Kenon Holdings Ltd. (Form: 20-F, Received: 04/19/2017 16:19:36)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 20-F

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36761

KENON HOLDINGS LTD.
(Exact name of registrant as specified in its charter)

(Company Registration No. 201406588W)

Singapore	4911	Not Applicable
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

1 Temasek Avenue #36-01
Millenia Tower
Singapore 039192
+65 6351 1780
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Copies to:
Scott V. Simpson
James A. McDonald
Skadden, Arps, Slate, Meagher and Flom (UK) LLP
40 Bank Street
London E14 5DS
Telephone: +44 20 7519 7000
Facsimile: +44 20 7519 7070

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Ordinary Shares, no par value	The New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

53,719,667 shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☒ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such a shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically or posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☐ No ☐

Indicate by check mark whether the registrant is an accelerated filer, a large accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☐

International Financial Reporting Standards as issued by the International Accounting Standards Board ☒

Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:

Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ☐ No ☒

TABLE OF CONTENTS

PART I		1
ITEM 1. Identity of Directors, Senior Management and Advisers		1
A.	Directors and Senior Management	1
B.	Advisers	1
C.	Auditors	1
ITEM 2. Offer Statistics and Expected Timetable		1
ITEM 3 . Key Information		1
A.	Selected Financial Data	1
B.	Capitalization and Indebtedness	9
C.	Reasons for the Offer and Use of Proceeds	9
D.	Risk Factors	9
ITEM 4. Information on the Company		64
A.	History and Development of the Company	64
B.	Business Overview	64
C.	Organizational Structure	163
D.	Property, Plants and Equipment	164
ITEM 4A. Unresolved Staff Comments		164
ITEM 5. Operating and Financial Review and Prospects		164
A.	Operating Results	185
B.	Liquidity and Capital Resources	206
C.	Research and Development, Patents and Licenses, Etc.	230
D.	Trend Information	230
E.	Off-Balance Sheet Arrangements	231
F.	Tabular Disclosure of Contractual Obligations	231
G.	Safe Harbor	233
ITEM 6 . Directors, Senior Management and Employees		233
A.	Directors and Senior Management	233
B.	Compensation	235
C.	Board Practices	235
D.	Employees	237
E.	Share Ownership	238
ITEM 7. Major Shareholders and Related Party Transactions		238
A.	Major Shareholders	238
B.	Related Party Transactions	239
C.	Interests of Experts and Counsel	240
ITEM 8. Financial Information		240
A.	Consolidated Statements and Other Financial Information	240
B.	Significant Changes	241
ITEM 9. The Offer and Listing		241
A.	Offer and Listing Details.	241
B.	Plan of Distribution	242
C.	Markets	242
D.	Selling Shareholders	242
E.	Dilution.	242
F.	Expenses of the Issue	242
ITEM 10. Additional Information		242
A.	Share Capital	242
B.	Constitution	242
C.	Material Contracts	254
D.	Exchange Controls	254

E.	Taxation	254
F.	Dividends and Paying Agents	258
G.	Statement by Experts	258
H.	Documents on Display	258
I.	Subsidiary Information	258
ITEM 11. Quantitative and Qualitative Disclosures about Market Risk		258
ITEM 12. Description of Securities Other than Equity Securities		259
A.	Debt Securities	259
B.	Warrants and Rights	259
C.	Other Securities	259
D.	American Depositary Shares	259
PART II		260
ITEM 13. Defaults, Dividend Arrearages and Delinquencies		260
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds		260
ITEM 15. Controls and Procedures		260
ITEM 16. [RESERVED]		261
ITEM 16A. Audit Committee Financial Expert		261
ITEM 16B. Code of Ethics		261
ITEM 16C. Principal Accountant Fees and Services		261
ITEM 16D. Exemptions from the Listing Standards for Audit Committees		261
ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers		261
ITEM 16F. Change in Registrant's Certifying Accountant		262
ITEM 16G. Corporate Governance		262
ITEM 16H. Mine Safety Disclosure		262
PART III		263
ITEM 17. Financial Statements		263
ITEM 18. Financial Statements		263
ITEM 19. Exhibits		263

INTRODUCTION AND USE OF CERTAIN TERMS

We have prepared this annual report using a number of conventions, which you should consider when reading the information contained herein. In this annual report, the “Company,” “we,” “us” and “our” shall refer to Kenon Holdings Ltd., or Kenon, and each of our subsidiaries and associated companies, collectively, as the context may require, including:

I.C. Power Asia Development Ltd. (“ICP”), formerly I.C. Power Ltd., an Israeli holding company with electricity generation and distribution operations in Latin America, the Caribbean and Israel, in which Kenon has an indirect 100% interest;

IC Power Ltd. (“IC Power”), formerly IC Power Pte. Ltd, a Singaporean holding company, in which Kenon has a direct 100% interest. IC Power holds a direct 100% interest in ICP;

Qoros Automotive Co., Ltd. (“Qoros”), a Chinese automotive company based in China, in which Kenon has a 50% interest;

ZIM Integrated Shipping Services, Ltd. (“ZIM”), an Israeli global container shipping company, in which Kenon has a 32% interest; and

Primus Green Energy, Inc. (“Primus”), a New Jersey corporation which is an innovative developer of an alternative fuel technology, in which Kenon, through IC Green, has a 91% interest.

Additionally, this annual report uses the following conventions:

“Ansonia” means Ansonia Holdings Singapore B.V., a company organized under the laws of Singapore, which owns approximately 58% of the outstanding shares of Kenon;

“HelioFocus” means HelioFocus Ltd., an Israeli corporation, in which Kenon, through IC Green, has a 70% interest, and which is currently in a liquidation process;

“IC” means Israel Corporation Ltd., an Israeli corporation traded on the Tel Aviv Stock Exchange, or the “TASE,” and Kenon’s former parent;

“IC Green” means IC Green Energy Ltd., an Israeli corporation, which holds Kenon’s equity interests in Primus and HelioFocus;

“Petrotec” means Petrotec AG, a German company listed on the Frankfurt Stock Exchange, which IC Green sold in December 2014;

“Quantum” means Quantum (2007) LLC, a Delaware limited liability company, which is the direct owner of our 50% interest in Qoros;

“our businesses” shall refer to each of our subsidiaries and associated companies, collectively, as the context may require;

“spin-off” shall refer to (i) IC’s January 7, 2015 contribution to Kenon of its interests in each of IC Power, Qoros, ZIM, Tower, Primus, HelioFocus and REG, as well as other intermediate holding companies related to these entities, and (ii) IC’s January 9, 2015 distribution of Kenon’s issued and outstanding ordinary shares, via a dividend-in-kind, to IC’s existing shareholders; and

“Tower” means Tower Semiconductor Ltd., an Israeli specialty foundry semiconductor manufacturer, listed on the NASDAQ stock exchange, or “NASDAQ,” and the TASE.

Additionally, this annual report uses the following conventions for IC Power:

IC Power’s Operating Companies, Assets under Development, Pipeline Projects and Other Relevant Businesses:

“Acter Holdings” means Inkia Holdings (Acter) Limited, a Cayman Islands corporation through which IC Power held its interest in Southern Cone Power Perú S.A.;

“Agua Clara” means IC Power DR Operations S.A.S., a Dominican Republic corporation;

“Amayo I” means Consorcio Eólico Amayo S.A., a Panamanian corporation;

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“Amayo II” means Consorcio Eólico Amayo (Fase II) S.A., a Panamanian corporation;

“CDA” means Cerro del Águila S.A., a Peruvian corporation;

“Cenérgica” means Cenérgica, S.A. de C.V., a Salvadorian corporation;

“Central Cardones” means Central Cardones S.A., a Chilean corporation;

“CEPP” means Compañía de Electricidad de Puerto Plata S.A., a Dominican Republic corporation;

“COBEE” means Compañía Boliviana de Energía Eléctrica S.A., a Canadian corporation;

“Colmito” means Termoeléctrica Colmito Ltda., a Chilean corporation;

“Corinto” means Empresa Energética Corinto Ltd., a Cayman Islands corporation;

“DEOCSA” means Distribuidora de Electricidad de Occidente, S.A., a Guatemalan corporation;

“DEORSA” means Distribuidora de Electricidad de Oriente, S.A., a Guatemalan corporation;

“Enel Generación Perú” means Enel Generación Perú S.A.A. Enel Generación Perú previously operated under the name Edegel;

“Energuate” means DEORSA and DEOCSA, collectively. Energuate is the trade name of IC Power’s Guatemalan distribution businesses DEORSA and DEOCSA. Energuate is not a legal entity;

“Generandes” means Generandes Perú S.A., a Peruvian corporation through which IC Power held its indirect interest in Enel Generación Perú;

“Guatemel” means Comercializadora Guatemalteca Mayorista de Electricidad, S.A., a Guatemalan corporation;

“Hadera Paper” means Hadera Paper Ltd., an Israeli corporation;

“ICPDH” means IC Power Distribution Holdings Pte. Ltd., a Singaporean corporation;

“ICPI” means IC Power Israel Ltd., an Israeli corporation;

“ICPNH” means IC Power Nicaragua Holdings, a Cayman Islands corporation, formerly known as AEI Nicaragua Holdings Ltd., or AEI Nicaragua;

“Inkia” means Inkia Energy Limited, a Bermudian corporation;

“JPPC” means Jamaica Private Power Company Ltd., a Jamaican corporation;

“Kallpa” means Kallpa Generación S.A., a Peruvian corporation;

“Kanan” means Kanan Overseas I. Inc., a Panamanian corporation;

“Nejapa” means Nejapa Power Company S. de R.L., a Panamanian corporation;

“OIP” means Overseas Investments Peru S.A., a Peruvian corporation;

“OPC-Rotem” means O.P.C. Rotem Ltd., an Israeli corporation;

“OPC-Hadera” is the trade name of Advanced Integrated Energy Ltd., an Israeli corporation;

“Pedregal” means Pedregal Power Company S.de.R.L, a Panamanian corporation;

“Puerto Quetzal” means Puerto Quetzal Power L.L.C., a Delaware limited liability company;

“RECSA” means Redes Eléctricas de Centroamérica, S.A., a Guatemalan corporation;

“Samay I” means Samay I S.A., a Peruvian corporation;

“Surpetroil” means Surpetroil S.A.S., a Colombian corporation; and

“Tipitapa Power” means Tipitapa Power Company Ltd., a Cayman Islands corporation.

IC Power’s Regulatory Bodies and Electricity System Coordination Entities

“AMM” means Wholesale Market Administrator ( Administrador del Mercado Mayorista ), a private entity that coordinates the operation of the generation facilities and international interconnections and transmission lines that form Guatemalan National Electricity System;

“ANA” means the National Water Authority of Peru (Autoridad Nacional del Agua );

“CND” means the National Dispatch Center of Panama ( Centro Nacional de Despacho );

“CNDC” means, as applicable, (i) the National Dispatch Committee of Bolivia ( Comité Nacional de Despacho de Carga ), a governmental entity responsible for planning and coordinating the operation of the generation, transmission and distribution systems that form the SIN in Bolivia or (ii) the National Dispatch Center of Nicaragua ( Centro Nacional de Despacho de Cargo ), a governmental entity responsible for the management of Nicaragua’s electricity market and national interconnected electrical system;

“CNEE” means the National Electric Energy Commission of Guatemala ( Comisión Nacional de Energia Electrica ), which was established pursuant to the General Electricity Law of 1996, Decree 93-96, or General Electricity Law ( Ley General de Electricidad ) and acts as a technical arm of the MEM and which determines the transmission and distribution tariffs and is responsible for ensuring compliance with Guatemalan electricity laws;

“COES” means the Committee for the Economic Operation of the System ( Comité de Operación Económica del Sistema Interconectado Nacional ), an independent and private Peruvian entity composed of qualified participants undertaking activities in SEIN which is responsible for planning and coordinating the operation of the generation, transmission and distribution systems that form the SEIN;

“EA” means the Electricity Authority in Israel, which was established pursuant to the Electricity Sector Law to regulate and supervise, among other things, the provision of essential electric services in Israel and electricity tariffs and, which replaced the previous regulator, Israel’s Public Utilities Authority (Electricity), or the PUAE, on January 1, 2016;

“Guatemalan National Electricity System” means the Guatemalan national electricity system, which comprises the set of premises, facilities, power plants, transmission lines, substations, distribution grids, electric equipment, loading centers, including all of the electric infrastructure used to supply electricity, whether or not interconnected, within which electric power is transmitted among the country’s several regions;

“IEC” means Israel Electric Corporation, a government-owned entity, which generates and supplies the majority of electricity in Israel, transmits and distributes all of the electricity in Israel, acts as the system operator of Israel’s electricity system, determines the dispatch order of generation units, grants interconnection surveys, and sets spot prices, among other roles;

“INDECOPI” means the National Institute for the Defense of Competition and Intellectual Property Protection ( Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual ), the Peruvian antitrust and intellectual property regulator;

“INDE” means the National Electrification Institute of Guatemala ( Instituto Nacional de Electrificación ), a state entity in charge of development of local power production pursuant to the INDE Statutory Law ( Ley Orgánica del Instituto Nacional de Electrificación ) and consequently in accordance with the General Electricity Law. This entity operates through its three divisions: Empresa de Generación de Energía Eléctrica (EGEE), which is responsible for power generation, Empresa de Transporte y Control de Energía Eléctrica (ETCEE), which is responsible for transmission and Empresa de Comercialización de Energía (ECOE), which is responsible for trading;

“MEM” means the Ministry of Energy and Mines of Guatemala ( Ministerio de Energía y Minas ), which is responsible for enforcing the General Electricity Law and the related regulations and for the coordination of policies between CNEE and the AMM and overseeing energy and mining sectors in Guatemala;

“MINEM” means the Ministry of Energy and Mines of Peru ( Ministerio de Energía y Minas ), which is responsible for, among other things, setting national energy policy, proposing and adopting laws and regulations to supervise the energy sector and granting concessions and authorizations to entities who wish to operate in power generation, transmission or distribution in Peru;

“OC” means the Coordinating Body ( Organismo Coordinador ), a Dominican governmental authority whose function is to plan and coordinate the operations of the generation, transmission and distribution systems that form the national interconnected electrical system of the Dominican Republic ( Sistema Eléctrico Nacional Interconectado );

“OEFA” means the Organization of Supervision and Environmental Assessment ( Organismo de Evaluacióny Fiscalización Ambiental ), the Peruvian governmental body responsible for the power plants’ compliance with environmental regulations;

“OSINERGMIN” means the Supervisory Body of Investment in Energy and Mining ( Organismo Supervisor de la Inversión en Energía y Minería ), a Peruvian governmental authority which is responsible for, among other things, ensuring that companies comply with the rules and regulations applicable to the energy industry in Peru and for setting the tariffs to be charged to regulated customers;

“PUAE” means Israel’s Public Utilities Authority (Electricity), which, prior to January 1, 2016, regulated and supervised, among other things, the provision of essential electric services in Israel and electricity tariffs. The PUAE was replaced by the EA on January 1, 2016;

“Salvadorian CNE” means the National Energy Commission of El Salvador ( Comisión Nacional de Energía ), a governmental entity which is responsible for proposing and adopting policies and regulations for the Salvadorian energy sector;

“SEIN” means the national interconnected electrical system of Peru ( Sistema Eléctrico Interconectado Nacional );

“SENACE” means the National Service for Environmental Certification of Sustainable Investments of Peru ( Servicio Nacional de Certificación Ambiental para las Inversiones Sostenibles ), a Peruvian specialized technical governmental agency in charge of reviewing and approving detailed environmental impact assessments related to projects involving activities, works or services that may cause significant impacts to the environment;

“SIC” means the national interconnected electrical system of Chile ( Sistema Interconectado Central );

“SIEPAC” means Central American Electrical Interconnection System ( Sistema de Interconexión Eléctrica de los Países de América Central ) that connects the transmission systems of Nicaragua, Panama, Costa Rica, Honduras, El Salvador and Guatemala through a 230 KW transmission line;

“SIGET” means the General Superintendency of Electricity and Telecommunications ( Superintendencia General de Electricidad y Telecomunicaciones ), a Salvadorian entity which is responsible for ensuring that companies comply with the rules and regulations passed by the Salvadorian CNE, as well as other laws that are applicable to the energy industry in El Salvador;

“SIN” means a national system formed by generation plants, the interconnected grid, regional transmission lines, distribution lines and consumer loads ( Sistema Interconectado Nacional ) in each of Bolivia, Colombia and Guatemala;

“SING” means the Interconnected System of Norte Grande of Chile ( Sistema Interconectado Norte Grande ); and

“UPME” means the Mining and Energy Planning Unit ( Unidad de Planeación Minero Energética ), a special administrative unit of the Ministry of Mines and Energy of Colombia.

Industry and Other Terms Relevant to IC Power’s Operations

“availability factor” means the percentage of hours a power generation unit is available for generation of electricity in the relevant period, whether or not the unit is actually dispatched or used for generating power;

“Btu” means British thermal units;

“CAGR” means compound annual growth rate;

“COD” means the commercial operation date of a development project;

“distribution” refers to the transfer of electricity from the transmission lines at grid supply points and its delivery to consumers at lower voltages through a distribution system;

“EPC” means engineering, procurement and construction;

“firm capacity” means the amount of energy available for production that, pursuant to applicable regulations, must be guaranteed to be available at a given time for injection to a certain power grid;

“greenfield projects” means projects constructed on unused land with no need to demolish or remodel existing structures;

“GWh” means gigawatt hours (one GWh is equal to 1,000 MWh);

“Heat rate” means the number of British thermal units, or Btus, of energy contained in the fuel required to produce a kilowatt-hour of energy (btu/kWh) for thermal plants;

“HFO” means heavy fuel oil;

“hydro” means hydroelectric;

“IC Power’s capacity” or “IC Power’s installed capacity” means, with respect to each asset, 100% of the capacity of such asset, regardless of IC Power’s ownership interest in the entity that owns such asset;

“proportionate capacity” means, with respect to each asset, the proportionate capacity of such asset, as determined by IC Power’s ownership interest in the entity that owns such asset;

“installed capacity” means the intended full-load sustained output of energy that a generation unit is designed to produce (also referred to as name-plate capacity);

“IPP” means independent power producer, excluding co-generators and generators for self-consumption;

“kWh” means kilowatts per hour;

“MW” means megawatts (one MW is equal to 1,000 kilowatts or KW);

“MWh” means megawatt per hour;

“OEM” means original equipment manufacturer;

“PPA” means power purchase agreement;

“transmission” refers to the bulk transfer of electricity from generating facilities to the distribution system at load center station in which the electricity is stabilized by means of the transmission grid;

“VAD” means the Value Added by Distribution ( Valor Agregado de Distribución ) charge that is set by the CNEE;

“VNR” means variable transmission revenue and VNR of transmission system is the estimated cost of replicating a “model” transmission system including an estimated return on capital;

“VNR of the transmission system” means the estimated cost of replacing a “model” transmission system, including an estimated return on capital; and

“weighted average availability” refers to the number of hours that a generation facility is available to produce electricity divided by the total number of hours in a year.

Although we acquired each of our subsidiaries and associated companies in connection with the spin-off, the operating and other statistical information with respect to each of our subsidiaries and associated companies is presented as of December 31, 2016, unless otherwise indicated, as if we owned such businesses for the periods covered by this annual report.

FINANCIAL INFORMATION

We produce financial statements in accordance with the International Financial Reporting Standards, or IFRS, issued by the International Accounting Standards Board, or IASB, and all financial information included in this annual report is derived from our IFRS financial statements, except as otherwise indicated. In particular, this annual report contains certain non-IFRS financial measures which are defined under “ Item 3.A Selected Financial Data ” and “ Item 4.B Business Overview—Our Businesses—IC Power. ” In addition, certain financial information relating to Tower, where indicated, has been derived from Tower’s financial statements that have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP.

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Our financial statements as of and for the year ended December 31, 2014, are presented as combined carve-out financial statements and have been derived from the consolidated financial statements of IC, our former parent. These combined financial statements reflect the assets, liabilities, revenues and expenses directly attributable to us, as well as allocations deemed reasonable by us, to present our combined financial position, profit and loss and other comprehensive income, changes in equity attributable to the owners of the company and cash flows. These combined carve-out financial statements are not necessarily indicative of our financial position, profit and loss and other comprehensive income, or cash flows had we operated as a separate entity throughout the periods presented. We present our combined carve-out financial statements in U.S. Dollars.

Our financial statements as of and for the years ended December 31, 2016 and 2015, are presented as consolidated financial statements. These consolidated financial statements included in this annual report comprise the consolidated statements of profit and loss, other comprehensive income, changes in equity, and cash flows for the years ended December 31, 2016 and 2015 and the consolidated statement of financial position as of December 31, 2016 and 2015. We present our consolidated financial statements in U.S. Dollars.

All references in this annual report to (i) “U.S. Dollars”, “$” or “USD” are to the legal currency of the United States of America; (ii) “RMB” are to Yuan, the legal currency of the People’s Republic of China, or China; (iii) “NIS” or “New Israeli Shekel” are to the legal currency of the State of Israel, or Israel; (iv) “Peruvian Sol” are to the legal currency of Peru; (v) “Bs” or “Bolivianos” are to the legal currency of the Plurinational State of Bolivia, or Bolivia; (vi) “S$” are to Singapore Dollars, the legal currency of the Republic of Singapore, or Singapore; (vii) “Colombian pesos” are to the legal currency of the Republic of Colombia, or Colombia; (viii) “Chilean pesos” are to the legal currency of the Republic of Chile, or Chile and (ix) “Guatemalan Quetzales” are to the legal currency of the Republic of Guatemala, or Guatemala. We have made rounding adjustments to reach some of the figures included in this annual report. Consequently, numerical figures shown as totals in some tables may not be arithmetic aggregations of the figures that precede them.

In this annual report, we also include the consolidated financial statements of profit or loss and other comprehensive income, changes in equity, and cash flows for the years ended December 31, 2016, 2015 and 2014, and consolidated statements of financial position as of December 31, 2016 and 2015 for Qoros, pursuant to Rule 3-09 of Regulation S-X.

NON-IFRS FINANCIAL INFORMATION

In this annual report, we disclose non-IFRS financial measures, namely Adjusted EBITDA and Net Debt, each as defined under “ Item 3.A Selected Financial Data–Selected Reportable Segment Data ” and “ Item 3.A Selected Financial Data–Selected Reportable Segment Data–IC Power ” and “ Item 4.B Business Overview—Our Businesses—IC Power—IC Power’s Description of Operations. ” Each of these measures are important measures used by us, and our businesses, to assess financial performance. We believe that the disclosure of Adjusted EBITDA and Net Debt provides transparent and useful information to investors and financial analysts in their review of our, or our subsidiaries’ and associated companies’, operating performance and in the comparison of such operating performance to the operating performance of other companies in the same industry or in other industries that have different capital structures, debt levels and/or income tax rates.

EXCHANGE RATE INFORMATION

The following tables set forth the historical period-end, average, high and low noon buying rates in New York City for cable transfers in foreign currencies as certified by the Federal Reserve Bank of New York for the U.S. Dollar expressed in RMB per one U.S. Dollar for the periods indicated:

	RMB/U.S. Dollar
Year	Period end ¹		Average rate ²		High		Low
2012		6.2301		6.2990		6.3879		6.2221
2013		6.0537		6.1412		6.2438		6.0537
2014		6.2046		6.1701		6.2591		6.0402
2015		6.4778		6.2869		6.4896		6.1870
2016		6.9430		6.6549		6.9580		6.4480

_____________________

1.	Represents the closing exchange rate on the last business day of the applicable period.

2.	Represents the average of the closing exchange rates on the last business day of each month during the relevant one-year periods.

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	RMB/U.S. Dollar
Month	High		Low
October 2016		6.7819		6.6685
November 2016		6.9195		6.7534
December 2016		6.9580		6.8771
January 2017		6.9575		6.8360
February 2017		6.8821		6.8517
March 2017		6.9132		6.8687
April 2017 (through April 14)		6.8988		6.8832

MARKET AND INDUSTRY DATA

Certain information relating to the industries in which each of our subsidiaries and associated companies operate and their position in such industries used or referenced in this annual report were obtained from internal analysis, surveys, market research, publicly available information and industry publications. Unless otherwise indicated, all sources for industry data and statistics are estimates or forecasts contained in or derived from internal or industry sources we believe to be reliable. Market data used throughout this annual report was obtained from independent industry publications and other publicly available information. Such data, as well as internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified. In addition, in certain cases we have made statements in this annual report regarding the industries in which each of our subsidiaries and associated companies operate and their position in such industries based upon the experience of our businesses and their individual investigations of the market conditions affecting their respective operations. We cannot assure you that any of these statements are accurate or correctly reflect the position of subsidiaries and associated companies in such industries, and none of our internal surveys or information has been verified by independent sources.

Market data and statistics are inherently predictive and speculative and are not necessarily reflective of actual market conditions. Such statistics are based upon market research, which itself is based upon sampling and subjective judgments by both the researchers and the respondents. In addition, the value of comparisons of statistics for different markets is limited by many factors, including that (i) the markets are defined differently, (ii) the underlying information was gathered by different methods and (iii) different assumptions were applied in compiling the data. Accordingly, although we believe and operate as though all market and industry information presented in this annual report is accurate, the market statistics included in this annual report should be viewed with caution.

REPRESENTATION OF CAPACITY AND PRODUCTION FIGURES

Unless otherwise indicated, statistics provided throughout this annual report with respect to power generation units are expressed in MW, in the case of the capacity of such power generation units, and in GWh, in the case of the electricity production of such power generation units. One GWh is equal to 1,000 megawatt hours, or MWh, and one MWh is equal to 1,000 kilowatt hours, or kWh. Statistics relating to aggregate annual electricity production are expressed in GWh and are based on a year of 8,760 hours. Unless otherwise indicated, IC Power’s capacity figures provided in this annual report reflect 100% of the capacity of all of IC Power’s assets, regardless of IC Power’s ownership interest in the entity that owns each such asset, and IC Power’s consolidated generation figures provided in this annual report reflect 100% of the generation figures of IC Power’s subsidiaries, and excludes the generation figures of IC Power’s associated companies. Excluding the generation figures of OPC-Hadera, whose generation figures are only presented since the date of its acquisition in August 2015, generation figures for assets acquired during a year are presented for the full year, regardless of the date within the year when the acquisition occurred. As a result, the generation figures provided in this annual report of ICPNH, Puerto Quetzal, Surpetroil and JPPC, which IC Power acquired in 2014, and OPC-Hadera, which IC Power acquired in 2015, reflect 100% of the generation figures of these companies for the years ended December 31, 2014 and 2015, respectively, regardless of IC Power’s date of acquisition of such companies. For information on IC Power’s ownership interest in each of its operating companies and associated companies, see “ Item 4.B Business Overview—Our Businesses—IC Power. ” For further details on technical conventions used in this annual report, see “ Introduction and Use of Certain Terms .”

INFORMATION REGARDING TOWER

On July 23, 2015, consistent with our strategy to realize value for our shareholders by, among other things, distributing our interests in our non-primary businesses to our shareholders rationally and expeditiously, we completed the pro rata distribution in specie of 18,030,041 ordinary shares of Tower, representing 23% of the then currently outstanding Tower shares and substantially all of our interest in Tower, to holders of our ordinary shares. In 2016, we sold our remaining interest in Tower.

Tower is subject to the reporting requirements of the Securities and Exchange Commission, or the SEC, and, as a foreign private issuer, Tower is required to file with the SEC annual reports containing audited financial information, and to furnish to the SEC reports containing any material information that Tower provides to its local securities regulator, investors or stock exchange. Tower’s published financial statements are prepared according to U.S. GAAP. Information related to Tower contained, or referred to, in this annual report has been derived from Tower’s public filings with the SEC. Although we held a significant equity interest in Tower during certain periods discussed in this annual report, we did not control or manage Tower, participate in the preparation of Tower’s public reports or financial statements or have any specific information rights regarding Tower during such periods. Tower’s publicly available filings can be found on the SEC’s website at www.sec.gov.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, and reflects our current expectations and views of the quality of our assets, our anticipated financial performance, our future growth prospects, the future growth prospects of our businesses, the liquidity of our ordinary shares, and other future events. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, and are principally contained in the sections entitled “ Item 3. Key Information ,” “ Item 4. Information on the Company ” and “ Item 5. Operating and Financial Review and Prospects .” These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Some of these forward-looking statements can be identified by terms and phrases such as “anticipate,” “should,” “likely,” “foresee,” “believe,” “estimate,” “expect,” “intend,” “continue,” “could,” “may,” “plan,” “project,” “predict,” “will,” and similar expressions.

These forward-looking statements relate to:

our goals and strategies;

our capital commitments and/or intentions with respect to each of our businesses;

our ability to implement, successfully or at all, our strategies for us and for each of our businesses;

our capital allocation principles, as set forth in “ Item 4.B Business Overview ”;

the funding requirements, strategies, and business plans of our businesses;

the potential listing, offering, distribution or monetization of our businesses and the anticipated timing thereof;

expected trends in the industries in which each of our businesses operate, including trends relating to the growth of a particular market;

our expected tax status and treatment;

our intention to borrow funds from our businesses, and the amount and the timing of such borrowings;

fluctuations in the availability and prices of commodities purchased by, or in competition with, our businesses;

statements relating to litigation and/or regulatory proceedings;

the expected effect of new accounting standards on Kenon;

with respect to IC Power:

expected supply and demand trends in the Peruvian power market;

the expected cost and timing of commencement and completion of construction and development projects, as well as the anticipated installed capacities and business results of such acquisitions or projects;

its strategy to source and finance new, development and acquisition projects;

expected macroeconomic trends in certain of the countries in which IC Power currently operates;

its strategy to source and enter into long-term PPAs, and turnkey agreements and the amounts to be paid under such agreements, and the expected effect of such PPAs on IC Power’s results of operations;

expected increased demand in certain of the power generation markets where IC Power currently operates or may operate in the future;

expected trends in energy consumption, particularly in Latin America;

the expected stages of the Samay I plant;

its anticipated capital expenditures, including the expected sources of funding for capital expenditures;

its strategy to improve service standards, reduce interruptions and improve customer service for its distribution business;

the expected revenues under its PPAs;

the expected effect of fluctuations in exchange rates and currency on IC Power’s results;

its strategy to acquire additional generation and distribution businesses;

the expected cash flows from its distribution businesses;

future subsidies available to IC Power’s businesses and distribution customers;

expected trends in electrification levels in Guatemala;

the competitive landscape within Energuate’s service areas;

its expected ability to enter into or renew its PPAs;

expected coverage under its insurance policies;

the expected water supply for IC Power’s hydroelectric plants;

its strategy to extend the final maturity of or refinance existing indebtedness;

the expected use of the proceeds of its indebtedness;

the expected impairment of IC Power’s Colombian assets;

the price and volume of gas available to OPC-Rotem and other IPPs in Israel; and

the potential nationalization of operating assets;

with respect to Qoros:

Qoros’ expectation to renew or refinance its working capital facilities to support its continued operations and development;

Qoros’ strategy to increase its sales volumes;

Qoros’ expected sales volumes;

expected growth in the Chinese passenger vehicle market, particularly within the C-segment, C-segment SUV and New Energy Vehicle, or NEV, markets;

expected pricing trends in the Chinese passenger vehicle market;

Qoros’ liquidity position and Qoros’ expected use of proceeds of funds it may receive;

Qoros’ strategy to develop its dealer network;

the assumptions used in Qoros’ impairment analysis, including assumptions related to future sales volumes and price, operating expenses, and the availability of funding, including certain subsidies from local Chinese governments during the projection period;

expected increase in environmental regulations and the expected effect of such regulations on Qoros’ business;

Qoros’ agreement to have certain principal payments deferred;

Qoros’ ability to increase its production capacity;

the terms of any shareholder loans which Kenon may provide Qoros;

the potential investment by Yibin into Qoros, including the use of the proceeds and the terms of such investment;

Qoros’ ability to launch new models using its existing platform, to the extent that demand for its vehicles increases; and

the expected development of the NEV market in China, including expected trends regarding government subsidies for the purchase of NEVs and the growth of NEV infrastructure.

with respect to ZIM:

the assumptions used in Kenon’s and ZIM’s impairment analysis with respect to Kenon’s investment in ZIM, and ZIM’s assets, respectively, including with respect to expected fuel price, freight rates, demand trends;

ZIM’s strategy with respect to its debt obligations;

modifications with respect to its and other shipping companies’ operating fleet and lines, including the utilization of larger vessels within certain trade zones and modifications made in light of environmental regulations; and

trends related to the global container shipping industry, including with respect to fluctuations in container supply, industry consolidation, demand, bunker prices and charter/freights rates;

with respect to Primus:

its strategy;

its plans to raise capital;

Primus’ potential customers;

its project pipeline; and

its potential sources of revenue.

The preceding list is not intended to be an exhaustive list of each of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us and are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by these forward-looking statements which are set forth in “ Item 3.D Risk Factors .” Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results.

Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing factors that could cause our actual results to differ materially from those contemplated in any forward-looking statement included in this annual report should not be construed as exhaustive. You should read this annual report, and each of the documents filed as exhibits to the annual report, completely, with this cautionary note in mind, and with the understanding that our actual future results may be materially different from what we expect.

xii

PART I

ITEM 1. Identity of Directors, Senior Management and Advisers

A. Directors and Senior Management

Not applicable.

B. Advisers

Not applicable.

C. Auditors

Not applicable.

ITEM 2. Offer Statistics and Expected Timetable

Not applicable.

ITEM 3. Key Information

A. Selected Financial Data

The following tables set forth our selected combined carve-out financial and other data (for all periods as of and prior to December 31, 2014) and selected consolidated financial and other data (for all periods subsequent to December 31, 2014). This selected financial data should be read in conjunction with our audited financial statements, and the related notes thereto, as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014, included elsewhere in this annual report, and the information contained in “Item 5. Operating and Financial Review and Prospects” and “Item 3.D Risk Factors.” The historical financial and other data included here and elsewhere in this annual report should not be assumed to be indicative of our future financial condition or results of operations.

Our financial statements presented in this annual report have been prepared in accordance with IFRS as issued by the IASB.

The selected financial data 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.

	Year Ended December 31,
	2016			2015			2014			2013 ¹			2012 ¹
	(in millions of USD, except share data)
Statements of Profit and Loss Data ²
Revenues from sale of electricity	$	1,874		$	1,289		$	1,372		$	873		$	577
Cost of sales and services (excluding depreciation)		(1,359	)		(863	)		(981	)		(594	)		(395	)
Depreciation		(160	)		(111	)		(100	)		(70	)		(51	)
Gross profit	$	355		$	315		$	291		$	209		$	131
Selling, general and administrative expenses		(147	)		(104	)		(131	)		(73	)		(69	)
Gain from distribution of dividend in kind		—			210			—			—			—
Gain from disposal of investees		—			—			157			—			5
Gain on bargain purchase		—			—			68			1			—
Impairment of assets and investments		(72	)		(6	)		(48	)		—			—
Dilution gains from reduction in equity interest held in associates		—			33			—			—			—
Other expenses		(5	)		(7	)		(14	)		(5	)		—
Other income		21			15			51			5			12
Operating profit from continuing operations	$	152		$	456		$	374		$	137		$	79
Financing expenses		(190	)		(124	)		(110	)		(69	)		(39	)
Financing income		19			13			16			5			3
Financing expenses, net	$	(171	)	$	(111	)	$	(94	)	$	(64	)	$	(36	)
Provision of financial guarantee		(130	)		—			—			—			—
Share in losses of associated companies, net of tax ³		(186	)		(187	)		(171	)		(127	)		(52	)
Profit / (loss) from continuing operations before income taxes	$	(335	)	$	158		$	109		$	(54	)	$	(9	)
Income taxes		(59	)		(62	)		(103	)		(49	)		(20	)
Profit / (loss) for the year from continuing operations		(394	)	$	96		$	6		$	(103	)	$	(29	)
Profit / (loss) for the year from discontinued operations (after taxes) ⁴		—			—		$	471		$	(513	)	$	(409	)
Profit / (loss) for the year	$	(394	)	$	96		$	477		$	(616	)	$	(438	)
Attributable to:
Kenon’s shareholders	$	(412	)	$	73		$	458		$	(631	)	$	(450	)
Non-controlling interests		18			23			19			15			12
Profit / (loss) for the year attributable to Kenon’s shareholders derived from:
IC Power	$	3		$	63		$	199		$	61		$	59
Qoros		(143	)		(196	)		(175	)		(127	)		(54	)
ZIM		(54	)		1			(142	)		(533	)		(432	)
Gain from ZIM in light of deconsolidation and change to associated company		—			—			609			—			—
Tower		—			(1	)		10			(27	)		(21	)
Impairment of ZIM		(72	)		—			—			—			—
Provision of financial guarantee		(130	)		—			—			—			—
Gain from distribution of dividend in kind		—			210			—			—			—
Other ⁵		(16	)		(4	)		(43	)		(5	)		(2	)
Total profit / (loss) for the year attributable to Kenon’s shareholders	$	(412	)	$	73		$	458		$	(631	)	$	(450	)
Basic/diluted (loss)/profit per share attributable to Kenon’s shareholders (in dollars):
Basic/diluted profit/(loss) per share		(7.67	)		1.36			8.58			(11.82	)		(8.43	)
Basic/diluted profit/(loss) per share from continuing operations		(7.67	)		1.36			(0.23	)		(2.13	)		(0.77	)
Basic/diluted profit/(loss) per share from discontinued operations		—			—			8.81			(9.69	)		(7.66	)
Statements of Financial Position Data
Cash and cash equivalents	$	327		$	384		$	610		$	671		$	414
Short-term investments and deposits		90			309			227			30			89
Trade receivables, net		284			124			181			358			323
Other current assets, including derivatives		50			45			59			98			83
Income tax receivable		11			4			4			7			15
Inventories		92			51			55			150			174
Total current assets		854			916			1,136		$	1,314		$	1,098
Total non-current assets ⁶		4,284			3,567			3,184			4,671			4,880
Total assets	$	5,138		$	4,483		$	4,320		$	5,985		$	5,978
Total current liabilities		1,045			653		$	497		$	2,925		$	1,172
Total non-current liabilities	$	3,199		$	2,566		$	2,385		$	2,113		$	3,357
Equity attributable to the owners of the Company		681			1,061			1,230			710			1,214
Share capital	$	1,267		$	1,267			—			—			—
Total equity	$	894		$	1,264		$	1,438		$	947		$	1,449
Total liabilities and equity	$	5,138		$	4,483		$	4,320		$	5,985		$	5,978
Basic/Diluted weighted average common shares outstanding used in calculating profit/(loss) per share (thousands)		53,720			53,649			53,383	⁷		53,383	⁷		53,383	⁷
Statements of Cash Flow Data
Net cash provided by operating activities	$	162		$	290		$	410		$	257		$	169
Net cash used in investing activities		(400	)		(737	)		(883	)		(278	)		(320	)
Net cash provided by financing activities		175			233			430			281			122
(Decrease) / increase in cash and cash equivalents		(63	)		(214	)		(42	)		260			(29	)

1.	Results during these periods have been reclassified to reflect the discontinued operations of ZIM and Petrotec. For further information, see Note 28 to our financial statements included in this annual report.

2.	Consists of the consolidated results of IC Power and Primus for 2012 through 2013 and, from June 30, 2014, the consolidated results of HelioFocus; prior to this date, Kenon did not consolidate HelioFocus’ results of operations.

3.	Includes Kenon’s share in ZIM’s loss for the six months ended December 31, 2014 and the years ended December 31, 2015 and 2016. As from July 1, 2014, Kenon accounted for ZIM’s results of operations pursuant to the equity method of accounting.

4.	Consists of (i) ZIM’s results of operations for 2012 through 2013 and the six months ended June 30, 2014 and (ii) Petrotec’s results of operations for 2012 through 2014.

5.	Consists of the elimination of intercompany finance income until 2014, Kenon’s general and administrative expenses, finance expenses, the results of Primus and gain from reductions in equity invested. From June 30, 2014, also includes the consolidated results of HelioFocus.

6.	Includes Kenon’s associated companies: (i) Qoros, (ii) Tower (until June 30, 2015), (iii) from June 30, 2014, ZIM; and (iv) prior to June 30, 2014, HelioFocus.

7.	Based on 53,383,015 shares which were issued as of January 7, 2015, the date of our spin-off from IC.

Selected Reportable Segment Data

Kenon is a holding company of (i) IC Power, (ii) Primus, (iii) a 32% interest in ZIM, (iv) a 50% interest in Qoros, (v) until December 24, 2014, Petrotec, and (vi) until July 23, 2015, a 22.5% interest in Tower. Kenon’s segments are IC Power (Generation and Distribution), Qoros and Other. Kenon’s Other segment includes the results of ZIM, Primus, and from June 30, 2014, the results of HelioFocus and Kenon (Company level). Kenon's segments for the periods after December 31, 2015 include IC Power (Generation) and IC Power (Distribution), as a result of Kenon’s acquisition of its distribution business in January 2016.

The results of the following companies are included in Kenon’s statements of profit and loss as share in losses of associated companies, net of tax, for the years set forth below, except as otherwise indicated: (i) Qoros, (ii) ZIM from June 30, 2014, (iii) Tower until June 30, 2015, (iv) HelioFocus until June 30, 2014 (subsequently, HelioFocus’ results have been consolidated with Kenon’s) and (v) certain non-controlling interests held by IC Power. The following table sets forth selected financial data for Kenon’s reportable segments for the periods presented:

	Year Ended December 31, 2016
	IC Power Generation			IC Power Distribution			Qoros ¹			Other ²			Adjustments ³			Consolidated Results
	(in millions of USD, unless otherwise indicated)
Sales	$	1,365		$	509		$	—		$	—		$	—		$	1,874
Depreciation and amortization		(157	)		(15	)		—			—			—			(172	)
Impairment of assets and investments		—			—			—			(72	)		—			(72	)
Financing income		10			4			—			17			(12	)		19
Financing expenses		(166	)		19			—			17			(12	)		190
Share in (losses) income of associated companies		1			—			(143	)		(44	)		—			(186	)
Provision of financial guarantee		—			—			—			(130	)		—			(130	)
Income (loss) before taxes	$	31		$	47		$	(143	)	$	(270	)	$	—		$	(335	)
Income taxes		(45	)		(12	)		—			(2	)		—			(59	)
Income (loss) from continuing operations	$	(14	)	$	35		$	(143	)	$	(272	)	$	—		$	(394	)

Attributable to:
Kenon’s shareholders		(29	)		32			(143	)		(272	)		—			(412	)
Non-controlling interests		15			3			—			—			—			18
Segment assets ⁴	$	4,217		$	600		$	—		$	113	⁵	$	—		$	4,930
Investments in associated companies		8			—			118			82			—			208
Segment liabilities		3,462			542			—			240	⁶		—			4,244
Capital expenditure ⁷		262			28			—			—			—			290
Adjusted EBITDA	$	343	⁸	$	77	⁹	$	—		$	(24	) ¹⁰	$	—		$	396
Percentage of consolidated revenues		73	%		27	%		—	%		—	%		—	%		100	%
Percentage of consolidated assets		82	%		12	%		2	%		4	%		—	%		100	%
Percentage of consolidated assets excluding associated companies		86	%		12	%		—	%		2	%		—	%		100	%
Percentage of consolidated Adjusted EBITDA		87	%		19	%		—	%		(6	)%		—	%		100	%

1.	Associated company.

2.	Includes the results of Primus and HelioFocus; the results of ZIM, as an associated company; as well as Kenon’s and IC Green’s holding company and general and administrative expenses.

3.	“Adjustments” includes inter-segment financing income and expenses.

4.	Excludes investments in associates.

5.	Includes Kenon’s and IC Green’s assets.

6.	Includes Kenon’s and IC Green’s liabilities.

7.	Includes the additions of Property, Plant and Equipment, or PP&E, and intangibles based on an accrual basis.

With respect to IC Power Generation’s Adjusted EBITDA for the year ended December 31, 2016, Kenon defines “Adjusted EBITDA” as net income for the period before depreciation and amortization, finance expenses, net, and income tax expense, excluding share in (income) of associate. Adjusted EBITDA is 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. Adjusted EBITDA is not intended to represent funds available for dividends or other discretionary uses by us because those funds may be required for debt service, capital expenditures, working capital and other commitments and contingencies. Adjusted EBITDA presents limitations that impair its use as a measure of our profitability since it does not take into consideration certain costs and expenses that result from our business that could have a significant effect on net income, such as financial expenses, taxes, depreciation, capital expenses and other related charges. The following table sets forth a reconciliation of IC Power Generation’s net income to its Adjusted EBITDA for the period presented. Other companies may calculate EBITDA differently, and therefore this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies.

	Year Ended December 31,
	2016
	($ millions)
Net income for the period	$	(14	)
Depreciation and amortization		157
Financing expenses, net		156
Income tax expense		45
Share in (income) of associate		(1	)

Adjusted EBITDA	$	343

With respect to IC Power Distribution’s Adjusted EBITDA for the year ended December 31, 2016, Kenon defines “Adjusted EBITDA” as net income for the period before depreciation and amortization, finance expenses, net, and income tax expense. Adjusted EBITDA is 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. Adjusted EBITDA is not intended to represent funds available for dividends or other discretionary uses by us because those funds may be required for debt service, capital expenditures, working capital and other commitments and contingencies. Adjusted EBITDA presents limitations that impair its use as a measure of our profitability since it does not take into consideration certain costs and expenses that result from our business that could have a significant effect on net income, such as financial expenses, taxes, depreciation, capital expenses and other related charges. The following table sets forth a reconciliation of IC Power Distribution’s net income to its Adjusted EBITDA, as reported by Kenon, for the periods presented. Other companies may calculate EBITDA differently, and therefore this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies.

	Year Ended December 31,
	2016
	($ millions)
Net income for the period	$	35
Depreciation and amortization		15
Financing expenses, net		15
Income tax expense		12

Adjusted EBITDA	$	77

10.

With respect to its “Other” reporting segment, Kenon defines “Adjusted EBITDA” as net income (loss) for the period before finance expenses, net, depreciation and amortization, impairment of assets and investments, provision of financial guarantees and income tax expense, excluding gain from distribution of dividend in kind and share in (income) loss of associated companies, net of tax. Adjusted EBITDA is 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. Adjusted EBITDA is not intended to represent funds available for dividends or other discretionary uses by us because those funds may be required for debt service, capital expenditures, working capital and other commitments and contingencies. Adjusted EBITDA presents limitations that impair its use as a measure of our profitability since it does not take into consideration certain costs and expenses that result from our business that could have a significant effect on net income, such as financial expenses, taxes, depreciation, capital expenses and other related charges. The following table sets forth a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA for the periods presented. Other companies may calculate EBITDA differently, and therefore this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies.

	Year Ended December 31,
	2016			2015			2014
	(in millions of USD)
Net income (loss) for the period	$	(272	)	$	205		$	(41	)
Finance expenses, net		—			7			(29	)
Depreciation and amortization		—			1			—
Impairment of assets and investments		72			7			13
Provision of financial guarantees		130			—			—
Income tax expense		2			—			4
Gain from distribution of dividend in kind		—			(210	)		—
Share in (income) loss from associated companies, net of tax		44			(9	)		10
Adjusted EBITDA	$	(24	)	$	1		$	(43	)

	Year Ended December 31, 2015
	IC Power			Qoros ¹			Other ²			Adjustments ³			Consolidated Results
	(in millions of USD, unless otherwise indicated)
Sales	$	1,294		$	—		$	—		$	(5	)	$	1,289
Depreciation and amortization		(119	)		—			(1	)		—			(120	)
Asset impairment		—			—			(7	)		—			(7	)
Financing income		10			—			3			—			13
Financing expenses		(115	)		—			(9	)		—			(124	)
Share in (losses) income of associated companies		—			(196	)		9			—			(187	)
Gain from distribution of dividend in kind		—			—			210			—			210
Income (loss) before taxes	$	149		$	(196	)	$	205		$	—		$	158
Income taxes		(62	)		—			—			—			(62	)
Income (loss) from continuing operations	$	87	⁴	$	(196	)	$	205		$	—		$	96

Attributable to:
Kenon’s shareholders		63			(196	)		206			—			73
Non-controlling interests		24			—			(1	)		—			23
Segment assets ⁵	$	4,069		$	—		$	45	⁶	$	—		$	4,114
Investments in associated companies		9			159			201			—			369
Segment liabilities		3,063			—			156	⁷		—			3,219
Capital expenditure ⁸		533			—			—			—			533
Adjusted EBITDA	$	372	^4,9	$	—		$	1	¹⁰	$	—		$	373
Percentage of consolidated revenues		100	%		—			—			—			100	%
Percentage of consolidated assets		91	%		4	%		5	%		—			100	%
Percentage of consolidated assets excluding associated companies		99	%		—			1	%		—			100	%
Percentage of consolidated Adjusted EBITDA		100	%		—			—			—			100	%

1.	Associated company.

2.	Includes the results of Primus and HelioFocus; the results of ZIM and Tower (up to June 30, 2015), as associated companies; as well as Kenon’s and IC Green’s holding company and general and administrative expenses.

3.	“Adjustments” includes inter-segment sales.

IC Power’s net income and Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2015, differ from the amounts reported by IC Power for the same period as a result of the adjustment of certain provisions at IC Power, which were adjusted in IC Power’s 2014 financial statements, but were adjusted in 2015 for Kenon. For further information, see “ Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of Operations—IC Power—Decisions by the EA Regarding System Management Charges . ”

5.	Excludes investments in associates.

6.	Includes Kenon’s and IC Green’s assets.

7.	Includes Kenon’s and IC Green’s liabilities.

8.	Includes the additions of PP&E and intangibles based on an accrual basis.

Kenon defines IC Power’s “Adjusted EBITDA” as net income for the period before depreciation and amortization, finance expenses, net, asset impairment and income tax expense, excluding share in (income) of associated companies, gain on bargain purchase and gain from disposal of investees. Adjusted EBITDA is 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. Adjusted EBITDA is not intended to represent funds available for dividends or other discretionary uses by us because those funds may be required for debt service, capital expenditures, working capital and other commitments and contingencies. Adjusted EBITDA presents limitations that impair its use as a measure of our profitability since it does not take into consideration certain costs and expenses that result from our business that could have a significant effect on net income, such as financial expenses, taxes, depreciation, capital expenses and other related charges. The following table sets forth a reconciliation of IC Power’s net income (loss), as reported by Kenon, to its Adjusted EBITDA, as reported by Kenon, for the periods presented. Other companies may calculate EBITDA differently, and therefore this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies.

10.	Adjusted EBITDA is a non-IFRS measure. For a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA, see footnote 10 to the preceding table setting forth the selected financial data for the year ended December 31, 2015.

	Year Ended December 31,
	2016			2015		2014
	($ millions)
Net income for the period	$	21		$	87	$	222
Depreciation and amortization		172			119		108
Financing expenses, net		171			104		123
Asset impairment		—			—		35
Income tax expense		57			62		99
Share in (income) of associated companies		(1	)		—		(14	)
Gain on bargain purchase		—			—		(68	)
Gain from disposal of investees		—			—		(157	)

Adjusted EBITDA	$	420		$	372		348

	Year Ended December 31, 2014 ¹
	IC Power			Qoros ²			Other ³			Adjustments ⁴			Combined Carve-Out Results
	(in millions of USD, unless otherwise indicated)
Sales	$	1,358		$	—		$	—		$	14		$	1,372
Depreciation and amortization		(108	)		—			—			—			(108	)
Financing income		9			—			39			(32	)		16
Financing expenses		(132	)		—			(10	)		32			(110	)
Share in (losses) income of associated companies		14			(175	)		(10	)		—			(171	)
Asset impairment		(35	)		—			(13	)		—			(48	)
Gain from disposal of investee		157			—			—			—			157
Gain from bargain purchase		68			—			—			—			68
Income (loss) before taxes	$	321		$	(175	)	$	(37	)	$	—		$	109
Income taxes		(99	)		—			(4	)		—			(103	)
Income (loss) from continuing operations	$	222	⁵	$	(175	)	$	(41	)	$	—		$	6
Attributable to:
Kenon’s shareholders		197			(175	)		(34	)		—			(12	)
Non-controlling interests		25			—			(7	)		—			18
Segment assets ⁶	$	3,832		$	—		$	837	⁷	$	(785	)	$	3,884
Investments in associated companies		10			221			205			—			436
Segment liabilities		2,860			—			806	⁸		(785	)		2,881
Capital expenditure ⁹		593			—			12			—			605
Adjusted EBITDA	$	348	^5,10	$	—		$	(43	) ¹¹	$	—		$	305
Percentage of combined revenues		99	%		—			—			1	%		100	%
Percentage of combined assets		89	%		—			23	%		(12	)%		100	%
Percentage of combined assets excluding associated companies		99	%		—			21	%		(20	)%		100	%
Percentage of combined Adjusted EBITDA		114	%		—			(14	)%		—			100	%

During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary assets in previous years in IC Power. Kenon’s and IC Power’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial error.

2.	Associated company.

Includes financing income from former parent company loans to Kenon’s subsidiaries; the results of Primus, HelioFocus (from June 30, 2014) and ZIM (up to June 30, 2014); the results of ZIM (from June 30, 2014), Tower and HelioFocus (up to June 30, 2014), as associated companies; as well as Kenon’s and IC Green’s holding company and general and administrative expenses.

4.	“Adjustments” includes inter-segment sales, and the consolidation entries. For the purposes of calculating the “percentage of combined assets” and the “percentage of combined assets excluding associated companies,” “Adjustments” has been combined with “Other.”

IC Power’s net income and Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2014, differ from the amounts reported by IC Power for the same period as a result of the adjustment of certain provisions at IC Power, which were adjusted in IC Power’s 2014 financial statements, but were adjusted in 2015 for Kenon. For further information, see “ Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of Operations—IC Power—Decisions by the EA Regarding System Management Charges .”

6.	Excludes investments in associates.

7.	Includes Kenon’s and IC Green’s assets.

8.	Includes Kenon’s and IC Green’s liabilities.

9.	Includes the additions of PP&E and intangibles based on an accrual basis.

10.	For a reconciliation of IC Power’s net income, as reported by Kenon, to its Adjusted EBITDA, as reported by Kenon, for the year ended December 31, 2014, see footnote 9 to the preceding table setting forth selected financial data for the year ended December 31, 2014.

11.	Adjusted EBITDA is a non-IFRS measure. For a reconciliation of our “Other” reporting segment’s income (loss) to its Adjusted EBITDA, see footnote 10 to the preceding table setting forth the selected financial data for the year ended December 31, 2014.

IC Power

The following tables set forth other financial and key operating data for IC Power for the periods presented:

	IC Power Ltd. (formerly known as IC Power Pte. Ltd.)		I.C. Power Asia Development Ltd. (formerly known as I.C. Power Ltd.)
	Year Ended December 31,
	2016		2015			2014 ¹			2013 ¹			2012 ¹
	($ millions, except as otherwise indicated)
Net income from continuing operations ²		21		49			128			45			39
Net income for the period		21		52	³		256	³		74			68
Adjusted EBITDA ⁴		420		326	³		395	³		247			154
Net Debt ⁵		2,764		1,903			1,557			1,143			1,001
Installed capacity of operating companies and associated companies at end of period (MW)		3,945		2,665			2,642			2,070			1,572
Proportionate capacity of operating companies and associated companies at end of period (MW)		3,152		2,170			2,108			1,608			1,198
Weighted average availability during the period (%)		84		95	%		94	%		94	%		93	%
Gross energy generated (GWh)		14,208		13,109			13,156			8,820			6,339
Energy sold under PPAs (GWh)		14,582		13,748			14,220			9,217			5,365

1.	During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary assets in previous years in ICP. ICP’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial error.

2.	The share in net income attributable to non-controlling interests held by third parties in IC Power’s subsidiaries was $18 million, $17 million, $29 million, $13 million and $10 million for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, respectively.

IC Power’s Adjusted EBITDA and net income, as reported by Kenon, for the years ended December 31, 2015 and 2014 differ from the amounts reported by IC Power for the same period as a result of the adjustment of certain provisions at IC Power, which were adjusted in IC Power’s 2014 financial statements, but were adjusted in 2015 for Kenon. For further information, see “ Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of Operations—IC Power—Decisions by the EA Regarding System Management Charges. ”

IC Power defines “Adjusted EBITDA” for each period as net income (loss) for the period before depreciation and amortization, financing expenses, net, income tax expense and asset write-off, excluding share in (income) loss of associated companies, gain on bargain purchase, capital gains (excluding capital gains from sales of fixed assets), and net income from discontinued operations, net of tax (excluding dividends received from discontinued operations).

Adjusted EBITDA is 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. Adjusted EBITDA is 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. Adjusted EBITDA presents limitations that impair its use as a measure of IC Power’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 IC Power’s net income, such as finance expenses, taxes and depreciation.

The following table sets forth a reconciliation of IC Power’s net income to its Adjusted EBITDA for the periods presented. Other companies may calculate Adjusted EBITDA differently, and therefore this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies:

	IC Power Ltd. (formerly known as IC Power Pte. Ltd.)			I.C. Power Asia Development Ltd. (formerly known as I.C. Power Ltd.)
	Year Ended December 31,
	2016			2015			2014 ⁽ⁱ⁾			2013 ⁽ⁱ⁾			2012 ⁽ⁱ⁾			2011			2010 ⁽ⁱⁱ⁾			2009 ⁽ⁱⁱ⁾
	($ millions)
Net income (loss) for the period	$	21		$	52		$	256		$	74		$	68		$	73		$	36		$	66
Depreciation and amortization ⁽ⁱⁱⁱ⁾		172			119			108			76			55			41			28			26
Financing expenses, net		171			104			119			80			44			36			24			18
Income tax expense		57			50			63			48			18			16			6			8
Asset write-off		—			—			35			—			—			—			—			—
Share in (income) loss of associated companies		(1	)		—			(2	)		(2	)		(2	)		(2	)		(1	)		(1	)
Gain on bargain purchase		—			—		(71		) ^(iv)		(1	)		—			(24	)		—			—
Capital gains (excluding capital gains from sales of fixed assets)		—			—			—			—			—			—			—			(35	)
Net (income) loss from discontinued operations, net of tax (excluding dividends received from discontinued operations)		—			—	^(v)	(113		) ^(vi)		(28	)		(29	)		(20	)		(11	)		(17	)
Adjusted EBITDA	$	420		$	326		$	395		$	247		$	154		$	120		$	82		$	65

(i)

During 2015, an immaterial error was identified with respect to the deferred tax calculation relating to the effect of foreign exchange rate on non-monetary assets in previous years in ICP. ICP’s financial information for 2014, 2013 and 2012 has been revised to correct this immaterial error.

(ii)

IC Power was incorporated in January 2010. Financial data for the year ended December 31, 2010 reflects the consolidated results of Inkia and OPC-Rotem from April 1, 2010 and June 30, 2010, respectively, the time of their transfer to IC Power.

(iii)

Includes depreciation and amortization expenses from cost of sales and general, selling and administrative expenses.

(iv)

Includes $68 million of income from gain on bargain purchase and $3 million of income from the measurement of fair value.

(v)

Excludes $4 million received from Enel Generación Perú post-equity method accounting, which is reflected as “dividends received post-equity accounting” in IC Power’s discontinued operations for that period, but is included in net income (loss) for the period, so is therefore included in Adjusted EBITDA for the period.

(vi)

Excludes $15 million received from Enel Generación Perú post-equity method accounting, which is reflected as “other income” in IC Power’s discontinued operations for that period, but is included in net income (loss) for the period, so is therefore included in Adjusted EBITDA for the period.

5.	Net Debt is calculated as total debt, excluding debt owed to Kenon, minus cash and short term deposits and restricted cash. Net Debt is not a measure recognized under IFRS. The table below sets forth a reconciliation of IC Power’s total debt to net debt.

	IC Power Ltd. (formerly known as IC Power Pte. Ltd.)		I.C. Power Asia Development Ltd. (formerly known as I.C. Power Ltd.)
	As of December 31,
	2016		2015		2014		2013		2012
	($ millions)
Total debt ⁽ⁱ⁾	$	3,072	$	2,565	$	2,348	$	1,669	$	1,266
Cash ⁽ⁱⁱ⁾		308		662		791		526		265
Net Debt	$	2,764	$	1,903	$	1,557	$	1,143	$	1,001

__________________

(i)

Total debt comprises loans from banks and third parties and debentures, excluding liabilities of disposal group classified as held for sale and loans owed to Kenon, and includes long term and short term debt.

(ii)

Includes short-term deposits and restricted cash of $106 million, $302 million, $208 million, $9 million and $81 million at December 31, 2016, 2015, 2014, 2013 and 2012, respectively.

6.	Figure is derived from IC Power’s audited statements of financial position as of December 31, 2016.

Set forth below is a summary of certain key historical financial and other operational information, according to IC Power business lines and segments, for the periods set forth below. For all periods prior to its acquisition of Energuate, IC Power operated one business line (generation) and evaluated this business line according to four geographic segments. However, since January 22, 2016, the date on which IC Power completed acquisition of Energuate, its results of operations reflect an additional business line (distribution). IC Power’s distribution business consists entirely of DEORSA and DEOCSA. Guatemel and RECSA, which IC Power also acquired on January 22, 2016, are included within its generation business and have been included in IC Power’s Central America and Other segment, respectively, as a result of their business lines.

	Year Ended December 31, 2016
	Generation												Distribution			Adjustments			Consolidated Results
	Peru			Israel			Central America			Other ¹			Guatemala
	($ millions, except as otherwise indicated)
Sales		528			356			326			157			509			(2	)		1,874
Cost of Sales		(323	)		(282	)		(252	)		(101	)		(403	)		2			(1,359	)
Operating income (loss)		129			40			21			(15	)		63			10			248
Operating margins		24	%		11	%		6	%		(10	)%		12	%		(500	)%		13	%
Financing expenses, net		(63	)		(16	)		(12	)		(65	)		(15	)		-			(171	)
Net income (loss) for the period		33			24			4			(84	)		35			9			21

Installed capacity of operating companies and associated companies at end of period (MW)		2,189			458			596			651			-			-			3,945
Proportionate capacity of operating companies at end of period (MW)		1,735			418			531			601			-			-			3,152
Gross energy generated (GWh)		6,811			3,589			1,898			1,910			-			-			14,208
Energy sold under PPAs (GWh)		6,691			3,996			2,815			1,080			-			-			14,582

In addition to the results of certain of its generation assets, IC Power’s Other segment also includes expenses and other adjustments relating to its headquarters and intermediate holding companies, including purchase price allocations recorded in connection with our acquisition of Energuate, which allocations were recorded by Inkia, one of its intermediate holding companies. However, as IC Power’s Other segment is primarily composed of the financial results of certain of its generation assets and their related holding companies, IC Power analyzes the results of its Other segment within discussion of the results of its generation business.

	Year Ended December 31, 2015
	Peru			Israel			Central America			Other ¹			Adjustments		Consolidated Results
	($ millions, except as otherwise indicated)
Sales	$	448		$	326		$	337		$	178			—	$	1,289
Cost of Sales		(279	)		(242	)		(265	)		(123	)		—		(909	)
Operating income		102			53			39			(1	)		10		203
Operating margins		23	%		16	%		12	%		—			—		16	%
Financing expenses, net		(42	)		(23	)		(10	)		(29	)		—		(104	)
Net income (loss) for the period	$	31		$	22		$	23		$	(31	)	$	8	$	52

Installed capacity of operating companies and associated companies at end of period (MW)		1,063			458			504			640			—		2,665
Proportionate capacity of operating companies at end of period (MW)		797			370			436			567			—		2,170
Gross energy generated (GWh)		5,166			3,837			2,208			1,898			—		13,109
Energy sold under PPAs (GWh)		6,327			3,976			2,450			995			—		13,748

1.	In addition to the results of certain of its generation assets, IC Power’s Other segment also includes expenses and other adjustments relating to its headquarters and intermediate holding companies.

	Year Ended December 31, 2014
	Peru			Israel			Central America			Other ¹			Adjustments			Consolidated Results
	($ millions, except as otherwise indicated)
Sales	$	437		$	413		$	308		$	214			—		$	1,372
Cost of Sales		(270	)		(252	)		(260	)		(154	)		—			(936	)
Operating income		108			127			21			43			9			308
Operating margins		25	%		31	%		7	%		20	%		—			22	%
Financing expenses, net		(34	)		(30	)		(8	)		(46	)		(1	)		(119	)
Net income for the period	$	45		$	71		$	9		$	124		$	7		$	256

Installed capacity of operating companies and associated companies at end of period (MW)		1,063			440			504			635			—			2,642
Proportionate capacity of operating companies at end of period (MW)		797			352			395			564			—			2,108
Gross energy generated (GWh)		5,920			3,465			1,965			1,806			—			13,156
Energy sold under PPAs (GWh)		6,324			3,973			2,694			1,229			—			14,220

1.	In addition to the results of certain of its generation assets, IC Power’s Other segment also includes expenses and other adjustments relating to its headquarters and intermediate holding companies.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Our business, financial condition, results of operations and liquidity can suffer materially as a result of any of the risks described below. While we have described all of the risks we consider material, these risks are not the only ones we face. We are also subject to the same risks that affect many other companies, such as technological obsolescence, labor relations, geopolitical events, climate change and risks related to the conducting of international operations. Additional risks not known to us or that we currently consider immaterial may also impair our business operations. Our businesses routinely encounter and address risks, some of which may cause our future results to be different—sometimes materially different—than we presently anticipate.

Risks Related to Our Strategy and Operations

Some of our businesses have significant capital requirements. If these businesses are unable to obtain sufficient financing from third party financing sources or renew or refinance their working capital facilities, they may not be able to operate, and we may deem it necessary to provide such capital, provide a guarantee or indemnity in connection with any financings, provide collateral in connection with any financings, including via the cross-collateralization of assets across businesses, or we may refrain from investing further in any such businesses, all of which may materially impact our financial position and results of operations.

The business plans of our businesses contemplate additional debt or equity financing which is expected to be raised from third parties. However, our businesses may be unable to raise the necessary capital from third party financing sources, and in this case Kenon would be their only source of funding. For example, Qoros will require additional cash to further its development and, until it achieves significant sales levels, to meet its operating expenses, financing expenses, and capital expenditures. For further information on Qoros’ liquidity requirements, see “ —Qoros will require additional capital resources to meet its operating expenses. ”

In the event that Qoros or one or more of our other businesses require capital, either in accordance with their business plans or in response to new developments or to meet operating expenses, and such businesses are unable to raise such financing, Kenon may (i) issue equity in the form of shares or convertible instruments (through a pre-emptive offering or otherwise), (ii) provide financing to a business using funds received from the operations or sales of Kenon’s other businesses, (iii) sell part, or all, of its interest in any of its businesses, (iv) raise debt financing at the Kenon level or (v) provide guarantees or collateral in support of the debt of its businesses. To the extent debt financing is available to it, any debt financing that Kenon incurs may not be on favorable terms, may require Kenon to agree to restrictive covenants that limit how Kenon manages its investments in its businesses, and may also limit dividends or other distributions by Kenon. In addition, any equity financing, whether in the form of a sale of shares or convertible instruments, would dilute existing holders of our ordinary shares and any such equity financing could be at prices that are lower than the current trading prices.

In the future, third party financing sources may also require Kenon to guarantee an individual business’ indebtedness and/or provide additional collateral, including collateral via a cross-collateralization of assets across businesses. To the extent Kenon guarantees an individual business’ indebtedness, it may divert funds received from one business to another business. We may also sell some or all of our interests in any of our businesses to provide funding for another business. Additionally, if we cross-collateralize certain assets (i.e., pledging shares or assets of one of our businesses to secure debt of another of our businesses) in order to provide additional collateral to a lender, we may lose an asset associated with one business in the event that a separate business is unable to meet its debt obligations. Furthermore, if Kenon provides any of our businesses with additional capital, provides any third parties with indemnification rights or a guarantee, and/or provides additional collateral, including via cross-collateralization, this could reduce our liquidity. For further information on the capital resources and requirements of each of our businesses, see “ Item 5.B Liquidity and Capital Resources. ”

Qoros will require additional capital resources to meet its operating expenses.

Qoros commenced commercial operations at the end of 2013. Qoros has incurred losses since inception and is continuing to experience losses and negative operating cash flow and expects that this will continue until it achieves significantly higher levels of sales. Qoros’ operating expenses, debt service requirements, capital expenditures and other liquidity requirements are significant. Until Qoros experiences a significant increase in sales, it will continue to require additional financing, including the renewal or refinancing of its working capital facilities, to meet these expenses and requirements, and there is no assurance that Qoros will experience an increase in sales in the near-term, if at all.

Qoros has historically relied upon capital contributions, loans, guarantees and pledges from its shareholders (Chery Automobile Co. Ltd, or Chery, and Kenon), and third party loans supported by its shareholders, to fund its development and operations. Qoros’ shareholders have made equity contributions in the aggregate amount of RMB10.4 billion and loans in the amount of RMB1.8 billion (including loans of RMB450 million from Ansonia to Quantum used to make back-to-back loans in the same amount to Qoros), Chery has guaranteed RMB2,200 million principal amount of Qoros debt (plus interest and fees) and Kenon has outstanding back-to-back guarantees to Chery for up to RMB425 million, plus certain interest and fees. For further information on the guarantees provided by Kenon in respect of Qoros’ debt, see “ Item 5.B Liquidity and Capital Resources—Kenon’s Liquidity and Capital Resources—Kenon’s Commitments and Obligations—Back-to-Back Guarantees Provided to Chery .”

Qoros’ cash flows from operations are not sufficient to meet its operating expenses and debt service requirements at this time, and it does not expect to generate sufficient cash flows from operations to meet such liquidity requirements until it achieves a significant increase in sales, and it may not experience an increase in sales in the near-term or at all. Qoros’ available liquidity and capital resources are limited, and it has significant obligations. As of December 31, 2016, Qoros had total loans and borrowings (excluding shareholder loans) of RMB5.5 billion and current liabilities (excluding shareholder loans) of RMB4.0 billion, including trade and other payables of RMB2.7 billion. As of December 31, 2016, Qoros had current assets of RMB1.8 billion, including cash and cash equivalents of RMB465 million. Qoros has long-term, short-term and working capital credit facilities, but amounts available under such facilities are limited. Qoros actively manages its trade payables, accrued expenses and other operating expenses in connection with the management of its liquidity requirements and resources.

Qoros is continuing to seek additional financing for its operations. For example, in April 2017, Quantum, Chery and Qoros entered into an agreement with Yibin, pursuant to which Yibin may invest significant amounts in Qoros, subject to government approval and the execution of amendments to Qoros’ joint venture agreement and articles of association, among other agreements. For further information on this arrangement, see “ Item 5. Operating and Financial Review and Prospects—Recent Developments—Qoros—Agreement with Yibin to Jointly Establish NEV Manufacturing Base .” Qoros will need to secure additional financing to meet its operating expenses (including accounts payable) and debt service requirements. If Qoros is not able to obtain financing from Yibin or otherwise raise additional financing as required, it may be unable to continue operations, in which case Kenon may lose its entire investment in Qoros and Kenon may be required to make payments under its back-to-back guarantees to Chery in respect of Qoros’ bank debt and pledges over Qoros shares by Quantum may be enforced. Alternatively, Chery or other investors may choose to make additional investments in Qoros (without a corresponding Kenon investment) which may result in a dilution of Kenon’s interest. For further information, see “ —Some of our businesses have significant capital requirements. If these businesses are unable to obtain sufficient financing from third party financing sources or renew or refinance their working capital facilities, they may not be able to operate, and we may deem it necessary to provide such capital, provide a guarantee or indemnity in connection with any financings, provide collateral in connection with any financings, including via the cross-collateralization of assets across businesses, or we may refrain from investing further in any such businesses, all of which may materially impact our financial position and results of operations .”

Kenon has significant repayment obligations under the IC Credit Facility.

In connection with the spin-off, IC provided Kenon with a $200 million credit facility, or the IC Credit Facility. During the initial five-year term of the IC Credit Facility, Kenon has agreed to pay IC an annual commitment fee equal to 2.1% of the undrawn amount of the credit facility, which will be capitalized as a payment-in-kind and added to the outstanding amount of the credit facility. Principal and interest payments accrue annually, and become due and payable in accordance with the terms of the credit facility, with interest payments over the first five-years being paid-in-kind.

Kenon has pledged 66% of its interest in IC Power and IC Power has pledged 66% of its interest in ICP to secure Kenon’s obligations under the IC Credit Facility, which is now fully drawn. Kenon may be required to use a substantial portion of cash flows received from its businesses to make payments to IC in accordance with the IC Credit Facility, which may reduce Kenon’s ability to advance cash to its businesses or to pay dividends to its shareholders in the future, and Kenon may be unable to generate sufficient cash to make such payments. If Kenon is unable to fulfill its payment obligations under the terms of the loan, IC could elect to declare all amounts outstanding thereunder immediately due and payable and terminate all commitments to extend further credit to Kenon. If IC accelerates the repayment of Kenon’s obligations (including any acceleration resulting if Kenon fails to make payments under its back-to-back guarantees to Chery), Kenon may not have sufficient liquidity to repay such obligations. For further information on the risks related to Kenon’s back-to-back guarantee obligations in respect of Qoros’ indebtedness, see “— Risks Related to Our Interest In Qoros—Kenon has “back-to-back” guarantee obligations to Chery in respect of guarantees that Chery has given for Qoros’ bank debt and has pledged a substantial portion of its interests in Qoros to secure Qoros’ bank debt .” In such circumstances, Kenon would need to raise external financing to repay this facility to avoid losing the shares in IC Power that it has pledged.

Kenon may also need to raise debt financing or issue equity, and such issuance could result in a full, or partial, dilution of your direct equity interest in Kenon or indirect equity interest in Kenon’s businesses. The IC Credit Facility also contains covenants that restrict our ability to make distributions and incur additional indebtedness. For example, prior to a listing of IC Power’s equity, the IC Credit Facility prohibits Kenon from distributing dividends to its shareholders, unless such dividends consist of all, or a portion of, Kenon’s equity interests in ZIM. Additionally, there are further restrictions on dividends following an initial public offering or listing of IC Power. If, at any time after a listing of IC Power’s equity, we seek to (i) distribute a dividend to our shareholders (in cash or in kind), (ii) incur additional debt, (iii) sell, transfer, or allocate a portion, or all, of our interest in IC Power, or (iv) sell all of IC Power’s assets, the IC Credit Facility will require the value of Kenon’s remaining interest in IC Power to be, at any given time, equal to at least two times Kenon’s net debt (which shall be equal to the outstanding principal amount of the credit facility plus the outstanding principal amount of any additional debt owed by Kenon to third parties minus Kenon’s cash on hand), in each case plus interest and fees. Kenon’s compliance with such terms may limit its operating and financial flexibility, which may affect Kenon’s ability to execute its strategy and thereby have a material adverse effect on Kenon’s business, financial condition, results of operations or liquidity. For further information on the terms of the loan from IC to Kenon, see “ Item 5.B Liquidity and Capital Resources—Kenon’s Liquidity and Capital Resources—Kenon’s Commitments and Obligations—IC Credit Facility .”

As of December 31, 2016, Kenon had approximately $102 million in cash on an unconsolidated basis (of which approximately $57 million was used in March 2017 to fund shareholder loans to Qoros). Kenon has also fully drawn the IC Credit Facility. Kenon is dependent on its businesses for cash flows from operations and to meet its obligations under the IC Credit Facility and its other obligations, including its obligations under our back-to-back guarantees to Chery with respect to Qoros’ bank debt. For further information on the risks related to Kenon’s dependence on its businesses for its liquidity, see “ —We are a holding company and are dependent upon cash flows from our businesses to meet our existing and future obligations .”

Disruptions in the financial markets could adversely affect Kenon or its businesses, which may not be able to obtain additional financing on acceptable terms or at all.

Kenon’s businesses may seek to access capital lending markets for various purposes, which may include raising funding for the repayment of indebtedness, acquisitions, capital expenditures and for general corporate purposes. The ability of Kenon’s businesses to access capital lending markets, and the cost of such capital, could be negatively impacted by disruptions in those markets. Capital markets have demonstrated significant volatility in recent years. These disruptions impacted other areas of the economy and led to a slowdown in general economic activity. Similar disruptions in the credit markets could make it more difficult or expensive for our businesses to access the capital or lending markets if the need arises and may make financing terms for borrowers less attractive or available. Furthermore, a decline in the value of any of our businesses, which are or may be used as collateral in financing agreements, could also impact their ability to access financing.

Kenon may seek to access the capital or lending markets to obtain financing in the future, including to support its businesses. The availability of such financing and the terms thereof will be impacted by many factors, including: (i) our financial performance, (ii) our credit ratings or absence of a credit rating, (iii) the liquidity of the overall capital markets, and (iv) the state of the economy. There can be no assurance that Kenon will be able to access the capital markets on acceptable terms or at all. If Kenon deems it necessary to access financing and is unable to do so on acceptable terms or at all, this could have a material adverse effect on our financial condition or liquidity.

We are dependent upon access to the capital markets to execute our strategy.

Our strategy may include sales or distributions of our interests in our businesses. Our ability to distribute or monetize our businesses is heavily dependent upon the public equity markets including our ability to complete an initial public offering or listing of one or more of our businesses. For example, in January 2017, IC Power commenced a roadshow for an initial public offering of IC Power's ordinary shares; however, in light of market conditions, IC Power withdrew its IPO, as the IPO was not deemed to be in the best interests of IC Power and Kenon at such time.

Even if the securities of our business are publicly traded, large holdings of securities can often be disposed of only over a substantial length of time, exposing the investment returns to risks of downward movement in market prices during the intended disposition period. Accordingly, under certain conditions, we may be forced to either sell our equity interest in a particular business at lower prices than expected to realize or defer such a sale, potentially for a long period of time.

We are a holding company and are dependent upon cash flows from our businesses to meet our existing and future obligations.

We are a holding company of various operating companies, and as a result, do not conduct independent operations or possess significant assets other than investments in and advances to our businesses. We have significant obligations and limited liquidity, and as a result, we will depend on funds from our businesses or external financing to meet our obligations.

As of December 31, 2016, Kenon had approximately $102 million in cash on an unconsolidated basis (of which approximately $57 million was used in March 2017 to fund shareholder loans to Qoros), and had fully drawn the IC Credit Facility. We will depend on funds from our subsidiaries or associated companies (or from sales of interests in subsidiaries and associated companies) to repay the IC Credit Facility as well as any interest and fees outstanding on the loan, and, for so long as the loan remains outstanding, to make payments of interest on the loan and to make any payments we may be required to make under the back-to-back guarantees we have given to Chery in respect of Qoros’ bank debt.

In addition, as of the date of this annual report, Kenon has outstanding back-to-back guarantee obligations to Chery of up to RMB425 million, plus certain interest and fees, in respect of certain of Qoros’ indebtedness. For further information on, and an overview of, the guarantees provided by Kenon in respect of Qoros’ debt, see “ Item 5.B Liquidity and Capital Resources—Kenon’s Liquidity and Capital Resources—Kenon’s Commitments and Obligations—Back-to-Back Guarantees Provided to Chery .”

Kenon may not have sufficient liquidity to satisfy payment obligations under the IC Credit Facility or its back-to-back guarantees if it is required to make payments on such guarantees. To make such payments, Kenon would need to obtain such funds from its businesses, which may include IC Power (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). In the event that funds from its businesses or external financing are not available to meet such obligations on reasonable terms or at all, Kenon may need to sell assets to meet such obligations, and its ability to sell assets may be limited in light of the various pledges over the shares and assets within its most valuable asset, IC Power. Any sales of assets may not be at attractive prices, particularly if such sales must be made quickly to meet Kenon’s obligations.

Kenon has provided loans and guarantees in the past to support our businesses, such as Qoros, and may provide additional loans to or make investments in or provide guarantees in support of its businesses. Kenon’s liquidity requirements will increase to the extent it makes further loans or grants additional guarantees to support its businesses.

In addition, as Kenon’s businesses are legally distinct from it and will generally be required to service their debt obligations before making distributions to Kenon, Kenon’s ability to access such cash flow from its businesses may be limited in some circumstances and it may not have the ability to cause our entities to make distributions to Kenon, even if they are able to do so. Additionally, the terms of existing and future joint venture, financing, or cooperative operational agreements and/or the laws and jurisdictions under which each of Kenon’s businesses are organized may also limit the timing and amount of any dividends, other distributions, loans or loan repayments to Kenon. In the case of IC Power, which is a holding company of numerous businesses, its ability to make payments to Kenon may be further limited if its businesses are unable to make payments to it.

Additionally, as dividends are generally taxed and governed by the relevant authority in the jurisdiction in which the company is incorporated, there may be numerous and significant tax or other legal restrictions on the ability of Kenon’s businesses, including, for example, IC Power’s businesses and their ability to remit funds to IC Power or to us, or to remit such funds without incurring significant tax liabilities or incurring a ratings downgrade.

We do not have the right to manage, and in some cases do not control, several of our businesses, and therefore we may not be able to realize some or all of the benefits that we expect to realize from our businesses.

As we do not own a majority interest in Qoros, one of our primary assets, or ZIM, we are subject to the operating and financial risks of these businesses, the risk that these businesses may make business, operational or financial decisions that we do not agree with, and the risk that we may have objectives that differ from those of the applicable business itself or its other shareholders. Our ability to control the development and operation of these investments may be limited, and we may not be able to realize some or all of the benefits that we expect to realize from these investments. For example, we may not be able to cause these businesses to make distributions to us in the amount or at the time that we need or want such distributions.

Furthermore, the loans that Ansonia made to our subsidiary Quantum (which were used by Quantum to make back-to-back loans to Qoros) may be converted into equity of Quantum at a discount to the implied value of Qoros based upon the receipt of third-party financing. Accordingly, upon such conversion, Kenon’s indirect interest in Qoros will be diluted, which will result in economic dilution and Kenon having less control over Qoros’ business. In connection with the loan agreement, Ansonia also has certain consent rights with respect to actions that we take in respect of our interest in Qoros. For further information on Ansonia’s agreement to invest in Qoros, see “ Item 5. Operating and Financial Review and Prospects—Qoros—Material Indebtedness—Shareholder Loans .”

In April 2017, Quantum, Chery and Qoros entered into an agreement with Yibin, pursuant to which Yibin may invest in Qoros in connection with the establishment of an NEV and conventional vehicle manufacturing base. Yibin may make significant investments in Qoros upon government approval and the execution of amendments to Qoros’ joint venture agreement and articles of association, among other agreements. Such further investment, if provided, is expected to dilute Quantum's and Chery's interests in Qoros. In addition, Yibin may obtain significant control rights with respect to Qoros. For further information, see “ Item 5. Operating and Financial Review and Prospects—Recent Developments—Qoros—Agreement with Yibin to Jointly Establish NEV Manufacturing Base .”

In addition, we rely on the internal controls and financial reporting controls of our businesses and the failure of our non-controlled businesses to maintain effective controls or to comply with applicable standards could make it difficult to comply with applicable reporting and audit standards. For example, the preparation of our consolidated financial statements requires the prompt receipt of financial statements from each of our subsidiaries and associated companies, some of whom rely on the prompt receipt of financial statements from each of their subsidiaries and associated companies. Additionally, in certain circumstances, we may be required to file with our annual report on Form 20-F, or a registration statement filed with the SEC, financial information of associated companies which has been audited in conformity with SEC rules and regulations and relevant audit standards. We may not, however, be able to procure such financial statements, or such audited financial statements, as applicable, from our subsidiaries and associated companies and this could render us unable to comply with applicable SEC reporting standards.

Some of our businesses are highly leveraged.

Some of our businesses are significantly leveraged and may incur additional debt financing in the future. As of December 31, 2016, IC Power had $3.1 billion of outstanding indebtedness, Qoros had outstanding indebtedness of RMB5.5 billion (excluding shareholder loans), and ZIM had outstanding indebtedness of approximately $1.5 billion.

Highly leveraged assets are inherently more sensitive to declines in earnings, increases in expenses and interest rates, and adverse market conditions. A leveraged company’s income and net assets also tend to increase or decrease at a greater rate than would otherwise be the case if money had not been borrowed. Consequently, the risk of loss associated with a leveraged company is generally greater than for companies with comparatively less debt. Additionally, a significant portion of our businesses’ assets (including their interests in certain of their subsidiaries) have been pledged to secure indebtedness, and as a result, the amount of collateral that is available for future secured debt or credit support and a business’ flexibility in dealing with its secured assets may be limited. IC Power uses a substantial portion of its consolidated cash flows from operations to make debt service payments, thereby reducing its ability to use its cash flows to fund operations, capital expenditures, or future business opportunities. Additionally, notwithstanding the completion of its restructuring on July 16, 2014, ZIM remains highly leveraged and will continue to face risks associated with those of a highly leveraged company.

Our businesses will generally have to service their debt obligations before making distributions to us or to any other shareholder. In addition, many of the financing agreements relating to the debt facilities of our operating companies contain covenants and limitations, including the following:

limits on the ratio of debt to EBITDA;

minimum required ratios of EBITDA to interest expense;

minimum equity;

limits on the incurrence of liens or the pledging of certain assets;

limits on the incurrence of subsidiary debt;

limits on the ability to enter into transactions with affiliates, including us;

minimum liquidity and fixed charge cover ratios;

limits on the ability to pay dividends to shareholders, including us;

limits on our ability to sell assets, including interests in subsidiaries and associated companies; and

other non-financial covenants and limitations and various reporting obligations.

If any of our businesses are unable to repay or refinance their indebtedness as it becomes due, or if they are unable to comply with their covenants, we may decide to sell assets or to take other actions, including (i) reducing financing in the future for investments, acquisitions or general corporate purposes or (ii) dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on their indebtedness. As a result, the ability of our businesses to withstand competitive pressures and to react to changes in the various industries in which we operate could be impaired. A breach of any of our businesses’ debt instruments and/or covenants could result in a default under the relevant debt instrument(s). Upon the occurrence of such an event of default, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable and, in the case of credit facility lenders, terminate all commitments to extend further credit. If the lenders accelerate the repayment of the relevant borrowings, the relevant business may not have sufficient assets to repay any outstanding indebtedness, which could result in a complete loss of that business for us. Furthermore, the acceleration of any obligation under a particular debt instrument may permit the holders of other material debt to accelerate their obligations pursuant to “cross default” provisions, which could have a material adverse effect on our business, financial condition and liquidity.

As a result, our businesses’ degree of leverage could have a material adverse effect on our business, financial condition, results of operations or liquidity.

In addition, we have guarantee obligations with respect to certain Qoros debt and have pledged a substantial portion of our interest in Qoros to support certain Qoros debt, as well as Chery’s guarantees of Qoros’ debt. See “— Risks Related to Our Interest In Qoros—Kenon has “back-to-back” guarantee obligations to Chery in respect of guarantees that Chery has given for Qoros’ bank debt and has pledged a substantial portion of its interests in Qoros to secure Qoros’ bank debt. ”

Our success will be dependent upon the efforts of our directors and executive officers.

Our success will be dependent upon the decision-making of our directors and executive officers as well as the directors and executive officers of our businesses. The loss of any or all of our directors and executive officers could delay the implementation of our strategies or divert our directors and executive officers’ attention from our operations which could have a material adverse effect on our business, financial condition, results of operations or liquidity.

Foreign exchange rate fluctuations and controls could have a material adverse effect on our earnings and the strength of our balance sheet.

Through our businesses, we have facilities and generate costs and revenues in a number of geographic regions across the globe. As a result, a significant portion of our revenue and certain of our businesses’ operating expenses, assets and liabilities, are denominated in currencies other than the U.S. Dollar. The predominance of certain currencies varies from business to business, with many of our businesses generating revenues or incurring indebtedness in more than one currency. For example, most of ZIM’s revenues and a significant portion of its expenses are denominated in the U.S. Dollar. However, a material portion of ZIM’s expenses are denominated in local currencies.

As of the date of this annual report, we have outstanding back-to-back guarantees to Chery of up to RMB425 million, plus certain interest and fees, in respect of certain of Qoros’ indebtedness. In addition, from time to time, we have held, and may hold, a portion of our available cash in RMB, which may expose us to RMB exchange rate fluctuations.

Furthermore, our businesses may pay distributions or make payments to us in currencies other than the U.S. Dollar, which we must convert to U.S. Dollars prior to making dividends or other distributions to our shareholders if we decide to make any distributions in the future. Foreign exchange controls in countries in which our businesses operate may further limit our ability to repatriate funds from unconsolidated foreign affiliates or otherwise convert local currencies into U.S. Dollars.

Consequently, as with any international business, our liquidity, earnings, expenses, asset book value, and/or amount of equity may be materially affected by short-term or long-term exchange rate movements or controls. Such movements may give rise to one or more of the following risks, any of which could have a material adverse effect on our business, financial condition, results of operations or liquidity:

Transaction Risk —exists where sales or purchases are denominated in overseas currencies and the exchange rate changes after our entry into a purchase or sale commitment but prior to the completion of the underlying transaction itself;

Translation Risk —exists where the currency in which the results of a business are reported differs from the underlying currency in which the business’ operations are transacted;

Economic Risk —exists where the manufacturing cost base of a business is denominated in a currency different from the currency of the market into which the business’ products are sold; and

Reinvestment Risk —exists where our ability to reinvest earnings from operations in one country to fund the capital needs of operations in other countries becomes limited.

If our businesses are unable to manage their interest rate risks effectively, our cash flows and operating results may suffer.

Certain of our businesses’ indebtedness bears interest at variable, floating rates. In particular, some of this indebtedness is in the form of Consumer Price Index (CPI)-linked, NIS-denominated bonds. We, or our businesses, may incur further indebtedness in the future that also bears interest at a variable rate or at a rate that is linked to fluctuations in a currency in the form of other than the U.S. Dollar. Although our businesses attempt to manage their interest rate risk, there can be no assurance that they will hedge such exposure effectively or at all in the future. Accordingly, increases in interest rates or changes in the CPI that are greater than changes anticipated based upon historical trends could have a material adverse effect on our or any of our businesses’ business, financial condition, results of operations or liquidity.

Risks Related to the Industries in Which Our Businesses Operate

Current conditions in the global economy, and in the industries in which our businesses operate in particular, could have a material adverse effect on us.

The business and operating results of each of our businesses have been, and will continue to be, affected by worldwide economic conditions, particularly conditions in the energy generation, passenger vehicle, and shipping industries our businesses operate in. The operating results and profitability of our businesses may be adversely affected by slower global economic growth, credit market crises, lower levels of consumer and business confidence, downward pressure on prices, high unemployment levels, reduced levels of capital expenditures, fluctuating commodity prices (particularly prices for electricity, natural gas, heavy fuel oil, bunker, gasoline, and crude oil), bankruptcies, government deficit reduction and austerity measures, heightened volatility, uncertainties with respect to the stability of the emerging markets, austerity measures by governments, increased trade protectionism and other challenges affecting the global economy. Volatility in global financial markets and in prices for oil and other commodities could result in a continuation or worsening of these conditions. As a result of these conditions, some of the government and non-government customers of our businesses have experienced, and may experience, deterioration of their businesses, cash flow shortages, and/or difficulty in obtaining financing. As a result, existing or potential customers may delay or cancel plans to purchase the products and/or services of our businesses, including long-term purchases of energy capacity (in the case of IC Power) or purchases of shipping capacity (in the case of ZIM), or may not be able to fulfill their obligations to us in a timely fashion. Furthermore, the vendors, suppliers and/or partners of each of our businesses may be experiencing similar conditions, which may impact their ability to fulfill their obligations. In addition, volatility in global fuel prices can affect margins at IC Power. For further information, see “ —Risks Related to IC Power’s Generation Business—The profitability of IPPs in Israel may be adversely affected by changes in Israel’s regulatory costs and EA tariffs. ”

Additionally, economic downturns may alter the priorities of governments to subsidize and/or incentivize participation in any of the markets in which our businesses operate. For example, economic downturns or political dynamics may impact the availability of financial incentives provided by the Chinese government for Chinese automobile purchases. Slower growth or deterioration in the global economy (as a result of recent volatility in global markets and commodity prices, or otherwise) could have a material adverse effect on our business, financial condition, results of operations or liquidity.

Our businesses’ operations expose us to risks associated with conditions in those markets.

Through our businesses, we operate and service customers in a number of geographic regions across the globe, including emerging markets. There are certain risks inherent in conducting business in emerging markets, including:

heightened economic volatility;

difficulty in enforcing agreements, collecting receivables and protecting assets;

the possibility of encountering unfavorable circumstances from host country laws or regulations;

fluctuations in revenues, operating margins and/or other financial measures due to currency exchange rate fluctuations and restrictions on currency and earnings repatriation;

unfavorable changes in regulated electricity tariffs;

trade protection measures, import or export restrictions, licensing requirements and local fire and security codes and standards;

increased costs and risks of developing, staffing and simultaneously managing a number of foreign operations as a result of language and cultural differences;

issues related to occupational safety, work hazard, and adherence to local labor laws and regulations;

potentially adverse tax developments;

changes in the general political, social and/or economic conditions in the countries where we operate, particularly in emerging markets;

the threat of nationalization and expropriation;

the presence of corruption in certain countries;

fluctuations in available municipal funding in those instances where a project is government-financed;

terrorist activities; and

cyber-attacks.

If any of our businesses are impacted by any of the aforementioned factors, such an impact could have a material adverse effect on our business, financial condition, results of operations or liquidity.

We require qualified personnel to manage and operate our various businesses.

As a result of our decentralized structure, we require qualified and competent management to independently direct the day-to-day business activities of each of our businesses, execute their respective business plans, and service their respective customers, suppliers and other stakeholders, in each case across numerous geographic locations. Many of the products and services offered by our businesses are highly technical in nature and may require specialized training or physically demanding work. Therefore, we must be able to retain employees and professionals with the skills necessary to understand the continuously developing needs of our customers and to maximize the value of each of our businesses. This includes developing talent and leadership capabilities in the emerging markets in which certain of our businesses operate, where the depth of skilled employees may be limited. Changes in demographics, training requirements and/or the unavailability of qualified personnel could negatively impact the ability of each of our businesses to meet these demands. Unpredictable increases in the demand for our goods and/or services, or the geographical diversity of our businesses, may exacerbate the risk of not having a sufficient number of trained personnel. If any of our businesses fail to train and retain qualified personnel, or if they experience excessive turnover, we may experience declining sales, production/manufacturing delays or other inefficiencies, increased recruiting, training or relocation costs and other difficulties, any of which could have a material adverse effect on our business, financial condition, results of operations or liquidity.

Significant raw material shortages, supplier capacity constraints, production disruptions, supplier quality and sourcing issues or price increases could increase our operating costs and adversely impact the competitive positions of the products and/or services of our businesses.

The reliance of certain of our businesses on certain third-party suppliers, contract manufacturers and service providers, or commodity markets to secure raw materials (e.g., natural gas, HFO, and diesel for IC Power and bunker and containers for ZIM), parts, components and sub-systems used in their products or services exposes us to volatility in the prices and availability of these materials, parts, components, systems and services. Some of these suppliers or their sub-suppliers are limited- or sole-source suppliers.

For example, Kallpa, the largest IC Power operating company, is party to a natural gas exclusive supply agreement with a consortium of suppliers, pursuant to which such consortium supplies Kallpa with all of its natural gas requirements based upon a base price, in U.S. Dollars, set on the date of the agreement and indexed on two producer price indices pursuant to the terms of the agreement. Additionally, Kallpa is party to a natural gas exclusive transportation agreement with a gas transporter. OPC-Rotem is party to a natural gas exclusive supply agreement with a consortium of suppliers who, in accordance with a resolution passed by the Israeli Natural Gas Council, may be required to allocate gas otherwise designated for OPC-Rotem to other consumers in the event of a capacity shortage. For further information on the terms and nature of IC Power’s relationships with certain of its raw material suppliers, see “—Risks Related to IC Power—Risks Related to IC Power’s Generation Business—Supplier concentration may expose IC Power to significant financial credit or performance risk, particularly with respect to those agreements which may expire during the life of its power plants ” and “ Item 4.B Business Overview — Our Businesses—IC Power—IC Power’s Description of Operations—IC Power’s Raw Materials and Suppliers .”

For further information on the terms and nature of Qoros’ relationships with certain of its raw material suppliers, see “ —Risks Related to Our Interest in Qoros—Qoros is dependent upon its suppliers ” and “ Item 4.B Business Overview—Our Businesses—Qoros —Qoros’ Sourcing and Suppliers .”

A disruption in deliveries from these and other third-party suppliers, contract manufacturers or service providers, capacity constraints, production disruptions, price increases, or decreased availability of raw materials or commodities, including as a result of catastrophic events, could have an adverse effect on the ability of our businesses to meet their commitments to customers or could increase their operating costs. Our businesses could encounter supply problems and may be unable to replace a supplier that is not able to meet their demand in either the short- or the long-term; these risks are exacerbated in the case of raw materials or component parts that are sourced from a single-source supplier. Furthermore, quality and sourcing issues experienced by third-party providers can also adversely affect the quality and effectiveness of our businesses’ products and/or services and result in liability and reputational harm that could have a material adverse effect on our business, financial condition, results of operations or liquidity.

Some of our businesses must keep pace with technological changes and develop new products and services to remain competitive.

The markets in which some of our businesses operate experience rapid and significant changes as a result of the introduction of both innovative technologies and services. To meet customer needs in these areas, these businesses must continuously design new, and update existing, products and services, as well as invest in, and develop new technologies. Introducing new products and technologies requires a significant commitment to research and development that, in return, requires the expenditure of considerable financial resources that may not always result in success.

Our sales and profitability may suffer if our businesses invest in technologies that do not operate, or may not be integrated, as expected or that are not accepted into the marketplace as anticipated, or if their services, products or systems are not introduced to the market in a timely manner, in particular, compared to its competitors, or become obsolete. Furthermore, in some of these markets, the need to develop and introduce new products rapidly in order to capture available opportunities may lead to quality problems. Our operating results depend to a significant extent on our ability, and the ability of these businesses, to anticipate and adapt to changes in markets and to reduce the costs of producing high-quality, new and existing products and services. If we, or any of these businesses, are unsuccessful in our efforts, such a failure could have a material adverse effect on our business, financial condition, results of operations or liquidity.

Our businesses may be adversely affected by work stoppages, union negotiations, labor disputes and other matters associated with our labor force.

As of December 31, 2016, we, and our consolidated businesses, employed, directly and indirectly, approximately 2,100 employees. Qoros and ZIM employed approximately 1,900 and 3,700 employees, respectively, as of December 31, 2016. Our businesses could experience strikes, industrial unrest, or work stoppages.

Disruptions in the operations of any of our businesses as a result of labor stoppages or strikes may also occur in the future and, if so, such disruptions could materially and adversely affect our or the relevant businesses’ reputation and could adversely affect operations. Additionally, a work stoppage at any one of the suppliers of any of our businesses could materially and adversely affect our operations if an alternative source of supply were not readily available. Stoppages by employees of our customers could also result in reduced demand for our products or services which could have a material adverse effect on our business, financial condition, results of operations or liquidity.

The activities of certain of our businesses may be impacted by the geopolitical, economic and security conditions in Israel and the Middle East.

Some of our businesses are incorporated, and certain of the operations of our businesses are located, in Israel. Therefore, the existing security, economic and geopolitical conditions in Israel and the Middle East could affect our existing relationships with certain foreign corporations, as well as affect the willingness of potential partners to enter into transactions or business relationships with Israeli companies, particularly our businesses that are based in or have facilities which are located in Israel. For example, numerous countries, corporations and organizations limit their business activities in Israel and their business ties with Israeli-based companies. For example, ZIM’s status as an Israeli company has limited, and may continue to limit, ZIM’s ability to call on certain ports and has therefore impacted, and may continue to impact, ZIM’s ability to enter into alliances and operational partnerships with other shipping companies. Additionally, Israel has been and is subject to terrorist activity, with varying levels of severity. Parties with whom we or our businesses do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements where necessary. Developments in the political and security situation in Israel may also result in parties with whom we have agreements claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions. Although the number of businesses limiting their ties to Israel is decreasing, any deterioration in the security or geopolitical conditions in Israel and/or the Middle East could adversely impact our business relationships and thereby have a material adverse effect on our business, financial condition, results of operations or liquidity.

