31 December 2014 and 2013,
respectively. In addition, under the terms of certain of the lease agreements in respect of the Property Portfolio
located in France, the rent payable by the tenants is subject to annual adjustments with reference to certain
indices. For example, if the rent over the duration of certain of such French lease agreements, as a
consequence of applying the relevant rent reference index, were to suffer an increase of 25% or more over the
initial rent, the tenants under such agreements would have the right to renegotiate the terms of the agreements.
Any such renegotiation could lead to lower rents payable under such agreements, which could have a negative
impact on the rental revenues and results of operations of the Group.
3
Any of these factors could have a material adverse impact on the financial condition, business, prospects and
results of operations of the Company.
The Group’s operations are concentrated in Spain and France
The location of the Property Portfolio is currently exclusively concentrated in Spain and France (in France
through SFL). The Group almost exclusively operates in the cities of Barcelona, Madrid and Paris. As at 31
December 2014, the Group’s operations in Spain and France accounted for 28% and 72% of its total revenues
from rentals, respectively, and Barcelona, Madrid and Paris represented 13%, 15% and 72%, respectively
(with revenues from rentals of €27,525 thousand, €32,444 thousand and €151,508 thousand respectively).
As a result, any adverse developments in the economies of Spain and/or France, or any adverse economic or
other factors affecting any of Barcelona, Madrid or Paris may have a material adverse effect on the financial
condition, business, prospects and results of operations of the Group.
See "—The Company’s business may be affected by adverse conditions in the Spanish and French economy
and the Eurozone".
Concentration of the Group’s activities in the office locations in the central business districts
The Group’s core business is the management and development of buildings, mainly offices in the central
business district ("CBD") in Paris, Madrid and Barcelona. As at 31 December 2014 and 31 December 2013,
offices represented 80% of the rental income of the Group and, 76% and 74% of this rental income originated
from rents obtained in the CBD at 31 December 2014 and 31 December 2013, respectively. Furthermore, as at
31 December 2014 and 31 December 2013, respectively, 54% of the total surface of sqm of the Group's
Property Portfolio was located in the CBD. Consequently, changes in trends of preference about the offices'
location in these areas may have a material adverse effect on the financial condition, business, prospects and
results of operations of the Group.
The valuation of the Group’s real estate asset portfolio may not precisely and accurately reflect the value of
its assets
Twice a year the Group engages independent appraisers to prepare a valuation of all assets that form part of
the Property Portfolio. While such independent appraisers carry out their valuation applying mainly objective
market criteria to each of such assets, real estate valuation is inherently subjective and relies on a number of
assumptions based on the features of each property. In the event that certain information, estimates or
assumptions used by such independent appraisers turned out to be inaccurate or incorrect, this could cause
their valuations of the Property Portfolio to be materially incorrect and may require such valuations to be
revised. Any downward revision may require the Company to include a provision in its financial statements.
The assets comprising the Property Portfolio were valued by the independent appraisers, as of 31 December
2014, at an aggregate amount of €6,033 million (€5,757 million excluding transfer costs) (this amount
includes the full value of the assets that the Company holds indirectly through joint ventures in which the
Company has a stake of more than 50%), 7.7% higher than the valuation at 31 December 2013 (which
amounted to €5,347 million).
The methodology used to determine the market value of the Group’s real estate investments in the financial
years 2013 and 2014 has been that of "income capitalisation". This method consists in capitalising net
estimated incomes from each asset, according to the duration of the lease and reversion. The assets have been
valued on an individual basis, considering each of the leases in force at the end of each term. Buildings with
non-leased surfaces have been valued on the basis of estimated future rents, discounting a certain amount for
the commercialisation period and applying higher profitability rates to assets that are leased in their entirety.
The Group's assets belonging to the offices lease activity had an EPRA Occupancy Rate of 85% and 81% at
4
31 December 2014 and 31 December 2013, respectively. Approximately 56% of the unoccupied surface at 31
December 2014 relates to recently exploited projects or recently terminated refurbishments.
However, the market value of real estate assets, including commercial land under development and buildings
of any nature could decrease due to a number of factors, such as increases in the risk premium leading to
lower than expected returns, the Company’s inability to obtain or maintain necessary licenses, decline in
demand, planning and zoning developments, regulatory changes, and other factors, some of which may be
beyond the Company’s control.
The Company faces certain risks related to its indebtedness
As a company operating in the real estate sector, the Company requires significant levels of investment to
fund the development of its projects and the growth of its business through the acquisition of real estate
assets. The Company has so far managed to finance its investments through bank financing. The Group’s net
financial indebtedness (calculated as the sum of the total bank borrowings (excluding interest and debt
arrangement expenses) plus issued SFL bonds less the "Cash and cash equivalents" of the Group) was
€2,545 million as at 31 December 2014. The net debt corresponding to its rental business is also provided on a
consolidated basis. The Group's loan to value ratio ("LtV") was 44.8% as at 31 December 2014 (calculated
as consolidated net debt, excluding committed cash and cash equivalent divided by consolidated gross asset
value as calculated by the Company. See "Description of the Issuer – Property Portfolio Asset Value").
If the Company does not have enough cash to service its debt, meet other obligations and fund other liquidity
needs, it may be required to take actions such as reducing or delaying capital expenditures, selling assets,
restructuring or refinancing all or part of its existing debt, or seeking additional equity capital. The Company
may not assure you that any of these remedies, including obtaining appropriate waivers from its lenders, can
be effected on reasonable terms or at all.
In addition, the Company is subject to risks normally associated with debt financing, including the risk that
the cash flow from its operations is insufficient to meet its debt service requirements. The Syndicated Loan
Agreement is secured by the Property Portfolio and by a pledge over the shares of two of the Company’s
subsidiaries, SFL and Torre Marenostrum, S.L. If the Company were unable to meet its debt service
obligations in respect of any of these properties, any surrender of such property would result in a loss of
income and asset value.
Furthermore, the Company’s indebtedness makes it more difficult to borrow more money in the future,
reduces the amount of money available to pay dividends and finance its operations and other business
activities, exposes the Company to the risk of increased interest rates, makes it more vulnerable to general
economic downturns and adverse industry conditions, and could reduce its flexibility in planning for, or
responding to, changing business and economic conditions.
Despite working with companies with acknowledged solvency, the Company can give no assurance that, in
the future, any counterparty in any financing agreement will comply with its obligations, especially, those
relating to the financing payments commitments.
Any of the foregoing could have a material adverse effect on the financial condition, business, prospects and
results of operations of the Company.
The Company may continue to face certain risks associated with its former affiliate Asentia and some of its
subsidiaries
In the context of the 2010 consensual financial restructuring (see "Description of Issuer—History"), the
Company transferred its land residential and development business to Asentia, which also included the
business of development of shopping and business centres carried out through Riofisa, S.A.U. ("Riofisa") and
5
its subsidiaries. Thereafter, in the context of the 2014 consensual financial restructuring (see "Description of
Issuer—History—The 2014 Restructuring"), the Company’s stake in Asentia was reduced from 100% to
17.34%, and as a result of various share capital increases by way of debt capitalisation subscribed for by
financial creditors of Asentia throughout 2014, the Company has further reduced its stake in Asentia to 3.79%
as of 31 December 2014.
Even though the Company no longer controls any of these companies, because of its prior ownership and
management of the business of Asentia and certain members of the Asentia group, the Company may continue
to face certain risks including as a result of claims brought against the Company in the future: (i) in relation to
construction defects of any kind or in relation to the materials used in the construction or refurbishment of
property assets previously owned or developed by the Company which it transferred to Asentia or other
Asentia Group companies, including in relation to possible defects in such assets caused by actions or
omissions of third parties which it engaged, such as architects, engineers, building contractors or
subcontractors; (ii) whether under insolvency proceedings or otherwise as a result of Asentia (or other Asentia
Group companies) failing to meet their obligations, on the basis that the Company was until February 2014
the sole shareholder and the sole director of Asentia and other Asentia group companies, including Riofisa
and Entrenúcleos or on the basis that the Company transferred certain obligations and liabilities associated
with its land residential and development business to Asentia in 2010; and (iii) in case any of the Asentia
Group companies were declared insolvent within the two-year period following the last of the transactions
concluded between the Company and any of these companies, should the insolvency judge decide to set aside
("claw back") any such transaction if it considered that it was detrimental to the estate of the insolvent
company.
Any such claim could have a material adverse effect on the financial condition, business, prospects and results
of operations of the Company. In addition, regardless of the outcome of any such claims, the Company could
incur significant expenditures in defending any of them, particularly if such claims were not covered by the
terms of its insurance, or if they exceeded the insurance coverage and, in addition, any claim against the
Company could damage its reputation and bring about considerable distraction of the management team,
which could have a material adverse effect on the financial condition, business, prospects and results of
operations of the Company.
Until 31 December 2013, Asentia and the Asentia group companies formed part of the Company’s
consolidated tax group. As the parent company of the consolidated tax group, Colonial has joint and several
liabilities for tax liability and contingencies accrued in respect of Asentia and the Asentia group companies
prior to 1 January 2014. As a result, the Company may be required to make payments in the future to the tax
authorities in respect of unknown contingent liabilities of Asentia and/or any of the Asentia group companies
accrued prior to 1 January 2014. Regarding these payments, there can be no assurance that the Company
could recover such amounts from such companies, whether in a timely manner or at all or without incurring
significant expenditure, all of which could have a material adverse effect on the financial condition, business,
prospects and results of operations of the Company.
The Company faces certain risks related to fluctuations of interest rates
The interest rates of all the Group’s borrowings are variable interest rates based on EURIBOR with the
exception of the outstanding non-convertible bonds for an aggregate of €1,200 million, which were issued at a
fixed rate by SFL. Any increase in EURIBOR could therefore have a material adverse effect on the
Company’s ability to service its debt. To counter the risk from potential increases in interest rates, the
Company has entered into certain hedging agreements. As at 31 December 2014, such hedging arrangements
covered 74% of its total bank borrowings which are subject to variable interest rates. The maximum rate
payable by the Group under the hedging agreements was 1.78% as at 31 December 2014. As at 31 December
6
2014, the Group’s indebtedness (considered as bank borrowings plus issued SFL bonds) covered by hedging
agreements together with its fixed-rate indebtedness accounted for 85%.
The net impact on the Group’s statement of comprehensive income corresponding to hedging agreements as
at 31 December 2014 was a loss of €9.5 million.
Notwithstanding that the Company has been able to enter into hedging transactions in the past, no assurances
can be given that the Company may be able to do so on favourable terms or at all in the future due to limited
interest in the provision of hedging arrangements by financial or other institutions or their inability to procure
hedging agreements as the result of certain factors affecting such hedging providers or other factors.
Likewise, there can be no assurance that counterparties to hedging agreements will always perform their
obligations under such arrangements. To the extent the Company is unable to effectively hedge its exposure to
fluctuations in interest rates, this could have a material adverse effect on the financial condition, business,
prospects and results of operations of the Company.
Certain of the Company’s French subsidiaries could lose their status as SIICs and the resulting favourable
tax treatment
The Company currently holds a 53.14% stake in SFL, a listed French real estate investment company (société
d’investissements immobiliers cotées or SIIC). SFL and certain of its subsidiaries are subject to the SIIC tax
French regime, which provides Colonial with significant benefits as a shareholder, such as the mandatory
distribution as dividends of 95% of the results of the rental activity and 60% of capital gains from sales of real
estate assets made within two years of the transmission as well as tax exemption of income coming from
rental activity and gains on real estate.
If SFL or such subsidiaries were to lose their SIIC status due to changes in law or other factors, such as not
meeting the distribution requirements described above, or if the double tax treaty currently in place between
France and Spain were to change, their tax obligations could increase, which could have a material adverse
effect on the financial condition, business, prospects and results of operations of the Group.
The Company faces numerous risks related to court claims and out-of-court claims
Other than the claims against the Company described in "Description of Issuer—Legal Proceedings", the
Company is not currently aware of any other threatened claims, whether in court or out of court that may have
a material adverse effect on the financial condition, business, prospects and results of operations of the
Company.
The above notwithstanding, claims could, however, be brought against the Company in the future in relation
to, among others, construction defects of any kind or in relation to the materials used in the construction or
refurbishment of the Property Portfolio or of assets previously owned or developed by the Company which it
has sold or transferred to third parties, including in relation to possible defects in such assets caused by
actions or omissions of third parties which the Company engages, such as architects, engineers, building
contractors or subcontractors.
While the Company has insurance in place to cover legal costs or potential damages against the Company and
its directors and management, such insurance may not be adequate to cover all of the costs resulting from
such legal claims. Moreover, the Company can provide no assurance that its current liability insurance
coverage will continue to be available on commercially acceptable terms, and the insurer may, in any event,
deny coverage on any future claim.
Consequently, the Company could incur significant expenditures and reputational damage in defending any of
these claims (even if the outcome were favourable to the Company). Furthermore, any claim against a
member of the Group, whether leading to a court or out-of-court settlement, could damage its reputation.
7
Any such claim, or any other claim related to its business and activities, could have a material adverse effect
on the financial condition, business, prospects and results of operations of the Company.
The Company may be exposed to potential liability due to actions of building contractors and
subcontractors
For the majority of the refurbishing projects, the Company enters into agreements with independent
contractors. Depending on the nature of the work required, the Company may engage large construction
companies or smaller specialised subcontractors (such as electricians, plumbers and others).
The Company enters into agreements with third-party independent contractors and subcontractors, which it
believes to be reputable and offers competitive terms to carry out the work. These contractors typically
perform their work diligently and on time, and their work is closely supervised by the Company.
Nevertheless, it is possible that such contractors or subcontractors could fail to meet their commitments, fall
behind in their schedules or run into financial difficulties making them unable to complete their projects in a
timely manner or at all. In such a case, the Company may be forced to devote additional resources to
complete the necessary work, incur losses or be required to pay penalties.
Although the Company attempts to verify its contractors’ compliance with health and safety regulations and
labour and social security statutory requirements (such as being up to date with employer’s social security
contributions and ensuring that their workers are legally employed) and other laws, regulations and
requirements, any failure by such contractors to comply with these laws, regulations and requirements could
render the Company liable in respect of such obligations.
Any of the foregoing could have a material adverse effect on the financial condition, business, prospects and
results of operations of the Company.
The Company is exposed to various operational risks, liabilities and claims with respect to its operating
assets
The Company’s property assets are exposed to various operational risks, liabilities and claims which may
occur due to fire, flooding or other natural or man-caused reasons. The Company could also incur third-party
liability as a consequence of accidents which occur in any of the Property Portfolio assets. Although the
Company has insurance coverage that the Company deems sufficient (with its Property Portfolio being
insured up to an aggregate of approximately €660 million for material damage; although limits with respect to
individual properties are considerably less), if such claims are not covered by the terms of the insurance, or if
they exceed the insurance coverage or if there is an increase in insurance costs, the Company would suffer
losses in respect of its investment in the affected asset, as well as losses of anticipated income from that asset.
Likewise, any accident leading to a court action against the Company or any member of the Group could
damage its reputation. In addition, the Company could be liable for the repair costs associated with damage
caused by uninsured risks, and the Company might also remain liable for any debt or other financial
obligation related to that property. Any of these factors could have a material adverse effect on the financial
condition, business, prospects and results of operations of the Company.
The Company is exposed to certain risks related to the structural condition of the properties and their
maintenance and repair
The Company’s newly acquired properties are inspected prior to purchase in the course of a technical and
thorough due diligence investigation with respect to their structural condition and, to the extent necessary, the
existence of harmful environmental impacts. It is possible, however, that damage or quality defects could
remain entirely undiscovered, or that the scope of such problems is not fully apparent in the course of the due
diligence investigation, and/or that defects become apparent only at a later time. In general, sellers exclude all
liability for hidden defects. Even if liability for hidden defects has not been fully excluded, it is possible that
8
the representations and warranties made in the purchase agreement with respect to the property failed to cover
all risks and potential problems relating to the acquisition. Regarding buildings not recently constructed in the
Property Portfolio, the Company has carried out an external review of the total Property Portfolio to examine
the existence of harmful environmental contamination. However, it is possible that significant environmental
pollution, such as the use of construction materials containing asbestos, was not detected in such older
buildings and the Company could be exposed to financial liability for any required remediation measures.
Additionally, the Company could be exposed to unexpected problems or unrecognised risks, such as delays in
the implementation of maintenance, refurbishment or modernisation measures in connection with acquired the
Property Portfolio, against which the Company might not be contractually protected, the occurrence of any
such unexpected problem or unrecognised risk could have a material adverse effect on the Group’s financial
condition, business, prospects and results of operation. In addition, if, as a result of these unexpected
problems and unrecognised risks, the Company is unable to lease a property as planned or effectuate increases
in in-place rent, the financial condition could further deteriorate, and the value of the acquired assets could
decline.
After acquiring properties, the Company undertakes to maintain rented properties in good condition. For this
reason, and also to avoid loss of value, it performs maintenance and repairs. In addition, modernisation of
properties may be necessary to increase their appeal or to meet changing legal requirements, such as the
provisions relating to energy savings. Such measures can be large-scale and expensive. As a result, the
Company could face higher than budgeted costs for maintenance, repair or modernisation that the Company
may be unable to pass onto the tenant. Moreover, required maintenance, repair or modernisation work could
be delayed, for example, by reason of bad weather, poor performance or insolvency of contractors, or the
discovery of unforeseen structural defects which may result in increased costs to remedy such defects.
Any of the above could have a material adverse effect on the Company’s financial condition, business,
prospects and results of operation.
The Company is dependent on a small number of large tenants and assets for a significant part of its
revenue from rental income
A small number of tenants currently account for a significant part of the Group’s revenue from rental income.
As of 31 December 2014, and on the basis of the lease agreements in force at that date, the annual rent
payable under the lease agreements by the 20 largest tenants represented 47% of the total annual rent payable
to the Group under all its lease agreements (with its largest tenant representing 6%).
The Company’s real estate business depends on the solvency and liquidity of its tenants. A tenant may from
time to time experience financial difficulties or may become insolvent, which could result in its failure to
meet payment obligations when due, or at all. If the Company experiences a significant rate of delinquency in
the payment of rent or is unable to collect overdue rent, or if its reserves for these purposes prove inadequate,
this could have a material adverse effect on its financial condition, business, prospects and results of
operations.
Moreover, if the Company were unable to retain any of its large tenants or if it were unable to replace them
with other tenants on substantially similar terms, this could have a material adverse effect on its financial
condition, business, prospects and results of operations.
A small number of assets currently account for a significant part of the Group’s revenue from rental in
income. As at 31 December 2014, seven assets accounted for 50% of the Company’s revenue in Spain and
four assets accounted for 51% of its revenue in France. If, for whatever reason, any of these assets were
destroyed or rendered unusable, or if the Company were to lose any of these assets for any other reasons or if
9
it were unable to replace them on substantially similar terms, this could have a material adverse effect on its
financial condition, business, prospects and results of operations.
The Group’s business may be affected by adverse conditions in the Spanish and French economy and the
Eurozone
Adverse economic conditions may have a negative impact on demand for office space or the ability of the
Group’s tenants to meet their rental payment obligations. The Company is unable to predict how the economic
cycle in Spain, France and the wider Eurozone is likely to develop in the short term or the coming years or
whether there will be a deterioration of the economic cycle.
Any decline in the performance of the Spanish economy or the economies of other Eurozone countries,
including France, could have a negative impact on consumer spending, levels of employment, rental revenues,
vacancy rates and real estate values and, as a result, have a material adverse effect on the financial condition,
business, prospects and results of operations of the Group.
The Company is increasingly dependent on information technology systems, which may fail, may not be
adequate to the tasks at hand or may no longer be available
The Company is increasingly dependent on highly sophisticated information technology ("IT") systems. IT
systems are vulnerable to a number of problems, such as software or hardware malfunctions, malicious
hacking, physical damage to vital IT centres and computer viruses. IT systems need regular upgrading and the
Company may not be able to implement necessary upgrades on a timely basis or upgrades may fail to function
as planned. Furthermore, failure to protect its operations from cyber-attacks could result in the loss of tenant
data or other sensitive information. The threats are increasingly sophisticated and there can be no assurance
that the Company will be able to prevent all threats. Colonial may also incur in costs as a result of any failure
of its IT systems. The Company has a partial contingency plan to address potential physical damage of its IT
centres and it maintains back-up systems for its operations to provide high level service availability and
guarantee business continuity. However, there are scenarios where the Company could lose certain
recently-entered data. A major disruption of the IT systems, whether under the scenarios outlined above or
under other scenarios, could have a material adverse effect on the financial condition, business, prospects and
results of operations of the Company.
The Company may face loss of revenue and liability in relation to pending occupancy and activity licenses
In order to exploit the Property Portfolio, the Company is required to obtain, among others, certain occupancy
and activity licenses from municipal authorities. The Company is also required, in certain circumstances, to
renew or update existing licenses following the refurbishment of the Property Portfolio or following a change
in tenants. As obtaining such licenses from municipal authorities is often subject to long administrative
delays, the Company may be prevented from using the Property Portfolio as originally scheduled. This could
have a material adverse effect on the financial condition, business, prospects and results of operations of the
Company.
The Group may be exposed to a deterioration of its corporate reputation
The Company has traditionally paid attention to the relation with its stakeholders, setting up transparency
policies and keeping in contact with the stakeholders, in order to know and analyse their views and
expectations regarding the Group. However, the Company may not control all the situations or events which
could negatively affect the Group’s reputation. Any such event or situation could lead to a loss of trust,
resulting in a negative effect on forecasted growth, access to different financing sources and, therefore, to the
Group's liquidity, a reduction of the rental income or an increase in operational or financial costs. Any of these
events could have a material adverse effect on the financial condition, business, prospects and results of
operations of the Company.
10
Risks related to the real estate sector
Real estate markets are cyclical and the Spanish and French real estate sectors are currently undergoing a
period of considerable difficulties and changes
Real estate markets are typically cyclical in nature and are affected by the condition of the economy as a
whole. Occupancy levels, the prevailing rental rates and, generally, the value of the assets are influenced by,
among other factors, the supply and demand of similar properties, interest rates, inflation, GDP growth,
changes in laws and regulations, political and economic events and demographic and social factors, which
may differ in countries or areas where the Colonial Group operates. For example, up to 31 December 2014,
the average value of the offices in Paris reached €11,421 per sqm, compared to €4,321 per sqm in Madrid and
€3,105 per sqm in Barcelona.
During the first half of the last decade, the Spanish real estate market experienced disproportionate growth
driven by economic factors (rise in employment and GDP), financial factors (low interest rates) and
demographic, cultural and social factors (a general preference for home ownership over renting and increased
immigration). Similarly, in France the real estate market was in a growth cycle which began in the late 1990s
and was disrupted by the economic downturn that followed the international financial crisis triggered in the
summer of 2007, which had a very material impact on the European real estate sector. This impact
significantly changed the outlook of the Spanish and French sectors with falling prices and a substantial
decrease in demand.
Although there have been recent signs that Spanish real estate values may have begun to stabilise, there is no
assurance that any recovery will occur, or if it occurs, that it will continue or be sustainable or for how long
any such recovery will last. The Company cannot predict how the economy will fare in the future, the real
estate sector could experience a new recession, which could imply a decrease in sales and rents and an
increase in financing costs. Any of these factors could have a material adverse effect on the financial
condition, business, prospects and results of operations of the Group.
The real estate industry is highly competitive
The real estate sector is highly competitive and very fragmented, and new real estate companies face low
barriers to entry.
The Company’s competitors in Spain are typically companies operating locally but also include international
companies. With the reopening of capital markets, triggered by the recovered confidence of international
investment funds in the real estate sector as a long-term investment, especially in connection with sovereign
debt funds, with the creation of new listed property investment companies (SOCIMIs) and with the rise in
investments made in property assets, the level of competition in the Spanish rental property sector has
increased. For example, financial institutions looking to dispose of real estate assets (including real estate
assets used as security in financing arrangements and acquired from debtors following defaults) and the
Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, or SAREB, the Spanish
company partially owned by the Spanish Government responsible for the management of banking sector
assets following the restructuring of the Spanish financial sector. In addition, real estate investment
companies, backed by both national and international investors, have recently entered the Spanish market to
take advantage of what they perceive to be attractive valuations of real estate assets.
In France, through its subsidiary SFL, the Company operates in a highly competitive sector and competes
with numerous market participants such as (i) investors with a strong capital base such as insurance
companies, real estate investment funds (OPCI) and real estate investment companies (SCPI) or sovereign
wealth funds and (ii) investors who kept their indebtedness at manageable levels through the recessionary
cycle, such as certain other French listed real estate companies (société d’investissement immobilier cotée or
11
SIIC). Moreover, foreign investors have recently returned to the Parisian real estate investment market leading
to higher competition.
Any of these competitors in the Spanish and French markets may be larger in size and have greater financial
resources than the Company has. This high competitiveness could lead to an oversupply of property, or a
decline in prices, including an oversupply of rental properties in the offices sector and a decrease in rental
levels, as has occurred during recent years. All of the foregoing could have a material adverse effect on the
financial condition, business, prospects and results of operations of the Group.
Furthermore, strong competition in the industry may, at certain times and for certain projects, impede the
acquisition of new assets. Also, the Company’s competitors could adopt similar business models regarding
rent, development and acquisition. This could reduce the competitive advantage of the Company and have a
material adverse effect on its financial condition, business, prospects and results of operations.
The Company may not be able to access financing for the acquisition of new assets and/or the achievement
of the divestments
The sector in which the Company operates requires significant levels of upfront investment. To finance the
acquisitions of real estate assets, the Company typically resorts to bank loans and mortgage-backed financing.
If the Company does not have access to such financing or alternative financing such as debt issuances or share
capital increases, or in the event the Company is unable to obtain financing on favourable terms or at all, its
ability to grow its business could be harmed, which would have a negative effect on its strategy and business.
The debt level and fluctuations in interest rates may result in an increase of the financial cost (see "–The
Company faces certain risks related to fluctuations of interest rates" and "–The Company faces certain risks
related to its indebtedness", and any increase would additionally entail a higher exposure to interest rates
fluctuations in the financial markets.
Restrictions to access the financial markets may hinder, render more expensive and even restrict access to
financing. The Group could therefore have difficulties to realise the actual value of some of its assets and be
forced to reduce its price or to keep them in the portfolio for a longer period than expected. The illiquidity of
the investments may limit its capacity to adapt its Property Portfolio to potential circumstantial changes.
Any of these factors could have a material adverse effect on the financial condition, business, prospects and
results of operations of the Group.
It could be more difficult for various reasons for the Company to acquire properties on attractive terms,
which would impair the future performance and particularly the growth of its business. The Company may
not be able to complete any potential acquisitions
The commercial success of the Company depends, among other things, on its ability to continue to acquire
properties with the potential for appreciation and/or rent increase in economically attractive regions at
reasonable prices, with good tenant structure, in high quality locations and at favourable occupancy rates,
with sustainably high in-place rent. Additionally, the success of the business model of the Company depends
on it being able to integrate and successfully market newly acquired properties. The Company may not be
able to complete acquisitions, for example due to financing shortages or the failure to reach mutually
agreeable terms. In addition, it could become more difficult, for various reasons, for the Company to acquire
properties at attractive prices, which could limit its future growth. Any of the above could have a material
adverse effect on the financial condition, business, prospects and results of operations of the Group.
12
The real estate sector is subject to certain laws and regulations and changes in applicable legislation could
have a material adverse impact on the financial condition, business, prospects and results of operations of
the Company
In general, the Group is required to comply with Spanish, French and EU laws and regulations, which laws
and regulations relate to, among other things, property, land use, development, zoning, health, safety, taxation
regarding real estate assets and stability requirements and environmental compliance. Additionally, applicable
laws within Spain may vary from one autonomous region to another, and between different assets within the
same autonomous region. Municipal corporations, autonomous regions and the central government in Spain,
as well as the relevant authorities in France and the European Union could impose sanctions if the Company
does not comply with such laws or regulations.
These laws and regulations often provide broad discretion to the administering authorities. Moreover, these
laws and regulations are subject to change (some of which may be retrospective), which could adversely
affect, among other matters, existing planning consents, costs of property ownership, costs of property
transfer, the capital value of the assets and/or the rental income. Such changes may also adversely affect the
ability of the Company to use a property as initially intended and could also cause the Company to incur
increased capital expenditure or running costs to ensure compliance with such new applicable laws or
regulations, which may not be recoverable from tenants. The occurrence of any of these events may have a
material adverse effect on the financial condition, business, prospects and results of operations of the
Company.
Under Spanish law, environmental legislation is the responsibility of regional governments, based on certain
principles established by the central government which are applicable throughout Spain. Liability under
Spanish law for clean-up of contaminated soil is based on the principle that the person causing the
contamination is liable. Where it is not possible to identify the person causing the contamination, such
liability falls on the owner. Therefore, in the event that land owned by the Company is contaminated, and the
person causing the contamination cannot be identified, the Company could be liable.
Through its French subsidiary SFL, the Company is also subject to various environmental and public safety
laws and regulations in France. For example, the Company is responsible for adequately monitoring its
properties as relates to soil contamination and toxic substances and, if applicable, for the clean-up of the
contaminated soil or the elimination of the toxic substances in its properties. This liability affects both past
and current owners of the relevant property, and even developers. In certain cases, French law provides for
severe liabilities regardless of whether the current owner of the property has caused the damage or not.
A substantial change in any such laws or regulations or in the interpretation or enforcement of such laws and
regulations by the national, regional or local authorities, the European Union or national courts in Spain or
France could require the Company to change its development plans and to incur additional costs, which could
have a material adverse effect on the financial condition, business, prospects and results of operations of the
Group.
In addition, while the Company strives to ensure that the materials it uses in the refurbishment of the Property
Portfolio are compliant with applicable legislation, such materials might not be compliant, which could
expose the Company to claims or other adverse actions.
The Company’s real estate investments may decrease in value
The acquisition and ownership of real estate assets includes certain investment risks, including that the
investment will fail to perform as expected or that the assumptions, estimates and valuations related to the
assets may prove inaccurate. In addition, the market value of the assets could decline or be adversely affected
in certain cases, for instance, if there are variations in the return on the investment.
13
Prior to entering into an agreement to directly or indirectly acquire any property, the Company performs due
diligence on the proposed investment. In so doing, it would typically rely in part on third parties to conduct a
significant portion of this due diligence (including technical and legal analysis and property valuation).
Properties acquire by the Company may be subject to hidden material defects that were not apparent at the
time of acquisition. To the extent the Company or other third parties underestimate or fail to identify risks and
liabilities associated with the investment in question, the Company may incur, directly or indirectly,
unexpected liabilities, such as defects in title, an inability to obtain permits enabling the Company to use the
property as intended, environmental, structural or operational defects or liabilities requiring remediation.
Therefore, although the Company researches, conducts valuations and market studies and verifies legal and
technical requirements, it can give no assurance that properties it has acquired or will acquire in the future
will not be subject to material risks which were not apparent at the time of acquisition, including, without
limitation, environmental risks and legal restrictions. Nor can the Company give any assurance that the
assumptions on which the valuations are based will continue to be accurate. This could cause the appraisal
and/or market value of its properties and other assets to decline, which could have a material adverse effect on
the financial condition, business, prospects and results of operations of the Group. See also "—The valuation
of the Company’s real estate asset portfolio may not precisely and accurately reflect the value of its assets".
Factors which are material for the purpose of assessing the market risks associated with the Notes
The Notes may not be a suitable investment for all investors
Each potential investor in the Notes must determine the suitability of that investment in light of its own
circumstances. In particular, each potential investor should:
(a) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits
and risks of investing in the Notes and the information contained or incorporated by reference in this
Prospectus or any applicable supplement;
(b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its
particular financial situation, an investment in the Notes and the impact such investment will have on
its overall investment portfolio;
(c) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes,
including where the currency for principal or interest payments under the Notes is different from the
potential investor's currency;
(d) understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant
indices and financial markets; and
(e) 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.
The Notes are complex financial instruments and such instruments may be purchased as a way to reduce risk
or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A
potential investor should not invest in the Notes, which are complex financial instruments, unless it has the
expertise (either alone or with the help of a financial adviser) to evaluate how the Notes will perform under
changing conditions, the resulting effects on the value of such Notes and the impact this investment will have
on the potential investor's overall investment portfolio.
14
The market price of the Notes may be volatile
The market price of the Notes could be subject to significant fluctuations in response to actual or anticipated
variations in the Issuer’s operating results, adverse business developments, changes to the regulatory
environment in which the Issuer operates, changes in financial estimates by securities analysts and the actual
or expected sale of a large number of Notes or other debt securities, as well as other factors. In addition, in
recent years the global financial markets have experienced significant price and volume fluctuations which, if
repeated in the future, could adversely affect the market price of the Notes without regard to the Issuer’s
operating results, financial condition or prospects.
Credit ratings may not reflect all risks
One or more independent credit rating agencies may assign credit ratings to an issue of Notes. The ratings
may not reflect the potential impact of all risks related to structure, market, additional factors discussed
above, and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy,
sell or hold securities and may be revised or withdrawn by the rating agency at any time.
The value of the Notes will also depend on the creditworthiness of the Issuer. If the credit worthiness of the
Issuer deteriorates, the value of the Notes may decrease and investors may lose all or part of their investment.
