changes in the infrastructure and capabilities of ports and terminals;
weather conditions;
outbreaks of diseases, including the COVID-19 pandemic; and
development of digital platforms to manage operations and customer relations, including billing and services.
As a result of some of these factors, including cyclical fluctuations in demand and supply, container shipping companies have experienced volatility in freight rates. For example, although freight rates have recovered during the fourth quarter of 2019, mainly driven by a recovery of the higher bunker cost associated with the implementation of IMO 2020 Regulations, the comprehensive Shanghai (Export) Containerized Freight Index which(SCFI) increased from 716 points at October 17, 2019 to 1,023 points at January 3, 2020, thereafter decreased to 818 points aton April 23, 2020, with the global outbreak of COVID-19, to 5,047 as of December 31, 2021. Since the middle of 2020, the industry has witnessed a sharp and increased again to 2,311 points at December 11, 2020.unprecedented increase in freight rates, reflecting the sudden demand surge triggered by the COVID-19 pandemic and the unprecedented supply chain disruptions. Furthermore, rates within the charter market, through which ZIM sources almost allmost of its capacity, may alsocontinue to fluctuate significantly based upon changes in supply and demand for shipping services. In addition,The current severe shortage of vessels available for hire has resulted in 2014,increased charter rates and longer charter periods dictated by owners. See “Item 3.D Risk Factors—Risks Related to Our Interest in orderZIM—ZIM charters-in most of its fleet, which makes it more sensitive to cope with the cyclicalityfluctuations in the industrycharter market, and its leveraged financial position, ZIM entered intoas a restructuringresult of its debt. dependency on the vessel charter market, the costs associated with chartering vessels are unpredictable.”
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As global trends continue to change, it remains difficult to predict their impact on the container shipping industry and on ZIM’s business. If ZIM is unable to adequately predict and respond to market changes, they could have a material adverse effect on itsZIM’s business, financial condition, results of operations and liquidity.
The global COVID-19 pandemic has created significant business disruptions and adversely affected ZIM’s business and is likely to continue to create significant business disruptions and adversely affect its business in the future.
In March 2020, the World Health Organization declared the outbreak of novel coronavirus COVID-19 a global pandemic. During the past two years the COVID-19 pandemic has spread globally and caused high mortality and morbidity rates world-wide, with some geographic regions affected more than others. The COVID-19 pandemic has negativelysignificantly impacted the global economy, disrupted global supply chains, created significant volatility and disruption in financial markets and increased unemployment levels in some of its phases, all of which may become heightened concerns upon a second waveadditional waves of infection or future developments. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities. In particular, the State of Israel where ZIM’s head office is located has been highly affected by COVID-19, with a high and steady increase in percentage per capita of reported cases of infected patients. Inpatients, especially with the recent Omicron variant. Since March 2020, and in response to new pandemic waves of COVID-19, the Government of Israel imposed afrom time to time certain measures such as restrictions on travel, mandatory quarantine of all foreign visitors and, in addition, announced that non-Israeli residents or citizens traveling from certain countries may be denied entry into Israel. Israel has further issued regulations imposingquarantines, partial home confinement and other movement restrictions, reducing staffing of nonessential businesses, restricting public transportation and other public activities. In mid-September 2020, in light of an increase in percentage per capita of reported cases, the government of Israel imposed an additional lockdown for a period of approximately three weeks, subject to certain exceptions. In December 2020, following a further increase in the percentage per capita of reported cases, the government of Israel imposed an additional lockdown for a period of two weeks, with the option of an additional extension thereafter, and subject to certain exceptions. Although ZIM is considered an essential business and therefore enjoys certain exemptions from the restrictions under Israeli regulations, ZIM has voluntary reduced its maximum permitted percentage of staffing in its offices in order to mitigate the COVID-19 risks and has therefore relied more on remote connectivity. Similarly, ZIM’s sea crews and staff located in offices worldwide have been adversely affected as a result of the COVID-19 pandemic and may continue to be adversely affected by the pandemic in the future. In addition, since December 2020, the US Food and Drug Administration FDA issued three Emergency Use Authorizations (EUAs) for COVID-19 vaccines applications, launching COVID-19 vaccination campaigns in many countries worldwide. ThereWhile certain countries such as the State of Israel, the US and the UK are in advanced stages of the COVID-19 vaccination campaigns, other countries have been unable to vaccinate their population at the same pace. In addition, as new variants of the virus emerge, there is no certainty that these countries will succeed in administering enough doses of the vaccines to reduce global or national morbidity rates, that the vaccination will prove as effective as in the results of their clinical trials, or that the vaccines will continue to be effective for all existing and future variants of the virus. ZIM continues to monitor its operations and government regulations, guidelines and recommendations.
The COVID-19 pandemic has resulted in reduced industrial activity in various countries around the world, with temporary closures of factories and other facilities such as port terminals, which led to a temporary decrease in supply of goods and congestion in warehouses and terminals. For example, in January 2020, the government of China imposed a lockdown during the Chinese New Year holiday which prevented many workers from returning to the manufacturing facilities, resulting in prolonged reduction of manufacturing and export. Government-mandated shutdowns in various countries have also temporarily decreased consumption of goods, negatively affecting trade volumes and the shipping industry globally.globally during the first half of 2020. Moreover, because ZIM’s vessels travel to ports in countries in which cases of COVID-19, have been reported, ZIM faces risks to its personnel and operations. Such risks include delays in the loading and discharging of cargo on or from ZIM’s vessels due to severe congestion at ports and inland supply chains, difficulties in carrying out crew changes, offhireoff-hire time due to quarantine regulations, delays and expenses in finding substitute crew members if any of ZIM’s vessels’ crew members become infected, delays in drydocking if insufficient shipyard personnel are working due to quarantines or travel restrictions, difficulties in procuring new containers due to temporary factory shutdowns and increased risk of cyber-security threats due to ZIM’s employees working remotely. Fear of the virus and the efforts to prevent its spread continue to exert increasing pressure on the supply-demand balance, which could also put financial pressure on ZIM’s customers and increase the credit risk that ZIM faces in respect of some of them. Such events have affected ourZIM’s operations and may have a material adverse effect on ZIM’sits business, financial condition and results of operations. In addition, these and other impacts of the COVID-19 pandemic could have the effect of heightening many of the other risk factors disclosed herein.
A decrease in the level of China’s export of goods could have a material adverse effect on ZIM’s business.
According to the world shipping council (WSC), the Asia trade regions represent approximately 70% of the total TEUs of international container trade, and the Intra-Asia trade alone accounts for at least one quarter of the global market. Although ZIM also operates in many countries in Asia, Southeast Asia and the Far East (such as Vietnam, South Korea and Thailand), a significant portion of ZIM’s business originates from China and therefore depends on the level of imports and exports to and from China. Trade tensions between the US and China have intensified in recent years, and trade restrictions have reduced bilateral trade between the US and China and led to shifts in trade structure and reductions in container trade. For more information on the risks related to US/China trade restrictions, see “Item 3.D Risk Factors—Risks Related to Our Interest in ZIM —ZIM’s business may be adversely affected by trade protectionism in the markets that ZIM serves, particularly in China.” Furthermore, as China exports considerably more goods than it imports, any reduction in or hindrance to China-based exports, whether due to decreased demand from the rest of the world, an economic slowdown in China, seasonal decrease in manufacturing levels due to the Chinese New Year holiday or other factors, could have a material adverse effect on ZIM’s business. For instance, in recent years, the Chinese government has recently implemented economic policies aimed at increasing domestic consumption of Chinese-made goods and national security measures for Hong Kong which may have the effect of reducing the supply of goods available for export and may, in turn, result in decreased demand for cargo shipping. In recent years, China has experienced an increasing level of economic autonomy and a gradual shift toward a “market economy” and enterprise reform. However, many of the reforms implemented, particularly some price limit reforms, are unprecedented or experimental and may be subject to revision, change or abolition. The level of imports to and exports from China could be adversely affected by changes to these economic reforms by the Chinese government, as well as by changes in political, economic and social conditions or other relevant policies of the Chinese government. Changes in laws and regulations, including with regard to tax matters, and their implementation by local authorities could affect ZIM’s vessels calling on Chinese ports and could have a material adverse effect on ZIM’s business, financial condition and results of operations.
According to exceed demand. AsAlphaliner, as of December 31, 2020,2021, global container ship capacity was approximately 2425 million 20-foot equivalent units, or TEUs, spread across approximately 5,3715,515 vessels. According to Alphaliner,Furthermore, global container ship capacity is projected to increasehas increased by 3.7%4.5% in 2021, while demand for shipping services is projected to increase by 3.5%6.7%, therefore the increase in ship capacity is expected to be more aligned withless than the increase in demand for container shipping.shipping for a second consecutive year. During the first half of 2020, the COVID-19 pandemic outbreak has caused a decrease in demand for goods, causing carriers to adopt mitigating measures such as blank sailings and redelivery of chartered vessels. However, during the second half of 2020 and in 2021 carriers resumed temporarily halted service lines, performed additional sailings, and reduced the number of idle vessels to a minimum as a resultbecause of a significant increase in demand and a market shift to consumption of goods over services. Thus, the reduction ofThe increased demand for container shipping services in 2020 was significantly lowerand inventory restocking during 2021 persisted for a longer period than initially anticipated, in early 2020, althoughleading to reduced port productivity, disrupted sailing schedule, shortage of trucks, railways and warehousing capacity. Supply chain disruptions became a factor influencing demand and supply, while concerns regarding the vaccine rates, turnaround in the pandemic, renewed waves and new variants of the virus continue to pose risk for future worldwide demand. In an attempt to meet the sharp demand increase during 2021, ZIM has expanded its operated vessel fleet from 87 vessels as of January 1, 2021 to 118 vessels as of December 31, 2021 (including three purchased secondhand vessels already delivered out of a total of eight vessels purchased), as well as entered into strategic long-term charter transactions. For example, we have entered into strategic agreements with Seaspan for the long-term charter of ten 15,000 TEU liquified natural gas (LNG) vessels and fifteen 7,000 TEU LNG vessels. See “Item 4.B Business Overview—Our Businesses—ZIM’s vessel fleet—Strategic Chartering Agreements.”
Access to ports could be limited or unavailable, for other reasons.including due to congestion in terminals and inland supply chains, and ZIM may incur additional costs as a result thereof.
ZIM’s access to ports may also be limited or unavailable due to other reasons. As industry capacity and demand for container shipping continue to grow, ZIM may have difficulty in securing sufficient berthing windows to expand its operations in accordance with its growth strategy, due to the limited availability of terminal facilities.
ZIM’s status as an Israeli company has limited, and may continue to limit, its ability to call on certain ports. Furthermore, major ports may close for long periods of time due to maintenance, natural disasters, strikes, pandemics, including COVID-19, or other reasons beyond ZIM’s control (includingcontrol. For example, in August 2021, a key terminal in Ningbo-Zhoushan port, one of China’s busiest ports, was temporarily shut down after it was reported that a worker was found to be infected with COVID-19. Moreover, the COVID-19 pandemic).pandemic has caused disruptions to global trade and severe congestion at ports and inland supply chains. Ports and terminals may implement certain measures and work procedures intended to relieve congestion which may also limit ZIM’s access to terminals and apply additional costs to it or to its customers. For example, in October 2021, the port of Los Angeles and the port of Long Beach, California, together with the Biden-Harris Supply Chain Disruptions Task Force, US Department of Transportation, introduced a new dwell fee to be applied against containers that remained in the terminal longer than a specified permitted amount of days. While this dwell fee was announced to be originally collected commencing on November 1, 2021, its implementation date was delayed several times as congestion conditions improved. ZIM has taken measures to relieve congestion at these ports and avoid dwell fee charges. Similar measures may be imposed in other ports and terminals in other geographical areas. ZIM cannot ensure that its efforts to secure sufficient port access will be successful. Any of these factors may have a material adverse effect on ZIM’s business, financial condition and results of operations.
Changing trading patterns, trade flows and sharpening trade imbalances may adversely affect ZIM’s business, financial condition and results of operations.
ZIM’s TEUs carried can vary depending on the balance of trade flows between different world regions. For each service ZIM operates, it measures the utilization of a vessel on the “strong,” or dominant, leg, as well as on the “weak,” or counter-dominant, leg by dividing the actual number of TEUs carried on a vessel by the vessel’s effective capacity. Utilization per voyage is generally higher when transporting cargo from net export regions to net import regions (the dominant leg). Considerable expenses may result when empty containers must be transported on the counter-dominant leg. ZIM seeks to manage the container repositioning costs that arise from the imbalance between the volume of cargo carried in each direction by utilizing its global network to increase cargo on the counter-dominant leg and by triangulating ourits land transportation activities and services. If ZIM is unable to successfully match demand for container capacity with available capacity in nearby locations, it may incur significant balancing costs to reposition its containers in other areas where there is demand for capacity. It is not guaranteed that ZIM will always be successful in minimizing the costs resulting from the counter-dominant leg trade, which could have a material adverse effect on ZIM’s business, financial condition and results of operations. Furthermore, sharpening imbalances in world trade patterns — rising trade deficits of net import regions in relation to net export regions — may exacerbate imbalances between the dominant and counter-dominant legs of ZIM’s services. This could have a material adverse effect on ZIM’s business, financial condition and results of operations.
ZIM’s ability to participate in operational partnerships in the shipping industry is limited, which may adversely affect its business, and ZIM faces risks related tofollowing the amendment of its strategic cooperation agreementcollaboration with the 2M Alliance.Alliance, ZIM or the 2M Alliance can unilaterally terminate the agreement after an initial period of 18 months subject to provision of notice.
The container shipping industry has experienced a reduction in the number of major carriers, as well as a continuation and increase of the trends of strategic alliances and partnerships among container carriers, which can result in more efficient and better coverage for shipping companies participating in such arrangements. For example, in 2018, OOCL2016 CSCL was acquired by COSCO, APL-NOL was acquired by CMA CGM, United Arab Shipping Company merged with Hapag-Lloyd and Hanjin Shipping exited the market as a result of a bankruptcy, during 2017, Hamburg Sud was acquired by Maersk, three large Japanese carriers, K-Line, MOL and NYK merged into ONE. In 2017, the merger of United Arab Shipping CompanyONE and Hapag-Lloyd,OOCL was acquired by COSCO, and the acquisition of Hamburg Sud by Maersk took place. Furthermore, in April 2020, Hyundai Merchant Marine (HMM) terminatedconsummated the termination of its strategic cooperation with 2M and joined THE Alliance. The recentAlthough there were no major transactions during 2021, past consolidation in the industry has affected the existing strategic alliances between shipping companies. For example, the Ocean Three alliance, which consisted of CMA CGM Shipping, United Arab Shipping Company and China Shipping Container Lines, was terminated in 2019 and replaced by the Ocean Alliance, consisting of COSCO Shipping Group (including China Shipping and OOCL), CMA CGM Shipping Group (including APL) and Evergreen Marine.
ZIM is not party to any strategic alliances and therefore has not been able to achieve the benefits associated with being a member of such an alliance. If, in the future, ZIM would like to enter into a strategic alliance but is unable to do so, it may be unable to achieve the cost and other synergies that can result from such alliances. However, ZIM is party to operational partnerships with other carriers in some of the other trade zones in which it operates, and may seek to enter into additional operational partnerships or similar arrangements with other shipping companies or local operators, partners or agents. For example, in September 2018, ZIM entered into a strategic operational cooperation agreement with the 2M Alliance in the Asia-USEC trade zone, which includes a joint network of five lines operated by ZIMzone. In March and by the 2M Alliance. In MarchAugust 2019, ZIM expanded its strategic partnership with the 2M Alliance by entering into a second strategicadditional cooperation agreementagreements, to cover the Asia-East Mediterranean, and Asia-American Pacific Northwest and Asia-US Gulf trade zones, which includes two service lines on each trade, and in August 2019, ZIM further expanded its partnership and launched two new US-Gulf Coast direct services with the 2M Alliance. Atzones. In addition, at the end of 2020, ZIM further upsized twoa joint servicesservice by utilizing larger vessels on the Asia U.S.Asia-U.S. Gulf Coast service and the Asia-U.S. East Coast service and in MarchJune 2021, ZIM announced its intention to launch in early May 2021launched a new joint service line connecting from Yantian and Vietnam to U.S. South Atlantic ports via Panama Canal. Pursuant toCanal with the 2M Alliance. In January and February 2022, ZIM announced its principal agreement with the 2M Alliance, commencing June 1, 2021, ZIMto extend the existing collaboration agreements on the Asia- USEC and Asia-USGC, as well as the intention to launch an independent pendulum service on the Asia-Mediterranean and Pacific Northwest trades, replacing its cooperation with the 2M Alliance will discuss possible amendmentson those trades, effective as of April, 2022. Under ZIM’s new collaboration agreement with the 2M, ZIM or the 2M Alliance may not terminate the agreement during the first 18 months of the agreement term (by providing a six-month prior written notice following a 12-month period from the effective date of the agreement), which is a shorter period compared to the original agreement that would govern the next phase of the parties’ cooperation. If the parties fail to mutually agreeterms. For additional information on the terms for a continuation of theZIM’s strategic operational cooperation any party may terminatewith the agreement prior to December 1, 2021, and such termination would become effective on April 1, 2022.2M Alliance, see “Item 4.B Business Overview—Our Businesses—ZIM’s operational partnerships.” A termination of thisZIM’s existing operational agreements, including with the 2M Alliance, or any future cooperation agreement ZIMit may enter into, could adversely affect its business, financial condition and results of operations.
These strategic cooperation agreements and other arrangements could also reduce ZIM’s flexibility in decision making in the covered trade zones, and ZIM is subject to the risk that the expected benefits of the agreements may not materialize. Furthermore, in the rest of the trade zones in which the 2M Alliance operates, as well as in other trade zones in which other alliances operate, ZIM is still unable to benefit from the economies of scale that many of its competitors are able to achieve through participation in strategic arrangements (i.e., strategic alliances or operational agreements). If ZIM is not successful in expanding or entering into additional operational partnerships which are beneficial to it, this could adversely affect its business. In addition, ZIM’s status as an Israeli company has limited, and may continue to limit, its ability to call on certain ports and has therefore limited, and may continue to limit, its ability to enter into alliances or operational partnerships with certain shipping companies. In addition, ZIM’s existing collaboration with the 2M Alliance may limit its ability to enter into alliances or other certain operational agreements. If ZIM is not successful in expanding or entering into additional operational partnerships which are beneficial to ZIM, this could adversely affect its business.
The container shipping industry is highly competitive and competition may intensify even further, which could negatively affect ZIM’s market position and financial performance.
ZIM competes with a large number of global, regional and niche container shipping companies, including, for example, Maersk, MSC, COSCO Shipping, CMA CGM S.A., Hapag-Lloyd AG, ONE and Yang Ming Marine Transport Corporation to provide transport services to customers worldwide. In each of its key trades, ZIM competes primarily with global container shipping companies. The cargo shipping industry is highly competitive, with the top three carriers in terms of global capacity —– A.P. Moller-Maersk Group, Mediterranean Shipping Company and COSCO —– accounting for approximately 45%46.3% of global capacity, and the remaining carriers together contributing less than 55%53.7% of global capacity as of FebruaryDecember 31, 2021, according to Alphaliner. Certain of ZIM’s large competitors may be better positioned and have greater financial resources than ZIM and may therefore be able to offer more attractive schedules, services and rates. Some of these competitors operate larger fleets with larger vessels and with higher vessel ownership levels than ZIM and may be able to gain market share by supplying their services at aggressively low freight rates for a sustained period of time. In addition, there has been an increase in merger and acquisition activities within the container shipping industry in recent years, which has further concentrated global capacity with certain of ZIM’s competitors. See “— “Item 3.D Risk Factors—Risks Related to Our Interest in ZIM—ZIM’s ability to enter into strategic alliances and participate in operational partnerships in the shipping industry is limited, which may adversely affect its business, and ZIM faces risks related tofollowing the amendment of its strategic cooperation agreementcollaboration with the 2M Alliance.Alliance, ZIM or the 2M Alliance can unilaterally terminate the agreement after an initial period of 18 months subject to provision of notice.” If one or more of its competitors expands its market share through an acquisition or secures a better position in an attractive niche market in which it operates or intends to enter, ZIM could lose market share as a result of increased competition, which in turn could have a material adverse effect on ZIM’s business, financial condition and results of operations.
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Global economic downturns and geopolitical challenges throughout the world could have a material adverse effect on ZIM’s business, financial condition and results of operations.
ZIM’s business and operating results have been, and will continue to be, affected by worldwide and regional economic and geopolitical challenges, including global economic downturns. In particular, the Russian military actions across Ukraine has caused a sharp decline in the financial markets and a sharp increase in bunker prices. Furthermore, freight movement and supply chains in Ukraine and neighboring countries have been, and may continue to be, significantly disrupted. Economic sanctions levied on Russia and its leaders may cause further global economic downturns. A further deterioration of the current conflict or other geopolitical instabilities may cause global markets to plummet, affect global trade, increase bunker prices and may have a material adverse effect on ZIM’s business a financial condition, results of operations and liquidity.
Currently, global demand for container shipping is highly volatile across regions and remains subject to downside risks stemming mainly from factors such as government-mandated shutdowns and other restrictions due to the COVID-19 pandemic, severe hits to the GDP growth of both advanced and developing countries, fiscal fragility in advanced economies, high sovereign debt levels, highly accommodative macroeconomic policies and persistent difficulties accessing credit. During 2020, the outbreak of the COVID-19 pandemic resulted in an immediate and sharp decline in economic activity worldwide. From the second half of 2020, market conditions improved with higher demand mainly by heavy consumers’ purchase orders and e-commerce sales. The increase in demand combined with congestions and bottlenecks in the terminals, led to a temporary significant containers shortage which also resulted in surge in the freight rates, climbing up to record-breaking levels. Economic recoveries from the COVID-19 pandemic are still uncertain, vary from each country and are influenced by government economic support measures as well as the pace of vaccine campaigns. According to a report by the International Monetary Fund (IMF), the global economy entered 2022 in a weaker position than previously expected, with reimposition of mobility restrictions due to the Omicron variant of the COVID-19 pandemic, rising energy prices and higher inflation rates, especially in the U.S. Such factors contributed to a projected global growth decrease of 4.4% during 2022, compared to 5.9% during 2021.
The deterioration in the global economy has caused, and may continue to cause, volatility or a decrease in worldwide demand for certain goods shipped in containerized form. In particular, if growth in the regions in which ZIM conducts significant operations, including the United States, Asia and the Black Sea, Europe and Mediterranean regions, slows for a prolonged period and/or there is additional significant deterioration in the global economy, such conditions could have a material adverse effect on ZIM’s business, financial condition, results of operations and liquidity. If these or other global conditions continue to deteriorate during 2022, global growth may take another downturn and demand in the shipping industry may decrease. Geopolitical challenges such as rising inflation in the U.S. as well as in other dominant countries, enhanced and other political crises and military conflicts and further escalation between the U.S. and Russia, trade wars, weather and natural disasters, embargoes and canal closures could also have a material adverse effect on ZIM’s business, financial condition and results of operations.
In addition, as a result of weak economic conditions, some of ZIM’s customers and suppliers have experienced deterioration of their businesses, cash flow shortages and/or difficulty in obtaining financing. As a result, ZIM’s existing or potential customers and suppliers may delay or cancel plans to purchase ZIM’s services or may be unable to fulfill their obligations to ZIM in a timely fashion.
ZIM’s business may be adversely affected by trade protectionism in the markets that ZIM serves, particularly in China.
ZIM’s operations are exposed to the risk of increased trade protectionism. Governments may use trade barriers in an effort to protect their domestic industries against foreign imports, thereby further depressing demand for container shipping services. In recent years, increased trade protectionism in the markets that ZIM accesses and serves, particularly in China, where a significant portion of its business originates, has caused, and may continue to cause, increases in the cost of goods exported and the risks associated with exporting goods as well as a decrease in the quantity of goods shipped. In November 2020, China and additional 15 countries in the Asia-Pacific region entered into the largest free trade pact, the RCEP (Regional Comprehensive Economic Partnership), which is expected to strengthen China’s position on trade protectionism related matters. China’s import and export of goods may continue to be affected by trade protectionism, specifically the ongoing U.S.-China trade dispute, which has been characterized by escalating trade barriers between the U.S. and China as well as trade relations among other countries. These risks may have a direct impact on demand in the container shipping industry. In January 2020, China and the U.S. reached an agreement aimed at easing the trade war. However, there is no assurance that further escalation will be avoided.
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The U.S. administration has advocated greater restrictions on trade generally and significant increases on tariffs on certain goods imported into the United States, particularly from China and has taken steps toward restricting trade in certain goods. China and other countries have retaliated in response to new trade policies, treaties and tariffs implemented by the United States. China has imposed significant tariffs on U.S. imports since 2018. Such trade escalations have had, and may continue to have, an adverse effect on manufacturing levels, trade levels and specifically, may cause an increase in the cost of goods exported from Asia Pacific and the risks associated with exporting goods from the region. Such increases may also affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs. Further, increased tensions may adversely affect oil demand, which would have an adverse effect on shipping rates. They could also result in an increased number of vessels sailing from China with less than their full capacity being met. These restrictions may encourage local production over foreign trade which may, in turn, affect the demand for maritime shipping. In addition, there is uncertainty regarding further trade agreements such as with the EU, trade barriers or restrictions on trade in the United States. Any increased trade barriers or restrictions on trade may affect the global demand for ZIM’s services and could have a material adverse effect on its business, financial condition and results of operations.
ZIM may be unable to retain existing customers or may be unable to attract new customers.
ZIM’s continued success requires it to maintain its current customers and develop new relationships. ZIM cannot guarantee that its customers will continue to use its services in the future or at the current level. ZIM may be unable to maintain or expand its relationships with existing customers or to obtain new customers on a profitable basis due to competitive dynamics. In addition, as some of ZIM’s customer contracts are longer-term in nature (up to one year), if market freight rates increase, ZIM may not be able to adjust the contractually agreed rates to capitalize on such increased freight rates until the existing contracts expire. Upon the expiration of its existing contracts, ZIM cannot assure that its customers will renew the contracts on favorable terms, or if at all, or that it will be able to attract new customers. Any adverse effect would be exacerbated if ZIM loses one or more of its significant customers. In 2020,2021, ZIM’s 10 largest customers represented approximately 16%17% of its freight revenues and its 50 largest customers represented approximately 34%32% of its freight revenues. Although ZIM believes it currently has a diversified customer base, it may become dependent upon a few key customers in the future, especially in particular trades, such that ZIM would generate a significant portion of its revenue from a relatively small number of customers. Any inability to retain or replace its existing customers may have a material adverse effect on ZIM’s business, financial condition and results of operations.
Technological developments which affect global trade flows and supply chains are challenging some of ZIM’s largest customers and may therefore affect its business and results of operations.
By reducing the cost of labor through automation and digitization and empowering consumers to demand goods whenever and wherever they choose, technology is changing the business models and production of goods in many industries, including those of some of ZIM’s largest customers. Consequently, supply chains are being pulled closer to the end-customer and are required to be more responsive to changing demand patterns. As a result, fewer intermediate and raw inputs are traded, which could lead to a decrease in shipping activity. If automation and digitization become more commercially viable and/or production becomes more regional or local, total containerized trade volumes would decrease, which would adversely affect demand for ZIM’s services. Supply chain disruptions caused by COVID-19, rising tariff barriers and environmental concerns also accelerate these trends.
ZIM relies on third-party contractors and suppliers, as well as its partners and agents, to provide various products and services and unsatisfactory or faulty performance of its contractors, suppliers, partners or agents could have a material adverse effect on its business.
ZIM engages third-party contractors, partners and agents to provide services in connection with its business. An important example is its chartering-in of vessels from ship owners, whereby the ship owner is obligated to provide the vessel’s crew, insurance and maintenance along with the vessel. Another example is ZIM’s carrier partners whom it relies on for vessels and service to deliver cargo to its customers, as well as third-party agencies who serve as its local agents in specific locations. Disruptions caused by third-party contractors, partners and agents could materially and adversely affect ZIM’s operations and reputation.
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Additionally, a work stoppage at any one of its suppliers, including land transportation suppliers, could materially and adversely affect its operations if an alternative source of supply were not readily available. Also, ZIM outsources part of its back-office functions to a third-party contractor. The back-office support center may shut down due to various reasons beyond ZIM’s control, which could have an adverse effect on its business. There can be no assurance that the products delivered and services rendered by third-party contractors and suppliers will be satisfactory and match the required quality levels. Furthermore, major contractors or suppliers may experience financial or other difficulties, such as natural disasters, terror attacks, failure of information technology systems or labor stoppages, which could affect their ability to perform their contractual obligations to ZIM, either on time or at all. Any delay or failure of contractors or suppliers to perform their contractual obligations could have a material adverse effect on ZIM’s business, financial condition, results of operations and liquidity.
A shortage of qualified sea and shoreside personnel could have an adverse effect on its business and financial condition.
ZIM’s success depends, in large part, upon its ability to attract and retain highly skilled and qualified personnel, particularly seamen and coast workers who deal directly with activities related to vessel operation and sailing. In crewing its vessels, ZIM requires professional and technically skilled employees with specialized training who can perform physically demanding work on board its vessels. As the worldwide container ship fleet continues to grow, the demand for skilled personnel has been increasing, which has led to a shortfall of such personnel. An inability to attract and retain qualified personnel as needed could materially impair ZIM’s ability to operate, or increase its costs of operations, which could adversely affect its business, financial condition, results of operations and liquidity. Furthermore, due to the COVID-19 pandemic, the shipping industry as a whole is experiencing difficulties in carrying out crew changes, which could impede ZIM’s ability to employ qualified personnel.
Risks Related to Operating ZIM’s Vessel Fleet
ZIM charters-in most of its fleet, which makes it more sensitive to fluctuations in the charter market, and as a result of its dependency on the vessel charter market, the costs associated with chartering vessels are unpredictable.
ZIM charters-in most of its fleet. As of December 31, 2021, of the 118 vessels through which it provides transport services globally, 114 are chartered (including 106 vessels accounted as right-of-use assets under the accounting guidance of IFRS 16 and 4 vessels accounted under sale and leaseback refinancing agreements), which represents a percentage of chartered vessels that is significantly higher than the industry average of 50% (according to Alphaliner). Any rise in charter hire rates could adversely affect ZIM’s results of operations.
While there have been fluctuations in the demand in the container shipping market, charter demand is currently very high for all vessel sizes, leading to an imbalance in supply and demand and a shortage of vessels available for hire, increased charter rates and longer charter periods dictated by owners. In order to meet the growing cargo demand during the second half of 2020 and throughout 2021, ZIM has increased its chartered operated fleet from 86 as of January 1, 2021, to 114 as of December 31, 2021, including the charter of 8 additional car carrier vessels. In addition, during 2021 ZIM has entered into strategic long-term charter agreements. See “Item 4.B Business Overview—Our Businesses—ZIM’s vessel fleet—Strategic Chartering Agreements.”
In order to mitigate the steep increase in charter hire rates, during the second half of 2021 ZIM has completed the purchase transaction of eight secondhand vessels, ranging from 1,100 to 4,250 TEUs each, in several separate transactions, and it may purchase additional secondhanded vessels if it evaluates such a purchase is more suited to its needs than other available alternatives. It is also a party to a number of other long-term charter agreements and may enter into additional long-term agreements based on its assessment of current and future market conditions and trends. As of December 31, 2021, 80.7% of ZIM’s chartered-in vessels (or 81.6% in terms of TEU capacity) were chartered under leases for terms exceeding one year, and it may be unable to take full advantage of short-term reductions in charter hire rates with respect to such longer-term charters. Furthermore, on March 30, 2022, ZIM announced a new chartering agreement with MPC Container Ships ASA for the 7-year charter of a total of six 5,500 TEU wide beam newbuild vessels for total charter hire consideration of approximately $600 million. The vessels are expected to be delivered between May 2023 and February 2024. In the future, ZIM may substitute a short-term charter of one year or less with a long-term charter exceeding one year, which could cause its costs to increase quickly compared to competitors with longer-term charters or owned vessels. To the extent ZIM replaces vessels that are chartered-in under short-term leases with vessels that are chartered-in under long- term leases it owns, the principal amount of its long-term contractual obligations would increase. There can be no assurance that the terms of any such long- term leases will be favorable to ZIM in the long run.
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ZIM may face difficulties in chartering or owning enough vessels, including large vessels, to support its growth strategy due to the possible shortage of vessel supply in the market.
Charter rates for container and car carrier vessels are volatile and are currently very high for all vessel sizes, with shortage of supply of vessels for hire. If ZIM is unable in the future to charter vessels of the type and size needed to serve its customers efficiently on terms that are favorable to it, if at all, this may have a material adverse effect on its business, financial condition, results of operations and liquidity.
Furthermore, container shipping companies have been incorporating, and are expected to continue to incorporate, larger, more economical vessels into their operating fleets. Particularly, in February 2021, ZIM and Seaspan Corporation entered into strategic agreements for the long-term charter of ten 15,000 TEU liquified natural gas (LNG dual-fuel) container vessels to serve ZIM’s Asia-US East Coast Trade and other global-niche trades, with the vessels expected to be delivered between February 2023 and January 2024. The cost per TEU transported on large vessels is less than the cost per TEU for smaller vessels as, among other factors, larger vessels provide increased capacity and fuel efficiency per carried TEU. As a result, carriers are encouraged to deploy large vessels, particularly within the more competitive trades. According to Alphaliner, vessels in excess of 12,500 TEUs represented approximately 73% of the current global orderbook based on TEU capacity as of December 31, 2021, and approximately 36% of the global fleet based on TEU capacity will consist of vessels in excess of 12,500 TEUs by December 31, 2023. Furthermore, a significant introduction of large vessels, including very large vessels in excess of 18,000 TEUs, into any trade, will enable the transfer of existing, large vessels to other shipping lines on which smaller vessels typically operate. Such transfer, which is referred to as “fleet cascading,” may in turn generate similar effects in the smaller trades in which ZIM operates. Other than its strategic agreements with Seaspan Corporation for the long-term charter of ten 15,000 TEU LNG dual-fuel container vessels, ZIM does not currently have additional agreements in place to procure or charter-in large container vessels (in excess of 12,500 TEU), and the continued deployment of larger vessels by its competitors will adversely impact ZIM’s competitiveness if it is not able to charter-in, acquire or obtain financing for such vessels on attractive terms or at all. This risk is further exacerbated as a result of its inability to participate in certain alliances and thereby access lager vessels for deployment. Even if ZIM is able to acquire or charter-in larger vessels, it cannot assure you ZIM will be able to achieve utilization of its vessels necessary to operate such vessels profitably.
Rising bunker prices and the low-sulfur fuel mandate under the IMO 2020 Regulations may have an adverse effect on ZIM’s results of operations.
Fuel expenses, in particular bunker expenses, represent a significant portion of ZIM’s operating expenses, accounting for 9%18.9%, 12%12.8%, and 17%13.8% of the income from voyagesits operating expenses and relatedcost of services for the years ended December 31, 2021, 2020, 2019 and 2018,2019, respectively. Bunker price moves in close interdependence with crude oil prices, which have historically exhibited significant volatility. Crude oil prices are influenced by a host of economic and geopolitical factors that are beyond ZIM’s control, particularly economic developments in emerging markets such as China and India, the US-China trade war, concerns related to the global recession and financial turmoil, policies of the Organization of the Petroleum Exporting Countries (OPEC) and other oil producing countries and production cuts, sanctions on Iran by the US, consumption levels of other transportation industries such as the aviation, rail and car industries, and ongoing political tensions and acts of terror in key production countries such as Libya, Nigeria and Venezuela. Crude oil prices have decreased significantly from annual level of $64 per barrel in 2019 to an average price of $42 per barrel in 2020, due in part to decreased demand as a result of the COVID-19 pandemic and the changing dynamics among OPEC+ members. However, during 2021, crude oil prices have increased to an annual average of $71 per barrel. The Russian military actions across Ukraine led to a sharp increase in bunker prices, and bunker prices may increase even further if this conflict continues.
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A rise in bunker prices could have a material adverse effect on ZIM’s business, financial condition, results of operations and liquidity. Historically and in line with industry practice, ZIM has imposed from time to time surcharges such as the NBF over the base freight rate we chargeit charges to customers in part to minimize ourits exposure to certain market-related risks, including bunker price adjustments. However, there can be no assurance that ZIM will be successful in passing on future price increases to customers in a timely manner, either for the full amount or at all.
ZIM’s bunker consumption is affected by various factors, including the number of vessels being deployed, vessel capacity, pro forma speed, vessel efficiency, the weight of the cargo being transported, port efficiency and sea conditions. ZIM has implemented various optimization strategies designed to reduce bunker consumption, including operating vessels in “super slow steaming” mode, trim optimization, hull and propeller polishing and sailing rout optimization. Additionally, ZIM may sometimes manages part of its exposure to bunker price fluctuations by entering into hedging arrangements with reputable counterparties. ZIM’s optimization strategies and hedging activities may not be successful in mitigating higher bunker costs, and any price protection provided by hedging may be limited due to market conditions, such as choice of hedging instruments, and the fact that only a portion of ZIM’s exposure is hedged. There can be no assurance that ZIM’s hedging arrangements, if taken, will be cost-effective, will provide sufficient protection, if any, against rises in bunker prices or that ZIM’s counterparties will be able to perform under its hedging arrangements.
There are numerous risks related to the operation of any sailing vessel and ZIM’s inability to successfully respond to such risks could have a material adverse effect on it.
There are numerous risks related to the operation of any sailing vessel, including dangers associated with potential marine disasters, mechanical failures, collisions, lost or damaged cargo, poor weather conditions (including severe weather events resulting from climate change), the content of the load, exceptional load (including dangerous and hazardous cargo or cargo the transport of which could affect ZIM’s reputation), meeting deadlines, risks of documentation, maintenance and the quality of fuels and piracy and maritime arrest.piracy. For example, ZIM hadincurred expenses of $9.6$11.5 million in respect of claims and demands for lost and damaged cargo for the year ended December 31, 2020.2021. Such claims are typically insured and ZIM’s deductibles, both individually and in the aggregate, are typically immaterial. In addition, in the past, ZIM’s vessels have been involved in collisions resulting in loss of life and property. However,property as well as weather related events which damaged its cargo. For example, in October 2021, ZIM Kingston, one of its chartered vessels, experienced a collapse and loss of containers due to bad weather which also resulted in a fire erupting onboard while approaching the port of Vancouver. Both vessel and cargo suffered damages, however no personal injuries were involved.
The occurrence of any of the aforementioned risks could have a material adverse effect on ZIM’s business, financial condition, results of operations or liquidity and ZIMit may not be adequately insured against any of these risks. For more information about ZIM’s insurance coverage, see “— Item 3.D Risk Factors—Risks Related to Our Interest in ZIM—ZIM’s insurance may be insufficient to cover losses that may occur to its property or result from its operations.” For example, acts of piracy have historically affected oceangoing vessels trading in several regions around the world. Although both the frequency and success of attacks have diminished recently, potential acts of piracy continue to be a risk to the international container shipping industry that requires vigilance. Additionally, ZIM’s vessels may be subject to attempts by smugglers to hide drugs and other contraband onboard. If ZIM’sits vessels are found with contraband, whether with or without the knowledge of any of ZIM’sits crew, ZIM may face governmental or other regulatory claims or penalties as well as suffer damage to its reputation, which could have an adverse effect on its business, results of operations and financial condition.
As vessel owners, ZIM relies on third-party contractorsmay incur additional costs and suppliers, as well as its partners and agents, to provide various products and services and unsatisfactory or faulty performanceliabilities for the operation of its contractors, suppliers, partners or agents could have a material adverse effect on its business.vessel fleet.
Although it charters most of its fleet, ZIM engages third-party contractors, partnerscurrently owns and agentsoperates 6 vessels, 5 of which were purchased in the past year in several separate transactions, and it may purchase additional vessels, depending on market terms and conditions. As a vessel owner, ZIM may incur additional costs due to provide servicesmaintenance and regulatory requirements, most of them described in connection withthis Item 3.D and elsewhere of this Annual Report. In addition, as a vessel owner, ZIM may be exposed to higher risks due to its business. An important example is ZIM’s chartering-inresponsibility to the crew and operational condition of vessels from ship owners, whereby the ship owner is obligated to provide the vessel’s crew, insurance and maintenance along with the vessel. Another example is ZIM’s carrier partners whom ZIM relies on for their vessels and serviceintends to deliver cargo tomitigate these vessel owner liability risks by acquiring adequate insurance policy, however its customers, as well as third party agencies who serve as its local agents in specific locations. Disruptions caused by third-party contractors, partners and agents could materially and adversely affect ZIM’s operations and reputation.
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ZIM’s insurance may be insufficient to cover losses that may occur to its property or result from its operations.
The operation of any vessel includes risks such as mechanical failure, collision, fire, contact with floating objects, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of a marine disaster, including oil spills and other environmental mishaps. There are also liabilities arising from owning and operating vessels in international trade. ZIM procures insurance for its fleet in relation to risks commonly insured against by operators and vessel owners, which ZIM believes is adequate. ZIM’s current insurance includes (i) hull and machinery insurance covering damage to ZIM’s and third-party vessels’ hulls and machinery from, among other things collisions and contact with fixed and floating objects,collisions, (ii) war risks insurance covering losses associated with the outbreak or escalation of hostilities and (iii) protection and indemnity insurance, entered with reputable protection and indemnity, or P&I, clubs covering, among other things, third-party and crew liabilities such as expenses resulting from the injury or death of crew members, passengers and other third parties, lost or damaged cargo, smuggling fines, third-party claims in excess of a vessel’s insured value arising from collisions with other vessels, damage to other third-party property including fixed and floating objects, in excess of a vessel’s insured value and pollution arising from oil or other substances. While all of its insurers and P&I clubs are highly reputable, ZIM can give no assurance that it is adequately insured against all risks or that its insurers will pay a particular claim. Even if its insurance coverage is adequate to cover its losses, ZIM may not be able to obtain a timely replacement vessel or other equipment in the event of a loss. Under the terms of ZIM’s credit facilities, insurance proceeds are pledged in favor of the lender who financed the respective vessel. In addition, there are restrictions on the use of insurance proceeds ZIM may receive from claims under its insurance policies. ZIM may also be subject to supplementary calls, or premiums, in amounts based not only on its own claim records but also the claim records of all other members of the P&I clubs through which ZIM receives indemnity insurance coverage. There is no cap on ZIM’s liability exposure for such calls or premiums payable to its P&I clubs, even though unexpected additional premiums are usually at reasonable levels as they are distributed among a large number of ship owners. ZIM’s insurance policies also contain deductibles, limitations and exclusions which, although ZIM believes are standard in the shipping industry, may nevertheless increase its costs. While ZIM does not operate any tanker vessels, a catastrophic oil spill or a marine disaster could, under extreme circumstances, exceed its insurance coverage, which might have a material adverse effect on ZIM’s business, financial condition and results of operations.
Any uninsured or underinsured loss could harm ZIM’s business and financial condition. In addition, the insurance may be voidable by the insurers as a result of certain actions, such as vessels failing to maintain required certification. Further, ZIM does not carry loss of hire insurance. Loss of hire insurance covers the loss of revenue during extended vessel off-hire periods, such as those that occur during an unscheduled drydocking due to damage to the vessel from accidents. Any loss of a vessel or any extended period of vessel off-hire, due to an accident or otherwise, could have an adverse effect on ZIM’s business, financial condition and results of operations.
Governments, including that of Israel, could requisition ZIM’s vessels during a period of war or emergency, resulting in loss of earnings.
A government of the jurisdiction where one or more of ZIM’s vessels are registered, as well as a government of the jurisdiction where the beneficial owner of the vessel is registered, could requisition for title or seize ZIM’s vessels. Requisition for title occurs when a government takes control of a vessel and becomes its owner. A government could also requisition ZIM’s vessels for hire. Requisition for hire occurs when a government takes control of a ship and effectively becomes the charterer at dictated charter rates. Requisitions generally occur during periods of war or emergency, although governments may elect to requisition vessels in other circumstances. ZIM would expect to be entitled to compensation in the event of a requisition of one or more of its vessels; however, the amount and timing of payment, if any, would be uncertain and beyond ZIM’s control. For example, ZIM’s chartered-in and owned vessels, including those that do not sail under the Israeli flag, may be subject to control by Israeli authorities in order to protect the security of, or bring essential supplies and services to, the State of Israel. Government requisition of one or more of ZIM’s vessels may result in a prepayment event under certain of ZIM’s credit facilities, and could have a material adverse effect on its business, financial condition and results of operations.
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Risks Related to Regulation
The shipping industry is subject to extensive government regulation and standards, international treaties and trade prohibitions and sanctions.
The shipping industry is subject to extensive regulation that changes from time to time and that applies in the jurisdictions in which shipping companies are incorporated, the jurisdictions in which vessels are registered (flag states), the jurisdictions governing the ports at which vessels call, as well as regulations by virtue of international treaties and membership in international associations. As a global container shipping company, ZIM is subject to a wide variety of international, national and local laws, regulations and agreements. As a result, ZIM is subject to extensive government regulation and standards, customs inspections and security checks, international treaties and trade prohibitions and sanctions, including laws and regulations in each of the jurisdictions in which it operates, including those of the State of Israel, the United States, the International Safety Management Code, or the ISM Code, and the European Union.
Any violation of such laws, regulations, treaties and/or prohibitions could have a material adverse effect on ZIM’s business, financial condition, results of operations and liquidity and may also result in the revocation or non-renewal of ZIM’s “time-limited” licenses. Furthermore, the U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, administers certain laws and regulations that impose restrictions upon U.S. companies and persons and, in some contexts, foreign entities and persons, with respect to activities or transactions with certain countries, governments, entities and individuals that are the subject of such sanctions laws and regulations. Similar sanctions are imposed by the European Union and the United Nations. Under economic and trading sanction laws, governments may seek to impose modifications to business practices, and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions. For additional information, see “Item 4.B Business Overview—Our Businesses—ZIM’s Regulatory Matters.”
ZIM is subject to competition and antitrust regulations in the countries where it operates, and has been subject to antitrust investigations by competition authorities. Moreover, the recent sharp increase in freight rates and related charges has resulted in increased scrutiny by regulators around the world and ZIM may face antitrust investigations.
ZIM is subject to competition and antitrust regulations in each of the countries where it operates. In most of the jurisdictions in which ZIM operates, operational partnerships among shipping companies are generally exempt from the application of antitrust laws, subject to the fulfillment of certain exemption requirements. However, it is difficult to predict whether existing exemptions or their renewal will be affected in the future. In August 2020, ZIM’s board of directors adopted a comprehensive new antitrust compliance plan, which included the adoption of a global policy as well as mandatory periodic employee trainings. ZIM is a party to numerous operational partnerships and views these agreements as competitive advantages in response to the market concentration in the industry as a result of mergers and global alliances. An amendment to or a revocation of any of the exemptions for operational partnerships that ZIMit relies on could negatively affect its business and results of operations. For example, Commission Regulation (EC) No 906/2009, or the Block Exemption Regulation, exempts certain cooperation agreements in the liner shipping sector (such as operational cooperation agreements), from the prohibition on anti-competitive agreements contained at Article 101 of the Treaty on the Functioning of the European Union, or TFEU. This Block Exemption Regulation is due to expire in May 2024. If the Block Exemption Regulation is not extended or its terms are amended, this could have an adverse effect on the shipping industry and limit ZIM’s ability to enter into cooperation arrangements with other shipping companies, which could adversely affect its business, financial condition and results of operations.
In recent years, a number of liner shipping companies, including ZIM, have been the subject of antitrust investigations in the U.S., the EU and other jurisdictions into possible anti-competitive behavior. Furthermore, the recent spike in freight rates and related charges has resulted in increased scrutiny by governments and regulators around the world, including U.S. President Biden’s administration and the U.S. Federal Maritime Commission (FMC) in the U.S., and the ministry of transportation in China. Although ZIM has taken measures to fully comply with antitrust regulatory requirements and has adopted a comprehensive antitrust compliance plan, which includes, among other things, mandatory periodic employee trainings, ZIM may face investigations from time to time, and, if it is found to be in violation of the applicable regulation, could be subject to criminal, civil and monetary sanctions, as well as related legal proceedings.
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ZIM is also subject from time to time to civil litigation relating, directly or indirectly, to alleged anti-competitive practices and may be subject to additional investigations by other competition authorities. These types of claims, actions or investigations could continue to require significant management time and attention and could result in significant expenses as well as unfavorable outcomes which could have a material adverse effect on ZIM’s business, reputation, financial condition, results of operations and liquidity. For further information, see “Item 4.B Business Overview—Our Businesses—ZIM’s Legal Proceedings” and Note 27 to ZIM’s audited consolidated financial statements included herein.
ZIM could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws outside of the United States.
Increased inspection procedures, tighter import and export controls and new security regulations could increase costs and disrupt ZIM’s business.
International container shipments are subject to security and customs inspection and related procedures in countries of origin, destination, and certain transshipment points. These inspection procedures can result in cargo seizures, delays in the shipping industryloading, offloading, transshipment, or delivery of containers, and limitthe levying of customs duties, fines or other penalties against ZIM as well as damage its reputation. Changes to existing inspection and security procedures could impose additional financial and legal obligations on ZIM or its customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on ZIM’s ability to enter into cooperation arrangements with other shipping companies, which could adversely affecting its business, financial condition and results of operations.
The operation of its vessels is also affected by the requirements set forth in the International Ship and Port Facility Security Code, or the ISPS Code. The ISPS Code requires vessels to develop and maintain a ship security plan that provides security measures to address potential threats to the security of ships or port facilities. Although each of ZIM’s vessels is ISPS Code-certified, any failure to comply with the ISPS Code or maintain such certifications may subject ZIM to increased liability and may result in denial of access to, or detention in, certain ports. Furthermore, compliance with the ISPS Code requires ZIM to incur certain costs. Although such costs have not been material to date, if new or more stringent regulations relating to the ISPS Code are adopted by the International Maritime Organization (the IMO) and the flag states, these requirements could require significant additional capital expenditures by ZIM or otherwise increase the costs of its operations.
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ZIM is subject to environmental and other regulations and failure to comply with these regulations could have a material adverse effect on its business. In addition, Environmental, Social and Governance (ESG) regulation and reporting is expected to intensify in the future, which could increase ZIM’s operational costs.
ZIM’s operations are subject to international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which its vessels operate or are registered relating to the protection of the environment. Such requirements are subject to ongoing developments and amendments and relate to, among other things, the storage, handling, emission, transportation and discharge of hazardous and non-hazardous substances, such as sulfur oxides, nitrogen oxides and the use of low- sulfur fuel or shore power voltage, and the remediation of contamination and liability for damages to natural resources. ZIM is subject to the International Convention for the Prevention of Pollution from Ships (including designation of Emission Control Areas thereunder), the International Convention for the Control and Management of Ships Ballast Water & Sediments, the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea of 1996, the Oil Pollution Act of 1990, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)(“CERCLA”), the U.S. Clean Water Act (CWA)(“CWA”), and National Invasive Species Act (NISA)(“NISA”), among others. Compliance with such laws, regulations and standards, where applicable, may require the installation of costly equipment, make ship modifications or operational changes and may affect the useful lives or the resale value of ZIM’s vessels.
ZIM may also incur additional compliance costs relating to existing or future ESG requirements, which have recently intensified and are expected to intensify in the future, and which could have a material adverse effect on its business, results of operations and financial conditions. Such costs include, among other things: reduction of greenhouse gas emissions;emissions and use of “cleaner” fuels, imposition of vessel speed limits; changes with respect to cargo capacity or the types of cargo that could be carried; management of ballast and bilge waters; maintenance and inspection; elimination of tin-based paint; and development and implementation of emergency procedures. For example, the IMO 2020 Regulations have required ZIM’s vessels to comply with its low sulfur fuel requirement since January 1, 2020. ZIM complies with this requirement by using fuel with low sulfur content, which is more expensive than standard marine fuel, or ZIM may upgrade its vessels to provide cleaner exhaust emissions. Environmental or other incidents may result in additional regulatory initiatives, statutes or changes to existing laws that could affect ZIM’s operations, require it to incur additional compliance expenses, lead to decreased availability of or more costly insurance coverage, and result in ZIM’s denial of access to, or detention in, certain jurisdictional waters or ports.
If ZIM fails to comply with any environmental requirements applicable to it, it could be exposed to, among other things, significant environmental liability damages, administrative and civil penalties, criminal charges or sanctions, and could result in the and termination or suspension of, and substantial harm to, its operations and reputation. Additionally, environmental laws often impose strict, joint and several liabilityliabilities for remediation of spills and releases of oil and hazardous substances, which could subject ZIM to liability without regard to whether it was negligent or at fault. Under local, national and foreign laws, as well as international treaties and conventions, ZIM could incur material liabilities, including remediation costs and natural resource damages, as well as third-party damages, personal injury and property damage claims in the event there is a release of petroleum or other hazardous substances from its vessels, or otherwise, in connection with its operations. ZIM is required to satisfy insurance and financial responsibility requirements for potential petroleum (including marine fuel) spills and other pollution incidents. Although ZIM has arranged insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on ZIM’s business, results of operations and financial condition. Violations of, or liabilities under, environmental requirements can result in substantial penalties, fines and other sanctions, including in certain instances, seizure or detention of ZIM’s vessels and events of this nature could have a material adverse effect on ZIM’s business, reputation, financial condition and results of operations. For further information on the environmental regulations ZIM is subject to and ESG (sustainability), see “Item 4.B Business Overview—Our Businesses—ZIM’s Regulatory Matters—Environmental and other regulations in the shipping industry.”
Regulations relating to ballast water discharge may adversely affect ZIM’s results of operation and financial condition.
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Furthermore, U.S. regulations with respect to ballast water discharge are currently changing. Although the 2013 Vessel General Permit (VGP) program and The National Invasive Species Act (NISA) are currently in effect to regulate ballast discharge, exchange and installation, the Vessel Incidental Discharge Act (VIDA), which was signed into law on December 4, 2018, requires that the EPA develop national standards of performance for approximately 30 discharges, similar to those found in the VGP, by December 2020. EPA published a notice of proposed rulemaking – Vessel Incidental Discharge National Standards of Performance for public comment on October 26, 2020. The comment period closed on November 25, 2020. By approximately 2022, the U.S. Coast Guard must develop corresponding implementation, compliance and enforcement regulations regarding ballast water. The new regulations could require the installation of new equipment, which may cause ZIM to incur substantial costs.
Climate change and greenhouse gas restrictions may adversely affect its operating results.
Many governmental bodies have adopted, or other data privacyare considering the adoption of, international treaties, national, state and local laws, where applicableregulations and frameworks to reduce greenhouse gas emissions due to the concern about climate change. These measures in various jurisdictions include the adoption of cap and trade regimes, carbon taxes, increased efficiency standards, and incentives or mandates for renewable energy. In November 2016, the Paris Agreement, which resulted in commitments by 197 countries to reduce their greenhouse gas emissions with firm target reduction goals, came into force and could result in proceedingsadditional regulation on the shipping. The Glasgow Climate Change Conference held between October and November 2021 with the participation of nearly 200 countries’ leaders reiterated an international commitment to bringing down emissions and finalized guidelines for the full implementation of the Paris Agreement. In addition, several non-governmental organizations and institutional investors have undertaken campaigns with respect to climate change, with goals to minimize or actions against ZIM, whicheliminate greenhouse gas emissions through a transition to a low- or zero-net carbon economy.
Compliance with laws, regulations and obligations relating to climate change, including as a result of such international negotiations, as well as the efforts by non-governmental organizations and investors, could subjectincrease ZIM’s costs related to operating and maintaining its vessels and require it to install new emission controls, acquire allowances or pay taxes related to its greenhouse gas emissions, or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth opportunities may also be adversely affected.
Compliance with safety and other requirements imposed by classification societies may be very costly and may adversely affect its business.
The hull and machinery of every commercial vessel must be classed by a classification society. The classification society certifies that the vessel has been built, maintained and repaired, when necessary, in accordance with the applicable rules and regulations of the classification society. Moreover, every vessel must comply with all applicable international conventions and the regulations of the vessel’s flag state as verified by a classification society as well as the regulations of the beneficial owner’s country of registration. Finally, each vessel must successfully undergo periodic surveys, including annual, intermediate and special surveys, which may result in recommendations or requirements to undertake certain repairs or upgrades. Currently, all of ZIM’s vessels have the required certifications. However, maintaining class certification could incur significant fines, penalties,costs. If any of ZIM’s owned and certain of its chartered-in vessels does not maintain its class certification, it might lose its insurance coverage and be unable to trade, and ZIM will be in breach of relevant covenants under its financing arrangements, in relation to both failing to maintain the class certification as well as having effective insurance. Failure to maintain the class certification of one or more of its vessels could have, under extreme circumstances, a material adverse effect on ZIM’s financial condition, results of operations and liquidity.
Changes in tax laws, tax treaties as well as judgments and negative publicity.estimates used in the determination of tax-related asset (liability) and income (expense) amounts, could materially adversely affect its business, financial condition and results of operations.
ZIM operates in various jurisdictions and may be subject to the tax regimes and related obligations in the jurisdictions in which it operates or does business. Changes in tax laws, bilateral double tax treaties, regulations and interpretations could adversely affect its financial results. The tax rules of the various jurisdictions in which ZIM operates or conduct business often are complex, involve bilateral double tax treaties and are subject to varying interpretations. Specifically, on July 1, 2021, the Organization for Economic Co-operation and Development (OECD) introduced Pillar Two model rules which are expected to be approved during 2022 and take effect in 2023. The Pillar Two rules were introduced to ensure that large multinational enterprises (MNEs) pay a minimum level of tax on the income arising in each jurisdiction where they operate. The current minimum effective tax rate that was determined under Pillar Two is 15%. While Pillar Two model rules are not intended to be applied to international shipping income, other sources of ZIM’s income may be affected as a result of Pillar Two entering into effect. ZIM is currently monitoring the developments of Pillar Two legislation process and are evaluating its potential impact on ZIM’s financial results.
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Tax authorities may challenge tax positions that ZIM takes or historically has taken, may assess taxes where it has not made tax filings, or may audit the tax filings it has made and assess additional taxes. Such assessments, either individually or in the aggregate, could be substantial and could involve the imposition of penalties and interest. For such assessments, from time to time, ZIM uses external advisors. In addition, governments could impose new taxes on ZIM or increase the rates at which it is taxed in the future. The payment of substantial additional taxes, penalties or interest resulting from tax assessments, or the imposition of any new taxes, could materially and adversely impact its results, financial condition and liquidity. Additionally, ZIM’s provision for income taxes and reporting of tax-related assets and liabilities require significant judgments and the use of estimates. Amounts of tax-related assets and liabilities involve judgments and estimates of the timing and probability of recognition of income, deductions and tax credits. Actual income taxes could vary significantly from estimated amounts due to the future impacts of, among other things, changes in tax laws, regulations and interpretations, ZIM’s financial condition and results of operations, as well as the resolution of any audit issues raised by taxing authorities.
Risks Related to ZIM’s Financial Position and Results
If ZIM is unable to generate sufficient cash flows from its operations, liquidity will suffer and it may be unable to satisfy its obligations and operational needs.
ZIM’s ability to generate cash flow from operations to cover operational costs and to make payments in respect of its obligations, financial liabilities (mainly lease liabilities) and operational needs will depend on its future performance, which will be affected by a range of economic, competitive and business factors. ZIM cannot control many of these factors, including general economic conditions and the health of the shipping industry. If it is unable to generate sufficient cash flow from operations to satisfy its obligations, liabilities and operational needs, ZIM may need to borrow funds or undertake alternative financing plans, or reducing or delaying capital investments and other costs. It may be difficult to incur additional debt on commercially reasonable terms due to, among other things, ZIM’s financial position and results of operations and market conditions. ZIM’s inability to generate sufficient cash flows from operations or obtain additional funds or alternative financing on acceptable terms could have a material adverse effect on its business.
Volatile market conditions could negatively affect its business, financial position, or results of operations and could thereby result in impairment charges.
As of the end of each reporting period, ZIM examines whether there have been any events or changes in circumstances, such as a decline in freight rates or other general economic or market conditions, which may indicate an impairment. When there are indications of an impairment, an examination is made as to whether the carrying amount of the operating assets or cash generating units, or CGUs, exceeds the recoverable amount, and, if necessary, an impairment loss is recognized in its financial statements.
For each of the years ended December 31, 2021, 2020 and 2019, ZIM concluded there were no indications for potential impairment, or that the recoverable amount of its CGU was higher than the carrying amount of its CGU and, as a result, did not recognize an impairment loss in its financial statements. However, ZIM cannot assure you that it will not recognize impairment losses in future years. If an impairment loss is recognized, its results of operations will be negatively affected. Should freight rates decline significantly or ZIM or the shipping industry experiences adverse conditions, this may have a material adverse effect on it business, results of operations and financial condition, which may result in ZIM recording an impairment charge.
Foreign exchange rate fluctuations and controls could have a material adverse effect on its earnings and the strength of its balance sheet.
Since ZIM generates revenues in a number of geographic regions across the globe, it is exposed to operations and transactions in other currencies. A material portion of expenses are denominated in local currencies other than the U.S. dollar. Most revenues and a significant portion of expenses are denominated in the U.S. dollar, creating a partial natural hedge. To the extent other currencies increase in value relative to the U.S. dollar, ZIM’s margins may be adversely affected. Foreign exchange rates may also impact trade between countries as fluctuations in currencies may impact the value of goods as between two trading countries. Where possible, ZIM endeavors to match its foreign currency revenues and costs to achieve a natural hedge against foreign exchange and transaction risks, although there can be no assurance that these measures will be effective in the management of these risks. Consequently, short-term or long-term exchange rate movements or controls may have a material adverse effect on ZIM’s business, financial condition, results of operations and liquidity. In addition, foreign exchange controls in countries in which it operates may limit ZIM’s ability to repatriate funds from foreign affiliates or otherwise convert local currencies into U.S. dollars.
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ZIM’s operating results may be subject to seasonal fluctuations.
The markets in which ZIM operates have historically exhibited seasonal variations in demand and, as a result, freight rates have also historically exhibited seasonal variations. This seasonality can have an adverse effect on its business and results of operations. As global trends that affect the shipping industry have changed rapidly in recent years, it remains difficult to predict these trends and the extent to which seasonality will be a factor affecting ZIM’s results of operations in the future. See “Item 4.B Business Overview—Our Businesses—ZIM’s Seasonality.”
Risks Related to ZIM’s Operations in Israel
ZIM is incorporated and based in Israel and, therefore, its results may be adversely affected by political, economic and military instability in Israel.
ZIM is incorporated and its headquarters are located in Israel and the majority of its key employees, officers and directors are residents of Israel. Additionally, the terms of the Special State Share require ZIM to maintain its headquarters and to be incorporated in Israel, and to have its chairman, chief executive officer and a majority of its board members be Israeli. As an Israeli company, ZIM has relatively high exposure, compared to many of its competitors, to acts of terror, hostile activities including cyber-attacks, security limitations imposed upon Israeli organizations overseas, possible isolation by various organizations and institutions for political reasons and other limitations (such as restrictions against entering certain ports). Political, economic and military conditions in Israel may directly affect ZIM’s business and existing relationships with certain foreign corporations, as well as affect the willingness of potential partners to enter into business arrangements with ZIM. Numerous countries, corporations and organizations limit their business activities in Israel and their business ties with Israeli-based companies. ZIM’s status as an Israeli company may limit its ability to call on certain ports and therefore could limit its ability to enter into alliances or operational partnerships with certain shipping companies, which has historically adversely affected its operations and its ability to compete effectively within certain trades. In addition, ZIM’s status as an Israeli company may limit its ability to enter into alliances that include certain carriers who are not willing to cooperate with Israeli companies.
Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. In recent years, these have included hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which resulted in rockets being fired into Israel, causing casualties and disrupting economic activities. Recent political uprisings, social unrest and violence in the Middle East and North Africa, including Israel’s neighbors Egypt and Syria, are affecting the political stability of those countries. This instability has raised concerns regarding security in the region and the potential for armed conflict. In addition, Israel faces threats from more distant neighbors, in particular, Iran. Iran is also believed to have a strong influence among parties hostile to Israel in areas that neighbor Israel, such as the Syrian government, Hamas in the Gaza Strip and Hezbollah in Lebanon. Armed conflicts or hostilities in Israel or neighboring countries could cause disruptions in ZIM’s operations, including significant employee absences, failure of its information technology systems and cyber-attacks, which may lead to the shutdown of its headquarters in Israel. For instance, during the 2006 Lebanon War, a military conflict took place in Lebanon. As a result of rocket fire in the city of Haifa, ZIM closed its headquarters for several days. Although ZIM maintains an emergency plan, such events can have material effects on its operational activities. Any future deterioration in the security or geopolitical conditions in Israel or the Middle East could adversely impact ZIM’s business relationships and thereby have a material adverse effect on its business, financial condition, results of operations or liquidity. If ZIM’s facilities, including its headquarters, become temporarily or permanently disabled by an act of terrorism or war, it may be necessary for ZIM to develop alternative infrastructure and it may not be able to avoid service interruptions. Additionally, ZIM’s owned and chartered-in vessels, including those vessels that do not sail under the Israeli flag, may be subject to control by the authorities of the State of Israel in order to protect the security of, or bring essential supplies and services to, the State of Israel. Israeli legislation also allows the State of Israel to use ZIM’s vessels in times of emergency. Any of the aforementioned factors may negatively affect ZIM and its results of operations.
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ZIM’s commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. The Israeli government currently provides compensation only for physical property damage caused by terrorist attacks or acts of war, based on the difference between the asset value before the attack and immediately after the attack or on any cost of repairing the damage, whichever is lower. Any losses or damages incurred by ZIM could have a material adverse effect on its business. Any armed conflict involving Israel could adversely affect ZIM’s business and results and operations.
Further, ZIM’s operations could be disrupted by the obligations of personnel to perform military service.
As of December 31, 2021, ZIM had 770 employees based in Israel, certain of whom may be called upon to perform several weeks of annual military reserve duty until they reach the age qualifying them for an exemption (generally 40 for men who are not officers or do not have specified military professions) and, in certain emergency circumstances, may be called to immediate and unlimited active duty. ZIM’s operations could be disrupted by the absence of a significant number of employees related to military service, which could materially adversely affect its business and operations.
General Risk Factors for ZIM
ZIM faces cyber-security risks.
ZIM’s business operations rely upon secure information technology systems for data processing, storage and reporting. As a result, it maintains information security policies and procedures for managing its information technology systems. Despite security and controls design, implementation and updates, ZIM’s information technology systems may be subject to cyber-attacks, including, network, system, application and data breaches. A number of companies around the world, including in ZIM’s industry, have been the subject of cyber-security attacks in recent years. For example, one of ZIM’s peers experienced a major cyber-attack on its IT systems in 2017, which impacted such company’s operations in its transport and logistics businesses and resulted in significant financial loss. In addition, in August 2020, a cruise operator was a victim to ransomware attack. On September 28, 2020, another competitor confirmed a ransomware attack that disabled its booking system, and on October 1, 2020, the IMO’s public website and intranet services were subject to a cyberattack. In December 2020, an Israeli insurance company fell victim to a highly publicized ransomware attack, resulting in the filing of civil actions against the company and significant damage to that company’s reputation. Other Israeli companies are facing cyber-attack campaigns, and it is believed the attackers may be from hostile countries. Cyber-attacks are becoming increasingly common and more sophisticated, and may be perpetrated by computer hackers, cyber-terrorists or others engaged in corporate espionage.
Cyber-security attacks could include malicious software (malware), attempts to gain unauthorized access to data, social media hacks and leaks, ransomware attacks and other electronic security breaches of ZIM’s information technology systems as well as the information technology systems of its customers and other service providers that could lead to disruptions in critical systems, unauthorized release, misappropriation, corruption or loss of data or confidential information, and breach of protected data belonging to third parties. In addition, due to the COVID-19 pandemic, ZIM has reduced staffing in its offices and increased reliance on remote access of its employees. ZIM has taken measures to enable it to face cyber-security threats, including backup and recovery and backup measures, as well as cyber security awareness trainings and an annual company-wide cyber preparedness drill. However, there is no assurance that these measures will be successful in coping with cyber-security threats, as these develop rapidly, and ZIM may be affected by and become unable to respond to such developments. A cyber-security breach, whether as a result of malicious, political, competitive or other motives, may result in operational disruptions, information misappropriation or breach of privacy laws, including the European Union’s General Data Protection Regulation and other similar regulations, which could result in reputational damage and have a material adverse effect on ZIM’s business, financial condition and results of operation.
ZIM faces risks relating to its information technology and communication system.
ZIM’s information technology and communication system supports all of its businesses processes throughout the supply chain, including the customer service and marketing teams, business intelligence analysts, logistics team and financial reporting functions. ZIM’s primary data center is in Europe with a back-up data center in Israel. While it has a disaster recovery plan pursuant to which it is able to immediately activate the back-up data center in the event of a failure at the primary data center, if its primary data center ceases to be available without sufficient advance notice, ZIM would likely experience delays in its operating activities.
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Additionally, its information systems and infrastructure could be physically damaged by events such as fires, terrorist attacks and unauthorized access to servers and infrastructure, as well as the unauthorized entrance into its information systems. Furthermore, ZIM communicates with its customers through an ecommerce platform. Its ecommerce platform was developed and is run by third-party service providers over which ZIM has no management control. A potential failure of internal computer systems or a failure of third-party ecommerce platform providers to satisfy their contractual service level commitments to ZIM may have a material adverse effect on its business, financial condition and results of operation. Efforts to modernize and digitize ZIM’s operations and communications with customers further increase ZIM’s dependency on information technology systems, which exacerbates the risks it could face if these systems malfunction.
ZIM is subject to data privacy laws, including the European Union’s General Data Protection Regulation, and any failure to comply could result in proceedings or actions against it and subject ZIM to significant fines, penalties, judgments and negative publicity.
ZIM is subject to numerous data privacy laws, including Israeli privacy laws and the European Union’s General Data Protection Regulation (2016/679), or the GDPR, which relates to the collection, use, retention, security, processing and transfer of personally identifiable information about ZIM’s customers and employees in the countries where it operates. ZIM has also been certified as compliant with ISO27001 in Israel (information security management standard) and ISO27701 (extension to the information security management standard).
The EU data protection regime expands the scope of the EU data protection law to all companies processing data of EEA individuals, imposes a stringent data protection compliance regime, including administrative fines of up to the greater of 4% of worldwide turnover or €20 million (as well as the right to compensation for financial or non-financial damages claimed by any individuals), and includes new data subject rights such as the “portability” of personal data. Although ZIM is generally a business that serves other businesses (B2B), it still processes and obtains certain personal information relating to individuals, and any failure to comply with the GDPR or other data privacy laws where applicable could result in proceedings or actions against it, which could subject ZIM to significant fines, penalties, judgments and negative publicity.
Labor shortages or disruptions could have an adverse effect on its business and reputation.
ZIM employs, directly and indirectly, 5,931 employees around the globe (including contract workers). ZIM, its subsidiaries, and the independent agencies with which it has agreements could experience strikes, industrial unrest or work stoppages. Several ZIM employees are members of unions. In recent years, it has experienced labor interruptions as a result of disagreements between management and unionized employees and has entered into collective bargaining agreements addressing certain of these concerns. If such disagreements arise and are not resolved in a timely and cost-effective manner, such labor conflicts could have a material adverse effect on its business and reputation. Disputes with unionized employees may result in work stoppage, strikes and time-consuming litigation. ZIM’s collective bargaining agreements include termination procedures which affect its managerial flexibility with re-organization procedures and termination procedures. In addition, its collective bargaining agreements affect financial liabilities towards employees, including pension liabilities or other compensation terms.
ZIM incurs increased costs as a result of operating as a public company, and its management team, which has limited experience in managing and operating a company that is publicly traded in the U.S., will be required to devote substantial time to new compliance initiatives.
As a public company whose ordinary shares are listed in the United States, ZIM incurs accounting, legal and other expenses that it did not incur as a private company, including costs associated with reporting requirements under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also incurs costs associated with corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes- Oxley Act, as well as rules implemented by the SEC and the NYSE, and provisions of Israeli corporate laws applicable to public companies. ZIM expects that these rules and regulations will increase its legal and financial compliance costs, introduce new costs such as investor relations and stock exchange listing fees, and will make some activities more time-consuming and costly. In addition, ZIM expects that its senior management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. The current management team has limited experience managing and operating a company that is publicly traded in the US. Failure to comply or adequately comply with any laws, rules or regulations applicable to the business may result in fines or regulatory actions, which may adversely affect ZIM’s business, results of operation or financial condition and could result in delays in achieving or maintaining an active and liquid trading market for its ordinary shares.
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Changes in the laws and regulations affecting public companies could result in increased costs as ZIM responds to such changes. These laws and regulations could make it more difficult or more costly for ZIM to obtain certain types of insurance, including director and officer liability insurance, and it may be forced to accept reduced policy limits and coverage and/or incur substantially higher costs to obtain the same or similar coverage, including increased deductibles. The impact of these requirements could also make it more difficult for ZIM to attract and retain qualified persons to serve on its board of directors, its board committees or as executive officers. ZIM cannot predict or estimate the amount or timing of additional costs it may incur in order to comply with such requirements. Any of these effects could adversely affect its business, financial condition and results of operations.
The State of Israel holds a Special State Share in ZIM, which imposes certain restrictions on itsZIM’s operations and gives Israel veto power over transfers of certain assets and shares above certain thresholds, and may have an anti- takeover effect.
The State of Israel holds a Special State Share in ZIM, which imposes certain limitations on its operating and managing activities and could negatively affect its business and results of our operations. These limitations include, among other things, transferability restrictions on ZIM’s share capital, restrictions on its ability to enter into certain merger transactions or undergo certain reorganizations and restrictions on the composition of its board of directors and the nationality of its chief executive officer, among others.
Because the Special State Share restricts the ability of a shareholder to gain control of ZIM, the existence of the Special State Share may have an anti-takeover effect and therefore depress the price of its ordinary shares or otherwise negatively affect its business and results of operations. In addition, the terms of the Special State Share dictate that ZIM maintainsmaintain a minimum fleet of 11 wholly ownedwholly-owned seaworthy vessels.
Currently, as a result of waivers received from the State of Israel, ZIM owns fewer vessels than the minimum fleet requirement. However, if ZIMit acquires and owns additional vessels in the future, these vessels would be subject to the minimum fleet requirements and conditions of the Special State Share, andShare. Further, if ZIM wouldshould want to dispose of such vessels, it would need to obtain consent from the State of Israel.
factors. There can be no assurance that IC’s indemnification of certain of our liabilitiesdividends will be sufficientdeclared in accordance with the Board’s policy or at all, and the board of directors may decide, in its absolute discretion, at any time and for any reason, not to insure us againstpay dividends, to reduce the full amount of those liabilities,dividends paid, to pay dividends on an ad-hoc basis or that IC’s ability to satisfy its indemnification obligation will not be impairedtake other actions, which could include share buybacks, instead of or in the future.
ZIM’s ability to pay dividends is limited by Israeli law, which permits the distribution of dividends only out of distributable profits and only if there is no reasonable concern that such distribution will prevent it from meeting existing and future obligations when they become due.
Risks Related to Our Ordinary Shares
Our ordinary shares are traded on more than one stock exchange and this may result in price variations between the markets.
Our ordinary shares are listed on each of the NYSE and the TASE. Trading of our ordinary shares therefore takes place in different currencies (U.S. Dollars on the NYSE and New Israeli Shekels on the TASE), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Israel). The trading prices of our ordinary shares on these two markets may differ as a result of these, or other, factors. Any decrease in the price of our ordinary shares on either of these markets could also cause a decrease in the trading prices of our ordinary shares on the other market.
A significant portion of our outstanding ordinary shares may be sold into the public market, which could cause the market price of our ordinary shares to drop significantly, even if our business is doing well.
A significant portion of our shares are held by Ansonia, which holds approximately 58%60% of our shares. If Ansonia sells, or indicates an intention to sell, substantial amounts of our ordinary shares in the public market, the trading price of our ordinary shares could decline. The perception that any such sales may occur, including the entry by Ansonia into programmed selling plans, could have a material adverse effect on the trading price of our ordinary shares and/or could impair the ability of any of our businesses to raise capital.
Control by principal shareholders could adversely affect our other shareholders.
Ansonia beneficially owns approximately 58%60% of our outstanding ordinary shares and voting power. Ansonia therefore has a continuing ability to control, or exert a significant influence over, our board of directors, and will continue to have significant influence over our affairs for the foreseeable future, including with respect to the election of directors, the consummation of significant corporate transactions, such as an amendment of our constitution, a merger or other sale of our company or our assets, and all matters requiring shareholder approval. In certain circumstances, Ansonia’s interests as a principal shareholder may conflict with the interests of our other shareholders and Ansonia’s ability to exercise control, or exert significant influence, over us may have the effect of causing, delaying, or preventing changes or transactions that our other shareholders may or may not deem to be in their best interests.
We may not have sufficient distributable profits to pay dividends or make other distributions.
Under Singapore law and our constitution, dividends, whether in cash or in specie, must be paid out of our profits available for distribution. The availability of distributable profits is assessed on the basis of Kenon’s standalone unconsolidated accounts (which are based upon the Singapore Financial Reporting Standards, or the SFRS). We may incur losses and we may not have sufficient distributable income that can be distributed to our shareholders as a dividend or other distribution in the foreseeable future. Therefore, we may be unable to pay dividends to our shareholders unless and until we have generated sufficient distributable reserves. Accordingly, it may not be legally permissible for us to pay dividends to our shareholders. As a result, if we do not declare dividends with respect to our ordinary shares, a holder of our ordinary shares will only realize income from an investment in our ordinary shares if there is an increase in the market price of our ordinary shares. Such potential increase is uncertain and unpredictable.
Under Singapore law, it is possible to effect either a court-free or court-approved capital reduction exercise to return cash and/or assets to our shareholders. Further, the completion of a court-free capital reduction exercise will depend on whether our directors are comfortable executing a solvency statement attesting to our solvency, as well as whether there are any other creditor objections raised (in the event that we have creditors other than IC).raised. We have completed capital reduction exercises in connection with the distribution of our Tower shares and the cash distribution in March 2018, but there is no assurance that we will be able to complete further capital reductions in the future.
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Any dividend payments onor other cash distributions in respect of our ordinary shares would be declared in U.S. Dollars, and any shareholder whose principal currency is not the U.S. Dollar would be subject to exchange rate fluctuations.
The ordinary shares are, and any cash dividends or other distributions to be declared in respect of them, if any, will be denominated in U.S. Dollars. For example, in 2020,every year between 2018 and 2021, we distributed approximately $120 million inhave made cash contributions to our shareholders. Although a significant percentage of our shareholders hold their shares through the TASE, the dividendeach of these distributions was denominated in U.S. Dollars. Shareholders whose principal currency is not the U.S. Dollar are exposed to foreign currency exchange rate risk. Any depreciation of the U.S. Dollar in relation to such foreign currency will reduce the value of such shareholders’ ordinary shares and any appreciation of the U.S. Dollar will increase the value in foreign currency terms. In addition, we will not offer our shareholders the option to elect to receive dividends, if any, in any other currency. Consequently, our shareholders may be required to arrange their own foreign currency exchange, either through a brokerage house or otherwise, which could incur additional commissions or expenses.
We are a “foreign private issuer” under U.S. securities laws and, as a result, are subject to disclosure obligations that are different from those applicable to U.S. domestic registrants listed on the NYSE.
We are incorporated under the laws of Singapore and, as such, will be considered a “foreign private issuer” under U.S. securities laws. Although we will be subject to the reporting requirements of the Exchange Act, the periodic and event-based disclosure required of foreign private issuers under the Exchange Act is different from the disclosure required of U.S. domestic registrants. Therefore, there may be less publicly available information about us than is regularly published by or about other public companies in the United States. We are also exempt from certain other sections of the Exchange Act that U.S. domestic registrants are otherwise subject to, including the requirement to provide our shareholders with information statements or proxy statements that comply with the Exchange Act. In addition, insiders and large shareholders of ours are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act and are not obligated to file the reports required by Section 16 of the Exchange Act.
As a foreign private issuer, we have followed certain, and may follow, home country corporate governance practices instead of otherwise applicable SEC and NYSE corporate governance requirements, and this may result in less investor protection than that accorded to investors under rules applicable to domestic U.S. issuers.
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the NYSE’s rules for domestic U.S. issuers, provided that we disclose which requirements we are not following and describe the equivalent home country requirement. For example, foreign private issuers are permitted to follow home country practice with regard to director nomination procedures and the approval of compensation of officers.
In addition, we are not required to maintain a board comprised of a majority of independent directors and a fully independent nominating and corporate governance committee. We generally seek to apply the corporate governance rules of the NYSE that are applicable to U.S. domestic registrants that are not “controlled” companies. However, we do not fully comply such rules; for example, we do not have a fully independent nominating and corporate governance committee. We may, in the future, decide to rely on other foreign private issuer exemptions provided by the NYSE and follow home country corporate governance practices in lieu of complying with some or all of the NYSE’s requirements.
Following our home country governance practices, as opposed to complying with the requirements that are applicable to a U.S. domestic registrant, may provide less protection to you than is accorded to investors under the NYSE’s corporate governance rules. Therefore, any foreign private exemptions we avail ourselves of in the future may reduce the scope of information and protection to which you are otherwise entitled as an investor.
It may be difficult to enforce a judgment of U.S. courts for civil liabilities under U.S. federal securities laws against us, our directors or officers in Singapore.
We are incorporated under the laws of Singapore and certain of our officers and directors are or will be residents outside of the United States. Moreover, most of our assets are located outside of the United States. Although we are incorporated outside of the United States, we have agreed to accept service of process in the United States through our agent designated for that specific purpose. Additionally, for so long as we are listed in the United States or in Israel, we have undertaken not to claim that we are not subject to any derivative/class action that may be filed against us in the United States or Israel, as may be applicable, solely on the basis that we are a Singapore company. However, since most of the assets owned by us are located outside of the United States, any judgment obtained in the United States against us may not be collectible within the United States.
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Furthermore, there is no treaty between the United States and Singapore providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters, such that a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the federal securities laws, would not be automatically enforceable in Singapore. Additionally, there is doubt as to whether a Singapore court would impose civil liability on us or our directors and officers who reside in Singapore in a suit brought in the Singapore courts against us or such persons with respect to a violation solely of the federal securities laws of the United States, unless the facts surrounding such a violation would constitute or give rise to a cause of action under Singapore law. We have undertaken not to oppose the enforcement in Singapore of judgments or decisions rendered in Israel or in the United States in a class action or derivative action to which Kenon is a party. Notwithstanding such an undertaking, it may still be difficult for investors to enforce against us, our directors or our officers in Singapore, judgments obtained in the United States which are predicated upon the civil liability provisions of the federal securities laws of the United States.
We are incorporated in Singapore and our shareholders may have greater difficulty in protecting their interests than they would as shareholders of a corporation incorporated in the United States.
Our corporate affairs are governed by our constitution and by the laws governing corporations incorporated in Singapore. The rights of our shareholders and the responsibilities of the members of our board of directors under Singapore law are different from those applicable to a corporation incorporated in the United States. Therefore, our public shareholders may have more difficulty in protecting their interest in connection with actions taken by our management or members of our board of directors than they would as shareholders of a corporation incorporated in the United States. For information on the differences between Singapore and Delaware corporation law, see “Item 10.B Constitution.Constitution.”
Singapore corporate law may delay, deter or prevent a takeover of our company by a third-party, but as a result of a waiver from application of the Code, our shareholders may not have the benefit of the application of the Singapore Code on Take-Overs and Mergers, which could adversely affect the value of our ordinary shares.
The Singapore Code on Take-overs and Mergers and Sections 138, 139 and 140 of the Securities and Futures Act Chapter 289 of Singapore2001 contain certain provisions that may delay, deter or prevent a future takeover or change in control of our company for so long as we remain a public company with more than 50 shareholders and net tangible assets of $5 million or more. Any person acquiring an interest, whether by a series of transactions over a period of time or not, either on his own or together with parties acting in concert with such person, in 30% or more of our voting shares, or, if such person holds, either on his own or together with parties acting in concert with such person, between 30% and 50% (both inclusive) of our voting shares, and such person (or parties acting in concert with such person) acquires additional voting shares representing more than 1% of our voting shares in any six-month period, must, except with the consent of the Securities Industry Council of Singapore, extend a mandatory takeover offer for the remaining voting shares in accordance with the provisions of the Singapore Code on Take-overs and Mergers.