Israel’s geopolitical situation has led to security issues and, as a result, our Israel-based operations or associated companies, including ICPI, its subsidiaries OPC-Rotem and OPC-Hadera, and ZIM may be exposed to hostile activities (including harm to computer systems or, with respect to IC Power’s operations or development projects, attacks on critical infrastructure, such as gas transmission systems or pipelines), security restrictions connected with Israeli bodies/organizations overseas, possible isolations by various bodies for numerous political reasons, and other limitations (such as a prohibition against entering into specific ports). Certain of OPC-Rotem’s, OPC-Hadera’s or ZIM’s employees in Israel are also subject to being called upon to perform military service in Israel, and their absence may have an adverse effect upon the operations of the relevant business. Generally, unless exempt, male adult citizens of Israel under the age of 41 are obligated to perform up to 36 days of military reserve duty annually and are subject to being called to active duty at any time under emergency circumstances. Furthermore, while OPC-Rotem is classified as an “essential facility” by the State of Israel, and therefore, certain of its key employees are exempt from military service in times of emergency, OPC-Rotem’s employees may be subject to being called upon to perform military service should OPC-Rotem lose this classification. Additionally, ZIM’s owned and chartered 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 events and conditions could disrupt IC Power’s or ZIM’s operations, which could, in turn, have a material adverse effect on our business, financial condition, results of operations or liquidity.

We, and each of our businesses, face cyber-security risks.

Our business operations, and the operations of our various operating companies, rely upon secure information technology systems for data processing, storage and reporting. As a result, we, and our businesses, maintain information security policies and procedures for managing such information technology systems. However, such security measures may be ineffective and our information technology systems, or those of our businesses, may be subject to cyber-attacks, including malicious software, network, system, application and data breaches and such cyber-security breaches may result in operational disruptions or information misappropriation.

Furthermore, ZIM and IC Power’s subsidiaries OPC-Rotem and OPC-Hadera may be at greater risk for cyber-attacks due to their status as Israeli corporations, as a number of Israeli corporations have been the subject of recent cybersecurity attacks. For example, in January 2016, Israel’s Electricity Authority, or the EA, was the subject of one of the largest cyber-attacks in Israeli history and had to shut down several of its systems in order to address the cyber-attack. Should Kenon or any of its operating businesses experience a cyber-attack, this could have a material adverse effect on our, or any of our operating companies’, business, financial condition or results of operation. For further information on the risks related to IC Power’s information technology systems, see “— The interruption or failure of IC Power’s information technology, communication and processing systems or external attacks and invasions of these systems could have an adverse effect on IC Power .”

Risks Related to Legal, Regulatory and Compliance Matters

We, and each of our businesses, are subject to legal proceedings and legal compliance risks.

We are subject to a variety of legal proceedings and legal compliance risks in virtually every part of the world. We, our businesses, and the industries in which we operate, are periodically reviewed or investigated by regulators and other governmental authorities, which could lead to enforcement actions, fines and penalties or the assertion of private litigation claims and damages. Changes in laws or regulations could require us, or any of our businesses, to change manners of operation or to utilize resources to maintain compliance with such regulations, which could increase costs or otherwise disrupt operations. Protectionist trade policies and changes in the political and regulatory environment in the markets in which we operate, such as foreign exchange import and export controls, tariffs and other trade barriers and price or exchange controls, could affect our businesses in several national markets, impact our profitability and make the repatriation of profits difficult, and may expose us or any of our businesses to penalties, sanctions and reputational damage. In addition, the uncertainty of the legal environment in some regions could limit our ability to enforce our rights.

The global and diverse nature of our operations means that legal and compliance risks will continue to exist and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, will arise from time to time. No assurances can be made that we will be found to be operating in compliance with, or be able to detect violations of, any existing or future laws or regulations. A failure to comply with or properly anticipate applicable laws or regulations could have a material adverse effect on our business, financial condition, results of operations or liquidity.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws outside of the United States.

The U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the SEC, increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with the FCPA and other applicable anti-bribery laws. We operate, through our businesses, in many parts of the world that are recognized as having governmental and commercial corruption. Additionally, because many of our customers and end users are involved in infrastructure construction and energy production, they are often subject to increased scrutiny by regulators. Our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees, the employees of any of our businesses, or third party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we would investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may result in criminal or civil sanctions, inability to do business with existing or future business partners (either as a result of express prohibitions or to avoid the appearance of impropriety), injunctions against future conduct, profit disgorgements, disqualifications from directly or indirectly engaging in certain types of businesses, the loss of business permits, reputational harm or other restrictions which could disrupt our business and have a material adverse effect on our business, financial condition, results of operations or liquidity.

Our global operations necessitate the importation and exportation of goods and technology across international borders on a regular basis. From time to time, we, or our businesses, obtain or receive information alleging improper activity in connection with such imports or exports. Our policy mandates strict compliance with applicable trade laws. Nonetheless, our policies and procedures may not always protect us from actions that would violate U.S. and/or foreign laws. Such improper actions could subject us to civil or criminal penalties, including material monetary fines, denial of import or export privileges, or other adverse actions. The occurrence of any of the aforementioned factors could have a material adverse effect on our business, financial condition, results of operations or liquidity.

In addition, our subsidiary IC Power has made acquisitions in recent years, including the acquisition of Energuate, a Guatemalan electricity distribution company, in January 2016. We face risks with respect to compliance with the FCPA and similar anti-bribery laws through our acquisition of new companies and the due diligence we perform in connection with an acquisition may not be sufficient to enable us fully to assess an acquired company’s historic compliance with applicable regulations. Furthermore, our post-acquisition integration efforts may not be adequate to ensure our system of internal controls and procedures are fully adopted and adhered to by acquired entities, resulting in increased risks of non-compliance with applicable anti-bribery laws.

Certain of our businesses are subject to regulatory restrictions relating to ties with hostile entities and/or countries.

As a result of their international activities and operations in various industries worldwide, certain of our businesses are exposed to regulations in Israel and in other countries governing business relations with hostile entities or countries. We have taken, and will continue to take, measures to ensure our compliance with such regulations. Despite our best precautions, however, the wide-reaching business activities of our businesses may expose us to sanctions, which could have a material adverse effect on our business, financial condition, results of operations or liquidity.

Risks Related to IC Power

IC Power’s results of operations and financial condition are dependent upon the economic, environmental, social and political conditions in those countries in which IC Power operates.

IC Power has operating assets in 11 countries, including emerging markets, as well as development projects in these or other countries. As a result, IC Power’s results of operations are dependent upon the economic, social and political conditions in each of the countries in which it operates, and IC Power is exposed to a variety of risks, including risks related to:

heightened economic volatility;

difficulty in enforcing agreements, collecting receivables and protecting assets;

difficulty in obtaining authorizations, permits and licenses required for the operation of its assets;

the possibility of encountering unfavorable circumstances from host country laws or regulations;

fluctuations in revenues, operating margins and/or other financial measures due to currency exchange rate fluctuations and restrictions on currency and earnings repatriation;

trade protection measures, import or export restrictions, licensing requirements and environmental, local fire and security codes and standards;

increased costs and risks of developing, staffing and simultaneously managing a number of foreign operations as a result of language and cultural differences;

issues related to occupational safety, work hazard, and adherence to local labor laws and regulations;

potentially adverse tax developments or interpretations;

changes in political, social and/or economic conditions;

the threat of nationalization and expropriation;

the presence of corruption in certain countries;

fluctuations in the availability of funding;

a potential deterioration in IC Power’s relationships with the different stakeholders in the communities surrounding its facilities;

terrorist or other hostile activities; and

changes in the regulatory and environmental legal framework, including the costs of complying with environmental and energy regulations.

Additionally, IC Power’s revenue is derived primarily from the sale of electricity, and the demand for electricity is largely driven by the economic, political and regulatory conditions of the countries in which IC Power operates. Therefore, IC Power’s results of operations and financial condition are, to a large extent, dependent upon the overall level of economic activity in these emerging market countries. Should economic or political conditions deteriorate in Peru, or in any of the other countries in which IC Power operates, or in emerging markets generally, such an occurrence could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

IC Power primarily operates, and expects to continue to primarily operate, in emerging markets.

IC Power has operations in a number of emerging markets, including Peru, Guatemala, Chile and Colombia. Investing in the securities of a company with operations in emerging markets generally involves a higher degree of risk than investing in the securities of a company with operations in a more developed market. For example, IC Power is subject to increased political, social and economic instability, which may affect the economic results of the emerging markets in which it operates and which stems from many factors, including:

high interest rates;

abrupt changes in currency values;

high levels of inflation;

exchange controls;

wage and price controls and increased employment-related regulations;

regulations on imports of equipment and other necessities (goods and services) relevant to operations;

changes in governmental, economic or tax policies;

social and political tensions, and

any of which could have a material adverse effect on its financial condition, results of operations or liquidity.

IC Power is a holding company and is dependent upon cash flows from its subsidiaries to meet its existing and future obligations.

IC Power is a holding company of various operating companies, and as a result, does not conduct independent operations or possess significant assets other than investments in its businesses. Therefore, IC Power depends upon the receipt of sufficient funds from its businesses (via dividends or loans) to meet its obligations, including to contribute committed capital to its businesses, repay any amounts it may borrow in the future, and to pay dividends or other distributions to IC Power’s shareholders. However, as IC Power’s corporate structure includes several intermediate holding companies which, along with its operating subsidiaries and investees, are legally distinct from IC Power and will generally be required to service their debt obligations before making distributions to IC Power, IC Power’s ability to access such cash flow from its subsidiaries and investees may be limited in some circumstances and it may not have the ability to cause entities in which it owns an interest to make distributions to it, even if they are able to do so. Additionally, the terms of existing and future joint ventures, financings, or cooperative operational agreements, ratings considerations, and/or the laws and jurisdictions under which each of IC Power’s subsidiaries and investees is incorporated may also limit the timing and amount of any dividends, other distributions, loans or loan repayments to IC Power. In the case of ICP and Inkia, subsidiaries and investees with investments in numerous subsidiaries and investees, their ability to make payments to IC Power may be further limited if their subsidiaries and investees are unable to make payments to them.

Additionally, as dividends are generally taxed and governed by the relevant authority in the jurisdiction in which the company is incorporated or where the company is a tax resident, there may be numerous and significant tax or other legal restrictions on the ability of IC Power’s subsidiaries and investees to remit funds to it, or to remit such funds without IC Power’s, or its subsidiaries and investees, incurring significant tax liabilities.

IC Power is significantly leveraged.

As of December 31, 2016, IC Power had $3.1 billion of outstanding indebtedness on a consolidated basis, respectively, excluding IC Power’s $145 million note payable to Kenon. Some of IC Power’s debt agreements include financial covenants, affirmative and negative covenants, and/or events of default or mandatory prepayments for contractual breaches, change of control events, and/or material mergers and divestments, among other provisions.

IC Power uses a substantial portion of its cash flow from operations or investing activities to make debt service payments, reducing IC Power’s ability to use cash flow to fund its operations, capital expenditures or future business opportunities. Many of IC Power’s debt agreements provide for the repayment of the entire principal amount of the loan at final maturity, which repayments may require IC Power to devote substantial portions of its cash flow for such payments. For further information on the final maturity and amortization of certain of IC Power’s debt agreements, see “ Item 5.B Liquidity and Capital Resources—IC Power’s Liquidity and Capital Resources—IC Power’s Material Indebtedness .” In addition, a number of IC Power’s credit facilities are secured. The pledge of a significant percentage of IC Power’s assets to secure its debt has reduced the amount of collateral that is available for future secured debt or credit support as well as its flexibility in dealing with these secured assets. This level of indebtedness and related security, as well as the terms governing such indebtedness, could have other important consequences for IC Power, including:

increasing IC Power’s vulnerability to general adverse economic and industry conditions;

limiting IC Power’s flexibility in planning for, or reacting to, changes in its business and the industry;

limiting IC Power’s ability to enter into long-term power sales or fuel purchases which require credit support;

limiting IC Power’s ability to adjust to changing market conditions and placing IC Power at a competitive disadvantage compared to its competitors that are not as highly leveraged;

limiting IC Power’s ability to distribute dividends or other payments to its shareholders without leading to a downgrade of its outstanding indebtedness or long-term corporate ratings, if at all; and

limiting, along with the financial and other restrictive covenants relating to such indebtedness, among other things, IC Power’s ability to borrow additional funds for working capital including collateral postings, capital expenditures, acquisitions and general corporate or other purposes.

IC Power also provides performance, and other, guarantees, from time to time, in support of the financing and development of certain of its subsidiaries, including in connection with project bids and tenders. As of December 31, 2016, IC Power had provided performance, or other, guarantees in an aggregate amount of $124 million.

IC Power may be unable to refinance its existing indebtedness or raise additional indebtedness on favorable terms, or at all.

IC Power may need to refinance all, or a portion of, its indebtedness on or before the respective maturity dates. For example, IC Power's $120 million ICPDH Credit Agreement and $100 million Overseas Facility mature in June 2017 and November 2017, respectively. IC Power’s ability to refinance its indebtedness, obtain additional financing or comply with its existing lenders’ requirements will depend on, among other things:

IC Power’s financial condition, or the financial condition of its relevant subsidiaries, at the time of the proposed refinancing;

the amount of financing outstanding and lender requirements outstanding at the time of the proposed refinancing;

restrictions in any of IC Power’s credit agreements, indentures, or other outstanding indebtedness; and

other factors, including the condition of the financial markets.

If IC Power does not have adequate access to credit, it may be unable to refinance its existing borrowings and credit facilities on commercially reasonable terms and may be forced to raise financing at a higher cost or on less favorable terms (e.g., by providing collateral, security or guarantees to lenders and/or accepting higher interest rates) when its existing indebtedness matures. Additionally, if IC Power is not able to refinance any of its indebtedness and does not generate sufficient cash flow from operations, and additional borrowings or refinancings or proceeds of asset sales are not available to IC Power, it may not have sufficient cash to enable it to meet all of its obligations. Should future access to capital be unavailable to IC Power, it may have to sell assets or decide not to build new plants or expand or improve existing facilities, any of which could affect IC Power’s future growth.

If IC Power is unable to manage its interest rate risks effectively, its cash flows and operating results may suffer.

As IC Power continues to draw down on its credit facilities with third parties and raise additional third party financing to fund its capital expenditures, it may experience an increase in interest costs. Many of the debt agreements of IC Power’s operating companies have floating interest rates (e.g., many of the debt instruments are tied to London Interbank Offered Rate, or LIBOR) and a continued increase in interest rates could increase the cost of the capital required to continue to fund IC Power’s development and expansion efforts. In particular, some of this indebtedness is in the form of CPI-linked NIS-denominated bonds. IC Power, or its businesses, may incur further indebtedness in the future that also bears interest at a variable rate or at a rate that is linked to fluctuations in a currency other than the U.S. Dollar. In addition, to the extent IC Power refinances any of its existing indebtedness, it may only be able to refinance such indebtedness at a less favorable interest rate.

Although IC Power’s businesses attempt to manage their interest rate risk by entering into interest rate swaps, there can be no assurance that they will hedge such exposure, in full, effectively or at all in the future. Accordingly, increases in interest rates or changes in the CPI could have a material adverse effect on IC Power’s or any of its businesses’ business, financial condition, results of operations or liquidity.

IC Power faces risks in connection with its expansion, development and acquisition strategy.

IC Power’s growth strategy contemplates (1) the expansion, construction or development of power generation facilities and (2) the acquisition, expansion and development of generation and distribution companies in key growth markets. The ability to pursue such growth opportunities successfully will depend upon IC Power’s ability to identify projects and properties suitable for expansion, construction or acquisitions, and negotiate purchase or engineering, procurement and construction agreements on commercially reasonable terms. Due to growing environmental restrictions, transmission line saturation, obstacles for fuel transportation and a scarcity of sites in which new plants may be located, the development of new assets in the countries in which IC Power operates and in the countries in which IC Power may operate in the future, are subject to increased developmental competition and involve higher development costs than in the past, which could have an adverse impact on its strategy and business. In addition, IC Power applies a disciplined approach to evaluating potential development projects and is willing to lose competitive bids if the expected returns on a project do not provide the appropriate risk-adjusted return, which may affect IC Power's ability to win bids and further impede IC Power's expansion strategy.

Additionally, IC Power relies significantly on its ability to successfully access the capital markets as a source of liquidity and such reliance may be increased to the extent that IC Power utilizes cash from its operations to distribute funds to its shareholders or repay loans. IC Power’s ability to arrange financing with no or limited recourse to IC Power, and the costs of such capital, are dependent upon numerous factors, some of which are beyond its control. Commercial lending institutions sometimes refuse to provide financing in certain less developed economies, and in these situations IC Power may seek direct or indirect (through credit support or guarantees) project financing from a limited number of multilateral or bilateral international financial institutions or agencies. As a precondition to making such project financing available, the lending institutions may also require sponsor guarantees for completion risks and governmental guarantees of certain business and sovereign related risks. However, the financing from international financial agencies or governmental guarantees required to complete projects may not be available when needed. If so, IC Power may have to abandon potential projects or invest more of its own funds, which may not be in line with its investment objectives and would leave less funds for other investments and projects.

An inability to identify and source appropriate projects and acquisitions, negotiate the agreements relating to such projects and acquisitions, or secure the necessary funding, could have an adverse impact on IC Power’s strategy and, as a result, could have a material adverse effect on its business.

Acquisitions may not perform as expected.

In recent years, IC Power has completed several acquisitions and plans to continue to develop its portfolio through acquisitions in certain attractive markets, including those in which IC Power does not currently operate. For example, in January 2016, IC Power completed its acquisition of its distribution business in Guatemala.

Acquisitions require IC Power to spend significant sums on legal, financial advisory and other expenses and consume a portion of its management’s focus. Acquisitions may increase IC Power’s leverage or reduce its profitability. Future acquisitions may be large and complex, and IC Power may not be able to complete them successfully or, if completed, such acquisitions may not be completed at the cost or in the time-frame in which they were initially expected.

Although acquired businesses may have significant operating histories at the time IC Power acquires them, IC Power will have no history of owning and operating these businesses and, potentially, limited or no experience operating in these particular lines of business, or operating businesses in the countries in which these acquired businesses are located. For example, prior to IC Power’s acquisition of Energuate, it had not previously operated or owned companies within the distribution sector. Future growth in revenues, earnings and cash flow will be partly dependent on its ability to successfully operate within this industry.

With respect to any acquisitions of IC Power has made, or may consummate in the future:

acquired businesses may not perform as expected;

IC Power may incur unforeseen obligations or liabilities, which may entail significant expense;

the fuel supply needed to operate an acquired generation business at full capacity may not be available;

acquired businesses may not generate sufficient cash flow to support the indebtedness existing at acquisition, the indebtedness incurred to acquire them or the capital expenditures needed to operate them;

the rate of return from acquired businesses may be lower than anticipated in IC Power’s decision to invest its capital to acquire them;

any benefits gained may not outweigh the management and personnel resources which will need to be diverted from IC Power’s operations to achieve those benefits; and

IC Power may not be able to expand as planned, manage the acquired company’s activities and achieve the economies of scale and any expected efficiency or other gains IC Power had planned, which often drive such acquisition decisions.

Certain of IC Power’s facilities are affected by climate conditions and changes in the climates or other occurrences of natural phenomena in the countries in which these facilities operate could have a material adverse effect on IC Power.

Certain of IC Power’s generation facilities are based on hydroelectric power generation. As a result, their operating results are directly impacted by water sources which are, in turn, affected by the amount of rainfall and snowmelt.

The occurrence of natural phenomena, such as El Niño and La Niña, two climactic phenomena that influence rainfall regularity in some of the Latin American countries in which IC Power operates, may result in droughts which affect its results of operations. A prolonged drought in a country in which IC Power’s generation facilities rely on hydroelectric energy may reduce its ability to operate its hydroelectric plants at full capacity. In addition, a prolonged drought may result in disputes with governments, regulators, local communities, farmers and other stakeholders over water use. As a result of such disputes, IC Power may be forced to enter into agreements which restrict its ability to use water for hydroelectric generation.

Droughts and excessive rainfall also affect the operation of IC Power’s thermal plants, including those facilities which use natural gas or HFO as fuel, in the following manner:

During periods of drought, thermal plants are used more frequently. Operating costs of thermal plants can be considerably higher than those of hydroelectric plants. IC Power’s operating expenses may increase during these periods.

IC Power’s thermal plants require water for cooling and a drought not only reduces the availability of water, but also increases the concentration of chemicals, such as sulfates in the water. The high concentration of chemicals in the water IC Power uses for cooling increases the risk of damaging the equipment at its thermal plants as well as the risk of violating relevant environmental regulations. As a result, IC Power may have to purchase water from areas that are also experiencing shortages of water. These water purchases may increase IC Power’s operating costs, as well as the costs relating to its social responsibility commitments.

Thermal power plants burning gas generate emissions such as sulfur dioxide (SO2) and nitrogen oxide (NOx) gases. When operating with diesel, they also release particulate matter into the atmosphere. Therefore, greater use of thermal plants during periods of drought increases the risk of unsatisfactory performance of the abatement equipment used to control pollutant emissions.

During excessive rainfall periods, hydroelectric plants increase their generation, which reduces the spot prices in the system, and also reduces the dispatch of thermal power plants. As a result, IC Power’s thermal plants selling energy to the spot market may face a reduction in their margins due to their lower dispatch or due to sales occurring at the lower spot prices.

Additionally, certain of IC Power’s facilities are also exposed to additional climate change risk and to the specific natural phenomena occurring in their respective countries of operation, including earthquakes (due to heightened seismic activity), hurricanes and flooding, landslides, volcanic eruptions, fire, and other natural disasters. For example, in April 2017, Kanan experienced a fire, and as a result of the fire, both its 55 MW and 37 MW barges were placed off-line. For further information on the incident, see “ Item 5. Operating and Financial Review and Prospects—Recent Developments—IC Power—Fire at Kanan Plant .”

Furthermore, the production of wind energy depends heavily on suitable wind conditions, which are variable and difficult to predict. Operating results for such plants vary significantly from period to period depending on the wind resource during the periods in question. For example, IC Power’s Amayo I and Amayo II wind farms generated less energy in 2016 than 2015 due to lower wind levels. Therefore, the electricity generated by IC Power’s wind energy plants may not meet its anticipated production levels or the rated capacity of the turbines located there, which could adversely affect its business.

IC Power could experience severe business disruptions, significant decreases in revenues based on lower demand arising from climate changes or catastrophic events, or significant additional costs to IC Power not otherwise covered by business interruption insurance policies. There may be an important time lag between a major climate change event, accident or catastrophic event and IC Power’s recovery from any insurance policies, which typically carry non-recoverable deductible amounts, and in any event, are subject to caps per event. Furthermore, many of IC Power’s supply agreements, including its natural gas supply agreements and transportation services agreements, contain force majeure provisions that allow for the suspension of performance by its counterparties for the duration of certain force majeure events. If a force majeure event were to occur and IC Power’s counterparties were to temporarily suspend performance under their contracts, IC Power may be forced to find alternative suppliers in the market on short notice (which IC Power may be unable to do) and incur additional costs. Additionally, any of these events could cause adverse effects on the energy demand of some of IC Power’s customers and of consumers generally in the affected market, the occurrence of which could have a material adverse effect on its business, financial condition, results of operations or liquidity.

IC Power is exposed to electricity spot market, fuel and other commodity price volatility.

IC Power’s generation companies purchase and sell electricity in the wholesale spot markets. During the years ended December 31, 2016, 2015 and 2014, IC Power’s generation companies purchased 16%, 17% and 18% of the electricity that they sold (in GWh) from the spot market, respectively. As a result, IC Power is exposed to spot market prices, which tend to fluctuate substantially. In addition, to the extent that any of IC Power's PPAs expire, but are not renewed or replaced, IC Power's generation companies may be required to make a significant percentage of their sales on the spot market.

Unlike most other commodities, electric power can only be stored on a very limited basis and generally must be produced concurrently with its use. As a result, power prices are subject to significant volatility from supply and demand imbalances, especially within the spot markets in which IC Power may purchase and sell electricity. Typically, spot market prices for electricity are volatile and the demand for such electricity often reflects the cyclical fluctuating cost of coal, natural gas and oil, rain volumes or the conditions of hydro reservoirs. The Peruvian and Chilean electricity markets are also indirectly affected by the price of copper, as a result of the electricity-intensive mining industry, which represents a significant source of the electricity demand in these markets. Therefore, a decline in such mining activity could adversely affect IC Power, and any changes in the supply and cost of coal, natural gas and oil, rain volumes, the conditions of hydro reservoirs, the unexpected unavailability of other generating units, or the supply and cost of copper, may impact the volume of electricity demanded by the market. Volatility in market prices for fuel and electricity may result from many factors which are beyond its control and IC Power does not generally engage in hedging transactions to minimize such risks. For further information on the effects of fluctuations in oil prices on IC Power’s results of operations, see “ Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of Operations—IC Power—Fluctuations in Oil Prices and Currency Exchange Rates. ”

Some of the countries in which IC Power operates, or may operate in the future, have experienced terrorist activity and social unrest in the past and it is possible that a resurgence of terrorism in any of these countries could occur in the future.

Some of the countries in which IC Power operates, or may operate in the future, have experienced terrorist activity and social unrest in the past. For example, Peru, the country in which IC Power has its largest operations, experienced terrorist activity that reached its peak of violence against the government and private sector in the late 1980s and early 1990s. In addition, Energuate has experienced violent protests and other hostile activity within its service area from organizations in Guatemala. Any terrorist activities or other hostile actions in Peru, Guatemala or other countries in which IC Power operates could have a material adverse effect on IC Power’s business, financial condition and results of operation.

The existing security, economic and geopolitical conditions in Israel and the Middle East could affect IC Power’s operations in Israel. Israel has been and is subject to terrorist activity, with varying levels of severity. Parties with whom IC Power does business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing IC Power to make alternative arrangements where necessary. Developments in the political and security situation in Israel may also result in parties with whom IC Power has agreements claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions. Any deterioration in the security or geopolitical conditions in Israel and/or the Middle East could adversely impact IC Power’s business relationships and thereby have a material adverse effect on its business, financial condition, results of operations or liquidity.

Israel’s geopolitical situation has led to security issues and, as a result, IC Power’s Israel-based subsidiary OPC-Rotem, as well as any additional entities IC Power may develop or acquire in Israel, including OPC-Hadera, may be exposed to hostile activities (including harm to computer systems or, with respect to its operations, missile attacks on its facilities or attacks on critical infrastructure, such as gas transmission systems or pipelines), security restrictions connected with Israeli bodies/organizations overseas, possible isolations by various bodies for numerous political reasons, and other limitations. Any of the aforementioned events and conditions could disrupt IC Power’s and OPC-Rotem’s operations, which could, in turn, have a material adverse effect on its business, financial condition, results of operations or liquidity. Additionally, should OPC-Rotem lose its classification as an “essential facility” by the State of Israel, which classification exempts OPC-Rotem’s key employees from military service in times of emergency, OPC-Rotem’s employees may be subject to being called upon to perform military service in Israel.

Inflation in any of the countries in which IC Power currently operates, or will, operate could adversely affect IC Power.

If any of the countries in which IC Power currently operates, or in which IC Power may operate in the future, experiences substantial inflation, the costs of its operations could increase and its operating margins could decrease, which could materially and adversely affect its results of operations. A number of the countries in which IC Power operates have experienced significant inflation in prior years. Inflationary pressures may also impact IC Power’s margins to the extent that cost increases driven by inflation are not accompanied by corresponding increases in the price of electricity or capacity sold, or limit its ability to trigger the minimum thresholds set forth in the price adjustment mechanisms in IC Power’s PPAs or long-term supply agreements or access foreign financial markets, and may also prompt government intervention in the economy of the affected country, including the introduction of government policies that may adversely affect the overall performance of such economy. Any of the foregoing could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

IC Power has granted rights to the minority shareholders of certain of its subsidiaries.

Although IC Power owns a majority of the voting equity in most of its businesses, IC Power has entered into, and may, and in some instances, will be required to, continue to enter into, shareholders’ agreements granting minority rights to the minority shareholders of certain of those entities. For example, IC Power has entered into shareholders’ agreements with, among others, Energía del Pacífico S.A., or Energía del Pacífico, a member of the Quimpac group and the minority shareholder of Kallpa, CDA and Samay I, as well as with Veolia Energy Israel Ltd., or Veolia, the minority shareholder of OPC-Rotem, and Centrans Energy Services Inc., the minority shareholder of IC Power’s Nicaraguan assets. Among other things, IC Power’s shareholders’ agreements generally grant the applicable minority shareholder veto rights over significant acquisitions and dispositions as well as the incurrence of significant debt. Therefore, IC Power’s ability to develop and operate any of its businesses governed by a shareholders’ agreement may be limited if IC Power is unable to obtain the approval of a minority shareholder for certain corporate actions IC Power deems to be in the best interest of the relevant business. In addition, such shareholders’ agreements may limit IC Power’s ability to dispose of its interests in any of these businesses. IC Power’s operation of its subsidiaries may also subject IC Power to litigation proceedings initiated by the minority shareholders of its subsidiaries.

IC Power could face risks, or barriers to exit, in connection with the disposals or transfers of its businesses or their assets.

IC Power continually assesses the strategic composition of its power generation portfolio and may, as a result of its assessments, divest its interests in businesses whose operations are inconsistent with its long-term strategic plan. Divestitures can generate organizational and operational efficiencies, cash for use in IC Power’s capital investment program and operations, and cash to repay outstanding debt. However, divestitures may also result in a decline in IC Power’s net income or profitability.

Additionally, IC Power may face exit barriers, including high exit costs or objections from various stakeholders, in connection with dispositions of certain of its operating companies or their assets. For example, pursuant to Israel’s Electricity Sector Law 5756-1996, or Electricity Sector Law, the transfer of control over an entity that holds a generation license in Israel must be approved by the Electricity Authority, or the EA. Additionally, pursuant to OPC-Rotem’s PPA with IEC and OPC-Rotem’s syndicated credit agreement, both IEC and OPC-Rotem’s lenders must consent to IC Power’s transfer of control of OPC-Rotem to a third-party. Such restrictions, as well as similar restrictions contained in other shareholders’ agreements or financing agreements in respect of IC Power’s other operating companies may prohibit IC Power from disposing of its interests in its businesses, and such prohibitions may have a material adverse effect on its development and growth strategy. Furthermore, IC Power may face opposition from local governments in connection with any decision to sell and/or export any of the power generation barges that IC Power has installed or may install from one country to another country.

IC Power requires qualified personnel to manage and operate its various businesses and projects.

As a result of IC Power’s decentralized structure, IC Power requires qualified and competent management to independently direct the day-to-day business activities of each of its businesses, execute their respective business and/or project development plans, and service their respective customers, suppliers and other stakeholders, in each case across numerous geographic locations. The services offered by IC Power’s businesses are highly technical in nature and require specialized training and/or physically demanding work. Therefore, IC Power must be able to retain employees and professionals with the skills necessary to understand the continuously developing needs of IC Power’s customers, to maximize the value of each of its businesses, and to ensure the timely and successful completion of any expansion or development projects. This includes developing talent and leadership capabilities in the emerging markets in which certain of IC Power’s businesses operate, where the depth of skilled employees may be limited. Changes in demographics, training requirements and/or the unavailability of qualified personnel could negatively impact the ability of each of IC Power’s businesses to meet these demands. Unpredictable increases in the demand for its services, or the geographical diversity of its businesses, may exacerbate the risk of not having a sufficient number of trained personnel.

In addition, IC Power’s operating companies could experience strikes, industrial unrest or work stoppages. A significant percentage of IC Power’s employees in Guatemala, Bolivia, Israel and Jamaica are members of unions, and, as of December 31, 2016, approximately 31% of all of its employees were unionized. For further information on IC Power’s unionized employees, see “ Item 4.B Business Overview—Our Businesses—IC Power—Employees .”

If any of IC Power’s businesses fail to train and retain qualified personnel, or if they experience excessive turnover, strikes or work stoppages, IC Power may experience declining production, maintenance delays or other inefficiencies, increased recruiting, training or relocation costs and other difficulties, any of which could have a material adverse effect on its business, financial condition, results of operations or liquidity.

IC Power’s success will also be dependent upon the decision-making of its directors and executive officers as well as the directors and executive officers of its businesses. The loss of any or all of IC Power’s directors and executive officers could affect the creation or implementation of its short-term plans or long-term strategies or divert its directors and executive officers’ attention from its operations, which could result in a delay in the completion of a project, affect its ability to enter into PPAs, or otherwise have a material adverse effect on its business, financial condition, results of operations or liquidity.

The interruption or failure of IC Power’s information technology, communication and processing systems or external attacks and invasions of these systems could have an adverse effect on IC Power.

IC Power depends on information technology, communication and processing systems to operate its businesses. Such systems are vital to each of IC Power’s operating companies’ ability to monitor their power plants’ operations, maintain generation and network performance, adequately generate invoices to customers, achieve operating efficiencies and meet service targets and standards. Damage to its networks and backup mechanisms may result in service delays or interruptions and limit IC Power’s ability to provide customers with reliable service over its networks. Some of the risks to IC Power’s networks and infrastructure include:

• physical damage to access lines, including theft, vandalism, terrorism or other similar events;

• energy surges or outages;

• software defects;

• scarcity of network capacity and equipment;

• disruptions beyond IC Power’s control;

• breaches of security, including cyber-attacks and other external attacks; and

• natural disasters.

The occurrence of any such event could cause interruptions in service or reduce IC Power’s generation capacity, either of which could reduce its revenues or cause IC Power to incur additional expenses.

Furthermore, OPC-Rotem and OPC-Hadera may be at greater risk for cyber-attacks due to their status as Israeli corporations, as a number of Israeli corporations have been the subject of recent cybersecurity attacks. For example, in January 2016, the EA was the subject of one of the largest cyber-attacks in Israeli history and had to shut down several of its systems in order to address the cyber-attack. Should the EA, IEC, OPC-Rotem or OPC-Hadera experience a cyber-attack, this could have a material adverse effect on IC Power’s business, financial condition or results of operations.

Although IC Power has operational insurance with business interruption coverage that may protect it against specific insured events, IC Power may not be insured for all events or for the full amount of the lost margin or additional expense. In addition, the occurrence of any such event may subject IC Power to penalties and other sanctions imposed by the applicable regulatory authorities. The occurrence of damages to IC Power’s networks and systems could have a material adverse effect on its business, financial condition, results of operations or liquidity.

IC Power is exposed to material litigation and/or administrative proceedings.

IC Power is involved in various litigation proceedings, and may be subject to future litigation proceedings, any of which could result in unfavorable decisions or financial penalties against IC Power, and IC Power will continue to be subject to future litigation proceedings, which could have material adverse consequences to its business.

For example, in July 2016, the Guatemalan Tax Administrator ( Superintendencia de Administración Tributaria ), or the SAT, issued a claim against DEORSA and DEOCSA for back taxes for the years 2011 and 2012, alleging that these companies improperly deducted interest and amortization of goodwill relating to the acquisition of these companies in 2011 by their prior owner. DEORSA and DEOCSA paid $43 million for alleged back taxes, interest and fines for 2011 and 2012 in 2016. In light of the SAT’s actions, and in order to avoid the initiation of complaints by the SAT concerning tax for the years 2013, 2014 and 2015 and any resulting fines and interest, upon instruction of the SAT, DEORSA and DEOCSA revised their tax returns for these years and paid $32 million in August 2016, respectively, corresponding to alleged back taxes and interest for those years. The total payments described above (covering 2011 through 2015) are in the amount of $74 million, representing the total amount demanded by the SAT, as well as DEORSA and DEOCSA’s payments to the SAT with respect to the 2013, 2014 and 2015 tax years as described above. In addition, during 2016, DEORSA and DEOCSA made $5 million of advance income tax payments for taxes relating to 2016.

DEORSA and DEOCSA are disputing the SAT’s claims and have made all payments subject to a broad reservation of rights, including but not limited to seeking restitution of such payments. However, DEORSA and DEOCSA may be unsuccessful in their attempts to seek restitution for these payments. In addition, IC Power has recognized these payments as a non-current tax asset in its financial statements (recorded on its balance sheet as an income tax receivable). Furthermore, although DEORSA and DEOCSA are pursuing legal remedies through the Guatemalan legal system to determine their ability to deduct interest and amortization relating to the 2011 acquisition, DEORSA and DEOCSA may not be able to deduct such historical amounts or take similar deductions in the future. In light of the court orders referred to above, at this time, DEORSA and DEOCSA are not currently deducting interest and amortization relating to the 2011 acquisition for income tax purposes. However, income tax payments made in relation to such items are being recorded as non-current tax receivables. In addition, the management of IC Power and Energuate have expended, and will continue to expend, expenses and time to pursue the remedies in connection with these claims. For further information on these claims, see “ Item 4.B Business Overview—Our Businesses—IC Power—Legal Proceedings—Energuate Tax Claims .”

Furthermore, since 2010, the Peruvian Tax Authority ( Superintendencia Nacional de Administración Tributaria ), known as SUNAT for its abbreviation in Spanish, has issued tax assessments to Kallpa and its lenders (as lessors under the Kallpa leases) for payment of import taxes allegedly owed by Kallpa and its lenders in connection with the engineering services of the EPC contractors for Kallpa I, II, III and IV. As of December 31, 2016, the total tax exposure related to claims by SUNAT against Kallpa and its lenders in connection with the importation of equipment related to the Kallpa projects, equaled S/79 million (approximately $24 million), including interest and fines. For further information on these proceedings, see “ Item 4.B Business Overview—Our Businesses —IC Power—Legal Proceedings—Kallpa—Import Tax Assessments .”

In addition, in connection with the indexation of their natural gas price formula for OPC-Rotem’s gas supply agreement with the Tamar Group, OPC-Rotem and the Tamar Group disagreed as to which of the PUAE’s July 2013 tariffs applied to OPC-Rotem’s supply agreement and have a similar disagreement with respect to the tariffs published in January 2015. In February 2017, OPC-Rotem received a letter from the Tamar Group with respect to the dispute. The Tamar Group requested payment by OPC-Rotem of approximately $25 million (including accrued interest) in connection with the dispute, and has requested that such amount be deposited in escrow pursuant to the gas supply agreement. OPC-Rotem and the Tamar Group remain in discussions with respect to this disagreement, and, to the extent that this leads to an arbitration, OPC-Rotem will be required to deposit funds into an escrow account during the pendency of the arbitration. For further information on this claim, see “ Item 4.B Business Overview—Our Businesses—IC Power—Legal Proceedings—Dispute with Tamar Group .”

Litigation and/or regulatory proceedings are inherently unpredictable, and excessive verdicts do occur. Adverse outcomes in lawsuits and investigations could result in significant monetary damages, including indemnification payments, or injunctive relief that could adversely affect IC Power’s ability to conduct its business and may have a material adverse effect on IC Power’s financial condition and results of operations. In addition, such investigations, claims and lawsuits could involve significant expense and diversion of IC Power’s management’s attention and resources from other matters, each of which could also have a material adverse effect on its business, financial condition, results of operations or liquidity.

IC Power’s insurance policies may not fully cover damage, and IC Power may not be able to obtain insurance against certain risks.

IC Power maintains insurance policies intended to mitigate its losses due to customary risks. These policies cover IC Power’s assets against loss for physical damage, loss of revenue and also third-party liability. However, IC Power cannot assure you that the scope of damages suffered in the event of a natural disaster or catastrophic event would not exceed the policy limits of its insurance coverage. In addition, IC Power may be required to pay insurance deductibles, which are not recoverable, in order to utilize IC Power’s insurance policies. IC Power maintains all-risk physical damage coverage for losses resulting from, but not limited to, fire, explosions, floods, windstorms, strikes, riots, mechanical breakdowns and business interruption. IC Power’s level of insurance may not be sufficient to fully cover all losses that may arise in the course of its business or insurance covering its various risks may not continue to be available in the future. In addition, IC Power may not be able to obtain insurance on comparable terms in the future. IC Power may be materially and adversely affected if IC Power incurs losses that are not fully covered by its insurance policies and such losses could have a material adverse effect on its business, financial condition, results of operations or liquidity. For example, in July 2016, all four of Samay I’s units were declared unavailable to the system due to damage to the shafts in the three of the plant’s four units. By February 2017, all four of the units had been declared available to the system. The cost of the repairs was paid by the EPC contractor. To the extent IC Power is required to incur costs relating to the outage, including repair costs and loss of profits, IC Power intends to seek coverage from the EPC contractor and/or the insurance coverage (subject to deductibles). However, IC Power’s insurance coverage may not be sufficient to cover all of IC Power’s losses. For further information, see “ Item 4.B Business Overview—Our Businesses—IC Power—IC Power’s Description of Operations—Generation Operations—Peru Segment—Samay I .” In addition, IC Power’s insurance may not cover the full costs associated with the fire at the Kanan plant, which took place in April 2017. For further information, see “ Item 5. Operating and Financial Review and Prospects—Recent Developments—IC Power—Fire at Kanan Plant .” For further information on IC Power’s insurance policies, see “ Item 4.B Business Overview—Our Businesses—IC Power—Insurance .”

Future expansion into new markets or businesses involves significant costs and risks, and may be unsuccessful.

IC Power is constantly monitoring and assessing development and acquisition opportunities. In particular, IC Power may seek to diversify and expand its operations to certain countries in which IC Power does not currently have an operating presence, such as Argentina and Mexico, through greenfield development projects and acquisitions. Additionally, in January 2016, IC Power expanded its portfolio by entering into the electricity distribution business through acquisition of Energuate (comprised of two electricity distribution companies in Guatemala (DEORSA and DEOCSA)).

Prior to IC Power’s acquisition of Energuate, IC Power had not operated a distribution business, and IC Power does not have any experience operating in certain of the other countries in which it is considering expansion. In entering into new markets and operating in new businesses, IC Power could face managerial, commercial, technological and regulatory risks. The business strategies, managerial expertise and institutional knowledge that IC Power utilizes and has developed over time with regard to power generation in the countries in which it currently operates may not be applicable to the distribution business, or to the energy sectors of the countries in which IC Power is considering expansion.

As expansion into a new market or business will require significant investment of capital and management resources, such expansions will involve many risks, including risks related to:

• obtaining the necessary government and regulatory licenses and authorizations to operate;

• the significant capital expenditures required to establish a footprint in these businesses and markets;

• competition from experienced market participants;

• an inability to attract customers, create brand awareness and establish brand credibility;

• an inability to establish relationships with regulators, stakeholders and other market participants; and

• barriers to entry.

Furthermore, the acquisition of Energuate may not improve, and may even adversely affect, IC Power’s results of operations, and may expose IC Power to additional risks, liabilities and losses. Additionally, operating the recently acquired Energuate business will initially involve significant costs and absorb management time and resources and may otherwise distract management from other opportunities or problems in IC Power’s primary business of power generation and its primary markets, such as Peru and Israel. Similarly, if IC Power acquires companies or assets in new markets, IC Power cannot provide assurance that such expansion efforts will be successful, or that it will be able to successfully execute its business plan. If IC Power is unsuccessful in the attempt to expand into new businesses or markets, this could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

Governments have a high degree of influence in the countries in which IC Power operates.

IC Power operates in 11 countries and therefore is subject to significant and diverse government regulation. The laws and regulations affecting IC Power’s operations are complex, dynamic and subject to new interpretations or changes. Such regulations affect almost every aspect of IC Power’s businesses, have broad application and, to a certain extent, limit management’s ability to independently make and implement decisions regarding numerous operational matters. Additionally, governments in many of the markets in which IC Power operates frequently intervene in the economy and occasionally make significant changes in monetary, credit, industry and other policies and regulations. Government actions to control inflation and other policies and regulations have often involved, among other measures, price controls, currency devaluations, capital controls and limits on imports. IC Power has no control over, and cannot predict, what measures or policies governments may enact in the future. The results of operations and financial condition of IC Power’s businesses may be adversely affected by changes in governmental policy or regulations in the jurisdictions in which IC Power operates if those changes impact, among other things:

• consumption of electricity and natural gas;

• supply of electricity and natural gas;

•

operation and maintenance of generation, transmission or distribution facilities, including the receipt of provisional and/or permanent operational licenses;

• tariffs or royalties on the use of water for hydroelectric or thermal plants;

• energy policy;

• rules governing the dispatch merit order;

• key permits or operating licenses that IC Power currently holds;

• calculations of marginal costs or spot prices;

• subsidies and incentives;

• regulated rates and tariffs, including under PPAs where tariffs are based on regulated rates;

• labor or other laws;

•

the regulatory and environmental legal framework, including the costs of complying with environmental and energy regulations;

• mandatory salary increases;

• public consultations for new projects;

• social responsibility obligations;

• economic growth;

• currency fluctuations and inflation;

• fiscal policy and interest rates;

• capital control policies and liquidity of domestic capital and lending markets;

• tax laws, including the effect of tax laws on distributions from IC Power’s subsidiaries;

• import/export restrictions;

• acquisitions, construction, or dispositions of power assets; and

•

other political, social and economic developments in or affecting the countries in which its operating companies are based.

Uncertainty over whether governments will implement changes in policy or regulations affecting these or other factors in the future may also contribute to economic uncertainty and heightened volatility in the securities markets or local economies including, for example, increasing volatility in local exchange rates.

Existing or future legislation and regulation or future audits could require material expenditures by IC Power or otherwise have a material adverse effect on its operations. For example, Peruvian regulators have increased their reviews of permitting, licensing and concession applications and have recently imposed time limits on newly-granted licenses and concessions. Additionally, a regulation that provides that non-regulated customers shall be granted access to the spot market was published in July 2016. This regulation establishes that large non-regulated customers can access the spot market to cover up to 10% of their maximum demand registered in the last 12 months. However, this statute is not yet enforceable, as the complementary regulatory rules required for its implementation have not yet been approved. Therefore, it remains uncertain as to how such access will be implemented and the impact such access may have on power companies in Peru, including IC Power’s Peruvian assets. Such access could result in increased competition in the Peruvian generation sector and/or result in increased pressures to reduce contractual prices in Peru. Furthermore, the recent presidential and congressional elections in Peru may impact the development of certain industries, affect the interpretation of existing legislation, or result in the enactment of additional regulations, actions or agencies, which may result in changes in regulations in Peru that adversely affect IC Power’s business. Peruvian regulators may also enact processes to expand generation capacity in Peru in excess of the rate of demand growth, which expansion could therefore have a negative impact on spot and contractual prices in Peru, which in turn could reduce the margins of IC Power’s Peruvian assets. Moreover, Peruvian regulators may amend the rules that govern how natural gas prices in Peru are determined and such prices are used to determine the variable fuel cost of thermal generation units that burn such fuel. As a result, any such amendment may affect the order of dispatch of thermal generation units in the Peruvian system (such as Kallpa or Samay I), which may have a material adverse effect on IC Power’s margins or results of operations.

Additionally, government agencies could take enforcement actions against IC Power and impose sanctions or penalties on it for failure to comply with applicable regulations. Depending on the severity of the infraction, enforcement actions could include the closure or suspension of operations, the imposition of fines or other remedial measures, and the revocation of licenses. Compliance with enhanced regulations could force IC Power to make capital expenditures and divert funds away from planned investments in a manner that could have a material adverse effect on its business, financial condition, results of operations or liquidity.

Due to populist political trends that have become more prevalent in certain of the countries in which IC Power operates over recent years, some of the governments or authorities in countries where IC Power operates might seek to promote efforts to increase government involvement in regulating economic activity, including the energy sector, which could result in the introduction of additional political factors in economic decisions. For example, Bolivia has nationalized natural gas and petroleum assets, as well as generation companies that compete with IC Power. Bolivia has also dictated mandatory salary increases for both public and private companies, affecting the profitability of IC Power’s company in Bolivia, COBEE. For further information on the risks related to the Bolivian government’s recent nationalization of certain generation companies, see “— The Bolivian government has nationalized energy industry assets, and IC Power’s remaining operations in Bolivia may also be nationalized .”

If IC Power fails to comply with existing regulations and legislation, or reinterpretations of existing regulations and new legislation or regulations, such as those relating to the reduction of anti-competitive conduct, air and water quality, ecological waterflow for hydroelectric plants, noise avoidance, electromagnetic radiation, fuel and other storage facilities, volatile materials, renewable portfolio standards, cybersecurity, emissions or air quality social responsibility, obligations or public consultations, performance standards, climate change, hazardous and solid waste transportation and disposal, protected species and other environmental matters, or changes in the nature of the energy regulatory process, this may have a significant adverse impact on IC Power’s financial results.

IC Power is also subject to regulatory risks as a result of acquisition of Energuate in January 2016. For further information on the regulatory risks related to Energuate, see “— Risks Related to IC Power’s Distribution Business—Energuate is subject to comprehensive regulation of its business, which may affect IC Power’s financial performance .”

IC Power’s equipment, facilities, operations and new projects are subject to numerous environmental, health and safety laws and regulations.

IC Power is subject to a broad range of environmental, health and safety laws and regulations which require IC Power to incur ongoing costs and capital expenditures and expose IC Power to substantial liabilities in the event of non-compliance. These laws and regulations require IC Power to, among other things, minimize risks to the natural and social environment while maintaining the quality, safety and efficiency of IC Power’s facilities. Furthermore, as IC Power’s operations are subject to various operational hazards, including personal injury and the loss of life, IC Power is subject to laws and regulations that provide for the health and safety of its employees.

These laws and regulations also require IC Power to obtain and maintain environmental permits, licenses and approvals for the construction of new facilities or the installation and operation of new equipment required for its business. Some of these permits, licenses and approvals are subject to periodic renewal. Government environmental agencies could take enforcement actions against IC Power for any failure to comply with applicable laws and regulations. Such enforcement actions could include, among other things, the imposition of fines, revocation of licenses, suspension of operations or imposition of criminal liability for non-compliance. Environmental laws and regulations can also impose strict liability for the environmental remediation of spills and discharges of hazardous materials and wastes and require IC Power to indemnify or reimburse third parties for environmental damages. As fuel leaks may occur when fuel is received from containerships at sea (as is the case for fuel received in El Salvador and the Dominican Republic), sea water may be inadvertently polluted at the time of fuel receipt; IC Power’s primary operational environmental risk relates to the potential leaking of such fuel. Although IC Power has operating procedures in place to minimize these, and other, environmental risks, there is no assurance that such procedures will prove successful in avoiding inadvertent spills or discharges.

IC Power expects the enforcement of environmental, health and safety rules to become more stringent over time, making its ability to comply with the applicable requirements and obtain permits and licenses in a timely fashion more difficult. Additionally, compliance with changed or new environmental, health and safety regulations could require IC Power to make significant capital investments in additional pollution controls or process modifications. These expenditures may not be recoverable and may consequently divert funds away from planned investments in a manner that could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

The nature of IC Power’s operations means that legal and compliance risks will continue to exist and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, will arise from time to time. No assurances can be made that IC Power will be found to be operating in compliance with, or be able to detect violations of, any existing or future laws or regulations. A failure to comply with or properly anticipate applicable laws or regulations could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

In the case of new project developments, environmental or other regulations may change during the course of IC Power’s development of such projects, potentially increasing the costs of such projects or making them inviable projects for completion.

Foreign exchange rate fluctuations and controls could have a material adverse effect on IC Power’s earnings and financial position.

Through IC Power’s businesses, IC Power has facilities and generates costs and revenues in a number of countries in Latin America, the Caribbean and Israel. Although IC Power’s costs and revenues are generally denominated in the U.S. Dollar, or are linked to the U.S. Dollar as a result of its PPAs or supply agreements, OPC-Rotem’s revenues, operating expenses, assets and liabilities are denominated in New Israeli Shekels. Therefore, significant fluctuations in the New Israeli Shekel against the U.S. Dollar could have a material adverse effect on IC Power’s margins, earnings and the strength of its balance sheet. In IC Power’s other countries of operation, which generally have a direct or indirect link to the U.S. Dollar, the effects of the indexation may materialize on a delayed basis or may require a minimum threshold to be triggered; inflationary pressures, which impact exchange rate fluctuations, may also impact its margins to the extent that cost increases driven by inflation are not accompanied by corresponding increases in the price of electricity or capacity sold. In addition, some costs, such as payroll and taxes, are normally denominated in local currency, and this denomination exposes IC Power to the foreign exchange fluctuations of the relevant local currency vis-a-vis the U.S. Dollar. Furthermore, Energuate operates primarily in Guatemalan Quetzales. Therefore, significant fluctuations in the Guatemalan Quetzal against the U.S. Dollar could have a material adverse effect on IC Power’s earnings and financial condition.

Additionally, IC Power’s businesses may pay distributions or make payments to IC Power in currencies other than the U.S. Dollar. Foreign exchange controls in countries in which IC Power’s businesses operate may further limit its ability to repatriate funds or otherwise convert local currencies into U.S. Dollars. Although exchange rates within Peru, for example, are determined by market conditions, with regular purchase and sale operations by the Peruvian Central Reserve Bank ( Banco Central de Reserva del Perú ) in the foreign exchange market in order to reduce volatility in the value of Peru’s currency against the U.S. Dollar, this has not always been the case. Should the relevant regulatory bodies in any of the countries in which IC Power operates institute protectionist and interventionist laws and policies or restrictive exchange rate policies in the future, such policies could have a material adverse effect on its operating companies or its financial condition, results of operations or liquidity.

Consequently, as with any international business, IC Power’s liquidity, earnings, expenses, asset book value, and/or amount of equity may be materially affected by short-term or long-term exchange rate movements or controls. Such movements may give rise to, among other risks, translation risk, which exists where the currency in which the results of a business are reported differs from the underlying currency in which the business’ operations are transacted, which could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity. For further information on the effect of the exchange rates on IC Power’s results of operations see “ Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of Operations—IC Power—Fluctuations in Oil Prices and Currency Exchange Rates .”

IC Power’s growth may be limited by antitrust laws.

IC Power has acquired a number of operating power generation companies. In the future, IC Power may seek to expand its operations within any of the countries in which IC Power currently, or may in the future, operates. Government policies, specifically antitrust and competition laws in these relevant countries, can impact its ability to execute this strategy successfully.

In Peru, for example, the National Institute for the Defense of Competition and Intellectual Property Protection ( Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual ), or INDECOPI, the Peruvian antitrust regulator, reviews acquisition agreements that may result in vertical or horizontal market concentration in the electricity sector and, in connection with such review, may impose conditions upon the parties to such agreements, according to relevant legislation.

Similarly, in Israel, the Antitrust Authority is authorized to prevent market power accumulation through the regulation of mergers in Israel. Additionally, IC Power’s expansion activities in Israel may be limited by the Law for Promotion of Competition and Reduction of Concentration—2013, or the Concentration Law. Pursuant to such law, if IC Power, or a company controlled by it, intends to obtain or purchase a license for the production of electricity in the future for a power plant which exceeds 175 MW, such obtainment or purchase will be subject to the procedures set forth in the Concentration Law. In addition to the above limitation, under the Concentration Law, the EA (which in January 2016 replaced the PUAE) has the authority (following consultation with the Antitrust Authority) to determine competition guidelines and rules regarding the allocation of licenses for the production of electricity. Accordingly, in March 2015, the PUAE published its guidelines, which stipulate that: (1) the maximum capacity of electricity production facilities, using conventional and cogeneration technologies, held or controlled by one person, is capped at MW 1,600, and (2) a person may not hold or control a dominant market share in any particular production technology (e.g., conventional or cogeneration). According to the guidelines, holdings of 40% of the total installed capacity of any particular technology in Israel shall be deemed to raise anti-trust concerns. Entities deemed to be under common control with IC Power would be considered to have capacity of a single person. Therefore, the capacity of entities which may be considered to be under common control with IC Power may prevent IC Power from effecting certain acquisitions or otherwise increasing its operations in Israel.

IC Power could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws outside of the United States.

The U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both the Department of Justice and the SEC, increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals. IC Power’s policies mandate compliance with these anti-bribery laws. IC Power operates, through its businesses, in countries that are recognized as having governmental and commercial corruption. Additionally, because many of IC Power’s customers and end users are involved in infrastructure construction and energy production, they are often subject to increased scrutiny by regulators. IC Power cannot assure you that its internal control policies and procedures will protect IC Power from reckless or criminal acts committed by IC Power’s employees, the employees of any of IC Power’s businesses, or third party intermediaries. In the event that IC Power believes or have reason to believe that IC Power’s employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, IC Power may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may result in criminal or civil sanctions, inability to do business with existing or future business partners (either as a result of express prohibitions or to avoid the appearance of impropriety), injunctions against future conduct, profit disgorgements, disqualifications from directly or indirectly engaging in certain types of businesses, the loss of business permits or other restrictions which could disrupt IC Power’s business and have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

In addition, IC Power has made acquisitions in recent years, including the acquisition of Energuate, a Guatemalan electricity distribution company, in January 2016. IC Power faces risks with respect to compliance with the FCPA and similar anti-bribery laws through its acquisition of new companies and the due diligence it performs in connection with an acquisition may not be sufficient to enable it fully to assess an acquired company’s historic compliance with applicable regulations. Furthermore, IC Power’s post-acquisition integration efforts may not be adequate to ensure our system of internal controls and procedures are fully adopted and adhered to by acquired entities, resulting in increased risks of non-compliance with applicable anti-bribery laws.

Risks Related to IC Power’s Generation Business

Construction or development projects may not be completed or, if completed, may not be completed on time or perform as expected.

IC Power plans to expand its operations through projects constructed on unused land, or greenfield projects. Greenfield projects require IC Power to spend significant sums on engineering, permitting, legal, financial advisory and other expenses in preparation for competitive bids that IC Power may not win or before IC Power determines whether a development project is even feasible, economically attractive or capable of being financed. These activities consume a portion of IC Power’s management’s focus and could increase IC Power’s leverage or reduce its consolidated profitability.

Furthermore, once IC Power decides to proceed with a project and, if applicable, enter into a turnkey agreement to commence the construction of a project, its development and construction still involve numerous additional risks, including:

unanticipated cost overruns;

claims from contractors;

an inability to obtain financing at affordable rates or at all;

delays in obtaining necessary permits and licenses, including environmental permits;

design, engineering, equipment manufacturing, environmental and geological problems and defects;

adverse changes in the political and regulatory environment in the country in which the project is located;

opposition by political, environmental and other local groups;

shortages or increases in the price of equipment, materials or labor;

work stoppages or other labor disputes;

adverse weather conditions, natural disasters, accidents or other unforeseen events; and

an inability to perform under PPAs as a result of any delays in the plants becoming operational or material defects to the plants after reaching COD.

Any of these risks could result in IC Power’s financial returns on its projects being lower than expected, or could cause IC Power to operate below expected capacity or availability levels. This, in turn, could result in IC Power’s experiencing lost revenues and/or increased expenses. Although IC Power maintains insurance to protect against some of these risks, its insurance coverage may not be sufficient and may not cover some of the costs incurred or profits lost as a result of these risks. As a result, projects may cost more than anticipated and IC Power may be unable to fund principal and interest payments underlying its construction financing obligations, if any. In addition, a default under such a financing obligation could result in IC Power losing its interest in a power generation facility.

IC Power’s generation companies may not be able to enter into, or renew existing, long-term contracts for the sale of energy and capacity, contracts which reduce volatility in IC Power’s results of operations.

IC Power’s generation companies sell a substantial majority of their energy under long-term PPAs. Most of IC Power’s generation companies rely upon PPAs with a limited number of customers for the majority of their energy sales and revenues over the term of such PPAs, which typically range from one to 15 years. Some of IC Power’s generation companies’ long-term PPAs are at prices above current spot market prices. Depending on market conditions and regulatory regimes, it may be difficult for IC Power’s generation companies to secure long-term PPAs with new customers, renew existing long-term PPAs as they expire, or enter into long-term PPAs to support the development of new projects. Furthermore, in the case of IC Power’s generation companies with power plants which are less competitive in the relevant dispatch order (such as older power plants), it may be difficult for these generation companies to enter into long-term PPAs or renew expiring PPAs. As a result, IC Power’s generation companies have been, and may continue to be, required to sell capacity and energy on the spot market at the rates dictated by such market. For example, following the expiration of CEPP’s PPA in September 2014, and certain of Puerto Quetzal’s PPAs in 2015, a significant percentage of CEPP and Puerto Quetzal's respective energy sales have been made on the spot market.

In addition, when the distribution companies in El Salvador organize tenders under the supervision of the General Superintendency of Electricity and Telecommunications ( Superintendencia General de Electricidad y Telecomunicaciones ), or SIGET, for new long-term PPAs, the bidding rules generally do not permit the participation of HFO-fired generators, such as Nejapa, in tenders for PPAs with terms in excess of five years. An increase in the availability of, and demand for, renewable energy in the other countries in which IC Power’s generation companies operate could lead to similar prohibitions in those countries and a further reduction in their ability to enter into long-term PPAs.

Furthermore, the introduction of a more efficient energy generation technology could adversely affect the competitiveness of IC Power’s gas-fired energy plants in the dispatch order, which affects their ability to enter into long-term PPAs. Similarly, IC Power’s other generation assets face potential displacements in dispatch merit orders as new, more efficient technologies became available in their markets. Any displacement of dispatch merit orders could affect the competitiveness of IC Power’s generation assets and thereby impact their ability to enter into long-term PPAs. If IC Power’s generation companies are unable to enter into long-term PPAs, they may be required to sell electricity into spot markets at prices that may be below the prices established in their PPAs, including in those countries which are, or may be, experiencing an oversupply in capacity in the short- to medium-term. Because of the volatile nature of power prices, if IC Power’s generation companies are unable to secure long-term PPAs, they could face increased volatility in their earnings and cash flows and could experience substantial losses during certain periods which could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

IC Power’s generation businesses are exposed to counterparty risks.

IC Power’s cash flows and results of operations are dependent upon the continued ability of its generation customers to meet their obligations under their relevant PPAs. Additionally, a small number of customers purchase a significant portion of IC Power’s output under PPAs that account for a substantial percentage of the anticipated revenue of its generation companies. Although IC Power’s generation companies evaluate the creditworthiness of their various counterparties, its generation companies may not always be able to, if at all, fully anticipate, detect, or protect against deterioration in a counterparty’s creditworthiness and overall financial condition. The deterioration of creditworthiness or overall financial condition of a material counterparty (or counterparties) could expose IC Power to an increased risk of non-payment or other default under its contracts with them.

Furthermore, if any of the counterparties to IC Power’s PPAs were to become insolvent, IC Power may be unable to recover payment under local insolvency laws. For example, under Peruvian insolvency laws, if a private counterparty under any of IC Power’s PPAs were to become insolvent, its claims with respect to payments due by such counterparty under its relevant contract will rank junior to, among others, the counterparty’s labor, social security, taxes, pension fund and secured obligations. In such a case, IC Power’s ability to recover payments due on its existing PPAs in Peru may be limited. Any default by any of IC Power’s key customers could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

IC Power operates in highly competitive markets.

The worldwide markets for power generation are highly competitive in terms of pricing, quality, development and introduction time, customer service and financing terms. In many of the markets in which IC Power operates, it faces downward price pressure and it is or could be exposed to market downturns or slower growth, which may increase in times of declining investment activities, government incentives and/or consumer demand. IC Power faces strong competitors, some of which are larger and may have greater resources in a given business area than it has, as well as competitors from emerging markets, which may have better, more efficient cost structures.

For example, in May 2016, Samay I (IC Power’s cold-reserve thermoelectric plant) reached its COD on schedule, providing an additional 632 MW of installed capacity to the Peruvian market. In August 2016, IC Power provided an additional 545 MW of installed capacity to the Peruvian market with the completion of the construction of CDA’s plant. As a result of the completion of various plants in Peru in recent years (including Samay I and CDA), the generation capacity in Peru increased at a faster rate than the demand for such electricity, resulting in a temporary oversupply of capacity in the Peruvian market and therefore a corresponding downward pressure on energy and capacity prices. IC Power expects this trend in energy prices to continue in the next few years. For the next few years, IC Power will face the current soft energy price market for any upcoming new PPA negotiations, renegotiations under existing PPAs and spot market sales. For further information on the Peruvian power industry, see “ Item 5.D Trend Information—Peru Power Market .”

Additionally, in recent years, the power production industry has been characterized by strong and increasing competition with respect to obtaining long-term and short-term PPAs—which provide for the sale of electricity, independent of actual generation allocations or provisions of availability, to financially stable distribution companies or other non-regulated consumers—and acquiring existing power generation assets. In certain markets, these factors have caused reductions in the prices negotiated in PPAs and, in many cases, have caused higher acquisition prices for existing assets through competitive bidding processes. The evolution of competitive electricity markets and the continued development of highly efficient gas-fired power plants have also caused, or are anticipated to cause, price pressure in certain power markets where IC Power sells or intends to sell power. Certain competitors might be more effective and faster in capturing available market opportunities, which in turn may negatively impact IC Power’s market share.

Any of these factors alone, or in combination, may negatively impact one or more of IC Power’s businesses and thereby have a material adverse effect on its business, financial condition, results of operations or liquidity.

IC Power’s generation businesses rely on power transmission facilities that it does not own or control and that are subject to transmission constraints. If these facilities fail to provide IC Power with adequate transmission capacity, IC Power may be restricted in its ability to deliver wholesale electric power and IC Power may either incur additional costs or forego revenues.

IC Power’s generation businesses depend upon transmission facilities owned and operated by others to deliver the wholesale power it sells from its power generation plants. If transmission is disrupted, or if the transmission capacity infrastructure is inadequate, IC Power’s ability to sell and deliver wholesale power may be adversely impacted. If the power transmission infrastructure in one or more of the markets that IC Power serves is inadequate, its recovery of wholesale costs and profits may be limited. If restrictive transmission price regulation is imposed, the transmission companies may not have sufficient incentive to invest in expansion of transmission infrastructure. IC Power cannot predict whether transmission facilities will be expanded in specific markets to accommodate competitive access to those markets, a failure of which could have a material adverse effect on its business, financial condition, results of operations or liquidity. In addition, in some of the markets in which IC Power operates, different spot prices may occur within the grid as a result of a transmission constraint. As a result, IC Power may need to purchase energy in the spot market in order to fulfill a PPA obligation in one part of the grid, even if IC Power is generating energy in another part of the grid, and such purchase may occur at a spot market price which is higher than its own generation cost.

If any of IC Power’s generation units are unable to generate energy as a result of a breakdown or other failure, IC Power may be required to purchase energy on the spot market to meet its contractual obligations under the relevant PPAs.

The breakdown or failure of one of IC Power’s generation facilities may require IC Power to purchase energy in the spot market to meet its contractual obligations under its PPAs, while simultaneously resulting in an increase in the spot market price of energy, resulting in a contraction, or loss, of its margins. In addition, the failure or breakdown of one of IC Power’s generation units may prevent that particular facility from performing under applicable PPAs which, in certain situations, could result in termination of the PPA or liability for liquidated damages, the occurrence of which could have a material adverse effect on its business, financial condition, results of operations or liquidity.

IC Power maintains insurance policies for property value and business interruptions, intended to mitigate any losses due to customary risks. However, we cannot assure you that the scope of damages suffered in such an event would not exceed the policy limits, deductibles, losses, or loss of profits outlined in IC Power’s insurance coverage. IC Power may be materially and adversely affected if it incurs losses that are not fully covered by its insurance policies and such losses could have a material adverse effect on its business, financial condition, results of operations or liquidity. For further information on the risks related to IC Power’s insurance policies, see “— IC Power’s insurance policies may not fully cover damage, and IC Power may not be able to obtain insurance against certain risks .”

The profitability of IPPs in Israel may be adversely affected by changes in Israel’s regulatory costs and EA tariffs.

The EA, which replaced Israel’s Public Utilities Authority (Electricity), or the PUAE, on January 1, 2016, regulates and supervises, among other things, the provision of essential electric public services in Israel and OPC-Rotem’s operations can be affected by changes in the EA’s policies, regulations, and tariffs. The EA’s generation component tariff, for example, serves as the base price for IC Power’s Israeli generation businesses’ calculation of the sale price of its energy to its private customers. As a result, its increases or decreases have a related effect on the sales price of OPC-Rotem’s energy and OPC-Rotem’s revenues. In addition, the price at which OPC-Rotem purchases its natural gas from its sole natural gas supplier, the Tamar Group, a group composed of Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership, Isramco Negev 2 Limited Partnership, Avner Oil Exploration Limited Partnership and Dor Gas Exploration Limited Partnership, is predominantly indexed (in excess of 70%) to changes in the EA’s generation component tariff, pursuant to the price formula set forth in OPC-Rotem’s supply agreement with the Tamar Group. As a result, increases or decreases in this tariff have a related effect on OPC-Rotem’s cost of sales and margins.

In July 2013, the PUAE published four generation component tariffs/power cost indicators, ranging from NIS 386 per MWh to NIS 333.2 per MWh, instead of the single tariff that had previously been used. In January 2015, the PUAE published new tariffs, which reduced the tariff rates by approximately 10%.

Additionally, on September 8, 2015, the PUAE published a final decision, which became effective on September 13, 2015, reducing the PUAE generation component tariff by approximately 12% from NIS 300.9 per MWh and NIS 301.5 per MWh to a single tariff of NIS 265.2 per MWh. In December 2016, the EA published its generation component tariff update, which became effective on January 1, 2017, and further reduced the generation component tariff by approximately 0.5% from NIS 265.2 per MWh to NIS 264 per MWh. The natural gas price formula in OPC-Rotem’s supply agreement is subject to a floor mechanism and, as a result of previous declines in the PUAE generation component tariff, OPC-Rotem began to pay the ultimate floor price in November 2015. Therefore, the September 2015 decline, the January 2017 decline and any further declines in the EA generation component tariff will not result in a corresponding decline in OPC-Rotem’s natural gas expenses, and may lead to a greater decline in OPC-Rotem’s margins, which may have a material adverse effect on OPC-Rotem’s business, results of operations and financial condition. The next annual update of the generation component tariff is expected to be conducted in December 2017.

Furthermore, since 2013, the PUAE had been in the process of determining a system cost tariff. In August 2015, the PUAE published a decision that IPPs in Israel would be obligated to pay system management service charges, which charges are retroactively effective as of June 1, 2013. According to the PUAE decision, as amended in September 2015, the amount of system management service charges that would be payable by OPC-Rotem from the effective date of June 1, 2013 to June 30, 2015, was approximately NIS 159 million (approximately $41 million), excluding interest rate and linkage costs, based upon the “average rate” of the system management service charges. However, as the rate of the new system management service charges, like other rates of the EA, varies by season (e.g., summer and winter) and by demand period (peak, shoulder and off-peak), IEC’s final calculation of the amount payable by OPC-Rotem was based upon the applicable time of use rates, which provides different energy rates for different seasons (e.g., summer and winter) and different periods of time during the day, or “Time of Use” rates. In December 2015, OPC-Rotem received an invoice from IEC (in its capacity as the system manager) regarding the NIS 163 million (approximately $43 million) amount of system management service charges that would be payable by OPC-Rotem for such period, including interest rate and linkage costs. In February 2016, OPC-Rotem paid NIS 154 million (approximately $41 million) to IEC in satisfaction of this amount (excluding the interest rate, and linkage costs).

For further information on Israel’s seasonality and the related EA tariffs, see “ Item 4.B Business Overview—Our Businesses—IC Power—Industry Overview—Overview of Electricity Generation Industry—Israel. ” For further information on the effect of EA tariffs on IC Power’s revenues and margins, see “ Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of Operations—IC Power—EA Tariffs Affect IC Power’s Results in its Generation Business’ Israel Segment. ”

In connection with the indexation of their natural gas price formula for OPC-Rotem’s gas supply agreement with the Tamar Group, OPC-Rotem and the Tamar Group disagreed as to which of the PUAE’s July 2013 tariffs applied to OPC-Rotem’s supply agreement and have a similar disagreement with respect to the tariffs published in January 2015. In February 2017, OPC-Rotem received a letter from the Tamar Group with respect to the dispute. The Tamar Group requested payment by OPC-Rotem of approximately $25 million (including accrued interest) in connection with the dispute, and has requested that such amount be deposited in escrow pursuant to the gas supply agreement. OPC-Rotem and the Tamar Group remain in discussions with respect to this disagreement, and, to the extent that this leads to an arbitration, OPC-Rotem will be required to deposit funds into an escrow account during the pendency of the arbitration. For further on this claim, see “ Item 4.B Business Overview—Our Businesses—IC Power—Legal Proceedings—Dispute with Tamar Group .”

Additionally, a steering committee was appointed by the State of Israel in July 2013 to propose a comprehensive reform of IEC. Although the steering committee had not published its final recommendations, and there had not been any formal announcements concerning the steering committee’s discussions or negotiations with IEC and the State of Israel for some time, in November 2015 the steering committee announced that it had resumed its discussions regarding comprehensive reform of IEC and the Israeli electricity market. If OPC-Rotem incurs significant costs or experiences a further reduction in revenues or margins as a result of changes in regulation or the establishment of any new regimes or the implementation of any such laws or governmental regulations, this could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity. For further information on the regulation of the Israeli electricity sector, see “ Item 4.B Business Overview—Our Businesses—IC Power—Regulatory, Environmental and Compliance Matters—Regulation of the Israeli Electricity Sector—EA. ”

Supplier concentration may expose IC Power to significant financial credit or performance risk, particularly with respect to those agreements which may expire during the life of its power plants.

IC Power relies on natural gas and HFO to fuel most of its power generation facilities. The delivery of these fuels to IC Power’s various generation facilities is dependent upon a number of factors, including the continuing financial viability of contractual counterparties and the infrastructure (including barge facilities, roadways and natural gas pipelines) available to serve each generation facility. Any disruption in the fuel delivery infrastructure or failure of a counterparty to perform, may lead to delays, disruptions or curtailments in the production of power at one or more of IC Power’s generation facilities. This risk of disruption is compounded by the supplier concentration that characterizes many of IC Power’s operating companies.

IC Power sources most of its HFO from a limited number of suppliers. In the event of shipping delays which may affect IC Power’s suppliers, IC Power may experience delays in the receipt and transportation of its HFO. Additionally, many of its gas suppliers are sole or monopolistic suppliers, and may exercise monopolistic control over their supply of natural gas to IC Power. The Kallpa and Las Flores plants’ generation facilities, for example, rely on a consortium, composed of Pluspetrol Peru Corporation S.A., Pluspetrol Camisea S.A., Hunt Oil Company of Peru L.L.C. Sucursal del Perú, SK Corporation Sucursal Peruana, Sonatrach Peru Corporation S.A.C., Tecpetrol del Perú S.A.C. and Repsol Exploración Perú Sucursal del Perú, which IC Power collectively refers to as the Camisea Consortium, for the provision of natural gas and on a sole supplier for the transportation of such natural gas. If these suppliers cannot perform under their contracts, the Kallpa and Las Flores plants would be unable to generate electricity at their facilities, and such a failure could prevent Kallpa and Las Flores from fulfilling their contractual obligations, which could have a material adverse effect on IC Power’s business and financial results. Continued supply of natural gas to the Kallpa and Las Flores plants is dependent upon a number of factors, over which IC Power has no control, including:

levels of exploration, drilling, reserves and production of natural gas in the Camisea fields and other areas in Peru and the price of such natural gas;

accessibility of the Camisea fields and other gas production areas in Peru, which may be affected by weather, natural disasters, geographic and geological conditions, environmental restrictions and regulations, activities of terrorist group or other impediments to access;

the availability, price and quality of natural gas from alternative sources;

market conditions for the renewal of such agreements before their expiration and IC Power’s ability to renew such agreements and the terms of any renewal; and

the regulatory environment in Peru.

Upon the commencement of Samay I’s second operational stage, the Samay I plant will operate as a natural gas-fired power plant, and will be dependent on the provision of natural gas to it by the Camisea Consortium and will also depend upon gas transportation services rendered by Concesionaria Gasoducto Sur Peruano S.A. through its natural gas pipeline, which is currently under construction.

Furthermore, as the Camisea Consortium is the principal supplier of natural gas and natural gas transportation services to substantially all generation facilities in Peru fueled by natural gas, a change in the terms of their agreements with IC Power or other power generators, or a failure by either of these suppliers to meet their contractual obligations, could have a significant effect on Peru’s entire electricity supply and, therefore, prompt the Peruvian governmental authorities to undertake certain remedial actions. Any such actions could adversely affect the operations of the Kallpa or Las Flores plants, or the expected operations of the Samay I plant’s second operational stage.

Similarly, OPC-Rotem has a gas supply agreement with a single supplier, which provides for the curtailment of OPC-Rotem’s gas supply in the event of a lack of pipeline capacity. Although OPC-Rotem has never experienced a significant decline in its gas supply as a result of a lack of pipeline capacity, there can be no assurance that such declines will not occur. OPC-Rotem also relies on a single transporter for the transport of its natural gas requirements. If such parties are unable to perform under their contracts with OPC-Rotem, or are forced to curtail, in whole or in part, their supply or transport of natural gas to OPC-Rotem, OPC-Rotem would not be able to generate electricity using natural gas, which could adversely affect OPC-Rotem’s operations and financial performance. In 2016, the Tamar Group notified OPC-Rotem that as of September 30, 2020, OPC-Rotem’s gas supply will be available on a firm, non-interruptible basis.

Moreover, certain of IC Power’s contracts for natural gas are scheduled to expire during the life of the power plants which they service. These contracts have not yet been extended or replaced with one or more contracts on comparable terms. For example, Kallpa, IC Power’s largest asset, purchases its natural gas requirements for its generation facilities from the Camisea Consortium pursuant to a natural gas supply agreement which expires in June 2022 and which has not yet been extended. If IC Power is unable to renew, or enter into supply contracts and, in particular, enter into long-term supply contracts, IC Power may be required to purchase its natural gas on spot markets at prices that may be significantly greater than the prices IC Power previously paid for such commodities, or may be unable to purchase such commodities on competitive prices at all. As a result, IC Power could face increased volatility in its earnings and cash flows and could experience substantial losses during certain periods which could have a material adverse effect on its business, financial condition, results of operations or liquidity.

The Bolivian government has nationalized energy industry assets, and IC Power’s remaining operations in Bolivia may also be nationalized.

Bolivia has experienced political and economic instability that has resulted in significant changes in its general economic policies and regulations and the adoption of a new constitution in 2006 that, among other things, prohibits private ownership of certain oil and gas resources. In May 2010, the Bolivian government nationalized Empresa Eléctrica Guaracachi S.A., or Guaracachi, Empresa Eléctrica Valle Hermoso S.A., or Valle Hermoso and Empresa Eléctrica Corani S.A., or Corani, each a significant generation company in Bolivia. In May 2012, the Bolivian government nationalized Transportadora de Electricidad S.A., a transmission company that had previously operated as a subsidiary of Red Eléctrica de España. In December 2012, Electricidad de La Paz S.A. (Electropaz) and Empresa de Luz y Fuerza de Oruro S.A. (Elfeo)—companies which had no previous ownership relationship with the Bolivian government—were also nationalized.

It is unclear whether the Bolivian government will continue nationalizing entities involved in its power utility market. It is also unclear whether such nationalization (if any) would be adequately compensated for by the Bolivian government. IC Power’s subsidiary COBEE is one of the few remaining privately-held generation companies in Bolivia. Although IC Power believes its circumstances differ from those of the nationalized generation companies (because COBEE was not previously owned by the Bolivian government), there is a risk that COBEE will be subject to nationalization. Such nationalization may include the expropriation or nullification of IC Power’s existing concessions, licenses, permits, agreements and contracts, as well as effective nationalization resulting from changes in Bolivian regulatory restrictions or taxes, among other things, that could have an adverse impact on COBEE’s profitability. If COBEE were indeed nationalized, IC Power cannot assure you that IC Power would receive fair compensation for its interests in COBEE.

IC Power could face nationalization risks in other countries as well. The nationalization of any of IC Power’s operating companies or power generation plants, even if fair compensation for such nationalization is received, could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

IC Power’s business and profitability may be adversely affected if water rights are limited or denied.

Certain of IC Power’s generation facilities rely on hydroelectric power generation. For example, IC Power recently developed the CDA plant, a 545 MW run-of-the-river hydroelectric project in Peru. In addition, in Bolivia, COBEE facilities generate power from, among others, ten run-of-the-river hydroelectric plants in the Zongo river valley and four run-of-the-river hydroelectric plants in the Miguillas river valley.

IC Power owns water rights in Peru, granted by the National Water Authority ( ANA—Autoridad Nacional del Agua ) and in Bolivia granted by the Bolivian Ministry of Energy and Hydrocarbons. From time to time, local governments and regulators may amend regulations and impose charges pertaining to water rights. Furthermore, IC Power may be unable to obtain, or otherwise experience difficulty in obtaining, water rights in connection with the construction of new hydroelectric plants, which may impact the viability, design, timing or profitability of a project. Local governments may also try to impose a royalty or tariff for water use on IC Power’s hydroelectric plants. In addition, several plants are required to leave a percentage of the water available in the river and therefore may not utilize such water in their generation activities (this reserve is commonly referred to as the ‘ecological waterflow’). Local governments may decide to enact a change in the regulation or in the calculation of the ecological waterflow, thereby reducing available volumes of water for power generation in IC Power’s plants. Any limitations on IC Power’s current water rights, its ability to obtain additional water rights, or its ability to effectively utilize its existing rights, could have a material adverse effect on its current hydroelectric plants and its hydroelectric projects.

Risks Related to IC Power’s Distribution Business

IC Power may not achieve the expected benefits of the Energuate acquisition.

In January 2016, IC Power acquired Energuate (comprised of two electricity distribution companies in Guatemala (DEORSA and DEOCSA)), with the expectation that this acquisition would result in various benefits to IC Power, including a successful initial entry into the electricity distribution sector. Some of those benefits may not be achieved or, if achieved, may not be achieved at the cost or in the time-frame in which they are expected. Whether IC Power will actually realize the anticipated benefits depends on future events and circumstances, some of which, including market and regulatory conditions, are beyond IC Power’s control. Future growth in revenues, earnings and cash flow of Energuate will be partly dependent on future economic conditions in Guatemala and conditions in the Guatemalan electricity distribution industry.

Furthermore, the Energuate acquisition represents IC Power’s initial entry into the electricity distribution business, and IC Power does not have prior experience operating such a business. In addition, IC Power may experience difficulties in integrating Energuate’s financial reporting, which could result in IC Power’s disclosure controls and procedures and internal controls over financial reporting being considered ineffective. While IC Power is in the process of evaluating and integrating Energuate’s system of controls into its business, IC Power may be unsuccessful in doing so in a timely manner.

The tariffs that Energuate charges for the distribution of electricity are determined by CNEE, and unfavorable changes to the distribution tariffs could have a material adverse effect on IC Power’s results of operations.

The price that Energuate charges consumers for electricity distributed is based on distribution tariffs, consisting of an electricity charge and a Value Added by Distribution ( Valor Agregado de Distribución ), or VAD, charge, which are determined on the basis of legal and regulatory proceedings by the CNEE every five years. There are seven different tariffs that are applicable to Energuate’s regulated customers, and each of Energuate’s regulated customer purchases electricity at one of these tariff rates. The VAD component of the distribution tariff is revised every five years with semi-annual adjustments for inflation and local currency exchange rates against the U.S. Dollar. The tariffs are set by the CNEE.

The process of establishing the distribution tariffs involves several parties, including distribution companies, and takes place over several stages. While the tariffs are intended to be set on the basis of objective criteria, the CNEE can exercise discretion. The CNEE will reset the VAD charge in January 2019. If the CNEE revises the distribution tariff in a manner that is unfavorable to IC Power, due to, among other things, political pressure or an economic crisis, such a revision may have a material adverse effect on IC Power’s business, financial condition or results of operations. In addition, if the semi-annual adjustments to the VAD component of the distribution tariff are insufficient to fully account for inflation or exchange rate fluctuations, these adjustments may have a material adverse effect on IC Power’s business, financial condition or results of operations. For further information on the regulation of the Guatemalan electricity distribution sector, “ Item 4.B Business Overview—Our Businesses—IC Power—Regulatory, Environmental and Compliance Matters—Regulation of the Guatemalan Electricity Distribution Market. ”

IC Power will be required to make significant capital expenditures to improve Energuate’s transmission grid and service quality and reduce electricity losses.

IC Power believes that additional capital expenditures will be required to, among other things, modernize Energuate’s transmission grid, improve service quality and reduce electricity losses. To this end, IC Power has invested $28 million in capital expenditures relating to Energuate in the year ended December 31, 2016, and IC Power expects that its capital expenditures will increase in the coming years. IC Power may finance this capital expenditure program through cash on hand, internally generated funds or financing from the domestic and international capital markets. IC Power’s ability to make these capital expenditures depends on a variety of factors, including its access to domestic and international capital markets, the results of IC Power’s other subsidiaries and a variety of operating, regulatory or other contingencies. IC Power may not have the financial resources to make the necessary capital expenditures in a timely manner. In addition, should the CNEE’s revision to the distribution tariffs Energuate charges to its regulated customers be unfavorable to IC Power, it may be unable to recoup the costs of its capital expenditure program. A failure to make the necessary capital expenditures in a timely manner and recoup the cost of such program could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

A slowdown in the growth of electricity demand in Guatemala could adversely affect Energuate’s business, financial condition and results of operations.

In times of economic crisis, electricity demand in Guatemala has grown at lower rates due to declines in overall levels of economic activity and has resulted in the deterioration of the ability of many consumers to pay their electricity bills. A slowdown in the growth of electricity sales or demand or a decline in collection rates from customers due to a deterioration of Guatemalan economic conditions may have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity. Any such slowdown could also result in Energuate having more contracted capacity than is actually needed due to a decrease in electricity demand, resulting in higher tariffs that could trigger social unrest and/or political pressures, or an increase in customer defaults.

If Energuate is unable to successfully control electricity losses and improve collection rates, IC Power’s results of operations could be adversely affected.

The percentage of the energy that Energuate purchases, but is unable to distribute to customers, represents Energuate’s electricity losses. Energuate experiences two types of electricity losses: technical losses and commercial losses. Technical losses occur in the ordinary course of Energuate’s distribution of electricity and include losses due to energy dissipation in conductors and magnetic losses in transformers, while commercial losses result from customers’ illegal connections, fraud and billing errors. Energuate’s total losses (comprising technical and commercial losses) in the years ended December 31, 2016 and 2015 were 19.6% and 16.9%, respectively. The distribution tariffs that Energuate charges its regulated customers include a VAD component, which provides for an allowance determined by the CNEE for losses incurred in the distribution of electricity. To the extent that Energuate’s electricity losses exceed the approximately 15% allowance (which includes both technical and commercial losses) contemplated in the current formula of the VAD component of the distribution tariff, Energuate will bear the cost of such losses.

IC Power intends to reduce commercial losses through improving customer billing practices to increase collection rates, increasing targeted inspections and meter replacements, implementing a communication program with local communities and modernizing Energuate’s facilities to reduce tampering, especially in areas where electricity theft has been more prevalent, and IC Power intends to reduce technical losses by investing in the modernization of Energuate’s transmission grid and distribution system. However, these strategies may not effectively combat Energuate’s electricity losses. Should Energuate’s electricity losses remain high or increase, this could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

Energuate’s authorizations to provide energy distribution services are non-exclusive. Therefore, Energuate may face more competition from other distributors in certain departments.

Energuate has authorizations to provide energy distribution services within its service area until 2048. However, Energuate’s authorizations are non-exclusive and the MEM has historically granted and may in the future grant authorizations to one or more competing distribution companies in Energuate’s service area. In addition, Energuate is facing competition within certain of the departments in which it operates from other distribution companies, which hold authorizations to operate in certain departments located in Energuate’s service area. Competition from other distribution companies within Energuate’s service area may have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

Defaults by Energuate’s consumers due to, among other causes, a reduction in subsidies, could adversely affect IC Power’s business, results of operations and/or financial condition.

Energuate records a provision for doubtful receivables for past due receivables owed by its customers. Energuate has been, and may continue to be, unable to collect amounts payable from numerous consumers in arrears. If such debts are not totally or partially settled, this may have a material adverse effect on IC Power’s business, financial condition and results of operations or liquidity. Additionally, the amount of receivables that IC Power is unable to collect may exceed the provision that IC Power has constituted. Should the amount of debts in arrears from Energuate’s consumers exceed the amounts IC Power has provisioned, this could have a material adverse effect on IC Power’s business, financial conditions, results of operations or liquidity.

The National Electrification Institute of Guatemala ( Instituto Nacional de Electrificación ), or INDE, currently provides electricity rate subsidies for low-income customers to assist in their payment of their electricity bills, and as of December 31, 2016, approximately 78% of Energuate’s regulated customers benefited from subsidies from INDE. In December 2016, INDE officially notified Energuate that it will reduce on a monthly basis over a three year period the subsidy applicable to all customers eligible for such subsidy, eliminating the subsidies for customers with energy consumption between 89 kWh and 100 kWh by November 2017 and for customers with energy consumption between 61 kWh and 88 kWh by March 2019. In March 2017, INDE announced that the subsidies would not be eliminated as contemplated by the INDE’s December 2016 announcement. If the operating income generated by INDE is not sufficient to fund the subsidies or the Guatemalan government suffers from other budgetary constraints, INDE may be required to reduce the subsidies it provides to low-income customers. Any reductions in subsidies provided by INDE may result in Energuate’s customers being unable to bear the cost of their electricity, which could lead to a decrease in consumption and/or collection rates and an increase in doubtful receivables, as well as social and political pressure, which could have a material adverse effect on IC Power’s business, financial condition, results of operations or liquidity.

Energuate is subject to comprehensive regulation of its business, which may affect IC Power’s financial performance.

Energuate’s business is subject to extensive regulation by various Guatemalan regulatory authorities, particularly the CNEE. The CNEE regulates and oversees Guatemala’s electricity sector, and establishes Energuate’s distribution tariffs. If Energuate’s contracted capacity and electricity under its PPAs is insufficient to meet customer demand, Energuate will either have to purchase electricity on the spot market or there may be rolling blackouts. Energuate may only make energy purchases on the spot market if authorized by the CNEE or pursuant to a PPA that provides that Energuate may purchase in the spot market if the price in the spot market is more advantageous to Energuate than the PPA price. If Energuate purchases energy in the spot market without CNEE’s authorization or authorization under Energuate’s PPAs, Energuate will be subject to a fine imposed by the CNEE and could result in Energuate not being permitted to pass through the costs associated with the spot market purchases to consumers. If Energuate is obligated by the CNEE to make additional and unexpected capital expenditures and is not allowed to adjust its tariffs accordingly, Energuate will have to bear the cost of these purchases and this may have an adverse effect on Energuate’s business, financial conditions and results of operations.

Furthermore, Energuate has been, and in the future may continue to be, subject to fines and penalties by regulatory authorities for, among others, failure to meet quality and delivery standards, some of which may be due to causes out of Energuate’s control, such as service disruptions attributable to problems at generation facilities. Fines relating to Energuate’s failure to meet any quality or delivery standards related to services rendered to customers are payable by granting credits to its customers to offset a portion of their electricity charges, while those not directly related to customers are paid directly to CNEE. In the year ended December 31, 2016, Energuate paid fines and penalties of $265 thousand as compared to $503 thousand, in the year ended December 31, 2015. In addition, Energuate is currently subject to ongoing proceedings with respect to fines and penalties for failure to meet quality and delivery standards, which may have a material adverse effect on IC Power’s business, financial condition and results of operations. If Energuate fails to comply with any of these conditions, the Guatemalan government may seek to impose fines and penalties on IC Power, terminate Energuate’s authorizations, or require the sale of Energuate’s assets in satisfaction of any fines and penalties imposed on IC Power, each of which could have a material adverse effect on IC Power’s business, financial condition and results of operations.

In addition, electricity is a utility with high social impact, particularly within the service areas in which Energuate operates. As such, there is frequent public debate and pressure to modify the regulatory framework for the Guatemalan electricity industry. From time to time, various proposals are made to modify the electricity regulatory framework, and such proposals, if implemented, may affect Energuate’s ability to conduct its operations profitably, or at all. Both the implementation of Energuate’s strategy for growth and its day-to-day business may be adversely affected by governmental actions, including changes to current legislation, the termination of national and local authorization licenses or permits, the forced sale of Energuate’s distribution assets in a public auction, the creation of more rigid criteria for qualification in public energy auctions, a delay in the revision and implementation of new tariffs or a modification of the tariff regime.

Energuate’s authorizations can be terminated if its service levels fall below those required by its authorization agreements with the MEM.

Energuate conducts its electricity distribution business pursuant to authorization agreements which were executed between DEORSA and the MEM and DEOCSA and the MEM. The authorization agreements require Energuate to comply with certain service and quality standards. CNEE may impose fines in cases where DEORSA and/or DEOCSA fail to meet certain levels of service, quality standards, or meet customer satisfaction. These procedures may ultimately result in the MEM’s revocation of Energuate’s authorizations pursuant to the regulations under the General Electricity Law. In the event that Energuate’s authorizations are terminated, Energuate’s distribution assets may, after a series of proceedings, be sold in a public auction, as provided for in the General Electricity Law. In addition, Energuate’s authorizations are for a fixed term (until 2048) and renewal is neither automatic nor guaranteed. A termination of Energuate’s authorizations would have immediate negative effects on Energuate’s business and results of operations, which could have a material adverse effect on IC Power’s business, financial condition and results of operations.

Energuate operates in certain conflict zones which have been and may continue to be subject to high levels of electricity theft and other illicit activity, low collection rates and violent protest.

Energuate’s service area includes “conflict zones”, which are areas characterized by high levels of electricity theft and low collection rates. In certain of the “conflict zones” in which Energuate operates, particularly along the border with Mexico, there is little government control and presence. In such areas, Energuate’s ability to conduct its operations has been, and may continue to be, affected by illicit activities, such as drug trafficking and violent crime.

Furthermore, Energuate has faced opposition in such areas from a variety of organizations, some of whom promote violent protests and energy theft. In recent years, local organizations in Energuate’s service area have conducted violent protests to challenge electricity prices. Energuate has undertaken efforts to improve its relationships with the communities in the service areas in which it operates; however, these efforts may be unsuccessful. Electricity theft and other illicit activity, low collection rates and social protests in certain of the “conflict zones” in which Energuate operates may have a material adverse effect on IC Power’s business, financial condition and results of operations.

Risks Related to Our Interest in Qoros

Qoros depends on additional financing to further its development and, until it achieves significant sales levels, to meet its operating expenses, financing expenses, and capital expenditures.

Qoros’ available liquidity and capital resources are limited, and it has significant obligations. Qoros has historically relied upon capital contributions, loans, guarantees and pledges from its shareholders (Chery and Kenon), and third party loans supported by its shareholders, to fund its development and operations. As of December 31, 2016, Qoros total loans and borrowings (excluding shareholder loans) of RMB5.5 billion and current liabilities (excluding shareholder loans) of RMB4.0 billion, including trade and other payables of RMB2.7 billion. As of December 31, 2016, Qoros had current assets of RMB1.8 billion, including cash and cash equivalents of RMB465 million. Qoros has long-term, short-term and working capital credit facilities, but amounts available under such facilities are limited. Qoros actively manages its trade payables, accrued expenses and other operating expenses in connection with the management of its liquidity requirements and resources.

Qoros is continuing to seek additional financing for its operations. For example, in April 2017, Quantum, Chery and Qoros entered into an agreement with Yibin, pursuant to which Yibin may invest significant amounts in Qoros, subject to government approval and the execution of amendments to Qoros’ joint venture agreement and articles of association, among other agreements. For further information on this arrangement, see “ Item 5. Operating and Financial Review and Prospects—Recent Developments—Qoros—Agreement with Yibin to Jointly Establish NEV Manufacturing Base .” Qoros will need to secure additional financing to meet its operating expenses (including accounts payable) and debt service requirements. If Qoros is not able to obtain financing from Yibin or otherwise raise additional financing as required, it may be unable to continue operations, in which case Kenon may lose its entire investment in Qoros and Kenon may be required to make payments under its back-to-back guarantees to Chery in respect of Qoros’ bank debt and pledges over Qoros shares by Quantum (Kenon's subsidiary which owns Kenon's interest in Qoros) may be enforced. See “Risks Related to Our Strategy and Operations—Some of our businesses have significant capital requirements. If these businesses are unable to obtain sufficient financing from third party financing sources or renew or refinance their working capital facilities, they may not be able to operate, and we may deem it necessary to provide such capital, provide a guarantee or indemnity in connection with any financings, provide collateral in connection with any financings, including via the cross-collateralization of assets across businesses, or we may refrain from investing further in any such businesses, all of which may materially impact our financial position and results of operations.”

Qoros’ future success is dependent upon an increase in sales volumes sufficient to meet its operating expenses and continued expansion of its dealer network.

Qoros incurred losses of RMB1.9 billion for the year ended December 31, 2016 and has incurred losses since its inception. Qoros’ success will depend upon Qoros increasing its sales volumes, which will depend on:

the continued development of the Qoros brand;

customer acceptance of new models, including the Qoros 5 SUV and Qoros 3 GT, which both launched in 2016;

successful development and launch of new vehicle models;

expansion of its dealer network;

build-up of its aftersales and services infrastructure;

achieving material cost reductions;

managing its procurement, manufacturing and supply processes;

establishing effective, and continuing to improve, customer service processes; and

securing additional financing to support its operating and capital expenses and further its growth and development.

Qoros’ ability to increase its sales volumes and generate profits will require the execution of effective planning and management processes, and such execution may be influenced by Qoros’ ability to sell its vehicle models within Qoros’ targeted price range, at prices that generate profits for Qoros, and at targeted volumes, as well as factors out of Qoros’ control, such as state of the Chinese economy.

Qoros sold approximately 24,000 vehicles in 2016, as compared to approximately 14,000 in 2015. However, Qoros will need to significantly increase its sales to meet its operating expenses and principal payments under its debt facilities. Qoros’ ability to increase its sales will depend, in part, upon its ability to expand its dealer network and increase the proportion of high-performing dealers. Qoros may have difficulty in continuing to expand its dealer network if existing dealers are not performing well in terms of sales, and if Qoros is not successful in expanding its dealer network, this could make it difficult for Qoros to significantly increase sales levels. If Qoros is not able to increase its sales, this could have a significant impact on Qoros’ liquidity and future success, as well as on the value of Kenon’s investment in Qoros, which may result in Kenon’s recognition of an impairment charge in respect of Qoros and could result in Kenon being required to make payments under its guarantees of Qoros’ debt if Qoros is unable to meet its debt obligations.

Qoros is significantly leveraged.

As of December 31, 2016, Qoros had RMB5.5 billion of outstanding indebtedness consisting of current and non-current loans and borrowings of RMB1.2 billion and RMB4.3 billion, respectively, excluding shareholder loans. Qoros intends to finance its continued development with additional financing.

Highly leveraged businesses are inherently more sensitive to declines in revenues, increases in expenses and interest rates, and adverse market conditions. This is especially true for Qoros, as Qoros commenced commercial sales at the end of 2013 and has yet to generate positive cash flows from its operations. Qoros uses a portion of its liquidity to make debt service payments, including principal payments on its RMB3 billion facility, thereby reducing its ability to use its cash flows to fund its operations, capital expenditures, or future business opportunities. Qoros is currently required to make principal payments on its RMB3 billion facility and will be required to make principal payments on its RMB1.2 billion facility and RMB700 million facility beginning in August 2017 and May 2018, respectively. Qoros’ lenders have agreed to reschedule principal payments under the RMB3 billion and RMB1.2 billion scheduled to occur in 2017 and 2018, with principal payments scheduled to occur between 2019 and 2022 (in the case of the RMB3 billion facility) and between 2019 and 2024 (in the case of the RMB1.2 billion facility).

In addition, Qoros’ RMB3 billion syndicated credit facility, RMB1.2 billion syndicated credit facility, and RMB700 million syndicated credit facility contain affirmative and negative covenants. Those facilities, as well as its other short-term credit facilities, also contain events of default and mandatory prepayments for breaches, including certain changes of control, and for material mergers and divestments, among other provisions. A significant percentage of Qoros’ assets secures its RMB3 billion syndicated credit facility and, as a result, the amount of collateral that Qoros has available for future secured debt or credit support and its flexibility in dealing with its secured assets is therefore relatively limited.