The Notes are subject to optional redemption by the Issuer
In accordance with the Conditions, in particular Condition 6(d), the Notes are subject to optional redemption
in whole by the Issuer at any time at the Make Whole Amount (as defined in "Terms and Conditions of the 4
Year Notes –Redemption and Purchase –Redemption at the option of the Issuer" and "Terms and Conditions
of the 8 Year Notes –Redemption and Purchase –Redemption at the option of the Issuer"). This feature is
likely to limit the market value of the Notes. The market value of the Notes generally will not rise
substantially above the price at which they can be redeemed.
The Issuer may be expected to redeem the Notes when its cost of borrowing is lower than the interest rate on
the Notes. At those times, an investor generally would not be able to reinvest the redemption proceeds at an
effective interest rate as high as the interest rate on the Notes being redeemed and may only be able to do so at
a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments
available at that time. See "Terms and Conditions of the 4 Year Notes –Redemption and Purchase –
Redemption at the option of the Issuer" and "Terms and Conditions of the 8 Year Notes –Redemption and
Purchase –Redemption at the option of the Issuer".
The Issuer may redeem the Notes for tax reasons
The Issuer may redeem all of the Notes, but not some, only pursuant to Condition 6(b) in the event that the
Issuer would be obliged to increase the amounts payable in respect of any Notes due to any withholding or
deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of
whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Kingdom of Spain or
any authority therein or thereof having power to tax.
On any such redemption for tax reasons, Noteholders would receive the principal amount of the Notes that
they held, together with interest accrued on those Notes up to (but excluding) the date fixed for redemption.
As with the optional redemption feature of the Notes referred to above, it may not be possible to reinvest the
redemption proceeds at an effective interest rate as high as the interest rate on the Notes and this may only be
possible at a significantly lower rate. See "Terms and Conditions of the 4 Year Notes –Redemption and
Purchase –Redemption for taxation reasons" and "Terms and Conditions of the 8 Year Notes –Redemption
and Purchase –Redemption for taxation reasons".
15
The Notes are subject to optional redemption by the Noteholders
Upon the occurrence of a Change of Control of the Issuer or a Change of Control of SFL (as defined in
"Terms and Conditions of the 4 Year Notes –Redemption and Purchase –Redemption at the option of the
Noteholders" and "Terms and Conditions of the 8 Year Notes –Redemption and Purchase –Redemption at the
option of the Noteholders") plus the relevant changes to the credit rating of the Notes in the case of a Change
of Control of the Issuer (as described in Condition 6(c)(i)(B)), if a Noteholder so requests, the Issuer will be
required to redeem in whole (but not in part) the Notes subject to the Put Event Notice at their principal
amount together with interest accrued to (but excluding) the Put Date (as defined in "Terms and Conditions of
the 4 Year Notes –Redemption and Purchase –Redemption at the option of the Noteholders" and "Terms and
Conditions of the 8 Year Notes –Redemption and Purchase –Redemption at the option of the Noteholders"). If
any such Change of Control of the Issuer or Change of Control of SFL were to occur and if any such
Noteholder so requests, there can be no assurance that the Issuer would have sufficient funds available at the
time to pay the price of the outstanding Notes subject of the notice. See "Terms and Conditions of the 4 Year
Notes –Redemption and Purchase –Redemption at the option of the Noteholders" and "Terms and Conditions
of the 8 Year Notes –Redemption and Purchase –Redemption at the option of the Noteholders".
Global Notes are held by or on behalf of Clearstream, Luxembourg and investors will have to rely on their
procedures for transfer, payment and communication with the Issuer
The Notes will be represented by Global Notes, except in certain limited circumstances described in the
Permanent Global Note. The Global Notes will be deposited with a common safekeeper for Euroclear and
Clearstream, Luxembourg. Except in certain limited circumstances described in the Permanent Global Note,
investors will not be entitled to receive Notes in definitive form. Euroclear and Clearstream, Luxembourg will
maintain records of the beneficial interests in the Global Notes. While the Notes are represented by the Global
Notes, investors will be able to trade their beneficial interests only through Euroclear and Clearstream,
Luxembourg.
The Issuer will discharge its payment obligations under the Notes by making payments to the common
safekeeper for Euroclear and Clearstream, Luxembourg for distribution to their account holders. A holder of a
beneficial interest in the Global Notes must rely on the procedures of Euroclear and Clearstream,
Luxembourg to receive payments under the Notes. The Issuer has no responsibility or liability for the records
relating to, or payments made in respect of, beneficial interests in the Global Notes.
Holders of the beneficial interests in the Global Notes will not have a direct right to vote in respect of the
Notes. Instead, such holders will be permitted to act only to the extent that they are enabled by Euroclear and
Clearstream, Luxembourg to appoint appropriate proxies.
Modification and waivers
The Conditions contain provisions for calling meetings of Noteholders to consider matters affecting their
interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders
who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the
majority.
The covenants contained in the Conditions of the Notes are limited
In addition to the Negative Pledge, the Conditions contain a covenant pursuant to which the Issuer is required
to maintain the amount of Unencumbered Total Assets Value (as defined in "Terms and Conditions of the 4
Year Notes –Covenants" and "Terms and Conditions of the 8 Year Notes –Covenants") above certain levels.
Under this covenant the Issuer is only required to certify that the minimum level of Unencumbered Total
Assets Value stipulated in Condition 4 is met on 30 June and on 31 December of each year. Noteholders will
not be able to monitor these ratios during the rest of the year.
16
Change of law
The Conditions are governed by English law in effect as at the date of issue of the Notes, save for Condition 2
which is governed by Spanish law. No assurance can be given as to the impact of any possible judicial
decision or change to English or Spanish law or administrative practice after the date of issue of the Notes.
There is no active trading market for the Notes
The Notes are new securities which may not be widely distributed and for which there is currently no active
trading market. If the Notes are traded after their initial issuance, they may trade at a discount to their initial
offering price, depending upon prevailing interest rates, the market for similar securities, general economic
conditions and the financial condition of the Issuer. Although application has been made to the Irish Stock
Exchange for the Notes to be admitted to listing on the Official List and to trading on the Main Securities
Market, there is no assurance that such application will be accepted or that an active trading market will
develop. Accordingly, there is no assurance as to the development or liquidity of any trading market for the
Notes.
Exchange rate risks and exchange controls
The Issuer will pay principal and interest on the Notes in Euros. This presents certain risks relating to
currency conversions if an investor's financial activities are denominated principally in a currency or currency
unit (the "Investor's Currency") other than Euros. These include the risk that exchange rates may
significantly change (including changes due to devaluation of the Euro or revaluation of the Investor's
Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify
exchange controls. An appreciation in the value of the Investor's Currency relative to the Euro would decrease
(1) the Investor's Currency-equivalent yield on the Notes, (2) the Investor's Currency equivalent value of the
principal payable on the Notes and (3) the Investor's Currency equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls that
could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal
than expected, or no interest or principal.
The Notes are fixed rate securities and are vulnerable to fluctuations in market interest rates
The Notes will carry fixed interest. A holder of a security with a fixed interest rate is exposed to the risk that
the price of such security falls as a result of changes in the current interest rate on the capital market (the
"Market Interest Rate"). While the nominal interest rate of a security with a fixed interest rate is fixed
during the life of such security or during a certain period of time, the Market Interest Rate typically changes
on a daily basis. As the Market Interest Rate changes, the price of such security changes in the opposite
direction. If the Market Interest Rate increases, the price of such security typically falls, until the yield of such
security is approximately equal to the Market Interest Rate. Conversely, if the Market Interest Rate falls, the
price of a security with a fixed interest rate typically increases, until the yield of such security is
approximately equal to the Market Interest Rate. Investors should be aware that movements of the Market
Interest Rate could adversely affect the market price of the Notes.
Eligibility of the Notes for Eurosystem Monetary Policy
The Notes are intended to be held in a manner which will allow Eurosystem eligibility. This means that the
Notes are upon issue deposited with one of the international central securities depositories (ICSDs) as
common safekeeper and does not necessarily mean that the Notes will be recognised as eligible collateral for
Eurosystem monetary policy and intra-day credit operations by the Eurosystem (Eurosystem Eligible
Collateral) either upon issue, or at any or all times during their life. Such recognition will depend upon
satisfaction of the Eurosystem eligibility criteria and other obligations (including the provision of further
17
information) as specified by the European Central Bank from time to time. The Issuer does not give any
representation, warranty, confirmation or guarantee to any investor in the Notes that the Notes will, either
upon issue, or at any or all times during their life, satisfy all or any requirements for Eurosystem eligibility
and be recognised as Eurosystem Eligible Collateral.
Any potential investor in the Notes should make their own conclusions and seek their own advice with respect
to whether or not the Notes constitute Eurosystem Eligible Collateral.
Risks relating to taxation
FATCA
Whilst the Notes are in global form and held within Euroclear Bank S.A./N.V. and Clearstream Banking,
société anonyme (together, the "ICSDs"), in all but the most remote circumstances, it is not expected that
FATCA will affect the amount of any payment received by the ICSDs (see "Taxation – FATCA"). However,
FATCA may affect payments made to custodians or intermediaries in the subsequent payment chain leading to
the ultimate investor if any such custodian or intermediary generally is unable to receive payments free of
FATCA withholding. It also may affect payment to any ultimate investor that is a financial institution that is
not entitled to receive payments free of withholding under FATCA, or an ultimate investor that fails to
provide its broker (or other custodian or intermediary from which it receives payment) with any information,
forms, other documentation or consents that may be necessary for the payments to be made free of FATCA
withholding. Investors should choose the custodians or intermediaries with care (to ensure each is compliant
with FATCA or other laws or agreements related to FATCA), provide each custodian or intermediary with any
information, forms, other documentation or consents that may be necessary for such custodian or intermediary
to make a payment free of FATCA withholding. Investors should consult their own tax adviser to obtain a
more detailed explanation of FATCA and how FATCA may affect them. The Issuer's obligations under the
Notes are discharged once it has paid the common depositary or common safekeeper for the ICSDs (as
bearer/registered holder of the Notes) and the Issuer has therefore no responsibility for any amount thereafter
transmitted through hands of the ICSDs and custodians or intermediaries.
Risks related to the Spanish withholding tax regime
The Issuer considers that, pursuant to the provisions of the Royal Decree 1065/2007, as amended, it is not
obliged to withhold taxes in Spain on any interest paid on the Notes to any Noteholder, irrespective of
whether such Noteholder is tax resident in Spain. The foregoing is subject to the Paying Agent complying
with certain information procedures described in "Taxation—Taxation in Spain—Disclosure of Information in
Connection with the Notes" below. The Issuer and the Paying Agent will, to the extent applicable, comply
with the relevant procedures to facilitate the collection of information concerning the Notes. The procedures
may be modified, amended or supplemented to, among other reasons, reflect a change in applicable Spanish
law, regulation, ruling or interpretation thereof. Under Royal Decree 1065/2007, as amended, it is no longer
necessary to provide an issuer with information regarding the identity and the tax residence of an investor or
the amount of interest paid to it in order for the issuer to make payments free from Spanish withholding tax,
provided that the securities: (i) are regarded as listed debt securities issued under Law 10/2014; and (ii) are
initially registered at a foreign clearing and settlement entity that is recognised under Spanish regulations or
under those of another OECD member state. The Issuer expects that the Notes will meet the requirements
referred to in (i) and (ii) above and that, consequently, payments made by the Issuer to Noteholders should be
paid free of Spanish withholding tax, provided the Paying Agent complies with the procedural requirements
referred to above. In the event a payment in respect of the Notes is subject to Spanish withholding tax, the
Issuer will pay the relevant Noteholder such additional amounts as may be necessary in order that the net
amount received by such Noteholder after such withholding equals the sum of the respective amounts of
principal, premium, if any, and interest, if any, which would otherwise have been receivable in respect of the
18
Notes in the absence of such withholding, except as provided in "Terms and Conditions of the 4 Year Notes—
Taxation" and "Terms and Conditions of the 8 Year Notes—Taxation".
If the Spanish Tax Authorities maintain a different opinion as to the application by the Issuer of withholding
to payments made to Spanish tax residents (individuals and entities subject to Corporate Income Tax
(Impuesto sobre Sociedades)), the Issuer will be bound by the opinion and, with immediate effect, will make
the appropriate withholding. If this is the case, identification of Noteholders may be required and the
procedures, if any, for the collection of relevant information will be applied by the Issuer (to the extent
required) so that it can comply with its obligations under the applicable legislation as interpreted by the
Spanish Tax Authorities. If procedures for the collection of the Noteholders information are to apply, the
Noteholders will be informed of such new procedures and their implications.
Notwithstanding the above, in the case of Notes held by Spanish tax resident individuals (and, by Spanish
entities subject to Corporate Income Tax if the Notes are deemed to have been placed totally or partially in
Spain according to the criteria set out by the Spanish Directorate General of Taxes (Dirección General de
Tributos) in the tax ruling dated 27 July 2004) and deposited with a Spanish resident entity acting as
depositary or custodian, payments in respect of such Notes may be subject to withholding by such depositary
or custodian (currently 20%, and 19% as from 1 January 2016) and according to Condition 8 no additional
amounts will be payable by the Issuer in such circumstances.
EU Savings Directive
Under Council Directive 2003/48/EC on the taxation of savings income (the "Savings Directive"), Member
States are required to provide to the tax authorities of another Member State details of payments of interest (or
other similar income) paid by a person within its jurisdiction (or secured for) to, or for, an individual or
certain limited types of entity established in that other Member State. However, for a transitional period
Austria is instead required (unless during such period it elects otherwise) to operate a withholding tax in
relation to such payments (the ending of such transitional period being dependent upon the conclusion of
certain other agreements relating to information exchange with certain other countries) subject to a procedure
whereby, on meeting certain conditions, the beneficial owner of the interest (or similar income) may request
that no tax be withheld.
On 24 March 2014, the European Council formally adopted a Council Directive amending the Directive (the
"Amending Directive"). The Amending Directive broadens the scope of the requirements described above.
Member States have until 1 January 2016 to adopt the national legislation necessary to comply with the
Amending Directive.
The Amending Directive will expand the range of payments covered by the Savings Directive, in particular to
include additional types of income payable on securities, and the circumstances in which payments must be
reported or paid subject to withholding. For example, payments made to (or for the benefit of) (i) an entity or
legal arrangement effectively managed in an EU Member State that is not subject to effective taxation, or (ii)
a person, entity or legal arrangement established or effectively managed outside of the EU (and outside any
third country or territory that has adopted similar measures to the Savings Directive) which indirectly benefit
an individual resident in an EU Member State, may fall within the scope of the Savings Directive, as amended
by the Amending Directive. The Amending Directive requires EU Member States to adopt national legislation
necessary to comply with it by 1 January 2016, which legislation must apply from 1 January 2017. A number
of non-EU countries and territories including Switzerland have adopted similar measures (a withholding
system in the case of Switzerland).
If a payment were to be made or collected under these withholding systems and an amount of, or an amount
in respect of, tax were to be withheld from that payment, neither the Issuer, Deutsche Bank AG, London
Branch as fiscal agent (the "Fiscal Agent") nor any other person would be obliged to pay additional amounts
19
with respect to any Note as a result of the imposition of such withholding tax. If a withholding tax is imposed
on payment made by the Fiscal Agent, the Issuer may be required to maintain a paying agent in a Member
State that will not be obliged to withhold or deduct tax pursuant to the EU Savings Directive to the extent is
operative or feasible.
The Issuer, is required to maintain a Paying Agent with a specified office in an EU Member State that is not
obliged to withhold or deduct tax pursuant to any law implementing the Savings Directive or any other
Directive implementing the conclusions of the ECOFIN Council meeting of 26-27 November 2000, which
may mitigate an element of this risk if the Noteholder or Couponholder is able to arrange for payment through
such a Paying Agent. However, investors should choose their custodians and intermediaries with care, and
provide each custodian and intermediary with any information that may be necessary to enable such persons
to make payments free from withholding and in compliance with the Savings Directive.
The Proposed Financial Transactions Tax (FTT)
On 14 February 2013, the European Commission published a proposal for a Directive for a common FTT in
Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the
participating Member States).
The Commission's proposal has very broad scope and could, if introduced, apply to certain dealings in the
Notes (including secondary' market transactions) in certain circumstances.
Under the current proposals, FTT could apply in certain circumstances to persons both within and outside of
the participating Member States. Generally, it would apply to certain dealings in the Notes where at least one
party is a financial institution, and at least one party is established in a participating Member State. A financial
institution may be, or be deemed to be, "established" in a participating Member State in a broad range of
circumstances, including (a) by transacting with a person established in a participating Member State or (b)
where the financial instrument which is subject to the dealings is issued in a participating Member State.
A joint statement issued in May 2014 by ten of the eleven participating Member States indicated an intention
to implement the FTT progressively, such that it would initially apply to shares and certain derivatives, with
this initial implementation occurring by 1 January 2016. The FTT, as initially implemented on this basis,
should not apply to dealings in the Notes. Nevertheless, if a payment were to be made or collected due to
FTT, neither the Issuer, the Fiscal Agent nor any other person would be obliged to pay additional amounts
with respect to any Note as a result of the imposition of such FTT.
The FTT proposal remains subject to negotiation between the participating Member States and is the subject
of legal challenge. It may therefore be altered prior to any implementation, the timing of which remains
unclear. Additional EU Member States may decide to participate and Member States mentioned above may
decide not to participate. Prospective holders of the Notes are advised to seek their own professional advice in
relation to the FTT.
Risks arising in connection with the Spanish Insolvency Law
Law 22/2003 of 9 July, on Insolvency, as amended (the "Spanish Insolvency Law") regulates court
insolvency proceedings, as opposed to out-of-court liquidation, which is only available when the debtor has
sufficient assets to meet its liabilities.
Declaration of insolvency
In the event of insolvency of the debtor, insolvency proceedings can be initiated either by that debtor or by its
creditors. In the event that such debtor files the insolvency petition, a "voluntary" insolvency (concurso
voluntario), such debtor shall provide evidence of the situation of insolvency (whether actual or imminent
20
insolvency). The directors of the debtor company shall request the insolvency within two months from the
moment they knew, or ought to have known, of the insolvency situation.
The debtor may file for insolvency (or file with the insolvency court a communication under 5 Bis of the
Spanish Insolvency Law informing that it has commenced negotiations with its creditors to agree a
refinancing agreement or an advanced proposal of settlement agreement (convenio), to obtain an additional
period of three months to negotiate with its creditors) as a protective measure in order to avoid (i) the
attachment of its assets or (ii) certain enforcement actions that could be taken by its creditors.
Upon receipt of an insolvency petition by a creditor, the insolvency court may issue provisional interim
measures to protect the assets of the debtor and may request a guarantee from the petitioning creditor asking
for the adoption of such measures to cover damages caused by the preliminary protective measures.
Effects of the insolvency declaration
The general rule is that the declaration of insolvency shall not affect the continuity of the business activity of
the debtor company other than in the terms expressly set out in the Spanish Insolvency Law.
In case of voluntary insolvency (concurso voluntario), the debtor company will usually maintain
administrative control of its affairs, however, the management decisions will be subject to the court
administrator or receiver’s (administración concursal) (the "receiver") authorisation. In case of necessary
insolvency (concurso necesario), the receiver will usually assume the administration of the debtor company,
unless the insolvency court decides otherwise.
Unless otherwise provided by certain specific rules applicable to a certain type of contracts, creditors will not
be able to accelerate the maturity of their credits based only on the declaration of the insolvency (declaración
de concurso) of the debtor. Any provision to the contrary will be null and void.
The debt will cease to accrue interest from the declaration of insolvency, except for such debt secured with
security rights in rem, and up to, the amount obtained from the enforcement of the security.
As a general rule, insolvency proceedings are not compatible with other enforcement proceedings. When
compatible, in order to protect the interests of the debtor and its creditors, the law extends the jurisdiction of
the court dealing with insolvency proceedings, which is, then, legally authorised to handle any enforcement
proceedings or interim measures affecting the debtor’s assets (whether based upon civil, labour or
administrative law).
Classification of the company’s debts
The court order declaring the insolvency of the debtor shall contain an express request for the creditors to
communicate and declare to the receivers any debts owed to them, within a one-month period starting from
the date after the publication of the insolvency in the State Official Gazette (Boletín Oficial del Estado),
providing documentation to justify such credits. Based on the documentation provided by the creditors, the
insolvency receivers draw up a list of acknowledged creditors and classify them according to the categories
established under Spanish Insolvency Law as follows: (i) debts against the insolvency estate, (ii) debt
benefiting from special privileges, (iii) debt benefiting from general privileges, (iv) ordinary debt and (v)
subordinated debt.
Those claims classified within the insolvency proceeding as ordinary claims shall rank ahead of subordinated
claims but behind privileged creditors and creditors against the estate. In the case of insolvency of the
Company, the claims against the Company under the Notes will rank pari passu with all other outstanding
unsecured and unsubordinated claims (see "Terms and conditions of the 4 Year Notes – Status" and "Terms
and conditions of the 8 Year Notes – Status"). However, certain actions or circumstances which are beyond
21
the control of the Company may affect the relevant classification of the claims under the Notes including
among other things, as follows:
(i) any claim may become subordinated if it is not reported to the receivers within one month from the day
following the publication of the court order declaring the insolvency in the Spanish Official Gazette
(Boletín Oficial del Estado);
(ii) claims of those persons considered "especially related", directly or indirectly, to the Company in
accordance with the Spanish Insolvency Law will be classified as subordinated creditors;
(iii) interests (including those under the Notes) shall cease to accrue as from the date of the declaration of
insolvency and any amount of interest accrued up to such date shall become subordinated.
The Spanish Insolvency Law was amended by virtue of Royal Decree-Law 4/2014, of 7 March and Royal
Decree-Law 11/2014, of 5 September (the "recent amendments") whereby, inter alia, a new regime for
certain pre-insolvency refinancing agreements and settlement agreements was set forth. In particular,
according to such amendments, certain judicially-sanctioned refinancing agreements and settlement
agreements (convenio) reached by the debtor in an insolvency scenario are capable of binding dissenting
(including absentee) unsecured and secured creditors of financial indebtedness ("dissenting creditors") vis-à-
vis such debtor. Whether dissenting creditors are bound by a judicially-sanctioned refinancing agreement or a
settlement agreement depends on the level of support received from the various types of creditors.
22
Terms and Conditions of the 4 Year Notes
The following, save for the paragraphs in italics, are the terms and conditions of the 4 Year Notes which will
be incorporated by reference into the global 4 Year Notes and endorsed on the 4 Year Notes in definitive form.
The issue of the €750,000,000 1.863 per cent. Notes due 2019 (the "4 Year Notes", which expression includes
any further notes issued pursuant to Condition 13 and forming a single series therewith) of Inmobiliaria
Colonial, S.A. (the "Issuer") was authorised by a resolution of the General Shareholders Meeting of the Issuer
passed on 24 April 2015 and by a resolution of the Board of Directors of the Issuer passed on 6 May 2015. A
fiscal agency agreement to be dated on or around 5 June 2015 (the "Fiscal Agency Agreement") will be
entered into in relation to the 4 Year Notes between the Issuer, Deutsche Bank AG, London Branch as fiscal
agent and the paying agents named in it. The fiscal agent and the paying agents for the time being are referred
to below respectively as the "Fiscal Agent" and the "Paying Agents" (which expression shall include the
Fiscal Agent). The Fiscal Agency Agreement includes the form of the 4 Year Notes and the coupons relating
to them (the "Coupons"). Copies of the Fiscal Agency Agreement (which contains these terms and conditions
of the 4 Year Notes (the "4 Year Notes Conditions")) are available for inspection during normal business
hours at the specified offices of the Paying Agents. The holders of the 4 Year Notes (the "Noteholders") and
the holders of the Coupons (whether or not attached to the relevant 4 Year Notes) (the "Couponholders") are
deemed to have notice of all the provisions of the Fiscal Agency Agreement applicable to them.
The Issuer will execute an escritura pública (the "Public Deed") before a Spanish notary public in relation to
the issue of the 4 Year Notes on or before 5 June 2015 (the "Closing Date"). The Public Deed contains,
among other information, these 4 Year Notes Conditions.
1 Form, Denomination and Title
(a) Form and denomination: The 4 Year Notes are serially numbered and in bearer form in the
denomination of €100,000, each with Coupons attached on issue.
(b) Title: Title to the 4 Year Notes and Coupons passes by delivery. The holder of any 4 Year Note
or Coupon will (except as otherwise required by law) be treated as its absolute owner for all
purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any
interest in it, any writing on it, or its theft or loss) and no person will be liable for so treating the
holder.
2 Status
The 4 Year Notes and Coupons constitute (subject to Condition 3) direct, general, unconditional and
unsecured obligations of the Issuer and in the event of insolvency (concurso) of the Issuer (unless they
qualify as subordinated debts under Article 92 of Law 22/2003 (Ley Concursal) dated 9 July 2003 (the
"Law 22/2003" or the "Insolvency Law") or equivalent legal provision which replaces it in the future
and subject to any legal and statutory exceptions) will rank pari passu without any preference among
themselves and with all other outstanding unsecured and unsubordinated indebtedness and monetary
obligations involving or otherwise related to borrowed money of the Issuer, present and future.
3 Negative Pledge
So long as any 4 Year Note or Coupon remains outstanding (as defined in the Fiscal Agency
Agreement), the Issuer will not, and will ensure that none of its Material Subsidiaries (other than
Société Foncière Lyonnaise S.A. ("SFL")) will create, or have outstanding, any Security Interest (other
than a Permitted Security Interest), upon the whole or any part of its present or future undertaking,
23
assets or revenues (including any uncalled capital) to secure any Relevant Indebtedness or to secure
any guarantee or indemnity in respect of any Relevant Indebtedness, without at the same time or prior
thereto according to the 4 Year Notes and the Coupons the same security as is created or subsisting to
secure any such Relevant Indebtedness, guarantee or indemnity or such other security as shall be
approved by an Extraordinary Resolution (as defined in the Fiscal Agency Agreement) of the
Noteholders.
In these 4 Year Notes Conditions:
"Material Subsidiary" means, at any relevant time, a Subsidiary of the Issuer:
(a) whose total assets or gross revenues (or, where the Subsidiary in question prepares consolidated
financial statements, whose total consolidated assets or gross consolidated revenues) at any
relevant time represent no less than 10 per cent. of the total consolidated assets or gross
consolidated revenues, respectively, of the Issuer and its Subsidiaries, as calculated by reference
to the then latest consolidated audited accounts or consolidated six-monthly reports of the
Issuer and the latest accounts or six-monthly reports of each relevant Subsidiary (consolidated
or, as the case may be, unconsolidated) prepared in accordance with IFRS EU, provided that in
the case of a Subsidiary acquired after the end of the financial period to which the then latest
consolidated audited accounts or consolidated six-monthly reports of the Issuer relate, then for
the purpose of applying each of the foregoing tests, the reference to the Issuer’s latest
consolidated audited accounts or consolidated six-monthly reports shall be deemed to be a
reference to such accounts or reports as if such Subsidiary had been shown therein by reference
to its then latest relevant financial statements, adjusted as deemed appropriate by the auditors of
the Issuer for the time being after consultation with the Issuer; or
(b) to which is transferred all or substantially all of the assets and undertaking of a Subsidiary
which, immediately prior to such transfer, is a Material Subsidiary;
"Permitted Security Interest" means any Security Interest created in respect of any Relevant
Indebtedness of a company which has merged with the Issuer or one of its Subsidiaries or which has
been acquired by the Issuer or one of its Subsidiaries, provided that such security was already in
existence at the time of the merger or the acquisition, was not created for the purpose of financing the
merger or the acquisition and is not increased in amount and not extended following the merger or the
acquisition;
"Relevant Indebtedness" means any indebtedness which is in the form of, or represented or evidenced
by, bonds, notes, debentures, loan stock or other securities which for the time being are, or are intended
to be or capable of being, quoted, listed or dealt in or traded on any stock exchange or over-the-counter
or other securities market;
"Security Interest" means, without duplication, any mortgage, charge, pledge, lien or other security
interest or other preferential interest or arrangement having a similar economic effect, excluding any
right of set-off, but including any conditional sale or other title retention arrangement or any finance
leases; and
"Subsidiary" means any entity whose financial statements at any time are required by law or in
accordance with generally accepted accounting principles to be fully consolidated with those of the
Issuer.
24
4 Covenants
For so long as any 4 Year Note or Coupon remains outstanding (as defined in the Fiscal Agency
Agreement), the Issuer shall:
(a) Unencumbered Assets: ensure that as at each Reference Date the Unencumbered Total Assets
Value will be at least equal to the Unsecured Debt;
(b) Notice to Noteholders: In addition to Condition 4(c) below, in the event that as at any Reference
Date the covenant in Condition 4(a) above is breached, promptly (and in any event no later than
the following relevant Reporting Date) notify the Noteholders in accordance with Condition 14;
and
(c) Certificate: deliver a certificate to the Noteholders through the Fiscal Agent on each Reporting
Date signed by one Authorised Officer of the Issuer, certifying that the Issuer is in compliance
with the covenant set out in Condition 4(a) above at the relevant Reference Date and containing
(i) the formulae for the calculation of the covenant, and (ii) a statement as to the correctness of
such formulae. The Issuer shall deliver to the Noteholders through the Fiscal Agent a separate
report issued by the Issuer's auditors setting out the procedures used to calculate the covenant
and reviewing the application of the formulae certified by the Issuer.
In these 4 Year Notes Conditions:
"Authorised Officer" means the Chief Executive Officer or the Chief Financial Officer of the Issuer,
or anyone delegated by the Board of Directors of the Issuer;
"Financial Indebtedness" means any indebtedness for or in respect of:
(a) moneys borrowed in whatever form;
(b) any amount raised by acceptance under any acceptance credit facility or dematerialised
equivalent;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes,
debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract which would, in
accordance with the International Financial Reporting Standards ("IFRS EU"), be treated as a
finance or capital lease;
(e) receivables sold or discounted (other than any receivables to the extent they are sold on a non-
recourse basis);
(f) any amount raised under any other transaction (including any forward sale or purchase
agreement) having the commercial effect of a borrowing, but excluding the deferred purchase
price of assets or services acquired in the ordinary course of business or otherwise arising from
normal trade credit;
(g) amounts representing the balance deferred and unpaid for a period of more than 365 days of the
purchase price of any property except any amount that constitutes an accrued expense or trade
payable;
(h) shares which are expressed to be redeemable;
25
(i) without double counting, any counter-indemnity obligation in respect of a guarantee, indemnity,
bond, standby or documentary letter of credit or any other instrument issued by a bank or
financial institution; and
(j) without double counting, the amount of any liability in respect of any guarantee or indemnity
for any of the items referred to in paragraphs (a) to (i) above;
"Group" means the Issuer and its consolidated Subsidiaries;
"Reference Date" means 30 June and 31 December of each year as the context requires provided that
the first Reference Date shall be 30 June 2015;
"Reporting Date" means a date falling no later than 30 days after (i) the approval by the Issuer’s
General Shareholders’ Meeting of the audited consolidated financial statements of the Issuer, with
respect to a Reference Date falling on 31 December, or (ii) the approval by the Issuer’s board of
directors of the Issuer's semi-annual consolidated financial statements, with respect to a Reference
Date falling on 30 June, provided that the first Reporting Date shall be the date falling no later than 30
days after the approval by the Issuer’s board of directors of the Issuer's semi-annual financial
statements as of and for the period ended 30 June 2015;
"Secured Debt" means, as at each Reference Date, that portion of the Total Debt that is secured by a
Security Interest on any assets of the Group;
"Total Assets of the Group" means, as at each Reference Date, the aggregate value of the total assets
of the Group as shown in the Issuer’s audited annual consolidated financial statements or in the
Issuer’s semi-annual consolidated financial statements (as applicable) prepared as of the relevant
Reference Date according to IFRS EU and adjusted to exclude any intangible assets and to include the
unrealised capital gain arising from the revaluation of the assets for own use as reported in the relevant
financial statements;
"Total Debt" means, as at each Reference Date, the aggregate amount of all Financial Indebtedness of
the Group as shown in the Issuer’s audited annual consolidated financial statements or in the Issuer’s
semi-annual consolidated financial statements (as applicable) for that Reference Date, excluding any
derivative transaction entered into in connection with protection against or benefit from fluctuation of
interest rates;
"Unencumbered Total Assets Value" means, as at each Reference Date, the value of the Total Assets
of the Group which are not subject to a Security Interest as shown in the Issuer’s audited annual
consolidated financial statements or in the Issuer’s semi-annual consolidated financial statements (as
applicable) prepared as of the relevant Reference Date; and
"Unsecured Debt" means, as at each Reference Date, that portion of the Total Debt that is not Secured
Debt.
5 Interest
(a) Interest rate: The 4 Year Notes bear interest from and including 5 June 2015 (the "Issue
Date") at the rate of 1.863 per cent. per annum, payable annually in arrear in equal instalments
of €1,863 per Calculation Amount (as defined below) on 5 June in each year (each an "Interest
Payment Date").