In October 2014, the Securities Industry Council of Singapore waived the application of the Singapore Code on Take-overs and Mergers to the Company, subject to certain conditions. Pursuant to the waiver, for as long as Kenon is not listed on a securities exchange in Singapore, and except in the case of a tender offer (within the meaning of U.S. securities laws) where the offeror relies on a Tier 1 exemption to avoid full compliance with U.S. tender offer regulations, the Singapore Code on Take-overs and Mergers shall not apply to Kenon.
Accordingly, Kenon’s shareholders will not have the protection or otherwise benefit from the provisions of the Singapore Code on Take-overs and Mergers and the Securities and Futures Act to the extent that this waiver is available.
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Our directors have general authority to allot and issue new shares on terms and conditions and with any preferences, rights or restrictions as may be determined by our board of directors in its sole discretion, which may dilute our existing shareholders. We may also issue securities that have rights and privileges that are more favorable than the rights and privileges accorded to our existing shareholders.
Under Singapore law, we may only allot and issue new shares with the prior approval of our shareholders in a general meeting. Other than with respect to the issuance of shares pursuant to awards made under our Share Incentive Plan 2014 or Share Option Plan 2014, and subject to the general authority to allot and issue new shares provided by our shareholders annually, the provisions of the Singapore Companies Act and our constitution, our board of directors may allot and issue new shares on terms and conditions and with the rights (including preferential voting rights) and restrictions as they may think fit to impose. Any such offering may be on a pre-emptive or non-pre-emptive basis. Subject to the prior approval of our shareholders for (i) the creation of new classes of shares and the (ii) granting to our directors of the authority to issue new shares with different or similar rights, additional shares may be issued carrying such preferred rights to share in our profits, losses and dividends or other distributions, any rights to receive assets upon our dissolution or liquidation and any redemption, conversion and exchange rights. At the annual general meeting of shareholders held in 2020,2021, or the 20202021 AGM, our shareholders granted the board of directors authority (effective until the conclusion of the annual general meeting of shareholders to be held in 2021,2022, or the 20212022 AGM, or the expiration of the period by which the 20212022 AGM is required by law to be held, whichever is earlier) to allot and issue ordinary shares and/or instruments that might or could require ordinary shares to be allotted and issued as authorized by our shareholders at the 20202021 AGM and shareholders will be asked to renew this authority at the 20212022 AGM. Ansonia, our significant shareholder, may use its ability to control to approve a grant of such authority to our board of directors, or exert influence over, our board of directors to cause us to issue additional ordinary shares, which would dilute existing holders of our ordinary shares, or to issue securities with rights and privileges that are more favorable than those of our ordinary shareholders. There are no statutory pre-emptive rights for new share issuances conferred upon our shareholders under the Companies Act Chapter 50 of Singapore,1967, or the Singapore Companies Act. Furthermore, any additional issuances of new shares by our directors could adversely impact the market price of our ordinary shares.
Risks Related to Taxation
It is likely that we will be classified as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for our current taxable year ending December 31, 2022 and foreseeable future taxable years, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ordinary shares.
In March 2022, Kenon sold additional ZIM shares further reducing its equity interest in ZIM to approximately 20%. As a result of the additional sale of ZIM shares, we are no longer able to treat our proportionate share of ZIM’s businesses and earningearnings as directly owned which could increase the valuefor purposes of our assets that produce, ordetermining whether we are held for the production of, passive income and/or our passive income and result in us becoming a PFIC, for our current taxable year ending December 31, 2022 and anyforeseeable future taxable year. Additionally, becauseyears.
Because the value of our assets for purposes of the PFIC test will generally be determined in part by reference to the market price of our ordinary shares, fluctuations in the market price of the ordinary shares may cause us to become a PFIC. Moreover, changes in the composition of our income or assets may cause us to become a PFIC. As a result, dispositions of operating companies could increase the risk that we become a PFIC. For instance, the sale of the Inkia Business, the investment in Qoros by the Majority Shareholder in Qoros in 2018 (which reduced our equity interest in Qoros to 24%), the sale of half of our remaining interest in Qoros to the Majority Shareholder in Qoros in April 2020 (which reduced our equity interest in Qoros to 12%) and the expected sale of all of our remaining interest in Qoros to the Majority Shareholder in Qoros in April 2021 (which will eliminate our equity interest in Qoros) each may increase the value of our assets that produce, or are held for the production of, passive income and/or our passive income.
Based upon, among other things, the valuation of our assets and the composition of our income and result in us becomingassets, we do not believe we were a PFIC for U.S. federal income tax purposes for our previous taxable year ended December 31, 2021. However, the reduction in our equity interest in ZIM to below 25% limits our ability to treat our proportionate share of ZIM’s businesses and earnings as directly owned, which could increase the value of our assets that produce, or are held for the production of, passive income and/or our passive income. Based upon, among other things, the valuation of our assets and the composition of our income and assets taking into account such additional sale of ZIM shares, we anticipate that we will be treated as a PFIC for U.S. federal income tax purposes for our current taxable year ending December 31, 2022 and anyforeseeable future taxable years. However, the application of the PFIC rules is subject to uncertainty in several respects and a separate determination must be made after the close of each taxable year as to whether we were a PFIC for such year.
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If we are classified as a PFIC for any taxable year during which a U.S. Holder (as defined below) holds an ordinary share, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. For further information on such U.S. tax implications, see “Item 10.E Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company.Company.”
Tax regulations and examinations may have a material effect on us and we may be subject to challenges by tax authorities.
We operate in a number of countries and are therefore regularly examined by and remain subject to numerous tax regulations. Changes in our global mix of earnings could affect our effective tax rate. Furthermore, changes in tax laws could result in higher tax-related expenses and payments. Legislative changes in any of the countries in which our businesses operate could materially impact our tax receivables and liabilities as well as deferred tax assets and deferred tax liabilities. Additionally, the uncertain tax environment in some regions in which our businesses operate could limit our ability to enforce our rights. As a holding company with globally operating businesses, we have established businesses in countries subject to complex tax rules, which may be interpreted in a variety of ways and could affect our effective tax rate. Future interpretations or developments of tax regimes or a higher than anticipated effective tax rate could have a material adverse effect on our tax liability, return on investments and business operations.
In addition, we and our businesses operate in, are incorporated in and are tax residents of various jurisdictions. The tax authorities in the various jurisdictions in which we and our businesses operate, or are incorporated, may disagree with and challenge our assessments of our transactions (including any sales or distributions), tax position, deductions, exemptions, where we or our businesses are tax resident, or other matters. If we, or our businesses, are unsuccessful in responding to any such challenge from a tax authority, we, or our businesses, may be unable to proceed with certain transactions, be required to pay additional taxes, interest, fines or penalties, and we, or our businesses, may be subject to taxes for the same business in more than one jurisdiction or may also be subject to higher tax rates, withholding or other taxes. Even if we, or our businesses, are successful, responding to such challenges may be expensive, consume time and other resources, or divert management’s time and focus from our operations or businesses or from the operations of our businesses. Therefore, a challenge as to our, or our businesses’, tax position or status or transactions, even if unsuccessful, may have a material adverse effect on our business, financial condition, results of operations or liquidity or the business, financial condition, results of operations or liquidity of our businesses.
Our shareholders may be subject to non-U.S. taxes and return filing requirements as a result of owning our ordinary shares.
Based upon our expected method of operation and the ownership of our businesses following the spin-off, we do not expect any shareholder, solely as a result of owning our ordinary shares, to be subject to any additional taxes or additional tax return filing requirements in any jurisdiction in which we, or any of our businesses, conduct activities or own property. However, there can be no assurance that our shareholders, solely as a result of owning our ordinary shares, will not be subject to certain taxes, including non-U.S. taxes, imposed by the various jurisdictions in which we and our businesses do business or own property now or in the future, even if our shareholders do not reside in any of these jurisdictions. Consequently, our shareholders may also be required to file non-U.S. tax returns in some or all of these jurisdictions. Further, our shareholders may also be subject to penalties for failure to comply with these requirements. It is the responsibility of each shareholder to file each of the U.S. federal, state and local, as well as non-U.S., tax returns that may be required of such shareholder.
| ITEM | Information on the Company |
| A. | History and Development of the Company |
We were incorporated in March 2014 under the Singapore Companies Act to be the holding company of certain companies that were owned (in whole, or in part) by IC in connection with our spin-off from IC in January 2015. We currently own the following:
an approximately 58%58.8% interest in OPC, an owner, developer and operator of power generation facilities in the Israeli and US power market;
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an approximately 28%20.7% interest in ZIM, a large provider of global container shipping services; and
a 12% interest in Qoros, a China-based automotive company.
In connection with our spin-off from IC, we also held a 29% interest in Tower, a NASDAQ- and TASE—listedTASE-listed specialty foundry semiconductor manufacturer. In July 2015, we completed a pro-rata distribution in specie of substantially all of our interest in Tower. In 2016, we sold our remaining interest in Tower.
In December 2017, our wholly-owned subsidiary Inkia sold its power generation and distribution businesses in Latin America and the Caribbean, or the Inkia Business, to an entity controlled by I Squared Capital, an infrastructure private equity firm. As a result of this sale, our power generation business consists of our 58% interest in OPC.Business. In January 2021, an entity which is 70%-owned by OPC acquired CPV.
In April 2021, we entered into an agreement to sell our remaining 12% interest in Qoros. However, the Majority Shareholder has failed to make required payments under this agreement. In the fourth quarter of 2021, Quantum initiated arbitral proceedings against the Majority Shareholder and Baoneng Group with CIETAC. The proceedings are ongoing.
The legal and commercial name of the Company is Kenon Holdings Ltd. Our principal place of business is located at 1 Temasek Avenue #37-02B, Millenia Tower, Singapore 039192. Our telephone number at our principal place of business is + 65 6351 1780. Our internet address is www.kenon-holdings.com.We have appointed Gornitzky & Co., Advocates and Notaries, as our agent for service of process in connection with certain claims which may be made in Israel.
Our ordinary shares are listed on each of the NYSE and the TASE under the symbol “KEN.”
The SEC also maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
| B. | Business Overview |
We are a holding company that operates dynamic, primarily growth-oriented, businesses. The companies we own, in whole or in part, are at various stages of development, ranging from established, cash generating businesses to early stage companies.
For example, we have made significant distributions to realize the valueshareholders since our initial listing in 2015. In July 2015, we distributed substantially all of our businesses forinterest in Tower. In addition, since 2018, we have distributed total cash of $1.25 billion, including approximately $100 million and $189 million to our shareholders. In connection withshareholders in May 2021 and January 2022, respectively. Furthermore, in March 2022, we have announced an intention to distribute an additional amount of approximately $550 million pursuant to a capital reduction, subject to shareholder approval and approval of the High Court of the Republic of Singapore. Assuming completion of this strategy,capital reduction, we will support the developmenthave distributed a total of our business and we may provide our shareholders with direct access$1.8 billion in cash in addition to our businesses, which may include spin-offs, listings, offerings, distributions or monetization of our businesses. To the extent we monetize our businesses (i.e., through offerings or sales), we may distribute the proceeds derived from such transactionsstake in Tower to our shareholders.
We have also made significant investments in our strategy,businesses, including investments of $64 million and $101 million in OPC in October 2021 and October 2020, respectively, supporting its growth strategy. In addition, we distributed approximately $120 million tohave substantially exited our shareholdersholdings in 2020Qoros, and on March 30, 2021, Kenon’s board of directors approved an interim dividend of approximately $100 million for the year ending December 31, 2021.are actively engaged in exiting our remaining stake.
As our businesses and our holdings have substantially evolved, we execute our strategy, we intendare considering various ways to operate under disciplined capital allocation principles designed to ensure the prudent use of our capital.
Our Businesses
Set forth below is a description of our businesses.
OPC
OPC, which accounted for approximately 100% of our revenues in the year ended December 31, 2020,2021, is an owner, developer and operator of power generation facilities located in Israel and, since its acquisition of CPV, in the United States. OPC has two main areas of activity: (i) generation and supply of electricity and energy in Israel; and (ii) generation and supply of electricity and energy in the United States. OPC’s facilities and primary development projects are set forth below. During 2021, OPC completed the acquisition of 51% interest in Gnrgy Ltd. (“Gnrgy”), whose business focuses on e-mobility charging stations.
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Operations in Israel
| • | OPC-Rotem, in which OPC has an 80% equity interest, operates a conventional combined cycle power plant in Mishor Rotem, Israel, with an installed capacity of 466 MW (based on OPC-Rotem’s generation license). The power plant utilizes natural gas, with diesel oil and crude oil as backups. |
| • | OPC-Hadera, a wholly-owned subsidiary of OPC, operates a power plant using cogeneration technology with an installed capacity of 144 MW in Hadera which reached its COD on July 1, 2020 and owns the Energy Center, which consists of boilers and a steam turbine. The Energy Center currently serves as back-up for the OPC-Hadera power plant’s supply of steam and its turbine is not currently operating and is not expected to operate with generation of more than 16MW. |
| • | Tzomet, a wholly-owned subsidiary of OPC, is developing a natural gas-fired open-cycle power station in Israel with capacity of approximately 396 MW. Tzomet has a conditional license for the development project, which remains subject to conditions set forth under the conditional license, including construction of the plant, as well as for the receipt of a permanent generation license upon expiration of the conditional license. In September 2018, Tzomet entered into an EPC contract in an amount equivalent to approximately $300 million for the design, engineering, procurement and construction of the Tzomet power plant and provision of certain maintenance services in connection with the power station’s main equipment for a period of 20 years from the plant’s COD. During 2021, the construction of the Tzomet power plant continued. OPC expects that the Tzomet plant will reach its COD in the first quarter of 2023 and that the estimated total cost of completing the Tzomet plant will be approximately NIS 1.5 billion (approximately $0.5 billion) (excluding NIS 200 million, which is the tax assessment on the land). As of December 31, 2021, OPC had invested approximately NIS 1,019 million (approximately $328 million) in the project (not including amounts relating to milestones provided in the Tzomet power plant construction agreement that partially completed). |
| • | Construction of energy generation facilities on the premises of consumers. OPC has entered into agreements with several consumers (including consumers that were successful in the EA’s tender) for the installation and operation of generation facilities (natural gas) on the premises of consumers for aggregate capacity of approximately 102 MW, as well as arrangements for the sale and supply of energy to consumers. Once completed, OPC will sell electricity from the generation facilities to the consumers for a period of approximately 15-20 years from the COD of the generation facilities. The total amount of OPC’s investment depends on the number of arrangements entered into and is expected to be an average of NIS 4 million for each installed MW. OPC has also entered into construction agreements and agreements for supply of motors for the generation facilities with a total capacity of approximately 581 MW. |
| • | Sorek Generation Facility. In May 2020, Sorek (a special-purpose company wholly owned by OPC) signed an agreement with SMS IDE Ltd. (“IDE”) that won a tender of the State of Israel for the construction, operation, maintenance and transfer of a seawater desalination facility on the Sorek B site (“Desalination Facility”), whereby Sorek is to supply equipment, construct, operate, and maintain a natural gas-powered energy generation facility on Sorek B site, with a production capacity of 87 MW (“Sorek B Generation Facility”), and supply the energy required for the Sorek B Desalination Facility for a period of 25 years from the Desalination Facility’s commercial operation date (“Sorek B IPP Agreement”). At the end of the aforesaid period, ownership of the Sorek Generation Facility will be transferred to the State of Israel. In addition, a build, operate, transfer (“BOT”) agreement was signed between IDE and the State of Israel. OPC has committed to construct the plant within 24 months from the approval date of the national infrastructure plan, which approval was received in November 2021. In June 2021, Sorek also signed construction and equipment supply agreements with BHI CO Ltd, a South Korean-owned corporation that will serve as the project’s construction contractor in accordance with an EPC agreement according to the milestones, terms, and dates stipulated in the agreement. OPC estimates that construction of the plant will be completed in the fourth quarter of 2023. Excess capacity beyond that used by the Desalination Facility is expected to be sold to an onsite consumer and the System Operator. |
| • | Gnrgy Ltd. As of December 31, 2021, OPC owns 51% interest in Gnrgy, which it acquired in April 2021. Gnrgy was established in Israel in 2008 and operates in the field of charging electric vehicles (e-mobility) and the installation of charging stations for electric vehicles. For further information, see “Item 4.B Business Overview—Our Businesses—OPC’s Description of Operations—Acquisition of Gnrgy Ltd.” |
Operations in the United States
OPC operateshas operated in the United States since January 2021, when an entity in which OPC indirectly holds a 70% stake,interest, acquired CPV from Global Infrastructure Management, LLC. The consideration for the acquisition was $648 million in cash, subject to post-closing adjustments based on closing date cash, working capital and debt. Additional consideration of $95 million was paid in the form of a vendor loan in respect of CPV’s 17.5% equity in the Three Rivers project, which is currently being developed. CPV subsequently reduced its interest in the Three River’s project to 10% and the consideration for the transaction and the amount of the seller’s loan was reduced accordingly. In addition to the $648 million consideration, on the completion date of the transaction, the buyer paid an additional $5 million for a deposit in the same amount held by CPV and subsequent to the completion date of the transaction, $5 million was provided by the buyer for replacement of a letter of credit issued by the seller for the CPV Keasbey project. The final consideration is subject to final closing adjustments to be completed within 120 days of closing of the acquisition.
CPV is engaged in the development, construction and management of renewable energy and conventional natural gas-fired power plants running conventional energy (powered by natural gas) and renewable energy in the United States. CPV was founded in 1999 and since the date of its establishment it has initiated and constructed power plants having an aggregate capacity of approximately 14,800 MW,15 gigawatts (GW), of which approximately 4,850 MW5 GWh consists of wind energy and another approximately 9,950 MW consist10 GW consists of conventional, natural gas-fired power plants. CPV holds ownership interests in active power plants it developed and constructed over the past years (both conventional, natural gas-fired and renewable energy): , as well as in a project backlog of renewable energy in advanced development stages and other projects using various technologies: in power plants powered by natural gas (of the open‑cycleopen-cycle type from an advanced generation), CPV’s proportionate ownership interest is approximately 1,290 MW out of 4,045 MW (5 power plants), and 152 MW in wind energy CPV’s proportionate ownership interestenergy. In addition, the share of CPV and its production capacity in projects that are currently under construction is approximately 106as follows: in a conventional natural gas-fired power plant, the share of CPV is 126 MW out of 152a total capacity of 1,258 MW (1 power plant) (the remaining 30% interest for this project was acquired by CPV on April 7, 2021).under construction and 126 MW in a solar energy project.
In October 2021, CPV entered into agreements to acquire the rights in 2017two solar projects under development in the PJM market in the United States, one in Kentucky (approximately 98 MW) and Financing Activitiesone in Illinois (approximately 360 MW).
OPC’s Share Issuances from 2019 to 2021
In August 2017, OPC completed an initial public offering in Israel, and a listing on the TASE, resulting in net proceeds to OPC of approximately $100 million and Kenon retaining 76%75.8% stake.
In 2019, 2020 and 2021, OPC issued new shares in multiple offerings:
In 2019, OPC issued a total of 11,028,240 new ordinary shares (representing approximately 8% of OPC’s issued and outstanding share capital at the time on a fully diluted basis) in two share issuances, for total cash consideration net of issuance expenses of approximately NIS 272 million (approximately $76 million). As a result of these share issuances, Kenon’s interest in OPC decreased from 75.8% to 69.8% (68.9% on a fully diluted basis).
In October 2020, OPC issued a total of 11,713,521 new ordinary shares (representing approximately 7.5% of OPC’s issued and outstanding share capital at the time on a fully diluted basis) for total (gross) consideration of NIS 350 million (approximately $103 million) to two institutional investors (the Clal Group and the Phoenix Group) in a private placement in connection with the acquisition of CPV.
Also in October 2020, OPC issued a total of 23,022,100 new ordinary shares (representing approximately 14.8% of OPC’s issued and outstanding share capital at the time on a fully diluted basis) for a total (gross) consideration of NIS 737 million (approximately $217 million) in a public offering. Kenon was allocated 10,700,200 shares in the public offering for a total purchase price of approximately $101 million.
In January 2021, OPC issued 10,300,000 ordinary shares (representing approximately 5.5% of OPC’s issued and outstanding share capital at the time on a fully diluted basis) to Altshuler Shaham and entities managed by Alsthuler Shaham in a private placement for a total (gross) consideration of NIS 350 million (approximately $107 million).
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In September 2021, OPC issued rights to purchase approximately 13 million OPC shares to fund the development and expansion of OPC’s activity in the U.S., with investors purchasing approximately 99.7% of the total shares offered in the rights offering. The gross proceeds from the offering amounted to approximately NIS 329 million (approximately $102 million). Kenon exercised rights for the purchase of approximately 8 million shares for total consideration of approximately NIS 206 million (approximately $64 million), which included its pro rata share and additional rights it purchased during the rights trading period plus the cost to purchase these additional rights.
As a result of these share issuances, including Kenon'sKenon’s participation in the October 2020 public offering and October 2021 rights offering, Kenon’s interest in OPC decreased from 69.8% to 58.2%is now 58.8%.
In April 2020, OPC issued debentures (Series B) at a par value of NIS 400 million (approximately $113 million) that are linked to the CPI and bear interest at the annual rate of 2.75%. The debentures are to be repaid in semi‑annual payments (on March 31, and September 30 of every calendar year), commencing from March 31, 2021 and up to September 30, 2028 (the first payment of interest falls on September 30, 2020).
In September 2021, OPC issued debentures (Series C) at a par value of NIS 851 million (approximately $266 million), bearing annual interest of 2.5%. The Series C bonds are repayable over 12 semi-annual payments (which repayment amounts vary, and range from 5% up to 16% of the total issued amount) commencing in February 2024 with the final payment in August 2030. OPC used the proceeds from the Series C bonds for the early repayment of project financing debt of OPC-Rotem.
Potential Transaction with Veridis
OPC owns a majority of the voting equity in OPC-Rotem (80%), and has entered into shareholders’ agreements with Veridis, the 20% minority shareholder of OPC-Rotem. The shareholders’ agreement grants Veridis certain minority rights, including veto rights over certain decisions. In February 2022, OPC has reached an understanding on a potential transaction with Veridis, pursuant to which, OPC would establish a new subsidiary to hold all of OPC’s business activities in the energy and electricity generation and supply sectors in Israel. Veridis would receive 20% of the shares of the new subsidiary in exchange for contributing its 20% interest in OPC-Rotem and cash in an amount equal to NIS 425 million (approximately $132 million) to the new subsidiary. Following completion of the potential transaction, OPC would hold 80%, and Veridis would hold the remaining 20%, of the new subsidiary, and the new subsidiary would hold 100% of OPC-Rotem and OPC’s other business activities in the energy and electricity generation and supply sectors in Israel.
Overview of OPC'sOPC’s Operations
Israel
The following table sets forth summary operational information regarding OPC’s main operations in Israel as of March 25, 2021:27, 2022:
| Amount of | Total | |||||||||||||||||
| OPC | estimated | |||||||||||||||||
| Power | investment | cost of the | ||||||||||||||||
| plants/ | in the | investment | ||||||||||||||||
| facilities | Installed | Current | project at | in the | ||||||||||||||
| for | electricity | OPC | COD/ | Main | 12/31/2020 | project | ||||||||||||
| generation | capacity | Ownership | Expected | customer/ | (NIS | (NIS | ||||||||||||
of energy | Status | (MW) | Interest | Location | Technology | COD | consumer | millions) | millions) | |||||||||
| Rotem Power Plant | Active | » 466 | 80% | Rotem plain | Conventional | July 2013 | Private customers and IEC | » 2,000 | – | |||||||||
| Hadera Power Plant | Active | » 144 | 100% | Hadera Industrial Zone | Cogeneration | July 2020 | Private customers and the System Administrator | » 9001 | – | |||||||||
| Energy Center which as at the submission date of the report is operated for supply of steam as a back up | On the premises of Hadera Paper Mills | |||||||||||||||||
| Zomet | Under construction | » 396 | 100% | Plugot Intersection | Conventional with open cycle | January 2023 | The System Administrator | » 694 | » 1,5002 | |||||||||
| Sorek 2 | In initiation | Up to 99 | 100% | On the premises of the Sorek B seawater desalination facility | Conventional | Second half of 2023 | Yard consumer and pursuant to EA regulations | » 1 | Up to 200 | |||||||||
| Facilities for generation of energy on the consumer’s premises | In various stages of development starting from initiation and up to construction | Every facility up to 16 megawatts (as at the submission date of the report, construction and operation agreements were signed for a total of 76 megawatts. The Company intends to take action to sign construction and operation agreements in a cumulative scope of at least 120 megawatts | 100% | On the premises of consumers throughout Israel | Conventional | The planned commercial operation dates are pursuant to the conditions provided in the agreements and in any case no later than 48 months from the signing date of the agreement3 | Yard consumers also including Group customers | » 12 | » an average of NIS 4 per megawatt |
| Project / activity | Capacity(1) (MW) | Ownership stake | Method of presentation in the financial statements of the Company | Location | Type of project / technology | Year of commercial operation | ||||||
| Rotem | 466 | 80% | Consolidated | Mishor Rotem | Natural gas, combined cycle | 2013 | ||||||
Hadera(2) | 144 | 100% | Consolidated | Hadera | Natural gas - cogeneration | 2020 |
Virtual Supply: as of March 27, 2022, supply of 110 MW to customers. OPC signed an intercompany agreement, intended to govern the settling accounts method following from OPC’s construction of generation facilities on OPC-Rotem customers’ premises.
| (1) | As stipulated in the relevant generation license |
| (2) | Hadera holds the Energy Center (boilers and turbines located at the premises of Infinya), which serves as back-up for steam generated by the Hadera power plant. From the end of 2020, the turbine at the Energy Center is not operating. |
Israel - Projects under Development and Construction
| Power plants / energy generation facilities | Status | Capacity (MW)(1) | Rate of holdings(2) | Location | Technology | Date / expected commercial operation date | Main customer/ consumer | Total expected construction cost (in NIS million) | Total investment cost as of December 31, 2021 (in NIS million) | |||||||||
| Tzomet | Under construction | 396 | 100% | Plugot Intersection | Conventional, open-cycle | Fourth quarter of 2023 | System Operator | 1,500(3) | 1,019(4) | |||||||||
| Sorek | Under construction | 87 | 100% | On the premises of the Sorek B seawater desalination facility | Cogeneration | Fourth quarter of 2023 | Onsite consumers and the System Operator | 200 | 22 | |||||||||
| Energy generation facilities on the consumers’ premises | various stages of development / construction | each facility - up to 16 MW. As to the filing date of the Report, build and operate agreements representing a total capacity of approx. 100 MW were signed. The Company intends to sign build and operate agreements representing a total capacity of approx. 120 MW. | 100%(5) | On consumers’ premises across Israel | Conventional, cogeneration, renewable energy (solar) and storage | As from 2022 | Onsite consumers also including Group customers | An average of about 4 per MW | 52 |
| (1) | As stipulated in the relevant generation license. |
| (2) | Companies consolidated in OPC’s financial statements. |
| (3) | The estimate of the costs, as stated, does not take into account half of the assessment issued by Israel Lands Authority in January 2021, in the amount of about NIS 200 million (not including VAT) (approximately $64 million) in respect of capitalization fees. OPC has filed a legal appeal of the final assessment. In August 2021, OPC was informed that the appeal was rejected by Israel Land Authority and as at March 27, 2022, OPC intends to continue the appraisal appeal procedures. |
| (4) | Not including amounts relating to milestones provided in the Tzomet power plant construction agreement that were partially completed. |
| (5) | OPC operates under an intercompany arrangement, intended to govern the settling accounts method following from OPC’s construction of generation facilities on OPC-Rotem customers’ premises (as of March 27, 2022, OPC-Rotem is 80%-held by OPC). |
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OPC sells energy in Israel through PPAs. The weighted average remaining life of OPC’s PPAs based on firm capacity, as of March, 25, 2021,2022, is approximately 6.56.2 years for OPC-Rotem and 11.49.9 years for OPC-Hadera (subject to the option for early termination), including a 25-year PPA with Hadera Paper mill.Infinya. The IEC PPA (as defined below), which extends for a 20-year term from COD of OPC-Rotem, provides OPC-Rotem with the option to allocate and sell the generated electricity of the power station directly to private customers. OPC-Rotem has exercised this option and sells all of its energy and capacity directly to private customers (i.e. customers other than the IEC), as of the date of this report. For further information on the IEC PPA, see “Item 4.B Business Overview—Our Businesses—OPC’s Description of Operations—Regulatory, Environmental and Compliance MattersMatters—Israel—OPC-Rotem’s Regulatory Framework.”
United States
The following table sets forth summary operational information regarding OPC’s United States operations (active projects), through its 70% ownership of CPV, as of March 25, 2021:1, 2022:
| CPV | Year of | ||||||||||||||||||||||
| Ownership | Fuel/ | Installed Capacity | commercial | ||||||||||||||||||||
Plant | Location | Interest | technology | (MW) | operation | Location | CPV Ownership Interest | Field/ technology | Installed Capacity (MW) | Year of commercial operation | |||||||||||||
| CPV Fairview | Pennsylvania | 25% | Natural gas, combined cycle | 1,050 | 2019 | Pennsylvania | 25% | Conventional natural gas-fired, combined cycle | 1,050 | 2019 | |||||||||||||
| CPV Towantic | Connecticut | 26% | Natural gas / two fuels, combined cycle | 805 | 2018 | Connecticut | 26% | Conventional natural gas-fired, dual fuel / two fuels, combined cycle | 805 | 2018 | |||||||||||||
CPV Maryland | Maryland | 25% | Natural gas, combined cycle | 745 | 2017 | Maryland | 25% | Conventional natural gas-fired, combined cycle | 745 | 2017 | |||||||||||||
CPV Shore | New Jersey | 37.53% | Natural gas, combined cycle | 725 | 2016 | New Jersey | 37.53% | Conventional natural gas-fired, combined cycle | 725 | 2016 | |||||||||||||
| CPV Valley | New York | 50% | Natural gas, combined cycle | 720 | 2018 | New York | 50% | Conventional natural gas-fired, dual-fuel, combined cycle | 720 | 2018 | |||||||||||||
| CPV Keenan II | Oklahoma | 70%1 | Wind | 152 | 2010 | Oklahoma | 100%1 | Wind | 152 | 2010 | |||||||||||||
| (1) | In April 2021, CPV acquired the remaining 30% interest in this project and, therefore, has 100% ownership interest. |
The power plants in which CPV has an interest generally sell their output on the spot market. CPV has in place hedging arrangements as described below.
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Industry Overview
Overview of Israeli Electricity Generation Industry
The following tables feature data on the share of private electricity producers and the IEC in the electricity market, as well as renewable energy production in 20182019 and 2019,2020, as published by the EA in the Report on the Condition of the Electricity Market for 2018 and 2019.EA.
December 31, 2019 | December 31, 2020 | |||||||||||||||
Installed Capacity (MW) | % of Total Installed Capacity in the Market | Installed Capacity (MW) | % of Total Installed Capacity in the Market | |||||||||||||
| IEC | 12,752 | 66 | % | 11,615 | 58 | % | ||||||||||
| Private electricity producers (without renewable energy) | 4,288 | 22 | % | 5,780 | 29 | % | ||||||||||
| Renewable energy (private electricity producers) | 2,326 | 12 | % | 2,549 | 13 | % | ||||||||||
| Total in the market | 19,366 | 100 | % | 19,944 | 100 | % | ||||||||||
December 31, 2019 | December 31, 2018 | |||||||||||||||
Installed Capacity (MW) | % of Total Installed Capacity in the Market | Installed Capacity (MW) | % of Total Installed Capacity in the Market | |||||||||||||
| IEC | 12,752 | 66 | % | 13,355 | 73 | % | ||||||||||
| Private electricity producers (without renewable energy) | 4,288 | 22 | % | 3,439 | 19 | % | ||||||||||
| Renewable energy (private electricity producers) | 2,326 | 12 | % | 1,424 | 8 | % | ||||||||||
| Total in the market | 19,366 | 100 | % | 18,198 | 100 | % | ||||||||||
Energy generated (thousands of MWh) | % of total generated in the market | Energy generated (thousands of MWh) | % of total generated in the market | |||||||||||||
| IEC | 47,784 | 66 | % | 44,333 | 61 | % | ||||||||||
| Private electricity producers (without renewable energy) | 21,359 | 29 | % | 24,308 | 33 | % | ||||||||||
| Renewable energy (private electricity producers) | 3,334 | 5 | % | 4,150 | 6 | % | ||||||||||
| Total in the market | 72,476 | 100 | % | 72,791 | 100 | % | ||||||||||
Energy generated (thousands of MWh) | % of total generated in the market | Energy generated (thousands of MWh) | % of total generated in the market | |||||||||||||
| IEC | 47,784 | 66 | % | 47,900 | 69 | % | ||||||||||
| Private electricity producers (without renewable energy) | 21,359 | 29 | % | 19,232 | 28 | % | ||||||||||
| Renewable energy (private electricity producers) | 3,334 | 5 | % | 2,038 | 3 | % | ||||||||||
| Total in the market | 72,476 | 100 | % | 69,170 | 100 | % | ||||||||||
Sales of IPPs are generally made on the basis of PPAs for the sale of energy to customers, with prices predominantly linked to the tariff published by the EA and denominated in NIS. The EA operates a “Time of Use” tariff, which provides different energy rates for different seasons (e.g., summer and winter) and different periods of time during the day. Within Israel, the price of energy varies by season and demand period, with tariffs varying based upon the season—summer (July, August), winter (January, February, December) and transition (March-June, September-November)—and demand (peak, shoulder and off-peak).
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In January 2021,2022, the EA published the electricity tariffs for 2021,2022, which included a decreasean increase of the EA’s generation component tariff by approximately 5.7%13.6%. On February 27, 2022, the EA issued a hearing on the update of the electricity tariff for 2022, where it was proposed that the production component (subject to a final decision) be lowered to 27.64 agorot, which is an increase of approximately 9.4% from 2021, instead of an increase of approximately 13.6% mentioned above. OPC-Hadera’s and OPC-Rotem’s gas prices were at the minimum price induring 2021 and until January 2022 (OPC-Rotem) and February 20212022 (OPC-Hadera), and for OPC-Rotem mayare expected to be (and for OPC-Hadera will be) atabove the minimum price for the remainder of 2021.2022. This decreaseincrease in the EA generation component is expected to have a negativepositive impact on OPC'sOPC’s profits in 20212022 compared with 2020.2021.
Estimates
| |
| New installed (gas fired) capacity with gas | 1,400-4,000 |
| Sale of IEC sites that have not yet been sold in accordance with sector reform | |
| Total additional potential private capacity |
The IEC has been classified by the Electricity Sector Law as an “essential service provider” and, as such, is subject to basic obligations concerning management of the Israeli power utility market. These obligations include the filing of development plans, management of Israel’s power system, management of Israel’s power transmission and distribution systems, provision of backup and infrastructure services to IPPs and consumers, and the purchase of power from IPPs. The IEC also transmits all of the electricity in Israel.
Pursuant to the Israeli Government’s electricity sector reform, among other things, (i) the IEC will be required to sell five power plants (currently threetwo plants remain to be sold) through a tender process over a period of 7 years, which is expected to reduce the IEC'sIEC’s market share to below 40% (ii) the IEC will cease acting as the System AdministratorOperator and (iii) certain limitations will be imposed on entities participating in the tender process as well as in overall capacity held by a single entity in the market. Furthermore, the IEC is permitted to build and operate two new gas-powered stations (through a subsidiary), but is not authorized to construct any new stations or recombine existing stations. This reform is expected to increase IPPs’ presence in the market and lead to further industry competition. The IEC’s Alon Tabor power plant was sold in 2019, and the Ramat Hovav power plant was sold in 2020.2020, and sale of Hagit East site is expected to be completed in 2022. OPC submitted purchase bids as partdid not participate in the tender for the sale of both tenders but was not the winning bidder.Hagit East generation site.
In addition, in July 2021, to increase competition for the supply of energy by opening up the supply segment of the electricity market to suppliers that lack their own means of generating electricity (“virtual supply”), the EA published the terms of the license for energy supplied as virtual supply (a “Virtual Supply License”) and provided that such license would come into effect on September 1, 2021. In July 2021, OPC and Gnrgy were each granted Virtual Supply Licenses. From September 2021, OPC had secured customers in respect of 110MW of virtual supply.
For further information on Israel’s regulatory environment, see “—Item 4.B Business Overview—Our Businesses—OPC—OPC’s Description of Operations—Regulatory, Environmental and Compliance Matters.Matters.” For information on the risks related to changes in Israel’s regulatory environment, see “Item 3.D Risk Factors—Risks Related to OPC—Changes inOPC’s Israel operations—OPC’s profitability depends on the EA’s electricity rates may reduce OPC’s profitability” and “Item 3.D Risk Factors—Risks Related to OPC—OPC’s Israel operations—OPC’s operations in Israel are significantly influenced by regulations.”
Overview of United States Electricity Generation Industry
The electricity market in the United States, in which CPV operates, is the largest private electricity market in the world with about 1,100installed capacity of approximately 1,117 gigawatts of generation facilities. The generation mix has changed significantly over the last several years. In 2016, natural gas overtook coal as the primary fuel source for electricity production in the United States, after coal comprised over 50% of the electricity supply since the 1980s. These changes have been driven by federal and state environmental policies, as well as the relative cost of the fuel sources and the advancement in technologies. These factors also have greatly contributed to the growth in renewable technologies over the last several years.
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The transition in the United States to renewable energy and lower carbonlower-carbon emitting generation has been accelerating in recent years. While hydroelectricHydroelectric generation has been a mainstay of the industry from its early days, and certain parts of the country have a significant resource base thereto. In the last decade there is an accelerationhas been a significant reduction in coal use, mainly due to entrance of efficient dual-fueled power stations, but coal still constitutes more than 20% of the total electricity generation in the United States. In recent years there has been a major growth of wind and solar power plants. A key factor driving the increase in renewable technologies are state policies supporting the decarbonization of the economy which includes energy, transportation, and heating. ThirtySome thirty states have enacted mandatory generation targets for the percentage ofusing renewable energy to support state demand, and others have policy goals that target reductions in CO2targets aimed at reducing CO2 emissions over time. State run programsPlans implemented by states for renewable energy development require local utilitiesutility companies to procureacquire a percentagecertain rate of powerelectricity from renewable resourcessources through certification programs typicallyplans commonly referred to as RECs, (Renewable Energy Certificates), which are tradable on a number of exchanges throughout the country.
Federal regulations require the reporting of greenhouse gas emissions under the federal Clean Air Act (“CAA”). Federal regulations also impose limits on CO2 emissions from new (commenced construction after January 8, 2014) or reconstructed (commenced reconstruction after June 8, 2014) combined-cycle power plants. States may also impose additional regulations or limitations on such emissions. For example, CPV’s conventional natural gas-fired power plants in Connecticut, New York, New Jersey and Maryland are subject to the Regional Greenhouse Gas Initiative (“RGGI”), which requires CPV’s conventional natural gas-fired plants to obtain, either through auctions or trading, greenhouse gas emission allowances to offset each facility’s emission of CO2. Pennsylvania is also expected to apply the RGGI regulation in 2022, although the official date of implementation is not known as of the date of this report. Under RGGI, an independent market monitor provides oversight of the auctions for CO2 allowances, as well as activity on the secondary market, to ensure integrity of, and confidence in, the market. In 2021, the minimum price that CO2 allowances could be sold for was $2.38 per allowance.
In addition, federal and state tax policies have incentivized investment in certain renewable technologies through Production Tax Credits (PTC), which provide a tax benefit for every KW/h generated during a ten-year period and through Investment Tax Credits (ITC), which provide tax benefits based upon the amount of investment made in a project.
For discussions on the PJM market, see “Item 4.B Business Overview—Our Businesses—OPC—OPC’s Description of Operations—Regulatory, Environmental and Compliance Matters—United States—The PJM market.”
OPC’s Description of Operations
OPC operates power generation plants in Israel and, with the acquisition of CPV in January 2021, in the United States. In particular, OPC has two main areas of activity: (i) generation and supply of electricity and energy in Israel; and (ii) generation and supply of energy in the United States. In 2021, OPC acquired Gnrgy, a company specializing in e-mobility charging stations in Israel. See below a description of OPC’s operations by geography. For an overview of certain key historical financial and operational information for OPC see “Item 5. Operating and Financial Review and Prospects—Business Overview—OPC.OPC.”
Israel
OPC’s operations in Israel include power generation plants that operate on natural gas and diesel. As of December 31, 2020,2021, OPC’s installed capacity was up to 610 MW. OPC’s operations in Israel consist of two power plants in operation: OPC-Rotem and OPC-Hadera, and one plant under construction, Tzomet.
OPC-Rotem
OPC’s first power plant, OPC-Rotem, a combined cycle power plant with an installed capacity of 466 MW (based on OPC-Rotem’s generation license), commenced commercial operations in Mishor Rotem, Israel in July 2013. The power plant utilizes natural gas, with diesel oil and crude oil as backups. OPC has an 80% equity interest in OPC-Rotem.
OPC-Hadera
OPC’s second power plant, OPC-Hadera operates a cogeneration power station in Israel with capacity of approximately 144 MW, which reached its COD on July 1, 2020 and owns the Energy Center, which consists of boilers and a steam turbine. The Energy Center currently serves as backup for the OPC-Hadera power plant’s supply of steam. Its turbine is not currently operatingIn December 2020, between January and is not expected to operate with generation of more than 16MW. The total investmentMay 2021, and in constructionNovember and December 2021, some components of the OPC-Hadera power plantgas turbines were replaced and infrastructurerefurbished, as part of OPC-Hadera (includingscheduled work, and additional maintenance works were completed on the Energy Center) amountedsteam turbine. Following the replacement and renovation, the gas turbines function as expected from such turbines. In addition, in May 2022, additional maintenance work is scheduled to about NIS 0.9 billion (approximately $0.3 billion).be performed on the steam turbine, for a period estimated at 60 days.
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Tzomet
OPC owns 100% of Tzomet, which is developing a natural gas-fired open-cycle power station in Israel with capacity of approximately 396 MW. The Tzomet plant will be a “peaking” facility and all capacity will be sold to the IEC. In April 2019, the EA granted Tzomet a conditional license for a 66-month term (which can be extended, subject to conditions) for the construction of a 396MW396 MW conventional open-cycle power plant. Tzomet’s conditional license remains subject to conditions set forth under the conditional license, including construction of the plant, as well as for the receipt of a permanent generation license upon expiration of the conditional license. If Tzomet is unable to meet such conditions this could result in a delay or inability to complete the project. In February 2020, the EA notified OPC that financial closing for the Tzomet project had been met. During 2020, the construction of the Tzomet power plant commenced. OPC expects that the Tzomet plant will reach its COD in January 2023 and that the total cost of completing the Tzomet plant will be approximately NIS 1.5 billion (approximately $0.5 billion) (excluding NIS 100200 million, i.e. half of the tax assessment received with respect to the land). As of December 31, 2020,2021, OPC had invested approximately NIS 6941,019 million (approximately $216$328 million) in the project.
OPC has participated in the past and will consider participating in future tenders, including the IEC tenders. However, there is no certainty that OPC will participate in such tenders or that it will be successful.
See “Item 3.D Risk Factors—Risks Related to OPC—OPC’s Israel operations—OPC faces risks in connection with the expansion of its business” and “Item 3.D Risk Factors—Risks Related to OPC—OPC’s Israel operations—OPC faces competition in Israel from other IPPs.”
Construction of energy generation facilities on the premises of consumers
OPC has engaged several consumers (including consumers that were successful in the EA’s tender) in agreements through the installation and operation of generation facilities (natural gas) on the premises of consumers for capacity of approximately 76MW,90 MW, as well as arrangements for the sale and supply of energy to consumers. Once completed,Upon completion, OPC will sell electricity from the generation facilities to the consumers for a period of approximately 15-20 years from the COD of the generation facilities. The planned COD dates are in accordance with the conditions provided in the agreements, butand not later than 48 months from the execution date of the relevant agreement. The total amount of OPC’s investment depends on the number of arrangements entered into and is expected to be an average of NIS 4 million (approximately $1 million) for every installed MW. OPC has also entered into construction agreements and agreements for supply of motors for the generation facilities with a total capacity of approximately 41 MW. As of December 31, 2020,2021, OPC’s investment in such generation facilities amounted to approximately NIS 1252 million (approximately $4$17 million).
Sorek 2
In May 2020, OPC, through its wholly owneda wholly-owned subsidiary, won a build-operate-transfer (BOT) tender with the State of Israel for the construction, operation and maintenance of a seawater desalination plant, in an agreement which states that OPC will construct, operate and maintain a natural gas-fired cogeneration power plant with a capacity of up to 99MW87MW at the premises of the desalination plant, and sell electricity to the desalination plant for a period of 25 years, following which ownership of the power plant will be transferred to the State of Israel. OPC has committed to construct the plant within 24 months from the approval date of the national infrastructure plan (which has yet to be received)was approved in November 2021). OPC is currently in the process of entering into an equipment supply agreement, a construction agreement and a maintenance agreement, which will be subject to approval by the Seawater Desalination Authority. OPC estimates that the construction period for the plant will end in the second halffourth quarter of 2023. The plant is expected to operate in accordance with the EA’s regulations. Excess capacity beyond that used by the desalination plant is expected to be sold to the System Administrator.Operator.
Gnrgy
In 2021, OPC expanded its business into management of energy for electric vehicles by acquiring a 51% interest in Gnrgy, a company engaged in electric vehicles charging (e-mobility) and the installation of charging stations for electric vehicles in Israel. In July 2021, the EA granted Virtual Supply License to Gnrgy.
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The following table sets forth summary operational information for OPC’s operating plants in Israel as of and for the year ended December 31, 2021:
Entity | Installed Capacity (MW) | Net energy generated (GWh) | Availability factor (%) | |||||||||
| OPC-Rotem | 466 | 3,726 | 98.88 | % | ||||||||
| OPC-Hadera | 144 | 769 | 84 | % | ||||||||
| OPC Total | 610 | 4,495 | ||||||||||
The following table sets forth summary operational information for OPC’s operating plants in Israel as of and for the year ended December 31, 2020:
Entity | Installed Capacity (MW) | Net energy generated (GWh) | Availability factor (%) | |||||||||
| OPC-Rotem | 466 | 3,321 | 92 | % | ||||||||
| OPC-Hadera | 144 | 431 | 79 | % | ||||||||
| OPC Total | 610 | 3,752 | ||||||||||
Entity | Installed Capacity (MW) | Net energy generated (GWh) | Availability factor (%) | |||||||||
| OPC-Rotem | 466 | 3,321 | 92 | % | ||||||||
| OPC-Hadera | 144 | 431 | 79 | % | ||||||||
| OPC Total | 610 | 3,752 | ||||||||||
The following table sets forth summary operational information for OPC’s operating plants in Israel as of and for the year ended December 31, 2019:
Entity | Installed Capacity (MW) | Net energy generated (GWh) | Availability factor (%) | |||||||||
| OPC-Rotem | 466 | 3,727 | 99 | % | ||||||||
| OPC-Hadera (Energy Center) | 18 | 84 | 94 | % | ||||||||
| OPC Total | 484 | 3,811 | ||||||||||
The following table sets forth summary operational information for OPC’s operating plants in Israel as of and for the year ended December 31, 2018:
Entity | Installed Capacity (MW) | Net energy generated (GWh) | Availability factor (%) | |||||||||
| OPC-Rotem | 466 | 3,299 | 87 | % | ||||||||
| OPC-Hadera (Energy Center) | 18 | 84 | 94 | % | ||||||||
| OPC Total | 484 | 3,383 | ||||||||||
The following summaries provide a description of OPC’s businesses in Israel.
OPC-Rotem
OPC has an 80% stake in OPC-Rotem. The remaining 20% is held by Veridis, which is indirectly controlled by Delek Automotive Systems Ltd. OPC-Rotem commenced operations in July 2013 in Mishor Rotem industrial zone in the south of Israel. The OPC-Rotem plant was constructed for an aggregate cost of approximately $508 million. OPC-Rotem’s plant has a capacity of 466 MW (based on OPC-Rotem’s generation license).
In February 2022, OPC has reached an non-binding understanding on a potential transaction with Veridis, pursuant to which, OPC would establish a new subsidiary to hold all of OPC’s business activities in the energy and electricity generation and supply sectors in Israel. Veridis would receive 20% of the shares of the new subsidiary in exchange for contributing its 20% interest in OPC-Rotem and cash in an amount equal to NIS 425 million (approximately $132 million) to the new subsidiary. Following completion of the potential transaction, OPC would hold 80%, and Veridis would hold the remaining 20%, of the new subsidiary, and the new subsidiary would hold 100% of OPC-Rotem and OPC’s other business activities in the energy and electricity generation and supply sectors in Israel. The potential transaction is subject, inter alia, to entering into a binding agreement between the parties and other arrangements and conditions, which remain uncertain.
Gas Supply Agreements
The power plants owned by OPC in Israel as of March 27, 2022 use natural gas as their primary fuel, with diesel fuel and fuel oil as backup.
OPC-Rotem purchases natural gas from the Tamar Group, pursuant to a natural gas supply agreement that expires upon the earlier of June 2029 or the date on which OPC-Rotem consumes the entire contractual capacity. The EA’s generation component tariff is the base for the natural gas price linkage formula in the agreement between OPC-Rotem and the Tamar Group. According to the agreement with the Tamar Group, OPC-Rotem has the option to decrease the daily contractual gas amount to a specific amount set forth in the agreement between 2020 and 2022, such that the minimum consumption from the Tamar Group constitutes 50% of the average gas consumption in the three years preceding the notice of the option exercise. This agreement was amended in 2019, reducing the minimum consumption to 40%, extending the time period when the option can be exercised, and increasing certain gas consumption commitments of OPC-Rotem until the end of the Karish gas reservoir commissioning (at which time gas supply from Energean — see below- is expected to be available). The amendment was intended to allow a reduction in the quantity of gas purchased under the agreement with Tamar Group and increase in the quantity purchased under the terms of the agreement with Energean (described below) with the purpose of decreasing the overall gas price of OPC. The amendment is also expected to increase OPC-Rotem’s cumulative annual take-or-pay obligations. Commencing in March 2020, OPC-Rotem was required to purchase minimum amounts of gas pursuant to the agreement (“take-or-pay” obligation).
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In December 2017, OPC-Rotem signed an agreement for the purchase of natural gas with Energean Israel Ltd., or Energean. Pursuant to this agreement, OPC-Rotem has agreed to purchase from Energean 5.3 billion m3 of natural gas over a period of fifteen years (subject to adjustments based on their actual consumption of natural gas) or until the date of consumption of the full contractual quantity, commencing at the commercial operation date of the Energean natural gas reservoir. In 2019, the agreement between OPC-Rotem and Energean was amended to increase the daily and annual gas consumption from Energean, while keeping the same total contractual gas quantity. The supply period was shortened from fifteen years to ten years (unless(and shorter if the total contractual quantity is supplied earlier). Further to notices issued to OPC in 2020 byIn 2020-2021, Energean claiming “force majeure events” under its agreement, in September 2020, Energean issued an additional notice to OPC claiming force majeure events under its agreement and indicating that it expects flowingnotified OPC-Rotem of the first gas from the Karish reservoir to take placedelay in the second half of 2021. OPC rejected the force majeure contentions under the agreements. According to Energean's January 2021 publications, flowingsupply of gas from the Karish reservoir, contending that COVID-19 related force majeure events have delayed the commercial operation of the Karish reservoir. According to their report, Energean believes that the “first gas” from the Karish reservoir is now expected to take place duringin the fourththird quarter of 2021. This projection requires an increase in workforce in order to be attained, and if such increase is not effected the flowing of gas may be further delayed. In February 2021, as part of issuance of bonds by Energean, Moody’s published a report stating that the full2022. The commercial operation date of the Karish reservoir may be delayed tobeyond the secondexpected date of the third quarter of 2022. There2022, and there is no guaranteecertainty that OPC-Rotem may be able to recover damage from Energean to cover damages (direct or indirect) incurred as a result of the delay. During 2021, OPC-Rotem was paid NIS 9 million (approximately $3 million) in respect of the delay in the supply of gas supply will be available byfrom the stated timeframes or at all.Karish reservoir.
Electricity Sales
OPC-Rotem has a PPA with IEC, the government-owned electricity generation, transmission and distribution company in Israel, or the IEC PPA (which will be assigned by IEC to the System Administrator)Operator). The term of the IEC PPA is for 20 years after the power station’s COD (which was in 2013). According to the agreement, OPC-Rotem is entitled to operate in one of the following two ways (or a combination of both, subject to certain restrictions set in the agreement): (1)(i) provide the entire net available capacity of its power station to IEC or (2)(ii) carve out energy and capacity for direct sales to private consumers. OPC-Rotem has allocated the entire capacity of the plant to private consumers since COD. As of December 31, 2020,2021, OPC-Rotem supplies energy to 36approximately 40 private customers according to PPAs. OPC manages sales of electricity from the OPC-Rotem power plant in a manner that is intended to permit flexibility in the sale of electricity to its customers (for example by means of suspending from time to time the sale of the electricity). Under the IEC PPA, OPC-Rotem can also elect to revert back to supplying to IEC instead of private customers, subject to twelve months’ advance notice. In addition, some of OPC-Rotem’s customers have entered into agreements with OPC for construction and operation of energy generation facilities, whereby supply of the electricity will be made by the energy generation facility and OPC-Rotem, see “-“Item 4.B Business Overview—Our Businesses—OPC—OPC’s Description of Operations—Israel—Construction of energy generation facilities on the premises of consumers.”
Maintenance
Mitsubishi provides the long-term servicing of the power station, for a term of 100,000 hours of operation, or until the date on which 8 planned gas turbine treatments are completed (OPC estimates that this is a period of 12 years). OPC’s long-term service agreement with Mitsubishi includes timetables for performance of the maintenance work, including “major overhaul” maintenance, which is to be performed every six years. Regular maintenance work is scheduled to be completed approximately every 18 months. The most recent regularly scheduled maintenance was scheduled for the second quarter of 2020, but this was delayed due to COVID-19 related restrictions. In April 2020, OPC-Rotem shut down the power plant for a number of days in order to perform internally‑initiated technical tests and treatments. These shutdowns and delay in the timing of the planned maintenance work did not have a significant impact on the generation activities of the OPC-Rotem power plant and its results. In October 2020, Mitsubishi carried out maintenance work, as planned. The execution of maintenance work required thirteen days during which the activities of the Rotem Power Plant were halted. The nextlatest regular maintenance work is expectedthat was scheduled to take place in October 2021 has now been rescheduled to take place in April 2022, during which the plant’s operations are expected to be suspended for 18approximately 20 days.
Shareholder Agreement
OPC has entered into a shareholders’ agreement which grants minority rights to OPC Rotem’sOPC-Rotem’s minority shareholder. For further information on OPC’s shareholders’ agreements, see “—“Item 4.B Business Overview—Our Businesses—OPC—OPC’s Description of Operations—Shareholders’ Agreements.”
OPC-Hadera
OPC owns 100% of OPC-Hadera, which operates a cogeneration power plant in Israel with capacity of approximately 144 MW and owns the Energy Center, which consists of boilers and a steam turbine. The Energy Center currently serves as back-up for the OPC-Hadera power plant’s supply of steam and its turbine is not currently operating and is not expected to operate with generation of more than 16MW. The cogeneration power plant reached its COD on July 1, 2020. In June 2020, the EA granted a permanent license to the OPC-Hadera power plant for generation of electricity using cogeneration technology having installed capacity of 144 MW and a supply license. The generation license is for a period of 20 years, as is the supply license so long as a valid generation license is held (the generation license may be extended by an additional 10 years). Certain components of the gas and steam turbines were subject to replacement, repair or improvement work during December 2020 and early 2021, and additional necessaryin November and December 2021, maintenance work was performed in the steam turbines. Accordingly, in 2021, there were 74 maintenance days during which the power plant operated at partial capacity. Additional maintenance work is expected in the rest of 2021. During performance of such work, the power plant is expected to be operated partially.May-June 2022 in OPC-Hadera.
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OPC-Hadera leases from Hadera PaperInfinya the land on which the power generation plant is located for a period of 24 years and 11 months from December 2018.
EPC Contract
In January 2016, OPC-Hadera entered into an EPC contract with an EPC contractor, IDOM, for the design, engineering, procurement and construction of the cogeneration power plant (as well as amendments to the agreement that were subsequently signed). The total consideration, following amendments made to the agreement in 2018, is estimated at NIS 639 million (approximately $185 million), payable upon achievement of certain milestones. The agreement contains a mechanism for the compensation of OPC-Hadera in the event that IDOM fails to meet its contractual obligations under the agreement. Furthermore, IDOM has provided bank guarantees and
On July 1, 2020, the commercial operation date of the Hadera power plant commenced after a corporate guarantee has been provided by its parent company to secure IDOM's obligations, and OPC has provided IDOM a guarantee to secure part of OPC-Hadera's liabilities. Due to delaysdelay in the plant’s COD, OPC estimates that partcompletion of construction as a result of, among other things, components replaced or repaired. As of the costs resultingdate of this report, the reimbursements from the delay, including lost profits, are expected to be covered by its insurance policy as well aspolicies and/or compensation from the construction contractor but hashave not been received such reimbursements(except for amounts unilaterally offset by OPC against payments to date.the construction contractor in respect of the delay in operation, and non-compliance with the power plant’s performance). There is no certainty that OPC will be able to receive reimbursementsreimbursed and/or compensationcompensated for the full amount of its direct and indirect damages.damages, and OPC-Hadera has filed an arbitration proceeding against the contractor.
Sales of Electricity and Steam
OPC-Hadera’s power plant supplies the electricity and steam needs of Hadera Paper’sInfinya’s facility and provides electricity to private customers in Israel. It also sells electricity to the IEC. The power plant operates using natural gas as its energy source, and diesel oil and crude oil as backups. As a cogeneration plant which supplies electricity and steam in a single production process, based on the construction contractor’s estimates, OPC-Hadera’s power plant is expected to have a relatively high level of energy utilization.
OPC-Hadera has entered into a PPA with Hadera PaperInfinya for supply of all of Hadera Paper’sInfinya r’s electricity and steam needs for a period of 25 years. The agreement provides a minimum quantity of steam to be purchased by Hadera PaperInfinya (“take-or-pay”), which will be subject to adjustment. The Energy Center currently serves as back‑upback-up for the OPC-Hadera power plant’s supply of the steam.
In addition to this agreement, OPC-Hadera has entered into PPAs with up to 20 other private customers. Such agreements include a compensation mechanism in case of delay in the COD of the power plant and for non-availability of the power plant below a minimum level. In light of the delay in the COD of the power plant to July 2020, Hadera has paid its customers compensation. In addition, some of OPC-Hadera’s customers have entered into agreements with OPC for construction and operation of energy generation facilities, whereby supply of the electricity will be made by the energy generation facility and OPC-Hadera, see “—“Item 4.B Business Overview—Our Businesses—OPC—OPC’s Description of Operations—Israel—Construction of energy generation facilities on the premises of consumers.”
Gas Supply Agreements
In 2012, Hadera PaperInfinya entered into an agreement with the Tamar Group for the supply of natural gas, which has been assigned to OPC-Hadera. This gas supply agreement expires upon the earlier of April 2028 or the date on which OPC-Hadera consumes the entire contractual capacity. Both contracting parties have the option to extend the agreement, under certain conditions. The price of gas is linked to the weighted average of the generation component tariff published by the EA, and it is also subject to a price floor. According to the agreement, the gas shall be supplied on a firm basis, and includes a take-or-pay obligation, by OPC-Hadera. In addition, according to the agreement, OPC-Hadera has the option to effectively reduce the purchased gas quantities by approximately 50%, subject to certain conditions.
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In September 2016, OPC-Hadera entered into another gas supply agreement with the Tamar Group. The gas supply agreement will expire at the earlier of fifteen years from January 2019 on the date on which OPC-Hadera consumes the entire contractual capacity. Both parties have the option to extend the agreement, under certain conditions. OPC-Hadera also has the right to terminate this agreement, which it may elect to do in connection with the Energean agreement described below. The price of gas is linked to the weighted average of the generation component tariff published by the EA, and it is also subject to a price floor. According to the agreement, the gas will be supplied on an interruptible basis, and the Tamar Group shall not be responsible for failures in the requested gas supply levels. The Tamar Group may decide to switch the supply to a firm basis. In the event of such a decision and from the date of the change in supply mechanism, OPC-Hadera will be subject to a take-or-pay obligation. OPC-Hadera also has the option to sell gas surplus to other customers, including related parties, subject to limitations. In 2019, this agreement was amended reducing the minimum consumption to 30%, extending the time period when the option can be exercised, and increasing certain gas consumption commitments of OPC-Hadera until the end of the Karish gas reservoir commissioning (at which time gas supply from Energean — see below- is expected to be available). The amendment was intended to allow a reduction in the quantity of gas purchased under the agreement with Tamar Group and increase in the quantity purchased under the terms of the agreement with Energean (as described below) with the purpose of decreasing the overall gas price of OPC.
In December 2017, OPC-Hadera signed an agreement for the purchase of natural gas with Energean. Pursuant to this agreement, OPC-Hadera has agreed to purchase from Energean 3.7 billion m3 of natural gas for a period of fifteen years (subject to adjustments based on their actual consumption of natural gas) or until the date of consumption of the full contractual quantity, commencing at the commercial operation date of the Energean natural gas reservoir. In 2019, this agreement was amended to increase the daily and annual gas consumption from Energean, while keeping the same total contractual gas quantity. The supply period was shortened from fifteen years to ten years (unless the total contractual quantity is supplied earlier). Further to notices issued to OPC in 2020 byIn 2020-2021, Energean claiming “force majeure events” under its agreement, in September 2020, Energean issued an additional notice to OPC claiming force majeure events under its agreement and indicating that it expects flowingnotified OPC-Hadera of the first gas from the Karish reservoir to take placedelay in the second half of 2021. OPC rejected the force majeure contentions under the agreements. As stated in Energean's January 2021 publications, flowingsupply of gas from the Karish reservoir, contending that COVID-19 related force majeure events have delayed the commercial operation of the Karish reservoir. According to their report, Energean believes that the “first gas” from the Karish reservoir is now expected to take place duringin the fourththird quarter of 2021. This projection requires an increase in workforce in order to be attained, and if such increase is not effected the flowing of gas may be further delayed. In February 2021, as part of issuance of bonds by Energean, Moody’s published a report stating that the full2022. The commercial operation date of the Karish reservoir may be delayed tobeyond the secondexpected date of the third quarter of 2022. There2022, and there is no guaranteecertainty that OPC-Hadera may be able to recover damage from Energean to cover damages (direct or indirect) incurred as a result of the delay. During 2021, OPC-Hadera was paid NIS 7 million (approximately $2 million) in respect of the delay in the supply of gas supply will be available byfrom the stated timeframes or at all.Karish reservoir. For further information on OPC-Hadera’s gas supply agreements, see “—“Item 4.B Business Overview—Our Businesses—OPC—OPC’s Description of Operations—OPC’s Raw Materials and Suppliers.”
OPC-Hadera had entered into an agreement with an unrelated third party for the sale of surplus quantities of gas to be supplied to it under the agreement between Energean and OPC-Hadera. As from January 2022, the agreement was cancelled.
Maintenance
In June 2016, OPC-Hadera entered into a maintenance agreement with General Electric International Ltd., or GEI, and GE Global Parts & Products GmbH, or GEGPP pursuant to which these two companies will provide maintenance treatments for the two gas turbines of GEI, generators and auxiliary facilities of the OPC-Hadera plant for a period commencing on the date of commercial operation until the earlier of: (a) the date on which all of the covered units (as defined in the service agreement) have reached the end-date of their performance and (b) 25 years from the date of signing the service agreement. The service agreement contains a guarantee of reliability and other obligations concerning the performance of the OPC-Hadera plant and indemnification to OPC-Hadera in the event of failure to meet the performance obligations. OPC-Hadera has undertaken to pay bonuses in the event of improvement in the performance of the plant as a result of the maintenance work, up to a cumulative ceiling for every inspection period.
Tzomet
In February 2020, financial closing for the Tzomet project was met and in 2020, the construction of the Tzomet power plant commenced. OPC expects that the Tzomet plant will reach its COD by January 2023 and that the total cost of completing the Tzomet plant will be approximately NIS1.5NIS 1.5 billion (approximately $0.5 billion) (excluding NIS 100200 million, i.e. half of the tax assessment received with respect to the land). As of December 31, 2020,2021, OPC had invested approximately NIS 6941,019 million (approximately $216$328 million) in the project.
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Sales of Electricity
As opposed to generation facilities with an integrated cycle that operate during most of the hours in the year, the Tzomet plant will be an open-cycle power plant (Peaker plant). Peaker plants are generally planned to operate for a short number of hours during the day, where there is a gap in the demand and supply of electricity, e.g., at peak demand times. They act as backup plants whose purpose is to provide availability in times of peak demand, such as when other generation facilities break down, or as supplements when solar energy is unavailable. Therefore, as opposed to OPC-Rotem and OPC-Hadera, which enter into PPAs to sell power to private customers, Tzomet will sell all of its capacity to the IEC, acting as a Peaker plant.
In January 2020, Tzomet entered into a PPA with IEC, the government-owned electricity generation, transmission and distribution company in Israel, or the Tzomet PPA (in October 2020, Tzomet received notice of assignment by IEC to the System Administrator).PPA. The term of the Tzomet PPA is for 20 years after the power station’s COD. According to the terms of the Tzomet PPA, (1)(i) Tzomet will sell energy and available capacity to IEC and IEC will provide Tzomet infrastructure and management services for the electricity system, including back-up services, (2)(ii) all of the Tzomet plant’s capacity will be sold pursuant to a fixed availability arrangement, which will require compliance with criteria set out in relevant regulation, (3)(iii) the plant will be operated pursuant to the System Administrator’sOperator’s directives and the System AdministratorOperator will be permitted to disconnect supply of electricity to the grid if Tzomet does not comply with certain safety conditions and (4)(iv) Tzomet will be required to comply with certain availability and credibility requirements set out in its license and relevant regulation, and pay penalties for any non-compliance. Once the Tzomet plant reaches its COD, its entire capacity will be allocated to the System AdministratorOperator pursuant to the terms of the Tzomet PPA, and Tzomet will not be permitted to sign agreements with private customers unless the electricity trade rules are updated.
Under the establishment of the System Operator as part of the IEC Reform, in October 2020, Tzomet received notice that its PPA with the IEC has been re-assigned to Noga.
Gas Supply Agreement
In December 2019, Tzomet entered into an agreement with Israel Natural Gas Lines, or INGL for the transmission of natural gas to the Tzomet power plant. The agreement is subject to cancellation under certain conditions. Construction workOPC provided a corporate guarantee in connection with Tzomet’s obligations under the agreement. In January 2021, INGL revised and increased the total connection fee to NIS 32 million (approximately $10 million). According to the agreement, has not yet commenced. OPC’s management estimates thatthe expected commencement of the transmission price under the agreement will be NIS 25 million (approximately $7 million) per year.is 25-29 months from December 2019.
Maintenance Agreement
In December 2019, Tzomet entered into a long-term maintenance agreement with PW Power Systems LLC or PW.(“PW”). Pursuant to the agreement, PW will provide maintenance treatments to the Tzomet plant generators, turbines, and additional equipment for a period of 20-years commencing on the date of commercial operation of the Tzomet plant.
EPC Contract
Tzomet has entered into an EPC agreement with PW for construction of the Tzomet project. Pursuant to this agreement, PW committed to provide certain maintenance services in connection with the power station’s main equipment for a period of 20 years commencing from the start date of the commercial operation and undertook to complete the construction work of the Tzomet project. The aggregate consideration payable over the term of the agreement is approximately $300 million, and is payable based on the achievement of milestones. The agreement contains a mechanism for the compensation of Tzomet in the event that PW fails to meet its contractual obligations under the agreement. In March 2020, Tzomet issued a notice to commence to the contractor under the agreement and the agreement was further amended to extend the period for completion of construction by three months. OPC’s management currently does not expect thatBased on the extension will result inexpected date for the Tzomet power plant to connect to the electrical grid according to a delaysurvey and due to the continuation of COVID-19 restrictions and the supply chain delays, OPC expects the power plant to be completed in the project.first quarter of 2023.
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Construction of energy generation facilities on the premises of consumer
OPC has entered into agreements with several consumers (including consumers that were successful in the EA’s tender) for the installation and operation of generation facilities (natural gas) on the premises of consumers for capacity of approximately 76MW,102MW, as well as arrangements for the sale and supply of energy to consumers. Upon completion, OPC will sell electricity from the generation facilities to the consumers for a period of approximately 15-20 years from the COD of the generation facilities. The planned COD dates are in accordance with the conditions provided in the agreements, and no later than 48 months from the date of the agreement. The total amount of OPC’s investment depends on the number of arrangements entered into and is expected to be an average of NIS 4 million (approximately $1 million) for every installed MW.
The arrangements with customers that have been entered into and those expected to be entered into provide for reduced tariffs for customers reflecting lower use of the infrastructure, and capacity payments to OPC. OPC has also signed construction agreements and agreements covering the supply of motors for the generation facilities, with a total capacity of approximately 4158 MW. Some PPAs with OPC-Rotem and OPC-Hadera have been extended in connection with such arrangements. OPC intends to take action to sign construction and operation agreements with additional consumers (including customers of the group). OPC is considering participating in tenders by customers for additional capacity using these arrangements. The total amount of OPC’s investment depends on the number of arrangements entered into and is expected to be an average of NIS 4 million (approximately $1 million) for each installed MW. As of December 31, 2020, OPC’s investment in such generation facilities amounted to approximately NIS 12 million (approximately $4 million). OPCAOPC has entered into a framework agreement to order motors for the generation facilities.
In April 2021, OPC acquired a 51% interest in Gnrgy for NIS 67 million (approximately $22 million). Gnrgy was established in Israel in 2008 and operates in the field of charging electric vehicles (e-mobility) and the installation of charging stations for electric vehicles. The acquisition is part of OPC’s strategy to expand into new areas of energy production and the provision of advanced energy solutions to its customers including energy supply and the management of energy for electric vehicles. The majority of the purchase price was earmarked for funding of Gnrgy’s business plan including repayment of existing related party debts. Gnrgy’s founder retained the remaining interests in Gnrgy and enter into a shareholders’ agreement with OPC, which would among other things give OPC an option to acquire a 100% interest in Gnrgy.
United States
OPC’s operations in the United States consist of the operations of CPV, which was acquired in January 2021 by a partnershipan entity in which OPC hasindirectly holds a 70% indirect interest and the general partner(not including profit participation units for employees of which is indirectly owned by OPC. The acquisition agreement included representations of the sellers with respect to CPV, its assets, position and activities, which are subject to exceptions and qualifications. The representations of the sellers expired on the closing date of the transaction, except for certain fundamental representations that will apply for two years, where the right of recourse in a case of their breach is limited solely to an offset against the sellers loan, subject to conditions stipulated in the acquisition agreement and after full utilization of the right of recovery under the insurance policy. Pursuant to the acquisition agreement, the buyer purchased an insurance policy covering representations with a liability limit of up to about $53 million for a period of 3 years, except for certain representations regarding which the period is 6 years, on terms that are customary in insurance policies covering representations for a transaction of this type.CPV).
CPV is engaged in the development, construction and management of renewable energy and conventional natural gas-fired power plants running conventional energy (powered by natural gas) and renewable energy in the United States. CPV was founded in 1999 and since the date of its establishment it has initiated and constructed power plants having an aggregate capacity of approximately 14,800 MW,15 GW, of which approximately 4,850 MW5 GW consists of wind energy and another approximately 9,950 MW consist10 GW consists of conventional, natural gas-fired power plants. CPV holds ownership interestsrights in active power plants it developed and constructed over the past years (both conventional, natural gas-fired and renewable energy):, as well as in a project backlog of renewable energy in advanced development stages and other projects using various technologies: in conventional natural gas-fired power plants powered by natural gas (of the open‑cycleopen-cycle type from an advanced generation), CPV’s proportionate ownership interest is approximately 1,290 MW out of 4,045 MW (5 power plants), and 152 MW in wind energy CPV’s proportionate ownership interestenergy. In addition, the share of CPV and its production capacity in projects that are currently under construction is approximately 106as follows: (i) in a conventional natural gas-fired power plant, the share of CPV is 126 MW out of 152a total capacity of 1,258 MW (1 power plant) (the remaining 30% interest for this project was acquired by CPV on April 7, 2021). under construction and (ii) 126 MW in a solar energy project.
In addition, CPV holds a 10% ownership interest in the Three Rivers project, which consists of the construction of a natural gas, combined cycle power plant under construction running on natural gas having an aggregatewith expected capacity of approximately 1,258 MW (CPV’s share currently(CPV Group’s proportionate interest is approximately 125MW)126 MW), expected to participate in tenders for capacity in the PJM market. Its expected COD is Q2 2023 and the expected cost of construction is approximately $1.3 billion for 100% of the project (not just CPV’s ownership interest). CPV also has 9a number of renewable energy projects in advanced stages of development (including 126 MW solar energy project), and additional projects using various technologies in different stages of development, having an aggregate scope of about 6,1756,990 MW. CPV manages its active plantsprovides asset management services and the development of its projects. In addition, CPV providesenergy management services to power plants using different technologies for projects it developed and for third parties. CPV provides asset management services for power plants with a total capacity of 7,366 MW (including 100 MW attributed to Maple Hill project which is currently under construction) and energy management services for power plants with a total capacity of 4,235 MW.
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The table below sets forth an overview of CPV’s power plants that were in commercial operation as of December 31, 2020.2021.
Project | Location | Installed Capacity (MW) | CPV ownership interest | Year of commercial operation | Type of project/ technology / client | Regulated market(1) | Commercial Structure | |||||||
| CPV Fairview | Pennsylvania | 1,050 | 25% | 2019 | Conventional natural gas-fired, combined cycle | PJM MAAC | Capacity payments from PJM, regardless of the actual quantity generated, based on the price determined in an annual tender for the year of operation three years in advance. The capacity price is known up to May 2023. The capacity price determined for the 2021/22 capacity year is $140 per MW/day in the zone in which the project is located. The capacity price determined for the 2022/23 capacity year is $95.79 per MW/day in the zone in which the project is located. The sale of electricity on the PJM market is organized, supervised and administered by PJM to ensure the supply of electricity in accordance with bids of the electricity producers. Gas for the project is acquired on the market on the basis of market prices in (at) the purchase points. From time to time the project may enter into hedging agreements on the energy and gas prices for part or all of the capacity through a variety of instruments and products to reduce the uncertainty of the margin between the PJM electricity price received and the gas price paid. | |||||||
| CPV Towantic | Connecticut | 805 | 26% | 2018 | Conventional natural gas-fired (with dual fuel capability) combined cycle | ISO-NE CT | Capacity payments from ISO-NE, without reference to the actual quantity generated, are based on the price determined in the tender. The project participated in a capacity tender for the first time in June 2018- May 2019 based on a price of $9.55 per KW/month and it exercised the possibility to determine (fix) the tariff for seven years in respect of 725 MW linked to the Utilities Inputs Index. For 2023-24, there is a possibility to sell an additional 45 MW. The capacity price is known up to May 2025. The capacity price determined for the 2025/26 capacity year is $2.59 per kW/month in the zone in which the project is located. For capacity years of 2026/20227 and beyond, capacity prices will be based on an annual tender for the activity year three years in advance. The sale of electricity on the organized ISO-NE market, which is supervised and administered by ISO-NE to ensure the supply of electricity in accordance with the bids of the electricity producers. Gas for the project is purchased on the market on the basis of market prices in (at) the purchase point. From time to time, the project may enter into hedging agreements on energy and gas prices for part or all of the capacity through a variety of instruments and products to reduce the uncertainty of the margin between the ISO-NE electricity price received and the gas price paid. |
| Installed | CPV | Year of | Type of | |||||||||||
| Capacity | ownership | commercial | project/ | Regulated | ||||||||||
Project | Location | (MW) | interest | operation | technology | market1 | Manner of sale of capacity/electricity | |||||||
| CPV Fairview | Pennsylvania | 1,050 | 25% | 2019 | Natural gas, combined cycle (there is a possibility of an ethane mix up to 25%) | PJM | Capacity payments from PJM, without reference to the actual quantity generated, based on the price determined in an annual tender for the activity year three years in advance. The capacity price is known up to May 2022. The capacity price determined for the 2021/22 capacity year is $140 per MW/day in the region in which the project is located.
Gas for the project is acquired in the market on the basis of market prices at the acquisition points. | |||||||
CPV Towantic | Connecticut | 805 | 26% | 2018 | Natural gas / two fuels, combined cycle | ISO-NE | Capacity payments from ISO‑NE, without reference to the actual quantity generated, based on the price determined in the tender. The project participated in a capacity tender for the first time in 2018‑2019 based on a price of $9.55 per KW/month and it exercised the possibility to determine (fix) the tariff for seven years in respect of 725 MW linked to the Utilities Inputs Index. For 2023‑24 there is a possibility to sell an additional 45 MW. From 2025, capacity prices will be based on an annual tender for the activity year three years in advance.
Gas for the project is acquired in the market on the basis of market prices at the acquisition points. | |||||||
CPV Maryland
| Maryland | 745 | 25% | 2017 | Natural gas, combined cycle | PJM | Capacity payments from PJM, without reference to the actual quantity generated, based on the price determined in an annual tender for the activity year three years in advance. The capacity price is known up to May 2022. The capacity price determined for the 2021/22 capacity year is $140 per MW/day in the region in which the project is located.
Gas for the project is acquired in the market on the basis of market prices at the acquisition points. | |||||||
CPV Shore
| New Jersey | 725 | 37.53% | 2016 | Natural gas, combined cycle | PJM | Capacity payments from PJM, without reference to the actual quantity generated, based on the price determined in an annual tender for the activity year three years in advance. The capacity price is known up to May 2022. The capacity price determined for the 2021/22 capacity year is $166 per MW/day in the region in which the project is located.
Gas for the project is made based on the market prices at the acquisition points. | |||||||
CPV Valley | New York | 720 | 50% | 2018 | Natural gas, combined cycle | NYISO | Capacity payments from NYISO, based on the price determined in seasonal, monthly and SPOT capacity tenders, with capacity prices that change every month. Gas for the project is acquired in the market on the basis of market prices at the acquisition points. | |||||||
CPV Keenan II | Oklahoma | 152 | 70%2 | 2010 | Wind | SPP | The project entered into an agreement for supply of electricity (PPA) with a utility company for 100% of the electricity generated up to 2030. |
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Project | Location | Installed Capacity (MW) | CPV ownership interest | Year of commercial operation | Type of project/ technology / client | Regulated market(1) | Commercial Structure |
| CPV Maryland | Maryland | 745 | 25% | 2017 | Conventional, natural gas-fired, combined cycle | PJM SW MAAC | Capacity payments from PJM, regardless of the actual quantity generated, based on the price determined in an annual tender for the year of operation three years in advance. The capacity price is known up to May 2023. The capacity price determined for the 2021/22 capacity year is $140 per MW/day in the zone in which the project is located. The capacity price determined for the 2022/23 capacity year is $95.79 per MW/day in the zone in which the project is located. The Sale of electricity on the PJM market is organized, supervised and administered by PJM to ensure the supply of electricity in accordance with the bids of the electricity producers. Gas for the project is acquired in the market on the basis of market prices at the purchase point. From time to time, the project may enter into hedging agreements on energy and gas prices through a variety of instruments and products to reduce the uncertainty of the margin between the PJM electricity price received and the gas price paid. | |||||||
| CPV Shore | New Jersey | 725 | 37.53% | 2016 | Conventional, natural gas-fired, combined cycle | PJM EMAAC | Capacity payments from PJM, regardless of the actual quantity generated, based on the price determined in an annual tender for the year of operation three years in advance. The capacity price is known up to May 2023. The capacity price determined for the 2021/22 capacity year is $166 per MW/day in the zone in which the project is located. The capacity price determined for the 2022/23 capacity year is $97.86 per MW/day in the zone in which the project is located. The sale of electricity on the PJM market is organized, supervised and administered by PJM to ensure the supply of electricity in accordance with the bids of the electricity producers. Gas for the project is made based on the market prices at the purchase point. From time to time, the project may enter into hedging agreements on energy and gas prices through a variety of instruments and products to reduce the uncertainty of the margin between the PJM electricity price received and the gas price paid. | |||||||
| CPV Valley | New York | 720 | 50% | 2018 | Conventional, natural gas-fired, combined cycle | NYISO Zone G | Capacity payments to NYISO, based on the price set in the seasonal, monthly, and spot capacity tenders, with variable monthly capacity prices; The sale of electricity on the NYISO market is organized, supervised and administered by NYISO to ensure supply of the electricity in accordance with the bids of the electricity producers. The gas for the project is acquired on the market on the basis of market prices in (at) the purchase points. From time to time, the project may enter into hedging agreements on energy and gas prices through a variety of instruments and products to reduce the uncertainty of the margin between the NY-ISO electricity price received and the gas price paid. | |||||||
| CPV Keenan II | Oklahoma | 152 | 100%2 | 2010 | Wind | SPP (Long-term PPA) | The project entered into a PPA with a utility company for the electricity generated up to 2030. |
| (1) | Sale of electricity in the organized PJM market is supervised and administered by PJM to ensure supply of the electricity in accordance with price offers of the electricity generators. Sale of electricity in the organized NYISO market is supervised and administered by NYISO to manage the supply of the electricity in accordance with price offers of the electricity generators. |
| (2) | On April 7, 2021, CPV |
The table below provides sets forth an overview of the generation capacity of CPV’s plants in commercial operation for 20192020 and 2020.2021.
2021 | 2020 | |||||||||||||||||||||||
Net Electricity generation (GWh)1 | Actual Generation2 (%) | Actual Availability Percentage (%) | Net Electricity generation (GWh)1 | Actual Generation (%)2 | Actual Availability Percentage (%) | |||||||||||||||||||
Fairview3 | 7,899 | 88.5 | % | 91.6 | % | 7,397 | 78.4 | % | 86.5 | % | ||||||||||||||
| Towantic | 5,556 | 77.3 | % | 91.2 | % | 5,322 | 72.6 | % | 92.4 | % | ||||||||||||||
| Maryland | 3,796 | 58.6 | % | 84.8 | % | 3,790 | 58.2 | % | 93.6 | % | ||||||||||||||
| Shore | 3,654 | 57.6 | % | 93.6 | % | 4,444 | 68.8 | % | 92.8 | % | ||||||||||||||
| Valley | 4,334 | 71.8 | % | 78.3 | % | 4,705 | 75.8 | % | 92.2 | % | ||||||||||||||
| Keenan II | 530 | 39.8 | % | 93.7 | % | 587 | 44.0 | % | 94.6 | % | ||||||||||||||
| 2020 | 2019 | |||||||||||||||
Net Electricity generation (GWh)1 | Actual Generation (%)2 | Net Electricity generation (GWh)1 | Actual Generation (%)2 | |||||||||||||
Fairview3 | 7,397 | 78.4 | % | 373 | 66.9 | % | ||||||||||
| Towantic | 5,322 | 72.6 | % | 3,868 | 52.9 | % | ||||||||||
| Maryland | 3,790 | 58.2 | % | 4,191 | 64.4 | % | ||||||||||
| Shore | 4,444 | 68.8 | % | 5,013 | 78.3 | % | ||||||||||
| Valley | 4,705 | 75.8 | % | 4,100 | 66.3 | % | ||||||||||
| Keenan II | 587 | 44.0 | % | 586 | 44.1 | % | ||||||||||
| (1) |
| (2) | The actual generation percentage is the electricity produced by the power plants relative to the maximum amount of generation |
| (3) |
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Project under Construction
The table below sets forth an overview of CPV’s projectprojects under construction.