Currently, Qoros’ debt-to-asset ratio is higher, and its current ratio is lower, than the allowable ratios set forth in the terms of Qoros’ RMB3 billion syndicated credit facility. In 2014 and 2016, the syndicated consortium of Qoros’ syndicated credit facility waived Qoros’ compliance with the financial covenants under this facility through the first half of 2017 and the first half of 2020, respectively. As a result, Qoros will not be required to comply with these financial covenants until July 2020 (or later, if additional waivers are granted). The waivers also provide that, after Qoros enters into a continuous and sustained operating period, a request for adjustment of the financial covenants, as necessary, can be submitted to the syndicated loan group or the lender under the working capital facility, as applicable, for consideration. Should Qoros’ debt-to-asset ratio continue to exceed, or its current ratio continue to be less than, the permitted ratios in any period after the waiver period, and Qoros’ syndicated lenders do not waive such non-compliance or revise such covenants so as to ensure Qoros’ compliance, Qoros’ lenders could accelerate the repayment of borrowings due under Qoros’ RMB3 billion syndicated credit facility.

If Qoros is unable meet its debt service obligations or otherwise comply with other covenants in its credit facilities, this would lead to an event of default. Each of Qoros’ significant debt facilities above contains a “cross-default” provision which provides for an event of default if any other debt of Qoros in excess of RMB50 million becomes payable prior to maturity, so a default under other debt facilities would result in a default under the facilities referenced above and a default that leads to acceleration under either facility above will result in an event of default under the other facility.

In the event that any of Qoros’ lenders accelerate the payment of Qoros’ borrowings, Qoros would not have sufficient liquidity to repay its debt under the syndicated credit facility, or to maintain payments on its remaining credit facilities. Additionally, as Qoros is significantly leveraged and certain of its assets, including its manufacturing facility and significant portion of its intellectual property, secures its syndicated credit facility and other indebtedness, if Qoros were unable to comply with the terms of its debt agreements, this could result in the foreclosure upon and loss of certain of Qoros’ assets, which could have a material adverse effect on Qoros’ business, financial condition, results of operations or liquidity.

Kenon has outstanding “back-to-back” guarantee obligations to Chery in respect of guarantees that Chery has given in respect of a significant amount of Qoros’ bank debt and has pledged a substantial portion of its interests in Qoros to secure Qoros’ bank debt, as well as Chery’s guarantees of Qoros’ debt. Accordingly, if Qoros’ debt facilities become payable due to a default under these facilities or otherwise, Kenon may be required to make payments under its guarantees and could lose the shares in Qoros it has pledged. See “— Kenon has “back-to-back” guarantee obligations to Chery in respect of guarantees that Chery has given for Qoros’ bank debt and has pledged a substantial portion of its interests in Qoros to secure Qoros’ bank debt.”

Kenon has “back-to-back” guarantee obligations to Chery in respect of guarantees that Chery has given for Qoros’ bank debt and has pledged a substantial portion of its interests in Qoros to secure Qoros’ bank debt.

As of the date of this annual report, Kenon has outstanding back-to-back guarantee obligations to Chery of up to RMB425 million, plus certain interest and fees, in respect of certain of Qoros’ indebtedness. For further information on Kenon’s back-to-back guarantee obligations to Chery, see “ Item 5.B Liquidity and Capital Resources—Kenon’s Liquidity and Capital Resources—Kenon’s Commitments and Obligations—Back-to-Back Guarantees Provided to Chery .”

If Qoros is unable meet its debt service obligations and comply with other covenants in these credit facilities, this would lead to an event of default. In addition, each of these facilities contains various events of default which may result in the event of non-payment of amounts due and payable, breach of obligations under the facilities and liquidation or bankruptcy events, or other similar legal proceedings. In addition, each of the facilities above contains a “cross-default” provision which provides for an event of default if any other debt of Qoros in excess of RMB50 million becomes payable prior to maturity, so a default under other debt facilities would result in a default under the facilities referenced above and a default that leads to acceleration under either facility above will result in an event of default under the other facility.

In the event of a default under one of these credit facilities which leads to acceleration of amounts due thereunder, Chery could be required to make payments under its guarantees and upon such payment by Chery, Kenon would be required to make payments under its back-to-back guarantees to Chery.

In the event that Kenon is required to make such payments, it may need to obtain such funds from its businesses, which may include IC Power (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). In the event Kenon is required to make payments on its back-to-back guarantees and does not have sufficient liquidity to do so, there may be a cross-default under the IC Credit Facility, which would require Kenon to obtain additional financing or obtain such funds from its businesses to pay the outstanding amounts under such facility. In the event that funds from its businesses or external financing are not available to meet such obligations on reasonable terms or at all, Kenon may need to sell assets to meet such obligations, and its ability to sell assets may be limited in light of the various pledges over the shares and assets within its most valuable asset, IC Power. Any sales of assets may not be at attractive prices, particularly if such sales must be made quickly to meet Kenon’s obligations.

Finally, Quantum, the wholly-owned subsidiary through which we own our 50% interest in Qoros has pledged, a significant portion of its interest in Qoros to lenders under Qoros’ RMB1.2 billion credit facility, as well as to Chery, which may enforce its pledge in certain circumstances to the extent Chery is required to make payments with respect to its guarantees of Qoros’ debt. For further information on these pledges, see “ Item 5.B Liquidity and Capital Resources—Qoros’ Liquidity and Capital Resources—Material Indebtedness—RMB1.2 Billion Syndicated Credit Facility ; — December 2016 Shareholder Loans to Qoros; —March 2017 Shareholder Loans to Qoros.” These pledges could result in a loss of our equity interest in Qoros in the event of a default under the RMB1.2 billion facility (or another facility which results in a cross default under the RMB1.2 billion credit facility), or if Chery is required to make payments under its guarantees of Qoros’ debt. For further information on the risks related to Kenon’s obligations in respect of Qoros’ debt, see “ —Qoros depends on additional financing to further its development and, until it achieves significant sales levels, to meet its operating expenses, financing expenses, and capital expenditures. ”

Qoros is a joint venture in which our interest is only 50%.

We have a 50% stake in Qoros, with the remaining 50% interest owned by Wuhu Chery Automobile Investment Co., Ltd., or Wuhu Chery, a subsidiary of Chery, a state controlled holding enterprise and large Chinese automobile manufacturing company that has been producing automobiles since 1999.

Our joint venture partner, Chery, may enter into additional joint venture agreements, subject to the terms of our Joint Venture Agreement, in the future. Consequently, Wuhu Chery or Chery may have goals, strategies, priorities, or resources that conflict with our goals, strategies, priorities or resources, which may adversely impact our ability to jointly and effectively own Qoros, undermine Wuhu Chery or Chery’s commitment to Qoros’ long-term growth, or adversely impact Qoros’ business.

Furthermore, Chinese regulations prevent us, as a non-Chinese entity, from holding a greater than 50% equity interest in Qoros. As a result, should we invest additional equity into Qoros, Kenon will not experience an increase in its equity ownership of Qoros. The Joint Venture Agreement provides that Wuhu Chery may purchase our interest in Qoros in the event of the termination of the Joint Venture Agreement, which is triggered upon the occurrence of certain events, including the nationalization or confiscation, in whole or in substantial part, of Qoros’ assets, Qoros’ bankruptcy, certain breaches of the Joint Venture Agreement, the occurrence of certain force majeure events, and a deadlock of the board of directors of Qoros as to matters where the lack of a decision could materially and adversely affect Qoros. In the event of the termination of the Joint Venture Agreement, Wuhu Chery may purchase our interest in Qoros at an agreed upon price or at the price determined by an independent appraiser selected or appointed, as applicable, pursuant to the valuation procedure set forth in the Joint Venture Agreement.

The Joint Venture Agreement also contains provisions relating to the transfer and pledge of Qoros’ shares, the appointment of executive officers and directors, and the approval of “substantial matters,” which may prevent us from causing Qoros to take actions that we deem desirable.

In addition, the loans that Ansonia made to our subsidiary Quantum (which were used by Quantum to make back-to-back loans to Qoros) may be converted into equity of Quantum at a discount to the implied value of Qoros based upon the receipt of third-party financing. Accordingly, upon such conversion, Kenon’s indirect interest in Qoros will be diluted, which will result in economic dilution and Kenon having less control over Qoros’ business. In connection with the loan agreement, Ansonia also has certain consent rights with respect to actions that we take in respect of our interest in Qoros. For further information on Ansonia’s agreement to invest in Qoros, see “ Item 5.B Liquidity and Capital Resources—Qoros’ Liquidity and Capital Resources—Material Indebtedness—Shareholder Loans .”

For further information on the terms of our Joint Venture Agreement with Chery, see “ Item 4.B Business Overview—Our Businesses—Qoros—Qoros’ Joint Venture Agreement .”

Qoros has entered into certain arrangements and agreements with Chery.

Qoros sources its engines and certain spare parts from Chery in the ordinary course of Qoros’ business, and has entered into various commercial agreements with respect to the provision of such supplies from Chery. Qoros has amounts payable to Chery in the amount of RMB374 million as of December 31, 2016.

Qoros has also entered into a platform sharing agreement with Chery, pursuant to which Qoros provides Chery with the right to use Qoros’ platform in exchange for a fee. Qoros may also enter into additional commercial arrangements and agreements with Chery, or parties related to it, in the future.

Additionally, Qoros' business plan contemplates further reliance on Chery and its platform and personnel in connection with Qoros' operations and development of new vehicle models.

Pursuant to the Joint Venture Agreement, all of Qoros’ transactions with related parties are subject to the approval of Qoros’ board of directors, of which Kenon has the right to appoint three of the six directors. However, Qoros’ related party transactions with Chery could create, or appear to create, potential conflicts of interest when Qoros’ board of directors is faced with decisions that could have different implications for Qoros and Chery, which may have a material adverse effect on Qoros’ operations and financial position.

Qoros actively manages its trade payables, accrued expenses and other operating expenses in connection with the management of its liquidity requirements and resources, and Qoros has accounts payable to Chery. Should Qoros be unable to make payments to Chery for its supply of engines, spare parts and other supplies from Chery, this may have a material adverse effect on Qoros’ relationship with Chery. For further information on Qoros’ commercial arrangements with Chery, see Note 30 to Qoros’ consolidated financial statements, included in this annual report.

Qoros’ vehicle models and brand are still evolving and may not be accepted by Qoros’ targeted consumer group, at Qoros’ targeted prices.

Qoros’ brand and business are relatively new, and Qoros’ targeted consumers may not accept Qoros’ models, style or brand at the anticipated or desired velocity, or the anticipated or desired price, if at all. Specifically, Qoros seeks to manufacture and sell to Chinese consumers Chinese vehicles which comply with recognized international standards, with respect to their design and operations, and are comparable in quality and price to internationally manufactured vehicles. Qoros’ future business and profitability outlook depends, in large part, upon Qoros’ ability to sell vehicle models that will be accepted by young, modern, urban consumers, in its targeted price range. The sector of the Chinese automobile market that Qoros targets is currently dominated by foreign brands, and Chinese car buyers may be slower than expected in accepting a Chinese brand, may have a preference for other Chinese brands, or may not ultimately view Qoros’ vehicle models as an attractive alternative to foreign brands at the price point targeted by Qoros, if at all.

Chinese consumers have historically indicated a strong preference for products that are internationally-branded. Such a preference for foreign-branded products could impact the buying patterns of Qoros’ targeted consumers, which could affect the demand for Qoros’ vehicles and, as a result, also adversely impact Qoros’ margins (e.g., as a result of Qoros increasing the content provided in each vehicle without concurrently increasing its price) and its sales volumes.

Qoros depends upon a network of independent dealers to sell its automobiles.

As is customary in China, Qoros distributes and services its cars through a network of independent automobile dealers that are engaged on a non-exclusive basis. Dealers maintain the primary sales and service interface with the ultimate consumer of Qoros’ products and, as a result, the quality of Qoros’ dealerships and its relationship with its distributors are critical to Qoros’ success. Qoros also expects its dealers to generate the vast majority of the revenues that Qoros expects to receive from the sale of spare parts and aftersales products. Consequently, Qoros’ success is dependent, in large part, upon a network of dealers, whose salespersons Qoros does not directly employ and therefore cannot control. As a result, Qoros’ dealer network may not achieve the required standards of quality of service producers within Qoros’ expected timeframe, if at all.

Qoros is still in the process of developing, establishing and expanding its dealer network, which will require Qoros’ dealers to construct their dealerships using their own capital resources, with sales rebates from Qoros (i.e., dealers are entitled to sales rebates from Qoros if they achieve certain purchase targets or meet certain other criteria). As part of its strategy to increase its sales, Qoros intends to increase the size of its dealer network by expanding into smaller Chinese cities (e.g., Tier 3 and Tier 4 cities) and creating incentives for its high-performing dealers to open additional points of sales. Qoros’ development of its dealer network will likely be affected by conditions in the Chinese passenger vehicle market and the Chinese economy, the financial resources available to existing and potential dealers, the decisions dealers make as a result of the current and future sales prospects of Qoros’ vehicle models, and the availability and cost of the capital necessary to acquire and hold inventories of Qoros’ vehicles for resale. Qoros’ ability to secure new dealers depends, in part, upon the sales performance of Qoros’ existing dealers. Therefore, Qoros may have difficulty in expanding its dealer network if existing dealers are not performing well in terms of sales, and if Qoros is unable to expand its dealer network, this could make it difficult for Qoros to significantly increase sales levels. Continued delays in, or other negative developments with respect to, the expansion of Qoros’ dealer network could have a material adverse effect on Qoros’ business, financial condition, results of operations or liquidity.

Qoros continues to undertake cost-cutting measures to optimize its cost structure and align its operations with its business plan and the current financial market and economic conditions in China, and such measures may make it difficult for Qoros to increase sales.

In recent years, Qoros has taken, and may continue to take, steps to reduce its costs and address its low sales and its liquidity situation, including workplace optimization and reduced promotional spending. Qoros will continue to undertake cost-cutting measures to optimize its cost structure, which may impact Qoros’ ability to successfully conduct its operations. For instance, Qoros has reduced, and may be required to continue reducing, spending on promotions and other advertising, which could make it difficult for Qoros to significantly increase sales, as brand awareness is critical to increasing sales in the highly competitive Chinese car industry.

Furthermore, Qoros has and may continue to reduce spending on design and research and development costs for new models, as well as updating and adapting its vehicle platform and manufacturing facility, which may result in Qoros introducing fewer models on a timely basis, or at all, than it might have otherwise introduced without such-cutting measures. A slower pace in introducing new models has made, and may continue to make, it difficult for Qoros to attract and retain customers, which is crucial at Qoros’ current stage of development. In addition, further cost cutting measures may increase Qoros' reliance on Chery and its platform and personnel. For further information on risks related to our relationship with Chery, see “ –Qoros has entered into certain arrangements and agreements with Chery .”

Qoros’ business is subject to intense competition.

China has been one of the world’s fastest growing economies in terms of GDP in recent years, and has been the fastest growing among major passenger vehicle markets in the world. The passenger vehicle market in China is highly competitive. Many of the largest global manufacturers, through joint venture relationships with Chinese manufacturers, and numerous established domestic manufacturers compete within this market. Accordingly, Qoros competes with the established automobile manufacturers, particularly with the European, U.S., Korean and Japanese automakers. Most of Qoros’ current and potential competitors have longer operating histories, broader customer relationships, greater name recognition, established customer bases, and greater financial, technical, manufacturing, marketing and other resources. As a result, many of these competitors may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, pricing sale and support of their products, which could impair Qoros’ ability to operate within this market or adversely impact Qoros’ sales volumes or margins.

As the size of the Chinese passenger vehicle market continues to increase, Qoros anticipates that additional competitors, both international and domestic, will seek to enter the Chinese market and that existing market participants will try to maintain or increase their market share. The decline in growth rate that occurred in 2015 in connection with volatility in the Chinese financial markets and a slowdown in the Chinese economy resulted in increased competition in China’s automotive market through price reductions, which has resulted in reduced margins. In response to market conditions, in 2016, Qoros announced suggested price reductions on its existing models. In 2017, dealers and OEMs have continued to reduce prices and offer further inducements to purchase vehicles. Qoros expects the downward pressure on vehicle prices to continue for the next few years.

In addition to reducing margins, increased competition may make it difficult for Qoros to increase sales. If Qoros is unable to increase its sales, or sell its vehicles at its expected margins, in light of increased competition in the passenger vehicle market, or if vehicle sales in China decrease or do not continue to increase as expected, this could have a material adverse effect on Qoros’ business, financial condition, results of operations or liquidity.

Qoros also faces intense competition in the C-segment SUV market, which it entered in March 2016 with its launch of the Qoros 5 SUV. Although the Chinese C-segment SUV model grew by 23% in 2016 and is one of the fastest growing segments in the Chinese car market, many of Qoros’ competitors in this market continued to upgrade their vehicles and introduced new models in 2016 and early 2017. For instance, a number of domestic and international SUV models were revamped, or were replaced by a new generation, in 2016. Several new car manufacturers are also expected to join this market segment, which may make it difficult for Qoros to gain market share in the C-segment SUV market.

Qoros’ success depends, in part, upon its ability to protect, and maintain ownership of, its intellectual property.

Qoros has independently developed and patented, and owns numerous motor vehicle technologies, including technologies related to human machine interface, or HMI, motor vehicles, and motor vehicle platforms, parts, components and accessories for motor vehicles. Qoros believes that such technologies provide it with a competitive advantage and the platform with which to produce international-standard vehicles for its targeted Chinese consumers. Additionally, Qoros owns the brands, trade names, trademarks, or emblems developed in connection with, or with respect to, any of its vehicles. If Qoros fails to protect its intellectual property rights adequately, Qoros’ competitors might gain access to its technology, and its brand or business may be adversely affected. Qoros relies on copyright, trade secret and patent laws, confidentiality procedures and contractual provisions to protect its proprietary methods and technologies and trademark laws to protect the brands, trade names, trademarks, or emblems developed in connection with, or with respect to, any of Qoros’ vehicles. Qoros currently holds patents in China, the European Union and the U.S., and has pending patent applications in various countries. Further, Qoros has trademark registrations and applications in various markets in Asia, the Middle East, Europe, North America, South America, Africa, Australia, and New Zealand. Patents may not be granted for Qoros’ pending patent applications, and the claims allowed on any issued patents may not be sufficiently broad to protect Qoros’ technologies. Any patents or trademarks currently held by Qoros, or that may be issued to Qoros in the future, may be challenged, invalidated or circumvented, and any rights granted under these patents or trademarks may not actually provide Qoros with adequate defensive protection or competitive advantages. Additionally, the process of applying for patent and trademark protection is expensive and time-consuming, and Qoros may not be able to complete all necessary or desirable patent and trademark applications at a reasonable cost or in a timely manner.

Furthermore, policing the unauthorized use of Qoros’ technology, or trademarks, may prove difficult as the laws of some foreign countries may not be as protective of intellectual property rights as those of the United States, and mechanisms for enforcement of Qoros’ proprietary rights in such countries may be inadequate. From time to time, Qoros may need to initiate legal action to enforce its intellectual property rights, to protect its trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend itself against claims of infringement. Qoros has previously been a defendant in suits with respect to Qoros’ alleged infringement of the intellectual property of other vehicle manufacturers, including with respect to Audi, a claim which was settled in August 2014. Any such litigation could result in substantial costs and the diversion of limited resources and could negatively affect Qoros’ business, reputation or brand. If Qoros is unable to protect its proprietary rights (including aspects of its technology platform), Qoros may lose its expected competitive advantage which could have a material adverse effect on Qoros’ business, financial condition, results of operations or liquidity.

Finally, Qoros has pledged, and, in the future, may further pledge, certain of its intellectual property as collateral for its financing. A default on Qoros’ obligations secured by intellectual property under the terms of such facility could provide the secured parties with the right to foreclose on, and subsequently sell and/or license, all or a portion of Qoros’ pledged patent rights, which could materially impair Qoros’ ability to conduct its business.

The economic, political and social conditions in China affect Qoros’ business.

Substantially all of Qoros’ assets are located in China and Qoros expects that substantially all of its revenue will continue to be derived from its operations in China. Accordingly, Qoros’ results of operations and prospects are subject, to a significant extent, to the economic, political and legal developments in China. China’s economy differs from the economies of most developed countries in many respects, including government involvement, level of development, growth rate, control of foreign currency exchange and allocation of resources. The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese government. Additionally, the Chinese government continues to play a significant role in regulating industry by imposing industrial policies and continues to exercise significant control over China’s economic growth through allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.

China’s economy has experienced rapid growth, much of it due to the issuance of debt over the last few years. This debt-fueled economic growth has led to an increase in the money supply and rising inflation. The Chinese government has implemented various measures from time to time to control China’s rate of economic growth, control inflation and otherwise regulate economic expansion. These measures include imposing controls on bank credit, limiting loans and enacting other restrictions on economic activities, such as measures to curb property, stock market speculation, and increasing inflation. These policies and procedures may, from time to time, be modified or reversed, which could lead to a tightening of credit, which measures, if taken, could further reduce the economic activity in China, reducing Qoros’ ability to obtain additional financing. Additionally, any economic, political or social crisis within China may also lead to a drastic decline in economic activity which could lead to a decline in the demand for Qoros’ vehicles or the availability of funding. For example, in 2016, China’s GDP grew by 6.7%, representing its lowest GDP growth rate since 1990, according to the National Bureau of Statistics of China, or NBSC. Furthermore, the Shanghai Composite Index experienced significant volatility in 2016. The slowdown in China’s economic growth, as well as the decline and volatility in China’s stock market, negatively impacted consumption rates and the purchase of costly items, such as vehicles, throughout China.

Furthermore, China’s central government faces a number of issues arising from increased oil dependency. Among these issues are greenhouse gas emissions, heavy haze and urban gridlock due to fast-growing downtown vehicle fleets. As such, the Chinese government has implemented, and may continue to implement, policies to reduce, or slow down, the growth of the vehicle fleet, or promote green cars. Some local governments are being required to launch local promotion policies to speed up new energy vehicle development, which are expected to ease state energy security and local air pollution and traffic congestion problems. These policies may be costly or alter the demand for Qoros’ vehicles, or Qoros may be unable to adjust to changing regulations, which may have an adverse effect on Qoros’ business, results of operations and financial condition.

Qoros is subject to Chinese regulation and its business or profitability may be affected by changes in China’s regulatory environment.

Local and national Chinese authorities have exercised and will continue to exercise substantial control over the Chinese economy through regulation and state ownership, including rules and regulations that regulate or affect the Chinese automobile manufacturing process and concern vehicle safety and environmental matters such as emission levels, fuel economy, noise and pollution. Additionally, China has recently permitted provincial and local economic autonomy and private economic activities, and, as a result, Qoros is dependent upon its relationship with the local governments in the Jiangsu and Shanghai provinces, among others. As a result, certain of Qoros’ ongoing corporate activities are subject to the approval and regulation of the relevant authorities in China including, among other things, capital increases and investments in Qoros, changes in the structure of Qoros’ ownership, increases in the production capacity, construction of Qoros’ production facilities, ownership of trademarks, the formation of subsidiaries, and the inclusion of Qoros’ products in the national catalogue for purposes of selling them throughout China. Qoros’ operations are also sensitive to changes in the Chinese government’s policies relating to all aspects of the automobile industry. In addition, Qoros’ production facility and products are required to comply with Chinese environmental regulations.

Qoros has incurred, and expects to incur in the future, significant costs in complying with these, and other applicable, regulations and believes that its operations in China are in material compliance with all applicable legal and regulatory requirements. The central or local Chinese governments may continue to impose new, conflicting or stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts by Qoros to ensure its compliance with such regulations or interpretations or maintain its competitiveness and margins. Qoros’ ability to operate profitably in China may be harmed by any such changes in the laws and regulations, including those relating to taxation, environmental regulations, land use rights, property, or the aforementioned corporate matters, of China, Jiangsu, Shanghai or any other jurisdiction in which Qoros may do business. Qoros’ failure to comply with such laws and regulations may also result in fines, penalties or lawsuits, which could have a material adverse effect on Qoros’ business, financial condition, results of operations or liquidity.

As Qoros' strategy contemplates the development of an NEV, Qoros will be subject to the laws, regulations and policies applicable to NEVs in China. For instance, in recent years, the Chinese government has offered large subsidies for purchases of electric vehicles. However, these subsidies are expected to be gradually phased out over the next few years, which may affect the demand for NEVs in China.

The demand for Qoros' vehicles may be affected by conditions in the Chinese passenger vehicle market.

Qoros has strategically located its operations, and designed its vehicle models for consumers, within China so as to directly access one of the largest and the fastest growing automobile markets in the world. However, the demand for vehicles in the Chinese automobile industry was highly volatile in 2015 and 2016, due largely to weakness in the Chinese economy, and it is uncertain how the Chinese car industry will be affected going forward. Following the economic slowdown and volatility in the Chinese stock market in 2015, China’s central government enacted a tax policy to incentivize the sale of domestic vehicles by lowering purchases taxes on certain vehicles, including Qoros’ vehicles, until January 1, 2017 from 10% to 5%. In December 2016, the tax incentive was extended for 2017; effective January 1, 2017, the purchase tax will be 7.5%, before increasing to 10% on January 1, 2018. If the tax policy is unsuccessful or is not extended beyond 2017, this could materially affect demand for Qoros’ vehicles.

In addition, from time to time, Chinese cities have implemented, and may continue to implement, license plate quota policies, and such quotas may reduce vehicle sales. In the future, Chinese cities may implement such policies in light of increased concerns about haze and air pollution, oil dependency, urban gridlock and noise pollution. If cities implement license plate quota policies, the prices for provincial license plates may continue to increase, or if Chinese policies to incentivize domestic vehicle sales prove unsuccessful, demand for passenger vehicles in China may decrease, which may have a material adverse effect on Qoros’ business, financial conditions, results of operations or liquidity.

Qoros requires qualified personnel to manage its operations.

Qoros’ senior executives and personnel are important to Qoros’ success, the establishment of Qoros’ strategic direction, and the design and implementation of Qoros’ business plan. Qoros also requires qualified and competent employees to independently direct its day-to-day business operations, execute its business plans, and service Qoros’ customers, dealers, suppliers and other stakeholders. Qoros’ products and services are highly technical in nature. Therefore, Qoros must be able to attract, recruit, hire, train and retain skilled employees, including employees with the capacity to operate Qoros’ production line as well as employees possessing core competencies in vehicle design and engineering. In recent years, Qoros has made a number of personnel changes at the executive management level and in the senior management structure. Such management changes have affected, and any future changes may affect, Qoros’ ability to execute its business plan.

In addition, Qoros must continue to develop talent and leadership capabilities in China, where the amount of skilled employees may be limited. The unavailability of qualified personnel in these competitive specialties, or the loss of key Qoros executives, could negatively impact Qoros’ ability to meet its growing operational and servicing demands. In addition, unpredictable increases in the demand for Qoros’ vehicle models may also exacerbate the risk of not having a sufficient number of trained personnel.

In connection with cost-cutting measures implemented in 2015 and 2016, Qoros decreased the size of its workforce. Furthermore, in light of the high demand for skilled employees in the Chinese automotive industry, certain Qoros employees have left, and may continue to leave, Qoros to join Qoros' competitors. If Qoros fails to hire, train and retain the required number of qualified personnel to operate its business, or if it experiences excessive turnover, Qoros may experience production/manufacturing delays or other inefficiencies, increased recruiting, training or relocation costs, or other difficulties, any of which could have a material adverse effect on Qoros’ business, financial condition, results of operations or liquidity.

Qoros is dependent upon its suppliers.

Qoros sources the component parts necessary for its vehicle models from over 100 suppliers. A number of Qoros’ component parts are currently obtained from a single source. Qoros utilizes such single-source suppliers to manage its expenses and maintain consistency in its component parts. Many of Qoros’ suppliers are European-based with manufacturing facilities in China. Additionally, Qoros sources its engines and certain spare parts from Chery.

Qoros maintains minimal inventories of the materials, systems, components and parts needed to conduct its manufacturing operations. Therefore, Qoros is dependent upon the continued ability of its suppliers to deliver such materials, systems, components and parts in sufficient quantities and at such times that will allow Qoros to meet its production schedules. As Qoros, consistent with industry practice, outsources a significant portion of its components and parts from suppliers, it may be affected by any fluctuations in the expertise and manufacturing capabilities of its suppliers. Additionally, as Qoros’ suppliers may also supply a significant portion of the components and parts of Qoros’ competitors, such concentration may expose Qoros and its competitors to increased pricing pressure. Qoros may also be unable to procure the component parts necessary for its vehicle models if the established manufacturers with which it competes have the capacity to influence Qoros’ suppliers. Although Qoros believes it may be able to establish alternate supply relationships and obtain or engineer replacement components in the event a supplier, including Chery or a single-source supplier, is unable to supply Qoros with a necessary component part at a favorable cost, Qoros may be unable to do so in the short-term, or at all, at prices or costs that it deems favorable. In addition, although Qoros believes that its component parts are available from many suppliers, qualifying alternate suppliers or developing replacements for certain highly customized components of its vehicles may be time consuming and costly or may force Qoros to make additional and unexpected modifications to its vehicle models’ designs or schedules. An unexpected shortage of materials, systems, components or parts, if even for a relatively short period of time, could prevent Qoros from manufacturing its vehicles, cause Qoros to alter its production designs, or prevent Qoros from timely supplying its dealers with the aftersales parts necessary for the servicing of Qoros’ vehicles. Such occurrences could adversely impact Qoros’ relationships with its dealers or customers and thereby affect Qoros’ business, financial condition, results of operations or liquidity.

Increases in the prices of raw materials that are included within the component parts Qoros purchases from its suppliers, may increase Qoros’ costs and could reduce Qoros’ profitability if Qoros cannot recoup the increased costs through increased vehicle prices. As Qoros continues to actively manage its trade payables, Qoros may not be able to maintain favorable arrangements and relationships with its suppliers and, in particular, may not be able to secure or maintain, as applicable, contractual conditions comparable with those of Qoros’ main competitors.

As of December 31, 2016, Qoros had current trade and other payables of RMB2.7 billion. If Qoros is unable to pay its suppliers on a timely basis, it may be unable to procure on favorable terms the parts, components and services it requires to continue operating and Qoros has been, and may continue to be, subject to suits or other claims in respect of outstanding payables. For further information on Qoros’ liquidity and capital resources, see “ Item 5.B Liquidity and Capital Resources—Qoros’ Liquidity and Capital Resources. ” For further information on claims brought by certain of Qoros’ suppliers, see “ Item 4.B Business Overview—Qoros—Qoros’ Legal Proceedings—Claims by Service Providers. ”

Qoros may experience delays and/or cost overruns with respect to the design, manufacture, launch and financing of new or enhanced models.

Qoros’ business plan contemplates the introduction of new vehicle models, as well as enhanced versions of existing vehicle models, over the short- and long-term. In light of technological developments, Qoros will need to continually upgrade and adapt its vehicle models, vehicle platform and manufacturing facility in Changshu, as automobile customers generally expect new or enhanced vehicle models to be introduced frequently. Upgrading and adapting Qoros’ vehicle models and manufacturing facility will require significant investments, whereas in recent years, Qoros has undertaken cost-cutting measures. Further, there can be no assurance that Qoros will be able to secure the necessary financing to fund the continued introduction and manufacturing of new and enhanced vehicle models, design future vehicle models that will maintain the high quality standards required for Qoros’ branding image, meet the expectations of its customers, and become commercially viable. Should Qoros be unable to invest in developing and upgrading its vehicle models and manufacturing facility, Qoros may experience difficulties in introducing and developing new vehicles, including NEVs, with the latest automobile technology which meets consumer standards. In addition, automobile manufacturers often experience delays and cost overruns in the design, manufacture and commercial release of new and enhanced vehicle models and any delay in the financing, design, manufacture or launch of Qoros’ new or enhanced models could materially damage Qoros’ brand, the development of its business and its financial position.

The economic and reputational costs associated with vehicle recalls could have a material adverse effect on Qoros.

From time to time, Qoros may recall certain of its vehicle models to address material performance, compliance or safety-related issues. For example, in July 2015, Qoros voluntarily recalled 6,736 vehicles in connection with information discovered during testing done on frontal impact crashes of new Qoros models under development. As of December 31, 2016, Qoros has completed the repairs of 93.7% of the outstanding recalls. Qoros’ completion schedule is in line with regulatory guidelines, which require Qoros to complete 90% of the outstanding recalls within a twelve-month period.

The direct economic costs Qoros may incur in connection with any recalls may include the costs associated with the particular part’s development and replacement and the labor costs associated with the removal and replacement of the defective part. Vehicle recalls, notwithstanding the size, scope, or whether or not the recall is voluntary, can harm Qoros’ reputation and can cause Qoros to lose customers and experience a decline in its sales. This is particularly true as Qoros is continuing to develop its brand, as any such recalls may cause consumers to question the safety or reliability of Qoros’ vehicle models. Any direct economic costs incurred or lost sales caused by future vehicle recalls, a failure by Qoros to issue a vehicle recall when appropriate, or Qoros’ failure to issue a vehicle recall on a timely basis, could have a material adverse effect on Qoros’ reputation, business, financial condition, results of operations or liquidity.

Our independent registered public accounting firm currently relies on an independent registered public accounting firm located in the People’s Republic of China, who are not inspected by the PCAOB, for assistance in completing their audit work associated with our investment in Qoros, and as such, you are deprived of the benefits of such inspection.

Our independent registered public accounting firm currently relies on an independent registered public accounting firm located in the People’s Republic of China for assistance in completing the audit work associated with our investment in Qoros. Auditors of companies that are publicly traded in the United States and firms registered with the PCAOB are required to undergo regular Public Company Accounting Oversight Board, or PCAOB, inspections. However, because Qoros has substantial operations within China, a jurisdiction in which the PCAOB is currently unable to conduct inspections without the approval of the Chinese government authorities, the audit work conducted in China with respect to Qoros has not been inspected by the PCAOB.

Inspections of other auditors conducted by the PCAOB outside of China have, at times, identified deficiencies in those auditors’ audit procedures and quality control procedures, which may be addressed as part of the PCAOB’s inspection process to improve future audit quality. The lack of PCAOB inspections of audit work undertaken in China prevents the PCAOB from regularly evaluating audits and quality control procedures conducted in China. As a result, our shareholders may be deprived of the benefits of PCAOB inspections, and may lose confidence in Kenon’s or Qoros’ financial statements and the procedures and the quality underlying such financial statements.

If the China-based affiliates of the “Big Four” accounting firms, including the auditor of Qoros, were to violate the terms of a settlement agreement with the SEC arising out of proceedings instituted by the SEC against them in late 2012, such violation could result in the Chinese member firms of the “Big Four” accounting firms being suspended from practicing before the SEC which could, in turn, delay the timely filing of our, or Qoros’, financial statements with the SEC.

In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the mainland Chinese affiliates of the “Big Four” accounting firms, including the auditor of Qoros. The Rule 102(e) proceedings initiated by the SEC related to the failure of these firms to produce documents, including audit work papers, in response to the request of the SEC pursuant to Section 106 of the Sarbanes-Oxley Act of 2002.

On January 22, 2014, an SEC administrative law judge, issued an initial decision suspending the Chinese member firms of the “Big Four” accounting firms, including the auditor of Qoros, from, among other things, practicing before the SEC for six months. In February 2014, the initial decision was appealed. While under appeal and in February 2015, the Chinese member firms of “Big Four” accounting firms reached a settlement with the SEC. As part of the settlement, each of the Chinese member firms of “Big Four” accounting firms agreed to settlement terms that include a censure; undertakings to make a payment to the SEC; procedures and undertakings as to future requests for documents by the SEC; and possible additional proceedings and remedies should those undertakings not be adhered to.

Pursuant to Rule 3-09 of Regulation S-X, Kenon is required to attach Qoros’ separate audited financial statements to this annual report on Form 20-F, and may be required to attach Qoros’ separate audited financial statements to its future annual reports on Form 20-F. Additionally, our independent registered public accounting firm currently relies on a Chinese member firm of the “Big Four” network for assistance in completing the audit work associated with our investment in Qoros. If the settlement terms are not adhered to, the Chinese member firms of “Big Four” accounting firms may be suspended from practicing before the SEC which could in turn delay the timely filing of our, or Qoros’, financial statements with the SEC. In addition, it could be difficult for Qoros to timely identify and engage another qualified independent auditor.

Any such occurrences may ultimately affect the continued listing of our ordinary shares on the New York Stock Exchange, or the NYSE, or our registration with the SEC, or both. Moreover, any further negative news about the proceedings, any violations of the settlement agreement relating to the proceedings or any future proceedings against these audit firms may adversely affect investor confidence in companies with substantial mainland China based operations listed in, or affiliated with listings in, the U.S., such as Qoros, which could have a material adverse effect on the price of our ordinary shares and substantially reduce or effectively terminate the trading of our ordinary shares in the United States.

Risks Related to Our Other Businesses

Risks Related to Our Interest in ZIM

The container shipping industry is dynamic and volatile.

The container shipping industry is dynamic and volatile and has been marked in recent years by instability as a result of the recent global economic crisis and the many conditions and factors that affect supply and demand in the shipping industry, which include:

global and regional economic and geopolitical trends, including armed conflicts, terrorist activities, embargoes and strikes;

the supply of and demand for commodities and industrial products globally and in certain key markets, such as China;

developments in international trade, including trade protectionism;

currency exchange rates;

prices of energy resources;

environmental and other regulatory developments;

changes in seaborne and other transportation patterns;

changes in the shipping industry, including mergers and acquisitions, restructurings and alliances;

changes in the infrastructure and capabilities of ports and terminals; and

weather conditions.

These factors also significantly affect ZIM’s freight rates. Furthermore, rates within the charter market, through which ZIM sources a substantial portion of its capacity, may also fluctuate significantly based upon changes in demand for shipping services. 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 respond to market changes, they could have a material adverse effect on its business, financial condition, results of operations and liquidity.

Excess supply of global container ship capacity may limit ZIM’s ability to operate vessels profitably, and lead to overload and/or overcapacity and congestion in certain ports.

Global container ship capacity has increased over the years and continues to exceed demand. As of December 31, 2016, global container ship capacity was approximately 20.3 million 20-foot equivalent units, or TEUs, spread across approximately 5,100 vessels. According to Alphaliner, excess capacity is projected to further increase, outpacing any expected increase in worldwide demand, as a result of large global orders for new buildings. Many of these orders are for vessels with carrying capacities of 10,000 TEUs and above, which may increase capacity for each shipping voyage. Additionally, responses to changes in market conditions may be slower as a result of the time required to build new vessels and adapt to market needs. As shipping companies purchase vessels years in advance to address expected demand, vessels may be delivered during times of decreased demand or unavailable during times of increased demand, leading to a supply/demand mismatch. The container shipping industry may continue to face oversupply in the coming years and numerous other factors beyond ZIM’s control may also contribute to an increase in capacity, including deliveries of refurbished or converted vessels, port and canal congestion, decreased scrapping of older vessels, any decline in the practice of slow steaming, a reduction in the number of void voyages and a decrease in the number of vessels that are out of service (e.g., vessels that are laid-up, dry-docked, awaiting repairs or are otherwise not available for hire). Excess capacity depresses freight rates and can lead to lower utilization rates, which may adversely affect ZIM’s revenues, profitability and asset values. Until such capacity is fully absorbed by the container shipping market and, in particular, the shipping lines on which ZIM’s operations are focused, the industry will continue to experience downward pressure on freight rates and such prolonged pressure could have a material adverse effect on ZIM’s financial condition, results of operations and liquidity.

Furthermore, in recent years, container ship capacities have increased globally at a faster rate than the rate at which some container ports have increased their capacities, leading to considerable delays in processing container shipments in affected ports. As a result of longer load and unload times, increases in container ship capacities could increase port congestion, which could have a material adverse effect on affected shipping lines. In addition, as industry capacity continues to grow, ZIM may have difficulty securing sufficient terminal slots to expand its operations in accordance with its growth strategy due to the limited availability of port facilities.

ZIM does not benefit from the efficiencies of participating in strategic alliances and the ability to enter into such alliances and the participation in operational partnerships in the shipping industry may be limited, which may adversely affect ZIM’s business.

The container shipping industry has experienced a reduction in the number of major carriers, as well as a continuation 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 recent years, COSCO and China Shipping Container Lines merged into COSCO Shipping, Hanjin Shipping filed for bankruptcy and APL Shipping was acquired by CMA CGM Shipping. In 2017, the shipping industry is expected to experience further consolidation, including the merger of United Arab Shipping Company and Hapag-Lloyd, the acquisition of Hamburg Sud by Maersk and the merger of three large Japanese carriers.

The recent 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 and replaced by the Ocean Alliance, consisting of COSCO Shipping, CMA CGM Shipping, Evergreen Marine and Orient Overseas Container Line.

ZIM is not a member of any alliances. As a result, ZIM does not benefit from the economies of scale that many of its competitors are able to achieve through participation in such arrangements. However, ZIM is party to operational partnerships with other carriers in some of the trade zones in which ZIM operates, and may seek to enter into additional operational partnerships or similar arrangements with other shipping companies or local operators, partners or agents. If ZIM is not successful in expanding operational partnerships, 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, ZIM’s ability to enter into alliances or operational partnerships with certain shipping companies. For further information on the risks related to ZIM’s status as an Israeli company, see “ —Risks Related to the Industries in Which Our Businesses Operate—The activities of certain of our businesses may be impacted by the geopolitical, economic and security conditions in Israel and the Middle East. ”

Declines in freight rates or other market conditions and other factors, could negatively affect ZIM’s business, financial condition, or results of operations and could thereby result in ZIM’s incurrence of impairment charges.

At each of its reporting periods, ZIM examines whether there have been any events or changes in circumstances, such as a decline in freight rates or other market conditions, which would indicate an impairment. Additionally, 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. The projection of future cash flows related to ZIM’s CGU, which is one CGU, is complex and requires ZIM to make various estimates including future freight or charter rates, bunker prices, earnings from the vessels and discount rates, all of which have been volatile historically.

For example, as a result of conditions in the container shipping market, Kenon conducted an impairment test in relation to its 32% equity investment in ZIM as of June 30, 2016 in accordance with IAS 28 and IAS 36. Kenon concluded that as of June 30, 2016, the carrying amount of its investment in ZIM was higher than the recoverable amount, and therefore, Kenon recognized an impairment loss of $72 million with respect to its investment in ZIM in 2016. After the impairment, the carrying amount of Kenon’s 32% equity investment in ZIM is $82 million as of December 31, 2016. ZIM cannot assure that it will not impair its CGU in future years and such impairment charges, if any, could negatively affect ZIM’s and/or Kenon’s results of operations.

An increase in bunker prices may have an adverse effect on ZIM’s results of operations.

Bunker expenses represent a significant portion of ZIM’s operating expenses, accounting for 13.8% and 11.0% of the income from voyages and related services for the years ended December 31, 2015 and 2016, respectively. Bunker prices move 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, global terrorism, political instability and tensions in North Africa and the Middle East, uncertainty regarding the nuclear agreement between the United States and Iran, insurrections in the Niger Delta, and the long-term increase in global demand for oil.

Although current bunker prices are significantly lower than those in 2014, bunker prices increased moderately in the fourth quarter of 2016. Further increases 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 over the base freight rate ZIM charges to its customers in part to minimize its 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 have 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 manages part of its exposure to bunker price fluctuations by entering into hedging arrangements with highly reputable counterparties. ZIM’s optimization strategies and hedging program 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 will be cost-effective, will provide sufficient protection, if any, against rises in bunker prices or that the counterparties will be able to perform under ZIM’s hedging arrangements.

ZIM is highly leveraged and may be unable to comply with its financial covenants or meet its debt service or other obligations. ZIM’s failure to comply with these covenants or meet such obligations, including as a result of events beyond its control, could adversely affect its business, financial condition, results of operations and liquidity.

As of December 31, 2016, ZIM had approximately $1.5 billion of outstanding loans and liabilities to be repaid between 2017 through 2028, of which $45 million constituted short-term debt. Many of the financing agreements relating to ZIM’s debt facilities contain covenants and limitations, including:

Minimum liquidity, fixed charge coverage ratio and total leverage covenants; and

Other non-financial covenants and limitations such as restrictions on dividend distribution, asset sales, investments and incurrence of debt, as well as various reporting obligations.

In 2016, ZIM approached certain of its creditors to reschedule upcoming payments, and ZIM’s creditors agreed to allow ZIM to defer payments in a total amount of approximately $116 million originally scheduled for payment during a period of up to 12 months from September 30, 2016 and waived or revised certain covenants to which ZIM is subject.

If ZIM is unable to meet its obligations or refinance its indebtedness as it becomes due, or if ZIM is unable to comply with its covenants, ZIM may have to take disadvantageous actions, such as (i) reducing financing in the future for investments, acquisitions or general corporate purposes or (ii) dedicating a high level of ZIM’s cash flow from operations to the payment of principal and interest on indebtedness. As a result, the ability of ZIM’s business to withstand competitive pressures and to react to changes in the container shipping industry could be impaired. If ZIM chooses not to pursue any of these alternatives and is unable to obtain waivers from the relevant creditors, a breach of any of its debt instruments and/or covenants could result in a default under the relevant debt instruments. Upon the occurrence of such an event of default, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable and, in the case of credit facility lenders, terminate all commitments to extend further credit. If the lenders accelerate the repayment of the relevant borrowings, ZIM may not have sufficient assets to repay any outstanding indebtedness. Furthermore, a default or the acceleration of any obligation under a particular debt instrument may cause a default under other material debt or permit the holders of such debt to accelerate repayment of their obligations pursuant to “cross default” or “cross acceleration” provisions, which could have a material adverse effect on ZIM’s business, financial condition and liquidity. For additional information, see “ Item 5.B Liquidity and Capital Resources—ZIM’s Liquidity and Capital Resources. ”

Furthermore, ZIM may be unable to generate sufficient cash flows to satisfy its debt service and other obligations. ZIM’s ability to generate cash flow from operations to make interest and principal payments on ZIM’s debt obligations 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 ZIM’s operations do not generate sufficient cash flow from operations to satisfy its debt service and other obligations, ZIM may need to borrow additional funds or undertake alternative financing plans, such as refinancing or restructuring its debt, or reducing or delaying capital investments and other expenses. It may be difficult for ZIM to incur additional debt on commercially reasonable terms, even if ZIM is permitted to do so under its debt agreements, due to, among other things, its financial condition 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.

A decrease in the level of China’s import or export of goods could have a material adverse effect on ZIM’s business.

A significant portion of ZIM’s business originates from China, and ZIM therefore depends on the level of imports and exports to and from China. 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, increased tariffs or other factors, could have a material adverse effect on ZIM’s business. For instance, the Chinese government has recently implemented economic policies aimed at increasing domestic consumption of Chinese-made goods. This 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 limited price 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. In 2015 and 2016, China experienced its slowest GDP growth rates since 1990, which affected levels of imports to and exports from China. In response to the recent slowdown in China’s economic growth, China may implement additional trade barriers to protect their domestic industries against foreign imports, which may depress the global demand for shipping services.

Finally, China’s import and export of goods may also be affected by recent presidential elections in the United States, which may result in an increase in trade protectionism and local production over foreign trade, which may affect the demand for maritime shipping, particularly to and from China.

Changes in laws and regulations, including with regard to tax matters, and their implementation by local authorities could also affect ZIM’s vessels calling on Chinese ports and could have a material adverse effect on its business, financial condition and results of operations.

Israel holds a Special State Share in ZIM, which imposes certain restrictions on ZIM’s operations and our equity interest in ZIM.

The State of Israel holds a special share in ZIM, or Special State Share, which imposes certain limitations on the activities of ZIM that may negatively affect ZIM’s business and results of its operations. The Special State Share, and the permit which accompanies it, also imposes transferability restrictions on our equity interest in ZIM. Furthermore, although there are no contractual restrictions on any sales of our shares by our controlling shareholders, if Idan Ofer’s ownership interest in Kenon is less than 36%, or Idan Ofer ceases to be the controlling shareholder, or sole controlling shareholder of Kenon, then Kenon’s rights with respect to its shares in ZIM (e.g., Kenon’s right to vote and receive dividends in respect of its ZIM shares) will be limited to the rights applicable to an ownership of 24% of ZIM, until or unless the State of Israel provides its consent, or does not object to, this decrease in Idan Ofer’s ownership or “control” (as defined in the State of Israel consent received by IC in connection with the spin-off). The State of Israel may also revoke Kenon’s permit if there is a material change in the facts upon which the State of Israel’s consent was based, upon a breach of the provisions of the Special State Share by Kenon, Mr. Ofer, or ZIM, or if the cancellation of the provisions of the Special State Share with respect to a person holding shares in ZIM contrary to the Special State Share’s provisions apply (without limitation). For further information on the Special State Share, see “ Item 4.B Business Overview—Our Businesses—ZIM—ZIM’s Special State Share. ”

ZIM faces risks as a result of its status as an Israeli corporation.

ZIM is incorporated and its headquarters is located in Israel, and the majority of its key employees, officers and directors are residents of Israel. Accordingly, 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 has limited, and may continue to limit, its ability to call on certain ports and therefore has limited, and may continue to 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 has limited, and may continue to 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. 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. 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. Although the Israeli government is currently committed to covering the reinstatement value of direct damages caused by terrorist attacks or acts of war, ZIM cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to fully compensate us for damages incurred. Any losses or damages incurred by us could have a material adverse effect on its business. Any armed conflict involving Israel could adversely affect ZIM’s business and results and operations.

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 a material adverse effect 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. 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). If ZIM’s facilities, including its headquarters, become temporarily or permanently disabled by an act of terrorism or war, it may be necessary for us to develop alternative infrastructure and ZIM may not be able to avoid service interruptions. Additionally, ZIM’s owned and chartered 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. For further information on the risks related to ZIM’s operations in Israel, see “ —Risks Related to the Industries in Which Our Businesses Operate—The activities of certain of our businesses may be impacted by the geopolitical, economic and security conditions in Israel and the Middle East .” For further information on the risks related to entry into operational partnerships within the shipping industry, see “ —ZIM does not benefit from the efficiencies of participating in strategic alliances and the ability to enter into such alliances and the participation in operational partnerships in the shipping industry may be limited, which may adversely affect ZIM’s business .”

ZIM charters a substantial portion of its fleet and the cost associated with chartering such vessels is unpredictable.

ZIM charters a substantial portion of its fleet. As of December 31, 2016, of the 72 vessels through which ZIM provides transport services globally, 65 are chartered, which represents a percentage of chartered vessels that is higher than the industry average. A rise in charter hire rates may adversely affect ZIM’s results of operations. ZIM is party to a number of long-term charter agreements. As of December 31, 2016, approximately 48% of ZIM’s chartered vessels (in terms of capacity) are chartered under operational leases for terms exceeding one year. As a result, ZIM may be unable to take full advantage of short-term reductions in charter hire rates. In addition, some of ZIM’s long-term charter agreements contain rate adjustment mechanisms pursuant to which charter hire rates will increase if the market rate increases, so ZIM may not benefit from such long-term charter agreements in the event of an increase in market charter hire rates. Furthermore, 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 ZIM, if at all, this may have a material adverse effect of on its business, financial condition, results of operations and liquidity.

ZIM currently does not own or charter enough large vessels to support its growth strategy, and ZIM may face difficulties acquiring or chartering larger vessels for its fleet.

Container shipping companies have been incorporating, and are expected to continue to incorporate, larger, more economical vessels into their operating fleets. The cost per TEU transported on large vessels is less than the cost per TEU for smaller vessels (assuming the vessels are operating at full capacity), as, among other reasons, larger vessels provide increased capacity and fuel efficiency. As a result, cargo shippers are encouraged to deploy large vessels, particularly within the more competitive trades. According to Alphaliner, vessels in excess of 10,000 TEUs represented approximately 82% of the current global order book based on TEU capacity as of December 2016. Furthermore, a significant introduction of large vessels, including very large vessels in excess of 18,000 TEUs, into any trade zone will enable the transfer of existing, large vessels to other shipping lines on which smaller vessels typically operate. Such transfers, which are referred to as “fleet cascading,” may in turn generate similar effects in the other, smaller trade zones in which ZIM operates. ZIM does not currently have agreements in place to procure or charter large container vessels, and the continued deployment of larger vessels by ZIM’s competitors will adversely impact ZIM’s competitiveness if ZIM is not able to acquire, charter or obtain financing for such vessels on attractive terms or at all. This risk is further exacerbated due to ZIM’s inability to participate in certain alliances and thereby access lager vessels for deployment. Even if ZIM is able to acquire or charter larger vessels, ZIM may be unable to achieve utilization rates necessary to operate such vessels profitably.

The expansion of the Panama Canal may have an adverse effect on ZIM’s results of operations.

The Panama Canal plays a key role in the delivery of cargo to the United States via the U.S. east coast and the Gulf of Mexico. With the completion of Panama Canal expansion project in June 2016, the Panama Canal can accommodate container vessels with capacities of 13,000-14,000 TEUs, which can then access via the Panama Canal the Pacific trade zone, which is one of ZIM’s strategic trade zones. The introduction of such vessels within this trade zone may require shipping liners seeking to remain competitive, including ZIM, to alter their fleet composition and incorporate larger vessels into their Panama Canal operations. ZIM currently does not have any agreements in place to procure or charter-in large container vessels. If ZIM’s competitors successfully deploy large vessels into this trade, a significant portion of its vessels will become increasingly less efficient to operate via the Panama Canal and, if ZIM is unable to incorporate larger vessels into its fleet, this could adversely affect the business within this key trade zone. ZIM may need to reroute some of ZIM’s shipping lines to remain competitive and cannot predict the effects of any such changes in the shipping lines.

ZIM is subject to environmental regulation and failure to comply with such regulation could have a material adverse effect on ZIM’s business.

ZIM is subject to many legal provisions relating to the protection of the environment, including the emissions of hazardous substances, sulfur oxides, or SOx, and nitrogen oxides, or NOx, and the use of low-sulfur fuel or shore power voltage, all of which may be subject to ongoing developments and amendments. For example, 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, the Clean Water Act, and National Invasive Species Act, among others. Compliance with such laws, regulations and standards, where applicable, may require the installation of costly equipment or operational changes. ZIM may also incur additional compliance costs, and any such costs could have a material adverse effect on its business. If ZIM fails to comply with any of the environmental regulations applicable, ZIM could be exposed to significant environmental liability damages, criminal charges, and substantial harm to its operations and reputation. Additionally, environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject ZIM to liability without regard to whether ZIM is negligent or at fault.

Environmental requirements may also require a reduction in cargo capacity, ship modifications or operational changes or restrictions, lead to decreased availability of or more costly insurance coverage for safety and environmental matters or result in ZIM’s denial of access to certain jurisdictional waters or ports, or its detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, ZIM could incur material liabilities, including cleanup obligations, natural resource damages, personal injury and property damage claims in the event there is a release of petroleum or other hazardous materials from its vessels, or otherwise, in connection with its operations. Violations of, or liabilities under, safety and environmental requirements can result in substantial penalties, fines and other sanctions, including in certain instances, seizure or detention of its vessels and events of this nature could have a material adverse effect on ZIM’s business, reputation, financial condition and results of operations.

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 we operate, including those of the State of Israel, the U.S. Federal Maritime Commission, 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 its “time-limited” licenses. Furthermore, the U.S. Department of the Treasury’s Office of Foreign Assets Control 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. ZIM are acting in accordance with the applicable sanction laws. 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.

Additionally, ZIM is subject to competition and antitrust regulations in each of the countries where ZIM 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. Recently, however, there has been a trend within the international community to limit such exemptions and it is difficult to predict whether existing exemptions or their renewal will be affected in the future. ZIM is party to numerous operational partnerships and view these agreements as competitive advantages in response to the market concentration in the industry as a result of mergers and global alliances, as well as the global economic crisis. An amendment to or a revocation of any of the exemptions for operational partnerships that ZIM rely on could negatively affect ZIM’s business and results of operations.

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 ZIM.

There are numerous risks related to the operation of sailing vessels, including dangers associated with potential port closures, marine disasters, mechanical failures, collisions, lost or damaged cargo, contraband smugglers, poor weather conditions, the content of the load, exceptional load, meeting deadlines, risks of documentation, maintenance and the quality of fuels, piracy, shortages of containers, shortages of qualified sea and shoreside personnel and maritime arrests arising from unsatisfied debts, claims or damages. 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 ZIM may not be adequately insured against any of these risks.

In the event ZIM lists its shares on a stock exchange for trading, changes in the market price of ZIM’s stock could have a material adverse effect on the value of our investment in ZIM.

ZIM may seek a public listing of its shares. Upon such listing, our ability to liquidate our 32% equity interest in ZIM, without adversely affecting the value of these shares, may be limited. If we were to sell, or indicate an intention to sell, substantial amounts of our equity interest in ZIM in the public market, the trading price of ZIM’s shares could decline. Additionally, the perception in the market that these sales may occur could also cause the trading price of ZIM’s shares to decline. Furthermore, the value of our interest in ZIM may be affected by economic and market conditions that are beyond our control. Globally traded securities have been highly volatile and continued volatility, which may result in significant changes in ZIM’s market price, in particular, could also have a material adverse effect on our business, financial condition, results of operations or liquidity. If ZIM does not complete a listing of its shares, this would affect our ability to sell our equity interest in ZIM, if we decide to do so.

We may be required to record a significant charge to our earnings if we are required to impair our investment in ZIM.

As a result of conditions in the container shipping market, Kenon conducted an impairment test in relation to its 32% equity investment in ZIM as of June 30, 2016 in accordance with IAS 36 and IAS 28. Kenon concluded that as of June 30, 2016, the carrying amount of its investment in ZIM was higher than the recoverable amount, and therefore, Kenon recognized an impairment loss of $72 million with respect to its investment in ZIM in 2016. After the impairment, the carrying amount of Kenon’s 32% equity investment in ZIM is $82 million as of December 31, 2016. If ZIM is not commercially successful or, if due to economic or other conditions, our assumptions regarding the performance of ZIM are not achieved or are revised downward, we would likely be required to record further impairment charges. Given the current economic and competitive environment, and the uncertainties regarding the impact on such restructuring and environment on ZIM, we cannot assure you that the estimates and assumptions made for purposes of our impairment testing will prove to be accurate predictions for the future. Additionally, any public listing of ZIM’s shares may also affect the value of our interest in ZIM and may therefore result in our recognition of an impairment charge in respect of our investment in ZIM. Any impairment charges in respect of our investment in ZIM could have a material adverse effect on our financial condition or results of operations.

Risks Related to our Other Businesses

Primus relies on Kenon to finance its operations.

Primus is currently seeking to raise capital from new investors. However, there is no certainty that additional financing will be provided to Primus, either by us or new investors in Primus. In addition, in the event of new investments in Primus, such investments may serve to dilute our equity interest in Primus. Any lack of, or delay in securing, such financing may delay, or prevent completely, Primus’ ability to continue to research and develop its commercial operations, which may result in Primus’ ultimate liquidation or dissolution.

Primus’ STG+ process may not become commercially viable.

Demand for and industry acceptance of Primus’ technologies is subject to a high level of uncertainty. If potential customers fail to accept Primus’ technologies, if acceptance develops slower than anticipated by Primus, or if Primus’ technologies prove uneconomical or unattractive, this could have a material adverse effect on Primus’ business, financial condition, results of operations or liquidity.

Primus is an early stage company with a limited operating history.

Primus is an early stage company. The risks and uncertainties associated with the operation of an early stage company include a potential inability to:

commence projects on the current, or any revised, schedule in compliance with the budget;

secure necessary capital;

successfully negotiate with government agencies, vendors, customers, feedstock suppliers or other third parties;

effectively manage rapid growth in personnel or operations;

successfully manage its existing, or enter into new, strategic relationships and partnerships;

recruit and retain key personnel;

adequately protect its intellectual property; and

develop technology, products or processes that complement existing business strategies or address changing market conditions.

If Primus is unable to adequately address any of these risks, this could have a material adverse effect on Primus’ business, financial condition, results of operations or liquidity.

Primus’ STG+ process may not generate methanol or fuel that satisfies required specifications.

The commercialization of Primus’ technology contemplates the production of liquids that satisfy certain specifications. If any of the liquids produced by Primus’ STG+ process are unable to satisfy required specifications, Primus may be unable to market and commercialize its proprietary liquids technology, the STG+ process. Any change in such specifications, could increase Primus’ expenses or delay the commercialization or viability of Primus’ gas monetization technology, which could have a material adverse effect on Primus’ business, financial condition, results of operations or liquidity.

Primus’ operations are highly dependent upon commodity prices, particularly natural gas, methanol and gasoline.

Primus’ operations depend substantially on the prices of various commodities, including natural gas, gasoline, crude oil, methanol and others. The prices of certain of these commodities are volatile, and this volatility may affect Primus’ ability to market its technology and processes.

The liquids that Primus produces using its STG+ process (gasoline and methanol) will compete in markets with refined petroleum products. Because natural gas, or syngas derived from natural gas, will be primarily used as the feedstock in Primus’ STG+ process, an increase in natural gas prices relative to prices for refined petroleum products, or a decrease in prices for refined petroleum products, could adversely affect demand for Primus’ technology. The price and availability of natural gas and refined products may be affected by numerous factors, including the level of consumer product demand, weather conditions, the availability of water for fracking, domestic and foreign government regulation (including regulation of fracking), the actions of the Organization of Petroleum Exporting Countries, political conditions in oil and natural gas producing countries, the supply of domestic and foreign crude oil and natural gas, the location of any plants developed by Primus vis-á-vis natural gas reserves and pipelines, the capacities of such pipelines, fluctuations in seasonal demand, governmental regulations, the price and availability of alternative fuels and overall economic conditions. For example, recent trends in crude oil prices have led to significant declines in gasoline prices which affects the economic feasibility of new projects using the STG+ technology. Primus cannot predict future demand and prices for natural gas or refined products, and a relative increase in the price of natural gas could have a material adverse effect on its business, financial condition, results of operations or liquidity.

The decrease in the cost of fuel or electricity generated by traditional sources may cause the demand for the services provided by Primus to decline.

Decreases in the costs associated with traditional sources of fuel or electricity, such as prices for commodities like crude oil, coal, fuel oil and natural gas, have reduced, and could adversely affect the demand for the solutions provided by Primus. Crude oil prices, for example, have fallen considerably in recent years. The cost of fuel may be further reduced by changing global supply-demand dynamics, the discovery of large new deposits of traditional fuels and technological progress, among other causes. These fuel price reductions have, and future reductions could further, reduce the demand for the solutions offered by Primus.

Primus’ success depends, in part, upon its ability to protect its intellectual property.

Primus has independently developed, patented and owns numerous processes related to liquids synthesis, gasoline composition, and incremental improvements and customizations. If Primus fails to protect its intellectual property rights adequately, its competitors might gain access to its technology, and its competitive advantage, brand or business may be adversely affected.

Primus relies on trade secret and patent laws, confidentiality procedures and contractual provisions to protect its proprietary methods and processes. Primus currently holds several patents and has pending patent applications in the U.S. Valid patents may not be issued from Primus’ pending applications, and the claims allowed on any issued patents may not be sufficiently broad to protect Primus’ STG+ process. Any patents currently held by Primus or that may be issued to Primus in the future may be challenged, invalidated or circumvented, and any rights granted under these patents may not actually provide Primus with adequate defensive protection or competitive advantages. Additionally, the process of applying for patent protection is expensive and time-consuming, and Primus may not be able to complete all necessary or desirable patent applications at a reasonable cost or in a timely manner.

Policing unauthorized use of technology may prove difficult for Primus as the laws of some foreign countries may not be as protective of intellectual property rights as those of the United States, and mechanisms for the enforcement of Primus’ proprietary rights in such countries may be inadequate. From time to time, Primus may need to initiate legal action to enforce its intellectual property rights, to protect its trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend itself against claims of infringement. Such litigation could result in substantial costs and the diversion of limited resources and could negatively affect Primus’ business, reputation or brand. If Primus is unable to protect its proprietary rights, it may lose its expected competitive advantage which could have a material adverse effect on its business, financial condition, results of operations or liquidity.

Risks Related to Our Spin-Off

The potential indemnification of liabilities to IC pursuant to the Separation and Distribution Agreement may require us to divert cash to IC to satisfy our indemnification obligations.

We entered into a Sales, Separation and Distribution Agreement with IC, or the Separation and Distribution Agreement, which provides for, among other things, indemnification obligations designed to make us financially responsible for liabilities incurred in connection with our businesses, and as otherwise allocated to us in the Separation and Distribution Agreement. If we are required to indemnify IC under the circumstances set forth in the Separation and Distribution Agreement, we may be subject to substantial liabilities, which could have a material adverse effect on our business, financial condition, results of operations or liquidity.

There can be no assurance that IC’s indemnification of certain of our liabilities will be sufficient to insure us against the full amount of those liabilities, or that IC’s ability to satisfy its indemnification obligation will not be impaired in the future.

Pursuant to the Separation and Distribution Agreement, IC has agreed to indemnify us for certain liabilities retained by it (which includes certain specified pending legal matters). However, third parties could seek to hold us responsible for any of the liabilities that IC has agreed to retain, and there can be no assurance that the indemnity from IC will be sufficient to protect us against the full amount, or any, of such liabilities, or that IC will be able to satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from IC any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Additionally, IC’s insurers may deny coverage to us for liabilities associated with occurrences prior to the spin-off. Even if we ultimately succeed in recovering from such insurance providers, we may be required to temporarily bear such loss of coverage. If IC is unable to satisfy its indemnification obligations or if insurers deny coverage, the underlying liabilities could have a material adverse effect on our business, financial condition, results of operations or liquidity.

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 in 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 cause a decrease in the trading prices of our ordinary shares on the other market.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

There is no analyst coverage of Kenon outside of Israel. The trading market for our ordinary shares depends, in part, upon the research and reports that securities or industry analysts publish about us or our businesses. If securities or industry analysts do not cover us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

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% 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 of any of 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% 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.

In addition, the loans that Ansonia made to our subsidiary Quantum (which were used by Quantum to make back-to-back loans to Qoros) may be converted into equity of Quantum at a discount to the implied value of Qoros based upon the receipt of third-party financing. Accordingly, upon such conversion, Kenon’s indirect interest in Qoros will be diluted, which will result in economic dilution and Kenon having less control over the Qoros’ business. In connection with the loan agreement, Ansonia also has certain consent rights with respect to actions that we take in respect of our interest in Qoros. For further information on Ansonia’s agreement to invest in Qoros, see “ Item 5.B Liquidity and Capital Resources—Qoros’ Liquidity and Capital Resources—Material Indebtedness—Shareholder Loans .”

We do not have sufficient distributable profits to pay dividends.

Under Singapore law and our constitution, dividends, whether in cash or in specie, must be paid out of our profits available for distribution. We have no current plans to pay cash dividends for the foreseeable future and we currently do not have distributable profits from which dividends may be declared. 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). There is no assurance that, on such basis, we will not incur losses, that we will become profitable, or that we will have sufficient distributable income that might be distributed to our shareholders as a dividend or other distribution in the foreseeable future. Therefore, we will 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, and until such time, if ever, that we 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).

Any dividend payments on 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. Shareholders whose principal currency is not the U.S. Dollar will be 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 disclosure required of foreign private issuers under the Exchange Act is different from the periodic 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 will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act and will not be 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 U.S., 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 U.S. 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 U.S. or Israel, as 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.

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, therefore, not be automatically enforceable in Singapore. Additionally, there is doubt whether a Singapore court may 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 undertakings, it may 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. ”

Singapore corporate law may delay, deter or prevent a takeover of our company by a third-party, and 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 Singapore 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 US$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.

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 2016, or the 2016 AGM, our shareholders granted the board of directors authority (effective until the conclusion of the annual general meeting of shareholders to be held in 2017, or the 2017 AGM, or the expiration of the period by which the 2017 AGM is required to be held) 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 2016 AGM and shareholders will be asked to renew this authority at the 2017 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, 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

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ordinary shares.

Based upon, among other things, the valuation of our assets and the composition of our income and assets, we do not believe we were a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our previous taxable year ended December 31, 2016. However, the application of the PFIC rules is subject to uncertainty in several respects. In addition, a separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year. Accordingly, we cannot assure you that we will not be a PFIC for our current, or any future, taxable year. A non-U.S. corporation will be a PFIC for any taxable year if either (i) 75% or more of its gross income for such year is passive income or (ii) 50% or more of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. For this purpose, we will be treated as owning our proportionate share of the businesses and earning our proportionate share of the income of any other business in which we own, directly or indirectly, 25% or more (by value) of the stock. 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. In addition, 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. If we are 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. ”

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 4. Information on the Company

A. History and Development of the Company

We were formed in 2014 to be the holding company of certain companies that were currently owned (in whole, or in part) by IC in connection with our spin-off from IC in January 2015. We currently own the following subsidiaries and associated companies:

a 100% interest in IC Power , a leading owner, developer and operator of power generation and distribution facilities located in key energy markets in Latin America, the Caribbean and Israel;

a 50% interest in Qoros , a China-based automotive company;

a 32% interest in ZIM , a large provider of global container shipping services; and

a 91% interest in Primus , an innovative developer and owner of a proprietary natural gas-to-liquids technology process.

In connection with our spin-off from IC, we also held a 29% interest in Tower , a NASDAQ- and TASE– 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.

We were incorporated in March 2014 under the Singapore Companies Act. Our registered office and principal place of business is located at 1 Temasek Avenue #36-01, Millenia Tower, Singapore 039192. Our telephone number at our registered office and principal place of business is + 65 6351 1780. 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.” We plan to examine the various considerations in respect of our dual listing and, in particular, the advisability of maintaining or terminating such dual listing. We may, as a result of such examination, delist our ordinary shares from trading on the TASE pursuant to the Securities Law of Israel, 5728—1968. In the event we do decide to delist our ordinary shares from trading on the TASE, we have undertaken to publish an Immediate Report with the TASE no less than 9 months prior to the delisting.

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.

We were established in connection with a spin-off of our businesses from IC to promote the growth and development of our primary businesses, and we are primarily engaged in the operation of the following businesses: (i) IC Power, a power generation and distribution company that has experienced growth in its revenues and generation capacity since its inception in 2007, in which we have a 100% equity interest, and (ii) Qoros, a China-based automotive company in which we have a 50% equity interest, that is seeking to deliver international standards of quality, safety, and innovative features to the large and fast-growing Chinese automotive market and commenced commercial sales at the end of 2013. We will continue to monitor and assess strategic opportunities with respect to our interests in IC Power and Qoros.

In the case of IC Power, we intend to continue to invest in projects that IC Power expects to generate attractive, risk-adjusted returns, using operating cash flows, project or other financing at the IC Power level, as well as proceeds resulting from opportunistic dispositions by IC Power of assets, including mature assets. In January 2017, IC Power commenced a roadshow for an IPO of IC Power's ordinary shares; however, in light of market conditions, IC Power withdrew its IPO, as the IPO was not deemed to be in the best interests of IC Power and Kenon at such time. We are evaluating various strategic alternatives with respect to our interest in IC Power and its businesses, which may include a future offering, listing, distribution or monetization of IC Power or its subsidiaries.

In the case of Qoros, we have used a significant portion of our liquidity and capital resources that we received in connection with our spin-off from IC to support Qoros through shareholder loans and guarantees in respect of Qoros’ debt, and we have no obligation to provide further funding to Qoros. In light of our strategy to refrain from material "cross-allocation" (i.e. investing returns from one business into another), Kenon has been seeking other sources of financing for Qoros, as well as opportunities for Kenon to provide financing to Qoros in connection with a reduction of Kenon's back-to-back guarantee exposure to Qoros (i.e., investments in Qoros that do not increase Kenon's exposure to Qoros). In line with this strategy, in December 2016 and March 2017, Kenon entered into agreements with Chery to provide financing to Qoros of up to RMB1,027 million in connection with a full release of Kenon's back-to-back guarantee obligations to Chery (which obligations were RMB1,100 million, plus certain interest and fees, prior to such investments). Pursuant to these agreements, Kenon has funded shareholder loans of RMB638.5 million in connection with a RMB675 million reduction in its guarantee obligations to Chery, and may fund additional shareholder loans of RMB388.5 million to Qoros in connection with the full release of such back-to-back guarantee obligations.

Qoros will require additional financing, including the renewal or refinancing of its working capital facilities, to continue to operate and meet its operating expenses and debt service requirements. If Qoros is not able to raise additional financing as required, it may be unable to continue operations. In April 2017, Quantum, Chery and Qoros entered into an agreement with Yibin, pursuant to which Yibin may invest in Qoros in connection with the establishment of an NEV and conventional vehicle manufacturing base. Yibin may make significant investments in Qoros upon government approval and the execution of amendments to Qoros’ joint venture agreement and articles of association, among other agreements. Such further investment, if provided, is expected to dilute Quantum's and Chery's interests in Qoros. In addition, Yibin may obtain significant control rights with respect to Qoros. For further information, see “ Item 5. Operating and Financial Review and Prospects—Recent Developments—Qoros—Agreement with Yibin to Jointly Establish NEV Manufacturing Base .”

We will continue to assess opportunities to support Qoros and its liquidity position and fundraising efforts. In addition, we will consider potential opportunities with respect to our interest in Qoros, including by potentially providing direct access to Qoros when we believe it is in the best interests of Qoros' development and our shareholders to do so.

We also hold interests in:

ZIM —A large provider of global container shipping services, which, as of December 31, 2016 operated 72 (owned and chartered) vessels with a total container capacity of 322,566 TEUs, and in which we have a 32% equity interest; and

Primus , an innovative developer and owner of a proprietary natural gas-to-liquid technology process, in which we have a 91% equity interest.

Kenon remains committed to its strategy to realize the value of its businesses for its shareholders. In connection with this strategy, Kenon may provide its shareholders with direct access to its businesses, which may include spin-offs, listings, offerings, distributions or monetization of its businesses. Kenon is actively exploring various ways to materialize this strategy in a rational and expeditious manner. To the extent Kenon monetizes its businesses (i.e., through offerings or sales), it may either distribute the proceeds derived from such transactions to our shareholders or use such proceeds in connection with our back-to-back guarantees in respect of Qoros’ indebtedness or to repay amounts owing under the IC Credit Facility.

As we execute our strategy, we intend to operate under disciplined capital allocation principles designed to ensure the prudent use of our capital. We intend to refrain from acquiring interests in new companies outside our existing businesses. We do not intend to materially “cross-allocate” proceeds received in connection with distributions or sales of our interests in any of our businesses, among our other businesses. We will not make further investments in ZIM.

Our strategy set forth above is designed to promote the growth and development of our primary businesses, maximize value for our shareholders and ensure the prudent use of our capital. However, we will be required to make determinations over time that will be based on the facts and circumstances prevailing at such time, as well as continually evolving market conditions and outlook. As a result, we will be required to exercise significant judgment while seeking to adhere to these capital allocation principles in order to maximize value for our shareholders and further the development of our businesses.

Our Businesses

Set forth below is a description of our businesses.

References to IC Power’s Adjusted EBITDA and net income set forth below in “— IC Power ” are references to IC Power’s Adjusted EBITDA and net income, as reported by IC Power. For a description of the differences between IC Power’s Adjusted EBITDA and net income, as reported by Kenon and as reported by IC Power, during the years ended December 31, 2014 and 2015, see “ Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of Operations—IC Power—Decisions by the EA Regarding System Management Charges .”

References to IC Power's business segments refer to the business segments of IC Power and not Kenon.

IC Power

IC Power, which accounted for 100% of our revenues in the year ended December 31, 2016, and 94% of our assets as of December 31, 2016, is a leading owner, developer and operator of power generation facilities located in key energy markets in Latin America, the Caribbean and Israel. Additionally, in January 2016, IC Power completed acquisition of Energuate (comprised of two electricity distribution companies in Guatemala (DEORSA and DEOCSA)), marking IC Power’s initial entry in the electricity distribution sector. The power generation companies within IC Power’s portfolio utilize a range of energy sources, including natural gas, hydroelectric, HFO, diesel and wind. IC Power principally focuses its generation operations in Latin American markets, which typically have higher growth rates of GDP and lower overall and per capita energy consumption, as compared with more developed markets. IC Power believes that economic growth in Latin American markets will drive increases in overall and per capita energy consumption and therefore require significant additional investments in power generation assets in those markets. As of December 31, 2016, IC Power’s installed capacity and proportionate capacity were 3,945 MW and 3,152 MW, respectively, including Samay I’s 632 MW cold-reserve thermoelectric plant in Peru, which reached COD in May 2016, CDA’s 545 MW hydroelectric plant located in Peru, which reached COD in August 2016, and Kanan’s 92 MW thermal generation project in Panama, which reached COD in April 2016.

In addition, OPC-Hadera has commenced construction of a cogeneration power station in Israel in June 2016, and the OPC-Hadera plant, which is expected to have a capacity of 140 MW, is expected to reach its COD by early 2019. IC Power expects that the total cost of completing the OPC-Hadera plant (including the consideration for the acquisition of OPC-Hadera) will be approximately $250 million. As of December 31, 2016, OPC-Hadera had completed approximately 35% of the project.

Between 2007 and December 31, 2016, IC Power invested approximately $3.2 billion in the acquisition, development and expansion of IC Power’s power generation and distribution assets. Of this amount, investment in power generation assets represented $2.9 billion, of which 88% represented investments in greenfield development (including investments made in CDA, Samay I and Kanan) and 12% represented acquisitions. IC Power has financed its greenfield development using a combination of cash on hand, debt financing and investments by minority shareholders at the asset level, and has financed the acquisitions of its power generation assets using cash on hand.

As of December 31, 2016, of the 3,396 MW that IC Power has added to its installed capacity since Inkia’s formation, 76% was derived from greenfield development projects, consisting primarily of IC Power’s construction of Kallpa’s combined cycle plant, Peru’s largest power generation facility, the construction of OPC-Rotem’s plant, which became Israel’s first IPP, the construction of the Samay I project, a cold-reserve thermoelectric plant in Peru, and CDA, a hydroelectric plant in Peru. In the same period, IC Power has acquired businesses with an aggregate installed capacity of 817 MW in Israel and five countries in Latin America.

By successfully pursuing growth opportunities, primarily through contracted greenfield development projects in existing markets and acquisitions of anchor investments in new markets, IC Power has expanded its regional presence, diversified its generation portfolio through the addition of various facilities which use a range of energy sources, and significantly increased its cash flows.

Additionally, in January 2016, IC Power completed acquisition of Energuate (comprised of two electricity distribution companies in Guatemala (DEORSA and DEOCSA)). As of December 31, 2016, Energuate provided electric service for approximately 1.7 million regulated customers in Guatemala (representing approximately 54% of Guatemala’s regulated distribution customers in 2016) and distributes energy across approximately 100,000 km ² in Guatemala, covering approximately 12 million inhabitants. Energuate operates approximately 70,000 km of distribution lines within Guatemala (representing approximately 83% of Guatemala’s distribution lines), and holds the non-exclusive right to distribute electricity within its service area until 2048. In the years ended December 31, 2016 and 2015, Energuate sold 2,316 GWh and 2,315 GWh of energy, respectively.

IC Power’s generation activities are conducted through various operating companies in which, with the exception of Pedregal, IC Power holds controlling interests. The following graphic sets forth IC Power’s generation companies as of December 31, 2016 (the percentage of holdings stated alongside each generation company is, in some cases, indirect holdings):

________________

(1) Includes 193 MW capacity from Las Flores.
(2) Excludes Agua Clara, a 50 MW wind project, which is expected to commence commercial operations in 2018 (subject to the grant of a concession which remains outstanding).
(3) OPC-Hadera currently operates an 18 MW plant. OPC-Hadera is currently developing a cogeneration plant, which is expected to have capacity of 140 MW.

The following table sets forth summary operational information regarding each of IC Power’s operating companies and associated company in its power generation business as of December 31, 2016, according to segment:

Segment	Country	Entity	Ownership Percentage (Rounded)	Fuel	Installed Capacity (MW) ¹	Proportionate Capacity ²	Type of Asset	Weighted Average Remaining Life of Significant PPAs Based on Firm Capacity (Years)	LTM Energy Sales Under PPAs (GWh) ³
Peru	Peru	Kallpa	75%	Natural Gas	1,063	797	Greenfield	7	6,182
	Peru	Samay I	75%	Diesel and Natural Gas	632	473	Greenfield	19	—
	Peru	CDA	75%	Hydroelectric	545	409	Greenfield	12	509

Israel	Israel	OPC-Rotem	80%	Natural Gas and Diesel	440	352	Greenfield	6 ⁴	3,908

	Israel	OPC-Hadera	100%	Natural Gas	18	18	Acquired	9	88

Central America	Nicaragua	Corinto	65%	HFO	71	46	Acquired	2	356
	Nicaragua	Tipitapa Power	65%	HFO	51	33	Acquired	2	364
	Nicaragua	Amayo I	61%	Wind	40	24	Acquired	8	142
	Nicaragua	Amayo II	61%	Wind	23	14	Acquired	8	95
	Guatemala	Puerto Quetzal	100%	HFO	179	179	Acquired	—	528
	El Salvador	Nejapa	100%	HFO	140	140	Original Inkia Asset	1	807
	Panama	Kanan	100%	HFO	92	92	Greenfield	4	523
								]
Other	Bolivia	COBEE	100%	Hydroelectric, Natural Gas	228	228	Original Inkia Asset	1	275
	Chile	Central Cardones	87%	Diesel	153	133	Acquired	—	—
	Chile	Colmito	100%	Natural Gas and Diesel	58	58	Acquired	1	254
	Dominican Republic	CEPP	97%	HFO	67	65	Original Inkia Asset	3	88
	Jamaica	JPPC	100%	HFO	60	60	Original Inkia Asset	1	390
	Colombia	Surpetroil	60%	Natural Gas	31	19	Acquired / Greenfield / Acquired	1	73
	Panama	Pedregal ⁵	21%	HFO	54	11	Original Inkia Asset	1	289

Total Operating Capacity

3,945

3,152

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1.	Reflects 100% of the capacity of each of IC Power’s assets, regardless of ownership interest in the entity that owns each such asset.

2.	Reflects the proportionate capacity of each of IC Power’s assets, as determined by IC Power’s ownership interest in the entity that owns each such asset.

3.	Reflects energy sales under PPAs for the year ended December 31, 2016.

Reflects the weighted average remaining life of OPC-Rotem’s PPAs with end users based on OPC-Rotem’s firm capacity. The IEC PPA (as defined below), which extends for an 18-year term and covers OPC-Rotem’s entire firm capacity, provides OPC-Rotem with the option to allocate and sell the generated electricity of the power station directly to end users. OPC-Rotem has exercised this option and sells all of its energy and capacity directly to 28 end users, as of December 31, 2016. For further information on the IEC PPA, see “ —Regulatory, Environmental and Compliance Matters—Regulation of the Israeli Electricity Sector. ”

5.	Although Pedregal is located in Central America, it is a minority investment. Therefore, from an income statement perspective, it is not part of the Central America segment and Pedregal is only reflected in IC Power’s share in income of associate.

IC Power’s Strengths

Strong track record in project development, with a disciplined approach to capital structure —IC Power leverages its core competencies—project identification, evaluation, development, construction and operation—to develop power generation facilities using various technologies in attractive markets that typically have relatively high GDP growth rates and relatively low levels of per capita energy consumption.

As of December 31, 2016, of the 3,396 MW that IC Power has added to its installed capacity since Inkia’s formation, 76% was derived from greenfield development projects. For example, in 2012, IC Power completed its third expansion of Kallpa’s gas-powered plant, which is the largest power generation facility in Peru in terms of capacity, by converting it into a combined cycle facility and thereby adding an additional 292 MW to the facility’s capacity. This expansion was completed on time and below budget. Additionally, in 2013, OPC-Rotem became the first IPP in Israel when IC Power completed the construction of its 440 MW combined cycle power plant. In 2016, IC Power also completed the development of Samay I’s 632 MW cold-reserve thermoelectric plant in Peru, CDA’s 545 MW run-of-the-river hydroelectric plant in Peru and Kanan’s 92 MW thermal generation project in Panama.

IC Power’s projects have been developed with a disciplined capital structure, which reflects its commitment to develop projects in accordance with three key fundamental principles. First, IC Power endeavors to construct projects by entering into turnkey EPC agreements that define the total project cost and the transfer most of the risks of construction delays and cost overruns to IC Power’s EPC contractors. For example, IC Power constructed Samay I and CDA plants pursuant to EPC contracts. Second, IC Power seeks to secure a revenue stream prior to the construction of its plants by sourcing and entering into long-term PPAs, which provide IC Power’s development projects with predictable projected margins and cash flows, before construction has commenced. Finally, IC Power leverages its EPC contracts and PPAs to secure long-term project financing agreements which are generally stand-alone, secured, project-specific, and with no or limited recourse to IC Power. Over the course of its history, IC Power has secured different types of financings (e.g., leases, local and international bonds, syndicated loans, etc.) during times of changing financial markets and in connection with its construction of various projects using a range of energy sources.

Long-term PPAs and supply agreements that limit exposure to market fluctuations —Most of IC Power’s generation subsidiaries typically enter into long-term PPAs, which generally limits their exposure to fluctuations in energy spot market rates, generates stable and predictable margins, and helps to create stability and predictability in IC Power’s cash flows. In the year ended December 31, 2016, IC Power made 90% of IC Power’s aggregate energy sales (in GWh) pursuant to long-term PPAs. As of December 31, 2016, the weighted average remaining life of IC Power’s significant PPAs was 8 years, and IC Power has historically sought, and will continue to seek, to renew its long-term PPAs as they expire.

As of December 31, 2016, the majority of IC Power’s PPAs were indexed to the price of the corresponding power plant’s operating fuel prices in U.S. Dollars (for plants that use fuel), and many of IC Power’s PPAs provided for payment in, or were linked to, the U.S. Dollar, thereby mitigating such plant’s exposure to fuel price and exchange rate fluctuations. Additionally, the counterparties to IC Power’s long-term PPAs are typically large local distribution companies or non-regulated customers, including subsidiaries of large multi-national corporations, which IC Power believes have strong credit profiles, mitigating the risk of customer default. Some of IC Power’s major non-regulated customers within Peru and Israel include Southern Peru Copper Corporation, Sociedad Minera Cerro Verde S.A.A. (a subsidiary of Freeport-McMoRan), Compañía Minera Antapaccay S.A. (a subsidiary of Glencore Xstrata), and Oil Refineries Limited, as well as governments and quasi-governmental entities.

As its power facilities utilize and are dependent upon natural gas, hydroelectric, HFO, diesel, wind, or a combination of these energy sources, IC Power seeks to enter into long-term supply and transportation agreements to acquire the necessary fuel for its facilities. For example, Kallpa, Samay I and OPC-Rotem, which own and operate IC Power’s largest plants, are party to long-term supply agreements, including natural gas supply agreements and transportation services agreements, that are material to their operations.

Attractive footprint in high growth markets —Currently, IC Power’s principal focus is on Latin American markets, which typically have higher growth rates of GDP and lower overall and per capita energy consumption, as compared with more developed markets. IC Power expects continued growth in these key markets, providing IC Power with the opportunity to generate attractive, risk-adjusted returns through additional investments in power generation assets in those countries.

IC Power is a leader, and the principal power producer, in its largest market, Peru, one of the fastest growing economies in Latin America, with an average GDP growth of approximately 5% per year from 2010 through 2016, according to the International Monetary Fund, a mature regulatory framework, and a well-run power system. In May 2016 and August 2016, Samay I (a 632 MW cold-reserve thermoelectric plant) and CDA (a 545 MW hydroelectric plant) reached their respective COD, providing an additional 1,177 MW of installed capacity to the Peruvian market. As of and for the year ended December 31, 2016, IC Power’s operating companies in Peru, Kallpa, Samay I and CDA had an installed capacity of 2,240 MW, representing 9% of Peru’s installed capacity, and generated 12% of the gross energy generated (in GWh) in Peru. IC Power’s Peruvian business represented 157% of IC Power’s net income, 45% of its Adjusted EBITDA, and 56% of its installed capacity as of and for the year ended December 31, 2016.

IC Power also operates OPC-Rotem, the first IPP in Israel, which, in 2013 following decades of state control, opened its electricity market to private power producers. As a result, the electricity market in Israel is still in the early stages of development. Israel’s energy consumption levels have increased in recent years and are expected to continue to increase in the near-term. As of and for the year ended December 31, 2016, OPC-Rotem had an installed capacity of 440 MW, representing approximately 3% of Israel’s installed capacity and 14% of the installed capacity of IPPs (excluding renewables), and generated 5% of the gross energy generated (in GWh) in Israel. As of and for the year ended December 31, 2016, OPC-Rotem represented 114% of IC Power’s net income, 15% of its Adjusted EBITDA, and 11% of its installed capacity. We believe that OPC-Rotem’s plant provides IC Power with a strategic advantage as an early entrant to the Israeli electricity market. Additionally, given Israel’s growing economy and the advanced age of its existing state-owned power generation facilities, we believe OPC-Rotem provides IC Power with the know-how and visibility to pursue additional power project opportunities in Israel, such as the acquisition and development of OPC-Hadera, which opportunities may become increasingly available to private sector participants such as IC Power.

In addition to its attractive positions in Peru and Israel, IC Power has also developed an attractive footprint in several markets in Latin America, including Chile, and has development offices in Mexico and Argentina. We believe that IC Power’s current platform, coupled with its agile and disciplined decision-making process, enables it to take advantage of opportunities as they arise.

Established and disciplined track record in acquiring generation assets— IC Power has acquired numerous generation assets since 2007, resulting in the expansion of its operations by 817 MW in Israel and five countries in Latin America. We believe IC Power’s recognition as a regional generator and developer with a relatively strong balance sheet, and its ability to act quickly with respect to acquisitions has complemented IC Power’s development capabilities by allowing it to strategically source and execute acquisitions. Furthermore, IC Power’s positioning as a mid-sized regional market participant allows IC Power to manage projects that are too small for large companies, as well as projects that are too large for small companies. Such acquisitions facilitate IC Power’s entry into new markets and allow IC Power to act as a consolidator in the countries in which IC Power already operates.

Platform for growth in electricity distribution sector through acquisition of Energuate —In January 2016, IC Power further expanded and diversified its portfolio by completing its acquisition of Energuate, which operates distribution companies in Guatemala, a country with a historically stable electricity sector framework. IC Power’s purchase of Energuate marks IC Power’s initial entry into electricity distribution and IC Power believes this purchase will provide it with a platform to further expand its distribution portfolio. As of December 31, 2016, Energuate provided electric service to approximately 1.7 million regulated customers in Guatemala (representing approximately 54% of Guatemala’s regulated distribution customers in 2016) and distributes energy to a service area of approximately 100,000 km ² in Guatemala, covering primarily rural areas with a population of approximately 12 million inhabitants. Energuate, the largest distribution company in Central America (according to population served), operates approximately 70,000 km of distribution lines within Guatemala (representing approximately 83% of Guatemala’s distribution lines) as of December 31, 2016. IC Power expects that Energuate’s sizeable distribution base and limited exposure to fluctuations in the cost of electricity (both as a result of Energuate’s entry into PPAs and a compensation framework anchored on predefined distribution tariffs) will provide IC Power with predictable cash flows from its operations, which IC Power believes will contribute significantly to its further expansion within the distribution industry. IC Power has created a new corporate platform with highly experienced executives from the Latin American distribution sector to manage IC Power’s distribution business. We believe that this will provide IC Power with the required organizational support to operate Energuate, as well as a strong platform for future expansion in the distribution business in the region.

Driving operational excellence through partnerships with leading OEMs and reliance on efficient technologies —IC Power seeks to optimize its power generation capacity by using leading technologies ( e.g. , turbines manufactured by Siemens, General Electric, Mitsubishi and Andritz) and entering into long-term service agreements with leading, multi-national OEMs. IC Power’s technologies and long-term partnerships enable its power generation assets to perform more efficiently and at relatively high levels of reliability. Additionally, its experienced staff is committed to increasing IC Power’s operating performance and ensuring the disciplined maintenance of its power generation assets. IC Power believes that its generation plants’ weighted average availability rate of 83% for the year ended December 31, 2016 was the result of its optimization efforts and IC Power’s commitment to improving its operating efficiency and performance.

Additionally, IC Power’s acquisition or construction of power generation assets that use efficient technologies ( e.g ., the conversion of Kallpa’s facility into a combined cycle operation in 2012) places its generation assets competitively in the dispatch merit order in certain of the countries in which IC Power operates. For example, Kallpa’s facility, a base load plant and combined cycle gas turbine, is among the first power plants to be dispatched, due to its efficiency and competitiveness in the dispatch stack. Similarly, CDA’s hydroelectric power plant, which reached COD in August 2016, is also among the first power plants to be dispatched in Peru. Having a portfolio which includes efficient power plants with lower production costs allows IC Power to potentially earn higher margins than companies that utilize certain other competing technologies in their plants and are therefore less competitive in the dispatch merit order.

Experienced management team with strong local presence —IC Power’s management team has extensive experience in the power generation business. Its executive officers have an average of approximately 20 years of experience in the power generation industry, and significant portions of IC Power core management team have been working together in international large power generation companies since 1996. We believe that this overall level of experience contributes to IC Power’s ability to effectively manage its existing operating companies and to identify, evaluate and integrate high-quality growth opportunities within and outside Latin America. Furthermore, its hands-on management team utilizes a lean decision-making process, which allows IC Power to quickly take advantage of strategic acquisitions and potential developments and opportunities as they materialize. IC Power’s managers are compensated, in part, on the basis of IC Power’s financial performance, which incentivizes them to continue to improve the operating results. Additionally, IC Power’s local management teams provide in-depth market knowledge and power industry experience. These teams consist primarily of local executives with significant experience in the local energy industry and with local government regulators. We believe that the market-specific experience of IC Power’s local management provides IC Power with insight into the local regulatory, political and business environment in each of the countries in which it operates.

In addition, in connection with its acquisition of Energuate in January 2016, IC Power recruited an experienced management team for IC Power’s distribution business. This management team consists of officers, some of whom were previously employed at Energuate, who work directly with IC Power’s management team to oversee and manage the Energuate business with IC Power, as well as local executives who manage Energuate’s day-to-day operations. Additionally, this management team has extensive experience managing large distribution companies in various countries throughout Central and South America, including Guatemala.

IC Power’s Strategies

Continue to successfully develop greenfield assets in attractive markets —One of IC Power’s core competencies is identifying, evaluating, constructing, and operating greenfield development projects in its target markets. IC Power will continue to seek to develop power generation assets in countries with relatively stable, growing economies, low levels of per capita energy consumption or developing private energy generation markets. IC Power also seeks to develop assets that can be expanded through further investment, or as additional fuels become available, which provides it with the ability to further develop an asset and increase its installed capacity in connection with market trends, industry developments, or changing fuel availability.

IC Power places particular focus on its ability to complete the development of its greenfield projects on time and within budget and will continue to use extensive project planning and contracting mechanisms to minimize its development risk. For example, in connection with its development activities, IC Power typically enters into lump-sum, turnkey EPC contracts to minimize its construction risks and mitigate construction cost overruns, while also entering into long-term PPAs to generate stable and predictable margins and cash flows; we believe this combination facilitates IC Power’s access to long-term construction financing. Engaging in such practices has allowed IC Power to successfully complete several thermal generation projects, including the conversion of the Kallpa facility into combined-cycle turbines, which added an additional 292 MW to the facility’s capacity, and IC Power’s development of the Samay I 632 MW cold-reserve thermoelectric plant. Additionally, IC Power’s first hydroelectric development, CDA’s plant, is fully operational at a cost of $1.8 million per MW, making CDA’s plant among the most efficiently constructed hydroelectric facilities in Latin America in terms of cost per MW.

Optimize portfolio to maximize returns while minimizing risk —IC Power regularly assesses its portfolio of operating companies and employs disciplined portfolio management principles to optimize its operations in light of changing industry dynamics in a particular country or region, create financing flexibility and address specific risk management and exposure concerns. IC Power’s strategy is to optimize the composition of its portfolio by focusing on profitable developments and acquisitions within key power generation markets typically in Latin America, the Caribbean and Israel.

For example, prior to IC Power’s 2014 acquisition of the Las Flores facility, a 193 MW thermal power generation plant (representing 145 MW on a proportionate basis), Las Flores had operated intermittently due to the lack of a long-term regular supply of natural gas. The Kallpa facility, which is located near the Las Flores plant, had an excess supply of natural gas. IC Power identified these and other potential synergies and, since its acquisition of the Las Flores facility, has been able to significantly improve the operations and generation activities of Las Flores’ plant, while also maximizing the use of the Kallpa facility’s natural gas supply and transportation capabilities. IC Power’s acquisition of Puerto Quetzal serves as another example of the portfolio optimization efforts. In addition to providing IC Power with an attractive entry point into the Guatemalan market, one of the barges it acquired from Puerto Quetzal was redeployed to Panama to allow Kanan to take advantage of a short-term supply shortfall in the Panamanian power market.

Additionally, in 2014, IC Power divested its 21% indirect equity interest in Enel Generación Perú, one of Peru’s largest power generation companies. While the Enel Generación Perú investment was a strong cash flow generator which helped to fund the initial stages of IC Power’s growth, it opted to sell this investment in order to redeploy the proceeds from such sale into projects in which it has have a majority control and which it believes will have a better risk and return profile for its shareholders over the long-term. IC Power continues to assess opportunities to optimize its portfolio of businesses to maximize shareholder returns, which strategy may include selling interests in certain of its assets.

Complement IC Power’s organic development with dynamic and disciplined acquisitions —IC Power seeks to invest in countries and/or assets where it can significantly increase its cash flows and optimize its operations. Therefore, in addition to greenfield developments, IC Power also seeks to enter into and/or expand its presence in attractive markets by acquiring controlling interests in operating assets to anchor IC Power’s geographical expansion. For example, IC Power acquired power generation assets in Nicaragua, Guatemala and Colombia, which represent its initial entry into these markets, through acquisitions of (1) ICPNH, which provided IC Power with controlling interests in two HFO and two wind energy Nicaraguan generation companies, (2) Puerto Quetzal, which provided IC Power with three power barges with HFO generators (one of which was transferred to IC Power’s subsidiary Kanan to allow it to take advantage of supply shortfalls in the Panamanian power market), and (3) Surpetroil, a company that utilizes stranded natural gas reserves in its production of energy. Additionally, consistent with its strategy of maintaining controlling interests in its power generation assets, in May 2014, IC Power increased its equity ownership in JPPC (which has an aggregate 60 MW of installed capacity in two HFO generation units in Jamaica) from 16% to 100%, and in January 2015, IC Power increased its equity ownership in Nejapa (which has 140 MW of installed capacity at an HFO power generation facility in El Salvador) from 71% to 100%. IC Power will continue to seek to leverage its acquisitions of assets in new markets and/or of assets utilizing a broad range of technologies (which may include new fuels, such as solar power) to generate attractive risk-adjusted returns.

Continue to expand and optimize IC Power’s operations within the electricity distribution sector —IC Power’s acquisition of Energuate represents IC Power’s initial entry into the electricity distribution business. IC Power intends to further expand its portfolio and diversify its revenue streams by applying its disciplined acquisition principles as it seeks to purchase additional distribution assets in countries where IC Power believes it can significantly increase its cash flows, optimize its operations, and leverage the experience gained from its acquisition of Energuate. Additionally, IC Power will endeavor to optimize Energuate’s existing distribution operations by targeting Energuate’s electricity losses (both commercial and technical) in the near- to medium-term. Energuate’s management intends to reduce commercial losses (e.g., losses from illegal connections, fraud and billing errors) through improving customer billing practices to increase collection rates, increasing targeted inspections and meter replacements, implementing a communication program with local communities and modernizing Energuate’s facilities to reduce tampering, especially in areas where electricity theft has been more prevalent, and reduce technical losses (i.e., losses occurring in the ordinary course of electricity distribution) by investing in the modernization of Energuate’s transmission grid and distribution system. To this end, IC Power has invested $28 million in capital expenditures relating to Energuate in the year ended December 31, 2016, and IC Power expects that its capital expenditures relating to Energuate will increase in the coming years.