(b) Step-up: The interest rate payable on the Notes will be subject to adjustment from time to time
as follows:
26
(i) in the event the Notes have one Rating assigned by a Rating Agency, if such Rating
ceases to be an Investment Grade Rating or if such Investment Grade Rating is
withdrawn the interest rate will be increased by 1.25 per cent. per annum (the "Step-
up") with effect from, and including, the Interest Payment Date immediately following
the date the Notes cease to be assigned one Investment Grade Rating or such Investment
Grade Rating is withdrawn provided that, if the Notes are subsequently assigned an
Investment Grade Rating by a Rating Agency, the Step-up shall no longer apply from,
and including, the Interest Payment Date immediately following the date the Notes are
assigned an Investment Grade Rating; or
(ii) in the event the Notes have two Ratings assigned by the Rating Agencies at any time, if
either or both of the Ratings cease to be an Investment Grade Rating or if both
Investment Grade Ratings are withdrawn the interest rate will be increased by the Step-
up with effect from, and including, the Interest Payment Date immediately following the
date the Notes cease to be assigned two Investment Grade Ratings or both Investment
Grade Ratings are withdrawn provided that, if the Non-Investment Grade Ratings
assigned to the Notes are subsequently increased to Investment Grade Ratings resulting
in the Notes being assigned two Investment Grade Ratings or if the Notes are
subsequently assigned an Investment Grade Rating by one Rating Agency in the event
both such Investment Grade Ratings had been withdrawn, the Step-up shall no longer
apply from, and including, the Interest Payment Date immediately following the date the
Notes are assigned an Investment Grade Rating; or
(iii) in the event the Notes are assigned three Ratings by the Rating Agencies at any time, if
two of the three Ratings cease to be Investment Grade Rating or if all three Ratings are
withdrawn the interest rate will be increased by the Step-up with effect from, and
including, the Interest Payment Date immediately following the date the Notes cease to
be assigned at least two Investment Grade Ratings or all three Ratings are withdrawn
provided that, if the Non-Investment Grade Ratings assigned to the Notes are
subsequently increased to Investment Grade Ratings resulting in the Notes being
assigned at least two Investment Grade Ratings or if the Notes are subsequently
assigned an Investment Grade Rating by one Rating Agency in the event all three
Ratings had been withdrawn, the Step-up shall no longer apply from, and including, the
Interest Payment Date immediately following the date the Notes are assigned an
Investment Grade Rating;
If as described in the paragraphs above a Step-up comes into effect or subsequently no longer
applies, then the Issuer shall, without undue delay, after becoming aware thereof, give notice of
the Step-up or disapplication thereof, to the Noteholders in accordance with Condition 14.
The Step-up is not cumulative. Therefore, while the Step-up is in effect, any subsequent
assignment of Non-Investment Grade Ratings or the withdrawal of any Ratings by any Rating
Agencies will not trigger additional increases in the interest payable under the Notes, so that the
maximum interest rate payable in respect of the Notes at any one time will be 3.113 per cent.
per annum.
(c) Accrual of interest: Each 4 Year Note will cease to bear interest from the due date for
redemption unless, upon due presentation, payment of principal is improperly withheld or
refused. In such event it shall continue to bear interest at such rate (both before and after
judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such
4 Year Note up to that day are received by or on behalf of the relevant Noteholder, and (b) the
27
day seven days after the Fiscal Agent has notified the Noteholders of receipt of all sums due in
respect of all the 4 Year Notes up to that seventh day (except to the extent that there is failure in
the subsequent payment to the relevant holders under these 4 Year Notes Conditions).
Where interest is to be calculated in respect of a period which is equal to or shorter than an
Interest Period (as defined below), the day-count fraction used will be the number of days in the
relevant period, from and including the date from which interest begins to accrue to but
excluding the date on which it falls due, divided by the number of days in the Interest Period in
which the relevant period falls (including the first such day but excluding the last).
Interest in respect of any 4 Year Note shall be calculated per €100,000 in principal amount of
the 4 Year Notes (the "Calculation Amount"). The amount of interest payable per Calculation
Amount for any period shall, save as provided above in relation to equal instalments, be equal
to the product of 1.863 per cent. (plus 1.25 per cent. in case the Step-up is in effect), the
Calculation Amount and the day-count fraction for the relevant period, rounding the resulting
figure to the nearest cent (half a cent being rounded upwards).
In these 4 Year Notes Conditions:
"Interest Period" shall mean the period beginning on and including 5 June 2015 and ending on but
excluding the first Interest Payment Date and each successive period beginning on and including an
Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date;
"Investment Grade Rating" means the following Ratings: (a) with respect to S&P, any of the
categories from and including AAA to and including BBB- (or equivalent successor categories); (b)
with respect to Moody's, any of the categories from and including Aaa to and including Baa3 (or
equivalent successor categories); and (c) with respect to Fitch, any of the categories from and
including AAA to and including BBB- (or equivalent successor categories);
"Non-Investment Grade Rating" means the following Ratings: (a) with respect to S&P, any of the
categories below BBB- (or equivalent successor categories); (b) with respect to Moody’s, any of the
categories below Baa3 (or equivalent successor categories); and (c) with respect to Fitch, any of the
categories below BBB- (or equivalent successor categories);
"Rating Agency" means Moody’s Investors Service, Inc. ("Moody’s"), Fitch Ratings Ltd. ("Fitch") or
Standard & Poor's Credit Market Services Europe Limited, a division of The McGraw-Hill Companies
Inc. ("S&P") or any of their respective successors; and
"Ratings" means the rating BBB– assigned to the Notes by S&P on or before 5 June 2015 and in force
as of the Closing Date and any other ratings that may be assigned to the Notes by a Rating Agency
from time to time, at the invitation of the Issuer or by its own volition.
6 Redemption and Purchase
(a) Final redemption: Unless previously redeemed, or purchased and cancelled, the 4 Year Notes
will be redeemed at their principal amount on 5 June 2019 (the "Maturity Date"). The 4 Year
Notes may not be redeemed at the option of the Issuer other than in accordance with this
Condition.
(b) Redemption for taxation reasons: The 4 Year Notes may be redeemed at the option of the
Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days’
notice to the Noteholders (which notice shall be irrevocable), at their principal amount,
(together with interest accrued to the date fixed for redemption), if (i) the Issuer has or will
28
become obliged to pay additional amounts as provided or referred to in Condition 8 as a result
of any change in, or amendment to, the laws or regulations of the Kingdom of Spain or any
political subdivision or any authority thereof or therein having power to tax, or any change in
the application or official interpretation of such laws or regulations, which change or
amendment becomes effective on or after 5 June 2015, and (ii) such obligation cannot be
avoided by the Issuer taking reasonable measures available to it, provided that no such notice of
redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer
would be obliged to pay such additional amounts were a payment in respect of the 4 Year Notes
then due. Prior to the publication of any notice of redemption pursuant to this Condition 6(b),
the Issuer shall deliver to the Fiscal Agent a certificate signed by two directors of the Issuer
stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts
showing that the conditions precedent to the right of the Issuer so to redeem have occurred, and
an opinion of independent legal advisers of recognised standing to the effect that the Issuer has
or will become obliged to pay such additional amounts as a result of such change or
amendment.
(c) Redemption at the option of the Noteholders: A "Put Event" will be deemed to occur if:
(i) (A) any person or any persons acting in concert acquire Control of the Issuer (a
"Change of Control of the Issuer"); and
(B) on the date (the "Relevant Date") that is the earlier of (a) the date of the first
public announcement of the relevant Change of Control of the Issuer and (b) the
date of the earliest Relevant Potential Change of Control Announcement (if any),
the 4 Year Notes carry:
a. an Investment Grade Rating from any Rating Agency whether provided by
such Rating Agency at the invitation of the Issuer or by its own volition
and such rating is, within the Change of Control Period, either
downgraded to a Non-Investment Grade Rating or withdrawn and is not,
within the Change of Control Period, subsequently (in the case of a
downgrade) upgraded to an Investment Grade Rating by such Rating
Agency; or
b. a Non-Investment Grade Rating from any Rating Agency whether
provided by such Rating Agency at the invitation of the Issuer or by its
own volition and such rating is, within the Change of Control Period,
either downgraded by one or more rating categories (from Baa1 to Baa2
being or such similar lowering) or withdrawn and is not, within the
Change of Control Period, subsequently (in the case of a downgrade)
upgraded to its earlier credit rating or better by such Rating Agency; or
c. no credit rating and a Negative Rating Event also occurs within the
Change of Control Period,
provided that if upon the expiration of the Change of Control Period the Issuer
has at least one Investment Grade Rating then sub-paragraphs (B)a. and (B)b. will
not apply; and
(C) in making any decision to downgrade or withdraw a credit rating pursuant to
paragraphs (B)a. and (B)b. above or not to award at least an Investment Grade
Rating as described in paragraph (ii) of the definition of Negative Rating Event,
29
the relevant Rating Agency announces publicly or confirms in writing to the
Issuer that such decision(s) resulted, in whole or in part, from the occurrence of
the Change of Control of the Issuer or the Relevant Potential Change of Control
Announcement; and/or
(ii) the Issuer ceases:
(A) to hold or control, directly or indirectly, acting alone or in concert with others,
more than 50 per cent. of the Voting Rights of SFL; or
(B) to have the right, acting alone or in concert with others, to appoint and/or remove
all or the majority of the members of the SFL’s Board of Directors or other
governing body, whether obtained directly or indirectly, and whether obtained by
ownership of share capital, the possession of Voting Rights, contract or otherwise,
(in each case, a "Change of Control of SFL").
If a Put Event occurs, the holder of each 4 Year Note will have the option (a "Put Option")
(unless prior to the giving of the relevant Put Event Notice (as defined below) the Issuer has
given notice of redemption under Condition 6(b) or 6(d)) to require the Issuer to redeem or, at
the Issuer’s option, purchase (or procure the purchase of) that 4 Year Note on the Put Date (as
defined below) at its principal amount together with interest accrued to (but excluding) the Put
Date.
Promptly upon the Issuer becoming aware that a Put Event has occurred the Issuer shall without
delay give notice (a "Put Event Notice") to the Noteholders in accordance with Condition 14
specifying the nature of the Put Event, the procedure for exercising the Put Option and the date
on which the Put Period will end.
To exercise the Put Option, the holder of a 4 Year Note must deliver such 4 Year Note to the
specified office of any Paying Agent at any time during normal business hours of such Paying
Agent falling within the period (the "Put Period") of 30 days after a Put Event Notice is given,
accompanied by a duly signed and completed notice of exercise in the form (for the time being
current) obtainable from the specified office of any Paying Agent (a "Put Notice"). The 4 Year
Note should be delivered together with all Coupons appertaining thereto maturing after the date
which is seven days after the expiration of the Put Period (the "Put Date"), failing which the
Paying Agent will require payment from or on behalf of the Noteholder of an amount equal to
the face value of any missing such Coupon. Any amount so paid will be reimbursed to the
Noteholder against presentation and surrender of the relevant missing Coupon (or any
replacement thereof issued pursuant to Condition 11) at any time after such payment, but before
the expiry of the period of five years from the date on which such Coupon would have become
due, but not thereafter. The Paying Agent to which such 4 Year Note and Put Notice are
delivered will issue to the Noteholder concerned a non-transferable receipt in respect of the 4
Year Note so delivered. Payment in respect of any 4 Year Note so delivered will be made, if the
holder duly specified a bank account in the Put Notice to which payment is to be made, on the
Put Date by transfer to that bank account and, in every other case, on or after the Put Date
against presentation and surrender or (as the case may be) endorsement of such receipt at the
specified office of any Paying Agent. A Put Notice, once given, shall be irrevocable. For the
purposes of these 4 Year Notes Conditions, receipts issued pursuant to Condition 14 shall be
treated as if they were 4 Year Notes. The Issuer shall redeem or purchase (or procure the
purchase of) the relevant 4 Year Notes on the Put Date unless previously redeemed (or
purchased) and cancelled.
30
If 85 per cent. or more in principal amount of the 4 Year Notes then outstanding have been
redeemed or purchased pursuant to this Condition 6(c), the Issuer may, on giving not less than
30 nor more than 60 days’ notice to the Noteholders (such notice being given within 30 days
after the Put Date), redeem or purchase (or procure the purchase of), at its option, all but not
some only of the remaining outstanding 4 Year Notes at their principal amount, together with
interest accrued to (but excluding) the date fixed for such redemption or purchase.
If the rating designations employed by any of Moody’s, Fitch or S&P are changed from those
which are described in paragraph (i)(B) of the definition of "Put Event" above, the Issuer shall
determine the rating designations of Moody’s, Fitch or S&P (as appropriate) as are most
equivalent to the prior rating designations of Moody’s, Fitch or S&P and this Condition 6(c)
shall be construed accordingly.
In this Condition:
"Change of Control Period" means the period commencing on and including the Relevant
Date in relation to a Change of Control of the Issuer and ending 90 days after the Change of
Control of the Issuer (or such longer period for which the 4 Year Notes are under consideration
(such consideration having been announced publicly within the period ending 90 days after the
Change of Control of the Issuer) for rating review or, as the case may be, rating by a Rating
Agency, such period not to exceed 60 days after the public announcement of such
consideration);
"Control" has the meaning assigned to that term in Article 42(1) of the Spanish Commercial
Code;
a "Negative Rating Event" shall be deemed to have occurred if at such time as there is no
rating assigned to the 4 Year Notes by a Rating Agency (i) the Issuer does not, either prior to, or
not later than 21 days after, the occurrence of the Change of Control of the Issuer seek, and
thereafter throughout the Change of Control Period use all reasonable endeavours to obtain, a
rating of the 4 Year Notes, or any other unsecured and unsubordinated debt of the Issuer or (ii)
if the Issuer does so seek and use such endeavours, it is unable to obtain such a rating of at least
Investment Grade Rating by the end of the Change of Control Period;
"Relevant Potential Change of Control Announcement" means any public announcement or
statement by the Issuer, any actual or potential bidder or any adviser acting on behalf of any
actual or potential bidder relating to any potential Change of Control of the Issuer where within
180 days following the date of such announcement or statement, a Change of Control of the
Issuer occurs; and
"Voting Rights" means, in respect of any person, the right generally to vote at a general
meeting of shareholders of such person (irrespective of whether or not, at the time, stock of any
other class or classes shall have, or might have, voting power by reason of the happening of any
contingency).
(d) Redemption at the option of the Issuer: The Issuer may at any time prior to the Maturity
Date, on giving not less than 30 nor more than 60 days’ notice to the Noteholders in accordance
with Condition 14 (which notice shall be irrevocable and shall specify the date fixed for
redemption (the "Optional Redemption Date")), redeem all, but not some only, of the 4 Year
Notes at a redemption price per 4 Year Note equal to the Make Whole Amount together with
interest accrued to but excluding the Optional Redemption Date.
31
Any notice of redemption given under this Condition 6(d) will override any notice of
redemption given (whether previously, on the same date or subsequently) under Conditions 6(b)
or 6(c).
In these 4 Year Notes Conditions:
"Business Day" means a day (other than a Saturday, Sunday or public holiday) on which
commercial banks and foreign exchange markets settle payments and are open for general
business (including dealing in foreign exchange and foreign currency deposits) in London and
on which the TARGET System is operating;
"Independent Financial Adviser" means an independent financial institution of international
and reputable standing appointed by the Issuer in good faith and at its own expense;
"Make Whole Amount" means the higher of:
(i) 100.00 per cent. of the principal amount of the 4 Year Note; and
(ii) the sum of the present values of the remaining scheduled payments of principal and
interest (not including any interest accrued on the 4 Year Notes to, but excluding, the
Optional Redemption Date) discounted to the Optional Redemption Date on an annual
basis (actual number of days elapsed divided by 365 or (in the case of a leap year) by
366) at a rate equal to the Reference Rate (as defined below) plus 0.300 per cent. in
respect of the number of years to the Maturity Date of the 4 Year Notes calculated by the
Issuer;
"Reference Bund" means the Euro 0.50 per cent. German Federal Government Bund of
Bundesrepublik Deutschland due 12 April 2019, with ISIN DE0001141695;
"Reference Dealers" means each of the four banks (that may include any of the Joint Lead
Managers) selected by an Independent Financial Adviser which are primary European
government security dealers, and their respective successors, or market makers in pricing
corporate bond issues;
"Reference Rate" means the average of the four quotations given by the Relevant Dealers of
the mid-market annual yield of the Reference Bund on the fourth Business Day preceding the
Optional Redemption Date at 11.00 a.m. (Central European Time (CET)). If the Reference
Bund is no longer outstanding, a Similar Security will be chosen by an Independent Financial
Adviser at 11.00 a.m. (CET) on the third Business Day in London preceding the Optional
Redemption Date, quoted in writing by such Independent Financial Adviser;
"Similar Security" means a reference bond or reference bonds issued by the German Federal
Government having an actual or interpolated maturity comparable with the remaining term of
the 4 Year Notes that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of comparable maturity to
the remaining term of the 4 Year Notes;
"TARGET2" means the Trans-European Automated Real-Time Gross Settlement Express
Transfer payment system which utilises a single shared platform and which was launched on 19
November 2007;
"TARGET Settlement Day" means any day on which TARGET2 is open for the settlement of
payments in euro; and
32
"TARGET System" means the TARGET2 system.
(e) Notice of redemption: All 4 Year Notes in respect of which any notice of redemption is given
under this Condition shall be redeemed on the date specified in such notice in accordance with
this Condition.
(f) Purchase: Each of the Issuer and its Subsidiaries (as defined in the Fiscal Agency Agreement)
may at any time purchase 4 Year Notes in the open market or otherwise at any price (provided
that, if they should be cancelled under Condition 6(g) below, they are purchased together with
all unmatured Coupons relating to them). The 4 Year Notes so purchased, while held by or on
behalf of the Issuer or any such Subsidiary, shall not entitle the holder to vote at any meetings
of the Noteholders and shall not be deemed to be outstanding for the purposes of calculating
quorums at meetings of the Noteholders or for the purposes of Condition 12(a).
(g) Cancellation: All 4 Year Notes so redeemed or purchased and any unmatured Coupons
attached to or surrendered with them (other than any 4 Year Notes or Coupons purchased in the
ordinary course of a business of dealing in securities) will be cancelled and may not be re-
issued or resold.
7 Payments
(a) Method of Payment: Payments of principal and interest will be made against presentation and
surrender (or, in the case of a partial payment, endorsement) of 4 Year Notes or the appropriate
Coupons (as the case may be) at the specified office of any Paying Agent outside the United
States by Euro cheque drawn on, or by transfer to a Euro account (or other account to which
Euro may be credited or transferred) maintained by the payee with, a bank in a city in which
banks have access to the TARGET System. Payments of interest due in respect of any 4 Year
Note other than on presentation and surrender of matured Coupons shall be made only against
presentation and either surrender or endorsement (as appropriate) of the relevant 4 Year Note.
(b) Payments subject to laws: All payments are subject in all cases to any applicable fiscal or
other laws and regulations in the place of payment, but without prejudice to the provisions of
Condition 8. No commissions or expenses shall be charged to the Noteholders or
Couponholders in respect of such payments.
(c) Surrender of unmatured Coupons: Each 4 Year Note should be presented for redemption
together with all unmatured Coupons relating to it, failing which the amount of any such
missing unmatured Coupon (or, in the case of payment not being made in full, that proportion
of the amount of such missing unmatured Coupon which the sum of principal so paid bears to
the total principal amount due) will be deducted from the sum due for payment. Each amount of
principal so deducted will be paid in the manner mentioned above against surrender of the
relevant missing Coupon not later than 10 years after the Relevant Date (as defined in
Condition 8) for the relevant payment of principal.
(d) Payments on business days: A 4 Year Note or Coupon may only be presented for payment on a
day which is a business day in the place of presentation. No further interest or other payment
will be made as a consequence of the day on which the relevant 4 Year Note or Coupon may be
presented for payment under this Condition 7 falling after the due date. In this paragraph,
"business day" means, in respect of any place of presentation, any day on which banks are
open for presentation and payment of bearer debt securities and for dealings in foreign
33
currencies in such place of presentation and, in the case of payment by transfer to a Euro
account as referred to above, on which the TARGET System is open.
(e) Paying Agents: The initial Paying Agents and their initial specified offices are listed below.
The Issuer reserves the right at any time to vary or terminate the appointment of any Paying
Agent and appoint additional or other Paying Agents, provided that it will maintain (i) a Fiscal
Agent, (ii) Paying Agents having specified offices in at least one major European city and (iii) a
Paying Agent with a specified office in a European Union member state that will not be obliged
to withhold or deduct tax pursuant to any law implementing European Council Directive
2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council
meeting of 26-27 November 2000.
8 Taxation
All payments of principal and interest by or on behalf of the Issuer in respect of the 4 Year Notes and
the Coupons shall be made free and clear of, and without withholding or deduction for, any taxes,
duties, assessments or governmental charges of whatever nature (collectively, "Taxes") imposed,
levied, collected, withheld or assessed by or on behalf the Kingdom of Spain or any authority therein
or thereof having power to tax (the "Spanish Tax Authorities"), unless such withholding or deduction
is required by law. In that event the Issuer shall pay such additional amounts as will result in receipt by
the Noteholders and the Couponholders of such amounts as would have been received by them had no
such withholding or deduction been required, except that no such additional amounts shall be payable
in respect of any 4 Year Note or Coupon presented for payment:
(a) Other connection: by or on behalf of a holder or beneficial owner who is liable to such taxes,
duties, assessments or governmental charges in respect of such 4 Year Note or Coupon by
reason of his having some connection with Spain other than the mere holding of the 4 Year Note
or Coupon; or
(b) Presentation more than 30 days after the Relevant Date: more than 30 days after the Relevant
Date except to the extent that the holder of it would have been entitled to such additional
amounts on presenting such 4 Year Note or Coupon for payment on the last day of such period
of 30 days; or
(c) Payment to individuals: where such withholding or deduction is imposed on a payment to an
individual and is required to be made pursuant to European Council Directive 2003/48/EC or
any other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27
November 2000 on the taxation of savings income or any law implementing or complying with,
or introduced in order to conform to, such Directive (including the Amending Directive); or
(d) Payment by another Paying Agent: by or on behalf of a Noteholder or a Couponholder who
would have been able to avoid such withholding or deduction by presenting the relevant 4 Year
Note or Coupon to another Paying Agent in a European Union member state; or
(e) Information requested by Spanish Tax Authorities: while the 4 Year Notes are represented by
Global Notes and the Global Notes are deposited with a common depositary for Euroclear
and/or Clearstream, Luxembourg, to, or to a third party on behalf of, a Noteholder who does not
provide to the Issuer or an agent acting on behalf of the Issuer the information concerning such
Noteholder as may be required in order to comply with the procedures that may be
implemented to comply with the interpretation of Royal Decree 1065/2007 as eventually made
by the Spanish Tax Authorities; or
34
(f) Information requested by Spanish Tax Authorities: while the 4 Year Notes are represented by
definitive 4 Year Notes, to, or to a third party on behalf of, a Noteholder who does not to
comply with the Issuer’s request to provide a valid certificate of tax residence duly issued by
the tax authorities of the country of tax residence of the beneficial owner of 4 Year Notes,
which the Noteholder or the beneficial owner is required to provide by the applicable tax laws
and regulations of the relevant taxing authority as a precondition to exemption from, or
reduction in the rate of deduction or withholding of, Taxes imposed by such relevant taxing
authority; or
(g) Presentation for payment in the Kingdom of Spain: presented for payment in the Kingdom of
Spain; or
(h) Any combination of items (a) through (g) above.
For the avoidance of doubt, payments will be subject in all cases to any withholding or deduction
required pursuant to an agreement described in Section 1471(b) of the Code or otherwise imposed
pursuant to Sections 1471 through 1474 of the Code (or any amended or successor version of such
sections that is substantively comparable and not materially more onerous to comply with), any
regulations or agreements thereunder, any official interpretations thereof, and any law implementing an
intergovernmental approach thereto, as provided in Condition 7. No additional amounts will be paid on
the 4 Year Notes with respect to any such withholding or deduction.
"Relevant Date" means whichever is the later of (i) the date on which such payment first becomes due
and (ii) if the full amount payable has not been received by the Fiscal Agent on or prior to such due
date, the date on which, the full amount having been so received, notice to that effect shall have been
given to the Noteholders. Any reference in these 4 Year Notes Conditions to principal and/or interest
shall be deemed to include any additional amounts which may be payable under this Condition 8.
9 Events of Default
If any of the following events occurs and is continuing:
(a) Non-Payment: the Issuer fails to pay the principal or any interest on any of the 4 Year Notes
when due and such failure continues for a period of seven days in the case of principal and 14
days in the case of interest; or
(b) Breach of Other Obligations: the Issuer does not perform or comply with any one or more of
its other obligations in the 4 Year Notes (including, but not limited to, any provision of
Conditions 3) which default is incapable of remedy or is not remedied within 30 Business Days
after notice of such default shall have been given to the Issuer or to the Fiscal Agent at its
specified office by any Noteholder; or
(c) Breach of Covenant: the Issuer does not perform or observe the covenant set forth in
Condition 4 which default is incapable of remedy or is not remedied within 30 days after notice
of such default shall have been given to the Issuer and to Fiscal Agent at its specified office by
any Noteholder, by providing the Noteholders through the Fiscal Agent with an updated
certificate signed by one Authorised Officer of the Issuer, certifying that:
(i) the Pro Forma Unencumbered Total Assets Value, is not less than;
(ii) the Pro Forma Unsecured Debt;
35
and containing (i) the formulae for the calculation of the above amounts, and (ii) a statement as
to the correctness of such formulae. The Issuer shall deliver to the Noteholders through the
Fiscal Agent a separate report issued by the Issuer's auditors setting out the procedures used to
calculate the above amounts and reviewing the application of the formulae certified by the
Issuer; or
(d) Cross-Default: (i) any other present or future indebtedness of the Issuer or any of its Material
Subsidiaries (other than SFL) for or in respect of moneys borrowed or raised becomes due and
payable prior to its stated maturity by reason of any actual or potential default, event of default
or the like (howsoever described), or (ii) any such indebtedness is not paid when due or, as the
case may be, within any originally applicable grace period, or (iii) the Issuer or any of its
Material Subsidiaries fails to pay when due any amount payable by it under any present or
future guarantee for, or indemnity in respect of, any moneys borrowed or raised provided that
the aggregate amount of the relevant indebtedness, guarantees and indemnities in respect of
which one or more of the events mentioned above in this Condition 9 have occurred equals or
exceeds €10,000,000 or its equivalent (on the basis of the middle spot rate for the relevant
currency against the Euro as quoted by any leading bank on the day on which this Condition
9(d) operates); or
(e) Enforcement Proceedings: a distress, attachment, execution or other legal process is levied,
enforced or sued out on or against any part of the property, assets or revenues of the Issuer or
any of its Material Subsidiaries (other than SFL) and is not discharged or stayed within 60 days,
provided that the amount levied, enforced or sued on such distress, attachment or execution,
individually or in aggregate with any other amount levied, enforced or sued, exceeds
€10,000,000; or
(f) Security Enforced: any mortgage, charge, pledge, lien or other encumbrance, present or future,
created or assumed by the Issuer or any of its Material Subsidiaries (other than SFL) becomes
enforceable and any step is taken to enforce it (including the taking of possession or the
appointment of a receiver, administrative receiver, administrator, manager or other similar
person), provided that the individual or aggregate value of all assets subject to the enforcement
exceeds €10,000,000; or
(g) Insolvency: the Issuer or any of its Material Subsidiaries is (or is deemed by law or a court to
be) insolvent or bankrupt (concurso) or unable to pay its debts when due, or is declared or a
voluntary request has been submitted to a relevant court for the declaration of insolvency or
bankruptcy, stops, suspends or threatens to stop or suspend regular payment of its debts,
proposes or makes any agreement for the deferral, rescheduling or other readjustment of its
debts generally, proposes or makes a general assignment or an arrangement or composition with
or for the benefit of the relevant creditors in respect of any of such debts or a moratorium is
agreed or declared in respect of or affecting the debts of the Issuer or any of its Material
Subsidiaries generally; or
(h) Winding-up: an order is made or an effective resolution passed for the winding-up
(liquidación) or dissolution (disolución) of the Issuer or any of its Material Subsidiaries, or the
Issuer ceases or threatens to cease to carry on all or substantially all of its business or
operations, except for the purpose of and followed by a reconstruction, amalgamation,
reorganisation, merger or consolidation (i) on terms approved by an Extraordinary Resolution
of the Noteholders, or (ii) in the case of Material Subsidiary, whereby the undertaking and
assets of the Material Subsidiary are transferred to or otherwise vested in the Issuer or other of
its Subsidiaries; or
36
(i) Authorisation and Consents: any action, condition or thing (including the obtaining or
effecting of any necessary consent, approval, authorisation, exemption, filing, licence, order,
recording or registration) at any time required to be taken, fulfilled or done in order (i) to enable
the Issuer lawfully to enter into, exercise its rights and perform and comply with its obligations
under the 4 Year Notes, (ii) to ensure that those obligations are legally binding and enforceable
and (iii) to make the 4 Year Notes admissible in evidence in the courts of England is not taken,
fulfilled or done; or
(j) Illegality: it is or will become unlawful for the Issuer to perform or comply with any one or
more of its obligations under any of the 4 Year Notes; or
(k) Analogous Events: any event occurs which under the laws of any relevant jurisdiction has an
analogous effect to any of the events referred to in paragraphs (e), (f), (g), (h) and (j) of this
Condition 9;
then any 4 Year Note may, by notice in writing given to the Fiscal Agent at its specified office by the
holder, be declared immediately due and payable whereupon it shall become immediately due and
payable at its principal amount together with accrued interest without further formality.
In this Condition:
"Pro Forma Unencumbered Total Assets Value" means the Unencumbered Total Assets Value as at
the relevant Reference Date adjusted to include any event that has increased or decreased the
Unencumbered Total Assets Value between the relevant Reference Date and the corresponding
Reporting Date; and
"Pro Forma Unsecured Debt" means the Unsecured Debt as at the relevant Reference Date adjusted
to include any event that has increased or decreased the Unsecured Debt between the relevant
Reference Date and the corresponding Reporting Date.
10 Prescription
Claims in respect of principal and interest will become void unless presentation for payment is made as
required by Condition 7 within a period of 10 years in the case of principal and (subject to Condition
7(c)) five years in the case of interest from the appropriate Relevant Date.
11 Replacement of 4 Year Notes and Coupons
If any 4 Year Note or Coupon is lost, stolen, mutilated, defaced or destroyed it may be replaced at the
specified office of the Fiscal Agent subject to all applicable laws and stock exchange or other relevant
authority requirements, upon payment by the claimant of the expenses incurred in connection with
such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer
may require (provided that the requirement is reasonable in the light of prevailing market practice).
Mutilated or defaced 4 Year Notes or Coupons must be surrendered before replacements will be issued.
12 Meetings of Noteholders and Modification
(a) Meetings of Noteholders: The Fiscal Agency Agreement contains provisions for convening
meetings of Noteholders to consider matters affecting their interests, including the sanctioning
by Extraordinary Resolution of a modification of any of these 4 Year Notes Conditions. Such a
meeting may be convened by Noteholders holding not less than 10 per cent in principal amount
of the 4 Year Notes for the time being outstanding. The quorum for any meeting convened to
37
consider an Extraordinary Resolution will be one or more persons holding or representing a
clear majority in principal amount of the 4 Year Notes for the time being outstanding, or at any
adjourned meeting one or more persons being or representing Noteholders whatever the
principal amount of the 4 Year Notes held or represented, unless the business of such meeting
includes consideration of proposals, inter alia, (i) to modify the maturity of the 4 Year Notes or
the dates on which interest is payable in respect of the 4 Year Notes, (ii) to reduce or cancel the
principal amount of, or interest on, the 4 Year Notes, (iii) to change the currency of payment of
the 4 Year Notes or the Coupons, or (iv) to modify the provisions concerning the quorum
required at any meeting of Noteholders or the majority required to pass an Extraordinary
Resolution, in which case the necessary quorum will be one or more persons holding or
representing not less than 2/3, or at any adjourned meeting not less than 25 per cent, in principal
amount of the 4 Year Notes for the time being outstanding. Any Extraordinary Resolution duly
passed shall be binding on Noteholders (whether or not they were present at the meeting at
which such resolution was passed) and on all Couponholders.
(b) The Fiscal Agency Agreement provides that a resolution in writing signed by or on behalf of the
holders of not less than 2/3. in principal amount of the 4 Year Notes outstanding shall for all
purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of
Noteholders duly convened and held. Such a resolution in writing may be contained in one
document or several documents in the same form, each signed by or on behalf of one or more
Noteholders.
(c) Modification of Fiscal Agency Agreement: The Issuer shall only permit any modification of,
or any waiver or authorisation of any breach or proposed breach of or any failure to comply
with, the Fiscal Agency Agreement, if to do so could not reasonably be expected to be
prejudicial to the interests of the Noteholders.
13 Further Issues
The Issuer may from time to time without the consent of the Noteholders or Couponholders create and
issue further securities either having the same terms and conditions as the 4 Year Notes in all respects
(or in all respects except for the first payment of interest on them) and so that such further issue shall
be consolidated and form a single series with the outstanding securities of any series (including the 4
Year Notes) or upon such terms as the Issuer may determine at the time of their issue. References in
these 4 Year Notes Conditions to the 4 Year Notes include (unless the context requires otherwise) any
other securities issued pursuant to this Condition and forming a single series with the 4 Year Notes.
14 Notices
Notices to the Noteholders shall be valid if published in a leading English language daily newspaper
published in Dublin or, if such publication is not practicable, in a leading English language daily
newspaper having general circulation in Europe. Any such notice shall be deemed to have been given
on the date of first publication. Couponholders shall be deemed for all purposes to have notice of the
contents of any notice given to the Noteholders. For so long as the 4 Year Notes are admitted to trading
on the Irish Stock Exchange, the Issuer will also publish notices in accordance with the rules of the
Irish Stock Exchange.