Project | Location | Planned Capacity (MW) | CPV Ownership Interest | Year of construction start | Projected date of commercial operation | Type of project/ technology | Manner of sale of capacity/ electricity | Expected construction cost for 100% of the project ($ millions) | |||||||||
| CPV Three Rivers | Illinois | 1,258 | 10%1 | 2020 | Q2 2023 | Natural gas, combined cycle | Expected to participate in tenders for capacity in the PJM market for the 2023/2024 year. The sale of electricity on the PJM market is organized, supervised and administered by PJM to ensure the supply of electricity in accordance with the bids of the electricity producers. Gas for the project will also be purchased on the market on the basis of market prices in (at) the purchase points according to certain power and gas indices. | Approximately $1,293 | |||||||||
| CPV Maple Hill Solar, LLC | Pennsylvania | 126 MWdc (Approximately 100 MWac) | 100%3 | Q2 2021 | Second half of 20222 | Solar | Capacity payments from PJM, regardless of the actual quantity generated, based on the price determined in an annual tender for the year of operation three years in advance. The capacity price is known up to May 2023. The capacity price determined for the 2022/23 capacity year is $95.79 per MW/day in the zone in which the project is located. Sale of 100% of the SRECs of the project for a period of 5 years. Sale of approximately 48% of the electricity generated by the facility pursuant to a virtual PPA. The remainder by sale on the PJM market which is organized, supervised and administered by PJM to ensure the supply of electricity in accordance with the bids of the electricity producers. | Approximately $200 |
| Expected | ||||||||||||||||
| Projected | Manner of | construction | ||||||||||||||
| Planned | CPV | Year of | date of | Type of | sale of | cost for 100% | ||||||||||
| Loca- | Capacity | Ownership | construction | commercial | project/ | capacity/ | of the project (US$ | |||||||||
Project | tion | (MW) | Interest | start | operation | technology | electricity | millions) | ||||||||
CPV Three Rivers | Illinois | 1,258 | 10%1 | 2020 | May 2023 | Natural gas, combined cycle | Expected to participate in tenders for capacity in the PJM market for the 2023/2024 year.
Gas for the project will be acquired in the market on the basis of market prices in (at) the acquisition points. | Approximately 1,293 |
| (1) | Reflects completion of the sale of 7.5% of CPV’s interest in the Three Rivers Project on February 3, 2021. |
| (2) | The expected date of operation for Maple Hill may be delayed due to delays with PJM’s interconnection process. Delays may affect Maple Hill’s ability to meet certain schedule obligations with counterparties and may result in liquidated damages payments. |
| (3) | As of the publication date of the report, CPV signed a term sheet with a “tax equity partner” for an investment of approximately $45 million in the project; the agreement is subject to completion of negotiations and the signing of binding agreements and ongoing considerations with respect regulatory and legislative developments (including but not limited to the BBB Act). Upon consummation of an agreement with a “tax partner” CPV will have 100% of Class B rights. Class A rights are held by Tax Equity investors, who have excess tax benefits and dividend rights until a certain return (Tax Flip) is achieved. |
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Projects under Development
In addition to the projects summarized above, CPV currently has 9a number of conventional natural gas-fired and renewable energy projects in advanced stages of development in the United States,(using solar and additional projects in various technologies andwind technologies) in various stages of development, with an aggregate scope of approximately 6,175 MW in the aggregate.6,990 MW. The development stages for each project include, among other things, the following: formulation (securing)following processes: securing of the rights in the project’s lands; licensing processes; completion of receipt of approvals, and regulatory planning processes;processes and public hearing; environmental surveys; engineering examinations; examinationstests; testing, insuring and securing the processes of connection to the relevant transmission networks (grids); signing of agreements with relevant investors/investors or lenders with relevant investors or lenders and relevant suppliers (construction contractor, equipment and turbines contractors) and entering into a hedge agreement and power purchase agreements for sale of electricity (PPA)(PPAs), REC certificatesand RECs (based on the type of project).
The table below sets forth an overview of the scope of the projects under development, the development stage and the technology (in MW):
| Summary of Development Projects (as of the date of this report) | ||||||||||||
(in megawatts)1 | ||||||||||||
Technology | Advanced Stage | Initial Stage | Total | |||||||||
Solar2 | 1,300 | 1,600 | 2,900 | |||||||||
| Wind | 100 | 150 | 250 | |||||||||
| Total Renewable Energy | 1,400 | 1,750 | 3,150 | |||||||||
| Natural Gas | 2,000 | 2,000 | 4,000 | |||||||||
| Storage | — | 100-500 | 100-500 | |||||||||
Summary of the Scopes of the Development Projects as at the Submission Date of the Report (in megawatts)1 | |||||||||
| Technology | Advanced | Early | Total | ||||||
| PV | 895 | 1,150 | 2,045 | ||||||
| Wind | 175 | 0 | 175 | ||||||
| CCGT | 1,985 | 1,970 | 3,955 | ||||||
| Storage2 | 100 – 500 | ||||||||
| Total | 3,055 | 3,120 | 6,175 | ||||||
| (1) | In general, CPV considers projects that are estimated to be up to two or three years for before the start of construction as projects in the advanced development stage (there is no certainty that the projects under development, including the projects in the advanced development stage, will be carried out). It is noted that the abovementioned depends on the scope of the project and the technology, and could change based on specific characteristics of a given project, as well as due to external factors that are relevant to a project. For example, projects that are intended to operate in the PJM market may be affected by pending interconnection process changes. It is clarified that in the initial development stages (in particular) the scope of the projects and their characteristics are subject to change, if and to the extent that they reach advanced stages. |
| (2) | The capacities for solar technology in this report are denominated in MWdc. The capacities of solar technology projects in the advanced stages of development and in the initial stages of development are approximately 1,197 MWac and 1,050 MWac, respectively. |
In October 2021, CPV entered into agreements to acquire the full rights in two solar projects under development in the advancedPJM market in the United States, one in Kentucky (approximately 98 MW) and one in Illinois (approximately 360 MW) for approximately $9 million plus contingent consideration, which together with the amount paid on completion date, may reach approximately $46 million. The contingent consideration is payable in installments, subject to meeting the projects’ development stage. This depends on the scope of the project and the technology, and could change based on specific characteristics of a given project, as well as due to external reasons thatmilestones. The projects are relevant to a certain project.
There is no certainty that these projects under development will be completed as anticipated or at all, due to various factors, including factors not under CPV’s control, and their development is subject to, among other things, completion of the development processes, signing agreements, assurance of financing and receipt of various approvals and permits. Given the nature of CPV'sCPV’s development projects, there is less certainty of completion of any particular development project as compared to OPC'sOPC’s historic development projects. Rogue’s Wind project, which is in the advanced development stage, is included in the table above.
The table below sets forth additional details regarding twothe CPV projects that are inproject of which the advanced development stage.construction has not commenced.
Project | Location | Capacity (MW) | OPC Ownership Interest | Projected Year of construction start | Projected date of commercial operation | Type of project/ technology | Activity area and electricity region | Manner of sale of capacity/ electricity | Expected | |||||||||||||||||
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| Rogue’s Wind | Approx. 114 MW | 100% |
Second half of 2022 |
| Second half of 20232 | Wind | PJM MAAC | In April 2021, signed PPA agreement for sale of electricity, capacity and renewable energy certificates for 10 years with a clean energy company |
| 1. | Upon consummation of an agreement with a |
| 2. |
Management of Projects
CPV provides general asset management services to power plants in the United StatesUS using renewable energy and conventional natural gas-fired energy, at a total volume, as of the date of the report, of 7,366 MW (5,455 MW for projects in which it has an ownership interestrights, and 1,811 MW for projects for third parties), by way of entering into asset management agreements. In addition to providing general asset management services, CPV also provides specific energy management services, for a total volume, as well as projects owned by third parties. The projects managed by CPV use a variety of technologies and fuel types, representing approximately 7,911the date of the report, of 4,235 MW (approximately 5,455(3,325 MW for projects in which it holds equityhas rights, and approximately 2,456810 MW for projects for third parties). Management services are provided, by meansway of signing asset andentering into energy management agreements. Both categories of management agreements are usually for short/short to medium periods. The average balanceterms.
As of the periodreporting date, the remaining average period: (i) of all theasset management agreements (including(in projects whereinin which CPV holds ownership interestshas rights and in projects of third parties) is approximately 45.5 years, and the average balance(ii) of the period in the management agreements forin projects in which CPV holdshas rights is about 66.8 years (subject(all subject to the provisions of the relevant agreementagreements regarding the possibilityoption of early conclusiontermination of the agreements or possibilitiesoptions for renewal thereof for additional periods, as applicable)the case may be), (iii) of all energy management agreements (in projects in which CPV has rights and in projects of third parties) is 3.5 years, and (iv) of all energy management agreements in projects in which CPV has rights is 4.1 years (and in each case, the asset management agreements and the energy management agreements are subject to the provisions of the relevant agreements regarding the options for early termination or renewal for additional periods). ManagementThe asset management services and the energy management services are provided in exchange for a fixed annual payment, a performance-based payment and reimbursement of certain expenses, including expenses relating to construction management services (work hours of the construction workers, expenses and incentive fees.expenses incurred by third parties). The asset management services include, among others,inter alia: project management and general compliance with regulations,regulations; supervision of operation of the project, management of the energy generated, including optimization and management of exposures,project’s operation; management of the project’s debt and credit agreements,credit; management of undertakings in the agreements undertaken, licenses and contractual liabilities,obligations; management of budgets and financial matters,matters; project insurance, etc., and the energy management services include more specific RTO/ISO-facing functions which include, inter alia: testing consulting re: RTO/ISO standards, communications with RTOs and ISOs, RTO/ISO project insurance.coordination; and the preparation of periodic required regulatory reports.
Customers for asset management revenues are primarily funds managed by private equity, and institutional and strategic investors that are in the business of investing, owning and divesting generation assets. Asset management and energy management services are primarily marketed through word-of-mouth marketing and inbound inquiries. CPV Projects that sell their capacity and energy into wholesale markets adhere to the regulations governing the sale of products into those markets administered by the RTO/ISOs. Long-term PPAs and hedging agreements are marketed directly by CPV’s in-house origination team which utilizes a variety of methods to connect with potential customers.
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Description of CPV projects
Generally, each of the conventional natural gas-fired project companies in CPV entered into an agreement with all other owners of rights to the project company enters into(if any), for the establishment of a limited liability companycompany. The agreement with the other project equity owners settingsets forth each partner’s rights duties and obligations with respect to the applicable project (each, hereinafter - an “LLC Agreement”). Each LLC Agreement generally contains customarystandard provisions for agreements of this type restricting the transfer of rights, including terms and conditions for permissible transfers, minimum equity percentage transfer requirements and rights of first offer. CPV is also often requiredobliged to maintain at least a minimum ten percent (10%) equity ownership in a project company for up to five (5) years after closing of construction financing. Each project company is governed by a board of managersdirectors selected by the members.
At the developmental stage, CPV’s project companies typically enter into third party agreements with various experts for the provision of certain specialized services. Examples of such agreements include, but are not limited to: (i) consulting agreements with environmental firms for land survey and investigation work, data collection, records analysis, conduct permit application work, permit reviews and other support services to engage with permitting agencies or participation in meetings with stakeholders and public officials, (ii) service agreements with engineering firms to support engineering reviews in the areas of civil, mechanical and electrical, and preparation of drawings to support permit and applications, and (iii) consulting agreements with market consultants to support analysis related to power supply and demand and natural gas supply and demand.
The project companies typically enter into various intercompany agreements with other entities within CPV for the provision of general and project-level services. These intercompany agreements include asset management agreements and energy management agreements.
Set forth below is a discussion of the key contracts for each facility in which CPV has an ownership interest. With respect to asset management agreements and energy management agreements with companies part of the CPV group, such agreements permit early termination under circumstances set forth in the relevant agreements. In addition, other relevant agreements provide the possibility for early termination. Furthermore, from time to time,CPV’s project companies for projects powered by natural gas enter into short-term transaction hedging commodity prices.that are active or under construction.
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CPV Fairview
CPV Fairview is party to the following agreements.
| • |
Gas Supply:a Base Contract for |
| • |
| • |
| • |
| • | Management: Although one of the entities in CPV currently serves as asset manager to CPV Fairview pursuant to an intercompany asset management agreement, one of the other investors in the project is expected to replace CPV entity pursuant to the terms of the agreement that provided for such replacement after one year of commercial operation of the project. |
CPV Towantic
CPV Towantic is party to the following agreements:
| • | Gas |
| • | an agreement for the guaranteed gas transmission of 2,500 MMBtu per day, at the AFT 1 Tariff. The initial agreement term ended on March 31, 2022 and has been extended through March 31, 2023. The agreement renews automatically for periods of one year each time, unless one of the parties terminates the agreement. |
| • | an agreement for the supply of |
| • | Maintenance: a services agreement (CSA) with its original equipment manufacturer, for the provision of maintenance services for the combustion turbines. In consideration for the maintenance services, Towantic pays a fixed and a variable amount as of the date stipulated in the agreement. The agreement term is 20 years. Towantic has paid the counterparty an average of approximately $9.5 million each year over the past two years. |
| • | Operation: an agreement for operation and maintenance of the facility. The consideration includes a fixed and variable amount, a performance-based bonus, and reimbursement for employment expenses, including payroll costs and taxes, subcontractor costs and other costs. In July 2021, the agreement was extended and the agreement term spans from 2022 to 2024. The agreement includes an extension/renewal clause for a period of one year, unless one of the parties gives a termination notice in accordance with that provided in the agreement. CPV Towantic has paid the counterparty an average of approximately $5 million each year over the past two years. |
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CPV Maryland
CPV Maryland is party to the following agreements:
| • | Gas Supply: an agreement for the supply of firm natural gas |
| • | Gas |
| • |
| • | Operation: an agreement for operation and maintenance of the facility. |
| • |
CPV Shore
CPV Shore is party to the following agreements:
| • |
Gas |
| • | Gas |
| • | Maintenance: an amended services agreementwith its original equipment manufacturer |
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| • | Operation: an agreement for operation of the facility. The consideration includes fixed annual management fees, a |
| • |
CPV Valley
CPV Valley is party to the following agreements:
| • |
| • | Gas |
| • |
| • | Operation: an operation and maintenance agreement with one of the partners in the project. The consideration includes fixed annual management fees, an operation bonus, and reimbursement of certain costs |
| • | Hedging: |
CPV Keenan II
CPV Keenan II is party to the following agreements:
| • | Equity Purchase Agreement: an agreement for the purchase of the 100% of the outstanding equity interests in Keenan. As a result of the acquisition in April 2021, CPV holds all of the rights to Keenan. |
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| • | PPA: a wind power energy agreement (PPA) for sale of renewable energy. Pursuant to the terms and conditions of the agreement, the |
| • |
CPV Three Rivers
CPV Three Rivers is party to the following agreements:
| • | Gas |
| • | Gas |
One agreement is an interconnection agreement with an interstate pipeline company for transmission of natural gas. The agreement sets forth the responsibility of the parties in connection with the design, construction, ownership, operation and management of a pipeline as well as the connection and pressure equipment. Based on the agreement, CPV Three Rivers will bear the costs of all the facilities.
The second agreement is an additional interconnection agreement with an interstate pipeline company for transmission of natural gas. As part of the agreement, the counterparty is responsible for the design and construction to connect to the existing pipeline. The counterparty to the agreement will remain the owner of these facilities and will operate them, and CPV Three Rivers will bear the development and construction costs.
| • | Gas Transmission: an agreement for transmission of gas with an interstate pipeline company and its Canadian affiliate, for firm transmission of natural gas from Alberta, Canada to the facility. The agreements include capacity of 36.2 MMcf per day, at agreed prices. The agreement |
| • |
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| • |
| • |
| • | Operation: an agreement for operation and maintenance of the facility to begin once the facility is well into its construction period. The consideration includes fixed annual management fees, a |
CPV Maple Hill (under construction)
CPV Maple Hill is party to the following agreements:
| • | Tax Equity Partner. CPV signed a term sheet with a “tax equity partner” for an investment of approximately $45 million in the project; as of this date, the agreement is subject to completion of negotiations and the signing of binding agreements. The tax equity partner is expected to benefit from most of the tax benefits for the project, mainly investment tax credits (ITC) and depreciation expenses for tax purposes, as well as participation in a proportionate share to be agreed on in the distributable cash flow. The right to participate in some of the free cash flow is valid until reaching the investment period of the tax equity partner as set out in the agreement. After reaching the period, the tax equity partner’s share in the profit and cash flow shall be reduced to a minimum rate. Since CPV has not yet signed a final agreement, there is no certainty that such an agreement will be signed or that its terms and conditions, including the scope of the investment, will be in accordance with the aforesaid (if it is signed). |
| • | Solar Panels. an agreement for the purchase of solar panels with an international supplier and the agreement was amended twice in the second half of 2021. The later amendments reflected pricing increases in connection with market conditions relating to supply chain issues. The consideration includes the payment of a fixed price (as amended and may be amended from time to time under the agreement) for the purchase of the solar modules, plus the cost of transportation to the plant. |
| • | Maintenance. an operating and maintenance agreement with a third-party service provider for services related to the ongoing operation and maintenance of the Maple Hill solar power generation facility. The agreement has an initial term of |
| • |
| • | Construction. an EPC agreement with an international contractor. Pursuant to the agreement, the contractor will plan and construct the required components for the power plant in order to integrate all the required equipment into the power plant. The total consideration to be paid to the contractor is a fixed fee which shall be paid according to a milestone schedule. The construction agreement and the equipment purchase agreement constitute a substantial portion of the cost of the project. |
| • | SREC. an agreement with an international energy company for the sale of 100% of the SRECs generated in the project through 2026 to an international energy company. CPV |
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| • | Virtual PPA. an |
CPV
CPV is party to the following agreements:
| • | Rogue’s Wind Energy Project. In April 2021, CPV signed an agreement for the sale of electricity, environmental attributes of Rogue’s Wind energy project (including RECs, capacity-related benefits and ancillary services). The agreement was signed for a period of 10 years commencing on the commercial operation date. CPV provided collateral for its obligations under the agreement which include making certain payments to the |
Potential Expansions and Projects in Various Stages of Development
Israel
In March 2014, OPC, through one of its subsidiaries, was awarded a tender published by the Israeli Land Authority to lease a 5.5 hectare plot of land adjacent to the OPC-Rotem site. The lease agreement was approved by the Israeli Land Authority in August 2018. In April 2017, OPC was authorized by the Israeli Government to seek zoning permissions for a gas fired power station on the land adjacent to OPC-Rotem.
In April 2017, OPC was authorized by the Israeli Government to seek authority for zoning of the land for a natural gas-fired power station on land owned by Hadera PaperInfinya near the OPC-Hadera power plant. OPC Hadera Expansion Ltd. (“Hadera Expansion”), an OPC subsidiary, is party to an option agreement with Hadera PaperInfinya to lease the relevant land.
These plots of lands, if zoning permission is granted, would provide OPC with land that can be used with tenders but OPC would still require licenses to proceed with any projects on this land.
In addition, OPC may examine possibilities for expanding its electricity generation activities by means of construction of power plants and/or acquisition of power plants (including in renewable energy) in its existing and/or new geographies.
United States
In October 2021, CPV entered into agreements to acquire the rights in two solar projects under development in the PJM market in the United States, one in Kentucky (approximately 98 MW) and one in Illinois (approximately 360 MW) for approximately $9 million plus contingent consideration, which together with the amount paid on completion date, may reach approximately $46 million. The contingent consideration is payable in installments, subject to meeting the projects’ development milestones.
CPV currently has 9a backlog of renewable energy projects and conventional natural gas-fired power plants in advanced stages of development in the United States, and additional projects in various technologies and in various stages of development, and develops new projects as part of its business.development.
OPC’s Raw Materials and Suppliers
Israel
OPC’s power facilities utilize natural gas as primary fuel, and diesel oil and crude oil as backups. OPC is entitled to a refund for the incremental cost of using diesel for these periods.
OPC-Rotem and OPC-Hadera have entered into gas supply agreements with the Tamar Group, composed of Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership, Isramco Negev 2 Limited Partnership, Avner Oil Exploration Limited Partnership, Dor Gas Exploration Limited Partnership, Everest Infrastructures Limited Partnership and Tamar Petroleum Limited Partnership, or collectively the Tamar Group, for the purchase of natural gas. For further information on these agreements see “—OPC-Rotem” and “—OPC-Hadera.”
The price that OPC-Rotem pays to the Tamar Group for the natural gas supplied is based upon a base price in NIS set on the date of the agreement, indexed to changes in the EA’s generation component tariff, and partially indexed (30%) the U.S. Dollar representative exchange rate. The price that OPC-Hadera pays to the Tamar Group is based upon a base price in US$,USD, fully indexed to changes in the EA’s generation component tariff. As a result, increases or decreases in the EA’s generation tariff have a related effect on OPC-Rotem’s and OPC-Hadera’s cost of sales and margins. In addition, the natural gas price formulas in OPC-Rotem’s and OPC-Hadera’s supply agreements are subject to a floor price mechanism, which is denominated in U.S. Dollars for both OPC-Rotem and OPC-Hadera.
As a result of previous declines in the EA’s generation component tariff, OPC-Rotem and OPC-Hadera paid the minimum price during 20202021 (excluding two months for OPC-Rotem and one month for OPC-Hadera). In January 2021,2022, the EA published the electricity tariffs for 2021,2022, which included a decreasean increase of the EA’s generation component tariff by approximately 5.7%13.6%. On February 27, 2022, the EA issued a hearing on the update of the electricity tariff for 2022, where it was proposed that the production component (subject to a final decision) be lowered to 27.64 agorot, which is an increase of approximately 9.4% from 2021, instead of an increase of approximately 13.6% mentioned above. OPC-Hadera’s and OPC-Rotem’s gas prices were at the minimum price induring 2021 and until January 2022 (OPC-Rotem) and February 20212022 (OPC-Hadera), and for OPC-Rotem mayare expected to be (and for OPC-Hadera will be) atabove the minimum price for the remainder of 2021. Therefore, reductions in the generation tariff will not lead to a reduction in the cost of natural gas consumed by OPC-Rotem, but rather to a reduction in profit margins.2022. For OPC-Rotem, the effect on profit margins depends on the US$/US/NIS exchange rate fluctuations. For information on the risks associated with the impact of the EA’s generation tariff on OPC’s supply agreements with the Tamar Group, see “Item 3.D Risk Factors—Risks Related to OPC—Changes inOPC’s Israel operations—OPC’s profitability depends on the EA’s electricity rates may reduce OPC’s profitability.rates.”
Tzomet is also party to a gas supply agreement as described under "–Tzomet"“—Tzomet” above.
United States
Conventional Natural Gas-fired Projects
CPV’s project companies with conventional natural gas-fired power plants purchase natural gas from third parties pursuant to purchase and supply agreements.
Services Agreements, Equipment Agreements and EPC Contracts
CPV’s operational project companies generally enter into operating & maintenance (“O&M”) agreements and long term services agreements with original equipment manufacturers and third party providers to maintain and operate equipment at the project facilities.
With respect to the projects that are currently under construction, CPV also enters into general purchase agreements and equipment supply agreements with original equipment manufacturers as well as EPCs for the sourcing and construction of specialized equipment at certain facilities.
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On March 10, 2022, CPV entered into a framework purchase agreement of solar panels for a total of approx. 530MWdc. According to the agreement, the solar panels will be supplied based on purchase orders delivered by CPV during 2023-2024. As of the date of the report, CPV has paid a down payment for the purchase, to the solar panels supplier. CPV has a right of early termination on certain dates, for partial payments to the supplier based on the date of such early termination. The agreement further includes, among others, provisions regarding quantities, model, manner of delivery of the panels and termination. The overall cost of the agreement may total approximately $185 million (assuming purchase of the maximum quantity). The agreement is planned to be used for CPV’s solar projects in development stages, this among other things in view of global trends of increasing demands for solar panels affecting panel prices and their delivery schedule.
OPC’s Competition
Israel
Within Israel, OPC’s major competitors are IEC and private power generators, such as Dorad Energy Ltd., Dalia, Rapac-Generation, Shikun & Binui Energy and Dalia,the Edeltech Group, who, as a result of government initiatives encouraging investments in the Israeli power generation market, have constructed, and are constructing, power stations with significant capacity. The more important private producers are presented in the table below.
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OPC is considering participating in the IEC tenders of the remaining threetwo of its power stations. There is no certainty that OPC will participate in future IEC tenders or that it will be successful. See “—Regulatory, Environmental and Compliance Matters.”
In February 2021, the EA made a decision regarding determination of an arrangement for suppliers that that do not have means of generation and revised the standards for existing suppliers, in order to gradually open supply in the electricity sector to new suppliers and supply to household consumers. As part of the decision, the EA determines standards and tariffs that will apply to suppliers that do not have means of generation and that will allow them, subject to receipt of a supply license and provision of security, to purchase energy from the System AdministratorOperator for their consumers. The pricing will be based on a component that is based on the SMP price and components that are impacted by, among other things, the consumption at peak demand hours. The arrangement for suppliers that that do not have means of generation is limited to a quota that was provided in the principles of the arrangement and customers having a consecutive meter only (approximately 36,000 household customers and about 15,000 household industrial/commercial customers). In addition, for purposes of opening supply to competition, as part of the decision the Electricity Authority revised the Standardsstandards for suppliers regarding, among other things, the manner of assigning the consumers to a private supplier, the manner of concluding transactions, moving from one supplier to another and payments on the account.
United States
CPV operates in a highly competitive market. Natural gas, solar, and wind projects account for over 90% of new capacity under construction in the U.S., with significant competition among independent power producers and renewable project developers. Independent power producers (IPPs) compete with CPV in selling powerelectricity and capacity to the wholesale electricity network.electrical grid. In addition, the competitors can also sell electricity to third-party customers by entering into a power purchase agreement (PPA). The efficiency of thePPAs. Although CPV’s power plants is a competitive advantage - as of 2020, the power plants of CPV are relatively more efficient than the market average since the power plants of CPV are relatively new.and thus have a cost advantage relative to other conventional natural gas-fired generators, competition from new generation resources as well as different technologies could depress electric and capacity prices and thus dampen CPV’s revenues.
In addition, CPV’s other competitors to CPV in the US energy market include generators of different technology types, such as coal, oil, hydroelectric, nuclear, wind, solar and other renewables.types of renewable energy. Some of the generationgenerators in different markets is owned and operated by supervised electricity companies, private equity,venture capital funds, banks and other financial entities.
Within the power industry, there is a wide variation in terms of the capabilities, resources, nature and identity of the companies with whom CPV competes depending on the market. Competitors for energy supply are utilities, independent power producers and other providers of distributed generation.
CPV invests in developing new projects with diverse technologies in different markets utilizing various contractual structures to both better compete with existing generation and other competitors as well as mitigate the downside risks. In addition, CPV has in-house capabilities across all major disciplines of external affairs, commodity marketing and trading, finance, permitting, and operations.
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OPC’s Seasonality
Israel
Revenues from the sale of electricity are seasonal and impacted by the “Time of Use” tariffs published by the EA. The seasons are divided into three, as follows: (a) summer —– July and August; (b) winter —– December, January and February; and (c) transitional seasons —transition season – March to June and September to November.
The following table provides a schedule of the weighted EA’s Generation Component rates for 20212022 based on seasons and demand hours, published by the EA.
Season | Demand Hours | Weighted production rate (AGOROT per kWh) | |||
| Winter | Off—peak | 21.22 | |||
| Shoulder | 41.17 | ||||
| Peak | 71.87 | ||||
| Transition | Off—peak | 18.13 | |||
| Shoulder | 23.17 | ||||
| Peak | 29.84 | ||||
| Summer | Off—peak | 17.91 | |||
| Shoulder | 29.03 | ||||
| Peak | 75.37 | ||||
| Weighted Average Rate | |||||
In general, tariffs in the summer and winter are higher than during transitional seasons. The cost of acquiring gas, which is the primary cost of OPC, is not influenced by the tariff seasonality. Therefore, the profitability of power producers, including OPC-Rotem and OPC-Hadera, is generally higher in the summer and winter months compared to the remainder of the year.
For further information on the seasonality of tariffs in Israel, see “—Industry Overview— Overview of Israeli Electricity Generation Industry.”
The following table provides a summary of OPC’s revenues from the sale of electricity, by season (in $NIS millions) for 20202021 and 2019.2020. These figures have not been audited or reviewed.
2021 ($ millions) | 2020 ($ millions) | |
| Summer (2 months) | 255 (80) | 289 (84) |
| Winter (3 months) | 379 (117) | 349 (102) |
| Transitional Seasons (7 months) | 721 (223) | 631 (184) |
| Total for the year | 1,355 (420) | 1,269 (370) |
2020 | 2019 | |||||||
| Summer (2 months) | 84 | 70 | ||||||
| Winter (3 months) | 101 | 102 | ||||||
| Transitional Seasons (7 months) | 184 | 184 | ||||||
| Total for the year | 369 | 356 | ||||||
Tzomet’s revenues, to the extent the project is completed, will be divided into payment for availability and payment for energy. The availability tariff includes reimbursement for capital costs required for the construction of the plant. However, available capacity in peak demand seasons (i.e. winter and summer) receives higher compensation compared to capacity during transition seasons. The energy tariff includes reimbursement for electricity generation expenses and, therefore, does not change significantly between seasons.
United States
The revenues from generation of electricity are seasonal and are impacted by weather. In general, in conventional natural gas-fired power plants, operating on natural gas, profitability is higher during the highest and lowest temperatures of the year, which often coincides with summer and winter. Similarly, profitability for renewable generation is dependent upon both the volume of production, which varies based on prevailing wind and solar patterns, and the price for its electricity, which tends to be higher during winter unless the project has entered into a fixed price off-take contract.
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OPC’s Property, Plants and Equipment
Israel
For summary operational information for OPC’s operating plants in Israel as of and for the year ended December 31, 20202021 see “—Our Businesses—OPC—Overview of OPC’s Operations—Israel.”.
OPC leases its principal executive offices in Israel. OPC owns all of its power generation facilities. OPC has also been awarded a tender published by the Israel Land Authority to lease a 5.5-hectare plot of land adjacent to the OPC-Rotem site and OPC-Hadera has entered into an option agreement with Hadera Paper to lease land owned by Hadera Paper near the OPC-Hadera power plant, which agreement was assigned by OPC to Hadera Expansion in December 2019.
As of December 31, 2020,2021, the consolidated net book value of OPC’s property, plant and equipment was $829$1,126 million.
The table below sets forth summary information regarding the primary real estate owned or leased by OPC (1 dunam = 1000m2).
| Site | Location | Right in Asset | Area and Characteristics |
| Real estate held through Rotem | |||
| Land on which the Rotem Power Plant was built | Mishor Rotem | Lease | About 55 dunams |
| Real estate held through Hadera | |||
| Energy Center and the Hadera | Hadera | Rental | About 30 dunams |
| Real estate (including options for land) held by Hadera for Hadera | |||
| Hadera Expansion – Land near the area of the Hadera Power Plant | Hadera | Rental option through the end of 2022 | About 68 dunams |
| Land near to space on which Rotem Power Plant was built | Mishor Rotem | Lease | About 55 dunams |
| Land held by | |||
| Land on which | Plugot Intersection | About 85 dunams | |
| Right-of-use of the land for Sorek | |||
| Land on which Sorek is being constructed | Sorek 2 Desalination Facility | Right of use | About 2 dunams |
United States
In general, the land on which CPV’sthe projects are situated (both the active projects and the projects under construction) is held in a number of ways:ways – ownership, lease with aright of use, right, under a permit and licenses. In some cases, the facilities themselves are located on owned land, where there are easement rightseasements in land areas surrounding the facility for purposes of distributionconnection and connection.transmission. In addition to the project land,lands, CPV leases office space for itsuse by the headquarters in Silver Spring, Maryland and in Braintree Massachusetts. These leases have a remaining term of 4–7 years.Massachusetts pursuant to multiyear lease agreements.
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CPV Plantsplants in commercial operation
| Site | Location | The right in the property | Area and characteristics | Expiration | ||||||||
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Shore | ||||||||||||
| Land on which the CPV Shore | Middlesex County, New Jersey | Ownership | About 111,290 square meters (28 acres) | N/A | ||||||||
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| Maryland | ||||||||||||
| Land on which the CPV Maryland | Charles County, Maryland | Ownership / | About 308,290 square meters (76 acres) | N/A | ||||||||
Valley | ||||||||||||
| Land on which the CPV Valley | Wawayanda, Orange County, New York | Substantive Ownership1 / | About 121,406 square meters (30 acres) | N/A | ||||||||
Towantic | ||||||||||||
| Land on which the CPV Towantic | New Haven County, Connecticut | Ownership / | easements | About 107,242 square meters (26 acres) | N/A | |||||||
Fairview | ||||||||||||
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| Land on which the CPV Fairview power plant was constructed | Cambria County, Jackson Township, Pennsylvania | Ownership / easements | About 352,077 square meters (87 acres) | N/A | ||||
| Keenan II | ||||||||
| Land on which the CPV Keenan II wind field was constructed | Woodward County, Oklahoma | Contractual easements | Rights for access to land and the equipment | December 31, 2040 | ||||
| (1) | This land is held for the benefit of CPV Valley, which is entitled to transfer it to its name. |
CPV projects under construction
| Site | Location | The right in the property | Area and characteristics | Expiration date of right | ||||
| Three Rivers | ||||||||
| Land on which the CPV Three Rivers power plant is being constructed | Grundy County, Illinois | Ownership / | easements | About 485,623 square meters (120 acres) | N/A | |||
| Maple Hill | ||||||||
| Land on which the CPV Maple Hill power plant is being constructed | Cambria County, Pennsylvania | Ownership / easements | 3,063,470 square meters (757 acres, of which 11 acres are leased) | For lease area December 1, 2061 | ||||
Insurance
OPC and its subsidiaries, including CPV, hold various insurance policies in order to reduce the damage for various risks, including “all-risks” insurance. The existing insurance policies maintained by OPC and its subsidiaries may not cover certain types of damages or may not cover the entire scope of damage caused. In addition, OPC or CPV may not be able to obtain insurance on comparable terms in the future. OPC and its subsidiaries, including CPV, may be adversely affected if they incur losses that are not fully covered by their insurance policies.
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Employees
Israel
As of December 31, 2020,2021, in Israel, OPC had a total of 116120 employees, of which 6686 employees are in the operationsOPC Israel division (including plant operation, corporate management, finance, commercial and 40other), and 34 are at OPC’s headquarters. Substantially all of OPC’s employees are employed on a full-time basis.
The table below sets forth breakdown of employees in Israel by main category of activity as of the dates indicated:
As of December 31, | As of December 31, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2021 | 2020 | 2019 | |||||||||||||||||||
| Number of employees by category of activity: | ||||||||||||||||||||||||
| Plant operation and maintenance | 66 | 56 | 55 | |||||||||||||||||||||
| Corporate management, finance, commercial and other | 50 | 40 | 37 | |||||||||||||||||||||
| Headquarters | 34 | 66 | 56 | |||||||||||||||||||||
| Plant operation, corporate management, finance, commercial and other | 86 | 50 | 40 | |||||||||||||||||||||
| OPC Total (in Israel) | 116 | 96 | 92 | 120 | 116 | 96 | ||||||||||||||||||
Most of the OPC-Rotem and OPC-Hadera power plant’splants’ operations employees are employed under a collective employment agreement entered into in November 2019. The agreement establishes and regulates which employees are subject to the agreement, as well as the career path that the employees will follow within the organization, from their initial hiring through the end of their employment. The agreement establishes the process of hiring employees, trial periods, starting compensation and salary, rates for wage increases and annual bonuses, as well as entitlement to vacation, sick days and convalescence pay, welfare benefits, disciplinary regulations, and the process for ending employment and the mechanism for resolving disputes between management and the employees’ representation. In addition, the agreement stipulates that OPC’s employees that are subject to the agreement will receive salary increase and annual bonus for each calendar year in the agreement period.
United States
As of December 31, 2020,2021, CPV had a total of 88104 employees. In general, CPV does not enter into employment contracts with its employees. All employees compared to 90of CPV are “at-will” employees as of December 31, 2019. Substantially all of CPV’s employeesand are typically not physically present at the project companies facilities. Rather, day-to-day operations at the project facilities are performed by contractors who are employed on a full-time basis.directly by the applicable O&M service providers.
Shareholders’ Agreements
OPC-Rotem
OPC holds aan 80% stake in OPC-Rotem. OPC has entered into a shareholders’ agreement with Veridis, the minority shareholder of OPC-Rotem. The shareholders’ agreement grants Veridis veto rights in connection with certain material decisions relating to OPC-Rotem, including: (a) a change in the incorporation documents; (b) winding up of OPC-Rotem; (c) change in rights attached to shares prejudicing a shareholder; (d) transactions with affiliated parties; (e) change in the OPC-Rotem’s activity; (f) reorganization, merger, sale of material assets and such like; (g) pursuit of new projects; (h) changes in share capital, issue of bonds or allotment of various securities, subject to the exceptions determined in the agreement; (i) change of accountants; and (j) appointment and dismissal of directors by Veridis.
The agreements grant the shareholders additional rights in the event of any of them selling OPC-Rotem shares, such as a right of first refusal and tag-along rights. The agreement also permits OPC to terminate the shareholders'shareholders’ agreement in the event that Veridis sells its shares in OPC-Rotem.
CPV-related OPC Partnership Agreement
In October 2020, OPC signed a partnership agreement with three institutional investors in connection with the formation of OPC Power (the “Partnership”Ventures LP (“OPC Power”) (“Partnership”) and acquisition of CPV by the Partnership. OPC is the general partner and owns 70% of the Partnership interests. The limited partners of the Partnership are: OPC (70% interest; directly or through a subsidiary), Clal Insurance Group (12.75% interest), Migdal Insurance Group (12.75% interest) and a company from the Poalim Capital Markets Group (4.5% interest) (together, these three investors, the “Financial Investors”). The percentages above do not include participation rights in the profits allocated to the CPV managers. The total investment commitments and shareholder loans of all the partners amount to $815 million, based on their respective ownership interests, representing commitments for acquisition consideration, as well as funding of additional investments in CPV for implementation of certain new projects being developed by CPV. In September 2021, the Financial Investors in the Partnership confirmed their participation in an additional undertaking to invest in developing and expanding CPV’s operations, each according to their proportional share, an additional investment of $400 million.
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The general partner of the Partnership, an entity wholly-owned by OPC, manages the ownership of CPV, with certain material actions (or which may involve a conflict of interest between the general partner and the limited partners) requiring approval of a majority or special majority (according to the specific action) of the institutional investors which are limited partners. The general partner is entitled to management fees and success fees subject to meeting certain achievements. There are limits on transfers of partnership interests, with OPC not permitted to sell its interest in the Partnership for a period of three years (except in the case of a public offering by the Partnership), tag along rights for the Financial Investors, drag along rights, and rights of first offer (ROFO) for OPC and the Financial Investors in the case of transfers by the other party. OPC and the Financial Investors have entered into put and call arrangements, with the Financial Investors being granted put options and OPC being granted a call option (if the put options are not exercised), with respect to their holdings in the Partnership. These options are exercisable after 10 years from the date of the CPV acquisition and to the extent that up to such time the Partnership rights are not traded on a recognized stock exchange.
CPV Projects
A description of the limited liability company agreements of the CPV projects in operation is included above under "–“—OPC’s Description of Operations—United States—Description of CPV Projects"Projects”.
Legal Proceedings
For a discussion of other significant legal proceedings to which OPC’s businesses are party, see Note 1917 to our financial statements included in this annual report.
Regulatory, Environmental and Compliance Matters
Israel
IEC generates and supplies most of the electricity in Israel in accordance with licenses granted by virtue of the Israeli Electrical Market Law, and distributes and supplies almost all of the electricity in Israel. In June 2020, the “System Administrator” CompanyOperator” was granted a license to manage the Israeli electricity system (which was revised in November 2020), pursuant to which the Minister of Energy and the EA approved commencement of gradual activities of the System AdministratorOperator in two stages. The System Administrator’sOperator’s Technological Planning and Development Unit is responsible for planning the transmission system and, among other things, preparing a development plan for the transmission and generation of electricity, determining criteria for development of the electricity system, formulating forecasts, engineering and statutory planning of the transmission system, and performing studies with respect to connection to generation facilities. The System Administrators’Operators’ Market Statistic Unit is responsible for the current ongoing operation of the transmission system and is intended to, among other things, maintain a balance in levels of supply and demand in the electricity market, manage the transmission of energy from power stations to substations at the reliability and quality required (by passing through the power grids), timing and performing maintenance works in production units and in transmission systems, managing commerce in Israel under competitive, equal and optimal terms, including performing agreements to purchase available capacity and energy from private electricity producers and for planning and developing the transmission and distribution systems.
Pursuant to the Electricity Sector Law, IEC and the System AdministratorOperator are each defined as an “essential service provider” and as such they are subject to the standards and tariffs provided by the EA. In addition, IEC was declared a monopoly by the Israeli Antitrust Authority in the electricity sector, in the field of power supply — electricity production and sale, transmission and distribution of electricity and providing backup services to electricity consumers and producers.
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IEC Reform
Pursuant to the Israeli Government’s electricity sector reform, the IEC will be required to sell five of its power plants (currently remaining power plants are three) through a tender process over the 7 years, which is expected to reduce its market share to below 40%. The IEC will be permitted to build and operate two new gas-powered stations (through a subsidiary), but will not be authorized to construct any new stations or recombine existing stations. The IEC will also cease acting as the System Administrator.Operator. Following the Israeli Government’s electricity sector reform, as part of which the IEC is expected to sell five of its sites, the Israel Competition Authority issued guiding principles for sector concentration consultation in such sale process. According to such principles, which are subject to change and review considering the relevant circumstances:
An entity may not hold more than 20% of the total planned installed capacity on the date of sale of all the sites being sold. The generation capacity of an entity’s related parties with generation licenses will be counted towards such entity’s capacity for purposes of this 20% limitation. In addition, the EA published proposed regulations in respect of maximum holdings in generation licenses which are not identical to the Competition Authority principles. The Competition Authority has stated that the relevant limit is 20% of 10,500 MW (which is the anticipated capacity in the market held by private players by 2023, excluding capacity of IEC), while, the EA has proposed regulation whereby the relevant limit is 20% of 14,00016,000 MW (including capacity of IEC). WeOPC may be subject to a more restrictive interpretation. The MW currently attributable to OPC, including Oil Refineries Ltd., or ORL, and Israel Chemicals Ltd. as parties with generation licenses that are related to OPC, is approximately 1,480 MW; and
An entity holding a right to a fuel venture may not acquire any of the sites being sold.
OPC participated in the tenders of the Alon Tabor plant and Ramat Hovav plants — the first two plants that have been sold out of the five plants to be sold by the IEC — but was not the winning bidder.
Ministry of Energy and EA
The Israeli Ministry of Energy (“Ministry of Energy”) regulates the energy and natural resources markets of the State of Israel: electricity, fuel, cooking gas, natural gas, energy conservation, water, sewerage, oil exploration, minerals, scientific research of the land and water, etc. The Ministry of Energy regulates public and private entities involved in these fields, and operates to ensure the markets’ adequate supply under changing energy and infrastructure needs, while regulating the markets, protecting consumers and preserving the environment.
According to publications of the Ministry of Energy, the Ministry of Energy’s multi-year goals include diversified energy resources and ensuring reliability of supply during peacetime and emergency, developing effective and significant natural gas, and determining long-terms policies and appropriate regulations of the market’s electricity.
The Ministry of Energy’s main objectives in the electricity field are securing a reliable supply of electricity to the Israeli market, formulating development procedures to the electricity production sections, energy transmission and distribution, promoting policies to integrate renewable energies in electricity production in accordance with governmental decisions, formulating policies changing the market’s electricity structure, performing control and supervision of the implementation of the IEC’s and private producers’ development plans, performing control, supervision and enforcement of implementing safety regulations according to the Electricity Law, 5714-1954, and handling legislature in the electricity market fields, rules of performing electricity works and security in electricity. The main objectives of the Ministry of Energy in its workplan for 2019 included achieving an efficient and competitive electricity sector by focusing on the reform of the sector through the initiation of tenders for the sale of IEC power plants and the transfer of system management activities from the IEC to the new System Administrator.Operator.
Energy Sector Targets for 2050
In March 2019,April 2021, the Ministry of Energy published the roadmap for a low-carbon energy sector by 2050. The Ministry of Energy has set four “primary targets” that will reflect the strategic goal of reducing emissions, and also supportive sectoral objectives which will help to achieve them. The “super target” is defined as a reduction of greenhouse gas emissions from the energy sector by 80% compared to the 2015 reference year, by 2050. The targets and indices for the energy sector are presented by the Ministry in the following table.
| Main Targets | Indicator | 2018 | 2030 Target | 2050 Target |
| Reducing greenhouse gas in the energy sector | Percentage reduction of greenhouse gas over 2015 | 0% | 22% | 80% |
| Reducing greenhouse gas in the electricity sector | Percentage reduction of greenhouse gas over 2015 | 7.5% | 30% | 75%-85% |
| Energy efficiency | Percentage of annual improvement in energy intensity (TW/NUS million) | 0.7% | Annual improvement of 1.3% in energy intensity | Annual improvement of 1.3% in energy intensity |
| Use of coal | Percentage of coal in the electricity generation mix | 30% | 0% | 0% |
Closure of the IEC’s Coal-Fired Production Units
As of March 27, 2022, the IEC’s generation units run on coal, natural gas, fuel oil or diesel fuel as their secondary or primary fuel, as the case may be. The power plants operated by the independent electricity producers are powered by natural gas as primary fuel and diesel fuel as backup. Use of natural gas for 2030,power generation reduces air pollution and greenhouse gas emissions in the power generation process compared with the mainuse of coal.
According to Government Decision 4080, by June 2022, the generation of electricity in units 1-4 will be stopped, subject to the existence of two objectives being (a)cumulative conditions: (i) connection of a third gas reservoir (Karish and Tanin reservoir) to the national gas transmission system, (ii) commencement of operation of the first combined cycle with a capacity of 600 MW at the “Orot Rabin” site in Hadera. As of the date of the report, there is no certainty regarding compliance with the conditions and the cessation of generation in units 1-4 at the Orot Rabin site.
According to the policy principles set by the Minister of Energy from November 2019, until the end of coal usage2025, production units 5-6 at the Orot Rabin site in Hadera and generation units 1-4 at the transition“Rotenberg” site in Ashkelon will be converted to natural gas and renewable energies and (b) 10% penetration of renewable energies in electrical manufacturing by 2020 and 17% by 2030. In October 2020, the Israeli government issued a decision pursuant to which the target for renewable energy generation is 30% by 2030 (with an interim target of 20% by 2025). With respect to conventional generation, this decision provided that by July 2023 additional electricity generation capacity using natural gas and backed up by diesel fuel of 4,000 MW will be required. Further to determination of the targets, in November 2019, the Minister of Energy determined policy principles regarding discontinuance of the regular use of coal in the generation area of the electricity sector up to 2026, including policy principles for gradual conversion up to 2025 and no later than 2026 of the generation units 5–6 in the “Orot Rabin” power plant, and the generation units 1–4 in the “Rotenberg” power plant for purposes of discontinuance of the regular use of coal. In February 2021, the Ministry of Energy determined policy principles for examination of the scope and manner of preservation of electricity generation units at the “Orot Rabin” power plant, according to which IEC will maintain the generation units 1–4 in the “Rotenberg” power plant pursuant to a preservation outline determined up to 2025. It was also determined that shortly before the end of the preservation outline, the need will be examined for new policy principles. Regarding the targets for increased generation using renewable energy, in July 2020, the Ministry of Energy determined policy principles for update of the targets for generation of electricity using renewable energy in such a manner that the target for generation of the electricity using renewable energy will be 30% of the total electricity consumption in 2030. In October 2020, the Israeli government approved the Ministry of Energy’s proposal regarding the renewable energy targets.cease
The Electricity Authority, or the EA, which is subordinated to the Ministry of Energy and operates in accordance with its policy, was established in January 2016, and replaced the Public Utility Authority, or PUAE, which operated until that time by virtue of the Electricity Sector Law. The EA has the authority to grant licenses in accordance with the Electricity Sector Law (licenses for facilities with a generation capacity higher than 100 MW also require the approval of the Minister of Energy), to supervise license holders, to set electricity tariffs and criteria for them, including the level and quality of services required from an “essential service provider” license holder, supply license holder, a transmission and distribution license holder, an electricity producer and a private electricity producer. Thus, the EA supervises both the IEC and private producers.
The Minister of Energy can dispute EA rulings and request a renewed discussion on specific rulings, except in the matter of the electricity tariffs, which the EA has full authority to set. In addition, the Minister of Energy has the authority to propose the appointment of some of the members of the EA board, as well as the authority to rule on electricity market policy on the subjects defined in the Electricity Sector Law.
According to the Electricity Sector Law, the EA may set the power rates in the market, based, among others, on IEC costs that the EA elects to recognize, and yield on capital. The EA sets different rates for different electricity sectors. According to the Electricity Sector Law, the IEC shall charge customers in accordance with rates set by the EA and shall pay another license holder or a customer in accordance with the relevant rates. In addition, the EA sets the tariffs paid by private electricity producers to the IEC for various services provided by the IEC, including measurement and meter services, system services, and infrastructure services.
For further information on related EA tariffs, see “—Industry Overview— Overview of Israeli Electricity Generation Industry.” For further information on the effect of EA tariffs on OPC’s revenues and margins, see “Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of Operations—OPC— Sales—EA Tariffs.”
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Independent Power Producers (IPPs)
Activity by independent power producers,IPPs, including the construction of private power stations and the sale of electricity produced therein, is regulated by IPP Regulations and the Cogeneration Regulations, as well as the rules, decisions, and standards established by the EA. OPC-Rotem has a unique regulation by virtue of a tender, as detailed below.
According to the Electricity Sector Law, none of the actions set in the Electricity Sector Law shall be carried out by anyone other than a license holder. The Licenses Regulations include provisions and conditions in the matter of issuing licenses, rules for operating under such licenses and the obligations borne by license holders.
In order to obtain a production license, an applicant must file a request in accordance with the relevant regulations, and meet the threshold conditions. Among others, the manufacturer bears the burden to prove that the corporation requesting the license has a link to the land relevant to the facility. According to EA rulings, subject to meeting the terms (and with the approval of the Minister of Energy for licenses exceeding 100 MW), the developer is granted a conditional license and, upon completion of construction of the facility and successful compliance with acceptance tests, a generation license. The conditional license holder must meet certain milestones for constructing its facility as detailed in the conditional license, and must also prove financial closing. Only after meeting these milestones and the commercial operation of the facility, the developer is granted a generation license (or Permanent License) determined by the EA for the period determined in such license (for licenses exceeding 100 MW, the license must be approved by the Minister of Energy).
This model, which is based on receiving a conditional license followed by a permanent license (subject to meeting the regulatory and statutory milestones), is applicable to both the production of electricity using all types of technology, with the exception of facilities with an installed capacity under 16 MW, for which no license is required for their operation. A party requesting a supply license must demonstrate compliance with the shareholders’ equity requirements as provided by the EA as a condition for receipt of a supply license for suppliers without means of generation.
According to the 20192020 Electricity Market Report, as of 2019,2020, IPPs (including OPC-Rotem and OPC-Hadera), including those using renewable energy) areenergy, active in the market withIsrael have an aggregate generation capacity of approximately 6,6148,329 MW, constituting 34%42% of the Israeli electricity market’s total installed capacity.generation capacity in the country. The EA estimates that, by the end of the IEC reformReform period, the IEC’s market share is expected towill be approximatelyabout 45% of the installed conventional capacity in the market, approximatelyIsrael, 33% of the installed capacity (including renewable energy)energies) and approximately 32% of gas-fired installed capacity. In generation terms, according to the installed capacity for gas. The2018 letter of the chairman of the EA, the IEC’s market share is expected to drop below 40% of the total generation in the market.
The regulatory arrangements applicable to IPPs were determined while distinguishing between the different generation technologies they use and the various levels of voltage they will be connected to (according to installed capacity). The following are the key electricity production technologies used by private producers in Israel:
| • | Conventional technology – electricity generation using fossil fuel (natural gas or diesel oil). As of December 31, 2020, the total installed capacity in this technology which is in the hands of independent producers, is about 5,480 megawatts. During 2021, the Ramat Hovav power plant transitioned from the IEC to an independent producer. Therefore, according to OPC’s understanding, the installed capacity in the hands of independent producers increased by an additional 1,195 megawatts. |
| • | Cogeneration technology – electricity generation using facilities that simultaneously generate both electrical energy and useful thermal energy (steam) from a single source of energy. Exercise of the quota of generators using this technology amounts to approximately 990 MW out of a total quota of 1,000 MW assigned under the current regulation. Licenses issued beyond that shall be subject to different regulation. |
| • | Renewable energy – generation of electric power the source of energy of which includes, inter alia, sun, wind, water or waste. In November 2020, the Israeli government updated the generation targets for renewable energy to 30% of the consumption up to 2030. As of the end of 2021, the installed capacity of renewable energy generation facilities was 3,656 MW. In recent years, there has been an uptick in the entrance of electricity producers and generation facilities that use renewable energies in to the electricity generation market, including solar energy, wind energy, and storage; that use the grid resources. As of the report date, most of the renewable energy generation activities are sold to the System Operator or for own consumption and to the Onsite Producers. |
| • | Pumped storage energy – generation of electricity using an electrical pump connected to the power grid in order to pump water from a lower water reservoir to an upper water reservoir, while taking advantage of the height differences between them in order to power an electric turbine. The installed capacity of production facilities using this technology amounts to 644 MW out of a total quota of 800 MW assigned to generation. |
| • | Energy storage – this is possible through a range of technologies, including, among others, pumped storage, mechanical storage (for example compressed air) and chemical storage (for example batteries). In light of the Israeli government decision that provides a target for generation of electricity using renewable energies (mainly solar energy) at the rate of 30% out of the generation up to 2030, the EA estimates that the electricity sector in Israel will need to prepare for construction of facilities for energy storage. The use of this technology is currently negligible; however, it is expected to increase significantly in the upcoming years due to the need for storage facilities as a result of the anticipated increase in renewable energies. In particular, based on EA publications, compliance with the target for renewable energies up to 2030 will require construction of storage facilities in the scope of about 2,700 to 5,300 MW, deriving from the readiness of the technology and the economic feasibility of its use. |
According to the Electricity Sector Law, the IEC, as an essential service provider, is committed to purchasing electricity from IPPs at the rates and under the conditions set in the Electricity Sector Law and the regulations and standards promulgated thereunder (and, in relation to OPC-Rotem, by virtue of the tender and OPC-Rotem’s PPA with IEC). In addition, the IEC is committed to connecting the IPPs facilities to the distribution and transmission grid and providing them with infrastructure services in order to allow IPPs to provide power to private customers and system administration service.
Electricity Consumers
In recent years more so than in the past, due to the Israeli government’s targets with respect to renewable energies and the targets of the Minister of Energy for decentralized generation, the impact of electricity consumers on the market has strengthened. In recent years, there is a global trend of transition from generation of electricity using fossil fuels to generation using renewable energy technologies – this being due to, among other things, the increasing awareness of the climate change crisis, as well as in light of the decline in the construction costs of the renewable energy facilities, particularly the photovoltaic generation facilities.
Regulatory Framework for Conventional IPPs
The regulatory framework for current and under construction conventional IPPs was set by the PUAE in 2008. An IPP may choose to allocate its generation capacity, as “permanently available capacity,” or PAC, or as “variable available capacity,” or VAC. PAC refers to capacity that is allocated to IEC and is dispatched according to IEC’s instructions. PAC receives a capacity payment for the capacity allocated to IEC, as well as energy payment to cover the energy costs, in the event that the unit is dispatched. VAC refers to capacity that is allocated to private consumers, and sold according to an agreement between the IPP and a third party. Under VAC terms, IPP shall be entitled to receive availability payments for excess energy not sold to private customers. In addition, the IEC can purchase electricity allocated to it at variable availability, on a price quote basis. Within this regulatory framework, a private electricity producer can choose to allocate between 70% and 90% of their production capacity at high availability, and the rest at variable availability.
Upon the development of the electricity marketsector and the full utilization of EA Regulation 241 quotas, in December 2014, the EA published a follow-up arrangement for conventional producers, and implemented dispatch of IPPs according to the economic dispatch order. According to this regulation, the production units shall be dispatched in accordance with an economic dispatch principle and independent of PPAs between producers and customers, and shall apply to producers with an installed capacity higher than 16 MW and up to a total output of 1,224 MW. This regulation is referred to as “Regulation 914.”
In May 2017, the EA amended Regulation 914. Under the amendment, a higher tariff was adopted for production facilities that comply with certain flexible requirements. The amendment also offers open-cycle producers several alternatives, including receiving surplus gas from the gas agreements of other producers. The total quota for new facilities pursuant to this arrangement was limited to 1,100 MW distributed across various plants (at least 450 MW and up to 700 MW for combined cycle facilities, at least 400 MW and up to 650 MW for flexible open cycle facilities). Furthermore, under the amendment the EA prohibits entry into bilateral transactions by open-cycle facilities and demands that combined-cycle facilities sell at least 15% of their capacity to private consumers. Finally, in order to grant IPPs sufficient time to reach financial closing, Regulation 914 was extended to apply to producers who will receive licenses no later than January 1, 2020.
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In November 2018, the EA published a decision regarding the activity arrangement of natural gas generation facilities connected to the distribution network. Pursuant to this decision, generators under 16 MW are encouraged to construct power plants within customers’ facilities. These power plants will only be permitted to sell electricity to customers within the facility (and not other private customers) and the System Administrator.Operator.
In March 2019, the EA published a decision regarding the establishment of generators connected to the high-voltage network without a tender process. This decision would permit the establishment of generation facilities that are connected to the transmission grid or integrated in the connection of a consumer connected to the transmission grid (excluding renewable energy) for a maximum capacity of 500 MW and provided they receive tariff approval by the end of 2023. These generation facilities will only be permitted to sell electricity to customers within the facility (and not other private customers) and to provide the rest of their available capacity to the System Administrator,Operator, that will upload the capacity to the grid according to central upload system. The EA has stated that it intends to publish information on the tender process for construction of such generation facilities in the future.
In November 2020,December 2021, the EA proposed to the MinisterElectricity Sector Regulations (Promotion of Energy regulations regarding the promotion of competitionCompetition in the electricity generation industry. The regulations remain subject to the approval of the Minister of energy. Pursuant to these rules, a generation or conditional license may not be granted if (a) the grantee will hold plants operating on natural gas exceeding 20% of planned capacity (which the EA has stated is 14,000 MW, including the capacity of IEC)Generation Segment) (Temporary Order), (b) the grantee will hold more than one plant operating on pumped storage technology, or (c) the grantee will hold plants operating on wind energy exceeding 60% of planned capacity. Regarding (a), according to the principles of the Competition Authority the relevant limit is 20% of 10,500 MW (which is the anticipated capacity in the market held by private players by 2023, excluding capacity of IEC). These regulations have not been adopted2021 were issued by the Minister of Energy yet.
OPC-Rotem’s Regulatory Framework
OPC-Rotem operates according to a tender issued by the state of Israel in 2001 and, in accordance therewith, OPC-Rotem and the IEC executed the IEC PPA in 2009, which stipulates OPC’s regulatory framework. This PPA will be assigned by IEC to the System Administrator.Operator. OPC-Rotem’s framework differs from the general regulatory framework for IPPs, as set by the PUAE and described above.
According to the IEC PPA, OPC-Rotem may sell electricity in one or more of the following ways:
| 1. | Capacity and Energy to IEC: according to the IEC PPA, OPC-Rotem is obligated to allocate its full capacity to IEC. In return, IEC shall pay OPC-Rotem a monthly payment for each available MW, net, that was available to IEC. In addition, when IEC requests to dispatch OPC-Rotem, the IEC shall pay a variable payment based on the cost of fuel and the efficiency of the station. This payment will cover the variable cost deriving from the operation of the OPC-Rotem Power station and the generation of electricity. |
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| 2. | Sale of energy to end users: OPC-Rotem is allowed to inform IEC, subject to the provision of advanced notice, that it is releasing itself in whole or in part from the allocation of capacity to IEC, and extract (in whole or in part) the capacity allocated to IEC, in order to sell electricity to private customers pursuant to the Electricity Sector Law. OPC-Rotem may, subject to 12-months’ advanced notice, re-include the excluded capacity (in whole or in part) as capacity sold to IEC. |
OPC-Rotem informed IEC, as required by the IEC PPA, of the exclusion of the entire capacity of its power plant, in order to sell such capacity to private customers. Since July 2013, the entire capacity of OPC-Rotem has been allocated to private customers.
The IEC PPA includes a transmission and backup appendix, which requires IEC to provide transmission and backup services to OPC-Rotem and its customers, for private transactions between OPC-Rotem and its customers, and the tariffs payable by OPC-Rotem to IEC for these services. Moreover, upon entering a PPA between OPC-Rotem and an individual consumer, OPC-Rotem becomes the sole electricity provider for this customer, and IEC is required to supply power to this customer when OPC-Rotem is unable to do so, in exchange for a payment by OPC-Rotem according to the tariffs set by the EA for this purpose. For further information on the risks associated with the indexation of the EA’s generation tariff and its potential impact on OPC-Rotem’s business, financial condition and results of operations, see “Item 3.D Risk Factors—Risks Related to OPC— Changes inOPC’s Israel operations—OPC’s profitability depends on the EA’s electricity rates may reduce OPC’s profitability.rates.”
In November 2017, OPC-Rotem applied to the EA to obtain a supply license for the sale of electricity to customers in Israel. In February 2018, the EA responded that OPC-Rotem needs a supply license to continue selling electricity to customers and that the license will not change the terms of the PPA between OPC-Rotem and the IEC. The EA also stated that it will consider OPC-Rotem’s supply license once the issue of electricity trade in the Israeli economy has been comprehensively dealt with. OPC-Rotem has not received a supply license to date and there is no assurance regarding the receipt of the license and its terms. If OPC-Rotem does not receive a supply license, it may adversely affect OPC-Rotem’s operations.
In February 2020, the EA issued standardspublished the resolution made in Meeting 573 regarding deviations from the consumption plans submitted by private electricity suppliers, which will become effective on September 1, 2020. Under these regulations,plan. Pursuant to the resolution, a supplier will only be permittedmay not sell more to sell electricity produced by IPPs toits consumers and not electricity purchased fromthan the IEC. Deviations from annualtotal capacity that is the object of all the engagements it has entered into with independent production license holders. Actual energy consumption plans exceedingat a rate higher than 3% of the installed capacity allocated to athe supplier will result intrigger payment of an annual tariff. The regulation also provides fortariff reflecting the annual cost of the capacity the supplier used as a result of the deviation, as detailed in the resolution. In addition, the resolution stipulates a settlement of accounts mechanism for deviationsdue to a deviation from the daily consumption plans.plan (surpluses and deficiencies), that will apply in addition to such annual tariff payment. The EA has stated that this regulation willdecision applies to OPC-Hadera and is expected to apply to OPC-Rotem after the complementary arrangements are set. As of March 27, 2022, the extent of the resolution’s effect on OPC-Rotem is uncertain, and it depends, among other things, on the final supplementary arrangements have been determined for OPC-Rotem, which have yet to be determined. OPC-Rotem is currently in discussions with the EA and OPC has submitted its position to the EA that preserving OPC’s rights under the OPC-Rotem tender required granting a supply license at the same time as applying the described decision to OPC-Rotem. The EA regulations could limit OPC-Rotem’s operations if it does not obtain a supply license or if it obtains a license that contains more restrictive terms than expected. OPC is still examining the effects of the decision on OPC-Rotem and OPC-Hadera.
Regulatory Framework for Cogeneration IPPs
The regulatory framework for current and under construction cogeneration IPPs was established by the PUAE in its 2008 and 2016 decisions. A cogeneration IPP can sell electricity in the following ways:
| 1. | At peak and shoulder times, one of the following shall apply: |
| a. | each year, the IPP may sell up to 70% of the total electrical energy, calculated annually, produced in its facility to IEC—for up to 12 years from the date of the grant of the license; or |
| b. | each year, the IPP may sell up to 50% of the total electrical energy, calculated annually, produced in its facility to IEC—for up to 18 years from the date of the grant of the license. |
| 2. | At low demand times, IPPs with units with an installed capacity of up to 175 MW, may sell electrical energy produced by it with a capacity of up to 35 MW, calculated annually or up to 20% of the produced power, inasmuch as the installed output of the unit is higher than 175 MW, all calculated on an annual basis. |
According to the regulations, if a cogeneration facility no longer qualifies as a “Cogeneration Production Unit,” other rate arrangements are applied to it, which are inferior to the rate arrangements applicable to cogeneration producers.
In December 2018, the EA published a proposed decision for hearing regarding arrangements for high voltage generators that are established without a tender process. This would also enable the establishment of cogeneration facilities.
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OPC-Hadera’s Regulatory Framework
In connection with construction of a cogeneration power station in Israel, OPC-Hadera reached its COD on July 1, 2020. In June 2020, the EA granted a permanent license to the OPC-Hadera power plant for generation of electricity using cogeneration technology having installed capacity of 144 MW and a supply license. The generation license is for a period of 20 years, as is the supply license so long as a valid generation license is held (the generation license may be extended by an additional 10 years).
In connection with above, OPC-Hadera must meet certain conditions before it will be subject to the regulatory framework for cogeneration IPPs and be considered a “Cogeneration Production Unit.” For example, OPC-Hadera will have to obtain a certain efficiency rate which will depend, in large part, upon the steam consumption of OPC-Hadera’s consumers. In circumstances where OPC-Hadera no longer satisfies such conditions and therefore no longer qualifies as a “Cogeneration Production Unit,” other rate arrangements, are applied to it, which are inferior to the rate arrangements applicable to cogeneration producers.
Tzomet’s Regulatory Framework
The Tzomet power plant is expected to be constructed pursuant to Regulation 914 and will be subject to the conditions and limitations thereunder, see “—Regulatory Framework for Conventional IPPs.”
In September 2019, Tzomet received the results of an interconnection study performed by the System Administrator.Operator. The study included a limitation on output of the power plant’s full capacity to the grid beyond a limited number of hours per year, up to completion of transmission projects by IEC, which are expected to be completed by the end of 2023. In December 2019, the EA approved Tzomet’s tariff rates, which will be applicable upon completion of the power plant and receipt of a permanent generation license. Given the limitation included in the interconnection study, Tzomet will be subject to a reduced availability tariff during 2023. See “Item 3.D Risk Factors—Risks Related to OPC—OPC’s Israel operations—OPC faces risks in connection with the expansion of its business.”
In January 2020, Tzomet entered into a PPA with IEC, the government-owned electricity generation, transmission and distribution company in Israel, or the Tzomet PPA (in October 2020, OPC-Rotem received notice of assignment by IEC to the System Administrator)Operator which was subsequently reassigned to Noga). The term of the Tzomet PPA is for 20 years after the power station’s COD. According to the terms of the Tzomet PPA, (1)(i) Tzomet will sell energy and available capacity to IEC and IEC will provide Tzomet infrastructure and management services for the electricity system, including back-up services (2)(ii) all of the Tzomet plant’s capacity will be sold pursuant to a fixed availability arrangement, which will require compliance with criteria set out in Regulation 914, (3)(iii) the plant will be operated pursuant to the System Administrator’sOperator’s directives and the System AdministratorOperator will be permitted to disconnect supply of electricity to the grid if Tzomet does not comply with certain safety conditions and (4)(iv) Tzomet will be required to comply with certain availability and credibility requirements set out in its license and Regulation 914, and pay penalties for any non-compliance. Once the Tzomet plant reaches its COD, its entire capacity will be allocated to the System AdministratorOperator pursuant to the terms of the Tzomet PPA, and Tzomet will not be permitted to sign agreements with private customers unless the electricity trade rules are updated.
Tzomet has not entered into a gas supply agreement yet, but has the option to engage with a gas supplier or have its gas supplied by the IEC.
United States
The electricity market in the United States has both Federal oversight (wholesale sales of electricity and interstate transmission) and State oversight (retail sales of electricity and provision of distribution service to end users). The major players in the US electricity sector are RTO, FERC, and ISO, electricity producers (which are, in general, private entities) and electric utility companies and electricity distribution companies operating on behalf of the different consumers (such as private and commercial consumers). The primary federal regulator is the Federal Energy Regulatory Commission (FERC), alongside separate state-level Public Service Commission’s exercising oversight in their respective states. The wholesale electric marketplace in the United States operates within the framework of several FERC-approved regional or state market operators, known as Regional Transmission Organizations (RTO)including RTO or Independent System Operator (ISO). ISO/RTO’sISO. RTO/ISOs are responsible for the day-to-day operation of the transmission system, the administration of the wholesale markets in the regions in which they operate, and for the long-term transmission planning and resource adequacy functions.
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FERC approval under the Federal Power Act may be required prior to a direct, or indirect upstream, change in ownership or control of voting interests, in any FERC jurisdictional public utility (including one of our U.S. project companies) or any public utility assets. FERC approval may also be required for individuals to serve as common officers or directors of public utilities or of a public utility and certain other companies that provide financing or equipment to public utilities. FERC also implements the requirements of the Public Utility Holding Company Act of 2005 applicable to “holding companies” having direct or indirect voting interests of 10% or more in companies that (among other activities) own or operate facilities used for the generation of electricity for sale, which includes renewable energy facilities. The regulations of some US states also contains similar provisions with respect to ownership or control of voting interests, directly or indirectly through subsidiaries, of a public utility. Accordingly, the acquisition of an interest that gives rise to ownership of a percentage equal to or greater than 10% of the share capital of OPC Energy or Kenon may be subject to prior FERC approval and such direct or indirect acquisition may also require approval state regulatory authorities in certain US states in which OPC'sOPC’s US business operates.
The PJM market
The PJM Interconnection (PJM) is an ISORTO and RTOISO that operates a wholesale electricity market and serves as an administrator of the electric transmission system which covers parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia, which services aboutserving more than 65 million residents. The PJM market is the largest among the RTOs with approximately 198185 gigawatts of installed capacity and peak demand of approximately 148165 gigawatts. PJM oversees the operation of more than 150,000 kilometers of transmission lines. Sale of electricity in the organized PJM market is supervised and managed by PJM to assure supply of the electricity, based on price offers of the electricity generators.
The PJM is supervised by and receives its authority from the FERC and is financed by payments from participants in the market. PJM collects payments for capacity, electricity, transmission, accompanying services and other services required for operation of the electricity system from utilities and electric distribution companies acting on behalf of consumers (households, commerce and industry), and distributes the payments to the generators and transmitters, by means of a variety of market mechanisms, including purchase of capacity (Forward Capacity Market) and an electricity acquisition mechanism in the Day-Ahead and Real-Time markets. In general, the capacity price is determined in an annual tender for operations over one year three years in advance and is guaranteed without reference to the actual amount of electricity generated. Payments for electricity are made for actual electricity generation and are determined on the basis of the marginal price in the market.
The NYISO market
The NYISO market has operated since 1999, and is one of the most advanced electricity markets in the United States and in the world. The NYISO market includes about 40 gigawatts of installed capacity and more than 18,000 kilometers of transmission lines, serving 20 million customers with a peak demand of 34 gigawatts. The market is divided into 11 regions (zones). The pricing of the electricity and the capacity varies amongst the regions based on demand and available supply. The NYISO electricity market includes a Day-Ahead and Real-Time market for the sale of electricity and other ancillary services. In addition, the NYISO has operated a capacity market since 2003. Capacity prices are determined on a monthly basis, with up to six-month forward auctions. Capacity payments are guaranteed without reference to the amount of electricity actually generated. For the delivery year beginning 2022/23 there were no capacity auctions in the PJM market due to an inquiry with FERC. Capacity auctions will be renewed in May 2021 and are expected to take place once every six months until the normal three-year forward schedule can resume beginning with the 2027/28 auction to be held in May of 2024. After that, the tenders are expected to continue as described above. The electricity prices for energy are determined on the basis of the marginal price inon the market.
The ISO–NE market
ISO–NE is the ISO responsible for managing the day-to-day operation of the New England transmission system, as well as administering the wholesale electricity and capacity markets in New England. ISO–NE was created in 1997 to operate the wholesale power market under the direction of the New England Power Pool (NEPOOL). In 2005, it became an independent RTO, assuming broader authority over the day-to-day operation of the power system, market administration, and transmission planning with direct control over the transmission rates and market rules. The ISO-NE managed footprint covers Connecticut, Massachusetts, New Hampshire, Rhode Island, Vermont, and most of Maine. It serves about 15 million residents with a generation scope of about 31 gigawatts and peak demand of about 28 gigawatts. ISO-NE administers more than 14,000 kilometers of transmission lines ranging from 69kv to 345kv and including several tie lines to neighboring control areas NY, Quebec, and New Brunswick. ISO–NE is a non-profit FERC-regulated entity which operates pursuant to a tariff on file with FERC.
The markets in New England include a Day Ahead and Real Time Energy Market for the sale of electricity, a Forward Capacity Market of tenders for operations over one year three years in advance. New projects have the option of ensuring capacity for a longer period), and other ancillary services.
Regulation permits/licenses
In general, CPV’s facilities and operations are regulated under a variety of federal and state laws and regulations. For example, the construction and operation of CPV’s thermalconventional natural gas-fired power plant operationsplants are subject to air quality requirements underpermitting and emission limitations pursuant to the federal Clean Air Act (“CAA”)CAA and related state laws and regulations that implement the CAA, which laws and regulations and may be more stringent than the federal CAA depending on the state in additionwhich a plant is located. CPV must typically obtain major source permits (usually from state environmental agencies) before such plants can be constructed. Depending on whether the air quality in the region is in attainment with national ambient air quality standards, CPV may be required (as it has with respect to conventional natural gas-fired power plants that CPV has or is constructing in New York, New Jersey, Connecticut and Illinois) to obtain emission credits to offset each plant’s potential emissions. CPV will also typically be required to obtain Title V Operating Permits in order to operate these plants, which permits will incorporate regulatory standards applicable to air emissions for natural-gas fired power plants and relevant terms and conditions from the construction permits issued for such plants. Among these standards are obligations to hold SO2 allowances and/or NOx allowances on an annual and/or “ozone” season basis to offset annual and/or ozone season emissions, pursuant to federal Acid Rain regulations requiringand the Cross-State Air Pollution Rule, although the application of the latter regulation depends on the state a power plant is located in. Most of CPV’s conventional natural gas-fired power plants are subject to the Cross State Air Pollution Rule. As of the date of this report, 22 states in the US, including certain states in which CPV operates, have adopted legislative agendas and/or executive orders with the goal of achieving carbon neutrality or a 100% zero-emissions electricity supply in the next 20 to 30 years.
Federal regulations require the reporting of greenhouse gas emissions under the Clean Air Act. The CAA regulates emissions of air pollutants from various industrial sources, such as natural gas-fired power plants, including by requiring Title V Permits to Operate for such sources of air pollution emissions above certain thresholds. Federal regulations also impose limits on CO2 emissions from new (commenced construction after January 8, 2014) or reconstructed (commenced reconstruction after June 8, 2014) combined-cycle power plants. States may also impose additional regulations or limitations on such emissions. For example, CPV’s conventional natural gas-fired power plants in Connecticut, New York, New Jersey and Maryland are subject to the RGGI, which requires CPV’s conventional natural gas-fired plants to obtain, either through auctions or trading, greenhouse gas emission allowances to offset each facility’s emission of CO2. Pennsylvania is also expected to apply the RGGI regulation in 2022, although the official date of implementation is not known as of the date of this report. Under the RGGI, an independent market monitor provides oversight of the auctions for CO2 allowances, as well as activity on the secondary market, to ensure integrity of, and confidence in, the market. In 2021, the minimum price that CO2 allowances could be sold for was $2.38 per allowance.
CPV’s thermalconventional natural gas-fired projects are also subject to regulation under the federal Clean Water Act (“CWA”)CWA and related state laws in connection with any discharges of wastewater and storm water from its facilities. The CWA prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits, including wastewater and stormwater permits under the National Pollutant Discharge Elimination System (“NPDES”). Discharges of wastewater to public treatment works may (depending on the wastewater source) be subject to federal standards, although the primary authority regulating such discharges is typically the local municipality that operates the public wastewater treatment system.
The projects of the CPV Group are also subject, as applicable, to requirements under federal and state laws governing the management, disposal and release of hazardous and solid wastes and materials at or from its facilities, including the federal Resource Conservation and Recovery Act (“RCRA”) and the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) (and equivalent state laws). RCRA requires owners and operators of facilities that generate store, treat, orand dispose of hazardous wastewastes at third-party locations to obtain facility identification numbers from the U.S. Environmental Protection Agency (“EPA”) and to comply with regulations governing the storage and disposal of such wastes. Facilities that store hazardous wastes for longer than specified periods of time, or treat or dispose of hazardous waste on-site are required to obtain and operate in compliance with RCRA Subtitle C permit requirements. permits. CPV facilities are operated so as to not require RCRA Subtitle C permits.
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CERCLA authorizes the EPA to undertake environmental cleanup of releases of hazardous waste and pursue response actions against potentially responsible parties (“PRPs”) for such waste. CERCLA, along with similar state laws, provides that persons that currently or formerly owned or operated facilities where hazardous substances have been released into the environment, or transported wastes containing hazardous substances to third-party disposal locations, may be liable - to the United States, state agencies, or private parties - for “response costs” incurred by such parties to investigate and remediate contamination at such locations, or may be subject to orders issued by EPA or state agencies (under state remediation statutes) to investigate and remediate such contamination. Responsible parties under CERCLA can also be liable for natural resource damages caused by such releases. Liability pursuant to CERCLA and similar state laws is not subject to a defense that a person’s actions were taken in compliance with applicable law, and liability is typically “joint and several”, meaning that a responsible party may be held liable for more than its equitable share of the response costs based solely on what it contributed to a waste disposal site.
The sitingsites and operation of CPV’s renewable power projects, in turn, are subject to a variety of federal environmental laws, including with respect to protection of threatened and endangered plant and animal species, such as the Endangered Species Act (“ESA”), the Migratory Bird Treaty Act, and the Bald and Golden Eagle Protection Act. These laws and their state equivalents provide for significant civil and criminal penalties for unpermitted activities that result in harm to or harassment of certain protected animals and plants, including damage to their habitats. CPV’s operations in areas where such threatened or endangered species are located, or where designated as suitable or critical habitat exists, may be subject to increased restrictions, limitations, or mitigation requirements arising from species protection measures.measures, or CPV may be prevented from developing a project in such areas. CPV’s conventional natural gas-fired projects are also subject to these natural resource laws, although such statutes are typically more of an issue for wind and solar projects given the amount of land required for the development of such projects; the location of such projects; and in the case of wind, the greater likelihood of an impact on avian species and listed bat species.
CPV’s operations also are subject to a number of federal and state laws and regulations designed to protect the safety and health of workers, including the federal Occupational Safety and Health Act, and equivalent state laws.
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Permits/licenses required in connection with operational projects
As part of its activities, CPV is required to obtain and hold permits due to various federal, state and local legislation and regulations relating to power plant operations and environmental protection. Such permits are required both due to the activities of the power plants involving generation therein based on natural gas and the impact of the generation process on the air and water in the area of the facilities, as well as a result of construction of the renewable energy facilities (wind fieldsfarms and solar fields) that could constitute environmental hazards and have a harmful impact on the area in which they are located. The main required permits/licenses (without distinction between different requirements of the various jurisdictions in which the power plants / facilities are located):
| 1. | CPV is required to hold permits in order to operate and/or construct the power plants, the purpose of which is prevention or reduction of air pollution. The power plants may also be required to hold permits for flowing water, waste-water and other waste into the local sewer systems or into other water sources in the United States. |
| 2. | Due to the height and location of the exhaust stacks and other components of the generation facilities, which could endanger the air traffic, the power plants are required to hold a permit for construction of the stacks and additional components in the generation facilities. This permit is issued by the Federal Aviation Authority (FAA). |
| 3. | Renewable energy facilities are frequently required to obtain coverage under general permits applicable to the control of stormwater and the discharge of dredged and fill materials to waters of the United States; depending on the size of the area impacted, such facilities may require individual permits from the ACOE for such impacts, although usually projects can be sited to avoid this requirement. |
| 4. | State or local siting permits for renewable energy facilities (permit requirements will depend on the state and locality where the project is situated). |
All of CPV’s active plants, as well as the plant under construction, hold relevant valid permits for their operational and/or construction activities. With respect to CPV Valley, it commenced operations in January 2018 under a combined Air State Facility and a pre-construction Prevention of Significant Deterioration permit (together, the “ASF Permit”), among other permits and approvals. Valley subsequently filed its Title V Air Permit Application on August 24, 2018, (which is required to replace the ASF Permit) and continued operations under the automatic permit extension provision in the State Administrative Procedure Act, which also extends the ASF Permit. The New York State Department of Environmental Conservation (“NYSDEC”) published notice on May 29, 2019 that the Title V application was complete. NYSDEC was required to make a final determination on CPV Valley’s Title V permit application within eighteen months after the application was deemed complete. Rather than making a final determination within that time frame, however, NYSDEC revoked its prior application completeness determination and issued a Notice of Incomplete Application on November 29, 2020. NYSDEC stated that CPV Valley was required to provide an assessment of how NYSDEC’s issuance of a Title V permit would be consistent with the Statewide greenhouse gas emissions limitsreduction requirements (including a 40% reduction in greenhouse gas emissions in New York by 2030, net zero greenhouse gas emissions by 2050, and 100% zero-emission electric generation by 2040) established in the New York Climate Leadership and Community Protection Act (the “CLCPA”). that was passed in July 2019. CPV Valley is engaged in discussions with NYSDEC Staffstaff to identify the scope of the information the NYDECNYSDEC seeks under the CLCPA. CPV Valley can continue to operate under the ASF Permit until a final determination is made regarding the Title V permit. There is no certainty regarding receipt of a Title V permit or timing thereof. If the NYSDEC rejects the facility’s application for a Title V permit and such rejection is upheld if challenged, CPV Valley would not received,be permitted to continue operation; alternatively, the NYSDEC may seek to include terms and conditions in the Title V permit that adversely affects CPV Valley’s operations or if receipt is subject to terms, as well as with respect to the proceedings with NYSDEC, this could have an adverse impact on CPV Valley.financial performance.
A direct or indirect change in ownership or control of voting rights in a corporation that provides infrastructure services ("(“public utilities"utilities”) (including one of the CPV project companies in the U.S.) within the jurisdiction of the FERC, or in any property used for infrastructure services, may be subject to FERC approval, pursuant to the Federal Power Act. Such approval may also be required for holding the position of officers or directors in corporations that provide infrastructure services or certain other companies that provide financing or equipment for infrastructure services. The FERC also applies the requirements in the Public Utility Holding Company Act of 2005 to companies that directly or indirectly hold at least 10% of the voting rights in companies that, among other activities, own or operate facilities that generate electricity for sale, including renewable energy facilities. There is similar state regulation in some states that regulates ownership or control, directly or indirectly through subsidiaries, of voting rights in corporations that provide infrastructure services. Therefore, the acquisition of 10% or more of the share capital of OPC, or Kenon may be subject to FERC approval, and such direct or indirect acquisition may also be subject to the approval of state regulatory authorities in some U.S. states where the company has business operations.
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Property taxes/community payments
In general, each CPV project company is subject to property taxes annually paid to the local jurisdiction in which it is located. In some cases (Shore, Maryland, Valley, &Maple Hill and Towantic), the projects have come to an arrangement for a long-term payment which replaces the regular assessment and taxation process or recognizes certain exemption provisions in relevant laws or regulations. The long-term payment arrangements run between 20-3020 and 35 years from COD for each applicable project. In other cases (Fairview & Keenan), the projects are subject to an annual assessment on the value of their taxable property and then pay property taxes at the relevant taxing jurisdiction rates.
In addition, few of thecertain CPV project companies (Fairview and Valley) entered into agreements for the benefit of community purposes in their respective local communities. The long-term payments by virtue of such agreements fund community entities or reimburse the local community for the impact during construction. These payments are spread over periods of 20 to 30 years from COD.
Other Relevant Legislation
In November 2021, the US Congress approved a bipartisan infrastructure law, signed by the President of the US (hereinafter - the “Infrastructure Act”). The Infrastructure Act is the first part of legislation (which includes two parts) addressing many sectors of the US economy, including transportation, construction, and energy. A significant part of the Infrastructure Act addresses the expansion of transmission infrastructure, research and development of technologies, including carbon capture and use of hydrogen, reinforcement of the grid, and energy efficiency. However, there are several provisions within the legislation that provide funding opportunities through the Department of Energy to support the development of zero and low emitting generation projects. A second piece of relevant legislation, known as the Build Back Better (“BBB”) Act from an energy perspective focuses on tax incentives to support numerous zero and low carbon technologies. The BBB Act bill that passed the House of Representatives in November of 2021 was passed largely along a party line vote (one democrat and all republicans voting against) included refundable production and investment tax credits for the expansion of renewable energy production facilities, carbon capture technologies and hydrogen investments. The BBB Act remains in negotiations in the Senate. As of the date of the report, there is uncertainty regarding the enactment of the BBB Act as a singular piece of legislation or whether it can be passed at least in part incrementally through smaller limited scope standalone bills. If the energy provisions of the BBB Act are passed in separate bills, such legislation may have a significant effect on electricity demand by promoting low-carbon transport and a low-carbon economy while raising standards for electricity generation using clean energy.