Continue to enter into long-term PPAs with credit-worthy counterparties —In the year ended December 31, 2016, IC Power made 90% of its aggregate energy sales (in GWh) pursuant to long-term PPAs, many of which are denominated in, or linked to, the U.S. Dollar. IC Power’s strategy of generating strong and predictable cash flows from long-term PPAs has enabled it to successfully secure financing for its greenfield projects from a diverse international lender base to fund its development and construction projects. IC Power’s generation companies seek to enter into long-term capacity PPAs prior to committing to a new project so as to predict expected cash flows and margins of a particular asset, which facilitates its financing. For example, CDA, which reached COD in August 2016, has sourced and entered into three long-term PPAs beginning in 2016, 2018 and 2022 for a significant portion of its expected capacity, contracting most of the estimated firm energy it expects to generate between 2018 and 2027. As of December 31, 2016, the weighted average remaining life of CDA’s PPAs based on firm capacity was 12 years. The expected cash flows associated with such PPAs contributed to CDA’s attractive credit profile, which supported the financing of the CDA plant’s development. Similarly, prior to IC Power’s completion of the Samay I project, the Peruvian government guaranteed capacity payments for 600 MW for a 20-year period at rates above regulated capacity rates, which also provided support for the financing of the plant’s development. IC Power also continues to seek to enter into, or renew, long-term PPAs for its currently operating generation assets. For example, Kallpa entered into two PPAs with Southern Peru Copper Corporation, a 10-year PPA for 120 MW and a 10-year PPA for 70 to 85 MW, both starting in 2017. In addition to significantly improving IC Power’s access to financing with no or limited recourse to IC Power, its strategy of contracting its assets’ energy and capacity significantly reduces IC Power’s exposure to changes in spot prices.

Industry Overview

Overview of Electricity Generation Industry

IC Power’s generation businesses operate in power utility markets in Latin America, Israel and the Caribbean, each of which are governed by different degrees of regulation and regulatory systems (as further explained below) and provide varying degrees of incentives for private investment. These markets are typically characterized by relatively high rates of growth of GDP and lower overall and per capita energy consumption, as compared with more developed markets.

In the Latin American and Caribbean markets that IC Power serves, the power utility market regulation generally allows for the sale and delivery of power from power generators (private or state-owned) to distribution companies (private or state-owned) and to non-regulated customers. Israel, another market that IC Power serves, has recently undergone significant structural changes. Until July 2013, when OPC-Rotem reached COD as the first IPP in Israel, IEC, a state-owned entity, operated as the sole large-scale provider of electricity in the country. Since then, other IPPs have begun operating in Israel and several other IPPs are expected to enter this market.

In the countries in which IC Power’s generation businesses operate, there is typically structural segregation between the companies involved in power generation and the companies involved in power transmission and distribution. In most of these countries, the government operates the power grid, and transmission services are provided on an open access basis ( i.e. the transmission company must transmit power through the grid, and in exchange, the transmission company charges a transmission rate set by the supervisory authority or resulting from a competitive process). In the markets where private and state-owned entities compete in the power generation sector, transmission and distribution services are conducted subject to exclusive franchises, effectively regulating the transmission and distribution operations.

Although operating permits are required in each of the countries in which IC Power operates, the markets in these countries generally have no material regulatory barriers to entry. The financial resources required to enter these markets and the significant costs associated with the construction of power facilities, however, pose barriers to entry.

The following discussion sets forth a brief description of the key electricity generation markets in which IC Power’s generation companies operate.

Peru

The power utility market in Peru is currently IC Power’s primary market of operation and, driven by the growth in GDP and the expansion of energy coverage, Peruvian energy consumption has grown in recent years. According to the Peruvian National Institute of Statistics and Informatics ( Instituto Nacional de Estadística e Informática—INEI ), Peru had a population of approximately 31 million as of December 31, 2016. Peruvian GDP grew by 3.7%, 3.3% and 2.4% in 2016, 2015 and 2014, respectively. An increase in domestic demand, resulting from growth in the overall economic activity of Peru, an increase in the population’s income and consumption and an increase in investment in infrastructure, has also led to an increase in investments in value-added manufacturing processes to create products to serve the domestic market and for export. In addition, the availability and extraction of natural resources, in particular metals, has led to increased energy-intensive mining activity, which, according to the Ministry of Energy and Mines of Peru ( Ministerio de Energía y Minas ), or MINEM, has supported the increase in Peru’s energy consumption from 29,492 GWh in 2010 to 39,509 GWh in 2015, representing a CAGR of 6%. Nonetheless, the generation capacity in Peru is expected to increase at a faster rate than the demand for such electricity, resulting in a temporary oversupply of capacity in the Peruvian market, which may result in downward pressure on negotiated and spot energy and capacity prices in Peru in the short- to medium-term.

Spot prices in the Peruvian electricity market have recently experienced historically low levels primarily due to a sustained increase in installed capacity. A moderate demand growth, coupled with the increase in installed capacity has increased the reserve margin in Peru from 29.9% in 2011 to 59.1% in 2016 after CDA, Samay I, and other projects reached COD]. However, according to the COES, demand is expected to increase as a result of large mining and industrial projects such as Toquepala, Tambomayo and Shouxin, among others, as well as sustained growth in underlying demand. As a result, the COES expects the maximum demand to grow at a 6% CAGR between 2017 and 2020.

Total firm capacity is expected to increase at a 1.9% CAGR between 2017 and 2020. According to the COES, this additional increase in supply, coupled with demand growth, is expected to apply downward pressure to the reserve margin. The COES expects the reserve margin to reach 33.1% in 2020 (a decrease of 36%, as compared to the expected reserve margin in 2017). These factors may have implications for spot prices in the medium-term and may provide the conditions for an improvement in future PPA prices.

The following chart presents a breakdown of installed capacity in Peru based on generation technology and fuel source, as of December 31, 2016:

Installed Capacity by Generation Technology	Installed Capacity by Fuel Source

The power utility market in Peru has experienced significant changes in the past 20 years, as a result of privatizations following structural reforms initiated in 1992. In that context, the Peruvian power industry underwent a structural reform characterized by: (1) the enactment of a new regulatory model under the Electricity Concessions’ Law ( Ley de Concesiones Eléctricas ), or Law 25844; (2) the restructuring and reorganization of the vertically integrated state owned power utilities into non vertically integrated generation, transmission and distribution companies; (3) the privatization of most of the state owned utilities; (4) the promotion of private investment; (4) the regulation of the remuneration model for distribution and transmission activities based on cost-efficient standards; (5) the creation of an “open access” principle for the use of transmission and distribution networks; (6) the creation of a compensation system between generators that operates independently from contractual arrangements; and (7) the segmentation of power consumers as “regulated” and “non-regulated,” the latter being entitled to directly contract the supply of electricity from generators. From a regulatory perspective, the Peruvian system has split the regulatory roles among (1) an independent regulator, OSINERGMIN, (2) a policy body, the MINEM, and (3) a market operator that is a private entity, the Committee for the Economic Operation of the System ( Comité de Operación Económica del Sistema Interconectado Nacional ), or the COES. The structure and its separation have remained constant since the start of the reforms in 1992 and the economic model (i.e., marginal cost system) upon which the reform has been built is effectively embedded in the general electricity laws of Peru, providing long-term economic stability for investment.

The Law to Ensure Effective Development of Power Generation ( Ley para Asegurar el Desarrollo Eficiente de la Generación Eléctrica ), or Law 28832, published on July 23, 2006, and together with Law 25844, published on November 1992, introduced further changes to the power utility market and strengthened the model, mainly aiming to: (1) maintain the economic principles used in Law 25844 and add new measures to facilitate competition in the wholesale market; (2) reduce government intervention in establishing power generation tariffs; (3) allow power generation tariffs for regulated power consumers to reflect a competitive market, facilitating the construction of new generation plants when required; and (4) ensure a sufficient supply of power by reducing the power system’s exposure to the risks of high prices and rationing inherent to situations of undersupply of natural gas or transportation congestion. Law 28832 was approved as a consequence of a severe crisis in the Peruvian electricity market that resulted from, among other causes, OSINERGMIN defining the tariff at which distribution companies purchased electricity to supply to regulated customers at levels that did not reflect market conditions and were not attractive for generators to sell to distribution companies. The changes introduced by this law strengthened the model and incorporated mechanisms to effectively transfer risks from generators to end users that were not contemplated when the reforms were approved in 1992.

The reforms of 1992, together with the Peruvian Constitution of 1993, liberalized ownership across the Peruvian electricity sector and opened it to private investment, effectively eliminating any ownership restriction based upon nationality (except within 50 km of Peru’s international land borders, where certain restrictions apply) or otherwise. The privatization and concession award process was structured based upon the need to attract foreign investment and expertise that the country lacked. As a result of such ownership rules, the majority shareholders of almost all the private companies acting in the Peruvian electricity market are controlled by foreign investors. The second largest investors in the electricity sector are the Peruvian private pension funds administrated by the Private Pension Funds Administrators.

Since 1992, the Peruvian market has been operating based upon a marginal generation cost system. This system is embedded in the general electricity laws of Peru and is administrated by the COES. In such capacity the COES has as its main mandate the satisfaction of all the demand for electricity at any given time (i.e., periods of 15 minutes each) with the most efficient generation assets available at such time, independently of contractual arrangements between generators and their clients. For this purpose, the COES determines which generation facilities will be in operation at any given time with an objective of minimizing the overall system energy cost. Energy units are dispatched (i.e., ordered by the COES to inject energy into the system) on a real-time basis; units with lower variable generation costs are dispatched first and then other less efficient generation units will be dispatched, until the electricity demand is satisfied.

The variable cost for the most expensive generation unit dispatched in each 15-minute time period determines the price of electricity in such time period for those generation companies that sell or buy power on the spot market price during such time period. The COES determines, for each such 15-minute period, the spot market at which such transactions among generators take place and acts as a clearinghouse of all such transactions.

Generation companies in the Peruvian electricity market sell their capacity and energy under PPAs or in the spot market. The principal consumers under PPAs are distribution companies and non-regulated customers. Under regulations governing the Peruvian power sector, customers with a capacity demand above 2,500 kW participate in the non-regulated power market and can enter into PPAs directly with generation companies at freely-negotiated prices. Customers with a capacity demand between 200 kW and 2,500 kW may choose to participate in the non-regulated power market or contract as a regulated client with a distribution company. PPAs to sell capacity and energy to distribution companies for resale to regulated customers must be made at fixed prices based on public bids received by the distribution companies from generation companies or at the applicable bus bar tariff set by the OSINERGMIN. Generation companies are authorized to buy and sell capacity and energy in the spot market to cover their needs and their commitments under their PPAs. Customers that are entitled to participate in the non-regulated power market must enter into PPAs with generation or distribution companies covering all their electricity demand as they are not allowed to purchase energy or capacity directly in the spot market.

Within Peru, power is generally generated by hydroelectric or thermal power stations, including those power stations that use natural gas as fuel. The power generated by these power stations varies in accordance with the rainy seasons and rainfall patterns in each year. For example, greater amounts of hydroelectric power are dispatched between November and April in Peru – the Peruvian rainy season – than between May and October, when the volume of rainfall declines and operators have less water available for electricity generation in the reservoirs serving their plants. During periods of drought, thermal plants are used more frequently. During periods of excessive rainfall when hydroelectric plants increase their generation, there may be a reduction in the spot market prices in the system and also a reduced dispatch of thermal power plants. Accordingly, revenues within the Peruvian generation industry are generally subject to seasonality and the effects of rainfall. Although generators in Peru act to reduce this exposure to seasonality by contracting long-term PPAs, this effect cannot be completely neutralized. For further information on the impact of seasonality on IC Power’s operations, see “ —IC Power’s Description of Operations—Seasonality .”

For further information on Peru’s regulatory environment, see “ IC Power’s Description of Operations—Regulatory, Environmental and Compliance Matters—Regulation of the Peruvian Electricity Sector. ”

The following table sets forth a summary of energy sales in the Peruvian market for the periods presented:

	Energy Sales
	Under PPAs
Year Ended December 31,	Distribution		Non-regulated
	(GWh)
2012		18,961		14,661
2013		19,880		15,841
2014		20,663		16,465
2015		21,988		17,521
2016		23,924		19,064

The demand for power and electricity in Peru is served by a variety of generation companies, including IC Power’s subsidiary Kallpa, Enel Generación Perú, a subsidiary of Enel, Electroperú, a state-owned generation company whose primary generation facilities are hydroelectric plants, Engie Energía Perú S.A. (formerly EnerSur S.A.), and Orazul Energy Egenor (formerly known as Duke Energy Egenor).

The following table sets forth a summary of the principal generation companies in Peru, indicating their capacity by type of generation, as of December 31, 2016:

	Capacity as of December 31, 2016
	Hydro		Combined Cycle- Natural Gas		Open- Cycle Natural Gas		Dual Fuel		HFO		Coal		Other		Total		Percentage of Installed Capacity
	(MW)																(%)
Engie Energía Perú S.A. (formerly EnerSur S.A.)		254		920		—		—		1,214		142		—		2,530		21
Edegel ¹		787		479		292		230		189		—		—		1,977		16
Kallpa		—		870		193		—		—		—		—		1,063		9
CDA ²		545		—		—		—		—		—		—		545		5
Samay I		—		—		—		—		632		—		—		632		5
Electroperú		898		—		—		—		16		—		—		914		8
Other generation companies		2,205		565		530		—		574		—		575		4,449		36

Total		4,689		2,834		1,015		230		2,624		142		575		12,110		100

_______________________
1 Includes Enel Generación Perú SAA, Enel Piura SA and Chinango SAC.

2 In March 2017, following the completion of CDA’s acceptance tests, COES, the Peruvian system operator, declared that the installed capacity of CDA had tested at 545 MW.

Israel

According to the Israel Central Bureau of Statistics, Israel had a population of approximately 8 million as of December 31, 2016. Israeli GDP grew by 2.8%, 2.6% and 2.8% in 2016, 2015 and 2014, respectively. Demand for electric power has increased in Israel in recent years due to, among other reasons, population growth, higher living standards and climate change.

Israel’s power generation units utilize fossil fuels almost exclusively. As of December 31, 2016, the installed capacity in Israel was approximately 16,543 MW, of which 10,634 MW was fueled by natural gas based upon information available from IEC’s financial report for 2014 and the EA.

Until July 2013, the state-owned IEC operated as the sole large-scale provider of electricity in Israel. However, PUAE (which was replaced by the EA in January 2016) incentives have encouraged private investments in the Israeli power generation market and OPC-Rotem and other IPPs now operate in the market with significant capacity. For example, in May 2014, Dorad Energy Ltd., or Dorad, became the second IPP to reach COD in Israel, adding capacity of 860 MW to the Israeli power market. In July 2015, the first of two units of the power plant of Dalia Power Energies Ltd., or Dalia, reached its COD. In September 2015, the second unit reached its COD, adding, together with the first unit, 910 MW to the Israeli power market. Other IPPs are in the process of constructing power plants, and are expected to reach their COD in the coming years.

As of December 31, 2016, OPC-Rotem had installed capacity of 440 MW, representing approximately 3% of Israel’s installed capacity and 14% of the installed capacity of IPPs (excluding self-generators), which had an aggregate installed capacity of approximately 3,060 MW as of December 31, 2016, according to the EA.

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 issued by the EA and denominated in New Israeli Shekels. 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). Generally, the tariffs in the winter and summer seasons are higher than those in the transition season, making Israeli power generators, including OPC-Rotem, more profitable, generally, in the winter and summer months, as compared to other months of the year.

The following tables set forth the tariffs and consumption blocks for each of the seasons set forth below, as of January 2017:

	Regulated “Generation Component” Tariff
	Winter		Transition		Summer
	(NIS per MWh)
Peak		663		276		696
Shoulder		380		214		267
Off-Peak		196		168		165
Weighted tariff				264

	Hours per Consumption Block ¹
	Winter		Transition		Summer
	(Hours)
Peak		410		1,932		315
Shoulder		206		946		315
Off-Peak		1,544		2,234		858

______________________

1.	The hours per consumption block may vary due to changes in the dates of weekdays, weekends and public holidays.

For information on the risks associated with the indexation of OPC-Rotem’s revenues and cost of sales to the EA’s generation component 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 IC Power’s Generation Business—The profitability of IPPs in Israel may be adversely affected by changes in Israel’s regulatory costs and EA tariffs .”

The following table sets forth a summary of energy sales in the Israeli market for the periods presented:

Energy Sales
Year Ended December 31,	Distribution
	(GWh)
2011		53,100
2012		57,900
2013		56,900
2014		58,296
2015		60,376

IEC has been classified by the Electricity Sector Law as an “essential service provider” and, as such, is subject to basic obligations concerning the proper 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. IEC also transmits all of the electricity in Israel.

For further information on Israel’s regulatory environment, see “ —IC Power’s Description of Operations—Regulatory, Environmental and Compliance Matters—Regulation of the Israeli Electricity Sector .” For information on the risks related to changes in Israel’s regulatory environment, see “ Item 3.D Risk Factors—Risks Related to IC Power’s Generation Business—The profitability of IPPs in Israel may be adversely affected by changes in Israel’s regulatory costs and EA tariffs. ”

Nicaragua

According to the World Bank, Nicaragua had a population of approximately 6 million as of December 31, 2016. Nicaraguan GDP grew by an estimated 4.5%, 4.9% and 4.0% in 2016, 2015 and 2014, respectively.

Nicaragua’s interconnected power system had an installed capacity of approximately 1,244 MW, consisting of thermal, wind, hydroelectric, geothermal and biomass power stations using HFO or diesel, which accounted for 55%, 15%, 11%, 11% and 8%, respectively, of Nicaragua’s capacity as of December 31, 2016 according to the National Dispatch Committee of Nicaragua ( Centro Nacional de Despacho de Carga ), or CNDC. Nicaragua is part of the SIEPAC, thereby permitting the creation of a Central American wholesale power generation market. For information on Nicaragua’s regulatory environment, see “ —IC Power’s Description of Operations—Regulatory, Environmental and Compliance Matters—Regulation of the Nicaraguan Electricity Sector. ”

The following table sets forth a summary of capacity and energy sales in the Nicaraguan market for the periods presented:

	Capacity Sales				Energy Sales
Year Ended December 31,	Under PPAs		Spot Market		Under PPAs		Spot Market
	(MW)				(GWh)
2012		728		72		3,536		91
2013		740		72		3,695		133
2014		749		72		3,933		140
2015		736		79		4,051		185
2016		742		115		4,202		213

Guatemala

According to the World Bank, Guatemala had a population of approximately 16 million as of December 31, 2016. Guatemalan GDP grew by 3.5%, 4.1% and 4.0% in 2016, 2015 and 2014, respectively.

Guatemala’s interconnected power system had an installed capacity of approximately 3,398 MW, consisting of hydro, thermal and other technologies, which accounted for 38%, 57%, and 5%, respectively, of Guatemala’s capacity as of December 31, 2016 according to the Guatemalan electricity wholesale market administrator, or AMM ( Administrador del Mercado Mayorista ).

All capacity sales in Guatemala are made pursuant to PPAs. The following table sets forth a summary of capacity and energy sales in the Guatemalan market for the periods presented:

	Capacity Sales		Energy Sales
Year Ended December 31,	Under PPAs		Under PPAs		Spot Market
	(MW)		(GWh)
2012		1,533		7,500		1,056
2013		1,564		7,394		1,785
2014		1,635		8,223		1,899
2015		1,672		8,984		1,502
2016		1,702		10,624		790

El Salvador

According to the World Bank, El Salvador had a population of approximately 6 million as of December 31, 2016. Salvadorian GDP grew by 2.5%, 2.4% and 1.4% in 2016, 2015 and 2014, respectively.

Hydroelectric plants accounted for 34% of El Salvador’s capacity as of December 31, 2016 and geothermal plants accounted for 12%, based upon information available from the SIGET. The remaining 54% of El Salvador’s capacity was provided by thermal plants powered by HFO, diesel and bio-mass.

The following table sets forth a summary of capacity and energy sales in the Salvadorian market for the periods presented:

	Capacity Sales				Energy Sales
Year Ended December 31,	Under PPAs		Spot Market		Under PPAs		Spot Market
	(MW)				(GWh)
2012		655		332		3,122		2,761
2013		715		285		3,823		2,177
2014		764		271		4,176		1,891
2015		515		581		3,828		2,482
2016		687		398		2,946		3,405

Panama

According to the World Bank, Panama had a population of approximately 4 million as of December 31, 2016. Panamanian GDP grew by 5.2%, 5.8%, and 6.2% in 2016, 2015 and 2014, respectively.

Panama’s interconnected power system had an installed capacity of approximately 3,221 MW, mainly consisting of hydro, thermal, coal and other technologies, which accounted for 52%, 33%, 4% and 11%, respectively, of Panama’s capacity as of December 31, 2016, according to the National Dispatch Center of Panama ( Centro Nacional de Despacho ), or CND.

The following table sets forth a summary of capacity and energy sales in the Panamanian market for the periods presented:

	Energy Sales
Year Ended December 31,	Under PPAs		Spot Market
	(GWh)
2012		7,217		1,884
2013		7,359		2,615
2014		7,542		3,193
2015		8,858		2,656
2016		10,034		2,828

Bolivia

According to the World Bank, Bolivia had a population of approximately 11 million as of December 31, 2016. Bolivian GDP grew by 3.7%, 4.8%, and 5.8% in 2016, 2015 and 2014, respectively.

Based upon information available from the CNDC, Bolivia’s national dispatch committee, as of December 31, 2016, thermal plants fueled by natural gas and hydroelectric plants accounted for 72% and 25% of Bolivian capacity, respectively, while other technologies accounted for 4%.

Following the nationalization of Guaracachi, Valle Hermoso and Corani in May 2010 by the Bolivian government, all of the generation companies currently developing power projects in Bolivia are government-owned entities. It is unclear whether the Bolivian government will continue nationalizing entities involved in its power utility market and it is unclear whether such nationalization (if any) would be adequately compensated for by the Bolivian government. For further information on the Bolivian government’s acts of nationalization, see “ Item 3.D Risk Factors—Risks Related to IC Power’s Generation Business—The Bolivian government has nationalized energy industry assets, and IC Power’s remaining operations in Bolivia may also be nationalized .”

In December 2011, the Bolivian government amended the applicable law to prohibit generation companies from entering into new PPAs. For further information on risks related to IC Power’s inability to renew, enter into, or replace long-term PPAs, see “ Item 3.D Risk Factors—Risks Related to IC Power’s Generation Business—IC Power’s generation companies may not be able to enter into, or renew existing, long-term contracts for the sale of energy and capacity, contracts which reduce volatility in IC Power’s results of operations. ” For further information on Bolivia’s regulatory environment, see “ —IC Power’s Description of Operations— Regulatory, Environmental and Compliance Matters—Regulation of the Bolivian Electricity Sector. ”

Bolivian generation companies sell capacity and energy under PPAs or in the spot market. The following table sets forth a summary of capacity and energy sales in the Bolivian market for the periods presented:

	Capacity Sales				Energy Sales
	Under PPAs		Spot Market		Under PPAs		Spot Market
Year Ended December 31,	Non-regulated				Non-regulated
	(MW)				(GWh)
2012		43		1,060		369		6,236
2013		47		1,119		368		6,645
2014		44		1,254		357		7,121
2015		47		1,317		360		7,583
2016		42		1,391		367		8,011

In Bolivia, wages are periodically increased by governmental decree and, as a result, labor costs, which already represent a significant portion of the operating expenses of Bolivian generation and distribution companies, are expected to continue to increase and represent a greater portion of generation expenses.

Chile

According to the World Bank, Chile had a population of approximately 8 million as of December 31, 2016. Chilean GDP grew by 1.7%, 2.3%, and 1.8% in 2016, 2015 and 2014, respectively.

Two of Chile’s four power systems represent a significant portion of its 22,412 MW electricity market. The largest of such systems is the Central Interconnected System, or the SIC, which has a capacity of 16,837 MW, primarily consisting of hydroelectric stations, dual-fueled power stations using liquid natural gas or diesel, coal-based power stations, and wind farms and solar power stations which accounted for 39%, 33%, 14% and 11%, respectively, of the SIC’s capacity as of December 31, 2016. The SIC serves approximately 93% of the Chilean population. The second largest power system is the SING system, which has a capacity of 5,401 MW and serves approximately 6% of the Chilean population.

The following table sets forth a summary of capacity and energy sales in the SIC for the periods presented:

	Capacity Sales				Energy Sales
Year Ended December 31,	Regulated customers		Non regulated customers		Regulated customers		Non regulated customers
	(MW)				(GWh)
2012		4,422		1,967		32,031		14,251
2013		4,765		2,029		33,511		14,266
2014		4,923		2,157		34,057		14,920
2015		4,935		2,172		34,410		15,142
2016		5,313		2,443		34,564		15,893

Dominican Republic

According to the Dominican Republic’s National Statistics Office ( Oficina Nacional de Estadística ), the Dominican Republic had a population of approximately 11 million as of December 31, 2016. The Dominican Republic’s GDP grew by 5.9%, 7.0% and 7.3% in 2016, 2015 and 2014, respectively.

Based upon information available from the OC, as of December 31, 2016, HFO plants accounted for 43.5% of the Dominican Republic’s capacity and hydroelectric plants accounted for 17.2%. The remainder of the Dominican Republic’s capacity was provided by open-cycle and combined-cycle plants fueled by natural gas, thermal plants fueled by coal, and wind plants. As of December 31, 2016, thermal plants in the Dominican Republic had a capacity of 2,863 MW, hydroelectric plants in the Dominican Republic had a capacity of 612 MW and wind and solar plants had a capacity of 115 MW, according to the OC.

The large-scale theft of power from the grid is prevalent in the Dominican Republic. Since generation and distribution companies do not pass through the cost associated with such theft to consumers, the government must provide significant subsidies to these companies. For information on the Dominican Republic’s regulatory environment, see “ —IC Power’s Description of Operations—Regulatory, Environmental and Compliance Matters—Regulation of the Dominican Republic Electricity Sector .”

Dominican Republic generation companies sell capacity and energy under PPAs or in the spot market. The following table sets forth a summary of capacity and energy sales in the Dominican Republic market for the periods presented:

	Capacity Sales						Energy Sales
	Under PPAs				Spot Market		Under PPAs				Spot Market
Year Ended December 31,	Distribution		Other Non-regulated				Distribution		Other Non-regulated
	(MW)						(GWh)
2012		1,429		238		634		11,084		1,792		2,657
2013		1,676		212		569		10,929		2,164		3,114
2014		1,453		163		822		10,045		1,389		4,109
2015		1,110		183		1,010		9,411		1,557		4,268
2016		881		184		1,258		9,166		1,623		5,359

Jamaica

According to the World Bank, Jamaica had a population of approximately 3 million as of December 31, 2016. Jamaican GDP grew by 1.5%, 0.9%, and 0.5% in 2016, 2015 and 2014, respectively. Jamaica’s interconnected power system had an installed capacity of approximately 1,017 MW, consisting of thermal and renewable technologies, which accounted for 86% and 14%, respectively, of Jamaica’s capacity as of December 31, 2016, according to the Jamaica Public Service Company.

Unlike the other Latin American and Caribbean countries in which IC Power operates, or may operate in the future, Jamaica does not employ a marginal cost regulatory framework. Generation units are dispatched based on a merit order system per their production cost. The sole distributor of electricity purchase capacity and energy from all other generation companies via PPAs.

The following table sets forth a summary of capacity and energy sales in the Jamaican market for the periods presented:

	Capacity Sales		Energy Sales
Year Ended December 31,	Under PPAs		Under PPAs
	(MW)		(GWh)
2012		854		4,135
2013		854		4,142
2014		938		4,107
2015		935		4,209
2016		1,017		4,344

Colombia

According to the World Bank, Colombia had a population of approximately 48 million as of December 31, 2016. Colombia’s GDP grew by 2.2%, 3.1% and 4.6% in 2016, 2015 and 2014, respectively.

Colombia’s interconnected power system had an installed capacity of approximately 16,597 MW, consisting of hydro, thermal plants, cogenerators and wind, which accounted for 69.9%, 29.4%, 0.6% and 0.1%, respectively, of Colombia’s capacity as of December 31, 2016, according to the Mining and Energy Planning Unit ( Unidad de Planeación Minero Energética ), or UPME.

The following table sets forth a summary of energy sales and consumption in the Colombian market for the periods presented:

	Energy Sales				Energy Consumption
Year Ended December 31,	Under PPAs		Spot Market		Regulated		Non-regulated
	(GWh)				(GWh)
2012		67,183		17,016		39,175		19,800
2013		71,375		14,948		40,282		20,237
2014		69,846		15,544		42,323		20,867
2015		71,549		16,905		44,629		21,187
2016		65,669		20,143		45,029		20,806

Overview of Electricity Distribution Market

Guatemala

Background

During the 1970s, the Guatemalan government was the only distributor of electricity in Guatemala through INDE and Empresa Eléctrica de Guatemala, S.A., or EEGSA. In the next two decades, the Guatemalan electricity sector became increasingly privatized, and in 1994, the Guatemalan government adopted a new law to deregulate and privatize the Guatemalan electricity industry in order to encourage privately funded growth. In 1996, the Guatemalan government adopted the General Electricity Law ( Ley General de Electricidad ), which created a legal and regulatory framework designed to reduce government intervention and attract private investment into the sector.

Operations and regulations

Guatemalan distribution companies acquire electricity on behalf of their clients through PPAs from generation facilities, transport such electricity to their grids, and then deliver electricity through low-voltage and medium-voltage transmission lines to regulated customers and large users and perform a range of related services such as metering, billing and management. Distribution companies also collect tolls from large users for their use of the transmission grid.

The General Electricity Law provides that transmission companies and distribution companies must permit physical connections to the transmission and distribution systems for all customers in exchange for a toll. Large users are entitled to receive electricity from any source and transmission and distribution companies must allow such electricity to pass through their transmission and distribution lines. Distribution and transmission companies are entitled to collect distribution tariffs and transmission tolls for the use of their systems. Failure to provide such access by a transmission or distribution company may lead to fines and ultimately to the termination of such company’s distribution authorization.

There are three large distribution companies authorized to distribute electricity in Guatemala: EEGSA, which predominantly serves Guatemala City, Sacatepéquez and Escuintla (urban areas), and DEORSA and DEOCSA (which operate under the brand name “Energuate”). Guatemala has an electricity distribution market model that supports free access to any person or legal entity that fulfils the requirements of the General Electricity Law. Authorizations for distribution services are granted on a non-exclusive basis for specific geographic areas and have terms of up to 50 years. In addition to these large distribution companies, there are approximately 15 municipal distributors operating in the AMM.

Distribution companies are required to have PPAs in place with generation companies for the supply of sufficient electricity for the current year and the next year. Each year, the AMM estimates the demand for each distribution company for the period from May 1 through April 30 of the following year. Each distribution company is then required to establish its own projection of demand for the following period from May 1 through April 30. This projection of demand is then approved by the AMM and used to establish the distributor’s minimum contracting requirements. If there is a disagreement between the AMM and the distribution companies regarding the demand estimation, the electricity regulator will decide the estimation of the demand. If the contracted capacity and energy under a distributor’s PPAs are insufficient to meet the demand of its customers or prices under PPAs are not advantageous to a distributor, the distributor may make purchases on the spot market, if authorized by the CNEE or permitted under the terms of certain of its PPAs. Under these PPAs, the distributor has the option of purchasing from the generator or in the spot market if the spot market price is lower.

The industry is regulated by MEM, CNEE and AMM. The MEM is responsible for enforcing the General Electricity Law and the related regulations and for the coordination of policies between CNEE and the AMM. The CNEE acts as the technical arm of the MEM and determines the transmission and distribution tariffs while ensuring compliance with electricity laws. The AMM is a private entity that coordinates the operation of the generation facilities and international interconnections and transmission lines that form the Guatemalan National Electricity System. The AMM is responsible for the safety and operation of the Guatemalan National Electricity System, performing economically efficient dispatch, and managing electricity resources in a manner that seeks to minimize operating costs, including failure costs within restrictions imposed by the transmission system and service quality requirements.

For further information on distribution tariffs, see “ —IC Power’s Description of Operations—Regulatory, Environmental and Compliance Matters—Regulation of the Guatemalan Electricity Distribution Market—Tariffs and Tolls .”

For further information on macroeconomic conditions in Guatemala, see “— Overview of Electricity Generation Industry—Guatemala .”

IC Power’s Description of Operations

Generation Operations

IC Power’s generation operations are focused in Latin American and Caribbean markets—primarily Peru—characterized by relatively high rates of GDP growth and relatively low base levels of per capita energy consumption (in comparison to those of developed markets). In July 2013, IC Power commenced commercial operations in Israel, operating the first large-scale private power plant in the country. IC Power’s portfolio includes power generation plants that operate on a range of energy sources, including natural gas, hydroelectric, HFO, diesel and wind. As of December 31, 2016, IC Power’s installed capacity and proportionate capacity were 3,945 MW and 3,152 MW, respectively, including Samay I’s 632 MW cold-reserve thermoelectric plant in Peru, which reached COD in May 2016, CDA’s 545 MW hydroelectric plant located in Peru, which reached COD in August 2016, and Kanan’s 92 MW thermal generation project in Panama, which reached COD in April 2016.

IC Power owns, operates and develops power plants to generate and sell electricity to distribution companies and non-regulated customers under long-term PPAs and to the spot market. IC Power’s largest generation asset is its Kallpa facility, a combined-cycle plant in Peru that includes three gas-fired generation turbines and is the largest power plant in Peru, in terms of capacity. In 2016, 90% of IC Power’s energy and capacity sales were pursuant to long-term PPAs, reducing IC Power’s exposure to fluctuating electricity and fuel prices. IC Power’s generation businesses sold 16,275 GWh of electricity during the year ended December 31, 2016; 6,996 GWh of this electricity, representing 43% of volume sold, to distribution companies, 7,586 GWh of electricity, representing 47% of volume sold, to consumers in the non-regulated markets, and 1,693 GWh of electricity, representing 10% of volume sold, in the spot markets. During the year ended December 31, 2016, IC Power’s operations in Peru generated 28% of IC Power’s consolidated revenues, 157% of its net income and 45% of IC Power’s Adjusted EBITDA.

The following chart sets forth the relative percentages of IC Power’s generation business’ installed capacity by energy source as of December 31, 2016:

Installed Capacity by Energy Source

(December 31, 2016) ¹

3,945 MW ²

1.	IC Power’s dual-fueled assets, COBEE, OPC-Rotem, Samay I and Colmito, are categorized as hydroelectric, natural gas, diesel and natural gas, respectively.

2.	Does not include the 140 MW cogeneration power station which OPC-Hadera began constructing in June 2016 as a greenfield project. COD is expected by early 2019.

The following chart sets forth the relative percentage of IC Power’s generation business’ installed capacity by segment as of December 31, 2016:

Installed Capacity by Segment

(December 31, 2016)

3,945 MW ¹

1.	Does not include the 140 MW cogeneration power station which OPC-Hadera began constructing in June 2016 as a greenfield project. COD is expected by early 2019.

The following table sets forth summary financial information for IC Power’s subsidiaries and associate for the year ended December 31, 2016:

	Year Ended December 31, 2016
Entity	Ownership Interest (%)		Sales		Cost of Sales		Net Income /(Loss)			Adjusted EBITDA			Outstanding Debt ²		Net Debt ³
	($ millions)
GENERATION
Peru segment
Kallpa		75	$	438	$	293	$	32		$	139		$	414	$	393
CDA		75		50		14		—			31			593		556
Samay I		75		40		16		1			19			339		321
Israel segment
OPC-Rotem		80		311		239		24			65			365		328
OPC-Hadera		100		45		43		—			2			—		(1	)
Central America segment
ICPNH ⁴		61-65		90		59		8			28			88		79
Puerto Quetzal		100		55		52		(2	)		5			18		13
Nejapa		100		83		67		6			12			4		3
Cenérgica		100		24		15		3			4			—		(1	)
Kanan		100		67		55		(8	)		11			46		44
Guatemel		100		7		4		—			—			—		(1	)
Other segment
COBEE		100		40		14		9			20			88		51
Central Cardones		87		13		1		2			9			35		32
Colmito		100		21		17		—			3			17		16
CEPP		97		29		24		—			3			11		9
JPPC		100		42		35		(1	)		4			1		(2	)
Surpetroil		60		8		8		(1	)		—			2		1
Recsa		100		1		—		—			—			5		3
Holdings ⁵
IC Power Distribution Holdings		100		—		—		(8	)		—			119		119
Inkia & Other ⁶		100		1		—		(48	)		(5	)		448		394
IC Power, ICPI & Other ⁷		100		—		—		(31	)		(12	)		162		106
DISTRIBUTION
DEORSA		93		225		177		19			36			125		118
DEOCSA		91		284		226		16			46			192		183
TOTAL			$	1,874	$	1,359	$	21		$	420		$	3,072	$	2,764

1.	“Adjusted EBITDA” for each entity for the period is defined as net income (loss) before depreciation and amortization, finance expenses, net and income tax expense (benefit), excluding share in income of associate.

Adjusted EBITDA is 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. Adjusted EBITDA is 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. Adjusted EBITDA presents limitations that impair its use as a measure of profitability since it does not take into consideration certain costs and expenses that result from each business that could have a significant effect on its net income, such as financial expenses, taxes, depreciation, capital expenses and other related charges.

The following tables set forth a reconciliation of net income (loss) to Adjusted EBITDA for IC Power’s generation subsidiaries for the year ended December 31, 2016:

	Kallpa		CDA		Samay I		OPC-Rotem		OPC-Hadera		ICPNH		Puerto Quetzal
	($ millions)
Net income (loss)	$	32	$	—	$	1	$	24	$	—	$	8	$	(2	)
Depreciation and amortization		45		7		8		25		2		11		3
Finance expenses, net		37		17		9		16		—		8		2
Income tax expense (benefit)		25		7		1		—		—		1		2

Adjusted EBITDA	$	139	$	31	$	19	$	6 5	$	2	$	28	$	5

	Nejapa		Cenérgica		Kanan			Guatemel		COBEE		Central Cardones		Colmito
	($ millions)
Net income (loss)	$	6	$	3	$	(8	)	$	—	$	9	$	2	$	—
Depreciation and amortization		3		—		18			—		4		5		1
Finance expenses, net		—		—		2			—		4		1		2
Income tax expense		3		1		(1	)		—		3		1		—
Adjusted EBITDA	$	12	$	4	$	11		$	—	$	20	$	9	$	3

	CEPP		JPPC			Surpetroil			RECSA		IC Power Distribution Holdings			Inkia & Other			IC Power, ICPI & Other
	($ millions)
Net income (loss)	$	—	$	(1	)	$	(1	)	$	—	$	(8	)	$	(48	)	$	(31	)
Depreciation and amortization		3		4			1			—		—			13			—
Finance expenses, net		—		1			—			—		8			30			19
Share in income of associate		—		—			—			—		—			(1	)		—
Income tax expense (benefit)		—		—			—			—		—			1			—
Adjusted EBITDA	$	3	$	4		$	—		$	—	$	—		$	(5	)	$	(12	)

	DEOCSA		DEORSA		IC Power Total
	($ millions)
Net income (loss)	$	19	$	16	$	21
Depreciation and amortization		11		8		172
Finance expenses, net		9		6		171
Share in income of associate		—		—		(1	)
Income tax expense		7		6		57
Adjusted EBITDA	$	46	$	36	$	420

2.	Includes short-term and long-term debt and excludes loans and notes owed to a parent company.

Net Debt is defined as total debt attributable to each of the companies, excluding debt owed to a parent company, and the cash and short term deposits and restricted cash of the relevant company. Net Debt is not a measure recognized under IFRS. The tables below set forth a reconciliation of total debt to net debt for IC Power and its subsidiaries.

Commitment Fee

During the initial five-year term, we will pay IC an annual commitment fee equal to 2.1% of the undrawn amount of the IC Credit Facility, which will be capitalized as a payment-in-kind and added to the outstanding amount of the IC Credit Facility. Additionally, we may voluntarily prepay the outstanding principal amount of the IC Credit Facility at any time without premium or penalty.

Pledge of Equity Interest in IC Power

The following interests have been pledged on a first priority basis, in favor of IC, to secure the IC Credit Facility as set forth below:

66% of the shares of ICP;

66% of the shares of IC Power; and

the $145 million note owing from IC Power to Kenon entered into in connection with the reorganization of IC Power.

The pledge over the shares of ICP is expected to be released upon an IPO of IC Power. In addition, the pledge over the shares of IC Power and the $145 million note owing from IC Power to Kenon can be released upon an IPO of IC Power, subject to Kenon’s meeting of a financial ratio.

Restrictive Covenants

The IC Credit Facility contains incurrence covenants restricting our ability to encumber certain assets and distribute dividends.

For example, prior to a listing or offering of IC Power’s equity, the IC Credit Facility prohibits us from distributing dividends to our shareholders, unless such dividends consist of all, or a portion of, our equity interests in ZIM.

There are further restrictions on dividends following an IPO or listing of IC Power’s equity. If, any time after a listing of IC Power’s equity, we seek to (i) distribute a dividend to our shareholders (in cash or in kind), (ii) incur additional debt, (iii) sell, transfer, or allocate a portion, or all, of our interest in IC Power, or (iv) sell all of IC Power’s assets, the IC Credit Facility will require the value of Kenon’s remaining interest in IC Power to be equal to at least two times Kenon’s net debt (which shall be equal to the outstanding principal amount of the IC Credit Facility plus the outstanding principal amount of any additional debt owed by Kenon to third-parties minus Kenon’s cash on hand), in each case plus interest and fees. Although a failure to comply with any of the aforementioned covenants will not constitute an event of default under the terms of the IC Credit Facility, Kenon will be restricted from distributing dividends or incurring additional debt and, should Kenon distribute dividends or incur additional indebtedness notwithstanding such restrictions, such actions will constitute an event of default under the terms of the IC Credit Facility. If Kenon is unable to meet such ratio, Kenon may not make distributions to its shareholders or incur additional indebtedness.

Additionally, following an IPO or listing of IC Power’s equity, we will not engage in certain transactions, as set forth in the IC Credit Facility, which would result in a de-listing of IC Power’s shares from the exchange on which such shares are trading.

Assignability

We may not assign or delegate our rights and obligations under the IC Credit Facility without IC’s prior written consent, except that we may assign our rights and obligations under the IC Credit Facility to an affiliate, provided that we remain jointly and severally liable for all such obligations with such affiliate, and further provided that such assignment or delegation shall not serve to prejudice any of IC’s rights under the terms of the IC Credit Facility.

IC is entitled to assign or delegate its rights and obligations under the IC Credit Facility in its sole discretion, and without our prior written consent.

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For information on the risks related to Kenon’s ability to repay, or maintain compliance with, the IC Credit Facility from IC, see “ Item 3.D Risk Factors—Risks Related to Our Strategy and Operations—Kenon has significant repayment obligations under the IC Credit Facility. ”

Back-to-Back Guarantees Provided to Chery

Kenon provided back-to-back guarantees to Chery in respect of certain of Qoros’ RMB3 billion EXIM bank credit facility and its RMB700 million EXIM bank loan facilities. As of December 31, 2015, the outstanding amount of these back-to-back guarantees was RMB1,100 million (plus certain interest and fees). In December 2016 and March 2017, Kenon entered into agreements with Chery to provide financing to Qoros of up to RMB1,027 million in connection with a full release of Kenon’s back-to-back guarantee obligations to Chery (as discussed further below).

In December 2016, Kenon provided a RMB250 million shareholder loan to Qoros, and in connection with this loan, the maximum amount of Kenon’s back-to-back guarantee obligations to Chery was reduced by RMB250 million. In addition, Kenon’s major shareholder Ansonia committed to fund RMB25 million of Kenon’s remaining back-to-back guarantee obligations to Chery in certain circumstances. After giving effect to this transaction and Ansonia’s commitment to fund a portion of Kenon’s back-to-back guarantees, Kenon’s exposure with respect to its back-to-back guarantee obligations was reduced from RMB1,100 million (plus certain interest and fees) to RMB825 million (plus certain interest and fees). For further information on these loans, see “— Qoros’ Liquidity and Capital Resources —Material Indebtedness — December 2016 Shareholder Loans to Qoros .”

In March 2017, Kenon agreed to fund shareholder loans of up to RMB777 million to Qoros in two equal tranches in connection with the full release of its remaining RMB850 million back-to-back guarantee obligations (plus related interest and fees) to Chery. The first tranche of loans were provided to Qoros in March 2017 in the amount of RMB388.5 million, reducing Kenon’s back-to-back guarantee obligations to Chery by RMB425 million. As part of the RMB388.5 million first tranche loans to Qoros, Kenon funded 50% of this amount on behalf of Chery in connection with 50% of the RMB425 million guarantee reduction discussed above and 50% of this amount on behalf of Kenon.

Should the second tranche of loans be provided, they are expected to be made on substantially similar terms to the first tranche loans. Kenon’s remaining back-to-back guarantee obligations to Chery will be fully released upon its provision of the second tranche loans. For further information on Kenon’s March 2017 agreement to fully release its guarantee obligations, see “— Qoros’ Liquidity and Capital Resources—Material Indebtedness — March 2017 Shareholder Loans to Qoros .”

Set forth below is an overview of Kenon’s back-to-back guarantee obligations in respect of Qoros’ outstanding obligations, after giving effect to the reduction of the back-to-back guarantees discussed above

	Timing	Amount of Loans to Qoros	Amount of Guarantee Obligations Prior to Loan	Release of Kenon Guarantees to Chery	Remaining Guarantee Obligations Post-Loan
December 2016 Shareholder Loans	Completed in December 2016	RMB250 million	RMB1,100 million (plus interest and fees)	RMB250 million (plus certain interest and fees) ¹	RMB825 million (plus certain interest and fees)
First Tranche Loans	Completed in March 2017	RMB388.5 million	RMB850 million (plus interest and fees) ¹	RMB425 million (plus certain interest and fees)	RMB425 million (plus certain interest and fees)
Second Tranche Loans	To be determined	RMB388.5 million	RMB425 million (plus certain interest and fees) ¹	RMB425 million (plus certain interest and fees)	—
Total		RMB1,027 million	—	RMB1,100 million (plus interest and fees)	—

_____________________________

^1. Kenon’s major shareholder Ansonia committed to fund RMB25 million of Kenon’s back-to-back guarantee obligations in certain circumstances.

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Debt Owed to Kenon from Subsidiaries

$220 Million of Notes from IC Power

In connection with the reorganization of IC Power, IC Power issued notes of $145 million and $75 million payable to Kenon. The proceeds of the notes were applied by IC Power towards paying the purchase consideration for the acquisition of Kenon’s entire equity interest in ICP. The notes both bear interest at a rate of LIBOR + 6% per annum until the date the notes are fully paid. In October 2016, IC Power prepaid in full its $75 million note to Kenon. The proceeds that Kenon received provided Kenon with additional cash resources in light of its liquidity position and its obligations under its back-to-back guarantees of Qoros’ indebtedness.

Debt Owed to Kenon from Subsidiaries

Prior to the spin-off, some of our businesses borrowed funds from, or issued capital notes to, IC. IC transferred its interest in each of the outstanding loans and capital notes to Kenon in connection with the spin-off. These loans and capital notes, as well as loans and capital notes provided to Kenon subsequent to the spin-off, are described below.

Quantum Capital Notes

Quantum issued a series of capital notes to IC or Kenon, as applicable, in connection with each of IC’s or Kenon’s, as applicable, equity contributions to Qoros. The capital notes issued by Quantum bear no interest and are not linked.

Qoros Shareholder Loans

In January 2016 and February 2016, Kenon, through its wholly-owned subsidiary Quantum, contributed RMB275 million to Qoros via shareholder loans. Chery has also made similar shareholder loans to Qoros.

In December 2016, Kenon provided a RMB250 million shareholder loan to Qoros, and in connection with this loan from Kenon, the maximum amount of Kenon’s exposure with respect to its back-to-back guarantee obligations to Chery was reduced by RMB275 million as follows. As part of the loan to Qoros, Kenon’s back-to-back guarantee obligations to Chery with respect to Chery’s guarantee of Qoros’ RMB3 billion loan facility with the EXIM Bank was reduced from RMB750 million to RMB500 million. In addition, Kenon’s major shareholder Ansonia committed to fund RMB25 million of Kenon’s remaining back-to-back guarantee obligations to Chery in certain circumstances.

In connection with Kenon’s loan to Qoros, Chery also agreed to make a corresponding RMB250 million loan to Qoros. The proceeds of these loans were used to support Qoros’ ordinary course working capital requirements and Qoros’ investments in new initiatives, such as new-energy vehicles, while it continues its fund raising efforts.

As part of this transaction, Kenon’s subsidiary Quantum pledged approximately 9% of the outstanding shares of Qoros to Chery to secure the back-to-back guarantee reduction of RMB250 million (i.e., if Chery is required to make payments on its guarantee of Qoros’ debt, then to the extent that Chery makes payments that would have been reimbursed by Kenon but for the back-to-back guarantee reduction, Chery will be entitled to enforce this pledge). Chery may also borrow from Quantum up to 5% of Qoros’ outstanding shares to meet its pledge obligations under the RMB1.2 billion credit facility. The number of Qoros shares pledged to Chery is subject to adjustment from time to time. In certain circumstances, Quantum must pledge additional shares (to the extent it has unencumbered shares), and in other circumstances the pledged shares may be released and the borrowed shares must be returned (e.g., in the event that Quantum is required to pledge additional shares to secure the RMB1.2 billion credit facility).

As of December 31, 2016, the outstanding balance of the shareholder loans by Kenon, through its wholly-owned subsidiary, Quantum to Qoros was RMB700 million.

In addition, in March 2017, Kenon funded shareholder loans of RMB388.5 million to Qoros, as discussed further in “-— Qoros’ Liquidity and Capital Resources——Material Indebtedness—March 2017 Shareholder Loans to Qoros .”

These shareholder loans may be converted into equity upon the satisfaction of certain conditions, including the approval of the relevant Chinese authorities.

The following discussion sets forth the liquidity and capital resources of each of our businesses.

IC Power’s Liquidity and Capital Resources

As of December 31, 2016, IC Power had cash and cash equivalents of $219 million. IC Power had no short-term deposits as of December 31, 2016. In addition, Kenon intends to borrow up to $50 million from IC Power in the near-term.

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IC Power’s total outstanding consolidated indebtedness was $3,072 million as of December 31, 2016, excluding the $145 million note payable to Kenon. IC Power regularly assesses opportunities to refinance its indebtedness in the capital markets and through bank loans, among other sources.

IC Power’s principal sources of liquidity have traditionally consisted of cash flows from operating activities, including dividends received from entities in which IC Power owns non-controlling interests; short-term and long-term borrowings; and sales of bonds in domestic and international capital markets. IC Power does not have funds designated for, or subject to, permanent reinvestment in any country in which IC Power operates. Distributions of the earnings of IC Power’s foreign subsidiaries are subject to the withholding taxes imposed by the foreign subsidiaries’ jurisdictions of incorporation. From time to time, however, IC Power may be unable to receive dividends from its subsidiaries and associated company as a result of a lack of distributable reserves or limitations under IC Power’s contractual arrangements.

In addition, IC Power is also limited in usage of certain cash, with such restricted cash constituting an aggregate amount of $89 million, $252 million and $88 million as of December 31, 2016, December 31, 2015 and December 31, 2014, respectively, either because such cash deposits are time deposits or as a result of the loan covenants relating to IC Power’s Bolivian, Chilean, Nicaraguan, Guatemalan, Jamaican and Israeli assets.

IC Power’s principal needs for liquidity generally consist of capital expenditures related to the development and construction of generation projects and the acquisition of other generation companies; working capital requirements (e.g., maintenance costs that extend the useful life of IC Power’s plants); and dividends on IC Power’s ordinary shares. As part of IC Power’s growth strategy, IC Power expects to develop, construct and operate greenfield projects in the markets that IC Power serves as well as starts projects or acquire controlling interests in operating assets within and outside Latin America. IC Power’s development of greenfield projects and its acquisition activities in the future may require IC Power to make significant capital expenditures and/or raise significant capital. IC Power believes that its liquidity is sufficient to cover its working capital needs in the ordinary course of IC Power’s business.

As of December 31, 2016, IC Power had negative working capital. IC Power’s $120 million ICPDH Credit Agreement and $100 million Overseas Facility mature in June 2017 and November 2017, respectively. IC Power may seek to extend the final maturity of or refinance such indebtedness.

IC Power’s Cash Flows

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

The following table sets forth IC Power’s summary cash flows from IC Power’s operating, investing and financing activities for the years ended December 31, 2016 and 2015:

	Year Ended December 31,
	2016			2015
	($ millions)
Net cash flows provided by operating activities	$	186		$	320
Net cash flows used in investing activities		(270	)		(621	)
Net cash flows (used in)/provided by financing activities		(62	)		88
Net change in cash in period		(146	)		(213	)
Cash—opening balance		360			583
Effect of exchange rate on the cash		5			(10	)

Cash—closing balance	$	219		$	360

IC Power’s Cash Flows Provided by Operating Activities

Cash flows provided by IC Power’s operating activities are its primary source of liquidity and decreased by 42% to $186 million for the year ended December 31, 2016 from $320 million for the year ended December 31, 2015. This decrease was primarily driven by (1) a $57 million decrease in OPC-Rotem’s net cash flows from operating activities as a result of a $40 million system costs provision paid by OPC-Rotem in February 2016 and lower operating results during the period; (2) a $24 million decrease in ICPNH’s net operating cash flows as a result of a timing difference in collection from customers (as January 2016 payables to ICPNH were collected during December 2015), as well as lower energy sales due to lower wind levels at the Amayo plants; (3) a $23 million decrease in CEPP’s net cash flows from operating activities as a result of the collection of $31 million from its accounts receivable due to the debt recognition and payment agreement signed by CEPP, the Dominican Republic’s regulator and three distribution companies in September 2015; and (4) a $14 million decline as a result of the consolidation of negative operating cash flows from DEORSA and DEOCSA due to their respective payments of $29 million and $50 million in connection with tax claims raised by the Guatemalan Tax Administrator up to December 2016.

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IC Power’s Cash Flows Used in Investing Activities

Cash flows used in IC Power’s investing activities decreased by 57% to $270 million for the year ended December 31, 2016 from $621 million for the year ended December 31, 2015. This decrease was primarily driven by (1) a $305 million increase in proceeds of short-term deposits and restricted cash, net, principally as a result of the release of funds held in escrow for the account of ICPDH and the release of short-term deposits, both in connection with IC Power’s acquisition of Energuate; and (2) a $229 million decrease in acquisitions of property, plant and equipment, as discussed below. These effects were partially offset by $206 million of cash used in business combinations (net of cash acquired), related primarily to IC Power’s acquisition of Energuate.

During 2016, net cash used in investing included primarily: (1) $290 million related to acquisitions of property, plant and equipment, of which $72 million was used in the construction of the CDA plant, $66 million was used in the construction of the Samay I plant, $53 million was used in the construction of the OPC-Hadera plant, and $16 million was used in Kanan’s project installation and connection to Panama’s power system, and (2) $206 million disbursed for the business combination (net of the cash acquired) related to IC Power’s acquisition of Energuate and two related businesses. The effects of these factors were partially offset by IC Power’s receipt of $222 million in short-term deposits and restricted cash, net, mainly related to the $117 million released by ICPDH in connection with IC Power’s acquisition of Energuate and the $47 million released by ICPI in connection with its repayment of one of the facilities under the ICPI Mezzanine Financing Agreement in January 2016.

During 2015, investing activities for which IC Power used cash primarily consisted of (1) acquisitions of property, plant and equipment of $518 million, which primarily consisted of $225 million used in the construction of Samay I, $187 million used in the construction of CDA’s plant, $29 million used in Kanan’s project installation and interconnection to Panama’s power system and $9 million used in the acquisition of OPC-Hadera; (2) $83 million for short-term deposits and restricted cash, net, principally related to the funds received by ICPDH, which acquired indirect equity interests in DEORSA, DEOCSA, RECSA and Guatemel, in connection with the short-term loan for the acquisition of such businesses in January 2016; and (3) $17 million related to the acquisition of intangibles.

IC Power’s Cash Flows Provided by Financing Activities

Cash flows disbursed from IC Power’s financing activities were $62 million for the year ended December 31, 2016 compared to $88 million provided by IC Power’s financing activities for the year ended December 31, 2015.

During the year 2016, IC Power received aggregate proceeds of $641 million from its incurrence of long-term debt, which included:

$350 million from the May 2016 issuance of Kallpa bonds;

$100 million borrowed under the Overseas Facility;

$55 million borrowed under the Kanan Credit Facility;

$44 million borrowed under the CDA Finance Facility;

$24 million borrowed under the DEOCSA Syndicated Loan Facility;

$20 million borrowed under the Samay I Finance Facility;

$22 million from the issuance of the COBEE Bonds;

$16 million borrowed under the DEORSA Syndicated Loan Facility; and

$12 million borrowed under the Puerto Quetzal Finance Facility.

In addition, IC Power received net proceeds of $33 million from short-term borrowings and $9 million of capital contributions from minority shareholders related to CDA and Surpetroil.

During 2016, IC Power used cash to (1) make payments of long-term debt and capital notes of $445 million, including cash used for the repayment of Kallpa’s bonds with the proceeds from Kallpa’s issuance of $350 million of bonds in May 2016, (2) pay $151 million of interest on borrowings, (3) repay a $75 million note payable to Kenon, plus $3 million of interest; (4) pay $29 million of issuance expenses and premium mainly in connection with the Kallpa bonds and the Overseas Facility, and (5) distribute dividends of $33 million to IC Power’s subsidiaries´ minority shareholders.

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During 2015, IC Power received aggregate proceeds of $226 million from the incurrence of long-term debt and $6 million from equity investments from certain of its partners, as follows:

$138 million borrowed under the Samay I Finance Facility;

$85 million borrowed under the CDA Finance Facility;

$6 million from the investment of Energía del Pacífico in CDA and the investment of the minority partner in Surenergy; and

$3 million borrowed under Tipitapa Power’s loan agreement.

The receipt of such proceeds were offset by repayments of long-term notes, debentures and capital notes of $138 million in 2015.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

The following table sets forth IC Power’s summary cash flows from IC Power’s operating, investing and financing activities for the years ended December 31, 2015 and 2014:

	Year Ended December 31,
	2015			2014
	($ millions)
Net cash flows provided by operating activities	$	320		$	413
Net cash flows used in investing activities		(621	)		(378	)
Net cash flows provided by financing activities		88			47
Net change in cash in period		(213	)		82
Cash—opening balance		583			517
Effect of exchange rate on the cash		(10	)		(16	)

Cash—closing balance	$	360		$	583

IC Power’s Cash Flows Provided by Operating Activities

Net cash flows provided by IC Power’s operating activities are IC Power’s primary source of liquidity and decreased by 23% to $320 million for 2015 from $413 million for 2014. This decrease was primarily driven by (1) a $107 million decrease in OPC-Rotem’s net cash flows from operating activities, primarily as a result of a lower generation component tariff, which serves as the base for the price calculation for the billing of OPC-Rotem’s customers; and (2) $22 million in dividends from discontinued operations as a result of the sale of Enel Generación Perú, which took place in 2014.

These factors were partially offset by (1) a $15 million increase in ICPNH´s net cash flows from operating activities primarily as a result of full year of ICPNH´s operations and increased revenue from Amayo I and Amayo II as a result of better wind conditions; (2) a $9 million increase in CEPP’s net cash flows from operating activities, primarily as a result of the collection of $32 million from its accounts receivable as a result of the debt recognition and payment agreement signed by CEPP, the Dominican Regulator and three distribution companies in September 2015; (3) a $7 million increase in Inkia’s net cash flows from operating activities primarily as a result of lower legal expenses during 2015; and (4) a $3 million increase in Chilean´s net cash flows from operating activities primarily as a result of better 2015 operating results in Central Cardones and Colmito.

IC Power’s Cash Flows Used in Investing Activities

Net cash flows used in IC Power’s investing activities increased by 64% to $621 million for 2015 from $378 million for 2014.

During 2015, investing activities for which IC Power used cash primarily consisted of (1) acquisitions of property, plant and equipment of $518 million, of which $225 million was used in the construction of Samay I, $187 million was used in the construction of CDA’s plant, and $29 million was used in Kanan’s project installation and interconnection to Panama’s power system; (2) $83 million for short-term deposits and restricted cash, net, principally related to the funds received by ICPDH, which holds indirect equity interests in DEORSA, DEOCSA, RECSA and Guatemel, in connection with the short-term loan for the acquisition of such businesses; and (3) $17 million related to the acquisition of intangibles.

During 2014, cash flows used in IC Power’s investing activities primarily consisted of acquisitions of property, plant and equipment of $426 million, of which $260 million was used in connection with the construction of CDA’s plant and $85 million was used in connection with the construction of Samay I; (2) $221 million for short-term deposits and restricted cash, net, in connection with the opening of time deposits related to the proceeds from Enel Generación Perú sale; and (3) $70 million (net of cash received) to complete the acquisitions of ICPNH, JPPC, Surpetroil and Puerto Quetzal. The effects of these expenditures were partially offset by $360 million of net proceeds received by IC Power in connection with its sale of its indirect equity interest in Enel Generación Perú in September 2014.

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IC Power’s Cash Flows Provided by Financing Activities

Net cash flows provided by IC Power’s financing activities increased by 87% to $88 million for 2015 compared to $47 million for 2014.

During 2015, IC Power received aggregate proceeds of $226 million from its incurrence of long-term debt and $6 million from equity investments from certain of its partners, as follows:

$138 million borrowed under the Samay I Finance Facility;

$85 million borrowed under the CDA Finance Facility;

$3 million borrowed under Tipitapa Power’s loan agreement; and

$6 million from the investment of Energía del Pacífico in CDA and the investment of the minority partner in Surenergy.

The receipt of such proceeds were offset by repayments of long-term notes, debentures and capital notes of $138 million in 2015.

During 2014, IC Power received aggregate proceeds of $667 million from IC Power’s issuance of long-term debt and $20 million from equity investments from certain of IC Power’s partners, as follows:

$319 million borrowed under the CDA Finance Facility;

$153 million borrowed under the Samay I Finance Facility;

$93 million borrowed under ICPI’s credit facility;

$43 million from the issuance of the COBEE bonds;

$25 million from the issuance of the CEPP bonds;

$23 million borrowed under Colmito’s credit facility;

$2 million borrowed under Tipitapa Power’s loan agreement; and

$20 million from the investment of Energía del Pacífico in Samay I.

In addition, in 2014, IC Power made payments of $300 million to IC, IC Power’s former parent. In May 2014, IC Power repaid $168 million of intercompany debt owed to IC. In June 2014, IC Power repaid $95 million of capital notes owed to IC and declared and distributed dividends of $37 million to IC.

IC Power’s Material Indebtedness

As of December 31, 2016, IC Power had cash and cash equivalents of $219 million, restricted cash of $89 million, and total outstanding consolidated indebtedness of $3.1 billion (excluding IC Power’s $145 million note payable to Kenon), consisting of $483 million of short-term indebtedness, including the current portion of long-term indebtedness, and $2,590 million of long-term indebtedness.

Other than with respect to certain of its indebtedness of its subsidiaries, including OPC-Rotem, DEORSA, DEOCSA, ICPI and COBEE, IC Power’s outstanding consolidated indebtedness is primarily denominated in, indexed to, or the subject of interest rate swaps tied to, the U.S. Dollar. Additionally, OPC-Hadera’s NIS 1 billion (approximately $261 million) loan agreement, entered into in July 2016, is not denominated in, indexed to, or the subject of interest rate swaps tied to, the U.S. Dollar.

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The following table sets forth selected information regarding IC Power’s principal outstanding short-term and long-term debt, as of December 31, 2016:

	Outstanding Principal Amount as of December 31, 2016			Interest Rate	Final Maturity	Amortization Schedule
	($ millions)
Inkia:
Inkia notes		448		8.375%	April 2021	Bullet payment at final maturity
IC Power Asia Development Ltd:
Bank Hapoalim New York		12		0.75%	2019	Bullet payment at final maturity
OPC:
Financing agreement ¹		365	²	4.85%-5.36%	July 2031	Quarterly principal payments to maturity
ICPDH:
ICPDH credit agreement		119		LIBOR+4.00%	June 2017	Bullet payment at final maturity
IC Power Israel ³ :
Tranche B		52		7.75%	2029	Annual principal payments to maturity
Cerro del Águila:
Tranche A		336		LIBOR+4.25% - 5.50%	August 2024	Quarterly principal payments to maturity
Tranche B		181		LIBOR+4.25% - 6.25%	August 2024	Bullet payment at final maturity
Tranche D1		40		LIBOR+2.75% - 3.60%	August 2024	Quarterly principal payments to maturity
Tranche D2		22		LIBOR+2.75% - 3.60%	August 2027	Quarterly principal payments commencing in May 2024 to maturity
Samay I:
Samay I Finance Facility		307		LIBOR+2.125% - 2.625%	December 2021	29% of principal to be paid in 23 quarterly payments to maturity 71% of principal to be paid in bullet payment at final maturity
Kallpa:
Las Flores lease		88		7.15%	October 2023	Quarterly principal payments to maturity
Kallpa notes due 2026		326		4.875%	May 2026	Bullet payment at final maturity
Overseas Investments Peru
Overseas Facility		97		Various	November 2017	Bullet payment at final maturity
COBEE:
COBEE III bonds		20		Various	Various	Series B: semi-annual principal payments until maturity Series C: Semi-annual principal payments commencing in February 2017 First additional series of notes: bullet payment at final maturity Series additional series of notes: semi-annual principal payments to maturity
COBEE IV bonds		60		Various	Various	Series A: bullet payment at final maturity Series B: 4 semi-annual principal payments commencing in July 2018 Series C: 8 semi-annual principal payments commencing in July 2020
COBEE bonds premium		4		Various	2017-2024	Various
CEPP:
CEPP bonds		10		6.00%	January-March 2019	Bullet payment at final maturity
Central Cardones:
Tranche 1		22		LIBOR+1.90%	August 2021	Semi-annual principal payments to maturity
Tranche 2		13		LIBOR+2.75%	August 2021	Bullet payment at final maturity
Colmito:
Banco Bice		17		7.9%	December 2028	Semi-annual principal payments to maturity

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	Outstanding Principal Amount as of December 31, 2016			Interest Rate	Final Maturity	Amortization Schedule
JPPC:
Royal Bank of Canada		1		LIBOR+5.5%	March 2017	Quarterly principal payments to maturity
Burmeister & Wain Scandinavian Contractor		1		3.59%	August 2018	Monthly principal payments to maturity
ICPNH:
Amayo I		43		Various	February 2023	Quarterly principal payments to maturity
Amayo II		31		Various	September 2025	Quarterly principal payments to maturity
Tipitapa Power		6		8.35%	November 2018	Quarterly principal payments to maturity
Corinto		7		8.35%	December 2018	Quarterly principal payments to maturity
Puerto Quetzal:
Banco Industrial		12		LIBOR+4.5%	December 2021	Quarterly principal payments to maturity
Kanan:
Kanan Credit Facility		46		LIBOR+3.00% (with a floor of 3.50%	March 2021	Quarterly principal payments to maturity
DEORSA:
Syndicated loan		113	⁴	Various	2021-2025	Quarterly principal payments to maturity
DEOCSA:
Syndicated loan		174	⁵	Various	2021-2025	Quarterly principal payments to maturity
RECSA:
Banco G&T Continental		5		TAPP-6.63%	2020	Semi-annual principal payments to maturity
Short Term Loans from Banks		94		Various	2017	These loans have no amortization schedule

Total		3,072

1.	The consortium includes Bank Leumi Le-Israel B.M. and institutional entities from the following groups: Clal Insurance Company Ltd.; Amitim Senior Pension Funds; Phoenix Insurance Company Ltd.; and Harel Insurance Company Ltd.

2.	Represents NIS 1,402 million converted into U.S. Dollars at the exchange rate for New Israeli Shekels into U.S. Dollars of NIS 3.841 to $1.00. All debt has been issued in Israeli currency (NIS) linked to CPI.

3.	The mezzanine financing agreement also includes a Tranche C, pursuant to which up to NIS 350 million, at an interest rate of 11% per annum, may be drawn, subject to certain conditions, and only to cover shortfall amounts.

Includes 275 million Guatemalan Quetzales, the aggregate principal amount of Guatemalan Quetzales-denominated loans outstanding under the syndicated loan facility, converted into U.S. Dollars at the exchange rate for Guatemalan Quetzales into U.S. Dollars of 7.52 to $1.00 as reported by the Central Bank of Guatemala on December 31, 2016.

Includes 383 million Guatemalan Quetzales, the aggregate principal amount of Guatemalan Quetzales-denominated loans outstanding under the syndicated loan facility, converted into U.S. Dollars at the exchange rate for Guatemalan Quetzales into U.S. Dollars of 7.52 to $1.00 as reported by the Central Bank of Guatemala on December 31, 2016.

Some of the debt instruments to which IC Power’s operating companies are party require that Inkia, Kallpa, OPC-Rotem, COBEE, CEPP and JPPC comply with financial covenants, semi-annually or quarterly. 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 IC Power 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.

As of December 31, 2016, the Las Flores plant, which is under leasing agreements with a financial institution, was pledged as security for the financing agreements to which Kallpa is a party.

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In addition, all of the assets of Kanan have been pledged as security for the credit facility to which Kanan is a party.

IC Power has entered into hedging arrangements with respect to a portion of IC Power’s long term debt, swapping variable interest for fixed rate interest.

Inkia Notes

In April 2011, Inkia issued and sold $300 million aggregate principal amount of its 8.375% Senior Notes due 2021, which are listed on the Global Exchange Market of the Irish Stock Exchange. Interest on these notes is payable semi-annually in arrears in April and October of each year and these notes mature in April 2021. Inkia used the net proceeds of the sale of these notes to finance a portion of its equity contributions to CDA, to repurchase all of its secured indebtedness, and for working capital and general corporate purposes.

In September 2013, Inkia issued and sold $150 million aggregate principal amount of its 8.375% Senior Notes due 2021, which constituted additional notes under the indenture governing the 8.375% Senior Notes due 2021 issued in 2011. Inkia used the net proceeds of the sale of these notes to fund its projects under construction, both through greenfield projects and acquisitions, and for working capital and general corporate purposes.

In September 2014, Inkia received the requisite consents necessary to amend the indenture governing its 8.375% Senior Notes due 2021 in connection with (1) the contribution by Inkia’s former parent company, IC, of certain of its businesses and associated companies, including Inkia, to Kenon, thereby permitting the spin-off of Kenon from IC in January 2015 without requiring a change of control offer to be made to holders of the notes, and (2) the sale by Inkia of all its equity interests in Acter Holdings, which indirectly held all of Inkia’s equity interest in Enel Generación Perú, to Enersis S.A. and the repayment of certain indebtedness in connection therewith, which amended the asset sale covenant to require that Inkia apply the net proceeds received from such sale within 30 months of Inkia’s receipt of such net proceeds (i.e., prior to March 2017).

As of December 31, 2016, the aggregate principal amount outstanding under these notes, including a premium, was $457 million ($448 million net of transaction costs).

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. As part of the financing agreement, the lenders committed to provide OPC-Rotem a long-term credit facility (including a facility for variances in the construction costs), a working capital facility, and a facility for financing the debt service, in the overall amount of NIS 1,800 million (approximately $460 million). As part of the financing agreement, certain restrictions were provided with respect to distributions of dividends and repayments of shareholders’ loans, commencing from the third year after the completion of OPC-Rotem’s power plant. In October 2015, OPC-Rotem and the consortium of lenders agreed to shorten the “lock-up period” (which restricted the payment of dividends and any type of distributions until the third anniversary of the completion of the OPC-Rotem plant’s construction) from December 31, 2016 to June 30, 2015. The loans are CPI-linked and are repayable on a quarterly basis beginning in the fourth quarter of 2013 until 2031.

IC Power has provided a guarantee to the lending consortium and holds cash collateral available for the benefit of the lending consortium. As of December 31, 2016, the outstanding amount of the loan is NIS 1,409 million (approximately $365 million).

ICPDH Credit Agreement

In December 2015, IC Power, through its subsidiary ICPDH entered into a credit agreement with Credit Suisse AG for $120 million to finance its acquisition of Energuate and two smaller related companies. The loan is guaranteed by Inkia and fully secured by a pledge provided by ICPDH, which indirectly holds IC Power’s interests in Energuate, RECSA and Guatemel. The pledged property includes ICPDH’s indirect equity interests in Energuate, RECSA and Guatemel.

The loan will accrue interest at a rate per annum of LIBOR + 4.00%, and matures on June 29, 2017. As of December 31, 2016, the aggregate principal amount outstanding under this facility was $120 million ($119 million net of transaction costs).

ICPI Mezzanine Financing Agreement

In June 2014, IC Power, through IC Power’s subsidiary ICPI, entered into a mezzanine financing agreement for NIS 350 million (approximately $93 million) to repay capital notes owed to IC. The agreement was entered into with Mivtachim the Workers Social Insurance Fund and Makefet Fund Pension and Provident Center. The loan is secured by all of ICPI’s assets (excluding the assets that are pledged to secure certain senior debt) and the free cash flow deriving from OPC-Rotem and is composed of three facilities: Facility A for NIS 150 million (approximately $40 million), which was fully repaid in January 2016, Facility B for NIS 200 million, and Facility C (only to cover shortfall amounts) for NIS 350 million (approximately $93 million). Facility C has not been used. All facilities are CPI-linked.

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The principal of Facility B Loan will bear interest at a rate of 7.75% per year and accrue bi-annually. Principal and any linkage differentials thereon shall be paid in consecutive equal bi-annual installments until March 31, 2029, commencing on the earlier of: (i) the final maturity date of Facility A and (ii) the first anniversary after the end of OPC-Rotem’s “lock-up period.” As of December 31, 2016, the aggregate principal amount outstanding under these facilities was $52 million.

CDA Finance Facility

In August 2012, CDA, as borrower, Sumitomo Mitsui Banking Corporation, as administrative agent, certain financial institutions, as lenders, and other parties thereto, entered into a senior secured syndicated credit facility in an aggregate principal amount not to exceed $591 million to finance the construction of CDA’s plant. Loans under this facility were disbursed in three tranches.

Tranche A loans under this facility, in an aggregate principal amount of up to $342 million, initially bear interest at the rate of LIBOR plus 4.25% per annum, increasing over time beginning on the date after the interest payment date occurring after August 2017 to LIBOR plus 5.50% per annum. Principal of the Tranche A loans will be payable in 33 quarterly installments commencing on the first quarterly payment date occurring after the project acceptance by CDA. Tranche A loans will be guaranteed by Corporación Financiera de Desarollo S.A., or COFIDE.

Tranche B loans under this facility, in an aggregate principal amount of up to $184 million, initially bear interest at the rate of LIBOR plus 4.25% per annum, increasing over time beginning on the date after the interest payment date occurring after August 2017 to LIBOR plus 6.25% per annum. Principal of the Tranche B loans will be payable in August 2024. Tranche B loans will be will be guaranteed by COFIDE.

Tranche D loans under this facility, in an aggregate principal amount of up to $65 million, initially bear interest at the rate of LIBOR plus 2.75% per annum, increasing over time beginning on the date after the interest payment date occurring after August 2017 to LIBOR plus 3.60% per annum. Principal of the Tranche D loans will be payable in 45 quarterly installments commencing on the first quarterly payment date occurring after the project acceptance by CDA. Tranche D loans will be secured by a credit insurance policy provided by SACE S.p.A.—Servizi Assicurativi del Commercio Estero.

All loans under this facility are secured by:

pledges of CDA’s movable assets and offshore and onshore collateral accounts;

a pledge of 100% of the equity interests in CDA;

mortgages of the CDA plant and CDA’s generation and transmission concessions;

a collateral assignment of insurances and reinsurances in respect of CDA; and

a conditional assignment of CDA’s rights under certain contracts, including the CDA EPC contract and CDA’s PPAs.

In connection with the January 2015 spin-off of Kenon from IC, IC Power replaced the guarantee previously provided by IC to the syndicate of lenders with a guarantee from IC Power to the syndicate of lenders. As of December 31, 2016, the aggregate principal amount outstanding under this facility was $587 million ($579 million net of transaction costs).

Samay I Finance Facility

In December 2014, Samay I entered into a $311 million, seven-year syndicated secured loan agreement with a syndicate including The Bank of Tokyo-Mitsubishi, as administrative agent, and certain financial institutions, as lenders, and other parties thereto, or the Samay I Finance Facility, to build an open-cycle diesel and natural gas (dual-fired) thermoelectric plant in Mollendo, Arequipa (southern Peru). The loan will initially bear interest at a rate of LIBOR plus 2.125% per annum, increasing to LIBOR plus 2.375% per annum beginning on the date after the interest payment date occurring at the end of 2017 and increasing further to LIBOR plus 2.625% per annum from the date after the interest payment date occurring at the end of 2020 through maturity; 29% of the total principal is payable in 23 quarterly payments commencing in July 2016; the other 71% of the total principal is payable at maturity. As of December 31, 2016, the aggregate principal amount outstanding under this facility was $311 million ($307 million net of transaction costs). Loans under this facility are secured by pledges of Samay I’s movable assets and onshore collateral accounts; a pledge over 100% of the equity interests in Samay I; mortgages of the Samay I real estate property, plant and generation and transmission concessions; collateral assignments of insurances and reinsurances in respect of Samay I; a conditional assignment of Samay I rights under certain contracts, including Samay I’s EPC contract; and trust agreement over certain cash flows of Samay I.

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Las Flores Lease

In April 2014, Kallpa entered into a capital lease agreement with Banco de Crédito del Perú under which the lessor provided financing for the acquisition of Las Flores from Duke Energy Corp. in an aggregate amount of $108 million. Under this lease agreement, Kallpa will make quarterly payments to the lessors through the expiration of this lease in October 2023. As of December 31, 2016, the aggregate principal amount outstanding under the Kallpa lease is $88 million.

Kallpa Notes Due 2026

In May 2016, Kallpa issued $350 million 4.875% senior unsecured notes due May 24, 2026. The proceeds of the notes were principally used to repay all of Kallpa’s outstanding debt in May 2016, other than debt relating to the Las Flores lease. The remainder of the proceeds were used for general corporate purposes. Interest on these notes is payable in arrears in May and November of each year. Principal will be fully paid at maturity.

As of December 31, 2016, the outstanding amount of these notes was $350 million ($326 million net of transaction costs).

Overseas Facility

In May 2016, OIP, a wholly-owned subsidiary of IC Power, entered into a $100 million loan agreement, or the Overseas Facility, with Credit Suisse and the Bank of Nova Scotia. The Overseas Facility is guaranteed by IC Power and ICP and secured by shares of Inkia. The Overseas Facility includes a mandatory prepayment provision in the event of an IC Power initial public offering, upon which payment the pledge will be released. The Overseas Facility will mature on November 9, 2017 and bears interest as follows:

90-day LIBOR plus 5.00% (for the period from the funding date to the 6-month anniversary of the funding date);

90-day LIBOR plus 5.75% (for the period from one day after the 6-month anniversary of the funding date to the 12 month anniversary of the funding date); and

90-day LIBOR plus 6.50% for any period thereafter.

The Overseas Facility was fully drawn on August 31, 2016. Pursuant to the Overseas Facility, in October 2016, IC Power fully repaid all its obligations under its $75 million note payable to Kenon. In addition, the Overseas Facility provides that IC Power may make further payments of no more than $75 million to Kenon. For further information on IC Power’s $220 million of notes payable to Kenon, see “ —Debt Owed to Kenon from Subsidiaries—$220 Million of Notes from IC Power. ”

As of December 31, 2016, the outstanding amount of this facility was $100 million ($97 million net of transaction costs).

COBEE Bonds

COBEE III Bonds . In February 2010, COBEE approved a bond program under which COBEE is permitted to offer bonds in aggregate principal amount of up to $40 million in multiple series. In March 2010, COBEE issued and sold three series of notes in the aggregate principal amount of $14 million. The aggregate gross proceeds of these notes, which were issued at a premium, were $17 million. COBEE amortizes the premium of these notes over the respective terms of these notes, reducing the interest expense related to these notes. The Series A Notes, in the aggregate principal amount of $4 million, mature in February 2014. The Series B Notes, in the aggregate principal amount of $4 million, pay interest semi-annually at the rate of 6.50% per annum through maturity in February 2017. Principal on these notes will be paid in two equal annual installments commencing in February 2016. The Series C Notes, in the principal amount of Bs.44.2 million (approximately $6 million), pay interest semi-annually at the rate of 9.00% per annum through maturity in January 2020. Principal on these notes will be paid in four equal annual installments commencing in February 2017.

In April 2012, COBEE issued and sold two additional series of notes in the aggregate principal amount of $11 million. The aggregate gross proceeds of these notes, which were issued at a premium, were $13 million. COBEE amortizes the premium of these notes over the respective terms of these notes, reducing the interest expense related to these notes. The first series of these notes, in the aggregate principal amount of $5 million pays interest semi-annually at the rate of 6.75% per annum through maturity in March 2017. Principal on these notes is payable at maturity. The second series of these notes, in the aggregate principal amount of Bs.43 million (approximately $6 million), pays interest semi-annually at the rate of 7% per annum through maturity in February 2022. As of December 31, 2016, the outstanding amount of these notes was $20 million (excluding a $1 million premium).

COBEE IV Bonds . In May 2013, COBEE approved a bond program under which COBEE is permitted to offer bonds in aggregate principal amount of up to $60 million in multiple series. In February 2014, COBEE issued and sold three series of notes in the aggregate principal amount of $20 million. The aggregate gross proceeds of these notes, which were issued at a premium, were $21 million. The Series A Notes, in the aggregate principal amount of $4 million pay interest semi-annually at the rate of 6.0% per annum through maturity in January 2018. Principal on the Series A Notes is payable at maturity. The Series B Notes, in the aggregate principal amount of $4 million pay interest semi-annually at the rate of 7.0% per annum through maturity in January 2020. Principal on the Series B Notes will be paid in four equal semi-annual installments commencing in July 2018. The Series C Notes, in the aggregate principal amount of Bs. 84 million (approximately $12 million) pay interest semi-annually at the rate of 7.8% per annum through maturity in January 2024. Principal on the Series C Notes will be paid in eight semi-annual installments commencing in July 2020.

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In November 2014, COBEE issued and sold two series of notes in the aggregate principal amount of $20 million. The aggregate gross proceeds of these notes, which were issued at a premium, were $22 million. The first series of these notes, in the aggregate principal amount of $5 million, pays interest semi-annually at the rate of 6.70% per annum through maturity in October 2019. The second series of these notes in the aggregate principal amount of Bs.105 million (approximately $15 million), pays interest semi-annually at the rate of 7.80% per annum through maturity in October 2024. As of December 31, 2016, the outstanding amount of these notes was $60 million (excluding a $4 million premium).

CEPP Bonds

In November 2013, CEPP approved a program bond offering under which CEPP is permitted to offer bonds in aggregate principal amount of up to $25 million in multiple series. During the first quarter of 2014, CEPP issued $25 million of its 6.00% bonds due in January and March 2019. Part of these funds were used to prepay $15 million of its 7.75% bonds outstanding due in May 2014. As of December 31, 2016, the aggregate principal amount outstanding under these bonds was $10 million.

Central Cardones

In connection with IC Power’s acquisition of Central Cardones in December 2011, IC Power consolidated the amounts outstanding under Central Cardones’ credit agreement entered with Banco de Crédito e Inversiones and Banco Itaú Chile. The loans under this credit agreement were issued in two tranches of $37 million and $21 million, respectively. Loans under the first tranche bear interest at the rate of LIBOR plus 1.9% per annum, and the principal of this tranche is payable in 24 semi-annual installments through maturity in August 2021. Loans under the second tranche bear interest at the rate of LIBOR plus 2.75% per annum, interest is payable semi-annually and the principal is payable at maturity, and the loan matures in August 2019. As of December 31, 2016, the aggregate principal amount outstanding under these loans was $35 million.

Colmito

In January 2014, Colmito entered into a 12,579 million Chilean pesos (approximately $23 million) 14-year credit agreement with Banco Bice. The loan under this facility bears interest at a rate of 7.9% Chilean pesos per annum and is paid semi-annually through maturity in December 2028. Principal on this facility is payable semi-annually. In February 2014, Colmito entered into a cross-currency swap closing at a fixed interest rate of 6.025% in U.S. Dollars. As of December 31, 2016, the aggregate principal amount outstanding under this loan was 11,211 million Chilean pesos (approximately $17 million).

JPPC

In March 2012, JPPC entered into a five-year $21 million syndicated loan agreement with RBC Royal Bank (Trinidad and Tobago) Limited, RBC Royal Bank (Jamaica) Limited and RBC Merchant Bank (Caribbean) Limited. The loan under this facility bears interest at a rate of LIBOR + 5.5% per annum and is payable in quarterly installments. Principal on this facility is payable in quarterly payments. JPPC entered into an interest rate swap contract to fix its interest at a rate of 6.46% per annum. As of December 31, 2016, the aggregate principal amount outstanding under this loan was $1 million (excluding transaction costs).

ICPNH

In October 2007, Amayo I entered into a 15-year $71 million loan agreement with Banco Centroamericano de Integración Económica, or CABEI. The term loan is secured by a first degree mortgage over all of the improvements executed on Amayo I’s project site, cessation of all of the project contracts, and the creation and maintenance of a reserve account for $2 million, to be controlled by CABEI. The loans under this facility bear interest at a rate of 8.45% or LIBOR + 4.00% per annum and are payable in quarterly installments.

In November 2010, Amayo II entered into a 15-year $45 million syndicated loan agreement with Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO) and CABEI. The syndicated loan is secured by a first and second lien mortgage agreement, a first and second lien industrial pledge agreement, and a first and second lien contract pledge agreement. The loans under this facility bears interest at a rate of 10.76% (Mezzanine Loan), 8.53% (FMO Senior Loan) and a variable interest rate of LIBOR + 5.75% per annum and are payable in quarterly installments.

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In November 2013 and November 2014, Tipitapa Power entered into a five-year $7 million loan agreement and a four-year $5 million loan agreement, respectively, with Banco de América Central, or BAC. The term loans are secured by a commercial lien, industrial lien and a mortgage on the property. The loans under this facility bear interest at a rate of 8.35% and are payable in quarterly installments.

In December 2013, Corinto entered into a five-year $15 million loan agreement with BAC. The term loan is secured by a commercial lien and a mortgage on the barge Margarita II. The loan under this facility bears interest at a rate of 8.35% and is payable in quarterly installments.

As of December 31, 2016, the aggregate principal amount outstanding under these loans was $87 million.

Kanan Credit Facility

In May 2016, Kanan entered into a $55 million credit facility due 2021, or the Kanan Credit Facility. The Kanan Credit Facility replaced a short-term bridge loan from the Bank of Nova Scotia, which Kanan entered into in January 2016 to repay $50 million of an intercompany loan, reimburse costs and expenses incurred in connection with the Kanan project and purchase fuel, raw materials and other expenses. The Kanan Credit Facility bears interest on a quarterly basis at LIBOR + 3.00%. Scheduled amortizations of principal are payable quarterly commencing in June 2016 through maturity in March 2021. The Kanan Credit Facility is secured by all of Kanan’s assets. As of December 31, 2016, the outstanding amount of the Kanan Credit Facility is $46 million.

DEORSA Syndicated Loan Facility

In May 2011, DEORSA entered into a 10-year syndicated secured loan agreement providing for borrowings of up to $41 million and $90 million with a syndicate including Banco Agromercantil de Guatemala, S.A., as the manager of the guarantee and administrative agent, and certain financial institutions, as lenders, and other parties thereto, to finance the acquisition of DEORSA by its prior owner, to refinance DEORSA’s existing indebtedness as of the closing date of the acquisition, and to finance DEORSA’s working capital requirements. Loans under this loan agreement are secured by a pledge over DEORSA’s shares and a $41 million guarantee from DEORSA. The U.S. Dollar-denominated loans under this agreement bear interest at a fixed rate of 6.00% for the first two years and at a rate of 90-day US LIBOR plus 4.70% per annum through maturity on May 19, 2021. Guatemalan Quetzales-denominated loans under this agreement bear interest at a variable interest rate calculated by the weighted average rate (TASA Activa Promedio Ponderada), or TAPP rate, as published by the Guatemalan Central Bank (Banco de Guatemala) for the most recent date as of the first day of the relevant interest period, less 5.6%, per annum. Scheduled amortizations of the aggregate principal amount outstanding under this agreement (generally 2.81%) are payable in quarterly installments through maturity.

In May 2011, in connection with and pursuant to the terms of DEORSA’s syndicated loan agreement, DEORSA entered into an account trust agreement with Financiera Agromercantil, Sociedad Anonima, as collateral agent, pursuant to which the collateral agent is empowered, upon an event of default under the syndicated loan agreement, to take control of and manage certain accounts of DEORSA in order to make payments to the administrative agent in accordance with the terms of the syndicated loan agreement.

In April 2015, the loan agreement was amended and restated and, in accordance therewith, the amounts available under the facility were increased by $37 million and $21 million to fund, among other things, DEORSA’s operating and investment activities, repayment of certain outstanding indebtedness, and general corporate purposes. The additional $21 million facility is also secured by pledged collateral and a $9 million guarantee from DEORSA. The U.S. Dollar-denominated loans under the additional facility bear interest at a rate of 90-day US LIBOR plus 4.70% per annum (with a floor rate of 5.90%) for the first year and at a rate of 90-day US LIBOR plus 4.75% per annum (with a floor rate of 6.0%) through maturity on February 19, 2025. Guatemalan Quetzales-denominated loans under the additional facility bears interest at a variable interest rate calculated by the weighted average rate (TASA Activa Promedio Ponderada), as published by the Guatemalan Central Bank for the most recent date as of the first day of the relevant interest period, less 6.10%, per annum. Scheduled amortizations of the aggregate principal amount outstanding under the additional facility are payable in quarterly installments commencing in May 2018 through maturity.

In August 2016, DEORSA entered into an addendum to the loan agreement, which renewed two tranches under the loan agreement which had expired. The amounts available under the facility were increased by $16 million. The U.S. Dollar-denominated loan under the additional facility bears interest at a rate of LIBOR + 4.75% (with a floor rate of 6.00%). The Guatemalan Quetzales-denominated loan under the additional facility bears interest at a rate of the TAPP rate less 6.10%. Scheduled amortizations of the aggregate principal amount under the additional facility are payable in quarterly instalments commencing in May 2018 through maturity in February 2025. In August 2016, DEORSA drew down this additional $16 million under the DEORSA syndicated loan facility in order to make payments to the SAT in connection with tax claims raised by the SAT against Energuate in July 2016. For further information on the Energuate tax claims, see “ Item 4.B Business Overview—Our Businesses—IC Power—Legal Proceedings—Energuate Tax Claims .”

As of December 31, 2016, the aggregate principal amount outstanding under the syndicated loan facility was $113 million.

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DEOCSA Syndicated Loan Facility

In May 2011, DEOCSA entered into a 10-year syndicated secured loan agreement providing for borrowings of up to $54 million and $150 million with a syndicate including Banco Agromercantil de Guatemala, S.A., as the manager of the guarantee and administrative agent, and certain financial institutions, as lenders, and other parties thereto, to finance the acquisition of DEOCSA by its previous owner, to refinance DEOCSA’s existing indebtedness as of the closing date of the acquisition, and to finance DEOCSA’s working capital requirements. Loans under this loan agreement are secured by a pledge over DEOCSA’s shares and a $55 million guarantee from DEOCSA. The U.S. Dollar-denominated loans under this agreement bear interest at a fixed rate of 6.00% for the first two years and at a rate of 90-day US LIBOR plus 4.70% per annum through maturity on May 19, 2021. Guatemalan Quetzales-denominated loans under this agreement bear interest at a variable interest rate calculated by the TAPP rate, as published by the Guatemalan Central Bank for the most recent date as of the first day of the relevant interest period, less 5.6%, per annum. Scheduled amortizations of the aggregate principal amount outstanding under this agreement (generally 2.81%) are payable in quarterly installments through maturity.

In May 2011, in connection with and pursuant to the terms of DEOCSA’s syndicated loan agreement, DEOCSA entered into an account trust agreement with Financiera Agromercantil, Sociedad Anonima, as collateral agent, pursuant to which the collateral agent is empowered, upon an event of default under the syndicated loan agreement, to take control of and manage certain accounts of DEOCSA in order to make payments to the administrative agent in accordance with the terms of the syndicated loan agreement.

In April 2015, the loan agreement was amended and restated and, in accordance therewith, the amounts available under the facility were increased by $51 million and $32 million to fund, among other things, DEOCSA’s operating and investment activities, repayment of certain outstanding indebtedness, and general corporate purposes. The additional $32 million facility is also secured by pledged collateral and a 105 thousand Guatemalan Quetzales (approximately $14 thousand) guarantee from DEOCSA. The U.S. Dollar-denominated loans under the additional facility bears interest at a rate of 90-day US LIBOR plus 4.70% per annum (with a floor rate of 5.90%) for the first year and at a rate of 90-day US LIBOR plus 4.75% per annum (with a floor rate of 6.0%) through maturity on February 19, 2025. Guatemalan Quetzales-denominated loans under the additional facility bear interest at a variable interest rate calculated by the weighted average rate (TASA Activa Promedio Ponderada), as published by the Guatemalan Central Bank) for the most recent date as of the first day of the relevant interest period, less 6.10%, per annum. Scheduled amortizations of the aggregate principal amount outstanding under the additional facility are payable in quarterly installments commencing in May 2018 through maturity.

In August 2016, DEOCSA entered into an addendum to the loan agreement, which renewed two tranches under the loan agreement which had expired. The amounts available under the facility were increased by $24 million. The U.S. Dollar-denominated loan under the additional facility bears interest at a rate of LIBOR + 4.75% (with a floor rate of 6.00%). The Guatemalan Quetzales-denominated loan under the additional facility bears interest at a rate of the TAPP rate less 6.10%. Scheduled amortizations of the aggregate principal amount under the additional facility are payable in quarterly instalments commencing in May 2018 through maturity in February 2025. In August 2016, DEOCSA drew down this additional $24 million under the DEOCSA syndicated loan facility in order to make payments to the SAT in connection with tax claims raised by the SAT against Energuate in July 2016. For further information on the Energuate tax claims, see “ Item 4.B Business Overview—Our Businesses—IC Power—Legal Proceedings—Energuate Tax Claims .”

As of December 31, 2016, the aggregate principal amount outstanding under the syndicated loan facility was $174 million.

OPC-Hadera Financing

In July 2016, OPC-Hadera entered into a NIS 1 billion (approximately $261 million) loan agreement with Israel Discount Bank and Harel Insurance Group to finance the construction of OPC-Hadera’s power plant in Hadera. The financing will mature 18 years after the completion of the construction period, and includes 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).

The term loan, standby, DSRA, and hedging facilities shall each bear interest at a rate of 2/3 Government CPI-linked Bond + 2.95% + 1/3 Government Bond + 2.95% per annum. The guarantees, VAT and working capital facilities shall each bear interest at a rate of the prime interest rate + 1.5% per annum. These terms are subject to OPC-Hadera’s credit rating.

As of December 31, 2016, OPC-Hadera had not made drawings under this loan agreement.

In March 2017, following the full investment of the project’s equity contribution, OPC-Hadera made its first drawings under the NIS 1 billion (approximately $261 million) loan agreement relating to the project.

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Short-Term Loans

IC Power’s consolidated short term debt was $482 million (including $269 million of the current portion of long-term debt) as of December 31, 2016.

CEPP, COBEE, Puerto Quetzal, Samay I, CDA, Surpetroil, Corinto, Nejapa, DEORSA, DEOCSA, and Distribution Holdings have borrowed under short-term lines of credit with financial institutions in the Dominican Republic, Bolivia, Guatemala, Peru, Peru, Colombia, Nicaragua, El Salvador, Guatemala, Guatemala, and Singapore, respectively, under which they have borrowed $1 million, $4 million, $6 million, $32 million, $14 million, $1 million, $2 million, $4 million, $12 million, $18 million, and $120 million, respectively as of December 31, 2016. These short-term borrowings are primarily used to finance these businesses' respective operating activities.

Qoros’ Liquidity and Capital Resources

Qoros’ cash and cash equivalents was RMB465 million as of December 31, 2016, compared to approximately RMB257 million as of December 31, 2015. We have a 50% equity interest in Qoros and, and we do not exercise control over Qoros’ cash and cash equivalents.

Qoros’ principal sources of liquidity are cash inflows received from financing activities, including long-term loans, short-term facilities and capital contributions (in the form of equity contributions, or convertible or non-convertible shareholder loans), and cash flows from car sales. Qoros has fully utilized its RMB3 billion syndicated credit facility, RMB1.2 billion syndicated credit facility and its RMB700 million credit facility, and will require additional financing, including the renewal or refinancing of its working capital facilities, to fund its development and operations.

Qoros has historically relied upon capital contributions, loans, guarantees and pledges from its shareholders (Chery and Kenon), and third party loans supported by its shareholders, to fund its development and operations. As of the date of this annual report, Qoros’ shareholders have made equity contributions in the aggregate amount of RMB10.4 billion and loans in the amount of RMB1.8 billion (including loans of RMB450 million from Ansonia to Quantum used to make back-to-back loans in the same amount to Qoros). In 2016, Qoros' shareholders each made shareholder loans to Qoros as follows:

in January and February 2016, Kenon made loans to Qoros of RMB275 million, using cash on hand and drawdowns under the IC Credit Facility; Chery provided RMB275 million shareholder loans on similar conditions as well;

in May, June and September 2016, Ansonia, which owns approximately 58% of the outstanding shares of Kenon, provided our wholly-owned subsidiary Quantum with loans of approximately $72 million, which Quantum used to make back-to-back loans to Qoros in an aggregate principal amount of RMB450 million. Wuhu Chery provided loans to Qoros in the same amount. Kenon did not make any loans or other investments in Qoros as part of these transactions; and

in December 2016, Kenon and Chery each provided shareholder loans of RMB250 million to Qoros. In addition, in connection with these shareholder loans, Kenon’s major shareholder Ansonia committed to fund RMB25 million of Kenon’s remaining back-to-back guarantee obligations to Chery in certain circumstances. As a result, the maximum amount of Kenon’s exposure with respect to its back-to-back guarantee obligations to Chery was reduced by RMB275 million to RMB825 million.

In March 2017, Kenon agreed to fund shareholder loans of up to RMB777 million to Qoros in two equal tranches. The first tranche of loans were provided to Qoros in March 2017 in the amount of RMB388.5 million. The proceeds of the first tranche loans will be used to support Qoros’ ordinary course working capital requirements, debt service requirements and investments in new initiatives, such as new-energy vehicles, while Qoros continues its fund raising efforts. Kenon may fund the provision of the second tranche of loans. For more information see “ —Qoros’ Liquidity and Capital Resources—Material Indebtedness—Shareholder Loans .”

As of the date of this annual report, Kenon has outstanding back-to-back guarantees to Chery of up to RMB425 million principal amount of Qoros’ indebtedness, plus certain interest and fees. For further information on Kenon's back-to-back guarantees with respect to Qoros' bank debt, see “— Kenon's Liquidity and Capital Resources .”

As of December 31, 2016, Qoros had total loans and borrowings (excluding shareholder loans) of RMB5.5 billion and current liabilities (excluding shareholder loans) of RMB4.0 billion, including trade and other payables of RMB2.7 billion, and current assets of RMB1.8 billion, including cash and cash equivalents of RMB465 million (of which RMB194 million was used in January 2017 in connection with Qoros' payment under its RMB3 billion facility). Qoros uses a portion of its liquidity to make debt service payments, including principal payments on its RMB3 billion facility. Qoros is currently required to make principal payments on its RMB3 billion facility and will be required to make principal payments on its RMB1.2 billion facility and RMB700 million facility beginning in August 2017 and May 2018, respectively. Qoros’ lenders have agreed to reschedule principal payments under the RMB3 billion and RMB1.2 billion scheduled to occur in 2017 and 2018, with principal payments scheduled to occur between 2019 and 2022 (in the case of the RMB3 billion facility) and between 2019 and 2024 (in the case of the RMB1.2 billion facility).

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Qoros actively manages its trade payables, accrued expenses and other operating expenses in connection with the management of its liquidity requirements and resources. For further information on the risks related to the effect of Qoros’ liquidity situation on its relationship with its supplies, see “ Item 3.D. Risk Factors—Risk Factors Related to Our Interest in Qoros — Qoros is dependent upon its suppliers. ”

Qoros is continuing to experience losses and negative operating cash flow and expects that this will continue until it achieves significantly higher levels of sales. Qoros will need to secure additional financing to meet its operating expenses (including accounts payable) and debt service requirements. If Qoros is not able to raise additional financing as required, it may be unable to continue operations, in which case Kenon may lose its entire investment in Qoros and Kenon may be required to make payments under its back-to-back guarantees to Chery in respect of Qoros’ bank debt and pledges over Qoros shares by Quantum may be enforced.