Until such time as any definitive 4 Year Notes are issued, there may, so long as any global 4 Year Note
is held in its entirety on behalf of Euroclear and/or Clearstream, Luxembourg be substituted for such
publication as aforesaid the delivery of the relevant notice to Euroclear and/or Clearstream,
38
Luxembourg for communication by them to the Noteholders in accordance with their respective rules
and operating procedures. Any such notice shall be deemed to have been given to the Noteholders on
the day on which the notice was given to Euroclear and/or Clearstream, Luxembourg, as appropriate.
15 Currency Indemnity
Euro is the sole currency of account and payment for all sums payable by the Issuer under or in
connection with the 4 Year Notes and the Coupons, including damages. Any amount received or
recovered in a currency other than Euro (whether as a result of, or of the enforcement of, a judgment or
order of a court of any jurisdiction, in the insolvency, winding-up or dissolution of the Issuer or
otherwise) by any Noteholder or Couponholder in respect of any sum expressed to be due to it from
the Issuer shall only constitute a discharge to the Issuer to the extent of the Euro amount which the
recipient is able to purchase with the amount so received or recovered in that other currency on the
date of that receipt or recovery (or, if it is not practicable to make that purchase on that date, on the
first date on which it is practicable to do so). If that Euro amount is less than the Euro amount
expressed to be due to the recipient under any 4 Year Note or Coupon, the Issuer shall indemnify it
against any loss sustained by it as a result. In any event, the Issuer shall indemnify the recipient against
the cost of making any such purchase. For the purposes of this Condition, it will be sufficient for the
Noteholder or Couponholder, as the case may be, to demonstrate that it would have suffered a loss had
an actual purchase been made. These indemnities constitute a separate and independent obligation
from the Issuer’s other obligations, shall give rise to a separate and independent cause of action, shall
apply irrespective of any indulgence granted by any Noteholder or Couponholder and shall continue in
full force and effect despite any other judgment, order, claim or proof for a liquidated amount in
respect of any sum due under any 4 Year Note or Coupon or any other judgment or order.
16 Contracts (Rights of Third Parties) Act 1999
No person shall have any right to enforce any term or condition of the 4 Year Notes under the
Contracts (Rights of Third Parties) Act 1999.
17 Governing Law
(a) Governing Law: Save as described below, the 4 Year Notes, the Fiscal Agency Agreement and
any non-contractual obligations arising out of or in connection with the 4 Year Notes are
governed by English law. The status of the 4 Year Notes as described in Condition 2 is governed
by Spanish law.
(b) Jurisdiction: The courts of England are to have jurisdiction to settle any disputes which may
arise out of or in connection with the 4 Year Notes or the Coupons and accordingly any legal
action or proceedings arising out of or in connection with the 4 Year Notes or the Coupons
("Proceedings") may be brought in such courts. The Issuer irrevocably submits to the
jurisdiction of such courts and waives any objection to Proceedings in such courts whether on
the ground of venue or on the ground that the Proceedings have been brought in an
inconvenient forum. This Condition is for the benefit of each of the Noteholders and
Couponholders and shall not limit the right of any of them to take Proceedings in any other
court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions
preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not).
(c) Agent for Service of Process: The Issuer irrevocably appoints Law Debenture Corporate
Services Limited of Fifth floor 100 Wood St London EC2V 7EX as its agent in England to
39
receive service of process in any Proceedings in England based on any of the 4 Year Notes or
the Coupons. If for any reason the Issuer does not have such an agent in England, it will
promptly appoint a substitute process agent and notify the Noteholders of such appointment.
Nothing herein shall affect the right to serve process in any other manner permitted by law.
40
Terms and Conditions of the 8 Year Notes
The following, save for the paragraphs in italics, are the terms and conditions of the 8 Year Notes which will
be incorporated by reference into the global 8 Year Notes and endorsed on the 8 Year Notes in definitive form.
The issue of the €500,000,000 2.728 per cent. Notes due 2023 (the "8 Year Notes", which expression includes
any further notes issued pursuant to Condition 13 and forming a single series therewith) of Inmobiliaria
Colonial, S.A. (the "Issuer") was authorised by a resolution of the General Shareholders Meeting of the Issuer
passed on 24 April 2015 and by a resolution of the Board of Directors of the Issuer passed on 6 May 2015. A
fiscal agency agreement to be dated on or around 5 June 2015 (the "Fiscal Agency Agreement") will be
entered into in relation to the 8 Year Notes between the Issuer, Deutsche Bank AG, London Branch as fiscal
agent and the paying agents named in it. The fiscal agent and the paying agents for the time being are referred
to below respectively as the "Fiscal Agent" and the "Paying Agents" (which expression shall include the
Fiscal Agent). The Fiscal Agency Agreement includes the form of the 8 Year Notes and the coupons relating
to them (the "Coupons"). Copies of the Fiscal Agency Agreement (which contains these terms and conditions
of the 8 Year Notes (the "8 Year Notes Conditions")) are available for inspection during normal business
hours at the specified offices of the Paying Agents. The holders of the 8 Year Notes (the "Noteholders") and
the holders of the Coupons (whether or not attached to the relevant 8 Year Notes) (the "Couponholders") are
deemed to have notice of all the provisions of the Fiscal Agency Agreement applicable to them.
The Issuer will execute an escritura pública (the "Public Deed") before a Spanish notary public in relation to
the issue of the 8 Year Notes on or before 5 June 2015 (the "Closing Date"). The Public Deed contains,
among other information, these 8 Year Notes Conditions.
1 Form, Denomination and Title
(a) Form and denomination: The 8 Year Notes are serially numbered and in bearer form in the
denomination of €100,000, each with Coupons attached on issue.
(b) Title: Title to the 8 Year Notes and Coupons passes by delivery. The holder of any 8 Year Note
or Coupon will (except as otherwise required by law) be treated as its absolute owner for all
purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any
interest in it, any writing on it, or its theft or loss) and no person will be liable for so treating the
holder.
2 Status
The 8 Year Notes and Coupons constitute (subject to Condition 3) direct, general, unconditional and
unsecured obligations of the Issuer and in the event of insolvency (concurso) of the Issuer (unless they
qualify as subordinated debts under Article 92 of Law 22/2003 (Ley Concursal) dated 9 July 2003 (the
"Law 22/2003" or the "Insolvency Law") or equivalent legal provision which replaces it in the future
and subject to any legal and statutory exceptions) will rank pari passu without any preference among
themselves and with all other outstanding unsecured and unsubordinated indebtedness and monetary
obligations involving or otherwise related to borrowed money of the Issuer, present and future.
3 Negative Pledge
So long as any 8 Year Note or Coupon remains outstanding (as defined in the Fiscal Agency
Agreement), the Issuer will not, and will ensure that none of its Material Subsidiaries (other than
Société Foncière Lyonnaise S.A. ("SFL")) will create, or have outstanding, any Security Interest (other
than a Permitted Security Interest), upon the whole or any part of its present or future undertaking,
41
assets or revenues (including any uncalled capital) to secure any Relevant Indebtedness or to secure
any guarantee or indemnity in respect of any Relevant Indebtedness, without at the same time or prior
thereto according to the 8 Year Notes and the Coupons the same security as is created or subsisting to
secure any such Relevant Indebtedness, guarantee or indemnity or such other security as shall be
approved by an Extraordinary Resolution (as defined in the Fiscal Agency Agreement) of the
Noteholders.
In these 8 Year Notes Conditions:
"Material Subsidiary" means, at any relevant time, a Subsidiary of the Issuer:
(a) whose total assets or gross revenues (or, where the Subsidiary in question prepares consolidated
financial statements, whose total consolidated assets or gross consolidated revenues) at any
relevant time represent no less than 10 per cent. of the total consolidated assets or gross
consolidated revenues, respectively, of the Issuer and its Subsidiaries, as calculated by reference
to the then latest consolidated audited accounts or consolidated six-monthly reports of the
Issuer and the latest accounts or six-monthly reports of each relevant Subsidiary (consolidated
or, as the case may be, unconsolidated) prepared in accordance with IFRS EU, provided that in
the case of a Subsidiary acquired after the end of the financial period to which the then latest
consolidated audited accounts or consolidated six-monthly reports of the Issuer relate, then for
the purpose of applying each of the foregoing tests, the reference to the Issuer’s latest
consolidated audited accounts or consolidated six-monthly reports shall be deemed to be a
reference to such accounts or reports as if such Subsidiary had been shown therein by reference
to its then latest relevant financial statements, adjusted as deemed appropriate by the auditors of
the Issuer for the time being after consultation with the Issuer; or
(b) to which is transferred all or substantially all of the assets and undertaking of a Subsidiary
which, immediately prior to such transfer, is a Material Subsidiary;
"Permitted Security Interest" means any Security Interest created in respect of any Relevant
Indebtedness of a company which has merged with the Issuer or one of its Subsidiaries or which has
been acquired by the Issuer or one of its Subsidiaries, provided that such security was already in
existence at the time of the merger or the acquisition, was not created for the purpose of financing the
merger or the acquisition and is not increased in amount and not extended following the merger or the
acquisition;
"Relevant Indebtedness" means any indebtedness which is in the form of, or represented or evidenced
by, bonds, notes, debentures, loan stock or other securities which for the time being are, or are intended
to be or capable of being, quoted, listed or dealt in or traded on any stock exchange or over-the-counter
or other securities market;
"Security Interest" means, without duplication, any mortgage, charge, pledge, lien or other security
interest or other preferential interest or arrangement having a similar economic effect, excluding any
right of set-off, but including any conditional sale or other title retention arrangement or any finance
leases; and
"Subsidiary" means any entity whose financial statements at any time are required by law or in
accordance with generally accepted accounting principles to be fully consolidated with those of the
Issuer.
42
4 Covenants
For so long as any 8 Year Note or Coupon remains outstanding (as defined in the Fiscal Agency
Agreement), the Issuer shall:
(a) Unencumbered Assets: ensure that as at each Reference Date the Unencumbered Total Assets
Value will be at least equal to the Unsecured Debt;
(b) Notice to Noteholders: In addition to Condition 4(c) below, in the event that as at any Reference
Date the covenant in Condition 4(a) above is breached, promptly (and in any event no later than
the following relevant Reporting Date) notify the Noteholders in accordance with Condition 14;
and
(c) Certificate: deliver a certificate to the Noteholders through the Fiscal Agent on each Reporting
Date signed by one Authorised Officer of the Issuer, certifying that the Issuer is in compliance
with the covenant set out in Condition 4(a) above at the relevant Reference Date and containing
(i) the formulae for the calculation of the covenant, and (ii) a statement as to the correctness of
such formulae. The Issuer shall deliver to the Noteholders through the Fiscal Agent a separate
report issued by the Issuer's auditors setting out the procedures used to calculate the covenant
and reviewing the application of the formulae certified by the Issuer.
In these 8 Year Notes Conditions:
"Authorised Officer" means the Chief Executive Officer or the Chief Financial Officer of the Issuer,
or anyone delegated by the Board of Directors of the Issuer;
"Financial Indebtedness" means any indebtedness for or in respect of:
(a) moneys borrowed in whatever form;
(b) any amount raised by acceptance under any acceptance credit facility or dematerialised
equivalent;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes,
debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract which would, in
accordance with the International Financial Reporting Standards ("IFRS EU"), be treated as a
finance or capital lease;
(e) receivables sold or discounted (other than any receivables to the extent they are sold on a non-
recourse basis);
(f) any amount raised under any other transaction (including any forward sale or purchase
agreement) having the commercial effect of a borrowing, but excluding the deferred purchase
price of assets or services acquired in the ordinary course of business or otherwise arising from
normal trade credit;
(g) amounts representing the balance deferred and unpaid for a period of more than 365 days of the
purchase price of any property except any amount that constitutes an accrued expense or trade
payable;
(h) shares which are expressed to be redeemable;
43
(i) without double counting, any counter-indemnity obligation in respect of a guarantee, indemnity,
bond, standby or documentary letter of credit or any other instrument issued by a bank or
financial institution; and
(j) without double counting, the amount of any liability in respect of any guarantee or indemnity
for any of the items referred to in paragraphs (a) to (i) above;
"Group" means the Issuer and its consolidated Subsidiaries;
"Reference Date" means 30 June and 31 December of each year as the context requires provided that
the first Reference Date shall be 30 June 2015;
"Reporting Date" means a date falling no later than 30 days after (i) the approval by the Issuer’s
General Shareholders’ Meeting of the audited consolidated financial statements of the Issuer, with
respect to a Reference Date falling on 31 December, or (ii) the approval by the Issuer’s board of
directors of the Issuer's semi-annual consolidated financial statements, with respect to a Reference
Date falling on 30 June, provided that the first Reporting Date shall be the date falling no later than 30
days after the approval by the Issuer’s board of directors of the Issuer's semi-annual financial
statements as of and for the period ended 30 June 2015;
"Secured Debt" means, as at each Reference Date, that portion of the Total Debt that is secured by a
Security Interest on any assets of the Group;
"Total Assets of the Group" means, as at each Reference Date, the aggregate value of the total assets
of the Group as shown in the Issuer’s audited annual consolidated financial statements or in the
Issuer’s semi-annual consolidated financial statements (as applicable) prepared as of the relevant
Reference Date according to IFRS EU and adjusted to exclude any intangible assets and to include the
unrealised capital gain arising from the revaluation of the assets for own use as reported in the relevant
financial statements;
"Total Debt" means, as at each Reference Date, the aggregate amount of all Financial Indebtedness of
the Group as shown in the Issuer’s audited annual consolidated financial statements or in the Issuer’s
semi-annual consolidated financial statements (as applicable) for that Reference Date, excluding any
derivative transaction entered into in connection with protection against or benefit from fluctuation of
interest rates;
"Unencumbered Total Assets Value" means, as at each Reference Date, the value of the Total Assets
of the Group which are not subject to a Security Interest as shown in the Issuer’s audited annual
consolidated financial statements or in the Issuer’s semi-annual consolidated financial statements (as
applicable) prepared as of the relevant Reference Date; and
"Unsecured Debt" means, as at each Reference Date, that portion of the Total Debt that is not Secured
Debt.
5 Interest
(a) Interest rate: The 8 Year Notes bear interest from and including 5 June 2015 (the "Issue
Date") at the rate of 2.728 per cent. per annum, payable annually in arrear in equal instalments
of €2,728 per Calculation Amount (as defined below) on 5 June in each year (each an "Interest
Payment Date").
(b) Step-up: The interest rate payable on the Notes will be subject to adjustment from time to time
as follows:
44
(i) in the event the Notes have one Rating assigned by a Rating Agency, if such Rating
ceases to be an Investment Grade Rating or if such Investment Grade Rating is
withdrawn the interest rate will be increased by 1.25 per cent. per annum (the "Step-
up") with effect from, and including, the Interest Payment Date immediately following
the date the Notes cease to be assigned one Investment Grade Rating or such Investment
Grade Rating is withdrawn provided that, if the Notes are subsequently assigned an
Investment Grade Rating by a Rating Agency, the Step-up shall no longer apply from,
and including, the Interest Payment Date immediately following the date the Notes are
assigned an Investment Grade Rating; or
(ii) in the event the Notes have two Ratings assigned by the Rating Agencies at any time, if
either or both of the Ratings cease to be an Investment Grade Rating or if both
Investment Grade Ratings are withdrawn the interest rate will be increased by the Step-
up with effect from, and including, the Interest Payment Date immediately following the
date the Notes cease to be assigned two Investment Grade Ratings or both Investment
Grade Ratings are withdrawn provided that, if the Non-Investment Grade Ratings
assigned to the Notes are subsequently increased to Investment Grade Ratings resulting
in the Notes being assigned two Investment Grade Ratings or if the Notes are
subsequently assigned an Investment Grade Rating by one Rating Agency in the event
both such Investment Grade Ratings had been withdrawn, the Step-up shall no longer
apply from, and including, the Interest Payment Date immediately following the date the
Notes are assigned an Investment Grade Rating; or
(iii) in the event the Notes are assigned three Ratings by the Rating Agencies at any time, if
two of the three Ratings cease to be Investment Grade Rating or if all three Ratings are
withdrawn the interest rate will be increased by the Step-up with effect from, and
including, the Interest Payment Date immediately following the date the Notes cease to
be assigned at least two Investment Grade Ratings or all three Ratings are withdrawn
provided that, if the Non-Investment Grade Ratings assigned to the Notes are
subsequently increased to Investment Grade Ratings resulting in the Notes being
assigned at least two Investment Grade Ratings or if the Notes are subsequently
assigned an Investment Grade Rating by one Rating Agency in the event all three
Ratings had been withdrawn, the Step-up shall no longer apply from, and including, the
Interest Payment Date immediately following the date the Notes are assigned an
Investment Grade Rating;
If as described in the paragraphs above a Step-up comes into effect or subsequently no longer
applies, then the Issuer shall, without undue delay, after becoming aware thereof, give notice of
the Step-up or disapplication thereof, to the Noteholders in accordance with Condition 14.
The Step-up is not cumulative. Therefore, while the Step-up is in effect, any subsequent
assignment of Non-Investment Grade Ratings or the withdrawal of any Ratings by any Rating
Agencies will not trigger additional increases in the interest payable under the Notes, so that the
maximum interest rate payable in respect of the Notes at any one time will be 3.978 per cent.
per annum.
(c) Accrual of interest: Each 8 Year Note will cease to bear interest from the due date for
redemption unless, upon due presentation, payment of principal is improperly withheld or
refused. In such event it shall continue to bear interest at such rate (both before and after
judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such
8 Year Note up to that day are received by or on behalf of the relevant Noteholder, and (b) the
45
day seven days after the Fiscal Agent has notified the Noteholders of receipt of all sums due in
respect of all the 8 Year Notes up to that seventh day (except to the extent that there is failure in
the subsequent payment to the relevant holders under these 8 Year Notes Conditions).
Where interest is to be calculated in respect of a period which is equal to or shorter than an
Interest Period (as defined below), the day-count fraction used will be the number of days in the
relevant period, from and including the date from which interest begins to accrue to but
excluding the date on which it falls due, divided by the number of days in the Interest Period in
which the relevant period falls (including the first such day but excluding the last).
Interest in respect of any 8 Year Note shall be calculated per €100,000 in principal amount of
the 8 Year Notes (the "Calculation Amount"). The amount of interest payable per Calculation
Amount for any period shall, save as provided above in relation to equal instalments, be equal
to the product of 2.728 per cent. (plus 1.25 per cent. in case the Step-up is in effect), the
Calculation Amount and the day-count fraction for the relevant period, rounding the resulting
figure to the nearest cent (half a cent being rounded upwards).
In these 8 Year Notes Conditions:
"Interest Period" shall mean the period beginning on and including 5 June 2015 and ending on but
excluding the first Interest Payment Date and each successive period beginning on and including an
Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date;
"Investment Grade Rating" means the following Ratings: (a) with respect to S&P, any of the
categories from and including AAA to and including BBB- (or equivalent successor categories); (b)
with respect to Moody's, any of the categories from and including Aaa to and including Baa3 (or
equivalent successor categories); and (c) with respect to Fitch, any of the categories from and
including AAA to and including BBB- (or equivalent successor categories);
"Non-Investment Grade Rating" means the following Ratings: (a) with respect to S&P, any of the
categories below BBB- (or equivalent successor categories); (b) with respect to Moody’s, any of the
categories below Baa3 (or equivalent successor categories); and (c) with respect to Fitch, any of the
categories below BBB- (or equivalent successor categories);
"Rating Agency" means Moody’s Investors Service, Inc. ("Moody’s"), Fitch Ratings Ltd. ("Fitch") or
Standard & Poor's Credit Market Services Europe Limited, a division of The McGraw-Hill Companies
Inc. ("S&P") or any of their respective successors; and
"Ratings" means the rating BBB– assigned to the Notes by S&P on or before 5 June 2015 and in force
as of the Closing Date and any other ratings that may be assigned to the Notes by a Rating Agency
from time to time, at the invitation of the Issuer or by its own volition.
6 Redemption and Purchase
(a) Final redemption: Unless previously redeemed, or purchased and cancelled, the 8 Year Notes
will be redeemed at their principal amount on 5 June 2023 (the "Maturity Date"). The 8 Year
Notes may not be redeemed at the option of the Issuer other than in accordance with this
Condition.
(b) Redemption for taxation reasons: The 8 Year Notes may be redeemed at the option of the
Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days’
notice to the Noteholders (which notice shall be irrevocable), at their principal amount,
(together with interest accrued to the date fixed for redemption), if (i) the Issuer has or will
46
become obliged to pay additional amounts as provided or referred to in Condition 8 as a result
of any change in, or amendment to, the laws or regulations of the Kingdom of Spain or any
political subdivision or any authority thereof or therein having power to tax, or any change in
the application or official interpretation of such laws or regulations, which change or
amendment becomes effective on or after 5 June 2015, and (ii) such obligation cannot be
avoided by the Issuer taking reasonable measures available to it, provided that no such notice of
redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer
would be obliged to pay such additional amounts were a payment in respect of the 8 Year Notes
then due. Prior to the publication of any notice of redemption pursuant to this Condition 6(b),
the Issuer shall deliver to the Fiscal Agent a certificate signed by two directors of the Issuer
stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts
showing that the conditions precedent to the right of the Issuer so to redeem have occurred, and
an opinion of independent legal advisers of recognised standing to the effect that the Issuer has
or will become obliged to pay such additional amounts as a result of such change or
amendment.
(c) Redemption at the option of the Noteholders: A "Put Event" will be deemed to occur if:
(i) (A) any person or any persons acting in concert acquire Control of the Issuer (a
"Change of Control of the Issuer"); and
(B) on the date (the "Relevant Date") that is the earlier of (a) the date of the first
public announcement of the relevant Change of Control of the Issuer and (b) the
date of the earliest Relevant Potential Change of Control Announcement (if any),
the 8 Year Notes carry:
a. an Investment Grade Rating from any Rating Agency whether provided by
such Rating Agency at the invitation of the Issuer or by its own volition
and such rating is, within the Change of Control Period, either
downgraded to a Non-Investment Grade Rating or withdrawn and is not,
within the Change of Control Period, subsequently (in the case of a
downgrade) upgraded to an Investment Grade Rating by such Rating
Agency; or
b. a Non-Investment Grade Rating from any Rating Agency whether
provided by such Rating Agency at the invitation of the Issuer or by its
own volition and such rating is, within the Change of Control Period,
either downgraded by one or more rating categories (from Baa1 to Baa2
being or such similar lowering) or withdrawn and is not, within the
Change of Control Period, subsequently (in the case of a downgrade)
upgraded to its earlier credit rating or better by such Rating Agency; or
c. no credit rating and a Negative Rating Event also occurs within the
Change of Control Period,
provided that if upon the expiration of the Change of Control Period the Issuer
has at least one Investment Grade Rating then sub-paragraphs (B)a. and (B)b. will
not apply; and
(C) in making any decision to downgrade or withdraw a credit rating pursuant to
paragraphs (B)a. and (B)b. above or not to award at least an Investment Grade
Rating as described in paragraph (ii) of the definition of Negative Rating Event,
47
the relevant Rating Agency announces publicly or confirms in writing to the
Issuer that such decision(s) resulted, in whole or in part, from the occurrence of
the Change of Control of the Issuer or the Relevant Potential Change of Control
Announcement; and/or
(ii) the Issuer ceases:
(A) to hold or control, directly or indirectly, acting alone or in concert with others,
more than 50 per cent. of the Voting Rights of SFL; or
(B) to have the right, acting alone or in concert with others, to appoint and/or remove
all or the majority of the members of the SFL’s Board of Directors or other
governing body, whether obtained directly or indirectly, and whether obtained by
ownership of share capital, the possession of Voting Rights, contract or otherwise,
(in each case, a "Change of Control of SFL").
If a Put Event occurs, the holder of each 8 Year Note will have the option (a "Put Option")
(unless prior to the giving of the relevant Put Event Notice (as defined below) the Issuer has
given notice of redemption under Condition 6(b) or 6(d)) to require the Issuer to redeem or, at
the Issuer’s option, purchase (or procure the purchase of) that 8 Year Note on the Put Date (as
defined below) at its principal amount together with interest accrued to (but excluding) the Put
Date.
Promptly upon the Issuer becoming aware that a Put Event has occurred the Issuer shall without
delay give notice (a "Put Event Notice") to the Noteholders in accordance with Condition 14
specifying the nature of the Put Event, the procedure for exercising the Put Option and the date
on which the Put Period will end.
To exercise the Put Option, the holder of a 8 Year Note must deliver such 8 Year Note to the
specified office of any Paying Agent at any time during normal business hours of such Paying
Agent falling within the period (the "Put Period") of 30 days after a Put Event Notice is given,
accompanied by a duly signed and completed notice of exercise in the form (for the time being
current) obtainable from the specified office of any Paying Agent (a "Put Notice"). The 8 Year
Note should be delivered together with all Coupons appertaining thereto maturing after the date
which is seven days after the expiration of the Put Period (the "Put Date"), failing which the
Paying Agent will require payment from or on behalf of the Noteholder of an amount equal to
the face value of any missing such Coupon. Any amount so paid will be reimbursed to the
Noteholder against presentation and surrender of the relevant missing Coupon (or any
replacement thereof issued pursuant to Condition 11) at any time after such payment, but before
the expiry of the period of five years from the date on which such Coupon would have become
due, but not thereafter. The Paying Agent to which such 8 Year Note and Put Notice are
delivered will issue to the Noteholder concerned a non-transferable receipt in respect of the 8
Year Note so delivered. Payment in respect of any 8 Year Note so delivered will be made, if the
holder duly specified a bank account in the Put Notice to which payment is to be made, on the
Put Date by transfer to that bank account and, in every other case, on or after the Put Date
against presentation and surrender or (as the case may be) endorsement of such receipt at the
specified office of any Paying Agent. A Put Notice, once given, shall be irrevocable. For the
purposes of these 8 Year Notes Conditions, receipts issued pursuant to Condition 14 shall be
treated as if they were 8 Year Notes. The Issuer shall redeem or purchase (or procure the
purchase of) the relevant 8 Year Notes on the Put Date unless previously redeemed (or
purchased) and cancelled.
48
If 85 per cent. or more in principal amount of the 8 Year Notes then outstanding have been
redeemed or purchased pursuant to this Condition 6(c), the Issuer may, on giving not less than
30 nor more than 60 days’ notice to the Noteholders (such notice being given within 30 days
after the Put Date), redeem or purchase (or procure the purchase of), at its option, all but not
some only of the remaining outstanding 8 Year Notes at their principal amount, together with
interest accrued to (but excluding) the date fixed for such redemption or purchase.
If the rating designations employed by any of Moody’s, Fitch or S&P are changed from those
which are described in paragraph (i)(B) of the definition of "Put Event" above, the Issuer shall
determine the rating designations of Moody’s, Fitch or S&P (as appropriate) as are most
equivalent to the prior rating designations of Moody’s, Fitch or S&P and this Condition 6(c)
shall be construed accordingly.
In this Condition:
"Change of Control Period" means the period commencing on and including the Relevant
Date in relation to a Change of Control of the Issuer and ending 90 days after the Change of
Control of the Issuer (or such longer period for which the 8 Year Notes are under consideration
(such consideration having been announced publicly within the period ending 90 days after the
Change of Control of the Issuer) for rating review or, as the case may be, rating by a Rating
Agency, such period not to exceed 60 days after the public announcement of such
consideration);
"Control" has the meaning assigned to that term in Article 42(1) of the Spanish Commercial
Code;
a "Negative Rating Event" shall be deemed to have occurred if at such time as there is no
rating assigned to the 8 Year Notes by a Rating Agency (i) the Issuer does not, either prior to, or
not later than 21 days after, the occurrence of the Change of Control of the Issuer seek, and
thereafter throughout the Change of Control Period use all reasonable endeavours to obtain, a
rating of the 8 Year Notes, or any other unsecured and unsubordinated debt of the Issuer or (ii)
if the Issuer does so seek and use such endeavours, it is unable to obtain such a rating of at least
Investment Grade Rating by the end of the Change of Control Period;
"Relevant Potential Change of Control Announcement" means any public announcement or
statement by the Issuer, any actual or potential bidder or any adviser acting on behalf of any
actual or potential bidder relating to any potential Change of Control of the Issuer where within
180 days following the date of such announcement or statement, a Change of Control of the
Issuer occurs; and
"Voting Rights" means, in respect of any person, the right generally to vote at a general
meeting of shareholders of such person (irrespective of whether or not, at the time, stock of any
other class or classes shall have, or might have, voting power by reason of the happening of any
contingency).
(d) Redemption at the option of the Issuer: The Issuer may at any time prior to the Maturity
Date, on giving not less than 30 nor more than 60 days’ notice to the Noteholders in accordance
with Condition 14 (which notice shall be irrevocable and shall specify the date fixed for
redemption (the "Optional Redemption Date")), redeem all, but not some only, of the 8 Year
Notes at a redemption price per 8 Year Note equal to the Make Whole Amount together with
interest accrued to but excluding the Optional Redemption Date.
49
Any notice of redemption given under this Condition 6(d) will override any notice of
redemption given (whether previously, on the same date or subsequently) under Conditions 6(b)
or 6(c).
In these 8 Year Notes Conditions:
"Business Day" means a day (other than a Saturday, Sunday or public holiday) on which
commercial banks and foreign exchange markets settle payments and are open for general
business (including dealing in foreign exchange and foreign currency deposits) in London and
on which the TARGET System is operating;
"Independent Financial Adviser" means an independent financial institution of international
and reputable standing appointed by the Issuer in good faith and at its own expense;
"Make Whole Amount" means the higher of:
(i) 100.00 per cent. of the principal amount of the 8 Year Note; and
(ii) the sum of the present values of the remaining scheduled payments of principal and
interest (not including any interest accrued on the 8 Year Notes to, but excluding, the
Optional Redemption Date) discounted to the Optional Redemption Date on an annual
basis (actual number of days elapsed divided by 365 or (in the case of a leap year) by
366) at a rate equal to the Reference Rate (as defined below) plus 0.400 per cent. in
respect of the number of years to the Maturity Date of the 8 Year Notes calculated by the
Issuer;
"Reference Bund" means the Euro 1.50 per cent. German Federal Government Bund of
Bundesrepublik Deutschland due 15 May 2023, with ISIN DE0001102317;
"Reference Dealers" means each of the four banks (that may include any of the Joint Lead
Managers) selected by an Independent Financial Adviser which are primary European
government security dealers, and their respective successors, or market makers in pricing
corporate bond issues;
"Reference Rate" means the average of the four quotations given by the Relevant Dealers of
the mid-market annual yield of the Reference Bund on the fourth Business Day preceding the
Optional Redemption Date at 11.00 a.m. (Central European Time (CET)). If the Reference
Bund is no longer outstanding, a Similar Security will be chosen by an Independent Financial
Adviser at 11.00 a.m. (CET) on the third Business Day in London preceding the Optional
Redemption Date, quoted in writing by such Independent Financial Adviser;
"Similar Security" means a reference bond or reference bonds issued by the German Federal
Government having an actual or interpolated maturity comparable with the remaining term of
the 8 Year Notes that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of comparable maturity to
the remaining term of the 8 Year Notes;
"TARGET2" means the Trans-European Automated Real-Time Gross Settlement Express
Transfer payment system which utilises a single shared platform and which was launched on 19
November 2007;
"TARGET Settlement Day" means any day on which TARGET2 is open for the settlement of
payments in euro; and
50
"TARGET System" means the TARGET2 system.
(e) Notice of redemption: All 8 Year Notes in respect of which any notice of redemption is given
under this Condition shall be redeemed on the date specified in such notice in accordance with
this Condition.
(f) Purchase: Each of the Issuer and its Subsidiaries (as defined in the Fiscal Agency Agreement)
may at any time purchase 8 Year Notes in the open market or otherwise at any price (provided
that, if they should be cancelled under Condition 6(g) below, they are purchased together with
all unmatured Coupons relating to them). The 8 Year Notes so purchased, while held by or on
behalf of the Issuer or any such Subsidiary, shall not entitle the holder to vote at any meetings
of the Noteholders and shall not be deemed to be outstanding for the purposes of calculating
quorums at meetings of the Noteholders or for the purposes of Condition 12(a).
(g) Cancellation: All 8 Year Notes so redeemed or purchased and any unmatured Coupons
attached to or surrendered with them (other than any 8 Year Notes or Coupons purchased in the
ordinary course of a business of dealing in securities) will be cancelled and may not be re-
issued or resold.
7 Payments
(a) Method of Payment: Payments of principal and interest will be made against presentation and
surrender (or, in the case of a partial payment, endorsement) of 8 Year Notes or the appropriate
Coupons (as the case may be) at the specified office of any Paying Agent outside the United
States by Euro cheque drawn on, or by transfer to a Euro account (or other account to which
Euro may be credited or transferred) maintained by the payee with, a bank in a city in which
banks have access to the TARGET System. Payments of interest due in respect of any 8 Year
Note other than on presentation and surrender of matured Coupons shall be made only against
presentation and either surrender or endorsement (as appropriate) of the relevant 8 Year Note.
(b) Payments subject to laws: All payments are subject in all cases to any applicable fiscal or
other laws and regulations in the place of payment, but without prejudice to the provisions of
Condition 8. No commissions or expenses shall be charged to the Noteholders or
Couponholders in respect of such payments.