In April 2021, PJM established an Interconnection Process Reform Task Force that includes PJM staff and PJM member stakeholders to study and propose reforms to PJM’s interconnection process to address, among other items, a large backlog of proposed projects awaiting the completion of their interconnection studies and its effect on the iterative cost-causation process that allocates network upgrade costs to a proposed project. PJM staff and management have proposed a new interconnection process framework as well as options for transitioning from the current process to the new framework. Each of these are expected to be voted on by the task force in the first quarter of 2022 with the corresponding PJM FERC tariff changes to be developed and filed for approval at FERC by the end of the 3rd quarter of 2022, and with the transition to the new system to start in the 4th quarter of 2022. Under the proposed process the interconnection study and cost allocation construct would shift to cluster/cycle group study process and the current first-in/first-out processing construct would shift to a first-ready/first-out processing. Under the transition proposal PJM will stop accepting new interconnection requests from the transition effective date until the new framework begins to be used—which under the different transition options under consideration could be from one year up to as long as four years. During the FERC review process and prior to implementation, PJM has stated that they will continue to work to complete existing interconnection requests. The exact impact on CPV’s projects is yet to be determined although some of CPV’s projects that are expected to operate in the PJM market may be delayed.
Qoros
Kenon holds a 12% interest in Qoros, a China-based automotive company. Kenon previously held a 50% stake in Qoros prior to the Majority ShareholderShareholder’s investment in Qoros’ investment,Qoros, and was one of the founding members of the company. Kenon continues to remain actively involved in the business with its current stake and right to appoint two of the nine directors on Qoros’ board.
In 2018, the Majority Shareholder in Qoros acquired 51% of Qoros from Kenon and Chery for RMB3.315RMB 3.315 billion, as part of a total investment of approximately RMB6.63RMB 6.63 billion by the Majority Shareholder, in Qoros, of which RMB6.5RMB 6.5 billion was ultimately invested in Qoros’ equity. As a result of this investment, Kenon and Chery had 24% and 25% stakes in Qoros, respectively. In April 2020, Kenon sold half of its remaining interest in Qoros (i.e. 12%) to the Majority Shareholder in Qoros for a price of RMB1.56 billion (approximately $220 million), which was based on the same post-investment valuation as the initial investment by the Majority Shareholder, in Qoros, and Kenon retains a put option to sell this interest to the Majority Shareholder in Qoros for a price of RMB 1.56 billion (approximately $220 million). As a result, Kenon holds a 12% interest in Qoros, the Majority Shareholder in Qoros holds 63% and Chery holds 25%.
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In April 2021, KenonKenon’s subsidiary Quantum entered into an agreement with the Majority Shareholder to sell its remaining 12% interest in Qoros tofor RMB 1.56 billion (approximately $245 million). The agreement provided that a deposit of 5% was due July 30, 2021 and that the purchase price would be payable in installments through March 31, 2023. Neither the deposit nor the initial payment, due September 30, 2021, were paid, and we have not had any confirmation from the Majority Shareholder in Qorosor the Baoneng Group as to when payments will be made or if payments will be made at all. In the fourth quarter of 2021, Quantum initiated arbitral proceedings against the Majority Shareholder and Baoneng Group with CIETAC. The proceedings are ongoing.
The agreement also provides that any payment delayed for a purchase price of RMB1,560 million (approximately $238 million). The salemore than 30 days is subject to certain conditions, including approvals by relevant government authorities andinterest. In addition, as a releaseresult of the pledgepayment delay, Quantum currently has the right to exercise the put option it has over Kenon's shares in Qoros, which are currently pledged to secure debt of Qoros under its RMB1.2 billion loan facility. The purchase price is payable in installments due between July 31, 2021 and March 31, 2023.
remaining shares.Kenon hashad outstanding back-to-back guarantees“back-to-back” guarantee obligations of approximately $16 million to Chery in respect of Qoros’ debtguarantees that Chery has given in respect of approximately $1750% of the RMB 3 billion and 100% of the RMB 700 million loan facilities. In the fourth quarter of 2021, Chery paid the full amount of its guarantee obligations relating to these two loans. Chery had issued to Kenon demand notices to pay these guaranteed amounts. Kenon has paid the amount demanded by Chery, and has pledged substantiallydoes not have any remaining guarantee obligations with respect to Qoros debt.
Substantially all of its interestQuantum’s interests in Qoros are pledged to support certain Qoros debt, as well as Chery’s guarantees of Qoros debt. Following the 2020 sale of Qoros shares tosecure Qoros’ RMB 1.2 billion loan facility. Although the Majority Shareholder in Qoros, the Majority Shareholder in Qoros was required to assume its additional pro rata share of pledge obligations in respectlieu of Qoros debt;Quantum’s, it has not yet done so butprovided such pledges, and Quantum’s pledge has not been released. Baoneng Group has provided Kenon with a guarantee for a certain percentage, and up to all, of Quantum’s pledge obligations.
Kenon understands that Qoros continues to engage in discussions with the lenders and other relevant stakeholders relating to its pro rata shareother outstanding bank loans and resumption of operations, including manufacturing production which has been shut down since July 2021.
If Quantum exercises its put option, the Majority Shareholder will be required to assume the full pledge. The guarantee provided by Baoneng Group provides for a number of obligations, including the obligation for Baoneng Group to reimburse Kenon in the event Quantum’s shares are foreclosed. Currently, Baoneng Group is required to deposit an amount sufficient in escrow to ensure sufficient collateral to avoid the banks foreclosing the Qoros shares pledged by Quantum. Baoneng Group has failed to do so after Kenon made a demand in the fourth quarter of 2021, and in November 2021, Kenon filed a claim against Baoneng Group at the Shenzhen Intermediate People’s Court relating to the breaches of the pledge obligationsguarantee agreement by the Majority Shareholder. The court proceedings are ongoing. This litigation is not related to Kenon’s back-to-back guarantees to Chery. Kenon has obtained an order freezing certain assets of Baoneng Group in connection with the litigation pursuant to a court order. There is no assurance that Kenon will recover sufficient amount of assets to cover the losses resulting from the breach of contract by Baoneng Group, however, and such failure to recover may affect Kenon’s ability to realize any value in respect of Kenon’s remaining shares in Qoros. Since April 2020, Kenon no longer accounts for Qoros pursuant to the RMB1.2 billion loan facility. The pledges over Kenon's equity method of accounting and in 2021, Kenon wrote down the value of Qoros will need to be released before the completion of the sale of Kenon's remaining 12% interest in Qoros.zero.
Qoros’ Description of Operations
Qoros designs, engineers and manufactures automobiles manufacturedis an automobile manufacturer in China, designed to deliver international standards of quality and safety, as well as innovative features. In 2020, Qoros sold approximately 12,600 cars, as compared to approximately 26,000 cars in 2019. A substantial number of the 2019 sales reflected purchase orders by the leasing companies introduced by the Majority Shareholder in Qoros. These leasing companies primarily offer the vehicles to their customers under short-term arrangements, e.g. through car sharing mobile applications. In 2020, the number of vehicles sold to such leasing companies decreased to 1,544 compared to 22,900 in 2019.China.
Qoros’ platform has been designed to enable the efficient introduction of new models in the C- and D-segments. Qoros developed its vehicles in accordance with international standards of quality and safety, working in conjunction with global entities from both automotive and non-automotive industries.
A significant portion of Qoros’ sales in 20192021 and 2020 have been SUV vehicles.
The manufacturing production at Qoros conducts its vehicle manufacturing and assembly operations at its 150 thousand unit per annum, 790,000 square meter factory by land size in Changshu, China, for which it has a land use right until 2062. This technical capacity of the manufacturing facility can be increased to approximately 220 thousand units per annum through the utilization of different shift models. Qoros’ manufacturing plant was closed for a brief time in early 2020 as a result of the coronavirus. Starting in the second quarter of 2020, the production of Qoros’ manufacturing plant and the operation of Qoros returned to normal. In 2021, Qoros’ manufacturing plant wasbeen shut down as a result of engine and semiconductor supply shortages and has yet to resume production.
Qoros’ Investment Agreement
In January 2018, the Majority Shareholder in Qoros acquired 51% of Qoros from Kenon and Chery for RMB3.315RMB 3.315 billion (approximately $526 million), which was part of an investment structure to invest a total of approximately RMB6.63RMB 6.63 billion (approximately $1,053 million) by the Majority Shareholder in Qoros.Shareholder. As a result of the 2018 investment, Kenon’s and Chery’s interests in Qoros were reduced to 24% and 25%, respectively. In April 2020, we sold half of our remaining interest in Qoros (i.e. 12%) to the Majority Shareholder in Qoros for a price of RMB1.56RMB 1.56 billion (approximately $220 million), which was based on the same post-investment valuation as the initial investment by the Majority Shareholder in Qoros.Shareholder. As a result of the 2020 sale, Kenon holds a 12% interest in Qoros, the Majority Shareholder in Qoros holds 63% and Chery holds 25%. For purposes of this section, references to Kenon include Quantum (Kenon’s wholly-owned subsidiary which owns Kenon’s interest in Qoros) and references to Chery include Wuhu Chery (the direct owner of Chery’s interest in Qoros).
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The 2018 investment was made pursuant to an investment agreement among the Majority Shareholder, in Qoros, Quantum, Wuhu Chery and Qoros.
In connection with the 2018 investment, Kenon received initial cash proceeds of RMB1.69RMB 1.69 billion (approximately $260 million) and Chery received cash proceeds of RMB1.625RMB 1.625 billion (approximately $250 million). The investment was based on an RMB6.5RMB 6.5 billion pre-investment valuation of Qoros, excluding RMB1.9RMB 1.9 billion.
Guarantee Obligations and Equity Pledges
Quantum has pledged a significant portionsubstantially all of their equityits interests in Qoros to secure Qoros’ obligations under its RMB1.2RMB 1.2 billion creditloan facility.
Kenon’s Put Option
Kenon has a put option over its remaining equity interest in Qoros. The investment agreement and the Qoros Joint Venture Agreement provide Kenon with the right to cause the Majority Shareholder in Qoros to purchase up to 50% of its remaining interest in Qoros at the time of the 2018 investment for up to RMB1.56RMB 1.56 billion (approximately $220 million), subject to adjustments for inflation, during the three-year period beginning from the closing of the 2018 investment. The investment agreement further provided that from the third anniversary of the closing until April 2023, Kenon has the right to cause the Majority Shareholder in Qoros to purchase up to all of its remaining equity interests in Qoros for up to a total of RMB1.56RMB 1.56 billion (approximately $220 million), subject to adjustment for inflation. Another company within the Baoneng Group guarantees this put option as it has granted a similar option. The put option requires six months’ notice for exercise (except as described below under “—Kenon’s Agreement to Sell its Remaining 12% Interest in Qoros to the Majority Shareholder in Qoros”). The 2020 sale described below under “—Kenon’s 2020 Sale of Half of its Remaining12% Interest in Qoros to the Majority Shareholder in Qoros”” was not made pursuant to this put option. See also “Item 3.D Risk Factors—Risks Related to Our Strategy and Operations—We face risks in relation to the Majority Shareholder in Qoros’ investmentagreement to sell all of Kenon’s remaining interest in Qoros.”
The investment agreement provides that any changes in the equity holdings of Qoros by Kenon, Chery or the Majority Shareholder, in Qoros, including as a result of the put option described above, will result in adjustments to the respective parties’ pro rata obligations of the Qoros bank guarantees and pledges described above according to their equity ownership in Qoros.
If Quantum exercises its put option, the Majority Shareholder will be required to assume the full pledge. The guarantee provides for a number of obligations, including the obligation for Baoneng Group to reimburse Kenon in the event Quantum’s shares are foreclosed. Currently, Baoneng Group is required to deposit an amount sufficient in escrow to ensure sufficient collateral to avoid the banks foreclosing the Qoros shares pledged by Quantum. Baoneng Group has failed to do so after Kenon made a demand in the fourth quarter of 2021, and in November 2021, Kenon filed a claim against Baoneng Group at the Shenzhen Intermediate People’s Court relating to the breaches of the guarantee agreement by the Majority Shareholder. The court proceedings are ongoing. This litigation is not related to Kenon’s back-to-back guarantees to Chery. Kenon has obtained an order freezing certain assets of Baoneng Group in connection with the litigation pursuant to a court order. There is no assurance that Kenon will recover sufficient amount of assets to cover the losses resulting from the breach of contract by Baoneng Group, however, and such failure to recover may affect Kenon’s ability to realize any value in respect of Kenon’s remaining shares in Qoros. The manufacturing production at Qoros has been shut down since July 2021. Since April 2020, Kenon no longer accounts for Qoros pursuant to the equity method of accounting and in 2021, Kenon wrote down the value of Qoros to zero.
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Kenon’s 2020 Sale of Half of its Remaining Interest12% interest in Qoros to the Majority Shareholder in Qoros
In April 2020, Kenon sold half of its remaining interest in Qoros (i.e. 12%) to the Majority Shareholder in Qoros for a price of RMB1.56RMB 1.56 billion (approximately $220 million), which was based on the same post-investment valuation as the initial 2018 investment by the Majority Shareholder in Qoros.Shareholder. As a result, Kenon holds a 12% interest in Qoros, the Majority Shareholder in Qoros holds 63% and Chery holds 25%. The Majority Shareholder in Qoros has agreed to assume its pro rata share of the pledge obligations with respect to the RMB1.2RMB 1.2 billion loan facility after which Kenon will also be proportionately released from its pledge obligations thereunder, subject to the Qoros bank lender consent. As a result of the initial investment in 2018 and the 2020 sale by Kenon, the Majority Shareholder in Qoros is required to pledge additional shares or to provide other support acceptable to the lender banks. To date, the Majority Shareholder has not provided such pledges and Kenon has not been proportionately released by the bank lenders from these pledge obligations. However, following the 2020 sale to the Majority Shareholder, in Qoros, the Majority Shareholder in Qoros has provided Kenon with a guarantee for its pro rataa certain percentage, and up to all, of Quantum’s share of the pledge obligations with respect to the RMB1.2 billion loan facility.obligations.
Kenon’s Agreement to Sell its Remaining 12% Interest in Qoros to the Majority Shareholder in Qoros
In April 2021, KenonKenon’s subsidiary Quantum entered into an agreement with the Majority Shareholder to sell all of its remaining 12% interest in Qoros (i.e. 12%) tofor RMB 1.56 billion (approximately $241 million). The agreement provided that a deposit of 5% was due July 30, 2021 and that the purchase price would be payable in installments through March 31, 2023.
Neither the deposit nor the initial payment, due September 30, 2021, were paid, and we have not had any confirmation from the Majority Shareholder in Qorosor the Baoneng Group as to when payments will be made or if payments will be made at all. In the fourth quarter of 2021, Quantum initiated arbitral proceedings against the Majority Shareholder and Baoneng Group with the CIETAC. The proceedings are ongoing.
The agreement also provides that any payment delayed for a purchase price of RMB1,560 million (approximately $238 million). The salemore than 30 days is subject to certain conditions, including approvals by relevant government authoritiesinterest. In addition, as a result of the payment delay, Quantum currently has the right to exercise the put option it has over its remaining shares.
Substantially all of Quantum’s shares in Qoros remain pledged to Qoros’ lenders and any transfer of Kenon's remaining stake in Qoros would require a release of the pledge over Kenon's shares in Qoros which are currently pledged to secure debt of Qoros under its RMB1.2 billion loan facility.
| Installment | Amount (RMB) | Percentage of the Aggregate Purchase Price | Payment Date |
| Deposit | 78,000,000 | 5% | July 31, 2021 or earlier if certain conditions are met1 |
| First Payment | 312,000,000 | 20% | September 30, 20211 |
| Second Payment | 390,000,000 | 25% | March 31, 20221 |
| Third Payment | 390,000,000 | 25% | September 30, 2022 |
| Fourth Payment | 390,000,000 | 25% | March 31, 2023 |
Kenon faces risks in connection with the sale agreement; see "agreement. See “Item 3.D.—3.D Risk Factors—Risks Related to Our Strategy and Operations—We face risks in relation to the Majority Shareholder in Qoros’ investment in Qoros and the agreement to sell all of Kenon'sKenon’s remaining interest in Qoros."”
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Qoros’ Joint Venture Agreement
We are party to a joint venture agreement, or the Joint Venture Agreement, entered into on February 16, 2007, which has been amended to reflect the Majority Shareholder in Qoros’Shareholder’s 63% interest in Qoros. The Joint Venture Agreement sets forth certain rights and obligations of each of Quantum, the wholly-owned subsidiary through which we own our equity interest in Qoros, Wuhu Chery and the Majority Shareholder in Qoros with respect to Qoros.
The Joint Venture Agreement is governed by Chinese law. Under the Joint Venture Agreement, certain matters require the unanimous approval of Qoros’ board of directors, while other matters require a two-thirds or a simple majority board approval. Matters requiring unanimous approval of the Qoros board include amendments to Qoros’ articles of association, changes to Qoros’ share capital, the merger, division, termination or dissolution of Qoros, the sale or otherwise disposal of all or a material part of Qoros’ fixed assets for an amount equal or greater than RMB200RMB 200 million (approximately $29 million) and the issuance of debentures or the creation of third-party security interests over any of Qoros’ material fixed assets (other than those provided in connection with legitimate Qoros loans). Matters requiring approval by two-thirds of the board include the acquisition of majority equity interests in another entity for an amount exceeding 5% of Qoros’ net asset value, termination of any material partnership or joint venture contract, profit distribution plans, the sale or otherwise disposal of all or a material part of Qoros’ fixed assets for an amount equal or greater than RMB60RMB 60 million (approximately $9 million) but less than RMB200RMB 200 million (approximately $29 million), and capital expenditures and investments which are equal to or greater than the higher of $4 million or 10% of the approved annual budget.
Pursuant to the terms of the Joint Venture Agreement, we have the right to appoint two of Qoros’ nine directors, Wuhu Chery has the right to appoint two of Qoros’ directors and the Majority Shareholder in Qoros has the right to appoint the remaining five of Qoros’ directors. If the Majority Shareholder in Qoros’Shareholder’s stake in Qoros increases to 67% through a new investment in Qoros, the board of directors of Qoros will be further adjusted such that Qoros will have a six-member board of directors, of which the Majority Shareholder in Qoros will have the right to appoint four directors, while Kenon and Wuhu Chery will each have the right to appoint one director. The Majority Shareholder in Qoros has the right to nominate Qoros’ Chief Executive Officer and Chief Financial Officer. The nomination of Qoros’ Chief Executive Officer and Chief Financial Officer are each subject to the approval of Qoros’ board of directors by a simple majority vote. Quantum and Wuhu Chery each have the right to nominate one of Qoros’ deputy Chief Financial Officers. Such nominations by Quantum and Wuhu Chery are subject to the approval of Qoros’ board of directors by a simple majority vote.
The Joint Venture Agreement restricts transfers of interests in Qoros by the shareholders (other than transfers to affiliates). Quantum may transfer all of its interest in Qoros to any third-party, subject to the rights of first refusal discussed below. During the five-year period following the closing of the investment, Wuhu Chery and the Majority Shareholder in Qoros may not transfer any or all their interests in Qoros to any third-party without consent of the other joint venture partners (except for assignments in relation to an initial public offering of Wuhu Chery’s interest in Qoros).
Subject to the lock-up restrictions set forth above, if any of the joint venture partners elects to sell any of its equity interest in Qoros to a third party (i.e., other than an affiliate), the other joint venture partners have the right to purchase all, but not less than all, of the equity interests to be transferred, subject to certain conditions relating to the minimum price for such sale. In the event that more than one joint venture partner elects to exercise its right of first refusal, the shareholders shall purchase the equity interest to be transferred in proportion to their respective interests in Qoros at such time.
The Joint Venture Agreement also reflects Kenon’s put option and the Majority Shareholder in Qoros’Shareholder’s right to make further investments in Qoros.
The Joint Venture Agreement expires in 2042. The Joint Venture Agreement terminates prior to this date only (i) if the joint venture partners unanimously agree to dissolve Qoros (ii) in the event of any other reasons for dissolution specified in the Joint Venture Agreement and Articles of Association of Qoros or (iii) upon occurrence of any other termination event, as specified in PRC laws and regulations.
Information in this report on ZIM is based on ZIM’s annual report on Form 20-F filed with the SEC on March 9, 2022.
Overview
As of December 31, 2020,2021, ZIM operated a fleet of 87118 vessels and chartered-in 98.7%96.9% of its TEU capacity and 98.9%96.6% of the vessels in its fleet. For comparison, according to Alphaliner, ZIM’s competitors chartered-in on average approximately 56%50% of their fleets. In an effort to respond to increased demand for container shipping services globally, between January 1, 2021 and December 31, 2020 and February 28, 2021, ZIM chartered-in an additional 1129 vessels (net, not including vessels pending delivery). ZIM deployed 6 of these vessels in its new China to Los Angeles and South East Asia to Los Angeles express services.newly launched as well as in its existing service lines across the globe. In addition, during 2021, ZIM has chartered eight car carrier vessels and increased the volume and frequency of its car carrier services from the Far East to Israel and additional countries in Europe and the Mediterranean. In February and July 2021, ZIM and Seaspan Corporation entered into a strategic agreementagreements for the long-term charter of ten 15,000 TEU and fifteen 7,000 TEU liquified natural gas (LNG dual-fuel) container vessels to serve ZIM’s Asia-US East Coast Trade and other global-niche trades, with the vessels intendedexpected to be delivered to usZIM between February 2023 and Januarythroughout 2024. Furthermore, ZIM has also entered into a new eight-year charter agreement with a shipping company that is an affiliate to its largest shareholder, Kenon, according to which ZIM will charter three 7,000 TEU LNG dual fuel container vessels, expected to be delivered during the first and second quarters of 2024. During the second half of 2021, ZIM has completed the purchase transaction of eight secondhand vessels, ranging from 1,100 to 4,250 TEUs each, in several separate transactions, for an aggregated amount of $355 million. As of March 1, 2022, five of these vessels were delivered to ZIM out of the total eight purchased. See “—ZIM’s vessel fleet.”
In February 2022, ZIM announced a new chartering agreement with Navios Maritime Partners L.P. for a total of 13 vessels (including five of which are secondhanded), ranging from 3,500 to 5,300 TEUs. On March 30, 2022, ZIM announced a new chartering agreement with MPC Container Ships ASA for the 7-year charter of a total of six 5,500 TEU wide beam newbuild vessels for total charter hire consideration of approximately $600 million. The vessels are expected to be delivered between May 2023 and February 2024.
ZIM operates across five geographic trade zones that provide ZIM with a global footprint. These trade zones include (for the year ended December 31, 2020)2021): (1)(i) Transpacific (40%(39% of carried TEUs), (2)(ii) Atlantic (21%(18%), (3)(iii) Cross Suez (12%(10%), (4)(iv) Intra-Asia (21%(27%) and (5)(v) Latin America (6%). Within these trade zones, ZIM strives to increase and sustain profitability by selectively competing in niche trade lanes where ZIM believes that the market is underserved and that ZIM has a competitive advantage versus its peers. These include both trade lanes where ZIM has an in-depth knowledge, long-established presence and outsized market position as well as new trade lanes into which ZIM is often driven by demand from its customers as they are not serviced in-full by its competitors. Several examples of niche trade lanes within ZIM’s geographic trade zones include: (1)(i) US East Coast & Gulf to Mediterranean lane (Atlantic trade zonezone) where ZIM maintains a 14%10% market share, (2)(ii) East Mediterranean & Black Sea to Far East lane (Cross Suez trade zone), 10%7% market share and (3)(iii) Far East to US East Coast (Pacific trade zone), 9%9.5% market share, in each case according to the Port Import/Export Reporting Service (PIERS) and Container Trade Statistics. In response to the growing trend in eCommerce, during 2020 ZIM launched a new, premium high-speed service called ZIM eCommerce Xpress, which moves freight from China to Los Angeles, and the ZIM China Australia Express, which moves freight from China to Australia. In addition, and as a result of further market demand, ZIM launched at the end of 2020 a new service line connecting South East Asia and South China with Australia, and in JanuaryStatistics (CTS).
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During 2021, ZIM launchedexpanded its services to include, among others: (i) the launch of a new express service line connecting South East Asia to Los Angeles.Angeles (ZX2); (ii) a new e-commerce line connecting Taiwan and Central China to USWC (ZX3); (iii) a new joint Asia-USEC service line with 2M connecting South China, Vietnam and the USEC (ZSE); (iv) extension of our Africa lines with a new China-East Africa service (CEA) in cooperation with Hapag Lloyd and ONE; (v) a new service connecting Turkey to USEC and Gulf (ZCT) in cooperation with Hapag Lloyd; (vi) a new service connecting N. Europe and USEC (ZNE, currently suspended until further notice); (vii) A new service connecting Israel and Turkey to the Indian subcontinent (ZMI); (viii) a new independent pendulum service on the Asia-Mediterranean and Pacific North West (ZMP), planned to be launched in April 2022; and (ix) a new speedy e-commerce service from China and South East Asia to the US East Coast (ZXB).
As of December 31, 2020, ZIM operated a global network of 69 weekly lines, calling at 307 ports in more than 80 countries. ZIM’s complex and sophisticated network of lines allows ZIM to be agile as it identifies markets in which to compete. Within its global network, ZIM offers value-added and tailored services, including operating several logistics subsidiaries to provide complimentary services to its customers. These subsidiaries, which ZIM operates in China, Vietnam, Canada, Brazil, India and Singapore, are asset-light and provide services such as land transportation, custom brokerage, LCL, project cargo and air freight services. Out of ZIM’s total volume in the twelve months ended December 31, 2020, approximately 25.2% of its TEUs carried utilized additional elements of land transportation.
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As of December 31, 2021, ZIM chartered-in most of its capacity; in addition, 80.7% of ZIM’s chartered-in vessels are under leases having a remaining charter duration of more than one year (or 81.6% in terms of TEU capacity). ZIM continues to adjust its operations in response to the ongoing COVID-19 pandemic. ZIM’s fleet, mainly in terms of the size of its vessels, enables it to optimize vessel deployment to match the needs of both mainland and regional routes and to ensure high utilization of its vessels and specific trade advantages. The majority of ZIM’s operated vessels have capacities that range from less than 1,000 TEUs to almost 10,000 TEUs although in February 2021, ZIM entered into a long-term charter of ten 15,000 TEU liquified natural gas (LNG dual-fuel) container vessels, pursuant to its strategic agreement with Seaspan (See “—ZIM’s vessel fleet—Strategic Chartering Agreements”). Furthermore, ZIM operates a modern and specialized container fleet, which it significantly increased during 2021 to a capacity of nearly 1 million TEUs, which acts as an additional value-added service offering, attracting higher yields than standard cargos.
ZIM’s network is significantly enhanced by cooperation agreements with other leading container liner companies and alliances, allowing ZIM to maintain a high degree of agility while optimizing fleet utilization by sharing capacity, expanding its service offering and benefiting from cost savings. Such cooperation agreements include vessel sharing agreements (VSAs), slot purchase and swaps. ZIM’s strategic operational collaboration with the 2M Alliance, comprised of the two largest global carriers (Maersk and MSC), which was announced in July 2018, launched in September 2018 and further expanded in March 2019 and August 2019, allows ZIM to provideprovides faster, wider and more efficient service in some of its most critical4 trade lanes, including Asia — US East Coast, Asia — Pacific Northwest, Asia — Mediterranean12 services and Asia — US Gulf Coast. ZIM’sapproximately 23,500 TEUs. Effective as of April 2022, the cooperation agreement with the 2M Alliance today covers fourwill be updated to cover Asia-U.S. East Coast and the Asia-U.S. Gulf Coast with 2 trade lanes, 118 services and approximately 22,20015,400 weekly TEUs. In addition to its collaboration with the 2M Alliance, ZIM also maintains a number of partnerships with various global and regional liners in different trades. For example, in the Intra-Asia trade, ZIM partners with both global and regional liners in order to extend its services in the region.
ZIM has a highly diverse and global customer base with approximately 30,08036,000 customers (which considers each of ZIM’s customer entities separately, even if it is a subsidiary or branch of another customer) using ZIM’s services. In 2020,2021, ZIM’s 10 largest customers represented approximately 16%17% of its freight revenues and its 50 largest customers represented approximately 34%32% of its freight revenues. One of the key principles of ZIM’s business is its customer-centric approach and ZIM strives to offer value-added services designed to attract and retain customers. ZIM’s strong reputation, high-quality service offering and schedule reliability has generated a loyal customer base, with 75%all of its top 2010 customers in 20202021 having a relationship with ZIM lasting longer than 10 years.
ZIM has focused on developing technologies to support its customers, including improvements in its digital capabilities to enhance both commercial and operational excellence. ZIM uses its technology and innovation to power new services, improve its customer experience and enhance its productivity and portfolio management. Several recent examples of ZIM’s digital services include: (i) ZIMonitor, which is an advanced tracking device that provides 24/7 online alerts to support high value cargo, (ii) eZIM, ZIM’s easy-to-use online booking platform; (iii) eZQuote, a digital tool that allows customers the ability to receive instant quotes with a fixed price and guaranteed terms; (iv) Draft B/L, an online tool that allows export users to view, edit and approve their bill of lading online without speaking with a representative; and (v) ZIMGuard, an artificial intelligence-based internal tool designed to detect possible misdeclarations of dangerous cargo in real-time. Furthermore, ZIM has formed a number of partnerships and collaborations with third partythird-party start-ups for the development of multiple engines of growth which are adjacent to ZIM’s traditional container shipping business. These technological partnerships and initiatives include: (i) “ZKCyberStar”, a collaboration with Konfidas, aan Israeli cyber-security consulting company, to provide bespoke cyber-security solutions, guidance, methodology and training to the maritime industry; (ii) “Zcode”“ZMark”, a new initiative in cooperation with Sodyo, an early stage scanning technology company, aimed to provide visual identification solutions for the entire logistics sector (inventory management, asset tracking, fleet management, shipping, access control, etc.);, whose technology is extremely fast and suitable for multiple types of media; (iii) ZIM’s investment in and partnership with WAVE, an electronic B/L based on blockchain technology, to replace and secure original documents of title; (iv) ZIM’s investment in and partnership with Ladingo, a one-stop-shop for Cross Border Shipments with all-in-one, easy to use software and fully integrated service, making it easier, more affordable and risk free to import and export LCLs, FCLs or any large and bulky shipments. This partnership is set to complement ZIM’s strategic cooperation with Alibaba, via Alibaba.com, to enhance logistics services to its customersshipments; and service providers, by adding(v) Ship4wd, a digital freight forwarding platform offering an online, LCLsimple and reliable self-service end-to-end shipping solution for Alibaba sellers,that is initially targeting US & Canadian small and is expected to enable ZIM to gain footprint in adjacentmedium-sized businesses importing from China, Vietnam and new markets, grow its revenue streams and provide added value to its customers.Israel.
Over the past three years ZIM has taken initiatives to reduce and avoid costs across its operating activities through various cost-control measures and equipment cost reduction (including, but not limited to, equipment interchanges such as swapping containers in surplus locations, street turns to reduce trucking of empty containers and domestic repositioning from inland ports).
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ZIM is headquartered in Haifa, Israel. As of December 31, 2020,2021, ZIM had approximately 3,7945,931 full-time employees worldwide (including contract workers). In 2021 and 1,351 contractors. In 2020, and 2019, ZIM carried 2.843.48 million and 2.822.84 million TEUs, respectively, for its customers worldwide. During the same periods, ZIM’s revenues were $3,992$10,729 million and $3,300$3,992 million, its net income (loss) was $524$4,649 million and $(13)$524 million and its Adjusted EBITDA was $1,036$6,597 million and $386$1,036 million, respectively.
ZIM’s services
With a global footprint of more than 200 offices and agencies in approximately 100 countries, ZIM offers both door-to-door and port-to-port transportation services for all types of customers, including end-users, consolidators and freight forwarders.
Comprehensive logistics solutions
ZIM offers its customers comprehensive logistics solutions to fit their transportation needs from door-to- door. ZIM’s wide range of reliable transportation services, handled by its highly trained sea and shore crews and supported with personalized customer service and its unified information technology platform, allows ZIM to offer its customers highhigher quality and tailored services and solutions at any time around the world. During June 2021, similar to its peers, ZIM has experienced capacity shortages and long dwell time throughout the logistic chain. In June 2021, ZIM has extended its commercial cooperation with Alibaba for two more years and until 2023.
ZIM’s services and geographic trade zones
As of December 31, 2020,2021, ZIM operated a global network of 6970 weekly lines, calling at 307304 ports in more than 8090 countries. ZIM’s shipping lines are linked through hubs that strategically connect main lines and feeder lines, which provide regional transport services, creating a vast network with connections to and from smaller ports within the vicinity of main lines. ZIM has achieved leadership positions in specific markets by focusing on trades where it has distinct competitive advantages and can attain and grow its overall profitability.
ZIM’s shipping lines are organized into geographic trade zones by trade. The table below illustrates ZIM’s primary geographic trade zones and the primary trades they cover, as well as the percentage of ZIM’s total TEUs carried by geographic trade zone for the years ended December 31, 2021, 2020 2019 and 2018:2019:
| Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||
Geographic trade zone (percentage of total TEUs carried for the period) | Primary trade | 2020 | 2019 | 2018 | Primary trade | 2021 | 2020 | 2019 | ||||||||||||||||||||
| Pacific | Transpacific | 40 | % | 36 | % | 38 | % | Transpacific | 39 | % | 40 | % | 36 | % | ||||||||||||||
| Cross-Suez | Asia-Europe | 12 | % | 13 | % | 15 | % | Asia-Europe | 10 | % | 12 | % | 13 | % | ||||||||||||||
| Atlantic-Europe | Atlantic | 21 | % | 21 | % | 18 | % | Atlantic | 18 | % | 21 | % | 21 | % | ||||||||||||||
| Intra-Asia | Intra-Asia | 21 | % | 23 | % | 22 | % | Intra-Asia | 27 | % | 21 | % | 23 | % | ||||||||||||||
| Latin America | Intra-America | 6 | % | 7 | % | 7 | % | Intra-America | 6 | % | 6 | % | 7 | % | ||||||||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||||
Pacific geographic trade zonezone.
The Pacific geographic trade zone serves the Transpacific trade, which covers trade between Asia, including China, Korea, South EastSoutheast Asia, the Indian subcontinent, and the Caribbean, Central America, the Gulf of Mexico and the east coast and west coast of the United States and Canada. ZIM’s services within this geographic trade zone also connect to Intra-Asia and Intra-America regional feeder lines, which provide onward connections to additional ports. For its services from Asia to the west coast of the United States and Canada, ZIM mainly uses the Pacific Northwest (PNW) gateway.
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Pacific Northwest service. Approximately 63%service.
Based on information from PIERS, Port of Vancouver and Prince Rupert Port Authority, approximately 50% of all goods shipped to the United States are transported via ports located in the west coast of the United States and Canada. These include local discharge as well as delivery by train or trucks to their final destinations, mainly to the Midwestern United States and to the central and eastern parts of Canada. ZIM holds a position within the PNW, mostly via two Canadian gateways, the Vancouver and Prince Rupert ports, and also the Seattle port, which enable ZIM to serve the very large Canadian and U.S. Midwest markets. ZIMmarkets quickly and efficiently, while also hasavoiding the highly congested ports of Long Beach and Oakland and using the similarly congested Los Angeles port only for ZIM’s ZEX, ZX2 and ZX3 services. ZIM’s strategic relationships in these markets with Canadian National Railway Company (“CN”), a rail operator, and with the 2M Alliance.Alliance have allowed it to obtain competitive rates and provide consistent, high-quality service to its customers. In February 2022, ZIM operates four vessels with capacities of 8,500 TEUs serving two lines withinannounced its intention to launch an independent service line to the PNW, with access to nine additional vessels operated by members ofPacific Northwest trade, replacing the 2M Alliance.current cooperation commencing from April 2022.
Pacific Southwest Coast services.
In addition, forresponse to the trade between Asiagrowing trend in eCommerce, ZIM launched during 2020 and Pacific South West Coast, ZIM recently launched a unique expedited PSW service2021, three eCommerce Xpress high-speed services, focusing on e-Commerce between South China and Los Angeles.Angeles (ZEX, ZX2 and ZX3 lines). As a result of current global market conditions due to COVID-19, ZIM has been experiencing heavy congestion in USWC ports throughout 2021, causing disruption to these services’ schedules. For additional information on measures declared by the port of Los Angeles and the port of Long Beach, see “Item 3.D Risk factors—Risks Related to Our Interest in ZIM—Access to ports could be limited or unavailable, including due to congestion in terminals and inland supply chains, and ZIM may incur additional costs as a result thereof.”
Asia-U.S. All-Water service. service.
With respect to the Asia-U.S. east coast trade, “all-water” refers to trade between Asia and the U.S. east coast and Gulf Coast using marine transportation only, via the Suez or Panama Canal. Within its cooperation with the 2M, Alliance, ZIM operates across seveneight services: fivesix to USEC and two to the USGC. In January and February 2022, ZIM announced its intention to operate the joint services with the 2M Alliance based on a slot exchange and vessel sharing agreement. Accordingly, as of April 2022, ZIM will solely operate two out of the six joint Asia to USEC services (ZCP & ZSE) as well as three additional vessels on one of two joint Asia to USGC services (ZGX).
As of December 31, 2020,2021, ZIM offered ten13 services in the Pacific geographic trade zone, which had an effective weekly capacity of 21,65024,217 TEUs and covered all major international shipping ports in the Transpacific trade. ZIM’s services in the Pacific geographic trade zone accounted for 53%54% of its freight revenues from containerized cargo for the year ended December 31, 2020.2021.
Cross-Suez geographic trade zone. zone.
The Cross-Suez geographic trade zone serves the Asia-Europe trade, which covers trade between Asia and Europe (including the Indian sub-continent) through the Suez Canal, primarily focusing on the Asia- Black Sea/East Mediterranean Sea sub-trade, which is one of ZIM’s key strategic zones. As of March 2019,In previous years, this trade was characterized by intense competition, and ZIM extended itshas undertaken several initiatives to help it remain competitive within it. During 2021, cargo demand in this trade exceeded the available supply.
ZIM’s cooperation with the 2M Alliance to include this sector and ZIM operates bywhich began in March 2019 is a slot charter agreement on two services from Asia to the East Mediterranean.Mediterranean and is expected to terminate effective as of April, 2022. In February 2022, ZIM has announced the launch of an independent service line the Asia-Mediterranean trade replacing the current cooperation. In addition, ZIM terminated its slot purchase from MSC which began in October 2018 ZIM purchased slots from MSC on two lines in India-East Mediterranean trade. trade and replaced this cooperation with an independent service line on this trade in December 2021.
As of December 31, 2020,2021, ZIM offered fourfive services in the Cross-Suez geographic trade zone, which had an effective weekly capacity of 4,9677,888 TEUs and covered all major international shipping ports in the East Mediterranean, the Black Sea, China, East and Southeast Asia and India. The Cross-Suez geographic trade zone accounted for 11%13% of ZIM’s freight revenues from containerized cargo for the year ended December 31, 2020.2021.
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Atlantic-Europe geographic trade zone. zone.
The Atlantic-Europe geographic trade zone serves the Atlantic trade, which covers trade between North America and the Mediterranean, along with Intra-Europe/Mediterranean trade. ZIM’s services within this geographic trade zone also connect to Intra-Mediterranean and Intra-America regional feeder lines which provide onward connections to additional ports. Since 2014, ZIM has had a cooperation agreement with Hapag-Lloyd and other companies in ZIM’sits Atlantic services. In addition, ZIM has terminated its cooperation agreements with MSC in the Intra-Europe/Mediterranean trade and intends to replace this cooperation with an extension to North Europe on its recently launched ISC-Mediterranean independent service. ZIM also has a cooperation agreementsagreement with MSC and COSCO. COSCO in the Intra-Mediterranean trade.
As of December 31, 2020,2021, ZIM offered 1113 services within this geographic trade zone, with an effective weekly capacity of 9,37110,232 TEUs, covering major international shipping ports in the East and West Mediterranean, the Black Sea, Northern Europe, the Caribbean, the Gulf of Mexico, and the east and west coasts of North America. The Atlantic-Europe geographic trade zone accounted for 17%10% of ZIM’s freight revenues from containerized cargo for the year ended December 31, 2020.2021.
Intra-Asia geographic trade zone. zone.
The Intra-Asia and Asia-Africa geographic trade zone serves the Intra-Asia trade, which covers tradetrades within regional ports in Asia, including ISC (Indian sub-continent), WestAfrica and South Africa.Australia. The Intra-Asia geographic trade zone accounted for 13%18% of ZIM’s freight revenues from containerized cargo for the year ended December 31, 2020.2021. ZIM’s services within this geographic trade zone feed into the global lines of the Pacific and Cross-Suez trades. This geographic trade zone is characterized by extensive structural changes that ZIM has made to respond to changes in trade and market conditions.
The Intra-Asia market is highly fragmented with many active carriers, all with relatively small market shares. Local shipping companies have a significant presence within this trade, which is primarily serviced by relatively small vessels. However, larger vessels that operate in the intercontinental trade also serve this trade and call at ports within the region. ZIM has cooperation agreements with a number ofseveral other shipping companies within this trade. ZIM has recently launched two unique expedited services enabling expanded reach and additional destinations to its customers on the trade between Asia and Australia.
As of December 31, 2020,2021, ZIM offered 3529 services within this geographic trade zone with an effective weekly capacity of 16,93017,482 TEUs. ZIM’s services within this geographic trade zone cover major regional ports, including those in China, Korea, Thailand, Vietnam and other ports in South EastSoutheast Asia, India, South and West Africa, Thailand, Vietnam, New Zealand and Vietnam,Australia, and connect to shipping lines within its Cross-Suez and Pacific geographic trade zones.
Latin America geographic trade zone. zone.
The Latin America geographic trade zone consists of the Intra-America trade, which covers trade within regional ports in the Americas, as well as trade between the South American east coast and Asia and trade between the South American east coast and West Mediterranean. The regional services within this geographic trade zone are linked to ZIM’s Pacific and Atlantic-Europe geographic trade zones. ZIM cooperates with other carriers within the regional services and, in the Asia-East Coast South America and Mediterranean- East Coast South America sub-trades, mostly by slots purchase. As of December 31, 2020,2021, ZIM offered nineten services within this geographic trade zone as well as a complementary feeder network with an effective weekly capacity of 2,7953,495 TEUs and operated between major regional ports, including ports in Brazil, Argentina, Uruguay, Mexico, the Caribbean, Central America, China, U.S. Gulf Coast, U.S. east coast and the West Mediterranean, and connect to ZIM’s Pacific and Atlantic- Europe services. The Latin America geographic trade zone accounted for 6%5% of ZIM’s freight revenues from containerized cargo for the year ended December 31, 2020.2021.
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Types of cargo
The following table sets forth details of the types of cargo ZIM shipped during the nine monthsyear ended December 31, 20202021 as well as the related quantities and volume of containers (owned and leased).
| Type of Container | Type of Cargo | Quantity | TEUs | Type of Cargo | Quantity | TEUs | ||||||||||||||
| Dry van containers | Most general cargo, including commodities in bundles, cartons, boxes, loose cargo, bulk cargo and furniture | 1,563,218 | 2,162,156 | Most general cargo, including commodities in bundles, cartons, boxes, loose cargo, bulk cargo and furniture | 1,923,428 | 3,249,958 | ||||||||||||||
| Reefer containers | Temperature controlled cargo, including pharmaceuticals, electronics and perishable | 82,951 | 164,712 | Temperature controlled cargo, including pharmaceuticals, electronics and perishable cargo | 87,207 | 172,706 | ||||||||||||||
| Other specialized containers | Heavy cargo and goods of excess height and/or width, such as machinery, vehicles and building | 50,722 | 63,684 | Heavy cargo and goods of excess height and/or width, such as machinery, vehicles and building | 48,832 | 58,751 | ||||||||||||||
| Total | 1,696,891 | 2,840,552 | 2,059,467 | 3,481,415 | ||||||||||||||||
Transportation of Vehicles
In addition to containerized cargo, ZIM also transports vehicles (such as cars, buses and trucks) via dedicated car carrier vessels westbound from Asia, and primarily from China, Japan, South Korea and India. During 2021, ZIM has chartered 8 car carrier vessels and expanded the volume and its range of services to include additional calls to ports in Europe and the Mediterranean.
ZIM’s vessel fleet
As of December 31, 2020,2021, ZIM’s fleet included 87118 vessels (85 cargo(110 container vessels and two8 vehicle transport vessels), of which one vessel is4 vessels were owned by ZIM and 86114 vessels are chartered-in (including 57106 vessels accounted as right-of-use assets under the lease accounting guidance of IFRS 16 and 4 vessels accounted under sale and leaseback refinancing agreements). As of December 31, 2020,2021, ZIM’s operating fleet (including both owned and chartered vessels) had a capacity of 374,636426,725 TEUs. The average size of ZIM’s vessels is approximately 4,4003,867 TEUs, compared to an industry average of 4,4494,528 TEUs.
During the second half of 2021, ZIM has completed the purchase transaction of eight secondhand vessels, ranging from 1,100 to 4,250 TEUs each, in several separate transactions, for an aggregated amount of $355 million. During the second half of 2021, ZIM recognized a cost of $102 million in respect of three delivered vessels with the remaining vessels expected to be delivered by April 2022. As of March 1, 2022, 5 out of 8 purchased vessels were delivered to ZIM, and ZIM may purchase additional secondhanded vessels if it evaluates such purchase is more suited to its needs than other available alternatives.
ZIM charters-in vessels under charter party agreements for varying periods. With the exception of thosecertain vessels for which charter rates were set in connection with oura restructuring arrangement ZIM undertook in 2014, restructuring, ZIM’s charter rates are fixed at the time of entry into the charter party agreement and depend upon market conditions existing at that time. As of December 31, 2020, 812021, all of ZIM’s chartered vessels are under a “time charter,” which consists of chartering-in the vessel capacity for a given period of time against a daily charter fee, with 110 vessels chartered while the crewing and technical operation of the vessel is handled by its owner, including 811 vessels chartered-in under a time charter from a related partyparties, and 54 vessels chartered-in under a “bareboat charter,” which consists of chartering a vessel for a given period of time against a charter fee, with the operation of the vessel being handled by ZIM. Subject to any restrictions in the applicable arrangement, ZIM determines the type and quantity of cargo to be carried as well as the ports of loading and discharging.
ZIM’s vessels operate worldwide within the trading limits imposed by its insurance terms. TheAs of December 31, 2021, the remaining average duration of ZIM’s charter party agreements iswas approximately 1526.5 months. ZIM’s charter party agreements are predominately short-term in duration, which supports a flexible cost structure and enables ZIM to meet changing demands and opportunities in the market.
ZIM’s fleet is comprised of vessels of various sizes, ranging from less than 1,000 TEUs to 12,00010,000 TEUs, which allows for flexible deployment in terms of port access and is optimally suited for deployment in the sub-trades in which ZIM operates. In effort to respond to increased demand for container shipping services globally, between January 1, 2021 and December 31, 2020 and February 28, 2021, ZIM chartered-in an additional 1129 vessels (net, not including vessels pending delivery). ZIM deployed 6 of these vessels in both its new express services: Chinanewly launched and existing services across the globe. In addition, during 2021, ZIM has chartered 8 car carrier vessels and have expanded its car carrier services from the Far East to Los Angeles,Israel and additional countries in Europe and the ZIM China Australia Express.Mediterranean. As of February 28, 2021,March 1, 2022, ZIM’s fleet included 98125 vessels (95 cargo(117 container vessels and three8 vehicle transport vessels), of which one vessel is6 vessels are owned by ZIM and 97119 vessels are chartered-in (including 4 vessels accounted under sale and leaseback refinancing agreements), and had a capacity of 416,844449,629 TEUs. Further, as of February 28, 2021,March 1, 2022, approximately 50%93 of ZIM’s chartered-in vessels are under short-termlong-term leases with a remaining charter duration of lessmore than one year, as ZIM continues to actively manage its asset mix.
The following table provides summary information, as of December 31, 2020,2021, about ZIM’s fleet:
| Number | Capacity (TEU) | Other Vessels | Total(1) | ||||
| Vessels owned by ZIM | 1 | 4,992 | - | 1 | |||
| Vessels chartered from parties related to ZIM | |||||||
| Periods up to 1 year (from December 31, 2020) | 3 | 6,359 | 1 | 4 | |||
| Periods between 1 to 5 years (from December 31, 2020) | 4 | 16,601 | - | 4 | |||
| Periods over 5 years (from December 31, 2020) | - | - | - | - | |||
Vessels chartered from third parties(2) | |||||||
| Periods up to 1 year (from December 31, 2020) | 43 | 181,174 | 1 | 44 | |||
| Periods between 1 to 5 years (from December 31, 2020) | 32 | 145,386 | - | 32 | |||
| Periods over 5 years (from December 31, 2020) | 2 | 20,124 | - | 2 | |||
Total(3) | 85 | 374,636 | 2 | 87 |
Number | Capacity (TEU) | Other Vessels | Total(1) | |||||||||||||
| Vessels owned by ZIM | 4 | 13,265 | — | 4 | ||||||||||||
| Vessels chartered from parties related to ZIM | 10 | 36,208 | 1 | 11 | ||||||||||||
| Periods up to 1 year (from December 31, 2021) | 5 | 15,548 | 5 | |||||||||||||
| Periods between 1 to 5 years (from December 31, 2021) | 5 | 20,660 | 1 | 6 | ||||||||||||
| Periods over 5 years (from December 31, 2021) | — | — | — | — | ||||||||||||
Vessels chartered from third parties(2) | 96 | 377,252 | 7 | 103 | ||||||||||||
| Periods up to 1 year (from December 31, 2021) | 12 | 60,417 | 5 | 17 | ||||||||||||
| Periods between 1 to 5 years (from December 31, 2021) | 80 | 293,770 | 2 | 82 | ||||||||||||
| Periods over 5 years (from December 31, 2021) | 4 | 23,065 | 4 | |||||||||||||
Total(3) | 110 | 426,725 | 8 | 118 | ||||||||||||
| (1) | Includes |
| (2) | Includes |
| (3) | Between January 1, |
| (4) | Under ZIM’s time charters, the vessel owner is responsible for operational costs and technical management of |
Strategic Chartering Agreements
Strategic Chartering Agreement for LNG-Fueled Vessels from Seaspan Corporation
In February 2021, ZIM and Seaspan Corporation entered into a strategic agreement with Seaspan for the long-term charter of ten 15,000 TEU liquified natural gas (LNG dual-fuel) container vessels, intendedexpected to be delivered between February 2023 and January 2024. Pursuant to the agreement, ZIM will charter the vessels for a period of 12 years and have secured an option to later elect a charter period of 15 years to be applied to all chartered vessels. Additionally, ZIM expects to incur between $16 million and $20 million in annualized charter hire costs per vessel over the term of the agreement. ZIM’s total cost during the term of the agreement will depend on the charter period and the initial payment ZIM selects to pay. ZIM was further granted by Seaspan a right of first refusal to purchase the chartered vessels should Seaspan choose to sell them during the charter period, and an option to purchase the vessels at the end of the charter term. ZIM intends to deploy these vessels on its Asia-US East Coast Trade as an enhancement to its service on this strategic trade.
In addition, in July 2021, ZIM announced a second strategic agreement with Seaspan for the long-term charter with monetary value in excess of $1.5 billion, of ten 7,000 TEU LNG dual fuel container vessels with an option for additional 5 vessels, to serve across ZIM’s various global-niche trades, with vessels expected to be delivered during the fourth quarter of 2023 and throughout 2024. In September 2021, ZIM announced the exercise of an option granted to it under this agreement to long-term charter five additional 7,000 TEU LNG vessels, to be delivered during the third and fourth quarters of 2024, with this option valued in excess of $750 million. Following the exercise of this option, the total vessels to be chartered under this second strategic agreement is fifteen.
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ZIM announced that it expects to incur, in annualized charter hire costs per vessel, approximately $17 million in respect of the abovementioned 15,000 TEU vessels, and approximately $13 million in respect of the abovementioned 7,000 TEU vessels, over the term of the agreements, depending on the charter period elected.
Long-term charter agreement for LNG fueled vessels from a shipping company affiliated with Kenon
In January 2022, ZIM entered into a new eight-year charter agreement with a shipping company that is affiliated with Kenon, its largest shareholder, according to which ZIM will charter three 7,000 TEU LNG dual-fuel container vessels to be deployed in its global-niche trades for a total consideration of approximately $400 million. The vessels will be constructed at Korean-based shipyard, Hyundai Samho Heavy Industries, and are scheduled to be delivered during the first and second quarters of 2024.
Charter agreement with Navios Maritime Holdings Inc.
In February 2022, ZIM and Navios Maritime Holdings Inc. entered into a charter agreement for the charter of thirteen container vessels comprising of five secondhand vessels and eight newbuild vessels of total charter hire consideration of approximately $870 million. The five secondhanded vessels range from 3,500-4,360 TEUs and are expected to be delivered in the first and second quarter of 2022 and deployed across ZIM’s global network. The eight 5,300 TEU wide beam newbuilds are scheduled to be delivered during the third quarter of 2023 through the fourth quarter of 2024 and are expected to be deployed in trades between Asia and Africa. The charter period of the secondhanded vessels is up to 4.5 years, whereas the charter duration of the newbuild vessels is up to 5.3 years.
Charter agreement with MPC Container Ships ASA
On March 30, 2022, ZIM announced a new chartering agreement with MPC Container Ships ASA for the charter of a total of six 5,500 TEU wide beam newbuild vessels for total charter hire consideration of approximately $600 million. The vessels will be constructed at a Korean-based shipyard, Hanjin Heavy Industries & Construction Co., and are scheduled to be delivered between May 2023 and February 2024. The vessels are expected to serve on ZIM’s expanded network of expedited services, as well as other regional services. The charter period of the vessels are 7 years.
ZIM’s containers
In addition to the vessels that it owns and charters, ZIM owns and charters a significant number of shipping containers. As of December 31, 2020,2021, ZIM held 439,000568,648 container units with a total capacity of 741,000987,365 TEUs, of which 11%37% were owned by ZIM and 89%63% were leased (including 79%56% accounted as right-of- useright-of-use assets). In some cases, the terms of the leases provide that ZIM will have the option to purchase the container at the end of the lease term.
Container fleet management
ZIM aims to reposition empty containers in the most cost-efficient way in order to minimize its overall empty container moves and container fleet while meeting demand. Due to a natural imbalance in demand between trade areas, ZIM seeks to optimize its container fleet by repositioning empty containers at minimum cost in order to timely and efficiently meet its customers’ demands. ZIM’s global logistics team oversees the internal management of empty containers and equipment to support this optimization effort. In addition to repairing and maintaining ZIM’s container fleet, ZIM’s logistics team continuously optimizes the flow of empty containers based on commercial demands and operational constraints. Below is a summary of ourZIM’s logistics initiatives relating to container fleet management:
| • | Slot swap agreements. ZIM enters into agreements with other carriers for the exchange of vessel space, or “slots.” Each carrier continues to operate its own line, while also having access to slots on the other carrier’s line. ZIM currently has slot swap agreements with 12 other carriers. |
| • | Slot sale agreements. ZIM sells slots on board its vessels to transport empty, shipper-owned containers. |
| • | One-way container lease. ZIM uses leasing companies and other shipping liners’ empty containers to move cargo from locations with increased demand to over-supplied locations. |
| • | Equipment sub-leases. ZIM leases its equipment to other carriers and freight forwarders in order to reduce its container repositioning and evacuation costs. |
ZIM’s operational partnerships
ZIM is party to a large number of cooperation agreements with other shipping companies and alliances, which generally provide for the joint operation of shipping services by vessel sharing agreements, the exchange of capacity and the sale or purchase of slots on vessels operated by other shipping companies. ZIM does not participate in any alliances, which are agreements between two or more container shipping companiesa type of vessel sharing agreement that govern theinvolves joint operations of fleets of vessels and sharing of a vessel’s capacity and other operational matters acrossvessel space in multiple trades, although ZIM does partner with the 2M Alliance on a number oftwo related trades, as described below.
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Strategic Cooperation Agreement with the 2M Alliance
In September 2018, ZIM entered into a strategic operational cooperation agreement with the 2M Alliance in the Asia-USEC trade zone, which includes a joint network of five lines operated by usZIM and by the 2M Alliance. The term of the strategic cooperation is seven years. The strategic cooperation includesoriginally included the creation of a joint network of five loops between Asia and USEC, out of which one is operated by ZIM and four are operated by the 2M Alliance. In addition, ZIM and the 2M Alliance are permitted to swap slots on all five loops under the agreement and ZIM may purchase additional slots in order to meet total demand in these trades. This strategic cooperation with the 2M Alliance enables ZIM to provide ourits customers with improved port coverage and transit time, while generating cost efficiencies. In March 2019, ZIM entered into a second strategic cooperation agreement with the 2M Alliance, which included a combination of vessel sharing, slot exchange and purchase, and covers two additional trade zones: Asia-East Mediterranean and Asia-American Pacific Northwest. This cooperation agreement offers four dedicated lines with extensive port coverage and premium service levels. In August 2019, ZIM launched two new U.S.-Gulf Coast direct services with the 2M Alliance. At the end of 2020, ZIM further upsized twoa joint servicesservice by utilizing larger vessels on the Asia U.S. Gulf Coast service and the Asia-U.S. East Coast service and in MarchJune 2021, ZIM announced its intention to launch in early May 2021launched a new joint service line connecting from Yantian and Vietnam to U.S. South Atlantic ports via Panama Canal. Pursuant toIn February 2022, ZIM announced its principal agreement with the 2M Alliance, commencing June 1, 2021, ZIMalliance to extend the existing collaboration agreement on the Asia-USEC and Asia-USGC under a full slot exchange and vessel sharing agreement, as well as to launch an independent pendulum service on the Asia-Mediterranean and Pacific Northwest trades, replacing its cooperation with the 2M Alliance will discuss possible amendments toon those trades effective as of April, 2022. Under ZIM’s new collaboration agreement with the 2M, ZIM or the 2M Alliance may not terminate the agreement that would governduring the next phasefirst 18 months of the parties’ cooperation. If the parties fail to mutually agree on the terms for a continuation of the strategic operational cooperation, any partycollaboration, but may terminate the agreement by providing a six-month prior to December 1, 2021, and such termination would occur on April 1, 2022. The agreement is otherwise subject to termination upon certain occurrences, including, for instance, a change of control or insolvency of onewritten notice following the initial 12-month period from the effective date of the parties.
The table below shows ZIM’s operational partners by geographic trade zone as of December 31, 2020:2021:
Geographic trade zone | ||||||||||||
Partner | Pacific | Cross-Suez | Intra-Asia | Atlantic-Europe | Latin America | |||||||
A.P. Moller-Maersk(1) | ✓(3) | ✓(3) | ✓ | ✓ | ||||||||
Mediterranean Shipping Company(1) | ✓(3) | ✓(3) | ✓(4) | ✓ | ||||||||
| CMA CGM S.A. | ✓ | |||||||||||
| Evergreen Marine Corporation | ✓ | |||||||||||
Hapag-Lloyd AG(2) | ✓ | ✓ | ✓ | |||||||||
| China Ocean Shipping Company | ✓ | ✓ | ||||||||||
| American President Lines Ltd. | ✓ | |||||||||||
| ONE | ✓ | ✓ | ||||||||||
| Orient Overseas Container Line Limited | ✓ | |||||||||||
Yang Ming Marine Transport Corporation(2) | ✓ | ✓ | ||||||||||
| Hyundai Merchant Marine Co., Ltd. | ✓ | |||||||||||
| Others | ✓ | ✓ | ||||||||||
| (1) | ZIM’s cooperation with Maersk and MSC is under the 2M Alliance framework. However, in the |
| (2) | With respect to the Atlantic-Europe trade, ZIM has a swap agreement with some of THE Alliance members: Hapag-Lloyd and Yang Ming, supporting ZIM loadings on THE Alliance service on this trade. ZIM also has a separate bilateral agreement in respect of the Atlantic-Europe trade with Hapag-Lloyd. |
| (3) | Cooperation to terminate effective as of April 2022. |
| (4) | Cooperation terminated in February 2022. |
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ZIM’s Customers
In 2020,2021, ZIM had more than 30,08036,000 customers using ourits services on a non-consolidated basis. ZIM’s customer base is well-diversified, and it does not depend upon any single customer for a material portion of its revenue. For the twelve months ended December 31, 2020,2021, no single customer represented more than 5% of ZIM’s revenues.
ZIM’s customers are divided into “end-users,” including exporters and importers, and “freight forwarders.” Exporters include a wide range of enterprises, from global manufacturers to small family-owned businesses that may ship just a few TEUs each year. Importers are usually the direct purchasers of goods from exporters, but may also comprise sales or distribution agents and may or may not receive the containerized goods at the final point of delivery. Freight forwarders are non-vessel operating common carriers that assemble cargo from customers for forwarding through a shipping company. End-users generally have long-term commitments that facilitate planning for future volumes, which results in high entry barriers for competing carriers due to customer loyalty. Freight forwarders have short-term contracts at renegotiated rates. As a result, entry barriers are low for competing carriers for this customer base.
During the last five years, end-users have constituted approximately 39%36% of ZIM’s customers in terms of TEUs carried, and the remainder of its customers were freight forwarders. For the years ended December 31, 2021, 2020 2019 and 2018,2019, ZIM’s five largest customers in the aggregate accounted for approximately 10%12%, 9%10% and 9% of its freight revenues and related services, respectively, and 8%, 7% and 7% of ZIM’s TEUs carried for each year.
Suppliers
Vessel owners
As of December 31, 2021, ZIM has contractual agreements to charter-in approximately 96.9% of its TEU capacity and 96.6% of the vessels in its fleet. Access to chartered-in vessels of varying capacities, as appropriate for each of the trades in which ZIM operates, is necessary for the operation of its business. Although ZIM has increased the number of its chartered vessels during 2021 and have entered into strategic chartering agreements, charter rates are currently at significant elevated levels for all vessel sizes, with shortage of available vessels for hire. See “Item 3.D Risk factors—Risks Related to Operating ZIM’s Vessel Fleet—ZIM charters-in most of its fleet, which makes it more sensitive to fluctuations in the charter market, and as a result of its dependency on the vessel charter market, the costs associated with chartering vessels are unpredictable, and ZIM may face difficulties in chartering or owning enough vessels, including large vessels, to support its growth strategy due to the possible shortage of vessel supply in the market.”
Port operators
ZIM has Terminal Services Agreements (TSAs) with terminal operators and contractual arrangements with other relevant vendors to conduct cargo operations in the various ports and terminals that it uses around the world. Access to terminal facilities in each port is necessary for the operation of ZIM’s business. Although ZIM believes it has been able to contract for sufficient capacity at appropriate terminal facilities in the past five years, the current high demand and severe congestion in ports and terminals may increase its costs and dependency on berthing windows in terminals. See “Item 3.D Risk factors—Risks Related to Our Interest in ZIM—Access to ports could be limited or unavailable, including due to congestion in terminals and inland supply chains, and ZIM may incur additional costs as a result thereof.”
Bunker suppliers
ZIM has contractual agreements to purchase approximately 90% of its annual bunker estimated requirements with suppliers at various ports around the world. ZIM has been able to secure sufficient bunker supply under contract or on a spot basis.
Land transportation providers
ZIM has services agreements with third-party land transportation providers, including providers of rail, truck and river barge transport. ZIM has entered into a rail services agreement with CN for land transportation of its shipments destined for Canada and the United States via Vancouver and Halifax, Canada.
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ZIM’s Sustainability and Focus on ESG
Through its core value of sustainability and in accordance with its code of ethics, ZIM aims to uphold and advance a set of principles regarding Ethical, Social and Environmental concerns. ZIM’s goal is to work resolutely to eliminate corruption risks, promote diversity among its teams and continuously reduce the environmental impact of its operations, both at sea and onshore. In particular, ZIM’s vessels are in full compliance with materials and waste treatment regulations, including full compliance with the IMO 2020 Regulations, and ZIM’s fuel consumption and CO2CO2 emissions per TEU have decreased significantly in recent years. Furthermore, during 2021, ZIM has entered into strategic agreements with Seaspan for the long-term charter of tern 15,000 TEU and fifteen 7,000 TEU LNG dual-fueled vessels, and an eight-year charter of three 7,000 TEU LNG dual-fuel from a shipping company affiliated with its largest shareholder (See “ZIM—Strategic Chartering Agreements”). In addition to actively working to reduce accidents and security risks in its operations, ZIM also endeavors to eliminate corruption risks as a member of the Maritime AntiCorruptionAnti-Corruption Network, with a vision of a maritime industry that enables fair trade. ZIM also fosters quality throughout the service chain, by selectively working with qualified partners to advance its business interests. Finally, ZIM promotes diversity among its teams, with a focus on developing high-quality training courses for all employees. ZIM has invested efforts and resources in promoting diversity in the company, such as monitoring gender diversity of the company on an annual basis, collaborating with nonprofit organization to increase the hiring of employees from diverse backgrounds and with disabilities, participating in special events to raise awareness to diversity and globally communicating its efforts, both internally and externally. As ZIM continues to grow sustainability will remainremains as aits core value.
ZIM’s Competition
ZIM competes with a large number of global, regional and niche shipping companies to provide transport services to customers worldwide. In each of its key trades, ZIM competes primarily with global shipping companies. The market is significantly concentrated with the top three carriers —– A.P. Moller-Maersk Line, MSC and COSCO —– accounting for approximately 45%46.5% of global capacity, and the remaining carriers together contributing less than 55%53.5% of global capacity as of February 2021,2022, according to Alphaliner. As of February 2021,2022, ZIM controlled approximately 1.6%1.7% of the global cargo shipping capacity and ranked 10th among shipping carriers globally in terms of TEU operated capacity, according to Alphaliner. See “Item 3.D Risk factors — factors—The container shipping industry is highly competitive and competition may intensify even further, which could negatively affect ZIM’s market position and financial performance.performance.”
In addition to the large global carriers, regional carriers generally focus on a number of smaller routes within a regional market and typically offer services to a wider range of ports within a particular market as compared to global carriers. Niche carriers are similar to regional carriers but tend to be even smaller in terms of capacity and the number and size of the markets in which they operate. Niche carriers often provide an intra-regional service, focusing on ports and services that are not served by global carriers.
ZIM’s Seasonality
ZIM’s business has historically been seasonal in nature. As a result, ZIM’s average freight rates have reflected fluctuations in demand for container shipping services, which affect the volume of cargo carried by ZIM’s fleet and the freight rates which ZIM charges for the transport of such cargo. ZIM’s income from voyages and related services are typically higher in the third and fourth quarters than the first and second quarters due to increased shipping of consumer goods from manufacturing centers in Asia to North America in anticipation of the major holiday period in Western countries. The first quarter is affected by a decrease in consumer spending in Western countries after the holiday period and reduced manufacturing activities in China and Southeast Asia due to the Chinese New Year. However, operating expenses such as expenses related to cargo handling, charter hire of vessels, fuel and lubricant expenses and port expenses are generally not subject to adjustment on a seasonal basis. As a result, seasonality can have an adverse effect on ZIM’s business and results of operations.
Recently, as a result of the continuing volatility within the shipping industry, seasonality factors have not been as apparent as they have been in the past. As global trends that affect the shipping industry have changed rapidly in recent years, including trends resulting from the COVID-19 pandemic, it remains difficult to predict these trends and the extent to which seasonality will be a factor impacting ZIM’s results of operations in the future.
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ZIM’s Legal Proceedings
For information on ZIM’s legal proceedings, see Note 27 to ZIM’s audited consolidated financial statements that have been incorporated by reference herein. In respect of the alleged patent infringement claim against ZIM, as disclosed in Note 27(h) to ZIM’s audited consolidated financial statements, in March 2022, the plaintiff voluntarily withdrew the claim and the proceeding has been terminated.
ZIM’s Regulatory Matters
Environmental and Compliance Mattersother regulations in the shipping industry
Government regulations and international regulationslaws significantly affect the ownership and operation of ZIM’s vessels. ZIM is subject to many legal provisionsinternational conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which ZIM’s vessels operate or are registered relating to the protection of the environment, including with respectenvironment. Such requirements are subject to ongoing developments and amendments and relate to, among other things, the emissionsstorage, handling, emission, transportation and discharge of hazardous and non-hazardous substances, SOx and NOx gas exhaust emissions, the operation of vessels while at anchor by means of generators,such as sulfur oxides, nitrogen oxides and the use of low-sulfur fuel.fuel or shore power voltage, and the remediation of contamination and liability for damages to natural resources. These laws and regulations include OPA 90, CERCLA, the CWA, the U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (CAA), and regulations adopted by the International Maritime Organization (IMO), including the International Convention for Prevention of Pollution from Ships (MARPOL), and the International Convention for Safety of Life at Sea (the SOLAS Convention), as well as regulations enacted by the European Union and other international, national and local regulatory bodies. Compliance with such requirements, where applicable, entails significant expense, including vessel modifications and implementation of certain operating procedures. If such costs are not covered by ZIM’s insurance policies, ZIM could be exposed to high costs in respect of environmental liability damages, (to the extent that the costs are not covered by its insurance policies),administrative and civil penalties, criminal charges or sanctions, and could suffer substantive harm to its operations and goodwill if and to the extent that environmental damages are caused by its operations. ZIM instructs the crews of its vessels on the environmental regulatory requirements and it operates in accordance with procedures that are intended to ensure its in compliance with such regulatory requirements. ZIM also insures its activities, where effective for it to do so, in order to hedge its environmental risks. ZIM’s vessels are also subject to the standards imposed by the IMO, the United Nations specialized agency with responsibility for the safety and security of shipping and the prevention of marine pollution by ships.
ZIM has taken measures to comply with the IMO Ballast Water regulations. ZIM has taken measures to comply with the amendments of the IMO’s International Maritime Dangerous Goods (IMDG) code, and the amendments to the International Convention for the Prevention of Pollution from Ships (MARPOL).
ZIM is also subject to Israeli regulation regarding, among other things, national security and the mandatory provision of ZIM’s fleet, environmental and sea pollution, and the Israeli Shipping Law (Seamen) of 1973, which regulates matters concerning seamen, and the terms of their eligibility and work procedures.
ZIM’s Special State Share
When the State of Israel sold 100% of its interest in ZIM in 2004 to Israel Corporation Ltd.,IC, ZIM ceased to be a “mixed company” (as defined in the Israeli Government Companies Law, 5735-1975) and issued a Special State Share to the State of Israel whose terms were amended as part of the Company’s 2014 debt restructuring. The objectives underlying the Special State Share are to (i) safeguard ZIM’s existence as an Israeli company, (ii) ensure ZIM’s operating ability and transport capacity so as to enable the State of Israel to effectively access a minimal fleet in a time of emergency or for national security purposes and (iii) prevent elements hostile to the State of Israel or elements liable to harm the State of Israel’s interest in ZIM or its foreign or security interests or its shipping relations with foreign countries, from having influence on our management. The key terms and conditions of the Special State Share include the following requirements:
ZIM must be, at all times, a company incorporated and registered in Israel, with its headquarters and principal and registered office domiciled in Israel.
Subject to certain exceptions, ZIM must maintain a minimal fleet of 11 seaworthy vessels that are fully owned by ZIM, either directly or indirectly through its subsidiaries, at least three of which must be capable of carrying general cargo. Subject to certain exceptions, any transfer of vessels in violation thereof shall be invalid unless approved in advance by the State of Israel pursuant to the mechanism set forth in ZIM’s amended and restated articles of association. Currently, as a result of waivers received from the State of Israel, ZIM owns fewer vessels than the minimum fleet requirement.
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At least a majority of the members of ZIM’s board of directors, including the chairperson of the board and ZIM’s chief executive officer, must be Israeli citizens.
The State of Israel must provide prior written consent for any holding or transfer of shares that confers possession of 35% or more of ZIM’s issued share capital, or that provides control over ZIM, including as a result of a voting agreement.
Any transfer of shares that confers its owner with a holding of more than 24% but not more than 35% of ZIM’s issued share capital will require an advance notice to the State of Israel which will include full details regarding the proposed transferor and transferee, the percentage of shares to be held by the transferee after the transfer and relevant details regarding the transaction, including voting agreements and agreements for the appointment of directors (if any). If the State of Israel shall be of the opinion that the transfer of shares may possibly harm the security interests of the State of Israel or any of its vital interests or that it has not received the relevant information for the purpose of reaching its decision, the State of Israel shall be entitled to serve notice, within 30 days, that it objects to the transfer, giving reason for its objection. In such circumstances, the party requesting the transfer may initiate proceedings in connection with this matter with the competent court, which will consider and rule on the matter.
The State of Israel must consent in writing to any winding-up, merger or spin-off, except for certain mergers with subsidiaries that would not impact the Special State Share or the minimal fleet.
ZIM must provide governance, operational and financial information to the State of Israel similar to information that ZIM provides to its ordinary shareholders. In addition, ZIM must provide the State of Israel with particular information related to ZIM’s compliance with the terms of the Special State share and other information reasonably required to safeguard the State of Israel’s vital interests.
Any amendment, review or cancellation of the rights afforded to the State of Israel by the Special State Share must be approved in writing by the State of Israel prior to its effectiveness.
Other than the rights enumerated above, the Special State Share does not grant the State any voting or equity rights. The full provisions governing the rights of the Special State Share appear in ZIM’s amended and restated articles of association. ZIM reports to the State of Israel on an ongoing basis in accordance with the provisions of its amended and restated articles of association. Certain asset transfer or sale transactions that in ZIM’s opinion require approval, have received the approval of the State (either explicitly or implicitly by not objecting to ZIM’s request).
Kenon’s ownership of ZIM’s shares is subject to the terms and conditions of the Special State Share, which limit Kenon’s ability to transfer its equity interest in us to third parties. The holder of ZIM’s Special State Share has granted a permit, or the Permit, to Kenon and Mr. Idan Ofer, individually and collectively referred to in this paragraph as a “Permitted Holder” of ZIM’s shares, pursuant to which the Permitted Holders may hold 24% or more of the means of control of ZIM (but no more than 35% of the means of control of ZIM), and only to the extent that this does not grant the Permitted Holders control in ZIM. The Permit further stipulates that it does not limit the Permitted Holder from distributing or transferring ZIM’s shares. However, the terms of the Permit provide that the transfer of the means of control of ZIM is limited in instances where the recipient is required to obtain the consent of the holder of ZIM’s Special State Share, or is required to notify the holder of ZIM’s Special State Share of its holding of ZIM’s ordinary shares pursuant to the terms of the Special State Share, unless such consent was obtained by the recipient or the State of Israel did not object to the notice provided by the recipient. In addition, the terms of the Permit provide that, if Idan Ofer’s holding interest in Kenon, directly or indirectly, falls below 36% or if Idan Ofer ceases to be the sole controlling shareholder of Kenon, then the shares held by Kenon will not grant Kenon any right in respect of its ordinary shares that would otherwise be granted to an ordinary shareholder holding more than 24% of ZIM’s ordinary shares (even if Kenon holds a greater percentage of ZIM’s ordinary shares), until or unless the State of Israel provides its consent, or does not object to, such decrease in holding interest or control in Kenon. “Control”, for the purposes of the Permit, shall bear the meaning ascribed to it in the Permit with respect to certain provisions. Additionally, the State of Israel may revoke Kenon’s permit if there is a material change in the facts upon which the State of Israel’s consent was based, or upon a breach of the provisions of the Special State Share by Kenon, Mr. Ofer, or ZIM. According to the Permit, the obligations of the Permitted Holder under the Permit will apply only for as long as the Permitted Holder holds more than 24% of ZIM’s shares.
Discontinued Operations — Inkia Business
Sale of the Inkia Business
Share Purchase Agreement
In November 2017, Kenon, through its subsidiaries Inkia and IC Power Distribution Holdings Pte. Ltd., or ICPDH, entered into a share purchase agreement with Nautilus Inkia Holdings LLC which is an entity controlled by I Squared Capital, pursuant to which Inkia and ICPDH agreed to sell all of their interests in power generation and distribution companies in Latin America and the Caribbean (the “Inkia Business”). The sale was completed in December 2017.
The consideration for the sale was $1,332 million, consisting of (i) $935 million cash proceeds paid by the buyer, (ii) retained cash at Inkia of $222 million, and (iii) $175 million, which was deferred in the form of a Deferred Payment Obligation, which was repaid (prior to scheduled maturity) in October 2020. The consideration was subject to post-closing adjustments which were not significant. The buyer also assumed Inkia’s obligations under Inkia’s $600 million 5.875% Senior Unsecured Notes due 2027.
The consideration that Inkia received in the transaction was before estimated transaction costs, management compensation, advisor fees, other expenses and taxes, were in the aggregate approximately $263 million, of which $27 million comprised taxes to be paid upon payment of the $175 million Deferred Payment Obligation. The estimated tax payment includes taxes payable in connection with a restructuring of some of the companies remaining in the Kenon group, which is intended to simplify Kenon’s holding structure. As a result of this restructuring, Kenon now holds its interest in OPC directly. Kenon does not expect any further tax liability in relation to any future sales of its interest in OPC.
Use of Proceeds of Transaction
In January 2018, Kenon used a portion of the proceeds of the transaction to repay debt of IC Power ($43 million of net debt outstanding), and to repay its loan facility with Israel CorporationIC ($240 million including accrued interest, and $3 million withholding tax).
In addition, in March 2018, Kenon distributed $665 million in cash to its shareholders.
Indemnification
In the share purchase agreement for the sale, the sellers, Inkia and ICPDH, gave representations and warranties in respect of the Inkia Business and the transaction. Subject to specified deductibles, caps and time limitations, the sellers agreed to indemnify the buyer and its successors, permitted assigns, and affiliates, and its officers, employees, directors, managers, members, partners, stockholders, heirs and personal representatives from and against any and all losses arising out of:
prior to their expiration in July 2019 (or December 2020 in the case of representations relating to environmental matters), a breach of any of the sellers’ representations and warranties (other than fundamental representations) up to a maximum amount of $176.55 million;
prior to their expiration upon the expiration of the statute of limitations applicable to breach of contract claims in New York, a breach of any of the sellers’ covenants or agreements set forth in the share purchase agreement;
prior to their expiration thirty days after the expiration of the applicable statute of limitations, certain tax liabilities for pre-closing periods and certain transfer taxes, breach of certain tax representations and the incurrence of certain capital gain taxes by the transferred companies in connection with the transaction; and
without limitation with respect to time, a breach of any of the sellers’ fundamental representations (including representations relating to due authorization, ownership title, and capitalization).
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The sellers’ obligation to indemnify Nautilus Inkia Holdings LLC shall not exceed the base purchase price. The sellers’ indemnification obligations for any claims under the share purchase agreement that arewere agreed between the buyer and the sellers, or that arewere subject to a final non-appealable judgment, arewere supported by the following:
Kenon’s pledge of OPC shares representing 29% of OPC’s outstanding shares as of March 31, 2021, which pledge lasts untilwas agreed to expire on December 31, 2021; and
to the extent any obligations remain outstanding after the exercise of the above-described pledge (or payments of amounts equal to the value of the pledge), a corporate guarantee from Kenon which guarantee lasts untilexpires on December 31, 2021.
The indemnification obligations were previously also supported by a deferred payment agreement owing from the buyers to the sellers, which was, however, repaid in October 2020 (prior to scheduled maturity). In addition, as described under “—Side letter Entered into in connection with the Repayment of the Deferred Payment Agreement,” Kenon has agreed that, until December 31, 2021, it shall maintain at least $50 million in cash and cash equivalents, and has agreed to restrictions on indebtedness, subject to certain exceptions.
Pledge Agreement with respect to OPC Shares
In connection with the sale of the Inkia Business, ICPIC Power (which was the holder of Kenon’s shares in OPC at the time of the sale) entered into a pledge agreement with the buyer of the Inkia Business (Nautilus Inkia Holdings LLC) to pledge OPC shares (at the time representing 25% of OPC’s outstanding sharesshares) in favor of the buyer to secure the sellers’ indemnification obligations under the share purchase agreement for the sale. Following the sale of the Inkia Business, ICPIC Power transferred all of its shares in OPC to Kenon. As a result, Kenon and the buyer entered into an amended pledge agreement, pursuant to which Kenon became the pledgor and assumed ICP’sIC Power’s obligations under the pledge agreement. The pledge agreement was further amended in October 2020 in connection with the early repayment of the deferred payment agreement to increase the amount of pledged shares and the term of the pledge, and the pledged shares represented 29% of the outstanding shares of OPC as of March 31, 2021)February 27, 2022).
Following the amendment of the pledge agreement in October 2020, Kenon hashad pledged 55,000,00055 million shares of OPC, representing 29% of the outstanding shares of OPC as of March 31, 2021 plus related rights including distributions on those shares and proceeds of sales of such shares and including accounts in which such shares are currently held or may be held in the future and rights in respect of such shares against the trustee holding such shares, all as discussed below.
Side Letter Entered into in connection with the Repayment of the Deferred Payment Agreement
In October 2020, Kenon received the full amount of the deferred consideration amount (approximately $218 million (approximately $188 million net of taxes)) under the Deferred Payment Agreement prior to the due date for such payment (December 2021). In connection with the agreement with the buyer of the Inkia Business to repay the Deferred Payment Agreement prior to scheduled maturity, the parties agreed to increase the number of OPC shares pledged from 32,971,680 to 55,000,000 shares (representing approximately 29% of OPC’s shares as of March 31, 2021) and to extend the OPC Pledge and the corporate guarantee by one year until December 31, 2021. In addition, Kenon entered into a side letter pursuant to which Kenon has agreed that, until December 31, 2021, it shallwould maintain at least $50 million in cash and cash equivalents, and has agreed to restrictions on indebtedness at the Kenon level not to exceed $3 million, subject to certain exceptions. This restrictionletter terminated on indebtedness does not apply to Kenon's subsidiaries.December 31, 2021.
Kenon Guarantee
Pursuant to a guarantee agreement entered into in December 2017, Kenon hashad agreed to guarantee payment of Inkia’s and ICPDH’s payment obligations under the share purchase agreement relating to the sale of the Inkia Business, including all of their indemnification obligations, subject to certain conditions. The guarantee iswas only enforceable to the extent that there remain payment obligations under the share purchase agreement after the buyer hashad exhausted in full its rights under the OPC share pledge and the deferred payment agreement as described above. Following extension of the guarantee as part of the side letter in connection with the repayment of the Deferred Payment Agreement, the guarantee will expire inexpired on December 2021, provided that the term of the guarantee shall be extended to the extent that there remain indemnification obligations for which a claim has been made but not resolved at the scheduled expiration date.31, 2021.
Claims Relating to the Inkia Business
Set forth below is a description of the investment treaty claims that are being or may be pursued by Kenon or its subsidiaries and the other claims related to of the Inkia Business to which Kenon or its subsidiaries have rights.
The claims require funding for legal expenses and Kenon is considering its options with respect to meeting these funding needs, including potentially third-party funding for such claims in exchange for a portion of the awards or settlements (which it has done, as described below). Kenon may also sell its rights under or the rights to proceeds resulting from claims.
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Bilateral Investment Treaty (“BIT”) Claims Relating to Peru
In June 2017 and November 2018, IC Power and Kenon respectively sent Notices of Dispute to the Republic of Peru under the Free Trade Agreement between Singapore and the Republic of Peru, or the FTA, relating to two disputes described below, based on events that occurred while Kenon, through IC Power, owned and operated their Peruvian subsidiaries Kallpa and Samay I, later sold as part of the Inkia sale. The disputes may be submitted to arbitration pursuant to the FTA subject to the fulfillment of certain procedural requirements, including the submission of a Notice of Intent one month prior to the institution of arbitral proceedings. In April 2019, IC Power and Kenon notified the Republic of Peru of their intent to submit the disputedisputes to arbitration pursuant to the FTA. In June 2019, IC Power and Kenon submitted the disputedisputes to arbitration before the International Centre for Settlement of Investment Disputes. In June 2020, IC Power and Kenon submitted a Memorial on the Merits, claiming compensation in excess of $200 million. In February 2021, Peru submitted a Counter-Memorial on the Merits and a Memorial on Jurisdiction. AnAfter a further exchange of written pleadings, the final oral hearing is scheduledwas held virtually from 13 to be held in20 December 2021 following which the arbitral tribunal will deliberate and issue an award.2021. There is no fixed deadline for the issuance of the award. Set forth below is a summary of the claims.