Alternatively, Chery or other investors, such as Yibin, may choose to make additional investments in Qoros (without a corresponding Kenon investment) which may result in a dilution of Kenon’s interest. For information on the risks related to Qoros’ liquidity, see “ Item 3.D Risk Factors—Risks Related to Our Interest in Qoros—Qoros depends on additional financing to further its development and, until it achieves significant sales levels, to meet its operating expenses, financing expenses, and capital expenditures .”

Qoros’ consolidated financial statements have been prepared on a going concern basis, based upon certain assumptions, including the availability of liquidity and funding for Qoros and Qoros is of the opinion that the assumptions which are included in the cash flow forecast are reasonable. For further information, see Note 2(b) to Qoros’ consolidated financial statements, included in this annual report.

Material Indebtedness

As of December 31, 2016, Qoros had total loans and borrowings (excluding shareholder loans) of RMB5.5 billion, consisting of non-current loans and borrowings of RMB4.3 billion and current loans and borrowings of RMB1.2 billion (excluding shareholder loans). Set forth below is a discussion of Qoros’ material indebtedness.

RMB3 Billion Syndicated Credit Facility

On July 23, 2012, Qoros entered into a consortium financing agreement with a syndicate of banks for the ability to draw down loans, in either RMB or USD, up to an aggregate maximum principal amount of RMB3 billion. The RMB loans bear interest at the 5-year interest rate quoted by the People’s Bank of China from time to time and the USD loans bear interest at LIBOR + 4.8% per annum. Outstanding loans are repayable within ten years from July 27, 2012, the first draw down date. The first and second scheduled repayment dates were in July 2015 and January 2016, respectively. Subsequent repayment dates occur every six months after the preceding repayment date. Qoros’ lenders under this facility have agreed to reschedule principal payments from 2017 and 2018 with principal payments scheduled to occur between 2019 and 2022.

Qoros’ RMB/USD dual currency fixed rate credit facility is secured by Qoros’ manufacturing facility, the land use right for the premises on which such manufacturing facility is located, and its equipment, and properties, and several guarantees, including a joint, but not several, guarantee from each of Chery and Changshu Port. Loans under this facility are severally guaranteed by (i) Changshu Port for up to 50% of amounts outstanding under this loan, or up to RMB1.5 billion, plus related interest and fees and (ii) Chery for up to 50% of amounts outstanding under this loan, or up to RMB1.5 billion, plus related interest and fees. Kenon has outstanding a back-to-back guarantees to Chery of RMB425 million in respect of Chery’s guarantee of this facility. For further information on Kenon’s back-to-back guarantee obligations to Chery see “— Kenon’s Liquidity and Capital Resources—Kenon’s Commitments and Obligations—Back-to-Back Guarantees Provided to Chery .”

Qoros’ syndicated credit facility contains financial, affirmative and negative covenants, events of default or mandatory prepayments for contractual breaches, including certain changes of control, and for material mergers and divestments, among other provisions. Although Qoros’ debt-to-asset ratio is currently higher, and its current ratio is lower, than the allowable ratios set forth in the terms of the syndicated credit facility, in 2014 and 2016, the syndicated consortium of Qoros’ syndicated credit facility waived Qoros’ compliance with the financial covenants under this facility through the first half of 2017 and the first half of 2020. As a result, Qoros will not be required to comply with these financial covenants until July 2020 (or later, if additional waivers are granted). The waivers also provide that, after Qoros enters into a continuous and sustained operating period, a request for adjustment of the financial covenants, as necessary, can be submitted to the syndicated loan group or the lender under the working capital facility, as applicable, for consideration. Should Qoros’ debt-to-asset ratio continue to exceed, or its current ratio continue to be less than, the permitted ratios in any period after the waiver period, and Qoros’ syndicated lenders do not waive such non-compliance or revise such covenants so as to ensure Qoros’ compliance, Qoros’ lenders could accelerate the repayment of borrowings due under Qoros’ RMB3 billion syndicated credit facility.

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For further information on the risks related to Qoros’ indebtedness, see “ Item 3.D Risk Factors—Risks Related to Our Interest in Qoros—Qoros is significantly leveraged .”

As of December 31, 2016, the aggregate amount outstanding on this loan was approximately RMB2.8 billion.

RMB1.2 Billion Syndicated Credit Facility

In July 2014, Qoros entered into a consortium financing agreement with a syndicate of banks for the ability to draw loans, in either RMB or USD, up to an aggregate maximum principal amount of RMB1.2 billion for the research and development of C-platform derivative models. The RMB loans bear interest at the 5-year interest rate quoted by the People’s Bank of China from time to time + 10.0% and the USD loans bear interest at LIBOR + 5.0% per annum. Outstanding loans are repayable within ten years from August 19, 2014, the first draw down date. The first scheduled repayment date was expected to occur on August 19, 2017 (or 36 months after the first draw down date) with subsequent repayment dates occurring every six months after the preceding repayment date. Qoros’ lenders under this facility have agreed to reschedule principal payments from 2017 and 2018 with principal payments scheduled to occur between 2019 and 2024.

Up to 50% of the indebtedness incurred under this facility is secured by Quantum’s pledge of approximately 23% of the shares in Qoros, including dividends deriving therefrom. Wuhu Chery has also pledged approximately 23% of the shares in Qoros, including dividends derived therefrom, to secure up to 50% of the indebtedness incurred under this facility. The pledge agreement under which Quantum has pledged its equity interest in Qoros includes provisions setting forth, among other things, (i) minimum ratios relating to the value of Quantum’s pledged securities, (ii) Quantum’s ability to replace the pledge of its equity interest in Qoros with a pledge of cash collateral or to pledge cash collateral instead of pledging additional shares, representing up to 100% of Quantum’s equity interest in Qoros, and (iii) the events (e.g., Qoros’ default under the syndicated facility) that entitle the Chinese bank to enforce its lien on Quantum’s equity interest. In the event that the value of Qoros' equity decreases and Quantum's shares of Qoros' equity is not sufficient to cover its proportionate stake of the pledge, Quantum has the option to provide additional collateral to secure the RMB1.2 billion facility. However, in the event that Quantum does not provide such additional collateral, the lenders under the facility may be entitled to sell some or all of Quantum's shares in Qoros.

In connection with Kenon's December 2016 shareholder and March 2017 funding of shareholder loans to Qoros, pursuant to which Kenon’s back-to-back guarantee obligations to Chery have been partially, and may be fully released, Quantum has pledged shares in Qoros to Chery to secure the back-to-back guarantee reductions (i.e., if Chery is required to make payments on its guarantee of Qoros’ debt, then to the extent that Chery makes payments that would have been reimbursed by Kenon but for the back-to-back guarantee reduction, Chery will be entitled to enforce this pledge). Chery may also borrow from Quantum up to 10% of Qoros’ outstanding shares to meet its pledge obligations under the RMB1.2 billion credit facility. The number of Qoros shares pledged to Chery is subject to adjustment from time to time. In certain circumstances, Quantum must pledge additional shares (to the extent it has unencumbered shares), and in other circumstances the pledged shares may be released and the borrowed shares must be returned (e.g., in the event that Quantum is required to pledge additional shares to secure the RMB1.2 billion credit facility).

The syndicated loan agreement includes covenants (including financial covenants) and events of default and early payment for violation provisions.

For further information on the risks related to Qoros’ indebtedness, see “ Item 3.D Risk Factors—Risks Related to Our Interest in Qoros—Qoros is significantly leveraged .”

As of December 31, 2016, the aggregate principal amount outstanding on this loan was approximately RMB1.2 billion.

RMB700 Million Syndicated Credit Facility

In May 2015, Qoros entered into a RMB700 million facility with a bank consortium for the purpose of research and development into a hybrid electric vehicle. Under the facility, Qoros can draw down loans in either RMB or USD, up to an aggregate principal amount of RMB700 million. The loan agreement covers a period of 102 months starting in May 2015, and is secured by a guarantee by Chery and a pledge over Qoros’ 90 vehicle patents. The RMB loan bears the 5-year interest rate quoted by the People’s Bank of China +10%, and the USD loan bears interest of LIBOR+3.5% per annum.

The RMB700 million is guaranteed by Chery. We provided a back-to-back guarantee to Chery in respect of this facility. For further information on Kenon’s back-to-back guarantee obligations to Chery, see “— Kenon’s Liquidity and Capital Resources—Kenon’s Commitments and Obligations—Back-to-Back Guarantees Provided to Chery. ”

As of December 31, 2016, Qoros drew down a total of RMB700 million. The facility includes covenants and event of default provisions.

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As of December 31, 2016, the aggregate principal amount outstanding on this loan was approximately RMB700 million.

For further information on the risks related to Qoros’ indebtedness, see “ Item 3.D Risk Factors—Risks Related to Our Interest in Qoros—Qoros is significantly leveraged .”

Working Capital Facilities

Qoros is party to various short-term and working capital facilities. As of December 31, 2016, the balance of these facilities was RMB205 million.

Qoros will require additional financing, including the renewal or refinancing of its working capital facilities. If Qoros is unable to renew or refinance its working capital facilities, Qoros may be unable to meet its operating expenses (including accounts payable) and debt service requirements. For further information on the risks related to Qoros’ liquidity, see “ Item 3.D Risk Factors—Risks Related to Our Interest in Qoros—Qoros depends on additional financing to further its development and, until it achieves significant sales levels, to meet its operating expenses, financing expenses, and capital expenditures .”

Shareholder Loans

As of the date of this annual report, Qoros’ shareholders have provided Qoros with RMB1.8 billion in shareholder loans (including loans of RMB450 million from Ansonia to Quantum used to make back-to-back loans in the same amount to Qoros). A portion or all these shareholder loans may be converted into equity.

Ansonia and Chery Back-to-Back Loans to Qoros

In May, June and September 2016, Ansonia, which owns approximately 58% of the outstanding shares of Kenon, provided Quantum with loans of approximately $72 million. Quantum used the proceeds of these loans to make back-to-back loans in an aggregate principal amount of RMB450 million to Qoros to support Qoros’ working capital requirements; Wuhu Chery provided loans to Qoros in the same amount.

Additionally, Qoros has secured Quantum’s and Wuhu Chery’s loans with a pledge of certain collateral. Quantum has agreed to assign its rights, title and interests in the collateral securing the Quantum loan to Ansonia. Qoros’ pledge of this collateral will be released upon a conversion of the shareholder loans into equity (as described below) or upon repayment.

In order to facilitate a potential investment by a third party in Qoros, Ansonia’s loans are automatically convertible into equity in Quantum in the event of a third-party financing at Qoros that meets certain conditions, unless Ansonia’s loans are to be repaid in connection with such third-party financing. The loans that Ansonia made to our subsidiary Quantum (which were used by Quantum to make back-to-back loans to Qoros) may be converted into equity of Quantum at a discount to the implied value of Qoros based upon the receipt of third-party financing. Upon such conversion, Kenon’s indirect interest in Qoros will be diluted. After a conversion of Ansonia’s loans into equity in Quantum, and until the third anniversary of such conversion, Ansonia will have the option to convert its equity holdings in Quantum into an equivalent value of equity holdings in Qoros, subject to the receipt of regulatory approvals, Qoros’ corporate approvals, and Chery’s and Wuhu Chery’s approvals.

Prior to a conversion of Ansonia’s loans into equity in Quantum, the loans can be repaid by Quantum without penalty or premium.

To support Qoros in light of Qoros’ financing needs, Kenon has worked with its major shareholder, Ansonia, to facilitate Ansonia’s provision of loans to Qoros (through Quantum, as described above).

December 2016 Shareholder Loans to Qoros

As part of this transaction, Quantum pledged approximately 6% of the shares in Qoros to Chery to secure the back-to-back guarantee reduction of RMB250 million (i.e., if Chery is required to make payments on its guarantee of Qoros’ debt, then to the extent that Chery makes payments that would have been reimbursed by Kenon but for the back-to-back guarantee reduction, Chery will be entitled to enforce this pledge). Chery may also borrow from Quantum up to 5% of Qoros’ outstanding shares to meet its pledge obligations under the RMB1.2 billion credit facility. The number of Qoros shares pledged to Chery is subject to adjustment from time to time. In certain circumstances, Quantum must pledge additional shares (to the extent it has unencumbered shares), and in other circumstances the pledged shares may be released and the borrowed shares must be returned (e.g., in the event that Quantum is required to pledge additional shares to secure the RMB1.2 billion credit facility).

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March 2017 Shareholder Loans to Qoros

In March 2017, Kenon agreed to fund shareholder loans of up to RMB777 million to Qoros in two equal tranches in connection with the full release of its remaining back-to-back guarantee obligations (plus related interest and fees) to Chery.

In March 2017, Kenon funded shareholder loans of RMB388.5 million to Qoros in connection with a reduction of RMB425 million of Kenon’s back-to-back guarantees, together with related interest and fees. As part of this first tranche loans to Qoros, Kenon funded 50% of this amount on behalf of Chery in connection with 50% of the guarantee reduction discussed above and 50% of this amount on behalf of Kenon. Kenon also pledged Qoros shares to Chery (as discussed below) in connection with the remaining 50% of the guarantee reduction.

In the event that Chery’s obligations under its guarantees are reduced, in whole or in part, through amortization of the loans or guarantee releases, Kenon is entitled to the proportionate return from Chery of the loans provided on Chery’s behalf (i.e., up to RMB388.5 million) or a release of the shares pledged to Chery, as applicable.

Kenon’s subsidiary Quantum has pledged approximately 5% of the outstanding shares in Qoros in connection with the first tranche of loans, and will pledge an additional amount of shares in connection with its provision of the second tranche of loans. In addition, Chery may also borrow from Quantum 5% of Qoros’ outstanding shares in connection with Kenon’s provision of the first and second tranche of loans. The number of Qoros shares pledged to Chery which are borrowed from Quantum is subject to adjustment from time to time.

The proceeds of the first tranche of loans was used to support Qoros’ ordinary course working capital requirements, debt service requirements and investments in new initiatives, such as new-energy vehicles, while Qoros continues its fund raising efforts.

ZIM’s Liquidity and Capital Resources

As of December 31, 2016, ZIM had an aggregate amount of $158 million in cash and cash equivalents, as compared to $219 million of cash and cash equivalents as of December 31, 2015.

During the year ended December 31, 2016, ZIM generated $33 million from operating activities, $142 million from investing activities and used $229 million in financing activities.

ZIM has a large amount of debt and other liabilities. As of December 31, 2016, ZIM had approximately $1.5 billion of outstanding loans and liabilities to be repaid between 2017 through 2028, of which $45 million constituted short-term debt. On July 16, 2014, ZIM completed its financial restructuring, reducing ZIM’s outstanding indebtedness and liabilities (face value, including future off-balance sheet commitments in respect of operational leases and with respect to those parties participating in the restructuring) from approximately $3.4 billion to a remaining balance of approximately $2 billion, and revising its minimum liquidity, fixed charge coverage ratio, and total leverage ratio covenants, which were further amended in September 2015, March 2016 and September 2016.

ZIM expects to finance its debt obligations and other liabilities through expected cash flow generation from operating activities, in addition to cash on hand. ZIM may also obtain funds from additional sources including debt issuance and/or other financing transactions and/or sale of assets and/or fund raising activities, including initial public offerings or listings and/or re-finance its debt obligations by engaging potential new lenders and existing lenders in order to exchange existing maturities to debt vehicles with longer maturities.

In light of the continued unfavorable container shipping market conditions, ZIM has taken various steps to address its liquidity and financial position. Accordingly, ZIM approached certain of its creditors to reschedule upcoming payments, and ZIM’s creditors agreed to allow ZIM to defer payments in a total amount of approximately $116 million during a period of up to 12 months from September 30, 2016. Repayments of the deferred amounts will begin on January 1, 2018, and ZIM secured the deferred amounts with a receivables-backed facility. In addition, the fixed charge cover ratio and total leverage ratio covenants, which ZIM is subject to pursuant to its July 2014 financial restructuring, have been amended and will be required on March 31, 2018 and thereafter.

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ZIM is continuing to implement its comprehensive strategy that is designed to improve ZIM’s commercial and operational processes, and aims to reduce ZIM’s operational expenses and improve ZIM’s profitability. However, there is no assurance as to the extent of the effectiveness such activities or when, if at all, the results of such activities will be reflected in ZIM’s liquidity and capital resources. For further information on the risks related to ZIM’s liquidity, see “ Item 3.D Risk Factors—Risks Related to Our Other Businesses—Risks Related to our Interest in ZIM—ZIM is highly leveraged and may be unable to comply with its financial covenants or meet its debt service or other obligations. ZIM’s failure to comply with these covenants or meet such obligations, including as a result of events beyond its control, could adversely affect its business, financial condition, results of operations and liquidity. ”

Primus’ Liquidity and Capital Resources

As of December 31, 2016, Primus had cash and cash equivalents of approximately $0.4 million.

The implementation of Primus’ business plan requires additional capital to enable Primus to continue to develop its commercial operations. Primus expects such funding to be provided by us either through capital contributions or shareholder loans, or by new investors in Primus. Primus’ principal liquidity requirements relate to its operating expenses and investments in various development projects. A lack, or delay, of financing could delay, or prevent completely, Primus’ research and commercial development or result in its immediate liquidation or dissolution.

In connection with Primus’ further development and our efforts to maximize its value, we may provide additional capital to Primus, in the form of debt or equity financing, if deemed appropriate to facilitate Primus’ operational and development capital requirements. Through our wholly-owned subsidiary IC Green, we have provided Primus a total of $26 million (including accrued interest) via a series of convertible notes through December 31, 2016. In 2017, we provided Primus an additional $3.3 million via convertible notes.

Primus is currently seeking to raise capital from new investors. However, there is no certainty that additional financing will be provided to Primus, either by us or new investors in Primus. Additionally, should Primus raise capital via equity issuances in the future without Kenon’s participation in such financing, we would experience a dilution in our existing ownership interest.

Material Indebtedness

Primus does not have any material indebtedness, other than related party indebtedness.

C. Research and Development, Patents and Licenses, Etc.

Kenon did not have significant research and development expenses during the years ended December 31, 2016, 2015 and 2014.

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

Peru Power Market

As a result of the completion of various plants in Peru in recent years (including Samay I, IC Power’s 632 MW cold-reserve thermoelectric plant that reached COD in May 2016, and CDA, IC Power’s 545 MW run-of-the-river hydroelectric plant, which reached COD in August 2016), the generation capacity in Peru increased at a faster rate than the demand for such electricity, resulting in an oversupply of capacity in the Peruvian market and therefore a corresponding downward pressure on energy and capacity prices. IC Power expects this trend in energy prices to continue in the next few years. IC Power does not have any major PPAs scheduled to expire during 2017. However, for the next few years, IC Power will face the current soft energy price market for any upcoming new PPA negotiations, renegotiations under existing PPAs and spot market sales.

IC Power’s Peruvian energy and capacity is mainly sold pursuant to long-term PPAs. The counterparties to these PPAs consist primarily of large end users, such as industrial and mining companies, and distribution companies that aggregate the energy consumption of many end users in each of their concession areas. The current soft energy prices are leading some customers of distribution companies in Peru that are eligible to purchase energy as unregulated customers to purchase energy directly from power generators (instead of from power distributors). To the extent that such distribution customers elect to purchase energy directly from power generators, this could result in lower volumes of energy sold under IC Power’s PPAs with distribution companies. In addition, to the extent these unregulated customers purchase capacity and energy directly from IC Power, the energy prices that it realizes from sales to these customers in the current price environment could be lower than the prices that IC Power realizes under the PPAs with the power distributors, which could impact IC Power’s margins due to certain large mining and industrial projects.

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Currently, no significant new additions of base load units are expected to be completed for the Peruvian system other than those contemplated for 2017 and, as a result, energy prices may recover progressively over the next few years as the system energy demand increases.

Qoros

For the year ended December 31, 2016, Qoros sold approximately 24,000 vehicles, as compared to approximately 14,000 vehicles in 2015. Qoros expects it will have fewer vehicle sales in Q1 2017 as compared to Q1 2016, in which period Qoros sold approximately 4,900 vehicles. Qoros believes that its sales figures will continue to fluctuate in the near-term.

Qoros’ sales are subject to conditions in the Chinese passenger vehicle market. Following the economic slowdown and volatility in the Chinese stock market in 2015, China’s central government enacted a tax policy to incentivize the sale of domestic vehicles by lowering purchases taxes on certain vehicles, including Qoros’ vehicles, until January 1, 2017 from 10% to 5%. In December 2016, the tax incentive was extended for 2017; effective January 1, 2017, the purchase tax will be 7.5%, before increasing to 10% on January 1, 2018. If the tax policy is not further extended beyond 2017, this could materially affect demand for Qoros’ vehicles.

During 2016, dealers and OEMs offered customers a variety of inducements to purchase vehicles, including price reductions. In line with many of its competitors, Qoros announced price reductions on all its vehicle models. In 2017, dealers and OEMs have continued to reduce prices and offer further inducements to purchase vehicles. Qoros expects the downward pressure on vehicle prices to continue for the next few years.

As of December 31, 2016, Qoros’ dealerships included 115 points of sales, 18 additional points of sales under construction and Memorandums of Understanding with respect to the potential development of 18 additional points of sales.

Qoros’ strategy is to expand its dealer network and open new points of sales. As part of its strategy to increase its sales, Qoros intends to increase the size of its dealer network by expanding into smaller Chinese cities (e.g., Tier 3 and Tier 4 cities) and creating incentives for its high-performing dealers to open additional points of sales.

Qoros continues to require additional cash to further its development and, until it achieves significant sales levels, to meet its operating expenses, financing expenses, and capital expenditures. For further information on Qoros’ liquidity requirements, see “— Qoros' Liquidity and Capital Resources ” and “ Item 3D. Risk Factors—Risks Related to Our Interest in Qoros—Qoros will require additional capital resources to meet its operating expenses .”

ZIM

The container shipping industry is volatile and experienced a sustained cyclical downturn in the second half of 2015 and 2016. Freight rates, which are primarily driven by containerized demand and supply balance, have historically been highly volatile. Freight rates declined in each of 2014, 2015 and 2016, mainly as a result of the industry’s ongoing oversupply of capacity. However, freight rates have begun to increase moderately during the second half of 2016, as a result of, among other factors, carriers’ attempts to handle overcapacity by increasing idle fleet levels and intensive scrapping activity, as well as the receivership of Hanjin, one of the leading companies in the shipping industry.

Bunker prices have decreased since the beginning of 2014. However, bunker prices increased moderately throughout 2016, reaching an annual peak by the year end, as a result of producer’s efforts to limit supply.

Should the trend of overcapacity continue to depress freight rates, this could negatively affect the container shipping industry and also affect ZIM’s business, financial position, results of operations, cash flows and ZIM’s compliance with certain financial covenants under its various debt instruments.

E. Off-Balance Sheet Arrangements

Neither Kenon nor any of its subsidiaries are party to off-balance sheet arrangements.

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F. Tabular Disclosure of Contractual Obligations

Kenon

The following table sets forth Kenon’s contractual obligations (including future interest payments) and commercial commitments as of December 31, 2016:

	Payments Due by Period
	Total		Less than One Year		One to Three Years		Three to Five Years		More than Five Years
	($ millions)
Kenon’s stand-alone contractual obligations ^1,2	$	224	$	—	$	—	$	—	$	224
IC Power’s consolidated contractual obligations ³	$	8,492	$	1,611	$	968	$	1,580	$	4,333

Total contractual obligations and commitments	$	8,716	$	1,611	$	968	$	1,580	$	4,557

1.	Represents $200 million, plus interest and fees of $24 million, outstanding under the IC Credit Facility as of December 31, 2016.

2.	Excludes Kenon's back-to-back guarantees to Chery and convertible loans between Ansonia and Quantum.

3.	For further information on IC Power’s consolidated contractual obligations, see “— Tabular Disclosure of Contractual Obligations—IC Power ” below.

As of the date of this annual report, Kenon has outstanding back-to-back guarantee obligations to Chery of up to RMB425 million, plus certain interest and fees, in respect of certain of Qoros’ indebtedness. For further information on, and the risks related to, the guarantees provided by Kenon in respect of Qoros’ debt, see “ Item 5.B Liquidity and Capital Resources—Kenon’s Liquidity and Capital Resources—Kenon’s Commitments and Obligations—Back-to-Back Guarantees Provided to Chery ” and “ Item 3.D Risk Factors—Risks Related to Our Strategy and Operations—Kenon has “back-to-back” guarantee obligations to Chery in respect of guarantees that Chery has given for Qoros’ bank debt and has pledged a substantial portion of its interests in Qoros to secure Qoros’ bank debt .”

IC Power

The following table sets forth IC Power’s contractual obligations (including future interest payments) and commercial commitments as of December 31, 2016, on a consolidated basis.

	Payments Due by Period
	Total		Less than One Year		One to Three Years		Three to Five Years		More than Five Years
	($ millions)
Credit from banks and others	$	220	$	220	$	-	$	-	$	-
Loans from banks and others, debentures, and lease agreements ¹		2,467		341		228		977		921
Trade payables		329		285		10		22		12
Other payables and credit balances		57		57		-		-		-
Purchase obligations ²		4,431		221		433		547		3,230
Operating and maintenance agreements ³		832		358		274		34		166
Obligations under EPC Contract Retirement ⁴		156		129		23		-		4

Total contractual obligations and commitments	$	8,492	$	1,611	$	968	$	1,580	$	4,333

Consists of estimated future payments of principal, interest and premium on loans from banks and others, debentures, and lease agreements, calculated based on interest rates and foreign exchange rates applicable as of December 31, 2016 and assuming that all principal payments and payments at maturity on loans from banks and others, debentures, and lease agreements, will be made on their scheduled payment dates. Also includes the interest rate swaps relating to these obligations, which are calculated based on the LIBOR interest rate set forth in the applicable interest rate swap contract plus the applicable fixed spread.

Consists of purchase commitments for natural gas and gas transportation pursuant to binding obligations which include all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Based upon the applicable purchase prices as of December 31, 2016.

3.	Consists of future payments to be made under services contract with Siemens based on its projections of the hours of service of Kallpa’s turbines.

4.	Consists of future payments to be made under EPC contract, assuming that all progress and completion payments will be made on their scheduled payment dates.

Qoros

The following table sets forth Qoros’ contractual obligations (including future interest payments) and commercial commitments as of December 31, 2016:

	Payments Due by Period
	Total		Less Than One Year ^1,2		One to Two Years ²		Two to Five Years		More than Five Years
	(in millions of RMB)
Loans and borrowings ³		7,870		2,881		853		2,646		1,490
Trade and other payables		2,810		2,685		21		104		—

Total contractual obligations		10,680		5,566		874		2,750		1,490

1.	Includes principal of RMB194 million, which was repaid by Qoros in January 2017.

Qoros’ lenders have agreed to reschedule principal payments under the RMB3 billion and RMB1.2 billion scheduled to occur in 2017 and 2018, with principal payments scheduled to occur between 2019 and 2022 (in the case of the RMB3 billion facility) and between 2019 and 2024 (in the case of the RMB1.2 billion facility).

3.	Includes RMB1.4 billion of shareholder loans as of December 31, 2016.

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G. Safe Harbor

See “ Special Note Regarding Forward-Looking Statements . ”

ITEM 6. 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	Term Begins	Term Expires
Antoine Bonnier	34	Board Member	2016	2017
Laurence N. Charney	70	Chairman of the Audit Committee, Compensation Committee Member	2016	2017
Cyril Pierre-Jean Ducau	37	Chairman of the Board, Nominating and Corporate Governance Committee Member	2016	2017
N. Scott Fine	59	Audit Committee Member, Compensation Committee Member	2016	2017
Aviad Kaufman	46	Compensation Committee Member	2016	2017
Vikram Talwar	67	Audit Committee Member, Nominating and Corporate Governance Committee Member	2016	2017

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
Yoav Doppelt	47	Chief Executive Officer
Robert Rosen	44	General Counsel
Tzahi Goshen	41	Chief Financial Officer
Barak Cohen	35	Vice President of Business Development and Investor Relations

Biographies

Directors

Antoine Bonnier. Mr. Bonnier is currently an Investment Director of Quantum Pacific (UK) LLP and serves as a member of the board of directors of Pacific Drilling S.A. and of Primus Green Energy, Inc., 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, or Ernst & Young, in June 2007, where, over the course of his more than 35-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 affiliations include board tenure with Pacific Drilling S.A. and IC Power Ltd, along with Kenon, as well as Marvel Entertainment, Inc. (through December 2009) and TG Therapeutics, Inc. (from March 2012 through the current date). 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.

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Cyril Pierre-Jean Ducau . Mr. Ducau is the Chief Executive Officer of Ansonia Holdings Singapore B.V. and the Managing Director of Quantum Pacific Ventures Limited. He is a member of the board of directors of Pacific Drilling S.A., Quantum Pacific Shipping Services Pte. Ltd., Ansonia Holdings Singapore B.V. and IC Power Ltd., as well as other private companies, each of which may be associated with the same ultimate beneficiary, Mr. Idan Ofer. He was previously Head of Business Development of Quantum Pacific Advisory Limited in London from 2008 to 2012. Prior to joining Quantum Pacific Advisory Limited, 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. 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 . Mr. Fine is the Chief Executive Officer and Chairman of CTD Holdings Inc., a biotechnology company focused on developing novel therapeutics based on cyclodextrin technologies. Mr. Fine is also Lead Director for Forward Industries, Sole Director of Operational Technologies Stichting and director of Pacific Drilling S.A. 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. He also served as Sole 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. Mr. Fine has been a guest lecturer at Ohio State University’s Moritz School of Law.

Aviad Kaufman . Mr. Kaufman is the Chief Financial Officer of Quantum Pacific (UK) LLP, the chairman of IC, a board member of Israel Chemicals Ltd., IC Power Ltd., Lynav Holdings Ltd., Lynav Shipping Ltd. and Maraval II Ltd., each of which may be associated with the same ultimate beneficiary, Mr. Idan Ofer. From 2008 until 2012, Mr. Kaufman served as Chief Financial Officer of 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.

Vikram Talwar . In 1999, Mr. Talwar founded EXL Service Holdings, Inc., or EXL Service, a leading global Business Process Outsourcing company, in the US. EXL Service was listed on NASDAQ in 2006. Mr. Talwar was the CEO of EXL Service until May 2008 when he was elevated to the position of Executive Chairman of the Board. In April 2011, Mr. Talwar relinquished all his executive responsibilities and became the Non-Executive Chairman of the Board. After having served 13 years on the Board, Mr. Talwar retired in December 2013. Prior to founding Exl Service, Mr. Talwar served as the Chief Executive Officer and Managing Director of Ernst and Young Consulting India from 1998 to 1999. Earlier, Mr. Talwar had served in various senior capacities at Bank of America, including Country Manager in India and other Asian countries from 1970 to 1996. In the past five years, Mr. Talwar has served on the boards of directors of a public company in India and the U.K. and several private companies. He also holds a Master of Business Administration.

Senior Management

Yoav Doppelt. Mr. Doppelt is our Chief Executive Officer and has served in this capacity since our inception in 2014. Mr. Doppelt also served as the Chief Executive Officer of XT Investments Group (formerly known as Ofer Investments Group) from its inception in 2007 to 2014 and served as the Chief Executive Officer of XT Capital (formerly known as Ofer Hi-Tech) from 2001 to 2014. Mr. Doppelt joined the XT Group (formerly known as Ofer Group) in 1996 and has been with XT Capital since its inception in 1997, defining the vision and operational methodology of its private equity and high-tech investments. Mr. Doppelt has held various finance and managerial positions in the XT Group since joining. Mr. Doppelt has previously served as a member of the board of directors of a number of public companies and was actively involved in numerous investments within the private equity and high-tech arenas. Currently, Mr. Doppelt serves as the chairman of the board of IC Power Ltd. and a member of the board of directors of ZIM. Mr. Doppelt has extensive operational and business experience in growth companies and has successfully led several private equity exit transactions. Recently, Mr. Doppelt has been actively involved in the public offering of equity and debt instruments in the U.S. Mr. Doppelt holds a Bachelor’s Degree in Economics and Management from the Faculty of Industrial Management at the Technion—Israel Institute of Technology, Haifa, Israel and a Master’s of Business Administration from Haifa University, Israel.

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Robert Rosen . Prior to joining Kenon as General Counsel, Mr. Rosen spent 15 years in private practice with top tier law firms, including Linklaters LLP and Milbank, Tweed, Hadley and McCloy LLP. During his time in private practice, Mr. Rosen was primarily involved in cross-border public and private capital markets offerings and other securities transactions, as well as with the purchase and sale of US and international distressed assets, private equity investments, structured finance transactions and SEC filings and related advice. Mr. Rosen is admitted to the Bar in the state of New York and 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.

Tzahi Goshen . Mr. Goshen is our Chief Financial Officer and has served in this capacity since our inception in 2014. Prior to joining Kenon as Chief Financial Officer, Mr. Goshen served as the Controller of IC since 2008. Mr. Goshen was responsible for all aspects of IC’s financial reporting as a public company. Mr. Goshen also served as the Controller of Gemini Israel Funds Ltd., a venture capital fund, from 2006 to 2008. Mr. Goshen has vast experience in overseeing the corporate financial activities of traded companies, including acquisitions, tax planning, accounting and reporting, and internal auditing. Mr. Goshen also serves as a member of IC Power Ltd.’s board of directors and audit committee. Mr. Goshen holds a Bachelor’s Degree in Accounting from the College of Management and is a certified public accountant in Israel.

Barak Cohen . Mr. Cohen is our Vice President of Business Development and Investor Relations. Prior to joining Kenon as Vice President of Business Development and Investor Relations, Mr. Cohen worked in various capacities at IC since 2008, most recently as the Senior Director of Business Development and Investor Relations of IC. In this capacity, Mr. Cohen supported and monitored the development of key growth companies throughout various stages of their lifecycles, contributed to the development of IC’s corporate investment strategy, evaluated new investment opportunities, assisted in transaction execution. Additionally, Mr. Cohen headed IC’s global investor relations activity. Prior to joining 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.

B. Compensation

For the year ended December 31, 2016, the aggregate compensation paid (comprising remuneration and the aggregate fair market value of equity awards granted) to our directors and executive officers was approximately $ 5 million. No amounts in respect of pensions, retirement or similar benefits have been accrued in any of the periods presented in this annual report.

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 home country practice in lieu of the requirement to have a compensation committee comprised entirely of independent directors. We have availed ourselves of this exemption, as one of the members of our nominating and corporate governance committee is non-independent under NYSE standards. Other than with respect to this exemption, 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.

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, and of which Cyril Pierre-Jean Ducau serves as our Chairman, 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.

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 either us or IC. Ownership of a significant amount of our shares, by itself, does not constitute a material relationship.

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 majority of our board of directors is independent according to the NYSE’s listing standard. Our board of directors has affirmatively determined that each of Antoine Bonnier, Laurence N. Charney, N. Scott Fine, Aviad Kaufman and Vikram Talwar, representing five of our six directors, are currently “independent directors” as defined under the applicable rules and regulations of the NYSE.

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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 audit, nominating and corporate governance and compensation committees, we have determined that we are in compliance with the NYSE’s requirements in these 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 appointment, compensation, retention, qualifications and independence of our independent registered public accounting firm;

the performance of our internal audit function and independent registered public accounting firm;

our compliance with legal and regulatory requirements; and

related party transactions.

The members of our audit committee, Laurence N. Charney, N. Scott Fine and Vikram Talwar, are independent directors and meet the requirements for financial literacy as defined under the applicable rules and regulations of each of the SEC and the NYSE. 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 the NYSE. Our audit committee operates under a written charter that satisfies the applicable standards of each of the SEC and the NYSE.

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 will consider 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 will also consider recommendations for director candidates submitted by our shareholders. The nominating and corporate governance committee will evaluate and recommend to the board of directors qualified candidates for election, re-election or appointment to the board, as applicable.

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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 will consider 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. However, 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 compensation committee comprised entirely of independent directors. We have availed ourselves of this exemption, as one of the members of our nominating and corporate governance committee is non-independent under NYSE standards.

The members of our nominating and corporate governance committee are Cyril Pierre-Jean Ducau and Vikram Talwar. 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 executive, 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.

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 we are in compliance with this requirement and that the members of our compensation committee, Laurence N. Charney, N. Scott Fine and Aviad Kaufman are independent directors as defined under the applicable rules and regulations 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, 2016, 2015 and 2014 we, and our consolidated businesses, employed 2,105, 1,361 and 1,379 individuals, respectively, as follows:

	Number of Employees as of December 31,
Company	2016		2015		2014
IC Power		2,069		1,309		1,326
Primus		31		41		45
Kenon		5		11		8
Total		2,105		1,361		1,379

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IC Power

As of December 31, 2016, IC Power employed approximately 2,069 employees, of which the substantial majority of employees were located in Latin America. For further information on IC Power’s employees, see “ Item 4.B Business Overview—IC Power—Employees .”

Qoros

As of December 31, 2016, Qoros employed approximately 1,900 employees, consisting of headquarter and factory employees predominantly within China.

ZIM

As of December 31, 2016, ZIM employed approximately 3,700 employees (including employees of its subsidiaries).

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. ”

Other

As of December 31, 2016, Primus employed 31 employees, all of whom are located in the U.S.

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, as well as to officers of IC, 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 certain members of its management under the Share Incentive Plan 2014 in 2014 which vested in January 2015 upon the satisfaction of certain conditions, including the recipient’s continued employment in a specified capacity and Kenon’s listing on the NYSE and the TASE. The aggregate number of shares granted was based upon the aggregate fair market value of the Kenon shares underlying the award granted, as determined in the award documents, divided by the average closing price of Kenon’s shares over their first three trading days. The aggregate fair value of the shares granted was $6,384 thousand.

For further information on the compensation of our directors and executive officers, see “ Item 6.B Compensation ” and for further information on our shareholders and related party transactions policy, see “ Item 7. Major Shareholders and Related Party Transactions .”

Equity Awards to Certain Executive Officers—Subsidiaries and Associated Companies

Kenon is a party to consulting agreements for executives of some of its subsidiaries and associated companies, which provide for cash payments or equity compensation based on equity of the relevant business or associated company. Additionally, 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).

ITEM 7. 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 19, 2017, by each person or entity known to us to beneficially own 5% or more of our ordinary shares, based upon the 53,719,667 ordinary shares outstanding as of such date, which represents our entire issued and outstanding share capital as of the date of this annual report.

To our knowledge, as of April 19, 2017, we had one shareholder of record in the United States holding approximately 99% of our outstanding ordinary shares. Such numbers are not representative of the portion of our shares held in the United States nor are they representative of the number of beneficial holders residing in the United States, since such ordinary shares (which includes the ordinary shares held by the TASE for trading on the TASE) were held of record by one U.S. nominee company, CEDE & Co, which holds all of our shares traded on the NYSE and the TASE indirectly.

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All of our ordinary shares have the same voting rights.

Beneficial Owner (Name/Address)	Ordinary Shares Owned		Percentage of Ordinary Shares
Ansonia Holdings Singapore B.V. ¹		31,156,869		58.0	%
XT Investments Ltd. ²		5,727,128		10.7	%
Laurence N. Charney ³		9,656		—	⁴
N. Scott Fine ³		5,652		—	⁴
Vikram Talwar ³		2,952		—	⁴
Directors and Executive Officers ⁵		—		—	⁴

1.	Based solely on the Schedule 13 D/A (Amendment No. 4) filed by Ansonia Holdings Singapore B.V. with the SEC on January 25 , 2017. A discretionary trust, in which Mr. Idan Ofer is the prime beneficiary, indirectly holds 100% of Ansonia Holdings Singapore B.V.

Based solely upon the Schedule 13 D/A (Amendment No. 1) filed by XT Investments Ltd. and XT Holdings Ltd. with the SEC on January 12, 2016. XT Investments Ltd. is a direct wholly-owned subsidiary of XT Holdings Ltd., of which each of Orona Investments Ltd. and Lynav Holdings Ltd. is the direct owner of 50% of the outstanding ordinary shares. Orona Investments Ltd. is indirectly controlled by Mr. Ehud Angel. Lynav Holdings Ltd. is controlled by a discretionary trust in which Mr. Idan Ofer is a prime beneficiary.

3.	Based solely on Exhibit 99.3 to the Form 6-K furnished by Kenon with the SEC on June 3, 2016.

4.	Owns less than 1% of Kenon’s ordinary shares.

5.	Excludes shares held by Laurence N. Charney, N. Scott Fine and Vikram Talwar.

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.

Based solely on the Schedule 13 G/A (Amendment No. 3) filed by Bank Leumi le-Israel B.M. on February 6, 2017, Bank Leumi le-Israel B.M. ceased to be the beneficial owner of 5% or more of our ordinary shares.

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 numerous related party transactions with certain of our affiliates. Set forth below is a summary of these transactions.

Ansonia’s Agreement to Invest in Qoros

In light of Qoros’ financing needs, Kenon believes that the transactions described above, including Ansonia’s provision of loans of $72 million to Quantum to facilitate on-loans in an aggregate amount of up to RMB450 million to Qoros, are in the best interests of Kenon and its shareholders. As Ansonia is a major shareholder in Kenon, these transactions have been reviewed and approved by Kenon in accordance with its related party transaction policy.

For further information on Ansonia’s agreement to invest in Qoros, see “ Item 5.B Liquidity and Capital Resources—Qoros’ Liquidity and Capital Resources—Material Indebtedness—Shareholder Loans ” and the full text of the related Loan Agreement and the Undertaking Agreement, copies of which are filed as exhibits to this annual report.

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Ansonia’s Commitment to Fund RMB25 million of Kenon’s Back-to-Back Guarantee Obligations

In D ecember 2016, Kenon provided a RMB250 million shareholder loan to Qoros and in connection with this loan, Kenon’s back-to-back guarantee obligations to Chery with respect to Chery’s guarantee of Qoros’ RMB3 billion loan facility were reduced from RMB750 million to RMB500 million. In connection with this transaction, Kenon’s major shareholder Ansonia committed to fund RMB25 million of Kenon’s remaining back-to-back guarantee obligations to Wuhu Chery in certain circumstances. For further information, see “ Item 5.B Liquidity and Capital Resources—Kenon’s Liquidity and Capital Resources—Debt Owed to Kenon from Subsidiaries—Qoros Shareholder Loans. ”

IC Credit Facility

In connection with the consummation of the spin-off, IC provided a $200 million credit facility to us, bearing interest at a rate of 12-Month LIBOR+ 6% per annum. For further information on the terms of the IC Credit Facility, see “ Item 5.B Liquidity and Capital Resources—Kenon’s Commitments and Obligations—IC Credit Facility. ” For information on the risks related to Kenon’s ability to repay, and compliance with, the IC Credit Facility, see “ Item 3.D Risk Factors—Risks Related to Our Strategy and Operations—Kenon has significant repayment obligations under the IC Credit Facility .”

IC Power Reorganization

In March 2016, Kenon announced an internal restructuring pursuant to which IC Power, which was a holding company with no material assets, acquired ICP. As a result of such transaction, IC Power is now the parent holding company of Kenon’s power generation and distribution businesses. In connection with the reorganization of IC Power, IC Power issued notes of $145 million and $75 million payable to Kenon. In October 2016, IC Power prepaid in full its $75 million note to Kenon.

Kenon had pledged 66% of the ICP shares to secure the IC Credit Facility. In connection with the internal reorganization, this pledge over ICP shares was released and the ICP shares were transferred to IC Power, which pledged 66% of the transferred ICP shares to IC. In addition, Kenon also pledged to IC 66% of the shares of IC Power and the $145 million note owing from IC Power to Kenon.

IC Power

Sales of Electricity and Gas

OPC-Rotem sells electricity through PPAs to some entities that may be considered to be related parties (as they may be considered to be under common control with it). OPC-Rotem recorded revenues from related parties in the amount of NIS 528 million (approximately $137 million), NIS 570 million (approximately $146 million) and NIS 746 million (approximately $208 million) in the years ended December 31, 2016, 2015 and 2014, respectively.

OPC-Rotem and OPC-Hadera also sell an immaterial amount of gas to some entities that may be considered related parties.

Qoros

Qoros sources its engines and certain spare parts from Chery in the ordinary course of Qoros’ business. Additionally, Qoros entered into a platform sharing agreement with Chery, pursuant to which Qoros provides Chery with a license to utilize Qoros’ platform in exchange for a fee.

For further information on Qoros’ commercial arrangements with Chery, see Note 30 to Qoros’ consolidated financial statements, included in this annual report.

C. Interests of Experts and Counsel

Not applicable.

ITEM 8. 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 .”

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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 .”

ITEM 9. The Offer and Listing

A. Offer and Listing Details.

The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on the NYSE.

	Price per ordinary share ($)
	High		Low
Annual:
Year ended December 31, 2015 (since January 6, 2015)		22.13		9.66
Year ended December 31, 2016		12.02		7.40
Quarterly:
Three months ended June 30, 2015		22.13		19.26
Three months ended September 30, 2015 ¹		21.10		13.19
Three months ended December 31, 2015		14.67		9.66
Three months ended March 31, 2016		9.80		7.46
Three months ended June 30, 2016		10.90		7.40
Three months ended September 30, 2016		12.02		9.57
Three months ended December 31, 2016		11.70		8.81
Three months ended March 31, 2017		13.11		10.01
Monthly
October 2016		11.36		9.88
November 2016		10.00		8.81
December 2016		11.70		9.14
January 2017		13.11		10.72
February 2017		12.60		10.01
March 2017		12.70		11.53
April 2017 (through April 18, 2017)		12.03		11.19

On July 23, 2015, we completed the pro rata distribution in specie of 18,030,041 ordinary shares of Tower, representing 23% of the then currently outstanding Tower shares and substantially all of our interest in Tower, to holders of our ordinary shares. The closing price of Tower on NASDAQ on July 23, 2015 was $14.16.

The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on the TASE.

	Price per ordinary share (NIS)
	High		Low
Annual:
Year ended December 31, 2015 (since January 6, 2015)		84.98		37.75
Year ended December 31, 2016		46.34		28.10
Quarterly:
Three months ended June 30, 2015		84.98		74.75
Three months ended September 30, 2015 ¹		80.04		51.51
Three months ended December 31, 2015		55.93		37.75
Three months ended March 31, 2016		40.00		29.13
Three months ended June 30, 2016		41.75		28.10
Three months ended September 30, 2016		46.34		36.12
Three months ended December 31, 2016		45.33		33.30
Three months ended March 31, 2017		49.06		37.55
Monthly
October 2016		42.95		37.37
November 2016		38.11		33.30
December 2016		45.33		34.58
January 2017		49.06		40.87
February 2017		47.85		37.55
March 2017		45.50		41.53
April 2017 (through April 18, 2017)		44.81		40.40

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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 10. Additional Information

A. Share Capital

Not applicable.

B. Constitution

Following certain amendments to the Singapore Companies Act, which took effect in phases on July 1, 2015 and January 3, 2016, our memorandum and articles of association have been merged into one document called the “constitution” by operation of law on the latter date. The following description of our constitution is a summary and is qualified by reference to the constitution, a copy of which has previously been filed with the SEC.

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 earlier 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 18 months from our incorporation date (and in the case of subsequent periods, 15 months)) or six months from our financial year end, being December 31, whichever is earlier; 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 2017 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, qualified 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; 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.

Shareholders’ Meetings

We are required to hold an annual general meeting each year. Annual general meetings must be held not more than 15 months after the holding of the last preceding annual general meeting, and in each case, not later than six months from 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.

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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. No dividend may be paid except out of profits and we currently do not have distributable profits from which dividends may be declared. 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 and Rights 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 Singapore 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.

“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;

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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 and all the funds managed by the adviser on a discretionary basis, where the shareholdings of the adviser and any of those funds in the client total 10% or more of the client’s equity share capital;

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 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.

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.

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.

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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.

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.

246

Delaware

Singapore—Kenon Holdings Ltd.

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.

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.

247

Delaware

Singapore—Kenon Holdings Ltd.

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.

Meetings of Shareholders

Annual and Special Meetings Typical bylaws provide that annual meetings of stockholders are to be held on a date and at a time fixed by the board of directors. Under the Delaware General Corporation Law, a special meeting of stockholders may be called by the board of directors or by any other person authorized to do so in the certificate of incorporation or the bylaws. Quorum Requirements Under the Delaware General Corporation Law, a corporation’s certificate of incorporation or bylaws can specify the number of shares which constitute the quorum required to conduct business at a meeting, provided that in no event shall a quorum consist of less than one-third of the shares entitled to vote at a meeting.		Annual General Meetings All companies are required to hold an annual general meeting once every calendar year. The first annual general meeting was required to be held within 18 months of Kenon’s incorporation and subsequently, annual general meetings must be held not more than 15 months after the holding of the last preceding annual general meeting, and in each case, not later than six months from Kenon’s financial year end. Extraordinary General Meetings Any general meeting other than the annual general meeting is called an “extraordinary general meeting.” Two or more members (shareholders) holding not less than 10% of the total number of issued shares (excluding treasury shares) may call an extraordinary general meeting. In addition, the constitution usually also provides that general meetings may be convened in accordance with the Singapore Companies Act by the directors. Notwithstanding anything in the constitution, the directors are required to convene a general meeting if required to do so by requisition (i.e., written notice to directors requiring that a meeting be called) by shareholder(s) holding not less than 10% of the total number of paid-up shares of Kenon carrying voting rights. Our constitution provides that the directors may, whenever they think fit, convene an extraordinary general meeting. Quorum Requirements Our constitution provides that shareholders entitled to vote holding 33 and 1/3 percent of our issued and paid-up shares, present in person or by proxy at a meeting, shall be a quorum. In the event a quorum is not present, the meeting may be adjourned for one week.

248

Delaware

Singapore—Kenon Holdings Ltd.

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 reasonable expenses 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.

249

Delaware

Singapore—Kenon Holdings Ltd.

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. The Delaware General Corporation 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.		Derivative actions The Singapore Companies Act has a provision which provides a mechanism enabling shareholders to apply to the court for leave to bring a derivative action on behalf of Kenon. Applications are generally made by shareholders of Kenon or individual directors, but courts are given the discretion to allow such persons as they deem proper to apply (e.g., beneficial owner of shares). It should be noted that this provision of the Singapore Companies Act is primarily used by minority shareholders to bring an action in the name and on behalf of Kenon or intervene in an action to which Kenon is a party for the purpose of prosecuting, defending or discontinuing the action on behalf of Kenon. Class actions 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. These shareholders are commonly known as “lead plaintiffs.” Further, there are circumstances under the provisions of certain Singapore statutes where 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.

250

Delaware

Singapore—Kenon Holdings Ltd.

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 a securities exchange (in Singapore or 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 a securities exchange (in Singapore or 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, it should be noted that 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.

251

Delaware

Singapore—Kenon Holdings Ltd.

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).

252

Delaware

Singapore—Kenon Holdings Ltd.

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 3D. 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 “Item 10.B Constitution—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” and “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 consequences of ownership 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 to consult its tax adviser as to the particular tax consequences 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.

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 their 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. 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 federal tax laws or any state, local or foreign tax laws. Moreover, this summary does not address all the tax consequences that may be relevant to holders of our ordinary shares in light of their 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;

tax-exempt entities;

financial institutions;

broker-dealers;

persons that hold our ordinary shares through partnerships (or other entities classified as partnerships for U.S. federal income tax purposes);

pass-through entities;

persons that actually or constructively own 10% or more of the total combined voting power of all classes of our voting stock;

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traders in securities that elect to apply a mark-to-market method of accounting, holders that hold our ordinary shares as part of a “hedge,” “straddle,” “conversion,” or other risk reduction transaction for U.S. federal income tax purposes; and

individuals who receive our ordinary shares upon the exercise of compensatory options or otherwise as compensation.

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 consequences 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 THEIR TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR 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 taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, 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) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

If a partnership (or other entity taxable as a partnership for U.S. federal income tax purposes) holds 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 partnership holding our ordinary shares, you should consult your tax advisor.

Taxation of Dividends and Other Distributions on the Ordinary Shares

The gross amount of any distribution made to a U.S. Holder with respect to our ordinary shares, including the amount of any non-U.S. taxes withheld from the distribution, generally will be includible in income on the day on which the distribution is actually or constructively received by a U.S. Holder as dividend income to the extent the distribution is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. A distribution in excess of our current and accumulated earnings and profits (as determined for U.S. federal income tax purposes), including the amount of any non-U.S. taxes withheld from the distribution, will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted basis in our ordinary shares and as a capital gain to the extent it exceeds the U.S. Holder’s basis. We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles, therefore, U.S. Holders should expect that distributions generally will be treated as dividends for U.S. federal income tax purposes. Such dividends will not be eligible for the dividends-received deduction generally allowed to U.S. corporations.

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 to consult their tax advisors regarding the availability of the lower rate for dividends paid with respect to our ordinary shares.

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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 their tax advisors regarding the availability of the foreign tax credit in their particular circumstances.

Taxation of Dispositions of the Ordinary Shares

A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of our ordinary shares in an amount equal to the difference between the amount realized on such sale or other taxable disposition and such U.S. Holder’s adjusted tax basis in our ordinary shares. Such gain or loss generally will be long-term capital gain (taxable at a reduced rate for non-corporate U.S. Holders) or loss if, on the date of sale or disposition, such ordinary shares were held by such U.S. Holder for more than one year. The deductibility of capital losses is subject to significant limitations. Any gain or loss recognized by a U.S. Holder generally will be treated as U.S. source gain or loss, as the case may be, for foreign tax credit purposes.

The amount realized on a sale or other taxable disposition of our ordinary shares in exchange for foreign currency 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 will be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year in which either (i) 75% or more of its gross income consists of certain types of “passive” income or (ii) 50% or more of the fair market value of its assets (determined on the basis of a quarterly average) 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, 2016. We do not anticipate being a PFIC for our current taxable year or in the foreseeable future, although we can make no assurances in this regard. Our status as a PFIC in any year depends on our assets and activities in that year. We have no reason to believe that our assets or activities will change in a manner that would cause us to be classified as a PFIC for the current taxable year or for any future year. Because, however, PFIC status is factual in nature and generally cannot be determined until the close of the taxable year, there can be no assurance that we will not be considered a PFIC for any taxable year.

If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares, the U.S. Holder will generally be subject to imputed interest taxes, characterization of any gain from the sale or exchange of our ordinary shares as ordinary income, and other disadvantageous tax treatment with respect to our ordinary shares unless the U.S. Holder makes a mark-to-market election (as described below). Further, if we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares and any of our non-U.S. subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of each such non-U.S. subsidiary classified as a PFIC (each such subsidiary, a lower tier PFIC) for purposes of the application of these rules. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election. A mark-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, the U.S. Holder will generally (i) include as income for each taxable year 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 a loss 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 only to the extent of the net amount previously included in income as a result of the 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. In addition, any gain such U.S. Holder recognizes upon the sale or other taxable disposition of our ordinary shares will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If a U.S. Holder makes a mark-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, and who is considering making a mark-to-market election, special tax rules may apply relating to purging the PFIC taint of such ordinary shares. Because a mark-to-market election cannot be made for any lower tier 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.

256

We do not intend to provide the information necessary for U.S. Holders of our ordinary shares to make qualified electing fund elections, which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.

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 reporting on IRS Form 8621.

Each U.S. Holder should consult its tax adviser concerning the U.S. federal income tax consequences of purchasing, holding, and disposing of our ordinary shares, including the possibility of making a mark-to-market election, if we are or become classified as a PFIC.

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 consequences applicable to all categories of investors, some of which (such as dealers in securities) may be subject to special rules. Prospective shareholders are advised to consult their tax advisers as to the Singapore or other tax consequences of the acquisition, ownership or disposal of our ordinary shares, taking into account their own particular circumstances. The statements below are based upon the assumption that Kenon is 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 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, any gains derived by a divesting company from its disposal of ordinary shares in an investee company between June 1, 2012 and May 31, 2022 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.

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.

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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

We are subject to the information reporting requirements of the Exchange Act applicable to foreign private issuers, and under those requirements will file reports with the SEC. Those other reports or other information and this annual report may be inspected without charge at 1 Temasek Avenue #36-01, Millenia Tower, Singapore 039192 and inspected and copied at the public reference facilities of the SEC located at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains a website at http://www.sec.gov from which certain filings may be accessed.

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, and will submit to the SEC, on a Form 6-K, unaudited quarterly financial information for the first three quarters of each year.

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.

I. Subsidiary Information

Not applicable.

ITEM 11. 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.

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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—Financial Instruments to our financial statements included in this annual report.

ITEM 12. 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.

259

PART II

ITEM 13. Defaults, Dividend Arrearages and Delinquencies

None.

ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

ITEM 15. 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) 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.

Our management has excluded DEORSA, DEOCSA, Guatemel and RECSA from its assessment of internal control over financial reporting as of December 31, 2016, as these businesses were acquired by us on January 22, 2016. DEORSA, DEOCSA, Guatemel and RECSA are included in our consolidated financial statements as from the date of acquisition, and constituted approximately 12% of our consolidated total assets (excluding any purchase price allocation effect) and $35 million of net income out of our consolidated net loss of $394 million for the year ended December 31, 2016. Under guidelines established by the SEC, companies are allowed to exclude acquired companies from their assessment of internal control over financial reporting during the year such company was acquired.

Our management has assessed the design and operating effectiveness of our internal control over financial reporting as of December 31, 2016. 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, 2016, our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting as of December 31, 2016 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, 2016, 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.

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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 16. [RESERVED]

ITEM 16A. 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 16B. 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 16C. 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, 2016 and 2015.

Our audit committee charter requires that all audit and non-audit services provided by our independent auditors are pre-approved by our audit committee, provided that certain de minimis non-audit services provided by our independent auditors do not need to be approved by our audit committee.

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, 2016 and 2015.

	Year ended December 31,
	2016		2015
	(in thousands of USD)
Audit Fees ¹	$	4,064	$	4,189
Audit-Related Fees ²		1,387		1,030
Tax Fees ³	$	144	$	394
All Other Fees		26		—

Total	$	5,621	$	5,613

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.

2.	The audit-related fees for the year ended December 31, 2016 and 2015 substantially reflect fees billed or accrued in connection with IC Power’s filing of a registration statement on Form F-1.

3.	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 16D. Exemptions from the Listing Standards for Audit Committees

None.

ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

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ITEM 16F. Change in Registrant’s Certifying Accountant

KPMG LLP is our independent registered public accounting firm with respect to our consolidated financial statements as of and for the years ended December 31, 2015 and 2016. KPMG LLP has relied on the audit report of Deloitte, Inc. (Panamá ) to the extent our financial statements relate to the combined entities DEORSA and DEOCSA, significant subsidiaries of Kenon, which were acquired by IC Power on January 22, 2016. After the acquisition, Deloitte, Inc. (Panamá ) was engaged to serve as independent registered public accounting firm of DEORSA and DEOCSA on August 3, 2016.

Neither we nor anyone on our behalf consulted Deloitte, Inc. (Panamá ) regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our consolidated financial statements, and we have not obtained any written report or oral advice that Deloitte, Inc. (Panamá ) concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a "disagreement", as defined in Item 16F(a)(1)(iv) of Form 20-F and related instructions to Item 16-F of Form 20-F, with Deloitte, Inc. (Panamá ) or a "reportable event" as described in Item 16F(a)(1)(v) of Form 20-F.

Pursuant to Item 16F(a)(2)(ii)(d) of Form 20-F, we have requested Deloitte, Inc. (Panamá) to review the disclosure required by such item before this annual report is filed with the SEC. We have provided Deloitte, Inc. (Panamá) the opportunity to furnish us with a letter addressed to the SEC containing any new information, clarification of Kenon’s expression of its views, or the respects in which it does not agree with the statements made by us in response to this item.

ITEM 16G. Corporate Governance

None.

ITEM 16H. Mine Safety Disclosure

Not applicable.

262

PART III

ITEM 17. Financial Statements

Not applicable.

ITEM 18. 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.

ITEM 19. Exhibits

Index to Exhibits

Exhibit Number		Description of Document

1.1		Kenon Holdings Ltd.’s Constitution (Incorporated by reference to Exhibit 1.1 to Amendment No. 1 to Kenon’s Registration Statement on Form 20-F, filed on December 19, 2014)

2.1		Form of Specimen Share Certificate for Kenon Holdings Ltd.’s Ordinary Shares (Incorporated by reference to Exhibit 2.1 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)

2.2		Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and Millenium Investments Elad Ltd. (Incorporated by reference to Exhibit 99.5 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)

2.3		Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and Bank Leumi Le-Israel B.M. (Incorporated by reference to Exhibit 99.6 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)

2.4		Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and XT Investments Ltd. (Incorporated by reference to Exhibit 99.7 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)

4.1		Sale, Separation and Distribution Agreement, dated as of January 7, 2015, between Israel Corporation Ltd. and Kenon Holdings Ltd. (Incorporated by reference to Exhibit 99.2 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)

4.2		Loan Agreement, dated as of January 7, 2015, between Israel Corporation Ltd. and Kenon Holdings Ltd, as supplemented by Supplement No. 1 to the Loan Agreement, dated March 17, 2016 (Incorporated by reference to Exhibit 4.2 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.3		English translation of Natural Gas Supply Agreement, dated as of January 2, 2006, as amended, among Kallpa Generación S.A., Pluspetrol Peru Corporation S.A., Pluspetrol Camisea S.A., Hunt Oil Company of Peru L.L.C. Sucursal del Peru, SK Corporation Sucursal Peruana, Sonatrach Peru Corporation S.A.C., Tecpetrol del Peru S.A.C. and Repsol Exploración Peru Sucursal del Peru (Incorporated by reference to Exhibit 4.3 to Amendment No. 1 to Kenon’s Draft Registration Statement on Form 20-F, filed on August 14, 2014)

4.4		English translation of Natural Gas Transportation Agreement, dated as of December 10, 2007, as amended, between Kallpa Generación S.A. and Transportadora de Gas del Peru S.A. (Incorporated by reference to Exhibit 4.4 to Amendment No. 1 to Kenon’s Draft Registration Statement on Form 20-F, filed on August 14, 2014)

4.5		Turnkey Engineering, Procurement and Construction Contract, dated as of November 4, 2011, among Cerro del Águila S.A., Astaldi S.p.A. and GyM S.A., as amended (Incorporated by reference to Exhibit 4.5 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.6		English translation of Contract of Concession, dated as of October 23, 2010, as amended, between the Government of Peru and Kallpa Generación S.A., relating to the provision of electric energy services to the public (Incorporated by reference to Exhibit 4.6 to Amendment No. 1 to Kenon’s Draft Registration Statement on Form 20-F, filed on August 14, 2014)

4.7†		Joint Venture Contract, dated as of February 16, 2007, as amended, between Wuhu Chery Automobile Investment Co., Ltd. and Quantum (2007) LLC (Incorporated by reference to Exhibit 4.7 to Amendment No. 1 to Kenon’s Registration Statement on Form 20-F, filed on December 19, 2014)

4.8†		Gas Sale and Purchase Agreement, dated as of November 25, 2012, among Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership, Isramco Negev 2 Limited Partnership, Avner Oil Exploration Limited Partnership, Dor Gas Exploration Limited Partnership, and O.P.C. Rotem Ltd. (Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to IC Power Pte. Ltd.’s Form F-1, filed on November 2, 2015)

4.9		Indenture, dated as of April 4, 2011, between Inkia Energy Limited, as issuer, and Citibank, N.A.as trustee, relating to Inkia Energy Limited’s 8.375% Senior Notes due 2021 (Incorporated by reference to Exhibit 4.9 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)

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Exhibit Number

Description of Document


4.10		Facility Agreement, dated as of January 2, 2011, among O.P.C. Rotem Ltd., as borrower, Bank Leumi Le-Israel B.M., as arranger and agent, Bank Leumi Le-Israel Trust Company Ltd., as security trustee, and the senior lenders named therein (Incorporated by reference to Exhibit 4.10 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)


4.11		Credit Agreement, dated as of August 17, 2012, among Cerro del Águila S.A., as borrower, Sumitomo Mitsui Banking Corporation, as administrative agent, and other parties party thereto (Incorporated by reference to Exhibit 4.11 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)

4.12		Guarantee Contract, dated as of June 9, 2015, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd. (Incorporated by reference to Exhibit 4.12 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.13		Guarantee Contract, dated as of November 5, 2015, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd. (Incorporated by reference to Exhibit 4.13 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.14		Stock Purchase Agreement, dated as of December 29, 2015, among IC Power Distribution Holdings PTE, Limited, as Purchaser, Inkia Energy, Limited, as Purchaser Guarantor, DEORSA-DEOCSA Holdings Limited, as Seller, and Estrella Cooperatief BA (Incorporated by reference to Exhibit 4.14 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.15		Pledge Agreement, dated as of March 17, 2016, between Israel Corporation Ltd. and IC Power Pte. Ltd. (Incorporated by reference to Exhibit 4.15 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.16		Security over Shares Agreement, dated as of March 17, 2016, between Israel Corporation Ltd. and Kenon Holdings Ltd. (Incorporated by reference to Exhibit 4.16 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.17*		Amendment and Restatement Agreement, dated as of September 2, 2016, relating to the Loan Agreement dated as of April 22, 2016, between Quantum (2007) LLC, as borrower, and Ansonia Holdings Singapore B.V., as lender, as amended

4.18		Undertaking Agreement, dated as of April 22, 2016, among Qoros Automotive Co., Ltd., Quantum (2007) LLC, Kenon Holdings Ltd., Wuhu Chery Automobile Investment Co., Ltd., Chery Automobiles Limited, and Ansonia Holdings Singapore B.V. (Incorporated by reference to Exhibit 4.18 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.19*		Additional Undertaking Agreement, dated as of September 2, 2016, among Qoros Automotive Co., Ltd., Quantum (2007) LLC, Kenon Holdings Ltd., Wuhu Chery Automobile Investment Co., Ltd., Chery Automobiles Limited, and Ansonia Holdings Singapore B.V.

4.20*		Fourth Amended and Restated Limited Liability Company Agreement of Quantum (2007) LLC, dated as of September 2, 2016

4.21*		Release Agreement, dated December 21, 2016, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd.

4.22*		Equity Pledge Contract, dated December 21, 2016, between Quantum (2007) LLC, as Pledgor, and Chery Automobile Co. Ltd., as Pledgee

4.23**		Further Release and Cash Support Agreement, dated March 9, 2017, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd.

4.24**		The Second Equity Pledge Contract in relation to 700 Million Loan, dated March 9, 2017, between Quantum (2007) LLC, as Pledgor, and Chery Automobile Co. Ltd., as Pledgee

8.1*		List of subsidiaries of Kenon Holdings Ltd.

12.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

12.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

13.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

15.1*		Consent of KPMG LLP, Independent Registered Public Accounting Firm of Kenon Holdings Ltd.

15.2*		Consent of Somekh Chaikin, a Member Firm of KPMG International

15.3*		Consent of KPMG Huazhen LLP, Independent Auditor of Qoros Automotive Co., Ltd.

15.4*		Consent of Deloitte, Inc. (Panamá), Independent Registered Public Accounting Firm of the Combined Entities (Distribuidora de Electricidad de Oriente, S.A. and Distribuidora de Electricidad de Occidente, S.A.)

15.5*		Consent of Brightman Almagor Zohar & Co., a Member Firm of Deloitte Touche Tohmatsu, independent auditor of Tower Semiconductor Ltd.

* Filed herewith.

** To be filed by amendment shortly after the date of this annual report.

†	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.

Kenon Holdings Ltd

Consolidated Financial Statements

as at December 31, 2016 and 2015 and for the years then ended

Combined Financial Statements for the year ended December 31, 2014

Contents

	Page

Reports of Independent Registered Public Accounting Firms	F-1 – F-6

Consolidated Statements of Financial Position	F-7 – F-8

Consolidated Statements of Profit & Loss and Combined Statement of Profit & Loss	F-9

Consolidated Statements of Other Comprehensive Income (Loss) and Combined Statement of Other Comprehensive Loss	F-10

Consolidated Statements of Changes in Equity	F-11 – F-12

Combined Statement of Changes in Former Parent Company Investment	F-13

Consolidated Statements of Cash Flows and Combined Statement of Cash Flows	F-14 – F-15

Notes to the consolidated/combined financial statements	F-16 – F-127

Affiliate Financial Statements Filed Pursuant to Rule 3-09 of Regulation S-X

Qoros Automotive Co., Ltd.

Consolidated Financial Statements for the Year Ended December 31, 2016


Independent Auditors’ Report	F-129 – F-130

Consolidated Statements of Financial Position	F-131 – F-132

Consolidated Statements of Profit or Loss and Other Comprehensive Income	F-133

Consolidated Statements of Changes in Equity	F-134 – F-135

Consolidated Statements of Cash Flows	F-136 – F-138

Notes to the Consolidated Financial Statements	F-139 – F-181

KPMG LLP

16 Raffles Quay #22-00

Hong Leong Building

Singapore 048581

Telephone +65 6213 3388

Fax +65 6225 0984

Internet www.kpmg.sg

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Kenon Holdings Ltd.:

We have audited the accompanying consolidated statements of financial position of Kenon Holdings Ltd. (the "Company") and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of profit and loss, other comprehensive income (loss), changes in equity, and cash flows for the years then ended. 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 did not audit the combined financial statements of certain consolidated subsidiaries, Distribuidora de Electricidad de Occidente, S. A. ('DEOCSA') and Distribuidora de Electricidad de Oriente, S. A. ('DEORSA'), the combined financial statements of which reflected total assets and total revenues that constituted 16.4% percent and 27.1% percent, respectively, of the related consolidated totals of Kenon Holdings Ltd. as of and for the year ended 31 December 31, 2016. Those combined financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for DEOCSA and DEORSA, is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kenon Holdings Ltd. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended, 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), Kenon Holdings Ltd.'s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 15, 2017 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ KPMG LLP

KPMG LLP

Public Accountants and

Chartered Accountants

Singapore

April 15, 2017

KPMG LLP (Registration No. T0BLL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entitiy.

F - 1

KPMG LLP

16 Raffles Quay #22-00

Hong Leong Building

Singapore 048581

Telephone +65 6213 3388

Fax +65 6225 0984

Internet www.kpmg.sg

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Kenon Holdings Ltd.:

We have audited Kenon Holdings Ltd.'s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) . Kenon Holding Ltd'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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 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.

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.

In our opinion, Kenon Holdings Ltd. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Kenon Holdings Ltd. acquired Distribuidora de Electricidad de Occidente, S. A. ('DEOCSA') and, Distribuidora de Electricidad de Oriente, S. A. ('DEORSA') during 2016, and management excluded from its assessment of the effectiveness of Kenon Holdings Ltd.'s internal control over financial reporting as of December 31, 2016, DEOCSA's and DEORSA's internal control over financial reporting associated with total assets and total revenues that constituted 16.4% percent and 27.1% percent, respectively, included in the consolidated financial statements of Kenon Holdings Ltd and subsidiaries, as of and for the year ended December 31, 2016. Our audit of internal control over financial reporting of Kenon Holdings Ltd. also excluded an evaluation of the internal control over financial reporting of DEOCSA and DEORSA.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of Kenon Holdings Ltd. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of profit and loss, other comprehensive income (loss), changes in equity, and cash flows for the years then ended, and our report dated April 15, 2017 expressed an unqualified opinion on those consolidated financial statements .

/s/ KPMG LLP

KPMG LLP

Public Accountants and

Chartered Accountants

Singapore

April 15, 2017

F - 2

Deloitte, Inc.

Contadores Públicos Autorizados

RUC 16292-152-155203 D.V. 65

Torre Banco Panamá, piso 12

Avenida Boulevard yIa Rotonda

Costa del Este, Panamá

Apartado 0816-01558

Panamá, Rep. de Panamá

Teléfono: (507) 303-4100

Fax: (507) 269-2386

infopanama@deloitte.com

www.deloitte.com/pa

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Distribuidora de Electricidad de Occidente, S.A. and

Distribuidora de Electricidad de Oriente, S.A.

(Guatemalan entities)

We have audited the combined statement of financial position of Distribuidora de Electricidad de Occidente, S.A. and Distribuidora de Electricidad de Oriente, S.A. (together, the “Combined Entities”) as of December 31, 2016, and the related combined statements of profit or loss and other comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein). These combined financial statements are the responsibility of the Combined Entities’ management. Our responsibility is to express an opinion on these combined financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. The Combined Entities are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Combined Entities’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such combined financial statements present fairly, in all material respects, the combined financial position of the Combined Entities as of December 31, 2016, and the combined results of their operations and their cash flows for the year then ended in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

Deloitte LATCO

Firma miembro de

Deloitte Touche Tohmatsu Limited

F - 3

As stated in Note 23 of the accompanying Combined Financial Statements, on December 2, 2016, a reduction in the capital stock was approved by the respective Combined Entities shareholders through the decrease in the nominal value of the Combined Entities’ respective shares. According to Guatemala’s Commerce Code, the reduction of capital stock can be recorded only when it is registered in the Commercial Register. As further indicated in Note 23, as of the date of issuance of the accompanying Combined Financial Statements the registration in the Commercial Register is pending, and as such the above mentioned reduction was not recognized.

As stated in Note 30.c) of the accompanying combined financial statements, in July 2016, the Guatemalan Tax Authority (Superintendencia de Administración Tributaria, or the “SAT”) filed a criminal complaint against DEOCSA and DEORSA, which requested the initiation of a criminal proceeding for tax fraud, and the payment of alleged back taxes, interest and fines in relation to fiscal years 2011 and 2012, on the grounds that the structure of the 2011 acquisition of DEOCSA and DEORSA was used solely to generate tax deductions in respect of interest and amortization of goodwill. As of December 31, 2016, the Combined Entities paid a total of approximately US$ 18,093 thousand (Q. 137,505 thousand) for the fiscal years 2014 and 2015; and on 19 August 2016, they paid a total of US$ 13,189 thousand (Q. 100,236 thousand) for the fiscal year 2013. In addition, during 2016 the Combined Entities made additional payments of income tax in advance by Q. 40,729 thousand (US$ 5,393 thousand) corresponding to fiscal year 2016, not computing as deductible amounts the items related to goodwill, depreciation and interest that were subject of the criminal complaint. The Combined Entities’ management considers, based on the opinion of its tax and legal advisors, that the receivable generated by these payments is more likely than not to be recovered as a result of the final outcome of this criminal complaint and of the other recourses to be initiated by the Combined Entities.

/s/ Deloitte, Inc.

April 13, 2017

Panama, Republic of Panama

F - 4

Somekh Chaikin

KPMG Millennium Tower

17 Ha’arba’a Street, PO Box 609

Tel Aviv 61006, Israel

+972 3 684 8000

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Kenon Holdings Ltd.:

We have audited the accompanying combined carve-out statements of profit and loss, other comprehensive loss, changes in former parent company investment and cash flows of certain holdings of Israel Corporation Ltd. (“Kenon Holdings, Carve-out”) for the year ended December 31, 2014. These combined carve-out financial statements are the responsibility of Kenon Holdings, Carve-out’s management. Our responsibility is to express an opinion on these combined carve-out financial statements based on our audit.

We did not audit the financial statements of Tower Semiconductor Ltd. (Tower), (a 29% owned unconsolidated associated company as of December 31, 2014). Kenon Holdings, Carve-out’s equity in profit of Tower was $18.3 million for the year 2014. The financial statements of Tower were audited by other auditors whose report was furnished to us, and our opinion, insofar as it relates to the amounts included for Tower, is based solely on the report of the other auditors.

In our opinion, based on our audit and on the report of the other auditors, the combined carve-out financial statements referred to above present fairly, in all material respects, the results of the operations and cash flows of Kenon Holdings, Carve-out, as defined in Note 1D, for the year ended December 31, 2014, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/ Somekh Chaikin

Somekh Chaikin

Certified Public Accountants (Isr)

A member firm of KPMG International

Tel Aviv, Israel

March 31, 2015

Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

F - 5

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the shareholders of
Tower Semiconductor Ltd.

We have audited the consolidated statements of operations, comprehensive loss, changes in shareholders’ equity and cash flows for the year ended December 31, 2014(not presented separately herein) of Tower Semiconductors Ltd. (the “Company”) and its subsidiaries. The consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects the consolidated results of operations and cash flows of the Company and its subsidiaries for the year ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

Brightman Almagor Zohar & Co.

Certified Public Accountants

A Member of Deloitte Touche Tohmatsu Limited

Tel Aviv, Israel
March 4, 2015

Tel Aviv - Main Office	Trigger Foresight	Ramat-Gan	Jerusalem	Haifa	Beer-Sheva	Eilat
1 Azrieli Center	3 Azrieli Center	6 Ha-rakun	12 Sarei Israel	5 Ma'aleh Hashichrur	Omer Industrial Park	The City Center
Tel Aviv, 6701101	Tel Aviv, 6702301	Ramat Gan, 5252183	Jerusalem, 9439024	P.O.B. 5648	Building No. 10	P.O.B. 583
P.O.B. 16593				Haifa, 3105502	P.O.B. 1369	Eilat, 8810402
Tel Aviv, 6116402					Omer, 8496500
Tel: +972 (3) 608 5555	Tel: +972 (3) 607 0500	Tel: +972 (3) 755 1500	Tel: +972 (2) 501 8888	Tel: +972 (4) 860 7333	Tel: +972 (8) 690 9500	Tel: +972 (8) 637 5676
Fax: +972 (3) 609 4022	Fax: +972 (3) 607 0501	Fax: +972 (3) 676 9955	Fax: +972 (2) 537 4173	Fax: +972 (4) 867 2528	Fax: +972 (8) 690 9600	Fax: +972 (8) 637 1628
Info@deloitte.co.il	Info@tfco.co.il	Info-ramatgan@deloitte.co.il	Info-jer@deloitte.co.il	Info-haifa@deloitte.co.il	Info-beersheva@deloitte.co.il	Info-eilat@)deloitte.co.il

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

F - 6

Kenon Holdings Ltd and subsidiaries

Consolidated Statements of Financial Position as at December 31, 2016 and 2015

			As at December 31
			2016		2015
	Note		$ thousands

Current assets
Cash and cash equivalents		5		326,635		383,953
Short-term investments and deposits		6		89,545		308,702
Trade receivables, net		7		284,532		123,273
Other current assets, including derivatives		8		49,773		45,260
Income tax receivable				11,459		3,926
Inventories		9		91,659		50,351

Total current assets				853,603		915,465

Non-current assets
Investments in associated companies		10		208,233		369,022
Deposits, loans and other receivables, including derivative instruments		12		176,775		88,475
Deferred taxes, net		26		25,104		2,693
Property, plant and equipment, net		13		3,497,300		2,959,878
Goodwill and intangible assets, net		14		376,778		147,244
Total non-current assets				4,284,190		3,567,312

Total assets				5,137,793		4,482,777

The accompanying notes are an integral part of the consolidated/ combined financial statements.

F - 7

Kenon Holdings Ltd and subsidiaries

Consolidated Statements of Financial Position as at December 31, 2016 and 2015, continued

			As at December 31
			2016			2015
	Note		$ thousands
Current liabilities
Loans and debentures		15		482,813			352,668
Trade payables		16		285,612			145,454
Other payables, including derivative instruments		17		91,303			108,873
Guarantee deposits from customers		18		56,833			—
Provisions		19		119,531			41,686
Income tax payable				8,671			4,705
Total current liabilities				1,044,763			653,386

Non-current liabilities
Loans, excluding current portion		15		1,972,926			1,709,063
Debentures, excluding current portion		15		856,670			655,847
Derivative instruments		17		44,637			35,625
Deferred taxes, net		26		225,354			138,083
Trade payables		16		44,057			—
Other non-current liabilities				55,182			27,218
Total non-current liabilities				3,198,826			2,565,836

Total liabilities				4,243,589			3,219,222

Equity		21
Share capital				1,267,450			1,267,210
Shareholder transaction reserve				26,559			—
Translation reserve				(21,745	)		(16,916	)
Capital reserve				11,575			2,212
Accumulated deficit				(602,598	)		(191,292	)
Equity attributable to owners of the Company				681,241			1,061,214
Non-controlling interests				212,963			202,341
Total equity				894,204			1,263,555

Total liabilities and equity				5,137,793			4,482,777

Approval date of the consolidated financial statements: April 15, 2017

The accompanying notes are an integral part of the consolidated/ combined financial statements.

F - 8

Kenon Holdings Ltd and subsidiaries

Consolidated Statements of Profit & Loss for the years ended December 31, 2016 and 2015

Kenon Holdings Ltd and combined entities

Combined statement of Profit & Loss for the year ended December 31, 2014

			For the year ended December 31
			2016			2015			2014
	Note		$ thousands
Continuing Operations
Revenue				1,873,922			1,289,068			1,372,230
Cost of sales and services (excluding depreciation)		22		(1,358,570	)		(862,855	)		(981,141	)
Depreciation				(159,695	)		(110,917	)		(100,434	)
Gross profit				355,657			315,296			290,655
Selling, general and administrative expenses		23		(146,756	)		(103,823	)		(131,118	)
Gain from distribution of dividend in kind				—			209,710			—
Gain from disposal of investees				—			—			157,137
Gain on bargain purchase				—			—			68,210
Impairment of assets and investments	10.C.a.3			(72,263	)		(6,541	)		(47,844	)
Dilution gains from reductions in equity interest held in associates				—			32,829			—
Other expenses		24		(5,413	)		(7,076	)		(13,970	)
Other income		24		21,010			15,450			51,037
Operating profit from continuing operations				152,235			455,845			374,107

Financing expenses		25		(189,599	)		(124,228	)		(110,179	)
Financing income		25		18,481			13,412			16,243
Financing expenses, net				(171,118	)		(110,816	)		(93,936	)
Provision of financial guarantee	10.C.b.6			(130,193	)		—			—
Share in losses of associated companies, net of tax		10		(185,592	)		(186,759	)		(170,897	)
Profit from continuing operations before income taxes				(334,668	)		158,270			109,274
Income taxes		26		(59,334	)		(62,378	)		(103,341	)
(Loss)/Profit for the year from continuing operations				(394,002	)		95,892			5,933
(Loss)/Profit for the year from discontinued operations		28		—			—			470,421
(Loss)/Profit for the year				(394,002	)		95,892			476,354

Attributable to:
Kenon’s shareholders				(411,937	)		72,992			458,161
Non-controlling interests				17,935			22,900			18,193
(Loss)/Profit for the year				(394,002	)		95,892			476,354

Basic/diluted (loss)/profit per share attributable to Kenon’s shareholders (in dollars):		27
Basic/diluted profit/(loss) per share				(7.67	)		1.36			8.58
Basic/diluted profit/(loss) per share from continuing operations				(7.67	)		1.36			(0.23	)
Basic/diluted profit/(loss) per share from discontinued operations				—			—			8.81

The accompanying notes are an integral part of the consolidated/ combined financial statements.

F - 9

Kenon Holdings Ltd and subsidiaries

Consolidated Statements of Other Comprehensive Income (Loss) for the years ended December 31, 2016 and 2015

Kenon Holdings Ltd and combined entities

Combined Statement of Other Comprehensive Loss for the year ended December 31, 2014

	For the year ended December 31
	2016			2015			2014
	$ thousands

(Loss)/Profit for the year		(394,002	)		95,892			476,354

Items that will be subsequently reclassified to profit or loss
Foreign currency translation differences in respect of foreign operations		157			(18,132	)		(10,782	)
Foreign currency translation differences in respect of foreign operations recognised in profit or loss		—			—			(24,891	)
Change in fair value of derivatives used to hedge cash flows		14,397			(6,365	)		(13,144	)
Group’s share in other comprehensive loss of associated companies		(3,968	)		(623	)		(7,306	)
Income taxes in respect of components other comprehensive (loss)/income		(1,507	)		773			2,303
Components of net other comprehensive loss in respect from discontinued operations		—			—			(4,025	)
Total		9,079			(24,347	)		(57,845	)

Items that will not be reclassified to profit or loss
Group’s share in net other comprehensive loss of associate companies		—			—			(3,978	)

Total other comprehensive income/(loss) for the year		9,079			(24,347	)		(61,823	)
Total comprehensive (loss)/income for the year		(384,923	)		71,545			414,531

Attributable to:
Kenon’s shareholders		(407,749	)		52,423			400,815
Non-controlling interests		22,826			19,122			13,716

Total comprehensive (loss)/income for the year		(384,923	)		71,545			414,531

The accompanying notes are an integral part of the consolidated/ combined financial statements.

F - 10

Kenon Holdings Ltd and subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2016 and 2015

																Non-
																controlling
	Attributable to the Kenon’s shareholders															interests			Total
			Shareholder
	Share		transaction		Translation			Capital		Accumulated
	Capital		reserve		reserve			reserves		deficit			Total
	$ thousands

Balance at January 1, 2016		1,267,210		—		(16,916	)		2,212		(191,292	)		1,061,214			202,341			1,263,555
Share based payments		240		—		—			307		—			547			285			832
Dividend to holders of non-controlling interests in a subsidiary		—		—		—			—		—			—			(35,255	)		(35,255	)
Acquisition of non- controlling interest in subsidiary		—		—		—			—		670			670			20,325			20,995
Contribution from non-controlling interest		—		—		—			—		—			—			2,441			2,441
Transactions with controlling shareholder (see Note 10.C.b.7)		—		3,540		—			—		—			3,540			—			3,540
Gain in fair value of shareholder loan (see Note 10.C.b.5)		—		23,019		—			—		—			23,019			—			23,019
Total comprehensive income for the year
Net (loss)/profit for the year		—		—		—			—		(411,937	)		(411,937	)		17,935			(394,002	)
Other comprehensive (loss)/income for the year, net of tax		—		—		(4,829	)		9,056		(39	)		4,188			4,891			9,079
Balance at December 31, 2016		1,267,450		26,559		(21,745	)		11,575		(602,598	)		681,241			212,963			894,204

The accompanying notes are an integral part of the consolidated/ combined financial statements.

F - 11

Kenon Holdings Ltd and combined entities

Consolidated Statements of Changes in Equity

For the years ended December 31, 2016 and 2015

																			Non-
																			controlling
	Attributable to the Kenon’s shareholders																		interests			Total
				Former
				Parent
	Share			company			Translation			Capital			Accumulated
	Capital			investment			reserve			reserves			deficit			Total
	$ thousands

Balance at January 1, 2015		—			1,227,325			28,440			(25,274	)		—			1,230,491			207,207			1,437,698
Share based payments		—			—			—			556			—			556			320			876
Dividend to holders of non-controlling interests in a subsidiary		—			—			—			—			—			—			(12,340	)		(12,340	)
Acquisition of non- controlling interest in subsidiary		—			—			—			—			(1,222	)		(1,222	)		(18,078	)		(19,300	)
Reclassification of net loss (pre spin-off)		—			8,552			—			—			(8,552	)		—			—			—
Contribution from former parent company		—			34,271			—			—			—			34,271			—			34,271
Issuance of shares of subsidiary to holders of non-controlling interests		—			—			—			—			—			—			6,110			6,110
Distribution of dividend in kind (see note 10.C.c)		(14,062	)		—			498			—			(241,741	)		(255,305	)		—			(255,305	)
Issuance of common stock and reclassification of former parent company investment in connection with the spin-off		1,281,272			(1,283,550	)		(28,440	)		30,718			—			—			—			—
Post spin-off adjustment		—			13,402			—			—			(13,402	)		—			—			—
Total comprehensive income for the year
Net profit for the year		—			—			—			—			72,992			72,992			22,900			95,892
Other comprehensive (loss)/income for the year, net of tax		—			—			(17,414	)		(3,788	)		633			(20,569	)		(3,778	)		(24,347	)
Balance at December 31, 2015		1,267,210			—			(16,916	)		2,212			(191,292	)		1,061,214			202,341			1,263,555

The accompanying notes are an integral part of the combined financial statements.

F - 12

Kenon Holdings Ltd and combined entities

Combined Statement of Changes in Former Parent Company Investment, continued

For the year ended December 31, 2014

															Non-
															controlling
	Attributable to the Kenon’s shareholders														interests			Total
			Former
			Parent
	Share		company			Translation			Capital
	Capital		investment			reserve			reserves			Total
	$ thousands

Balance at January 1, 2014		—		658,654			72,181			(21,205	)		709,630			236,180			945,810
Acquisition of shares of subsidiary from holders of rights not conferring control		—		—			—			—			—			5,550			5,550
Dividend to holders of non-controlling interests in a subsidiary		—		—			—			—			—			(17,518	)		(17,518	)
Loss of control in a subsidary		—		—			—			—			—			(86,743	)		(86,743	)
Non-controlling interest in respect of business combination		—		—			—			—			—			35,800			35,800
Non-controlling shareholder contribution		—		—			—			—			—			19,577			19,577
Share based payments in a subsidiary		—		—			—			—			—			428			428
Share based payments in Kenon		—		—			—			5,444			5,444			—			5,444
Contribution from former parent company		—		414,649			—			—			414,649			—			414,649
Payments to former parent company		—		(300,047	)		—			—			(300,047	)		—			(300,047	)
Transactions with controlling shareholders		—		—			—			—			—			217			217
Total comprehensive income for the year
Income for the year		—		458,161			—			—			458,161			18,193			476,354
Other comprehensive loss for the year, net of tax		—		(4,092	)		(43,741	)		(9,513	)		(57,346	)		(4,477	)		(61,823	)
Balance at December 31, 2014		—		1,227,325			28,440			(25,274	)		1,230,491			207,207			1,437,698

The accompanying notes are an integral part of the combined financial statements.

F - 13

Kenon Holdings Ltd and subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2016 and 2015

Kenon Holdings Ltd and combined entities

Combined Statement of Cash Flows

For the year ended December 31, 2014

	For the year ended December 31
	2016			2015			2014
	$ thousands

Cash flows from operating activities
(Loss)/Profit for the year		(394,002	)		95,892			476,354
Adjustments:
Depreciation and amortization		172,381			120,047			188,171
Impairment of assets and investments		72,263			6,541			47,844
Financing expenses, net		171,118			110,816			195,405
Share in losses of associated companies, net		185,592			186,759			168,044
Capital losses/(gains), net *		2,534			4,506			(767,216	)
Gain from changes in interest held in associates		—			(32,829	)		—
Gain from distribution of dividend in kind		—			(209,710	)		—
Provision for financial guarantee		130,193			—			—
Bad debt expense		4,896			—			—
Share-based payments		832			876			8,413
Gain on bargain purchase		—			—			(68,210	)
Income taxes		59,334			62,378			112,825
		405,141			345,276			361,630
Change in inventories		(40,076	)		4,361			21,991
Change in trade and other receivables		(68,634	)		35,491			(21,523	)
Change in trade and other payables		22,835			(29,800	)		29,830
Change in provisions and employee benefits		(41,243	)		(33,426	)		49,872
Cash generated from operating activities		278,023			321,902			441,800
Income taxes paid, net		(116,429	)		(36,218	)		(66,198	)
Dividends received from investments in associates		743			4,487			34,774
Net cash provided by operating activities		162,337			290,171			410,376

* The amounts for 2016 and 2015 mainly relate to losses from disposal of property, plant and equipment. The amounts for 2014 mainly relate to the gain arising from the dilution of the investment in subsidiary and disposal of investees.

The accompanying notes are an integral part of the consolidated/ combined financial statements.

F - 14

Kenon Holdings Ltd and subsidiaries

Consolidated Statements of Cash Flows, continued

For the years ended December 31, 2016 and 2015

Kenon Holdings Ltd and combined entities

Combined Statement of Cash Flows, continued

For the year ended December 31, 2014

	For the year ended December 31
	2016			2015			2014
	$ thousands
Cash flows from investing activities
Proceeds from sale of property, plant and equipment and intangible assets		426			539			17,449
Short-term deposits and loans, net		222,451			(83,408	)		(253,097	)
Cash paid for businesses purchased, less cash acquired		(206,059	)		(9,441	)		(67,180	)
Disposal of subsidiary, net of cash disposed of and exit from combination		—			—			1,758
Investment in associates		(111,153	)		(129,241	)		(179,355	)
Sale of securities held for trade and available for sale, net		17,334			13,217			—
Acquisition of property, plant and equipment		(280,955	)		(515,838	)		(425,184	)
Acquisition of intangible assets		(9,598	)		(16,844	)		(11,496	)
Interest received		6,143			7,924			3,934
Exit from the combination and transition to associate company less cash eliminated (See Note 28 (a))		—			—			(310,918	)
Proceeds from sale of associate company		—			—			359,891
Payments for derivative investments used for hedging, net		—			—			(16,100	)
Payment of consideration retained		(2,204	)		(3,795	)		—
Payment to release financial guarantee		(36,023	)		—			—
Settlement of derivatives		—			—			(2,038	)
Net cash used in investing activities		(399,638	)		(736,887	)		(882,336	)

Cash flows from financing activities
Dividend paid to non-controlling interests		(32,694	)		(12,340	)		(17,518	)
Proceeds from issuance of shares to holders of non-controlling interests in subsidiaries		9,468			6,110			19,577
Receipt of long-term loans and issuance of debentures		799,481			333,549			744,183
Repayment of long-term loans and debentures		(444,976	)		(138,270	)		(173,868	)
Short-term credit from banks and others, net		(5,477	)		123,053			(86,072	)
Contribution from former parent company		—			34,271			414,649
Payments for transactions in derivative for hedging, net		—			—			(427	)
Payment to the former parent company		—			—			(300,047	)
Purchase of non-controlling interest		—			(20,000	)		—
Interest paid		(151,241	)		(93,858	)		(170,885	)
Net cash provided by financing activities		174,561			232,515			429,592

Decrease in cash and cash equivalents		(62,740	)		(214,201	)		(42,368	)
Cash and cash equivalents at beginning of the year		383,953			610,056			670,976
Effect of exchange rate fluctuations on balances of cash and cash equivalents		5,422			(11,902	)		(18,552	)
Cash and cash equivalents at end of the year		326,635			383,953			610,056

Significant non-cash investing transactions:
Acquisition of fixed assets under lease contract		—			—			(107,688	)
Purchase of fixed assets on credit and others		(24,620	)		(46,327	)		(9,000	)

The accompanying notes are an integral part of the consolidated/ combined financial statements.

F - 15

Kenon Holdings Ltd.

Notes to the consolidated/ combined financial statements

Note 1 – Financial Reporting Principles and Accounting Policies

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 registered office and principal place of business is located at 1 Temasek Avenue #36-01, 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 was formed to serve as the holding company of the businesses (together referred to as the “Group”). The primary focus will be to continue to grow and develop the primary businesses, I.C. Power Asia Development Ltd. (formerly known as I.C. Power Ltd.) (“I.C. Power”) and Qoros Automotive Co., Ltd. ("Qoros").

On January 22, 2016, I.C. Power Distribution Holdings Pte Ltd (“ICP Distribution”) acquired Estrella Cooperatief BA group of companies collectively known as Energuate, see Note 11.A.1.a.

On March 21, 2016, as part of an internal restructuring, a wholly owned subsidiary, I.C. Power Pte. Ltd. “I.C. Power Singapore” (was subsequently renamed as I.C. Power Ltd.) acquired Kenon’s subsidiary I.C. Power, the holding company for Kenon’s energy generation and distribution business. As a result, I.C. Power Singapore is now the parent holding company of Kenon’s power generation and distribution businesses.

The split-up of Israel Corporation’s holdings

The split-up of IC’s holdings on January 7, 2015 involved the contribution of IC’s holdings in I.C. Power, Qoros, ZIM Integrated Shipping Services Ltd (“ZIM”), Tower Semiconductor Ltd. (“Tower”) and other assets and entities, to Kenon, in exchange for shares of Kenon. Kenon’s shares were, in turn, distributed on January 9, 2015 to the shareholders of IC as a “dividend in kind”. IC’s debt to banks and debenture holders remain in IC, and were not transferred to Kenon.

The split-up was completed on January 7, 2015 and on January 15, 2015 and January 11, 2015, Kenon shares were traded on New York Stock Exchange (NYSE) and on Tel Aviv Stock Exchange (TASE) (NYSE and TASE: KEN) respectively.

After the split-up, I.C. Power is the primary subsidiary that Kenon holds. I.C. Power, through its operating subsidiaries and associates, provides electricity generation using different technologies such as hydroelectric, natural gas and diesel turbines and heavy fuel oil engines in Peru, Chile, Colombia, Dominican Republic, Bolivia, El Salvador, Jamaica, Nicaragua, Guatemala and Israel.

The split-up included:

IC’s undertaking in the separation agreement (as detailed in Note 30H) with its then wholly owned subsidiary, Kenon, which included (among other things): (i) transfer of the holdings in the companies being transferred to Kenon, as stated above, and transfer of certain rights and liabilities in relation to the companies being transferred from IC to Kenon; (ii) execution of an investment in the capital of Kenon in the amount of $35 million and (iii) issuance of shares of Kenon to IC in respect of the assets and rights to be transferred from IC to Kenon and

IC’s undertaking in a loan agreement whereby, among other things, IC provided Kenon a credit framework in an aggregate amount of up to $200 million, Kenon would pay an annual commitment fee equal to 2.1% of the undrawn amount of the credit facility and an annual interest of Libor+6% interest on the drawn amount, and in the framework thereof it will be provided that in a case of realization of guarantees that IC will remain responsible for with respect to Qoros, the amount for which IC will be liable in a case of realization of these guarantees will be considered a debt of Kenon to IC and the provisions of the loan agreement will apply to it. IC’s back-to-back guarantee of Qoros’ debt was fully released on January 4, 2016. As of December 31, 2016, Kenon has fully drawn its $200 million credit facility from IC.

In March 2016, Kenon announces an amendment to its loan agreement with IC and related pledge arrangements to accommodate the new holding company within the Group, I.C. Power Singapore.

Based on the loan agreement, Kenon pledged 66% of I.C. Power shares held by Kenon. In relation to the internal reorganization above, the pledge effectively continues as Kenon pledged 66% of its shares in I.C. Power Singapore to IC. Kenon also pledged 66% of certain intercompany debt receivables owing from I.C. Power Singapore to Kenon, which receivables resulted from this internal restructuring.

F - 16

Note 1 – Financial Reporting Principles and Accounting Policies (Con’t)

The pledge over the shares of I.C. Power Singapore and the related intercompany debt receivables were expected to be released following the consummation of an IPO of I.C. Power Singapore, subject to Kenon’s request, and provided that no default, breach of or non-compliance with any material undertaking or material condition contained in the loan agreement and the ratio of holdings value to net debt on such day is at least equal to 2:1 (See Note 11.A.3).

Distribution to IC’s shareholders as a dividend in kind of the shares of Kenon; including registration of these shares for trading, both on NYSE and on TASE;

The internal restructuring of I.C. Power

In relation to the reorganization in Note 1.A, I.C. Power Singapore issued a $145 million note and $75 million note payable to Kenon. The proceeds of the notes were applied by I.C. Power Singapore towards paying the purchase consideration for the acquisition of Kenon’s entire equity interest in I.C. Power. The notes both bear interest at a rate of LIBOR+6% per annum until the date the notes are fully paid.

On October 12, 2016, Kenon received a $78 million payment from I.C. Power Singapore representing repayment of the $75 million note, together with accrued interest.

The reporting periods prior to January 1, 2015

The reporting period for the year ended December 31, 2014 is presented as combined financial statements which have been derived from the consolidated financial statements of IC. The combined financial statements reflect the revenues and expenses directly attributable to the Company and its Combined Entities, as well as allocations deemed reasonable by management, to present the combined profit or loss and other comprehensive income, changes in former parent company investment and cash flows of the Company and its Combined Entities.

Outstanding balances, investments, transactions and cash flows between Group entities have been eliminated. Certain balances that were eliminated in the consolidation of the financial statements of IC were reinstated in the combined financial statements when they relate to transactions with entities held by IC that were not transferred to the Group.

The Combined Carve-out Financial Statements may not necessarily be indicative of Kenon’s financial position, results of operating activities or cash flows had it operated as a separate entity throughout the period presented or for future periods.