(c) Surrender of unmatured Coupons: Each 8 Year Note should be presented for redemption
together with all unmatured Coupons relating to it, failing which the amount of any such
missing unmatured Coupon (or, in the case of payment not being made in full, that proportion
of the amount of such missing unmatured Coupon which the sum of principal so paid bears to
the total principal amount due) will be deducted from the sum due for payment. Each amount of
principal so deducted will be paid in the manner mentioned above against surrender of the
relevant missing Coupon not later than 10 years after the Relevant Date (as defined in
Condition 8) for the relevant payment of principal.
(d) Payments on business days: A 8 Year Note or Coupon may only be presented for payment on a
day which is a business day in the place of presentation. No further interest or other payment
will be made as a consequence of the day on which the relevant 8 Year Note or Coupon may be
presented for payment under this Condition 7 falling after the due date. In this paragraph,
"business day" means, in respect of any place of presentation, any day on which banks are
open for presentation and payment of bearer debt securities and for dealings in foreign
51
currencies in such place of presentation and, in the case of payment by transfer to a Euro
account as referred to above, on which the TARGET System is open.
(e) Paying Agents: The initial Paying Agents and their initial specified offices are listed below.
The Issuer reserves the right at any time to vary or terminate the appointment of any Paying
Agent and appoint additional or other Paying Agents, provided that it will maintain (i) a Fiscal
Agent, (ii) Paying Agents having specified offices in at least one major European city and (iii) a
Paying Agent with a specified office in a European Union member state that will not be obliged
to withhold or deduct tax pursuant to any law implementing European Council Directive
2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council
meeting of 26-27 November 2000.
8 Taxation
All payments of principal and interest by or on behalf of the Issuer in respect of the 8 Year Notes and
the Coupons shall be made free and clear of, and without withholding or deduction for, any taxes,
duties, assessments or governmental charges of whatever nature (collectively, "Taxes") imposed,
levied, collected, withheld or assessed by or on behalf the Kingdom of Spain or any authority therein
or thereof having power to tax (the "Spanish Tax Authorities"), unless such withholding or deduction
is required by law. In that event the Issuer shall pay such additional amounts as will result in receipt by
the Noteholders and the Couponholders of such amounts as would have been received by them had no
such withholding or deduction been required, except that no such additional amounts shall be payable
in respect of any 8 Year Note or Coupon presented for payment:
(a) Other connection: by or on behalf of a holder or beneficial owner who is liable to such taxes,
duties, assessments or governmental charges in respect of such 8 Year Note or Coupon by
reason of his having some connection with Spain other than the mere holding of the 8 Year Note
or Coupon; or
(b) Presentation more than 30 days after the Relevant Date: more than 30 days after the Relevant
Date except to the extent that the holder of it would have been entitled to such additional
amounts on presenting such 8 Year Note or Coupon for payment on the last day of such period
of 30 days; or
(c) Payment to individuals: where such withholding or deduction is imposed on a payment to an
individual and is required to be made pursuant to European Council Directive 2003/48/EC or
any other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27
November 2000 on the taxation of savings income or any law implementing or complying with,
or introduced in order to conform to, such Directive (including the Amending Directive); or
(d) Payment by another Paying Agent: by or on behalf of a Noteholder or a Couponholder who
would have been able to avoid such withholding or deduction by presenting the relevant 8 Year
Note or Coupon to another Paying Agent in a European Union member state; or
(e) Information requested by Spanish Tax Authorities: while the 8 Year Notes are represented by
Global Notes and the Global Notes are deposited with a common depositary for Euroclear
and/or Clearstream, Luxembourg, to, or to a third party on behalf of, a Noteholder who does not
provide to the Issuer or an agent acting on behalf of the Issuer the information concerning such
Noteholder as may be required in order to comply with the procedures that may be
implemented to comply with the interpretation of Royal Decree 1065/2007 as eventually made
by the Spanish Tax Authorities; or
52
(f) Information requested by Spanish Tax Authorities: while the 8 Year Notes are represented by
definitive 8 Year Notes, to, or to a third party on behalf of, a Noteholder who does not to
comply with the Issuer’s request to provide a valid certificate of tax residence duly issued by
the tax authorities of the country of tax residence of the beneficial owner of 8 Year Notes,
which the Noteholder or the beneficial owner is required to provide by the applicable tax laws
and regulations of the relevant taxing authority as a precondition to exemption from, or
reduction in the rate of deduction or withholding of, Taxes imposed by such relevant taxing
authority; or
(g) Presentation for payment in the Kingdom of Spain: presented for payment in the Kingdom of
Spain; or
(h) Any combination of items (a) through (g) above.
For the avoidance of doubt, payments will be subject in all cases to any withholding or deduction
required pursuant to an agreement described in Section 1471(b) of the Code or otherwise imposed
pursuant to Sections 1471 through 1474 of the Code (or any amended or successor version of such
sections that is substantively comparable and not materially more onerous to comply with), any
regulations or agreements thereunder, any official interpretations thereof, and any law implementing an
intergovernmental approach thereto, as provided in Condition 7. No additional amounts will be paid on
the 8 Year Notes with respect to any such withholding or deduction.
"Relevant Date" means whichever is the later of (i) the date on which such payment first becomes due
and (ii) if the full amount payable has not been received by the Fiscal Agent on or prior to such due
date, the date on which, the full amount having been so received, notice to that effect shall have been
given to the Noteholders. Any reference in these 8 Year Notes Conditions to principal and/or interest
shall be deemed to include any additional amounts which may be payable under this Condition 8.
9 Events of Default
If any of the following events occurs and is continuing:
(a) Non-Payment: the Issuer fails to pay the principal or any interest on any of the 8 Year Notes
when due and such failure continues for a period of seven days in the case of principal and 14
days in the case of interest; or
(b) Breach of Other Obligations: the Issuer does not perform or comply with any one or more of
its other obligations in the 8 Year Notes (including, but not limited to, any provision of
Conditions 3) which default is incapable of remedy or is not remedied within 30 Business Days
after notice of such default shall have been given to the Issuer or to the Fiscal Agent at its
specified office by any Noteholder; or
(c) Breach of Covenant: the Issuer does not perform or observe the covenant set forth in
Condition 4 which default is incapable of remedy or is not remedied within 30 days after notice
of such default shall have been given to the Issuer and to Fiscal Agent at its specified office by
any Noteholder, by providing the Noteholders through the Fiscal Agent with an updated
certificate signed by one Authorised Officer of the Issuer, certifying that:
(i) the Pro Forma Unencumbered Total Assets Value, is not less than;
(ii) the Pro Forma Unsecured Debt;
53
and containing (i) the formulae for the calculation of the above amounts, and (ii) a statement as
to the correctness of such formulae. The Issuer shall deliver to the Noteholders through the
Fiscal Agent a separate report issued by the Issuer's auditors setting out the procedures used to
calculate the above amounts and reviewing the application of the formulae certified by the
Issuer; or
(d) Cross-Default: (i) any other present or future indebtedness of the Issuer or any of its Material
Subsidiaries (other than SFL) for or in respect of moneys borrowed or raised becomes due and
payable prior to its stated maturity by reason of any actual or potential default, event of default
or the like (howsoever described), or (ii) any such indebtedness is not paid when due or, as the
case may be, within any originally applicable grace period, or (iii) the Issuer or any of its
Material Subsidiaries fails to pay when due any amount payable by it under any present or
future guarantee for, or indemnity in respect of, any moneys borrowed or raised provided that
the aggregate amount of the relevant indebtedness, guarantees and indemnities in respect of
which one or more of the events mentioned above in this Condition 9 have occurred equals or
exceeds €10,000,000 or its equivalent (on the basis of the middle spot rate for the relevant
currency against the Euro as quoted by any leading bank on the day on which this Condition
9(d) operates); or
(e) Enforcement Proceedings: a distress, attachment, execution or other legal process is levied,
enforced or sued out on or against any part of the property, assets or revenues of the Issuer or
any of its Material Subsidiaries (other than SFL) and is not discharged or stayed within 60 days,
provided that the amount levied, enforced or sued on such distress, attachment or execution,
individually or in aggregate with any other amount levied, enforced or sued, exceeds
€10,000,000; or
(f) Security Enforced: any mortgage, charge, pledge, lien or other encumbrance, present or future,
created or assumed by the Issuer or any of its Material Subsidiaries (other than SFL) becomes
enforceable and any step is taken to enforce it (including the taking of possession or the
appointment of a receiver, administrative receiver, administrator, manager or other similar
person), provided that the individual or aggregate value of all assets subject to the enforcement
exceeds €10,000,000; or
(g) Insolvency: the Issuer or any of its Material Subsidiaries is (or is deemed by law or a court to
be) insolvent or bankrupt (concurso) or unable to pay its debts when due, or is declared or a
voluntary request has been submitted to a relevant court for the declaration of insolvency or
bankruptcy, stops, suspends or threatens to stop or suspend regular payment of its debts,
proposes or makes any agreement for the deferral, rescheduling or other readjustment of its
debts generally, proposes or makes a general assignment or an arrangement or composition with
or for the benefit of the relevant creditors in respect of any of such debts or a moratorium is
agreed or declared in respect of or affecting the debts of the Issuer or any of its Material
Subsidiaries generally; or
(h) Winding-up: an order is made or an effective resolution passed for the winding-up
(liquidación) or dissolution (disolución) of the Issuer or any of its Material Subsidiaries, or the
Issuer ceases or threatens to cease to carry on all or substantially all of its business or
operations, except for the purpose of and followed by a reconstruction, amalgamation,
reorganisation, merger or consolidation (i) on terms approved by an Extraordinary Resolution
of the Noteholders, or (ii) in the case of Material Subsidiary, whereby the undertaking and
assets of the Material Subsidiary are transferred to or otherwise vested in the Issuer or other of
its Subsidiaries; or
54
(i) Authorisation and Consents: any action, condition or thing (including the obtaining or
effecting of any necessary consent, approval, authorisation, exemption, filing, licence, order,
recording or registration) at any time required to be taken, fulfilled or done in order (i) to enable
the Issuer lawfully to enter into, exercise its rights and perform and comply with its obligations
under the 8 Year Notes, (ii) to ensure that those obligations are legally binding and enforceable
and (iii) to make the 8 Year Notes admissible in evidence in the courts of England is not taken,
fulfilled or done; or
(j) Illegality: it is or will become unlawful for the Issuer to perform or comply with any one or
more of its obligations under any of the 8 Year Notes; or
(k) Analogous Events: any event occurs which under the laws of any relevant jurisdiction has an
analogous effect to any of the events referred to in paragraphs (e), (f), (g), (h) and (j) of this
Condition 9;
then any 8 Year Note may, by notice in writing given to the Fiscal Agent at its specified office by the
holder, be declared immediately due and payable whereupon it shall become immediately due and
payable at its principal amount together with accrued interest without further formality.
In this Condition:
"Pro Forma Unencumbered Total Assets Value" means the Unencumbered Total Assets Value as at
the relevant Reference Date adjusted to include any event that has increased or decreased the
Unencumbered Total Assets Value between the relevant Reference Date and the corresponding
Reporting Date; and
"Pro Forma Unsecured Debt" means the Unsecured Debt as at the relevant Reference Date adjusted
to include any event that has increased or decreased the Unsecured Debt between the relevant
Reference Date and the corresponding Reporting Date.
10 Prescription
Claims in respect of principal and interest will become void unless presentation for payment is made as
required by Condition 7 within a period of 10 years in the case of principal and (subject to Condition
7(c)) five years in the case of interest from the appropriate Relevant Date.
11 Replacement of 8 Year Notes and Coupons
If any 8 Year Note or Coupon is lost, stolen, mutilated, defaced or destroyed it may be replaced at the
specified office of the Fiscal Agent subject to all applicable laws and stock exchange or other relevant
authority requirements, upon payment by the claimant of the expenses incurred in connection with
such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer
may require (provided that the requirement is reasonable in the light of prevailing market practice).
Mutilated or defaced 8 Year Notes or Coupons must be surrendered before replacements will be issued.
12 Meetings of Noteholders and Modification
(a) Meetings of Noteholders: The Fiscal Agency Agreement contains provisions for convening
meetings of Noteholders to consider matters affecting their interests, including the sanctioning
by Extraordinary Resolution of a modification of any of these 8 Year Notes Conditions. Such a
meeting may be convened by Noteholders holding not less than 10 per cent in principal amount
of the 8 Year Notes for the time being outstanding. The quorum for any meeting convened to
55
consider an Extraordinary Resolution will be one or more persons holding or representing a
clear majority in principal amount of the 8 Year Notes for the time being outstanding, or at any
adjourned meeting one or more persons being or representing Noteholders whatever the
principal amount of the 8 Year Notes held or represented, unless the business of such meeting
includes consideration of proposals, inter alia, (i) to modify the maturity of the 8 Year Notes or
the dates on which interest is payable in respect of the 8 Year Notes, (ii) to reduce or cancel the
principal amount of, or interest on, the 8 Year Notes, (iii) to change the currency of payment of
the 8 Year Notes or the Coupons, or (iv) to modify the provisions concerning the quorum
required at any meeting of Noteholders or the majority required to pass an Extraordinary
Resolution, in which case the necessary quorum will be one or more persons holding or
representing not less than 2/3, or at any adjourned meeting not less than 25 per cent, in principal
amount of the 8 Year Notes for the time being outstanding. Any Extraordinary Resolution duly
passed shall be binding on Noteholders (whether or not they were present at the meeting at
which such resolution was passed) and on all Couponholders.
(b) The Fiscal Agency Agreement provides that a resolution in writing signed by or on behalf of the
holders of not less than 2/3. in principal amount of the 8 Year Notes outstanding shall for all
purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of
Noteholders duly convened and held. Such a resolution in writing may be contained in one
document or several documents in the same form, each signed by or on behalf of one or more
Noteholders.
(c) Modification of Fiscal Agency Agreement: The Issuer shall only permit any modification of,
or any waiver or authorisation of any breach or proposed breach of or any failure to comply
with, the Fiscal Agency Agreement, if to do so could not reasonably be expected to be
prejudicial to the interests of the Noteholders.
13 Further Issues
The Issuer may from time to time without the consent of the Noteholders or Couponholders create and
issue further securities either having the same terms and conditions as the 8 Year Notes in all respects
(or in all respects except for the first payment of interest on them) and so that such further issue shall
be consolidated and form a single series with the outstanding securities of any series (including the 8
Year Notes) or upon such terms as the Issuer may determine at the time of their issue. References in
these 8 Year Notes Conditions to the 8 Year Notes include (unless the context requires otherwise) any
other securities issued pursuant to this Condition and forming a single series with the 8 Year Notes.
14 Notices
Notices to the Noteholders shall be valid if published in a leading English language daily newspaper
published in Dublin or, if such publication is not practicable, in a leading English language daily
newspaper having general circulation in Europe. Any such notice shall be deemed to have been given
on the date of first publication. Couponholders shall be deemed for all purposes to have notice of the
contents of any notice given to the Noteholders. For so long as the 8 Year Notes are admitted to trading
on the Irish Stock Exchange, the Issuer will also publish notices in accordance with the rules of the
Irish Stock Exchange.
Until such time as any definitive 8 Year Notes are issued, there may, so long as any global 8 Year Note
is held in its entirety on behalf of Euroclear and/or Clearstream, Luxembourg be substituted for such
publication as aforesaid the delivery of the relevant notice to Euroclear and/or Clearstream,
56
Luxembourg for communication by them to the Noteholders in accordance with their respective rules
and operating procedures. Any such notice shall be deemed to have been given to the Noteholders on
the day on which the notice was given to Euroclear and/or Clearstream, Luxembourg, as appropriate.
15 Currency Indemnity
Euro is the sole currency of account and payment for all sums payable by the Issuer under or in
connection with the 8 Year Notes and the Coupons, including damages. Any amount received or
recovered in a currency other than Euro (whether as a result of, or of the enforcement of, a judgment or
order of a court of any jurisdiction, in the insolvency, winding-up or dissolution of the Issuer or
otherwise) by any Noteholder or Couponholder in respect of any sum expressed to be due to it from
the Issuer shall only constitute a discharge to the Issuer to the extent of the Euro amount which the
recipient is able to purchase with the amount so received or recovered in that other currency on the
date of that receipt or recovery (or, if it is not practicable to make that purchase on that date, on the
first date on which it is practicable to do so). If that Euro amount is less than the Euro amount
expressed to be due to the recipient under any 8 Year Note or Coupon, the Issuer shall indemnify it
against any loss sustained by it as a result. In any event, the Issuer shall indemnify the recipient against
the cost of making any such purchase. For the purposes of this Condition, it will be sufficient for the
Noteholder or Couponholder, as the case may be, to demonstrate that it would have suffered a loss had
an actual purchase been made. These indemnities constitute a separate and independent obligation
from the Issuer’s other obligations, shall give rise to a separate and independent cause of action, shall
apply irrespective of any indulgence granted by any Noteholder or Couponholder and shall continue in
full force and effect despite any other judgment, order, claim or proof for a liquidated amount in
respect of any sum due under any 8 Year Note or Coupon or any other judgment or order.
16 Contracts (Rights of Third Parties) Act 1999
No person shall have any right to enforce any term or condition of the 8 Year Notes under the
Contracts (Rights of Third Parties) Act 1999.
17 Governing Law
(a) Governing Law: Save as described below, the 8 Year Notes, the Fiscal Agency Agreement and
any non-contractual obligations arising out of or in connection with the 8 Year Notes are
governed by English law. The status of the 8 Year Notes as described in Condition 2 is governed
by Spanish law.
(b) Jurisdiction: The courts of England are to have jurisdiction to settle any disputes which may
arise out of or in connection with the 8 Year Notes or the Coupons and accordingly any legal
action or proceedings arising out of or in connection with the 8 Year Notes or the Coupons
("Proceedings") may be brought in such courts. The Issuer irrevocably submits to the
jurisdiction of such courts and waives any objection to Proceedings in such courts whether on
the ground of venue or on the ground that the Proceedings have been brought in an
inconvenient forum. This Condition is for the benefit of each of the Noteholders and
Couponholders and shall not limit the right of any of them to take Proceedings in any other
court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions
preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not).
(c) Agent for Service of Process: The Issuer irrevocably appoints Law Debenture Corporate
Services Limited of Fifth floor 100 Wood St London EC2V 7EX as its agent in England to
57
receive service of process in any Proceedings in England based on any of the 8 Year Notes or
the Coupons. If for any reason the Issuer does not have such an agent in England, it will
promptly appoint a substitute process agent and notify the Noteholders of such appointment.
Nothing herein shall affect the right to serve process in any other manner permitted by law.
58
Summary of Provisions relating to the Notes while in Global Form
The Fiscal Agency Agreement, each Temporary Global Note and each Global Note contain provisions which
apply to the relevant Notes while they are in global form, some of which modify the effect of the terms and
conditions of the relevant Notes set out in this document. The following is a summary of certain of those
provisions:
1 Collateral for Eurosystem operations
The Notes will be issued in NGN form. On 13 June 2006 the European Central Bank (the "ECB")
announced that Notes in NGN form are in compliance with the "Standards for the use of EU securities
settlement systems in ESCB credit operations" of the central banking system for the euro (the
"Eurosystem"), provided that certain other criteria are fulfilled. At the same time the ECB also
announced that arrangements for Notes in NGN form will be offered by Euroclear and Clearstream,
Luxembourg as of 30 June 2006 and that debt securities in global bearer form issued through Euroclear
and Clearstream, Luxembourg after 31 December 2006 will only be eligible as collateral for
Eurosystem operations if the NGN form is used.
2 Nominal Amount and Exchange
The nominal amount of the 4 Year Notes and the 8 Year Notes shall be the aggregate amount from time
to time entered in the relevant records of Euroclear and Clearstream, Luxembourg or any permitted
alternative clearing system (the "Alternative Clearing System") (each a "relevant Clearing
System"). The records of such relevant Clearing System shall be conclusive evidence of the nominal
amount of the relevant Notes represented by the relevant Temporary Global Note and the relevant
Global Note and a statement issued by such relevant Clearing System at any time shall be conclusive
evidence of the records of that relevant Clearing System at that time.
Each Temporary Global Note is exchangeable in whole or in part for interests recorded in the records
of the relevant Clearing Systems in the relevant Global Note on or after a date which is expected to be
15 July 2015, upon certification as to non-U.S. beneficial ownership in the form set out in the
Temporary Global Note. Each Global Note is exchangeable in whole but not, except as provided in the
next paragraph, in part (free of charge to the holder) for Definitive Notes described below (i) if the
relevant Global Note is held on behalf of a relevant Clearing System and such relevant Clearing
System is closed for business for a continuous period of 14 days (other than by reason of holidays,
statutory or otherwise) or announces an intention permanently to cease business or does in fact do so
or (ii) if principal in respect of any Notes is not paid when due and payable. Thereupon, the holder may
give notice to the Fiscal Agent of its intention to exchange the relevant Global Note for Definitive
Notes on or after the Exchange Date specified in the notice.
If principal in respect of a series of Notes is not paid when due and payable the holder of the relevant
Global Note may, by notice to the Fiscal Agent (which may but need not be the default notice referred
to in "—Default" below), require the exchange of a specified principal amount of the relevant Global
Note (which may be equal to or (provided that, if the relevant Global Note is held by or on behalf of a
clearing system, that clearing system agrees) less than the outstanding principal amount of relevant
Notes represented thereby) for Definitive Notes on or after the Exchange Date (as defined below)
specified in such notice.
On or after any Exchange Date the holder of the relevant Global Note may surrender the relevant
Global Note or, in the case of a partial exchange, present it for endorsement to or to the order of the
Fiscal Agent. In exchange for the relevant Global Note, or on endorsement in respect of the part
59
thereof to be exchanged, the Issuer shall deliver, or procure the delivery of, an equal aggregate
principal amount of duly executed and authenticated Definitive Notes (having attached to them all
Coupons in respect of interest which has not already been paid on the relevant Global Note), security
printed in accordance with any applicable legal and stock exchange requirements and in or
substantially in the form set out in Schedule 1 to the Fiscal Agency Agreement. On exchange in full of
the relevant Global Note, the Issuer will, if the holder so requests, procure that it is cancelled and
returned to the holder together with any relevant Definitive Notes.
"Exchange Date" means a day falling not less than 60 days or, in the case of exchange pursuant to (ii)
above, 30 days, after that on which the notice requiring exchange is given and on which banks are
open for business in the city in which the specified office of the Fiscal Agent is located and, except in
the case of exchange pursuant to (i) above, in the cities in which the relevant clearing system is
located.
3 Payments
No payment will be made on a relevant Temporary Global Note unless exchange for an interest in the
relevant Global Note is improperly withheld or refused. Payments of principal and interest in respect
of Notes represented by the relevant Global Note will be made to its holder. The Issuer shall procure
that details of each such payment shall be entered pro rata in the records of the relevant Clearing
System and, in the case of payments of principal, the nominal amount of the relevant Notes will be
reduced accordingly. Each payment so made will discharge the Issuer’s obligations in respect thereof.
Any failure to make the entries in the records of the relevant Clearing System shall not affect such
discharge. Condition 7(e)(iii) and Condition 8(d) of the Conditions will apply to Definitive Notes only.
For the purpose of any payments made in respect of a Global Note, Condition 7(d) of the Conditions
shall not apply, and all such payments shall be made on a day on which the TARGET System is open.
4 Notices
So long as the Notes are represented by a Global Note and the Global Notes are held on behalf of a
relevant Clearing System, notices to relevant Noteholders may be given by delivery of the relevant
notice to that relevant Clearing System for communication by it to entitled accountholders in
substitution for publication as required by the Conditions.
5 Prescription
Claims against the Issuer in respect of principal and interest on the Notes while the Notes are
represented by a Global Note will become void unless it is presented for payment within a period of 10
years (in the case of principal) and five years (in the case of interest) from the appropriate Relevant
Date (as defined in Condition 8 of the Conditions).
6 Purchase and Cancellation
On cancellation of any Note required by the Conditions to be cancelled following its purchase, the
Issuer shall procure that details of such cancellation shall be entered pro rata in the relevant records of
the relevant Clearing Systems and, upon any such entry being made, the nominal amount of the
relevant Notes recorded in the records of the relevant Clearing Systems and represented by the relevant
Global Note shall be reduced by the aggregate nominal amount of the relevant Notes so cancelled.
60
7 Default
Each Global Note provides that the holder may cause the relevant Global Note or a portion of it to
become due and payable in the circumstances described in Condition 9 of the Conditions by stating in
the notice to the Fiscal Agent the principal amount of Notes which is being declared due and payable.
If principal in respect of any Note is not paid when due and payable, the holder of each Global Note
may elect that the relevant Global Note becomes void as to a specified portion and that the persons
entitled to such portion, as accountholders with a clearing system, acquire direct enforcement rights
against the Issuer under further provisions of each Global Note executed by the Issuer as a deed poll.
8 Put Option
The Noteholders’ put option in Condition 6(c) of the Conditions may be exercised by the holder of the
relevant Global Note, giving notice to the Fiscal Agent of the principal amount of Notes in respect of
which the option is exercised within the time limits specified in Condition 6(c) of the Conditions. The
Issuer shall procure that any exercise of any option or any right under the Notes, as the case may be,
shall be entered in the records of the relevant Clearing Systems and upon any such entry being made,
the nominal amount of the relevant Notes represented by such Global Note shall be adjusted
accordingly.
9 Electronic Consent and Written Resolution
While any Global Note is held on behalf of a relevant Clearing System, then:
(a) approval of a resolution proposed by the Issuer given by way of electronic consents
communicated through the electronic communications systems of the relevant Clearing
System(s) in accordance with their operating rules and procedures by or on behalf of the
holders of not less than 2/3 in nominal amount of the Notes outstanding (an "Electronic
Consent" as defined in the Fiscal Agency Agreement) shall, for all purposes (including matters
that would otherwise require an Extraordinary Resolution to be passed at a meeting for which
the Special Quorum was satisfied), take effect as an Extraordinary Resolution passed at a
meeting of Noteholders duly convened and held, and shall be binding on all relevant
Noteholders and holders of Coupons whether or not they participated in such Electronic
Consent; and
(b) where Electronic Consent is not being sought, for the purpose of determining whether a Written
Resolution (as defined in the Fiscal Agency Agreement) has been validly passed, the Issuer
shall be entitled to rely on consent or instructions given in writing directly to the Issuer by (a)
accountholders in the clearing system with entitlements to such Global Note and/or, where (b)
the accountholders hold any such entitlement on behalf of another person, on written consent
from or written instruction by the person identified by that accountholder as the person for
whom such entitlement beneficially held. For the purpose of establishing the entitlement to give
any such consent or instruction, the Issuer shall be entitled to rely on any certificate or other
document issued by, in the case of (a) above, Euroclear, Clearstream, Luxembourg or any other
relevant Clearing System and, in the case of (b) above, the relevant clearing system and the
accountholder identified by the relevant clearing system for the purposes of (b) above. Any
resolution passed in such manner shall be binding on all relevant Noteholders and
Couponholders, even if the relevant consent or instruction proves to be defective. Any such
certificate or other document shall, in the absence of manifest error, be conclusive and binding
for all purposes. Any such certificate or other document may comprise any form of statement or
61
print out of electronic records provided by the relevant clearing system (including Euroclear’s
EUCLID or Clearstream, Luxembourg’s CreationOnline system) in accordance with its usual
procedures and in which the accountholder of a particular principal or nominal amount of the
Notes is clearly identified together with the amount of such holding. The Issuer shall not be
liable to any person by reason of having accepted as valid or not having rejected any certificate
or other document to such effect purporting to be issued by any such person and subsequently
found to be forged or not authentic.
62
Description of Issuer
Overview
Inmobiliaria Colonial, S.A. is a limited liability company (sociedad anónima) duly incorporated on 9
December 1946, under the laws of the Kingdom of Spain, under which it now operates.
Colonial is registered with the Commercial Register of Barcelona under volume 39,608, sheet 63, page
number B-347795, and its tax identification number is A- 28027399. Colonial is domiciled in Spain and its
registered office and principal place of business is Avenida Diagonal 532, Barcelona, Spain, and its telephone
number is (+34) 93 4047900.
The Company’s core business is the management and development of buildings, principally offices, to rent
and, where the opportunity arises, sell. The Colonial Group currently owns and manages 32 office buildings
in Spain and 19 office buildings in France. In the year ended 31 December 2014, the Group generated a
consolidated operating profit of €114,906 thousand (see "–Description of Operations –Analysis of
Management Measures") and, as of 31 December 2014, it employed approximately 145 employees.
Historically, Colonial also purchased and developed land for both commercial and residential use and
developed and managed shopping centres and business centres. However, in 2010 the Company realigned its
business to focus on the rental market and it designated all its other business lines as non-core businesses.
The non-core business lines were segregated into the Asentia Group, of which the Company currently holds
3.79% and which has ceased to form part of the global consolidation perimeter of the Group. The Company
currently holds a 53.14% stake in SFL, France’s oldest property company, which focuses on prime
commercial real estate in Paris.
1 History
Colonial was founded in 1946 by Banco Hispano Colonial, a financial institution that played an
important role in Spain’s economic history. The Company was incorporated to manage Banco Hispano
Colonial’s extensive land holdings as well as the property holdings of other financial institutions and
private individuals.
In the 1960s, Colonial developed an innovative large scale project known as Barcelona 2, which
involved the construction of more than 1,000 homes and business premises for rental. The project had
a major impact on property trends in the area, which is now considered one of the most exclusive
prime property rental and office locations in the CBD of Barcelona. In the 1970s and 1980s, the
Company further consolidated its position in the Spanish property market.
In 1991, Caja de Ahorros y Pensiones de Barcelona ("la Caixa"), the largest savings bank in Spain,
took a majority shareholding in the Company and contributed property sites and buildings with an
aggregate size of more than 500,000 sqm. A new management team was appointed and embarked on a
process to restructure and streamline its asset portfolio, and focused on the rental of exclusive office
space in the CBDs of Madrid and Barcelona. At the same time, the Company moved into the land and
residential development business. In 1999, the Company was listed on the Madrid and Barcelona stock
exchanges.
The acquisition of SFL and the public takeover by Grupo Inmocaral
In June 2004, the Company bought 55.61% of the share capital of SFL, a company with a large
portfolio of offices in upscale business districts of Paris (see "—SFL"). The value of the Group’s assets
doubled within a year following the acquisition, and its property interests extended to Paris, one of the
63
main business centres in Europe. The Company became a pioneer in the Spanish real estate market for
focusing on prime properties in Spain while seeking targeted international diversification.
In 2006, the property company Grupo Inmocaral, S.A. ("Grupo Inmocaral") launched a takeover bid
for 100% of Colonial’s share capital, which was partially financed by bank debt. The acquisition price
implied a substantial premium to Colonial’s net asset value. The takeover bid was accepted by 93.41%
of Colonial’s Shareholders.
In April 2007, once the takeover by Grupo Inmocaral of the Company was completed, Grupo
Inmocaral and Colonial merged. As a result of the merger, Grupo Inmocaral absorbed Colonial, but
kept Colonial’s registered name and address. Based on revenue, the merger of the two companies
significantly increased the proportion of the property development business relative to its rental
business.
As a result of Grupo Inmocaral’s takeover bid, the Company had to launch a mandatory takeover bid
for SFL’s share capital that was not owned by Colonial (approximately 20.64%) at a price of €55 per
share. As a result, the Company obtained a 89.67% shareholding in SFL. As of the date of this
Prospectus, the Company’s interest in SFL has been reduced to 53.14% of its share capital, due to the
2008 debt restructuring agreements and the agreement reached in 2013 with lenders of the Colonial
Group.
At the same time, in April 2007, the Company launched a takeover bid for the entire share capital of
Riofisa, which was accepted by shareholders representing 99.41% of Riofisa’s share capital. The
remaining share capital was acquired by the Company through a standing purchase order at the
takeover bid price and a subsequent share capital decrease with the return of capital to shareholders,
reaching 100% ownership of Riofisa in September 2007.
The Restructuring of Colonial
In April 2007, Colonial entered into a syndicated loan agreement for an aggregate amount of
€7,177 million in order to refinance, among other things, the debt from the acquisition of Colonial by
Grupo Inmocaral.
In September 2008, the Company reached a formal and binding agreement with the lenders under the
syndicated loan agreement and its bilateral loan facility agreements for the restructuring of
approximately €6,500 million of its debt. This agreement meant the sale of the Company’s 14.01%
stake in Fomento de Construcciones y Contratas, S.A. and 33% of its interest in SFL, as well as the
promise to sell its whole participation in Riofisa, S.A. Likewise, the Company issued convertible notes
for an approximate amount of €1,310 million.
On 19 February 2010, the terms of a new restructuring were finalised in respect of approximately
€4,960 million of the Company’s debt (the "2010 Restructuring"). The Company agreed, among other
things, to carry out, before 30 July 2010, a share capital increase with a charge to cash contributions
amounting to approximately €1,954 million and a non-monetary capital increase for a maximum
amount of €1,904 million.
The 2010 Restructuring sought to significantly improve the capital structure of the Company and to
focus its main business activity on the rental business. To this end, it carried out corporate transactions
aimed at segregating the land and development assets (together with their related debt) from the rental
business such that these non-core assets and liabilities would not adversely affect the development of
the core rental business.
64
Consequently, all the land and development activities, including the development and management
activities of Riofisa, were reclassified as "discontinued activities" and all of the assets and liabilities
associated with these activities were classified as "assets held for sale" and "liabilities related to assets
held for sale". In order to segregate it from the rental business, the discontinued business and a portion
of the debt outstanding under the syndicated loan agreement which was attributable to the discontinued
business was transferred to, and consolidated within, the Asentia Group.