IC Power and Kenon have entered into an agreement with a capital provider to provide capital for expenses in relation to the pursuit of their arbitration claims against the Republic of Peru and other costs. The obligations of Kenon and IC Power are secured by pledges relating to the agreement. Security has been provided relating to the obligations of Kenon and IC Power. The agreement contains certain representations and covenants by IC Power and the Kenon and events of default in event of breach of such representations and covenants.
In the event that Kenon or IC Power received proceeds from a successful award or settlement of their claims, the capital provider will be entitled to be repaid the amount committed by the capital provider and to receive a portion of the claim proceeds.
Secondary Frequency Regulation Claim
The Secondary Frequency Regulation, or SFR, is a complementary service required to adjust power generation in order to maintain the frequency of the system in certain situations. In March 2014, OSINERGMIN (the mining and energy regulator in Peru) approved Technical Procedure 22, or PR 22, establishing that the SFR would be provided through a firm and variable base provision. The firm base provision of the SFR would have priority in the daily electricity dispatch to keep turbines permanently on to respond to frequency changes in the system. OSINERGMIN provided that the SFR service would be tendered through a bid.
Kallpa submitted a bid offering to provide the firm base provision of SFR. In April 2016, Kallpa was awarded the SFR firm base provision for three years, from August 2016 until July 2019 on an exclusive basis, independently of its declared generation costs, and in exchange for a reserve assignment price of zero, plus certain reimbursable costs.
In June 2016, OSINERGMIN issued a resolution that materially modified PR 22 (the “Resolution”). Under the Resolution, the firm base SFR provider can only render the SFR service when it is programmed in the daily electricity dispatch based on its declared generation costs. This retroactive amendment to PR 22 withdrew Kallpa’s exclusive right to provide the firm base SFR service that had been awarded to it in April 2016. Kenon and IC Power suffered losses as a result.
Transmission Tolls Claim
Until July 2016, the responsibility for the payment for the use of the secondary and complementary transmission systems was apportioned between generators based on the use of each transmission line. OSINERGMIN identified the generators that made use of particular distributiontransmission lines and proceeded to determine payment based on actual use (or the “relevance of use” requirement).
However, in July 2016, OSINERGMIN issued a resolution, referred to as the Transmission Toll Resolution, eliminating the “relevance of use” requirement, replacing it with a methodology that required each generation company to pay for a number of transmission lines, irrespective of the transmission lines the company actually uses. The change in methodology benefited the state-owned electricity companies, including Electroperu, to the detriment of Kenon and IC Power’s Peruvian subsidiaries, causing significant losses to Kenon and IC Power.
Entitlement to Payments in Respect of Certain Proceedings and Claims
As discussed below, certain of our subsidiaries are pursuing claims or are entitled to receive certain payments from the buyer of the Inkia Business in connection with certain claims held by companies within the Inkia Business or as a result of the resolution of, and/or a change in regulations or cash payments received relating to the transmission tolls claim or the SFR claim. These payments are subject to conditions and may be subject to deduction for taxes incurred as a result of the relevant payment.
Transmission Toll Regulation
In the event of certain changes in or revocation of regulation in Peru or a final court order relating to the Transmission Toll Resolution (described above under “—“—Bilateral Investment Treaty Claims Relating to Peru—Transmission Tolls Claim”) which change, revocation or order has the effect of increasing operating profits of Kallpa or Samay I (which are part of the Inkia Business) then the buyer of the Inkia Business is required to pay or cause to be paid to Inkia in cash 75% of an amount equal to 70% of the increase in operating profits of Kallpa and Samay I attributable directly and solely to the changes in regulation through December 31, 2024.
In addition, in the event of any cash payments made to Kallpa or Samay I as a result certain changes in regulation in Peru relating to the Transmission Toll Resolution or as a result certain claims being pursued in Peru in connection with this resolution, the buyer is required to pay or cause to be paid in cash 75% of an amount equal to 70% of such cash proceeds.
Secondary Frequency Regulation Claim
In the event of certain changes to or revocation of PR 22 (as described under “—“—Bilateral Investment Treaty Claims Relating to Peru—Secondary Frequency Regulation Claim”) which result in a cash payment to Kallpa or Samay I, the buyer is required to pay or cause to be paid in cash 75% of an amount equal to 70% of such cash proceeds.
| C. | Organizational Structure |
The chart below represents a summary of our organizational structure, excluding intermediate holding companies, as of April 30,December 31, 2021. This chart should be read in conjunction with the explanation of our ownership and organizational structure above.
| D. | Property, Plants and Equipment |
For information on our property, plants and equipment, see “Item 4.B Business Overview.Overview.”
| ITEM | Unresolved Staff Comments |
Not Applicable.
| ITEM | Operating and Financial Review and Prospects |
This section should be read in conjunction with our audited consolidated financial statements, and the related notes thereto, for the years ended December 31, 2021, 2020 2019 and 2018,2019, included elsewhere in this annual report. Our financial statements have been prepared in accordance with IFRS.
The financial information below also includes certain non-IFRS measures used by us to evaluate our economic and financial performance. These measures are not identified as accounting measures under IFRS and therefore should not be considered as an alternative measure to evaluate our performance.
Certain information included in this discussion and analysis includes forward-looking statements that are subject to risks and uncertainties, and which may cause actual results to differ materially from those expressed or implied by such forward-looking statements. For further information on important factors that could cause our actual results to differ materially from the results described in the forward-looking statements contained in this discussion and analysis, see “Special Note Regarding Forward-Looking Statements” and “Item 3.D Risk Factors.”
Business Overview
For a discussion of our strategy, see “Item 4.B Business Overview.”
Overview of Financial Information Presented
As a holding company, Kenon’s results of operations primarily comprise the financial results of each of its businesses. The following table sets forth the method of accounting for our businesses for each of the two years ended December 31, 20202021 and our ownership percentage as of December 31, 2020:2021:
Ownership Percentage | Method of Accounting | Treatment in Consolidated Financial Statements | ||||||
| OPC | 58.8 | Consolidated | Consolidated | |||||
| ZIM | 26 | Equity | Share in | |||||
| Qoros | 12 | Fair value | Long-term investment | |||||
| Other | ||||||||
| (1) | In January 2021, OPC issued 10,300,000 ordinary shares in a private placement for a total (gross) consideration of NIS 350 million (approximately $107 million). As a result of this share issuance, Kenon’s interest in OPC decreased from 62.1% to 58.2%. In September 2021, OPC issued rights to purchase approximately 13 million OPC shares to fund the development and expansion of OPC’s activity in the U.S., with investors purchasing approximately 99.7% of the total shares offered in the rights offering. The gross proceeds from the offering amounted to approximately NIS 329 million (approximately $102 million). Kenon exercised rights for the purchase of approximately 8 million shares for total consideration of approximately NIS 206 million (approximately $64 million), which included its pro rata share and additional rights it purchased during the rights trading period plus the cost to purchase these additional rights. As a result, Kenon holds approximately 58.8% of the outstanding shares of OPC. |
| (2) | In February 2021, ZIM completed an initial public offering of its shares on the New York Stock Exchange and, as a result of the offering, our interest in ZIM |
| (3) | In April 2020, Kenon sold half of its interest in Qoros (i.e. 12%) to the Majority |
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The results of Qoros (until the 2020 sale) and ZIM are included in Kenon’s statements of profit and loss as share in lossesprofits of associated company, net of tax, for the years set forth below, except as otherwise indicated.
The following tables set forth selected financial data for Kenon’s reportable segments for the periods presented:
Year Ended December 31, 2020 | Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||
OPC | Quantum1 | ZIM | Other2 | Consolidated Results | OPC Israel | CPV | ZIM | Quantum1 | Other2 | Consolidated Results | ||||||||||||||||||||||||||||||||||
(in millions of USD, unless otherwise indicated) | (in millions of USD, unless otherwise indicated) | |||||||||||||||||||||||||||||||||||||||||||
| Revenue | 386 | — | — | — | 386 | 437 | 51 | — | — | — | 488 | |||||||||||||||||||||||||||||||||
| Depreciation and amortization | (34 | ) | — | — | — | (34 | ) | (44 | ) | (13 | ) | — | — | (1 | ) | (58 | ) | |||||||||||||||||||||||||||
| Financing income | — | — | — | 14 | 14 | 3 | — | — | — | — | 3 | |||||||||||||||||||||||||||||||||
| Financing expenses | (50 | ) | — | — | — | (51 | ) | (119 | ) | (25 | ) | — | — | — | (144 | ) | ||||||||||||||||||||||||||||
| Net gains related to changes of interest in Qoros | — | 310 | — | (1 | ) | 310 | ||||||||||||||||||||||||||||||||||||||
| —Share in (losses)/profit of associated companies | — | (6 | ) | 167 | — | 161 | ||||||||||||||||||||||||||||||||||||||
| Write back of impairment of investment | — | — | 44 | — | 44 | |||||||||||||||||||||||||||||||||||||||
| Losses related to Qoros | — | — | — | (251 | ) | — | (251 | ) | ||||||||||||||||||||||||||||||||||||
| Share in (losses)/profit of associated companies | — | (11 | ) | 1,261 | — | — | 1,250 | |||||||||||||||||||||||||||||||||||||
| (Loss) / Profit before taxes | (9 | ) | 304 | 211 | (5 | ) | 501 | (57 | ) | (61 | ) | 1,261 | (251 | ) | (12 | ) | 880 | |||||||||||||||||||||||||||
| Income taxes | (4 | ) | — | — | (1 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||||
| Income tax benefit/(expense) | 10 | 14 | — | — | (29 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||||
| (Loss) / Profit from continuing operations | (13 | ) | 304 | 211 | (6 | ) | 496 | (47 | ) | (47 | ) | 1,261 | (251 | ) | (41 | ) | 875 | |||||||||||||||||||||||||||
Segment assets3 | 1,724 | 235 | — | 226 | 4 | 2,185 | 1,512 | 431 | — | — | 227 | 2,170 | ||||||||||||||||||||||||||||||||
| Investments in associated companies | — | — | 297 | — | 297 | — | 545 | 1,354 | — | — | 1,899 | |||||||||||||||||||||||||||||||||
| Segment liabilities | 1,200 | — | — | 6 | 5 | 1,206 | 1,354 | 218 | — | — | 216 | 1,788 | ||||||||||||||||||||||||||||||||
Subsidiary of Kenon that owns Kenon’s equity holding in Qoros. |
Includes the results of Kenon’s and IC Power’s holding company (including assets and liabilities) and general and administrative expenses. |
| (3) | Excludes investments in associates. |
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Year Ended December 31, 2020 | ||||||||||||||||||||
OPC Israel | Quantum1 | ZIM | Other2 | Consolidated Results | ||||||||||||||||
| (in millions of USD, unless otherwise indicated) | ||||||||||||||||||||
| Revenue | 386 | — | — | — | 386 | |||||||||||||||
| Depreciation and amortization | (34 | ) | — | — | — | (34 | ) | |||||||||||||
| Financing income | — | — | — | 14 | 14 | |||||||||||||||
| Financing expenses | (50 | ) | — | — | (1 | ) | (51 | ) | ||||||||||||
| Gains related to Qoros | — | 310 | — | — | 310 | |||||||||||||||
| Share in (losses)/profit of associated companies | — | (6 | ) | 167 | — | 161 | ||||||||||||||
| Write back of impairment of investment | — | — | 44 | — | 44 | |||||||||||||||
| (Loss) / Profit before taxes | (9 | ) | 304 | 211 | (5 | ) | 501 | |||||||||||||
| Income tax expense | (4 | ) | — | — | (1 | ) | (5 | ) | ||||||||||||
| (Loss) / Profit from continuing operations | (13 | ) | 304 | 211 | (6 | ) | 496 | |||||||||||||
Segment assets3 | 1,724 | 235 | — | 226 | 4 | 2,185 | ||||||||||||||
| Investments in associated companies | — | — | 297 | — | 297 | |||||||||||||||
| Segment liabilities | 1,200 | — | — | 6 | 5 | 1,206 | ||||||||||||||
| (1) | Subsidiary of Kenon that owns Kenon’s equity holding in Qoros. |
| (2) | Includes the results of Primus, as well as Kenon’s and IC Green’s holding company and general and administrative expenses. |
Excludes investments in associates. |
Includes Kenon’s, IC Green’s and IC |
Includes Kenon’s, IC Green’s and IC |
| Year Ended December 31, 2019 | ||||||||||||||||||||
OPC | Quantum1 | ZIM | Other2 | Consolidated Results | ||||||||||||||||
(in millions of USD, unless otherwise indicated) | ||||||||||||||||||||
| Revenue | $ | 373 | $ | — | $ | — | $ | — | $ | 373 | ||||||||||
| Depreciation and amortization | (31 | ) | — | — | — | (31 | ) | |||||||||||||
| Financing income | 2 | — | — | 16 | 18 | |||||||||||||||
| Financing expenses | (28 | ) | — | — | (2 | ) | (30 | ) | ||||||||||||
| Fair value loss on put option | — | (19 | ) | — | — | (19 | ) | |||||||||||||
| Recovery of financial guarantee | — | 11 | — | — | 11 | |||||||||||||||
| Share in losses of associated companies | — | (37 | ) | (4 | ) | — | (41 | ) | ||||||||||||
| Profit / (Loss) before taxes | $ | 48 | $ | (45 | ) | $ | (4 | ) | $ | (4 | ) | $ | (5 | ) | ||||||
| Income taxes | (14 | ) | — | — | (3 | ) | (17 | ) | ||||||||||||
| Profit / (Loss) from continuing operations | $ | 34 | $ | (45 | ) | $ | (4 | ) | $ | (7 | ) | $ | (22 | ) | ||||||
Segment assets3 | $ | 1,000 | $ | 72 | $ | — | $ | 246 | 4 | $ | 1,318 | |||||||||
| Investments in associated companies | — | 106 | 84 | — | 190 | |||||||||||||||
| Segment liabilities | 762 | — | — | 34 | 5 | 796 | ||||||||||||||
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
(in millions of USD) | ||||||||
| Profit/(Loss) (100% of results) | 518 | (18 | ) | |||||
| Share of profit/(loss) from Associates (i.e. Kenon's share of ZIM's results) | 167 | (4 | ) | |||||
| Book Value | 297 | 84 | ||||||
OPC
The following table sets forth summary financial information for OPC for the years ended December 31, 2020, 20192021 and 2018:2020:
Year Ended December 31, | ||||||||||||||||||||
2020 | 2019 | 2018 | 2021 | 2020 | ||||||||||||||||
| ($ millions) | ||||||||||||||||||||
| Revenue | 386 | 373 | 363 | 488 | 386 | |||||||||||||||
| Cost of Sales (excluding depreciation and amortization) | (282 | ) | (256 | ) | (258 | ) | (337 | ) | (282 | ) | ||||||||||
| Net (Loss) / Profit | (13 | ) | 34 | 26 | ||||||||||||||||
EBITDA1 | 75 | 105 | 91 | |||||||||||||||||
| Net Loss | (94 | ) | (13 | ) | ||||||||||||||||
Adjusted EBITDA1 | 91 | 75 | ||||||||||||||||||
Proportionate share of EBITDA of associated companies1 | 106 | — | ||||||||||||||||||
Total Debt2 | 921 | 622 | 587 | 1,215 | 921 | |||||||||||||||
OPC defines “EBITDA” for each period as net |
EBITDA isand Adjusted EBITDA are not recognized under IFRS or any other generally accepted accounting principles as a measure of financial performance and should not be considered as a substitute for net income or loss, cash flow from operations or other measures of operating performance or liquidity determined in accordance with IFRS. EBITDA isand Adjusted EBITDA are not intended to represent funds available for dividends or other discretionary uses because those funds may be required for debt service, capital expenditures, working capital and other commitments and contingencies. EBITDA presentsand Adjusted EBITDA present limitations that impair its use as a measure of OPC’s profitability since it does not take into consideration certain costs and expenses that result from its business that could have a significant effect on OPC’s net income,loss, such as finance expenses, taxes and depreciation.depreciation and amortization.
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The following table sets forth a reconciliation of OPC’s net incomeprofit to its Adjusted EBITDA and share of net profit to share of EBITDA of its associated companies for the periods presented. Other companies may calculate EBITDA and Adjusted EBITDA differently, and therefore this presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies:
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
(in millions of USD) | ||||||||||||
| Net (loss) / profit for the period | (13 | ) | 34 | 26 | ||||||||
| Depreciation and amortization | 34 | 31 | 30 | |||||||||
| Finance expenses, net | 50 | 26 | 25 | |||||||||
| Income tax expense | 4 | 14 | 10 | |||||||||
| EBITDA | 75 | 105 | 91 | |||||||||
2021 | 2020 | |||||||
| Net loss for the period | (94 | ) | (13 | ) | ||||
| Depreciation and amortization | 57 | 34 | ||||||
| Financing expenses, net | 141 | 50 | ||||||
| Share in losses of associated companies, net | 11 | — | ||||||
| Income tax (benefit)/expense | (24 | ) | 4 | |||||
| Adjusted EBITDA | 91 | 75 | ||||||
| Share in losses of associated companies, net | (11 | ) | — | |||||
| Share of depreciation and amortization | 39 | — | ||||||
| Share of financing expenses, net | 78 | — | ||||||
| Proportionate share of EBITDA of associated companies | 106 | — |
Includes short-term and long-term debt. |
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
($ millions, except as otherwise indicated) | ||||||||||||
| Revenue | 386 | 373 | 363 | |||||||||
| Cost of Sales (excluding depreciation and amortization) | (282 | ) | (256 | ) | (258 | ) | ||||||
| Gross profit | 71 | 86 | 75 | |||||||||
| Gross profit margin | 18 | % | 23 | % | 21 | % | ||||||
| Financing expenses, net | 50 | 26 | 25 | |||||||||
| Net (loss) / profit for the period | (13 | ) | 34 | 26 | ||||||||
| Net Energy sales (kWh) | 4,344 | 4,030 | 3,965 | |||||||||
Qoros
ZIM
ZIM’s results of operations for the years ended December 31, 20202021 and 20192020 are reflected in Kenon’s share in losses/(profit)profits of associated companies, net of tax.
Material Factors Affecting Results of Operations
OPC
Set forth below is a discussion of the material factors affecting the results of operations of OPC for the periods under review. OPC acquired CPV in January 2021. The discussion below refers to OPC without giving effect to the CPV business except where expressly indicated.
On July 1, 2020, the OPC-Hadera plant reached COD, and commenced operations. This impacted revenue and cost of sales in the second half of 2020 and in 2021.
Acquisition of CPV
In January 2021, CPV Group LP, an entity in which OPC indirectly holds a 70% interest, acquired CPV from Global Infrastructure Management, LLC. CPV is engaged in the development, construction and management of renewable energy and conventional natural gas-fired power plants in the United States. The total consideration for the acquisition was $653 million (paid in cash), including post-closing adjustments based on closing date cash, working capital and debt. In addition, in respect of 17.5% of the rights to the Three Rivers project under construction, a vendor loan, in the amount of $95 million was granted to CPV Power Holdings, one of the CPV companies acquired. In February 2021, the vendor loan was reduced by $41 million as a result of the sale of 7.5% of the rights in the Three Rivers Project, and in October 2021, the balance of the vendor loan, in a total amount of $54.5 million was repaid in full.
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OPC financed the acquisition through (i) available cash in the amount of approximately NIS 280 million (approximately $87 million); (ii) issuance of Series B bonds for proceeds of approximately NIS 250 million (approximately $78 million) (which was paid off in 2021); (iii) a public offering of 23,022,100 new ordinary shares for a total (gross) proceeds of NIS 737 million (approximately $217 million) (an offering in which Kenon participated) and, (iv) a private placement of OPC’s shares to institutional investors, for gross proceeds of approximately NIS 350 million (approximately $107 million).
Repayment of OPC-Rotem Financing Agreement
In January 2011, OPC-Rotem entered into a financing agreement with a consortium of lenders led by Bank Leumi Le-Israel Ltd., or Bank Leumi, for the financing of its power plant project. In October 2021, OPC-Rotem repaid the project financing debt in the amount NIS 1,292 million (approximately $400 million) (including early repayment fees). As part of the early repayment, OPC-Rotem recognized a one-off expense totaling NIS 244 million (approximately $75 million), in respect of an early repayment fee of approximately NIS 188 million (approximately $58 million), net of tax. OPC and the minority investor in OPC-Rotem extended to OPC-Rotem loans (pro rata to their ownership) to finance the early repayment totaling (principal) NIS 1,130 million (approximately $350 million). A significant portion of OPC’s portion of NIS 904 million (approximately $280 million) of this debt repayment was funded by the issuance of Series C debentures as described below.
Revenue – EA Tariffs
In Israel, sales by IPPs are generally made on the basis of PPAs for the sale of energy to customers, with prices predominantly linked to the tariff issued by the EA and denominated in NIS.
The EA operates a “Time of Use” tariff, which provides different energy rates for different seasons (e.g., summer and winter) and different periods of time during the day. Within Israel, the price of energy varies by season and demand period. For further information on Israel’s seasonality and the related EA tariffs, see “Item 4.B Business Overview—Our Businesses—OPC—Industry Overview—Overview of Israeli Electricity Generation Industry.”
The EA’s rates have affected OPC’s revenues and income in the periods under review.
Cost of Sales
OPC’s principal costs of sales are natural gas, transmission, distribution and system services costs, personnel, third-party services and maintenance costs.
The prices at which OPC-Rotem and OPC-Hadera purchase their natural gas from their sole natural gas supplier, the Tamar Group, is predominantly indexed to changes in the EA’s generation component tariff, pursuant to the price formula set forth in OPC-Rotem’s and OPC-Hadera’s supply agreements with the Tamar Group. As a result, increases or decreases in this tariff have a related effect on OPC-Rotem’s and OPC-Hadera’s cost of sales and margins. Additionally, the natural gas price formula in OPC-Rotem’s and OPC-Hadera’s supply agreement is subject to a floor price mechanism.
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OPC’s costs for transmission, distribution and systems services vary primarily according to the quantity of energy that OPC sells. These costs are passed on to its customers. OPC incurs personnel and third-party services costs in the operation of its plants. These costs are usually independent of the volumes of energy produced by OPC’s plants. OPC incurs maintenance costs in connection with the ongoing and periodic maintenance of its generation plants. These costs are usually correlated to the volumes of energy produced and the number of running hours of OPC’s plants.
Changes in Exchange Rates
Fluctuations in the exchange rates between currencies in which certain of OPC’s agreements are denominated (such as the U.S. Dollar and Euro)Dollar) and the NIS, which is OPC’s functional and reporting currency, will generate either gains or losses on monetary assets and liabilities denominated in such currencies and can therefore affect OPC’s profitability. Furthermore, OPC is indirectly influenced by changes in the U.S. Dollar to NIS exchange rate (i) due to the acquisitionpartly in view of its investment in CPV which operates in the US, (ii) the expected investment in CPV’s existing project backlog and (ii)(iii) as the IEC electricity tariff is partially linked to increases in fuel prices (mainly coal and gas) that are denominated in U.S. Dollars.
In addition, Kenon’s functional currency is the U.S. Dollar, so Kenon reports OPC’s NIS-denominated results of operations and balance sheet items in U.S. Dollars, translating OPC’s results into U.S. Dollars at the average exchange rate (for results of operation) or rate in effect on the balance sheet date (for balance sheet items). Accordingly, changes in the U.S. Dollar to USD/NIS exchange rate impact Kenon’s reported results for OPC.
In 2020,2021, the U.S. Dollar was weaker versus the NIS as compared to 2019.
ZIM
Kenon had a 32%26% equity interest in ZIM as of December 31, 2020 (currently approximately 28% following2021 (following completion of ZIM’s IPO)IPO in February 2021 and share sales of approximately 1.2 million ZIM shares between September and November 2021). ZIM’s results of operations for the years ended December 31, 20202021 and 20192020 are reflected in Kenon’s share in losses/(profit) of associated companies, net of tax, pursuant to the equity method of accounting.
Market Volatility. The container shipping industry iscontinues to be characterized in recent years by volatility in freight rates, charter rates and bunker prices, includingaccompanied by significant uncertainties in the global trade mainly due to U.S. related trade restrictions, particularly with China.(including further implications that might derive from the COVID-19 pandemic). Current market conditions impact positively, withresulting in improved results of ZIM, mainly driven by increased freight rates and recovery in volumes of trades. However, an adverse trend in such industry indicators (including any further potential implicationstrades, partially offset by the impact of the COVID-19 pandemic) could negatively affect the entire industry. For more information on ZIM’s risks related to the COVID-19 pandemic, see “Risk factors–Risks related to our interest in ZIM––The global COVID-19 pandemic has created significant business disruptionsincreased charter hire rates and adversely affected ZIM’s business and is likely to continue to create significant business disruptions and adversely affect its business in the future.”bunker prices.
Volume of cargo carried. The volume of cargo that ZIM carries affects its income and profitability from voyages and related services and varies significantly between voyages that depart from, or return to, a port of origin. The vast majority of the containers ZIM carries are either 20- or 40-foot containers. ZIM measures its performance in terms of the volume of cargo it carries in a certain period in 20-foot equivalent units carried, or TEUs carried. ZIM’s management uses TEUs carried as one of the key parameters to evaluate ZIM’s performance, used in real-time and take actions, to the extent possible, to improve performance.
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Additionally, ZIM’s management monitors TEUs carried from a longer-term perspective, to deploy the right capacity to meet expected market demand. Although the volume of cargo that ZIM carries is principally a function of demand for container shipping services in each of its trade routes, it is also affected by factors such as ZIM’s:
local shipping agencies’ effectiveness in capturing such demand;
level of customer service, which affects its ability to retain and attract customers;
ability to effectively deploy capacity to meet such demand;
operating efficiency; and
ability to establish and operate existing and new services in markets where there is growing demand.
The volume of cargo that ZIM carries is also impacted by its participation in strategic alliances and other cooperation agreements. In periods of increased demand and increased volume of cargo, ZIM adjusts capacity by chartering-in additional vessels and containers and/or purchasing additional slots from partners, to the extent feasible. During these periods, increased competition for additional vessels and containers may increase ZIM’s costs. ZIM may deploy its capacity through additional vessels and containers in existing services, through new services that ZIM operates independently or through the exchange of capacity with vessels operated by other shipping companies or other cooperative agreements. In periods of decreased volumes of cargo, ZIM may adjust capacity to demand by electing to reduce its fleet size in order to reduce operating expenses mainly by redelivering chartered-in vessels and not renewing their charters, or by cancelling specific voyages (which are referred to as “blank sailings”). ZIM may also elect to close existing services within, or exit entirely from, less attractive trades. As a substantial portion of its fleet is chartered-in, primarily for short-term periods of one year and less, ZIM retains a relatively high level of flexibility.flexibility even though it is less so when it concerns vessels that are long-term chartered.
Freight rates. Freight rates are largely established by the freight market and ZIM has a limited influence over these rates. ZIM uses average freight rate per TEU as one of the key parameters of its performance. Average freight rate per TEU is calculated as revenues from containerized cargo during a certain period, divided by total TEUs carried during that period. Container shipping companies have generally experienced volatility in freight rates. Freight rates vary widely as a result of, among other factors:
cyclical demand for container shipping services relative to the supply of vessel and container capacity;
competition in specific trades;
bunker prices;
costs of operation;
the particular dominant leg on which the cargo is transported;
average vessel size in specific trades;
the origin and destination points selected by the shipper; and
the type of cargo and container type.
As a result of some of these factors, including cyclical fluctuations in demand and supply, container shipping companies have experienced volatility in freight rates. For example, although freight rates have recovered during the 4th quarter of 2019, mainly driven by a recovery of the higher bunker cost associated with the implementation of IMO 2020 Regulations, the comprehensive Shanghai (Export) Containerized Freight Index which(SCFI) increased from 716 points at October 17, 2019 to 1,023 points at January 3, 2020, thereafter decreased to 818 points aton April 23, 2020, with the global outbreak of COVID-19, to 5,047 as of December 31, 2021. Since the middle of 2020, the industry has witnessed a sharp and increased again to 2,311 points at December 11, 2020. Similar to other container shipping companies,unprecedented increase in freight rates, reflecting the persistence of such difficult fluctuating conditions insudden demand surge triggered by the shipping industryCOVID-19 pandemic and the increaseunprecedented supply chain disruptions. Furthermore, rates within the charter market, through which ZIM sources most of its capacity, may also fluctuate significantly based upon changes in competition have impacted,supply and may continue to impact, ZIM’s resultsdemand for shipping services. The current severe shortage of operationsvessels available for hire has resulted in increased charter rates and profitability. Global container ship capacity has increased over the years and continues to exceed demand. Accordinglonger charter periods dictated by owners. In addition, according to Alphaliner, global container ship capacity is projected to increasehas increased by 3.7%4.5% in 2021, while demand for shipping services is projected to increase by 3.5%6.7%, therefore the increase in ship capacity is expected to be more aligned withless than the increase in demand for container shipping. Excess capacity can lead to lower utilization of our vessels and depress freight rates, which may adversely impact ZIM’s revenues, profitability or asset values. Until such capacity is fully absorbed by the container shipping market, the industry may continue to experience downward pressure on freight rates.for a second consecutive year.
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There are cargo segments which require more expertise; for example, ZIM charges a premium over the base freight rate for handling specialized cargo, such as refrigerated, liquid, over-dimensional, or hazardous cargo, which require more complex handling and more costly equipment and are generally subject to greater risk of damage. ZIM believes that its commercial excellence and customer centric approach across its network of shipping agencies enable it to recognize and attract customers who seek to transport such specialized types of cargo, which are less commoditized services and more profitable. ZIM intends to focus on growing the specialized cargo transportation portion of its business: specializedthe portion of dangerous and hazardous cargo representedout of ZIM’s total TEU carried grew by approximately 5% during 2021 compared to 2020, and the portion of reefer cargo out of ZIM’s total TEU carried grew by approximately 11% of its total cargo transported during the 20182021 compared to 2020 period as measured by TEUs.2020. ZIM also charges a premium over the base freight rate for global land transportation services it provides. Further, from time to time ZIM imposes surcharges over the base freight rate, in part to minimize its exposure to certain market-related risks, such as fuel price adjustments, exchange rate fluctuations, terminal handling charges and extraordinary events, although usually these surcharges are not sufficient to recover all of ZIM’s costs. Amounts received related to these adjustment surcharges are allocated to freight revenues.
Cargo handling expenses. Cargo handling expenses represent the most significant portion of ZIM’s operating expenses. Cargo handling expenses primarily include variable expenses relating to a single container, such as stevedoring and other terminal expenses, feeder services, storage costs, balancing expenses arising from repositioning containers with unutilized capacity on the non-dominant leg, and expenses arising from inland transport of cargo. ZIM manages the container repositioning costs that arise from the imbalance between the volume of cargo carried in each direction using various methods, such as triangulating ourits land transportation activities and services. If ZIM is unable to successfully match requirements for container capacity with available capacity in nearby locations, it may incur balancing costs to reposition its containers in other areas where there is demand for capacity. Cargo handling accounted for 51%48.1%, 51%50.5% and 46%,50.6% of ZIM’s operating expenses and cost of services for the years ended December 31, 2021, 2020 2019 and 2018.2019.
Bunker expenses. Fuel expenses, in particular bunker fuel expenses, represent a significant portion of ZIM’s operating expenses. As a result, changes in the price of bunker or in ZIM’s bunker consumption patterns can have a significant effect on its results of operations. Bunker price has historically been volatile, can fluctuate significantly and is subject to many economic and political factors that are beyond ZIM’s control. Although bunkerBunker prices have been relatively low during fiscal year 2020, the global recovery from the COVID-19 pandemic is anticipated to lead to an increase in bunker prices, which would negatively impact ZIM’s results of operations.and they have increased during 2021. ZIM’s bunker fuel consumption is affected by various factors, including the number of vessels being deployed, vessel size, pro forma speed, vessel efficiency, weight of the cargo being transported and sea state. In 2021, ZIM’s bunker consumption per mile increased by approximately 1.8%, mainly as a result of increased vessels speed intended to recover voyage schedules due to delays caused by port congestion. ZIM’s fuel expenses, which consist primarily of bunker expenses, accounted for approximately 13%18.9%, 14%12.8% and 18%,13.8% of its operating expenses and cost of services for the years ended December 31, 2021, 2020 2019 and 2018,2019, respectively.
Vessel charter portfolio. Substantially allMost of ZIM’s capacity is chartered-in.chartered in. As of December 31, 2020,2021, ZIM chartered-in 86114 vessels (including 57106 vessels accounted as right-of-use assets under the lease accounting guidance of IFRS 16 and 4 vessels accounted under sale and leaseback refinancing agreements), which accounted for 99%96.9% of ourits TEU capacity and 99%96.6% of the vessels in ZIM’s fleet. Of such vessels, 84all are under a “time charter”, which consists of chartering-in the vessel capacity for a given period of time against a daily charter fee, and 110 of which are with the owner handling the crewing and technical operation of the vessel, including 711 vessels chartered-in from a related party. Fiveparties. Four of ZIM’s vessels are chartered-in under a “bareboat charter”, which consists of chartering a vessel for a given period of time against a charter fee, with ZIM handling the operation of the vessel. Under these arrangements, both parties are committed for the charter period; however, vessels temporarily unavailable for service due to technical issues will qualify for relief from charges during such period (off hire). In February 2021, ZIM and Seaspan Corporation entered into a strategic agreementagreements for the long-term charter of ten 15,000 TEU and fifteen 7,000 TEU liquified natural gas (LNG dual-fuel container) vessels, to serve ZIM’s Asia-US East Coast Trade.
Adoption of New Accounting Standards in 20212022
For more information on the impact of the adoption of thesenew accounting standards, see Note 3 to our financial statements included in this annual report.
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Impairment Tests of ZIM
As a result of improved conditions in the container shipping market and operating conditions at ZIM throughout 2020,2021, Kenon conducted an impairment analysis in relation to its 32%26% equity investment in ZIM as of December 31, 20202021 in accordance with IAS 28 and IAS 36.28. The analysis concluded that the carrying amount of its investment in ZIM was lower than the recoverable amount, and therefore, Kenon wrote back $44 million of thethere were no impairment previously recognized in 2016. For further information on the write back of impairment, see Note 9 to our financial statements included in this annual report.indicators.
Recent Developments
Kenon
Republic of Singapore. In January 2021, OPC issued 10,300,000 ordinary shares (representing approximately 7.5%connection with the 2022 AGM, we intend to publish on or about April 27, 2022 a proxy and information statement, including further information on the Capital Reduction. Following the completion of OPC’s issued and outstandingthe Capital Reduction, our share capital at the time on a fully diluted basis) to Altshuler Shaham and entities managed by Alsthuler Shaham in a private placement for a total (gross) consideration of NIS 350 million (approximately $107 million). As a result of this share issuance, Kenon’s interest in OPC decreased to 58.2%.
ZIM
On March 9, 2022, ZIM’s board of directors declared a cash dividend of approximately $2.04 billion, or $17.00 per ordinary share, resulting in 2 stages over 11 months with the majoritya cumulative annual dividend amount of approximately 50% of 2021 net income, to be paid on April 4, 2022, to holders of the purchase price earmarked for funding of Gnrgy’s business plan including repayment of existing related party debts. Gnrgy's founder will retain the remaining interests in Gnrgy and enter into a shareholders’ agreement with OPC, which will among other things give OPC an option to acquire a 100% interest in Gnrgy. Completion of the transaction is subject to certain conditions, including approval (or an exemption) from the Israel Competition Authority. OPC has indicated that it intends to finance the transaction from its own sources.
| A. | Operating Results |
Our consolidated financial statements for the years ended December 31, 20202021 and 20192020 are comprised of OPC, Primus (which sold substantially all of its assets in August 2020), and the results of the associated companies (Qoros, until the 2020 sale of half (12%) of Kenon'sKenon’s remaining interest in Qoros, and ZIM).
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Year Ended December 31, 20202021 Compared to Year Ended December 31, 201912020
The following tables set forth summary information regarding our operating segment results for the years ended December 31, 20202021 and 2019.2020.
Year Ended December 31, 2020 | Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||
OPC | Quantum1 | ZIM | Other2 | Consolidated Results | OPC Israel | CPV | ZIM | Quantum1 | Other2 | Consolidated Results | ||||||||||||||||||||||||||||||||||
(in millions of USD, unless otherwise indicated) | (in millions of USD, unless otherwise indicated) | |||||||||||||||||||||||||||||||||||||||||||
| Revenue | 386 | — | — | — | 386 | 437 | 51 | — | — | — | 488 | |||||||||||||||||||||||||||||||||
| Depreciation and amortization | (34 | ) | — | — | — | (34 | ) | (44 | ) | (13 | ) | — | — | (1 | ) | (58 | ) | |||||||||||||||||||||||||||
| Financing income | — | — | — | 14 | 14 | 3 | — | — | — | — | 3 | |||||||||||||||||||||||||||||||||
| Financing expenses | (50 | ) | — | — | (1 | ) | (51 | ) | (119 | ) | (25 | ) | — | — | — | (144 | ) | |||||||||||||||||||||||||||
| Net gains related to changes of interest in Qoros | — | 310 | — | — | 310 | |||||||||||||||||||||||||||||||||||||||
| Losses related to Qoros | — | — | — | (251 | ) | — | (251 | ) | ||||||||||||||||||||||||||||||||||||
| Share in (losses)/profit of associated companies | — | (6 | ) | 167 | — | 161 | — | (11 | ) | 1,261 | — | — | 1,250 | |||||||||||||||||||||||||||||||
| Write back of impairment of investment | — | — | 44 | — | 44 | |||||||||||||||||||||||||||||||||||||||
| (Loss) / Profit before taxes | (9 | ) | 304 | 211 | (5 | ) | 501 | (57 | ) | (61 | ) | 1,261 | (251 | ) | (12 | ) | 880 | |||||||||||||||||||||||||||
| Income taxes | (4 | ) | — | — | (1 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||||
| Income tax benefit/(expense) | 10 | 14 | — | — | (29 | ) | (5 | ) | ||||||||||||||||||||||||||||||||||||
| (Loss) / Profit from continuing operations | (13 | ) | 304 | 211 | (6 | ) | 496 | (47 | ) | (47 | ) | 1,261 | (251 | ) | (41 | ) | 875 | |||||||||||||||||||||||||||
Segment assets3 | 1,724 | 235 | — | 216 | 4 | 2,185 | 1,512 | 431 | — | — | 227 | 2,170 | ||||||||||||||||||||||||||||||||
| Investments in associated companies | — | — | 297 | — | 297 | — | 545 | 1,354 | — | — | 1,899 | |||||||||||||||||||||||||||||||||
| Segment liabilities | 1,200 | — | — | 6 | 5 | 1,206 | 1,354 | 218 | — | — | 216 | 1,788 | ||||||||||||||||||||||||||||||||
Subsidiary of Kenon that owns Kenon’s equity holding in Qoros. |
Includes the results of |
Excludes investments in associates. |
| Year Ended December 31, 2019 | Year Ended December 31, 2020 | |||||||||||||||||||||||||||||||||||||||
OPC | Quantum1 | ZIM | Other2 | Consolidated Results | OPC Israel | Quantum1 | ZIM | Other2 | Consolidated Results | |||||||||||||||||||||||||||||||
(in millions of USD, unless otherwise indicated) | (in millions of USD, unless otherwise indicated) | |||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 373 | $ | — | $ | — | $ | — | $ | 373 | 386 | — | — | — | 386 | |||||||||||||||||||||||||
| Depreciation and amortization | (31 | ) | — | — | — | (31 | ) | (34 | ) | — | — | — | (34 | ) | ||||||||||||||||||||||||||
| Financing income | 2 | — | — | 16 | 18 | — | — | — | 14 | 14 | ||||||||||||||||||||||||||||||
| Financing expenses | (28 | ) | — | — | (2 | ) | (30 | ) | (50 | ) | — | — | (1 | ) | (51 | ) | ||||||||||||||||||||||||
| Fair value loss on put option | — | (19 | ) | — | — | (19 | ) | |||||||||||||||||||||||||||||||||
| Recovery of financial guarantee | — | 11 | — | — | 11 | |||||||||||||||||||||||||||||||||||
| Share in losses of associated companies | — | (37 | ) | (4 | ) | — | (41 | ) | ||||||||||||||||||||||||||||||||
| Profit / (Loss) before taxes | $ | 48 | $ | (45 | ) | $ | (4 | ) | $ | (4 | ) | $ | (5 | ) | ||||||||||||||||||||||||||
| Income taxes | (14 | ) | — | — | (3 | ) | (17 | ) | ||||||||||||||||||||||||||||||||
| Profit / (Loss) from continuing operations | $ | 34 | $ | (45 | ) | $ | (4 | ) | $ | (7 | ) | $ | (22 | ) | ||||||||||||||||||||||||||
| Gains related to Qoros | — | 310 | — | — | 310 | |||||||||||||||||||||||||||||||||||
| Share in (losses)/profit of associated companies | — | (6 | ) | 167 | — | 161 | ||||||||||||||||||||||||||||||||||
| Write back of impairment of investment | — | — | 44 | — | 44 | |||||||||||||||||||||||||||||||||||
| (Loss) / Profit before taxes | (9 | ) | 304 | 211 | (5 | ) | 501 | |||||||||||||||||||||||||||||||||
| Income tax expense | (4 | ) | — | — | (1 | ) | (5 | ) | ||||||||||||||||||||||||||||||||
| (Loss) / Profit from continuing operations | (13 | ) | 304 | 211 | (6 | ) | 496 | |||||||||||||||||||||||||||||||||
Segment assets3 | $ | 1,000 | $ | 72 | $ | — | $ | 246 | 4 | $ | 1,318 | 1,724 | 235 | — | 226 | 4 | 2,185 | |||||||||||||||||||||||
| Investments in associated companies | — | 106 | 84 | — | 190 | — | — | 297 | — | 297 | ||||||||||||||||||||||||||||||
| Segment liabilities | 762 | — | — | 34 | 5 | 796 | 1,200 | — | — | 6 | 5 | 1,206 | ||||||||||||||||||||||||||||
Subsidiary of Kenon that owns Kenon’s equity holding in Qoros. |
Includes the results of Primus, as well as Kenon’s and IC Green’s holding company and general and administrative expenses. |
Excludes investments in associates. |
Includes Kenon’s, IC Green’s and IC |
Includes Kenon’s, IC Green’s and IC |
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Currency fluctuations in the U.S. Dollar to USD/NIS exchange rate on the translation of OPC’s results from NIS into U.S. DollarsUSD did not have a significant impact on the results of 20202021 versus 20192020 discussed below.
Revenues
Our revenues (primarily representing OPC’s revenues) increased by $102 million to $488 million for the year ended December 31, 2021 from $386 million for the year ended December 31, 2020.
The table below sets forth OPC’s revenue for 2021 and 2020, broken down by category.
For the year ended December 31, | ||||||||
2021 | 2020 | |||||||
$ millions | ||||||||
| Israel | ||||||||
| Revenue from sale of energy to private customers | 299 | 275 | ||||||
| Revenue from private customers in respect of infrastructures services | 92 | 80 | ||||||
| Revenue from sale of surplus energy | 28 | 15 | ||||||
| Revenue from sale of steam | 18 | 16 | ||||||
| 437 | 386 | |||||||
| U.S. | ||||||||
| Revenue from sale of electricity and provision of services in the U.S. | 51 | — | ||||||
| Total | 488 | 386 | ||||||
OPC’s revenue from the sale of electricity to private customers derives from electricity sold at the generation component tariffs, as published by the EA, with some discount. Accordingly, changes in the generation component generally affects the prices paid under PPAs by customers of OPC-Rotem and OPC-Hadera. The weighted-average generation component tariff for 2021, as published by the EA, was NIS 0.2526 per kW hour, as compared to NIS 0.2678 per kW hour in 2020. OPC’s revenues from sale of steam are linked partly to the price of gas and partly to the Israeli CPI.
Set forth below is a discussion of the changes in revenues by category between 2021 and 2020.
| • | Revenue from sale of energy to customers — increased by $24 million in 2021, as compared to 2020. As OPC’s revenue is denominated in NIS, translation of its revenue into US Dollars had a positive impact of $18 million. Excluding the impact of exchange rate fluctuations, OPC’s revenues increased by $6 million primarily as a result of (i) an $18 million increase due to a full year of commercial operation of the OPC-Hadera power plant in 2021 and (ii) a $14 million increase reflecting the commencement of virtual supply in 2021, partially offset by (i) a $19 million decrease due to a decline in the generation component tariff and (ii) a $7 million decrease due to decline in energy consumption by OPC-Rotem’s customers. |
| • | Revenue from private customers in respect of infrastructure services — increased by $12 million in 2021, as compared to 2020. As OPC’s revenue is denominated in NIS, translation of its revenue into US Dollars had a positive impact of $5 million. Excluding the impact of exchange rate fluctuations, these revenues increased by $7 million primarily as a result of (i) a $7 million increase due to 2021 including a full year of commercial operation of the OPC-Hadera power plant in 2021, (ii) a $4 million increase reflecting the commencement of virtual supply in 2021 and (ii) a $1 million increase due to a tariff increase for OPC-Rotem’s customers, partially offset by (i) a $2 million decrease due to a decline in infrastructure tariffs for 2021 and (ii) a $2 million decrease in sale of energy purchased for OPC-Rotem’s customers. |
| • | Revenue from sale of surplus energy — increased by $13 million in 2021, as compared to 2020. As OPC’s revenue is denominated in NIS, translation of its revenue into US Dollars had a positive impact of $2 million. Excluding the impact of exchange rate fluctuations, these revenues increased by $11 million primarily as a result of an increase in sale of energy to the System Operator from (i) the OPC-Hadera power plant of $10 million and (ii) the OPC-Rotem power plant of $1 million. |
| • | Revenue from sale of electricity and provision of services in the U.S. — which reflects revenue of CPV following the completion of the acquisition of CPV in January 2021, which was $51 million in 2021. |
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Cost of Sales and Services (excluding Depreciation and Amortization)
Our cost of sales (representing OPC’s cost of sales) increased by $55 million to $337 million for the year ended December 31, 2021, as compared to $282 million for the year ended December 31, 2020.
The following table sets forth OPC’s cost of sales for 2021 and 2020.
For the year ended December 31, | ||||||||
2021 | 2020 | |||||||
$ millions | ||||||||
| Israel | ||||||||
| Natural gas and diesel oil consumption | 153 | 135 | ||||||
| Expenses for infrastructure services | 92 | 80 | ||||||
| Expenses for acquisition of energy | 32 | 36 | ||||||
| Gas transmission costs | 10 | 10 | ||||||
| Operating expenses | 25 | 21 | ||||||
| 312 | 282 | |||||||
| U.S. | ||||||||
| Operating costs and cost of services in the U.S. | 25 | — | ||||||
| Total | 337 | 282 | ||||||
| • | Natural gas and diesel oil consumption — increased by $18 million in 2021, as compared to 2020. As OPC’s cost of sales is denominated in NIS, translation of its cost of sales into US Dollars had a negative impact of $9 million. Excluding the impact of exchange rate fluctuations, OPC’s cost of sales increased by $9 million primarily as a result of increase in availability from (i) the OPC-Hadera power plant of $12 million and (ii) the OPC-Rotem power plant of $11 million, partially offset by (i) a $9 million decrease due to the decline in gas price as a result of a decline in foreign exchange rate of the dollar versus NIS and (ii) the receipt of $5 million compensation in respect of a delay in the commercial operation of the Karish reservoir. |
| • | Expenses for infrastructure services — increased by $12 million in 2021, as compared to 2020. As OPC’s cost of sales is denominated in NIS, translation of its cost of sales into US Dollars had a negative impact of $5 million. Excluding the impact of exchange rate fluctuations, OPC’s cost of sales increased by $7 million primarily as a result of (i) a $7 million increase due to the full year of commercial operation of the OPC-Hadera power plant in 2021 and (ii) $4 million reflecting the commencement of virtual supply, partially offset by (i) a $4 million decrease due to a decline in infrastructure tariffs and (ii) decline in energy consumption by OPC-Rotem’s customers. |
| • | Expenses for acquisition of energy — decreased by $4 million in 2021, as compared to 2020. As OPC’s cost of sales is denominated in NIS, translation of its cost of sales into US Dollars had a negative impact of $2 million. Excluding the impact of exchange rate fluctuations, OPC’s cost of sales decreased by $6 million primarily as a result of (i) a $17 million decrease due to decline in load reductions and increase in availability of the OPC-Rotem power plant and (ii) a $6 million decrease due to a decline in infrastructure tariffs and decline in energy consumption by OPC-Rotem’s customers, partially offset by (i) a $4 million increase due to additional downtime during the first full year of commercial operation of the OPC-Hadera power plant in 2021 and (ii) a $14 million increase reflecting the commencement of virtual supply in 2021. |
| • | Operating costs and cost of services in the U.S. — which reflects CPV operating costs following the completion of the acquisition of CPV in January 2021, was $25 million in 2021. |
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Depreciation and Amortization
Our depreciation and amortization expenses (representing OPC’s depreciation and amortization expenses) increased by $20 million to $53 million for the year ended December 31, 2021 from $33 million for the year ended December 31, 2021. This reflects the completion of the acquisition of CPV in January 2021.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist of payroll and related expenses, depreciation and amortization, and other expenses. Our selling, general and administrative expenses (excluding depreciation and amortization) increased to $76 million for the year ended December 31, 2021, as compared to $50 million for the year ended December 31, 2020. This increase was primarily driven by an increase in OPC’s selling, general and administrative expenses.
OPC’s selling, general and administrative expenses increased by $34 million, or 113%, to $64 million for the year ended December 31, 2021 from $30 million for the year ended December 31, 2020 primarily reflecting the completion of the acquisition of CPV in January 2021.
Financing Expenses, Net
Our financing expenses, net, increased by $104 million to $141 million for the year ended December 31, 2021, as compared to $37 million for the year ended December 31, 2020. This increase was primarily driven by an increase in OPC’s financing expenses, net.
OPC’s financing expenses, net increased by approximately $91 million to $141 million in 2021 from $50 million in 2020, primarily as a result of (i) a $75 million expense due to an early repayment of the OPC-Rotem project financing debt in October 2021 as described above, (ii) a $13 million increase in interest expenses in respect of debentures and the OPC-Hadera senior debt, (iii) a $12 million increase in interest expenses due to the purchase of the remaining minority stake in a CPV subsidiary, and (iv) an $8 million increase in interest expenses in respect of CPV loans (including an interest swap contract), partially offset by (i) a $4 million decrease in interest expenses in respect of the OPC-Rotem project financing debt as a result of early repayment in 2021 as mentioned above, (ii) a $12 million expense due to early repayment of Series A debentures in 2020 and (iii) $3 million income from the early debt repayment of a CPV subsidiary.
Share in Losses/(Profit) of Associated Companies, Net of Tax
Our share in profit of associated companies, net of tax increased to approximately $1,250 million for the year ended December 31, 2021, compared to share of profit of associated companies, net of tax of approximately $161 million for the year ended December 31, 2020. Set forth below is a discussion of losses/(profit) for our associated companies, net of tax.
Qoros
For the period from January 2020 until April 2020, Kenon accounted for Qoros as an associated company and included 12% of Qoros’ losses in Kenon’s results. As a result of the sale of Qoros shares to the Majority Shareholder completed in April 2020, Qoros is no longer accounted for as an associated company. Our share in Qoros’ comprehensive loss for the period from January to April 2020 was approximately $6 million.
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ZIM
The following table sets forth summary information regarding the results (100%) of operations of ZIM, our equity-method business for the periods presented:
Year Ended December 31, 2020 | Year Ended December 31, 2019 | |||||||
(in millions of USD) | ||||||||
| Revenue | 3,992 | 3,300 | ||||||
| Profit/(Loss) | 518 | (18 | ) | |||||
| Other comprehensive income | 6 | (10 | ) | |||||
| Total comprehensive income | 524 | (28 | ) | |||||
Adjusted EBITDA1 | 1,036 | 386 | ||||||
| Share of Kenon in total comprehensive income/(loss) | 167 | (9 | ) | |||||
| Adjustments | - | 1 | ||||||
| Share of Kenon in total comprehensive income/(loss) presented in the books | 167 | (8 | ) | |||||
| Total assets | 2,824 | 1,926 | ||||||
| Total liabilities | 2,550 | 2,178 | ||||||
| Book value of investment | 297 | 84 | ||||||
Year Ended December 31, 2021 | Year Ended December 31, 2020 | |||||||
| (in millions of USD) | ||||||||
| Revenue | 10,729 | 3,992 | ||||||
| Operating expenses and cost of services | 3,906 | 2,835 | ||||||
| Operating profit | 5,816 | 772 | ||||||
| Profit before taxes on income | 5,659 | 541 | ||||||
| Income tax expense | (1,010 | ) | (17 | ) | ||||
| Profit for the period | 4,649 | 524 | ||||||
Adjusted EBITDA1 | 6,597 | 1,036 | ||||||
| Share of Kenon in total comprehensive income | 1,261 | 167 | ||||||
| Book value of ZIM investment in Kenon’s books | 1,354 | 297 | ||||||
| 1. | Adjusted EBITDA is a non-IFRS financial measure that ZIM defines as net |
Year Ended December 31, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2021 | Year Ended December 31, 2020 | |||||||||||||
(in millions of USD) | (in millions of USD) | |||||||||||||||
| Net income (loss) | 524 | (13 | ) | |||||||||||||
| Financial expenses, net | 181 | 154 | ||||||||||||||
| Income taxes | 17 | 12 | ||||||||||||||
| Net profit | 4,649 | 524 | ||||||||||||||
| Financing expenses, net | 157 | 181 | ||||||||||||||
| Income tax expense | 1,010 | 17 | ||||||||||||||
| Depreciation and amortization | 314 | 246 | 780 | 314 | ||||||||||||
| EBITDA | 1,036 | 399 | 6,596 | 1,036 | ||||||||||||
Non-cash charter hire expenses1 | 1 | 2 | (1 | ) | 1 | |||||||||||
Capital loss (gain), beyond the ordinary course of business2 | - | (14 | ) | |||||||||||||
| Assets Impairment loss (recovery) | (4 | ) | 1 | |||||||||||||
| Asset impairment recovery | — | (4 | ) | |||||||||||||
| Expenses related to contingencies | 3 | (2 | ) | 2 | 3 | |||||||||||
| Adjusted EBITDA | 1,036 | 386 | 6,597 | 1,036 | ||||||||||||
| 1. | Mainly related to amortization of deferred charter hire costs, recorded in connection with the 2014 restructuring. Following the adoption of IFRS 16 on January 1, 2019, part of the adjustments are recorded as amortization of right-of-use assets. |
For the year ended December 31, | ||||||||
2020 | 2019 | |||||||
| $ millions | ||||||||
Revenue from energy generated by OPC (and/or purchased from other generators) and sold to private customers | 246 | 261 | ||||||
| Revenue from energy purchased by OPC at the TAOZ rate and sold to private customers | 29 | 16 | ||||||
| Revenue from private customers in respect of infrastructures services | 80 | 76 | ||||||
| Revenue from energy sold to the System Administrator | 15 | 3 | ||||||
| Revenue from sale of steam | 16 | 17 | ||||||
| Total | 386 | 373 | ||||||
For the year ended December 31, | ||||||||
2020 | 2019 | |||||||
| $ millions | ||||||||
| Natural gas and diesel oil | 135 | 138 | ||||||
| Payment to IEC for infrastructure services and purchase of electricity | 116 | 92 | ||||||
| Gas transmission costs | 10 | 9 | ||||||
| Operating expenses | 21 | 17 | ||||||
| Total | 282 | 256 | ||||||
Pursuant to the equity method of accounting, our share in ZIM’s results of operations was a profit of approximately $524$1,261 million and $167 million for the yearyears ended December 31, 20202021 and a loss of approximately $13 million for the year ended December 31, 2019.2020. Set forth below is a summary of ZIM’s consolidated results for the year ended December 31, 20202021 and 2019:2020:
| Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| (in millions of USD) | ||||||||
| Revenue | 3,992 | 3,300 | ||||||
| Cost of services | 3,127 | 3,037 | ||||||
| Gross profit | 865 | 263 | ||||||
| Operating profit | 772 | 153 | ||||||
| Profit (loss) before taxes on income | 541 | (1 | ) | |||||
| Taxes on income | (17 | ) | (12 | ) | ||||
| Profit/(loss) for the period | 524 | (13 | ) | |||||
The number of TEUs carried for the year ended December 31, 20202021 increased by 20640 thousand TEUs, or 1%22.5%, from 2,821 thousand TEUs for the year ended December 31, 2019 to 2,841 thousand TEUs for the year ended December 31, 2020 to 3,481 thousand TEUs for the year ended December 31, 2021, primarily impacteddriven by changes in the operated lines’ structure and capacity in the Pacific trade,and Intra Asia trades, which weremainly included new express services in the Pacific South West and Asia – Australia sub-trades, along with an increase in vessel utilization due to strong customer demand. The above was partially offset by the effectimpact of changesadditional blank voyages across all sub-trades and mainly in the operated lines’ structure and capacity in the Cross Suez trade, along with blank voyages in 2020Pacific, related to the COVID-19 pandemic impact across all trades.port congestions. The average freight rate per TEU carried for the year ended December 31, 20202021, increased by $220,$1,557, or 22%126.7%, from $1,009 for the year ended December 31, 2019 to $1,229 for the year ended December 31, 2020.2020 to $2,786 for the year ended December 31, 2021.
ZIM’s revenues increased by $692 million,$6.7 billion, or 21%168.8%, from $3,300 million for the year ended December 31, 2019 to $3,992 million$4.0 billion for the year ended December 31, 2020 to $10.7 billion for the year ended December 31, 2021, primarily due todriven by (i) an increase of $645 million$6.2 billion in revenues from containerized cargo, with respect to carried volume andreflecting the increases in average freight rates and carried volume, (ii) an increase of $33 million$0.3 billion in income from demurrage, (iii) an increase of $0.1 billion in income from related services and (iii)(iv) an increase of $22$52.1 million in income from slots and chartered vessels. non-containerized cargo.
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ZIM’s operating expenses and cost of services for the year ended December 31, 20202021 increased by $24 million,$1.1 billion, or 1%37.8%, from $2,811 million for the year ended December 31, 2019 to $2,835 million$2.8 billion for the year ended December 31, 2020 to $3.9 billion for the year ended December 31, 2021, primarily due todriven by (i) an increase in expenses of related service and sundry of $39 million (64%$0.4 billion (31.2%) and (ii) an increase in cargo handling expenses, (ii) an increase of $12 million (1%$0.4 billion (104.6%), offset by (iii) a decrease in bunker expenses, (iii) an increase of $25 million (7%$0.1 billion (50.1%). in agents’ salaries and commissions, and (iv) an increase of $0.1 billion (70.0%) in related service and sundry.
ZIM publishes its results on the SEC’s website at http://www.sec.gov. This website, and any information referenced therein, is not incorporated by reference herein.
Year Ended December 31, | ||||||||
2021 | 2020 | |||||||
(in millions of USD) | ||||||||
| Share in losses of associated companies, net | (11 | ) | — | |||||
The result for the year includes losses on changes in fair value of derivative financial instruments totaling $45 million. As at December 31, 2021, OPC’s proportionate share of debt (including interest payable) of CPV associated companies was $962 million and proportionate share of cash and cash equivalents was $2 million.
For further details of the performance of associated companies of CPV, refer to OPC’s immediate report published on the TASE on March 27, 2022 and the convenience English translations furnished by Kenon on Form 6-K on March 28, 2022. Such report published on the TASE is not incorporated by reference herein.
Income Tax Expenses
Our income tax expense for the year ended December 31, 2019. This decrease2021 was primarily driven approximately by a $10$5 million, decrease in OPC’s tax expenses.the same for the year ended December 31, 2020.
Profit (Loss) For the Year
As a result of the above, our profit for the year from continuing operations amounted to $875 million for the year ended December 31, 2021, compared to $496 million for the year ended December 31, 2020, compared to a loss from continuing operations of $22 million for the year ended December 31, 2019.2020.
| B. | Liquidity and Capital Resources |
Kenon’s Liquidity and Capital Resources
As of December 31, 2020,2021, Kenon had approximately $222$231 million in cash on an unconsolidated basis and no material gross debt. Following the distribution of a dividend in April 2021,January 2022, Kenon’s unconsolidated cash balance willwas be approximately $122$42 million. During March 2022, Kenon completed a sale of 6 million ZIM shares for total consideration of $463 million. As a result of the sale, Kenon now holds a 20.7% interest in ZIM and remains the largest shareholder in ZIM.
November 2021, ZIM’s board of directors has adoptedannounced a dividend policy to distribute eacha dividend to shareholders on a quarterly basis at a rate of approximately 20% of the net income derived during such fiscal quarter with respect to the first three fiscal quarters of the year, upwhile the cumulative annual dividend amount to 50%be distributed by ZIM (including the interim dividends paid during the first three fiscal quarters of ZIM’sthe year) will total 30-50% of the annual net income as determined under IFRS,(including with respect to 2021). During 2021, ZIM paid a special cash dividend of approximately $237 million, or $2.00 per ordinary share and a cash dividend of approximately $299 million, or $2.50 per ordinary share. In 2021, Kenon received approximately $141 million in cash dividend from ZIM.
139
On March 9, 2022, ZIM’s board of directors declared a cash dividend of approximately $2.04 billion, or $17.00 per ordinary share, resulting in a cumulative annual dividend amount of approximately 50% of 2021 net income, to be paid on April 4, 2022, to holders of the ordinary shares on March 23, 2022. Kenon expects to receive $503 million ($478 million net of tax).
Kenon will seek shareholder approval for a capital reduction at the 2022 AGM to return share capital amounting to $10.25 per share ($552 million in total) to its shareholders, subject to applicable law, and provided that such distribution would notcontingent upon the approval of the High Court of the Republic of Singapore. In connection with the 2022 AGM, Kenon intends to publish on or about April 27, 2022 a proxy and information statement, including further information on the Capital Reduction. Following the completion of the Capital Reduction, Kenon’s share capital is expected to be detrimental to ZIM’s cash needs or to any plans approved by its board of directors. ZIM has indicated that the actual payout ratio could be anywhere from 0% to 50% of its net income, and may fluctuate depending on its cash flow needs and such other factors.
$50 million.We believe that Kenon’s working capital (on a stand-alone basis) is sufficient for its present requirements. Our principal needs for liquidity are expenses related to our day-to-day operations. We may also incur expenditures related to investments in our businesses, our back-to-back guarantees to Chery with respect to Qoros’ indebtedness and expenses we may incur in connection with legal claims and other rights we retained in connection with the sale of the Inkia Business. Our businesses are at various stages of development, ranging from early stage companies to established, cash generating businesses, and some of these businesses will require significant financing, via equity contributions or debt facilities, to further their development, execute their current business plans, and become or remain fully-funded. We may, in furtherance of the development of our businesses, make further investments, via debt or equity financings, in our remaining businesses.
The cash resources on Kenon’s balance sheet may not be sufficient to meet any payment obligations or to fund additional investments that we deem appropriate in our businesses or meet our guarantee obligations. As a result, Kenon may seek additional liquidity from its businesses (via dividends, loans or advances, or the repayment of loans or advances to us, which may be funded by sales of assets or minority interests in our businesses), or obtain external financing, which may result in dilution of shareholders (in the event of equity financing) or additional debt obligations for the company (in the event of debt financing). For a description of our capital allocation principles, see “Item 4.B Business Overview.” For further information on the risks related to the significant capital requirements of our businesses, see “Item 3.D Risk Factors—Risks Related to Our Strategy and Operations—Some of our businesses have significant capital requirements.”
Consolidated Cash Flow Statement
Set forth below is a discussion of our cash and cash equivalents and our cash flows as of and for the years ended December 31, 20202021 and 2019. 2
2020.
2020.
Year Ended December 31, 20202021 Compared to Year Ended December 31, 20192020
Cash and cash equivalents increased to approximately $475 million for the year ended December 31, 2021, as compared to approximately $286 million for the year ended December 31, 2020, as compared to approximately $147 million for the year ended December 31, 2019, primarily as a result of an increaseimproved results in Kenon’s balance of $189 million offset by a decrease in OPC’s balance of $50 million.ZIM. The following table sets forth our summary cash flows from our operating, investing and financing activities for the years ended December 31, 20202021 and 2019:2020:
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
(in millions of USD) | (in millions of USD) | |||||||||||||||
Continuing operations | ||||||||||||||||
| Net cash flows provided by operating activities | ||||||||||||||||
| OPC | 105 | 109 | 119 | 105 | ||||||||||||
| Adjustments and Other | (13 | ) | (23 | ) | ||||||||||||
| Other | 121 | (13 | ) | |||||||||||||
| Total | 92 | 86 | 240 | 92 | ||||||||||||
| Net cash flows used in investing activities | (230 | ) | (30 | ) | (205 | ) | (230 | ) | ||||||||
| Net cash flows provided by / (used in) financing activities | 256 | (74 | ) | |||||||||||||
| Net cash flows provided by financing activities | 147 | 256 | ||||||||||||||
| Net change in cash from continuing operations | 118 | (18 | ) | 182 | 118 | |||||||||||
| Net change in cash from discontinued operations | 8 | 25 | — | 8 | ||||||||||||
| Cash—opening balance | 147 | 131 | 286 | 147 | ||||||||||||
| Effect of exchange rate fluctuations on balances of cash and cash equivalents | 13 | 9 | 7 | 13 | ||||||||||||
| Cash—closing balance | 286 | 147 | 475 | 286 | ||||||||||||
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Cash Flows Provided by Operating Activities
Net cash flows from operating activities increased to $240 million for the year ended December 31, 2021 compared to $92 million for the year ended December 31, 2020 compared to $86 million for the year ended December 31, 2019.2020. The increase is primarily driven by changes in working capital, partially offset by a decreasedividends received from associated companies and an increase in OPC’s cash provided by operating activities as discussed below.
Cash flows provided by OPC’s operating activities decreasedincreased to $119 million for the year ended December 31, 2021 from $105 million for the year ended December 31, 2020, from $109 million for the year ended December 31, 2019, primarily as a result of a decrease in gross profit, partially offset by an increase in working capital mainly as a resultactivities reflecting the completion of higher collections.the acquisition of CPV.
Cash Flows Used in Investing Activities
Net cash flows used in our investing activities increaseddecreased to approximately $230$205 million for the year ended December 31, 2020,2021, compared to cash flows used in investing activities of approximately $30$230 million for the year ended December 31, 2019.2020. This increasedecrease in cash flow used was primarily driven by Kenon’s receipt in 2020 of (i) $218 million from the increased outflows from OPC’s investing activities as described below, partially offset by one-off proceeds of early repayment of the deferred payment agreement relating to the sale of the Inkia Business and (ii) $220 million from the sale of our 12% interest in Qoros, and the early receipt of the deferred payment(iii) OPC’s cash flow used in investing activities as described under “Business—Discontinued Operations — Inkia Business —Side letter Entered into in connection with the Repayment of the Deferred Payment Agreement” in 2020.
Cash flows used in OPC’s investing activities increaseddecreased to $256 million for the year ended December 31, 2021 from $644 million for the year ended December 31, 2020, from $41 million for the year ended December 31, 2019, primarily as a result of the release of short-term deposits, net, in the amount of about $517 million. In addition, the decrease derives from release of restricted cash, net, in the amount of about $126 million, a $500decrease in investments projects in Israel, in the amount of about $11 million, a receipt, in the amount of about $50 million, in respect of repayment of partnership capital mainly due to sale of part of the holdings of CPV in the Three Rivers project. This decrease was partly offset by an increase deriving from acquisition of CPV, in the amount of about $656 million, investments in projects under construction in CPV, in the amount of about $90 million, and an increase, in short-term deposits,the amount of about $6 million, relating to investments in associated companies, and acquisition of Gnrgy for a $119 million increase in investment in OPC-Tzomet, and a $13 million increase in restricted cash, net.consideration of about $10 million.
Cash Flows Provided by / (Used in)the Financing Activities
Net cash flows provided by financing activities of our consolidated businesses was approximately $147 million for the year ended December 31, 2021, compared to cash flows provided by financing activities of approximately $256 million for the year ended December 31, 2020, compared to cash flows used in financing activities of approximately $74 million for the year ended December 31, 2019.2020. The net inflow in 20202021 was primarily driven by OPC’s net inflow as described below.
Cash flows provided by OPC’s financing activities increaseddecreased to $478$311 million for the year ended December 31, 2020,2021, as compared to $54$478 million used for the year ended December 31, 2019,2020, primarily as a result of the proceedsearly repayment of the full outstanding balance of OPC-Rotem’s project financing debt in October 2021, payment of loans in CPV, in the amount of about $173 million, including $76 million in respect of repayment of a $282loan under the prior financing agreement in the Keenan project, in respect of an early close out of an interest hedge transaction relating to this financing agreement, and about $55 million relating to repayment of the vendor loans relating to the CPV acquisition. In addition, in 2021, OPC acquired the balance of the rights of the tax partner in the Keenan project for a consideration of about $25 million, and there was a decline in issuance of Series B bonds, a $314debentures of approximately $41 million dand issuance of shares of approximately $125 million. The decrease was partly offset by an increase of investments of holders of non-controlling interests in CPV of approximately $255 million, loans from holders of non-controlling interests in OPC-Rotem of approximately $70 million, an increase in withdrawals from frameworks under financing agreements in Israel of approximately $30 million, and $78receipt of a long term loan under the new financing agreement in the Keenan project, in the amount of about $103 million, in drawdowns from financing agreements. These were partially offset by the repayment of Series A bonds of $92 million in 2020, and a $71 million dividend in 2019.2021.
Kenon’s Commitments and Obligations
As of December 31, 2020,2021, Kenon had consolidated liabilities of $1.2$1.8 billion, primarily consisting of OPC liabilities.
Other than the back-to-back guarantees we have provided to Chery in respect of certain of Qoros’ indebtedness, and loans from subsidiaries at the Kenon level, we have no outstanding indebtedness or financial obligations and are not party to any credit facilities or other committed sources of external financing. Kenon has given a guarantee of Inkia’s indemnity obligations under the share purchase agreement for the sale of the Inkia Business.
The following discussion sets forth the liquidity and capital resources of each of our businesses.
OPC’s Liquidity and Capital Resources
As of December 31, 2020,2021, OPC had cash and cash equivalents and short-term deposits of $562$243 million. OPC’s total outstanding consolidated indebtedness was $921$1,215 million as of December 31, 2020.
OPC’s principal sources of liquidity have traditionally consisted of cash flows from operating activities, short- and long-term borrowings under loan facilities, bond issuances and public and private equity offerings.
OPC’s principal needs for liquidity generally consist of capital expenditures related to the development and construction of generation projects (including OPC-Hadera, Tzomet and other projects OPC may pursue), capital expenditures relating to maintenance (e.g., maintenance and diesel inventory), working capital requirements (e.g., maintenance costs that extend the useful life of OPC’s plants) and other operating expenses. OPC believes that its liquidity is sufficient to cover its working capital needs in the ordinary course of OPC’s business.
OPC’s Material Indebtedness
As of December 31, 2020,2021, OPC had cash and cash equivalents and short-term deposits of $562$243 million (excluding restricted cash), restricted cash of $21 million (including debt service reserves (classified as restricted cash) of $46 million,$14 million), and total outstanding consolidated indebtedness of $921$1,215 million, consisting of $49$43 million of short-term indebtedness, including the current portion of long-term indebtedness, and $872$1,172 million of long-term indebtedness.
Israel
The following table sets forth selected information regarding OPC’s principal outstanding short-term and long-term debt, as of December 31, 20202021 (excluding CPV):
Outstanding Principal Amount as of December 31, 2021* ($ millions) | Interest Rate ($ millions) | Final Maturity | Amortization Schedule | ||||
| OPC-Hadera: | |||||||
Financing agreement1 | 224 | 2.4%-3.9%, CPI linked (2/3 of the loan) 3.6%-5.4% (1/3 of the loan) | September 2037 | Quarterly principal payments to maturity, commencing 6 months following commercial operations of OPC-Hadera power plant | |||
| Tzomet: | |||||||
Financing agreement2 | 59 | CPI or USD-linked with interest equal to prime plus margin of 0.5-1.5% - agreement includes provisions for conversion of interest from variable to CPI-linked debenture interest plus margin of 2-3% | Earliest of 19 years from commercial operations date of Tzomet power plant and 23 years from the signing date, but no later than December 31, 2042 | Quarterly principal payments to maturity, commencing close to the end of the first or second quarter following commercial operations of the Tzomet power plant | |||
OPC4: | |||||||
Bonds (Series B) 3 | 307 | 2.75% (CPI-Linked) | September 2028 | Semi-annual principal payments commencing on September 30, 2020 | |||
Bonds (Series C)4 | 274 | 2.5% | August 2030 | 12 semi-annual payments (which repayment amounts vary, and range from 5% up to 16% of the total issued amount) commencing in February 2024 | |||
Total | 864 | ||||||
| * |
|
|
|
| |||
| (1) | Represents NIS |
Represents NIS 184 million converted into U.S. Dollars at the exchange rate for NIS into U.S. Dollars of NIS |
In April 2020, OPC completed an offering of |
In |
The debt instruments to which OPC and its operating companies are party to require compliance with financial covenants. Under each of these debt instruments, the creditor has the right to accelerate the debt or restrict the company from declaring and paying dividends if, at the end of any applicable period the applicable entity is not in compliance with the defined financial covenants ratios.
The instruments governing a substantial portion of the indebtedness of OPC operating companies contain clauses that would prohibit these companies from paying dividends or making other distributions in the event that the relevant entity was in default on its obligations under the relevant instrument.
For further information on OPC’s financing arrangements, see Note 1614 to our financial statements included in this annual report.
OPC-Rotem Financing Agreement
In January 2011, OPC-Rotem entered into a financing agreement with a consortium of lenders led by Bank Leumi Le-Israel Ltd., or Bank Leumi, for the financing of its power plant project. In October 2021, OPC-Rotem repaid the project financing debt in the amount NIS 1,292 million (approximately $400 million) (including early repayment fees). As part of the financing agreement,early repayment, OPC-Rotem recognized a one-off expense totaling NIS 244 million (approximately $75 million), in respect of an early repayment fee of approximately NIS 188 million (approximately $58 million), net of tax. OPC and the lenders committedminority investor in OPC-Rotem extended to provide OPC-Rotem a long-term credit facility, including several typesloans (pro rata to their ownership) to finance the early repayment totaling (principal) NIS 1,130 million (approximately $350 million). A significant portion of lines of credit, in the overall amountOPC’s portion of NIS 1,800904 million (approximately $560$280 million). Currently, there are two available lines was funded by the issuance of credit in the total amount of NIS 21 million (approximately $7 million) and a working capital line of credit. Furthermore,Series C debentures as part of the financing agreement, certain restrictions were provided with respect to distributions of dividends and repayments of OPC-Rotem’s shareholders’ loans, commencing from the third year after the completion of OPC-Rotem’s power plant. The lock-up period prohibiting distributions ended in June 2015. The financing agreement contains additional restrictions and limitations, including:described below.
OPC-Hadera Financing Agreement
In July 2016, OPC-Hadera entered into a NIS 1 billion (approximately $311 million) senior facility agreement with Israel Discount Bank Ltd. and Harel Company Ltd. to finance the construction of OPC-Hadera’s power plant in Hadera. Pursuant to the agreement, the lenders undertook to provide OPC-Hadera with financing in several facilities (including a term loan facility, a standby facility, a debt service reserve amount, or DSRA, facility to finance the DSRA deposit, a guarantee facility to facilitate the issuance of bank guarantees to be issued to third parties, a VAT facility (for the construction period only), a hedging facility (for the construction period only), and a working capital facility (for the operation period only)). In March 2020, the lenders under this agreement granted OPC-Hadera’s request to extend the COD under the agreement to June 2020.
In December 2017, Israel Discount Bank Ltd. assigned 43.5% of its share in the long-term credit facility (including the facility for variances in construction and related costs) to Clal Pension and Femel Ltd. and Atudot Pension Fund for Salaried and Self-employed Ltd.
The loans under the facility agreement accrue interest at the rates specified in the relevant agreement. The loans will be repaid in quarterly installments according to repayment schedules specified in the agreement. The financing will mature 18 years after the commencement of repayments in accordance with the provisions of the agreement which will commence approximately half a year following the commencement of commercial operation of the OPC-Hadera plant.
In connection with the senior facility agreement, liens were placed on some of OPC-Hadera’s existing and future assets and on certain OPC and OPC-Hadera rights, in favor of Israel Discount Bank Ltd., as collateral agent on behalf of the lenders. The senior facility agreement also contains certain restrictions and limitations, including:
minimum projected DSCR, average projected DSCR (in relation to long-term loans at the commercial operation date of the power plant) and LLCR (at the commercial operation date of the power plant): 1.10 – on the withdrawal dates the ratio must be at least 1.20;
maintenance of minimum amounts in the reserve accounts in accordance with the agreement; and
other non-financial covenants and limitations such as restrictions on dividend distributions, repayments of shareholder loans, asset sales, pledges investments and incurrence of debt as well as reporting obligations.
As of December 31, 2020,2021, following the full investment of the project’s equity contribution, OPC-Hadera has made drawings in the aggregate amount of NIS 680698 million (approximately $212$224 million) under the NIS 1 billion (approximately $311 million) loan agreement relating to the project.
Tzomet Financing Agreement
In December 2019, Tzomet entered into a NIS 1.4 billion (approximately $435 million) senior facility agreement with a syndicate of lenders led by Bank Hapoalim Ltd, or Bank Hapoalim, to finance the construction of Tzomet’s power plant. Pursuant to the agreement, the lenders undertook to provide Tzomet with financing in several facilities (including a term loan facility, a standby facility, a DSRA facility to finance the DSRA deposit, a guarantee facility to facilitate the issuance of bank guarantees to be issued to third parties, a VAT facility (for the construction period only), a hedging facility (for the construction and operating periods), and a working capital facility (for the operation period only)).
The loans under the facility agreement accrue interest at the rates specified in the relevant agreement. The loans will be repaid in quarterly installments according to repayment schedules specified in the agreement. The financing will mature at the earliest of 19 years from the commencement of commercial operation of the Tzomet plant and 23 years from the signing date of the facility agreement, but no later than December 31, 2042, in accordance with the provisions of the agreement.
In connection with the facility agreement, OPC’s shares in Tzomet (including any shares that OPC acquires from the minority shareholders) certain OPC and Tzomet rights were pledged in favor of Bank Hapoalim, as collateral agent on behalf of the lenders. The facility agreement also contains certain restrictions and limitations, including:
minimum projected average debt service coverage ratio (ADSCR), average projected ADSCR and LLCR: 1.05 – on the withdrawal dates, Tzomet is required to comply with a minimum contractual ADSCR (i.e. the lowest contractual ADSCR of all the contractual ADSCRs up to the date of final repayment) an average contractual ADSCR (i.e. the average contractual ADSCR of all the contractual ADSCRs up to the date of final repayment), and a contractual LLCR on the commencement date of the commercial operation of at least 1.3;
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maintenance of minimum amounts in the reserve accounts in accordance with the agreement; and
other non-financial covenants and limitations such as restrictions on dividend distributions, repayments of shareholder loans, asset sales, pledge investments and incurrence of debt.
As of December 31, 2020,2021, Tzomet has made drawings in the aggregate amount of NIS 187184 million (approximately $58$59 million) under the facility agreement.
OPC Bonds (Series B)
In April 2020, OPC issued NIS400NIS 400 million (approximately $113 million) of bonds (Series B), which were listed on the Tel Aviv Stock Exchange.TASE. The bonds bear annual interest at the rate of 2.75% and are repayable every six months, commencing on September 30, 2020 (on March 31 and September 30 of every calendar year) through September 30, 2028. In addition, an unequal portion of principal is repayable every six months. The principal and interest are linked to an increase in the Israeli consumer product index of March 2020 (as published on April 15, 2020). The bonds have received a rating of A3 from Midroog and A- from S&P Global Ratings Maalot Ltd.
In October 2020, OPC issued NIS 584 million ($171 million) of Series B bonds. The offering was an extension of the existing Series B bonds previously issued by OPC. The proceeds of the additional Series B issuance were used to redeem OPC'sOPC’s Series A bonds (NIS 310 million ($90 million)) and in part to fund the CPV acquisition (approximately NIS 250 million (approximately $78 million)). The outstanding principal amount (net of expenses) as of December 31, 20202021 is NIS 980956 million (approximately $305$307 million).
The bonds are unsecured and the trust deed includes limitations on OPC’s ability to impose a floating lien on its assets and rights in favor of a third party.
The trust deed contains customary clauses for calling for the immediate redemption of the bonds, including events of default, insolvency, liquidation proceedings, receivership, stay of proceedings and creditors’ arrangements, certain types of restructuring, material downturn in the position of OPC. The bondholders’ right to call for immediate redemption also arises upon: (1)(i) the occurrence of certain events of loss of control by Kenon; (2)(ii) the call for immediate repayment of other debts (or guarantees) of OPC or of a consolidated subsidiary in certain predefined minimum amounts; (3)(iii) a sale of one or more assets of the company which constitutes more than 50% of the value of company’s assets, in less than 12 consecutive months, or a change in the area of operation of OPC such that OPC’s main area of activity is not in the energy sector, including electricity generation in power plants and with renewable energy sources; (4)(iv) a rating being discontinued over a certain period of time; (5)(v) the company breaching its covenant obligations under the deed of trust and executes an extraordinary transaction with the controlling shareholders (as these terms are defined under the Israeli Companies Law-1999); (6)(vi) the company’s financial reports containing a going concern notice addressing the company itself, for two consecutive quarters; and (7)(vii) a suspension of trading for a certain time period if the bonds are listed for trade on the main list of the stock exchange.
The trust deed includes an undertaking by OPC to comply with covenants on the basis of its stand-alone financial statements: coverage ratio between net financial debt deducting financial debt of projects yet to produce EBITDA, and adjustedAdjusted EBITDA of no more than 13, minimum equity of NIS 250 million (approximately $71 million) and an equity-to-balance sheet ratio of at least 17%.
The trust deed also includes an undertaking by OPC to monitor the rating by a rating agency.
Furthermore, restrictions are imposed on distributions and payment of management fees to the controlling shareholder, including compliance with certain covenants and certain legal restrictions.
The terms of the bonds also provide for the possible raising of the interest rate in certain cases of lowering the rating and in certain cases of breach of financial covenants. The ability of OPC to expand the series of the bonds has been limited under certain circumstances, including maintaining the rating of the bonds at its level shortly prior to the expansion of the series and the lack of breach.
Additionally, should OPC raise additional bonds that are not secured (and as long as they are not secured), such bonds will not have preference over the bonds (Series B) upon liquidation. Should OPC raise additional bonds that are secured, these will not have preference over the bonds (Series B) upon liquidation, except with respect to the security.
OPC Bonds (Series C)
In September 2021, OPC issued a series of bonds at a par value of approximately NIS 851 million, with the proceeds of the issuance designated, among other things, for early repayment of OPC-Rotem’s financing (Series C). The bonds are listed on the TASE. The bonds are not CPI-linked and bear annual interest of 2.5%. The bonds are repayable in twelve semi-annual and unequal installments (on February 28 and August 31) as set out in the amortization schedule, starting on February 28, 2024 through August 31, 2030 (the first interest payment was due February 28, 2022). The bonds are rated A- by Maalot. The issuance expenses amounted to about NIS 9 million.
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The bonds are unsecured and the trust deed includes limitations on OPC’s ability to impose a floating lien on its assets and rights in favor of a third party without fulfilling the conditions in the Bond C deed of trust. OPC has the right to make early repayment pursuant to the conditions in the trust certificate.
The Bonds C deed of trust (the “Bond C deed of trust”) includes customary causes for calling for the immediate repayment (subject to stipulated remediation periods), including as a result of, among others, events of default, liquidation proceedings, receivership, suspension of proceedings and creditors’ arrangements, merger under certain conditions without obtaining bondholders’ approval or statement by the survivor entity, material deterioration in the position of OPC, and failure to publish financial statements in a timely manner.