Significant allocation and assumptions of the comparative financial information (for the year ended December 31, 2014):

The assumptions in this report are based on the terms of the separation agreement between IC and Kenon with respect to the assets and liabilities that were transferred to Kenon. Management has used the following assumptions in developing the carve-out financial statements.

Allocation of expenses – Management allocated IC general and administrative expenses to the Group for the years ended December 31, 2014 and 2013 based on the time invested by IC management in the Group’s respective holdings. In addition, the general and administrative expenses includes specific split expenses such as registration expenses were allocated to Kenon.

Debt and financial instruments – IC’s outstanding debt at the holding company level, other financial instruments and related finance expenses will not be transferred to Kenon and therefore were not reflected in the combined financial statements.

Guarantees, Loans and Capital notes from IC – Guarantees and loans (including capital notes) from IC to the Group companies that were transferred to Kenon, were reflected in the combined financial statements. Kenon did not use this credit facility in the reporting period.

Contingent Liabilities – Existing IC contingent liabilities, including those related to litigation, were not transferred to Kenon.

Associates – Investments in associates which were transferred to Kenon are included in the combined financial statements.

Investments – Investments that have been made by IC in investee companies that were transferred to Kenon, and the financing of the Group, including holding company expenses, for the periods shown, were treated as Contributions from former parent company in the statement of changes in former parent company investment.

Profit per share – On January 7, 2015, the split-up was completed and 53,383,015 ordinary shares were issued by Kenon. Therefore, the Profit per share in the combined financial statements is based on this number of shares (in 2014 and 2013).

F - 17

Note 1 – Financial Reporting Principles and Accounting Policies (Con’t)

Definitions

In these consolidated/ combined financial statements -

1. Subsidiaries – Companies whose financial statements are fully consolidated with those of Kenon, directly or indirectly.

2. Combined Entities – Companies other than Kenon whose financial statements are fully combined with those of Kenon directly or indirectly.

3. Associates – Companies in which Kenon has significant influence and Kenon’s investment is stated, directly or indirectly, on the equity basis.

4. Investee companies – subsidiaries and/or associated companies.

5. Related parties – within the meaning thereof in International Accounting Standard (“IAS”) 24 “Related Parties” .

F - 18

Note 2 – Basis of Preparation of the Financial Statements

Declaration of compliance with International Financial Reporting Standards (IFRS)

The consolidated/ combined 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/ combined financial statements were approved for issuance by the Company’s Board of Directors on April 15, 2017.

Functional and presentation currency

These consolidated/ combined financial statements are presented in US dollars, which is Kenon’s functional currency, and have been rounded to the nearest thousands, except when otherwise indicated. The US dollar is the currency that represents the principal economic environment in which Kenon.

Basis of measurement

The consolidated/ combined financial statements were prepared on the historical cost basis, with the exception of the following assets and liabilities:

•

Derivative financial instruments.

•

Deferred tax assets and liabilities.

•

Provisions.

•

Assets and liabilities in respect of employee benefits.

•

Investments in associates.

For additional information regarding measurement of these assets and liabilities – see Note 3 “Significant Accounting Policies”.

Use of estimates and judgment

The preparation of consolidated/ combined 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.

The preparation of accounting estimates used in the preparation of the consolidated/ combined financial statements requires management of the Group to make assumptions regarding circumstances and events that involve considerable uncertainty. Management prepares the estimates based on past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.

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.

Following the Group’s business combination (“Note 11.A.1”), the Group had implemented additional accounting policies under the group of companies and information about assumptions made by management of the Group with respect to the future and other reasons for uncertainty with respect to estimates that have a significant risk of resulting in a material adjustment to carrying amounts of assets and liabilities in the next financial year are set forth below:

Useful life of property, plant and equipment

Property, plant and equipment is depreciated using the straight-line method over its estimated useful life.

At every year-end, or more often if necessary, management examines the estimated useful life of the property, plant and equipment by comparing it to the benchmark in the relevant industry, taking into account the level of maintenance and functioning over the years. If necessary, on the basis of this evaluation, the Group adjusts the estimated useful life of the property, plant and equipment. A change in estimates in subsequent periods could materially increase or decrease future depreciation expense.

F - 19

Note 2 – Basis of Preparation of the Financial Statements (Cont’d)

Recoverable amount of non-financial assets and Cash Generating Units

Each reporting date, the management of the Group examines whether there have been any events or changes in circumstances which would indicate impairment of one or more of its non-financial assets or Cash Generating Units (“CGUs”). When there are indications of impairment, an examination is made as to whether the carrying amount of the non-financial assets or CGUs exceeds their recoverable amount, and if necessary, an impairment loss is recognized. Assessment of the impairment of goodwill and of other intangible assets having an indeterminable life is performed at least once a year or when signs of impairment exist.

The recoverable amount of the asset or CGU is determined based on the higher of the fair value less selling costs of the asset or CGU and the present value of the future cash flows expected from the continued use of the asset or CGU in its present condition, including the cash flows expected upon retiring the asset from service and its eventual sale (value in use).

The future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

The estimates regarding future cash flows are based on past experience with respect to this asset or similar assets (or CGUs), and on the Group’s best possible assessments regarding the economic conditions that will exist during the remaining useful life of the asset or CGU.

The estimate of the future cash flows relies on the Group’s budget and other forecasts. Since the actual cash flows may differ, the recoverable amount determined could change in subsequent periods, such that an additional impairment loss needs to be recognized or a previously recognized impairment loss needs to be reversed.

Fair value of derivative financial instruments

The Group is a party to derivative financial instruments used to hedge foreign currency risks, interest risks and price risks. The derivatives are recorded based on their respective fair values. The fair value of the derivative financial instruments is determined using acceptable valuation techniques that characterize the different derivatives, maximizing the use of observable inputs. Fair value measurement of long-term derivatives takes into account the counterparties credit risks. Changes in the economic assumptions and/or valuation techniques could give rise to significant changes in the fair value of the derivatives.

Separation of embedded derivatives

Management of the Group exercises significant judgment in determining whether it is necessary to separate an embedded derivative from a host contract. If it is determined that the embedded derivative is not closely related to the host contract and that it is necessary to separate the embedded derivative, this component is measured separately from the host contract as a financial instrument at fair value through profit or loss. Otherwise, the entire instrument is measured in accordance with the measurement principles applicable to the host contract.

Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss, as financing income or expenses.

Deferred tax assets

Deferred tax assets are recorded in relation to unutilized tax losses, as well as with respect to deductible temporary differences. Since such deferred tax assets may only be recognized where it is probable that there will be future taxable income against which said losses may be utilized, use of discretion by management of the Group is required in order to assess the probability that such future taxable income will exist. Management’s assessment is re-examined on a current basis and deferred tax assets are recognized if it is probable that future taxable income will permit recovery of the deferred tax assets.

F - 20

Note 2 – Basis of Preparation of the Financial Statements (Cont’d)

Business Combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase gain is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are recognized in profit or loss.

Any contingent consideration is measured at fair value at the acquisition date. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognized in profit or loss.

Contingent Liabilities

From time to time, the Group is involved in routine litigation that arises in the ordinary course of business. Provisions for litigation are recognized as set out in Note 3(P). Contingent liabilities for litigation and other claims do not result in provisions, but are disclosed in Note 20. The outcomes of legal proceedings with the Group are subjected to significant uncertainty and changes in factors impacting management’s assessments could materially impact the consolidated financial statements.

Note 3 – Significant Accounting Policies

The principal accounting policies applied in the preparation of these consolidated/ combined financial statements are set out below. The Group has consistently applied the following accounting policies to all periods presented in these consolidated/ combined financial statements, unless otherwise stated.

A.	Basis for consolidation/ combination

(1)

Business combinations

Reorganizations in Common Control Transactions

Common control transactions of companies that involve the setup of a new group company and the combination of entities under common control are recorded using the book values of Group’s parent company.

The Group accounts for all business combinations according to the acquisition method.

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.

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 measured 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; except for non-derivative financial instrument contingent consideration which will be measured through other comprehensive income.

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.

F - 21

Note 3 – Significant Accounting Policies (Cont’d)

(2) Subsidiaries

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.

The Company has no interest in structured entities as of December 31, 2016 and 2015.

(3) Non-Controlling Interest (“NCI”)

NCI comprises the equity of a subsidiary or combined entity 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.

NCI 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.

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.

(4) Loss of control

Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any NCI and the other components of equity related to the subsidiary. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. The difference between the sum of the proceeds and fair value of the retained interest, and the derecognized balances is recognized in profit or loss under other income or other expenses. Subsequently, the retained interest is accounted for as an equity-accounted investee or as an available-for-sale asset depending on the level of influence retained by the Group in the relevant company.

The amounts recognized in capital reserves through other comprehensive income with respect to the same subsidiary are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the subsidiary had itself realized the same assets or liabilities.

(5 )

Investments in equity-accounted investees

The Group’s interests in equity-accounted investees comprise interests in associates and a joint-venture.

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-venture is an arrangement 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.

F - 22

Note 3 – Significant Accounting Policies (Cont’d)

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 aforesaid 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.

(6)

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.

(7)

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.

(8)

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.

(9)

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 - 23

Note 3 – Significant Accounting Policies (Cont’d)

B.	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 exchange rates at the dates of the transactions.

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.

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.

(A) Consolidation of COBEE Financial Statements

The Bolivian government under the mandate of Evo Morales has nationalized companies that were privatized during President Gonzalo Sánchez de Lozada’s 1993-1997 administration and some other companies that were never owned by the Bolivian government.

As of the date of this report, the Bolivian government has not taken any specific action nor threatened to take any specific action against COBEE. Currently, I.C. Power has full control of COBEE´s operations and maintains all the associated economic rights and risks. Therefore, COBEE´s financial statements are consolidated in the accompanying consolidated financial statements.

F - 24

Note 3 – Significant Accounting Policies (Cont’d)

C.	Financial instruments

The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit and loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.

The Group classifies non- financial liabilities into the other financial liabilities categories.

(1)

Non-derivative financial assets and financial liabilities - recognition and de-recognition

The Group initially recognizes loans and receivables and debt securities issued on the date that they are originated. All other financial assets and financial liabilities are recognized initially on the trade date.

The Group derecognizes a financial asset when the contractual rights to the cash flows from the 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 and does not retains control over the transferred asset. Any interest in such derecognized financial asset that is created or retained by the Group is recognized as a separate asset or liability.

The Group derecognizes a financial liability when its contractual obligations are discharged, or cancelled or expire.

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.

(2)

Non-derivative financial assets – measurement

Financial assets at fair value through profit and loss	A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such on initial recognition. Directly attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein, including any interest or dividend income, are recognized in profit or loss.

Held-to-maturity financial assets	These assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.

Loans and receivables	These assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method, less any impairment losses.

Available-for-sale financial assets	These assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on debt instruments, are recognized in Other Comprehensive Income (“OCI”) and accumulated in the fair value reserve. When these assets are derecognized, the gain or loss accumulated in equity is reclassified to profit or loss.

(3)

Non-derivative financial liabilities - Measurement

Non-derivative financial liabilities include loans and credit from banks and others, debentures, trade and other payables and finance lease liabilities.

Non-derivative financial liabilities are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.

F - 25

Note 3 – Significant Accounting Policies (Cont’d)

(4)

Derivative financial instruments and hedge accounting

The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures.

Derivatives are recognized initially at fair value; any directly attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognized in profit or loss.

(5)

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.

(6)

Financial guarantees

A financial guarantee is initially recognized at fair value. In subsequent periods, a financial guarantee is measured at the higher of the amount recognized in accordance with the guidelines of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and the liability initially recognized under IAS 39 Financial Instruments: Recognition and Measurement and subsequently amortized in accordance with the guidelines of IAS 18 Revenue. Any resulting adjustment of the liability is recognized in profit or loss.

D.	Cash and Cash Equivalents

In the consolidated/ combined 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.

E.	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;

•

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 write off 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. Leased assets 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. Land is not depreciated.

F - 26

Note 3 – Significant Accounting Policies (Cont’d)

The following useful lives shown on an average basis are applied across the Group:

	Years
Roads, buildings and leasehold improvements		2 – 50
Installations, machinery and equipment:
Thermal power plants		10 – 35
Hydro-electric plants		70 – 90
Wind power plants		25
Power generation and electrical		20
Dams		18 – 80
Office furniture, motor vehicles and other equipment		3 – 16
Substations, medium voltage equipment and transf.MV/LV		30 – 40
Meters and connections		10 – 25

Depreciation methods, useful lives and residual values are reviewed by management of the Group at each reporting date and adjusted if appropriate.

F.	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.

Research and development	Expenditures on research activities is recognized in profit and loss as incurred. Development activities involve expenditures incurred in relation to the design and evaluation of future power plant projects before the technical feasibility and commercial viability is fully completed, however the Group intends to and has sufficient resources to complete the development and to use or sell the asset. At each reporting date, the management of the Group performs an evaluation of each project in order to identify facts and circumstances that suggest that the carrying amount of the assets may exceed their recoverable amount.
Concessions	Intangible assets granted by the Energy and Mining Ministry of Guatemala to DEORSA and DEOCSA to operate power distribution business in defined geographic areas, and acquired as part of business combination. The Group measures Concessions at cost less accumulated amortization and any accumulated impairment losses.

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 and have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses.

F - 27

Note 3 – Significant Accounting Policies (Cont’d)

(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:

Concessions

33 years*

Customer relationships

1-12 years

Software costs

5 years

Others

5-27 years

* The concessions are amortized over the remaining life of the licenses from the date of the business combination.

Amortization methods and useful lives are reviewed by management of the Group at each reporting date and adjusted if appropriate.

G.	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.	Transfer of assets from customers

In the distribution industry, an entity may receive from its customers items of property, plant and equipment that must be used to connect those customers to a network and provide them with ongoing access to supply electricity. Alternatively, an entity may receive cash from customers for the acquisition or construction of such items of property, plant and equipment. In these cases, where the Group determines that the items qualify for recognition as an asset, the transferred assets are recognized as part of the property plant and equipment in the statement of financial position in accordance with IAS 16 and measured the cost on initial recognition at its fair value.

The transfer of an item of property, plant and equipment is an exchange for dissimilar goods or services. Consequently, the Group recognize revenue in accordance with IAS 18. The timing of the recognition of the revenue arising from the transfer will take place once the Company has control on the assets and the customers are connected to the distribution network.

I.	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 - 28

Note 3 – Significant Accounting Policies (Cont’d)

Leases

(1) Leased assets

Assets held by the Group under leases that are transferred to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.

Asset held under other leases are classified as operating leases and are not recognized in the Group’s consolidated statement of financial position.

(2) Lease payments

Payments made under operating leases, other than conditional lease payments, are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate if interest on the remaining balance of the liability.

K.	Inventories

Inventories are measured at the lower of cost and net realizable value. Inventories consist of fuel, spare parts, materials and supplies. Cost is determined by using the average cost method.

L.	Trade Receivable, net

Trade receivables are amounts due from customers for the energy and capacity in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Evidence of impairment of financial assets

The Group considers evidence of impairment for trade receivables at both a specific asset and collective level. All individually significant trade receivables are assessed for specific impairment. All individually significant trade receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Trade receivables with similar risk characteristics that are not individually significant are collectively assessed for impairment. In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

M.	Borrowing costs

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 - 29

Note 3 – Significant Accounting Policies (Cont’d)

N.	Impairment

(1)

Non-derivative financial assets

Financial assets not classified as at fair value through profit or loss, including an interest in an equity- account investee, are assessed by management of the Group at each reporting date to determine whether there is objective evidence of impairment.

Objective evidence that financial assets are impaired includes:

Default or delinquency by a debtor;

Restructuring of an amount due to the Group on terms that the Group would not consider otherwise;

Indications that a debtor or issuer will enter bankruptcy;

Adverse changes in the payment status of borrowers or issuers;

The disappearance of an active market for a security; or

Observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets.

For an investment in an equity security, objective evidence of impairment includes a significant or prolonged decline in its fair value below its cost.

Financial Assets measured at amortized costs

The Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics.

In assessing collective impairment, the group uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends.

An impairment loss is calculated as the difference between an asset's carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss is reversed through profit or loss.

Available-for-sale financial assets

Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve to profit or loss. The amount reclassified is the difference between the acquisition cost (net of any principal repayment and amortization) and the current fair value, less any impairment loss previously recognized in profit or loss. If the fair value of an impaired available-for-sale debt security subsequently increases and the increase can be related objectively to an event occurring after the impairment loss was recognized, then the impairment loss is reversed through profit or loss; otherwise, it is reversed through OCI.

Equity-account investees

An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognized in profit or loss, and is reversed if there has been a favorable change in the estimates used to determine the recoverable amount and only to the extent that the investment’s carrying amount, after the reversal of the impairment loss, does not exceed the carrying amount of the investment that would have been determined by the equity method if no impairment loss had been recognized.

F - 30

Note 3 – Significant Accounting Policies (Cont’d)

(2) Non-financial Assets

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 or 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.

O.	Employee benefits

(1)

Short-term employee benefits

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.

(2)

Bonus plans transactions

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. With respect to grants made to OPC Rotem Ltd’s (“OPC”) senior executives, 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.

(3)

Termination Benefits

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.

(4)

Defined Benefit Plans

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.

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.

F - 31

Note 3 – Significant Accounting Policies (Cont’d)

(5)

Share-based compensation plans

Qualifying employees are awarded grants of the Group’s shares under the Group’s 2014 Share Incentive Plan. The fair value of the grants are recognized as an employee compensation expense, with a corresponding increase in equity. The expense is amortised over the service period – the period that the employee must remain employed to receive the benefit of the award. At each balance sheet date, the Group revises its estimates of the number of grants that are expected to vest. It recognises the impact of the revision of original estimates in employee expenses and in a corresponding adjustment to equity over the remaining vesting period.

P.	Provisions

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.

Q.	Revenue recognition

(1)

Revenue from electricity

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue comprises the fair value for the sale of electricity, net of value-added-tax, rebates and discounts and after eliminating sales within the Group.

Revenues from the sale of energy are recognized in the period during which the sale occurs. The revenues from the generation business are recorded based upon output delivered and capacity provided at rates specified pursuant to our Power Purchase Agreements (“PPAs”), or at marginal costs determined on the spot market, if the sales are made on the spot market.

Our revenues are determined substantially by long-term, U.S. dollar-linked PPAs. PPAs are usually entered into at prices that are equivalent to, or higher than, the prevailing spot market rates, the majority of which are indexed to the underlying fuel cost of the related long-term supply agreements. Under the terms of the majority of our PPAs, the power purchaser is contractually obligated to purchase its energy requirements, and sometimes capacity and/or ancillary services, from the power generator based upon a base price (denominated either in U.S. Dollars or in the local currency) that is generally adjusted for a combination of some of the following: (1) fluctuations in exchange rates, (2) the U.S. inflation index, (3) a local inflation index, (4) fluctuations in the cost of operating fuel, (5) supply costs of natural gas, and (6) transmission costs. Additionally, in Peru, PPAs include provisions that change the contractual unitary energy prices in the case of an interruption of the supply or transportation of natural gas through the use of a methodology based on spot prices existing on the dates in which the interruption event occurred. Many of the prices in our PPAs differentiate between peak and off-peak periods. As of December 31, 2016, the weighted average remaining life of our PPAs based on firm capacity was 9 years.

Revenues from the operation of electric energy distribution and other income from exploitation are measured at the fair value of the consideration received. Estimated customer returns, rebates and other similar allowances are deducted from the revenue recognized.

Revenues from the distribution of electric energy are recognized based on the energy delivered, through invoicing and the estimate of sales from the energy supplied which has not been billed yet at the reporting date.

Revenues from toll services are recognized by the owner of the transmission, transformation or distribution facilities for allowing its use for the transportation of energy and capacity by a third party.

F - 32

Note 3 – Significant Accounting Policies (Cont’d)

(2)

Revenue from shipping services and related expenses (in associated company)

Revenue from cargo traffic is recognized in profit or loss in proportion to the stage of completion of the transaction at the balance sheet date. The stage of completion is assessed for each cargo by the reference to the time-based proportion. The operating expenses related to cargo traffic are recognized immediately as incurred. If the incremental expenses related to the cargo exceed the related revenue, the loss is recognized immediately in income statement.

(3)

Revenue from vehicles (in associated company)

(i)

Sales of vehicles

Revenue from the sale of vehicles in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of value-added tax (“VAT”), consumption tax and other sales taxes, returns or allowances, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customers, recovery of the consideration is probable, the associated costs and possible return of vehicles can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

(ii)

Rental income of vehicles

Rental income from operating leases is recognized as revenue on a straight-line basis over the term of the lease. Lease incentives granted are recognized as an integral part of the total rental income, over the term of the lease.

(iii)

Licensing income

License fee and royalties received for the use of the Group’s assets (such as platform technology and patent) are normally recognized in accordance with the substance of the agreement.

(4)

Revenue from biodiesel

Revenues are recorded if the material risks and rewards associated with ownership of the goods/merchandise sold have been assigned to the buyer. This usually occurs upon the delivery of products and merchandise.

Revenue is recorded to the extent that it is probable that the economic benefits will flow to the Group and the amount of the revenues can be reliably measured.

R.	Government grants

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.

S.	Deposits received from consumers

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.

T.	Transfer of assets from customers

In the power distribution industry, an entity may receive from its customer items in the form of property, plant and equipment that are used to connect these customers to a network with continuous access to power supply. Alternatively, an entity may receive cash from customers in return for the acquisition or construction of such items of property, plant and equipment. In such cases, where the Group determines that these items qualify for recognition as an asset, the transferred assets are recognized as part of the property plant and equipment in the statement of financial position in accordance with IAS 16 and measured its cost on initial recognition at its fair value.

F - 33

Note 3 – Significant Accounting Policies (Cont’d)

The transfer of an item of property, plant and equipment would be an exchange for dissimilar goods or services. Consequently, the Group recognizes revenue in accordance with IAS 18. The timing of the recognition of the revenue arising from the transfer will depend on the separately identifiable service included in the agreement.

U.	Service concession arrangements

The Group accounts for the assets acquired or constructed in relation to the Concessions in accordance with IAS 16 Property, plant and equipment.

V.	Guarantee deposits from customers

Deposits received from customers, 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.

W.	Energy purchase

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.

X.	Financing income and expenses

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;

Interest expense;

The net gain or loss on the disposal of available-for-sale financial assets;

The net gain or loss on financial assets at fair value through profit or loss;

The foreign currency gain or loss on financial assets and financial liabilities;

The fair value loss on contingent consideration classified as financial liability;

Impairment losses recognized on financial assets (other than trade receivables);

The net gain or loss on hedging instruments that are recognized in profit or loss; and

The reclassification of net gains previously recognized in OCI.

Interest income or expense is recognized using the effective interest method.

F - 34

Note 3 – Significant Accounting Policies (Cont’d)

Income taxes

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:

•

Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

•

Temporary differences related to investments in subsidiaries and associates where the Group is able to control the timing of the reversal of the temporary differences and it is not probable that they will reverse it in the foreseeable future; and

•

Taxable temporary differences arising on the initial recognition of goodwill.

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.

F - 35

Note 3 – Significant Accounting Policies (Cont’d)

(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.

Earnings per share

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.

AA.

Share capital – ordinary shares

Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognized as a deduction from equity.

Distribution of Non-Cash Assets to owners of the Company

The Group measures a liability to distribute non-cash assets as a dividend to the owners of the Group at the fair value of the assets to be distributed. The carrying amount of the dividend is remeasured at each reporting date and at the settlement date, with any changes recognized directly in equity as adjustments to the amount of the distribution. On settlement of the transaction, the Group recognized the difference, if any, between the carrying amounts of the assets distributed and the carrying amount of the liability in profit or loss. Distribution of non-cash assets are distributed to shareholders when the shareholder is given a choice of taking cash in lieu of the non-cash assets.

BB.

Discontinued operation

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:

Represents a separate major line of business or geographic area of operations,

Is part of a single coordinated plan to dispose of a separate major line of business or geographic area of operations; or

Is a subsidiary acquired exclusively with a view to re-sell.

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.

In the cash flow, the cash balance from discontinued operation is disclosed in a separate line. The changes based on operating, investing and financing activities are reported in Note 28.

F - 36

Note 3 – Significant Accounting Policies (Cont’d)

CC.

Operating Segment and Geographic Information

The Company's CEO and CFO are considered to be the Group's chief operating decision maker ("CODM"). Based on the internal financial information provided to the CODM, the Group has determined that it has three reportable segments in 2016, which are I.C. Power Generation segment, I.C. Power Distribution segment and Qoros segment. In addition to the segments detailed above, the Group has other activities, such as a shipping services and renewable energy businesses categorized as Other.

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, 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 statement, Inter-segment pricing is determined based on transaction prices occurring in the ordinary course of business.

In determining of the information to be presented on a geographic basis, revenues are based on the geographic location of the customer and non-current assets are based on the geographic location of the assets.

DD.

Transactions with controlling shareholders

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.

EE.

New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2017, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below:

F - 37

Note 3 – Significant Accounting Policies (Cont’d)

International Financial Accounting Standard IFRS 9 (2014) “ Financial Instruments ” – replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement . IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39.

The Standard is to be applied for annual periods commencing on or after January 1, 2018, with the possibility of early adoption. The Standard is to be applied retroactively, except in a number of circumstances. Management of the Group is examining the effects of IFRS 9 on the financial statements with no plans for early adoption.

The Group has examined IFRS 9 in order to determine the qualitative impacts of the implementation. As of 31 December 2016, the Group is not able to determine the quantitative impact and considers that the overall impact of the implementation of IFRS 9 will be immaterial to the Group.

The examination of the potential qualitative impacts was conducted, considering the following three main areas of IFRS 9:

Classification of financial assets

There are no material impacts expected concerning the classification and measurement of financial assets due to the types of financial assets held by the Group entities. The Group does not hold complex financial assets nor enters in complex structured financing transaction such as securitization transactions, factoring-arrangements, etc.

Impairment of financial assets

In general, the most important financial assets of the Group, trade receivables, do not contain a significant financing component. Therefore, the simplified approach as established in IFRS 9 is recommended to be applied. According to IFRS 9, provision matrix may be used to estimate expected credit losses (“ECL”) for these financial instruments without the use of hindsight of a default, and the matrix would include expectations of variations in credit risks of customers for the lifetime. Thus, the recognition of losses would be based on the maximum period over which ECL which is the maximum contractual period over which the entity is exposed to credit risk from the first day of the recognition of the receivable.

The Group expects that the application of IFRS 9 will impact both power generation and distribution businesses, but substantially on the distribution business due to the underlying characteristics of this business with numerous private customers with different credit characteristics, compared to the generation business with regulated customers and only few non-regulated customers, resulting in:

Changes to the current matrix, including historical and forward looking information.

With consideration of both IFRS 7 and IFRS 9, it introduces new disclosure requirements to disclosures relating to an impairment.

Hedge Accounting

The Group has not decided on continuing with the hedge accounting requirements under IAS 39 “ Financial Instruments: Recognition and Measurement” or to adopt the new hedge accounting requirements under IFRS 9. If the Group decides to apply the new hedge accounting requirements, it would require the Group to restore balance or equilibrium to existing hedges on transition to fulfill the new effectiveness requirements under the new hedge accounting requirements. The resulting gain or loss would be recognized in profit and loss. The applicable will be in relation to Cardones’ and Amayo’s interest rate swap derivatives.

Modification of financial liabilities measured at amortized cost that do not result in de-recognition

When a financial liability measured at amortized cost is modified without this resulting in de-recognition, a gain or loss should be recognized in profit or loss. Therefore the Group should evaluate the changes to the current accounting policy and should estimate the impacts resulting from the retrospective application from modification gains and losses arising from financial liability from Kallpa bond issuance that are still recognized at the date of initial application of IFRS 9, adjustments might have need to be calculated and recorded through opening retained earnings on transition.

F - 38

Note 3 – Significant Accounting Policies (Cont’d)

International Financial Accounting Standard IFRS 15 “Revenues from Contracts with Customers” – the Standard replaces the presently existing guidelines regarding recognition of revenue from contracts with customers and provides two approaches for recognition of revenue: at one point in time or over time. The model includes five stages for analysis of transactions in order to determine the timing of recognition of the revenue and the amount thereof. In addition, the Standard provides new disclosure requirements that are more extensive that those currently in effect.

The Standard is to be applied for annual periods commencing on January 1, 2018, with the possibility of early adoption. The Standard includes various alternatives with respect to the transitional rules, such that companies may choose one of the following alternatives when applying the Standard for the first time: full retroactive application, full retroactive application with practical relaxations or application of the Standard commencing from the initial application date, while adjusting the balance of the retained earnings as at this date for transactions that have not yet been completed.

The Group has conducted an initial assessment in order to determine the qualitative impacts of the implementation of IFRS 15. As of December 31, 2016, the Group is not able to determine quantitative impacts, however, under a qualitative point of view it is expected to have impacts in the following aspects, which are described below according to areas affected by the new standard and for each business unit.

With respect to the power generation business, the Group expects impacts on the following:

Identification of the contract: Selective Group’s contracts are subject to changes in scope or prices that requires evaluation to determine treatment of modification based on considerations to separate contracts or evaluate as integral part of the original contracts.

Performance obligations: Recognition of revenue of performance obligations that are currently not accounted for separately such as promises to make available capacity or energy on demand, and renewal options that qualify as a material right. On the other hand, recognition of revenue of transmission services paid on behalf of some customers and subsequently reimbursed are expected not to qualify as separate performance obligations, thus, no gross revenue should be recognized due to the fact that the group would be acting as an agent and a netting presentation of payment of reimbursements in the statement of profit or loss is reasonable.

Transaction price: The Group’s contracts with customers contain variable factors that may affect its cash flow, such as stepped pricing, volume discounts, adjustments based on fuel price or operating conditions of Sistema Eléctrico Interconectado Nacional del Peru (“SEIN”) and penalties. All these features may impact the determination of the transaction price, thus, the Group expects the application of a high degree of judgment to estimate the amount of these variable consideration.

Allocation of the transaction price: For the allocation of the transaction price, the Group expects certain challenges to determine the stand alone selling prices of the several performance obligations. The Group expects to apply significant judgment to determine the stand-alone selling price for the supply energy and the other performance obligations that are not being separately recognized.

Recognition of revenue: Apart from the separation of the transaction prices in various performance obligations, the Group expects no significant impact in the timing of the revenue recognition of the major service (energy and capacity supply), this corresponds to a series of different promises that may be treated as a single performance obligation that may be recognized overtime, similar to the current treatment.

Other matters: the Group expects an enhancement in the disclosures that relates to revenue. In addition, with respect to transition, the Group plans to evaluate the results of the initial quantification of the impacts of the new standard for decision-making about the transition method to be applied.

F - 39

Note 3 – Significant Accounting Policies (Cont’d)

With respect to the distribution business, the Group expects impacts on the following topics:

Treatment of modifications of contracts as described in the preceding generation business section above.

Performance obligations: Some new performance obligations has been identified, for example, certain administrative activities that the Group carries out on behalf of some customers (municipalities). However, the Group estimate this may be considered as not material obligations.

Transaction price: The Group identifies variable consideration associated with unbilled energy. Although, this concept is currently recognized as revenue, it is expected to change the method to quantify it. In addition, considering the collectability criteria are met for those contracts, there is a significant financing component concerning contracts with customers with payment agreements. These agreements allow the customers to pay in arrears (ranging from 8 to 120 months). The practical expedient to not adjust the transaction price for the time value of money cannot be used for payment terms which establish that the period between performance and payment for that performance is more than one year. Another impact is the determination of the discount rate. This rate should reflect the individual credit risk of the specific customer. To date, the discount rate used is that published quarterly by the Regulator, Comisión Nacional de Energía Eléctrica (“CNEE”).

Allocation of the transaction price: Similar to the generation business.

In addition, the Group is currently evaluating the impacts on internal controls and processes. The next steps include the preparation of an implementation plan and further trainings to the employees in order to ensure a successful implementation.

International Financial Accounting Standard IFRS 16 “ Leases ” The standard replaces IAS 17 – Leases and its related interpretations. The standard's instructions annul the existing requirement from lessees to classify leases as operating or finance leases. Instead of this, for lessees, the new standard presents a unified model for the accounting treatment of all leases according to which the lessee has to recognize an asset and liability in respect of the lease in its financial statements. Similarly, the standard determines new and expanded disclosure requirements from those required at present. The standard will become effective for annual periods commencing on or after January 1, 2019, with the possibility of early adoption, so long as the Group has also early adopted IFRS 15 – Revenue from contracts with customers. The standard includes a number of alternatives for the implementation of transitional provisions, so that companies can choose one of the following alternatives at the implementation date: full retrospective implementation or implementation from the effective date while adjusting the balance of retained earnings at that date.

The Group’s initial assessment is in progress to examine the impacts for future implementation of IFRS 16.

F - 40

Note 4 – Determination of Fair Value

As part of its accounting policies and disclosure requirements, management of the Group is required to determine the fair value of both financial and non-financial assets and liabilities. The fair values have been determined for purposes of measurement and/or disclosure based on the following methods. Additional information regarding the assumptions used in determining the fair values is disclosed in the notes relating to that asset or liability. A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

The Group has an established control framework with respect to the measurement of fair values.

When relevant observable market data does not exist, or when observable inputs require significant adjustment based on unobservable inputs, fair values are determined using a valuation technique based primarily on the Company’s internal assumptions about future cash flows and appropriately risk-adjusted discount rates. Regardless of the valuation technique used, that technique should not ignore relevant information and reflect appropriate risk adjustments that market participants would make for credit and liquidity risks.

Based on each valuation scenario, management of the Group will decide on the use of observable transaction prices to the extent they represent the fair value of the instrument and consider using unobservable inputs when it is more appropriate than using observable inputs. If they do not represent the fair value of the instrument, and significant adjustments need to be made to the observable transaction prices, it might be more appropriate for the Group to use a valuation technique based on unobservable inputs.

In other scenarios, multiple inputs from different sources may collectively provide the best evidence of fair value with the expected cash flows considered alongside such information. The weighting of these inputs in the fair value measurement would depend on the extent to which they provide information about the fair value of the instrument and are relevant in developing a reasonable estimate of fair value.

Business Combinations

The Group measures the value of the acquired assets, liabilities, and contingent liabilities considering the fair value basis from the date on which the Group took control. The criteria considered to measure the fair value of the main items were the following:

Fixed assets were valued considering the market value provided by an appraiser;

Intangibles consider the valuation of Concessions;

Deferred taxes were valued based on the temporary differences between the accounting and tax basis of the business combination;

Non-controlling interests were measured as a proportional basis of the net assets identified on the acquisition date

Intangibles consider the valuation of its Power Purchase Agreements (PPAs); and,

Contingent liabilities were determined over the average probability established by third party legal processes.

Cash Generating Unit for impairment testing

See Note 14.C.

Derivatives

See Note 31 regarding “Financial Instruments”.

Non-derivative financial liabilities

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 - 41

Note 5 – Cash and Cash Equivalents

	As at December 31
	2016		2015
	$ thousands
Cash in banks		320,199		277,442
Time deposits (a)		6,436		106,511
Cash and cash equivalents for purposes of the statement of cash flows		326,635		383,953

(a)	Time deposits corresponds to short-term investments made for periods ranging from one day to three months, depending on immediate cash requirements of the Group, and earn interest at short-term deposit rates in US Dollars and other currencies ranging from 0.01% to 4.00% per annum.

The Group’s exposure to credit risk, interest rate risk and currency risk and a sensitivity analysis with respect to the financial assets and liabilities is detailed in Note 31 “Financial Instruments”.

Note 6 – Short-Term investments and deposits

	As at December 31
	2016		2015
	$ thousands
Short-term bank deposits (a)		—		50,000
Restricted Cash (b)		89,475		251,955
		89,475		301,955
Other		70		6,747
		89,545		308,702

(a)

As at December 31, 2015, corresponds to 180-day time deposits set by Inkia Americas Holdings Ltd from the proceeds of the Inkia Holdings Limited (“Acter sale”).

(b)

Corresponds to amounts held in escrow accounts as collateral for loans and contractual obligations, such as debt service reserve accounts and time deposits that guarantee letters of credit. They earn interest at market interest rates of 0.01% to 6.2%. As at December 31, 2015, it included mainly $117 million in I.C. Power Distribution Holdings Pte. Ltd. for the acquisition of Energuate and $50 million of distributions received by I.C. Power Israel Ltd. (“ICPI”) for the payment of mezzanine Loan-Tranch A made in January 2016..

Note 7 – Trade Receivables, Net

	As at December 31
	2016			2015
	$ thousands
Trade Receivables		285,100			123,377
Less – allowance for doubtful debts		(568	)		(104	)
		284,532			123,273

F - 42

Note 8 – Other Current Assets

	As at December 31
	2016		2015
	$ thousands
Government agencies (a)		14,677		23,267
Insurance claims (b)		8,809		3,944
Advances to suppliers		141		306
Transmission line sale (c)		4,200		—
Transaction costs Energuate		1,903		—
Derivative instruments		1,831		—
Selective consumption tax on heavy fuel oil (d)		940		—
Prepaid expenses		6,039		9,489
Other receivables		11,233		8,254
		49,773		45,260

(a)	The balance corresponds mainly to the VAT incurred in the construction of CDA and Samay I (“Puerto Bravo”) projects. Both projects have the tax benefit of recovering the VAT incurred during the construction stage on a regular basis.

(b)

As of December 31, 2016, it corresponds to the accounts receivables recorded in Samay I and Corinto in relation to its insurance claims for property damage and business interruption by $8 million and $750 thousand, respectively. As of December 31, 2015, it corresponds to the accounts receivables recorded in Amayo II and Cobee related to its insurance claims for Business Interruption and for property damage by $2 million and $2 million, respectively.

(c)	As of December 31, 2016, it corresponds to the sale of the transmission line of a Corinto and Amayo I to Empresa Nacional de Transmision Electrica (“ENATREL”).

(d)

During 2016, the Dominican Republic Government, enacted the Decree No. 275-16 which establishes a system of reimbursement of Selective Consumption Tax on fossil fuels and petroleum products to individual or legal entities, including generation companies. The Decree sets out a payment in advance for fuels purchased which will be reimbursed as they are consumed.

Note 9 – Inventories

	As at December 31
	2016		2015
	$ thousands
Fuel (a)		42,105		5,786
Spare parts (b)		49,554		44,565
		91,659		50,351

(a)

The plants in El Salvador, Nicaragua, Guatemala, Jamaica and Dominican Republic consume heavy fuel, and the plants in Chile and Samay I in Peru consume diesel for the generation of electric energy. These plants must purchase fuel in the international market and import it into the respective countries. As of December 31.2016, $30 million corresponds to Samay I’s diesel inventory. According to its Concession agreement, Samay I must keep the equivalent of 15 days of fuel autonomy as cold reserve. The plants must take into consideration demand for the electric energy, available supply and transportation cost and timing when purchasing fuel.

(b)	Corresponds to spare parts held in storage to be used in maintenance work.

During 2016, the Group recognized inventory write downs of $135 thousand charged to cost of sales to present its fuel inventories at net realizable value ($623 thousand during 2015).

F - 43

Note 10 – Investment in Associated Companies

Condensed information regarding significant associated companies

Condensed financial information with respect to the statement of financial position

	ZIM						Qoros*
	As at December 31
	2016			2015			2016			2015
	$ thousands
Principal place of business	International						China
Proportion of ownership interest		32%			32%			50%			50%

Current assets		465,892			616,279			259,804			235,084
Non-current assets		1,237,740			1,296,035			1,273,862			1,430,156
Current liabilities		(530,842	)		(610,933	)		(773,946	)		(888,354	)
Non-current liabilities		(1,273,447	)		(1,222,639	)		(695,484	)		(746,740	)
Non-controlling interests		(3,125	)		(3,976	)		—			—
Total net assets attributable to the Group		(103,782	)		74,766			64,236			30,146

Share of Group in net assets		(33,210	)		23,925			32,118			15,073
Adjustments:
Excess cost		114,953			177,360			—			—
Loans		—			—			55,798			109,393
Financial guarantee		—			—			29,677			34,263
Book value of investment		81,743			201,285			117,593			158,729

Qoros is a joint venture (See Note 10.C.b). The current assets include cash and cash equivalent of $67 million (2015: $40 million). The current and non-current liabilities excluding trade and other payables and provisions amount to $1.1 billion (2015: $1.2 billion).

F - 44

Note 10 – Investment in Associated Companies (Cont’d)

Condensed financial information with respect to results of operations

	ZIM									Tower*						Qoros***									Generandes**
	For the year ended December 31
	2016			2015			2014			2015			2014			2016			2015			2014			2014
	$ thousands

Revenues		2,539,296			2,991,135			1,667,107			461,778			828,008			377,456			232,114			138,260			193,000

(Loss) / income ****		(168,290	)		2,253			(72,515	)		(737	)		24,723			(285,069	)		(392,427	)		(349,612	)		29,628

Other comprehensive (loss) / income ****		(12,351	)		(1,948	)		2,399			—			(8,287	)		7			(19	)		(25	)		—

Total comprehensive (loss) / income		(180,641	)		305			(70,116	)		(737	)		16,436			(285,062	)		(392,446	)		(349,637	)		29,628

Kenon’s share of comprehensive
(loss) / income		(57,805	)		98			(22,437	)		(189	)		4,696			(142,531	)		(196,223	)		(174,818	)		11,554

Adjustments		9,856			9,418			9,665			(609	)		13,687			(3	)		—			12			(12	)

Kenon’s share of comprehensive
(Loss) / Income presented in the books		(47,949	)		9,516			(12,772	)		(798	)		18,383			(142,534	)		(196,223	)		(174,806	)		11,542

*	Distributed as dividend-in-kind in July 2015 (see Note 10.C.c). Results of operations for 2015 corresponds to the six months ended June 30, 2015.

**	Sold in 2014.

***

Qoros is a joint venture (See Note 10.C.b). The depreciation and amortization, interest income, interest expense and income tax expenses recorded by Qoros during the year were $119 million, $2 million, $63 million and $37 thousand (2015: $75 million, $2 million, $2 million and $92 thousand; 2014: $32 million, $3 million, $35 million and $86 thousand) respectively.

****	Excludes portion attributable to non-controlling interest.

F - 45

Note 10 – Investment in Associated Companies (Cont’d)

B. Associated companies that are individually immaterial

	Associated Companies
	As at December 31
	2016		2015		2014
	$ thousands

Book value of investments as at December 31		8,897		9,008

Share of Group in income		939		123		8,334
Share of Group in other comprehensive (loss)/income		-		-		(10,398	)

Share of Group in total comprehensive (loss)/income		939		123		(2,064	)

Additional information

ZIM

Upon completion of the debt arrangement in ZIM, on July 16, 2014, the Group declined to a rate of holdings of 32% of ZIM’s equity and as a result it ceased to control ZIM. Commencing from this date, IC presents its investment in ZIM as an associated company. ZIM’s results up to the completion date of the debt arrangement, together with the income due to loss of control and the loss due to waiving all ZIM’s debts, were presented separately in the consolidated profit and loss statements in the category “profit for the year from discontinued operations”.

ZIM’s debt restructuring, which was completed on July 16, 2014 (“the effective date of the restructuring”), involved representatives of the majority of ZIM’s financial creditors, related parties and additional stakeholders. As a result of the restructuring, among other things, ZIM’s outstanding indebtedness and liabilities (face value, including future commitments in respect of operating leases, and with regard to those parties participating in the restructuring) were reduced from approximately $3.4 billion to approximately $2 billion.

Upon completion of the debt arrangement in ZIM, on July 16, 2014, IC ceased to control ZIM and, therefore, in the third quarter of 2014, IC recorded income in the amount of $796 million as a result of loss of control of ZIM and presentation of its investment in ZIM as an associated company based on its fair value as derived from the amount of IC’s investment in ZIM’s equity in accordance with the arrangement, and also recorded a loss of $187 million due to IC’s waiver of all of ZIM’s debts, as noted above. The resulting amount of the income created, in the amount of $609 million, as stated, was presented in the statement of profit and loss in the category “profit for the year from discontinued operations”.

As part of the debt arrangement, IC invested $200 million in the shareholders’ equity of ZIM. Based on a PPA (purchase price allocation) study made by an external appraiser, the excess cost was allocated, primarily, as follows: negative excess cost to ships, in the amount of $104 million, negative excess cost in respect of unfavorable operating lease contracts, in the amount of $39 million, positive excess cost in respect of containers and equipment, in the amount of $30 million, positive excess cost in respect of a brand name, in the amount of $80 million, and goodwill, in the amount of $219 million.

The container shipping industry is dynamic and volatile and has been marked in recent years by instability as a result of a prolonged global economic crisis, continued deterioration of market environment which is characterized by slower growth of demand and worsening overcapacity combined with increased uncertainty due to the realigning of global alliances. This situation combined with carriers' ambitions to increase and protect their market share led freight rates to fall sharply in most of the trades, mainly since the second half of 2015. The first half of 2016 continued to be very challenging. Container freight rates hit historical lows across major trades, as new vessel capacity was added, while market demand remained weak. During the second half of 2016, freight rates have increased in certain trades, following a filing for court receivership by one of the top ten companies in the industry.

With the continuous deterioration in the shipping business environment and volatile bunker prices, ZIM's management continues to improve its operational results and liquidity position by optimizing ZIM's network rationalizations including establishment of new partnerships, invest in upgrading customer services and constantly strive to create and maintain efficiencies and cost reductions.

F - 46

Note 10 – Investment in Associated Companies (Cont’d)

However, continuation of this trend could negatively affect the entire industry and also affect the ZIM's business, financial position, assets value, results of operations, cash flows and compliance with certain financial covenants.

As of December 31, 2016, ZIM had a net deficit of $101 million (compared to net equity of $79 million as of December 31, 2015) and it had negative working capital of $65 million (compared to positive working capital of $5 million as of December 31, 2015).

During the year ended December 31, 2016, ZIM incurred an operating loss of $52 million (compared to operating profit of $98 million during the year ended December 31, 2015 and operating loss of $263 million during the year ended December 31, 2014) and net loss of $164 million (compared to net profit of $7 million during the year ended December 31, 2015 and net loss of $198 million during the year ended December 31, 2014).

As at December 31, 2016, ZIM complies with its amended financial covenants, ZIM’s liquidity amounts to $182 million (Minimum Liquidity required is $125 million) - see also Note 10.C.a.2(ii).

In order to improve its financial position and liquidity, ZIM took the following steps:

(i)

ZIM approached some of its creditors and lessors of vessels and equipment, for the purpose of rescheduling payments.

Below are the main components of the agreements reached:

Deferral of payments in a total amount of approximately $116 million (the "Deferred Amounts"), during a period of up to 12 months starting on September 30, 2016. The repayment of the Deferred Amounts will begin as from January 1, 2018 on a straight line basis and will end on December 31, 2020 (the "Repayment Period"). In case any of the respective agreement expires before the end of the Repayment Period, the unpaid balance of Deferred Amounts will be paid in full upon expiration.

The Deferred Amounts bear interest, at an annual rate of LIBOR + 2.8% paid quarterly in cash.

ZIM granted security over its rights and interests derived from certain of its receivables, for securing the repayment of the Deferred Amounts. The balance of the secured Deferred Amounts as of December 31, 2016 amounted to $41 million.

With respect to excess cash, as defined in the rescheduling agreement, a mechanism of mandatory prepayments of the abovementioned rescheduled amounts and their related accrued interest, will apply.

The binding approvals of these agreements were obtained and the modified terms of these agreements were applied in ZIM's financial statements in the fourth quarter. In this respect, certain agreements of containers leases previously classified as operational leases were reclassified as financial leases, resulting in recognition of additional assets and liabilities in a total amount of $73 million.

(ii)

ZIM obtained amendments to its financial covenants. Accordingly, below are the current financial covenants of ZIM:

Fixed Charge Cover ratio - The required ratio will be assessed on March 31, 2018 onwards, and will gradually increase from 0.78:1 as required on March 31, 2018 to 0.99:1 as required on March 31, 2019 and remain at that level thereafter.

Total Leverage ratio - The required ratio will be assessed on March 31, 2018 onwards, and will gradually decrease from 23.69:1 as required on March 31, 2018 to 6.64:1 as required on December 31, 2018 and remain at that level thereafter.

Minimum Liquidity – This covenant was amended as from March 31, 2016 to include all cash and cash equivalents available to ZIM without any restrictions. In addition, during 2016 and through (and including) September 30, 2016, ZIM was required to stand a minimum liquidity of $150 million. At December 31, 2016 ZIM is in compliance with its financial covenants with liquidity amounting to $182 million (Minimum Liquidity required is $125 million).

F - 47

Note 10 – Investment in Associated Companies (Cont’d)

ZIM's financial position, liquidity and the risk of deviation from financial covenants depend on the recovery of the shipping industry and especially the freight rates. Current economic conditions make forecasting difficult, and there is possibility that actual performance may be materially different from ZIM's management plans and expectations.

In the opinion of ZIM's management and its Board of Directors, the updated forecast and the abovementioned actions with regards to rescheduling of payments and covenants amendment, enables ZIM to meet its liabilities and operational needs and to comply with the new set of financial covenants for a period of at least 12 months following the balance sheet date.

The recent trends in the shipping industry, in particular the uncertainty of global markets due to continued conflicts in Middle East, continued decline in trade volumes and freight rates, vessel capacity oversupply, rebalancing of the Chinese economy away from manufacturing and exports towards domestic consumption, and the Panama Canal expansion have an adverse effect on ZIM’s results.

As of June 30, 2016, ZIM tested its assets for impairment based on IAS 36, where ZIM operates an integrated liner network, as one cash-generating unit (“CGU”). ZIM estimated its recoverable amount on the basis of fair value less costs to sell, using the discounted cash flow (“DCF”) method, measured at Level 3 fair value measurement under IFRS 13. The impairment test resulted with a recoverable amount exceeding the carrying amount of the CGU with a range between $291 million and $330 million, and therefore no impairment was recognized. Although ZIM believes the assumptions used for impairment are reasonable and acceptable, no assurance can be made against the level of bunker prices and freight rates sustainability.

Kenon, independently and separately from ZIM, appointed a third-party to perform a valuation of its 32% equity investment in ZIM in accordance with IAS 28 Investments in Associates and IAS 36 Impairment of Assets . On October 3, 2016 Kenon concluded that as of June 30, 2016, the carrying amount of the investment in ZIM is higher than the recoverable amount, and therefore, Kenon recognized impairment losses of $72 million in its financial statements in respect of its investment in ZIM .

The impairment losses recognized by Kenon was mainly in relation to goodwill and other fair value adjustments recognized by Kenon as part of its investment in ZIM.

For the purposes of management’s impairment evaluation of the Group’s investment, ZIM, which operates integrated network liner activity, has one CGU, which consists of all of ZIM’s 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 periods to both March and June 2016. The valuation approach was based on the equity method, recognizing the cost of investment and share of losses in ZIM, and subsequently to assess a maintainable level of earnings to form a view on the appropriate valuation range as at June 30, 2016.

During the recent valuation, due to the uncertainty experienced in shipping sector, and a limited evidence of a sustained industry recovery as at June 30, 2016, the following data points and benchmarks were considered by the independent valuer:

The implied EV/EBITDA range based on the indicative range of fair values for Kenon’s 32% stake in ZIM and the actual EBITDA for the 12-month to March 31, 2016 and the 12-month to June 30, 2016; and,

The implied EV/EBITDA range based on the indicative range of fair values for Kenon’s 32% stake in ZIM and the estimated sustainable EBITDA computed based on a 5% margin and actual revenue for the 12-month to March 31, 2016. The estimated maintainable margin was based on a 30% discount applied to analyst estimate of the industry margin.

The independent valuer arrived at a range of equity valued between $60 - $120 million after adjustments for Net Debt. The fair value measurement was categorized as Level 3 fair value based on the inputs in the valuation technique used.

Based on the valuation range abovementioned, Kenon adopted the mid-point value of $90 million to appropriately reflect the relevant carrying value of Kenon’s investment in ZIM as at June 30, 2016.

In 2015, ZIM recognized an impairment of the vessels held for sale in an amount of $7 million as impairment under other operating expenses.

As part of the July 2014 group debt restructuring, ZIM undertook to scrap eight vessels during the period of 16 months from the effective date of the restructuring. In 2015, ZIM disposed two vessels, and obtained an extension through December 16, 2015, to dispose the last vessel. As of December 31, 2015 all of such vessels were disposed. Upon the effective date of the restructuring, those vessels were classified as held for sale in ZIM’s report and as a result, an impairment loss in an amount of $110 million was recorded under other operating expenses in ZIM’s report (as included in the Day 1 Effect).

F - 48

Note 10 – Investment in Associated Companies (Cont’d)

During 2015, ZIM sold all of its holdings in an associated company which resulted in a disposal gain of $32 million recognized in ZIM’s financial statements. Kenon's share of the disposal gain is $10 million and is recognized in share of net income and losses from associated companies.

During 2016, ZIM sold a portion of its holdings in an associated company and ceased to have significant influence over such investee. ZIM recognized a disposal gain in an amount of $16 million, Kenon's share of the disposal gain is $5 million and is recognized in share of net income and losses from associated companies.

Qoros Automotive Co. Ltd. (“Qoros”)

As at December 31, 2016, the Group holds, through a wholly-owned and controlled company, Quantum (2007) LLC (“Quantum”) the equity interest of Qoros in a 50/50 agreement with a Chinese vehicle manufacturer – Chery Automobiles Limited (“Chery”), which is engaged in manufacture of vehicles using advanced technology, and marketing and distribution of the vehicles worldwide under a quality brand name.

As at December 31, 2016, Kenon’s investment in Qoros amounts to $117 million (December 31, 2015 – $159 million).

In January and February 2016, Kenon and Wuhu Chery each, through Quantum, a Kenon subsidiary, provided a RMB275 million ($42 million) convertible loan to Qoros to support its working capital requirements.

During 2015, Kenon and Chery each, through a subsidiary, provided a RMB800 million ($130 million) convertible loan to Qoros to support its ongoing development.

Qoros incurred a net loss of RMB 1.9 billion (approximately $284 million) and had net current liabilities of approximately RMB 3.57 billion (approximately $515 million) for the year ended December 31, 2016 (RMB 2.48 billion (approximately $372 million) and RMB 4.24 billion (approximately $610 million) as of December 31, 2015 respectively).

Qoros had given careful consideration to the future of liquidity of Qoros and its available sources of finance in assessing whether Qoros will have sufficient financial resources to continue as a going concern, with unused bank loan facilities of RMB 205 million (approximately $29 million) as at 31 December 2016, with plans to refinance most of its short-term loans in 2017.

Ansonia Loans

Overview

On April 22 and September 2, 2016, Ansonia Holdings Singapore B.V. ("Ansonia"), which owns approximately 58% of the outstanding shares of Kenon, entered an agreement to provide loans (“Ansonia loans”) in an aggregate amount of up to RMB 450 million ($72 million) with an interest rate of 6% per annum, subjected to late payment penalty interest calculated by increasing the prevailing loan interest rate to 120%, through Quantum, to support Qoros. Wuhu Chery completed its provision of loans to Qoros in the same amount and on similar conditions. Set forth below is an overview of the Ansonia loans as of December 31, 2016:

Date Granted	RMB million	Plus certain interest	Convertible into Equity Discount Rate ¹	Loan Transfer Date from Quantum to Qoros ²
Tranche 1 / Apr 2016	150	6%	10%	May 20, 2016
Tranche 2 / Apr 2016	150		10%	June 28, 2016
Tranche 3 / Sep 2016	150		25%	September 6, 2016
Total	450 ($72 million)

^1. To facilitate potential investment by a third party in Qoros, Ansonia loans are automatically convertible into equity in Quantum in the event of a third-party financing at Qoros meets certain conditions, or when Ansonia loans are repaid in relation to such third-party financing. The loans will be convertible into equity of Quantum at a 10% (Tranche 1 and 2) and at a 25% discount (Tranche 3) discount to the implied value of Qoros based upon the third-party financing.

^2. Loans carry the same term of 9 months from the first transfer date

As of December 31, 2016, Kenon engaged a third party to perform the fair value of the Ansonia loans that amounted to RMB 450 million (approximately $72 million) and were valued at approximately RMB 303 million ($45 million; loan $16 million and equity derivative $29 million). The accounting for Ansonia loans at fair value gain are measured in accordance with IAS 39 (See Consolidated Statement of Changes in Equity For the years ended December 31, 2016 and 2015).

F - 49

Note 10 – Investment in Associated Companies (Cont’d)

Repayment of the Ansonia loans

Ansonia loans to Quantum are non-recourse to Kenon, and limited recourse to Quantum. Quantum’s obligations to repay these loans when Quantum receives loan repayments from Qoros; or Quantum sells all or portion of its interest in Qoros.

ii.

Qoros has agreed to secure and undertaken to enter into the pledge for the Quantum and Wuhu Chery loans with certain collateral. The pledge is subjected to approvals to be received. Qoros' pledge of this collateral will be released upon a conversion of the shareholder loans into equity (as described below) or upon repayment.

iii.

Quantum agreed to assign its rights, title and interests in the collateral securing these loans to Ansonia.

iv.

Ansonia loans can be repaid by Quantum without penalty or premium prior to the conversion into Equity of Quantum.

Conversion of the Ansonia loans into Equity (“Conversion”)

Upon the conversion, Kenon's indirect interest in Qoros will be diluted. From the point of the conversion until the third anniversary of such conversion, Ansonia will have the option to convert its equity in Quantum into an equivalent value of equity in Qoros, subject to regulatory acceptance, Qoros', Chery's and Wuhu Chery's approvals.

In view of Qoros' financing needs, Kenon believes that the amendment of the Loan Agreement to facilitate the Third Tranche, is in the best interests of Kenon and its shareholders. As Ansonia is a major shareholder in Kenon, this transaction has been reviewed and approved by Kenon in accordance with its related party transaction policy.

Financial Guarantees Provisions in 2016

On June 30, 2016, Kenon increased its previously recognized provision of $30 million to $160 million in respect to Kenon’s “back-to-back” guarantee obligations to Chery (RMB1,100 million), in respect of guarantees that Chery has given for Qoros’ bank debt and has pledged a portion of its interests in Qoros to secure Qoros’ bank debt. In addition to the current liquidity needs of Qoros, its financial position and Kenon’s strategic intent, the provision was made due to uncertainty in the Chinese automobile market. As a result, Kenon recognized a $130 million charge to expense for such financial guarantees in its consolidated statement of profit or loss in 2016.

These back-to-back guarantees consist of (i) a back-to-back guarantee of one-half of the principal amount of Chery’s guarantee of RMB1.5 billion with respect to Qoros’ RMB3 billion facility, and (ii) a back-to-back guarantee of one-half of the principal amount of Chery’s guarantee of Qoros’ RMB700 million facility, and interest and fees, if applicable.

Financial Guarantees Release from 2016

On December 25, 2016. Kenon has agreed to provide a RMB250 million (approximately $36 million) shareholder loan to Qoros, and in relation to this loan, the maximum amount of Kenon’s back-to-back guarantee obligations to Chery has been reduced by RMB250 million as follows. As part of the loan to Qoros, Kenon’s back-to-back guarantee obligations to Chery with respect to Chery’s guarantee of Qoros’ RMB3 billion loan facility with the Export-Import Bank of China (“EXIM Bank”) have been reduced by one third, and the maximum amount of Kenon’s obligations under this back-to-back guarantee (subject to certain obligations to negotiate fees and interest described in the table below) has been reduced from RMB750 million to RMB500 million (approximately $72 million). In addition, Ansonia has committed to fund RMB25 million (approximately $4 million) of Kenon’s remaining back-to-back guarantee obligations to Chery in certain circumstances (“Ansonia Commitment”).

As at December 31, 2016, Kenon’s back-to-back guarantee obligations to Chery is RMB 850 million including any interest and charges (approximately $119 million).

Chery has agreed to make a corresponding RMB250 million loan to Qoros. The proceeds of these loans will be used to support Qoros’ ordinary course working capital requirements and Qoros’ investments in new initiatives, such as new-energy vehicles, while it continues its fund raising efforts.

As part of this transaction, Quantum has pledged approximately 9% of the outstanding shares of Qoros to Chery to secure the amount of the back-to-back guarantee reduction. Chery may also borrow from Quantum up to 5% of Qoros’ outstanding shares to meet its pledge obligations under a Qoros RMB 1.2 billion loan facility with EXIM Bank. The number of Qoros shares pledged to Chery is subject to adjustment from time to time. In certain circumstances Quantum must pledge additional shares (to the extent it has unencumbered shares), and in other circumstances the pledged shares may be released and the borrowed shares must be returned, e.g., in the event that Quantum is required to pledge additional shares to secure the RMB1.2 billion EXIM Bank facility (Quantum has previously pledged a significant portion of its Qoros shares to secure Qoros’ obligations under Qoros’ RMB 1.2 billion loan facility with EXIM Bank).

Kenon has been informed that, in order to facilitate Kenon’s above mentioned reduction in Kenon’s back-to-back guarantee obligations to Chery, an affiliate of Kenon’s major shareholder has given certain undertakings to Chery with respect to the released guarantee obligations.

F - 50

Note 10 – Investment in Associated Companies (Cont’d)

Set forth below is an overview of the guarantees provided by Kenon in respect of Qoros' debt as of December 31, 2016:

Date Granted	Qoros Credit Facility (EXIM Bank loan facility)	Kenon Maximum Guarantee Obligation prior to Guarantee Release described above	Kenon Maximum Guarantee Obligation after Guarantee Release
	RMB million
				Plus certain interest and fees
Spin-Off / November 2015	3,000	750	475 ($69 million) ^1,2	-
May / November 2015	700	350 ³	350 ($51 million) ³	60 ³
Total ⁴		1,100 ($160 million) ^1,2	825 ($120 million) ^1,2	60 ($9 million) ³

^1.

In the event that Chery’s liability under its guarantee exceeds RMB1.5 billion, Kenon has committed to negotiate with Chery in good faith to find a solution so that Kenon’s and Chery’s liabilities for the indebtedness of Qoros under this credit facility are equal in proportion. This is subject to the reduction of Kenon’s back-to-back guarantee obligations by one-third as described above.

^2.

Following the reduction in back-to-back guarantee obligations of Kenon as described above, Kenon’s maximum guarantee obligations (subject to certain obligations to negotiate fees and interest.) in respect of Qoros’ RMB3 billion facility have been reduced to RMB500 million. Pursuant to the Ansonia Commitment described above, Ansonia has agreed to pay up to RMB25 million (approximately $4 million) to Kenon in certain circumstances in the event that Kenon is required to make payments on its back-to-back guarantees under the RMB3 billion facility; any payment by Ansonia would be made only after all obligations under Kenon’s back-to-back guarantees in excess of the amount of the Ansonia Commitment have been satisfied. Giving effect to the Ansonia Commitment, Kenon’s effective maximum guarantee obligations are RMB475 million.

^3.

In the event that Chery is obligated under its guarantee of the EXIM Bank loan facility to make payments that exceed Kenon’s obligations under the guarantee, Kenon and Chery have agreed to try to find an acceptable solution, but without any obligation on Kenon to be liable for more than the amounts set forth in the table above.

^4.

Table does not include pledges. Quantum has pledged a significant portion of its Qoros shares to EXIM Bank to secure Qoros’ obligations under the RMB1.2 billion EXIM Bank facility. Quantum has also pledged Qoros shares to Chery as described above. (For further information, See Note 10.C.b.8)

Financial Guarantees Release from 2017

On March 10, 2017, Kenon announces that it has agreed to fund up to RMB777 million (approximately $114 million) to Qoros in relation to the full release of its remaining RMB825 million (approximately $125 million) back-to-back guarantee obligations to Chery in two tranches, which releases Kenon from commitments to pay any related interest and fees to Chery under the guarantees.

On March 10, 2017, Kenon transferred RMB388.5 million (approximately $57 million) ("First Tranche Loans") to Qoros in relation to a reduction of RMB425 million (approximately $63 million) of Kenon's back-to-back guarantee obligations to Chery, including related interest and fees and the provision of the Second Tranche Loans shall be at Kenon's discretion.

As part of the First Tranche Loans, in relation to 50% reduction of the guarantee, Kenon funded 50% for Kenon and 50% on behalf of Chery. Kenon will also pledge Qoros shares to Chery (as discussed below) in relation to the remaining 50% of the guarantee reduction.

Kenon agreed to provide an additional RMB388.5 million to Qoros (the "Second Tranche Loans") on similar terms (subject to the signing of additional agreements and certain other conditions) in relation to a further RMB425 million reduction in its back-to-back guarantees, which will release Kenon completely from all of its back-to-back guarantee obligations to Chery.

In the event that Chery's obligations under its guarantees are reduced, through amortization of the loans or guarantee releases, Kenon is entitled to the proportionate return from Chery of the loans provided on Chery's behalf (i.e., up to RMB388.5 million (approximately $57 million) with respect to the First Tranche Loans and the Second Tranche Loans) and the release of the pledges described above.

Quantum will pledge approximately 10.3% of the outstanding shares of Qoros to Chery in relation to 50% of the guarantee releases, which pledges are enforceable to the extent Kenon would have been required to make payments under such guarantees but for the guarantee releases.

F - 51

Note 10 – Investment in Associated Companies (Cont’d)

In addition, Chery may also borrow from Quantum 5% of Qoros' outstanding shares in relation to Kenon's provision of the First Tranche Loans and the Second Tranche Loans. The number of Qoros shares pledged to Chery which are borrowed from Quantum is subject to adjustment from time to time.

Set forth below is an overview of the RMB850 million back-to-back guarantees provided by Kenon in respect of Qoros' indebtedness, reflecting the reduction of the back-to-back guarantees described above:

Loans	Timing	Amount of Loans to Qoros	Amount of Guarantee Obligations Prior to Investment	Release of Kenon Guarantees to Chery	Remaining Guarantee Obligations Post-Investment	Pledge of Qoros Shares in relation to Investment
		in RMB million
First Tranche	March 2017	388.5	850 ¹	425 ³	425	5.17%
Second Tranche	At Kenon's discretion	388.5	425	425 ³	—	5.17%
Total		777	—	850 ³	—	10.3% ²

1. Kenon's major shareholder Ansonia Holdings Singapore B.V. has committed to fund RMB25 million (approximately $4 million) of Kenon's back-to-back guarantee obligations in certain circumstances.

2. Excludes up to 5% of Qoros shares which Chery may borrow from Quantum to meet its pledge obligations under the Qoros RMB1.2 billion loan facility, as discussed above.

3. Plus interest and fees.

Following the pledges above, and taking account of prior pledges by Quantum of Qoros shares to Qoros' lenders and to Chery, substantially all of Kenon's interest in Qoros will be pledged, or could be pledged pursuant to the equity borrowing arrangements with Chery described above.

The proceeds of the First Tranche Loans will be used to support Qoros' ordinary course working capital requirements, debt service requirements and investments in new initiatives, such as new-energy vehicles, while Qoros continues its fund raising efforts. The transactions enable Kenon to support Qoros and its fundraising efforts, while reducing its back-to-back guarantee obligations to Chery.

Background of Financial Guarantees

In July 2012, Chery provided a guarantee to the banks, in the amount of RMB1.5 billion ($242 million), in relation to an agreement with the banks to provide Qoros a loan, in the amount of RMB3 billion ($482 million). In November 2015, Kenon has provided back-to-back guarantees to Chery of RMB750 million (approximately $115 million) in respect of certain of Qoros’ indebtedness and has committed to negotiate with Chery in good faith to find a solution so that Kenon’s and Chery’s liabilities for the indebtedness of Qoros under Qoros’ RMB3 billion credit facility are equal in proportion; Kenon has similarly agreed to try to find an acceptable solution in respect of Kenon’s and Chery’s liabilities for the indebtedness of Qoros under Qoros’ 1.5 RMB billion facility, but without any obligation on Kenon to be liable for more than the amount set forth in its back-to-back guarantee to Chery. As a result, if Qoros is unable to meet its operating expenses or is unable to comply with the terms of certain of its debt agreements, Kenon may be required to make payments under its guarantees to Chery. In a back-to-back arrangement Kenon committed to Chery to pay half of every amount it will be required to pay with respect to the above-mentioned guarantee (“the 2012 Guarantee"). The fair value of the guarantee has been recorded in the financial statements.

Prior to Kenon’s spin-off from IC, IC provided the 2012 Guarantee to Qoros. This guarantee by IC is a back-to-back guarantee of Chery’s guarantee of up to RMB1.5 billion (approximately $240 million) under this credit facility, and the obligation of IC under this back-to-back guarantee is up to RMB888 million (approximately $142 million), including related interest and fees. In relation to Kenon’s spin-off from IC, IC continued to provide this guarantee and Kenon entered into a$200 million credit facility with IC, and to the extent that IC is required to make payments under its back-to-back guarantee in respect of Qoros’ credit facility, the amount of the loans owed by Kenon to IC under the credit facility will be increased accordingly.

On February 12, 2015, Kenon has agreed to provide a RMB400 million (approximately $64 million) loan to Qoros to support its ongoing development, and in relation to the provision of this loan, IC’s back-to-back guarantee of Qoros’ debt was released in full. Chery’s guarantee under the Qoros facility of up to RMB1.5 billion (approximately $240 million) is not being released in relation to the release of IC’s back-to-back guarantees and, as described above, in November 2015 Kenon has provided back-to-back guarantees to Chery of RMB750 million .

F - 52

Note 10 – Investment in Associated Companies (Cont’d)

On May 12, 2015, Qoros has signed a Consortium Loan Agreement with the Export-Import Bank of China, and China Construction Bank Co., LTD, Suzhou Branch, concerning the Project of Research and Development of Hybrid Model (“Loan Agreement”), for an amount of RMB700 million ($108 million) or in USD not exceeding the equivalent to RMB480 million ($78 million) (the “Facility”).

On June 15, 2015, this Facility was secured by Chery Automobile Co., Ltd (“Chery Guarantee Deed”) and pledged with Qoros’ 90 vehicle patents with an appraisal value of minimum RMB3.1 billion ($0.5 billion). The Loan Agreement’s term of 102 months bears a 5-years interest rate quoted by the People’s Bank of China in RMB at LIBOR+10%, or in USD at LIBOR+3.50% per annum.

With relation to the above, Kenon provided a RMB350 million ($54 million) guarantee of this financing agreement to Chery for up to 50% of Chery’s Guarantee. As at December 31, 2016, Qoros had drawn down the Facility of RMB700 million ($108 million) with an interest rate of 5.39% (RMB 700 million as at December 31, 2015). The fair value of the guarantee has been recorded in the financial statements.

On May 15, 2015, Kenon and Chery each provided a RMB400 million ($65 million) loan to Qoros to support its ongoing development. RMB25 million ($5 million) of each loan can be converted into equity on conditions set out in the agreement. As a result, Kenon’s ownership percentage in Qoros will not increase upon Qoros’ full, or partial, conversion of Kenon’s RMB400 million ($65 million) shareholder loan into equity.

Kenon expects all, or a portion, of the shareholder loans to convert into additional equity in Qoros upon the satisfaction of certain conditions, including the approval by the relevant Chinese authority.

Kenon funded the RMB400 million ($65 million) shareholder loan through drawdowns of $65 million under a Credit Facility with its former parent, IC as disclosed in Note 1.B.

On July 31, 2014, in order to secure additional funding for Qoros of approximately RMB 1.2 billion ($200 million as of August 7, 2014) IC pledged a portion of its shares (including dividends derived therefrom) in Qoros, in proportion to its share in Qoros’s capital, in favor of the Chinese bank providing Qoros with such financing. Simultaneously, the subsidiary of Chery that holds Chery’s rights in Qoros also pledged a proportionate part of its rights in Qoros. Such financing agreement includes, inter alia, liabilities, provisions regarding covenants, events of immediate payment and/or early payment for violations and/or events specified in the agreement. The lien agreement includes, inter alia, provisions concerning the ratio of securities and the pledging of further securities in certain circumstances, including pledges of up to all of Quantum’s shares in Qoros (or cash), provisions regarding events that would entitle the Chinese Bank to exercise the lien, certain representations and covenants, and provisions regarding the registration and approval of the lien.

As part of the reduction of guarantee obligations in Note 10.C.b.7, Kenon has pledged approximately 9% of the outstanding shares of Qoros to Chery to secure the amount of the back-to-back guarantee reduction. Chery may also borrow from Kenon up to 5% of Qoros' outstanding shares to meet its pledge obligations under the abovementioned RMB 1.2 billion loan facility. As of December 31, 2016, in relation to this loan facility of RMB 1.2 billion, Kenon and Chery have each pledged 22.6% of its equity interest in Qoros.

10.

Business Plans

In September 2014, Qoros’ board of directors reviewed a business development plan for the next ten years. Subsequently, Qoros’ board of directors approved a five-year business plan, which reflected lower forecasted sales volumes and assumed the minimal level of capital expenditure necessary for such sales volumes. As a result, Qoros management performed impairment tests in October 2015 and February 2016. In March 2017, Qoros’ board of directors approved a new business development plan for the next five years. As a result, Qoros management performed impairment tests in March 2017 on Qoros’ operating assets as of December 31, 2016 and intangible assets.

Based on Qoros’ 2017 business plan, cash flow forecast, unutilised bank loan facilities and the plan to refinance the existing short term loans, Qoros’ is projected to generate sufficient cash flows to meet its liabilities over the next twelve months from 31 December 2016. In preparing the cash flow forecast, Qoros considered the unused bank loan facilities of RMB 205 million (approximately $29 million), the roll forward of its short-term loans from banks, and Qoros’ management opinion that the assumptions which are included in the cash flow forecast are reasonable. Accordingly, the consolidated financial statements have been prepared on a going concern basis. In the event where Qoros is unable to continue as a going concern, then this could have a material impact on Qoros’ ability to realise their assets at their recognised values and to fulfill liabilities in the normal course of business at the amounts stated in the consolidated financial statements.

The recoverable amount of this CGU containing the intangible asset which is not available for use yet has been determined based on fair value less costs of disposal using discounted cash flow projections. These calculations were based on the cash flow projections from the 2017 business plan approved by management covering a five-year period ending 31 December 2021 and the terminal value. Cash flows beyond the five-year period are extrapolated using an estimated weighted average growth rate of 3% which is consistent with the forecasts included in independent expert report. The growth rates used do not exceed the long-term average growth rates for the business in which the CGU operates.

F - 53

Note 10 – Investment in Associated Companies (Cont’d)

Qoros concluded that the recoverable amount of its CGU was higher than the carrying value (adjusted for depreciation and amortization). The recoverable amount was determined based on fair value of Qoros’ assets less the costs of disposal and its value in use, using discounted cashflow method. Therefore, no impairment was recognized in Qoros’ December 31, 2016 financial statements in respect of its CGU.

Although Qoros believes the assumptions used to evaluate the potential impairment of its assets are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to future levels of cars produced or sold by Qoros, the development of Qoros’ distribution and dealer network, and Qoros’ utilization of its facility.

The analysis for the impairment test is sensitive to variances in each of the assumptions used and if the assumptions used by Qoros to evaluate the potential impairment of its assets change, Qoros may recognize significant impairment charges in its financial statements in the future. Qoros management has determined that the forecasted volume of sales and Qoros’ receipt of certain subsidies from local Chinese governments are the most important elements of Qoros’ business plan and accordingly are the most sensitive key assumptions for which there reasonably could be a possible change that could cause the carrying amount of Qoros’ CGU to exceed the recoverable amount.

The conclusion of its asset evaluation and future liquidity from available sources of finance through, renewal of borrowings, rollover financing, additional shareholder loans and steps to improve its working capital, provides Qoros its future financial resources.

Tower

In March 2015, Tower accelerated the conversion of $80 million of its outstanding Series F Bonds into ordinary shares of Tower. As a result of the issuance of shares, Kenon's interest in Tower was reduced from 29% to 23% of Tower’s equity and Kenon realized a dilution gain of $32 million.

On May 27, 2015, Kenon’s shareholders approved a capital reduction, contingent upon the approval of the High Court of the Republic of Singapore, to enable Kenon to distribute, on a pro rata basis, some, or all, of the 18,030,041 ordinary shares of Tower held by Kenon, as well as 1,669,795 ordinary shares of Tower underlying the 1,669,795 Series 9 Warrants of Tower held by Kenon, to holders of Kenon’s ordinary shares. On June 25, 2015, the High Court of the Republic of Singapore approved the reduction of Kenon’s issued share capital, enabling Kenon to declare a distribution of some, or all, of its interest in Tower by distribution in specie. On June 30, 2015, the investment in Tower was reclassified to Assets held for distribution.

On July 7, 2015, Kenon’s board of directors declared a pro rata distribution (the “Distribution”) in specie of 18,030,041 ordinary shares of Tower (the “Tower Shares”) to Kenon’s shareholders of record as of the close of trading on July 20, 2015 (the “Record Date”). The Distribution occurred on July 23, 2015 (the “Distribution Date”) and is one of the first key steps in the implementation of Kenon’s strategy, which provided Kenon Shareholders with direct access to Tower, which Kenon believes is in the best interests of its shareholders.

The Tower Shares to be distributed in the Distribution represent all of the shares in Tower owned by Kenon, excluding the 1,669,795 shares in Tower underlying certain warrants held by Kenon. As of July 7, 2015, Kenon had 53,682,994 ordinary shares outstanding. Accordingly, each Kenon Shareholder as of the Record Date received approximately 0.335861 of a Tower Share for every Kenon Share held by such shareholder as of the Record Date. The fair value of the distribution in kind amounts to $255 million. As a result of this distribution, the Group recognized a gain from distribution of dividend in kind of $210 million. The gain arose from the difference between the fair value of the distribution and the carrying amount of the investment as required by IFRIC 17 Distributions of non-cash assets to owners .

After the distribution, Kenon beneficially owned 1,669,795 Warrants representing approximately 2.0% of outstanding Ordinary Shares of Tower. On August 5, 2016, Kenon sold 1,699,795 Series 9 Warrants of Tower for proceeds of approximately $11.4 million.

F - 54

Note 10 – Investment in Associated Companies (Cont’d)

Generandes Peru S.A

During the last quarter of 2013, Inkia announced its decision to sell its 39.01% direct equity in Generandes Peru S.A. (Holding of Edegel S.A.A.)

In April 2014, the board of directors of I.C. Power approved the sale of Generandes Peru S.A. I.C. Power recorded its investment in Generandes Peru S.A. as an associate, applying the equity method until April 30, 2014.

On April 30, 2014, Inkia Americas Holdings Ltd. (the “Seller”) and I.C. Power Ltd as guarantor of the Seller, signed a share purchase agreement with Enersis SA (Enersis) for the sale of its shares in Inkia Holdings (Acter) Limited that owns 21.14% indirect equity in Edegel S.A.A. for a sale price of $413 million. On September 3, 2014, Inkia Americas Holdings Ltd. completed the sale of its shares in Inkia Holdings (Acter) Limited, that had directly the equivalent of 39.01% of Generandes Peru S. A.

As a result of this sale the Group recognized a gain on disposal of $132 million (net of tax $85 million). In addition, the Group recognized a gain in its combined statement of profit and loss from the reclassification of foreign exchange of $25 million gain that was previously included in accumulated other comprehensive income.

F - 55

Note 10 – Investment in Associated Companies (Cont’d)

Details regarding dividends received from associated companies

	For the Year Ended December 31
	2016		2015		2014
	$ thousands
From associated companies		743		4,487		32,227

Restrictions

Qoros

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.

ZIM

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 special State share so that it could protect the vital interests of the State.

On July 14, 2014 the State and ZIM have reached a settlement agreement (the “Settlement Agreement”) that has been validated as a judgment by the Supreme Court. The Settlement Agreement provides, inter alia, the following arrangement shall apply: 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.

The Special State Share, and the permit which accompanies it, also imposes transferability restrictions on our equity interest in ZIM. Furthermore, although there are no contractual restrictions on any sales of our shares by our controlling shareholders, if major shareholders’ ownership interest in Kenon (controlling shareholders of Kenon) is less than 36%, or major shareholders cease to be the controlling shareholder, or sole controlling shareholder of Kenon, then Kenon’s rights with respect to its shares in ZIM (e.g., Kenon’s right to vote and receive dividends in respect of its ZIM shares),will be limited to the rights applicable to an ownership of 24% of ZIM, until or unless the State of Israel provides its consent, or does not object to, this decrease in major shareholders’ ownership or “control” (as defined in the State of Israel consent received by IC in relation to the spin-off). The State of Israel may also revoke Kenon’s permit if there is a material change in the facts upon which the State of Israel’s consent was based, upon a breach of the provisions of the Special State Share by Kenon, Mr. Ofer, or ZIM, or if the cancellation of the provisions of the Special State Share with respect to a person holding shares in ZIM contrary to the Special State Share’s provisions apply (without limitation).

The Special State Share is non-transferable. Except for the rights attached to the said share, it does not confer upon its holder voting rights or any share capital related rights.

F - 56

Note 11 – Subsidiaries

Investments

I.C. Power

Subsidiaries acquired in 2016

On December 29, 2015, I.C. Power Distribution Holdings Pte Ltd (“ICP Distribution”) entered into an agreement with Deorsa-Deocsa Holdings Ltd. to acquire 100% of the shares of Estrella Cooperatief BA, a holding company that indirectly owned two distribution companies in Guatemala (90.6% of Distribuidora de Electricidad de Occidente S.A.-DEOCSA and 92.68% of Distribuidora de Electricidad de Oriente S.A.-DEORSA) and 100% of two smaller related businesses (Redes Electricas de Centroamerica S.A.-RECSA and Comercializadora Guatemalteca Mayorista de Electricidad S.A.-GUATEMEL), collectively referred as “Energuate” for a purchase price equal to (i) the base purchase price, plus (ii) the deferred payment, and (iii) the final adjustment amount.

On January 22, 2016, ICP Distribution acquired Estrella Cooperatief BA for a total consideration of $266 million which included a base price of $243 million paid at the closing date and a deferred payment of $24 million which was paid on April 12, 2016. The consideration agreed is subject to working capital adjustments.

i. Consideration transferred

The following table summarizes the acquisition-date fair value of each major class of consideration transferred:

	$ thousands
Cash consideration paid		242,536
Deferred payment		23,750
Total cash consideration paid		266,286

	$ thousands
Cash consideration paid		266,286
Cash and cash equivalents acquired		(60,227	)
Net cash outflow used on acquisition		206,059

ii. Identifiable assets acquired and liabilities assumed

The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition:

	Note		$ thousands
Property, plant and equipment		13.A		392,495
Intangibles		14.A		195,148
Deferred income tax assets, net				20,289
Trade receivables, net				100,508
Cash and cash equivalents				60,227
Other assets				22,457
Loan from bank and others				(288,290	)
Deferred income tax liabilities				(54,642	)
Trade payables				(108,193	)
Guarantee deposits from customers				(51,072	)
Other liabilities				(39,418	)
Fair value of total identifiable net assets acquired				249,509

F - 57

Note 11 – Subsidiaries (Cont’d)

iii.

Measurement of fair values

I.C. Power has measured the value of the acquired assets and liabilities at fair value on January 22, 2016, the date in which the Company gained control over Estrella Cooperatief BA. Additional information regarding the fair value measurement of the main items acquired is as follows:

Fixed assets were valued considering the market value provided by an appraiser;

Intangibles consider the valuation of its Concessions;

Deferred taxes were valued based on the temporary differences between the accounting and tax basis of the business combination; and,

Non-controlling interests were measured as a proportional basis of the net assets identified on the acquisition date.

iv.

Goodwill

Goodwill arising from the acquisition has been recognized as follows:

	$ thousands
Total consideration transferred		266,286
Non-controlling interest		20,325
Fair value of identifiable net assets		(249,509	)
Goodwill*		37,102

* This amount is not deductible for tax purposes and was determined in Guatemalan Quetzals.

Goodwill is explained by the strategic interest of I.C. Power to expand its presence in distribution business. The goodwill is attributable mainly to the synergy from the acquisition of the complimentary business in I.C. Power.

Recognition of revenues and profit or loss

During the period from the acquisition date to December 31, 2016, the revenues and profit or loss contributed by Estrella Cooperatief BA. to the consolidated results are $515 million and $29 million respectively. If the acquisition had occurred on January 1, 2016, the Group’s management estimates that consolidated revenue would have been $551 million, and consolidated profit for the period would be $30 million. In determining these amounts, it was assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on January 1, 2016.

F - 58

Note 11 – Subsidiaries (Cont’d)

Subsidiaries acquired in 2015

Advanced Integrated Energy Ltd.

On June 8, 2015 I.C. Power executed an agreement with Hadera Paper Ltd (“Hadera Paper”)., pursuant to which I.C. Power agreed to acquire from Hadera Paper 100% of the shares in Advanced Integrated Energy Ltd. (“AIE”) and the Hadera Paper’s energy center. AIE holds a conditional license for the construction of a 120MW cogeneration power station in Israel. The total payment amounted to NIS 60 million (approximately $15.7 million) which involved two transactions:

A business combination in the amount of NIS 36 million ($9 million) as follows: (i) On August 10, 2015, after fulfilling the conditions precedent contemplated in the aforementioned agreement, I.C. Power completed the acquisition of AIE and paid NIS 1.8 million (approximately $460 thousand) to Hadera Paper Ltd. for the acquisition of the shares. (ii) I.C. Power through AIE paid NIS 34 million (approximately $9 million) for the repayment of the loan between Hadera Paper Ltd. and its former shareholder.

The following table summarizes the fair values of the identifiable assets acquired and liabilities assumed at the date of acquisition:

	$ thousands
Property, plant and equipment		8,981
Intangible		464
Deferred income tax liabilities		( 123	)
Total identifiable net assets acquired		9,322
Total consideration		( 9,441	)
Goodwill		119

ii.

AEI acquired of Hadera Paper’s energy center in the aggregate amount of NIS 24 million (approximately $6 million). The Hadera Paper’s energy center generates electricity with a 18MW steam turbine.

The amounts included in the Group’s 2015 consolidated financial statements for these acquisitions are immaterial. Also, no pro-forma financial information has been included as effects are immaterial.

During 2016, AIE issued I.C. Power several capital notes of NIS 130 thousand (approximately $50 thousand), according to their terms, the notes bear no interest and are repayable subject to the AIE’s sole discretion no earlier than five years after the issuance. Additional investments by I.C. Power will be required to enable AIE to complete construction of the power plant, which is expected to commence operations in September 2019.

During 2014, I.C. Power acquired the following companies:

AEI Nicaragua Holdings Ltd., AEI Jamaica Holdings Ltd.

On February 18, 2014, I.C.Power entered into an agreement with AEI Power Ltd. to acquire all of the shares of AEI Nicaragua Holdings Ltd. and AEI Jamaica Holdings Ltd. for a purchase price of $54 million. On March 12, 2014, Inkia took control of AEI Nicaragua Holdings and paid $37 million to AEI Power Ltd. in relation with the acquisition. As a result of the post-closing purchase price adjustments, AEI Power Ltd. refunded $7 million to I.C. Power on April 14, 2014, therefore, the final purchase price of AEI Nicaragua Holdings was $30 million.

AEI Jamaica Holdings Ltd.

On May 30, 2014, I.C.Power took control of AEI Jamaica Holdings and paid $18 million to AEI Power Ltd. in relation to the acquisition. As a result of the post-closing purchase price adjustments, I.C. Power paid an additional $3 million to AEI Power Ltd. on July 1, 2014; therefore, the final purchase price of AEI Jamaica Holdings was $21 million.

F - 59

Note 11 – Subsidiaries (Cont’d)

As of result of this transaction, I.C. Power increased its ownership from 15.57% to 100% in Jamaica Private Power Company (a subsidiary of AEI Jamaica Holdings). The measurement to fair value of I.C. Power’s pre-existing share in Jamaica Power Company resulted in a gain of $3 million ($6 million less $3 million carrying amount of such investment at the acquisition date).

Surpetroil S.A.S (“Surpetroil”)

On March 12, 2014, I.C. Power through its subsidiary Samay III signed a share purchase agreement to acquire a 60% stake of Surpetroil, involved in power generation, natural gas transport and distribution using Colombia’s stranded gas, as well as a 60% stake in two companies: Surenergy S.A.S. E.S.P. (Colombia) and Surpetroil S.A.S. (Peru) for a total purchase price of $18 million. On March 28, 2014, I.C. Power took control of Surpetroil and paid $12 million at closing. The remaining $6 million has been retained by I.C. Power to be reinvested by the minority shareholders in new projects. As of December 31, 2016, there is no outstanding balance.

AEI Guatemala Holdings Ltd.

On August 13, 2014, I.C. Power entered into an agreement with AEI Power Ltd. to acquire all of the shares of AEI Guatemala Holdings Ltd for a purchase price of $29 million. On September 17, 2014, I.C. Power completed the acquisition of AEI Guatemala Holdings and paid $29 million to AEI Power Ltd.

On October 22, 2014, I.C. Power paid an additional of $6 million as a result of the post-closing purchase price adjustments, and $350 thousand for reorganization costs. Therefore, the final purchase price of AEI Guatemala Holdings was $35 million.

Identifiable assets acquired and liabilities assumed

The following table summarizes the amounts of the fair values of the identifiable assets acquired and liabilities assumed at their respective acquisition dates:

	AEI Nicaragua			AEI Jamaica			Surpetroil			AEI Guatemala			Total
	$ thousands
Property, plant and equipment		157,211			39,585			15,173			60,896			272,865
Intangible		20,783			3,305			5,168			925			30,181
Deferred income tax assets		2,375			179			201			76			2,831
Trade receivables		29,072			5,998			900			31,939			67,909
Other assets		40,716			24,325			1,835			38,777			105,653
Short-term borrowings		—			(1,722	)		(2,361	)		(17,500	)		(21,583	)
Long-term debt		(115,241	)		(10,199	)		(2,390	)		(23,021	)		(150,851	)
Deferred income tax liabilities		(33,722	)		(1,102	)		(2,671	)		(7,550	)		(45,045	)
Other liabilities		(16,804	)		(9,532	)		(2,901	)		(29,181	)		(58,418	)
Non-controlling interest		(30,618	)		—			(5,182	)		—			(35,800	)
Fair value of net assets acquired		53,772			50,837			7,772			55,361			167,742
Fair value of pre-existing investment		—			(6,044	)		—			—			(6,044	)
Total consideration		(30,121	)		(20,677	)		(18,000	)		(34,918	)		(103,716	)
Gain on bargain purchase		23,651			24,116			—			20,443			68,210
Goodwill*		—			—			10,228			—			10,228

Cash consideration		30,121			20,677			12,000			34,918			97,716
Consideration retained by I.C. Power		—			—			6,000			—			6,000
Total consideration transferred		30,121			20,677			12,000			34,918			97,716
Cash and cash equivalent acquired		(19,310	)		(5,371	)		(168	)		(2,881	)		(27,730	)
Net cash flow on acquisition		10,811			15,306			11,832			32,037			69,986

* This amount is not deductible for tax purposes.

F - 60

Note 11 – Subsidiaries (Cont’d)

Measurement of fair values

I.C. Power has established the fair values of the acquired assets, liabilities, and contingent liabilities considering the fair value basis on March 12, 2014; March 28, 2014; May 30, 2014; and on September 17, 2014, dates in which

I.C. Power took control of AEI Nicaragua Holdings, Surpetroil, AEI Jamaica Holdings and AEI Guatemala Holdings, respectively. The criteria considered to establish the fair value of the main items were the following:

Fixed assets were valued considering the market value established by an appraiser;

Intangibles consider the valuation of its Power Purchase Agreements (PPAs);

Contingent liabilities were determined over the average probability established by third party legal processes;

Deferred tax was valued over the temporary differences between the accounting and tax basis of the business combination; and,

Non-controlling interest was calculated over a proportional basis of the net assets identified on the acquisition date.

Gain of bargain purchase

After reviewing and analyzing the fair values of the Nicaraguan, Jamaican and Guatemalan assets and comparing them to the carrying value, a gain on bargain purchase of $24 million, $24 million and $20 million, respectively, was determined. The differences between fair value and carrying value are derived in principal:

Seller´s need to complete transaction.

Lack of alternative buyers.

Regions low interest from international power players.

Recognition of Revenues and Profit or Loss

During the period from the acquisition date to December 31, 2014, the revenues and profit or loss contributed by these acquired companies to the consolidated results are as follows:

Companies acquired	Control Date	Revenues		Profit (loss)*
		$ thousands
AEI Nicaragua Holdings Ltd	March 12, 2014		124,578		5,874
Surpetroil S.A.S.	March 28, 2014		9,263		1,759
AEI Jamaica Holdings Ltd.	May 30, 2014		40,752		(2,242	)
AEI Guatemala Holdings Ltd.	September 17, 2014		33,302		(1,028	)
Total			207,895		4,363

The amounts included in the Group’s 2014 consolidated financial statements for these acquisitions are immaterial. Also, no pro-forma financial information has been included as effects are immaterial.

* These figures do not include any effect arising from the purchase price allocation adjustments and from non-controlling interest.

F - 61

Note 11 – Subsidiaries (Cont’d)

I.C. Green

On December 9, 2014, I.C. Green Energy (“ICG”) signed an agreement for the sale of all its holdings (about 69%) in the shares of Petrotec AG (“Petrotec”), a public company traded on the Frankfurt stock exchange, to the Renewable Energy Group (“REG”), a public company traded on the NASDAQ. As part of the agreement, REG paid ICG in exchange for Petrotec’s shares, the amount of $20.9 million, by means of an issuance of shares of REG, along with payment of an additional amount in cash, of $15.8 million, in respect of the balance of loans and accrued interest ICG granted to Petrotec.

On December 24, 2014 (“the Closing Date”), all the approvals required for execution of the agreement were received and the Group ceased to control Petrotec.

The fair value of the restricted shares was $18 million. As a result of the sale, the Group reported a capital loss of $5 million in its financial statements.

During 2014, ICG received 2,070,538 REG shares at a price of $10.1133 per share. Due to restrictions on the shares, they were recorded in ICG's books in a value of $18 million.

During 2015, ICG sold 1,380,358 shares in a total sum of $13 million and ICG recorded a finance income of $587 thousand from adjustment of REG shares to fair value.

The value of REG shares in ICG's books as of December 31, 2015 is $6 million and all REG shares were sold as of December 31, 2016.

In 2014, due a lack of sufficient sources of financing for 2015, the Board of Directors of HelioFocus decided to reduce HelioFocus’ activities and to maintain only a minimum number of personnel until new investors are recruited.

As a result, the Group examined the amount of its investment in HelioFocus and decided to write down the balance to the amount of about $1.5 million in 2014, representing the cash equivalents less the pension liabilities. As a result of the write down, the Group recorded a capital loss of $13 million in 2014.

As of December 31,2016, HelioFocus is in process of voluntary liquidation.

As of December 31, 2016, ICG held 90.85% of the shares of Primus Green Energy Inc. (“PGE”). In 2016, ICG granted PGE additional $7.5 million as convertible bridge financing agreement. On December 10, 2016, all of the convertible loans including interest have been consolidated to a convertible bridge financing agreement in the amount of $26 million with interest of 7% annually and will be repayable on June 30, 2017.

PGE’s future is highly dependent on combination of factors, such as the timeliness and successful completion of additional financing; the success of its research and development activities; designing, constructing and operating successful production plants; and continued accessibility to funding from investment agreement with ICG and subject to price of available technologies and energy sources. As a result of above uncertainties, ICG decided to write-off its goodwill in PGE in the amount of $6 million in 2015.

I.C. Power Pte Ltd (now known as I.C. Power Ltd)

On December 13, 2016, I.C. Power Singapore, filed Amendment No.4 to a Registration Statement on Form F-1 with the U.S. Securities and Exchange Commission relating to the proposed initial public offering of ordinary shares of I.C. Power Singapore.

F - 62

Note 11 – Subsidiaries (Cont’d)

The following table summarizes the information relating to each of the Group’s subsidiaries in 2016 and 2015 and combined entities in 2014 that has material NCI:

	As at and for the year ended December 31
	2016												2015												2014
	Samay I.S.A			Nicaragua Energy Holding *			Kallpa Generacion S.A.			Cerro del Aguila S.A.			Samay I.S.A			Nicaragua Energy Holding			Kallpa Generacion S.A.			Cerro del Aguila S.A.			Samay I.S.A			Nicaragua Energy Holding			Kallpa Generacion S.A.			Cerro del Aguila S.A.
	$ thousands
NCI percentage		25.10	%		35.42	%		25.10	%		25.10	%		25.10	%		35.42	%		25.10	%		25.10	%		25.10	%		35.42	%		25.10	%		25.10	%
Current assets		75,485			41,630			108,246			53,843			47,766			43,390			92,120			23,841			138,153			52,850			83,954			128,242
Non-current assets		380,947			144,313			611,928			949,440			344,052			172,917			638,325			847,015			102,668			172,240			645,927			662,055
Current liabilities		(73,846	)		(26,053	)		(55,323	)		(85,935	)		(36,075	)		(22,044	)		(188,291	)		(25,909	)		(18,713	)		(23,376	)		(153,302	)		(25,138	)
Non-current liabilities		(311,030	)		(100,834	)		(511,277	)		(618,219	)		(289,560	)		(121,142	)		(356,900	)		(556,277	)		(144,679	)		(131,327	)		(405,360	)		(460,081	)
Net assets		71,556			59,056			153,574			299,129			66,183			73,121			185,254			288,670			77,429			70,387			171,219			305,078
Carrying amount of NCI		17,961			20,918			38,547			75,081			16,612			25,899			46,499			72,456			19,435			24,931			42,976			76,575

Revenues		40,000			90,017			438,475			49,646			—			111,428			447,679			—			—			124,578			436,673			—
Profit/(loss)		548			7,511			35,820			9			(4,049	)		14,469			44,088			(8,579	)		(311	)		4,472			53,090			6,964
Other comprehensive income/(loss)		4,825			—			—			10,449			(6,057	)		—			(53	)		(1,079	)		(245	)		—			1,150			(6,938	)
Profit attributable to NCI		138			2,660			8,991			2			(1,016	)		5,125			11,066			(2,153	)		(78	)		1,584			13,326			1,748
OCI attributable to NCI		1,211			—			—			2,623			(1,520	)		—			(13	)		(271	)		(62	)		—			289			(1,742	)
Cash flows from operating activities		(1,276	)		17,737			114,838			25,629			—			42,480			120,438			—			—			16,605			116,915			—
Cash flows from investing activities		(60,468	)		(931	)		(16,082	)		(69,372	)		(236,207	)		(5,088	)		(13,589	)		(180,771	)		(88,644	)		19,522			(26,259	)		(247,724	)
Cash flows from financing activities excluding dividends paid to non-controlling interests		—			(4,004	)		(16,943	)		—			138,000			(26,139	)		(91,084	)		95,000			195,135			(20,445	)		(78,982	)		296,868
Dividends paid to non-controlling interests		47,088			(26,440	)		(88,911	)		62,823			—			(4,401	)		(7,530	)		—			—			—			—			—
Effect of changes in the exchange rate on cash and cash equivalents		373			(348	)		198			369			(3,266	)		(489	)		(5,334	)		(2,929	)		(265	)		411			(824	)		—
Net increase/(decrease) in cash equivalents		(14,283	)		(13,986	)		(6,900	)		19,449			(101,473	)		6,363			2,901			(88,700	)		106,226			16,093			10,850			49,144

* Includes Empresa Energética Corinto, Tipitapa Power Company, Centrans Energy Holdings (Amayo) and Arctas Amayo (Fase II).

F - 63

Note 11 – Subsidiaries (Cont’d)

Restrictions

I.C. Power

Inkia´s subsidiaries have no restrictions to transfer cash or other assets to the parent company as long as each subsidiary is in compliance with the covenants derived from the borrowing agreements described in Note 15.

OPC originally had restrictions to transfer cash or paid dividends up to the third anniversary of Construction Completion. On October 13, 2015, OPC and its senior lenders amended this restriction in order to allow OPC to transfer cash and pay dividends, which ended on June 30, 2015. Therefore, on October 19, 2015, OPC paid NIS 295 million (equivalent to $77 million). Out of this total, NIS 222 million (equivalent to $58 million) was paid as repayment of capital notes and NIS 73 million (equivalent to $19 million) as intercompany loan.