The Company guaranteed the debts of Asentia and Abix, S.L.U. ("Abix"), up to a maximum amount of
€275 million and €23 million, respectively, by issuing equity warrants (the "Warrants") to their
lenders which could, in certain circumstances and subject to certain conditions, be converted into
Shares.
Debt for equity swap
In June 2010, the Company carried out two share capital increases: the first consisting of a capital
contribution amounting to €17 million, which represented 0.63% of the share capital of the Company
after the increases; and the other consisting of non-monetary contributions by conversion of the credit
rights held by various creditors of the Company amounting to €1,804 million, which represented
66.56% of the share capital of the Company after the increases.
Conversion and redemption of the convertible notes issued on 2008
In March 2010, the main holders of convertible notes exercised their conversion right and the
Company issued 5,654,654,674 Shares representing, approximately, 76% of the share capital of the
Company at that time. Following various voluntary conversion periods, on 31 March 2014, a share
capital increase by means of the issuance of 79,101 Shares was filed with the Mercantile Registry of
Barcelona to cover the redemption of the outstanding convertible notes.
The 2014 Restructuring
In January 2013, the Company began a new process to restructure its financial indebtedness with a
view to achieving a new and improved capital structure, which would be sustainable in the long term
and would allow it to continue with its business model and strategy. This process included the analysis
of a number of corporate and strategic options, including the raising of new funds by means of a share
capital increase and/or the total or partial disposal of its interest in the French subsidiary SFL, taking
into account the potential benefits for the Company, the preservation of value and the speed and
certainty of execution.
On 17 February 2014, the Company filed with the Mercantile Registry of Barcelona a share capital
reduction of €169,439 thousand, by means of a reduction in the par value of the shares from €1 to
€0.25 per Share, in order to increase voluntary reserves.
On 25 February 2014, three financial entities creditors of Asentia, a fully owned company of Colonial
at that time, executed a debt-for-equity swap by means of a share capital increase which resulted in the
reduction of Colonial’s interest in Asentia to 18.99% and the deconsolidation of Asentia from the
Group. Subsequently, Asentia carried out other share capital increases by conversion of debt into
equity reducing the Company’s interest in Asentia to 3.79%. As of the date of this Prospectus, the
Company’s shareholding in Asentia is considered as an available-for-sale financial asset.
Due to the deconsolidation of Asentia, the "discontinued activities" (including since December 2008
the development and management of shopping and business centres performed by Riofisa and since
February 2010 all the land and development activities of the Company) ceased to be among the
Company’s business activities.
65
In the context of this restructuring, on 4 April 2014, the Company (as borrower) entered into the
Syndicated Loan Agreement (as defined below) for a principal amount of €1,040 million and with a
final maturity date in December 2018. See "—Material Contracts—Syndicated Loan Agreement".
On 6 May 2014, the Company executed a share capital increase by means of the issue of
2,937,995,853 new shares with a par value of €0.25, for a total gross proceeds of €1,263 million. On
that same date, Colonial utilised €1,040 million under the Syndicated Loan Agreement.
Subsequently, the monies received under the Syndicated Loan Agreement and the share capital
increase were used for the early repayment of the former syndicated loan of €1,814,649 thousand, to
terminate most of the bilateral loans entered into by the Company and Abix for an aggregate amount of
€308,072 thousand (including interests), as well as to cover costs arising from the debt restructuring
and the share capital increase.
On 8 May 2014 and 30 December 2014, all the Warrants were converted, resulting in two capital
increases of €486 thousand and €5,729 thousand, respectively. As a result, Colonial issued of
1,944,444 and 22,916,662 new Shares, respectively, with a par value of €0.25.
2 Organisational structure
Set forth below is an organisational chart of the Group.
SFL
Colonial currently holds a 53.14% stake in SFL, which was founded in 1879 when it acquired a
diversified portfolio of assets extending from Paris to the Italian Riviera. Since its foundation SFL has
66
implemented a number of major strategic shifts. The most recent took place in 1995, when SFL
decided to focus on prime commercial real estate in Paris’s CBD. A strategy of creating value by
investing in CBD office and retail properties was pursued through the purchase and remodelling of
landmark properties, such as the Louvre des Entreprises & Louvre des Antiquaires building and the
Cézanne Saint Honoré complex.
SFL’s shares are traded in Compartment A of the Paris stock exchange and as of the date of this
Prospectus, aside from the Company, other significant shareholders in SFL include Qatar Holding,
Predica Prevoyance Dialogue du Credit Agricole, S.A., DIC Holding and Reig Capital Group with
stakes of 13.6%, 12.9%, 8.6% and 4.4% of SFL’s share capital, respectively.
The Company is currently represented by seven representatives on SFL’s board of directors, which
comprises 13 members in total.
3 Description of Operations
Colonial is primarily focused on the management and development of buildings to let and,
consequently, its core activity is the lease and sale of real estate, principally, office space.
Analysis of Management Measures
The table below shows the Company’s unaudited management income information, which assist in the
understanding of the Company’s results of operations.
These management measures are not audited and are not measurements required by, or presented in
accordance with IFRS EU or Spanish Generally Accepted Accountancy Principles. These management
measures are not measurements of the Company’s financial performance under IFRS EU or Spanish
Generally Accepted Accountancy Principles and should not be considered as alternatives to the
information in the Issuer’s Consolidated Financial Statements or to any performance measures
prepared in accordance with IFRS EU and Spanish Generally Accepted Accountancy Principles.
Further, these management measures, as defined and calculated by the Company, may not be
comparable to other similarly titled measures used by other companies. Accordingly, investors are
cautioned not to place undue reliance on these management measures. See "Cautionary Statement
Regarding Unaudited Management Measures".
The following table shows the Company’s unaudited consolidated income information prepared on the
basis of management measures for the years ended 31 December 2014 and 2013.
Management consolidated
income statement
(unaudited)
Year ended 31
December 2014
Increase/
decrease
2014-2013
Year ended 31
December 2013
(€ in thousands) % (€ in thousands)
Property
Income from rentals ................... 211,477 (0.77) 213,111
Sale of assets .............................. 93 (99.98) 388,233
Other income ............................. 2,606 (36.37) 4,095
Total income from property .... 214,176 (64.62) 605,439
Net rental expenses .................... (20,933) 1.27 (20,670)
Costs and expenses of sales ....... (120) (99.97) (397,289)
67
EBITDA Property .................... 193,123 3.01 187,480
General expenses ....................... (38,707) 1.55 (38,116)
EBITDA .................................... 154,416 3.38 149,364
Change in fair value of
investment property ................... 331,953 786.86 37,430
Impairment charges and net
gains/(losses) on assets .............. (124,579) 19,090.55 (649)
Amortisations and provisions..... (39,510) 106.08 (19,172)
EBIT .......................................... 322,280 93.01 166,973
Net financial result ..................... (218,873) 14.00 (192,000)
Profit (Loss) before tax ............ 103,407 (513.18) (25,027)
Income tax receipt (expense) ..... (175,783) 404.88 (34,817)
Consolidated net loss from
continuing operations .......... (72,376) 20.94 (59,844)
Loss from discontinued
operations ................................... 700,861 (273.03) (405,052)
Minorities................................... (136,491) 66.39 (82,032)
Net profit (loss) for the year
attributable to the Company ... 491,994 (189.96) (546,928)
EBITDA reconciliation—
Operating profit
EBITDA .................................... 154,416 3.38 149,364
Amortisations and provisions..... (39,510) 106.08 (19,172)
Operating profit ....................... 114,906 (11,74) 130,192
SIIC de Paris results ................... 6,310 (69.91) 20,969
Amortisations and provisions..... 39,510 (1,799.35) (2,325)
Analytical operating profit 160,726 7.99 148,836
The reconciliation of the Company’s audited consolidated statement of comprehensive income, as it
appears in the Issuer’s Consolidated Financial Statements, to the unaudited management income
information above is set forth below:
"Income from rentals" (which is also referred to below as "revenue from rentals" or "rental
revenues") corresponds to "Revenue".
"Sale of assets" plus "Costs and expenses of sales" correspond to "Net gain/(loss) on sales of
assets".
"Other income" corresponds to "Other income".
"Net rental expenses" plus "General expenses" plus "Amortisations and provisions" correspond
to "Staff costs" plus "Other operating expenses" plus "Depreciation and amortisation charge"
and "Net change in provisions".
68
"Change in fair value of investment property" and "Impairment charges and net gains/losses on
assets" correspond to "Change in fair value of investment property" and "Impairment charges
and net gains/losses on assets", respectively.
"Net financial result" corresponds to "Finance income" plus "Share of profit/(loss) of
companies accounted for using the equity method" plus "Finance cost" and "Impairment of
financial assets".
"Income tax receipt (expense)" corresponds to "Income tax expense".
"Minorities" corresponds to "Net profit attributable to non-controlling interests".
The Company’s EBITDA, as it appears in the unaudited consolidated income information prepared on
the basis of management accounts above corresponds to the income from the rental business (including
both the income from rentals and the income from sales) after deducting all the operational expenses
(excluding taxes, amortisation and depreciation) and including the overheads and general expenses.
Core rental business
The Company’s rental business comprises the management of the Property Portfolio, which is mainly
made up of office buildings and, to a lesser extent, commercial or retail premises, as well as the
realisation of real estate assets (sale of assets).
Colonial focuses on the rental of quality office buildings in prime locations in the CBD of Barcelona,
Madrid and Paris (the latter is done through SFL, in which it holds a controlling stake of 53.14%). As
part of this activity, the Company has an active asset rotation strategy and undertake important
refurbishment projects.
As at 31 December 2014, the Property Portfolio was made up of 51 buildings and projects with a total
surface of 725,341 sqm above ground (excluding mainly parking spaces), distributed as follows:
351,743 sqm in Paris; 159,078 sqm in Madrid; 202,134 sqm in Barcelona; and 12,385 sqm in the rest
of Spain (mainly a hotel in Almería). The Property Portfolio includes three projects under construction
or refurbishment as well as a number of buildings partially under refurbishment, representing 88,698
sqm above ground (excluding mainly parking spaces). As at 31 December 2014, the assets forming the
Company’s Property Portfolio were valued at €6,033 million including transfer costs (€5,757 million
excluding transfer costs). As at 31 December 2014, 22% of this value corresponded to assets located in
Spain and 78% to assets located in France, which are held through SFL.
Revenues from the rental business
The revenue from rentals was €211,477 thousand for the year ended 31 December 2014. Of these
revenues from rentals, SFL, the Company’s French subsidiary, contributed 72% (€151,508 thousand),
while the remaining 28% (€59,969 thousand) was generated in Spain. Excluding the impact of the
assets sold during the year, the revenues from rentals increased by 3.2% when compared to the year
ended 31 December 2013.
The EBITDA rental business (including both leases and sale of assets) amounted to €193,123 thousand
for the year ended 31 December 2014, a 3.01% increase when compared to the year ended 31
December 2013.
The following table shows information regarding the rental business based on unaudited management
accounts during the years ended 31 December 2014 and 2013:
69
Revenues from rentals
(unaudited)
Year ended
31 December
2014
%/total
revenues
Increase/
decrease
2014-2013
Year ended
31 December
2013
%/total
revenues
(€ in
thousands) %
(€ in
thousands)
Total revenue from
rentals 211,477 98.74 (0.77) 213,111 35.20
Spain .......................................... 59,969 28.00 (6.00) 63,796 10.54
France ......................................... 151,508 70.74 1.47 149,315 24.66
Total proceeds from
disposal of assets .................. 93 0.04 (99.98) 388,233 64.12
Spain .......................................... 93 0.04 (99.90) 97,862 16.16
France ......................................... 0 0.00 290,371 47.96
Total other incomes .................. 2,606 1.22 (36.37) 4,095 0.68
Total income from
property ................................ 214,176 100.00 (64.62) 605,439 100.00
Net rental expenses(1) ................. (20,933) (9.77) 1.27 (20,670) (3.41)
Costs and expenses of
sales(2) .................................... (120) (0.06) (99.97) (397,289) (65.62)
EBITDA rental business .......... 193,123 90.17 3.01 187,480 30.97
Notes:
(1) The "Net rental expenses" are comprised of (i) the expenses incurred through the use of outsourced services, (ii) taxes
and (iii) personnel expenses, which in turn include the following items:
• "Outsourced services" are those expenses incurred in repairs, maintenance, real estate agents, insurance, fees
for professional services, advertising, supplies, community charges, security and cleaning.
• "Taxes" are, among others, payment of the Spanish property tax (IBI), business activities tax (IAE) and
transfer tax (ITP).
• "Personnel expenses" are those related to the employees assigned to the Property Division, as well as social
security and training expenses.
(2) "Sale of assets" plus "Costs and expenses of sales" correspond to "Net gain/(loss) on sales of assets" in the Company’s
audited consolidated statement of comprehensive income as it appears in the Issuer’s Consolidated Financial
Statements.
Breakdown of revenues from rentals by category and location
During the year ended 31 December 2014, the largest component of the Group’s rental revenues (80%)
derived from office buildings. The table below shows a detailed breakdown by asset type and by
geographical distribution of the revenues from rentals based on unaudited management accounts
during the years ended 31 December 2014 and 2013.
Revenues from rentals
(unaudited)
Year ended
31 December
2014
Increase/
decrease
2014-2013
Year ended
31 December
2013
(€ in thousands) % (€ in thousands)
Madrid offices ........................... 32,444 (8.45) 35,437
Barcelona offices ...................... 25,658 (3.16) 26,494
Retail ......................................... 1,867 0.12 1,865
Total Spain ............................... 59,969 (6.00) 63,796
Paris offices ............................... 112,983 5.37 107,224
Paris retail ................................. 35,089 (8.11) 38,187
Rest of uses ............................... 3,436 (11.99) 3,904
Total France ............................ 151,508 1.47 149,315
Total Revenues ........................ 211,477 (0.77) 213,111
70
For the year ended 31 December 2014, the distribution of the Property Portfolio by use and location
was as follows:
Revenues from rentals—by use
Offices..................................................................................................................................................................................................... 80%
Retail ....................................................................................................................................................................................................... 18%
Other ....................................................................................................................................................................................................... 2%
Total ....................................................................................................................................................................................................... 100%
Revenues from rentals—by market
Paris ........................................................................................................................................................................................................ 72%
Madrid..................................................................................................................................................................................................... 15%
Barcelona ................................................................................................................................................................................................ 13%
Total ....................................................................................................................................................................................................... 100%
Property Portfolio
The Property Portfolio is predominantly made up of large and modern office buildings located in
upmarket neighbourhoods of Barcelona, Madrid and Paris.
As at 31 December 2014, the Property Portfolio, including buildings for rent and under development,
comprised 1,026,598 sqm (725,341 sqm above ground, including three projects under refurbishment),
most of which is office space, and 87% was in operation (comprising mainly office buildings in Paris,
Madrid and Barcelona), while the remaining 13% corresponded to projects and refurbishments.
As at 31 December 2014, the breakdown by state of the rental surface, market and areas was as
follows:
Rental surface—by condition % of total
surface
In operation ............................................................................................................................................................................................. 87
In project ................................................................................................................................................................................................. 13
Total ....................................................................................................................................................................................................... 100
Rental surface—by market
Paris ......................................................................................................................................................................................................... 45
Barcelona ................................................................................................................................................................................................ 31
Madrid ..................................................................................................................................................................................................... 23
Others ...................................................................................................................................................................................................... 1
Total ....................................................................................................................................................................................................... 100
Rental surface—by area
Prime CBD .................................................................................................................................................................................................. 45
CBD ............................................................................................................................................................................................................ 9
BD ............................................................................................................................................................................................................... 33
Other ....................................................................................................................................................................................................... 13
Total ....................................................................................................................................................................................................... 100
Tenant portfolio
The Group’s tenant portfolio is diversified, reflecting the various businesses that make up the Spanish
and French economies and is comprised of reputable clients who have historically paid their rent when
due. As of 31 December 2014, the annual rent payable to the Group under the lease agreements of the
Group’s top 20 tenants represented 47% of the total annual rent payable to the Group under all its lease
agreements.
71
The table below lists the Group’s major tenants, broken down by annual rent payable to the Group
under the lease agreements as a percentage of the total annual rent payable to the Group under all its
lease agreements as of 31 December 2014:
Rank Tenant City
% of
total rent
%
aggregate
1 Natixis Inmo Exploitation ................................................................................ Paris 6 6
2 Gaz Reseau Distribution France ....................................................................... Paris 5 11
3 Freshfields Bruckhaus Deringer ....................................................................... Paris 4 14
4 Zara France ...................................................................................................... Paris 3 18
5 Gas Natural SDG, S.A. .................................................................................... Barcelon
a 3 21
6 TV5 Monde SA ................................................................................................ Paris 3 24
7 Klepierre Management ..................................................................................... Paris 3 26
8 La Mondiale Groupe ........................................................................................ Paris 2 29
9 "la Caixa" Saving Bank .................................................................................... Barcelon
a 2 31
10 Community of Madrid (Comunidad
Autónoma de Madrid) ...................................................................................... Madrid 2 33
11 Hennes & Mauritz / H&M ............................................................................... Paris 2 35
12 ESMA .............................................................................................................. Paris 2 37
13 Spanish National Lottery Company ................................................................. Madrid 2 39
14 Citibank International Plc ................................................................................ Paris 2 40
15 Madrid Town hall (Ayuntamiento de
Madrid) ............................................................................................................ Madrid 1 42
16 Iberia, Líneas Aéreas de España, S.A............................................................... Madrid 1 43
17 SIMOSA—Servicios Integrales de
Mantenimiento ................................................................................................. Madrid 1 44
18 Casino de Juego Gran Madrid, S.A. ................................................................. Madrid 1 45
19 Barcelona Town hall (Ayuntamiento de
Barcelona)........................................................................................................
Barcelon
a 1 46
20 Melia Hotels International. ............................................................................... Madrid 1 47
Colonial believes it has a strong and diversified client base. The activity sectors that stand out are those
which, owing to their type of business, require quality offices located in central business areas. The
table below gives a further breakdown of total rents by tenant activity during the year ended 31
December 2014:
Breakdown of tenants by activity % of total
rent
Manufacturing ........................................................................................................................................................................................ 28
Financial and insurance .......................................................................................................................................................................... 24
Professional services ............................................................................................................................................................................... 23
Government bodies ................................................................................................................................................................................. 11
Telecoms ....................................................................................................................................................................................... 7
Services .................................................................................................................................................................................................. 7
Total ....................................................................................................................................................................................................... 100
Occupancy Rate
"EPRA Occupancy" refers to the economic occupancy calculated according to EPRA
recommendations (occupied surface areas multiplied by the market rental prices divided by surfaces in
operation at market rental prices). As at 31 December 2014, the Property Portfolio had an EPRA
72
Occupancy in respect of all uses of 87% (94% excluding the properties In&Out in Paris and Diagonal
409 and Travessera de Gracia/Amigo in Barcelona, all of which were under refurbishment until
recently).
The total EPRA Occupancy of the Property Portfolio in respect of all uses as of 31 December 2014 and
2013 broken down by geographical area was as follows:
As of 31 December
EPRA Occupancy by location 2014
2014
adjusted¹ 2013
Madrid .............................................................................................................................................................. 88% 88% 81%
Paris ............................................................................................................................................................................ 88% 96% 85%
Barcelona .................................................................................................................................................................... 79% 84% 83%
Total ........................................................................................................................................................................... 87% 94% 84%
Notes:
(1) excluding the properties In&Out in France, Diagonal 409 and Travessera de Gracia/Amigo in Barcelona
Letting performance and lease terms
During the past five years, the Group has renewed between 20% and 30% of the assets for rent in the
Property Portfolio in Spain. During 2014, Colonial executed lease agreements over assets amounting
to a total surface of 76,672 sqm, of which 47,098 sqm corresponded to new rentals of empty surfaces.
This represented 21% of the total above ground (excluding mainly parking spaces) surface of the
Company’s rental assets in Spain as at 31 December 2014.
Regarding the rental renewals in the Property Portfolio, renewals equivalent to 29,574 sqm were
signed in Spain and 6,393 sqm were signed in France in 2014. Despite the comparatively short average
lease terms in the markets where the Company is present, Colonial is successful in retaining its clients
and as at 31 December 2014, 60% of its top 20 tenants had been clients of the Company for more than
five years.
Although the Company’s Property Portfolio in the rental office segment of Barcelona and Madrid as of
31 December 2014 only represented 3% and 1% of the rental offices, respectively, in both cities, the
Company managed to capture 8% of the demand. The Company calculates market share by dividing
the total number of sqm of its Property Portfolio by the total office space (in sqm) in the relevant
market based on its own figures and publicly available information.
Lease terms and market rents
The average lease term until the next potential tenant exit (either due to early termination or expiry) in
the Property Portfolio was approximately three years as at 31 December 2014 although this differs
depending on the location, as set out in the table below, which provides the average maturity of the
leases in the Property Portfolio, by market, as at 31 December 2014:
Market Years
Barcelona ............................................................................................................................................................................................... 2.3
Madrid ...................................................................................................................................................... 2.9
Paris........................................................................................................................................................................................................ 4.6
Reversionary potential as at 31 December 2014
The organic growth potential of the Property Portfolio as calculated by the Company as at 31
December 2014 was approximately 24% in Spain (41% in Barcelona and 12% in Madrid) and 19% in
France. This estimated rental growth potential figure is based on comparing rental revenues of current
73
contracts (contracts with current occupancy and current rents in place) with the potential rental
revenues that would result from 100% occupancy at the market prices estimated by independent
appraisers as at 31 December 2014 (not including potential rents from projects and substantial
refurbishments carried out at such date). The Company can provide no assurance that it will be able to
achieve this estimated rental growth potential.
Developments in progress
As at 31 December 2014, in addition to the Property Portfolio in operation, Colonial also held a
portfolio of assets, mostly offices, which were under partial refurbishment, as well as an office land
plot in Barcelona. Such projects comprised an area of 14,737 sqm in Spain and 40,700 sqm in France.
The total expected investment amounts for the projects under refurbishment amounts to €128 million.
In total, the projects are expected to add 55,437 sqm to the Property Portfolio in operation.
The table below gives a breakdown of the projects underway as at 31 December 2014:
Projects Market
Expected entry into
operation
Surface
above ground
(sqm)(1)
Offices .................................................................................... Barcelona Beyond 2016 14,737
Spain .............................................................................. 14,737
Offices ............................................................................ Paris First half of 2015 7,500
Offices ............................................................................ Paris Second half of 2015 33,200
France............................................................................ 40,700
Total .............................................................................. 55,437
Note:
(1) Expected floor area of completed project.
The Group currently has a project portfolio of over 55,000 sqm above ground (excluding mainly
parking spaces), which is expected to enter into operation between 2015 and 2018, including:
90, Av. Champs Elysées in Paris, an office building located on the top floor of the Champs-
Elysées shopping centre, which is expected to come into operation in 2015. As of 28 February
2015, this building of over 6,000 sqm was already fully prelet, 5,000 sqm of which were signed
with a top tier consulting firm.
#Cloud (Rue Richelieu) in Paris, which is undergoing a refurbishment project, which will
involve the creation of 33,200 sqm of high quality office space in central Paris and is expected
to be awarded the BREEAM certification. As of the date of this Prospectus, nearly 10,000 sqm
are already prelet.
The Group is also carrying out substantial refurbishments on certain of its properties in order to
optimise its positioning in the market, including the Louvre des Antiquaires, Washington Plaza and
Cézanne St. Honoré buildings, among others.
Investment in property assets
During the year ended 31 December 2014, the Group acquired two buildings located in Barcelona and
Paris for a total of €234 million (excluding acquisition costs).
In December 2014, Colonial acquired an office building in Barcelona (in Plaza Europa) for €10.4
million with a total surface of nearly 5,000 sqm of offices and 68 parking spaces, which currently has a
74
100% occupancy rate, accommodating the headquarters of Gallina Blanca, S.A.U. through a lease
agreement with a ten-year term.
In December 2014, SFL acquired an office building in Paris, located in the 9th district (Rue
Condorcet), for a total acquisition price, excluding acquisition costs, of €224 million. This building,
which was recently refurbished, is currently fully leased by GrDF (Gaz Réseau Distribution France),
by means of a long term lease agreement which terminates in 2024.
In addition, during the year ended 31 December 2014, the Company undertook investments amounting
to a total of €135 million (excluding the capitalised financial costs) in redevelopment and
refurbishment, mainly at properties of the SFL group (in the amount of €117,806 thousand (excluding
the capitalised financial costs)).
In June 2014, SFL entered into an agreement with Eurosic for the sale of all its interest in the share
capital of SIIC de Paris at a price of €23.88 per share, which was closed on 23 July 2014, for a total
purchase price (net of transfer costs) of €303,351 thousand, generating an accounting gain of €8,485
thousand.
Property Portfolio Asset Value
As stated in note 4c of the 2014 Issuer’s Consolidated Financial Statements, which are incorporated by
reference to this Prospectus, on 31 December 2014, the gross asset value of the Group’s rental business
was €6,033 million (€5,757 million excluding transfer costs), as valued by an independent appraiser,
based on an estimate of the market prices that could be obtained for the Property Portfolio at that date.
However, the valuation of property is inherently subjective due to the individual nature of each
property. See "Risk Factors – The valuation of the Company’s real estate asset portfolio may not
precisely and accurately reflect the value of its assets".
Asset values including transfer costs
(unaudited)
Asset valuation (€ thousand) Variation 2014-2013
As of 31
December
2014
As of 31
December
2013 Total Like-for-like (1)
Colonial Group ............................................................ 6,032,659 5,600,116 7.7% 9.8%
Spain ............................................................................. 1,329,995 1,199,330
10.9% 10.0%
France ........................................................................... 4,702,664 4,400,786 (2) 6.9% 9.7%
Notes:
(1) Portfolio in comparable terms.
(2) Includes stake in SIIC de Paris.
Asset values excluding transfer
costs
(unaudited)
Asset valuation (€ thousand) Variation 2014-2013
As of 31 December
2014
As of 31 December
2013 Total Like-for-like (1)
Barcelona ....................................................................... 581,600 518,130 12.2% 4.2%
Madrid ............................................................................ 687,424 564,710 21.7% 12.9%
Paris ............................................................................... 4,024,745 3,640,234 10.6% 7.8%
Portfolio in operation (2) .............................................. 5,293,770 4,723,074 12.1% 8.1%
Projects ......................................................................... 453,524 304,299 49.0% 25.0%
Others ............................................................................. 9,954 11,666 (14.7%) (13.6%)
Property business ......................................................... 5,757,247 5,039,039 14.3% 9.6%
75
SIIC de Paris ................................................................ N/A(3) 307,822 (100.0%)
Colonial Group ............................................................. 5,757,247 5,346,861 7.7% 9.6%
Spain .............................................................................. 1,291,522 1,164,691 10.9% 10.0%
France ............................................................................ 4,465,725 4,182,170 6.8% 9.5%
Notes:
(1) Portfolio in comparable terms.
(2) Portfolio in operation: current rental portfolio as well as new entries into operation of completed projects (excluding
surfaces under refurbishment).
(3) Stake in SIIC de Paris was sold during 2014.
The asset portfolio in Spain increased by 10% in like-for-like terms between 31 December 2013 and
31 December 2014. This increase is mainly due to a yield compression given the growing interest of
investors for prime assets in Madrid and Barcelona, as well as the positive effects of repositioning the
properties.
The asset value in Paris has increased by 9.5% in like-for-like terms between 31 December 2013 and
31 December 2014. This increase in value is a consequence of the progressive repositioning of the
property portfolio with positive impacts on rents and yields, in the context of an investment market
with high interest in prime offices in Paris.
The breakdown of the valuation classification of the rental portfolio as of 31 December 2014 of the
Group by use, market and by area is shown below:
Value by uses
Offices ..................................................................................................................................................................................................... 93%
Retail ....................................................................................................................................................................................................... 6%
Other ........................................................................................................................................................................................................ 1%
Total ........................................................................................................................................................................................................ 100%
Value by market
Paris ......................................................................................................................................................................................................... 78%
Barcelona ................................................................................................................................................................................................. 10%
Madrid ..................................................................................................................................................................................................... 12%
Total ........................................................................................................................................................................................................ 100%
Value by area
Prime CBD .............................................................................................................................................................................................. 70%
CBD ......................................................................................................................................................................................................... 5%
BD ........................................................................................................................................................................................................... 19%
Other ........................................................................................................................................................................................................ 6%
Total ........................................................................................................................................................................................................ 100%
Net Asset Value
EPRA Net Asset Value the ("EPRA NAV") is calculated on the basis of the Group’s consolidated
equity after certain adjustments are made for specific items following EPRA recommendations, as
further explained below. The EPRA NAV of the Group stood at €1,521 million at 31 December 2014,
which is equivalent to €47.7 cents per Share. The following table shows the EPRA NAV of the Group
at 31 December 2014, including the specific adjustments to the NAV that were made:
76
EPRA Net Asset Value
31 December
2014
(€ in thousands)
(unaudited)
NAV per the financial statements (Equity attributable to the Shareholders)........................................... 1,422,843
Effect of exercise of options, convertibles and other equity interests .............................................................. N/A
Diluted NAV, after the exercise of options, convertibles and other equity interests ................................ 1,422,843
Include:
(i.a) Revaluation of investment properties (if IAS 40 cost option is used) ...................................................... 4,240
(i.b) Revaluation of investment property under construction (IPUC) (if IAS 40 cost option is
used) ........................................................................................................................................................... N/A
(i.c) Revaluation of other non-current investments .......................................................................................... 11,193
(ii) Revaluation of tenant leases held as finance leases ................................................................................... N.A.
(iii) Revaluation of trading properties.............................................................................................................. N.A.
Exclude:
(iv) Fair value of financial instruments. ........................................................................................................... 9,301
(v.a) Deferred tax ............................................................................................................................................. 73,440
(v.b) Tax credits on balance ............................................................................................................................. -
Include/exclude:
Adjustments (i) to (iii) above in respect of joint ventures interest ................................................................... N.A.
EPRA NAV .................................................................................................................................................... 1,521,017
EPRA NAV € cents per Share ...................................................................................................................... 47.7
Nº of shares ..................................................................................................................................................... 3,188,857
Calculation of Net Asset Value
Following the EPRA recommendations and starting from the consolidated equity of €1,422,843
thousand, the following adjustments were carried out:
1. Revaluation of investments: corresponding to latent capital gains (not accounted for on the
balance sheet) of specific assets registered at book value, amounting to €4,240 thousand.
2. Revaluation of other investments: corresponding to latent capital gains (not accounted for on
the balance sheet) of other investments.
3. Adjustment of accounted for MTM: in order to determine the EPRA NAV, the net value of the
MTM ("mark-to-market") of the hedging instruments registered on the balance sheet was
adjusted (+€9,301 thousand).
4. Adjustment of deferred taxes: adjustment of the amount of deferred taxes associated with the
revaluation of the property assets (+€73,440 thousand), registered on the balance sheet.
4 Sales
The leasing management of the Company is carried out through:
In-house leasing management team.
The Company’s team has vast experience in the Barcelona and Madrid office markets. They are in
charge of the negotiation of leases with its tenants.
Externalising leasing commercialisation to real estate brokers
The Company’s policy when using real estate brokers is to use various brokers, both local and
international, in order to obtain the highest possible number of visits. However, on certain occasions
and for a specific property, Colonial has opted to contract exclusively with one renowned international
77
broker. In either case, negotiations are always carried out directly with the tenants, by the Company’s
commercial and legal department revising the final implementation and the lease agreement.
The use of external brokers allows the Company to operate a smaller and more effective commercial
department compared with its competitors. Colonial’s negotiating position vis-à-vis real estate brokers
benefits from the fact that there are numerous real estate brokers in the market and that it holds a
substantial market share in the Madrid and Barcelona office markets.
Colonial’s in-house leasing management team has established longstanding relationships with the
Company’s main clients, which is reflected by the fact that many of its major clients have leased its
properties for a number of years. See "—Description of Operations—Core rental business—Lease
terms and market rents".
With regard to the commercialisation strategy for existing and new projects, the main objectives of
Colonial’s in-house leasing team are to (i) retain the portfolio of quality clients, (ii) capture strong
credit tenants from diverse sectors and (iii) establish long term relationships with new tenants.
Leasing management at SFL is the responsibility of an experienced in-house team with significant
knowledge of the Parisian market. The team can also, if necessary, access the services of real estate
brokers. This enables them to inform a greater number of prospective clients about an available
property than would be possible with a direct approach alone.
SFL’s in-house team manages the whole of the negotiation process, notably financial and legal
negotiations with the client. They maintain this direct relationship throughout the lifetime of the lease
in order to ensure a ‘prime’ service to the leading companies who place their trust in SFL.
In this way, SFL establishes enduring, long-term relationships. The vast majority of leases in its client
portfolio are signed for a fixed term of six or nine years, depending on the situation.
5 Employees
As of 31 December 2014, the Group employed 145 people, including 17 managers, 56 professionals
and technicians and 72 administrative assistants and sales people. Colonial maintained an average
workforce of 145 people during the year ended 31 December 2014. By location, 49%, of the Group’s
workforce was employed in Spain and 51% in France, on average.
At 31 December 2014, none of the Group’s employees were subject to collective bargaining
agreements. Currently the Group is not involved in any material labour dispute.
At 31 December 2014, the Company had no loans outstanding to employees nor had provided any
guarantees for employee loans.