Furthermore, a bondholders’ right to call for immediate repayment arises, among others, upon the following circumstances: (i) the call for immediate repayment of another series of bonds (traded on the TASE or on the TACT Institutional system) issued by OPC; or of another financial debt (or a number of cumulative debts) of OPC and its consolidated companies (except in the case of a non-recourse debt), including forfeiture of a guarantee (that secures payment of a debt to a financial creditor) that OPC or investee companies made available to a creditor, in an amount not less than $75 million; (ii) upon breach of financial covenants on two consecutive review dates or on one review date; (iii) failure to obtain prior approval of the bondholders by special resolution in the case of an extraordinary transaction with a controlling shareholder, excluding transactions to which the Companies Regulations (Expedients in Transactions with an Interested Party), 2000 apply; (iv) if an asset or a number of assets of OPC are sold in an amount representing over 50% of the value of its assets according to OPC’s consolidated financial statements during a period of 12 consecutive months, or if a change is made to the main operations of OPC, except where the consideration of the sale is intended for the purchase of an asset or assets within OPC’s main area of operations (such as energy, including electricity generation in power plants and from renewable energies); (v) upon the ocurrence of certain events leading to a loss of control; (vi) if a rating is discontinued over a certain period of time (except due to reasons not under the control of OPC); (vii) if trading in the bonds is suspended for a certain period of time or if the bonds are delisted; (viii) if OPC ceases to be a reporting corporation; (ix) if the company’s financial reports contain a going concern notice addressing the company itself, for two consecutive quarters; (x) if OPC breaches its undertaking not to place a general floating charge on its current and future assets and rights, in favor of any third party, without the criteria set in the Bond C deed of trust being met; and (xi) distribution in breach of the provisions of the Bond C deed of trust.
Furthermore, the Bond C deed of trust includes an undertaking by OPC to comply with financial covenants and restrictions (including restrictions as to distribution, expansion of series without, among other things, maintaining the same rating of the bonds subsequent to such expansion, and provisions as to interest adjustment in the event of change in rating or non-compliance with financial covenants). The financial covenants include maintaining the ratio between net consolidated financial debt (less the financial debt designated for the construction of projects that have not yet started generating EBITDA) and Adjusted EBITDA at no more than 13 (and for the purpose of distribution as defined in the Bond C deed of trust - not more than 11), minimum equity (standalone) of NIS 1 billion (and for the purpose of distribution - NIS 1.4 billion), equity to asset ratio (standalone) of no less than 20% (and for the purpose of distribution - no less than 30%), and equity to (consolidated) balance sheet ratio of no less than 17%. As at December 31, 2021, OPC met the following financial covenants: (i) the ratio between the net consolidated financial debt, less the financial debt earmarked for the construction of projects that have not yet started generating EBITDA, and the Adjusted EBITDA is 7.3; (ii) OPC’s equity amounts to NIS 2,270 million; (iii) OPC's equity to total assets ratio is 55%; and (iv) the equity to balance sheet (consolidated) ratio is 37%.
United States
Each active CPV project company and CPV Three Rivers has arrangedtaken out senior debt under similar single asset,outlines - per-project, per-asset financing, at non-recourse project financing structures. Atterms. On financial closing of each loan, debt and equity capital is committed in an amount sufficient to fundcover the project’s projected capital costs during construction, along with revolving ancillary credit facilities. The ancillary credit facilities are provided by a subset of the project’s lenders and are comprised of letterletters of credit, (LC) facilities, which support collateral obligations under the financing arrangements and commercial arrangements, and a working capital revolver facility, which supports the project’s ancillary credit needs. The senior credit facilities are generally structured such that, subject to certain conditions precedent, they convert from facilities to finance the construction facilitiesphase to long-term facilities (term loans) with maturity dates generally tied to the term of the commercial agreements anchoring projected operating cash flows.flows of each project. For the gas-fired projects, the tenorsterm loans generally span the construction period plus 5-7 years after launch of commercial operationsoperation (a “mini-perm” financing)“mini-perm financing”). The mini-perms aremini-perm financing is repaid based on thea combination of (I) project-specific scheduled amortizationamounts on scheduled calendar quarter-end repayment dates, and (ii) and result-based metrics which result in partial or full application of free cash flow to term loan repayment on such quarter-end dates (“cash sweeps”), which in the aggregate, result in a partial repayment profileduring the loan term, with a balance at maturity that must bepayable or refinanced or repaid. CPV’s practice isupon final repayment date.
CPV seeks to opportunistically refinance thetake advantage of opportunities to recycle its credit facilities depending onaccording to market conditions and, in all casesany case, prior to the scheduled maturity.final repayment date. The credit facilities in place during construction are sourced from consortiumsa consortium of international financiers (~ 10-20 inlenders (10-20 for each gas firedgas-fired project, fewer for renewablesrenewable energy projects with lower capital needs) and executed in the “Term Loan A” market, which is substantially comprised of commercial banks, investment banks, institutional lenders, insurance companies, international funds, and equipment suppliersuppliers’ credit affiliates. CPV has executed refinancingsproject companies have refinanced loans for its gas-fired projects inon both the Term Loan A market and the Term Loan B market, which includes mainly institutional lenders, international funds, and a number of commercial banks (the “Term Loan B” market).bank.
While the credit facility terms and conditions have certain provisions specific to the project being financed, an overwhelming majority of the standard key terms and conditions (first lien security, covenants, events of default, equity cure rights, distribution restrictions, reserve requirements, etc.) are similar across the CPV project Term Loan A financings,refinancing, while the Term Loan B market refinancing terms are slightly less restrictive.restrictive, as customary in this market. In each market and often within each financing,project loan, lenders extended loans to CPV’s projects have funded either onaccording to a credit spread over London Inter‑Bank Offered Rate (“LIBOR”)/Base Rate basismargin based on the LIBOR, variable base interest rate or on a fixed rate basis.interest. To minimize exposure to potential interest rate risk, CPV executes interest rate hedges for the main exposure at each project level, ranging from 70%-85% of projected notional term loan balances over a range of construction plus 3-7 years forwhereby the mini-perms, and longer for the renewable projects. Under the interest rate swaps, the project companiesProject Companies pay the major financial institutions fixed rate interest and receive variable interest payments for certain terms, according to hedge the term loans.terms and conditions of the project and loan. For most of the existing LIBOR-based loans,credit facilities, the credit agreements and interest rate swaphedging arrangements include market-standard provisions to accommodate the eventual replacement of LIBOR with SOFR as a referencebenchmark interest rate. New variable rate credit facilities and future variable rate refinancings of CPV’s Project Companies’ existing credit facilities are anticipated to be SOFR-based (with a US Prime Rate alternative consistent with CPV’s Project Companies’ existing credit facilities). For potential credit facilities at the CPV level, CPV may also consider Israeli Prime Rate-based indexing/pricing.
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The table below sets forth summaries of the key commercial terms of the senior credit facilities associated with each CPV project financing. The term loan commitment amounts are referenced as of the date noted and once drawn and repaid, may not be drawn again.again, while the ancillary credit facilities and working capital facilities are revolving in nature. The events of default consist of customary events of default, including, among others: breach of commitments and representations having a material adverse effect, failure of equity contributing party to fund during construction, nonpayment events, failure to adhere to certain covenants, various insolvency events, termination of the project’s activities or of significant parties in the project (as defined in the agreement), various events in connection with its regulatory status and maintenance of government approvals, certain changes in ownership of the project company, certain events in connection with the project, existence of legal proceedings in connection with the project, and the project not having the right to receive payments for its capacity and electricity – all of this in accordance with and subject to the terms, definitions and cure periods as stated in the relevant credit agreement.
| Project | Financial Closing Date | Total Commitment (approximately in | Total Outstanding/ Issued (approximately in | Maturity Date | Annual interest | Covenants | |
| Fairview | March 24, 2017 | 710 | 6621 | June 30, 20252 | LIBOR plus margin of 2.50%–2.75% ; fixed interest tranche of 5.78% | ||
| Towantic | March 11, 2016 | 753 | 5983 | June 30, 20252 | LIBOR plus margin of 2.75%–3.25%
| Similar to Fairview (see above) | |
| CPV Maryland | August 8, 2014 | 3714 | May 11, 2028 (Term Loan B)2 November 11, 20272 (Ancillary Facilities) | LIBOR plus margin 4% (Term Loan B) (agreement includes an alternate base rate) LIBOR plus margin of 2.75% (Ancillary Facilities) (subject to replacement base interest rate) | |||
| CPV Shore | 5045 | Dec. 27, 2025 (Term Loan) Dec. 27, 2023 (Ancillary Facilities)2 | Term Loan: LIBOR plus margin of 3.75% (subject to replacement base interest rate) Ancillaries: 3.00% margin | Historic rolling 4 quarter debt service coverage ratio of 1:1. CPV is currently in compliance with this covenant | |||
| CPV Valley | June 12, 2015 | 680 | 5726 | June 30, 2023 | LIBOR plus margin of 3.50%–3.75%
| ||
| CPV Keenan II | 1107 |
| Execution of a distribution is subject to | ||||
| CPV Three Rivers (under construction) | Aug. 21, 2020 | 875 | 7078 | June 30, 20282 | LIBOR plus margin of 3.50%–4.00% (subject to replacement base interest rate); Fixed interest tranche of 4.75% | Similar to Fairview (see above) |
| 1. | Consisting of Term Loan (Variable): |
| 2. | The rate and scope of repayment of loan principal varies until final repayment, in accordance with integration of amortization and cash sweep repayment mechanisms (“mini perm” financing). |
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| 3. | Consisting of Term Loan (Variable): |
| 4. | Consisting of Term Loan (Variable): |
| 5. | Consisting of Term Loan (Variable): $385 million, Ancillary Facilities ($119 million). |
| 6. | Consisting of Term Loan (Variable): $459 million, Ancillary Facilities (Working Capital Loan: |
| 7. | Consisting of Term Loan (Variable): |
| 8. | Consisting of: Term Loan (Variable): |
Qoros’ Liquidity and Capital Resources
Qoros’ cash and cash equivalents was RMB10RMB 5 million (approximately $0.1 million) as of December 31, 2021, compared to approximately RMB 10 million (approximately $2 million) as of December 31, 2020, compared to approximately RMB105 million (approximately $15 million) as of December 31, 2019.2020. Qoros’ principal sources of liquidity are cash flows from car sales, cash inflows received from financing activities, including long-term loans, short-term facilities and capital contributions (in the form of equity contributions or shareholder loans). Qoros’ RMB3RMB 3 billion syndicated credit facility, RMB1.2RMB 1.2 billion syndicated credit facility and its RMB700RMB 700 million credit facility are no longer available for drawing, and Qoros may require additional financing, including the renewal or refinancing of its working capital facilities, to fund its development and operations.
Qoros has historically relied upon shareholder funding as well as bankthree major credit facilities, supported by guaranteesbeing its RMB 3 billion, RMB 700 million and pledges from its shareholders to fund its development and operations.
RMB 1.2 billion loan facilities. As of December 31, 2020,2021, there were RMB 465 million, zero and RMB 660 million outstanding under these facilities, respectively. In 2021, Qoros had external loans and borrowings of RMB3.3 billion (approximately $512did not make payments totaling approximately RMB 455 million ($71 million) and loans and other advances from parties related to the Majority Shareholder of RMB5.3 million (approximately $809 million). As of December 31, 2020, Qoros had total current liabilities of RMB9.4 billion (approximately $1.4 billion) largely made up of external loans and borrowings and loans and other advances from parties related to the Majority Shareholder, trade and other payables, and current assets of RMB3.1 billion (approximately $470 million). Qoros uses a portion of its liquidity to make debt service payments. Qoros is required to make amortizing principal payments on its RMB3 billion, RMB1.2 billion and RMB700 million facilities but has limited cash flows. Qoros deferred the amortizing principal payments on its RMB1.2 billion facility in the aggregate amount of RMB180 million (approximately $28 million) thatwhich were due on various dates in 2020 to December 2020, and is currently pursuing deferrals of all future payments for its other facilities. All of Qoros' debt is classified as current as a result of a failure to comply with certain covenants and related cross defaults.
Qoros has also taken loans and other advances from parties related to the Majority Shareholder with outstanding balances as at December 31, 20202021 of RMB5.3RMB 5,978 billion (approximately $809$938 million).
Qoros is party to various short-term and working capital facilities.
ZIM’s Liquidity and Capital Resources
ZIM operates in the capital-intensive container shipping industry. Its principal sources of liquidity are cash inflows received from operating activities, generally in the form of income from voyages and related services and cash inflows received from investing activities, generally in the form of proceeds received from the sale of tangible assets.services. ZIM’s principal needs for liquidity are operating expenses, expenditures related to debt service and capital expenditures. ZIM’s long-term capital needs generally result from its need to fund its growth strategy. ZIM’s ability to generate cash from operations depends on future operating performance which is dependent, to some extent, on general economic, financial, legislative, regulatory and other factors, many of which are beyond its control, as well as the other factors discussed in “Risk factors—Risks Related to our Interest in ZIM.”
ZIM’s cash and cash equivalents were $570$1,543 million $183 million, $186and $570 million as of December 31, 2020, 20192021 and 2018,2020, respectively. In addition, ZIM’s short-term bank deposits were $56$2,123 million $57 million, $66and $56 million as of December 31, 2021 and 2020, 2019 and 2018, respectively, which mainly consist of pledged bank deposits, corresponding with the related short-term bank credit.respectively.
During 2021, ZIM is party tomade early repayments of its Series 1 and Series 2 notes (Tranches C and D) in accordance with related excess cash mechanism, in a numbertotal amount of debt instruments which require it to comply with certain financial$434 million. These payments reflect a full settlement of such notes and non-financial covenants. In June 2020, further to an early full repayment to a certain groupresulted in the removal of creditors (Tranche A), certain financial covenants were removedall related provisions and no longer apply.
ZIM’s total outstanding indebtedness as of December 31, 20202021 consisted of $1,361$2,318 million in long-term debt and $501$1,024 million in current installments of long-term debt and short-term borrowings (not including early repayments ZIM expects to pay and any additional early repayment ZIM may be required to further pay, in accordance with the excess cash provisionsborrowings. ZIM’s long-term debt is mostly comprised of its notes).lease liabilities.
The weighted average interest rate paid per annum as of December 31, 20202021 under all of ZIM’s indebtedness was 9%5.1%.
For further information on the risks related to ZIM’s liquidity, see “Item 3.D Risk Factors—Risks Related to Our Other Businesses—Factors—Risks Related to our Interest in ZIM— ZIM is leveraged..” Its leverage may make it difficult for ZIM to operate its business, and ZIM may be unable to meet related obligations, which could adversely affect its business, financial condition, results of operations and liquidity.”liquidity.
| C. | Research and Development, Patents and Licenses, Etc. |
For a description of Qoros’ research and development activities see “Item 3.D Risk Factors—Risks Related to Our Interest in Qoros—Qoros faces certain risks relating to its business,” “Item 4.B Business Overview—Our Businesses—Qoros—Qoros’ Description of Operations” and “Item 5.A Operating Results—Share In Losses of Associated Companies, Net of Tax—Qoros.Qoros.”
| D. | Trend Information |
The following key trends contain forward-looking statements and should be read in conjunction with “Special Note Regarding Forward-Looking Statements” and “Item 3.D Risk Factors.” For further information on the recent developments of Kenon and our businesses, see “Item 5. Operating and Financial Review and Prospects—Recent Developments.”
Trend Information
OPC
Israel—In January 2021,February 2022, the EA published the electricity tariffs for 2021,2022, which included a decreasean increase of the EA’s generation component tariff by approximately 5.7%13.6%. Such increase is expected to be lowered to approximately 9.4%. This decreaseincrease in the EA generation component is expected to have a negativepositive impact on OPC'sOPC’s profits in 20212022 compared with 2020.2021. For further information, see “Item.Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of Operations—OPC—Sales—EA Tariffs.”
United States—The price of natural gas is significant in determinationsetting the price of electricity in most territories where CPV has projects (the main fuel of the electricity price in manyconventional natural gas-fired power plants of the regions in which the CPV projects operate.CPV). The natural gas prices are driven by manynumerous variables, including demand in the industrial, residential and electricity sectors, productivity of the natural gas supply basins, natural gas production costs, changes in the pipeline infrastructure, international trade and the financial profile and the hedgehedging profile of natural gas customers and producers. In 2020, the average
Accordingly, electricity and natural gas prices are key factors in the profitability of CPV, as well as capacity prices in the operating areas of the power plants of CPV. Several variables affect the profitability of conventional natural gas-fired power plants, including the price of fuels, the weather, load increase, and unit capacity, which in aggregate affect the gross margin and profitability of CPV. Electricity prices in the PJM market were 86% higher in 2021, respectively, compared with 2020. Electricity prices in the ISO-NE and NYISO markets were 97% and 101% higher in 2021, respectively, compared with 2020. In 2021, average Henry Hub were 21% lower compared with 2019. In the existing production mix, the higher the natural gas prices will be, thewere 92% higher the energy margins of the CPV Group are expected to be. This impact is partly offset by CPV’s hedge plan, which is designed to reduce changes in CPV’s gross margin resulting from changes in the commodity prices.compared with 2020.
| Region | 2020 | 2019 |
| ISO-NE Mass Hub | $23.31/MWh | $31.22/MWh |
| NY-ISO Zone G | $20.32/MWh | $26.87/MWh |
| PJM West | $20.95/MWh | $26.69/MWh |
| PJM AD Hub | $20.95/MWh | $26.77/MWh |
| Zone | Q4 2021 | 2021 | Q4 2020 | 2020 |
| PJM West (Shore, Maryland) | $54.39 | $38.92 | $23.05 | $20.95 |
| PJM AD Hub (Fairview) | $51.88 | $38.35 | $22.52 | $20.95 |
| NY-ISO Zone G (Valley) | $51.33 | $40.74 | $24.29 | $20.32 |
| ISO-NE Mass Hub (Towantic) | $59.88 | $45.92 | $30.06 | $23.31 |
The average 24x7 power prices are based on day-ahead settlement prices as published by the respective ISOs.
ZIM
Total global container shipping demand totaled approximately 216231.5 million TEUs in 20192021 (including inland transportation) according to Drewry Container Forecaster or Drewry,(Drewry) as of December 2020.2021. Global container demand has seen steady and resilient growth equaling a 5.9%6% CAGR since 2000 accordingly to Drewry, driven by multiple factors. These include economic drivers such as GDP growth, containerization and industrial production, as well as other non-economic drivers such as geopolitics, containerization, consumer preferences and population growth. This wasdemographic changes.
The breakout of the COVID-19 pandemic has led to the second crisis in the container shipping industry since 2000, (with the first yearcrisis occurring during 2009 following the 2008 financial crisis). 2020 commenced with lockdowns and reduced exports from China, reduction of shipping capacity, however during the second half of 2020 manufacturing capacity increased, together with a spike in which demand declined since 1998. Following the Global Financial Crisis in 2008, demand for container shipping showed resiliencye-commerce and increased every year from 2010goods sales, and inventory restocking.
During 2021, supply chain disruption became a factor driving significant upgrades to 2019. During this period, containerization was a significant driver of growth, as goods that were once shipped via standard cargo transferred to container ships. Underlying macroeconomic growth has also required that more goods be shipped overall, further increasing demand for container ships.
According to Drewry, demand is expected to rebound from the COVID-19 crisis and achieve an approximately 6.3%4.3% CAGR from 20202021 to 2024. Demand growth already began to rebound by the end of Q3 2020 across the East-West trades, driven by the tapering of lockdown measures in Far East Asia, improving consumer spending and growing global e-commerce demand.2025.
See also “—Material Factors Affecting Results of Operation.”
| E. |
Payments Due by Period1,2 | ||||||||||||||||||||
Total | Less than One Year | One to Two Years | Two to Five Years | More than Five Years | ||||||||||||||||
($ millions) | ||||||||||||||||||||
| Kenon’s consolidated contractual obligations | ||||||||||||||||||||
| Trade Payables | 93 | 93 | — | — | — | |||||||||||||||
| Other payables | 24 | 24 | — | — | — | |||||||||||||||
| Bonds | 350 | 14 | 14 | 90 | 232 | |||||||||||||||
| Lease liabilities | 22 | 14 | 1 | 2 | 5 | |||||||||||||||
| Loans | 799 | 65 | 63 | 260 | 411 | |||||||||||||||
| Interest SWAP contracts | 41 | 6 | 6 | 14 | 15 | |||||||||||||||
| Derivative instruments | 34 | 32 | 2 | — | — | |||||||||||||||
| Total contractual obligations and commitments | $ | 1,363 | 248 | 86 | 366 | 663 | ||||||||||||||
long-term investment (Qoros).
For further information on the estimates, assumptions and judgments involved in our accounting policies and significant estimates, see Note 2 to Kenon’s financial statements included in this annual report.
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| ITEM | Directors, Senior Management and Employees |
| A. | Directors and Senior Management |
Board of Directors
The following table sets forth information regarding our board of directors:
Name | Age | Function | Original Appointment Date | Current Term Begins | Current Term Expires | |||||
| Antoine Bonnier | 38 | Board Member | 2016 | 2020 | 2021 | |||||
| Laurence N. Charney | 74 | Chairman of the Audit Committee, Compensation Committee Member, Board Member | 2014 | 2020 | 2021 | |||||
| Barak Cohen | 39 | Board Member | 2018 | 2020 | 2021 | |||||
| Cyril Pierre-Jean Ducau | 42 | Chairman of the Board, Nominating and Corporate Governance Committee Chairman | 2014 | 2020 | 2021 | |||||
| N. Scott Fine | 64 | Audit Committee Member, Compensation Committee Chairman, Board Member | 2014 | 2020 | 2021 | |||||
| Bill Foo | 63 | Board Member, Nominating and Corporate Governance Committee Member | 2017 | 2020 | 2021 | |||||
| Aviad Kaufman | 50 | Compensation Committee Member, Board Member, Nominating and Corporate Governance Committee Member | 2015 | 2020 | 2021 | |||||
| Arunava Sen | 60 | Board Member, Audit Committee Member | 2017 | 2020 | 2021 |
| Name | Age | Function | Original Appointment Date | Current Term Begins | Current Term Expires | |||||
| Antoine Bonnier | 39 | Board Member | 2016 | 2021 | 2022 | |||||
| Laurence N. Charney | 75 | Chairman of the Audit Committee, Compensation Committee Member, Board Member | 2014 | 2021 | 2022 | |||||
| Barak Cohen | 40 | Board Member | 2018 | 2021 | 2022 | |||||
| Cyril Pierre-Jean Ducau | 43 | Chairman of the Board, Nominating and Corporate Governance Committee Chairman | 2014 | 2021 | 2022 | |||||
| N. Scott Fine | 65 | Audit Committee Member, Compensation Committee Chairman, Board Member | 2014 | 2021 | 2022 | |||||
| Bill Foo | 64 | Board Member, Nominating and Corporate Governance Committee Member | 2017 | 2021 | 2022 | |||||
| Aviad Kaufman | 51 | Compensation Committee Member, Board Member, Nominating and Corporate Governance Committee Member | 2015 | 2021 | 2022 | |||||
| Arunava Sen | 61 | Board Member, Audit Committee Member | 2017 | 2021 | 2022 |
Our constitution provides that, unless otherwise determined by a general meeting, the minimum number of directors is five and the maximum number is 12.
Senior Management
Name | Age | Position | ||
| Robert L. Rosen | Chief Executive Officer | |||
| Mark Hasson | Chief Financial Officer |
Biographies
Directors
Antoine Bonnier. Mr. Bonnier is currently a Managing Director of Quantum Pacific (UK) LLP and serves as a member of the board of directors of Club Atletico de Madrid SAD, of CPVI, and of OPC, each of which may be associated with the same ultimate beneficiary, Mr. Idan Ofer. Mr. Bonnier was previously a member of the investment team of Quantum Pacific Advisory Limited from 2011 to 2012. Prior to joining Quantum Pacific Advisory Limited in 2011, Mr. Bonnier was an Associate in the Investment Banking Division of Morgan Stanley & Co. During his tenure there, from 2005 to 2011, he held various positions in the Capital Markets and Mergers and Acquisitions teams in London, Paris and Dubai. Mr. Bonnier graduated from ESCP Europe Business School and holds a Master of Science in Management.
Laurence N. Charney. Mr. Charney currently serves as the chairman of our audit committee. Mr. Charney retired from Ernst & Young LLP in June 2007, where, over the course of his more than 37-year career, he served as Senior Audit Partner, Practice Leader and Senior Advisor. Since his retirement from Ernst & Young, Mr. Charney has served as a business strategist and financial advisor to boards, senior management and investors of early stage ventures, private businesses and small to mid-cap public corporations across the consumer products, energy, high-tech/software, media/entertainment, and non-profit sectors. His most recent directorships also include board tenure with Marvel Entertainment, Inc. (through December 2009), Pacific Drilling S.A. (through November 19, 2018) and TG Therapeutics, Inc. (from March 2012 through the current date). Mr. Charney has recently joined the board of directors, as audit committee chair, of Apifiny Group Inc. (a private company in process of merging with a public company special acquisition corporation). Mr. Charney is a graduate of Hofstra University with a Bachelor’s degree in Business Administration (Accounting), and has also completed an Executive Master’s program at Columbia University. Mr. Charney maintains active membership with the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants.
Barak Cohen. Mr. Cohen is a Managing Director at Quantum Pacific (UK) LLP and a board member of Qoros, each of which may be associated with the same ultimate beneficiary, Mr. Idan Ofer. In September 2018, Mr. Cohen was appointed to the board of directors of Kenon, having served as Co-CEO of Kenon till that time. Prior to serving as Kenon’s Co-CEO, Mr. Cohen served as Kenon’s Vice President of Business Development and Investor Relations from 2015 to September 2017. Prior to joining Kenon in 2015, Mr. Cohen worked in various capacities at Israel CorporationIC since 2008 most recently as Israel Corporation’sIC’s Senior Director of Business Development and Investor Relations. Prior to joining Israel Corporation,IC, Mr. Cohen held positions at Lehman Brothers (UK) and Ernst & Young (Israel). Mr. Cohen holds Bachelor’s degrees in Economics, summa cum laude, and Accounting & Management, magna cum laude, both from Tel Aviv University.
Cyril Pierre-Jean Ducau. Mr. Ducau is the Chief Executive Officer of Ansonia and the Chief Executive Officer of Eastern Pacific Shipping Pte Ltd.Ltd, a leading shipping company based in Singapore. He is a member of the board of directors of Ansonia and IC Power, as well as other private companies, each of which may be associated with the same ultimate beneficiary, Mr. Idan Ofer. He is also currently an independent director of the Singapore Maritime Foundation and of the Global Centre for Maritime Decarbonisation Limited, which were established by the Maritime and Port Authority of Singapore. He is also a member of the board of directors of Gard P&I (Bermuda) Ltd, a leading maritime insurer, and the Chairman of Cool Company Ltd, a public shipping company. He was previously Head of Business Development of Quantum Pacific Advisory Limited in London from 2008 to 2012 and acted as Director and then Chairman of Pacific Drilling SA between 2011 anduntil 2018. Prior to joining Quantum Pacific Advisory Limited in 2008, Mr. Ducau was Vice President in the Investment Banking Division of Morgan Stanley & Co. International Ltd. in London and, during his tenure there from 2000 to 2008, he held various positions in the Capital Markets, Leveraged Finance and Mergers and Acquisitions teams. Prior to that, Mr. Ducau gained experience in consultancy working for Arthur D. Little in Munich and investment management with Credit Agricole UI Private Equity in Paris.London. Mr. Ducau graduated from ESCP Europe Business School (Paris, Oxford, Berlin) and holds a Master of Science in business administration and a Diplom Kaufmann.
N. Scott Fine.Fine. Mr. Fine is the Chief Executive Officer and Chairmanan Executive Director of Cyclo Therapeutics, Inc., a biotechnology company focused on developing novel therapeutics based on cyclodextrin technologies. Mr. Fine has been involved in investment banking for over 35 years, working on a multitude of debt and equity financings, buy and sell side mergers and acquisitions, strategic advisory work and corporate restructurings. Much of his time has been focused on transactions in the healthcare and consumer products area, including time with The Tempo Group of Jakarta, Indonesia. Mr. Fine was the lead investment banker on the IPO of Keurig Green Mountain Coffee Roasters and Central European Distribution Corporation, or CEDC, a multi-billion-dollar alcohol company. He was also involved in an Equity Strategic Alliance between Research Medical and the Tempo Group. Mr. Fine continued his involvement with CEDC, serving as a director from 1996 until 2014, during which time he led the CEDC Board’s successful efforts in 2013 to restructure the company through a pre-packaged Chapter 11 process whereby CEDC was acquired by the Russian Standard alcohol group. Recently, Mr. Fine served as Vice Chairman and Chairman of the Restructuring Committee of Pacific Drilling SA from 2017 to 2018 where he successfully led the Independent Directors to a successful reorganization. He also served as sole directorSole Director of Better Place Inc. from 2013 until 2015. In that role, Mr. Fine successfully managed the global wind down of the company in a timely and efficient manner which was approved by both the Delaware and Israeli courts. Mr. Fine devotes time to several non-profit organizations, including through his service on the Board of Trustees for the IWM American Air Museum in Britain. He and his wife, Cathy are also the Executive Producers of “The Concert for Newtown” with Peter Yarrow of Peter, Paul, and Mary. Mr. Fine has been a guest lecturer at Ohio State University’s Moritz School of Law.
Law and Fordham University Law School.Bill Foo. Dr. Bill Foo is a director and corporate advisor of several private, listed and non-profit entities, including Mewah International Inc., CDL Hospitality Trusts, Tung Lok Restaurants (2000) Ltd., M&C REIT Management Ltd and chairing the Salvation Army and Heartware Network Youth Charity organizations.organization. In May 2017, Dr. Foo was appointed to the board of directors of Kenon, having served as a director of IC Power between November 2015 and January 2018. Prior to his retirement, Dr. Foo worked in financial services for over 30 years, including serving as CEO of ANZ Singapore and South East Asia Head of Investment Banking for Schroders. Dr. Foo has also worked in various positions at Citibank and Bank of America and has been a director of several listed and government-related entities, including International Enterprise Singapore (Trade Agency), where he chaired the Audit Committee for several years. Dr. Foo has a Master’s Degree in Business Administration from McGill University and a Bachelor of Business Administration from Concordia University and an honorary Doctor of Commerce from James Cook University Australia.
Aviad Kaufman. Mr. Kaufman is the Chief Executive Officer of Quantum Pacific (UK) LLP,One Globe Business Advisory Ltd, the chairman of IC, and a board member of Israel ChemicalsICL Group Ltd., OPC and other private companies, each of which may be associated with the same ultimate beneficiary, Mr. Idan Ofer. From 2017 until July 2021, Mr. Kaufman served as the Chief Executive Officer of Quantum Pacific (UK) LLP and from 2008 until 2017 Mr. Kaufman served as Chief Financial Officer of Quantum Pacific (UK) LLP (and its predecessor Quantum Pacific Advisory Limited). From 2002 until 2007, Mr. Kaufman served as Director of International Taxation and fulfilled different senior corporate finance roles at Amdocs Ltd. Previously, Mr. Kaufman held various consultancy positions with KPMG. Mr. Kaufman is a certified public accountant and holds a Bachelor’s degree in Accounting and Economics from the Hebrew University in Jerusalem (with distinction), and a Master’s of Business Administration in Finance from Tel Aviv University.
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Arunava Sen. Mr. Sen is CEO and Managing Director of Coromandel Advisors Pte Ltd, a Singapore-based company that provides strategic and transactional advice to global investors in the infrastructure and clean energy sectors. In May 2017, Mr. Sen was appointed to the board of directors of Kenon, having served as a director of IC Power between November 2015 and January 2018. Between August 2010 and February 2015, Mr. Sen was CEO and Managing Director of Lanco Power International Pte Ltd, a Singapore-registered company focused on the development of power projects globally. Previously, Mr. Sen held several senior roles at Globeleq Ltd, a Houston-based power investment company, including COO, CEO—Latin America and CEO—Asia. In 1999, Mr. Sen cofounded and was COO of Hart Energy International, a Houston-based company that developed and invested in power businesses in Latin America and the Caribbean. Mr. Sen currently serves as a member ofon the investment committeecommittees of SUSI Asia Energy Transition Fund and Armstrong Asset Management Pte Ltd.SE Asia Clean Energy Fund. A qualified Chartered Accountant, Mr. Sen holds a B.Com. degree from the University of Calcutta and an M.S. degree in Finance from The American University in Washington, DC.
Senior Management
Robert Rosen. Mr. Rosen has served as CEO of Kenon since September 2018. Between September 2017 and September 2018, he served as Co-CEOis a board member of Kenon.OPC. Prior to becoming CEO, Mr. Rosen served as General Counsel of Kenon upon joining Kenon in 2014. Prior to joining Kenon, in 2014, Mr. Rosen spent 15 years in private practice with top tier law firms, including Linklaters LLP and Milbank LLP. Mr. Rosen is admitted to the Bar in the State of New York, holds a Bachelor’s degree with honors from Boston University and a JD and MBA, both from the University of Pittsburgh, where he graduated with high honors.
Mark Hasson. Mr. Hasson has served as Chief Financial Officer at Kenon since October 2017. Prior to this role, Mr. Hasson served as Vice President of Finance at Kenon. Prior to joining Kenon in 2017, Mr. Hasson served in various senior finance positions in Singapore and Australia. He holds a Bachelor’s degree in Finance and Accounting from the University of Cape Town in South Africa and is a Chartered Accountant (Institute of Chartered Accountants in England and Wales).
| B. | Compensation |
We pay our directors compensation for serving as directors, including per meeting fees.
For the year ended December 31, 2020,2021, the aggregate compensation accrued (comprising remuneration and the aggregate fair market value of equity awards granted) for our directors and executive officers was approximately $2 million.
For further information on Kenon’s Share Incentive Plan 2014 and Share Option Plan 2014, see “Item 6.E Share Ownership.”
| C. | Board Practices |
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the NYSE’s rules for domestic U.S. issuers, provided that we disclose which requirements we are not following and describe the equivalent home country requirement.
Nonetheless, we have elected to apply the corporate governance rules of the NYSE that are applicable to U.S. domestic registrants that are not “controlled” companies, except in the case of our nominating and governance committee, as one of the members of our nominating and corporate governance committee is non-independent under NYSE standards.companies.
Board of Directors
Our constitution gives our board of directors general powers to manage our business. The board of directors, which consists of eight directors, oversees and provides policy guidance on our strategic and business planning processes, oversees the conduct of our business by senior management and is principally responsible for the succession planning for our key executives. Cyril Pierre-Jean Ducau serves as our Chairman.
Director Independence
Pursuant to the NYSE’s listing standards, listed companies are required to have a majority of independent directors. Under the NYSE’s listing standards, (i) a director employed by us or that has, or had, certain relationships with us during the last three years, cannot be deemed to be an independent director, and (ii) directors will qualify as independent only if our board of directors affirmatively determines that they have no material relationship with us, either directly or as a partner, shareholder or officer of an organization that has a relationship with us. Ownership of a significant amount of our shares, by itself, does not constitute a material relationship.
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Although we are permitted to follow home country practice in lieu of the requirement to have a board of directors comprised of a majority of independent directors, we have determined that we are in compliance with this requirement and that a majorityall of our board of directors is independent according to the NYSE’s listing standards. Our board of directors has affirmatively determined that each of Antoine Bonnier, Arunava Sen, Aviad Kaufman, Barak Cohen, Bill Foo, Cyril Pierre-Jean Ducau, Laurence N. Charney and N. Scott Fine, representing sixall of our eight directors, are currently “independent directors” as defined under the applicable rules and regulations of the NYSE.
Election and Removal of Directors
See “Item 10.B Constitution.”
Service Contracts
None of our board members have service contracts with us or any of our businesses providing for benefits upon termination of employment.
Indemnifications and Limitations on Liability
For information on the indemnification and limitations on liability of our directors, see “Item 10.B Constitution.”
Committees of our Board of Directors
We have established three committees, which report regularly to our board of directors on matters relating to the specific areas of risk the committees oversee: the audit committee, the nominating and corporate governance committee, and the compensation committee. Although we are permitted to follow home country practices with respect to our establishment of the nominating and corporate governance and compensation committees, we have determined that we are in compliance with the NYSE’s requirements in these respects, except that one of the members of our nominating and corporate governance committee is non-independent under NYSE standards.respects.
Audit Committee
We have established an audit committee to review and discuss with management significant financial, legal and regulatory risks and the steps management takes to monitor, control and report such exposures; our audit committee also oversees the periodic enterprise-wide risk evaluations conducted by management. Specifically, our audit committee oversees the process concerning:
the quality and integrity of our financial statements and internal controls;
the compensation, qualifications, evaluation and independence of, and making a recommendation to our board for recommendation to the annual general meeting for appointment of, our independent registered public accounting firm;
the performance of our internal audit function;
our compliance with legal and regulatory requirements; and
review of related party transactions.
All three members of our audit committee, Laurence N. Charney, N. Scott Fine and Arunava Sen, are independent directors. Our board of directors has determined that Laurence N. Charney is an audit committee financial expert, as defined under the applicable rules of the SEC, and that each of our audit committee members has the requisite financial sophistication as defined under the applicable rules and regulations of each of the SEC and the NYSE. Our audit committee operates under a written charter that satisfies the applicable standards of each of the SEC and the NYSE.
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Nominating and Corporate Governance Committee
Our nominating and corporate governance committee oversees the management of risks associated with board governance, director independence and conflicts of interest. Specifically, our nominating and corporate governance committee is responsible for identifying qualified candidates to become directors, recommending to the board of directors candidates for all directorships, overseeing the annual evaluation of the board of directors and its committees and taking a leadership role in shaping our corporate governance.
Our nominating and corporate governance committee considers candidates for director who are recommended by its members, by other board members and members of our management, as well as those identified by any third-party search firms retained by it to assist in identifying and evaluating possible candidates. The nominating and corporate governance committee also considers recommendations for director candidates submitted by our shareholders. The nominating and corporate governance committee evaluates and recommends to the board of directors qualified candidates for election, re-election or appointment to the board, as applicable.
When evaluating director candidates, the nominating and corporate governance committee seeks to ensure that the board of directors has the requisite skills, experience and expertise and that its members consist of persons with appropriately diverse and independent backgrounds. The nominating and corporate governance committee considers all aspects of a candidate’s qualifications in the context of our needs, including: personal and professional integrity, ethics and values; experience and expertise as an officer in corporate management; experience in the industry of any of our portfolio businesses and international business and familiarity with our operations; experience as a board member of another publicly traded company; practical and mature business judgment; the extent to which a candidate would fill a present need on the board of directors; and the other ongoing commitments and obligations of the candidate. The nominating and corporate governance committee does not have any minimum criteria for director candidates. Consideration of new director candidates will typically involve a series of internal discussions, review of information concerning candidates and interviews with selected candidates.
As a foreign private issuer, we are permitted to follow home country practice in lieu of the requirement to have a nominating and corporate governance committee comprised entirely of independent directors. One of theNonetheless, we have determined that all three members of our nominating and corporate governance committee, is not deemed to beCyril Pierre-Jean Ducau, Bill Foo and Aviad Kaufman are independent directors as defined under NYSE standards and accordingly we rely on the NYSE exemption for foreign private issuers.applicable rules of the NYSE.
The members of our nominating and corporate governance committee are Cyril Pierre-Jean Ducau, Bill Foo and Aviad Kaufman. Our nominating and corporate governance committee operates under a written charter that satisfies the applicable standards of the NYSE for foreign private issuers.
Compensation Committee
Our compensation committee assists our board in reviewing and approving the compensation structure of our directors and officers, including all forms of compensation to be provided to our directors and officers. The compensation committee is responsible for, among other things:
reviewing and determining the compensation package for our Chief Executive Officer and other senior executives;
reviewing and making recommendations to our board with respect to the compensation of our non-employee directors;
reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other senior executives, including evaluating their performance in light of such goals and objectives; and
reviewing periodically and approving and administering stock options plans, long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans for all employees, including reviewing and approving the granting of options and other incentive awards.
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As a foreign private issuer, we are permitted to follow home country practice in lieu of the requirement to have a compensation committee comprised entirely of independent directors. Nonetheless, we have determined that all of thethree members of our compensation committee, N. Scott Fine, Laurence N. Charney N. Scott Fine and Aviad Kaufman are independent directors as defined under the applicable rules of the NYSE. Our compensation committee operates under a written charter that satisfies the applicable standards of the NYSE.
Code of Ethics and Ethical Guidelines
Our board of directors has adopted a code of ethics that describes our commitment to, and requirements in connection with, ethical issues relevant to business practices and personal conduct.
| D. | Employees |
As of December 31, 2020, 2019 and 20182021, we and our consolidated subsidiaries employed 124, 116 and 114228 individuals, respectively, as follows:
Number of Employees as of December 31, | ||||||||||||
Company | 2020 | 2019 | 2018 | |||||||||
OPC1 | 116 | 96 | 92 | |||||||||
Primus2 | — | 12 | 13 | |||||||||
| Kenon | 8 | 8 | 9 | |||||||||
| Total | 124 | 116 | 114 | |||||||||
| Company | December 31, 2021 | |||
OPC1 | 222 | |||
| Kenon | 6 | |||
| Total | 228 | |||
| (1) | In January 2021, an entity in which OPC holds a 70% interest, completed the acquisition of CPV. This table |
OPC
As of December 31, 2020,2021, OPC employed 116222 employees (excluding(including 104 CPV employees, asreflecting the acquisition of CPV was completed in January 2021). For further information on OPC’s employees, see “Item 4.B Business Overview—Our Businesses—OPC—OPC’s Description of Operations—Employees.”
ZIM
As of December 31, 2020,2021, ZIM employed approximately 5,1455,931 employees worldwide (including contract workers), including 770 employees of its subsidiaries), consisting of 3,794 full-time employees and 1,351 contractors.based in Israel.
A significant number of ZIM’s Israeli employees are unionized and ZIM is party to numerous collective agreements with respect to its employees. For further information on the risks related to ZIM’s unionized employees, see “Item 3.D Risk Factors—Risks Related to the Industries in Which Our Businesses Operate—Our businesses may be adversely affected by work stoppages, union negotiations, labor disputes and other matters associated with our labor force.”
| E. | Share Ownership |
Interests of our Directors and our Employees
Kenon has established the Share Incentive Plan 2014 and the Share Option Plan 2014 for its directors and management. The Share Incentive Plan 2014 and the Share Option Plan 2014 provide grants of Kenon’s shares, and stock options in respect of Kenon’s shares, respectively, to management and directors of Kenon, or to officers of Kenon’s subsidiaries or associated companies, pursuant to awards, which may be granted by Kenon from time to time. The total number of shares underlying awards which may be granted under the Share Incentive Plan 2014 or delivered pursuant to the exercise of options granted under the Share Option Plan 2014 shall not, in the aggregate, exceed 3% of the total issued shares (excluding treasury shares) of Kenon. Kenon granted awards of shares to directors and certain members of its management under the Share Incentive Plan 2014 in 2020,2021, with a value of $0.4$0.2 million.
Equity Awards to Certain Executive Officers—Subsidiaries and Associated Companies
Kenon’s subsidiaries and associated companies may, from time to time, adopt equity compensation arrangements for officers and directors of the relevant entity. Kenon expects any such arrangements to be on customary terms and within customary limits (in terms of dilution).
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| ITEM | Major Shareholders and Related Party Transactions |
| A. | Major Shareholders |
The following table sets forth information regarding the beneficial ownership of our ordinary shares as of April 16, 2021,March 30, 2022, by each person or entity beneficially owning 5% or more of our ordinary shares, based upon the 53,879,11753,884,436 ordinary shares outstanding as of such date, which represents our entire issued and outstanding share capital as of such date. The information set out below is based on public filings with the SEC as of April 16, 2021.March 30, 2022.
All of our ordinary shares have the same voting rights.
Beneficial Owner (Name/Address) | Ordinary Shares Owned | Percentage of Ordinary Shares | Ordinary Shares Owned | Percentage of Ordinary Shares | ||||||||||||
Ansonia Holdings Singapore B.V.1 | 31,156,869 | 58.0 | % | 32,497,569 | 60.3 | % | ||||||||||
Clal Insurance Enterprises Holdings Ltd.2 | 5,616,814 | 10.4 | % | |||||||||||||
Gilad Altshuler2 | 3,340,668 | 6.2 | % | |||||||||||||
Harel Insurance Investments & Financial Services Ltd. 3 | 2,950,827 | 5.5 | % | 3,090,402 | 5.7 | % | ||||||||||
Menora Mivtachim Holdings Ltd. 4 | 1,839,921 | 3.42 | % | |||||||||||||
| Laurence N. Charney | 43,952 | 5 | * | 6 | 47,650 | 4 | * | 5 | ||||||||
| Bill Foo | 10,884 | 5 | * | 6 | 14,108 | 4 | * | 5 | ||||||||
| Arunava Sen | 10,884 | 5 | * | 6 | 14,108 | 4 | * | 5 | ||||||||
Directors and Executive Officers7 | — | * | 6 | |||||||||||||
Directors and Senior Management (Executive Officers)6 | — | * | 5 | |||||||||||||
Based solely on the Schedule 13-D/A (Amendment No. |
Based solely on the Schedule 13-G filed by Gilad Altshuler with the SEC on February 14, 2022. According to the Schedule 13-G, the 3,340,668 ordinary shares consists of (i) 2,975,843 ordinary shares by provident and pension funds managed by Altshuler Shaham Provident & Pension Funds Ltd., a majority-owned subsidiary of Altshuler-Shaham Ltd., (ii) 350,825 ordinary shares held by mutual funds managed by Altshuler Shaham Mutual Funds Management Ltd., also a majority-owned subsidiary of Altshuler-Shaham Ltd, and (iii) 14,000 ordinary shares held by hedge funds managed by Altshuler Shaham Owl, Limited Partnership, an affiliate of Altshuler-Shaham Ltd. |
| (3) | Based solely upon the Schedule 13-G/A (Amendment No. |
| Based solely on Exhibit 99.3 to the Form 6-K furnished by Kenon with the SEC on May |
Owns less than 1% of Kenon’s ordinary shares. |
Excludes shares held by Laurence N. Charney, Bill Foo and Arunava Sen. |
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Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that such person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
We are not aware of any arrangement that may, at a subsequent date, result in a change of our control.
| B. | Related Party Transactions |
Kenon
Pursuant to its charter, the audit committee must review and approve all related party transactions. The audit committee has a written policy with respect to the approval of related party transactions. In addition, we have undertaken that, for so long as we are listed on the NYSE, to the extent that we or our subsidiaries will enter into transactions with related parties, such transactions will be considered and approved by us or our wholly-owned subsidiaries in a manner that is consistent with customary practices followed by companies incorporated in Delaware and shall be reviewed in accordance with the requirements of Delaware law.
We are party to several related party transactions with certain of our affiliates. Set forth below is a summary of these transactions. For further information, see Note 2927 to our financial statements included in this annual report.
OPC
Sales of Electricity and Gas
OPC-Rotem sells electricity through PPAs to some entities that are considered to be related parties, including the ORL Group. OPC-Rotem recorded revenues from related parties in the amount of $80$76 million in the year ended December 31, 2020.
OPC-Rotem and OPC-Hadera Financing Agreements
OPC-Rotem and OPC-Hadera have entered into financing agreements for the financing of their power plant projects, see “Item 5.B Liquidity and Capital Resources—OPC’s Liquidity and Capital Resources—OPC’s Material Indebtedness—OPC-Hadera Financing Agreement” and “Item 5.B Liquidity and Capital Resources—OPC’s Liquidity and Capital Resources—OPC’s Material Indebtedness—OPC-Rotem Financing Agreement.” One of the lenders under both of these agreements is a financial institution that is an OPC related party.
| C. | Interests of Experts and Counsel |
Not applicable.
| ITEM | Financial Information |
| A. | Consolidated Statements and Other Financial Information |
For information on the financial statements filed as a part of this annual report, see “Item 18. Financial Statements.” For information on our legal proceedings, see “Item 4.B Business Overview” and Note 20 to our financial statements included in this annual report. For information on our dividend policy, see “Item 10.B Constitution.”
| B. | Significant Changes |
For information on any significant changes that may have occurred since the date of our annual financial statements, see “Item 5. Operating and Financial Review and Prospects—Recent Developments.”
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| ITEM | The Offer and Listing |
| A. | Offer and Listing |
Kenon’s ordinary shares are listed on the TASE (trading symbol: KEN), our primary host market, and the NYSE (trading symbol: KEN), our principal market outside our host market.
| B. | Plan of Distribution |
Not applicable.
| C. | Markets |
Our ordinary shares are listed on each of the NYSE and the TASE under the symbol “KEN.”
| D. | Selling Shareholders |
Not applicable.
| E. | Dilution. |
Not applicable.
| F. | Expenses of the Issue |
Not applicable.
| ITEM | Additional Information |
| A. | Share Capital |
Not applicable.
| B. | Constitution |
The following description of our constitution is a summary and is qualified by reference to the constitution, a copy of which has been filed with the SEC. Subject to the provisions of the Singapore Companies Act and any other written law and its constitution, the Company has full capacity to carry on or undertake any business or activity, do any act or enter into any transaction.
New Shares
Under Singapore law, new shares may be issued only with the prior approval of our shareholders in a general meeting. General approval may be sought from our shareholders in a general meeting for the issue of shares. Approval, if granted, will lapse at the earliest of:
the conclusion of the next annual general meeting;
the expiration of the period within which the next annual general meeting is required by law to be held (i.e., within six months after our financial year end, being December 31); or
the subsequent revocation or modification of approval by our shareholders acting at a duly convened general meeting.
Our shareholders have provided such general authority to issue new shares until the conclusion of our 2021 annual general meeting. Subject to this and the provisions of the Singapore Companies Act and our constitution, all new shares are under the control of the directors who may allot and issue new shares to such persons on such terms and conditions and with the rights and restrictions as they may think fit to impose.
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Preference Shares
Our constitution provides that we may issue shares of a different class with preferential, deferred or other special rights, privileges or conditions as our board of directors may determine. Under the Singapore Companies Act, our preference shareholders will have the right to attend any general meeting insofar as the circumstances set forth below apply and on a poll at such general meeting, to have at least one vote for every preference share held:
upon any resolution concerning the winding-up of our company under section 160 of the Insolvency, Restructuring and Dissolution Act 2018; and
upon any resolution which varies the rights attached to such preference shares.
We may, subject to the prior approval in a general meeting of our shareholders, issue preference shares which are, or at our option, subject to redemption provided that such preference shares may not be redeemed out of capital unless:
all the directors have made a solvency statement in relation to such redemption; and
we have lodged a copy of the statement with the Singapore Registrar of Companies.
Further, the shares must be fully paid-up before they are redeemed.
Transfer of Ordinary Shares
Subject to applicable securities laws in relevant jurisdictions and our constitution, our ordinary shares are freely transferable. Shares may be transferred by a duly signed instrument of transfer in any usual or common form or in a form acceptable to our directors. The directors may decline to register any transfer unless, among other things, evidence of payment of any stamp duty payable with respect to the transfer is provided together with other evidence of ownership and title as the directors may require. We will replace lost or destroyed certificates for shares upon notice to us and upon, among other things, the applicant furnishing evidence and indemnity as the directors may require and the payment of all applicable fees.
Election and Re-election of Directors
Under our constitution, our shareholders by ordinary resolution, or our board of directors, may appoint any person to be a director as an additional director or to fill a casual vacancy, provided that any person so appointed by our board of directors shall hold office only until the next annual general meeting, and shall then be eligible for re-election.
Our constitution provides that, subject to the Singapore Companies Act, no person other than a director retiring at a general meeting is eligible for appointment as a director at any general meeting, without the recommendation of the Board for election, unless (a) in the case of a member or members who in aggregate hold(s) more than fifty percent of the total number of our issued and paid-up shares (excluding treasury shares), not less than ten days, or (b) in the case of a member or members who in aggregate hold(s) more than five percent of the total number of our issued and paid-up shares (excluding treasury shares), not less than 120 days, before the date of the notice provided to members in connection with the general meeting, a written notice signed by such member or members (other than the person to be proposed for appointment) who (i) are qualified to attend and vote at the meeting for which such notice is given, and (ii) have held shares representing the prescribed threshold in (a) or (b) above, for a continuous period of at least one year prior to the date on which such notice is given, is lodged at our registered office. Such a notice must also include the consent of the person nominated.
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Shareholders’ Meetings
We are required to hold an annual general meeting each year. Annual general meetings must be held within six months after our financial year end, being December 31. The directors may convene an extraordinary general meeting whenever they think fit and they must do so upon the written request of shareholders representing not less than one-tenth of the paid-up shares as at the date of deposit carries the right to vote at general meetings (disregarding paid-up shares held as treasury shares). In addition, two or more shareholders holding not less than one-tenth of our total number of issued shares (excluding our treasury shares) may call a meeting of our shareholders. The Singapore Companies Act requires not less than:
14 days’ written notice to be given by Kenon of a general meeting to pass an ordinary resolution; and
21 days’ written notice to be given by Kenon of a general meeting to pass a special resolution,
to every member and the auditors of Kenon. Our constitution further provides that in computing the notice period, both the day on which the notice is served, or deemed to be served, and the day for which the notice is given shall be excluded.
Unless otherwise required by law or by our constitution, voting at general meetings is by ordinary resolution, requiring the affirmative vote of a simple majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the resolution. An ordinary resolution suffices, for example, for appointments of directors. A special resolution, requiring an affirmative vote of not less than three-fourths of the shares present in person or represented by proxy at the meeting and entitled to vote on the resolution, is necessary for certain matters under Singapore law, such as an alteration of our constitution.
Voting Rights
Voting at any meeting of shareholders is by a show of hands unless a poll is duly demanded before or on the declaration of the result of the show of hands. If voting is by a show of hands, every shareholder who is entitled to vote and who is present in person or by proxy at the meeting has one vote. On a poll, every shareholder who is present in person or by proxy or by attorney, or in the case of a corporation, by a representative, has one vote for every share held by him or which he represents.
Dividends
We have no current plans to pay annual or semi-annual cash dividends. However, as part of our strategy, we may, in the event that we divest a portion of, or our entire equity interest in, any of our businesses, distribute such cash proceeds or declare a distribution-in-kind of shares in our investee companies. Any dividends would be limited by the amount of available distributable reserves, which, under Singapore law, will be assessed on the basis of Kenon’s standalone unconsolidated accounts (which will be based upon the SFRS). Under Singapore law, it is also possible to effect a capital reduction exercise to return cash and/or assets to our shareholders. The completion of a capital reduction exercise may require the approval of the Singapore Courts, and we may not be successful in our attempts to obtain such approval.
Additionally, because we are a holding company, our ability to pay cash dividends, or declare a distribution-in-kind of the ordinary shares of any of our businesses, may be limited by restrictions on our ability to obtain sufficient funds through dividends from our businesses, including restrictions under the terms of the agreements governing the indebtedness of our businesses. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, contractual restrictions, our overall financial condition, available distributable reserves and any other factors deemed relevant by our board of directors. Generally, a final dividend is declared out of profits disclosed by the accounts presented to the annual general meeting, and requires approval of our shareholders. However, our board of directors can declare interim dividends without approval of our shareholders.
Bonus Issues
In a general meeting, our shareholders may, upon the recommendation of the directors, capitalize any reserves or profits and distribute them as fully paid bonus shares to the shareholders in proportion to their shareholdings.
Takeovers
The Singapore Code on Take-overs and Mergers, the Singapore Companies Act and the Securities and Futures Act Chapter 289 of Singapore2001 regulate, among other things, the acquisition of ordinary shares of Singapore-incorporated public companies. Any person acquiring an interest, whether by a series of transactions over a period of time or not, either on his own or together with parties acting in concert with such person, in 30% or more of our voting shares, or, if such person holds, either on his own or together with parties acting in concert with such person, between 30% and 50% (both amounts inclusive) of our voting shares, and if such person (or parties acting in concert with such person) acquires additional voting shares representing more than 1% of our voting shares in any six-month period, must, except with the consent of the Securities Industry Council in Singapore, extend a mandatory takeover offer for the remaining voting shares in accordance with the provisions of the Singapore Code on Take-overs and Mergers.
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“Parties acting in concert” comprise individuals or companies who, pursuant to an agreement or understanding (whether formal or informal), cooperate, through the acquisition by any of them of shares in a company, to obtain or consolidate effective control of that company. Certain persons are presumed (unless the presumption is rebutted) to be acting in concert with each other. They include:
a company and its related companies, the associated companies of any of the company and its related companies, companies whose associated companies include any of these companies and any person who has provided financial assistance (other than a bank in the ordinary course of business) to any of the foregoing for the purchase of voting rights;
a company and its directors (including their close relatives, related trusts and companies controlled by any of the directors, their close relatives and related trusts);
a company and its pension funds and employee share schemes;
a person and any investment company, unit trust or other fund whose investment such person manages on a discretionary basis but only in respect of the investment account which such person manages;
a financial or other professional adviser, including a stockbroker, and its clients in respect of shares held by the adviser and persons controlling, controlled by or under the same control as the adviser;
directors of a company (including their close relatives, related trusts and companies controlled by any of such directors, their close relatives and related trusts) which is subject to an offer or where the directors have reason to believe a bona fide offer for the company may be imminent;
partners; and
an individual and such person’s close relatives, related trusts, any person who is accustomed to act in accordance with such person’s instructions and companies controlled by the individual, such person’s close relatives, related trusts or any person who is accustomed to act in accordance with such person’s instructions and any person who has provided financial assistance (other than a bank in the ordinary course of business) to any of the foregoing for the purchase of voting rights.
Subject to certain exceptions, a mandatory takeover offer must be in cash or be accompanied by a cash alternative at not less than the highest price paid by the offeror or parties acting in concert with the offeror during the offer period and within the six months preceding the acquisition of shares that triggered the mandatory offer obligation.
Under the Singapore Code on Take-overs and Mergers, where effective control of a company is acquired or consolidated by a person, or persons acting in concert, a general offer to all other shareholders is normally required. An offeror must treat all shareholders of the same class in an offeree company equally. A fundamental requirement is that shareholders in the company subject to the takeover offer must be given sufficient information, advice and time to consider and decide on the offer. These legal requirements may impede or delay a takeover of our company by a third-party.
In October 2014, the Securities Industry Council of Singapore waived application of the Singapore Code on Take-overs and Mergers to Kenon, subject to certain conditions. Pursuant to the waiver, for as long as Kenon is not listed on a securities exchange in Singapore, and except in the case of a tender offer (within the meaning of U.S. securities laws) where the offeror relies on a Tier 1 exemption to avoid full compliance with U.S. tender offer regulations, the Singapore Code on Take-overs and Mergers shall not apply to Kenon.
Insofar as the Singapore Code on Take-overs and Mergers applies to Kenon, the Singapore Code on Take-overs and Mergers generally provides that the board of directors of Kenon should bring the offer to the shareholders of Kenon in accordance with the Singapore Code on Take-overs and Mergers and refrain from an action which will deny the shareholders from the possibility to decide on the offer.
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Liquidation or Other Return of Capital
On a winding-up or other return of capital, subject to any special rights attaching to any other class of shares, holders of ordinary shares will be entitled to participate in any surplus assets in proportion to their shareholdings.
Limitations on Rights to Hold or Vote Ordinary Shares
Except as discussed above under “—Takeovers,” there are no limitations imposed by the laws of Singapore or by our constitution on the right of non-resident shareholders to hold or vote ordinary shares.
Limitations of Liability and Indemnification Matters
Our constitution currently provides that, subject to the provisions of the Singapore Companies Act and every other act applicable to Kenon, every director, secretary or other officer of our company or our subsidiaries and affiliates shall be entitled to be indemnified by our company against all costs, charges, losses, expenses and liabilities incurred by him or her in the execution and discharge of his or her duties (and where he serves at our request as a director, officer, employee or agent of any of our subsidiaries or affiliates) or in relation thereto and in particular and without prejudice to the generality of the foregoing, no director, secretary or other officer of our company shall be liable for the acts, receipts, neglects or defaults of any other director or officer or for joining in any receipt or other act for conformity or for any loss or expense happening to our company through the insufficiency or deficiency of title to any property acquired by order of the directors for or on behalf of our company or for the insufficiency or deficiency of any security in or upon which any of the moneys of our company shall be invested or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person with whom any moneys, securities or effects shall be deposited or left or for any other loss, damage or misfortune whatever which shall happen in the execution of the duties of his or her office or in relation thereto unless the same shall happen through his or her own negligence, default, breach of duty or breach of trust.
The limitation of liability and indemnification provisions in our constitution may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our shareholders. A shareholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act of 1933, or the Securities Act, may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.
Comparison of Shareholder Rights
We are incorporated under the laws of Singapore. The following discussion summarizes material differences between the rights of holders of our ordinary shares and the rights of holders of the common stock of a typical corporation incorporated under the laws of the state of Delaware which result from differences in governing documents and the laws of Singapore and Delaware.
This discussion does not purport to be a complete statement of the rights of holders of our ordinary shares under applicable law in Singapore and our constitution or the rights of holders of the common stock of a typical corporation under applicable Delaware law and a typical certificate of incorporation and bylaws.
Delaware | Singapore—Kenon Holdings Ltd. | |
Board of Directors | ||
| A typical certificate of incorporation and bylaws would provide that the number of directors on the board of directors will be fixed from time to time by a vote of the majority of the authorized directors. Under Delaware law, a board of directors can be divided into classes and cumulative voting in the election of directors is only permitted if expressly authorized in a corporation’s certificate of incorporation. | The constitution of companies will typically state the minimum and maximum number of directors as well as provide that the number of directors may be increased or reduced by shareholders via ordinary resolution passed at a general meeting, provided that the number of directors following such increase or reduction is within the maximum and minimum number of directors provided in the constitution and the Singapore Companies Act, respectively. Our constitution provides that, unless otherwise determined by a general meeting, the minimum number of directors is five and the maximum number is 12. | |
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Limitation on Personal Liability of Directors | ||
| A typical certificate of incorporation provides for the elimination of personal monetary liability of directors for breach of fiduciary duties as directors to the fullest extent permissible under the laws of Delaware, except for liability (i) for any breach of a director’s loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law (relating to the liability of directors for unlawful payment of a dividend or an unlawful stock purchase or redemption) or (iv) for any transaction from which the director derived an improper personal benefit. A typical certificate of incorporation would also provide that if the Delaware General Corporation Law is amended so as to allow further elimination of, or limitations on, director liability, then the liability of directors will be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended. | Pursuant to the Singapore Companies Act, any provision (whether in the constitution, contract or otherwise) purporting to exempt a director (to any extent) from any liability attaching in connection with any negligence, default, breach of duty or breach of trust in relation to Kenon will be void except as permitted under the Singapore Companies Act. Nevertheless, a director can be released by the shareholders of Kenon for breaches of duty to Kenon, except in the case of fraud, illegality, insolvency and oppression or disregard of minority interests. Our constitution currently provides that, subject to the provisions of the Singapore Companies Act and every other act for the time being in force concerning companies and affecting Kenon, every director, auditor, secretary or other officer of Kenon and its subsidiaries and affiliates shall be entitled to be indemnified by Kenon against all liabilities incurred by him in the execution and discharge of his duties and where he serves at the request of Kenon as a director, officer, employee or agent of any subsidiary or affiliate of Kenon or in relation thereto, including any liability incurred by him in defending any proceedings, whether civil or criminal, which relate to anything done or omitted or alleged to have been done or omitted by him as an officer or employee of Kenon, and in which judgment is given in his favor (or the proceedings otherwise disposed of without any finding or admission of any material breach of duty on his part) or in which he is acquitted, or in connection with an application under statute in respect of such act or omission in which relief is granted to him by the court. | |
Interested Shareholders | ||
Section 203 of the Delaware General Corporation Law generally prohibits a Delaware corporation from engaging in specified corporate transactions (such as mergers, stock and asset sales, and loans) with an “interested stockholder” for three years following the time that the stockholder becomes an interested stockholder. Subject to specified exceptions, an “interested stockholder” is a person or group that owns 15% or more of the corporation’s outstanding voting stock (including any rights to acquire stock pursuant to an option, warrant, agreement, arrangement or understanding, or upon the exercise of conversion or exchange rights, and stock with respect to which the person has voting rights only), or is an affiliate or associate of the corporation and was the owner of 15% or more of the voting stock at any time within the previous three years. A Delaware corporation may elect to “opt out” of, and not be governed by, Section 203 through a provision in either its original certificate of incorporation, or an amendment to its original certificate or bylaws that was approved by majority stockholder vote. With a limited exception, this amendment would not become effective until 12 months following its adoption. | There are no comparable provisions in Singapore with respect to public companies which are not listed on the Singapore Exchange Securities Trading Limited. | |
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Removal of Directors | ||
| A typical certificate of incorporation and bylaws provide that, subject to the rights of holders of any preferred stock, directors may be removed at any time by the affirmative vote of the holders of at least a majority, or in some instances a supermajority, of the voting power of all of the then outstanding shares entitled to vote generally in the election of directors, voting together as a single class. A certificate of incorporation could also provide that such a right is only exercisable when a director is being removed for cause (removal of a director only for cause is the default rule in the case of a classified board). | According to the Singapore Companies Act, directors of a public company may be removed before expiration of their term of office with or without cause by ordinary resolution (i.e., a resolution which is passed by a simple majority of those shareholders present and voting in person or by proxy). Notice of the intention to move such a resolution has to be given to Kenon not less than 28 days before the meeting at which it is moved. Kenon shall then give notice of such resolution to its shareholders not less than 14 days before the meeting. Where any director removed in this manner was appointed to represent the interests of any particular class of shareholders or debenture holders, the resolution to remove such director will not take effect until such director’s successor has been appointed. Our constitution provides that Kenon may by ordinary resolution of which special notice has been given, remove any director before the expiration of his period of office, notwithstanding anything in our constitution or in any agreement between Kenon and such director and appoint another person in place of the director so removed. | |
Filling Vacancies on the Board of Directors | ||
| A typical certificate of incorporation and bylaws provide that, subject to the rights of the holders of any preferred stock, any vacancy, whether arising through death, resignation, retirement, disqualification, removal, an increase in the number of directors or any other reason, may be filled by a majority vote of the remaining directors, even if such directors remaining in office constitute less than a quorum, or by the sole remaining director. Any newly elected director usually holds office for the remainder of the full term expiring at the annual meeting of stockholders at which the term of the class of directors to which the newly elected director has been elected expires. | The constitution of a Singapore company typically provides that the directors have the power to appoint any person to be a director, either to fill a vacancy or as an addition to the existing directors, but so that the total number of directors will not at any time exceed the maximum number fixed in the constitution. Any newly elected director shall hold office until the next following annual general meeting, where such director will then be eligible for re-election. Our constitution provides that the shareholders may by ordinary resolution, or the directors may, appoint any person to be a director as an additional director or to fill a vacancy provided that any person so appointed by the directors will only hold office until the next annual general meeting, and will then be eligible for re-election. | |
| Amendment of Governing Documents | ||
Under the Delaware General Corporation Law, amendments to a corporation’s certificate of incorporation require the approval of stockholders holding a majority of the outstanding shares entitled to vote on the amendment. If a class vote on the amendment is required by the Delaware General Corporation Law, a majority of the outstanding stock of the class is required, unless a greater proportion is specified in the certificate of incorporation or by other provisions of the Delaware General Corporation Law. Under the Delaware General Corporation Law, the board of directors may amend bylaws if so authorized in the charter. The stockholders of a Delaware corporation also have the power to amend bylaws. | Our constitution may be altered by special resolution (i.e., a resolution passed by at least a three-fourths majority of the shares entitled to vote, present in person or by proxy at a meeting for which not less than 21 days’ written notice is given). The board of directors has no right to amend the constitution. | |
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Meetings of Shareholders | ||
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Indemnification of Officers, Directors and Employers | ||
Under the Delaware General Corporation Law, subject to specified limitations in the case of derivative suits brought by a corporation’s stockholders in its name, a corporation may indemnify any person who is made a party to any third-party action, suit or proceeding on account of being a director, officer, employee or agent of the corporation (or was serving at the request of the corporation in such capacity for another corporation, partnership, joint venture, trust or other enterprise) against expenses, including attorney’s fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit or proceeding through, among other things, a majority vote of a quorum consisting of directors who were not parties to the suit or proceeding, if the person: • acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or, in some circumstances, at least not opposed to its best interests; and • in a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. Delaware corporate law permits indemnification by a corporation under similar circumstances for expenses (including attorneys’ fees) actually and reasonably incurred by such persons in connection with the defense or settlement of a derivative action or suit, except that no indemnification may be made in respect of any claim, issue or matter as to which the person is adjudged to be liable to the corporation unless the Delaware Court of Chancery or the court in which the action or suit was brought determines upon application that the person is fairly and reasonably entitled to indemnity for the expenses which the court deems to be proper. To the extent a director, officer, employee or agent is successful in the defense of such an action, suit or proceeding, the corporation is required by Delaware corporate law to indemnify such person for expenses (including attorneys’ fees) actually and reasonably incurred thereby. Expenses (including attorneys’ fees) incurred by such persons in defending any action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of that person to repay the amount if it is ultimately determined that that person is not entitled to be so indemnified. | The Singapore Companies Act specifically provides that Kenon is allowed to: • purchase and maintain for any officer insurance against any liability attaching to such officer in respect of any negligence, default, breach of duty or breach of trust in relation to Kenon; • indemnify such officer against liability incurred by a director to a person other than Kenon except when the indemnity is against (i) any liability of the director to pay a fine in criminal proceedings or a sum payable to a regulatory authority by way of a penalty in respect of non-compliance with any requirement of a regulatory nature (however arising); or (ii) any liability incurred by the officer (1) in defending criminal proceedings in which he is convicted, (2) in defending civil proceedings brought by Kenon or a related company of Kenon in which judgment is given against him or (3) in connection with an application for relief under specified sections of the Singapore Companies Act in which the court refuses to grant him relief. • indemnify any auditor against any liability incurred or to be incurred by such auditor in defending any proceedings (whether civil or criminal) in which judgment is given in such auditor’s favor or in which such auditor is acquitted; or • indemnify any auditor against any liability incurred by such auditor in connection with any application under specified sections of the Singapore Companies Act in which relief is granted to such auditor by a court. In cases where, inter alia, an officer is sued by Kenon the Singapore Companies Act gives the court the power to relieve directors either wholly or partially from the consequences of their negligence, default, breach of duty or breach of trust. However, Singapore case law has indicated that such relief will not be granted to a director who has benefited as a result of his or her breach of trust. In order for relief to be obtained, it must be shown that (i) the director acted reasonably; (ii) the director acted honestly; and (iii) it is fair, having regard to all the circumstances of the case including those connected with such director’s appointment, to excuse the director. Our constitution currently provides that, subject to the provisions of the Singapore Companies Act and every other act for the time being in force concerning companies and affecting Kenon, every director, auditor, secretary or other officer of Kenon and its subsidiaries and affiliates shall be entitled to be indemnified by Kenon against all liabilities incurred by him in the execution and discharge of his duties and where he serves at the request of Kenon as a director, officer, employee or agent of any subsidiary or affiliate of Kenon or in relation thereto, including any liability incurred by him in defending any proceedings, whether civil or criminal, which relate to anything done or omitted or alleged to have been done or omitted by him as an officer or employee of Kenon, and in which judgment is given in his favor (or the proceedings otherwise disposed of without any finding or admission of any material breach of duty on his part) or in which he is acquitted, or in connection with an application under statute in respect of such act or omission in which relief is granted to him by the court. | |
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Shareholder Approval of Business Combinations | ||
Generally, under the Delaware General Corporation Law, completion of a merger, consolidation, or the sale, lease or exchange of substantially all of a corporation’s assets or dissolution requires approval by the board of directors and by a majority (unless the certificate of incorporation requires a higher percentage) of outstanding stock of the corporation entitled to vote. The Delaware General Corporation Law also requires a special vote of stockholders in connection with a business combination with an “interested stockholder” as defined in section 203 of the Delaware General Corporation Law. For further information on such provisions, see “—Interested Shareholders” above. | The Singapore Companies Act mandates that specified corporate actions require approval by the shareholders in a general meeting, notably: • notwithstanding anything in Kenon’s constitution, directors are not permitted to carry into effect any proposals for disposing of the whole or substantially the whole of Kenon’s undertaking or property unless those proposals have been approved by shareholders in a general meeting; • subject to the constitution of each amalgamating company, an amalgamation proposal must be approved by the shareholders of each amalgamating company via special resolution at a general meeting; and • notwithstanding anything in Kenon’s constitution, the directors may not, without the prior approval of shareholders, issue shares, including shares being issued in connection with corporate actions. | |
Shareholder Action Without a Meeting | ||||
| Under the Delaware General Corporation Law, unless otherwise provided in a corporation’s certificate of incorporation, any action that may be taken at a meeting of stockholders may be taken without a meeting, without prior notice and without a vote if the holders of outstanding stock, having not less than the minimum number of votes that would be necessary to authorize such action, consent in writing. It is not uncommon for a corporation’s certificate of incorporation to prohibit such action. | There are no equivalent provisions under the Singapore Companies Act in respect of passing shareholders’ resolutions by written means that apply to public companies listed on a securities exchange. | |||
| Shareholder Suits | ||||
| Under the Delaware General Corporation Law, a stockholder may bring a derivative action on behalf of the corporation to enforce the rights of the corporation. An individual also may commence a class action suit on behalf of himself or herself and other similarly situated stockholders where the requirements for maintaining a class action under the Delaware General Corporation Law have been met. A person may institute and maintain such a suit only if such person was a stockholder at the time of the transaction which is the subject of the suit or his or her shares thereafter devolved upon him or her by operation of law. Additionally, under Delaware case law, the plaintiff generally must be a stockholder not only at the time of the transaction which is the subject of the suit, but also through the duration of the derivative suit. Delaware Law also requires that the derivative plaintiff make a demand on the directors of the corporation to assert the corporate claim before the suit may be prosecuted by the derivative plaintiff, unless such demand would be futile. |
In addition to registered shareholders, courts are given the discretion to allow such persons as they deem proper to apply as well (e.g., beneficial owners of shares or individual directors). This provision of the Singapore Companies Act is primarily used by minority shareholders to bring an action in the name and on behalf of the company or intervene in an action to which the company is a party for the purpose of prosecuting, defending or discontinuing the action on behalf of the company.
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The concept of class action suits, which allows individual shareholders to bring an action seeking to represent the class or classes of shareholders, generally does not exist in Singapore. However, it is possible as a matter of procedure for a number of shareholders to lead an action and establish liability on behalf of themselves and other shareholders who join in or who are made parties to the action. Further, there are certain circumstances in which shareholders may file and prove their claims for compensation in the event that Kenon has been convicted of a criminal offense or has a court order for the payment of a civil penalty made against it. Additionally, for as long as Kenon is listed in the U.S. or in Israel, Kenon has undertaken not to claim that it is not subject to any derivative/class action that may be filed against it in the U.S. or Israel, as applicable, solely on the basis that it is a Singapore company. | ||||
Dividends or Other Distributions; Repurchases and Redemptions | ||
The Delaware General Corporation Law permits a corporation to declare and pay dividends out of statutory surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets. Under the Delaware General Corporation Law, any corporation may purchase or redeem its own shares, except that generally it may not purchase or redeem these shares if the capital of the corporation is impaired at the time or would become impaired as a result of the redemption. A corporation may, however, purchase or redeem out of capital shares that are entitled upon any distribution of its assets to a preference over another class or series of its shares if the shares are to be retired and the capital reduced. | The Singapore Companies Act provides that no dividends can be paid to shareholders except out of profits. The Singapore Companies Act does not provide a definition on when profits are deemed to be available for the purpose of paying dividends and this is accordingly governed by case law. Our constitution provides that no dividend can be paid otherwise than out of profits of Kenon. Acquisition of a company’s own shares The Singapore Companies Act generally prohibits a company from acquiring its own shares subject to certain exceptions. Any contract or transaction by which a company acquires or transfers its own shares is void. However, provided that it is expressly permitted to do so by its constitution and subject to the special conditions of each permitted acquisition contained in the Singapore Companies Act, Kenon may: • redeem redeemable preference shares (the redemption of these shares will not reduce the capital of Kenon). Preference shares may be redeemed out of capital if all the directors make a solvency statement in relation to such redemption in accordance with the Singapore Companies Act; • whether listed (on an approved exchange in Singapore or any securities exchange outside Singapore) or not, make an off-market purchase of its own shares in accordance with an equal access scheme authorized in advance at a general meeting; • whether listed on a securities exchange (in Singapore or outside Singapore) or not, make a selective off-market purchase of its own shares in accordance with an agreement authorized in advance at a general meeting by a special resolution where persons whose shares are to be acquired and their associated persons have abstained from voting; and • whether listed (on an approved exchange in Singapore or any securities exchange outside Singapore) or not, make an acquisition of its own shares under a contingent purchase contract which has been authorized in advance at a general meeting by a special resolution. Kenon may also purchase its own shares by an order of a Singapore court. The total number of ordinary shares that may be acquired by Kenon in a relevant period may not exceed 20% of the total number of ordinary shares in that class as of the date of the resolution pursuant to the relevant share repurchase provisions under the Singapore Companies Act. Where, however, Kenon has reduced its share capital by a special resolution or a Singapore court made an order to such effect, the total number of ordinary shares shall be taken to be the total number of ordinary shares in that class as altered by the special resolution or the order of the court. Payment must be made out of Kenon’s distributable profits or capital, provided that Kenon is solvent. Such payment may include any expenses (including brokerage or commission) incurred directly in the purchase or acquisition by Kenon of its ordinary shares. Financial assistance for the acquisition of shares Kenon may not give financial assistance to any person whether directly or indirectly for the purpose of: • the acquisition or proposed acquisition of shares in Kenon or units of such shares; or • the acquisition or proposed acquisition of shares in its holding company or ultimate holding company, as the case may be, or units of such shares. Financial assistance may take the form of a loan, the giving of a guarantee, the provision of security, the release of an obligation, the release of a debt or otherwise. However, Kenon may provide financial assistance for the acquisition of its shares or shares in its holding company if it complies with the requirements (including, where applicable, approval by the board of directors or by the passing of a special resolution by its shareholders) set out in the Singapore Companies Act. Our constitution provides that subject to the provisions of the Singapore Companies Act, we may purchase or otherwise acquire our own shares upon such terms and subject to such conditions as we may deem fit. These shares may be held as treasury shares or cancelled as provided in the Singapore Companies Act or dealt with in such manner as may be permitted under the Singapore Companies Act. On cancellation of the shares, the rights and privileges attached to those shares will expire. | |
Transactions with Officers and Directors | ||
Under the Delaware General Corporation Law, some contracts or transactions in which one or more of a corporation’s directors has an interest are not void or voidable because of such interest provided that some conditions, such as obtaining the required approval and fulfilling the requirements of good faith and full disclosure, are met. Under the Delaware General Corporation Law, either (a) the stockholders or the board of directors must approve in good faith any such contract or transaction after full disclosure of the material facts or (b) the contract or transaction must have been “fair” as to the corporation at the time it was approved. If board approval is sought, the contract or transaction must be approved in good faith by a majority of disinterested directors after full disclosure of material facts, even though less than a majority of a quorum. | Under the Singapore Companies Act, the chief executive officer and directors are not prohibited from dealing with Kenon, but where they have an interest in a transaction with Kenon, that interest must be disclosed to the board of directors. In particular, the chief executive officer and every director who is in any way, whether directly or indirectly, interested in a transaction or proposed transaction with Kenon must, as soon as practicable after the relevant facts have come to such officer or director’s knowledge, declare the nature of such officer or director’s interest at a board of directors’ meeting or send a written notice to Kenon containing details on the nature, character and extent of his interest in the transaction or proposed transaction with Kenon. In addition, a director or chief executive officer who holds any office or possesses any property which, directly or indirectly, duties or interests might be created in conflict with such officer’s duties or interests as director or chief executive officer, is required to declare the fact and the nature, character and extent of the conflict at a meeting of directors or send a written notice to Kenon containing details on the nature, character and extent of the conflict. The Singapore Companies Act extends the scope of this statutory duty of a director or chief executive officer to disclose any interests by pronouncing that an interest of a member of the director’s or, as the case may be, the chief executive officer’s family (including spouse, son, adopted son, step-son, daughter, adopted daughter and step-daughter) will be treated as an interest of the director. There is however no requirement for disclosure where the interest of the director or chief executive officer (as the case may be) consists only of being a member or creditor of a corporation which is interested in the proposed transaction with Kenon if the interest may properly be regarded as immaterial. Where the proposed transaction relates to any loan to Kenon, no disclosure need be made where the director or chief executive officer has only guaranteed or joined in guaranteeing the repayment of such loan, unless the constitution provides otherwise. Further, where the proposed transaction is to be made with or for the benefit of a related corporation (i.e. the holding company, subsidiary or subsidiary of a common holding company) no disclosure need be made of the fact that the director or chief executive officer is also a director or chief executive officer of that corporation, unless the constitution provides otherwise. Subject to specified exceptions, including a loan to a director for expenditure in defending criminal or civil proceedings, etc. or in connection with an investigation, or an action proposed to be taken by a regulatory authority in connection with any alleged negligence, default, breach of duty or breach of trust by him in relation to Kenon, the Singapore Companies Act prohibits Kenon from: (i) making a loan or quasi-loan to its directors or to directors of a related corporation (each, a “relevant director”); (ii) giving a guarantee or security in connection with a loan or quasi-loan made to a relevant director by any other person; (iii) entering into a credit transaction as creditor for the benefit of a relevant director; (iv) giving a guarantee or security in connection with such credit transaction entered into by any person for the benefit of a relevant director; (v) taking part in an arrangement where another person enters into any of the transactions in (i) to (iv) above or (vi) below and such person obtains a benefit from Kenon or a related corporation; or (vi) arranging for the assignment to Kenon or assumption by Kenon of any rights, obligations or liabilities under a transaction in (i) to (v) above. Kenon is also prohibited from entering into the transactions in (i) to (vi) above with or for the benefit of a relevant director’s spouse or children (whether adopted or naturally or step-children). | |
Dissenters’ Rights | ||
Under the Delaware General Corporation Law, a stockholder of a corporation participating in some types of major corporate transactions may, under varying circumstances, be entitled to appraisal rights pursuant to which the stockholder may receive cash in the amount of the fair market value of his or her shares in lieu of the consideration he or she would otherwise receive in the transaction. | There are no equivalent provisions under the Singapore Companies Act. | |
| Cumulative Voting | ||
| Under the Delaware General Corporation Law, a corporation may adopt in its bylaws that its directors shall be elected by cumulative voting. When directors are elected by cumulative voting, a stockholder has the number of votes equal to the number of shares held by such stockholder times the number of directors nominated for election. The stockholder may cast all of such votes for one director or among the directors in any proportion. | There is no equivalent provision under the Singapore Companies Act in respect of companies incorporated in Singapore. | |
Anti-Takeover Measures | ||
Under the Delaware General Corporation Law, the certificate of incorporation of a corporation may give the board the right to issue new classes of preferred stock with voting, conversion, dividend distribution, and other rights to be determined by the board at the time of issuance, which could prevent a takeover attempt and thereby preclude shareholders from realizing a potential premium over the market value of their shares In addition, Delaware law does not prohibit a corporation from adopting a stockholder rights plan, or “poison pill,” which could prevent a takeover attempt and also preclude shareholders from realizing a potential premium over the market value of their shares. | The constitution of a Singapore company typically provides that the company may allot and issue new shares of a different class with preferential, deferred, qualified or other special rights as its board of directors may determine with the prior approval of the company’s shareholders in a general meeting. Our constitution provides that our shareholders may grant to our board the general authority to issue such preference shares until the next general meeting. For further information, see “Item 3.D Risk Factors—Risks Relating to Our Ordinary Shares—Our directors have general authority to allot and issue new shares on terms and conditions and with any preferences, rights or restrictions as may be determined by our board of directors in its sole discretion, which may dilute our existing shareholders. We may also issue securities that have rights and privileges that are more favorable than the rights and privileges accorded to our existing shareholders” and “—Preference Shares.” Singapore law does not generally prohibit a corporation from adopting “poison pill” arrangements which could prevent a takeover attempt and also preclude shareholders from realizing a potential premium over the market value of their shares. However, under the Singapore Code on Take-overs and Mergers, if, in the course of an offer, or even before the date of the offer announcement, the board of the offeree company has reason to believe that a bona fide offer is imminent, the board must not, except pursuant to a contract entered into earlier, take any action, without the approval of shareholders at a general meeting, on the affairs of the offeree company that could effectively result in any bona fide offer being frustrated or the shareholders being denied an opportunity to decide on its merits. For further information on the Singapore Code on Take-overs and Mergers, see “—Takeovers.” | |
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| C. | Material Contracts |
For information concerning our material contracts, see “Item 4. Information on the Company”Company” and “Item“Item 5. Operating and Financial Review and Prospects.”
| D. | Exchange Controls |
There are currently no exchange control restrictions in effect in Singapore.
| E. | Taxation |
The following summary of the United States federal income tax and Singapore tax consequencesconsiderations of ownership and disposition of our ordinary shares is based upon laws, regulations, decrees, rulings, income tax conventions (treaties), administrative practice and judicial decisions in effect at the date of this annual report. Legislative, judicial or administrative changes or interpretations may, however, be forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may be retroactive and could affect the tax consequences to holders of our ordinary shares. This summary does not purport to be a legal opinion or to address all tax aspects that may be relevant to a holder of our ordinary shares. Each prospective holder is urged toshould consult its tax adviser as to the particular tax consequencesconsiderations to such holder of the ownership and disposition of our ordinary shares, including the applicability and effect of any other tax laws or tax treaties, of pending or proposed changes in applicable tax laws as of the date of this annual report, and of any actual changes in applicable tax laws after such date.