Inkia has restrictions to transfer cash or other assets to I.C. Power. Pursuant to its senior notes agreement, dividend payments are treated as restricted payments and are subject to mainly the following conditions:

• Inkia is able to incur at least $1.00 of additional indebtedness pursuant to satisfying a covenant test (unconsolidated interest coverage ratio is equal or greater than 2.0 to 1.0); and

• The amount (dividend payments) cannot exceed the sum of: 100% of cumulative consolidated net income of I.C. Power accrued on a cumulative basis, beginning on January 1, 2011 to the end of the most recent fiscal quarter, deducting any non-cash charges or expense (other than depreciation and amortization), non-cash gains and the cumulative effect of changes in accounting principles.

Note 12 – Deposits, Loans and Other Receivables, including Derivative Instruments

Composition:

	As at December 31
	2016		2015
	$ thousands
Deposits in banks and others – restricted cash		16,690		16,521
Long-term trade receivable		10,120		—
Financial derivatives not used for hedging		1,342		2,863
Tower-series 9 options		—		12,175
Income tax receivables and tax claims (1)		99,892		19,669
Other receivables (2)		48,731		37,247
		176,775		88,475

(1)

As at December 31, 2016 and 2015, the income tax receivable and tax claims – non-current distribution is as follows:

	As at December 31
	2016		2015
	$ thousands
Energuate tax claim (See Note 20.B.f)		80,192		—
Kallpa tax claim (See Note 20.B.d)		9,709		9,550
Income tax credit from Nicaraguan companies		5,694		5,815
Income tax credit from PQP		3,996		4,304
Other		301		—

		99,892		19,669

(2)

As of December 31, 2016 and 2015, other receivables correspond mainly to the VAT incurred in the construction of Cerro del Aguila and Samay I (“Puerto Bravo”) power plants and non-current prepaid expenses in OPC. In 2016, both power plants have the tax benefit of recovering the VAT incurred during the construction stage on a regular basis.

F - 64

Note 13 – Property, Plant and Equipment, Net

Composition

	As at December 31, 2016
	Balance at beginning of year		Additions		Disposals			Differences in translation reserves		Acquisition as part of business combination		Transfers and Reclassifications			Balance at end of year
	$ thousands
Cost
Land, roads, buildings and leasehold improvements		288,538		7,759		(1,244	)		629		2,441		743,600			1,041,723
Installations, machinery and equipment		1,840,754		46,652		(35,616	)		7,350		—		586,439			2,445,579
Dams		138,310		159		(965	)		—		—		26,965			164,469
Office furniture and equipment and motor vehicles		52,124		25,866		(8,958	)		12,129		375,063		(872	)		455,352
		2,319,726		80,436		(46,783	)		20,108		377,504		1,356,132			4,107,123
Plants under construction		1,260,375		217,278		(167	)		385		7,839		(1,354,532	)		131,178
Spare parts for installations		44,299		20,139		(477	)		281		7,152		(2,540	)		68,854
		3,624,400		317,853		(47,427	)		20,774		392,495		(940	)		4,307,155

Accumulated depreciation
Land, roads, buildings and leasehold improvements		71,953		13,169		(1,434	)		48		—		1			83,737
Installations, machinery and equipment		530,324		123,275		(16,512	)		970		—		(263	)		637,794
Dams		46,764		1,742		(121	)		—		—		—			48,385
Office furniture and equipment and motor vehicles		21,538		20,591		(2,665	)		212		—		263			39,939
		670,579		158,777		(20,732	)		1,230		—		1			809,855

Balance as at December 31, 2016		2,953,821		159,076		(26,695	)		19,544		392,495		(941	)		3,497,300

Prepayments on account of property, plant & equipment		6,057														—
		2,959,878														3,497,300

F - 65

Note 13 – Property, Plant and Equipment, Net (Cont’d)

	As at December 31, 2015
	Balance at beginning of year		Additions		Disposals			Differences in translation reserves			Acquisition as part of business combination		Transfers and Reclassifications			Balance at end of year
	$ thousands
Cost
Roads, buildings and leasehold improvements		280,618		4,792		(144	)		(503	)		—		3,775			288,538
Installations, machinery and equipment		1,779,476		35,148		(5,775	)		(4,954	)		—		36,859			1,840,754
Dams		138,260		—		(929	)		—			—		979			138,310
Office furniture and equipment, motor vehicles and other equipment		43,381		9,140		(1,866	)		(508	)		—		1,977			52,124
		2,241,735		49,080		(8,714	)		(5,965	)		—		43,590			2,319,726
Plants under construction		789,681		477,231		(176	)		(393	)		8,981		(14,949	)		1,260,375
Spare parts for installations		27,084		48,078		(116	)		(40	)		—		(30,707	)		44,299
		3,058,500		574,389		(9,006	)		(6,398	)		8,981		(2,066	)		3,624,400

Accumulated depreciation
Roads, buildings and leasehold improvements		64,473		6,744		(34	)		(56	)		—		826			71,953
Installations, machinery and equipment		429,499		102,214		(2,077	)		(677	)		—		1,365			530,324
Dams		45,489		1,499		(224	)		—			—		—			46,764
Office furniture and equipment, motor vehicles and other equipment		20,829		3,499		(1,661	)		(95	)		—		(1,034	)		21,538
		560,290		113,956		(3,996	)		(828	)		—		1,157			670,579
		2,498,210		460,433		(5,010	)		(5,570	)		8,981		(3,223	)		2,953,821

Prepayments on account of property, plant & equipment		4,577															6,057
		2,502,787															2,959,878

Net carrying values

	As at December 31
	2016		2015
	$ thousands
Roads, buildings and leasehold improvements		957,986		216,585
Installations, machinery and equipment		1,807,785		1,310,430
Dams		116,084		91,546
Office furniture and equipment, motor vehicles and other equipment		415,413		30,586
Plants under construction		131,178		1,260,375
Spare parts for installations		68,854		44,299
		3,497,300		2,953,821

(1)

During the period ended December 31, 2016, the Group acquired assets with a cost of $319 million, mainly for the construction of the Cerro del Aguila and Samay facilities and acquired assets for an amount of $392 million in relation to Estrella Corporation BA business combination (See Note 11.A.1.a).

(2)	During the period ended December 31, 2015, the Group acquired assets with a cost of $576 million and $9 million in relation to AIE business combinations (See Note 11.A.1.b).

F - 66

Note 13 – Property, Plant and Equipment, Net (Cont’d)

(3)

In April 2016, Kanan’s 92 MW thermal generation project reached their commercial operation (“COD”).

(4)

In May 2016, the four operating units of Samay I were declared operational. In July 2016, the plant demonstrated above normal operational indicators. Personnel from Samay, Posco (“EPC Contractor”) and General Electric (“GE”) inspected the units. Those inspections revealed structural damage to three of the four plant units, as compressor and generators shafts were damaged. All four units were declared unavailable to the system. Additionally, Government entities (Ministry of Energy and Mines and “OSINERGMIN”) were informed of the force majeure event as well as the Lenders and the Insurance counterparties were informed of the occurrences.

The total net carrying value of the identified damaged parts from Units 2, 3 and 4 amounts to $14.2 million and these damaged parts were determined to have no future or disposal value. Consequently, during 2016, Samay I recognized an impairment charge for the net carrying value of these assets.

Samay I´s management has developed a plan to repair the units, and, based upon current estimates, it is expected that all four units should be operational within the next six months. Samay I´s management intends to seek coverage for the costs of the outage, including repair costs and loss of profits, as appropriate, from the EPC contractor, equipment manufacturer and/or the insurance coverage (subject to deductibles), and believes there is a reasonable basis to recover these costs, including for loss of profits. The EPC Contract establishes that the cost of remedying any defects in order to provide Samay with a fully functional plant are to be borne by the EPC Contractor, unless proven by the EPC Contractor that the cause of failure was not attributable to it. In addition, Samay I carries a property damage and business interruption insurance coverage for its assets to protect against all risks of direct physical loss or damage including machinery breakdown, earthquake and other main risks associated with the operation of the plant. The coverage includes (1) property damage with a limit of $293.5 million and (2) business interruption with a 18-month indemnity period with a limit of $72.6 million. Samay’s management deems that this event is covered by the insurance policy. Therefore, as of December 31, 2016, it recognized a receivable of $8.8 million representing the original amount of $14.2 million equivalent to the value of the damaged parts less the value of replacements parts and net of the insurance deductibles, see Note 8.

(5)

On August 3, 2016, two out of the three units of CDA were declared fully operational. On August 25, 2016, the third generating unit of CDA was declared fully operational, reaching the COD of the power plant. With the completion of this unit, CDA is now capable of generating 545MW as of December 31, 2016.

When there is any indication of impairment, the Group’s entities perform impairment tests for their long lived assets using fair values less cost to sell based on independent appraisals or value in use estimations, with similar assumptions as those described (Note 14.D).

D. The amount of borrowing costs capitalized during 2016 was $14 million ($32 million during 2015).

F - 67

Note 13 – Property, Plant and Equipment, Net (Cont’d)

In I.C. Power, property, plant and equipment includes assets acquired through financing leases. As at December 31, 2016 and 2015, the cost and corresponding accumulated depreciation of such assets are as follows:

	As of December 31, 2016							As of December 31, 2015
	Cost		Accumulated depreciation			Net cost		Cost		Accumulated Depreciation			Net cost
	$ thousands
Land, roads, buildings and leasehold improvements		42,288		(6,602	)		35,686		42,281		(5,545	)		36,736
Installations, machinery and equipment		275,852		(117,368	)		158,484		275,674		(104,401	)		171,273
Motor vehicles		410		(46	)		364		—		—			—
		318,550		(124,016	)		194,534		317,955		(109,946	)		208,009

The composition of the depreciation expense is as follows:

	As at December 31
	2016			2015
	$ thousands
Depreciation charged to results		159,379			114,855
Depreciation charged to fixed assets*		(602	)		(899	)
		158,777			113,956

*Depreciation expenses on motor vehicles of projects under construction (CDA and Samay I) are capitalized.

	As at December 31
	2016		2015
	$ thousands
Depreciation charged to cost of sales		154,071		105,725
Depreciation charged to general, selling and administrative expenses		5,308		9,130
Depreciation charged to results		159,379		114,855
Amortization of intangibles charged to cost of sales		5,624		5,192
Amortization of intangibles charged to general, selling and administrative expenses		7,378		—
Depreciation and amortization		172,381		120,047

The Group has fully depreciated assets that are still in operation. As at December 31, 2016, the original cost of such assets was $134 million ($88 million as at December 31, 2015).

F - 68

Note 14 – Intangible Assets, Net

Composition:

	Goodwill		Concessions licenses*		Customer relationships**		Software			Others***			Total
	$ thousands
Cost
Balance as at January 1, 2016		79,581		—		41,074		1,776			68,806			191,237
Acquisitions as part of business combinations		37,102		189,351		—		—			5,796			232,249
Acquisitions – self development		—		—		—		138			9,331			9,469
Disposals		—		—		—		(153	)		—			(153	)
Reclassification		—		—		—		—			(161	)		(161	)
Translation differences		867		—		—		10			125			1,002
Balance as at December 31, 2016		117,550		189,351		41,074		1,771			83,897			433,643

Amortization and impairment
Balance as at January 1, 2016		21,455		—		16,888		937			4,713			43,993
Amortization for the year		—		5,434		4,054		227			3,287			13,002
Disposals		—		—		—		(153	)		—			(153	)
Translation differences		—		—		—		4			19			23
Balance as at December 31, 2016		21,455		5,434		20,942		1,015			8,019			56,865

Carrying value
As at January 1, 2016		58,126		—		24,186		839			64,093			147,244
As at December 31, 2016		96,095		183,917		20,132		756			75,878			376,778

It corresponds to the fair value of DEORSA’s and DEOCSA’s concessions, which were granted by the Ministry of Energy and Mines of Guatemala - MEM in 1998 to DEORSA and DEOCSA to operate power distribution business in defined geographic areas for a term of 50 years. The remaining useful lives of DEORSA and DEOCSA’s concessions to operate in their respective defined geographic areas are each 33 years.

**	Comprise mainly identified intangible assets as a result of the business combination such as the acquisition of “customer relationships” and others in the purchase of its subsidiaries and associates.

***

Includes development cost which corresponds to expenditures incurred in the design and evaluation of future power plant facilities in the countries in which the Company currently operates. These projects have different level of advance such as: temporal concessions, environmental impact studies in process and others .

Balance mainly corresponds to cost incurred in the construction and improvements of public access roads in connection with CDA project, and the development costs of two hydroelectrical projects in Peru and two thermal projects in Chile.

F - 69

Note 14 – Intangible Assets, Net (Cont’d)

Composition (Cont’d):

	Goodwill			Customer relationships*		Software			Others **			Total
	$ thousands
Cost
Balance as at January 1, 2015		81,484			41,074		1,522			53,459			177,539
Acquisitions as part of business combinations		119			—		—			464			583
Acquisitions – self development		—			—		194			15,070			15,264
Disposals		—			—		(8	)		—			(8	)
Reclassification		—			—		71			(177	)		(106	)
Translation differences		(2,022	)		—		(3	)		(10	)		(2,035	)
Balance as at December 31, 2015		79,581			41,074		1,776			68,806			191,237

Amortization and impairment
Balance as at January 1, 2015		15,537			12,591		709			4,031			32,868
Amortization for the year		—			4,297		214			681			5,192
Acquisitions – business combination		—			—		—			—			—
Disposals		—			—		(8	)		—			(8	)
Reclassification		—			—		22			—			22
Impairment		5,918			—		—			—			5,918
Translation differences		—			—		—			1			1
Balance as at December 31, 2015		21,455			16,888		937			4,713			43,993

Carrying value
As at January 1, 2015		65,947			28,483		813			49,428			144,671
As at December 31, 2015		58,126			24,186		839			64,093			147,244

*	Comprise mainly identified intangible assets as a result of the business combination such as the acquisition of “customer relationships” and others in the purchase of its subsidiaries and associates.

The total carrying amounts of intangible assets with a finite useful life and with an indefinite useful life or not yet available for use

	As at December 31
	2016		2015
	$ thousands
Intangible assets with a finite useful life		280,683		25,673
Intangible assets with an indefinite useful life or not yet available for use		96,095		121,571
		376,778		147,244

F - 70

Note 14 – Intangible Assets, Net (Cont’d)

Examination of impairment of cash generating units containing goodwill

For the purpose of testing impairment, goodwill is allocated to the Group’s cash-generating units that represent the lowest level within the Group at which the goodwill is monitored for internal management purposes.

Goodwill arises from the following Group entities in I.C. Power (cash generating unit):

	As at December 31
	2016		2015
	$ thousands

Nejapa		40,693		40,693
Kallpa		10,934		10,934
Energuate*		37,651		—
Surpetroil*		6,699		6,383
AIE*		118		116
		96,095		58,126

* Goodwill in Colombia’s, Israel’s and Guatamalan’s subsidiaries recorded in Columbian pesos, New Israeli shekels and Guatamalan Quetzales, respectively; translated into US dollars at the exchange rate at the reporting date.

Impairment testing

The recoverable amount of each CGU is based on the estimated value in use using discounted cash flows. The cash flows are derived from the 5-year budget.

The key assumptions used in the estimation of the recoverable amount are shown below. The values assigned to key assumptions represent management of the Group´s assessment of future trends in the power sector and have been based on historic data from external and internal sources.

	2016		2015
Discount rate	In percent
Peru		6.7		7.4
Energuate		8.9		—
El Salvador		9.8		10.0
Colombia		8.2		9.2
Terminal value growth rate		2		1.2-2.0

The discount rate is a post-tax measure based on the characteristics of each CGU with a possible debt leveraging of 32% in 2016 and of 48% in 2015.

The cash flow projections included specific estimates for five years and a terminal growth rate thereafter. The terminal growth rate was determined based on management´s estimate of the long term inflation

In addition to the discount and growth rates, the key assumptions used to estimate future cash flows, based on past experience and current sector forecasts, are as follows:

•

Existing power purchase agreements (PPAs) signed and existing number of customers

F - 71

Note 14 – Intangible Assets, Net (Cont’d)

•

Investment schedule—I.C. Power Management has used the updated investment schedule in countries in which those companies operate, in order that the supply satisfies the demand growth in an efficient manner.

•

The production mix of each country was determined using specifically-developed internal forecast models that consider factors such as prices and availability of commodities, forecast demand of electricity, planned construction or the commissioning of new capacity in the country’s various technologies.

•

The distribution business profits were determined using specifically-developed internal forecast models that consider factors such as forecasted demand, fuel prices, energy purchases, collection rates, percentage of losses, quality service improvement, among others.

•

Fuel prices have been calculated based on existing supply contracts and on estimated future prices including a price differential adjustment specific to every product according to local characteristics.

•

Assumptions for energy sale and purchase prices and output of generation facilities are made based on complex specifically-developed internal forecast models for each country.

•

Demand—Demand forecast has taken into consideration the most probable economic performance as well as growth forecasts of different sources.

•

Technical performance—The forecast takes into consideration that the power plants have an appropriate preventive maintenance that permits their proper functioning and the distribution business has the required capital expenditure to expand and perform properly in order to reach the targeted quality levels.

Sensitivity to changes in assumptions

With regard to the assessment of value in use of the CGUs, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of Nejapa, Kallpa, AIE, Energuate and Surpetroil to materially exceed its recoverable amount.

Note 15 – Loans and Debentures

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 31, in connection with financial instruments.

	As at December 31
	2016			2015
	$ thousands
Current liabilities
Short-term credit:
Short-term loans from banks and financial institutions		213,417			179,317
		213,417			179,317
Current maturities of long-term liabilities:
Loans from banks and financial institutions		251,803			132,222
Non-convertible debentures		10,617			15,400
Liability in respect of financing lease		6,976			25,729
		269,396			173,351
Total current liabilities		482,813			352,668
Non-current liabilities
Loans from banks and financial institutions		1,903,323			1,550,480
Non-convertible debentures		867,287			671,247
Liability in respect of financing lease		88,169			163,774
Other long-term balances*		240,213			152,760
Total other long-term liabilities		3,098,992			2,538,261
Less current maturities		(269,396	)		(173,351	)
Total non-current liabilities		2,829,596			2,364,910

*	Included in the Other long-term balances were mainly the loan payable of $224 million to IC (See Note 1.B.1.b) and $16 million to Ansonia (See Note 10.C.b.5).

F - 72

Note 15 – Loans and Debentures (Cont’d)

A. Composition of I.C. Power loans from Banks and Others (Cont’d)

						As at				As at
						December 31,2016				December 31,2015
						$ thousands
	Nominal annual Interest rate		Currency	Maturity		Current		Non-Current		Current		Non-Current
Short-term loans from banks
I.C. Power Distribution Holdings
Credit Suisse (D)	LIBOR + 4%		USD	2017			119,487		—		117,334		—
Samay
Interbank		2.9%	USD		2017		31,945		—		—		—
DEOCSA
Various entities	LIBOR + 4.75%		USD		2017		18,000		—		—		—
DEORSA
Various entities	LIBOR + 4.75%		USD		2017		12,000		—		—		—
CDA
Banco de Crédito del Perú		0.83%	USD		2017		14,000		—		—		—
PQP
Banco Industrial Guatemala		4.75%	USD		2017		6,000		—		—		—
Cobee
Various entities		4.2% / 5.5%	BOB		2016/2017		4,499		—		4,525		—
Nejapa
Nejapa
Scotiabank El Salvador		5.50%	USD		2017		4,200		—		5,000		—
Banco America Central		4.25%	USD		2016		—		—		1,200		—
Empresa Energética Corinto Ltd
Banco de América Central (BAC)		5.25%	USD		2017		1,586		—		—		—
Cepp
Scotiabank		2.4%	USD		2017		1,000		—		—		—
BHD Bank		2.53%	USD		2017		200		—		3,000		—
Surenergy
Banco Davivienda	DTF + 4.5%		COP		2017		500		—		—		—
Kallpa Generación
Banco de Crédito del Perú		0.69%	USD		2016		—		—		30,000		—
Scotiabank Perú		0.63%	USD		2016		—		—		15,000		—
Surpetroil
Various entities	DTF+2.95%/4.15%		COP		2016/2015		—		—		2,069		—
Various entities	IBR+4.25%		COP		2016/2015		—		—		2,069		—
Cenergica
Banco America Central		4.25%	USD		2016		—		—		700		—
I.C. Power Chile Inv
Scotiabank	TAB + 1.20%		CLP		2016		—		—		489		—
Subtotal							213,417		—		179,317		—

F - 73

Note 15 – Loans and Debentures (Cont’d)

A. Composition of I.C. Power loans from Banks and Others (Cont’d)

				As at				As at
				December 31,2016				December 31,2015
				$ thousands
	Nominal annual Interest rate	Currency	Maturity	Current		Non-Current		Current		Non-Current
Loans from Banks and others
Financial institutions:
Cerro del Aguila (E)
Tranche A	LIBOR+4.25% - LIBOR +5.50%	USD	2024		15,344		320,437		4,199		306,064
Tranche B	LIBOR+4.25% - LIBOR +6.25%	USD	2024		—		180,896		2,261		164,803
Tranche 1D	LIBOR+2.75% - LIBOR +3.60%	USD	2024		1,760		38,697		519		37,827
Tranche 2D	LIBOR+2.75% - LIBOR +3.60%	USD	2027		—		21,959		280		20,369
Samay I (F)
Sumitomo /HSBC / Bank of Tokyo	LIBOR+2.125% - LIBOR +2.625%	USD	2021		5,047		302,247		3,030		282,369
Central Cardones (G)
Tranche One
BCI / Banco Itaú	LIBOR+1.90%	USD	2021		3,781		18,228		3,535		22,008
Tranche Two
BCI / Banco Itaú	LIBOR+2.75%	USD	2021		—		13,383		—		17,884
Colmito (H)
Banco Bice	7.90%	CLP	2028		625		16,121		524		15,799
Consorcio Eólico Amayo, S.A. (I)
Banco Centroamericano de Integración Económica	8.45% - LIBOR +4%	USD	2023		5,307		37,376		4,428		42,704
Consorcio Eólico Amayo (Fase II), S.A. (J)
Various entities	LIBOR+5.75%, 8.53%,10.76%	USD	2025		3,029		28,250		2,930		31,279
Empresa Energética Corinto, Ltd.
Banco de América Central (BAC)	8.35%	USD	2018		3,124		3,402		2,865		6,527
Tipitapa Power Company, Ltd.
Banco de América Central (BAC)	8.35%	USD	2018		2,801		3,328		2,568		6,130
Jamaica Private Power Company
Royal Bank of Canada	LIBOR + 5.50%	USD	2017		824		—		4,011		—
Burmeister & Wain Scandinavian Contractor A/S	3.59%	USD	2018		338		233		326		571
PQP (K)
Banco Industrial	LIBOR + 4.50%	USD	2019		—		—		4,268		10,743
PQP (K)
Banco Industrial	LIBOR + 4.50%	USD	2021		2,374		9,632		—		—
Surpetroil S.A.S
Banco de Occidente S.A	IBR + 5.87%	COP	2018		504		375		—		—
Banco Pichincha	DTF + 3%	COP	2017		100		—		128		95

F - 74

Note 15 – Loans and Debentures (Cont’d)

A. Composition of I.C. Power loans from Banks and Others (Cont’d)

				As at				As at
				December 31,2016				December 31,2015
				$ thousands
	Nominal annual Interest rate	Currency	Maturity	Current		Non-Current		Current		Non-Current
Kanan ( L )
Scotiabank	LIBOR + 3.5%	USD	2021		46,094		—		—		—
Overseas Investments Peru (M)
Credit Suisse	LIBOR + 5%-6.5%	USD	2017		97,274		—		—		—
Kallpa Generación (N)
Syndicated Loan—Various entities	LIBOR+6.00%	USD	2019		—		—		17,384		41,279
DEORSA (O)
Syndicated Loan – various banks	LIBOR + 4.7% - LIBOR + 4.75%	USD	2021/2025		10,167		67,857		—		—
Syndicated Loan - various banks	TAPP minus 5.6% - TAPP minus 6.1%	GTQ	2021/2025		4,687		30,653		—		—
DEOCSA (P)
Syndicated Loan – various banks	LIBOR + 4.7% - LIBOR + 4.75%	USD	2021/2025		16,876		107,488		—		—
Syndicated Loan - various banks	TAPP minus 5.6% - TAPP minus 6.1%	GTQ	2021/2025		6,215		43,127		—		—
RECSA (Q)
Banco G&T Continental	TAPP + 6.63%	GTQ	2020		931		3,722		—		—
OPC Rotem Ltd
Lenders Consortium (R)	4.85%-5.36%	NIS	2031		20,290		344,240		16,272		360,295
Veolia Energy Israel Ltd. (S)		NIS	2016		—		—		5,080		—
I.C. Power Israel Ltd (T)
Facility A—Amitim and Menora Pension Funds	4.85%-/7.75%	NIS	2017		—		—		41,313		—
Facility B—Amitim and Menora Pension Funds	7.75%	NIS	2029		4,311		47,425		4,251		51,020
ICPAD
Bank Hapoalim New York	0.75%	USD	2019		—		12,000		12,000		—
AGS
Veolia Energy Israel Ltd		NIS	2019		—		444		—		414
Sub total					251,803		1,651,520		132,172		1,418,180

F - 75

Note 15 – Loans and Debentures (Cont’d)

A. Composition of I.C. Power loans from Banks and Others (Cont’d)

				As at				As at
				December 31,2016				December 31,2015
				$ thousands
	Nominal annual Interest rate	Currency	Maturity	Current		Non-Current		Current		Non-Current
Liabilities in respect of finance leases:
Kallpa Generación
Banco de Crédito del Perú/ Citibank (V)	LIBOR+3.00%	USD	2016		—		—		2,334		—
Banco de Crédito del Perú (W)	LIBOR+2.05%	USD	2017		—		—		8,802		19,865
Scotiabank Perú (X)	7.57%	USD	2018		—		—		7,508		30,248
Banco de Crédito del Perú (Y)	7.15%	USD	2023		6,624		81,193		6,624		87,816
Surpetroil S.A.S.
Banco de Occidente S.A.	DTF + 3.5%	COP	2017		223		—		461		116
DEORSA
Arrendadora Agromercantil	TAPP minus 2.47%	GTQ	2017		129		—		—		—
					6,976		81,193		25,729		138,045
Sub total					258,779		1,732,713		157,901		1,556,225
Debentures
Cobee
Bonds Cobee III-1B (Z)	6.50%	USD	2017		1,750		—		1,750		1,750
Bonds Cobee III-1C (bolivianos) (Z)	9.00%	BOB	2020		1,586		4,757		—		6,343
Bonds Cobee III-2 (Z)	6.75%	USD	2017		5,000		—		—		5,000
Bonds Cobee III-3 (bolivianos) (Z)	7.00%	BOB	2022		—		6,160		—		6,160
Bonds Cobee IV-1A (AA)	6.00%	USD	2018		—		3,988		—		3,977
Bonds Cobee IV-1B (AA)	7.00%	USD	2020		—		3,980		—		3,972
Bonds Cobee IV-1C (bolivianos) (AA)	7.80%	BOB	2024		—		12,030		—		12,023
Cobee Bonds-IV Issuance 3 (AA)	6.70%	USD	2019		—		4,973		—		4,961
Cobee Bonds-IV Issuance 4 (bolivianos) (AA)	7.80%	BOB	2024		—		15,039		—		15,035
Cobee Bonds-IV Issuance 5 (bolivianos) (AA)	5.75%	BOB	2026		1,950		17,697		—		—
Inkia Energy Ltd
Inkia Bonds (BB)	8.38%	USD	2021		—		447,904		—		447,524
Kallpa Generación
Kallpa Bonds (CC)	8.50%	USD	2022		—		—		13,650		135,455
Kallpa Generación
Kallpa Bonds (DD)	4.88%	USD	2026		—		325,970		—		—
Cepp
Cepp Bonds (EE)	6.00%	USD	2019		—		9,945		—		9,924
					10,286		852,443		15,400		652,124
Cobee
Cobee Bonds (Premium)		USD-BOB	2017-2024		331		4,227		—		3,723
Subtotal					10,617		856,670		15,400		655,847
Total					482,813		2,589,383		352,618		2,212,072

F - 76

Note 15 – Loans and Debentures (Cont’d)

A. Composition of I.C. Power loans from Banks and Others (Cont’d)

DTF:

“ Depósitos a Término Fijo ”. Fixed-term deposits rate calculated by Colombia’s Central Bank.

IBR: “ Indicador Bancario de Referencia ”. Bank Indicator of Reference calculated by Colombia’ s Central Bank.

TAB: “ Tasa Activa Bancaria ”. Short-term credits average interest rate calculated by Chile’s Bank’s Association.

TRE:

“Tasa de Referencia” . Weighted average for time deposits rates, calculated by Bolivia’s Central Bank.

B. Classification based on currencies and interest rates

	Weighted-average interest rate December 31			As at December 31
	2016			2016		2015
	%			$ thousands
Current liabilities (without current maturities)

Short-term loans from financial institutions
In dollars		5.61	%		208,418		172,234
In other currencies		5.23	%		4,999		7,083
					213,417		179,317

Non-current liabilities (including current maturities)

Debentures
In dollars		6.54	%		804,052		629,014
In other currencies		5.37	%		63,235		42,233
					867,287		671,247
Loans from financial institutions (including financing lease)
In dollars		5.87	%		1,467,369		1,043,289
In shekels		5.35	%		416,710		490,645
In quetzales		7.29	%		89,464		—
In other currencies		6.25	%		17,948		16,546
					1,991,491		1,550,480
					2,858,778		2,221,727

C.	Liability in respect of financing lease

Information regarding the financing lease liability broken down by payment dates is presented below:

	As at December 31, 2016						As at December 31, 2015
	Minimum future lease rentals		Interest component		Present value of minimum lease rentals		Minimum future lease rentals		Interest component		Present value of minimum lease rentals
	$ thousands

Less than one year		13,016		6,040		6,976		35,501		9,772		25,729
From one year to five years		85,849		19,217		66,632		134,976		26,053		108,923
More than five years		15,207		646		14,561		31,454		2,332		29,122
		114,072		25,903		88,169		201,931		38,157		163,774

F - 77

Note 15 – Loans and Debentures (Cont’d)

Short-term loans from banks

Credit Suisse — On December 29, 2015, I.C. Power Distribution Holdings Pte. Ltd., together with certain of its subsidiaries, executed a one-year secured credit agreement with Credit Suisse AG in an aggregate principal amount of $120 million to finance a portion of the acquisition of Estrella Cooperatief B.A. The loan under this facility bears interest on a quarterly basis at LIBOR plus a margin of 4% per annum and was secured with the shares of Estrella Cooperatief B.A. For additional information see Note 11.A.1.a. On December 21, 2016, I.C. Power Distribution extended the maturity date of this loan to June 29, 2017.

As of December 31, 2016, the outstanding principal amount under this facility was $120 million. ($117 million as of December 31, 2015).

Long term loans from banks and others

In August 2012, CDA, as borrower, Sumitomo Mitsui Banking Corporation, as administrative agent, Sumitomo Mitsui Banking Corporation, as SACE agent, the Bank of Nova Scotia, as Offshore Collateral Agent, Scotiabank Perú, S.A.A., as onshore collateral agent, and certain financial institutions, as lenders, entered into a senior secured syndicated credit facility for an aggregate principal amount not to exceed $591 million to finance the construction of CDA’s project. Loans under this facility will be disbursed in three tranches.

The loans under this credit agreement are secured by CDA’s power plant and related assets, comprise three tranches and bear interest payable on quarterly basis in arrears at a rate of LIBOR plus a margin. The margin applicable to each tranche is as follows:

		Amount*		From July 2014			From August 2017			From August 2020			From August 2023
Tranche		($)		to August 2017			to August 2020			to August 2023			to maturity
	A		341,843		4.25	%		4.75	%		5.25	%		5.50	%
	B		184,070		4.25	%		5.00	%		5.75	%		6.25	%
	D		65,000		2.75	%		3.25	%		3.60	%		3.60	%

* Up to

Tranche A loans under this facility, in an aggregate principal amount of up to $342 million, will initially bear interest at the rate of LIBOR plus 4.25% per annum, increasing over time beginning on the date after the interest payment date occurring after August 17, 2017 to LIBOR plus 5.50% per annum from the date after the interest payment date occurring after August 17, 2023 through maturity. Principal of the Tranche A loans will be payable in 33 quarterly installments commencing on the first quarterly payment date occurring after the project acceptance by CDA. Tranche A loans will be guaranteed by Corporación Financiera de Desarollo S.A. (COFIDE).

Tranche B loans under this facility, in an aggregate principal amount of up to $184 million, will initially bear interest at the rate of LIBOR plus 4.25% per annum, increasing over time beginning on the date after the interest payment date occurring after August 17, 2017 to LIBOR plus 6.25% per annum from the date after the interest payment date occurring after August 17, 2023 through maturity. Principal of the Tranche B loans are payable on August 17, 2024. Tranche B loans are guaranteed by COFIDE.

F - 78

Note 15 – Loans and Debentures (Cont’d)

Tranche D loans under this facility, in an aggregate principal amount of up to $65 million, are divided in two parts: Tranche 1D, in an aggregate principal amount of up to $42 million and Tranche 2D, in an aggregate principal amount of up to $23 million. Both parts will initially bear interest at the rate of LIBOR plus 2.75% per annum, increasing over time beginning on the date the interest payment date occurring after August 17, 2017 to LIBOR plus 3.60% per annum from the date after the interest payment date occurring after August 17, 2023 through maturity. Principal of Tranche 1D and Tranche 2D will be payable in 33 and 12 quarterly installments, respectively. Tranche 1D payments will commence on the first quarterly payment date occurring after the project acceptance by CDA and Tranche 2D payments will commence 33 quarters after project acceptance by CDA. All Tranche D loans are secured by a credit insurance policy provided by SACE S.p.A. – Servizi Assicurativi del Commercio Estero, or SACE.

On August 17, 2013 CDA entered into interest rate swap closings: 100% of Tranche A was swapped at a fixed all-in interest rate of 7.2450% until August 2024 and 50% of Tranche B was swapped at a fixed all-in interest rate of 5.3777% until February 2016.

As of December 31, 2016, CDA has received proceeds from these facilities in the aggregate amount of $591 million ($44 million, $85 million and $319 million during 2016, 2015 and 2014 respectively). The outstanding balance under this Syndicated loan was $587 million. This amount is shown net of $8 million of transaction costs.

In December 2014, Samay I S.A. signed a project finance credit agreement with: The Bank of Tokyo-Mitsubishi, Sumitomo Mitsui Banking Corporation and HSBC Bank in order to finance $311 million, approximately 82% of the total cost of the project. This loan will initially bear interest at the rate of LIBOR plus 2.125% per annum, increasing to LIBOR plus 2.375% in December 2017 and to LIBOR plus 2.625% in December 2020 through maturity in December 2021. On December 18, 2014 Samay entered into an interest rate swap closing at a fixed all-in interest rate of 2.919% (Libor at 0.794 plus 2.125%) for 40% of total notional and only during the construction period. On September 16, 2015 Samay entered into an interest rate swap closing at a fixed all-in interest rate of 4.2343% for 93% of total notional beginning after the construction period. Samay has received proceeds from this facility in the aggregate amount of $ million311 million ($20 million, $138 million and $153 million, during 2016, 2015 and 2014, respectively). This amount is shown net of $4 million of transaction costs.

In relation to Inkia´s acquisition of Central Cardones in December 2011, Inkia consolidated the amounts outstanding under Central Cardones’ credit agreement entered with Banco de Crédito e Inversiones and Banco Itaú Chile. The loans under this credit agreement were issued in two tranches of $38 million and $21 million, respectively. Loans under the first tranche bear interest at the rate of LIBOR plus 1.9% per annum, and the principal of this tranche is payable in 20 semi-annual installments through maturity in August 2021. Interest rate under these loans is swapped at an all-in rate of 6.80%. Loans under the second tranche bear interest semi-annually at the rate of LIBOR plus 2.75% per annum, increasing to LIBOR plus 3.75% per annum in March 2017, and the loan matures in August 2021. As of December 31, 2016, the outstanding principal amount under these loans was $35 million ($43 million as of December 31, 2015).

In January 2014, Colmito Spa signed a credit agreement with Banco Bice in an aggregate amount of Chilean pesos 12,579 million ($23 million). This loan bears an interest rate of 7.9% in Chilean pesos and is paid semiannually until final maturity in December 2028. In February 2014 Colmito entered into a cross currency swap closing at a fixed interest rate of 6.025% in U.S. Dollars. As of December 31, 2016, the outstanding balance under this loan was $17 million ($16 million as of December 31, 2015).

Consorcio Eolico Amayo S.A. – In October 2007, Amayo I entered into a 15 year $71 million loan agreement with Banco Centroamericano de Integración Economica (CABEI). This loan is secured by a first degree mortgage over all the improvements executed on Amayo I´s project site, cessation of all the project contracts and the creation and maintenance of a reserve account for $2 million, to be controlled by CABEI. Part of this loan ($50 million) bears an interest rate of 8.45% and the other part ($21 million) an interest rate of LIBOR+4%, and is payable in quarterly installments until final maturity in February 2023. As of December 31, 2016, the outstanding balance under this loan was $43 million ($47 million as of December 31, 2015).

F - 79

Note 15 – Loans and Debentures (Cont’d)

Consorcio Eolico Amayo (Fase II) S.A. – In November 2010, Amayo II entered into a 15 year $45 million loan agreement with Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V (FMO) Banco Centroamericano de Integración Economica (CABEI). This syndicated loan is secured by a list of guarantees. Loans under this credit agreement bear interest rates of 10.76%, 8.53% and LIBOR+5.75%. Loans with variable interest rate are swapped at an all-in rate of 8.31% until December 2019 and 8.25% from December 2019 until September 2022. All three loans are payable in quarterly installments until final maturity in September 2025. As of December 31, 2016, the outstanding balance under this loan was $31 million ($34 million as of December 31, 2015).

Puerto Quetzal Power LLC – In March 2012, Puerto Quetzal Power LLC (“PQP”) signed a loan agreement with seven financial institutions for an amount of $35.0 million. The loan is payable in quarterly installments until September 2019. Interest is accrued at LIBOR plus 4.5% annually. PQP entered into an interest rate swap contract to fix its interest at a rate of 6.0% per annum. The loan is secured by a pledge of substantially all of the assets of PQP and Poliwatt Ltd (“Poliwatt”), including PQP and its subsidiaries shares. As of December 31, 2016, the outstanding balance under this loan was nil ($15 million as of December 31, 2015).

On November 17, 2016, PQP signed a loan agreement with Banco Industrial in an aggregate principal amount of $12 million. The loan is payable in quarterly installments until final maturity in December 31, 2021. Interest is accrued at LIBOR plus 4.50% per annum, with a floor of 1.50%. The loan is secured by an escrow account that consists of all PQP assets. As of December 31, 2016 the outstanding principal amount under this loan was $12 million, net of transaction costs.

On January 15, 2016, Kanan Overseas I received a 60- day bridge loan in the aggregate amount of $61 million from Bank of Nova Scotia, as part of the three Credit Facilities approved. These proceeds were used to repay $50 million of an intercompany loan with Inkia Energy Ltd.; reimburse costs and expenses incurred in the project; and purchase fuel, raw material and other expenses. The original expiration of this loan was extended up to May 31, 2016.

On May 23, 2016 this loan was replaced by a $55 million 5-year credit facility and by a $6 million short term loan. The credit facility bears interest on a quarterly basis at Libor 3-Months plus a margin of 3.00% with a floor of 3.5%. Scheduled amortizations of principal are payable quarterly commencing in June 2016 through maturity in March 2021. The loans are guaranteed by all of Kanan’s assets. As of December 31, 2016 the outstanding balance under this loan was $46 million.

Overseas Facility — On May 9, 2016, Overseas Investments Peru S.A., a 100% whole-owned subsidiary of the Group signed a $100 million Credit Facility with Credit Suisse AG. The proceeds from this facility were fully drawn on August 31, 2016. This facility with final maturity on November 9, 2017 bears an interest rate of 90-day Libor plus 5.00% (from the funding date to the 6-month anniversary of the funding date); 90-day Libor plus 5.75% (from one day after the 6-month anniversary to the 12-month anniversary of the funding date); and 90-day Libor plus 6.50% thereafter. As of December 31, 2016, the outstanding principal amount under this facility was $100 million. ($97 million, net of transaction costs).

Kallpa Syndicated Loan - In November 2009, Kallpa entered into a secured credit agreement in the aggregate amount of $105 million to finance capital expenditures related to Kallpa’s combined-cycle plant. The loans under this credit agreement are secured by Kallpa’s combined-cycle plant substantially all of Kallpa’s other assets, including Kallpa’s revenues under its PPAs. The loan under this credit agreement bears interest payable monthly in arrears at a rate of LIBOR plus a margin of 5.50% per annum through November 2012, 5.75% per annum from November 2012 through November 2015 and 6.00% from November 2015 through maturity in October 2019. Scheduled amortizations of principal are payable monthly commencing in February 2013 through maturity in October 2019. As of December 31, 2015, the outstanding balance under this credit agreement was $59 million. As a result of the Kallpa’s issuance of its $350 million, 4.875% senior unsecured notes executed in May 2016, Kallpa repaid the $54 million outstanding under the syndicated loan in full.

DEORSA - In May 2011, DEORSA entered into a $41 million (approximately Q.314 million) and $90 million, 10-year syndicated secured loan agreement with a syndicate including Banco Agromercantil de Guatemala, S.A., as the manager of the guarantee and administrative agent, and certain financial institutions, to refinance DEORSA’s existing indebtedness as of the closing date of the acquisition, and to finance DEORSA’s working capital requirements. The U.S. Dollar denominated loans under this agreement bear interest at a fixed rate of 6.00% for the first two years and at a rate of 90-day US LIBOR plus 4.70% per annum through maturity on May 19, 2021. Guatemalan Quetzales denominated loans under this agreement bear interest at a variable interest rate calculated by the weighted average rate (TASA Activa Promedio Ponderada), or TAPP rate, less 5.6%, per annum. Scheduled amortizations of the aggregate principal amount outstanding under this agreement (generally 2.81%) are payable in quarterly installments through maturity.

F - 80

Note 15 – Loans and Debentures (Cont’d)

In April 2015, the loan agreement was amended and the amounts available under the facility were increased by approximately $37 million (Q.70 million) and $21 million to fund, among other things, DEORSA’s operating and investment activities, repayment of certain outstanding indebtedness, and general corporate purposes. The U.S. Dollar-denominated loans under the additional facility bear interest at a rate of 90-day US LIBOR plus 4.70% per annum (with a floor rate of 5.90%) for the first year and at a rate of 90-day US LIBOR plus 4.75% per annum (with a floor rate of 6.0%) through maturity on February 19, 2025. Guatemalan Quetzales-denominated loans under the additional facility bears interest at a variable interest rate calculated by the weighted average rate (TASA Activa Promedio Ponderada), less 6.10%, per annum. Scheduled amortizations of the aggregate principal amount outstanding under the additional facility are payable in quarterly installments commencing in May 2018 through maturity.

In August 2016, DEORSA amended the loan agreement to renew the two tranches that expired. The amounts available under the facility were increased by approximately $5 million (Q.37 million) and $11 million. The U.S. Dollar-denominated loan under the additional facility bears interest at a rate of LIBOR + 4.75% (with a floor rate of 6.00%). The Guatemalan Quetzales-denominated loan under the additional facility bears interest at a rate of the TAPP rate less 6.10%. Scheduled amortizations of the aggregate principal amount under the additional facility are payable in quarterly instalments commencing in May 2018 through maturity in February 2025.

As of December 31, 2016, the outstanding balance under this loan was $113 million.

DEOCSA - In May 2011, DEOCSA entered into a approximately $54 million (Q.416 million) and $150 million, 10-year syndicated secured loan agreement with a syndicate including Banco Agromercantil de Guatemala, S.A., as the manager of the guarantee and administrative agent, and certain financial institutions, as lenders, and other parties thereto, to finance the acquisition of DEOCSA by its previous owner, to refinance DEOCSA’s existing indebtedness as of the closing date of the acquisition, and to finance DEOCSA’s working capital requirements. The U.S. Dollar denominated loans under this agreement bear interest at a fixed rate of 6.00% for the first two years and at a rate of 90-day U.S. LIBOR plus 4.70% per annum through maturity on May 19, 2021. Guatemalan Quetzales denominated loans under this agreement bear interest at a variable interest rate calculated by the TAPP rate, as published by the Guatemalan Central Bank for the most recent date as of the first day of the relevant interest period, less 5.6%, per annum. Scheduled amortizations of the aggregate principal amount outstanding under this agreement (generally 2.81%) are payable in quarterly installments through maturity.

In April 2015, the loan agreement was amended and restated and, in accordance therewith, the amounts available under the facility were increased by approximately $51 million (Q.105 million) and $32 million to fund, among other things, DEOCSA’s operating and investment activities, repayment of certain outstanding indebtedness, and general corporate purposes. The U.S. Dollar-denominated loans under the additional facility bears interest at a rate of 90-day US LIBOR plus 4.70% per annum (with a floor rate of 5.90%) for the first year and at a rate of 90-day US LIBOR plus 4.75% per annum (with a floor rate of 6.0%) through maturity on February 19, 2025. Guatemalan Quetzales-denominated loans under the additional facility bear interest at a variable interest rate calculated by the weighted average rate (TASA Activa Promedio Ponderada), as published by the Guatemalan Central Bank) for the most recent date as of the first day of the relevant interest period, less 6.10%, per annum. Scheduled amortizations of the aggregate principal amount outstanding under the additional facility are payable in quarterly installments commencing in May 2018 through maturity.

In August 2016, DEOCSA entered into an addendum to the loan agreement, which renewed two tranches under the loan agreement which had expired. The amounts available under the facility were increased by approximately $7 million (Q.56 million) and $17 million. The U.S. Dollar-denominated loan under the additional facility bears interest at a rate of LIBOR + 4.75% (with a floor rate of 6.00%). The Guatemalan Quetzales-denominated loan under the additional facility bears interest at a rate of the TAPP rate less 6.10%. Scheduled amortizations of the aggregate principal amount under the additional facility are payable in quarterly instalments commencing in May 2018 through maturity in February 2025.

As of December 31, 2016, the outstanding balance under this loan was $174 million.

RECSA – In November 2013, RECSA entered into a approximately $4 million (Q.35 million) credit agreement with Banco G&T Continental. The loan is payable in semiannual installments until November 2020. Interest is accrued at TAPP rate less 6.63% per annum. As of December 31, 2016, the outstanding balance under this loan was $5 million.

F - 81

Note 15 – Loans and Debentures (Cont’d)

OPC Lenders Consortium - In January 2011, OPC entered into a financing agreement with a consortium of lenders led by Bank Leumi L’Israel Ltd (“Bank Leumi”) (shareholder of Kenon - 14% shareholding) for the financing of its power plant project. The financing consortium includes Bank Leumi and institutional entities from the following groups: Clal Insurance Company Ltd.; Amitim Senior Pension Funds; Phoenix Insurance Company Ltd.; and Harel Insurance Company Ltd (“OPC’s lenders”). As part of the financing agreement, the lenders committed to provide OPC a long-term credit facility (including a facility for variances in the construction costs), a working capital facility, and a facility for financing the debt service, in the overall amount of approximately NIS 1,800 million (approximately $460 million). The loans are CPI linked and are repaid on a quarterly basis beginning in the fourth quarter of 2013 until 2031. As part of the financing agreement, OPC had certain restrictions to make distributions of dividends and repayments of shareholders’ loans, only after the third year after the completion of OPC’s power plant. On October 13, 2015, OPC and the senior lenders amended the Facility Agreement to remove this restriction.

As part of the Facility Agreement, OPC is required to keep a Debt Service Reserve equivalent to the following two quarterly debt payments (hereinafter- “the reserve”) within the period of two years following power plant construction completion. As of December 31, 2016 the amount of the reserve is NIS73 million (equivalent to $19 million).

As of December 31, 2016 and 2015, the outstanding balance under this facility was NIS1,402 million ($365 million) and NIS1,469 million ($377 million), respectively.

S.	Veridis— It corresponds to equity contributions made by Veolia Energy Israel Ltd. (“Veridis”) (previously Veolia Energy Israel Ltd ) (OPC´s minority shareholder) and presented as a capital note

On October 19, 2015, OPC paid to its shareholders in the amount of NIS223 million (approximately $58 million) as repayment of these capital notes, of which NIS59 million(approximately $15 million) were paid to Veolia Energy Israel Ltd.

As of December 31, 2016, OPC has settled the balance of the capital notes to Veridis.

I.C. Power Israel Ltd. —On June 22, 2014, ICPI entered into a mezzanine financing agreement with Mivtachim Social Insurance and Makefet Fund Pension (“Amitim Pension Funds”) and Menora Mivtachim Insurance Ltd in the aggregate amount of NIS350 million ($93 million), consisting of three Facilities: (i) Tranche A bridge loan for NIS150 million, bearing interest of 4.85% p.a. to be repaid until March 31, 2017; (ii) Tranche B long-term loan for NIS200 million, bearing interest of 7.75% p.a., repayable on annual basis until March 2029; and (iii) Tranche C (only to cover shortfall amounts) for NIS350 million. As of December 31, 2016, no disbursements have been made under Tranche C. These loans are linked to CPI.

During January 2016, Tranche A was prepaid for a total of NIS162 million (approximately $41 million).

As of December 31, 2016 and 2015, the outstanding balance under this facility was NIS199 million ($2 million) and NIS377 million ($97 million), respectively.

AIE Financing— In July 2016, AIE entered into a NIS1,006 million (approximately $261 million) loan agreement with Israel Discount Bank and Harel Insurance Group to finance the construction of AIE’s power plant in Hadera. The financing will mature 18 years after the completion of the construction period, and includes a term loan facility, a standby facility, a debt service reserve amount, or DRSA, 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). The term loan, standby, DSRA, and hedging facilities shall each bear interest at a rate of 2/3 Government CPI-linked Bond + 2.95% + 1/3 Government Bond + 2.95% per annum. The guarantees, VAT and working capital facilities shall each bear interest at a rate of the prime interest rate + 1.5% per annum. These terms are subject to AIE’s credit rating. As of December 31, 2016, AIE had not made drawings under this loan agreement.

F - 82

Note 15 – Loans and Debentures (Cont’d)

Liabilities in respect of finance leases

Citibank Perú and Banco de Crédito del Perú - In March 2006, Kallpa entered into a capital lease agreement with Citibank del Perú S.A., Citileasing S,A. and Banco de Crédito del Perú under which the lessors provided financing for the construction of the Kallpa I facility at Chilca in an aggregate amount of $56 million. Under the lease agreements, Kallpa made monthly payments beginning in December 2007 until the expiry of the lease in March 2016. These leases were secured by the assets of Kallpa in Peru. The lease bore an interest rate of 90 day LIBOR plus 3.00%. In March 2016, upon expiration of these leases, Kallpa executed its option to purchase the property related to the Kallpa I plant for a nominal cost ($2 million as at December 31, 2015).

Banco de Crédito del Perú - In December 2007, Kallpa entered into a capital lease agreement with Banco de Crédito del Perú under which the lessor provided financing for the construction of the Kallpa II turbine in an aggregate amount of $82 million. Under the lease agreement, Kallpa made monthly payments beginning in December 2009 until the repayment of the lease (May 2016). These leases were secured by the assets of Kallpa in Peru. The lease bore an interest rate of 90 day LIBOR plus 2.05%. Kallpa entered into an interest rate swap to fix the interest rate at an all-in rate of 6.55%, see Note 17.A.a.

In relation to Kallpa’s issuance of its $350 million, 4.875% senior unsecured notes due May 2016, Kallpa repaid the $27 million outstanding under this lease in full in 2016 ($29 million as at December 31, 2015).

Scotiabank - In October 2008, Kallpa entered into a capital lease agreement with Scotiabank Perú under which the lessor provided financing for the construction of the Kallpa III turbine in an aggregate amount of $88 million. Under the lease agreement, Kallpa made monthly payments beginning in September 2010 until the repayment of the lease (May 2016). As of December 31, 2015, the aggregate outstanding principal amount under this lease was $38 million and bore a fixed interest rate of 7.57% p.a.

In relation to Kallpa’s issuance of its $350 million, 4.875% senior unsecured notes due May 2016, Kallpa repaid the $35 million outstanding under this lease in full in 2016.

In April 2014, Kallpa entered into a capital lease agreement with Banco de Crédito del Perú for $108 million in order to finance the acquisition of the 193MW single turbine natural gas fired plant Las Flores from Duke Energy. Under the lease agreement, Kallpa makes quarterly payments beginning in July 2014 until the expiry of the lease in October 2023. The lease bears a fixed interest rate of 7.15% p.a. As of December 31, 2016, the aggregate outstanding principal amount under this lease was $88 million ($94 million as of December 31, 2015).

F - 83

Note 15 – Loans and Debentures (Cont’d)

Debentures

Bonds Cobee III - In February 2010, COBEE approved a bond program under which it is permitted to offer bonds in aggregate principal amounts of up to $40 million in multiple series. On March 12, 2010, COBEE issued and sold in the Bolivian market three series of notes in the aggregate principal amount of $14 million.

The aggregate gross proceeds of these notes, which were issued at a premium, were $17 million. The Series A Notes, in the aggregate principal amount of $4 million pay interest semi-annually at the rate of 5.00% per annum through maturity in February 2014. Principal on these notes is payable at maturity. The Series B Notes, in the aggregate principal amount of $4 million, pay interest semi-annually at the rate of 6.50% per annum through maturity in February 2017. Principal on these notes will be paid in two equal annual installments commencing in February 2016. The Series C Notes, in the principal amount of Bs.44.2 million ($6 million), pay interest semi-annually at the rate of 9.00% per annum through maturity in January 2020. Principal on these notes will be paid in four equal annual installments commencing in February 2017.

In April 2012, COBEE issued and sold two additional series of notes in the aggregate principal amount of $11 million. The aggregate gross proceeds of these notes, which were issued at premium, were $13 million. COBEE will amortize the premium reducing the interest expense related to these notes. The first series of these notes, in the aggregate of $5 million pays interest semi-annually at the rate of 6.75% per annum through final maturity in April 2017. Principal on these notes is payable at maturity. The second series of these notes in the aggregate principal amount of Bs.43 million ($6 million), pays interest semi-annually at the rate of 7% per annum through maturity in February 2022. These funds were used mainly to pay a tranche of Bolivian bonds due in June 2012.

AA.

Bonds Cobee IV - In May 2013, COBEE approved a bond program under which COBEE is permitted to offer bonds in aggregate principal amount of up to $60 million in multiple series. In February 2014, COBEE issued and sold three series of notes in the aggregate principal amount of $20 million. The aggregate gross proceeds of these notes, which were issued at a premium, were $21 million. The Series A Notes, in the aggregate principal amount of $4 million pay interest semi-annually at the rate of 6.0% per annum through maturity in January 2018. The Series B Notes, in the aggregate principal amount of $4 million pay interest semi-annually at the rate of 7.0% per annum through final maturity in January 2020. The Series C Notes, in the aggregate principal amount of Bs.84 million ($12 million) pay interest semi-annually at the rate of 7.8% per annum through maturity in January 2024.

In November 2014, COBEE issued and sold two series of notes in the aggregate principal amount of $21 million. The aggregate gross proceeds of these notes, which were issued at a premium, were $22,100. The first series of these Notes, in the aggregate principal amount of $5 million pay interest semi-annually at the rate of 6.70% per annum through maturity in October 2019. The second series of these notes in the aggregate principal amount of Bs.105 million ($15 million) pay interest semi-annually at the rate of 7.80% per annum through maturity in October 2024.

In October 2016, COBEE issued and sold the last series of notes approved under the bond program in the aggregate principal amount of Bs.138 million ($20 million). The aggregate gross proceeds of the notes, which were issued at a premium, were Bs.152 million ($21,740). These Notes pay interest semi-annually at the rate of 5.75% per annum through maturity in August 2026.

BB.

Inkia Bonds - On April 4, 2011, Inkia issued senior unsecured notes for an aggregate principal amount of $300 million in the international capital market under the rule 144A Regulation S. These notes accrue interest at a rate of 8.375% and will be payable semi-annually with final maturity in April 2021 and were recognized initially at fair value plus any directly attributable transaction costs. The proceeds from this issue were used mainly to finance Inkia’s equity contribution in the construction of Cerro del Aguila Project and to repurchase all of the Inkia Bonds.

On September 9, 2013, Inkia reopened its 8.375% senior notes due 2021 for an aggregate principal amount of $150 million. The new notes have terms and conditions identical to the initial $300 million notes issued on April 4, 2011 and were issued at 104.75% plus accrued interest from April 4, 2013, resulting in gross proceeds of $157 million plus $6 million of accrued interest. The proceeds from this issue will be used mainly for working capital and general corporate purposes. Subsequent to initial recognition, these notes are measured at amortized cost using the effective interest method. As of December 31, 2016, the outstanding principal amount under these notes was $448 million ($448 million as of December 31, 2015).

On September 5, 2014, Inkia requested the consents to its bondholders regarding certain proposed amendments to the Indenture: (i) Perform the IC split without being required to repurchase the bonds at a price equal to 101% of the aggregate principal; (ii) Request the repayment of the $150 million Credit Suisse/I.C. Power/Inkia Loan from the net proceeds of the Edegel sale; and (iii) Extend the investment period of the net proceeds from the Edegel sale from 12 to 30 months.

F - 84

Note 15 – Loans and Debentures (Cont’d)

On September 16, 2014, Inkia received the consents from holders of a majority of its outstanding $450 million Senior Notes due 2021 and paid $1 million in fees related to obtain these consents.

CC.

Kallpa Bonds due 2022 - In November 2009, Kallpa issued $172 million aggregate principal amount of its 8.5% Bonds due 2022. Holders of these bonds are required to make subscription payments under a defined payment schedule during the 21 months following the date of issue. The proceeds of these bonds were used for capital expenditures related to Kallpa’s combined-cycle plant. Interest on these bonds accrues based on the principal received by Kallpa and is payable quarterly. Principal amortization payments under these bonds in amounts varying between 0.25% and 5.00% of the outstanding principal amount of these bonds commenced in May 2014 and will continue until maturity in May 2022. These bonds are secured by Kallpa’s combined-cycle plant and related assets. As of December 31, 2015, the aggregate outstanding principal amount of these bonds was $149,105.

In relation to Kallpa’s issuance of its $350 million, 4.875% senior unsecured notes due May 2016, Kallpa repaid the outstanding amounts under the bonds in 2016 ($143 million as at December 31, 2015).

DD.

Kallpa Bonds due 2026 - In May 2016, senior notes for an aggregate principal amount of $350 million in the international capital market under the rule 144A Regulation S. The notes were issued under-par (99.258%) and interest accrues biannually in May and November of each year at a rate of 4.875%. Principal will be fully paid at maturity. The net proceeds from this issue in the amount of $347 million were used to repay in full the outstanding balance of: (i) the finance lease agreements (Kallpa II and Kallpa III); (ii) the Kallpa bonds due 2022, (iii) the syndicated loan and (iv) the $45 million short-term loans. The remainder of the proceeds were used for general corporate purposes. As a result of the redemption premium paid in respect of the Kallpa bonds due 2022 that qualified as a debt extinguishment, Kallpa recorded a $10 million finance expense. As of December 31, 2016, the outstanding amount of these notes was $326 million (net of transaction costs).

EE.

In December 2010, CEPP approved a program bond offering under which CEPP is permitted to offer bonds in aggregate principal amount of up to $25 million in multiple series. In 2011 and 2010, CEPP issued and sold $20 million and $5 million of its 7.75% Bonds. CEPP used the proceeds of this offering to finance its continuing operations and repay intercompany debt. Interest on these bonds is payable monthly and principal of these bonds is due at maturity in May 2014. During the first quarter of 2014, CEPP issued and sold $25 million of its 6.00% Bonds due in January and March 2019. Part of these funds was used to prepay $15 million of its 7.75% Bonds outstanding due in May 2014. In October 2015, $15 million in CEPP’s bonds were repurchased. As of December 31, 2016, the outstanding principal amount net of transaction costs under these notes was $10 million ($10 million as of December 31, 2015).

F - 85

Note 15 – Loans and Debentures (Cont’d)

FF.	As at December 31, 2016 and 2015, the main covenants that the Group and certain Group entities must comply with during the term of the debts are as follows:

	Covenant
Group entities	Shareholder equity	Debt service to coverage ratio	Collateral ratio	Maximum leverage	Interest rate hedging
Kallpa Generación S.A.	Not required	Not less than 1.20	Not required	No more than 3.0	Required
Samay	Not required	Not less than 1.64	Not required	Not required	Not required
CDA	Not required	Not less than 1.20	Not required	Not required	Not required
COBEE (Bonds)	Not required	Not less than 1.20	Not required	Debt to capital no more than 1.2	Not required
Cardones (Chile)	Not required	Not less than 1.10	Not required	Not required	Not required
Colmito (Chile)	Not required	Not less than 1.15	Not required	Not required	Not required
JPPC (Jamaica)	Not required	Not less than 1.10	Not required	Debt to capital no more than 40%	Not required
Amayo I (Nicaragua)	Not required	Not less than 1.25	Not required	Not required	Not required
Amayo II (Nicaragua)	Not required	Not less than 1.20	Not required	Financial debt to Net Worth not in excess of 70:30	Not required
Corinto (Nicaragua)	Not required	Not required	Not required	Maximum debt to EBITDA of 2.5	Not required
Tipitapa (Nicaragua)	Not required	Not required	Not required	Maximum debt to EBITDA of 2.75.	Not required
CEPP (Dominican Republic)	Not less than $21 million	Not less than 2.50	Not required	Maximum debt to EBITDA of 3.5	Not required
Energuate (Guatemala)		Not less than 1.30		Maximum debt to EBITDA of 3.5	Not required
Nejapa (El Salvador)	> $40 million	> 1.50	Not required	< 3.0	Not required
Kanan (Panama)	Not required	Not less than 1.25	Not required	Maximum debt to EBITDA of 3.5	Not required
OPC	Not required	Not less than 1.25	Not required	Not required	Not required

Other than with respect to the covenants referred to above, and the restrictions set forth in Note 20, there are no significant restrictions on the ability of the Group’s subsidiaries to repay loans or advances or to transfer funds to the Group.

Compliance with the covenants referred to above is overseen by the Group’s Management. As of December 31, 2016, Kanan (Panama) does not comply with their debt service to coverage ratio and maximum leverage and Kanan holds a waiver but dated January 2017, therefore, its financial debt has been classified as current liability. Corinto (Nicaragua) does not comply with the debt service to coverage ratio, but Corinto holds a waiver from Banco de America Central thus not requiring to classify its debt as current liability. JPPC holds a waiver from Sagicor Bank signed in June 2016 up to December 2016 and complies with its debt service to coverage ratio and maximum leverage, therefore, it is not required to reclassify its debt as current liability.

Note: Inkia has to comply only with incurrence ratios when it plans to issue new debt.

Note 16 – Trade Payables

	As at December 31
	2016		2015
	$ thousands
Current
Trade Payables		285,409		145,443
Other Payables		203		11
		285,612		145,454
Non-current
Trade Payables*		44,057		—

(*) As of December 31, 2016, non-current trade payables correspond mainly to spare parts, used for major maintenance of Kallpa facilities, acquired according to a long-term program (LTP) agreement signed with Siemens. During 2016, these trade payables have not generated interests and no specific guarantee have been granted.

F - 86

Note 17 – Other Payables including Derivative Instruments

	As at December 31
	2016		2015
	$ thousands
Current liabilities:
Financial derivatives not used for hedging (a)		783		1,080
Financial derivatives used for hedging (a)		11,563		11,480
The State of Israel and government agencies		4,206		4,504
Employees and payroll-related agencies		4,846		4,229
Customer advances and deferred income		944		1,483
Accrued expenses		23,563		10,819
Dividend payable to non-controlling interest		2,893		—
Interest payable		23,038		22,307
Other (b)		19,467		52,971
		91,303		108,873
Non-current liabilities:
Financial derivatives not used for hedging (a)		1,342		2,196
Financial derivatives used for hedging (a)		13,701		33,429
Other financial derivatives (see note 10.C.b.5)		29,594		—
		44,637		35,625

As of December 31, 2016 and 2015, the derivatives maintained by the Group are as follow:

	Notional		Fair value
	amount		2016			2015
	$ thousands
Hedge derivatives (i)
Interest rate swap (a)		384,093		(17,509	)		(30,979	)
Interest rate swap (b)		100,683		—			(196	)
Interest rate swap (c)		124,400		(2,955	)		(9,004	)
Interest rate swap (d)		15,553		(2,401	)		(3,880	)
Exchange rate swap (e)		158,270		—			(850	)
Exchange rate swap (f)		58,604		(2,399	)		—
				(25,264	)		(44,909	)
Trading derivatives (ii)
Interest rate swap (f)		42,000		(1,950	)		(2,994	)
Interest rate swap (g)		14,500		—			(7	)
Interest rate swap (h)		8,443		(175	)		(275	)
				(2,125	)		(3,276	)

(i)

Hedge derivatives

	Entity	Financing	Underlying item	Description	Fixed rate	Expiration
(a)	CDA	Syndicated	Libor plus 4.25%	100% - Tranche A	7.25-8.50%	Aug 2024
(b)	CDA	Syndicated	Libor plus 4.25%	50% - Tranche B	5.38%	Feb 2016
(c)	Samay I	Syndicated	Libor plus 2.125%	93% total debt	4.23%	Dec 2021
(d)	Colmito	Loan	7.90% in Chilean Pesos	69% total debt	6.025% in $	Jun 2028
(e)	CDA	EPC payments in Nuevos Soles	Spot exchange rate in Nuevos Soles	S/.403 million	S/. 2.546 for each $1	Jan 2016

F - 87

Note 17 – Other Payables including Derivatives (Cont’d)

	Entity	Financing	Underlying item	Description	Fixed rate	Expiration
(f)	AIE	EPC payments in EUR	Spot exchange rate in NIS	EUR 53 million	Average of NIS 4.24 for each EUR 1	Jan 2017-Nov 2018
		EPC payments in USD	Spot exchange rate in NIS	EUR 3 million	NIS 3.841 for each $ 1	May-Aug 2017

(ii)

The Group has three additional interest swap agreements that are accounted for as trading derivatives because these derivatives were already in place when Inkia took control of the subsidiaries:

	Entity	Financing	Underlying item	Description	Fixed rate	Expiration
(f)	Cardones	Syndicated	Libor plus 1.9%	100% - Tranche I	6.80%	Aug 2021
(g)	JPPC	Loan	Libor plus 5.5%	71%	6.46%	Mar 2017
(h)	Amayo II	Syndicated	Libor plus 5.75%	84% - BCIE facility	8.31%	Dec 2019
	Amayo II	Syndicated	Libor plus 5.75%	49% - BCIE facility	8.25%	Sep 2022 (*)

(*) starts in Dec 2019

The gain arising from the volatility of the fair value of these interest rate swaps is shown in Note 24. During 2016, 2015 and 2014, the Group recorded gains of $2 million, $3 million and $133 thousand, respectively.

b.	As of December 31, 2015, it corresponds mainly to payables related to CDA in the amount of $36 million.

Note 18 - Guarantee Deposits from Customers

Deposits in cash received from distribution customers. These deposits bear interest at a weighted average interest rate published by the Guatemalan Central Bank and are refundable to clients when they cease using the electric energy service.

Note 19 – Provisions

	Financial Guarantee*			Others**			Total			Others**
	2016									2015
	$ thousands									$ thousands
Balance at January, 1		—			41,686			41,686			69,882
Reclassified from long-term liabilities		34,263			—			34,263			—
Provision made during the year		130,193			—			130,193			14,657
Provision reversed to profit/(loss) during the year		(4,587	)		—			(4,587	)		(46,419	)
Provision paid		(36,023	)		(40,170	)		(76,193	)		—
Effects of foreign currency		(5,083	)		(748	)		(5,831	)		3,566
Balance at December, 31		118,763			768			119,531			41,686

* Relates to Kenon’s provision of financial guarantees to Chery in respect of an obligation of Qoros (see Note 10.C.b.6).

** Corresponds to a provisison made by an I.C. Power’s subsidiary as a result of a regulator charge. Expenses related to this provision were recognized in the cost of sales in the amount of $15 million in 2015.

F - 88

Note 20 – Contingent Liabilities, Commitments and Concessions

A. Claims

I.C. Power

Kallpa Generación S.A.

Import Tax Assessment against Kallpa.

Since 2010, the Peru Customs Authority (known as “SUNAT” for its abbreviation in Spanish) issued tax assessments to Kallpa and its lenders for payment of import taxes allegedly owed by Kallpa in relation to imported equipment for installation and construction of Kallpa I, II, III and IV. The assessments were made on the basis that Kallpa did not include the value of the engineering services rendered by the contractor of the project in the tax base of import taxes. Kallpa disagrees with this tax assessment on the grounds that the engineering services rendered include the design of the plant and not the design of the imported equipment. Kallpa appealed the tax assessments before SUNAT in first instance and before the Peruvian Tax Court (known as “Tribunal Fiscal”) in second instance. SUNAT and the Peruvian Tax Court are administrative institutions under the Ministry of Economy and Finance.

In January 2015, the Tax Court rejected Kallpa’s appeal regarding the Kallpa I assessment. Kallpa disagrees with the court´s decision and filed a judicial action (Demanda Contencioso Administrativa) before the Superior Court of Lima on April 15, 2015. In order to file an appeal, Kallpa was required to pay the amounts requested by SUNAT which was was $12 million (S/. 38 million). Subsequently, Kallpa recovered the VAT paid related to this amount. As of December 31, 2016 and 2015 the remaining amount is approximately $10 million (approximately S/. 32 million) respectively.

On January 27, 2016, the amount of the claim in relation with Kallpa IV was reduced by S/. 17 million ($5 million) without interests, from approximately $5 million to $152 thousand (S/. 18 million to S/. 0.5 million ) referred to the engineering services assessment. On February 12, 2016, Kallpa filed an appeal against the part of the resolution that refers to the insurance. As of the date herein, such appeal is pending to be submitted by SUNAT to the Tax Court.

On September 12, 2016, the Superior Court of Lima issued a ruling on the Kallpa I case declaring its claims to be groundless. Kallpa disagreed with the Court´s decision and, on September 21, 2016, filed an appeal to the Superior Court of Lima. As of December 31, 2016, the Kallpa I assessment liability (including tax, fines and interest) is nil as Kallpa has already paid the total amount under discussion. With this approach, favorable result of the process would imply a refund of the amounts paid.

As of the end of December 2016, the total tax exposure related to these assessments is as follows:

Stage		Amount		Amount
		(In million S/.)		(In million $)
Kallpa I	Superior Court of Lima		32.5		9.7
Kallpa II	Peruvian Tax Court		23.0		6.8
Kallpa III	Peruvian Tax Court		22.3		6.6
Kallpa IV	SUNAT		1.3		0.4
			79.1		23.5

Kallpa’s management and its legal advisors are of the opinion that Kallpa´s appeals will more likely than not be successful; accordingly, no provision was recognized in the financial statements because Kallpa has determined it does not have a present obligation.

Income Tax Audit 2012 against Kallpa

On February 15, 2016, as a result of the 2012 income tax audit, SUNAT issued a preliminary income tax assessment against Kallpa on the basis that certain interest accrued on its debt and some maintenance expenses amounting to approximately $6 million (approximately S/.22 million) should not have been deducted from its 2012 taxable income but rather treated as an asset.

On March 11, 2016, SUNAT issued a final tax assessment for approximately $5 million (approximately S/.17 million), related to the interest expenses accrued during the construction of the steam turbine (Kallpa IV) as part of the combined-cycle conversion of the plant. This tax assessment has been confirmed with SUNAT resolution (Resolución de Determinación) notified to Kallpa on April 18, 2016. On May 16, 2016, Kallpa filed a complaint appeal against the SUNAT assessment which was rejected by SUNAT through a resolution (Resolución de Intendencia) notified on February 14, 2017. This resolution has been appealed at the Tax Court.

F - 89

Note 20 – Contingent Liabilities, Commitments and Concessions (Cont’d)

Kallpa´s management and its tax counsel have determined that Kallpa should prevail in its appeal as the Tax Court has previously issued precedents that allow for the deduction of interest expenses in similar circumstances based on the language of article 37a) of the Peruvian Income Tax Law; accordingly, no provision has been recognized in the financial statements because Kallpa has determined it does not have a present obligation.

As of December 31, 2016, the tax liability is approximately $3 million (S/.12 million) including interest and fines.

Compensations against Energuate

As of result of the business combinations described in Note 11.A.1.a, I.C. Power assumed the following main contingencies:

Distribuidora de Electricidad de Occidente S.A. (DEOCSA) and Distribuidora de Electricidad de Oriente S.A. (DEORSA)

Compensations for Technical Service Quality:

Based on the current legal framework in Guatemala, I.C. Power is obliged to compensate its customers for failures in technical service quality. The CNEE establishes parameters for continuity (number and length of interruptions) and establishes fines for failure to comply with such parameters. As of December 31, 2016, sanction processes initiated by the CNEE corresponding to a group of processes related to these fines amounted to:

DEOCSA: $16 million (Q. 124 million), and

DEORSA: $16 million (Q. 121 million)

Actual compensations to customers in accordance with the regulations issued by the CNEE depends on the following future events:

That the service continues being rendered.

The future consumption volume of the regulated customers with charge from power.

The continuity of the regulation.

That the customer files the claim or that CNEE obliges to compensation.

The compensation mechanism is not applicable to most of the Group's customers.

DEORSA and DEORSA’s management and its legal advisors have determined that there is no current obligation that results under the claims and therefor no provision was recognized in the financial statements.

F - 90

Note 20 – Contingent Liabilities, Commitments and Concessions (Cont’d)

DEOCSA and DEORSA Tax claim

In 2011, the previous owners of DEORSA and DEOCSA acquired the companies through a leveraged buy-out transaction. Years after the transaction, the Guatemalan Tax Authority (Superintendencia de Administración Tributaria, or the “SAT”) raised questions concerning tax deductions for interest expenses and amortization of goodwill that derived from that transaction. This culminated in the issuance in February 2015 of two binding tax opinions, one for DEOCSA and another for DEORSA (the “Binding Opinions”) allowing the deductions.

The government of Guatemala changed in January 2016. After the new government took power, in July 2016, the SAT filed a complaint against DEORSA and DEOCSA (the “Complaint”) in disregard of its own conclusions stated in the Binding Opinions, which Opinions remain in force as of this date. The Complaint requests the payment of alleged back taxes, interest, and fines in relation to tax years 2011 and 2012.

On 9 August 2016, the court hearing the Complaint ordered DEORSA and DEOCSA to pay $17 million (Q. 130 million) in alleged back taxes immediately, plus interest and fines within 60 days following the court order, as a condition to lift an order freezing the bank accounts of DEORSA and DEOCSA. Pursuant to this and another court order of 12 December 2016, on 10 August 2016, DEOCSA and DEORSA paid $17 million to the SAT corresponding to the alleged back taxes, and, on 13 December 2016, they paid $26 million (Q. 193 million) corresponding to the alleged fines and interest.

Due to the actions of the government and in order to avoid the initiation of complaints concerning tax years 2013, 2014, and 2015, and the corresponding imposition of further fines and interest, DEORSA and DEOCSA followed the instructions of the SAT and paid the alleged back taxes and interest for those years in the following manner: on August 9, 2016, DEORSA and DEOCSA paid a total of $18 million (Q. 138 million) for the years 2014 and 2015; and on August 19, 2016, they paid a total of $13 million (Q. 100 million) for the year 2013. In addition, during 2016, DEORSA and DEOCSA made additional payments of income tax paid in advance by approximately $5 million (Q. 41 million) corresponding to year 2016.

The abovementioned measures were adopted in order not to put at risk to the continuing operation and prevent irreversible damage to DEORSA and DEOCSA. All payments were made under protest and subject to a broad reservation of rights, including but not limited to seeking restitution of such payments. DEORSA and DEOCSA and their legal and tax advisors are of the view that the deductions for interest expenses and amortization of goodwill are legitimate tax deductions and in the opinion of DEORSA and DEOCSA’s management and its legal advisors it is not more likely than not that that their position under applicable legal frameworks are favourable. DEORSA and DEOCSA are defending against the SAT Complaint and considering all available remedies with respect to this matter. Accordingly, no provision was recorded in the financial statements because DEORSA and DEOCSA has determined it does not have a present obligation.

As of December 31, 2016, the total tax claim amounts to $80 million (Q. 603 million). This tax claim has been recorded as a receivable.

OPC – Tamar

In July 2013, the EA published four generation component tariffs/power cost indicators, ranging from NIS 386 per megawatt hour, or MWh, to NIS 333.2 per MWh, instead of the single tariff that had previously been used. In January 2015, the EA published new tariffs, which reduced the tariff rates by approximately 10%. In connection with the indexation of their natural gas price formula for OPC’s gas supply agreement with the Tamar Partner, OPC and the Tamar Partners disagreed as to which of the EA’s July 2013 tariffs applied to the Tamar’s supply agreement and have a similar disagreement with respect to the tariffs published in January 2015. Subsequent to the period of the report, on February 2, 2017, OPC received a letter from Tamar's attorney claiming a debt of $25 million (including accrued interest) and requesting that such amount be deposited in escrow pursuant to the GSPA. Based on the OPC's legal consultant’s opinion, it is more likely than not that OPC’s defence of this claim will ber successful. Consequently, no provision was recognized in the financial statements as OPC’s management has concluded it does not have a present obligation under this claim.

F - 91

Note 20 – Contingent Liabilities, Commitments and Concessions (Cont’d)

B.	Commitments

I.C. Power

I.C. Power Ltd

As of December 31, 2016, I.C. Power has issued guarantees for a total amount of $70 million, as follows:

Guarantee party	Description	NIS thousands		$ thousands		Cash Collateral $ thousands
Advanced Integrated Energy Ltd	Facility agreement		100,000		26,036		-
OPC Rotem Ltd.	Facility agreement ⁽¹⁾		45,000		11,716		5,858
OPC Rotem Ltd.	PUA/EA Standards requirements - infrastructure services		38,595		10,048		20,159 (	² )
OPC Rotem Ltd.	PUA/EA Standards requirements - infrastructure services		32,235		8,393		—
OPC Rotem Ltd.	Exposure of non-payment default resulting from "Ex post payments"		12,000		3,124		—
Advanced Integrated Energy Ltd	GSPA agreement		—		6,600
Advanced Integrated Energy Ltd	INGL agreement		295				3,515 (	³ )
Advanced Integrated Energy Ltd	Conditional license		822		214		3,455 (	³ )
Advanced Integrated Energy Ltd	INGL – PRMS construction		9,100		2,369		-
Advanced Integrated Energy Ltd	Supply and generation licenses		4,495		1,170		1,273
OPC Rotem Ltd.	Ensure payments of IPP Rotem Operation and Maintenance Ltd.		—		350		358

(1)

On December 2014, in light of the Israel Corporation Ltd. split, the corporate guarantee issued by IC was replaced and a cash collateral deposited into a designated pledged account of OPC.

(2)

Cash collateral for the two guarantees related to PUA/EA Standards requirements - infrastructure services

(3)

Cash collateral for conditional license, INGL agreement and supply and generation licenses.

Inkia Energy Ltd

As of December 31, 2016, Inkia has issued standard by letters of credit for a total amount of $54 million for guarantee, as follows:

Guarantee party	Description	$ thousands
Inkia Energy Ltd.	Contingent equity for over costs		15,729
Samay I S.A.	Contract Compliance		15,000
Kanan overseas I, Inc	Power Purchase agreement		9,534
Kanan overseas I, Inc	Power Purchase agreement		7,334
Kanan overseas I, Inc	Spot Purchases		4,000
Kanan overseas II, Inc	Power Purchase agreement		1,467
Kanan overseas I, Inc	Storage and handling agreement		600

Cobee, Bolivia

Concession from the Bolivia Government

As of December 2010, COBEE was engaged in the generation of electricity under a concession granted to it by the Government of Bolivia, in October 1990 for a period of 40 years. The Bolivian government unilaterally transformed by supreme decree, all concessions to generate, transmit and distribute electricity to special temporary licenses. However, to date, the government has not issued regulations nor approved any procedure or guideline to convert such special temporary licenses into permanent licenses.

F - 92

Note 20 – Contingent Liabilities, Commitments and Concessions (Cont’d)

Power Purchase Agreement (PPA)

In March 2008, COBEE signed a long-term PPA agreement with Minera San Cristobal. Pursuant to the agreement, COBEE will supply 43 MW of availability and energy, commencing from December 22, 2008. The PPA agreement provides a fixed price for availability, and an energy price that is linked to the price of natural gas for production of electricity in Bolivia. Surplus energy and availability are sold in the spot market. The PPA agreement is scheduled to expire in October 2017.

In December 2011, the Bolivian Government amended the applicable law to prohibit generation companies from entering new PPAs. Therefore, COBEE will be unable to extend or replace this PPA, under which we have contracted 18.9% of COBEE’s installed capacity.

Kallpa, Peru

Power Purchase Agreements (PPA)

As of December 31, 2016, Kallpa has entered into thirty two PPAs with unregulated consumers to provide capacity and the associated energy of 621 MW (twenty seven PPAs of 522 MW as of December 31, 2015). These contracts have various commencement dates, and expires between 2013 and 2028. Also, as of December 31, 2016, Kallpa has signed twenty seven PPAs with 7 distribution companies for 590 MW (thirteen PPAs with 8 distribution companies for 660 MW as of December 31, 2015).

The Peruvian market functions on the marginal cost method in which the generators bid their marginal cost to the market regulator who instructs the most efficient generators to produce electricity for the system. In the event Kallpa is not capable to meet its commitments under the contracts, Kallpa will be required to purchase energy in the spot market.

Gas Supply and Transportation

Kallpa purchases natural gas for its generation facilities from the Camisea consortium under an exclusive natural gas supply agreement dated January 2, 2006, as amended. Under this agreement, the Camisea Consortium agreed to supply Kallpa’s natural gas requirements, subject to a daily maximum amount and Kallpa agreed to acquire natural gas exclusively from the Camisea Consortium.

The Camisea consortium is obligated to provide a maximum of 4,250,000 cubic meters of natural gas per day to our Kallpa plant and Kallpa is obligated to purchase a minimum of approximately 2,225,000 cubic meters of natural gas per day as follows:

	Cubic meters per day
	To be provided by Consortium		Minimum Purchase
First gas turbine		1,200,000		648,000
Second gas turbine		1,300,000		702,000
Third gas turbine		1,300,000		650,000
Combined cycle		450,000		225,000
Total		4,250,000		2,225,000

In the event that Kallpa does not consume the contracted minimum on any given day, Kallpa is permitted to use that lacking quantity on any day during the course of the following 18 months from the day of under-consumption.

The price that Kallpa pays to the Camisea consortium for the natural gas supplied is based on a base price in U.S. dollars set on the date of the agreement, indexed monthly based on a basket of market prices for heavy fuel oil, with discounts available based on the volume of natural gas consumed. This agreement expires in June 2022.

Kallpa’s natural gas transportation services are rendered by Transportadora de Gas del Peru S.A. (“TGP”) pursuant to a natural gas firm transportation agreement dated December 2007, as amended. In April 2014, this agreement was further modified to include the transportation agreement between Duke Energy Egenor S. en C. por A. and Las Flores. This agreement expires in December 2033.

In addition, Kallpa is party to two additional natural gas transportation agreements that expire in April 2030 and April 2033, respectively.

F - 93

Note 20 – Contingent Liabilities, Commitments and Concessions (Cont’d)

Set forth below is a summary of the natural gas transportation services under these agreements (in cubic meters of gas per day):

Periods	Firm		Interruptible
Initial Date – April 21, 2016		3,474,861		1,329,593
April 22, 2016 - March 20, 2020		4,854,312		764,463
March 20, 2020 - January 1, 2021		4,655,000		764,463
January 2, 2021 - March 31, 2030		4,655,000		530,000
April 1, 2030 - March 31, 2033		3,883,831		1,301,169
April 1, 2033 - December 31, 2033		2,948,831		1,301,169

Natural gas distribution services are rendered by Cálidda, under two natural gas distribution agreements. Under such agreements, which expire on December 31, 2033, Cálidda is obliged to distribute up to approximately 3,710,000 cubic meters of natural gas per day to Kallpa combined-cycle plant and 1,144,312 cubic meters of natural gas per day to Las Flores power plant.

e.	Samay I, Peru

Power Node Bid Awarded

On November 29, 2013, Samay I won one of the public bid auctions promoted by the Peruvian Investment Promotion Agency (“Proinversion”) to build an open cycle diesel and natural gas (dual-fired) thermoelectric plant in Mollendo, Arequipa (southern Peru), with an installed capacity of approximately 616 MW (when operated with diesel fuel). The two- bid auction, which was won by Samay I and a subsidiary of Engie, is part of an effort by the Peruvian government to promote the construction of a power node in southern Peru, which will be fueled by natural gas once a natural gas pipeline (the Gasoducto Sur Peruano) delivers gas to the area.

The Samay I plant is expected to have three operational stages. First, it will operate as a cold reserve plant with diesel until natural gas becomes available in the area through a pipeline currently under construction. It is uncertain when the pipeline will be completed. Second, once natural gas becomes available to the facility through the new natural gas pipeline, the Samay I plant will have the obligation to operate as a natural gas-fired power plant and will be able to do so with minor investments by us in Samay I’s facilities. When fueled by natural gas, the Samay I plant will have an installed capacity of approximately 720 MW. Finally, following an additional investment in the conversion of the Samay I plant, which we have not committed to make, the Samay I plant could operate as a combined cycle thermoelectric plant, which would increase Samay I’s installed capacity to approximately 1,080 MW. Samay I has entered into an agreement with the State of Peru, with a term of 20 years, under which Samay I will receive fixed monthly capacity payments denominated in U.S. Dollars and we will pass-through all of the variable costs during the cold reserve phase. The amount of monthly payments required to make up the total amount to which Samay I is entitled will be calculated by the COES, and will be paid by all generators that form part of the SEIN who, in their turn collect the corresponding fee from their customers through a surcharge in the transmission tariffs applicable to, and payable by, all end consumers. The surcharge does not involve the use of state funds or any appropriation process, being a mechanism that has been used for almost 20 years in Peru to cover the cost of various energy projects.

In addition to receiving a 20-year stream of capacity payments, Samay I has an advantage in being one of only two power generation companies that have defined rights to a natural gas supply and transportation capacity once the Gasoducto Sur Peruano is completed. The developer of such pipeline has a contractual obligation under its concession agreement with the State of Peru to build a branch of the pipeline to connect it with the Samay I plant. Our strategic development of the Samay I plant will provide us with a significant advantageous position in the future southern Peru power node, which will develop once the Gasoducto Sur Peruano is completed. Pursuant to the terms of its tender, Samay I must receive gas and transportation services pursuant to terms which are similar to other power plants located in other parts of Peru and served by the existing TGP pipe line, such as the Kallpa plant. According to Law 29970, natural gas transportation costs of the Samay I plant will be eventually subsidized by additional tariffs on the electricity transmission toll periodically determined by OSINERGMIN with the purpose of decentralizing the generation of electricity with natural gas, which is one of the main purposes of the State of Peru developing the southern Peru power node. ElectroPerú has commenced negotiations with suppliers and concessionaires for the supply and transport of natural gas to each of Samay I and the other plant with a defined right to the firm supply of natural gas. However, as ElectroPerú may not be successful in obtaining an agreement which conforms to the conditions as contemplated in the tender documents of the cold reserve bidding process, we believe Samay I has the right to reject entering into any supply and transportation agreements which do not comply with the conditions set forth in its tender.

Samay I reached COD in May 26, 2016.

F - 94

Note 20 – Contingent Liabilities, Commitments and Concessions (Cont’d)

CDA, Peru

Power Purchase Agreements (PPA)

As of December 31, 2016, CDA has entered into three PPAs which are a 15-year PPA with ElectroPerú to provide 200 MW of capacity and the associated energy that commenced in 2016 a 10-year PPA with Luz del Sur S.A.A., Edelnor and Edecañete, to provide 202 MW of capacity and the associated energy that commences in January 2018, and a 10-year PPA with Edelnor and Edecañete to provide 81 MW that commences in January 2022 which will account for a significant portion of CDA’s expected generation capacity. The PPA with ElectroPerú is denominated in U.S. Dollars and is indexed to the U.S. producer price index. Although CDA operates a hydroelectric plant, its PPAs are indexed to natural gas prices, with exposures to fluctuations in such prices.

g.	OPC, Israel

Power Purchase Agreements (PPA)

On November 2, 2009, OPC signed a PPA with Israel Electric Company Ltd. (“IEC”) whereby OPC undertook to construct a power plant within 49-52 months from the PPA signing date, while IEC undertook to purchase capacity and energy from OPC., over a period of twenty (20) years from the commencement date of COD of the plant. The PPA is a “capacity and energy” agreement, meaning, a right of OPC to provide the plant’s entire production capacity to IEC, and to produce electricity in the quantities and on the dates as required by IEC.

Power Purchase Agreements with end users

The PPA with IEC provides OPC with the option to allocate and sell the generated electricity of the power station directly to end users. OPC has exercised this option and sells all of its energy and capacity directly to end users. Most of the agreements are for a period of 10 years. The consideration tariff, are based on the time of use electricity tariff (“TAOZ”), the generation component of the time of use electricity tariff, less a discount from the generation component. Both the TAOZ and the generation component are determined by the Public Utility Authority - Electricity (“PUA”) and are updated from time to time.

If the consideration is less than a minimum tariff of the generation component, I.C.Power has the right to terminate the agreements.

The agreements guarantee a certain level of availability of the power plant below which, customers are entitled to compensation.

Natural supply gas agreement

On November 25, 2012, OPC signed an agreement with Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership, Isramco Negev 2 Limited Partnership, Avner Oil Exploration Limited Partnership and Dor Gas Exploration Limited Partnership ("Tamar Partners") regarding the natural gas supply to the power plant. The agreement shall terminate upon the earlier of: a 16 years term as from the date of gas flow to the power plant or until OPC has consumed the entire contractual quantity .In addition, each party has the right to extend the period of the agreement for a period of up two additional years under certain conditions or until the date of consuming the total contract quantity, whichever is earlier ("Tamar Agreement").

The price of the gas is linked to changes in the "Production Cost" Tariff, which is part of TAOZ, and partially linked to the USD representative exchange rate, and includes "a floor price". According to the Tamar Agreement, OPC shall purchase natural gas with a total contractual quantity of 10.6 BCM (billions of cubic meters). OPC is under a “take or pay” obligation regarding a certain annual quantity of natural gas based on a mechanism set forth in the Tamar Agreement. The Tamar Agreement contains certain conditions that provide in the future flexibility to reduce the minimum annual quantity.

On December 28, 2015, the agreement received the Israeli Antitrust Authority, ("Authority") approval.

F - 95

Note 20 – Contingent Liabilities, Commitments and Concessions (Cont’d)

The Tamar Agreement allows curtailing OPC’s gas supply during the interim period in case of a shortage in gas supply, and gives preference, in this scenario, to certain Tamar Partners customers over OPC. However, in December 2012, the Natural Gas Committee published a decision (6/2012) (the "Gas Committee's Decision") with respect to the regulation of the use of the capacity of the gas pipe from the Tamar reserve, in case of a shortage in the gas pipe's capacity, and the foregoing regulation differs from the relevant arrangement in the Tamar Agreement. OPC believes that a proportional (pro rata) allocation as described in the Gas Committee's Decision may increase the quantity of gas received by OPC under the Tamar Agreement, in case of shortage in the capacity of the gas pipe. The manner of implementation of the Gas Committee's decision, if it is implemented, and the potential effect, if any, on the Tamar Agreement are unknown. On April 12, 2016, in preparation for a potential shortage which could have been caused as the result of planned maintenance operations by the Tamar Partners, the Chairman of the Natural Gas Committee sent a notice to the buyers of gas from the Tamar Partners, reflecting a materially different mechanism from the Gas Committee's Decision. According to the foregoing notice, the system's administrator (IEC) shall be responsible for the allocation of gas among the electricity producing gas consumers. In case of shortage, low-pressure distribution grid users shall have preference over high-pressure national transmission systems (such as OPC), which shall be allocated gas proportionally (pro rata). The legal effect of the foregoing notice is unclear, and OPC is unable of assessing its effect on it, if any, in case of potential gas shortage.

During the years 2015 and 2016, the Electricity Authority (“EA”, formerly known as PUA) updated the generation component of the TAOZ. This tariff is used to determine the price calculation between OPC and the end users, and for the natural gas price indexation. As a result of these adjustments, the generation component was reduced in about 10% starting February 2015 and in about 5% starting September 13, 2015. A decline in generation component will result in a corresponding decline in the rates the Group charges its customers and, accordingly, its revenues. In December 2016, the EA published its decision regarding an update of the generation component of the TAOZ, which became effective on January 1, 2017, and further reduced the generation component tariff by approximately 0.5% from NIS 265.2 per MWh to NIS 264 per MWh (as opposed to the 8% reduction that was initially proposed in the October 2016 EA draft decision) . However, as part of the December 2016 EA decision, TAOZ was also adjusted to reflect a decrease in certain payments made by IPPs to the IEC. As a result of such adjustment, OPC’s tariffs effectively increased by approximately 2% (despite the 0.5% reduction in the generation component tariff). The next annual update of the generation component tariff is expected to be conducted in December 2017.

System Management Charges

Since 2013, the EA had been in the process of determining a system cost tariff. In August 2015, the EA published a decision that IPPs in Israel would be obligated to pay system management service charges, which charges are retroactively effective as of June 1, 2013. According to the EA decision, as amended in September 2015, the amount of system management service charges that would be payable by OPC from the effective date of June 1, 2013 to June 30, 2015, was approximately NIS 159 million (approximately $41 million), excluding interest rate and linkage costs, based upon the “average rate” of the system management service charges. However, as the rate of the new system management service charges, like other rates of the EA, varies by season (e.g., summer and winter) and by demand period (peak, shoulder and off-peak), IEC’s final calculation of the amount payable by OPC was based upon the applicable time of use rates, which provides different energy rates for different seasons (e.g., summer and winter) and different periods of time during the day, or “Time of Use” rates. In December 2015, OPC received an invoice from IEC (in its capacity as the system manager) regarding the NIS 163 million (approximately $42 million) amount of system management service charges that would be payable by OPC for such period, including interest rate and linkage costs.

In February 2016, OPC paid NIS154 million (approximately $40 million) to IEC in satisfaction of this amount (excluding the interest rate, and linkage costs). In August 2016, the EA published a decision to change the method of calculation of the interest rate and to reduce the interest rate payable by IPPs (including OPC) with respect to system management service charges payable by them from the effective date of June 1, 2013 to September 13, 2015 (amounting to approximately 2.5% of the total amounts payable by IPPs in respect of the system management charges). As a result of the resolution, the system management cost provision was updated to a total amount of NIS 3 million (approximately $768 thousand). The adjustment of the provisions was allocated to the cost of sales and to the finance expenses.

F - 96

Note 20 – Contingent Liabilities, Commitments and Concessions (Cont’d)

h.	AIE, Israel

Power and Steam Purchase Agreement (“PSPA”)

On August 10, 2015, AIE and Hadera Paper entered into two agreements for the supply of electricity and steam to Hadera Paper’s facility:

Short Term PSPA - Pursuant this agreement, AIE will supply steam and electricity until COD of the power plant, which shall be done through the existing energy center.

Long Term PSPA – Pursuant this agreement, AIE will supply steam and electricity during the period commencing upon COD of the power plant and for a period of 18 years thereafter.

In consideration for electricity purchased under each of the PSPAs, Hadera Paper will pay an electricity tariff which is based on a certain discount in comparison with the electricity tariffs charged by the Israeli Electric Company Ltd. The steam price paid by Hadera Paper is subject to adjustment based upon Hadera Paper’s annual steam consumption.

Hadera Paper is under a “take or pay” obligation ("the TOP") regarding a certain annual quantity of steam based on a mechanism set forth in the agreements.

Under the PSPAs, the AIE is obligated to certain availability with respect to the supply of electricity and steam, which obligation excludes unavailability due to events predominately not in the control of the AIE. In addition, in certain circumstances, the AIE may be subject to penalties in the event of delays in the COD of the power plant. AIE’s liability is subject to an annual cap, as set out in the agreements.

Power Purchase Agreements with end users

During 2016, AIE signed 10-year agreements for sale of most of its capacity of its power plant, to end users. The agreements are for a period of 10 years, where under some of the agreements the end user has an early termination right after 5 years giving counter offer 6 months in advance. AIE has the right of first refusal. In addition, under some of the agreements the end user has an early termination right if it constructs a power plant for its needs, provided it gives notice 18 months in advance. The consideration was set based on the TAOZ tariff less a discount from the generation component. If the consideration is less than a minimum tariff of the generation component, has the right to terminate the agreements and to sell the electricity to the IEC, in accordance with the PPA agreement.

The agreements include compensation in the event of delay of power plant’s COD and compensation for unavailability of the power plant below an agreed minimum level.

Gas Sale and Purchase Agreement (“GSPA”)

On January 25, 2012, Hadera Paper entered into a gas sale and purchase agreement (hereinafter- the “GSPA”) with Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership, Isramco Negev 2 Limited Partnership, Avner Oil Exploration Limited Partnership, Dor Gas Exploration Limited Partnership and Everest Infrastructures Limited Partnership (hereinafter- the “Tamar Partners”) regarding the natural gas supply to Hadera Paper’s existing gas consuming facilities (i.e. the Energy Center) as well as the intendedadditional capacity of the power plant under construction. The agreement was amended on October 16, 2012.

On August 10, 2015, the GSPA was assigned to AIE pursuant to the terms of the share purchase agreement. The GSPA will terminate upon the earlier of 15 years following the commencement of supply from the Tamar reservoir (April 2013) or until the date of consuming the total contract quantity (118,000,000 MMBTU). In addition, both parties have an option to extend the GSPA by up to two years in the event the total contract quantity was not yet consumed by the end of the GSPA term.

The price of the gas is linked to the weighted average generation cost tariff, published by the EA, and includes a “floor price”. In addition, the GSPA includes the TOP regarding a certain annual quantity of natural gas based on a mechanism set forth in the GSPA.

In addition, on September 6, 2016, AIE and the Tamar Partners entered into an additional GSPA (“Additional GSPA”) for the supply of additional quantities of natural gas (in addition to the original GSPA) as of the commissioning of the intended power plant.

F - 97

Note 20 – Contingent Liabilities, Commitments and Concessions (Cont’d)

The additional GSPA will terminate upon the earlier of 15 years following the completion of the commissioning of the power plant (which shall be concluded by no later than March 31, 2019) or until the date of consuming the total contract quantity (68,000,000 MMBTU, which shall be adjusted if and when the additional GSPA were to become on a firm supply basis). In addition, both parties have an option to extend the term of the additional GSPA by up to three years in the event the total contract quantity was not yet consumed by the end of the additional GSPA term.

The price of the gas is linked to the weighted average generation cost tariff, published by the EA, and includes a “floor price.”

Israel Natural Gas Lines Ltd. Agreement for the Transmission of Natural Gas

On July 11, 2007, Hadera Paper signed a gas transmission agreement with Israel Natural Gas Lines Ltd. (hereinafter- “INGL”), which was assigned to AIE on August 10, 2015, in accordance to the SPA. The agreement as amended on June 7, 2013 and March 31, 2015 is extended until July 14, 2018 and governs the transmission of natural gas to the Energy Center. The agreement was further extended and modified by a third amendment on December 28, 2015 which facilitates transmission of natural gas to the power plant, by means of the construction and installation of a new pressure regulation and measurement (PRMS) station, and includes additional commercial terms. The duration of the agreement, as modified by the third amendment, shall be 16 years from an agreed upon “start date” with an option for extension. The “start date” in accordance with the third amendment, will occur within a window of time as stipulated in the agreement. Such window may be postponed due to reasons attributable to changes in specifications of the PRMS or to the land on which the PRMS is to be constructed.

Gas Sale Agreement with Oil Refineries Ltd. (“ORL”)

On December 23, 2015, AIE contracted with ORL for the sale of surplus gas quantities supplied to it pursuant to the Tamar agreement. The agreement is for a period of three years from January 1, 2016, with an option for extension of such period as well as early termination rights. In addition, ORL is under the TOP obligation regarding a certain annual quantity of natural gas based on a mechanism set forth in the agreement. AIE has an option to stop selling gas if it reaches the commercial operation earlier than expected or in February 2018 with prior written notice.