6 Social Corporate Responsibility and Sustainability
Colonial is actively engaged in different forms of social corporate responsibility. Its social
commitment takes the form of promoting general welfare through achieving its corporate purpose and
the creation of value for its Shareholders, investors and employees, as well as through collaboration in
various social projects. The Company’s corporate responsibility strategy is also founded on the
commitment to protect and preserve natural resources for future generations.
78
7 Material Contracts
Syndicated Loan Agreement
On 4 April 2014, Colonial as borrower entered into a syndicated loan agreement for a principal amount
of €1,040,000 thousand with, amongst others, Crédit Agricole Corporate and Investment Bank
Sucursal en España as agent, arranger and security agent and a group of financial entities as original
lenders (the "Syndicated Loan Agreement"). The purpose of the Syndicated Loan Agreement was to
refinance existing financial indebtedness.
The drawdown of the Syndicated Loan Agreement was subject to compliance with certain conditions
precedent, including the subscription of the capital increase for a minimum amount of €1,240,000
thousand. These conditions were met on 6 May 2014, on which date, the Syndicated Loan Agreement
was executed in a public deed.
The headline commercial features of the Syndicated Loan Agreement are as follows:
A final maturity date of 31 December 2018.
Single scheduled repayment of the principal amount of the loan on the final maturity date.
An interest rate of EURIBOR plus 400 basis points paid quarterly.
Voluntary prepayment was not permitted within the first year after the effective date under the
Syndicated Loan Agreement, being the date on which amounts first became available for
utilisation, but voluntary prepayments are permitted thereafter subject, in certain circumstances,
to the payment of a prepayment fee.
Voluntary prepayments, and certain mandatory prepayments triggered by events in Colonial’s
control, made after the first anniversary of the effective date and before the date falling three
years and five months after the effective date are subject to the payment of a prepayment fee the
amount of which ratchets down according to when the prepayment is made.
The Syndicated Loan Agreement is secured by the Property Portfolio and by a pledge over the shares
of two of the Company’s subsidiaries, SFL and Torre Marenostrum, S.L
As of the date of this Prospectus, the Company is in compliance with all the covenants of the
Syndicated Loan Agreement.
As explained in "Use of Proceeds" the proceeds of the Notes will be used in order to repay all amounts
outstanding in connection with the Syndicated Loan Agreement
Loans
As at 31 December 2014, in addition to the Syndicated Loan Agreement, the Group had other
financing agreements.
SFL has two syndicated loan agreements, one for a nominal amount of €400,000 thousand, which
matures in July 2018 and has a spread of between 180 and 230 basis points depending on the loan-to-
value of SFL, and a second agreement for €150,000 thousand, which matures in October 2019 and has
a spread of between 140 and 170 basis points depending on the loan to value of SFL. As of 31
December 2014, neither of these financing agreements had been utilised.
SFL also has various bilateral agreements without any mortgage security for an amount of €156,340
thousand, with an average maturity of 2.7 years and an average spread of 133 basis points.
79
Additionally, the Group has two loans with an aggregate nominal amount of €42,667 thousand secured
by a mortgage of two assets, Torre del Gas and Orense, with an average maturity of 5.6 years and an
average spread of 80 basis points. Furthermore, SFL has an aggregate of €232,259 thousand in
bilateral agreements with mortgages and a financial leasing, with an average maturity of 2.5 years and
an average spread of 187 basis points.
Securities and guarantees
Colonial has given the following securities and guarantees:
Guarantees (avales) in favour of government bodies, customers and suppliers in the amount of
€33,108 thousand as at 31 December 2014, one of which is related to the bank guarantee
provided in connection with the purchase of the building located at calle Francisco Silvela 42 in
Madrid for an amount €21,799 thousand. As of the date of this Prospectus, Colonial has the
necessary liquidity in order to cover the guarantee in the event that it were to be called on.
Colonial undertook to finance certain planning costs of up to €13,700 thousand. At 31
December 2014 there were €12,065 thousand pending to invest deposited in an account pledged
in favour of Banco Bilbao Vizcaya Argentaria, S.A.
Debt issuance (non-convertible bonds)
SFL has issued various outstanding bonds, none of which are guaranteed by Colonial, which are
unsubordinated obligations, all of which rank pari passu. They are traded on the Euronext Paris
exchange.
On 17 May 2011, SFL issued €500,000 thousand of non-convertible bonds (each with a nominal value
of €100 thousand). The bonds, with an initial maturity of five years, carry a fixed coupon of 4.625%,
payable annually, with a final maturity of 25 May 2016.
In addition, on 28 November 2012, SFL issued €500,000 thousand of non-convertible bonds (each
with a nominal value of €100 thousand). The bonds, with an initial maturity of five years, carry a fixed
coupon of 3.50%, payable annually, with a final maturity of 28 November 2017.
On 27 November 2014, bonds maturing in May 2016 and November 2017 were partially repurchased,
in the amount of €200,000 thousand and €100,000 thousand, respectively. Therefore as at 31
December 2014, the amounts outstanding of the bonds maturing in May 2016 and November 2017 are
€300,000 thousand and €400,000 thousand, respectively.
On 20 November 2014, SFL issued €500,000 thousand of non-convertible bonds (each with a nominal
value of €100 thousand). The bonds, with an initial maturity of seven years, carry a fixed coupon of
1.875%, payable annually, with a final maturity of 20 November 2021.
Lines of credit
The Group has lines of credit of up to €56,340 thousand, which as at 31 December 2014 were fully
drawn down. These credit facilities mature in the short term (less than a year).
At 31 December 2014, Colonial had two current accounts with the subsidiaries SCI Washington and
SAS Parholding which accrue interest at 3-month EURIBOR plus 60 basis points. The balance at that
date was, respectively, €57,516 thousand and €12,500 thousand. As at 31 December 2014 the Group
had liquidity in an amount of €690,000 thousand.
80
8 Insurance
The Company maintains insurance cover which is adequate for its activities in line with industry
practice and standards.
9 Environmental Matters
The Company has no liabilities, expenses, assets or provisions and contingencies of an environmental
nature which could be significant in relation to its net worth, financial position and results. However, it
is subject to a number of Spanish, French and EU laws and regulations relating to, among other things,
environmental compliance. See "Risk Factors —Risks Related to the Real Estate Sector —The real
estate sector is subject to certain laws and regulations and changes in applicable legislation could
have a material adverse impact on the financial condition, business, prospects and results of
operations of the Company" and "Risk Factors —Risk Related to the Company and its Business —The
Company may continue to face certain risks associated with its former affiliate Asentia and some of its
subsidiaries".
10 Directors, senior management and employees
Board of Directors
The following table sets out the name, date of first and most recent appointment to the Board, and the
position, status and, if applicable by which shareholder it was proposed, of each member of the Board
as at the date of this Prospectus.
Name
Date of first
appointment(1)
Date of most
recent
appointment Position Status
Appointment
proposed by
Mr. Juan José Brugera Clavero… 06/19/2008 06/30/2014 Chairman(2) Executive —
Grupo Villar Mir, S.A.U.(3)…….. 05/13/2014 06/30/2014 Vice-Chairman Proprietary Inmobiliaria
Espacio, S.A.(5)
Mr. Pedro Viñolas Serra .............. 07/18/2008 06/30/2014
Chief
Executive
Officer
Executive —
Mr. Juan Villar-Mir de Fuentes... 06/30/2014 06/30/2014 Director Proprietary Inmobiliaria
Espacio, S.A. (5)
Ms. Silvia Villar-Mir de Fuentes 06/30/2014 06/30/2014 Director Proprietary Inmobiliaria
Espacio, S.A. (5)
Mr. Juan Carlos García
Cañizares………………………. 06/30/2014 06/30/2014 Director Proprietary Aguila, LTD.(6)
Mr. Francesc Mora Sagués…….. 06/30/2014 06/30/2014 Director Proprietary Mora Banc Grup,
S.A.(7)
Mrs. Ana Sainz de Vicuña……... 06/30/2014 06/30/2014 Director Independent
Mr. Luis Maluquer Trepat ............. 07/31/2013 06/30/2014 Director
Other
External
Director (4)
Mr. Carlos Fernández-Lerga
Garralda………………………... 06/19/2008 06/30/2014 Director Independent —
Mr. Javier Iglesias de Ussel
Ordís…………………………… 06/19/2008 06/30/2014 Director Independent —
Mr. Francisco Palá Laguna…….. 05/13/2008 05/13/2008 Non-executive
Secretary — —
81
Mrs. Nuria Oferil Coll…………. 05/12/2010 05/12/2010 Non-executive
Vice-Secretary — —
Notes:
(1) The dates of first appointment refer to the date of the General Shareholders’ Meeting first appointing or ratifying the
appointment to the Board (not necessarily the date of appointment to the position indicated).
(2) Mr. Brugera Clavero has been delegated some of the faculties of the Board. However, the Chief Executive Officer of the
Company is Mr. Viñolas Serra who has been delegated all faculties in accordance with Spanish law.
(3) Represented by Mr. Juan-Miguel Villar Mir.
(4) Mr. Maluquer Trepat has provided legal services to the Colonial Group and is therefore considered as an "Other
External Director".
(5) Through Grupo Villar Mir, S.A.U.
(6) Through SNI Luxembourg, S.à R.L.
(7) Through SICAV Amura Capital.
Juan José Brugera Clavero
Mr. Brugera holds a degree in industrial technical engineering with a specialisation in industrial
electronics from the Escuela Universitaria de Ingenieros Técnicos Industriales de Terrassa. In addition,
he holds an MBA from ESADE (Barcelona), and a general management program (PDG) diploma from
IESE (Barcelona). In 2004 he received an honorary degree in economics from the Constantinian
University of Providence, Rhode Island (U.S.) and he holds an honorary chair at the Sociedad
Científica de Chile. From 1967 to 1968 he held an adjunct professorship in Electronics and Servo
Systems at the Escuela Industrial de Terrassa and at the Escuela de Telecomunicaciones de La Salle.
From 1968 to 1970 he worked as an engineer at the Inter-Grundig Industrial Laboratory. From 1971 to
1975, he was employed in the Planning Department and Sales Department of the Central Services
Division of Banco Atlántico. From 1975 to 1987, he held various positions of responsibility at Banco
Sabadell, as Director of Public Works for Barcelona, Director of the Zone of Barcelona, Deputy
Managing Director and member of the Central Management Committee. From 1987 to 1994, he was
CEO of Sindicato de Banqueros de Barcelona (Sindibank). From 1994 to 2006, he worked with
Inmobiliaria Colonial (absorbed company), holding the positions of CEO and board member of SFL.
From July 2006 to March 2007, he was the managing director of Grupo Mutua Madrileña. Since 2010,
he is the Chairman of SFL.
Juan-Miguel Villar Mir (representing Grupo Villar Mir, S.A.U.)
Mr. Villar Mir holds a PhD. in Civil Engineering and has a diploma in Industrial Organisation from the
EOI. He graduated from the Institute of Economic Development and earned the role of a senior
lecturer (by public examination) of business organisation at the Technical School of Civil Engineering,
of the Polytechnic University of Madrid. He was Deputy Prime Minister for Economic Affairs and
Minister of Finance in the first government of the Spanish democracy following the Transition. He has
also held important positions in cultural and academic fields including Chairman of the National
School of Civil Engineers and Chairman of the Agustín de Betancourt Foundation. He is a collegiate of
honour of the National College of Civil Engineering School and an Honorary Member of the Institute
of Engineering of Spain, an Academic of the Royal Academy of Engineering, of the Royal Academy of
Moral and Political Sciences, of the Royal Academy of Doctors of Spain and of the Royal Academy of
Economic and Financial Sciences of Barcelona. He also holds the title of First Marquis of Villar Mir.
He has held the position of chairman of the board of directors and chief executive in major Spanish
and international companies. He is currently the Chairman of Grupo Villar Mir, S.A.U., Chairman of
Obrascón Huarte Laín, S.A., Vice-Chairman of Abertis Infraestructuras, S.A. and Independient
Director of Banco Santander, S.A.
82
Pedro Viñolas Serra
Mr. Viñolas holds an undergraduate degree in business science and an MBA from ESADE and the
Polytechnic University of Catalonia. He completed a diploma course at the University of Barcelona,
where he also studied law. He was hired in 1990 as director of the Studies Service of the Barcelona
Stock Exchange, where he later held the position of deputy general manager. In 1997, he was hired to
serve as managing director of FILO, S.A., a listed real estate company where he remained until 2001.
From then until 2008, he served as Partner and CEO at the Riva y García Financial Group. He has
served as Chairman of the Urban Land Institute in Spain, and as a member of the Board of Directors of
the Riva y García Financial Group. In addition, he was the Chairman of the Spanish Institute of
Financial Analysts in Catalonia from 1994 until 2000. He is currently a member of the Board of
Directors of Société Foncière Lyonnaise and sits on its Executive Committee, in addition to serving as
a member of the Board of Directors of SIIC de Paris. Mr. Viñolas is a full professor in the Department
of Finance of ESADE and a member of the Board of Directors of Electro-Stocks, S.A. and of
Bluespace, S.A.
Juan Villar-Mir de Fuentes
Mr. Villar-Mir de Fuentes has a business degree from the Universidad Autónoma de Madrid. Mr.
Villar-Mir is currently a member of the board of Abertis Infraestructuras, S.A.; Vice-resident of
Inmobiliaria Espacio, S.A., Grupo Villar Mir, S.A.U., and Obrascón Huarte Lain (OHL), S.A.;
chairman of OHL Concesiones, S.L., Fertiberia, S.A., Puerto Sotogrande, S.A., Promociones y
Propiedades Inmobiliarias Espacio, S.A., Torre Espacio Castellana, S.A., and Centro Canalejas
Madrid, S.A.
Silvia Villar-Mir de Fuentes
Ms. Villar-Mir has a degree in business from the American College of London (Summa cum laude).
She is currently a member of the board of directors of Inmobiliaria Espacio, S.A., Grupo Villar Mir,
S.A., and Obrascón Huarte Lain, S.A.
Juan Carlos García Cañizares
Mr. García Cañizares is an Industrial Engineer and has completed management programs in IMD
Switzerland and an MBA jointly awarded by New York University Stern School of Business, London
School of Economics and HEC Paris.
He is currently the Managing Director of Quadrant Capital Advisors, Inc. in New York. Mr. García
Cañizares is the head of the Strategic Investment Group of Quadrant Capital, including investments in
SABMiller plc and in sectors such as consumption, financial system, natural resources and energy
worldwide, among others. In recent years, Mr. García has led GSD investments in BTG Pactual Group
(Brazil), CorpBanca (Chile), the acquisition of control in Servicios Petroleros (Colombia) and of a
reference stake in Inmobiliaria Colonial (Spain). Mr. García Cañizares is a member of the Boards of
Bavaria, S.A. and Valorem S.A. (Colombia), Backus & Johnston (Peru), BTG Pactual Group (Brazil),
Banco CorpBanca Colombia and Genesis Foundation (United States), among others.
Mr. García Cañizares was an investment banker who has implemented mergers and acquisitions as
well as acquisition finance for over $20 billion dollars. He was also the Vice-president of Planeación
de Bavaria, one of the leading brewing companies in Latin America. In 2000, as Vice-president of
Mergers and Acquisitions, he was the head of the international program of acquisitions of breweries
for $ 4 billion dollars and the subsequent merger with SABMiller plc amounting to $8 billion dollars,
thus creating the second largest brewing company in the world. Before joining Santo Domingo Group,
83
Mr. García Cañizares was the co-founder and Managing Partner of Estrategias Corporativas, an
investment banking firm in Latin America.
Francesc Mora Sagués
Law graduated in the University of Barcelona. MBA from the University of Barcelona and Polytechnic
University of Catalunya. PhD studies. Business Administration Program. Polytechnic University of
Catalunya. Finished credits types I, II and III.
He has developed his career as a Court Officer in la Batllia (municipal and judicial authority) of S.E.
the French Co-Prince from 1991 to 1993. Subsequently, he entered the law firm Mora & Ortega
Associats, as a specialist in Commercial and Civil Law, until 2001. Also, in 1995, he was appointed as
Secretary of the Board of Directors of Banca Mora, S.A.U., Banca Internacional d’Andorra, S.A. and
Assegurances Principat, S.A., until 2001.
During 1996 and 1997, he was State Secretary of Interior in the Government of Andorra. From 1997 to
2001 he was Director in Banc Internacional d’ Andorra, S.A., Assegurances Principat, S.A. and BIBM
Gestió d’ Actius, S.A. Also, from 2001 to 2010, he was appointed as Chairman of the Board of
Directors of Banca Mora, S.A., a subsidiary of Mora Banc Grup, S.A. In 2006, he was appointed as
Chairman of the Audit and Compliance Commission of Mora Banc Grup, S.A., until 2010. He was
also the Vice-president of Caritas Andorra, member of the Standing Board of Andorran Olympic
Committee and Chairman of the Andorran Ice Sports Federation. Currently, Mr. Mora acts as internal
auditor in Caritas Europa.
Mr. Mora Sagués is at present, a member of the board of directors of the following companies: Mora
Banc Grup, S.A. where he has been the Chairman since 2010 and Inversions Morsa, S.A. where he has
been the CEO since 2003
Ana Sainz de Vicuña
Graduate of the University of Reading in the UK with a degree in Agricultural Economics and a
participant in the Management Development Program at Harvard University.
She worked for Merrill Lynch in Spain for 18 years (1984-2003). She began her career in private
banking, where she remained for 12 years. She then joined Sociedad de Valores y Bolsa, which was
formed following the acquisition of FG. She was responsible, working with Claudio Aguirre, for this
merger and was then in charge of operations, systems, human resources and finance. Lastly, she was
appointed General Manager of the Merrill Lynch International Bank branch in Spain. She also served
on the board of Mobile Dreams Factory, a mobile marketing and advertising agency, and of Asturbega,
a Coca-Cola bottling company in Northern Spain. She currently forms part of the board of trustees of
the Foundation for Art Research Partnership and Education.
Since 2004, she has been a member of the Board and the Executive Committee of Corporación
Financiera Guadalmar (CFG), a family office with assets in Spain and Latin America, mainly in
Argentina and Chile. She supervises the Financial Assets Committee which manages securities
portfolios as well as the family's investments in Grupo Security, of which she is also a director, and in
the Awasi and W Santiago hotel groups.
Luis Maluquer Trepat
Mr Maluquer is a law graduate from the University of Barcelona, with a Diploma in International
Institutions from the University of Geneva.
84
Throughout his career at the law firm Maluquer Advocats, SCP, he has advised different national and
international institutions, providing his services in the fields of consulting, legal advice, lawsuits and
arbitration and mediation procedures. He also has teaching experience at various institutions, such as
the Barcelona Chamber of Commerce, and is the director representing Spain in the European Society
for Banking and Financial Law (AEDBF Paris).
Currently, he is managing partner of Despacho Maluquer Advocats, SCP and is secretary of a number
of companies, including SFL, where he is a board member. In addition, he has special powers of
attorney and is board secretary of various subsidiaries of French companies and of the Swiss
Confederation, especially in the infrastructure and agri food industries.
Carlos Fernández-Lerga Garralda
Law graduate of the University of Navarra. He also holds a Masters in European Studies from the
University of Leuven (Belgium) and a Doctorate in Law from the Complutense University of Madrid.
He has also participated in post-graduate courses specialising in Commercial Law at the Bank of
Spain’s Training Centre. He completed his international law studies at The Hague Academy of
International Law and his comparative law and international organisations studies in Strasbourg and at
the Collège Universitaire d´Etudes Fédéralistes in Nice, Val d’Aosta. He was an Advisory Member of
the Ministry and Secretary of State for Relations with the European Communities between 1978 and
1983, during which time he participated in negotiations for Spain’s accession to the EU. He was also
General Manager of the EU Advisory Service within the Banco Hispano Americano Group between
1984 and 1986. He has also been a Director at Abantia Corporación and Gamesa Corporación
Tecnológica, S.A. (Lead Independent Director) as well as a General Board Member of La Caixa. He
has also been a member of the International Secretariat of the World Federalist Youth movement
(Amsterdam); Secretary of the Madrid branch of the European League for Economic Cooperation;
Secretary of the Foundation for Progress and Democracy; a representative (treasurer) of the Governing
Board of the Madrid Bar Association as well as a member of the Executive Committee of the Elcano
Royal Institute. He has also lectured at the School of Political Science at the Complutense University
and at the Institute of European Studies at the University of Alcalá de Henares, and has written
numerous publications. He is currently Chairman of Iberdrola Ingeniería y Construcción, S.A. and
continues to practise law at his firm, Carlos Fernández-Lerga Abogados, mainly offering legal advice
on civil and commercial law. He is currently a member of the Board of Directors of SFL.
Javier Iglesias de Ussel Ordís
Graduate of the University of Barcelona with degree in Modern and Contemporary History. He has
participated in a large number of courses on company management and administration, marketing, risk
analysis and prevention of money laundering. He held several senior positions at Lloyds Bank
International from 1974 to 1995 in London, Dubai, Brazil, Paraguay and Spain, including Branch
Manager for Sao Bernardo do Campo (Brazil), Deputy General Manager (Paraguay) and Director of
International Trade, Marketing and UK Corporate Banking (Madrid). He also held several posts at The
Bank of New York Mellon between 1995 and June 2008, including Managing Director and Regional
Director for Spain, Portugal and Andorra (Madrid) and Managing Director and Head of the Latin
American and Caribbean Division (New York).
The business address of each of the directors of the Company is Avenida Diagonal 532, Barcelona,
Spain, with the sole exception of Mr. Francesc Mora Sagués, whose business address is Avinguda
Meritxell, 96, Andorra la Vella.
85
Conflicts of interest
The Company supports the development of corporate governance policies and procedures in
compliance with the requirements of the Spanish Corporations Law and Corporate Governance Code.
None of the members of the Board have communicated to the Company, and the company is not
otherwise aware of any existing or potential conflicts of interest between any of their duties as
directors of the Company and their private interests and/or other duties.
Pursuant to Spanish Law 26/2003 of July 17 on corporate transparency of listed companies (Ley
26/2003, de 17 de Julio sobre transparencia de sociedades anónimas cotizadas), the Board has
approved Colonial’s internal board regulations (Reglamento del Consejo) (the "Board Regulations").
The Board Regulations have been subsequently amended in meetings of the Board and most recently
on 12 March 2015, in order to adapt the content of its articles to the latest reforms of the Spanish
Corporations Law and, in particular, incorporate the latest improvements in terms of corporate
governance introduced by Law 31/2014, of 3 December, amending the Spanish Corporations Law to
improve corporate governance.
Board members shall refrain from taking part in the deliberation and voting of resolutions or decisions
in which they or a related party have a direct or indirect conflict of interest. This obligation shall not
apply regarding resolutions or decisions affecting a Board member in their capacity as directors, such
as their appointment to and revocation from positions on the management body or other similar
positions.
Management Committee
The management committee (Comité de Dirección) is the body that coordinates the business and
corporate departments of Colonial (the "Management Committee").
The main duties of the Management Committee include planning and proposing the Company’s
objectives, strategic plan and annual budget, as well as forwarding any proposals for actions that may
affect the implementation of the Company’s strategy.
The following table sets out the details of the general managers who, together with the Chief Executive
Officer, make up the Management Committee as of the date of this Prospectus.
Name Position
Mr. Pere Viñolas Serra Chief Executive Officer (Consejero Delegado)
Ms. Carmina Ganyet i Cirera(1) Managing Director of Corporate Affairs
(Directora General Corporativa)
Mr. Juan Manuel Ortega Moreno Chief Commercial and Investment Officer
(Director Comercial e Inversiones)
Mr. Albert Alcober Teixido(1) Chief Operating Officer (Director de Negocio)
Ms. Ángels Arderiu Ibars Chief Financial Officer (Directora Financiera)
Mr. Carlos Krohmer
Chief Corporate Development Officer
(Director de Desarrollo Corporativo, Control
de Gestión y Relación con Inversores)
Mr. José Martínez Flor Chief Human Resources Officer
(Director de Recursos Humanos)
Ms. Nuria Oferil Coll(1) Chief Legal Officer
(Directora de la Asesoría Jurídica)
Note:
(1) Holds the position of Senior Manager.
86
See below a brief biographical description of the members of the Management Committee who are not
members of the Board.
Carmina Ganyet i Cirera
Ms. Ganyet has been a member of Colonial’s Management Committee since July 2000, where she
initially joined as the financial director and where she currently holds the post of corporate managing
director.
Ms. Ganyet’s professional career in the financial sector began at Caixa Catalunya. In 1991, she was
hired by the Arthur Andersen auditing firm in Barcelona, where she specialised in financial sector
auditing. In 1995, she joined the "la Caixa" Group as head of management control for the financial,
real estate and insurance group of CaixaHolding (now Criteria). In 2000, she was appointed director of
Colonial’s operations and financial department. In 2009, she was named corporate managing director
of Colonial, and she is a member of the board of directors of SFL and SIIC de Paris subsidiaries.
In addition, Ms. Ganyet has taught at the School of Business Administration of the Universitat Ramon
Llull, and she is a member of the board of directors of Círculo de Economía, a chartered member of
l’Espai Vicens Vives, and a board member of Ethos Ramón Llull Ética y Empresa.
She holds a degree in economics and business administration from the Universitat Autónoma de
Barcelona and has completed graduate level studies at ESADE.
Juan Manuel Ortega Moreno
Mr. Ortega has been a member of Colonial’s Management Committee since December 2014 and
currently holds the position of chief commercial and investment officer in Colonial.
Mr. Ortega’s professional career in the real estate sector began at Detinsa in 1997. In 1998 he joined
IESE collaborating on drafting the first White Book of the Real Estate Sector and various finance and
real estate projects. He joined Jones Lang Lasalle in January 2001 where he held various positions as a
senior consultant in the office Leasing division and as responsible of the residential agency division in
Spain. In November 2005 he joined UBS Bank where he worked in the real estate Investment
Management area as responsible for the Spain of real estate. From 2011 to 2014 he has been
responsible of the Capital Markets division at Jones Lang Lasalle.
He is a business studies graduate from the Universidad Autónoma de Madrid and a member of the
Royal Institution of Chartered Surveyors (MRICS).
Albert Alcober Teixido
Mr. Alcober has been a member of Colonial’s Management Committee since January 2009 and
currently holds the position of chief operating officer in Colonial.
Mr. Alcober began his professional career at CB Richard Ellis, where he served as a senior consultant
from 1990 to 1993. He subsequently worked for BP Oil as director of investment, development and
properties from 1993 to 1996, year when he joined Colonial and was appointed to the position of sales
director of the property department. Since January 2009, he has headed Colonial’s property
management business.
Mr. Alcober has a diploma in marketing, management and business administration from Barcelona’s
Escola Superior de Marketing i Administració (ESMA) and a graduate degree in advertising. He is a
business studies graduate from the Royal Institution of Chartered Surveyors (RICS) and member
thereof.
87
Ángels Arderiu Ibars
Ms. Arderiu has been a member of Colonial’s Management Committee since January 2009 and
currently holds the position of chief financial officer.
Ms. Arderiu began her professional career in account auditing and worked in this field for nine years.
She joined Colonial in 2000 as head of accounting, and in January 2009 she was promoted to the
position of chief financial director.
Ms. Arderiu has an undergraduate degree in business administration from the University of Barcelona,
a post graduate degree in auditing and master’s degree in finance from ESADE and PDG from IESE.
Carlos Krohmer
Mr. Krohmer has been a member of the Management Committee of Colonial since January 2009 and
currently holds the position of chief corporate development officer.
Mr. Krohmer began his professional career in the Unilever Group in Hamburg in various posts of
responsibility in the controlling and finance departments. In 1999, he was appointed head of
management control of Unilever Bestfoods Germany. In 2001, he joined CaixaHolding (now Criteria),
a subsidiary of the "la Caixa" Group, in the corporate development department as manager of real
estate holdings and senior project manager in the process of floating Criteria on the stock market. Until
mid-2008, he was a member of the board of directors of Holret, S.A., a French real estate subsidiary of
Criteria. He joined Colonial at the beginning of 2009.
Mr. Krohmer has teaching experience as professor of corporate finance at the La Salle Business
Engineering School. He is a member of the Investor Relations Committee of the European Public Real
Estate Association (EPRA) and the Association of German Business Leaders in Spain (Kreis
Deutschsprachiger Führungskräfte).
Mr. Krohmer is a graduate in Business Administration and Management from the Mannheim Business
School (Germany) and studies at the Multi-regional International Business Programme at the
Autonomous University of Barcelona & Swansea University and postgraduate studies from IESE and
Harvard Business School.
José Martínez Flor
Mr. Martínez has been a member of Colonial’s Management Committee since January 2009 and
currently holds the position of chief human resources officer.
Mr. Martínez began his professional career at Colonial in 1968, where he had various responsibilities
in the accounting department. In 2009, he was appointed director of human resources, taxes and
general services. His previous responsibilities include accounting, tax and insurance and chairman of
the works committee.
Mr. Martínez has a degree in commercial law and post graduate studies in taxation. He is an expert
accountant and has completed graduate coursework in real estate taxation, insurance and human
resources.
Nuria Oferil Coll
Ms. Oferil has been a member of the Management Committee of Colonial since May 2010. In 2009,
she became Colonial’s chief legal officer. She is also assistant secretary of the Board.
88
She began her career at Roca Junyent where she was an associate attorney and joined Colonial’s legal
services in 2004.
Ms. Oferil is a graduate in Law from Barcelona University. She is a practicing lawyer and is a member
of the Barcelona Bar since 1999 and has studies specializing in real estate law from ESADE.
Shares held by Directors in the Company
The Company’s by-laws do not require any of the directors to hold Shares. At 31 December 2014,
members of the Board together held, directly or indirectly, 771,012,485 Shares (which represented
24.178% of total share capital of the Company), as set out in the following table.
Number of voting rights
Director
Directly
Indirectly
% over the total
voting rights
Mr. Juan José Brugera Clavero — — 0%
Mr. Pere Viñolas Serra 140 — 0%
Grupo Villar Mir, S.A.U. 770,808,294 24.172%
Mrs. Ana Sainz de Vicuña 15,500 — 0%
Mr. Luis Maluquer Trepat 145,040 — 0.004%
Mr. Juan Villar-Mir de Fuentes — — 0%
Mrs. Silvia Villar-Mir de Fuentes — — 0%
Mr. Juan Carlos García Cañizares — — 0%
Mr. Carlos Fernández-Lerga Garralda 13,610 11,700 0%
Mr. Javier Iglesias de Ussel Ordís 18,201 — 0%
Mr. Francesc Mora Sagués — — 0%
Total 771,000,785 11,700 24.178%
Colonial’s senior management has no direct or indirect participation in Colonial’s share capital as of
the date of this Prospectus.
11 Major Shareholders
Major Shareholders of Colonial
The following table shows the shareholdings of Colonial’s major Shareholders as of the date of the
Prospectus (based on the latest information available to the Company).
Number of voting rights
Direct Indirect
% over the total
voting rights
Inmobiliaria Espacio, S.A.(1) ................ — 770,808,294 24.172%
Qatar Investment Authority(2) .............. — 415,933,672 13.043%
Mora Banc Grup S.A.(3) ....................... — 223,064,422 6.995%
Aguila LTD(4) ...................................... — 218,001,838 6.836%
T. Rowe Price Associates, INC. .......... — 97,883,515 3.069%
Third Avenue Management, LLC(5) ..... — 97,030,111 3.043%
Lewis, Joseph Charles(6) ..................... — 96,033,698 3.012%
Fidelity International Limited(7) ........... — 62,484,713 1.959%
Total .................................................... 0 1,981,240,263 62.129%
Notes:
(1) Through Grupo Villar Mir, S.A.U.
(2) Through Qatar Holding Luxembourg II, S.à r.l.
(3) Through SICAV Amura Capital.
89
(4) Through Sierra Nevada Investments LLC.
(5) Through AIC Corporate Fund, Third Avenue RE Fund, and Third Avenue RE Fund Ucits.
(6) Through Berkeley Capital Management LTD and Skyland INC.
(7) Through Fidelity Funds SICAV.
The above listed shareholders do not have different voting rights than those corresponding to the
Shares. The Company is not aware of any persons who, directly or indirectly, jointly or severally,
exercise or could exercise control over it as the date of this Prospectus.
12 Legal Proceedings
Except for the circumstances described below, no company in the Group is currently, or has been in the
past twelve months, party to a government intervention, a court or arbitration proceeding or an
administrative proceeding (including those proceedings that are still pending or could be initiated to
the Company’s knowledge) that could have a material adverse effect on the financial condition or
future results of operations.
Corporate liability lawsuits brought by Colonial against former directors
In April 2010, the Company brought the following three corporate liability lawsuits against certain
former directors of the Company:
a corporate liability lawsuit against certain former directors in relation to the purchase of
assets by Colonial for reinvestment of the proceeds by the sellers in Shares, as part of the 29
June 2006 equity offering or otherwise.
a corporate liability lawsuit against certain former directors in connection with the losses
caused by the acquisition of shares of Riofisa in 2007.
a corporate liability lawsuit against certain former directors in connection with the purchase
of treasury shares between March and December 2007.
Other litigation
Since February 1999, Colonial has been awaiting a ruling on various legal proceedings brought in
connection with a purchase agreement for the acquisition of a building located at Francisco Silvela, 42
in Madrid for €21,799 thousand. In March 2014, a settlement agreement was signed between the
affected parties which concludes all legal proceedings and allows for the registration of the building in
the Company’s name.