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U.S. Federal Income Tax Considerations
The following summarizes U.S. federal income tax considerations of owning and disposing of our ordinary shares. This summary applies only to U.S. Holders that hold our ordinary shares as capital assets (generally, property held for investment) and that have the U.S. Dollar as theirits functional currency.
This summary is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder and on judicial and administrative interpretations of the Code and the Treasury regulations, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect.effect and could affect the tax considerations described below. This summary does not purport to be a complete description of the consequences of the transactions described in this annual report, nor does it address the application of estate, gift or other non-income U.S. federal tax lawsconsiderations or any state, local or foreign tax laws.considerations. Moreover, this summary does not address all the tax consequencesconsiderations that may be relevant to holders of our ordinary shares in light of theirits particular circumstances, including the alternative minimum tax, the Medicare tax on certain investment income and special rules that apply to certain holders such as (but not limited to):
persons that are not U.S. Holders;
persons that are subject to alternative minimum taxes;
insurance companies;
cooperatives;
pension plans;
regulated investment companies;
real estate investment trusts;
tax-exempt entities;
banks and other financial institutions;
broker-dealers;
pass-through entities;
persons that hold our ordinary shares through partnerships (or other entities classified as partnerships for U.S. federal income tax purposes);
persons that actually or constructively own 10% or more of the total combined voting power of all classes of our voting stock or 10% or more of the total value of shares of all classes of our stock;
traders in securities that elect to apply a mark-to-market method of accounting, holdersaccounting;
investors that will hold our ordinary shares as part of a “hedge,” “straddle,” “conversion,” “constructive sale” or other risk reductionintegrated transaction for U.S. federal income tax purposes;
investors that have a functional currency other than the U.S. dollar; and
individuals who receive our ordinary shares upon the exercise of compensatory options or otherwise as compensation.
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Moreover, no advance rulings have been or will be sought from the U.S. Internal Revenue Service, or IRS, regarding any matter discussed in this annual report, and counsel to Kenon has not rendered any opinion with respect to any of the U.S. federal income tax consequencesconsiderations relating to the transactions addressed herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below.
HOLDERS AND PROSPECTIVE INVESTORS SHOULD CONSULT THEIRITS TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIRITS PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of our ordinary shares that is, for U.S. federal income tax purposes:
an individual who is a citizen or resident of the United States;
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized in the United States or under the laws of the United States or any state thereof or the District of Columbia;
an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust that (1)(i) is subject to the primary supervision of a U.S. court within the United States and the control ofwhich has one or more U.S. persons forwho have the authority to control all substantial decisions of the trust or (2)(ii) that has a valid election in effect under applicable U.S. Treasury regulationsotherwise validly elected to be treated as a U.S. person.person under the Code.
If a partnership (or other entity taxable as a partnership for U.S. federal income tax purposes) holdsis a beneficial owner of our ordinary shares, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnershipPartnerships holding our ordinary shares youand its partners should consult yourits tax advisor.advisors regarding an investment in our ordinary shares.
Taxation of Dividends and Other Distributions on the Ordinary Shares
Distributions treated as dividends that are received by individuals and other non-corporate U.S. Holders from “qualified foreign corporations” generally qualify for a reduced maximum tax rate so long as certain holding period and other requirements are met. Dividends paid on our ordinary shares, should qualify for the reduced rate if we are treated as a “qualified foreign corporation.” For this purpose, a qualified foreign corporation means any foreign corporation provided that: (i) the corporation was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a PFIC (as discussed below), (ii) certain holding period requirements are met and (iii) either (A) the corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the IRS has approved for the purposes of the qualified dividend rules or (B) the stock with respect to which such dividend was paid is readily tradable on an established securities market in the United States. The United States does not currently have a comprehensive income tax treaty with Singapore. However, the ordinary shares should be considered to be readily tradable on established securities markets in the United States if they are listed on the NYSE. Therefore, we expect that our ordinary shares should generally be considered to be readily tradable on an established securities market in the United States, and we expect that dividends with respect to such ordinary shares should qualify for the reduced rate. U.S. Holders are encouraged toshould consult theirits tax advisors regarding the availability of the lower rate for dividends paid with respect to our ordinary shares.
Dividends on our ordinary shares received by a U.S. Holder will generally be treated as foreign source income for U.S. foreign tax credit purposes. The rules with respect to foreign tax credits are complex and U.S. Holders should consult theirits tax advisors regarding the availability of the foreign tax credit in theirits particular circumstances.
Taxation of Dispositions of the Ordinary Shares
The amount realized on a sale or other taxable disposition of our ordinary shares in exchange for foreign currency will generally will equal the U.S. Dollar value of the foreign currency at the spot exchange rate in effect on the date of sale or other taxable disposition or, if the ordinary shares are traded on an established securities market (such as the NYSE or the TASE), in the case of a cash method or electing accrual method U.S. Holder of our ordinary shares, the settlement date. A U.S. Holder will have a tax basis in the foreign currency received equal to the U.S. Dollar amount realized. Any gain or loss realized by a U.S. Holder on a subsequent conversion or other disposition of the foreign currency will be foreign currency gain or loss, which is treated as U.S. source ordinary income or loss for foreign tax credit purposes.
Passive Foreign Investment Company
In general, a non-U.S. corporation, such as our company, will be classified as a passive foreign investment company, or PFIC for U.S. federal income tax purposes for any taxable year in whichif either (i) 75% or more of its gross income consists of certain types of “passive”for such year is passive income or (ii) 50% or more of the fair market value (determined on the basis of a quarterly average) of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income. For this purpose, cash is categorized as a passive asset and our unbooked intangibles will be taken into account and generally treated as non-passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the shares.
We do not believe that we were a PFIC for the taxable year ended December 31, 2020,2021, but, based on current business plans and financial expectations, we mayexpect that we will be a PFIC for our current taxable year ending December 31, 2022 and anyfor foreseeable future taxable year.years. Our status as a PFIC in any year depends on our assets and activities in that year. The sale of the Inkia Business, the investment in Qoros by the Majority Shareholder in Qoros in 2018 (which reduced our equity interest in Qoros to 24%), the sale of half of our then remaining interest in Qoros to the Majority Shareholder in Qoros in April 2020 (which reduced our equity interest in Qoros to 12%) and the expected sale of all of our remaining interest in Qoros to the Majority Shareholder in Qoros in April 2021 (which will eliminate our equity interest in Qoros) each may increase the value of our assets that produce, or are held for the production of, passive income and/or our passive income and result in us becoming a PFIC for our current, and any future, taxable year. Similarly, after ZIM completed its initial public offering in February 2021 (which reduced our equity interest in ZIM to 28%) and after we completed sales of our ZIM shares between September and November 2021 (which reduced our equity interest in ZIM to 26%) and in March 2022 (which reduced our equity interest in ZIM to approximately 20%), any furtherour equity interest in ZIM fell below 25%. The reduction in our equity interest in ZIM to or below 25% maylimits our ability to treat our proportionate share of ZIM’s businesses and earnings as directly owned, which is likely to increase the value of our assets that produce, or are held for the production of, passive income and/or our passive income, and resultresults in us becoming a PFIC for our current, and any foreseeable future taxable year.years. The determination of PFIC status, however, is factual in nature and generally cannot be made until the close of the taxable year, andyear. Thus, there can be no assurance that we will not be considered a PFIC for any taxable year.
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If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares, we will generally continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which the holder holds our ordinary shares. However, if we cease to meet the threshold requirements for PFIC status, provided that the U.S. Holder has not made a QEF Election or a Mark-to-Market Election, as described below, such holder may avoid some of the adverse effects of the PFIC regime by making a “deemed sale” election with respect to our ordinary shares held by such U.S. Holder. If such election is made, the U.S. Holder will be deemed to have sold our ordinary shares it holds on the last day of the last taxable year in which we were classified as a PFIC at its fair market value and any gain from such deemed sale will be taxed under the PFIC rules described above. After the deemed sale election, so long as we do not become classified as a PFIC in a subsequent taxable year, the ordinary shares with respect to which such election was made will not be treated as shares in a PFIC and the U.S. Holder will not be subject to the PFIC rules described above with respect to any “excess distribution” received from us or any gain from an actual sale or other disposition of the ordinary shares. The rules dealing with deemed sale elections are very complex. U.S. Holders of our ordinary shares should consult its tax advisors as to the possibility and consequences of making a deemed sale election if we cease to be classified as a PFIC and such election becomes available.
If a U.S. Holder owns our ordinary shares during any taxable year that we are a PFIC, such U.S. Holder may be subject to certain reporting obligations with respect to our ordinary shares, including annual reporting on IRS Form 8621 regarding distributions received on, and any gain realized on the disposition of, our ordinary shares. U.S. Holders should consult its tax advisor regarding our PFIC status and the U.S. federal income tax consequences of owning and disposing of our ordinary shares if we are, or become, classified as a PFIC, including the possibility of making a QEF Election, Mark-to-Market Election or deemed sale election.
The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules (including the applicability and advisability of a QEF Election and Mark-to-Market Election) and how the PFIC rules may affect the U.S. federal income tax consequences of the ownership, and disposition of our ordinary shares.
Default PFIC Rules
If we are a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the ownership, and disposition of our ordinary shares will depend on whether such U.S. Holder makes a “qualified electing fund” or “QEF” election (a “QEF Election”) or makes a mark-to-market election (a “Mark-to-Market Election”) with respect to our ordinary shares. A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election (a “Non-Electing U.S. Holder”) will be taxable as described below.
A Non-Electing U.S. Holder will be subject to the PFIC rules with respect to (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ordinary shares), and (ii) any gain realized on the sale or other disposition of our ordinary shares. In addition, dividends paid in respect of our ordinary shares would not be eligible for the lower tax rate described under “—Taxation of Dividends and Other Distributions on the Ordinary Shares” above. U.S. Holders should consult its tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
Under the PFIC rules:
the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares;
the amount allocated to the taxable year of the excess distribution, sale or other disposition and to any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income;
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the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year.
QEF Election
A U.S. Holder that makes a QEF Election for the first tax year in which its holding period of its ordinary shares begins generally will not be subject to the adverse PFIC rules discussed above with respect to its ordinary shares. However, a U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) our net capital gain, which will be taxed as long-term capital gain to such U.S. Holder, and (b) our ordinary earnings, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which we are a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by us. However, for any tax year in which we are a PFIC and have no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.
A U.S. Holder that makes a timely QEF Election generally (a) may receive a tax-free distribution from us to the extent that such distribution represents “earnings and profits” that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of ordinary shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” for purposes of avoiding the default PFIC rules discussed above if such QEF Election is made for the first year in the U.S. Holder’s holding period for the ordinary shares in which we were a PFIC. The QEF Election is made on a shareholder-by-shareholder basis and, once made, can only be revoked with the consent of the IRS. A U.S. Holder generally makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed U.S. federal income tax return for the year to which the election relates.
A QEF Election will apply to the tax year for which such QEF Election is made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, we cease to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which we are not a PFIC. Accordingly, if we become a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which we qualify as a PFIC.
In order to comply with the requirements of a QEF Election, a U.S. Holder must receive a PFIC annual information statement from us. If we determine we are a PFIC for our 2022 taxable year, we will endeavor to provide U.S. Holders such information as the IRS may require, including a PFIC annual information statement, in order to enable U.S. Holders to make a QEF Election and will endeavor to cause each direct and indirect subsidiary that we control that is a PFIC to provide such information with respect to such subsidiary. However, there is no assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information to be provided. We have not determined if we will provide U.S. Holders such information for any subsequent taxable year.
If we do not provide the required information with regard to us or any of our Subsidiary PFICs for any taxable year, U.S. Holders will not be able to make or maintain a QEF Election for such entity and will continue to be subject to the PFIC rules discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions.
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Mark-to-Market Election
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election.Mark-to-Market Election with respect to such stock. A mark-to-market electionMark-to-Market Election may be made with respect to our ordinary shares, provided they are actively traded, defined for this purpose as being traded on a “qualified exchange,” other than in de minimis quantities, on at least 15 days during each calendar quarter. We anticipate that our ordinary shares should qualify as being actively traded, but no assurances may be given in this regard. If a U.S. Holder of our ordinary shares makes this election with respect to our ordinary shares, the U.S. Holder will generally (i) include as ordinary income for each taxable year that we are classified as a PFIC the excess, if any, of the fair market value of our ordinary shares held at the end of the taxable year over the adjusted tax basis of such ordinary shares and (ii) deduct as aan ordinary loss in each such taxable year the excess, if any, of the adjusted tax basis of our ordinary shares over the fair market value of such ordinary shares held at the end of the taxable year, but such deduction will only be allowed to the extent of the net amount previously included in income as a result of the mark-to-market election.Mark-to-Market Election. The U.S. Holder’s adjusted tax basis in our ordinary shares would be adjusted to reflect any income or loss resulting from the mark-to-market election.Mark-to-Market Election. If a U.S. Holder makes a Mark-to-Market Election in respect of our ordinary shares and we cease to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that we are not classified as a PFIC. In addition, any gain such U.S. Holder recognizes upon the sale or other taxable disposition of our ordinary shares in a year when we are classified as a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.Mark-to-Market Election. If a U.S. Holder makes a mark-to-market electionMark-to-Market Election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the U.S. Holder will not be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC. In the case of a U.S. Holder who has held our ordinary shares during any taxable year in respect of which we were classified as a PFIC and continues to hold such ordinary shares (or any portion thereof) and has not previously made a mark-to-market election,Mark-to-Market Election, and who is considering making a mark-to-market election,Mark-to-Market Election, special tax rules may apply relating to purging the PFIC taint of such ordinary shares. Because a mark-to-market electionMark-to-Market Election cannot technically be made for any lower-tierSubsidiary PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
8621 to a timely filed U.S. federal income tax return. A timely Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the securities cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax adviser concerningadvisor regarding the U.S. federal income tax consequencesavailability of, purchasing, holding, and disposing of our ordinary shares, including the possibility ofprocedure for making, a mark-to-market election, if we are or become classified as a PFIC.Mark-to-Market Election.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSIDERATIONS SET OUT ABOVE IS FOR GENERAL INFORMATIONAL PURPOSES ONLY. YOU SHOULD CONSULT YOUR TAX ADVISOR ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO YOUR PARTICULAR CIRCUMSTANCE AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES OF OWNING AND DISPOSING OF OUR ORDINARY SHARES.
Material Singapore Tax Considerations
The following discussion is a summary of Singapore income tax, goods and services tax, or GST, stamp duty and estate duty considerations relevant to the acquisition, ownership and disposition of our ordinary shares by an investor who is not tax resident or domiciled in Singapore and who does not carry on business or otherwise have a presence in Singapore. The statements made herein regarding taxation are general in nature and based upon certain aspects of the current tax laws of Singapore and administrative guidelines issued by the relevant authorities in force as of the date hereof and are subject to any changes in such laws or administrative guidelines or the interpretation of such laws or guidelines occurring after such date, which changes could be made on a retrospective basis. The statements made herein do not purport to be a comprehensive or exhaustive description of all of the tax considerations that may be relevant to a decision to acquire, own or dispose of our ordinary shares and do not purport to deal with the tax consequencesconsiderations applicable to all categories of investors, some of which (such as dealers in securities) may be subject to special rules. Prospective shareholders are advised toshould consult theirits tax advisers as to the Singapore or other tax consequencesconsiderations of the acquisition, ownership or disposal of our ordinary shares, taking into account theirits own particular circumstances. The statements below are based upon the assumption that Kenon is a tax resident in Singapore for Singapore income tax purposes. It is emphasized that neither Kenon nor any other persons involved in this annual report accepts responsibility for any tax effects or liabilities resulting from the acquisition, holding or disposal of our ordinary shares.
Income Taxation Under Singapore Law
Dividends or Other Distributions with Respect to Ordinary Shares
Under the one-tier corporate tax system which currently applies to all Singapore tax resident companies, tax on corporate profits is final, and dividends paid by a Singapore tax resident company are not subject to withholding tax and will be tax exempt in the hands of a shareholder, whether or not the shareholder is a company or an individual and whether or not the shareholder is a Singapore tax resident.
Capital Gains upon Disposition of Ordinary Shares
Under current Singapore tax laws, there is no tax on capital gains. There are no specific laws or regulations which deal with the characterization of whether a gain is income or capital in nature. Gains arising from the disposal of our ordinary shares may be construed to be of an income nature and subject to Singapore income tax, if they arise from activities which the Inland Revenue Authority of Singapore regards as the carrying on of a trade or business in Singapore. However, under Singapore tax laws and subject to certain exceptions, any gains derived by a divesting company from its disposal of ordinary shares in an investee company between June 1, 2012 and December 31, 2027 are generally not taxable if immediately prior to the date of the relevant disposal, the investing company has held at least 20% of the ordinary shares in the investee company for a continuous period of at least 24 months (“safe harbor rule”).
Goods and Services Tax
The issue or transfer of ownership of our ordinary shares should be exempt from Singapore GST. Hence, the holders would not incur any GST on the subscription or subsequent transfer of the shares.
Stamp Duty
Where our ordinary shares evidenced in certificated forms are acquired in Singapore, stamp duty is payable on the instrument of their transfer at the rate of 0.2% of the consideration for or market value of our ordinary shares, whichever is higher.
Where an instrument of transfer is executed outside Singapore or no instrument of transfer is executed, no stamp duty is payable on the acquisition of our ordinary shares. However, stamp duty may be payable if the instrument of transfer is executed outside Singapore and is received in Singapore. The stamp duty is borne by the purchaser unless there is an agreement to the contrary.
On the basis that any transfer instruments in respect of our ordinary shares traded on the NYSE and the TASE are executed outside Singapore through our transfer agent and share registrar in the United States for registration in our branch share register maintained in the United States (without any transfer instruments being received in Singapore), no stamp duty should be payable in Singapore on such transfers.
Tax Treaties Regarding Withholding Taxes
There is no comprehensive avoidance of double taxation agreement between the United States and Singapore which applies to withholding taxes on dividends or capital gains.
| F. | Dividends and Paying Agents |
Not applicable.
| G. | Statement by Experts |
Not applicable.
| H. | Documents on Display |
Our SEC filings are available to you on the SEC’s website at http://www.sec.gov. This site contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The information on that website is not part of this report. We also make available on our website free of charge, our annual reports on Form 20-F and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. We maintain a corporate website at http://www.kenon-holdings.com. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report on Form 20-F. We have included our website address in this annual report solely as an inactive textual reference.
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As a foreign private issuer, we will be exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, for so long as we are listed on the NYSE, or any other U.S. exchange, and are registered with the SEC, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm. We also submit to the SEC on Form 6-K the interim financial information that we publish.
| I. | Subsidiary Information |
Not applicable.
| ITEM | Quantitative and Qualitative Disclosures about Market Risk |
Our multinational operations expose us to a variety of market risks, which embody the potential for changes in the fair value of the financial instruments or the cash flows deriving from them. Our risk management policies and those of each of our businesses seek to limit the adverse effects of these market risks on the financial performance of each of our businesses and, consequently, on our consolidated financial performance. Each of our businesses bear responsibility for the establishment and oversight of their financial risk management framework and have adopted individualized risk management policies to address those risks specific to their operations.
Our primary market risk exposures are to:
currency risk, as a result of changes in the rates of exchange of various foreign currencies (in particular, the Euro and the New Israeli Shekel) in relation to the U.S. Dollar, our functional currency and the currency against which we measure our exposure;
index risk, as a result of changes in the Consumer Price Index;
interest rate risk, as a result of changes in the market interest rates affecting certain of our businesses’ issuance of debt and related financial instruments; and
price risk, as a result of changes in market prices, such as the price of certain commodities (e.g., natural gas and heavy fuel oil).
For further information on our market risks and the sensitivity analyses of these risks, see Note 30—28—Financial Instruments to our financial statements included in this annual report.
| ITEM | Description of Securities Other than Equity Securities |
| A. | Debt Securities |
Not applicable.
| B. | Warrants and Rights |
Not applicable.
| C. | Other Securities |
Not applicable.
| D. | American Depositary Shares |
Not applicable.
| ITEM | Defaults, Dividend Arrearages and Delinquencies |
None.
| ITEM | Material Modifications to the Rights of Security Holders and Use of Proceeds |
None.
| ITEM | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this annual report, as required by Rule 13a-15(b) under the Exchange Act. Based upon this evaluation, our management, with the participation of our chief executive officer and chief financial officer, has concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in by the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. These rules define internal control over financial reporting as a process designed by, or under the supervision of, a company’s chief executive officer and chief financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (1)(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
In January 2021, our subsidiary OPC completed the acquisition of CPV. Management considered the facts and circumstances of the material business combination, and has excluded CPV in its assessment of internal control over financial reporting as of December 31, 2021, as permitted by the SEC.
Our management has assessed the design and operating effectiveness of our internal control over financial reporting as of December 31, 2020.2021. This assessment was performed under the direction and supervision of our chief executive officer and chief financial officer, and based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management concluded that as of December 31, 2020,2021, our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 20202021 has been audited by our independent registered public accounting firm and their report thereon is included elsewhere in this annual report.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2020,2021, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In January 2021, our subsidiary OPC completed the acquisition of CPV. Management considered the facts and circumstances of the material business combination, and has excluded CPV in its assessment of internal control over financial reporting as of December 31, 2021, as permitted by the SEC.
Inherent Limitations of Disclosure Controls and Procedures in Internal Control over Financial Reporting
It should be noted that any system of controls, however well-designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Projections regarding the effectiveness of a system of controls in future periods are subject to the risk that such controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures.
| ITEM |
| ITEM | Audit Committee Financial Expert |
Our board of directors has determined that Mr. Laurence N. Charney is an “audit committee financial expert” as defined in Item 16A of Form 20-F under the Exchange Act. Our board of directors has also determined that Mr. Laurence N. Charney satisfies the NYSE’s listed company “independence” requirements.
| ITEM | Code of Ethics |
We have adopted a Code of Ethics that applies to all our employees, officers and directors, including our chief executive officer and our chief financial officer. Our Code of Conduct is available on our website at www.kenon-holdings.com.
| ITEM | Principal Accountant Fees and Services |
KPMG LLP, a member firm of KPMG International, is our independent registered public accounting firm for the audits of the years ending December 31, 20202021 and 2019.2020.
Our audit committee charter requires that all audit and non-audit services provided by our independent auditors are pre-approved by our audit committee. In particular, pursuant to our audit committee charter, the chairman of the audit committee shall pre-approve all audit services to be provided to Kenon, whether provided by our independent registered public accounting firm or other firms, and all other services (review, attest and non-audit) to be provided to Kenon by the independent registered public accounting firm. Any decision of the chairman of the audit committee to pre-approve audit or non-audit services shall be presented to the audit committee.
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The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by KPMG LLP, and other member firms within the KPMG network, for the years ended December 31, 2021 and 2020 for Kenon and its consolidated entities. The figures below have been updated from Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2020 and 2019.in accordance with Section 14(a) of the Exchange Act.
Year ended December 31, | Year ended December 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
| (in thousands of USD) | (in thousands of USD) | |||||||||||||||
Audit Fees1 | 3,052 | 3,426 | 3,054 | 1,351 | ||||||||||||
| Audit-Related Fees | 25 | 71 | 3 | 14 | ||||||||||||
Tax Fees2 | 1,351 | 841 | 295 | 462 | ||||||||||||
| All Other Fees | 77 | 42 | ||||||||||||||
| Total | 4,505 | 4,380 | 3,352 | 1,827 | ||||||||||||
Includes fees billed or accrued for professional services rendered by the principal accountant, and member firms in their respective network, for the audit of our annual financial statements, and those of our consolidated subsidiaries, as well as additional services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements, except for those not required by statute or regulation. |
Tax fees consist of fees for professional services rendered during the fiscal year by the principal accountant mainly for tax compliance and assistance with tax audits and appeals. |
| ITEM | Exemptions from the Listing Standards for Audit Committees |
None.
| ITEM | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
None.
| ITEM | Change in Registrant’s Certifying Accountant |
None.
| ITEM | Corporate Governance |
There are no significant differences between Kenon’s corporate governance practices and those followed by domestic companies under the listing standards of the NYSE. As a foreign private issuer, we are permitted to follow home country practice in lieu of the requirement to have a nominating and corporate governance committee comprised entirely of independent directors. One of the members of our nominating and corporate governance committee is non-independent under NYSE standards and accordingly we rely on the NYSE exemption for foreign private issuers in this respect.
| ITEM | Mine Safety Disclosure |
Not applicable.
| ITEM | Financial Statements |
Not applicable.
| ITEM | Financial Statements |
The financial statements and the related notes required by this Item 18 are included in this annual report beginning on page F-1. See Exhibit 15.4 of this annual report on Form 20-F for the consolidated financial statements of ZIM, incorporated by reference in this annual report on Form 20-F.
| ITEM | Exhibits |
Index to Exhibits
Exhibit Number | Description of Document | ||
184
Number | Description of Document | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Inline XBRL for the cover page of this Annual Report on Form 20-F, included in the Exhibit 101 Inline XBRL Document Set. |
| * | Filed herewith. |
(1) | Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Exchange Act. Omitted information has been filed separately with the SEC. |
(2) | Portions of this exhibit have been omitted because they are both (i) not material and (ii) would be competitively harmful if publicly disclosed. |
Kenon Holdings Ltd. and subsidiaries
Consolidated Financial Statements
As at December 31, 20202021 and 20192020 and for the three years ended December 31, 20202021
Kenon Holdings Ltd.
Consolidated Financial Statements
as at December 31, 20202021 and 20192020 and for the three years ended December 31, 20202021
Contents
Page | |
Reports of Independent Registered Public Accounting Firms (PCAOB ID No. 1051) | F-1 – F-4 |
F-5 – F-6 | |
F-7 | |
F-8 | |
F-9 – F-11 | |
F-12 – F-13 | |
F-14 – F- |
  | KPMG LLP | Telephone | +65 6213 3388 |
16 Raffles Quay #22-00 | Fax | +65 6225 0984 | |
Hong Leong Building | Internet | www.kpmg.com.sg | |
Singapore 048581 |
To the Stockholders and Board of Directors
Kenon Holdings Ltd.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of Kenon Holdings Ltd. and subsidiaries (the Company) as of December 31, 20202021 and 2019,2020, the related consolidated statements of profit and loss, other comprehensive income, changes in equity, and cash flows for each of the years in the three year period ended December 31, 2020,2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202021 and 2019,2020, and the results of its operations and its cash flows for each of the years in the three yearthree-year period ended December 31, 2020,2021, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020,2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 19, 2021March 31, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinionsopinion on the critical audit matter or on the accounts or disclosures to which they relate.
KPMG LLP (Registration No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A) and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. |
F - 1
Evaluation of fair value of the Qoros equity interestsidentified assets acquired and liabilities assumed
As discussed in Notes 2.D.1 9.B.b.3 and 30.E.(3)10.A.1.i. to the consolidated financial statements, on January 25 2021, the Company completed the sale of half of its 24% interest in Qoros in April 2020. Following the sale, the Company’s remaining 12% interest in Qoros (the Qoros equity interests), together with the non-current portionacquired 70% of the put option pertaining torights and holdings in CPV Power Holdings LP; Competitive Power Ventures Inc.; and CPV Renewable Energy Company Inc. through the Qoros equity interests was accounted for on a fair value basis through profit or loss and classified in limited partnership, CPV Group LP (“the balance sheet as a long-term investment. As at December 31, 2020, theCPV Group”). The fair value of the long-term investment amounted to $235identified assets acquired and liabilities assumed of $580 million a portionincluded property, plant, and equipment, investments in associated companies and intangible assets of which related tothe CPV Group. The valuation technique used for measuring the fair valuevalues of the Qoros equity interests. To estimateproperty, plant and equipment, investments in associated companies and intangible assets on the fairtransaction completion date is the income approach, a present value of the Qoros equity interests, the Company utilizestechnique to convert future amounts to a market comparison technique based on market multiples derived from the quoted prices of companies comparable to Qoros, taking into consideration certain adjustments including the effect of the non-marketability of the Qoros equity interests.single current amount using relevant discount rates.
We identified the evaluation of the transaction completion date fair valuevalues of the Qoros equity interestsproperty, plant and equipment, investments in associated companies and intangible assets of the CPV Group as a critical audit matter. A high degree of auditor judgement was neededrequired in evaluating the discount rates used to estimate the fair values of these assets. Minor changes to the discount rates could have had a significant effect on the Company’s evaluation of the transaction completion date fair values. Additionally, the audit effort to evaluate the selection of the comparable companies used in the valuation modeldiscount rates required specialized skills and market multiples of the selected comparable companies for the determination of the fair value of the Qoros equity interests.knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of thecertain internal controlcontrols related to the Company’s process to evaluatein the selectiondetermination of the comparable companies used in the valuation modeldiscount rates to determineestimate the fair valuevalues of the Qoros equity interests. Weproperty, plant and equipment, investments in associated companies and intangible assets. In addition, we involved valuation professionals with specialized skills and knowledge who assisted in:in evaluating such discount rates, by comparing such discount rates used by the Company against discount rate ranges that were independently developed utilizing publicly available market data for comparable entities.
/s/ KPMG LLP
KPMG LLP
Public Accountants and
Chartered Accountants
We have served as the Company’s auditor since 2015.
Singapore
F - 2
| KPMG LLP | Telephone | +65 6213 3388 |
16 Raffles Quay #22-00 | Fax | +65 6225 0984 | |
Hong Leong Building | Internet | www.kpmg.com.sg | |
Singapore 048581 |
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Kenon Holdings Ltd:
Opinion on Internal Control Over Financial Reporting
We have audited Kenon Holdings LtdLtd. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020,2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 20202021 and 2019,2020, the related consolidated statements of profit and loss, other comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2020,2021, and the related notes (collectively, the consolidated financial statements), and our report dated April 19, 2021March 31, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
F - 3
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
KPMG LLP
Public Accountants and
Chartered Accountants
F - 4
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Financial Position as at December 31, 20202021 and 20192020
As at December 31, | |||||||||||
2021 | 2020 | ||||||||||
Note | $ Thousands | ||||||||||
Current assets | |||||||||||
Cash and cash equivalents | 5 | 474,544 | 286,184 | ||||||||
Short-term deposits and restricted cash | 6 | 229 | 564,247 | ||||||||
Trade receivables | 62,643 | 47,948 | |||||||||
Short-term derivative instruments | 798 | 114 | |||||||||
Other current assets | 7 | 43,379 | 21,295 | ||||||||
Total current assets | 581,593 | 919,788 | |||||||||
Non-current assets | |||||||||||
Investment in ZIM (associated company) | 8 | 1,354,212 | 297,148 | ||||||||
Investment in OPC's associated companies | 8 | 545,242 | 0 | ||||||||
Long-term investment (Qoros) | 9.5 | 0 | 235,218 | ||||||||
Long-term restricted cash | 21,463 | 71,954 | |||||||||
Long-term derivative instruments | 28.D.1 | 11,637 | 165 | ||||||||
Deferred taxes, net | 23.C.2 | 49,275 | 7,374 | ||||||||
Property, plant and equipment, net | 11 | 1,125,820 | 818,561 | ||||||||
Intangible assets, net | 12 | 224,282 | 1,452 | ||||||||
Long-term prepaid expenses and other non-current assets | 13 | 57,266 | 44,649 | ||||||||
Right-of-use assets, net | 16 | 97,883 | 86,024 | ||||||||
Total non-current assets | 3,487,080 | 1,562,545 | |||||||||
Total assets | 4,068,673 | 2,482,333 | |||||||||
| As at December 31, | ||||||||||||
| 2020 | 2019 | |||||||||||
| Note | $ Thousands | |||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | 5 | 286,184 | 147,153 | |||||||||
| Short-term deposits and restricted cash | 6 | 564,247 | 33,554 | |||||||||
| Trade receivables | 7 | 47,948 | 39,321 | |||||||||
| Short-term derivative instruments | 114 | 245 | ||||||||||
| Other current assets | 8 | 21,295 | 39,678 | |||||||||
| Asset held for sale | 9.B.b.3 | - | 69,592 | |||||||||
| Total current assets | 919,788 | 329,543 | ||||||||||
| Non-current assets | ||||||||||||
| Investments in associated companies | 9 | 297,148 | 119,718 | |||||||||
| Long-term investment | 9.B.b.3 | 235,218 | - | |||||||||
| Long-term deposits and restricted cash | 71,954 | 77,350 | ||||||||||
| Long term prepaid expenses | 11 | 44,649 | 30,185 | |||||||||
| Long-term derivative instruments | 30.D.1 | 165 | 2,048 | |||||||||
| Other non-current assets | 12 | - | 57,717 | |||||||||
| Deferred payment receivable | 13 | - | 204,299 | |||||||||
| Deferred taxes, net | 25.C.2 | 7,374 | 1,516 | |||||||||
| Property, plant and equipment, net | 14 | 818,561 | 667,642 | |||||||||
| Intangible assets, net | 15 | 1,452 | 1,233 | |||||||||
| Right-of-use assets, net | 18 | 86,024 | 17,123 | |||||||||
| Total non-current assets | 1,562,545 | 1,178,831 | ||||||||||
| Total assets | 2,482,333 | 1,508,374 | ||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Financial Position as at December 31, 2021 and 2020, and 2019, continued
As at December 31, | |||||||||||
2021 | 2020 | ||||||||||
Note | $ Thousands | ||||||||||
Current liabilities | |||||||||||
Current maturities of loans from banks and others | 14 | 38,311 | 46,471 | ||||||||
Trade and other payables | 15 | 171,537 | 128,242 | ||||||||
Dividend payable | 18.D | 188,607 | 0 | ||||||||
Short-term derivative instruments | 28.D.1 | 8,688 | 39,131 | ||||||||
Current tax liabilities | 34 | 9 | |||||||||
Deferred taxes | 23.C.2 | 21,117 | 0 | ||||||||
Current maturities of lease liabilities | 18,991 | 14,084 | |||||||||
Total current liabilities | 447,285 | 227,937 | |||||||||
Non-current liabilities | |||||||||||
Long-term loans from banks and others | 14 | 596,489 | 575,688 | ||||||||
Debentures | 14 | 575,314 | 296,146 | ||||||||
Deferred taxes, net | 23.C.2 | 125,339 | 94,336 | ||||||||
Other non-current liabilities | 28,817 | 816 | |||||||||
Long-term derivative instruments | 192 | 6,956 | |||||||||
Long-term lease liabilities | 14,951 | 4,446 | |||||||||
Total non-current liabilities | 1,341,102 | 978,388 | |||||||||
Total liabilities | 1,788,387 | 1,206,325 | |||||||||
Equity | 18 | ||||||||||
Share capital | 602,450 | 602,450 | |||||||||
Translation reserve | 25,680 | 15,896 | |||||||||
Capital reserve | 25,783 | (11,343 | ) | ||||||||
Accumulated profit | 1,139,775 | 459,820 | |||||||||
Equity attributable to owners of the Company | 1,793,688 | 1,066,823 | |||||||||
Non-controlling interests | 486,598 | 209,185 | |||||||||
Total equity | 2,280,286 | 1,276,008 | |||||||||
Total liabilities and equity | 4,068,673 | 2,482,333 | |||||||||
| As at December 31, | ||||||||||||
| 2020 | 2019 | |||||||||||
| Note | $ Thousands | |||||||||||
| Current liabilities | ||||||||||||
| Current maturities of loans from banks and others | 16 | 46,471 | 45,605 | |||||||||
| Trade and other payables | 17 | 128,242 | 52,258 | |||||||||
| Short-term derivative instruments | 30.D.1 | 39,131 | 6,273 | |||||||||
| Current tax liabilities | 9 | 8 | ||||||||||
| Current maturities of lease liabilities | 14,084 | 861 | ||||||||||
| Total current liabilities | 227,937 | 105,005 | ||||||||||
| Non-current liabilities | ||||||||||||
| Long-term loans from banks and others | 16 | 575,688 | 503,647 | |||||||||
| Debentures | 16 | 296,146 | 73,006 | |||||||||
| Deferred taxes, net | 25.C.2 | 94,336 | 79,563 | |||||||||
| Non-current tax liabilities | - | 29,510 | ||||||||||
| Other non-current liabilities | 816 | 719 | ||||||||||
| Long-term derivative instruments | 6,956 | - | ||||||||||
| Long-term lease liabilities | 4,446 | 5,136 | ||||||||||
| Total non-current liabilities | 978,388 | 691,581 | ||||||||||
| Total liabilities | 1,206,325 | 796,586 | ||||||||||
| Equity | 20 | |||||||||||
| Share capital | 602,450 | 602,450 | ||||||||||
| Translation reserve | 15,896 | 17,889 | ||||||||||
| Capital reserve | (11,343 | ) | 13,962 | |||||||||
| Accumulated profit/(loss) | 459,820 | (10,949 | ) | |||||||||
| Equity attributable to owners of the Company | 1,066,823 | 623,352 | ||||||||||
| Non-controlling interests | 209,185 | 88,436 | ||||||||||
| Total equity | 1,276,008 | 711,788 | ||||||||||
| Total liabilities and equity | 2,482,333 | 1,508,374 | ||||||||||
_____________________________ | _____________________________ | _____________________________ |
Cyril Pierre-Jean Ducau Chairman of Board of Directors | Robert L. Rosen CEO | Mark Hasson CFO |
Approval date of the consolidated financial statements:
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Profit & Loss for the years ended December 31, 2021, 2020 2019 and 20182019
For the year ended December 31, | |||||||||||||||
2021 | 2020 | 2019 | |||||||||||||
Note | $ Thousands | ||||||||||||||
Revenue | 19 | 487,763 | 386,470 | 373,473 | |||||||||||
Cost of sales and services (excluding depreciation and amortization) | 20 | (336,298 | ) | (282,086 | ) | (256,036 | ) | ||||||||
Depreciation and amortization | (53,116 | ) | (33,135 | ) | (31,141 | ) | |||||||||
Gross profit | 98,349 | 71,249 | 86,296 | ||||||||||||
Selling, general and administrative expenses | 21 | (75,727 | ) | (49,957 | ) | (36,436 | ) | ||||||||
Other (expenses)/income | (81 | ) | 1,721 | 6,114 | |||||||||||
Operating profit | 22,541 | 23,013 | 55,974 | ||||||||||||
Financing expenses | 22 | (144,295 | ) | (51,174 | ) | (29,946 | ) | ||||||||
Financing income | 22 | 2,934 | 14,291 | 17,679 | |||||||||||
Financing expenses, net | (141,361 | ) | (36,883 | ) | (12,267 | ) | |||||||||
(Losses)/gains related to Qoros | 9 | (251,483 | ) | 309,918 | (7,813 | ) | |||||||||
(Losses)/gains related to ZIM | 8.B.a | (204 | ) | 43,505 | 0 | ||||||||||
Share in profit/(losses) of associated companies, net | |||||||||||||||
- ZIM | 8.A.2 | 1,260,993 | 167,142 | (4,374 | ) | ||||||||||
- OPC's associated companies | 8.A.2 | (10,844 | ) | 0 | 0 | ||||||||||
- Qoros | 8.A.2 | 0 | (6,248 | ) | (37,056 | ) | |||||||||
Profit/(loss) before income taxes | 879,642 | 500,447 | (5,536 | ) | |||||||||||
Income tax expense | 23 | (4,325 | ) | (4,698 | ) | (16,675 | ) | ||||||||
Profit/(loss) for the year from continuing operations | 875,317 | 495,749 | (22,211 | ) | |||||||||||
Gain/(loss) for the year from discontinued operations | 25 | ||||||||||||||
-Recovery of retained claims, net | 0 | 8,476 | 25,666 | ||||||||||||
-Other | 0 | 0 | (1,013 | ) | |||||||||||
0 | 8,476 | 24,653 | |||||||||||||
Profit for the year | 875,317 | 504,225 | 2,442 | ||||||||||||
Attributable to: | |||||||||||||||
Kenon’s shareholders | 930,273 | 507,106 | (13,359 | ) | |||||||||||
Non-controlling interests | (54,956 | ) | (2,881 | ) | 15,801 | ||||||||||
Profit for the year | 875,317 | 504,225 | 2,442 | ||||||||||||
Basic/diluted profit/(loss) per share attributable to Kenon’s shareholders (in dollars): | 24 | ||||||||||||||
Basic/diluted profit/(loss) per share | 17.27 | 9.41 | (0.25 | ) | |||||||||||
Basic/diluted profit/(loss) per share from continuing operations | 17.27 | 9.25 | (0.71 | ) | |||||||||||
Basic/diluted profit per share from discontinued operations | 0 | 0.16 | 0.46 | ||||||||||||
| For the year ended December 31, | ||||||||||||||||
| 2020 | 2019 | 2018 | ||||||||||||||
| Note | $ Thousands | |||||||||||||||
| Revenue | 21 | 386,470 | 373,473 | 364,012 | ||||||||||||
| Cost of sales and services (excluding depreciation and amortization) | 22 | (282,086 | ) | (256,036 | ) | (259,515 | ) | |||||||||
| Depreciation and amortization | (33,135 | ) | (31,141 | ) | (29,809 | ) | ||||||||||
| Gross profit | 71,249 | 86,296 | 74,688 | |||||||||||||
| Selling, general and administrative expenses | 23 | (49,957 | ) | (36,436 | ) | (34,644 | ) | |||||||||
Write back of impairment of investment | 9.B.a.6 | 43,505 | - | - | ||||||||||||
| Other income | 1,721 | 6,114 | 2,147 | |||||||||||||
| Operating profit | 66,518 | 55,974 | 42,191 | |||||||||||||
| Financing expenses | 24 | (51,174 | ) | (29,946 | ) | (30,382 | ) | |||||||||
| Financing income | 24 | 14,291 | 17,679 | 28,592 | ||||||||||||
| Financing expenses, net | (36,883 | ) | (12,267 | ) | (1,790 | ) | ||||||||||
| Net gains/(losses) related to Qoros | 9.B.b | 309,918 | (7,813 | ) | 526,824 | |||||||||||
| Share in profit/(losses) of associated companies, net of tax | 9.A.2 | 160,894 | (41,430 | ) | (105,257 | ) | ||||||||||
| Profit/(loss) before income taxes | 500,447 | (5,536 | ) | 461,968 | ||||||||||||
| Income taxes | 25 | (4,698 | ) | (16,675 | ) | (11,499 | ) | |||||||||
| Profit/(loss) for the year from continuing operations | 495,749 | (22,211 | ) | 450,469 | ||||||||||||
| Gain/(loss) for the year from discontinued operations | 27 | |||||||||||||||
| -Recovery of retained claims, net | 8,476 | 25,666 | 4,530 | |||||||||||||
| -Other | - | (1,013 | ) | (10,161 | ) | |||||||||||
| 8,476 | 24,653 | (5,631 | ) | |||||||||||||
| Profit for the year | 504,225 | 2,442 | 444,838 | |||||||||||||
| Attributable to: | ||||||||||||||||
| Kenon’s shareholders | 507,106 | (13,359 | ) | 434,213 | ||||||||||||
| Non-controlling interests | (2,881 | ) | 15,801 | 10,625 | ||||||||||||
| Profit for the year | 504,225 | 2,442 | 444,838 | |||||||||||||
| Basic/diluted profit/(loss) per share attributable to Kenon’s shareholders (in dollars): | 26 | |||||||||||||||
| Basic/diluted profit/(loss) per share | 9.41 | (0.25 | ) | 8.07 | ||||||||||||
| Basic/diluted profit/(loss) per share from continuing operations | 9.25 | (0.71 | ) | 8.17 | ||||||||||||
| Basic/diluted profit/(loss) per share from discontinued operations | 0.16 | 0.46 | (0.10 | ) | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Other Comprehensive Income for the years ended December 31, 2021, 2020 2019 and 20182019
For the year ended December 31, | ||||||||||||
2021 | 2020 | 2019 | ||||||||||
$ Thousands | ||||||||||||
Profit for the year | 875,317 | 504,225 | 2,442 | |||||||||
Items that are or will be subsequently reclassified to profit or loss | ||||||||||||
Foreign currency translation differences in respect of foreign operations | 17,489 | 36,354 | 22,523 | |||||||||
Reclassification of foreign currency and capital reserve differences on loss of significant influence | 0 | (23,425 | ) | 0 | ||||||||
Group’s share in other comprehensive income of associated companies | 12,360 | 1,873 | (3,201 | ) | ||||||||
Effective portion of change in the fair value of cash-flow hedges | 8,772 | (45,322 | ) | (8,309 | ) | |||||||
Change in fair value of derivative financial instruments used for hedging cash flows recorded to the cost of the hedged item | 37,173 | 3,067 | 1,351 | |||||||||
Change in fair value of derivatives used to hedge cash flows transferred to the statement of profit & loss | (2,121 | ) | 6,300 | 2,743 | ||||||||
Income taxes in respect of components of other comprehensive income | (423 | ) | 1,346 | 252 | ||||||||
Total other comprehensive income for the year | 73,250 | (19,807 | ) | 15,359 | ||||||||
Total comprehensive income for the year | 948,567 | 484,418 | 17,801 | |||||||||
Attributable to: | ||||||||||||
Kenon’s shareholders | 969,862 | 486,165 | (2,353 | ) | ||||||||
Non-controlling interests | (21,295 | ) | (1,747 | ) | 20,154 | |||||||
Total comprehensive income for the year | 948,567 | 484,418 | 17,801 | |||||||||
| For the year ended December 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| $ Thousands | ||||||||||||
| Profit for the year | 504,225 | 2,442 | 444,838 | |||||||||
| Items that are or will be subsequently reclassified to profit or loss | ||||||||||||
| Foreign currency translation differences in respect of foreign operations | 36,354 | 22,523 | 8,672 | |||||||||
| Reclassification of foreign currency and capital reserve differences on loss of significant influence | (23,425 | ) | - | (15,073 | ) | |||||||
| Group’s share in other comprehensive income of associated companies | 1,873 | (3,201 | ) | (177 | ) | |||||||
| Effective portion of change in the fair value of cash-flow hedges | (45,322 | ) | (8,309 | ) | 491 | |||||||
| Change in fair value of derivative financial instruments used for hedging cash flows recorded to the cost of the hedged item | 3,067 | 1,351 | - | |||||||||
| Change in fair value of derivatives used to hedge cash flows transferred to the statement of profit & loss | 6,300 | 2,743 | - | |||||||||
| Income taxes in respect of components of other comprehensive income | 1,346 | 252 | (104 | ) | ||||||||
| Total other comprehensive income for the year | (19,807 | ) | 15,359 | (6,191 | ) | |||||||
| Total comprehensive income for the year | 484,418 | 17,801 | 438,647 | |||||||||
| Attributable to: | ||||||||||||
| Kenon’s shareholders | 486,165 | (2,353 | ) | 432,576 | ||||||||
| Non-controlling interests | (1,747 | ) | 20,154 | 6,071 | ||||||||
| Total comprehensive income for the year | 484,418 | 17,801 | 438,647 | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
For the years ended December 31, 2021, 2020 2019 and 20182019
Non- | |||||||||||||||||||||||||||||||
controlling | |||||||||||||||||||||||||||||||
Attributable to the owners of the Company | interests | Total | |||||||||||||||||||||||||||||
Share | Translation | Capital | Accumulated | ||||||||||||||||||||||||||||
Capital | reserve | reserve | profit | Total | |||||||||||||||||||||||||||
Note | $ Thousands | ||||||||||||||||||||||||||||||
Balance at January 1, 2021 | 602,450 | 15,896 | (11,343 | ) | 459,820 | 1,066,823 | 209,185 | 1,276,008 | |||||||||||||||||||||||
Transactions with owners, recognised directly in equity | |||||||||||||||||||||||||||||||
Contributions by and distributions to owners | |||||||||||||||||||||||||||||||
Share-based payment transactions | 0 | 0 | 7,371 | 0 | 7,371 | 1,187 | 8,558 | ||||||||||||||||||||||||
Dividends declared | 18.D | 0 | 0 | 0 | (288,811 | ) | (288,811 | ) | (10,214 | ) | (299,025 | ) | |||||||||||||||||||
Total contributions by and distributions to owners | 0 | 0 | 7,371 | (288,811 | ) | (281,440 | ) | (9,027 | ) | (290,467 | ) | ||||||||||||||||||||
Changes in ownership interests in subsidiaries | |||||||||||||||||||||||||||||||
Dilution in investment in subsidiary | 10.A.1.o | 0 | 0 | 0 | 38,443 | 38,443 | 103,891 | 142,334 | |||||||||||||||||||||||
Non-controlling interests in respect of business combinations | 0 | 0 | 0 | 0 | 0 | 6,769 | 6,769 | ||||||||||||||||||||||||
Investments from holders of non-controlling interests in equity of subsidiary | 0 | 0 | 0 | 0 | 0 | 197,075 | 197,075 | ||||||||||||||||||||||||
Total changes in ownership interests in subsidiaries | 0 | 0 | 0 | 38,443 | 38,443 | 307,735 | 346,178 | ||||||||||||||||||||||||
Total comprehensive income for the year | |||||||||||||||||||||||||||||||
Net profit for the year | 0 | 0 | 0 | 930,273 | 930,273 | (54,956 | ) | 875,317 | |||||||||||||||||||||||
Other comprehensive income for the year, net of tax | 0 | 9,784 | 29,755 | 50 | 39,589 | 33,661 | 73,250 | ||||||||||||||||||||||||
Total comprehensive income for the year | 0 | 9,784 | 29,755 | 930,323 | 969,862 | (21,295 | ) | 948,567 | |||||||||||||||||||||||
Balance at December 31, 2021 | 602,450 | 25,680 | 25,783 | 1,139,775 | 1,793,688 | 486,598 | 2,280,286 | ||||||||||||||||||||||||
| Non- | ||||||||||||||||||||||||||||||||
| controlling | ||||||||||||||||||||||||||||||||
| Attributable to the owners of the Company | interests | Total | ||||||||||||||||||||||||||||||
| Share | Translation | Capital | Accumulated | |||||||||||||||||||||||||||||
| Capital | reserve | reserve | profit/(loss) | Total | ||||||||||||||||||||||||||||
| Note | $ Thousands | |||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | 602,450 | 17,889 | 13,962 | (10,949 | ) | 623,352 | 88,436 | 711,788 | ||||||||||||||||||||||||
| Transactions with owners, recognised directly in equity | ||||||||||||||||||||||||||||||||
| Contributions by and distributions to owners | ||||||||||||||||||||||||||||||||
| Share-based payment transactions | - | - | 874 | - | 874 | 236 | 1,110 | |||||||||||||||||||||||||
| Dividends declared and paid | 20.D | - | - | - | (120,133 | ) | (120,133 | ) | (12,412 | ) | (132,545 | ) | ||||||||||||||||||||
| Total contributions by and distributions to owners | - | - | 874 | (120,133 | ) | (119,259 | ) | (12,176 | ) | (131,435 | ) | |||||||||||||||||||||
| Changes in ownership interests in subsidiaries | ||||||||||||||||||||||||||||||||
| Dilution in investment in subsidiary | 10.A.h | - | - | - | 80,674 | 80,674 | 136,170 | 216,844 | ||||||||||||||||||||||||
| Acquisition of non-controlling interests without a change in control | - | - | (4,109 | ) | - | (4,109 | ) | (1,498 | ) | (5,607 | ) | |||||||||||||||||||||
| Total changes in ownership interests in subsidiaries | - | - | (4,109 | ) | 80,674 | 76,565 | 134,672 | 211,237 | ||||||||||||||||||||||||
| Total comprehensive income for the year | ||||||||||||||||||||||||||||||||
| Net profit for the year | - | - | - | 507,106 | 507,106 | (2,881 | ) | 504,225 | ||||||||||||||||||||||||
| Other comprehensive income for the year, net of tax | (1,993 | ) | (22,070 | ) | 3,122 | (20,941 | ) | 1,134 | (19,807 | ) | ||||||||||||||||||||||
| Total comprehensive income for the year | - | (1,993 | ) | (22,070 | ) | 510,228 | 486,165 | (1,747 | ) | 484,418 | ||||||||||||||||||||||
| Balance at December 31, 2020 | 602,450 | 15,896 | (11,343 | ) | 459,820 | 1,066,823 | 209,185 | 1,276,008 | ||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 2020 2019 and 20182019
Non- | |||||||||||||||||||||||||||||||
controlling | |||||||||||||||||||||||||||||||
Attributable to the owners of the Company | interests | Total | |||||||||||||||||||||||||||||
Share | Translation | Capital | Accumulated | ||||||||||||||||||||||||||||
Capital | reserve | reserve | profit | Total | |||||||||||||||||||||||||||
Note | $ Thousands | ||||||||||||||||||||||||||||||
Balance at January 1, 2020 | 602,450 | 17,889 | 13,962 | (10,949 | ) | 623,352 | 88,436 | 711,788 | |||||||||||||||||||||||
Transactions with owners, recognised directly in equity | |||||||||||||||||||||||||||||||
Contributions by and distributions to owners | |||||||||||||||||||||||||||||||
Share-based payment transactions | 0 | 0 | 874 | 0 | 874 | 236 | 1,110 | ||||||||||||||||||||||||
Dividends declared and paid | 18.D | 0 | 0 | 0 | (120,133 | ) | (120,133 | ) | (12,412 | ) | (132,545 | ) | |||||||||||||||||||
Total contributions by and distributions to owners | 0 | 0 | 874 | (120,133 | ) | (119,259 | ) | (12,176 | ) | (131,435 | ) | ||||||||||||||||||||
Changes in ownership interests in subsidiaries | |||||||||||||||||||||||||||||||
Dilution in investment in subsidiary | 10.A.1.o | 0 | 0 | 0 | 80,674 | 80,674 | 136,170 | 216,844 | |||||||||||||||||||||||
Acquisition of non-controlling interests without a change in control | 0 | 0 | (4,109 | ) | 0 | (4,109 | ) | (1,498 | ) | (5,607 | ) | ||||||||||||||||||||
Total changes in ownership interests in subsidiaries | 0 | 0 | (4,109 | ) | 80,674 | 76,565 | 134,672 | 211,237 | |||||||||||||||||||||||
Total comprehensive income for the year | |||||||||||||||||||||||||||||||
Net profit for the year | 0 | 0 | 0 | 507,106 | 507,106 | (2,881 | ) | 504,225 | |||||||||||||||||||||||
Other comprehensive income for the year, net of tax | (1,993 | ) | (22,070 | ) | 3,122 | (20,941 | ) | 1,134 | (19,807 | ) | |||||||||||||||||||||
Total comprehensive income for the year | 0 | (1,993 | ) | (22,070 | ) | 510,228 | 486,165 | (1,747 | ) | 484,418 | |||||||||||||||||||||
Balance at December 31, 2020 | 602,450 | 15,896 | (11,343 | ) | 459,820 | 1,066,823 | 209,185 | 1,276,008 | |||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||||||||
| controlling | |||||||||||||||||||||||||||||||
| Attributable to the owners of the Company | interests | Total | |||||||||||||||||||||||||||||
| Share | Translation | Capital | Accumulated | ||||||||||||||||||||||||||||
| Capital | reserve | reserve | profit/(loss) | Total | |||||||||||||||||||||||||||
| Note | $ Thousands | ||||||||||||||||||||||||||||||
| Balance at January 1, 2019 | 602,450 | 802 | 16,854 | 28,917 | 649,023 | 66,695 | 715,718 | ||||||||||||||||||||||||
| Transactions with owners, recognised directly in equity | |||||||||||||||||||||||||||||||
| Contributions by and distributions to owners | |||||||||||||||||||||||||||||||
| Share-based payment transactions | - | - | 1,222 | - | 1,222 | 324 | 1,546 | ||||||||||||||||||||||||
| Dividends declared and paid | 20.D | - | - | - | (65,169 | ) | (65,169 | ) | (33,123 | ) | (98,292 | ) | |||||||||||||||||||
| Total contributions by and distributions to owners | - | - | 1,222 | (65,169 | ) | (63,947 | ) | (32,799 | ) | (96,746 | ) | ||||||||||||||||||||
| Changes in ownership interests in subsidiaries | |||||||||||||||||||||||||||||||
| Sale of subsidiary | - | - | - | - | - | 299 | 299 | ||||||||||||||||||||||||
| Dilution in investment in subsidiary | 10.A.h | - | - | - | 41,863 | 41,863 | 34,537 | 76,400 | |||||||||||||||||||||||
| Acquisition of non-controlling interests without a change in control | - | - | (1,234 | ) | - | (1,234 | ) | (450 | ) | (1,684 | ) | ||||||||||||||||||||
| Total changes in ownership interests in subsidiaries | - | - | (1,234 | ) | 41,863 | 40,629 | 34,386 | 75,015 | |||||||||||||||||||||||
| Total comprehensive income for the year | |||||||||||||||||||||||||||||||
| Net profit for the year | - | - | - | (13,359 | ) | (13,359 | ) | 15,801 | 2,442 | ||||||||||||||||||||||
| Other comprehensive income for the year, net of tax | - | 17,087 | (2,880 | ) | (3,201 | ) | 11,006 | �� | 4,353 | 15,359 | |||||||||||||||||||||
| Total comprehensive income for the year | - | 17,087 | (2,880 | ) | (16,560 | ) | (2,353 | ) | 20,154 | 17,801 | |||||||||||||||||||||
| Balance at December 31, 2019 | 602,450 | 17,889 | 13,962 | (10,949 | ) | 623,352 | 88,436 | 711,788 | |||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 2020 2019 and 20182019
| Non- | Attributable to the owners of the Company | Non- controlling interests | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| controlling | Share | Translation | Capital | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Attributable to the owners of the Company | interests | Total | Capital | reserve | reserve | profit/(loss) | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholder | Note | $ Thousands | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share | transaction | Translation | Capital | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital | reserve | reserve | reserve | profit/(loss) | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Note | $ Thousands | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2018 | 1,267,210 | 3,540 | (1,592 | ) | 19,297 | (305,337 | ) | 983,118 | 68,229 | 1,051,347 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2019 | 602,450 | 802 | 16,854 | 28,917 | 649,023 | 66,695 | 715,718 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transactions with owners, recognised directly in equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions by and distributions to owners | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based payment transactions | - | - | - | 1,411 | - | 1,411 | 403 | 1,814 | 0 | 0 | 1,222 | 0 | 1,222 | 324 | 1,546 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash distribution to owners of the Company | 20.A | (664,760 | ) | - | - | - | - | (664,760 | ) | - | (664,760 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend to holders of non-controlling interests in subsidiaries | - | - | - | - | - | - | (8,219 | ) | (8,219 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared and paid | 20.D | - | - | - | - | (100,118 | ) | (100,118 | ) | - | (100,118 | ) | 18.D | 0 | 0 | 0 | (65,169 | ) | (65,169 | ) | (33,123 | ) | (98,292 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Transactions with controlling shareholder | - | (3,540 | ) | - | - | - | (3,540 | ) | - | (3,540 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total contributions by and distributions to owners | (664,760 | ) | (3,540 | ) | - | 1,411 | (100,118 | ) | (767,007 | ) | (7,816 | ) | (774,823 | ) | 0 | 0 | 1,222 | (65,169 | ) | (63,947 | ) | (32,799 | ) | (96,746 | ) | |||||||||||||||||||||||||||||||||||||||||
| Changes in ownership interests in subsidiaries | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sale of subsidiary | 0 | 0 | 0 | 0 | 0 | 299 | 299 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dilution in investment in subsidiary | 10.A.1.o | 0 | 0 | 0 | 41,863 | 41,863 | 34,537 | 76,400 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of non-controlling interests without a change in control | - | - | - | - | 336 | 336 | 4 | 340 | 0 | 0 | (1,234 | ) | 0 | (1,234 | ) | (450 | ) | (1,684 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of subsidiary with non-controlling interests | - | - | - | - | - | - | 207 | 207 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total changes in ownership interests in subsidiaries | - | - | - | - | 336 | 336 | 211 | 547 | 0 | 0 | (1,234 | ) | 41,863 | 40,629 | 34,386 | 75,015 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income for the year | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net profit for the year | - | - | - | - | 434,213 | 434,213 | 10,625 | 444,838 | 0 | 0 | 0 | (13,359 | ) | (13,359 | ) | 15,801 | 2,442 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income for the year, net of tax | - | - | 2,394 | (3,854 | ) | (177 | ) | (1,637 | ) | (4,554 | ) | (6,191 | ) | 0 | 17,087 | (2,880 | ) | (3,201 | ) | 11,006 | 4,353 | 15,359 | ||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income for the year | - | - | 2,394 | (3,854 | ) | 434,036 | 432,576 | 6,071 | 438,647 | 0 | 17,087 | (2,880 | ) | (16,560 | ) | (2,353 | ) | 20,154 | 17,801 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | 602,450 | - | 802 | 16,854 | 28,917 | 649,023 | 66,695 | 715,718 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | 602,450 | 17,889 | 13,962 | (10,949 | ) | 623,352 | 88,436 | 711,788 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
For the years ended December 31, 2021, 2020 2019 and 20182019
For the year ended December 31, | |||||||||||||||
2021 | 2020 | 2019 | |||||||||||||
Note | $Thousands | ||||||||||||||
Cash flows from operating activities | |||||||||||||||
Profit for the year | 875,317 | 504,225 | 2,442 | ||||||||||||
Adjustments: | |||||||||||||||
Depreciation and amortization | 57,640 | 34,171 | 32,092 | ||||||||||||
Financing expenses, net | 22 | 141,361 | 36,883 | 12,267 | |||||||||||
Share in (profit)/losses of associated companies, net | 8.A.2 | (1,250,149 | ) | (160,894 | ) | 41,430 | |||||||||
Gains on disposal of property, plant and equipment, net | 0 | (1,551 | ) | (492 | ) | ||||||||||
Net change in fair value of derivative financial instruments | 0 | 0 | 352 | ||||||||||||
Losses/(gains) related to Qoros | 9 | 251,483 | (309,918 | ) | 7,813 | ||||||||||
Losses/(gains) related to ZIM | 8.B.a | 204 | (43,505 | ) | 0 | ||||||||||
Recovery of retained claims | 25 | 0 | (9,923 | ) | (30,000 | ) | |||||||||
Share-based payments | 18,369 | 1,110 | 1,546 | ||||||||||||
Income taxes | 23 | 4,325 | 6,145 | 22,022 | |||||||||||
98,550 | 56,743 | 89,472 | |||||||||||||
Change in trade and other receivables | (1,171 | ) | (9,669 | ) | 4,338 | ||||||||||
Change in trade and other payables | (429 | ) | 45,061 | (5,968 | ) | ||||||||||
Cash generated from operating activities | 96,950 | 92,135 | 87,842 | ||||||||||||
Dividends received from associated companies | 143,964 | 0 | 0 | ||||||||||||
Income taxes (paid)/refunded, net | (385 | ) | 61 | (2,453 | ) | ||||||||||
Net cash provided by operating activities | 240,529 | 92,196 | 85,389 | ||||||||||||
| For the year ended December 31, | ||||||||||||||||
| 2020 | 2019 | 2018 | ||||||||||||||
| Note | $ Thousands | |||||||||||||||
| Cash flows from operating activities | ||||||||||||||||
| Profit for the year | 504,225 | 2,442 | 444,838 | |||||||||||||
| Adjustments: | ||||||||||||||||
| Depreciation and amortization | 34,171 | 32,092 | 30,416 | |||||||||||||
| (Write back)/impairment of assets and investments | (43,505 | ) | - | 4,812 | ||||||||||||
| Financing expenses, net | 36,883 | 12,267 | 1,790 | |||||||||||||
| Share in (profit)/losses of associated companies, net | (160,894 | ) | 41,430 | 105,257 | ||||||||||||
| (Gains)/losses on disposal of property, plant and equipment, net | (1,551 | ) | (492 | ) | 206 | |||||||||||
| Net change in fair value of derivative financial instruments | - | 352 | 1,002 | |||||||||||||
| Net (gains)/losses related to Qoros | 9.B.b | (309,918 | ) | 7,813 | (526,824 | ) | ||||||||||
| Recovery of retained claims | 27 | (9,923 | ) | (30,000 | ) | - | ||||||||||
| Write down of other payables | - | - | 489 | |||||||||||||
| Share-based payments | 1,110 | 1,546 | 1,814 | |||||||||||||
| Income taxes | 6,145 | 22,022 | 16,244 | |||||||||||||
| 56,743 | 89,472 | 80,044 | ||||||||||||||
| Change in trade and other receivables | (9,669 | ) | 4,338 | 9,192 | ||||||||||||
| Change in trade and other payables | 45,061 | (5,968 | ) | (35,311 | ) | |||||||||||
| Cash generated from operating activities | 92,135 | 87,842 | 53,925 | |||||||||||||
| Income taxes recovered/(paid), net | 61 | (2,453 | ) | (1,546 | ) | |||||||||||
| Net cash provided by operating activities | 92,196 | 85,389 | 52,379 | |||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Cash Flows, continued
For the years ended December 31, 2021, 2020 2019 and 20182019
For the year ended December 31, | |||||||||||||||
2021 | 2020 | 2019 | |||||||||||||
Note | $ Thousands | ||||||||||||||
Cash flows from investing activities | |||||||||||||||
Short-term deposits and restricted cash, net | 558,247 | (501,618 | ) | 19,554 | |||||||||||
Investment in long-term deposits, net | 51,692 | 6,997 | (28,085 | ) | |||||||||||
Long-term advance deposits and prepaid expenses | (6,976 | ) | (57,591 | ) | 0 | ||||||||||
Long term loan to an associate | (5,000 | ) | 0 | 0 | |||||||||||
Proceeds from sale of subsidiary, net of cash disposed off | 0 | 407 | 880 | ||||||||||||
Acquisition of subsidiary, less cash acquired | 10.A.1.i | (659,169 | ) | 0 | 0 | ||||||||||
Acquisition of associated company, less cash acquired | (8,566 | ) | 0 | 0 | |||||||||||
Acquisition of property, plant and equipment | (231,235 | ) | (74,456 | ) | (34,141 | ) | |||||||||
Acquisition of intangible assets | (1,452 | ) | (368 | ) | (258 | ) | |||||||||
Proceeds from sale of property, plant and equipment and intangible assets | 0 | 546 | 0 | ||||||||||||
Reimbursement of right-of use asset | 4,823 | 0 | 0 | ||||||||||||
Interest received | 269 | 709 | 2,469 | ||||||||||||
Income tax paid | 0 | (32,332 | ) | (5,629 | ) | ||||||||||
Deferred consideration in respect of acquisition of subsidiary | 0 | (13,632 | ) | 0 | |||||||||||
Payment of transactions in derivatives, net | (5,635 | ) | (3,963 | ) | (929 | ) | |||||||||
Proceeds from sale of and distribution from associated companies | 46,729 | 0 | 0 | ||||||||||||
Proceeds from deferred payment | 0 | 217,810 | 0 | ||||||||||||
Proceeds from sales of interest in ZIM | 8.B.a.5 | 67,087 | 0 | 0 | |||||||||||
Proceeds from sale of interest in Qoros | 9.3 | 0 | 219,723 | 0 | |||||||||||
(Payment)/recovery of financial guarantee | 9.6.d, 9.6.e | (16,265 | ) | 6,265 | 10,963 | ||||||||||
Recovery of retained claims | 25 | 0 | 9,923 | 30,196 | |||||||||||
Net cash used in investing activities | (205,451 | ) | (221,580 | ) | (4,980 | ) | |||||||||
Cash flows from financing activities | |||||||||||||||
Dividends paid to holders of non-controlling interests | (10,214 | ) | (12,412 | ) | (33,123 | ) | |||||||||
Dividends paid | (100,209 | ) | (120,115 | ) | (65,169 | ) | |||||||||
Investments of holders of non-controlling interests in the capital of a subsidiary | 197,076 | 32 | 0 | ||||||||||||
Costs paid in advance in respect of taking out of loans | (4,991 | ) | (8,556 | ) | (1,833 | ) | |||||||||
Payment of early redemption commission with respect to the debentures | 14.B | (75,820 | ) | (11,202 | ) | 0 | |||||||||
Payment in respect of derivative financial instruments, net | (13,933 | ) | 0 | 0 | |||||||||||
Proceeds from issuance of share capital by a subsidiary to non-controlling interests, net of issuance expenses | 10.A.1.o, 10.A.1.p | 142,334 | 216,844 | 76,400 | |||||||||||
Proceeds from long-term loans | 343,126 | 73,236 | 0 | ||||||||||||
Proceeds from issuance of debentures, net of issuance expenses | 14.E | 262,750 | 280,874 | 0 | |||||||||||
Repayment of long-term loans, debentures and lease liabilities | (562,016 | ) | (130,210 | ) | (28,235 | ) | |||||||||
Short-term credit from banks and others, net | 0 | (134 | ) | 139 | |||||||||||
Acquisition of non-controlling interests | 0 | (7,558 | ) | (413 | ) | ||||||||||
Interest paid | (31,523 | ) | (24,989 | ) | (21,414 | ) | |||||||||
Net cash provided by/(used in) financing activities | 146,580 | 255,810 | (73,648 | ) | |||||||||||
Increase in cash and cash equivalents | 181,658 | 126,426 | 6,761 | ||||||||||||
Cash and cash equivalents at beginning of the year | 286,184 | 147,153 | 131,123 | ||||||||||||
Effect of exchange rate fluctuations on balances of cash and cash equivalents | 6,702 | 12,605 | 9,269 | ||||||||||||
Cash and cash equivalents at end of the year | 474,544 | 286,184 | 147,153 | ||||||||||||
| For the year ended December 31, | ||||||||||||||||
| 2020 | 2019 | 2018 | ||||||||||||||
| Note | $ Thousands | |||||||||||||||
| Cash flows from investing activities | ||||||||||||||||
| Proceeds from sale of property, plant and equipment and intangible assets | 546 | - | 66 | |||||||||||||
| Short-term deposits and restricted cash, net | (501,618 | ) | 19,554 | (28,511 | ) | |||||||||||
| Investment in long-term deposits, net | 6,997 | (24,947 | ) | (13,560 | ) | |||||||||||
| Deferred consideration in respect of sale of subsidiary, net of cash disposed off | 407 | 880 | - | |||||||||||||
| Cash paid for asset acquisition, less cash acquired | - | - | (2,344 | ) | ||||||||||||
| Income tax paid | (32,332 | ) | (5,629 | ) | (169,845 | ) | ||||||||||
| Investment in associates | - | - | (90,154 | ) | ||||||||||||
| Acquisition of property, plant and equipment | (74,456 | ) | (34,141 | ) | (69,314 | ) | ||||||||||
| Acquisition of intangible assets | (368 | ) | (258 | ) | (132 | ) | ||||||||||
| (Payment of)/proceeds from realization of long-term deposits | - | (3,138 | ) | 18,476 | ||||||||||||
| Interest received | 709 | 2,469 | 12,578 | |||||||||||||
| Deferred consideration in respect of acquisition of subsidiary | (13,632 | ) | - | - | ||||||||||||
| Long-term advance deposits and prepaid expenses | (57,591 | ) | - | - | ||||||||||||
| (Payment of)/proceeds from transactions in derivatives, net | (3,963 | ) | (929 | ) | 31 | |||||||||||
| Proceeds from deferred payment | 217,810 | - | - | |||||||||||||
| Proceeds from sale of interest in Qoros | 9.B.b.3 | 219,723 | - | 259,749 | ||||||||||||
| Receipt from recovery of financial guarantee | 9.B.b.4.h | 6,265 | 10,963 | 18,336 | ||||||||||||
| Payment of transaction cost for sale of subsidiaries | - | - | (48,759 | ) | ||||||||||||
| Recovery of retained claims | 9,923 | 30,196 | - | |||||||||||||
| Net cash used in investing activities | (221,580 | ) | (4,980 | ) | (113,383 | ) | ||||||||||
| Cash flows from financing activities | ||||||||||||||||
| Dividends paid to holders of non-controlling interests | (12,412 | ) | (33,123 | ) | (8,219 | ) | ||||||||||
| Dividends paid | (120,115 | ) | (65,169 | ) | (100,084 | ) | ||||||||||
| Capital distribution | - | - | (664,700 | ) | ||||||||||||
| Investments of holders of non-controlling interests in the capital of a subsidiary | 32 | - | - | |||||||||||||
| Costs paid in advance in respect of taking out of loans | (8,556 | ) | (1,833 | ) | (656 | ) | ||||||||||
| Payment of early redemption commission with respect to the debentures (Series A) | (11,202 | ) | - | - | ||||||||||||
| Proceeds from issuance of share capital by a subsidiary to non-controlling interests, net of issuance expenses | 216,844 | 76,400 | - | |||||||||||||
| Proceeds from long-term loans | 73,236 | - | 33,762 | |||||||||||||
| Proceeds from issuance of debentures, net of issuance expenses | 280,874 | - | - | |||||||||||||
| Repayment of long-term loans and debentures, derivative financial instruments and lease liabilities | (130,210 | ) | (28,235 | ) | (375,756 | ) | ||||||||||
| Short-term credit from banks and others, net | (134 | ) | 139 | (77,073 | ) | |||||||||||
| Acquisition of non-controlling interests | (7,558 | ) | (413 | ) | - | |||||||||||
| Interest paid | (24,989 | ) | (21,414 | ) | (24,875 | ) | ||||||||||
| Net cash provided by/(used in) financing activities | 255,810 | (73,648 | ) | (1,217,601 | ) | |||||||||||
| Increase/(decrease) in cash and cash equivalents | 126,426 | 6,761 | (1,278,605 | ) | ||||||||||||
| Cash and cash equivalents at beginning of the year | 147,153 | 131,123 | 1,417,388 | |||||||||||||
| Effect of exchange rate fluctuations on balances of cash and cash equivalents | 12,605 | 9,269 | (7,660 | ) | ||||||||||||
| Cash and cash equivalents at end of the year | 286,184 | 147,153 | 131,123 | |||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd.
Note 1 – Financial Reporting Principles and Accounting Policies
| A. | The Reporting Entity |
Kenon Holdings Ltd. (the “Company” or “Kenon”) was incorporated on March 7, 2014 in the Republic of Singapore under the Singapore Companies Act. Our principal place of business is located at 1 Temasek Avenue #36-01,#37-02B, Millenia Tower, Singapore 039192.
The Company is a holding company and was incorporated to receive investments spun-off from their former parent company, Israel Corporation Ltd. (“IC”). The Company serves as the holding company of several businesses (together referred to as the “Group”).
Kenon shares are traded on New York Stock Exchange (“NYSE”) and on Tel Aviv Stock Exchange (“TASE”) (NYSE and TASE: KEN).
| B. | Definitions |
In these consolidated financial statements -
1. Subsidiaries – Companies whose financial statements are fully consolidated with those of Kenon, directly or indirectly.
2. Associates – Companies in which Kenon has significant influence and Kenon’s investment is stated, directly or indirectly, on the equity basis.
3. Investee companies – subsidiaries and/or associated companies.companies and/or long-term investment (Qoros).
4. Related parties – within the meaning thereof in International Accounting Standard (“IAS”) 24 Related Parties.
Note 2 – Basis of Preparation of the Financial Statements
| A. | Declaration of compliance with International Financial Reporting Standards (IFRS) |
The consolidated financial statements were prepared by management of the Group in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were approved for issuance by the Company’s Board of Directors on April 19, 2021.
March 31, 2022.| B. | Functional and presentation currency |
These consolidated financial statements are presented in US dollars, which is Kenon’s functional currency, and have been rounded to the nearest thousands, except where otherwise indicated. The US dollar is the currency that represents the principal economic environment in which Kenon operates.
| C. | Basis of measurement |
The consolidated financial statements were prepared on the historical cost basis, with the exception of the following assets and liabilities:
| • | Deferred tax assets and liabilities |
| • | Derivative instruments |
| • | Assets and liabilities in respect of employee benefits |
| • | Investments in associated companies |
| • | Long-term investment (Qoros) |
For additional information regarding measurement of these assets and liabilities – see Note 3 “SignificantSignificant Accounting Policies”.Policies.
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Note 2 – Basis of Preparation of the Financial Statements (Cont’d)
| D. | Use of estimates and judgment |
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
| 1. | Allocation of acquisition costs |
The Group makes estimates with respect to allocation of excess consideration to tangible and intangible assets and to liabilities. The Group has considered the report from a qualified external valuer to establish the appropriate valuation techniques and inputs for this assessment. The valuation technique used for measuring the fair values of the material assets: property, plant and equipment, investment in associated companies, and intangible assets is the income approach, a present value technique to convert future amounts to a single current amount using relevant discount rates. The respective discount rates are estimates and require judgment and minor changes to the discount rates could have had a significant effect on the Group’s evaluation of the transaction completion date fair values of the material assets. Refer to Note 10.A.1.i for further details.
In addition, in determining the depreciation rates of the tangible, intangible assets and liabilities, the Group estimates the expected life of the asset or liability.
| 2. | Long-term investment (Qoros) |
Following the sale of half of the Group’s remaining interest in Qoros (i.e. 12%) as described in Note 9.B.b.3,9.3, as at year end,December 31, 2020, the Group ownsowned a 12% interest in Qoros. The long-term investment is(Qoros) was a combination of the Group’s remaining 12% interest in Qoros and the non-current portion of the put option (as described in Note 9.B.b.2)9.2). The long-term investment is(Qoros) was determined using a combination of market comparison technique based on market multiples derived from the quoted prices of comparable companies adjusted for various considerations, and the binomial model. Fair value measurement of the long-term investment takes(Qoros) took into account the underlying asset’s price volatility. Changes
In April 2021, Quantum entered into an agreement to sell its remaining 12% equity interest in Qoros. As a result, Kenon accounted for the economic assumptions and/or valuation technique could give rise to significant changes infair value of the long-term investment.investment (Qoros) based on the present value of the expected cash flows. Refer to Note 9.5 for further details.
Note 3 – Significant Accounting Policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. The Group has consistently applied the following accounting policies to all periods presented in these consolidated financial statements, unless otherwise stated.
| A. | First-time application of new accounting standards, amendments and interpretations |
The Group has adopted a few new standards which are effective from January 1, 20202021 but they do not have a material effect on the Group’s consolidated financial statements.
| B. | Basis for consolidation/combination |
| (1) | Business combinations |
The Group accounts for all business combinations according to the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs.
The Group has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and asssets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
The acquisition date is the date on which the Group obtains control over an acquiree. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the acquiree and it has the ability to affect those returns through its power over the acquiree. Substantive rights held by the Group and others are taken into account when assessing control.
The Group recognizes goodwill on acquisition according to the fair value of the consideration transferred less the net amount of the fair value of identifiable assets acquired less the fair value of liabilities assumed. Goodwill is initially recognized as an asset based on its cost, and is measured in succeeding periods based on its cost less accrued losses from impairment of value.
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Note 3 – Significant Accounting Policies (Cont’d)
For purposes of examining impairment of value, goodwill is allocated to each of the Group’s cash‑generating units that is expected to benefit from the synergy of the business combination. Cash‑generating units to which goodwill was allocated are examined for purposes of assessment of impairment of their value every year or more frequently where there are signs indicating a possible impairment of value of the unit, as stated. Where the recoverable amount of a cash‑generating unit is less than the carrying value in the books of that cash‑generating unit, the loss from impairment of value is allocated first to reduction of the carrying value in the books of any goodwill attributed to that cash‑generating unit. Thereafter, the balance of the loss from impairment of value, if any, is allocated to other assets of the cash‑generating unit, in proportion to their carrying values in the books. A loss from impairment of value of goodwill is not reversed in subsequent periods.
If the Group pays a bargain price for the acquisition (meaning including negative goodwill), it recognizes the resulting gain in profit or loss on the acquisition date.
The Group recognizes contingent consideration at fair value at the acquisition date. The contingent consideration that meets the definition of a financial instrument that is not classified as equity will be measured at fair value through profit or loss; contingent consideration classified as equity shall not be remeasured and its subsequent settlement shall be accounted for within equity.
Furthermore, goodwill is not adjusted in respect of the utilization of carry-forward tax losses that existed on the date of the business combination.
Costs associated with acquisitions that were incurred by the acquirer in the business combination such as: finder’s fees, advisory, legal, valuation and other professional or consulting fees are expensed in the period the services are received.
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date when control ceased. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Company.
(3)Non-Controlling Interest (“NCI”)
NCI comprises the equity of a subsidiary that cannot be attributed, directly or indirectly, to the parent company, and they include additional components such as: share-based payments that will be settled with equity instruments of the subsidiaries and options for shares of subsidiaries.
NCIs are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Measurement of non-controlling interests on the date of the business combination
Non-controlling interests, which are instruments that convey a present ownership right and that grant to their holder a share in the net assets in a case of liquidation, are measured on the date of the business combination at fair value or based on their relative share in the identified assets and liabilities of the entity acquired, on the basis of every transaction separately.
Transactions with NCI, while retaining control
Transactions with NCI while retaining control are accounted for as equity transactions. Any difference between the consideration paid or received and the change in NCI is included directly in equity.
Allocation of comprehensive income to the shareholders
Profit or loss and any part of other comprehensive income are allocated to the owners of the Group and the NCI. Total comprehensive income is allocated to the owners of the Group and the NCI even if the result is a negative balance of NCI.
Furthermore, when the holding interest in the subsidiary changes, while retaining control, the Group re-attributes the accumulated amounts that were recognized in other comprehensive income to the owners of the Group and the NCI.
Cash flows deriving from transactions with holders of NCI while retaining control are classified under “financing activities” in the statement of cash flows.
Loss of control
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of thesubsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
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Note 3 – Significant Accounting Policies (Cont’d)
Investments in equity-accounted investees |
Associates are entities in which the Group has the ability to exercise significant influence, but not control, over the financial and operating policies. In assessing significant influence, potential voting rights that are currently exercisable or convertible into shares of the investee are taken into account.
Joint-ventures are arrangements in which the Group has joint control, whereby the Group has the rights to assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Associates and joint-venture are accounted for using the equity method (equity accounted investees) and are recognized initially at cost. The cost of the investment includes transaction costs. The consolidated financial statements include the Group’s share of the income and expenses in profit or loss and of other comprehensive income of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.
The Group’s share of post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income with a corresponding adjustment to the carrying amount of the investment.
When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term interests that form part thereof, is reduced to zero. When the Group’s share of long-term interests that form a part of the investment in the investee is different from its share in the investee’s equity, the Group continues to recognize its share of the investee’s losses, after the equity investment was reduced to zero, according to its economic interest in the long-term interests, after the equity interests were reduced to zero. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any long-term interests that, in substance, form part of the entity’s net investment in the associate, the recognition of further losses is discontinued except to the extent that the Group has an obligation to support the investee or has made payments on behalf of the investee.
(5)Loss of significant influence
The Group discontinues applying the equity method from the date it loses significant influence in an associate and it accounts for the retained investment as a financial asset, as relevant.
On the date of losing significant influence, the Group measures at fair value any retained interest it has in the former associate. The Group recognizes in profit or loss any difference between the sum of the fair value of the retained interest and any proceeds received from the partial disposal of the investment in the associate or joint venture, and the carrying amount of the investment on that date.
Amounts recognized in equity through other comprehensive income with respect to such associates are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the associate had itself disposed the related assets or liabilities.
| (6) | Change in interest held in equity accounted investees while retaining significant influence |
When the Group increases its interest in an equity accounted investee while retaining significant influence, it implements the acquisition method only with respect to the additional interest obtained whereas the previous interest remains the same.
When there is a decrease in the interest in an equity accounted investee while retaining significant influence, the Group derecognizes a proportionate part of its investment and recognizes in profit or loss a gain or loss from the sale under other income or other expenses.
Furthermore, on the same date, a proportionate part of the amounts recognized in equity through other comprehensive income with respect to the same equity accounted investee are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the associate had itself realized the same assets or liabilities.
| (7) | Intra-group transactions |
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
| (8) | Reorganizations under common control transactions |
Common control transactions that involve the setup of a new group company and the combination of entities under common control are recorded using the book values of the parent company.
F - 17
Note 3 – Significant Accounting Policies (Cont’d)
| C. | Foreign currency |
| (1) | Foreign currency transactions |
Transactions in foreign currencies are translated into the respective functional currencies of Group entities at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items measured at historical cost would be reported using the exchange rate at the date of the transaction.
Foreign currency differences are generally recognized in profit or loss, except for differences relating to qualifying cash flow hedges to the extent the hedge is effective which are recognized in other comprehensive income.
| (2) | Foreign operations |
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into US dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated into US dollars at average exchange rates over the relevant period.
Foreign operation translation differences are recognized in other comprehensive income.
When the foreign operation is a non-wholly-owned subsidiary of the Group, then the relevant proportionate share of the foreign operation translation difference is allocated to the NCI.
When a foreign operation is disposed of such that control or significant influence is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as a part of the gain or loss on disposal.
Furthermore, when the Group’s interest in a subsidiary that includes a foreign operation changes, while retaining control in the subsidiary, a proportionate part of the cumulative amount of the translation difference that was recognized in other comprehensive income is reattributed to NCI.
When the Group disposes of only part of its investment in an associate that includes a foreign operation, while retaining significant influence, the proportionate part of the cumulative amount of the translation difference is reclassified to profit or loss.
Generally, foreign currency differences from a monetary item receivable from or payable to a foreign operation, including foreign operations that are subsidiaries, are recognized in profit or loss in the consolidated financial statements.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognized in other comprehensive income, and are presented within equity in the translation reserve.
| D. | Cash and Cash Equivalents |
In the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and are subject to an insignificant risk of changes in their fair value.
F - 18
Note 3 – Significant Accounting Policies (Cont’d)
| E. | Financial Instruments |
| a) | Classification and measurement of financial assets and financial liabilities |
Initial recognition and measurement
The Group initially recognizes trade receivables on the date that they are originated. All other financial assets and financial liabilities are initially recognized on the date on which the Group becomes a party to the contractual provisions of the instrument. As a rule, a financial asset, other than a trade receivable without a significant financing component, or a financial liability, is initially measured at fair value with the addition, for a financial asset or a financial liability that are not presented at fair value through profit or loss, of transaction costs that can be directly attributed to the acquisition or the issuance of the financial asset or the financial liability. Trade receivables that do not contain a significant financing component are initially measured at the transaction price. Trade receivables originating in contract assets are initially measured at the carrying amount of the contract assets on the date of reclassification from contract assets to receivables.
Financial assets - classification and subsequent measurement
On initial recognition, financial assets are classified as measured at amortized cost; fair value through other comprehensive income; or fair value through profit or loss. As at reporting date, the Group only holds financial assets measured at amortized cost and fair value through profit or loss.
Financial assets are not reclassified in subsequent periods, unless, and only to the extent that the Group changes its business model for the management of financial assets, in which case the affected financial assets are reclassified at the beginning of the reporting period following the change in the business model.
A financial asset is measured at amortized cost if it meets the two following cumulative conditions and is not designated for measurement at fair value through profit or loss:
| - | The objective of the entity's business model is to hold the financial asset to collect the contractual cash flows; and |
| - | The contractual terms of the financial asset create entitlement on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
The Group has balances of trade and other receivables and deposits that are held under a business model the objective of which is collection of the contractual cash flows. The contractual cash flows in respect of such financial assets comprise solely payments of principal and interest that reflects consideration for the time-value of the money and the credit risk. Accordingly, such financial assets are measured at amortized cost.
| b) | Subsequent measurement |
In subsequent periods, these assets are measured at amortized cost, using the effective interest method and net of impairment losses. Interest income, currency exchange gains or losses and impairment are recognized in profit or loss. Any gains or losses on derecognition are also recognized in profit or loss.
All financial assets not classified as measured at amortised cost or fair value through other comprehensive income as described above are measured at fair value through profit or loss. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at fair value through other comprehensive income as at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. In subsequent periods, these assets are measured at fair value. Net gains and losses are recognized in profit or loss.
Financial assets: Business model assessment
The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:
• the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising
cash flows through the sale of the assets;
F - 19
Note 3 – Significant Accounting Policies (Cont’d)
• how the performance of the portfolio is evaluated and reported to the Group’s management;
• the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;
• how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and
• the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.
Non-derivative financial assets: Assessment whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:
•contingent events that would change the amount or timing of cash flows;
• termsterms that may adjust the contractual coupon rate, including variable rate features;
•prepayment and extension features; and
• terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features).
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a significant discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.
Derecognition of financial assets
The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
If the Group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognized.
Financial liabilities – Initial classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortized cost or at fair value through profit or loss. Financial liabilities are classified as measured at fair value through profit or loss if it is held for trading or it is designated as such on initial recognition, and are measured at fair value, and any net gains and losses, including any interest expenses, are recognized in profit or loss. Other financial liabilities are initially measured at fair value less directly attributable transaction costs. They are measured at amortized cost in subsequent periods, using the effective interest method. Interest expenses and currency exchange gains and losses are recognized in profit or loss. Any gains or losses on derecognition are also recognized in profit or loss.
F - 20
Note 3 – Significant Accounting Policies (Cont’d)
Derecognition of financial liabilities
Financial liabilities are derecognized when the contractual obligation of the Group expires or when it is discharged or canceled. Additionally, a significant amendment of the terms of an existing financial liability, or an exchange of debt instruments having substantially different terms, between an existing borrower and lender, are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability at fair value.
The difference between the carrying amount of the extinguished financial liability and the consideration paid (including any other non-cash assets transferred or liabilities assumed), is recognized in profit or loss.
Offset
Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
| c) | Impairment |
Financial assets, contract assets and receivables on a lease
The Group creates a provision for expected credit losses in respect of:
- | Contract assets (as defined in IFRS 15); |
- | Financial assets measured at amortized cost; |
- | Financial guarantees; |
- | Lease receivables. |
Simplified approach
The Group applies the simplified approach to provide for ECLs for all trade receivables (including lease receivables) and contract assets. The simplified approach requires the loss allowance to be measured at an amount equal to lifetime ECLs.
General approach
The Group applies the general approach to provide for ECLs on all other financial instruments and financial guarantees. Under the general approach, the loss allowance is measured at an amount equal to the 12-month ECLs at initial recognition.
At each reporting date, the Group assess whether the credit risk of a financial instrument has increased significantly since initial recognition. When credit risk has increased significantly since initial recognition, loss allowance is measured at an amount equal to lifetime ECLs.
In assessing whether the credit risk of a financial asset has significantly increased since initial recognition and in assessing expected credit losses, the Group takes into consideration information that is reasonable and verifiable, relevant and attainable at no excessive cost or effort. Such information comprises quantitative and qualitative information, as well as an analysis, based on the past experience of the Group and the reported credit assessment, and contains forward-looking information.
If credit risk has not increased significantly since initial recognition or if the credit quality of the financial instruments improves such that there is no longer a significant increase in credit risk since initial recognition, loss allowance is measured at an amount equal to 12-month ECLs.
The Group assumes that the credit risk of a financial asset has increased significantly since initial recognition whenever contractual payments are more than 30 days in arrears.
The Group considers a financial asset to be in default if:
- | It is not probable that the borrower will fully meet its payment obligations to the Company, and the Company has no right to perform actions such as the realization of collaterals (if any); or |
| - | The contractual payments in respect of the financial asset are more than 90 days in arrears. |
The Group considers a contract asset to be in default when the customer is unlikely to pay its contractual obligations to the Group in full, without recourse by the Group to actions such as realizing security.
The Group considers a debt instrument as having a low credit risk if its credit risk coincides with the global structured definition of “investment rating”.
F - 21
Note 3 – Significant Accounting Policies (Cont’d)
The credit losses expected over the life of the instrument are expected credit losses arising from all potential default events throughout the life of the financial instrument.
Expected credit losses in a 12-month period are the portion of the expected credit losses arising from potential default events during the period of 12 months from the reporting date.
The maximum period that is taken into account in assessing the expected credit losses is the maximum contractual period over which the Group is exposed to credit risk.
Measurement of expected credit losses
Expected credit losses represent a probability-weighted estimate of credit losses. Credit losses are measured at the present value of the difference between the cash flows to which the Group is entitled under the contract and the cash flows that the Group expects to receive.
Expected credit losses are discounted at the effective interest rate of the financial asset.
The Group’s credit risk exposure for trade receivables and contract asset are set out in Note 3028 Financial Instruments.
Financial assets impaired by credit risk
At each reporting date, the Group assesses whether financial assets that are measured at amortized cost and debt instruments that are measured at fair value through other comprehensive income have become impaired by credit risk. A financial asset is impaired by credit risk upon the occurrence of one or more of the events (i.e. significant financial difficulty of the debtor) that adversely affect the future cash flows estimated for such financial asset.
Presentation of impairment
A provision for expected credit losses in respect of a financial asset that is measured at amortized cost is presented as a reduction of the gross carrying amount of the financial asset.
Impairment losses in respect of trade and other receivables, including contract assets and lease receivables, are presented separately in the statements of profit or loss and other comprehensive income. Impairment losses in respect of other financial assets are presented under financing expenses.
Derivative financial instruments, including hedge accounting
The Group holds derivative financial instruments.
Derivatives are recognized initially at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognized in profit or loss.
The Group designates certain derivative financial instruments as hedging instruments in qualifying hedging relationships. At inception of designated hedging relationships, the Group documents the risk management objective and strategy for undertaking the hedge. The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Hedge accounting
As of December 31, 20202021 and 2019,2020, hedge relationships designated for hedge accounting under IAS 39 qualify for hedge accounting under IFRS 9, and are therefore deemed as continuing hedge relationships.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in OCI and accumulated in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.
The amount accumulated in equity is retained in OCI and reclassified to profit or loss in the same period or periods during which the hedged item affects profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the amount accumulated in equity is reclassified to profit or loss.
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Note 3 – Significant Accounting Policies (Cont’d)
Financial guarantees
The Group irrevocably elects on a contract by contract basis, whether to account for a financial guarantee in accordance with IFRS 9 or IFRS 4.
The Group considers a financial guarantee to be in default when the debtor of the loan is unlikely to pay its credit obligations to the creditor.
When the Group elects to account for financial guarantees in accordance with IFRS 9, they are initially measured at fair value. Subsequently, they are measured at the higher of the loss allowance determined in accordance with IFRS 9 and the amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of IFRS 15.
When the Group elects to account for financial guarantees in accordance with IFRS 4, a provision is measured in accordance with IAS 37 when the financial guarantees become probable of being exercised.
| F. | Property, plant and equipment, net |
| (1) | Recognition and measurement |
Items of property, plant and equipment comprise mainly power station structures, power distribution facilities and related offices. These items are measured at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
• | The cost of materials and direct labor; |
• | Any other costs directly attributable to bringing the assets to a working condition for their intended use; |
• | Spare parts, servicing equipment and stand-by equipment; |
| • | When the Group has an obligation to remove the assets or restore the site, an estimate of the costs of dismantling and removing the items and restoring the site on which they are located; and |
• | Capitalized borrowing costs. |
If significant parts of an item of property, plant and equipment items have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss in the year the asset is derecognized.
| (2) | Subsequent Cost |
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Group, and its cost can be measured reliably.
| (3) | Depreciation |
Depreciation is calculated to reduce the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss. Leasehold improvements are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold land is not depreciated. Diesel oil and spare parts are expensed off when they are used or consumed.
Depreciation methods, useful lives and residual values are reviewed by management of the Group at each reporting date and adjusted if appropriate.
The following useful lives shown on an average basis are applied across the Group:
Years | |
Roads, buildings and leasehold improvements (*) | 3 – 30 |
Facilities, machinery and equipment | 5 – 30 |
Wind turbines | 35 |
Computers | 3 |
Office furniture and equipment | 3 – 16 |
Others | 5 – 15 |
* The shorter of the lease term and useful life
F - 23
Note 3 – Significant Accounting Policies (Cont’d)
| G. | Intangible assets, net |
| (1) | Recognition and measurement |
Goodwill | Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment; and any impairment loss is allocated to the carrying amount of the equity investee as a whole. |
Customer relationships | Intangible assets acquired as part of a business combination and are recognized separately from goodwill if the assets are separable or arise from contractual or other legal rights and their fair value can be measured reliably. Customer relationships are measured at cost less accumulated amortization and any accumulated impairment losses. |
Other intangible assets | Other intangible assets, including licenses, patents and trademarks, which are acquired by the Group having finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses. |
| (2) | Amortization |
Amortization is calculated to charge to expense the cost of intangible assets less their estimated residual values using the straight-line method over their useful lives, and is generally recognized in profit or loss. Goodwill is not amortized.
The estimated useful lives for current and comparative year are as follows:
| • |
| • | Others | 1-33 years |
Amortization methods and useful lives are reviewed by management of the Group at each reporting date and adjusted if appropriate.
| (3) | Subsequent expenditure |
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill is expensed as incurred.
| H. | Service Concession arrangements |
The Group has examined the characteristics, conditions and terms currently in effect under its electric energy distribution license and the guidelines established by IFRIC 12. On the basis of such analysis, the Group concluded that its license is outside the scope of IFRIC 12, primarily because the grantor does not control any significant residual interest in the infrastructure at the end of the term of the arrangement and the possibility of renewal.
The Group accounts for the assets acquired or constructed in connection with the Concessions in accordance with IAS 16 Property, plant and equipment.
F - 24
Note 3 – Significant Accounting Policies (Cont’d)
Definition of a lease At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. For lease contracts that include components that are not lease components, such as services or maintenance which relate to the lease component, the Group elected to treat the lease component separately. As a lessee However, the Group has elected not to recognize right-of-use assets and lease liabilities for some leases of low-value assets. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which affects the amount of lease liabilities and right-of-use assets recognized. Depreciation of right-of-use asset Subsequent to the commencement date of the lease, a right-of-use asset is measured using the cost method, less accumulated depreciation and accrued losses from decline in value and is adjusted in respect of re‑measurements of the liability in respect of the lease. The depreciation is calculated on the “straight‑line” basis over the useful life or the contractual lease period – whichever is shorter.
Specific and non-specific borrowing costs are capitalized to qualifying assets throughout the period required for completion and construction until they are ready for their intended use. Non-specific borrowing costs are capitalized in the same manner to the same investment in qualifying assets, or portion thereof, which was not financed with specific credit by means of a rate which is the weighted-average cost of the credit sources which were not specifically capitalized. Foreign currency differences from credit in foreign currency are capitalized if they are considered an adjustment of interest costs. Other borrowing costs are expensed as incurred. Income earned on the temporary investment of specific credit received for investing in a qualifying asset is deducted from the borrowing costs eligible for capitalization. F - 25 Note 3 – Significant Accounting Policies (Cont’d)
At each reporting date, management of the Group reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment, and whenever impairment indicators exist. For impairment testing, assets are grouped together into smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. Goodwill arising from a business combination is allocated to CGUs or group of CGUs that are expected to benefit from these synergies of the combination. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an assessment is performed at each reporting date for any indications that these losses have decreased or no longer exist. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. The employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits depending on when the Group expects the benefits to be wholly settled.
The Group’s senior executives receive remuneration in the form of share-appreciations rights, which can only be settled in cash (cash-settled transactions). The cost of cash-settled transactions is measured initially at the grant date and is recognized as an expense with a corresponding increase in liabilities over the period that the employees become unconditionally entitled to payment. With respect to grants made to senior executives of OPC Energy Ltd (“OPC”), this benefit is calculated by determining the present value of the settlement (execution) price set forth in the plan. The liability is re-measured at each reporting date and at the settlement date based on the formulas described above. Any changes in the liability are recognized as operating expenses in profit or loss.
Severance pay is charged to income statement when there is a clear obligation to pay termination of employees before they reach the customary age of retirement according to a formal, detailed plan, without any reasonable chance of cancellation. The benefits given to employees upon voluntary retirement are charged when the Group proposes a plan to the employees encouraging voluntary retirement, it is expected that the proposal will be accepted and the number of employee acceptances can be estimated reliably.
The calculation of defined benefit obligation is performed at the end of each reporting period by a qualified actuary using the projected unit credit method. Remeasurements of the defined benefit liability, which comprise actuarial gains and losses and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in OCI. Interest expense and other expenses related to defined benefit plan are recognized in profit or loss. F - 26 Note 3 – Significant Accounting Policies (Cont’d) When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
Qualifying employees are awarded grants of the Group’s shares under the Group’s 2014 Share Incentive
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
The Group recognizes revenue when the customer obtains control over the promised goods or services. The revenue is measured according to the amount of the consideration to which the Group expects to be entitled in exchange for the goods or services promised to the customer. Revenues from the sale of electricity The Group includes Key agent or a principal The Group is a F - 27 Note 3 – Significant Accounting Policies (Cont’d)
Government grants related to distribution projects are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants are recorded at the value of the grant received and any difference between this value and the actual construction cost is recognized in profit or loss of the year in which the asset is released. Government grants related to distribution assets are deducted from the related assets. They are recognized in statement of income on a systematic basic over the useful life of the related asset reducing the depreciation expense.
Deposits received from consumers, plus interest accrued and less any outstanding debt for past services, are refundable to the users when they cease using the electric energy service rendered by the Group. The Group has classified these deposits as current liabilities since the Group does not have legal rights to defer these payments in a period that exceed a year. However, the Group does not anticipate making significant payments in the next year.
Costs from energy purchases either acquired in the spot market or from contracts with suppliers are recorded on an accrual basis according to the energy actually delivered. Purchases of electric energy, including those which have not yet been billed as of the reporting date, are recorded based on estimates of the energy supplied at the prices prevailing in the spot market or agreed-upon in the respective purchase agreements, as the case may be.
Financing income includes income from interest on amounts invested and gains from exchange rate differences. Interest income is recognized as accrued, using the effective interest method. Financing expenses include interest on loans received, commitment fees on borrowings, and changes in the fair value of derivatives financial instruments presented at fair value through profit or loss, and exchange rate losses. Borrowing costs, which are not capitalized, are recorded in the income statement using the effective interest method. In the statements of cash flows, interest received is presented as part of cash flows from investing activities. Dividends received are presented as part of cash flows from operating activities. Interest paid and dividends paid are presented as part of cash flows from financing activities. Accordingly, financing costs that were capitalized to qualifying assets are presented together with interest paid as part of cash flows from financing activities. Gains and losses from exchange rate differences and gains and losses from derivative financial instruments are reported on a net basis as financing income or expenses, based on the fluctuations on the rate of exchange and their position (net gain or loss). The Group’s finance income and finance costs include:
Interest income or expense is recognized using the effective interest method. F - 28 Note 3 – Significant Accounting Policies (Cont’d)
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI. (i) Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax liability arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met. (ii) Deferred tax Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profit improves. Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. Management of the Group regularly reviews its deferred tax assets for recoverability, taking into consideration all available evidence, both positive and negative, including historical pre-tax and taxable income, projected future pre-tax and taxable income and the expected timing of the reversals of existing temporary differences. In arriving at these judgments, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified. Management believes the Group’s tax positions are in compliance with applicable tax laws and regulations. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The Group believes that its liabilities for unrecognized tax benefits, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows. (iii) Uncertain tax positions A provision for uncertain tax positions, including additional tax and interest expenses, is recognized when it is more probable than not that the Group will have to use its economic resources to pay the obligation. F - 29 Note 3 – Significant Accounting Policies (Cont’d)
The Group presents basic and diluted earnings per share data for its ordinary share capital. The basic earnings per share are calculated by dividing income or loss allocable to the Group’s ordinary equity holders by the weighted-average number of ordinary shares outstanding during the period. The diluted earnings per share are determined by adjusting the income or loss allocable to ordinary equity holders and the weighted-average number of ordinary shares outstanding for the effect of all potentially dilutive ordinary shares including options for shares granted to employees.
Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognized as a deduction from equity.
A discontinued operation is a component of the Group´s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale. When an operation is classified as a discontinued operation, the comparative statement of profit or loss and other comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative year. The changes in each cash flow based on operating, investing and financing activities are reported in Note
The Company's CEO and CFO are considered to be the Group's chief operating decision maker ("CODM"). The following summary describes the Group’s reportable segments:
In addition to the segments detailed above, the Group has other activities, such as investment holding categorized as Others. The CODM evaluates the operating segments performance based on Adjusted EBITDA. Adjusted EBITDA is defined as the net income (loss) excluding depreciation and amortization, financing income, financing expenses, income taxes and other items. The CODM evaluates segment assets based on total assets and segment liabilities based on total liabilities. The accounting policies used in the determination of the segment amounts are the same as those used in the preparation of the Group's consolidated financial statements, Inter-segment pricing is determined based on transaction prices occurring in the ordinary course of business. In determining the information to be presented on a geographical basis, revenue is based on the geographic location of the customer and non-current assets are based on the geographic location of the assets. F - 30 Note 3 – Significant Accounting Policies (Cont’d)
Inventories are measured at the lower of cost or net realizable value. The cost of raw material inventories is determined using the first in, first out (FIFO) method. The cost of inventories of finished goods is determined on the basis of average cost, including materials, labor and the attributable share of production overheads, based on normal capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs required for the sale.
Assets, liabilities and benefits with respect to which a transaction is executed with the controlling shareholders are measured at fair value on the transaction date. The Group records the difference between the fair value and the consideration in equity.
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after January 1, 2021 and have not been applied in preparing these consolidated financial statements. The following amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated financial statements:
Note 4 – Determination of Fair Value
See Note
Non-derivative financial liabilities are measured at their respective fair values, at initial recognition and for disclosure purposes, at each reporting date. Fair value for disclosure purposes, is determined based on the quoted trading price in the market for traded debentures, whereas for non-traded loans, debentures and other financial liabilities is determined by discounting the future cash flows in respect of the principal and interest component using the market interest rate as at the date of the report. F - 31 Note 5 – Cash and Cash Equivalents
Note 6 – Short-Term Deposits and Restricted Cash
Note
Note
F - 33 Note
F - 34 Note
In view of the aforementioned business environment and in order to constantly improve ZIM’s results of operations and liquidity position, ZIM continues to optimize its network by entering into new partnerships and cooperation agreements and by upgrading its customer’s offerings, whilst seeking operational excellence and cost efficiencies. In addition, ZIM continues to explore options which may contribute to strengthen its capital and operational structure.
As of December 31,
In February 2021, ZIM completed its initial public offering (“IPO”) of 15,000,000 ordinary shares (including shares issued upon the exercise of the underwriters’ option), for gross consideration of $225 million (before deducting underwriting discounts and commissions or other offering expenses). ZIM’s ordinary shares began trading on the NYSE on January 28, 2021. Prior to the IPO, ZIM obtained waivers from its notes holders, subject to the completion of ZIM’s IPO, by which certain requirements and limitations in respect of repurchase of debt, incurrences of debt, vessel financing, reporting requirements and dividend distributions, were relieved or removed. As a result of the IPO, Kenon’s interest in ZIM was diluted from 32% to 28%. Following the IPO, Kenon recognized a gain on dilution of $10 million in its consolidated financial statements in 2021.
In August 2021, ZIM issued approximately 4 million shares as a result of options being exercised. As a result of the issuance, Kenon recognized a loss on dilution of approximately $27 million in its consolidated financial statements. In December 2021, ZIM issued approximately 1.2 million shares as a result of options being exercised. As a result of the issuance, Kenon recognized a loss on dilution of approximately $13 million in its consolidated financial statements.
Between September and November 2021, Kenon sold approximately 1.2 million ZIM shares at an average price of $58 per share for a total consideration of approximately $67 million. As a result, Kenon recognized a gain on sale of approximately $30 million in its consolidated financial statements. As at December 31, 2021, as a result of the sales of ZIM shares and the issuance of new shares described in Note 8.B.a.4, Kenon’s interest in ZIM reduced from 28% to 26%. F - 35 Note 8 – Investment in Associated Companies (Cont’d)
In June 2020, ZIM completed an early and full repayment of its Tranche A loans of amount $13 million. Following such repayment, certain financial covenants, such as “Total leverage ratio” and “Fixed charge cover ratio”, as well as restrictions related to assets previously securing such loans, were removed. In September 2020, ZIM launched a tender offer to repurchase, at its own discretion, some of its notes of Tranches C and D (Series 1 and 2 Notes) up to an amount of $60 million (including related costs). In October 2020, ZIM completed the repurchase of Tranche C notes with an aggregated face value of $58 million for a total consideration (including related costs) of $47 million, resulting in a gain from repurchase of debt of $6 million.
In 2019, ZIM entered into a revolving arrangement with a financial institution, subject to periodical renewals, for the recurring sale, meeting the criteria of “true sale”, of portion of receivables, designated by ZIM. According to this arrangement, an agreed portion of each designated receivable is sold to the financial institution in consideration of cash in the amount of the portion sold (limited to an aggregated amount of $100 million), net of the related fees. The collection of receivables previously sold, enables the recurring utilization of the above-mentioned limit. The true sale of the receivables under this arrangement meets the conditions for derecognition of financial assets as prescribed in IFRS 9. As at December 31, 2021, 0 amounts with withdrawn under this facility (2020: $2 million). Further to this arrangement, ZIM is required to comply with a minimum balance of cash (as determined in the agreement) in the amount of $125 million, as Subsequent to year end, the agreement was renewed to expire in February 2023.
For the purpose of IAS Due to an improvement in ZIM’s financial performance in 2020, Kenon, independently F - 36 Note 8 – Investment in Associated Companies (Cont’d) For the purposes of Kenon’s impairment assessment of the Group’s investment, ZIM is considered one CGU, which consists of all of ZIM’s operating assets. The recoverable amount is based on the higher of the value-in-use and the fair value less cost of disposal (“FVLCOD”). The valuation is predominantly based on publicly available information and earnings of ZIM over the 12-month period to December 31, 2020. The valuation approach was based on the equity method, recognizing the cost of investment share of profits in ZIM, and subsequently to assess a maintainable level of earnings to form a view on the appropriate valuation range as at December 31, 2020. The following data points and benchmarks were considered by the independent valuer:
The independent valuer arrived at a range of equity valued between $430 million and $585 million after adjustments for Net Debt. The fair value measurement was categorized as a Level 3 fair value based on the inputs in the valuation technique used.
The holders of ordinary shares of ZIM are entitled to receive dividends when declared and are entitled to one vote per share at meetings of ZIM. All shares rank equally with regard to the ZIM's residual assets, except as disclosed below. In the framework of the process of privatizing ZIM, all the State of Israel’s holdings in ZIM (about 48.6%) were acquired by IC pursuant to an agreement from February 5, 2004. As part of the process, ZIM allotted to the State of Israel a On July 14, 2014 the State of Israel and ZIM reached a settlement agreement (the “Settlement Agreement”) that was validated as a judgment by the Supreme Court. The Settlement Agreement provides, inter alia, the following arrangement shall apply: the State’s consent is required to any transfer of the shares in ZIM which confers on the holder a holding of 35% and more of the ZIM’s share capital. In addition, any transfer of shares which confers on the holders a holding exceeding 24% but not exceeding 35%, shall require prior notice to the State. To the extent the State determines that the transfer involves a potential damage to the State’s security or any of its vital interests or if the State did not receive the relevant information in order to formulate a decision regarding the transfer, the State shall be entitled to inform, within 30 days, that it objects to the transfer, and it will be required to reason its objection. In such an event, the transferor shall be entitled to approach a competent court on this matter. Kenon’s ownership of F - 37 Note
CPV Three Rivers is a project under construction in Illinois, United States. The commercial operation date is expected to be in Q2 2023, and the total construction cost (in respect of 100% of the project) is expected to be approximately $1,293 million. In respect of an interest of 17.5% in the rights to the Three Rivers construction project (the “Construction Project”), a Sellers’ Loan in the amount of $95 million (the “Sellers’ Loan”) was provided to the CPV Group. The Seller’s Loan was granted for a period of up to two years from the Transaction Completion Date, bore interest at an annual rate of 4.5%, to be paid quarterly and was secured by a lien on shares of the holding company that owns the rights in the project under construction and rights pursuant to the management agreement of the project under construction. On February 3, 2021, the transaction for sale of 7.5% of the rights in the Construction Project was completed for a consideration of approximately $41 million which was served for repayment as part of the Sellers’ Loan. No gain or loss was recognized on the sale. The remaining 10% equity interest continued to be subject to the Sellers’ Loan of approximately $55 million, which was repaid in October 2021. Loans As at December 31, 2021, CPV Three Rivers has outstanding debt of approximately $707 million. The final repayment date is June 30, 2028, and the rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The variable interest is set at LIBOR plus a spread ranging from 3.5% to 4% per year, and the fixed interest is at an annual rate of 4.75%. As a result of the loan, CPV Three Rivers is subject to certain covenants and distribution restrictions.
CPV Fairview is a power plant in Pennsylvania, United States using natural gas and combined cycle technology whose commercial operations started in 2019. Loans As at December 31, 2021, CPV Fairview has outstanding debt of approximately $662 million. The final repayment date is June 30, 2025, and the rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The variable interest is set at LIBOR plus a spread ranging from 2.5% to 2.75% per year, and the fixed interest is at an annual rate of 5.78%. As a result of the loan, CPV Fairview is subject to certain covenants and distribution restrictions.
CPV Maryland is a power plant in Maryland, United States using natural gas and combined cycle technology whose commercial operations started in 2017. Loans As at December 31, 2021, CPV Maryland has outstanding debt of approximately $371million. The final repayment dates of the loan and ancillary credit facilities are May 2028 and November 2027, respectively. The rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The loans are subject to interest rates of LIBOR plus 4% per term loan and LIBOR plus 2.75% for ancillary credit facilities. As a result of the loan, CPV Maryland is subject to certain covenants and distribution restrictions.
CPV Shore is a power plant in New Jersey, United States using natural gas and combined cycle technology whose commercial operations started in 2016. Loans As at December 31, 2021, CPV Shore has outstanding debt of approximately $504 million. The final repayment date of the loans and ancillary credit facilities are December 27, 2025 and December 27, 2023, respectively. The rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The loans are subject to interest rates of LIBOR plus 3.75% per term loan and LIBOR plus 3% for ancillary credit facilities. As a result of the loan, CPV Shore is subject to certain covenants and distribution restrictions. F - 38 Note 8 – Investment in Associated Companies (Cont’d)
CPV Towantic is a power plant in Connecticut, United States using natural gas/dual-fuel and combined cycle technology whose commercial operations started in 2018. Loans As at December 31, 2021, CPV Towantic has outstanding debt of approximately $598 million. The final repayment date is June 30, 2025, and the rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The debt is subject to interest of LIBOR plus a spread ranging from 2.75% to 3.25%. As a result of the loan, CPV Towantic is subject to certain covenants and distribution restrictions.
CPV Valley is a power plant in New York, United States using natural gas/dual-fuel and combined cycle technology whose commercial operations started in 2018. Loans As at December 31, 2021, CPV Valley has outstanding debt of approximately $578 million. The final repayment date of the loan is June 30, 2023. The rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The loan is subject to interest rate of LIBOR plus spread ranging from 3.5% to 3.75%. As a result of the loan, CPV Valley is subject to certain covenants and distribution restrictions. In April 2021 some expedients were received for the ancillary credit facilities in exchange for a commitment to provide equity in the cumulative amount of $10 million from the investors in the project (a commitment of $5 million was provided in April 2021 by CPV Valley and the other investor. The withdrawals are provided as shareholder loans bearing annual interest at a rate of 5%). The expedients pertain to a waiver of the annual repayment obligation of the working capital loans and release of $5 million in restricted working capital due to a regulatory permit. Note 9 – Long-term investment (Qoros)
In January 2018, the New Qoros Investor purchased 51% of Qoros from Kenon and Chery for RMB 3.315 billion (approximately $504 million), resulting in Kenon’s and Chery’s interest in Qoros dropping from 50% each to 24% and 25%, respectively. This was part of an investment structure (“Investment Agreement”) to invest a total of approximately RMB 6.63 billion (approximately $1,002 million) by the New Qoros Investor. The Investment Agreement provided Kenon with a put option over its remaining equity interest in Qoros which was initially valued at approximately $90 million. The value of the put option was reduced by approximately $19 million to approximately $71 million as a result of the fair value assessment as at December 31, 2019. F - 39 Note 9 – Long-term investment (Qoros) (Cont’d)
In January 2019, Kenon, on behalf of its wholly owned subsidiary Quantum (2007) LLC, announced that it had entered into an agreement to sell half (12%) of its remaining interest (24%) in Qoros to the New Qoros Investor for RMB1,560 million (approximately $220 million), which was based on the same post-investment valuation as the initial investment by the New Qoros Investor. In April 2020, Kenon completed the sale of this half of its remaining interest in Qoros and received payment of RMB1,560 million (approximately $220 million). Kenon recognized a gain of approximately $153 million from the sale of its 12% interest in Qoros and the derecognition of the current portion of the put option pertaining to the 12% interest sold. As a result of the sale, Kenon lost significant influence over Qoros and ceased equity accounting. Since April 29, 2020, the remaining 12% interest in Qoros was accounted for on a fair value basis through profit and loss and, together with the non-current portion of the put option pertaining to the remaining 12% interest (see Note 9.2), was reclassified in the statement of financial position as a long-term investment (Qoros). Upon reclassification, Kenon immediately recognized a fair value gain of approximately $139 million and the long-term investment (Qoros) was initially measured at a combined fair value of approximately $220 million. By the end of 2020, primarily due to the appreciation of RMB against the USD, the fair value of the long-term investment (Qoros) increased by approximately $15 million to $235 million. In 2020 up until the completion date of the sale and prior to the reclass detailed above, the aggregate current and non-current put option fair value was reduced by approximately $3 million to $68 million. The sale was not made pursuant to the put option described above in Note 9.2. As part of the sale agreement, the New Qoros Investor assumed its pro-rata share of guarantees of Kenon and Chery based on the change to its equity ownership.
In April 2021, Quantum entered into an agreement with the New Qoros Investor to sell all of its remaining 12% interest in Qoros. The key terms of the agreement are set forth below. The total purchase price is RMB1.56 billion (approximately $245 million), which is the same valuation as the previous sales by Quantum to the New Qoros Investor. The deal is subject to certain conditions, including a release of the share pledge (refer to Note 9.6.c) over the shares to be sold (substantially all of which have been pledged to Qoros’ lending banks), and necessary regulatory approvals. The Baoneng Group guaranteed the obligations of the New Qoros Investor under this agreement. The purchase price was to be paid over time according to a payment schedule. The first and second payments, including the deposit, were to be paid into a designated account set up in the name of the New Qoros Investor over which Quantum is a joint signatory to, of which the deposit was due July 31, 2021. According to the agreement, the transfer of these payments to Quantum would occur by the end of Q2 2022. To date, the New Qoros Investor has failed to make any of the required payments under this agreement. In the fourth quarter of 2021, Kenon started arbitration proceedings against the New Qoros Investor for breach of the agreement and Kenon also started litigation proceedings against the New Qoros Investor with regards to the New Qoros Investor’s obligations to Kenon’s pledged shares in relation to Qoros’ RMB 1.2 billion loan (as described below). The outcomes of these legal proceedings and any related awards are uncertain. As a result of the payment delay, Quantum currently has the right to exercise the Put Option it has to sell its remaining shares to the New Qoros Investor. F - 40 Note 9 – Long-term investment (Qoros) (Cont’d)
In September 2021, in light of the events described above, Kenon performed an assessment of the fair value of the long-term investment (Qoros) under IFRS 13 Fair value measurement. Kenon concluded that the fair value of the long-term investment (Qoros) is zero. Therefore, in 2021 Kenon recognized a fair value loss of $235 million in its consolidated financial statements for the year ended 2021.
As at December 31, 2018, Kenon’s back-to-back guarantee exposure to Chery was approximately $44 million however, following the New Qoros Investor’s investment into Qoros (refer to Note 9.2), Kenon assessed that the likelihood of future cash payments in relation to the guarantees was not probable. As a result, all provisions related to financial guarantees were released in 2018. Following completion of the transaction in 2019, the New Qoros Investor assumed its proportionate obligations with respect to the Qoros loans. As a result of this and repayments by Qoros in relation to its loans, Chery’s obligations under the loan guarantees were reduced. As a result, Kenon received $11 million from Chery. As at December 31, 2019, Kenon’s back-to-back guarantee obligations to Chery were reduced to approximately $23 million. In April 2020, Kenon received an additional $6 million from Chery following repayments by Qoros in relation to its loans. This brought the total cash received from Chery to RMB 244 million (approximately $36 million) in connection with these repayments. As at December 31, 2020, Kenon’s back-to-back guarantee obligations to Chery were reduced to approximately $16 million. F - 41 Note 9 – Long-term investment (Qoros) (Cont’d)
In the fourth quarter of 2021, Chery paid the full amount of its guarantee obligations under the RMB 3 billion and RMB 700 million loan facilities. As discussed above, Kenon had back-to-back guarantee obligations of approximately $16 million to Chery in respect of guarantees Chery had given for these two loans. Kenon paid the $16 million to Chery and recognized a corresponding $16 million expense in its consolidated statements of profit and loss. Following this payment, Kenon does not have any remaining guarantee obligations with respect to Qoros debt. As at December 31, 2021, as described in Note 9.6.c, Kenon has pledged substantially all of its interests in Qoros to secure Qoros’ RMB 1.2 billion loan facility. The New Qoros Investor was required to assume its pro rata share of pledge obligations. It has not yet provided all such pledges but has provided Kenon with a guarantee in respect of its pro rata share, and up to all, of Quantum's pledge obligations. Qoros continues to engage in discussions with the lenders and other relevant stakeholders relating to its other outstanding bank loans and resumption of manufacturing production which was shut down earlier this year.
Qoros has restrictions with respect to distribution of dividends and sale of assets deriving from legal and regulatory restrictions, restrictions under the joint venture agreement and the Articles of Association and restrictions stemming from credit received. F - 42 Note 10 – Subsidiaries
OPC is a publicly-traded company whose securities are listed on the TASE. OPC is engaged in In October 2020, OPC signed an agreement to acquire the CPV Group (as OPC’s activities in Israel are subject to seasonal fluctuations as a result of changes in the official Time of Use of Electricity Tariff (“TAOZ”), which is regulated and published by the The revenues of the CPV Group from electricity generation are seasonal and impacted by variable demand, gas prices and electricity prices, as fixed contractual price for the project.
The COVID-19 outbreak has led to quarantines, cancellation of events and travel, businesses and school shutdowns and restrictions, and alongside the conflict between Russia and Ukraine, supply chain interruptions, During the reporting period, high global demand for raw materials, transportation and shipping services were impacted by the spread of COVID-19 and the conflict, causing limited production capabilites, transportation and shipping restrictions, resulting in a significant increase in the cost of raw materials, production and supply chain, and an increase in the cost of maritime transport. This resulted in global delays in delivery dates for equipment alongside increased prices of raw materials and equipment used for construction and maintenance of OPC’s facilities and power plants. This also affected the construction and maintenance costs of OPC’s projects in the markets of activity and schedules for their completion. As of reporting date, there is no certainty as to the duration or scope of the COVID-19 impact, therefore OPC is unable to assess with full certainty its impact on its businesses.F - 43 Note 10 – Subsidiaries (Cont’d) Material subsidiaries Set forth below are details regarding OPC’s material subsidiaries:
*This represents the interest held by OPC Power Ventures LP OPC Israel holds most of OPC’s businesses in Israel, such as OPC’s interests in OPC Rotem, OPC Hadera, OPC Tzomet and OPC Sorek 2 (all defined below).
OPC Rotem operates the Rotem Power Plant located in the Rotem Plain. Its operations commenced on July 6, 2013, and OPC Rotem has a license which allows it to produce and sell electricity for a period of 30 years from that date. The Rotem power plant operates using conventional technology in an integrated cycle and has generation capacity of about 466 megawatts (“MW”). The remaining 20% is held by In October 2020, planned maintenance work continued for 13 days, during which the Rotem power plant was shut down. As at publication date, the next maintenance is planned to be in April 2022, during which the activities of the Rotem Power Plant and the related energy generation activities will be discontinued for a period of 20 days.
OPC Hadera holds a permanent OPC Hadera supplies all the electricity and steam needs of Additional maintenance work is expected to be performed on the steam turbine in In October 2021 the Hadera Power Plant was connected to Infinya by way of a direct electricity line. F - 44 Note 10 – Subsidiaries (Cont’d)
OPC Tzomet is in the construction stages of a conventional open-cycle power plant In April 2019, OPC Tzomet received a conditional license for construction of the Tzomet power plant. In December 2019, OPC Tzomet received tariff approval from the IEA.Lease of OPC Tzomet land In January 2020, Israel Lands Authority (“ILA”) approved allotment of an area measuring about In January 2020, a financial specification was received from ILA in respect of the capitalization fees, whereby value of the Land (not including development expenses) of about NIS 207 million (approximately $60 million) (not including VAT) was set (hereinafter – “the Initial Assessment”). In February 2021, the Joint Company submitted a legal appeal regarding the Final Assessment amount, which the ILA dismissed in August 2021. In November 2021, the Joint Company filed an assessor objection. As at December 31, F - 45 Note 10 – Subsidiaries (Cont’d)
In May 2020, OPC Sorek 2 signed an agreement with SMS IDE Ltd., which won a tender of the State of Israel for construction, operation, maintenance and transfer of a seawater desalination facility on the “Sorek B” site (the “Sorek B Desalination Facility”), where OPC Sorek 2 will construct, operate and maintain an energy generation facility (“Sorek B Generation Facility) with a generation capacity of up to 99 MW on the premises of the Sorek 2 Desalination Facility, and will supply the energy required for the Sorek B Desalination Facility for a period of 25 years after the operation date of the Sorek B Desalination Facility. At the end of the aforesaid period, ownership of the Sorek B Generation Facility will be transferred to the State of Israel. OPC undertook to construct the Sorek B Generation Facility within 24 months from the date of approval of the National Infrastructure Plan (approved in November 2021), and to supply energy at a specific scope of capacity to the Sorek B Desalination Facility. Establishment of the Sorek B Generation Facility is contingent on, among other things, completion of the planning and/or licensing processes and receipt of approval with respect to the ability to output electricity from the site, which as at the submission date of the report had not yet been received. In OPC’s estimation, the
In In July 2021, Gnrgy received a virtual supply license.
In January 2021, IC Green transferred its interest in ICGE to OPC at zero consideration. Refer to Note 10.A.2 for further details. As at December 31, 2021, ICGE, which is held directly by OPC, holds OPC’s businesses in the United States. During 2005-2020, ICGE recorded net operating losses for tax purposes, which as at December 31, 2020 amounted to approximately $108 million, and utilizable tax credits in the amount of approximately $1.7 million, which may be offset for tax purposes in the United States against future income in the United States, subject to complying with the conditions of the law, some of which are not under OPC’s control and, therefore, OPC did not recognize deferred tax assets in respect thereof. OPC coordinates its operations in the United States (including following the acquisition of CPV Group, as set out in Note 10.A.1.i) under ICGE. Among other things, the said transfer will allow tax savings with respect to profits, if any, from the business activities in the United States. F - 46 Note 10 – Subsidiaries (Cont’d) In addition, in January 2021, following the transfer of ICGE, OPC transferred its rights and loans in OPC Power to ICGE in respect of a loan in the amount of NIS 472 million (approximately $152 million), and capital notes issued by ICGE to OPC of amount NIS 1,188 million (approximately $382 million). The loan is denominated in shekels and bears annual interest at a rate of 7%. The loan principal will be repayable at any time that will be agreed on between the parties, but no later than January 2028. Accrued interest is payable on a quarterly basis. To the extent the payment made by ICGE is lower than the amount of the accrued interest, the payment in respect of the balance will be postponed to the next quarter, but not later than January 2028. The capital notes are repayable only after 5 years will have elapsed from their issuance date; they are denominated in shekels and are to be repaid based on the decision of ICGE.
In October 2020, OPC signed a partnership agreement (the “Partnership Agreement” and the “Partnership”, where applicable) with three financial entities to form OPC Power, whereby the limited partners in the Partnership are OPC which holds about 70% interest, Clal Insurance Group which hold 12.75% interest, Migdal Insurance Group which hold 12.75% interest, and a corporation from Poalim Capital Markets which hold 4.5% interest. The General Partner of the Partnership, a wholly-owned company of OPC, will manage the Partnership’s business as its General Partner, with certain material actions (or which may involve a conflict of interest between the General Partner and the limited partners), requiring approval of a majority of special majority (according to the specific action) of the institutional investors which are limited partners. The General Partner is entitled to management fees and success fees subject to meeting certain achievements. OPC also entered into an agreement with entities from the Migdal Insurance Group with respect to their holdings in the Partnership, whereby OPC granted said entities a put option, and they granted OPC a call option (to the extent that the put option is not exercised), which is exercisable after 10 years in certain circumstances. The total investment undertakings and provision of shareholders’ loans provided by all partners under the Partnership Agreement pro rata to the holdings discussed above is $1,215 million. The amount is designated for acquisition of all the rights in the CPV Group and for financing additional investments. In 2021, OPC and the holders of the non-controlling interests provided OPC Power in partnership capital and loans of approximately $657 million and $204 million respectively. The loans are denominated in dollars and bear interest at an annual rate of 7%. The loan principal is repayable at any time, but not later than January 2028. The accrued interest is to be paid on a quarterly basis. To the
The CPV Group is engaged in the development, construction and management of power plants using renewable energy and conventional energy (power plants running on natural gas of the advanced‑generation Acquisition of CPV Group On January 25, 2021 (“Transaction completion date”), the Group acquired 70% of the rights and holdings in CPV Power Holdings LP; Competitive Power Ventures Inc.; and CPV Renewable Energy Company Inc through the limited partnership, CPV Group LP (the “Buyer”). For the year ended December 31, 2021, Kenon’s consolidated results comprised results of the CPV Group from period end. F - 47 Note 10 – Subsidiaries (Cont’d) On the Transaction Completion Date, in accordance with the mechanism for determination of the consideration as defined in the acquisition agreement, the Buyer paid the Sellers approximately $648 million, and about $5 million for a deposit which remains in the CPV Group. In May 2021, the consideration for the acquisition of the CPV Group was adjusted slightly, as a result of which the sellers paid the CPV Group an immaterial amount. For further details relating to the Seller’s Loan provided in relation to Three Rivers, refer to Note 8.B.b.1. OPC bore legal expenses and costs of a due diligence examination attributable to the acquisition, which were included in selling, general and administrative expenses in the consolidated statements of profit and loss, in the amount of about NIS 44 million (approximately $13 million), of which about NIS 2 million (approximately $1 million) were incurred in 2021. Business combination OPC partially hedged its exposure to changes in the cash flows from payments in dollars in connection with the acquisition agreement by means of forward transactions and dollar deposits. OPC chose to designate the forward transactions as an accounting hedge. On the completion date of the transaction, OPC recorded the amount of about NIS 103 million (approximately $32 million) that was accrued in a hedge capital reserve to the cost of the investment in the CPV Group. This cost was recorded in the “goodwill” category and increased the cost of the acquisition by about $32 million. The contribution of the CPV Group to the Group’s revenue and consolidated loss from the acquisition date until December Determination of fair value of identified assets and liabilities: On the Transaction Completion Date, OPC included the CPV Group’s net assets at fair value. Presented below is the fair value of the
Combined cash flows as a result of the
F - 48 Note 10 – Subsidiaries (Cont’d) Goodwill Goodwill created as part of the business combination reflects the potential of future activities of the CPV Group in the
CPV Keenan owns a wind energy power plant with a capacity of 152 MW, located in Oklahoma, United States. In
CPV Maple Hill is in the construction stages of a solar energy power plant with a capacity of 126 MW located in Pennsylvania, United States. In May 2021, a commencement order for the construction work on CPV Maple Hill (hereinafter – “the Project”) was issued. As at December 31, 2021, the aggregate cost of the investment in the Project is estimated at about $178 million and the Project’s commercial operation date is expected to be in the second half of 2022.
CPV Rogue’s Wind is currently in the advanced development stage of developing a wind energy power plant with a capacity of 114 MW, located in Pennsylvania, United States. Construction of the power plant is expected to commence in the second half of 2022. In April 2021, the CPV Group signed a power purchase agreement for sale of all the energy, availability (capacity) and Renewable Energy Certificates (RECs) of CPV Rogue’s Wind (hereinafter - “the Project”). As at December 31, 2021, the aggregate cost of the investment in the Project is estimated at about $200 to $205 million and the Project’s commercial operation date is expected to be in the second half of 2023.
In 2019, OPC Rotem distributed In In June 2019, OPC issued 5,179,147 new ordinary shares at a price of NIS 23.17 per share to three external institutional entities. Total cash consideration of approximately NIS 120 million (approximately $33 million) was received. As a result of the share issuance, Kenon registered a decrease of 3% in equity interests of OPC from 76% to 73%. Accordingly, the Group recognised $14 million in non-controlling interests and $19 million in accumulated profits arising from changes in the Group’s proportionate share of OPC. F - 49 Note 10 – Subsidiaries (Cont’d) In September 2019, OPC issued 5,849,093 new ordinary shares at a price of NIS 26.5 per share to four external institutional entities. Total cash consideration of approximately NIS 155 million (approximately $44 million) was received. As a result of the share issuance, Kenon registered a decrease of 3% in equity interests of OPC from 73% to 70%. Accordingly, in 2019 the Group recognised $20 million in non-controlling interests and $24 million in accumulated profits arising from changes in the Group’s proportionate share of OPC. In October 2020, OPC published a shelf offer report for issuance of ordinary shares of NIS 0.01 par value each to the public through a uniform offer with a range of quantities by means of a tender on the price per unit and the quantity. Kenon submitted bids for participation in the tender at prices not less than the uniform price determined in the tender, and as part of the issuance it was issued 10,700,200 shares for a consideration of approximately $101 million. A total of 23,022,100 shares were issued to the public. The gross proceeds from the issuance amount to approximately NIS 737 million (approximately $217 million) and the issuance expenses amounted to approximately NIS 5 million (approximately $1 million). In addition, in October 2020, OPC completed a private offer of 11,713,521 ordinary shares to institutional entities from the Clal group and Phoenix group. The price per ordinary share with respect to each of the offerees was NIS 29.88, which was determined through negotiations between the offerees. The gross proceeds from the issuance amount to approximately NIS 350 million (approximately $103 million) and the issuance expenses amount to approximately NIS 5 million (approximately $1 million). Following completion of the In February 2021, OPC issued
In September 2021, OPC issued rights to purchase 13,174,419 ordinary OPC shares of NIS 0.01 per value each (hereinafter - the “Rights”), in connection with the development and expansion of OPC’s activity in the USA. The rights were offered such that each holder of ordinary shares of OPC who held 43 ordinary shares was entitled to purchase one right unit comprising of three shares at a price of NIS 75 (NIS 25 per share). Through the deadline for exercising the rights, notices of exercise were received for the purchase of 13,141,040 ordinary shares (constituting approximately 99.7% of the total shares offered in the rights offering). The gross proceeds from the exercised rights amounted to approximately NIS 329 million (approximately $102 million). In October 2021, Kenon exercised rights for the purchase of approximately 8 million shares for total consideration of approximately NIS 206 million (approximately $64 million), which included its pro rata share and additional rights it purchased during the rights trading period plus the cost to purchase these additional rights. As a result, Kenon now holds approximately 58.8% of the outstanding shares of OPC. Accordingly, the Group recognized $41 million in non-controlling interests and $60 million in accumulated profits arising from changes in the Group’s proportionate share of OPC. 2. IC Green Energy Ltd (“IC Green”) In 2020, IC Green acquired the remaining interests of ICG Energy, Inc (“ICGE”) (formerly known as Primus Green Energy Inc.), and F - 50 Note 10 – Subsidiaries (Cont’d)
* The NCI percentage represents the effective NCI of the F - 51
Note
F - 52 Note 11 – Property, Plant and Equipment, Net (Cont’d)
F - 53 Note
Note
*Relates to the acquisition of CPV Keenan, which is part of the CPV Group. Refer to Note 10.A.1.i for further information.
F - 55 Note
As part of the acquisition of the CPV Group as described in Note 10.A.1.i, on the acquisition date, OPC recognized goodwill of $105 million, which reflects the potential of future activities of CPV Group in the market in which it operates. Goodwill was attributed in full to CPV Group, which is a cash-generating unit. OPC conducted an annual impairment test as of December 31, 2021. OPC has considered the report from a qualified external valuer regarding the recoverable amount of the cash-generating unit based on discounted expected future cash flows provided by OPC. Projects under commercial operation and projects under construction were estimated by discounting expected future cash flows before tax and the weighted average cost of capital (WACC) after tax. Projects under development were estimated at cost. Below are the main assumptions used in the valuation:
OPC used a relevant discount rate reflecting the specific risks associated with the future cash flow of a cash-generating unit. As of December 31, 2021, the recoverable amount of the cash-generating unit of the CPV Group exceeds its book value and therefore, no impairment has been recognized for them. The fair value measurement was classified at Level 3 due to the use of input that is not based on observable market inputs in the assessment model. As of the report date, in accordance with management's assessments regarding future industry trends, which are based on external and internal sources, OPC has not identified any key assumptions in which possible likely changes may occur, which would cause the CPV Group's recoverable amount to decrease below its carrying amount. F - 56 Note 13 – Long-Term Prepaid Expenses and Other Non-Current Assets
Note Following are the contractual conditions of the Group’s interest-bearing loans and credit, which are measured based on amortized cost. Additional information regarding the Group’s exposure to interest risks, foreign currency and liquidity risk is provided in Note
F - 57 Note A.1 Classification based on currencies and interest rates
As at December 31, A.2Reconciliation of movements of liabilities to cash flows arising from financing activities
F - 58 Note
OPC The power plant project of OPC Rotem was financed by the project financing method (hereinafter – The loans (which In October 2021, the early repayment of the In proportion to their interests in OPC Rotem, OPC and Veridis extended to OPC Rotem loans for the financing of the early repayment of amounts NIS 904 million (approximately $291 million) and F - 59 Note
In July 2016, Hadera entered into a financing agreement for the senior debt (hereinafter – “the Hadera Financing Agreement”) with a consortium of lenders (hereinafter – “Hadera’s Lenders”), headed by Israel Discount Bank Ltd. (hereinafter – “Bank Discount”) and Harel Insurance Company Ltd. (hereinafter – “Harel”) to finance the construction of the Hadera Power Plant, whereby the lenders undertook to provide Hadera credit Some of the loans in the Hadera Financing Agreement are linked to the CPI and some are unlinked. The loans bear interest rates between 2.4% and 3.9% on the CPI-linked loans, and between 3.6% and 5.4% on the unlinked loans, and are As at December 31,
In December 2019, a financing agreement for the senior debt (project financing) was signed between OPC Tzomet and a syndicate of financing entities led by Bank Hapoalim Ltd. (hereinafter – “Bank Hapoalim”, and together with the other financing entities hereinafter – “Tzomet’s Lenders”), As part of As at December 31, As of December 31, Subsequent to year end, OPC Tzomet withdrew NIS 156 million (approximately $50 million) from the facility.OPC In December 2019, an equity subscription agreement (hereinafter – “Tzomet’s Equity Subscription Agreement”) was signed. As part of the said agreement, F - 60 Note
Short-term loans In December 2019, In March 2020, OPC took a loan from Bank Mizrahi Tafahot Ltd. (“Bank Mizrahi”), a related party of the Group, of amount NIS 50 million (approximately $16 million). The loan bore interest at the annual rate of prime In June 2019, OPC entered into a hedge agreement with Bank Hapoalim Ltd. for hedge of 80% of the exposure to the CPI with respect to the principal of loans from financial institutions, in exchange for payment of additional interest at the annual rate of between 1.7% and 1.76% (hereinafter – “the CPI Transactions”). OPC chose to designate the CPI Transactions as an “accounting hedge”. In 2020 and 2021, due to changes in the inflationary expectations and in light of the changes in the projected interest rates, OPC recorded an increase in the assets and liabilities, F - 61 Note 14 – Loans and Debentures (Cont’d) Series A Debentures In May 2017, OPC issued debentures (Series A). The par value of the debentures was NIS 320 million (approximately $85 million), bore annual interest at the rate of 4.95% and were repayable, principal and interest, every six months, commencing on June 30, 2018 (on June 30 and December 30 of every calendar year) through December 30, 2030. Subsequent to the additional issuance of Series B debentures in October 2020 as described below, OPC made early redemption of its Series A debentures. As a result of the early redemption, the debt service reserve of approximately NIS 67 million (approximately $19 million) was released. The total amount of full early redemption, in respect of principal, interest and compensation, amounted to approximately NIS 313 million (approximately $92 million). The compensation component of approximately NIS 41 million (approximately $12 million) Series B Debentures In April 2020, OPC issued debentures (Series B) with a par value of NIS400 million (approximately $113 million), which were listed on the TASE. As a result, approximately $111 million representing the par value, net of issuance cost is recognised as debentures. The debentures are linked to the Israeli consumer price index and bear annual interest at the rate of 2.75%. The principal and interest of the debentures (Series B) are repayable every six months, commencing on March 31, 2021 (on March 31 and September 30 of every calendar year) through September 30, 2028. In October 2020, OPC issued additional Series B debentures of par value NIS 556 million (approximately $162 million) (the “Expansion of Series B”). The gross proceeds of the issuance amount to approximately NIS 584 million (approximately $171 million) and the issuance costs were approximately NIS 7 million (approximately $2 million). A trust certificate was signed between OPC and Reznik Paz Nevo Trusts Ltd. in April 2020, which details customary grounds for calling the debentures for immediate repayment (subject to cure periods), including insolvency events, liquidation proceedings, receivership, a stay of proceedings and creditors’ arrangements, certain structural changes, a significant worsening in OPC’s financial position, etc. The trust certificate also includes a commitment of OPC to comply with certain financial covenants and restrictions as follows: As at December 31, Series C Debentures In September 2021, OPC issued Series C debentures at a par value of NIS 851 million (approximately $266 million), with the proceeds designated primarily for the early repayment of OPC Rotem’s financing (refer to Note 14.B). The debentures are listed on the TASE, are not CPI-linked and bear annual interest of 2.5%. The debentures shall be repaid in twelve semi-annual and unequal installments (on February 28 and August 31) as set out in the amortization schedule, starting on February 28, 2024 through August 31, 2030 (the first interest payment is due on February 28, 2022). The issuance expenses amounted to about NIS 9 million (approximately $3 million). OPC is required to comply with certain financial covenants and restrictions as follows: As at December 31, 2021, OPC’s shareholders’ equity was NIS 2,270 million (approximately $730 million) (minimum required is NIS 1 billion, and for purposes of a distribution, NIS 1.4 billion); the ratio of OPC’s shareholders’ equity to OPC’s total assets was 55% (minimum required is 20%, and for purposes of distribution, 30%); the ratio of the net consolidated financial debt less the financial debt designated for construction of projects that have not yet commenced producing EBITDA and Adjusted EBITDA is 7.3 (maximum allowed is 13, and for purposes of a distribution, 11); equity to consolidated balance sheet ratio of 37% (minimum required is 17%. F - 62 Note 14 – Loans and Debentures (Cont’d)
Keenan financing agreement In August 2021, CPV Keenan and a number of financial entities entered into a $120 million financing agreement (hereinafter - the “Keenan Financing Agreement”). Concurrently with the closing of the Keenan Financing Agreement, CPV Keenan repaid its former financing agreement entered into in 2014 (as of the repayment date, the outstanding principal was approximately $67 million). No financial penalties were imposed on the early repayment of the former financing agreement. The previous annual interest rate was LIBOR plus a 2.25%-2.75% spread on the Term Loan, and a 1% spread on the ancillary credit facilities. The loan and the ancillary credit facilities in the Keenan Financing Agreement shall be repaid in installments over the term of the agreement; the final repayment date is December 31, 2030. The loan and the ancillary credit facilities in the Keenan Financing Agreement shall carry an annual interest of LIBOR + 1% to 1.375%. As part of the Keenan Financing Agreement, collateral and pledges on the project's assets held by CPV Keenan were provided in favor of the lenders. It should be noted that the Keenan Financing Agreement includes, among other things, and as customary in agreements of this type, provisions regarding mandatory prepayments, fees in respect of credit facilities, annual fees relating to the issuance of LC and additional customary terms and conditions, including hedging of the base interest rate in respect of 70% of the loan. As part of the Keenan Financing Agreement, collateral and pledges on the project's assets held by CPV Keenan were provided in favor of the lenders. The Keenan Financing Agreement includes a number of restrictions, such as compliance with a minimum debt service coverage ratio of 1.15 during the 4 quarters that preceded the distribution, and a condition whereby no grounds for repayment or breach event exists (as defined in the financing agreement). The Keenan Financing Agreement includes grounds for calling for immediate repayment as customary in agreements of this type, including, among others – breach of representations and covenants that have a material adverse effect, non payment events, non compliance with certain obligations, various insolvency events, termination of the activities of the project or termination of significant parties in the project (as defined in the agreement), occurrence of certain events relating to the regulatory status of the project and maintaining of government approvals, certain changes in the project’s ownership, certain events in connection with the project, existence of legal proceedings relating to the project, and a situation wherein the project is not entitled to receive payments for electricity – all in accordance with and subject to the terms and conditions, definitions and cure periods detailed in the financing agreement. G. OPC Power Shareholder loans In 2021, OPC (through a wholly-owned subsidiary) and non-controlling interests provided loans to OPC Power in the amounts of $143 million and $61 million, respectively. Subsequent to year end, OPC (through a wholly owned subsidiary) and non-contorlling interests provided additional loans to OPC Power in the amounts of $8 million and $4 million, respectively. Refer to Note 10.A.1.h for further details. The loans bear annual interest at a rate of 7%. The loan principal will be repayable at any time as will be agreed on between the parties, but no later than January 2028. Accrued interest is payable on a quarterly basis. To the extent that payment made by OPC Power is lower than the amount of the accrued interest, payment in respect of the balance will be postponed to the following quarter – but not later than January 2028. Note
F - 63 Note
The lease for the gas Pressure Regulation and Measurement Station (“PRMS”) relates to the facility at OPC Hadera’s power plant. For further details, please refer to Note
The leases range from 3 to 10 years, with options to extend.
The total for low-value items on short-term leases are not material. Accordingly, the Group has not recognized right-of-use assets and lease liabilities for these leases.
F - 64 Note
In December 2019, an arrangement was signed between OPC Tzomet and the Local Council of
In January 2018, a request was filed with the Tel Aviv-Jaffa District Court to approve a derivative claim by a shareholder of Bazan against former and current directors of Bazan, Israel Chemicals Ltd., OPC Rotem, OPC Hadera and IC (collectively the "Group Companies"), over: (1) a transaction of the Group Companies for the purchase of natural gas from Tamar Partners, (2) transactions of the Group Companies for the purchase of natural gas from Energean Israel Ltd. (“Energean”) and (3) transaction for sale of surplus gas to Bazan. In August 2018, the Group Companies submitted their response to the claim filed. OPC rejected the contentions appearing in the claim and requested summary dismissal of the claim. In OPC’s estimation, based on advice from its legal advisors, it is more likely than not that the claim will not be accepted by the Court and, accordingly, no provision has been included in the financial statements in respect of the claim as at December 31,
In November 2017, a request was filed with the Tel Aviv-Jaffa District Court to approve a derivative claim on behalf of Bazan. The request is based on the petitioner's contention that the undertaking in the electricity purchase transaction between Bazan and OPC Rotem is an extraordinary interested party transaction that did not receive the approval of the general assembly of Bazan shareholders on the relevant dates. The respondents to the request include Bazan, OPC Rotem, the Israel Corporation Ltd. and the members of Bazan's Board of Directors at the time of entering into the electricity purchase transaction. The requested remedies include remedies such as an injunction and financial remedies. In July 2018, OPC Rotem submitted its response to the request. Bazan’s request for summary judgement was F - 65 Note
In 2014 (commencing in August), letters were exchanged between OPC Rotem and IEC regarding the tariff to be paid by OPC Rotem to IEC in respect of electricity that it had purchased from the electric grid, in connection with sale of electricity to private customers, where the electricity generation in the power plant was insufficient to meet the electricity needs of such customers. It is OPC Rotem’s position that the applicable tariff is the “ex-post” tariff, whereas according to IEC in the aforesaid exchange of letters, the applicable tariff is the TAOZ tariff, and based on part of the correspondences even a tariff that is 25% higher than the TAOZ tariff (and some of the correspondences also raise allegations of IEC raised contentions regarding past accountings in respect of the acquisition cost of energy for OPC Rotem’s customers in a case of a load reduction of the plant by the System Operator, and collection differences due to non‑transfer of meter data in the years 2013 through 2015. In addition, IEC stated its position with respect to additional matters in the arrangement between the parties relating to the acquisition price of surplus energy and the acquisition cost of energy by OPC Rotem during performance of tests. OPC Rotem’s position regarding the matters referred to by IEC, based on its legal advisors, is different and talks are being held between the parties. As at December 31, 2021, the open matters had not yet been resolved and there is no certainty regarding formulation of consents between the parties. In OPC Rotem’s estimation, it is more likely than not that OPC Rotem will not pay any additional amounts in respect of the period ended December 31,
In February 2020, the In May 2021, IEC notified OPC Rotem that according to its approach, sale of energy by OPC Rotem to end‑consumers in excess of the As at filing date, the extent of the final supplementary arrangements to be determined. F - 66 Note
In January 2016, an agreement was signed between OPC Hadera and SerIDOM Servicios Integrados IDOM, S.A.U (“IDOM”), for the design, engineering, procurement and construction of a cogeneration power plant, in consideration of about NIS 639 million (approximately $185 million) (as amended several times as part of change orders, including an amendment made in 2019 and described below), which is payable on the basis of the progress of the construction and compliance with milestones (hereinafter – “the Hadera Construction Agreement”). IDOM has provided bank guarantees and a corporate guarantee of its parent company to secure the said obligations, and OPC has provided a corporate guarantee to IDOM, in the amount of $10.5 million, to secure part of OPC Hadera’s liabilities. In addition, as part of an addendum to OPC Hadera’s construction agreement which was signed in October 2018, the parties agreed to waiver of past claims up to the signing date of the addendum. In accordance with the construction agreement, OPC Hadera is entitled to certain compensation from IDOM in respect of the delay in completion of the construction of the Hadera Power Plant, and to compensation in a case of non-compliance with conditions in connection with the plant’s performance. In OPC Hadera’s estimation, as at year end the amount of compensation due to it for delay in deliver of the power plant is about NIS 76 million (approximately $23 million). In July 2020, upon completion of the Hadera Power Plant, a request was received from IDOM for payment of the two final milestones of amount NIS 48 million (approximately $15 million). The two final milestone payments were paid by means of an offset against the balance of compensation. In OPC Hadera’s estimation, while IDOM has contentions regarding the final settlement, OPC Hadera has an unconditional contractual right to receive the compensation for the delay in the delivery of the power plant as stated and it is more likely than not that its position will be accepted, hence, no provision has been included in the financial statements. In May 2021 a notice letter of a dispute was received from IDOM alleging that OPC Hadera does not have grounds for charging them the amounts specified in the construction agreement for the delay (“LDs”) and the performance of the power plant (including by way of offsetting), and that IDOM is entitled to additional consideration of EUR 7 million (approximately $8 million). It is noted that in June 2021, the bank guarantee provided by IDOM was extended until May 2022. In September 2021, IDOM started an arbitration procedure against OPC Hadera in the International Court of Arbitration, including a claim for payments totaling $14 million for meeting milestones (that OPC Hadera has unilaterally offset against LDs), net of any compensation in respect of LDs which the construction contractor may be required to pay as a result of the arbitration process; additional consideration totaling EUR 7 million (approximately $8 million) in respect of work; a claim by IDOM to the effect that it may reduce the amount of guarantees it provided in favor of OPC Hadera, as well as certain declarative remedies. OPC Hadera disputes the claims of IDOM (except in respect of an insignificant amount out of said claim, relative to EUR 7 million (approximately $8 million)), and the claims were rejected even prior to receiving IDOM’s said notice. It is OPC Hadera’s position, according to the power plant’s construction agreement and based on the position of its legal counsel, that it is entitled to LDs and damages (limited to an amount up to the maximum specified in the construction agreement) for non-compliance with conditions set out in the agreement in connection with the performance of the power plant. The total amount in respect of all of the above grounds for compensation is capped at $36 million (which includes the offset payments described above). As at December 31, As In November 2021, OPC received a refund from their insurance company for IDOM of F - 67 Note
In September 2018, OPC Tzomet signed a planning, procurement and construction agreement (hereinafter – “the Agreement”) with PW Power Systems LLC (hereinafter – “Tzomet Construction Contractor” or “PWPS”), for construction of the Tzomet project. The Agreement is a “lump‑sum turnkey” agreement wherein the Tzomet Construction Contractor committed to construct the Tzomet project in accordance with the technical and engineering specifications determined and includes various undertakings of the contractor. In OPC Tzomet’s estimation, based on the work specifications, the aggregate consideration that will be paid in the framework of the Agreement is about $300 million, and it will be paid based on the milestones The continuity of construction has been affected by COVID-19 due to the need to transport equipment and foreign crews to the site. The construction work In Due to the delay in supply of the gas from the Karish reservoir, OPC Rotem and OPC Hadera will be required to acquire the quantity of gas it had planned to acquire from Energean for purposes of operation of the power plants at present gas prices, which is higher than the price stipulated in the Energean agreement. The delays in the commercial operation date of Energean, and in turn, a delay in supply of the gas from the Karish reservoir, will have an unfavorable impact on OPC’s profits. In the agreements with Energean, compensation for delays had been provided, the amount of which depends on the reasons for the delay, where the limit with respect to the compensation in a case where the damages caused is “force majeure” is lower. It is noted that the damages that will be caused to OPC stemming from a delay could exceed the amount of the said compensation. F - 68 Note
As part of the sale described in Note Subsequent to year end, in accordance with the agreement, 53,500,000 shares were released from pledge, and 1,500,000 shares of OPC remain pledged in light of an indemnity claim relating to a tax assessment claim in the amount of $11 million.
OPC entered into long-term service maintenance contracts for its operating power plants. The number of maintenance hours and price are specified in the agreements. OPC entered into long-term infrastructure contracts for use of PRMS at its operating power plants. The price is specified in the agreements. OPC entered into long-term PPAs with its customers (of which some included construction of generation facilities) for sale of electricity and gas. The supply quantity, period and pricing are specified in the agreements. OPC has also entered into long-term PPAs with its suppliers for purchase of electricity and gas. The minimum purchase quantity, period and pricing are specified in the agreements. OPC entered into long-term construction agreements for constructing its power plants. The price, technical and engineering specifications, and work milestones are specified in the agreements. For more information relating to the construction of the Tzomet power plant, refer to 17.A.g. F - 69 Note
All shares rank equally with regards to Company’s residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. All issued shares are fully paid with no par value. The capital structure of the Company comprises of issued capital and accumulated In
The translation reserve includes all the foreign currency differences stemming from translation of financial statements of foreign activities as well as from translation of items defined as investments in foreign activities commencing from January 1, 2007 (the date IC first adopted IFRS).
The capital reserve reflects the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge (ie the portion that is offset by the change in the cash flow hedge reserve). In 2021, approximately 4.7 million share options of ZIM were exercised, resulting in a proportionate share of increase in capital reserve attributable to owners of the Company of $5.4 million. Approximately 250 thousand share options of OPC were exercised, resulting in an increase in capital reserve attributable to owners of the Company of $1.6 million.
In April 2021, Kenon’s board of directors approved a cash dividend of $1.86 per share (an aggregate amount of approximately $100 million), to Kenon’s shareholders of record as of the close of trading on April 29, 2021, paid on May 6, 2021. In November 2021, Kenon’s board of directors approved a cash dividend of $3.50 per share (an aggregate amount of approximately $189 million), to Kenon’s shareholders of record as of the close of trading on January 19, 2022, paid subsequent to year end on January 27, 2022. F - 70 Note
Kenon has established a Note
Note
F - 71 Note
(1) A portion of this relates to profit sharing for CPV Group employees
The fair value of the CPV Group’s Profit-Sharing Plan is recognized as an expense, against a corresponding increase in liability, over the period in which the unconditional right to payment is achieved. The liability is remeasured at each reporting date until the settlement date. Any change in the fair value of the liability is recognized in the consolidated statements of profit and loss. In 2021, the CPV Group recorded expenses in the amount of approximately NIS 50 million (approximately $15 million). Note
F - 72 Note
No previously unrecognized tax benefits were used in
F - 73 Note
The deferred taxes are calculated based on the tax rate expected to apply at the time of the reversal as detailed below. Deferred taxes in respect of subsidiaries were calculated based on the tax rates relevant for each country. The deferred tax assets and liabilities are derived from the following items:
Income tax rate in Israel is 23% for the years ended December 31, 2021, 2020 F - 74 Note On January 4, 2016, Amendment 216 to the Income Tax Ordinance (New Version) – 1961 (hereinafter – “the Ordinance”) was passed in the Knesset. As part of the amendment, OPC’s and Hadera’s income tax rate was reduced by 1.5% to a rate of 25% as from 2016. Furthermore, on December 22, 2016 the Knesset plenum passed the Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018) – 2016, by which, inter alia, the corporate tax rate would be reduced from 25% to 23% in two steps. The first step will be to a rate of 24% as from January 2017 and the second step will be to a rate of 23% as from January 2018. As a result of reducing the tax rate to 23%, the deferred tax balance as at December 31,
In Unrecognised deferred tax liabilities The tax effect on taxable temporary differences of $112 million (2020: $nil) has not been recorded as this arises from undistributed profits of the Group’s associated companies which the Group does not expect to incur. Singapore does not impose taxes on disposal gains, which are considered to be capital in nature, but imposes tax on income and gains of a trading nature. As such, whenever a gain is realized on the disposal of an asset, the practice of the IRAS is to rely upon a set of commonly-applied rules in determining the question of capital (not taxable) or revenue (taxable). Under Singapore tax laws, any gains derived by a divesting company from its disposal of ordinary shares in an investee company between June 1, 2012 and December 31, 2027 are generally not taxable if, immediately prior to the date of such disposal, the divesting company has held at least 20% of the ordinary shares in the investee company for a continuous period of at least 24 months. F - 75 Note Data used in calculation of the basic / diluted earnings per share
Note
In December 2017, Kenon, through its wholly-owned subsidiary Inkia Energy Limited (“Inkia”), sold its Latin American and Caribbean power business to an infrastructure private equity firm, I Squared Capital (“ISQ”). As a result, the Latin American and Caribbean businesses were classified as discontinued operations. Kenon’s subsidiaries are entitled to receive payments in connection with certain claims held by companies within Inkia’s businesses. In 2019, one of Kenon’s subsidiaries received a favorable award in a commercial arbitration proceeding relating to retained claims from the sale of the Inkia business. In 2020, following the completion of a tax review related to the sale, Kenon recognized income of $8 million, net of taxes. Set forth below are the results attributable to the discontinued operations
F - 76 Note Financial information of the reportable segments is set forth in the following tables:
F - 77 Note
Major customers Following is information on the total sales of the Group to material customers and the percentage of the Group’s total revenues (in
* Represents an amount less than 10% of the revenues. F - 78 Note Information based on geographic areas The Group’s geographic revenues are as follows:
The Group’s non-current assets* on the basis of geographic location:
* Composed of property, plant and equipment and intangible assets. Note
The Group’s related parties In the ordinary course of business, some of the Group’s subsidiaries and affiliates engage in business activities with each other. Ordinary course of business transactions are aggregated in this note. Other than disclosed elsewhere in the consolidated financial statements during the period, the Group engaged the following material related party transactions. Key management personnel of the Company are those persons having the authority and responsibility for planning, directing and controlling the activities of the Company. The directors, CEO and CFO are considered key management personnel of the Company.
Key management personnel compensation
F - 79 Note
These balances relate to amounts with entities that are related to Kenon's beneficial owners.
Note
The Group has international activity in which it is exposed to credit, liquidity and market risks (including currency, interest, inflation and other price risks). In order to reduce the exposure to these risks, the Group holds derivative financial instruments, (including forward transactions, interest rate swap (“SWAP”) transactions, and options) for the purpose of economic (not accounting) hedging of foreign currency risks, inflation risks, commodity price risks, interest risks and risks relating to the price of inputs. This note presents information about the Group’s exposure to each of the above risks, and the Group’s objectives, policies and processes for measuring and managing the risk. The risk management of the Group companies is executed by them as part of the ongoing current management of the companies. The Group companies monitor the above risks on a regular basis. The hedge policies with respect to all the different types of exposures are discussed by the boards of directors of the companies. The comprehensive responsibility for establishing the base for the risk management of the Group and for supervising its implementation lies with the Board of Directors and the senior management of the Group.
Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if a counterparty defaults on their obligations under the contract. This includes any cash amounts owed to the Group by those counterparties, less any amounts owed to the counterparty by the Group where a legal right of set-offs exists and also includes the fair values of contracts with individual counterparties which are included in the financial statements. The maximum exposure to credit risk at each reporting date is the carrying value of each class of financial assets mentioned in this note.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk as at year end was:
Based on the credit risk profiles of the Group’s counterparties relating to the Group’s cash and cash equivalents, short-term and long-term deposits and restricted cash, trade receivables and other assets, short-term and long-term derivative instruments, the Group has assessed these expected credit loss on the financial assets to be immaterial. The maximum exposure to credit risk for trade receivables as at year end, by geographic region was as follows:
F - 81 Note
Set forth below is an aging of the trade receivables:
No ECL has been recorded on any trade receivable amounts based on historical credit loss data and the Group’s view of economic conditions over the expected lives of the receivables.
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and adverse credit and market conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages its liquidity risk by means of holding cash balances, short-term deposits, other liquid financial assets and credit lines. Set forth below are the anticipated repayment dates of the financial liabilities, including an estimate of the interest payments. This disclosure does not include amounts regarding which there are offset agreements:
Note
D. Market risks Market risk is the risk that changes in market prices, such as foreign exchange rates, the CPI, interest rates and prices of capital products and instruments will affect the fair value of the future cash flows of a financial instrument. The Group buys and sells derivatives in the ordinary course of business, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the Boards of Directors of the companies. For the most part, the Group companies enter into hedging transactions for purposes of avoiding economic exposures that arise from their operating activities. Most of the transactions entered into do not meet the conditions for recognition as an accounting hedge and, therefore, differences in their fair values are recorded on the statement of profit and loss. (1) CPI and foreign currency risk Currency risk The Group’s functional currency is the U.S. dollar. The exposures of the Group companies are measured with reference to the changes in the exchange rate of the dollar vis-à-vis the other currencies in which it transacts business. The Group is exposed to currency risk on sales, purchases, assets and liabilities that are denominated in a currency other than the respective functional currencies of the Group entities. The primary exposure is to the Shekel (NIS). The Group uses options and forward exchange contracts on exchange rates for purposes of hedging short-term currency risks, usually up to one year, in order to reduce the risk with respect to the final cash flows in dollars deriving from the existing assets and liabilities and sales and purchases of goods and services within the framework of firm or anticipated commitments, including in relation to future operating expenses. The Group is exposed to currency risk in relation to loans it has taken out and debentures it has issued in currencies other than the dollar. The principal amounts of these bank loans and debentures have been hedged by swap transactions the repayment date of which corresponds with the payment date of the loans and debentures. F - 83 Note The Group’s exposure to foreign currency risk in respect of non‑hedging derivative financial instruments is as follows:
The Group’s exposure to foreign currency risk in respect of non‑hedging derivative financial instruments is as follows:
Inflation risk The Group has CPI-linked loans. The Group is exposed to payments of higher interest and principal as the result of an increase in the CPI. It is noted that part of the Group’s anticipated revenues will be linked to the CPI. The Group does not hedge this exposure beyond the expected hedge included in its revenues. F - 84 Note 28 – Financial Instruments (Cont’d)
The Group’s exposure to index risk with respect to derivative instruments used for hedging purposes is shown below:
For additional details, please refer to Note F - 85 Note
The Group’s exposure to CPI and foreign currency risk, based on nominal amounts, is as follows:
F - 86 Note
A strengthening of the dollar exchange rate by 5%–10% against the following currencies and change of the CPI in rate of 1%–2% would have increased (decreased) the net income or net loss and the equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
The Group is exposed to changes in the interest rates with respect to loans bearing interest at variable rates, as well as in relation to swap transactions of liabilities in foreign currency for dollar liabilities bearing a variable interest rate. The Group has not set a policy limiting the exposure and it hedges this exposure based on forecasts of future interest rates. The Group enters into transactions mainly to reduce the exposure to cash flow risk in respect of interest rates. The transactions include interest rate swaps and “collars”. In addition, options are acquired and written for hedging the interest rate at different rates. F - 87 Note 28 – Financial Instruments (Cont’d) Type of interest Set forth below is detail of the type of interest borne by the Group’s interest-bearing financial instruments:
The Group’s assets and liabilities bearing fixed interest are not measured at fair value through the statement of profit and loss and the Group does not designate derivatives interest rate swaps as hedging instruments under a fair value hedge accounting model. Therefore, a change in the interest rates as at the date of the report would not be expected to affect the income or loss with respect to changes in the value of fixed – interest assets and liabilities. A change of 100 basis points in interest rate at reporting date would have increased/(decreased) profit and loss before tax by the amounts below. This analysis assumes that all variables, in particular foreign currency rates, remain constant.
A change of 0.5%–1.5% in the LIBOR interest rate at reporting date would have increased/(decreased) the net income or net loss and the equity by the amounts below. This analysis assumes that all variables, in particular foreign currency rates, remain constant.
The Group’s exposure to LIBOR risk for derivative financial instruments used for hedging is as follows:
The Group’s financial instruments include mainly non-derivative assets, such as: cash and cash equivalents, investments, deposits and short-term loans, receivables and debit balances, investments and long-term receivables; non-derivative liabilities: such as: short-term credit, payables and credit balances, long-term loans, finance leases and other liabilities; as well as derivative financial instruments. In addition, fair value disclosure of lease liabilities is not required. Due to their nature, the fair value of the financial instruments included in the Group’s working capital is generally identical or approximates the book value. The following table shows in detail the carrying amount and the fair value of financial instrument groups presented in the financial statements not in accordance with their fair value. F - 88 Note 28 – Financial Instruments (Cont’d)
The fair value of long-term loans from banks and others (excluding interest) is classified as level 2, and measured using the technique of discounting the future cash flows with respect to the principal component and the discounted interest using the market interest rate on the measurement date. The following table presents an analysis of the financial instruments measured at fair value, using an evaluation method. The various levels were defined as follows: – Level 1: Quoted prices (not adjusted) in an active market for identical instruments. – Level 2: Observed data, direct or indirect, not included in Level 1 above. – Level 3: Data not based on observed market data. Derivative instruments are measured at fair value using a Level 2 valuation method – observable data, directly or indirectly, which are not included in quoted prices in an active market for identical instruments. See Note Level 3 financial instrument measured at fair value
(3) Data and measurement of the fair value of financial instruments at Level 2 and 3 Level 2 The fair value of forward contracts on foreign currency is determined using trading programs that are based on market prices. The market price is determined based on a weighting of the exchange rate and the appropriate interest coefficient for the period of the transaction along with an index of the relevant currencies. The fair value of contracts for exchange (SWAP) of interest rates and fuel prices is determined using trading programs which incorporate market prices, the remaining term of the contract and the credit risks of the parties to the contract. The fair value of currency and interest exchange (SWAP) transactions is valued using discounted future cash flows at the market interest rate for the remaining term. The fair value of transactions used to hedge inflation is valued using discounted future cash flows which incorporate the forward CPI curve, and market interest rates for the remaining term. If the inputs used to measure the fair value of an asset or liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The fair value of marketable securities held for trade is determined using the ‘Discounts for Lack of Marketability’ (“DLOM”) valuation method, which is a method used to calculate the value of restricted securities. The method purports that the only difference between a company’s common stock and its restricted securities is the lack of marketability of the restricted securities which is derived from the price difference between both prices. F - 89 Note 28 – Financial Instruments (Cont’d) Level 3 As at December 31, 2020, the fair value of the long-term investment (Qoros) described in Note 9.3, was based on the market comparison technique using the following variables:
The following table shows the valuation techniques used in measuring Level 3 fair values as at December 31,
Note
In March 2022, majority of OPC shares that were previously pledged as part of the Inkia sale described in Note 25 were released. Refer to Note 17.A.i for further details.
Kenon will seek shareholder approval for a capital reduction at its forthcoming annual general meeting to return share capital amounting to $10.25 per share ($552 million in total) to Kenon’s shareholders, subject to and contingent upon the approval of the High Court of the Republic of Singapore.
In March 2022, ZIM’s board of directors approved a cash
SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: ITEM 19. Exhibits Index to Exhibits 187
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