Colonial as creditor in insolvency proceedings
Colonial is also a creditor in a number of insolvency proceedings involving certain of its debtors.
However, as the debts have already been impaired in full in its financial statements, any recovery by
Colonial will have a positive impact on its financial condition.
13 Available Information
Certain codes of conduct and other internal regulations, as well as certain corporate governance
regulations applicable to, and recommendations made for, Spanish-listed companies are available on
the Colonial’s website http://www.inmocolonial.com/en/informaciones-para-accionistas-inversores/.
Neither the contents of such website nor of other websites accessible through such website form part of
this Prospectus.
90
Use of Proceeds
The net proceeds of the issue of the Notes will be used to repay all amounts outstanding in connection with
the Syndicated Loan Agreement and for general corporate purposes of the Issuer.
The Notes will be issued before amounts outstanding under the Syndicated Loan Agreement are repaid in full
because the source of funds for that repayment is the Note proceeds.
The Company will serve the Syndicated Loan Agreement repayment notice at any point between the date of
this Prospectus and the settlement date of the Notes.
The Syndicated Loan Agreement provides for a minimum prior notice period of ten business days (as
determined in accordance with the Syndicated Loan Agreement) for a repayment of the nature to be effected
from the Note proceeds. The Company has, however, obtained a waiver from the requisite lenders to reduce
this prior notice period so as to allow the Company to repay the Syndicated Loan Agreement in full with only
three business days’ notice period. This would minimise the period during which the Company is subject to
interest costs under both instruments.
As such, the latest date at which the Note proceeds will be used to repay in full the amounts outstanding under
the Syndicated Loan Agreement is three business days (as determined in accordance with the Syndicated
Loan Agreement) after the settlement date under the Notes.
91
Taxation
The following is a general description of certain European and Spanish tax considerations. The information
provided below does not purport to be a complete overview of tax law and practice currently applicable in the
Kingdom of Spain and is subject to any changes in law and the interpretation and application thereof, which
could be made with retroactive effect.
This taxation summary solely addresses the principal Spanish tax consequences of the acquisition, the
ownership and disposal of Notes issued by the Issuer after the date hereof held by a holder of Notes. It does
not consider every aspect of taxation that may be relevant to a particular holder of Notes under special
circumstances or who is subject to special treatment under applicable law or to the special tax regimes
applicable in the Basque Country and Navarra (Territorios Forales). Where in this summary English terms
and expressions are used to refer to Spanish concepts, the meaning to be attributed to such terms and
expressions shall be the meaning to be attributed to the equivalent Spanish concepts under Spanish tax law.
This summary assumes that each transaction with respect to the Notes is at arm's length.
This overview is based on the law as in effect on the date of this Prospectus and is subject to any change in
law that may take effect after such date. References in this section to Noteholders include the beneficial
owners of the Notes, where applicable.
Any prospective investors should consult their own tax advisers who can provide them with personalised
advice based on their particular circumstances. Likewise, investors should consider the legislative changes
which could occur in the future.
Taxation in Spain
1 Introduction
This information has been prepared in accordance with the following Spanish tax legislation in force at
the date of this document:
(i) of general application, Additional Provision One of Law 10/2014, of 26 June, on supervision
and solvency of credit entities ("Law 10/2014") as well as Royal Decree 1065/2007, of 27 July,
as amended, promulgating the Regulations for steps and procedures in tax management and
inspection matters, and to implement common rules governing tax application procedures
("Royal Decree 1065/2007" or "Tax Procedure Regulations");
(ii) for individuals resident for tax purposes in Spain which are subject to the Personal Income Tax
("PIT"), Law 35/2006, of 28 November, on the PIT and on the Partial Amendment of the
Corporate Income Tax Law, the Non-Residents Income Tax Law and the Net Wealth Tax Law,
as amended ("PIT Law"), and Royal Decree 439/2007, of 30 March, promulgating the PIT
Regulations ("PIT Regulations"), along with Law 29/1987, of 18 December, on the Inheritance
and Gift Tax;
(iii) for legal entities resident for tax purposes in Spain which are subject to the Corporate Income
Tax ("CIT"), Law 27/2014, of 27 November, on Corporate Income Tax ("CIT Law"), and
Royal Decree 1777/2004, of 30 July, promulgating the CIT Regulations ("CIT Regulations");
and
(iv) for individuals and entities who are not resident for tax purposes in Spain which are subject to
the Non-Resident Income Tax ("NRIT"), Royal Legislative Decree 5/2004, of 5 March,
promulgating the Consolidated Text of the NRIT Law, as amended ("NRIT Law"), and Royal
92
Decree 1776/2004, of 30 July, promulgating the NRIT Regulations, along with Law 29/1987, of
18 December, on the Inheritance and Gift Tax.
Whatever the nature and residence of the Noteholder, the acquisition and transfer of Notes will be
exempt from indirect taxes in Spain, i.e., exempt from Transfer Tax and Stamp Duty, in accordance
with the Consolidated Text of Transfer tax and Stamp Duty Law promulgated by Royal Legislative
Decree 1/1993, of 24 September, and exempt from Value Added Tax, in accordance with Law 37/1992,
of 28 December, regulating Value Added Tax Law.
2 Individuals with Tax Residency in Spain
2.1 Personal Income Tax (Impuesto sobre la Renta de las Personas Físicas)
Spanish individuals with tax residency in Spain are subject to PIT on a worldwide basis.
Accordingly, income obtained from the Notes will be taxed in Spain when obtained by persons
that are considered resident in Spain for tax purposes. The fact that a Spanish company makes
interest payments under a Note will not lead an individual or entity being considered tax-
resident in Spain.
Both interest payments periodically received and income derived from the transfer, redemption
or exchange of the Notes constitute a return on investment obtained from the transfer of a
person's own capital to third parties in accordance with the provisions of Section 25 of the PIT
Law, and therefore must be included in the investor's PIT savings taxable base pursuant to the
provisions of the aforementioned law and taxed during 2015 at a flat rate of 20 per cent. for
taxable income up to €6,000, 22 per cent. for taxable income between €6,000.01 to €50,000 and
24 per cent. for taxable income in excess of €50,000. However, for tax periods beginning as
from 1 January 2016 and onwards, the tax rates will be reduced to 19 per cent. on the first
€6,000, 21 per cent. for taxable income between €6,001 and €50,000, and 23 per cent. for
taxable income exceeding €50,000.
As a general rule, both types of income are subject to a withholding tax on account at the rate of
20 per cent. However, for tax periods beginning as from 1 January 2016 and onwards, the
withholding tax rate will be reduced to 19 per cent.
However, it should be noted that Royal Decree 1145/2011 introduced amendments to Royal
Decree 1065/2007 in relation to certain procedures for the provision of information which are
explained under section "Disclosure of Information in Connection with the Notes" below and
that, in particular, in the case of debt listed securities issued under Law 10/2014 and initially
registered in a foreign clearing and settlement entity that is recognised under Spanish
regulations or under those of another OECD member state, as the Notes issued by Colonial:
(i) it would not be necessary to provide the Issuer with the identity of the Noteholders who
are individuals resident in Spain for tax purposes or to indicate the amount of income
attributable to such individuals; and
(ii) interest paid to all Noteholders (whether tax resident in Spain or not) should be paid free
of Spanish withholding tax provided that the information procedures are complied with.
Therefore, Colonial, understands that, according to Royal Decree 1065/2007, it has no
obligation to withhold any tax amount for interest paid on the Notes corresponding to
Noteholders who are individuals with tax residency in Spain provided that the information
procedures (which do not require identification of the Noteholders) are complied with.
93
Nevertheless, Spanish withholding tax at the applicable rate (currently 20 per cent., but 19 per
cent. in 2016 onwards) may have to be deducted by other entities (such as depositaries or
financial entities), provided that such entities are resident for tax purposes in Spain or have a
permanent establishment in the Spanish territory.
The amounts withheld, if any, may be credited by the relevant investors against its final PIT
liability.
However, regarding the interpretation of Royal Decree 1065/2007 and the information
procedures, please refer to section "Risk Factors—Risks related to the Spanish withholding tax
regime" above.
2.2 Net Wealth Tax (Impuesto sobre el Patrimonio)
Individual Spanish Holders are subject to Spanish Wealth Tax (Impuesto sobre el Patrimonio)
on all their assets (such as the Notes) owned every 31 December irrespective of where the
assets are located.
Law 19/1991 on Spanish Wealth Tax Law exempts from taxation the first €700,000 of net
wealth owned by an individual Spanish Noteholder. Some additional exemptions may apply on
specific assets; those exemptions do not generally apply to the Notes; the rest of the net wealth
is taxed at rates ranging between 0.2 per cent. to 2.5 per cent. However, this taxation may vary
depending on the Spanish autonomous community of residence of the corresponding
Noteholder.
Furthermore, in accordance with article 61 of the Law 36/2014, of 26 December, on Spanish
General Budget for year 2015, as from year 2016, a full exemption on Spanish Wealth Tax
would apply and therefore from year 2016 Spanish individual Noteholders will be released
from formal and filing obligations in relation to this Spanish Wealth Tax. However, the
application of such tax relief was also anticipated and ultimately rejected by Spanish tax
authorities with respect to fiscal years 2014 and 2015. Therefore, rejection of such tax relief
could similarly occur with respect to fiscal year 2016.
2.3 Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones)
Individuals resident in Spain for tax purposes who acquire ownership or other rights over any
Notes by inheritance, gift or legacy will be subject to the Spanish Inheritance and Gift Tax in
accordance with the applicable Spanish regional and State rules. The applicable tax rates
currently range between 7.65 per cent. and 81.6 per cent. depending on relevant factors.
Although, depending on various circumstances and the rules applicable, certain exemptions or
reliefs could operate to reduce the effective tax rate to 0%.
3 Legal Entities with Tax Residency in Spain
3.1 Corporate Income Tax (Impuesto sobre Sociedades)
Legal entities with tax residency in Spain are subject to CIT on a worldwide basis.
Both interest periodically received and income deriving from the transfer, redemption or
repayment of the Notes constitute a return on investments for tax purposes obtained from the
transfer to third parties of own capital and must be included in the profit and taxable income of
legal entities with tax residency in Spain for corporation tax purposes in accordance with the
CIT rules. The current general tax rate according to CIT Law is 28 per cent. However, the
94
general rate will be reduced to 25 per cent. for tax periods beginning as from 1 January 2016
and onwards.
Pursuant to Section 59.s of the CIT Regulations, there is no obligation to make a withholding
on income obtained by taxpayers subject to Spanish CIT (which for the avoidance of doubt,
include Spanish tax resident investment funds and Spanish tax resident pension funds) from
financial assets traded on organised markets in OECD countries. However, in the case of Notes
held by a Spanish resident entity and deposited with a Spanish resident entity acting as
depositary or custodian, payments of interest and income deriving from the transfer may be
subject to withholding tax at the current rate of 20 per cent (19 per cent in 2016 onwards). Such
withholding may be made by the depositary or custodian if the Notes do not comply with the
exemption requirements specified in the ruling issued by the Spanish Tax Authorities
(Dirección General de Tributos) (the DGT) dated 27 July 2004 (that is, placement of the Notes
outside of Spain in another OECD country and admission to listing of the Notes on an
organised market in an OECD country other than Spain). The amounts withheld, if any, may be
credited by the relevant investors against its final CIT liability.
Notwithstanding the above, according to Royal Decree 1065/2007, in the case of listed debt
instruments issued under Law 10/2014 and initially registered in a foreign clearing and
settlement entity that is recognised under Spanish regulations or under those of another OECD
member state (such as the Notes issued by Colonial), interest paid to investors should be paid
free of Spanish withholding tax. The foregoing is subject to certain information procedures
having been fulfilled. These procedures are described in "Disclosure of Information in
Connection with the Notes" below.
Therefore, Colonial considers that, pursuant to Royal Decree 1065/2007, it has no obligation to
withhold any tax on interest paid on the Notes in respect of Noteholders who are Spanish
Corporation Tax payers, provided that the information procedures are complied with.
However, regarding the interpretation of Royal Decree 1065/2007 and the information
procedures, please refer to section "Risk Factors—Risks related to the Spanish withholding tax
regime" above.
3.2 Net Wealth Tax (Impuesto sobre el Patrimonio)
Legal entities resident in Spain for tax purposes are not subject to Wealth Tax.
3.3 Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones)
Legal entities resident in Spain for tax purposes which acquire ownership or other rights over
the Notes by inheritance, gift or legacy are not subject to the Spanish Inheritance and Gift Tax.
However, Spanish entities resident in Spain and subject to CIT should include their fair market
value of the Notes received by inheritance or gift in their CIT taxable income.
4 Individuals and Legal Entities with no Tax Residency in Spain
4.1 Non-Resident Income Tax (Impuesto sobre la Renta de no Residentes)
(a) With permanent establishment in Spain
Ownership of the Notes by investors who are not resident for tax purposes in Spain will
not in itself create the existence of a permanent establishment in Spain.
95
If the Notes form part of the assets of a permanent establishment in Spain of a person or
legal entity who is not resident in Spain for tax purposes, the tax rules applicable to
income deriving from such Notes are, generally, the same as those previously set out for
Spanish CIT taxpayers. See "Legal Entities with Tax Residency in Spain—Corporate
Income Tax (Impuesto sobre Sociedades)".
(b) With no permanent establishment in Spain
Both interest payments periodically received and income deriving from the transfer,
redemption or repayment of the Notes, obtained by individuals or legal entities who have
no tax residency in Spain, being Non-Resident Income Tax taxpayers with no permanent
establishment in Spain, are exempt from such Non-Resident Income Tax on the same
terms laid down for income from Public Debt.
In order for such exemption to apply, it is necessary to comply with the information
procedures, in the manner detailed under "Disclosure of Information in Connection with
the Notes" as set out in section 44 of the Tax Procedure Regulations
4.2 Net Wealth Tax (Impuesto sobre el Patrimonio)
Individuals resident in a country with which Spain has entered into a double tax treaty in
relation to Wealth Tax would generally not be subject to such tax. In the absence of such treaty,
individuals who do not have tax residency in Spain are subject to Spanish Wealth Tax which
imposes a tax on property and rights in excess of €700,000 that are located in Spain, or can be
exercised within the Spanish territory, on the last day of any year (such as the Notes).
Individuals whose net worth is above €700,000 and who hold Notes on the last day of any year
would therefore be subject to Spanish Wealth Tax for such year at marginal rates varying
between 0.2 per cent. and 2.5 per cent. of the value of the Notes.
Furthermore, in accordance with article 61 of the Law 36/2014, of 26 December, on Spanish
General Budget for year 2015, as from year 2016, a full exemption on Spanish Wealth Tax
would apply and therefore from year 2016 Non-Spanish individuals will be released from
formal and filing obligations in relation to this Spanish Wealth Tax. However, the application of
such tax relief was also anticipated and ultimately rejected by Spanish tax authorities with
respect to fiscal years 2014 and 2015. Therefore, rejection of such tax relief could similarly
occur with respect to fiscal year 2016.
Individuals who do not have tax residency in Spain and are tax resident in a State of the
European Union or of the European Economic Area will be entitled to apply the specific
regulation of the autonomous community where their most valuable assets are located and
which trigger this Spanish Wealth Tax due to the fact that they are located or are to be exercised
within the Spanish territory.
4.3 Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones)
Individuals who do not have tax residency in Spain who acquire ownership or other rights over
the Notes by inheritance, gift or legacy will not be subject to Inheritance and Gift Tax in Spain
if the country in which such individual resides has entered into a double tax treaty with Spain in
relation to Inheritance and Gift Tax. In such case, the individual will be subject to the relevant
double tax treaty.
If no treaty for the avoidance of double taxation in relation to IGT applies, applicable IGT rates
would range between 7.65 per cent. and 81.6 per cent. for 2015, depending on relevant factors.
96
Although, depending on various circumstances and the rules applicable, certain exemptions or
reliefs could operate to reduce the effective tax rate to 0%.
Generally, non-Spanish tax resident individuals are subject to the Spanish IGT according to the
rules set forth in the Spanish state level law. However, if the deceased or the donee are resident
in an EU or European Economic Area Member State, the applicable rules will be those
corresponding to the relevant Spanish autonomous regions. As such, prospective investors
should consult their tax advisers.
Non-resident legal entities which acquire ownership or other rights over the Notes by
inheritance, gift or legacy are not subject to Inheritance and Gift Tax. They will be subject to
Non-Resident Income Tax, if applicable. If the entity is resident in a country with which Spain
has entered into a double tax treaty, the provisions of the treaty will apply. In general, tax
treaties provide for the taxation of this type of income in the country of residence of the
beneficiary.
Obligation to inform the Spanish Tax Authorities of the Ownership of the Notes
With effects as from 1 January 2013, Law 7/2012, of 29 October, as implemented by Royal Decree
1558/2012, of 15 November, introduced annual reporting obligations applicable to Spanish residents
(i.e. individuals, legal entities, permanent establishments in Spain of non-resident entities) in relation
to certain foreign assets or rights.
Consequently, if the Notes are deposited with or placed in the custody of a non-Spanish entity,
Noteholders resident in Spain will be obliged, if certain thresholds are met as described below, to
declare before the Spanish Tax Authorities, between 1 January and 31 March every year, the ownership
of the Notes held on 31 December of the immediately preceding year (e.g. to declare between 1
January 2015 and 31 March 2015 the Notes held on 31 December 2014).
This obligation would only need to be complied with if certain thresholds are met: specifically, if the
only rights/assets held abroad are the Notes, this obligation would only apply if the value of the Notes
together with other qualifying assets held on 31 December exceeds €50,000 (with the corresponding
valuation to be made in accordance with Wealth Tax rules). If this threshold is met, a declaration would
only be required in subsequent years if the value of the Notes together with other qualifying assets
increases by more than €20,000 as against the declaration made previously. Similarly, cancellation or
extinguishment of the ownership of the Notes before 31 December should be declared if such
ownership was reported in previous declarations.
Disclosure of Information in Connection with the Notes
In accordance with section 5 of Article 44 of the Tax Procedure Regulations and provided that the
Notes issued by Colonial are initially registered for clearance and settlement in Euroclear and
Clearstream, Luxembourg, the Paying Agent designated by Colonial would be obliged to provide the
Issuer with a declaration (the form of which is set out in the Agency Agreement), which should include
the following information:
(i) description of the Notes (and date of payment of the interest income derived from such Notes);
(ii) total amount of interest derived from the Notes; and
(iii) total amount of interest allocated to each non-Spanish clearing and settlement entity
involved.
97
According to section 6 of Article 44 of the Tax Procedure Regulations, the relevant declaration will
have to be provided to Colonial on the business day immediately preceding each Interest Payment
Date. If this requirement is complied with, Colonial will pay gross (without deduction of any
withholding tax) all interest under the Notes to all Noteholders (irrespective of whether they are tax
resident in Spain).
In the event that the Paying Agent designated by Colonial were to fail to provide the information
detailed above, according to section 7 of Article 44 of the Tax Procedure Regulations, Colonial or the
Paying Agent acting on its behalf would be required to withhold tax from the relevant interest
payments at the general withholding tax rate (currently, 20 per cent. and 19 per cent. in 2016 onwards).
If on or before the 10th day of the month following the month in which the interest is payable, the
Paying Agent designated by Colonial were to submit such information, Colonial or the Paying Agent
acting on its behalf would refund the total amount of taxes withheld.
Notwithstanding the foregoing, Colonial has agreed that in the event that withholding tax were
required by law, Colonial would pay such additional amounts as may be necessary such that a
Noteholder would receive the same amount that he would have received in the absence of any such
withholding or deduction, except as provided in "Terms and Conditions of the Notes - Taxation".
In the event that the current applicable procedures were to be modified, amended or supplemented by,
amongst others, a Spanish law, regulation, interpretation or ruling of the Spanish Tax Authorities,
Colonial would inform the Noteholders of such information procedures and of their implications, as
Colonial may be required to apply withholding tax on interest payments under the Notes if the
Noteholders were not to comply with such information procedures.
EU Savings Directive
Under Council Directive 2003/48/EC on the taxation of savings income (the "Savings Directive"),
Member States are required to provide to the tax authorities of another Member State details of
payments of interest (or other similar income) paid by a person within its jurisdiction (or secured for)
to, or for, an individual or certain limited types of entity established in that other Member State.
However, for a transitional period Austria is instead required (unless during such period it elects
otherwise) to operate a withholding tax in relation to such payments (the ending of such transitional
period being dependent upon the conclusion of certain other agreements relating to information
exchange with certain other countries) subject to a procedure whereby, on meeting certain conditions,
the beneficial owner of the interest (or similar income) may request that no tax be withheld.
On 24 March 2014, the European Council formally adopted a Council Directive amending the
Directive (the "Amending Directive"). The Amending Directive broadens the scope of the
requirements described above. Member States have until 1 January 2016 to adopt the national
legislation necessary to comply with the Amending Directive.
The Amending Directive will expand the range of payments covered by the Savings Directive, in
particular to include additional types of income payable on securities, and the circumstances in which
payments must be reported or paid subject to withholding. For example, payments made to (or for the
benefit of) (i) an entity or legal arrangement effectively managed in an EU Member State that is not
subject to effective taxation, or (ii) a person, entity or legal arrangement established or effectively
managed outside of the EU (and outside any third country or territory that has adopted similar
measures to the Savings Directive) which indirectly benefit an individual resident in an EU Member
State, may fall within the scope of the Savings Directive, as amended by the Amending Directive. The
Amending Directive requires EU Member States to adopt national legislation necessary to comply
98
with it by 1 January 2016, which legislation must apply from 1 January 2017. A number of non-EU
countries and territories including Switzerland have adopted similar measures (a withholding system in
the case of Switzerland).
If a payment were to be made or collected under these withholding systems and an amount of, or an
amount in respect of, tax were to be withheld from that payment, neither the Issuer, the Fiscal Agent
nor any other person would be obliged to pay additional amounts with respect to any Note as a result
of the imposition of such withholding tax. If a withholding tax is imposed on payment made by the
Fiscal Agent, the Issuer may be required to maintain a paying agent in a Member State that will not be
obliged to withhold or deduct tax pursuant to the EU Savings Directive to the extent is operative or
feasible.
The Issuer, is required to maintain a Paying Agent with a specified office in an EU Member State that
is not obliged to withhold or deduct tax pursuant to any law implementing the Savings Directive or any
other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27 November
2000, which may mitigate an element of this risk if the Noteholder or Couponholder is able to arrange
for payment through such a Paying Agent. However, investors should choose their custodians and
intermediaries with care, and provide each custodian and intermediary with any information that may
be necessary to enable such persons to make payments free from withholding and in compliance with
the Savings Directive.
The Proposed Financial Transactions Tax (FTT)
On 14 February 2013, the European Commission published a proposal for a Directive for a common
FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and
Slovakia (the participating Member States).
The Commission's proposal has very broad scope and could, if introduced, apply to certain dealings in
the Notes (including secondary' market transactions) in certain circumstances.
Under the current proposals, FTT could apply in certain circumstances to persons both within and
outside of the participating Member States. Generally, it would apply to certain dealings in the Notes
where at least one party is a financial institution, and at least one party is established in a participating
Member State. A financial institution may be, or be deemed to be, "established" in a participating
Member State in a broad range of circumstances, including (a) by transacting with a person established
in a participating Member State or (b) where the financial instrument which is subject to the dealings is
issued in a participating Member State.
A joint statement issued in May 2014 by ten of the eleven participating Member States indicated an
intention to implement the FTT progressively, such that it would initially apply to shares and certain
derivatives, with this initial implementation occurring by 1 January 2016. The FTT, as initially
implemented on this basis, should not apply to dealings in the Notes. Nevertheless, if a payment were
to be made or collected due to FTT, neither the Issuer, the Fiscal Agent nor any other person would be
obliged to pay additional amounts with respect to any Note as a result of the imposition of such FTT.
The FTT proposal remains subject to negotiation between the participating Member States and is the
subject of legal challenge. It may therefore be altered prior to any implementation, the timing of which
remains unclear. Additional EU Member States may decide to participate and Member States
mentioned above may decide not to participate. Prospective holders of the Securities are advised to
seek their own professional advice in relation to the FTT.
99
Subscription and Sale
The Joint Lead Managers have, pursuant to a Subscription Agreement dated 28 May 2015, jointly and
severally agreed with the Issuer, subject to the satisfaction of certain conditions, to subscribe the Notes at 100
per cent. of their principal amount plus accrued interest, if any. In addition, the Issuer has agreed to reimburse
the Joint Lead Managers for certain of their expenses in connection with the issue of the Notes. The
Subscription Agreement entitles the Joint Lead Managers to terminate it in certain circumstances prior to
payment being made to the Issuer. The yield of the 4 Year Notes is 1.863 per cent. on an annual basis. The
yield of the 8 Year Notes is 2.728 per cent. on an annual basis. The yields are calculated as at 5 June 2015 on
the basis of the relevant issue price. It is not an indication of future yield.
General
Neither the Issuer nor any Joint Lead Manager has made any representation that any action will be taken in
any jurisdiction by the Joint Lead Managers or the Issuer that would permit a public offering of the Notes, or
possession or distribution of this Prospectus (in preliminary, proof or final form) or any other offering or
publicity material relating to the Notes (including roadshow materials and investor presentations), in any
country or jurisdiction where action for that purpose is required. Each Joint Lead Manager has agreed that it
will comply to the best of its knowledge and belief in all material respects with all applicable laws and
regulations in each jurisdiction in which it acquires, offers, sells or delivers Notes or has in its possession or
distributes this Prospectus (in preliminary, proof or final form) or any such other material, in all cases at its
own expense. It will also ensure that no obligations are imposed on the Issuer or any other Joint Lead
Manager in any such jurisdiction as a result of any of the foregoing actions.
United States
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold,
directly or indirectly, in the United States or to, or for the account or benefit of, U.S. persons except in certain
transactions, the registration requirements of the Securities Act. The Notes are being offered and sold only
outside of the United States to non-U.S. persons in reliance on Regulation S. Terms used in this paragraph
have the meanings given to them by Regulation S under the Securities Act.
The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the
United States or its possessions or to a United States person, except in certain transactions permitted by U.S.
tax regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue
Code and regulations thereunder.
Each Joint Lead Manager has represented and agreed that, except as permitted by the Subscription
Agreement, it has not offered, sold or delivered and will not offer, sell or deliver the Notes, (i) as part of their
distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and
the Closing Date (as defined in the Subscription Agreement) within the United States or to, or for the account
or benefit of, U.S. persons, and it will have sent to each dealer to which it sells Notes during the distribution
compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes
within the United States or to, or for the account or benefit of, U.S. persons.
In addition, until 40 days after the commencement of the offering, an offer or sale of Notes within the United
States by a dealer that is not participating in the offering may violate the registration requirements of the
Securities Act.
100
United Kingdom
Each Joint Lead Manager has represented and agreed that:
(a) it has only communicated or caused to be communicated and will only communicate or cause to be
communicated an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the FSMA) received by it in connection with the issue or sale of the Notes in
circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and
(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything
done by it in relation to the Notes in, from or otherwise involving the United Kingdom.
Kingdom of Spain
Each Joint Lead Manager has represented and agreed that the Notes may not be sold, offered or distributed in
Spain in circumstances which constitute a public offer of securities in Spain within the meaning of Spanish
Securities Market Law (Ley 24/1988, de 28 de julio, del Mercado de Valores) and further relevant regulations
unless such sale, offer or distribution is made in compliance with the provisions of the Spanish Securities
Market Law and any other applicable regulations. No publicity or marketing of any kind shall be made in
Spain in relation to the Notes.
101
General Information
1. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List
and to be admitted to trading on its Main Securities Market. The Issuer has appointed Arthur Cox
Listing Services Limited as Irish listing agent with its address at Earlsfort Centre, Earlsfort Terrace,
Dublin 2, Ireland.
The estimated expenses related to admission to trading will be approximately €7,000.
Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in
relation to the Notes and is not itself seeking admission of the Notes to the Official List of the Irish
Stock Exchange or to trading on the Main Securities Market of the Irish Stock Exchange.
2. The Issuer has obtained all necessary consents, approvals and authorisations in connection with the
issue and performance of the Notes. The issue of the Notes was authorised by resolutions of the
General Shareholders’ Meeting and the Board of Directors of the Issuer, passed on 24 April 2015 and
6 May 2015 respectively .
3. There has been no significant change in the financial or trading position of the Issuer or of the Group
since 31 December 2014 and no material adverse change in the financial position or prospects of the
Issuer or of the Group since 31 December 2014.
4. Except as disclosed in "Description of Issuer –Legal Proceedings" on page 89 of this Prospectus,
neither the Issuer nor any of its subsidiaries is nor has been involved in any governmental, legal or
arbitration proceedings (including any such proceedings which are pending or threatened of which the
Issuer is aware) during the 12 months preceding the date of this Prospectus which may have or has had
in the recent past significant effects on the financial position or profitability of the Issuer or the Group.
5. Each Note and Coupon will bear the following legend: "Any United States person who holds this
obligation will be subject to limitations under the United States income tax laws, including the
limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code".
6. The Notes have been accepted for clearance through the Euroclear and Clearstream, Luxembourg
systems (which are the entities in charge of keeping the records). The International Securities
Identification Number (ISIN) for the 4 Year Notes is XS1241699922 and the Common Code is
124169992. The ISIN for the 8 Year Notes is XS1241701413 and the Common Code is 124170141.
The address of Euroclear is 1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium and the address of
Clearstream, Luxembourg is 42 Avenue JF Kennedy L-1855 Luxembourg.
7. There are no material contracts entered into other than in the ordinary course of the Issuer’s business,
which could result in any member of the Issuer’s group being under an obligation or entitlement that is
material to the Issuer’s ability to meet its obligations to Noteholders in respect of the Notes being
issued, save for those disclosed in "Description of Issuer –Material Contracts" on pages 78 and 79.
8. For the period of 12 months starting on the date of this Prospectus, copies (and English translations
where the documents in question are not in English) in electronic form of the following documents will
be available, during usual business hours on any weekday (Saturdays and public holidays excepted),
for inspection at the office of the Issuer:
(a) the Agency Agreement (which includes the form of the Global Notes, the definitive Notes and
the Coupons);
(b) the Articles of Association (estatutos sociales) of the Issuer;
102
(c) the Issuer’s Consolidated Financial Statements; and
(d) a copy of this Prospectus together with any supplement to this Prospectus or further Prospectus.
This Prospectus will be published on the website of the Irish Stock Exchange (www.ise.ie) and the
Issuer (www.inmocolonial.com).
9. Deloitte, S.L., whose registered office is at Plaza Pablo Ruiz Picasso, 1, Torre Picasso, 28020 Madrid, Spain
(Independent Auditors) has audited the consolidated financial statements of Inmobiliaria Colonial, S.A. for the
financial years ended 31 December 2014 and 31 December 2013. Deloitte, S.L. is registered with the Registro
Oficial de Auditores de Cuentas de Espana (Official Registry of Auditors in Spain) under number S0692.
10. The Joint Lead Managers and their affiliates have engaged, and may in the future engage, in
investment banking and/or commercial banking transactions with, and may perform services to the
Issuer and its affiliates in the ordinary course of business. In addition, in the ordinary course of their
business activities, the Joint Lead Managers and their affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for the accounts of their customers. Such
investments and securities activities may involve securities and/or instruments of the Issuer or the
Issuers' affiliates. The Joint Lead Managers and their affiliates may also make investment
recommendations and/or publish or express independent research views in respect of such securities or
financial instruments and may hold, or recommend to clients that they acquire, long and/or short
positions in such securities and instruments. For the avoidance of doubt, in this Prospectus the term
'affiliates' includes also parent companies.
103
Registered/Head Office of the Issuer
Inmobiliaria Colonial, S.A.
Avenida Diagonal 532
08006 Barcelona
Spain
Auditors of the Issuer
Deloitte, S.L.
Plaza de Pablo Ruiz Picasso, 1
Torre Picasso
28020 Madrid
Spain
Fiscal Agent and Principal Paying Agent
Deutsche Bank AG, London Branch
Winchester House
1 Great Winchester Street
London EC2N 2DB
United Kingdom
Sole Structuring Adviser, Sole Global Co-ordinator and Lead Manager
Morgan Stanley & Co. International plc
25 Cabot Square
Canary Wharf
London E14 4QA
United Kingdom
Joint Lead Managers
Banco Bilbao Vizcaya Argentaria, S.A
Plaza de San Nicolás, 4
48005 Bilbao
Spain
Banco Sabadell, S.A.
Plaça de Sant Roc 20
08201 Sabadell
Spain
CaixaBank, S.A.
Avda. Diagonal, 621
08028 Barcelona
Spain
Crédit Agricole Corporate and
Investment Bank
9 Quai du Président Paul Doumer
92920 Paris La Défense Cedex
France
ING Bank N.V.
Foppingadreef 7
1102 BD Amsterdam
The Netherlands
J.P. Morgan Securities plc
25 Bank Street, Canary Wharf
London EI4 5JP
United Kingdom
104
Legal Advisers
To the Joint Lead Managers as to English
and Spanish law
To the Issuer as to English and
Spanish law
To the Issuer as to Spanish law
Linklaters, S.L.P.
calle de Almagro, 40
28010 Madrid
Spain
Freshfields Bruckhaus Deringer LLP
calle de Fortuny, 6
28010 Madrid
Spain
Ramón y Cajal Abogados, S.L.P.
calle de Almagro, 16-18
28010 Madrid
Spain
A13 - 7.1