SerIDOM Servicios Integrados

On January 21, 2016 AIE contracted with SerIDOM Servicios Integrados IDOM, S.A.U (hereinafter – "SerIDOM") for the design, engineering, procurement and construction of combined cycle cogeneration power plant, with an installed capacity of 140 MW, on lump sum, turnkey basis. In accordance with the EPC contract, SerIDOM committed to complete construction of the power plant by July 2018. The total cost of the contract is approximately $150 million. Payment of the consideration is based on progress of the construction and compliance with milestones. SerIDOM committed to compensate AIE in a case of delay or non-compliance with any of its contractual obligations up to the amounts stipulated in the EPC contract, and provided AIE a bank guarantee and a parent company guarantee to secure these commitments.

In September 2016, Hadera entered into a Variation Order to the EPC contract in the scope of which the payments to SerIDOM were increased by approximately $4 million and an extension of time for construction completion was provided within the second half of 2018.

i.	Energuate, Guatemala

Power Purchase Agreements and Spot Market Purchases

Energuate purchases the electricity it distributes to its customers through PPAs with generation companies including, for example, our subsidiary Puerto Quetzal. Guatemalan distribution companies are required by the General Electricity Law to maintain PPAs with generating companies at all times to cover 100% of the maximum expected demand for the current year, as well as the next year. Should the contracted capacity and electricity under its PPAs be insufficient to meet the demand of its customers, Energuate makes purchases on the spot market, only if authorized by CNEE.

As of December 31, 2016, Energuate was party to over 80 PPAs. Distribution companies can only purchase capacity and energy and enter into PPAs through a public bidding process supervised by the CNEE.

F - 98

Note 20 – Contingent Liabilities, Commitments and Concessions (Cont’d)

The following table sets forth the supplier, the amount of contracted capacity and the expiration date of Energuate’s PPAs entered into with our five largest suppliers of capacity as of December 31, 2016, covering 67% of our collective contracted capacity.

Supplier	Contracted Capacity (MW)		Expiration Date
Jaguar Energy Guatemala LLC		200	April 2030
INDE		162	April 2017 –April 2032
Energía del Caribe		60	April 2030
Renace, S.A.		55	April 2030 –April 2033
Hidro Xacbal, S.A.		30	April 2030 –April 2032

Under most of its PPAs, Energuate pays a capacity charge and an energy charge. Energuate pays a specified amount for each MW of capacity purchased under these PPAs and an electricity charge for the KWh of electricity actually delivered to Energuate. Most of Energuate’s PPAs also provide that the electricity charge is indexed to changes in published quotations for the type of fuel used by the generator. In addition, Energuate is required to pay certain additional costs incurred by the generators to provide electricity including connection costs, transmission tolls, additional costs imposed by the CNEE and other similar costs.

In addition, Energuate has entered into 59 PPAs that will begin starting 2017. The following table establish the five largest suppliers for these contracts, covering 69% of the contracted capacity for the next few years.

Supplier	Contracted Capacity (MW)		Expiration Date
Ingenio la Unión S.A		90	April 2018 – April 2020
Ingenio Magdalena		72	April 2018 –April 2032
INDE		51	April 2018 - April 2032
Renace S.A		31	April 2030 –April 2033
Energía Limpia de Guatemala S.A		21	April 2032

Concession from the Guatemalan Government

In 1998, Energy and Mining Ministry of Guatemala authorized DEORSA and DEOCSA, for a term of 50 years, to operate in the east and west areas of the country.

The authorization granted for the Concessions can either be terminated (i) at the end of the original term (2048) or (ii) by the regulatory authorities due to non-compliance of the obligations assumed in the Concessions, in accordance with the procedures set in the Title III, Chapter III of the General Electricity Law. Once the authorization is terminated, rights and goods relating to the Concessions will be auctioned publicly as an economic unit, within one hundred and eighty (180) days. The former concessionaire can participate of the auction process except in the event the authorization had been terminated for poor quality of the service. From the value obtained in the auction process, the Ministry of Energy and Mining will deduct the expenses incurred and debts that the former concessionaire may have and the remaining amount will be transferred to the former concessionaire.

j.	Nejapa El Salvador

Power Purchase Agreements (PPA)

In May 2013, Nejapa entered into two PPAs that were awarded as a result of two tenders for 71.2 MW and 38.8 MW of capacity, with 54-month and 48-month terms, respectively. Each PPA was divided among the seven distribution companies that conducted the tenders. The term of each PPA commenced in August 2013.

In December 2014, Nejapa entered into PPA with seven distribution companies for 30 MW of capacity with 36-month term starting from January 2015 .

F - 99

Note 20 – Contingent Liabilities, Commitments and Concessions (Cont’d)

k.	Poliwatt, Guatemala

Power Purchase Agreements (PPA)

As of December 31, 2016, Poliwatt has entered into thirteen PPAs with no related parties to provide capacity and energy of 175 MW. These contracts have various commencement dates, and vary in duration between 2017 and 2020.

Also, Poliwatt has entered into seven PPAs with related parties as of December 31, 2016, to provide capacity and energy of 69 MW. These contracts have various commencement dates, and vary in duration between 2017 and 2020.

l.	I.C. Power Nicaragua, Nicaragua

Power Purchase Agreements (PPA)

As of December 31, 2016, Tipitapa Power Company and Empresa Energetica Corinto have entered into two PPAs with Distribuidora de Electricidad del Norte (“DISNORTE”) and Distribuidora de Electricidad del Sur (“DISSUR”) to supply and sell energy and capacity.

In addition, Consorcio Eólico Amayo and Consorcio Eólico Amayo (Fase II) also entered into PPAs with these distribution companies, and are committed to supply and sell all the energy at the supply node as part of the wholesale market.

These contracts have various commencement dates, and vary in duration, as follows:

			Contracted
			Capacity
Company	Commencement	Expiration	(MW)
Tipitapa Power Company	June 1999	December 2018		51
Empresa Energetica Corinto	April 1999	December 2018		50
Consorcio Eólico Amayo	March 2009	March 2024		40
Consorcio Eólico Amayo (Fase II)	March 2010	March 2025		23

m.	Kanan Overseas I, Inc, Panama

Power Purchase Agreement

In October 2014, Kanan was awarded a contract to supply energy with a maximum contractual capacity of 86 megawatts with distributions companies for a 5 year term that effectively started in December, 2015. Kanan reached commercial operations in March 2016.

Jamaica Power Private Company (JPPC), Jamaica

Power Purchase Agreement

JPPC entered into a Power Purchase Agreement with Jamaica Public Service Company Limited (JPS). JPS will purchase the contract capacity (60MW), as defined, at specified rates under a dispatchable arrangement. The agreement expires 20 years from the commercial operations date of January 1998 and may be extended for successive periods of 5 years upon mutual agreement.

F - 100

Note 21 – Share Capital and Reserves

Share Capital

	Company No. of shares
		(’000)
		2016	2015
Authorised and in issue at January, 1		53,694	23,500
Authorised and in issued as part of the spin-off from IC		—	29,883
		53,694	53,383
Issued for share plan		26	311
Authorised and in issue at December. 31		53,720	53,694

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 share are fully paid with no par value.

The capital structure of the Company comprises of issued capital and accumulated profits. The management manages its capital structure to ensure that the Company will be able to continue to operate as a going concern. The Company is not subjected to externally imposed capital requirement.

Issuance of ordinary shares

In 2016, 25,692 (2015: 310,960) ordinary shares were granted under the Share Incentive Plan to key management at an average price of $9.34 (2015: $19.76) per share.

Translation reserve

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).

Capital reserves

Capital reserves reflect the unrealized portion of the effective part of the accrued net change in the fair value of hedging derivative instruments that have not yet been recorded in the statement of profit or loss.

Kenon's share plan

Kenon has established a share incentive plan for its directors and management. The plan provides grants of Kenon shares, as well as stock options in respect of Kenon’s shares, to directors and officers of the Company, and IC pursuant to awards, which may be granted by Kenon from time to time, representing up to 3% of the total issued shares (excluding treasury shares) of Kenon. During 2015 and 2014, Kenon granted awards of shares to certain members of its management. Such shares are vested upon the satisfaction of certain conditions, including the recipient’s continued employment in a specified capacity and Kenon’s listing on each of the NYSE and the TASE. The fair value of the shares granted in 2016 is $240 thousand (2015: $940 thousand, 2014: $5 million) and was determined based on the fair value of Kenon’s shares on the grant date. Kenon recognized $547 thousand as general and administrative expenses in 2016 (2015: $566 thousand, 2014: $5 million).

F - 101

Note 22 – Cost of Sales and Services

	For the Year Ended December 31
	2016		2015			2014
	$ thousands
Capacity and energy purchases and transmission costs (a)		670,452		292,242			276,652
Fuel, gas and lubricants (b)		458,427		468,343			502,170
Payroll and related expenses		55,647		35,635			31,369
Regulatory expenses		57,878		(8,025	)		14,146
Third party services		37,671		12,581			10,838
Plant unavailability		6,946		—			—
Intermediation fees (c)		4,670		6,223			—
Maintenance expenses		41,489		37,470			26,787
Other		25,390		18,386			119,179
		1,358,570		862,855			981,141

(a)	In 2016, it includes energy purchases of $355,554 thousand incurred by distribution companies.

(b)	Fuel cost is primarily heavy fuel oil consumed by the thermal plants in El Salvador, the Dominican Republic, Jamaica, Nicaragua and Guatemala.

(c)	Fees paid by Kallpa in relation to the profit shared on certain PPAs signed with distribution companies.

Note 23 – Selling, General and Administrative Expenses

	For the Year Ended December 31
	2016		2015		2014
	$ thousands
Payroll and related expenses		57,549		45,731		57,669
Depreciation and amortization		12,686		9,130		7,724
Professional fees		34,125		23,377		37,944
Other expenses		42,396		25,585		27,781
		146,756		103,823		131,118

F - 102

Note 24 – Other Income and Expenses

	For the Year Ended December 31
	2016		2015		2014
	$ thousands
Other Income
From changes in interest held in associate (See Note 10)		—		—		19,553
Insurance claims (a)		2,525		6,917		7,452
Termination of contract compensation (b)		7,398		550		—
Delays of contract compensation (c)		3,377		—		—
Transfer of assets from customers		1,593		—		—
Release of contingent accrual (d)		1,205		545		—
Dividend income from other companies		—		3,850		18,178
Gain on sale of property, plant and equipment		4		14		—
Other		4,908		3,574		5,854
		21,010		15,450		51,037
Other expenses
Other		5,413		7,076		13,970
		5,413		7,076		13,970

(a)

Corresponds mainly to Consorcio Eolico Amayo (Fase II) and COBEE claims in relation to three wind towers damaged and Sainani plant, respectively.

(b)

Includes termination of contract compensation received by Kallpa from Coelvisac and Compania Minera Raura in 2016 and 2015, respectively.

(c)

Includes compensation received by Energuate for delays in the start of power supply by generators companies.

(d)

Comprise of JPPC holdings release part of its contingent accruals.

Note 25 – Financing Income (Expenses), Net

	For the Year Ended December 31
	2016			2015			2014
	$ thousands
Financing income
Interest income from bank deposits		3,703			2,675			2,226
Net change from change in exchange rates		8,972			-			-
Net changes in fair value of Tower options series 9		-			2,119			8,350
Net change in fair value of derivative financial instruments		1,561			3,400			-
Other income		4,245			5,218			5,667
Financing income		18,481			13,412			16,243
Financing expenses
Interest expenses to banks and others		(182,905	)		(107,419	)		(108,224	)
Net change in fair value of derivative financial instruments		-			-			(592	)
Net change from change in exchange rates		-			(12,554	)		-
Other expenses		(6,694	)		(4,255	)		(1,363	)
Financing expenses		(189,599	)		(124,228	)		(110,179	)
Net financing expenses recognized in the statement of profit and loss		(171,118	)		(110,816	)		(93,936	)

F - 103

Note 26 – Income Taxes

A. Components of the Income Taxes

	For the Year Ended December 31
	2016		2015			2014
	$ thousands
Current taxes on income
In respect of current year		33,975		29,509			95,252
In respect of prior years		331		(294	)		(1,518	)
Deferred tax income
Creation and reversal of temporary differences		25,028		33,163			9,607
Total taxes on income		59,334		62,378			103,341

In 2014, $2 million of previously unrecognized tax losses was used to reduce our current tax expense in Israel. No previously unrecognized tax benefits were used in 2015 or 2016 to reduce our current tax expense.

B.	Reconciliation between the theoretical tax expense (benefit) on the pre-tax income (loss) and the actual income tax expenses

	For the Year Ended December 31
	2016			2015			2014
	$ thousands
(Loss)/profit before taxes on income		(334,668	)		158,270			109,274
Statutory tax rate		17.00	%		17.00	%		26.50	%
Tax computed at the statutory tax rate		(56,893	)		26,906			28,958

Increase (decrease) in tax in respect of:
Elimination of tax calculated in respect of the Group’s share in losses of associated companies		31,463			52,148			45,288
Income subject to tax at a different tax rate		25,859			(3,209	)		12,846
Non-deductible expenses		49,715			7,818			8,442
Tax in respect of foreign dividend		—			—			8,047
Exempt income (a)		(754	)		(41,160	)		(21,145	)
Taxes in respect of prior years		331			(294	)		(1,518	)
Impact of change in tax rate		6,857			—			(3,131	)
Changes in temporary differences in respect of which deferred taxes are not recognized		1,419			580			(3,795	)
Tax losses and other tax benefits for the period regarding which deferred taxes were not recorded		4,415			8,335			16,183
Differences between the measurement base of income reported for tax purposes and the income reported in the financial statements		(1,421	)		12,133			12,519
Other differences		(1,657	)		(879	)		647
Taxes on income included in the statement of profit and loss		59,334			62,378			103,341

(a)

$754 thousand of exempt income effect in Amayo II in Nicaragua in 2016 ($5 million in 2015 and $219 thousand in 2014 including Amayo I and II). $36 million and $21 million of exempt income effect related to gain in distribution of dividend in kind and gain on bargain purchase in 2015 and 2014 respectively.

F - 104

Note 26 – Income Taxes (Cont’d)

C.	Deferred tax assets and liabilities

Deferred tax assets and liabilities recognized

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:

	Property plant and equipment			Employee benefits			Carryforward of losses and deductions for tax purposes			Other			Total
	$ thousands
Balance of deferred tax asset (liability) as at January 1, 2015		(126,749	)		824			46,771			(27,113	)		(106,267	)
Changes recorded on the statement of profit and loss		2,429			(222	)		15,325			(50,695	)		(33,163	)
Changes recorded to equity reserve		—			—			—			3,081			3,081
Translation differences		352			(1	)		(153	)		885			1,083
Changes in respect of business combinations		—			—			—			(124	)		(124	)
Balance of deferred tax asset (liability) as at December 31, 2015		(123,968	)		601			61,943			(73,966	)		(135,390	)
Changes recorded on the statement of profit and loss		(48,212	)		286			28,014			1,741			(18,171	)
Changes recorded to equity reserve		—			61			—			(5,249	)		(5,188	)
Translation differences		(1,495	)		15			398			791			(291	)
Impact of change in tax rate		7,638			—			(5,620	)		(8,875	)		(6,857	)
Changes in respect of business combinations		(41,456	)		748			—			6,355			(34,353	)
Balance of deferred tax asset (liability) as at December 31, 2016		(207,493	)		1,711			84,735			(79,203	)		(200,250	)

The deferred taxes are presented in the statements of financial position as follows:

	As at December 31
	2016			2015
	$ thousands
As part of non-current assets		25,104			2,693
As part of non-current liabilities		(225,354	)		(138,083	)
		(200,250	)		(135,390	)

Income tax rate in Israel is 25% and 26.5% for the years ended December 31, 2016 and December 31, 2015 and 2014, respectively.

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.

F - 105

Note 26 – Income Taxes (Cont’d)

Current income tax from operations in El Salvador includes income tax from the consolidation of Nejapa Power Branch and Cenergica. Income tax rate in El Salvador is 30% for the years ended December 31, 2015, 2014 and 2013. In addition, a 5% to 25% withholding tax is applicable depending on whether the payments are to countries with preferential tax regimes or nil taxes. Currently, Nejapa´s and Cenergica´s parent company is domiciliated in Panama and therefore is subject to 5% withholding tax.

In the Dominic Republic, CEPP was subject to the greater of 27%, 28% and 29% income tax rate on taxable income in 2015, 2014 and 2013, or 1% of taxable assets. During 2015, 2014, and 2013 CEPP qualified to pay income tax on the basis of taxable income; and a 10% withholding tax on dividend distribution.

In Bolivia, I.C. Power has 25% income tax and a 12.5% withholding tax on the Bolivian branch profits credited to the shareholder.

In December 2014, a tax reform Law was enacted in Peru. Among other changes, the Law decreases corporate income tax rates and increases withholding tax rates on dividends. The corporate income tax rate will reduce from 30% in 2014 to: 28%, in 2015 and 2016, to 27%, in 2017 and 2018 and to 26% starting 2019. The withholding tax rates will increase from 4.1% in 2014 to: 6.8% in 2015 and 2016, 8.0% in 2017 and 2018; and 9.3% starting 2019. Kallpa, CDA and Samay I have signed tax stability agreements that expire in 2020, 2022 and 2024, respectively. Only after these tax agreements expire, Kallpa, CDA and Samay I will be affected by the changes in income tax and withholding tax rates described above. On December 27, 2016, Kallpa waived to its tax stability agreement that originally expired in 2020. In December 2016, a new tax reform was enacted, which among other items, supersedes the changes introduced in 2014 related to the corporate income tax and withholding tax rates. Effectively on January 01, 2017 onwards, the corporate income tax and withholding tax rates in Peru will be 29.5% and 5% respectively.

In September 2014, a tax reform in Chile was enacted, which makes substantial changes to the Chilean tax system, including two alternative mechanisms for computing shareholder-level income taxation beginning on January 1, 2017 (accrued income and cash-basis methods), additional corporate tax rate increases, and other substantial modifications. The selection should be made before the end of 2016 and remains in effect for 5 years.

As a result, the corporate income tax rate increased gradually from 20% in 2013 to: 21% in 2014; 22.5% in 2015; and it will increase to 24% in 2016; and 25% in 2017 for shareholders on the accrued income method, and 25.5% in 2017 for shareholders on the cash-basis method. Starting 2018 onwards, the income tax rate will be 25% for shareholders on the accrued income method and 27% for shareholders on the cash-basis method.

In January 2016, a new tax reform was enacted that simplifies the tax reformed published in September 2014. Some types of tax payers are restricted to one of the two regimes, but tax payers eligible for either regime must opt into their preferred regime before December 31, 2016. Cardones and Colmito elected the cash-basis method.

Under the corporate income tax rules, applicable until the end of 2016, business income in Chile is subject to a 24% corporate income tax rate, but such income also is subject to income tax on a cash basis when distributed to the shareholders, at rates that vary depending on whether the shareholder is a resident or a nonresident. Nonresident shareholder are subject to a 35% withholding tax on dividends. The corporate tax paid may be used as a credit against the liability of the shareholders, resulting in an overall income tax rate of 35% on distributed profits for nonresident shareholders.

Starting in 2017, Chilean taxpayers subject to corporate income tax will be subject to one of the following two tax regimes:

•

The fully integrated regime, under which shareholders will be taxed on their share of the profits that area accrued annually by Chilean entity. The combined income tax rate under the regime will be 35%.

•

The partially integrated regime, under which shareholders will be taxed when profits are distributed. The combined income tax rate under the regime generally will be 44.45%; however, foreign shareholders that are resident in a country that has concluded a tax treaty with Chile will be entitled to a full tax credit, and thus may benefit from a combined rate of 35%.

In Nicaragua, Empresa Energética Corinto and Tipitapa Power Company are subject to 25% income tax, based on a Foreign Investment Agreement signed in June 2000, which protect the companies from any unfavorable changes in the tax Law. In addition, Consorcio Eólico Amayo S.A and Consorcio Eólico Amayo Fase II, are tax exempt from income tax payments up to a period of seven years since the beginning of operations of the plants, in accordance with Law No.532 for Electric. I.C. Power Generation with Renewable Sources Incentive. In addition, a 10% to 17% withholding tax is applicable depending on whether the payments are to countries with preferential tax regimes or nil taxes.

In Guatemala, PQP DEOCSA, DEORSA and Guatemel, were subjected to 25% income tax rate in 2016 and 2015. Proposed to raise to 28% in future subject to passing of Bill. Recsa is subjected to a 7% income tax rate over its income. A 5% withholding tax applies on dividend distributions.

F - 106

Note 26 – Income Taxes (Cont’d)

In January 2013, a tax reform was enacted in Colombia, which established an income tax rate of 25%, except for those contributors that by express disposition handle special rates, not less than 3% of the net worth of the shareholders ‘equity on the last day of the immediately previous taxable period. In addition, a 9% equity income tax (CREE) was created as a contribution to generate employment and social investment. During December 2016, the CREE rate was blended within the corporate income tax rate, which implied a hike to 34% for 2017 and 33% for 2018 and subsequent years. In addition, taxpayers reporting taxable income higher than $800 million (Colombian pesos) will pay an additional 6% and 4% income tax rate for the years 2017 and 2018, respectively.

In Singapore, under its one-tier corporate taxation system, profits are taxed at the corporate level at 17% and this is a final tax. Dividends paid by a Singapore resident company under the one-tier corporate tax system should not be taxable.

A Company is liable to pay tax in Singapore on income that is:

Accrued in or derived from Singapore; or

Received in Singapore from outside of Singapore.

Certain categories of foreign sourced income including,

dividend income;

trade or business profits of a foreign branch; or

service fee income derived from a business, trade or

profession carried on through a fixed place of operation in a foreign jurisdiction.

may be exempted from tax in Singapore.

Tax exemption should be granted when all of the three conditions below are met:

The highest corporate tax rate (headline tax rate) of the foreign jurisdiction from which the income is received is at least 15% at the time the foreign income is received in Singapore;

The foreign income had been subjected to tax in the foreign jurisdiction from which they were received (known as the "subject to tax" condition). The rate at which the foreign income was taxed can be different from the headline tax rate; and

The Tax Comptroller is satisfied that the tax exemption would be beneficial to the person resident in Singapore.

The Comptroller will regard the "subject to tax" condition as having met if the income is exempt from tax in the foreign jurisdiction due to tax incentive granted for substantive business activities carried out in that jurisdiction.

Extension of safe habour under Singapore Budget 2016

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 May 31, 2022 (extended from May 31, 2017 to May 31, 2022) 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.

Deferred tax liability on undistributed earnings

Subsidiaries pay dividends on quarterly basis as long as they are in compliance with covenants derived from the borrowings agreements described in Note 15. Deferred tax is recognized for temporary differences related to undistributed earnings in subsidiaries that will reverse it in the foreseeable future. During 2016, the Group recorded an expense of $1 million in relation to this timing difference ($3 million in 2015).

Distributions of the earnings of foreign subsidiaries are subject to the withholding taxes imposed by the foreign subsidiaries´ jurisdictions of incorporation. I.C.Power does not have funds designated for, or subject to, permanent reinvestment in any country in which it operates.

F - 107

Note 27 – Earnings per Share

Data used in calculation of the basic / diluted earnings per share

(Loss)/income allocated to the holders of the ordinary shareholders

	For the Year Ended December 31
	2016			2015		2014
	$ thousands
(Loss)/Income for the year attributable to Kenon’s shareholders		(411,937	)		72,992		458,161
(Loss)/Income for the year from discontinued operations (after tax)		—			—		470,421
Less: NCI		—			—		(3,495	)
(Loss)/Income for the year from discontinued operations (after tax) attributable to Kenon’s shareholders		—			—		466,926
(Loss)/Income for the year from continuing operations attributable to Kenon’s shareholders		(411,937	)		72,992		(8,765	)

Number of ordinary shares

	For the Year Ended December 31
	2016		2015
	('000)
Weighted Average number of shares used in calculation of basic / diluted earnings per share		53,720		53,649

F - 108

Note 28 – Discontinued Operations

(a)

ZIM

Upon completion of the debt arrangement in ZIM, on July 16, 2014, Kenon declined to a rate of holdings of 32% of ZIM’s equity and as a result it ceased to control ZIM. Commencing from this date, Kenon presents its investment in ZIM as an associated company (for details with respect to the debt arrangement – see Note 10.C.a.1. above). ZIM’s results up to the completion date of the debt arrangement, together with the income due to loss of control and the loss due to waiving all ZIM’s debts, were presented separately in the statements of profit and loss in the category “profit/(loss) for the year from discontinued operations”.

Set forth below are the results attributable to the discontinued operations

	Six Months Ended June 30, 2014
	$ thousands
Sales		1,741,652
Cost of sales		(1,681,333	)
Gross profit (loss)		60,319
Operating loss		(17,694	)

Loss before taxes on income		(119,168	)
Taxes on income		(9,735	)
Loss after taxes on income		(128,903	)
Income from realization of discontinued operations		608,603
Income (loss) for the period from discontinued operations		479,700

Net cash flows provided by operating activities		41,031
Net cash flows provided by (used in) investing activities		(24,104	)
Net cash flows used in financing activities		(28,480	)
Impact of fluctuations in the currency exchange rate on the balances of cash and cash equivalents		(801	)
Cash and cash equivalents used in discontinued operations		(12,354	)

(b)

Petrotec AG

In December 2014, ICG sold its equity interest (69%) in Petrotec, ICG received shares of REG, a NASDAQ-listed entity. Petrotec’s results up to the completion date of the sale, together with the loss from the sale were presented separately in the statements of profit and loss in the category “profit/(loss) for the year from discontinued operations”.

Set forth below are the results attributable to the discontinued operations

	Year Ended December 31, 2014
	$ thousands
Sales		221,791
Expenses		(226,323	)
Operating results before taxes on sales		(4,532	)
Taxes on sales		252
Results after taxes		(4,280	)
Loss from realisation of discontinued operation		(4,999	)
Income (loss) for the period from discontinued operations		(9,279	)

Net cash flows provided by operating activities		15,214
Net cash flows used in investing activities		(3,263	)
Net cash flows used in financing activities		(8,644	)
Impact of fluctuations in the currency exchange rate on the balances of cash and cash equivalents		(1,753	)
Cash and cash equivalents used in discontinued operations		1,554

In addition to the cash, ICG received shares of Renewable Energy Group Ltd (“REG”) in value of $18 million. ICG is subject to a lock-up restriction with respect to the REG shares.

F - 109

Note 29 – Segment, Customer and Geographic Information

General

During 2016, the Group increased from two to three reportable segments as a result of 2016 acquisition described in Note 11.A.1.a.

The following summary describes the Group’s reportable segments in 2016:

I.C. Power Generation - I.C. Power through its subsidiary companies, is engaged in the production, operation and sale of electricity in countries in Latin America, the Caribbean region and Israel. It also is engaged in the construction and operation of power stations in Latin America.

I.C. Power Distribution - I.C. Power through its subsidiary companies, is engaged in the distribution of electricity in Guatemala (This segment does not exist in 2015 and 2014 because it was acquired in 2016).

Qoros Automotive – A China-based automotive company that is jointly-owned with a subsidiary of Wuhu Chery, a state controlled holding enterprise and large Chinese automobile manufacturing company.

There were no intersegment sales in 2016.

Information regarding reportable segments

Financial information of the reportable segments is set forth in the following table.

	I.C. Power			I.C. Power
	Generation			Distribution			Qoros*			Other			Adjustments			Total
	$ thousands
2016
Total sales		1,365,229			508,628			—			65			—			1,873,922

Adjusted EBITDA		343,130			77,281			—			(23,532	)		—			396,879
Depreciation and amortization		157,070			14,782			—			529			—			172,381
Financing income		(10,246	)		(4,000	)		—			(16,580	)		12,345			(18,481	)
Financing expenses		166,079			19,034			—			16,831			(12,345	)		189,599
Other items:
Share in losses/(income) of associated companies		(623	)		—			142,534			43,681			—			185,592
Provision of financial guarantee		—			—			—			130,193			—			130,193
Impairment of investments		—			—			—			72,263			—			72,263
		312,280			29,816			142,534			246,917			—			731,547
Income/(loss) before taxes		30,850			47,465			(142,534	)		(270,449	)		—			(334,668	)
Income Taxes		45,177			12,471			—			1,686			—			59,334
Income/(loss) from continuing operations		(14,327	)		34,994			(142,534	)		(272,135	)		—			(394,002	)

Segment assets		4,217,341			599,809			—			112,410			—			4,929,560
Investments in associated companies		8,897			—			117,593			81,743			—			208,233
																	5,137,793
Segment liabilities		3,462,243			542,223			—			239,123			—			4,243,589
Capital expenditure		261,616			28,174			—			49			—			289,839

* Associated Company – See Note 10.A.2, 10.C.b.

F - 110

Note 29 – Segment, Customer and Geographic Information (Cont’d)

	I.C. Power			Qoros*			Other			Adjustments			Total
	$ thousands
2015
Sales to external customers		1,283,624			—			329			—			1,283,953
Inter-segment sales		5,115			—			861			—			5,976
		1,288,739			—			1,190			—			1,289,929
Elimination of inter-segment sales		(5,115	)		—			(861	)		5,115			(861	)
Total sales		1,283,624			—			329			5,115			1,289,068

Adjusted EBITDA		372,356			—			367			—			372,723
Depreciation and amortization		119,427			—			620			—			120,047
Financing income		(10,684	)		—			(2,728	)		—			(13,412	)
Financing expenses		114,713			—			9,515			—			124,228
Other items:
Share in losses/(income) of associated companies		(274	)		196,223			(9,190	)		—			186,759
Gain from distribution of dividend in kind		—			—			(209,710	)		—			(209,710	)
Asset impairment		—			—			6,541			—			6,541
		223,182			196,223			(204,952	)		—			214,453
Income/(loss) before taxes		149,174			(196,223	)		205,319			—			158,270
Income Taxes		62,353			—			25			—			62,378
Income/(loss) from continuing operations		86,821			(196,223	)		205,294			—			95,892

Segment assets		4,068,951			—			44,804			—			4,113,755
Investments in associated companies		8,993			158,729			201,300			—			369,022
														4,482,777
Segment liabilities		3,062,580			—			156,642			—			3,219,222
Capital expenditure		532,544			—			138			—			532,682

2014
Sales to external customers		1,358,174			—			—			—			1,358,174
Inter-segment sales		14,056			—			—			—			14,056
		1,372,230			—			—			—			1,372,230
Elimination of inter-segment sales		(14,056	)		—			—			14,056			—
Total sales		1,358,174			—			—			14,056			1,372,230

Adjusted EBITDA		347,937			—			(43,175	)		—			304,762
Depreciation and amortization		108,413			—			(255	)		—			108,158
Financing income		(8,858	)		—			(38,622	)		31,237			(16,243	)
Financing expenses		131,883			—			9,533			(31,237	)		110,179
Other items:
Share in losses/(income) of associated companies		(13,542	)		174,806			9,633			—			170,897
Asset impairment		34,673			—			13,171			—			47,844
Gain from disposal of investee		(157,137	)		—			—			—			(157,137	)
Gain on bargain purchase		(68,210	)		—			—			—			(68,210	)
		27,222			174,806			(6,540	)		—			195,488
Income/(loss) before taxes		320,715			(174,806	)		(36,635	)		—			109,274
Income Taxes		98,854			—			4,487			—			103,341
Income/(loss) from continuing operations		221,861			(174,806	)		(41,122	)		—			5,933

Segment assets		3,832,012			—			836,596			(784,688	)		3,883,920
Investments in associated companies		9,625			221,038			205,120			—			435,783
														4,319,703
Segment liabilities		2,860,358			—			806,335			(784,688	)		2,882,005
Capital expenditure		592,388			—			12,377			—			604,765

F - 111

Note 29 – Segment, Customer and Geographic Information (Cont’d)

Customer and Geographic Information

Major customers

In 2016, 2015 and 2014, the Group does not have any customers with revenue that constituted 10 percent or more to total consolidated revenue nor material intersegment revenue for the year.

Information based on geographic areas

The Group’s geographic revenues are as follows:

	For the year ended December 31
	2016		2015		2014
	$ thousands
Peru		528,121		447,679		436,673
Guatemala		570,510		108,440		33,000
Israel		356,465		326,061		413,578
Others		418,826		406,888		488,979
Total revenues		1,873,922		1,289,068		1,372,230

The Group’s non-current assets* on the basis of geographic location:

	As at December 31
	2016		2015
	$ thousands
Peru		1,910,421		1,803,233
Guatemala		682,985		46,720
Israel		495,639		456,456
Others		785,033		800,713
Total non-current assets		3,874,078		3,107,122

* Composed of property, plant and equipment and intangible assets.

Note 30 – Related-party Information

Identity of related parties:

The Group’s related parties are as defined in IAS 24 – Related Party Disclosures and included: Kenon’s beneficial owners and Kenon’s subsidiaries, affiliates and associates companies.

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, chief executive officer, chief financial officer, general counsel and vice president of business development, are considered as key management personnel of the Company.

F - 112

Note 30 – Related-party Information (Cont’d)

Transactions with directors and officers (Kenon's directors and officers):

B. Key management personnel compensation

	2016		2015
	$ thousands

Short-term benefits		4,352		4,113
Share-based payments		547		556
		4,899		4,669

Transactions with related parties (excluding associates):

	For the year ended December 31
	2016		2015		2014
	$ thousands
Sales from shipping*		—		—		7,138
Sales of electricity		148,119		135,655		124,636
Operating expenses of voyages and services*		—		—		37,511
Administrative expenses		614		329		2,000
Other income, net		—		—		33
Financing expenses, net		14,475		10,716		17,443

* Presented under discontinued operations.

Transactions with associates:

	For the year ended December 31
	2016		2015		2014
	$ thousands
Sales of electricity		—		5,115		14,056
Operating expenses		—		204		—
Other income, net		178		95		—

F - 113

Note 30 – Related-party Information (Cont’d)

Balances with related parties:

	As at December									As at December 31
	2016									2015
	Ansonia			Other related parties *			Total			Bank Leumi Group			Other related parties *			Total
	$ thousands									$ thousands
Cash and short-term deposit		—			2,462			2,462			190,629			7,148			197,777
Trade receivables		—			12,245			12,245			—			13,462			13,462

Loans and Other Liabilities
In US dollar or linked thereto		45,735			222,971			268,706			—			118,497			118,497
Weighted-average interest rates (%)		6.00	%		7.24	%		6.62	%		—			6.68	%		6.68	%
In CPI-linked Israeli currency		—			—			—			41,677			—			41,677
Weighted-average interest rates (%)		—			—			—			4.94	%		—			4.94	%

Repayment years
Current maturities		—			—						1,833			—
Second year		45,735			—						2,218			—
Third year		—			—						2,353			—
Fourth year		—			—						1,888			—
Fifth year		—			—						2,610			—
Sixth year and thereafter		—			222,971						30,775			118,497
		45,735			222,971						41,677			118,497

IC, Israel Chemicals Ltd (“ICL”), Oil Refineries Ltd (“ORL”).

These balances relate to amounts with entities that are related to Kenon's beneficial owners.

Regarding the ZIM's restructuring and IC’s part in the restructuring, see Note 10.C.a.

Regarding the convertible loan from Ansonia to Quantum, see Note 10.C.b.5

Gas Sale Agreement with ORL, see Note 20.B.h.

The separation agreement

The following summarizes the material provisions of the Separation and Distribution Agreement between Kenon and IC in relation to the consummation of the spin-off. The Separation and Distribution Agreement sets forth, among other things, Kenon agreements with IC in respect of the principal transactions which separated Kenon's businesses from IC and its other businesses. The Separation and Distribution Agreement also sets forth other agreements that govern the distribution, as well as certain aspects of our relationship with IC after the consummation of the spin-off. See Note 1.B for transactions between Kenon and IC since the spin-off.

Transfer of Assets and Assumption of Liabilities

The Separation and Distribution Agreement identified the assets to be transferred, the liabilities to be retained by IC or assumed by Kenon, and the contracts to be retained by IC or assigned to Kenon in relation to the spin-off and transfer of IC’s interests, direct or indirect, in each of I.C. Power, Quantum (the holder of IC’s 50% equity interest in Qoros), ZIM, Tower and ICG to Kenon.

Concurrent with the transfer of the aforementioned businesses to Kenon, IC assigned and transferred to Kenon, IC’s full rights and obligations according to, and in relation to, certain loans it has provided to, and certain undertakings it had made in respect of, these businesses. Set forth below is a summary of the material rights and obligation that IC transferred to Kenon in relation to the spin-off:

F - 114

Note 30 – Related-party Information (Cont’d)


Business	Instrument	Outstanding Amount as of December 31, 2014

Financial Instruments

Qoros	Capital note issued by Quantum to IC	$626 million

I.C. Green	Capital note issued by ICG to IC	NIS 508 million (approximately $131 million)
I.C. Green	Loan borrowed by ICG	22 million Euro (approximately $27 million)

Qoros	Shareholder loan to be provided to Qoros	In February 2015, Kenon provided RMB400 million (approximately $65 million) as a shareholder loan to Qoros, subject to the release of IC’s back-to-back guarantees in respect of certain of Qoros’ indebtedness.

Additionally, certain guarantees and undertakings made by IC in relation to OPC’s financing agreement shall not be transferred to Kenon and, instead, have been replaced with guarantees or undertakings of I.C. Power, as well as a provision of cash collateral, so that IC is released from its obligations under the existing guarantee or undertaking, as applicable.

Representations and Warranties

Other than certain limited corporate representations and warranties made by Kenon and IC, neither Kenon nor IC make any representations or warranties regarding any assets or liabilities transferred or assumed, any consents or approvals that may be required in relation to such transfers or assumptions, the value or freedom from any lien or other security interest of any assets transferred, the absence of any defenses relating to any claim of either party or the legal sufficiency of any conveyance documents, or any other matters. Except as expressly set forth in the Separation and Distribution Agreement or in any ancillary agreement, all assets were transferred on an “as is,” “where is” basis.

Termination

The Separation and Distribution Agreement provides that it may be terminated by IC at any time in its sole discretion prior to the consummation of the spin-off.

Release of Claims

Except with respect to (i) those legal proceedings pending against IC at the time of the consummation of the spin-off, and that relate to any of the businesses to be transferred to Kenon, and (ii) certain other exceptions set forth in the Separation and Distribution Agreement, Kenon shall be liable for the claims of each of the businesses being transferred to it as part of the spin-off, including such claims that arose out of, or relate to events, circumstances or actions occurring or failing to occur, or with respect to any conditions existing prior to, the distribution date.

Indemnification

Kenon and IC agree to indemnify each other against certain liabilities incurred in relation to Kenon respective businesses, and as otherwise allocated to each of us in the Separation and Distribution Agreement. These indemnities are principally designed to place financial responsibility for the obligations and liabilities of our business, and each of our businesses, with us and financial responsibility for the obligations and liabilities of IC and its business with IC. The Separation and Distribution Agreement also specifies procedures with respect to claims subject to indemnification and related matters.

Legal Matters

Kenon agrees to indemnify IC for any liabilities arising after the consummation of the spin-off as a result of legal matters relating to the businesses Kenon will receive in the spin-off.

Allocation of Spin-Off Expenses

The Separation and Distribution Agreement provides that IC will be responsible for all fees, costs and expenses relating to it and will finance all fees, costs and expenses related to Kenon, in each case as incurred prior to the distribution date in relation to the spin-off.

F - 115

Note 30 – Related-party Information (Cont’d)

Other Matters Governed by the Distribution Agreement

Other matters governed by the Separation and Distribution Agreement include access to financial and other information, access to and provision of records, intellectual property, confidentiality, treatment of outstanding guarantees and similar credit support and dispute resolution procedures.

Conditions

The Separation and Distribution Agreement provides that the distribution of our ordinary shares is subject to several conditions that must be satisfied or waived prior to the distribution. Each of IC and Kenon may, in their sole discretion, waive the conditions precedent applicable to their entry into the Separation and Distribution Agreement. IC may, in its sole discretion, at any time prior to the record date of the distribution, decide to abandon the distribution.

Major Shareholders

Beneficial Owner (Name/Address)	Ordinary Shares Owned	Percentage of Ordinary Shares
Ansonia Holdings Singapore B.V. ^{1 *}	31,156,869	58.0%
XT Investments Ltd. ²	5,727,128	10.7%
Directors and Executive Officers ³	—	—

1.	Based solely on the Schedule 13 D/A (Amendment No. 4) filed by Ansonia Holdings Singapore B.V. with the SEC on January 25, 2017. A discretionary trust, in which Mr. Idan Ofer is the prime beneficiary, indirectly holds 100% of Ansonia Holdings Singapore B.V.

3.	Each individual beneficially owns less than 1% of Kenon’s ordinary shares.

* Ansonia Holdings Singapore B.V. is the parent company of Kenon.

F - 116

Note 31 – Financial Instruments

General

The Group has extensive 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. Furthermore, I.C. Power holds derivative financial instruments to hedge its risk in respect of changes in the cash flows of issued bonds, and such instruments are accounting hedges.

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.

Credit risk

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 exist 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.

(1)

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

	As at December 31
	2016		2015
	$ thousands
	Carrying amount
Cash and cash equivalents		326,635		383,953
Short term Deposits and restricted cash		89,545		308,702
Trade receivables		284,532		123,273
Long-term trade receivables		10,120		-
Other current assets		28,462		12,339
Deposits and other long-term receivables including derivative instruments		66,434		40,993
		805,728		869,260

The maximum exposure to credit risk for trade receivables, as of the date of the report, by geographic region was as follows:

	As at December 31
	2016		2015
	$ thousands
Israel		34,779		31,306
South America		93,293		53,325
Central America		155,142		33,361
Other regions		11,438		5,281
		294,652		123,273

F - 117

Note 31 – Financial Instruments (Cont’d)

(2)

Aging of debts and impairment losses

Set forth below is an aging of the trade receivables:

	As at December 31, 2016							As at December 31, 2015
	For which impairment was not recorded		For which impairment was recorded					For which impairment was not recorded		For which impairment was not recorded
	For which impairment was not recorded		Gross		Impairment			For which impairment was not recorded		Gross		Impairment
	$ thousands							$ thousands
Not past due		233,787		8		(8	)		109,502		—		—
Past due up to 3 months		50,723		—		—			12,210				—
Past due 3 – 6 months		9,160		282		(282	)		301		—		—
Past due 6 – 9 months		83		—		—			101		—		—
Past due 9 – 12 months		652		—		—			932		—		—
Past due more than one year		247		4,714		(4,714	)		227		104		(104	)
		294,652		5,004		(5,004	)		123,273		104		(104	)

F - 118

Note 31 – Financial Instruments (Cont’d)

Liquidity risk

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.

As of December 31, 2016, the Group has a negative working capital on a consolidated basis mainly due to I.C. Power’s negative working capital. I.C. Power may seek to extend the final maturity of or refinance its indebtedness. The management believes that they will have sufficient cash resources from operating cashflows and refinance of long-term borrowings that matures in 2017, if necessary, to meet its financial obligations as and when they fall due.

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:

	As at December 31, 2016
	Book value		Projected cash flows		Up to 1 year		1-2 years		2-5 years		More than 5 years
	$ thousands
Non-derivative financial liabilities
Loans from banks and others *		213,417		219,651		219,651		-		-		-
Trade payables		285,612		285,612		285,612		-		-		-
Other payables		160,540		160,540		59,650		10,121		21,718		69,051
Non-convertible debentures **		867,287		1,190,032		58,113		57,217		616,765		457,937
Loans from banks and others **		2,143,499		2,756,851		340,684		244,508		977,251		1,194,408
Liabilities in respect of financing lease		88,169		114,069		13,013		12,171		57,432		31,453
Financial guarantee ***		118,763		118,763		118,763		-		-		-

Financial liabilities – hedging instruments
Interest SWAP contracts		22,865		22,865		9,930		5,788		4,192		2,955
Forward exchange rate contracts		2,399		2,399		1,627		772		-		-

Financial liabilities not for hedging
Interest SWAP contracts and options		2,125		2,125		783		570		688		84
Derivatives from debt restructure		29,594		29,594		-		29,594		-		-
		3,934,270		4,902,501		1,107,826		360,741		1,678,046		1,755,888

* Excludes current portion of long-term liabilities and long-term liabilities which were classified to short-term.

Includes current portion of long-term liabilities and long-term liabilities which were classified to short-term.

***

Financial Guarantees contractual period in Qoros is dependent on Qoros’s timeliness to meet the obligation of current loans payable.

F - 119

Note 31 – Financial Instruments (Cont’d)

	As at December 31, 2015
	Book value		Projected cash flows		Up to 1 year		1-2 years		2-5 years		More than 5 years
	$ thousands
Non-derivative financial liabilities
Loans from banks and others *		179,317		187,484		187,484		—		—		—
Trade payables		145,454		145,454		145,454		—		—		—
Other payables		87,572		87,572		87,572		—		—		—
Non-convertible debentures **		671,247		951,308		69,115		62,267		261,256		558,670
Loans from banks and others **		1,668,977		2,331,220		204,100		214,583		490,088		1,422,449
Liabilities in respect of financing lease		163,774		201,929		35,501		49,955		67,749		48,724
Financial guarantee ***		34,263		179,073		179,073		—		—		—

Financial liabilities – hedging instruments
Interest SWAP contracts		44,059		44,059		10,630		9,474		16,514		7,441
Forward exchange rate contracts		850		850		850		—		—		—

Financial liabilities not for hedging
Interest SWAP contracts and options		3,276		3,276		1,080		1,081		940		175
		2,998,789		4,132,225		920,859		337,360		836,547		2,037,459

* Excludes current portion of long-term liabilities and long-term liabilities which were classified to short-term.

Includes current portion of long-term liabilities and long-term liabilities which were classified to short-term.

***

Financial Guarantees contractual period in Qoros is dependent on Qoros’s timeliness to meet the obligation of current loans payable. $179 million is the maximum projected cash flow in relation to the financial guarantees provided to Chery with respect to the obligation of Qoros.

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, euro, pound, Peruvian Nuevo Sol and yuan (RMB).

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 - 120

Note 31 – Financial Instruments (Cont’d)

Inflation risk

The Group has CPI-linked loans. The Group is exposed to high payments of 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.

(a)

Exposure to CPI and foreign currency risks The Group’s exposure to CPI and foreign currency risk, based on nominal amounts, is as follows:

	As at December 31, 2016
	Foreign currency
	Shekel
	Unlinked		CPI linked			Other
Non-derivative instruments
Cash and cash equivalents		11,810		—			24,240
Short-term investments, deposits and loans		29,137		—			26,198
Trade receivables		34,779		—			172,664
Other receivables		665		—			6,964
Long-term deposits and loans		20,349		—			16,412
Total financial assets		96,740		—			246,478

Loans from banks and others		—		—			34,998
Trade payables		26,913		—			128,512
Other payables		1,093		1,205			17,266
Long-term loans from banks and others and debentures		444		416,266			465,262
Total financial liabilities		28,450		417,471			646,038

Total non-derivative financial instruments, net		68,290		(417,471	)		(399,560	)
Derivative instruments		—		—			(2,421	)
Net exposure		68,290		(417,471	)		(401,981	)

	As at December 31, 2015
	Foreign currency
	Shekel
	Unlinked			CPI linked			Other
Non-derivative instruments
Cash and cash equivalents		103,844			—			39,892
Short-term investments, deposits and loans		73,112			—			5,305
Trade receivables		31,306			—			40,456
Other receivables		12,789			—			4,537
Long-term deposits and loans		19,565			—			17,865
Total financial assets		240,616			—			108,055

Loans from banks and others		—			—			(7,083	)
Trade payables		(31,045	)		—			(20,856	)
Other payables		(2,484	)		(2,469	)		(11,384	)
Long-term loans from banks and others and debentures		(5,494	)		(473,151	)		(59,356	)
Loans and capital notes from the parent company		—			—			—
Total financial liabilities		(39,023	)		(475,620	)		(98,679	)

Total non-derivative financial instruments, net		201,593			(475,620	)		9,376
Derivative instruments		—			—			—
Net exposure		201,593			(475,620	)		9,376

F - 121

Note 31 – Financial Instruments (Cont’d)

(b) Sensitivity analysis

A strengthening of the dollar exchange rate by 5%–10% against the following currencies and change of the CPI in rate of 5%–10% 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 analysis is performed on the same basis for 2014.

	As at December 31, 2016
	10% increase			5% increase			5% decrease			10% decrease
	$ thousands
Non-derivative instruments
Shekel/dollar		6,208			3,252			(3,252	)		(6,208	)
CPI		(37,952	)		(19,880	)		19,880			37,952
Dollar/other		(44,447	)		(21,044	)		19,037			36,332

	As at December 31, 2015
	10% increase			5% increase			5% decrease			10% decrease
	$ thousands
Non-derivative instruments
Shekel/dollar		40,718			21,596			(24,415	)		(52,081	)
CPI		(56,247	)		(28,123	)		28,123			56,247
Dollar/other		1,017			482			(436	)		(833	)

(2)

Interest rate risk

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.

Type of interest

Set forth below is detail of the type of interest borne by the Group’s interest-bearing financial instruments:

	As at December 31
	2016			2015
	Carrying amount
	$ thousands
Fixed rate instruments
Financial assets		157,121			401,671
Financial liabilities		(1,530,715	)		(1,431,787	)
		(1,373,594	)		(1,030,116	)

Variable rate instruments
Financial assets		20,167			29,363
Financial liabilities		2,600,799			(1,132,904	)
		(2,580,632	)		(1,103,541	)

F - 122

Note 31 – Financial Instruments (Cont’d)

Type of interest (Cont’d)

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.

	As at December 31, 2016
	100bp increase			100 bp decrease
	$ thousands
Variable rate instruments		(25,806	)		25,806

	As at December 31, 2015
	100bp increase			100 bp decrease
	$ thousands
Variable rate instruments		(11,035	)		11,035

Fair value

(1)

Fair value compared with carrying value

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.

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.

	As at December 31, 2016
	Carrying amount		Level 2
	$ thousands
Non-convertible debentures		867,287		947,786
Long-term loans from banks and others (excluding interests)		2,116,740		2,354,612

	As at December 31, 2015
	Carrying amount		Level 2
	$ thousands
Non-convertible debentures		671,247		764,878
Long-term loans from banks and others (excluding interests)		2,003,443		2,197,177

The fair value is 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.

F - 123

Note 31 – Financial Instruments (Cont’d)

(2)

Hierarchy of fair value

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.

	As at December 31, 2016		As at December 31, 2015
	Level 2		Level 1		Level 2		Level 3
	$ thousands		$ thousands
Assets
Marketable securities held for trade		—		6,412		—		—
Tower-series 9 options		—		12,175		—		—
Derivatives not used for accounting hedge (a)		3,173		—		2,864		—
		3,173		18,587		2,864		—
Liabilities
Financial guarantee		—		—		—		34,263
Derivatives used for accounting hedge		25,264		—		44,909		—
Derivatives not used for accounting hedge		2,125		—		3,276		—
Other financial derivatives		29,594		—		—		—
		56,983		—		48,185		34,263

(a) Includes $3 million AIE’s embedded derivative not used for hedging. This embedded derivative corresponds to the fair value of AIE’s gas agreement which lets AIE to resell its not-used gas on the corresponding market to a third party.

(3)

Data and measurement of the fair value of financial instruments at Level 2

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 - 124

Note 31 – Financial Instruments (Cont’d)

The following table shows the valuation techniques used in measuring Level 2 fair values as at December 31, 2016 and 2015, as well as the significant unobservable inputs used.

Type	Valuation technique	Significant unobservable data	Inter-relationship between significant unobservable inputs and fair value measurement
Interest rate Swaps	The Group applies standard valuation techniques such as: discounted cash flows for fixed and variables coupons (estimated with forward curves) using as discounted rates the projected LIBOR zero coupon curve . The observable inputs are obtained through market information suppliers.	Not applicable	Not applicable
Foreign Exchange Forwards	The Group applies standard valuation techniques which include market observable parameters such as the implicit exchange rate calculated with forward points. These variables are obtained through market information suppliers.	Not applicable	Not applicable
Credit from banks, others and debentures	Discounted cash flows with market interest rate	Not applicable	Not applicable

Marketable Securities held for trade	DLOM valuation method	Not applicable	Not applicable

(4)

Data and measurement of the fair value of financial instruments at Level 3

Level 3

The fair value of financial guarantee was based on the Merton model using the method known as Monte Carlo Simulation “MCS”. MCS approximates the probability of certain outcomes by running multiple simulations, using various inputs. The MCS performed over the financial guarantee was based on the inputs and the assumption that Qoros has a certain amount of risk-free debt that will be repaid at a later date. The significant unobservable inputs used in the valuation are Qoros’ assets value, debt exercise price and the volatility of its assets. The estimated fair value would increase if the asset value decreased, debt exercise price increased and volatility of its assets in the market.

F - 125

Note 32 – Subsequent Events

Kenon

(a)

Funding to Qoros

On March 10, 2017, Kenon announces that it has agreed to fund the provision of up to RMB777 million (approximately $114 million) to Qoros in relation to the full release of its remaining RMB850 million (approximately $125 million) back-to-back guarantee obligations to Chery in two tranches, which releases Kenon from commitments to pay any related interest and fees to Chery under the guarantees (See Note 10.C.b.8).

(b)

Qoros introduces a new strategic partner

In April 2017, Quantum and Chery entered into an agreement with Yibin Municipal Government ("Yibin"), Sichuan province, People's Republic of China. This provides Yibin a platform to join as a strategic partner to invest in Qoros in connection with the establishment of a New Energy Vehicle manufacturing base. Further agreements are necessary to establish the investment framework for new facilities and the implementation of the strategic cooperation and investment. Such further agreements, once executed, are expected to involve significant investments by Yibin in Qoros, which would dilute Quantum's and Chery's interests in Qoros.

B.	I.C. Power

(a) Samay I

Further to that stated in Note 13.B(4), on January 17 and 31, 2017, Unit 2 and 3 of Samay I power plant restarted commercial operations and became available for system dispatch.

(b) I.C. Power Ltd.

On January 20, 2017, the authority of Singapore approved (i) the change of name of I.C. Power Singapore from “I.C. Power Pte. Ltd.” to “I.C. Power Ltd.”;. and, (ii) the conversion of I.C. Power Singapore from “Private Company Limited by shares” to “Public Company Limited by shares”.

In addition, on January 20, 2017, I.C. Power Singapore conducted a share split whereby each of its ordinary shares was subdivided into 143.03338 ordinary shares following such share split. After the share spilt the number of issued ordinary shares is 80 million.

On February 20, 2017, I.C. Power Singapore, withdrew its US initial public offering, citing market conditions. It had filed to raise $350 million by offering 25.9 million shares at a price range of $12 to $15.

On March 2, 2017, Samay III S.A. and Yesid Gasca Durán (NCI of Supertroil and Surenergy in Colombia) signed an agreement to split the assets of Supertroil and Surenergy. A period of 90 days is established from the date of signature for closing the precedent conditions. As a result of this agreement, Inkia has updated its impairment analysis expecting that the book value of the subsidiaries’ assets will exceed their recoverable amount. Therefore, during the first quarter of 2017 the company is expecting to record an impairment in the amount of approximately $14 million.

(d) Greenday acquisition

On December 29, 2016, I.C. Power Asia Development Ltd executed an agreement to acquire 85% of Greenday Renewable Energy Ltd subject to $550 thousand payment and Anti-Trust Authority's approval, which occurred on January 12, 2017. Greenday has a potential pipeline of over 240 MW of solar fields, andout of which six projects of approximately 50 MW, which are expected to participate in 2017 tenders.

(e)

ICPI acquisition

On April 6, 2017, ICPI has entered into an agreement to acquire 95% of the shares of Zomet Energy Ltd. (“Zomet”) from Ipswich Holdings Netherlands B.V. (47.5%) and Rapac Energy Ltd. (47.5%). Zomet holds the rights to develop a natural gas fired power station at Plugot Junction, Israel with an estimated capacity of approximately 396 MW, in addition to land rights and statutory approvals. Completion of the transaction is subject to the fulfillment of certain conditions, including various regulatory approvals.

The project has been approved as a national infrastructure project by the government and the National Infrastructure Committee of Israel. The natural gas power plant will produce electricity using open cycle technology, and is expected to serve as a peaking unit. The project is expected to be funded through a combination of equity and project finance debt. The Group is currently unable to make an estimate of the financial effect of this event.

F - 126

Note 32 – Subsequent Events (Con’t)

(f)

Update on Kanan

On April 11, 2017, Kanan’s 92 MW power plant in Panama, consisting of a 55 MW barge and, a 37 MW barge which experienced fire with significant damage, and both barges have been placed off-line. There were no injuries resulting from the fire.

I.C. Power intends to seek coverage for the costs of such outage, including repair costs and loss of profit, as appropriate, from insurance coverage (subject to deductibles). I.C. Power's management is still assessing the impact of the damage and the resulting outage, I.C. Power does not expect the fire and outage to have a material adverse effect on I.C. Power's results of operations. I.C. Power is assessing various options to resume the Kanan power plant's operations and a reasonable estimate of the damage will be made after the impact assessment. The Group is currently unable to make an estimate of the financial effect of this event.

F - 127

Qoros Automotive Co., Ltd.

Consolidated financial statements

31 December 2016

F - 128

I ndependent Auditors’ Report

The Board of Directors:

Qoros Automotive Co., Ltd.:

We have audited the accompanying consolidated financial statements of Qoros Automotive Co., Ltd. and its subsidiaries, which comprise the consolidated statements of financial position as of 31 December 2016 and 2015, and the related consolidated statements of profit or loss and other comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended 31 December 2016, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standard Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

F - 129

Opinion

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of Qoros Automotive Co., Ltd. and its subsidiaries as of 31 December 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended 31 December 2016, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/ KPMG Huazhen LLP

Shanghai, China

27 March 2017

F - 130

Consolidated statements of financial position

31 December

In thousands of RMB	Note	2016		2015

Assets
Property, plant and equipment	14		4,219,023		4 , 275,167
Intangible assets	15		4,322,900		4,656,474
Prepayments for purchase of equipment			1,061		59,276
Lease prepayments	16		199,303		203,716
Trade and other receivables	17		91,743		92,202
Pledged deposits	18		8,403		-
Equity-accounted investee			1,987		2,032

Non-current assets			8,844,420		9,288,867

Inventories	19		322,201		244,854
VAT recoverable			807,484		832,503
Trade and other receivables	17		60,091		42,645
Prepayments			13,049		36,431
Available-for-sale financial assets	20		100,000		-
Pledged deposits	18		36,237		113,167
Cash and cash equivalents	21		464,759		257,270

Current assets			1,803,821		1,526 , 870

Total assets			10,648,241		10,815,737

The accompanying notes are an integral part of these consolidated financial statements.

F - 131

Consolidated statements of financial position (continued)

31 December

In thousands of RMB	Note	2016			2015

Equity
Paid-in capital	22		10,425,480			8,331,840
Reserves			53,386			(44	)
Accumulated losses			(10,032,879	)		(8,135,997	)

Total equity			445,987			195,799

Liabilities
Loans and borrowings	23		4,248,660			4,659,718
Deferred income	24		412,083			169,396
Trade and other payables	25		112,488			-
Provisions	26		55,516			20,964

Non-current liabilities			4,828,747			4,850,078

Loans and borrowings	23		2,641,486			2,829,470
Trade and other payables	25		2,684,669			2,615,541
Deferred income	24		47,352			324,849

Current liabilities			5,373,507			5,769,860

Total liabilities			10,202,254			10,619,938

Total equity and liabilities			10,648,241			10,815,737

Approved and authorised for issue by the Board of Directors on 27 March 2017.

The accompanying notes are an integral part of these consolidated financial statements.

F - 132

Consolidated statements of profit or loss and other comprehensive income

For the year ended 31 December

In thousands of RMB	Note	2016			2015			2014

Revenue	7		2,511,925			1,459,339			864,957
Cost of sales			(3,008,831	)		(1,713,043	)		(1,019,264	)

Gross loss			(496,906	)		(253,704	)		(154,307	)

Other income	8		77,128			36,690			37,349
Research and development expenses	9		(204,242	)		(278,008	)		(264,019	)
Selling, general and administrative expenses	10		(762,966	)		(1,559,995	)		(1,518,822	)
Other expenses	11		(106,577	)		(74,174	)		(62,716	)

Operating loss			(1,493,563	)		(2,129,191	)		( 1,962,515	)

Finance income	12(a)		16,573			13,429			25,822
Finance costs	12(a)		(419,592	)		(359,126	)		(217,337	)

Net finance costs	12(a)		(403,019	)		(345,697	)		(191,515	)

Share of (loss) / profit of equity- accounted investee, net of nil tax			(45	)		7			(123	)

Loss before tax			(1,896,627	)		(2,474,881	)		(2,154,153	)
Income tax expense	13		(255	)		(575	)		(533	)

Loss for the year			(1,896,882	)		(2,475,456	)		( 2,154,686	)

Other comprehensive income

Items that are or may be reclassified to profit or loss
Foreign operations - foreign currency translation differences			48			( 18	)		( 154	)

Other comprehensive income, net of nil tax			48			(18	)		(154	)

Total comprehensive income for the year			(1,896,834	)		(2,475,474	)		(2,154,840	)

The accompanying notes are an integral part of these consolidated financial statements.

F - 133

Consolidated statements of changes in equity

For the year ended 31 December

In thousands of RMB	Note	Paid-in capital		Capital reserve		Translation reserve			Accumulated losses			Total

Balance at 1 January 2014			5,931,840		124		(19	)		(3,505,855	)		2,426,090

Loss for the year			-		-		-			(2,154,686	)		(2,154,686	)
Other comprehensive income			-		-		(154	)		-			(154	)

Total comprehensive income			-		-		(154	)		(2,154,686	)		(2,154,840	)

Capital injection from investors			600,000		23		-			-			600,023

Total contributions			600,000		23		-			-			600,023

Balance at 31 December 2014			6,531,840		147		(173	)		(5,660,541	)		871,273

Balance at 1 January 2015			6,531,840		147		(173	)		(5,660,541	)		871,273

Loss for the year			-		-		-			(2,475,456	)		(2,475,456	)
Other comprehensive income			-		-		(18	)		-			(18	)

Total comprehensive income			-		-		(18	)		(2,475,456	)		(2,475,474	)

Conversion of shareholders' loans to capital (Note 22)			1,800,000		-		-			-			1,800,000

Total contributions			1,800,000		-		-			-			1,800,000

Balance at 31 December 2015			8,331,840		147		(191	)		(8,135,997	)		195,799

The accompanying notes are an integral part of these consolidated financial statements.

F - 134

Consolidated statements of changes in equity (continued)

For the year ended 31 December

In thousands of RMB	Note	Paid-in capital		Capital reserve		Translation reserve			Accumulated losses			Total

Balance at 1 January 2016			8,331,840		147		(191	)		(8,135,997	)		195,799

Loss for the year			-		-		-			(1,896,882	)		(1,896,882	)
Other comprehensive income			-		-		48			-			48

Total comprehensive income			-		-		48			(1,896,882	)		(1,896,834	)

Conversion of shareholders' loans to capital (Note 22)			2,093,640		53,382		-			-			2,147,022

Total contributions			2,093,640		53,382		-			-			2,147,022

Balance at 31 December 2016			10,425,480		53,529		(143	)		(10,032,879	)		445,987

The accompanying notes are an integral part of these consolidated financial statements.

F - 135

Consolidated statements of cash flows

For the year ended 31 December

In thousands of RMB	Note	2016			2015			2014

Cash flows from operating activities
Loss for the year			(1,896,882	)		(2,475,456	)		(2,154,686	)
Adjustments for:
Depreciation			361,764			227,477			143,586
Amortisation of
- intangible assets			422,492			236,223			52,315
- lease prepayments			4,413			4,412			4,413
Impairment losses on other receivables			10,859			9,493			-
Net finance costs			403,019			345,697			200,600
Tax expense			255			575			533
Share of profit of equity- accounted, investee, net of tax			45			(7	)		-
Loss on disposal of property, plant, and equipment			2,679			4,813			172
Deferred income			(44,496	)		(11,079	)		(10,638	)

			(735,852	)		(1,657,852	)		(1,763,705	)
Changes in:
- inventories			(77,347	)		(47,332	)		(30,306	)
- trade and other receivables			(30,404	)		(322,106	)		(235,444	)
- VAT recoverable			25,019			170,112			-
- prepayments			23,382			118,224			(51,116	)
- trade and other payables			431,754			560,630			505,094
- pledge deposit			25,576			-			-
- deferred income			9,686			300,000			-

Cash used in operating activities			(328,186	)		(878,324	)		(1,575,477	)

Income taxes paid			(255	)		(575	)		(533	)

Net cash used in operating activities			(328,441	)		(878,899	)		(1,576,010	)

The accompanying notes are an integral part of these consolidated financial statements.

F - 136

Consolidated statements of cash flows (continued)

For the year ended 31 December

In thousands of RMB	Note	2016			2015			2014

Cash flows from investing activities
Interest received			19,131			15,019			15,771
Acquisition of available-for- sale financial assets			(126,000	)		(175,000	)		-
Proceeds from disposal of available-for-sale financial assets			26,000			175,000			32,000
Collection of pledged deposits			10,519			508,093			60,393
Placement of pledged deposits			(10,519	)		(330,420	)		(190,840	)
Acquisition of property, plant and equipment and intangible assets			(595,625	)		(1,334,856	)		(1,943,903	)
Acquisition of equity in associate			-			-			(2,025	)

Net cash used in investing activities			(676,494	)		(1,142,164	)		(2,028,604	)

The accompanying notes are an integral part of these consolidated financial statements.

F - 137

Consolidated statements of cash flows (continued)

for the year ended 31 December

In thousands of RMB	Note	2016			2015			2014

Cash flows from financing activities
Proceeds from borrowings			2,949,985			5,564,733			5,442,286
Repayment of borrowings			(1,470,344	)		(3,644,550	)		(1,649,847	)
Interest paid			(310,863	)		(393,837	)		(325,157	)
Collection of guarantee deposit			55,451			100,219			31,520
Placement of guarantee deposit			(12,500	)		(100,219	)		-

Net cash from financing activities			1,211,729			1,526,346			3,498,802

Net increase/ (decrease) in cash and cash equivalents			206,794			(494,717	)		(105,812	)

Cash and cash equivalents at 1 January			257,270			752,088			857,900

Effect of foreign exchange rate changes			695			(101	)		-

Cash and cash equivalents at 31 December			464,759			257,270			752,088

Tcompanying notes are an integral part of the consolidated financial statements.

F - 138

Notes to the consolidated financial statements

1	Reporting entity

Qoros Automotive Co., Ltd. ("the Company") is a sino-foreign joint equity enterprise established on 24 December 2007 in the People's Republic of China ("PRC") by Wuhu Chery Automobile Investment Co., Ltd ("Wuhu Chery") and Quantum (2007) LLC ("Quantum"). The Company's registered office is Changshu, Jiangsu Province, PRC. The Company has three wholly-owned subsidiaries, Qoros Automotive Europe GmbH incorporated in Germany, Qoros Car Sales Co., Ltd. incorporated in Changshu and Changshu Guanyizhizhong Auto Sales & Service Co., Ltd. incorporated in Changshu ("the Subsidiaries"). These consolidated financial statements comprise the Company and the Subsidiaries (together referred to as the "Group").

The Group's principal activities are research and development, manufacture and sale of automobiles and spare parts.

2	Basis of preparation

(a)	Basis of accounting

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") , which collective terms includes International Accounting Standards and related interpretations, promulgated by the International Accounting Standards Board ("IASB") . They were authorised for issue by the Group's board of directors on 27 March 2017.

(b)	Going concern basis of accounting

The Group incurred a net loss of RMB 1.90 billion for the year ended 31 December 2016. The Group had net current liabilities of approximately RMB 3.57 billion as of 31 December 2016, including short-term bank loans of RMB 1.2 billion and shareholder loans of RMB 1.4 billion.

The Group management has given careful consideration to the future liquidity of the Group and its available sources of finance in assessing whether the Group will have sufficient financial resources to continue as a going concern.

(i)

Renewal of Short-term Credit Facilities

In 2017, the Group has renewed most of its existing short-term credit facilities in the amount of RMB 2,846 million beyond 31 December 2017. Up to the reporting date, all the short-term loans that were due subsequent to 31 December 2016 have been renewed.

F - 139

2	Basis of preparation (continued)

(b)	Going concern basis of accounting (continued)

(ii)

Shareholders' loans

Both shareholders have committed that all shareholder loans outstanding as at 31 December 2016 will be converted to capital upon the approval of the relevant Chinese authority or rolled over beyond 31 December 2017. The Shareholders further lent an additional loan of RMB 388.5 million to the Group in March 2017 and are committed to provide another RMB388.5 million when needed.

(iii)

Improvement in Working Capital Management

The Group believes that it has the ability to negotiate with a number of vendors, for them to provide the Group with lower prices or more favorable payment terms. In addition, the Group has implemented measures to more closely monitor the inventory levels with an aim to improve working capital management and cut down non-core business activities and expenditures, if necessary.

Based on the Group's updated five-year business plan, cash flow forecast, unutilised bank loan facilities, the ability to refinance existing short term loans and extension of payment terms with major vendors, management believes the Group will generate sufficient cash flows to meet its liabilities as and when they fall due in the next twelve months from 31 December 2016. In preparing the cash flow forecast, management takes into consideration the unused bank loan facilities of RMB 205 million as at 31 December 2016 (Note 23), the renewal of short-term credit facilities, the extension of payment to its suppliers, and are of the opinion that the assumptions which are included in the cash flow forecast are reasonable. In the event that market conditions and demand for the Group's products are not as the Group's expected, and despite its best efforts, the Group is unable to extend the payment term with its suppliers, the Group plans to reduce its capital expenditures to meet its commitments and liabilities. Accordingly, the consolidated financial statements have been prepared on a going concern basis. If for any reason the Group is unable to continue as a going concern, then this could have a material impact on the Group's ability to realise assets at their recognised values and to extinguish liabilities in the normal course of business at the amounts stated in the consolidated financial statements.

(c)	Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except that the financial instruments classified as available-for-sale are measured at their fair value (see Note 4 (l)(ii)) .

(d)	Functional and presentation currency

These consolidated financial statements are presented in Renminbi ("RMB", the "presentation currency"), which is also the Company's functional currency. All amounts have been rounded to the nearest thousand unless otherwise stated.

F - 140

3	Change in accounting policy

The IASB has issued a number of amendments to IFRSs that are first effective for the current accounting period of the Group. None of these developments have had a material effect on how the Group's results and financial position for the current or prior periods have been prepared or presented.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.

4	Significant accounting policies

The accounting polices set out below have been applied consistently to all periods presented in these financial statements.

(a)	Basis of consolidation

(i)	Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

(ii)	Interests in equity-accounted investee

The Group has significant influence over, but does not control or jointly control, the financial and operating policies of Fund & Liberty car rental & leasing Co., Ltd. ("Fund"), an entity which the Group held a 25% and 25% equity interest in as of December 31, 2015 and 2016.

The Group accounts for its investment in Fund using the equity method. Under the equity method, interests in equity-accounted investees are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the share of the profit or loss and other comprehensive income ("OCI") of equity-accounted investees, until the date on which significant influence ceases.

(iii)

Transaction eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

F - 141

4	Significant accounting policies (continued)

(b)

Revenue

(i)	Sale of goods

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of value-added tax ("VAT"), consumption tax and other sales taxes, returns or allowances, trade discounts and rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customers, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

(ii)	Rental income

Rental income from operating leases is recognised as revenue on a straight-line basis over the term of the lease. Any lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

(iii)

Licencing income

Licence fee and royalties received for the use of the Group's assets (such as platform technology and patent) are normally recognised in accordance with the substance of the agreement.

(c)	Government grants

Government grants are initially recognised as deferred income at fair value if there is reasonable assurance that they will be received and the Group will comply with the conditions associated with the grant; they are then recognised in profit or loss as other income on a systematic basis over the useful life of the asset.

Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the periods in which the expenses are recognised.

(d)	Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets) and net foreign currency exchange gain (Note (e)(i)) .

Finance costs comprise interest expense on borrowings and net foreign currency exchange losses (Note (e)(i)).

Interest income is recognised using the effective interest method. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

F - 142

4	Significant accounting policies (continued)

(e)	Foreign currency

(i)	Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of the Group companies at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date. Foreign currency differences are generally recognised in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated.

(ii)	Foreign operations

The functional currency of Qoros Automotive Europe GmbH is Euros. The assets and liabilities of Qoros Automotive Europe GmbH, are translated into RMB at exchange rates at the reporting date. The income and expenses of foreign operations are translated into RMB at the exchange rates at the dates of the transactions.

Foreign currency differences are recognised in other comprehensive income and accumulated in the translation reserve.

(f)	Employee benefits

(i)	Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligations to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(ii)	Contributions to defined contribution retirement plans in the PRC

Contributions to local retirement schemes pursuant to the relevant labour rules and regulations in the PRC are recognised as an expense in profit or loss as incurred.

(iii)

Termination benefits

Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are discounted.

F - 143

4	Significant accounting policies (continued)

(g)	Income tax

Income tax expense comprises current and any deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

(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. Current tax is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.

Current tax assets and liabilities are offset only if certain criteria are met.

(ii)	Deferred tax

Deferred tax is recognised 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 recognised for:

temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

temporary differences related to investments in subsidiaries and equity method investees to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

Deferred tax assets are recognised 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 realised, such reductions are reversed when the probability of future taxable profits improves.

Unrecognised deferred tax assets are reassessed at each reporting date and recognised 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.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if certain criteria are met.

F - 144

4	Significant accounting policies (continued)

(h)	Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted-average principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred to bring them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes direct labour and an appropriate share of production overheads based on normal operating capacity .

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

(i)	Property, plant and equipment

(i)	Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the followings:

the cost of materials and direct labour;

any other costs directly attributable to bringing the assets to a working condition for their intended;

when the Group has an obligation to remove the asset 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

capitalised borrowing costs.

If significant parts of an item of property, plant and equipment have different useful lives, 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 (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.

(ii)	Subsequent costs

Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. Ongoing repairs and maintenance is expensed as incurred.

F - 145

4	Significant accounting policies (continued)

(i)	Property, plant and equipment (continued)

(iii)

Depreciation

Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use.

Except for toolings, depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line basis over their estimated useful lives and is generally recognised in profit or loss. Leased assets 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. No depreciation is provided on construction in progress.

The estimated useful lives of property, plant and equipment are as follows:

Buildings 30 years

Equipment 3 - 20 years

Leasehold improvements 3 years

Toolings are depreciated on a systematic basis based on the quantity of related products produced.

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

(j)	Intangible assets

(i)	Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and capitalised borrowing costs. Other development expenditure is recognised in profit or loss as incurred subsequent to initial recognition. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses.

F - 146

4	Significant accounting policies (continued)

(j)	Intangible assets (continued)

(ii)	Other intangible assets

Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.

(iii)

Subsequent expenditure

Subsequent expenditure is capitalised 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 and brands, is recognised in profit or loss as incurred.

(iv)	Amortisation

Amortisation is calculated to write off the cost of intangible assets less their estimated residual values from the date they are available for use using the straight-line method over their estimated useful lives or other systematic basis, and is generally recognised in profit or loss.

Except for capitalised development costs, the estimated useful lives of intangible assets are as follows:

- Software 10 years

Capitalised development costs are amortised on a systematic basis based on the quantity of related products produced.

Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

(k)	Lease prepayments

All land in PRC is state-owned and no private land ownership exists. The Group acquired the right to use certain land and the amounts paid for such right are recorded as lease prepayment. Lease prepayment is carried at historical cost less accumulated amortisation and any impairment losses. Amortisation is calculated on a straight-line basis over the respective periods of the rights.

F - 147

4	Significant accounting policies (continued)

(l)	Financial instruments

The Group classifies non-derivative financial assets into the following categories: loans and receivables and available-for-sale financial assets.

The Group classifies non-derivative financial liabilities into the following categories: financial liabilities at fair value through profit or loss and other financial liabilities category.

(i)	Non-derivative financial assets and financial liabilities - recognition and derecognition

The Group initially recognises loans and receivables and debt securities issued on the date when they are originated. All other financial assets and financial liabilities are initially recognised on the trade date when the entity becomes a party to the contractual provision of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred assets. Any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset or liability.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

(ii)	Non-derivative financial assets - measurement

Loans and receivables

Loans and receivables are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method.

Available-for- sale financial assets

Available-for-sale financial assets are initially measured at fair value plus any directly attributable transaction costs.

Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses are recognised in other comprehensive income and accumulated in the fair value reserve. When these assets are derecognised, the gain or loss accumulated in equity is reclassified to profit or loss.

F - 148

4	Significant accounting policies (continued)

(l)	Financial instruments (continued)

(iii)

Non-derivative financial liabilities - measurement

A financial liability is classified as at fair value through profit or loss if it is classified as held-to-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair value and changes therein, including any interest expenses, are recognised in profit or loss.

Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using effective interest method.

(m)	Impairment

(i)	Non-derivative financial assets

Financial assets not classified as at fair value through profit or loss, including an interest in an equity-accounted investee, are assessed at each reporting date to determine whether there is objective evidence of impairment.

Objective evidence that financial assets are impaired includes:

default or delinquency by a debtor;

restructuring of an amount due to the Group on terms that the Group would not consider otherwise;

indications that a debtor or issuer will enter bankruptcy;

adverse changes in the payment status of borrowers or issuers;

the disappearance of an active market for a security;

observable date indicating that there is measureable decrease in expected cash flows from a group of financial assets.

For an investment in an equity security, objective evidence of impairment includes a significant or prolonged decline in its fair value below its cost. The Group considers a decline of 20% to be significant and a period of nine months to be prolonged.

Financial assets measured at amortised costs

F - 149

4	Significant accounting policies (continued)

(m)	Impairment (continued)

(i)	Non-derivative financial assets (continued)

In assessing collective impairment, the Group uses historical information on the timing of recoveries and the amount of loss incurred, and make an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss is reversed through profit or loss.

Available-for- sale financial assets

Impairment losses on available-for-sale financial assets are recognised by reclassifying the loss accumulated in the fair value reserve to profit or loss. The amount reclassified is the difference between the acquisition cost (net of any principal repayment and amortisation), and the current fair value, less any impairment losses recognised previously in profit or loss. If the fair value of an impaired available-for-sale debt security subsequently increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed through profit or loss. Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss.

(ii)	Non-financial assets

The carrying amounts of the Group's non-financial assets (other than inventories) are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. In addition, intangible assets that are not yet available for use are tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.

F - 150

4	Significant accounting policies (continued)

(m)	Impairment (continued)

(ii)	Non-financial assets (continued)

Impairment losses are recognised 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 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 amortisation, if no impairment loss had been recognised.

(n)	Warranty costs

A provision for warranties is recognised when the underlying products or services are sold, based on estimate by the Group's technicians and by reference to industrial data.

(o)	Provision and contingent liabilities

Provisions are recognised for other liabilities of uncertain timing or amount when the Group or the Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(p)

Leases

The Company's leases are classified as operating leases and are not recognised in the Group's statement of financial position.

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expenses, over the term of the lease.

F - 151

4	Significant accounting policies (continued)

(q)	Related parties

(a)

A person, or a close member of that person's family, is related to the Group if that person:

(i)

has control or joint control over the Group;

(ii)

has significant influence over the Group; or

(iii)

is a member of the key management personnel of the Group or the Group's parent or ultimate controlling shareholders.

(b)

An entity is related to the Group if any of the following conditions applies:

(i)

The entity and the Group are members of the same Group;

(ii)

One entity is an associate or joint venture of the other entity (or an associate of joint venture of a member of a Group of which the other entity is a member);

(iii)

Both entities are joint ventures of the same third party;

(iv)

One entity is a joint venture of a third entity and the other entity is an associate of the third entity;

(v)

The entity is a post-employment benefit plan for the benefit of employees of the Group or an entity related to the Group;

(vi)

The entity is controlled or jointly controlled by a person identified in (a);

(vii)

A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity);

(viii)

The entity, or any member of a group of which it is a part, provides key management personnel services to the group or to the group's parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

F - 152

4	Significant accounting policies (continued)

(r)	Standards and interpretation issued but not yet adopted

Up to date of issue of the Financial Statements, the IASB has issued a number of amendments and new standards which are not yet effective for the year ended 31 December 2016 and which have not been adopted in the Financial Statements. These include the following which may be relevant to the Group.

	Effective for accounting periods beginning on or after

Amendments to IAS 7, Disclosure initiative	1 January 2017

Amendments to IAS 12, Income taxes - Recognition of deferred tax assets for unrealised losses	1 January 2017

Amendments to IFRS 2, Classification and measurement of share-based payment transactions	1 January 2018

Amendments to IFRS 4, Applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts	1 January 2018

IFRIC 22, Foreign currency transactions and advance consideration	1 January 2018

IFRS 15, Revenue from contracts with customers	1 January 2018

IFRS 9, Financial instruments (2014)	1 January 2018

IFRS 16, Leases	1 January 2019

The Group is in the process of making an assessment of what the impact of these amendments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Group's results of operations and financial position, except for the following.

IFRS 15 Revenue from contracts with customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS18 Revenue, IAS11 Construction contracts and IFRIC 13 Customer Loyalty Programmes. It also includes guidance on when to capitalise costs of obtaining or fulfilling a contract not otherwise addressed in other standards, and includes expanded disclosure requirements.

F - 153

4	Significant accounting policies (continued)

(r)	Standards and interpretation issued but not yet adopted (continued)

IFRS 16 Leases

IFRS 16 provides comprehensive guidance for the identification of lease arrangements and their treatment by lessees and lessors. In particular, IFRS16 introduces a single lessee accounting model, whereby assets and liabilities are recognised for all leases, subject to limited exceptions. It replaces IAS 17 Leases and the related interpretations including IFRIC 4 Determining whether an arrangement contains a lease.

The Group does not plan to early adopt the above new standards or amendments. With respect to IFRSs 15 and 16, given the Group has not completed its assessment of their full impact on the Group, their possible impact on the Group's results of operations and financial position has not been quantified.

5	Use of estimates and judgements

In preparing these consolidated financial statements, the management has made judgements, estimates and assumptions that affect the application of the Group's 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 estimates are recognised prospectively.

(a)	Judgements

(i)	Research and development costs

Determining capitalisation of development costs involves management judgements in assessing whether a product is technically and commercially feasible, and whether the Group has sufficient resources to complete development and to use or sell the asset.

(b)	Assumptions and estimation uncertainties

(i)	Depreciation and amortisation

Property, plant and equipment, intangible assets and lease prepayments are depreciated/amortised on a straight-line basis over the estimated useful lives or other systematic basis, after taking into account the estimated residual value. The Group reviews annually the useful life of an asset and its residual value, if any. The useful lives are based on the management's knowledge and historical experience with similar assets and taking into account anticipated technology changes. The depreciation and amortisation expenses for future periods are adjusted if there are significant changes from previous estimates.

F - 154

5	Use of estimates and judgements (continued)

(ii)	Net realisable value of inventories

The management reviews the carrying amounts of the inventories at each reporting period end date to determine whether the inventories are carried at the lower of cost and net realisable value. Management estimates the net realisable value based on the current market situation and their historical experience on similar inventories. Any change in the assumptions would increase or decrease the amount of inventories write-down or the related reversals of write-downs and affect the Group's net asset value.

(iii)

Impairment for non-current assets

If circumstances indicate that the carrying value of property, plant and equipment, lease prepayments, intangible assets may not be recoverable, their recoverable amounts are estimated. An impairment loss is recognised when the recoverable amount has declined below the carrying amounts in accordance with IAS 36, " Impairment of assets ". In addition, for intangible assets that are not yet available for use, the recoverable amount is estimated annually whether or not there is an indication of impairment.

Determining the recoverable amount requires an estimation of the fair value less costs of disposal or the value in use of these assets or the CGU to which these assets belong. It is difficult to precisely estimate fair value of these assets because quoted market prices for most of these assets are not readily available. In determining the value in use, expected cash flows generated by the asset are discounted to their present value, which requires significant judgment relating to level of sales volume, sales revenue and amount of operating costs. The Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sales volume, sales revenue and amount of operating costs.

F - 155

6	Segment reporting

IFRS 8, Operating Segments, requires identification and disclosure of operating segment based on internal financial reports that are regularly reviewed by the Group's chief operating decision maker for the purpose of resources allocation and performance assessment. On this basis, the Group has determined that it have only one operating segment and the amount of each significant category of revenue is disclosed in Note 7.

No revenue derived from sales to a single customer individually accounted for over 10% of the Group's total revenue for the year.

Substantially all (99%) of the Groups plant and equipment, intangible assets and lease prepayments are located in Mainland China.

Revenue

In thousands of RMB	2016		2015		2014

Sales of goods		2,495,479		1,435,136		822,630
Rendering of service
-Rental income		9,150		12,009		41,747
-Others		7,296		12,194		580

Total		2,511,925		1,459,339		864,957

8	Other income

In thousands of RMB	2016		2015		2014

Government grants		35,796		33,024		37,162
Licencing income (Note 24)		30,000		-		-
Others		11,332		3,666		187

Total		77,128		36,690		37,349

F - 156

9	Research and development expenses

Research and development expenses are the expenses incurred for the research and development activities of car platform and models as follows:

In thousands of RMB	2016		2015		2014

CF1X		42,700		169,432		8,964
CF11 and CF11K		28,741		16,355		123,721
CF14 and CF14K		30,390		43,296		30,490
CF16 and CF16BM		51,983		5,415		74,776
Diesel		-		-		20,419
TGDI		23,794		11,777		5,649
Qloud		5,289		31,733		-
BJ6		6,588		-		-
BEV		9,978		-		-
BF16		2,697		-		-
Others		2,082		-		-

Total		204,242		278,008		264,019

10	Selling, general and administrative expenses

In thousands of RMB	2016		2015		2014

Advertising, marketing and promotion		170,288		562,476		574,458
Personnel expenses		166,730		322,293		312,901
Depreciation and amortisation		130,029		205,144		74,221
Office expenses		94,636		125,469		123,869
Consulting fees		61,575		141,728		277,148
Warranty		54,236		25,687		12,978
Logistics		33,530		25,856		12,386
Rental expenses		29,796		30,903		46,403
Others		22,146		120,439		84,458

Total		762,966		1,559,995		1,518,822

F - 157

11	Other expenses

In thousands of RMB	2016		2015		2014

Impairment loss on debts		10,859		9,493		-
Price adjustment on purchase of material and parts (Note 30(c))		72,953		42,877		-
Other taxes and surcharges		13,106		8,066		46,386
Others		9,659		13,738		16,330

Total		106,577		74,174		62,716

12	Loss before income tax

Loss for the year is arrived at after charging:

(a) Net finance costs:

In thousands of RMB	2016			2015			2014

Interest income from available-for-sale financial assets		2			39			720
Interest income from bank deposits		16,571			13,390			16,583
Net foreign exchange gain		-			-			8,519

Finance income		16,573			13,429			25,822

Interest expense		(440,476	)		(386,376	)		(301,908	)
Less: interest expenses capitalised into property, plant and equipment, and development costs		24,603			92,975			84,571

Net foreign exchange loss		(3,719	)		(65,725	)		-

Finance costs		(419,592	)		(359,126	)		(217,337	)

Net finance costs		(403,019	)		(345,697	)		(191,515	)

F - 158

12	Loss before income tax (continued)

(b) Personnel expenses:

In thousands of RMB	2016			2015			2014

Contributions to defined contribution retirement plan		(30,954	)		(34,928	)		(36,710	)
Salaries, wages and other benefits		(253,148	)		(448,836	)		(490,120	)

		(284,102	)		(483,764	)		(526,830	)

Amortisation
- lease prepayment	(4,413	)	(4,412	)	(4,413	)
- intangible assets	(422,492	)	(236,223	)	(52,315	)

	(426,905	)	(240,635	)	(56,728	)
Depreciation
- property, plant and equipment	(361,764	)	(227,477	)	(143,586	)

Operating lease charges
- hire of office rentals	(24,026	)	(28,579	)	(53,340	)
- hire of cars	(2,516	)	(3,515	)	(4,714	)

	(26,542	)	(32,094	)	(58,054	)

F - 159

13	Income taxes

(a) Amounts recognised in profit or loss

In thousands of RMB	2016		2015		2014

Current tax expense - Germany Income Tax

Current year		255		575		533

Under the Corporate Income Tax Law of the PRC (the "CIT Law"), the statutory corporate income tax rate of the Company and its subsidiaries, Qoros Automotive Sales Co., Ltd. and Changshu Guanyizhizhong Auto Sales & Service Co., Ltd., is 25% (2015: 25%).

The statutory corporate income tax rate of Qoros Automotive Europe GmbH, the Group's subsidiary incorporated in Germany, is 15%.

Under the CIT Law and its relevant regulations, qualified R&D expenses are subject to income tax deductions at 150% on the amount actually incurred.

(b) Reconciliation of effective tax rate

In thousands of RMB	2016			2015			2014

Loss before tax		(1,896,627	)		(2,474,881	)		(2,154,153	)
Income tax credit at the applicable PRC income tax rate of 25%		(474,157	)		(618,720	)		(538,538	)
Effect of tax rate differential		99			155			91
Effect of tax losses not recognised		539,836			521,005			448,814
Effect of other temporary differences not recognised		-			98,021			89,857
Recognition of previously unrecognised deductible temporary differences		(65,590	)		-			-
Non-deductible expenses		67			114			309

Income tax expense		255			575			533

F - 160

13	Income taxes (continued)

(c)	Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom:

In thousands of RMB	31 December
	2016		2015		2014

Tax losses		7,506,001		5,457,817		3,373,796
Other temporary differences		2,250,829		2,513,187		2,121,104

Total		9,756,830		7,971,004		5,494,900

Under current tax legislation, the above deductible tax losses will expire in the following years:

In thousands of RMB	31 December 2016

2019		2,476,346
2020		2,474,084
2021		2,555,571

		7,506,001

F - 161

14	Property, plant and equipment

In thousands of RMB	Leasehold improvements			Equipment			Building			Construction in progress			Total

Cost
Balance at 1 January 2015		22,990			2,501,840			1,283,280			439,995			4,248,105

Additions		18,421			2,765			-			530,405			551,591
Transfer		-			13,901			(843	)		(13,058	)		-
Adjustment		-			(47,788	)		(36,294	)		-			(84,082	)
Disposal		-			(5,202	)		-			-			(5,202	)

Balance at 31 December 2015		41,411			2,465,516			1,246,143			957,342			4,710,412

Additions		45,77			3,851			895			335,965			345,288
Transfer		-			1,189,159			43,443			(1,269,669	)		(37,067	)
Disposal		(332	)		(4,401	)		-			-			(4,733	)
Effect of movement in exchange rates		6			103			-			-			109

Balance at 31 December 2016		45,662			3,654,228			1,290,481			23,638			5,014,009

Depreciation
Balance at 1 January 2015		(20,007	)		(143,052	)		(45,098	)		-			(208,157	)

Depreciation for the year		(6,435	)		(180,009	)		(41,033	)		-			(227,477	)
Written off on disposal		-			389			-			-			389

Balance at 31 December 2015		(26,442	)		(322,672	)		(86,131	)		-			(435,245	)

Depreciation for the year		(6,339	)		(304,455	)		(50,970	)		-			(361,764	)
Written off on disposal		332			1,722			-			-			2,054
Effect of movement in exchange rates		(1	)		(30	)		-			-			(31	)

Balance at 31 December 2016		(32,450	)		(625,435	)		(137,101	)		-			(794,986	)

Carrying amount
Balance at 31 December 2014		2,983			2,358,788			1,238,182			439,995			4,039,948

Balance at 31 December 2015		14,969			2,142,844			1,160,012			957,342			4,275,167

Balance at 31 December 2016		13,212			3,028,793			1,153,380			23,638			4,219,023

F - 162

14	Property, plant and equipment (continued)

Leased plant and machinery

The Group leases pressing machinery as a lessor under operating leases. As at 31 December 2016, the net carrying amount of leased machinery was RMB 64,698 thousand (31 December 2015: RMB 73,391 thousand).

Property, plant and equipment under construction

Included in additions of construction in progress is an amount of RMB 24,603 thousand representing borrowing costs capitalised during 2016, (2015: RMB 59,900 thousand; 2014: RMB 24,432 thousand), using a capitalisation rate of 5.04% per annum (2015: 5.72%; 2014: 7.56%).

As at 31 December 2016, all equipment and properties were pledged to bank as security as required by a consortium financing agreement. (Note 23(a)(i))

Impairment test

Management performed an impairment test of the Group's operating assets (primarily the property, plant and equipment, intangible assets and lease prepayments) as of 31 December 2016, based upon the Group's updated business plan for the next five years, due to accumulated operating losses.

The Group's operating assets are allocated to the Group's only cash generating unit ("CGU"). The recoverable amount of the CGU is determined based on fair value less costs of disposal using discounted cash flow projections. These calculations use cash flow projections based on business plan approved by management covering a five-year period ending 31 December 2021 and the terminal value. Cash flows beyond the five-year period are extrapolated using an estimated weighted average growth rate of 3% which is consistent with the forecasts included in independent expert report. The growth rates used do not exceed the long-term average growth rates for the business in which the CGU operates.

As the result of the impairment test showed the recoverable amount of the CGU higher than its book value as at 31 December 2016, no impairment loss is recognised.

F - 163

15	Intangible assets

In thousands of RMB	Software			Development costs			Total

Cost
Balance at 1 January 2015		433,193			4,269,957			4,703,150
Additions		1,659			252,674			254,333

Balance at 31 December 2015		434,852			4,522,631			4,957,483
Additions		493			221,926			222,419
Transfer		37,067			-			37,067
Adjustment		-			(170,607	)		(170,607	)
Effect of movement in exchange rates		47			-			47

Balance at 31 December 2016		472,459			4,573,950			5,046,409

Amortisation
Balance at 1 January 2015		(40,497	)		(24,289	)		(64,786	)
Amortisation for the year		(43,960	)		(192,263	)		(236,223	)

Balance at 31 December 2015		(84,457	)		(216,552	)		(301,009	)
Amortisation for the year		(48,820	)		(373,672	)		(422,492	)
Effect of movement in exchange rates		(8	)		-			(8	)

Balance at 31 December 2016		(133,285	)		(590,224	)		(723,509	)

Carrying amount
Balance at 31 December 2014		392,696			4,245,668			4,638,364

Balance at 31 December 2015		350,395			4,306,079			4,656,474

Balance at 31 December 2016		339,174			3,983,726			4,322,900

The amortisation of software and capitalised development cost is included in the selling, general and administrative expenses and cost of sales, respectively, in the consolidated statement of profit or loss and other comprehensive income.

See Note 25 for payables for research and development activities as at reporting date.

There is no borrowing costs capitalised during 2016 (2015: RMB 33,075 thousand, 2014: RMB 60,139 thousand).

The Company reversed the original cost of development costs capitalised in prior years of RMB 171 million based on final amount confirmed with the suppliers.

Management performed an impairment test of the Group's operating assets as of 31 December 2016. See Note 14 for the result of impairment test.

F - 164

16	Lease prepayments

In thousands of RMB	2016			2015

Cost
Balance at 1 January and 31 December		220,631			220,631

Amortisation
Balance at 1 January		(16,915	)		(12,503	)
Amortisation for the year		(4,413	)		(4,412	)

Balance at 31 December		(21,328	)		(16,915	)

Carrying amount
Balance at 1 January		203,716			208,128

Balance at 31 December		199,303			203,716

As at 31 December 2016 and 2015, the Group's lease prepayments represented the lease prepayments of land use rights located in Changshu, Jiangsu Province. Such lease prepayments were pledged to bank as security for a consortium financing agreement (Note 23(a)(i)).

F - 165

17	Trade and other receivables

(a)	Trade and other receivables in the consolidated statement of financial position comprised:

	31 December
In thousands of RMB	Note	2016			2015

Trade receivables			20,168			5,257
Bills receivables			3,500			-
Deposits			76,805			74,623
Deferred expenses			26,275			31,052
Receivables due from employees			14,813			15,080
Receivables due from related parties	30(c)		16,284			8,638
Others			14,737			10,086

			172,582			144,736

Less: allowance for doubtful debts			(20,748	)		(9,889	)

			151,834			134,847

Non-current			91,743			92,202
Current			60,091			42,645

			151,834			134,847

(b)	Impairment of trade and other receivables

	31 December
In thousands of RMB	2016			2015

Balance at 1 January		(9,889	)		(396	)
Impairment loss recognised		(10,859	)		(9,493	)

Balance at 31 December		(20,748	)		(9,889	)

F - 166

18	Pledged deposits

Pledged deposits in the consolidated statement of financial position comprised:

	31 December
In thousands of RMB	2016		2015

Non-current		8,403		-
Current		36,237		113,167

		44,640		113,167

Guarantee deposits of RMB 44,640 thousand (31 December 2015: RMB 113,167 thousand) have been pledged with various banks to obtain bank financing or to issue letter of credit facilities for purchases. The pledge in respect of the bank deposits will be released with the expiration of the relevant bank guarantees and the letter of credit facilities. Of these deposits, RMB 8.4 million is to be collected beyond one year.

19	Inventories

(a)	Inventory in the consolidated statement of financial position comprised:

	31 December
In thousands of RMB	2016		2015

Raw materials and consumables		81,723		60,181
Work in progress		2,861		5,482
Finished goods		237,617		179,191

Total		322,201		244,854

(b)	The analysis of the amount of inventories recognised as an expense and included in profit or loss as follow:

	31 December
In thousands of RMB	2016		2015

Carrying amount of inventories sold		2,999,396		1,704,515

Total		2,999,396		1,704,515

20	Available-for-sale financial assets

Available-for-sale financial assets as of 31 December 2016 represent a principal non-guaranteed short-term financial product from Industrial and Commercial Bank of China. This product has an expected rate of return of 2.90% per annum. The Company bought the product on 27 December 2016 and collected the principal on 6 January 2017 with an interest income of RMB 69 thousand.

F - 167

21	Cash and cash equivalents

(a)	Cash and cash equivalents comprise:

	31 December
In thousands of RMB	2016		2015

Bank deposits with maturity of 3 months or less		-		1,528
Cash at bank		464,759		255,742

		464,759		257,270

(b)	Investing and financing activities not requiring the use of cash or cash equivalents:

In thousands of RMB	2016		2015

Conversion of debt into capital		2,147,022		1,800,000

22	Paid-in capital

	31 December
In thousands of RMB	2016		2015

Wuhu Chery		5,212,740		4,165,920
Quantum (2007) LLC.		5,212,740		4,165,920

		10,425,480		8,331,840

Wuhu Chery and Quantum (2007) LLC. increased paid-in capital of the Company by converting the loans of RMB 1.8 billion in 2015 and RMB 2.1 billion in 2016 due from the Company.

F - 168

23	Loans and borrowings

		31 December
	Note	2016		2015

Denominated in:
RMB			6,890,146		6,595,866
USD			-		893,322

			6,890,146		7,489,188

Non-current	23(a)		4,248,660		4,659,718
Current	23(b)		2,641,486		2,829,470

			6,890,146		7,489,188

(a)	Non-current loan and borrowings

In thousands of RMB	Note	Banking facility		Accumulated drawdown		Accumulated repayment			Reclassified to current			Balance as at 31 December 2016

Consortium loan I	(i)		3,000,000		2,906,000		(148,188	)		(387,486	)		2,370,326
Consortium loan II	(ii)		1,200,000		1,200,000		-			(30,000	)		1,170,000
Consortium loan III	(iii)		700,000		700,000		-			-			700,000
PingAn	(iv)		62,500		62,500		(4,166	)		(50,000	)		8,334

Total			4,962,500		4,868,500		(152,354	)		(467,486	)		4,248,660

Details of non-current loans and borrowings are set out below.

(i)

Consortium loan I: On 23 July 2012, the Company entered into a consortium financing arrangement with a Group of banks. Under the arrangement, the Company can draw down loans in either RMB or USD, up to an aggregate maximum principal amount of RMB 3 billion. The RMB loan bears the 5-year interest rate quoted by the People's Bank of China from time to time and the USD loan bears interest rate of LIBOR+4.8% per annum. The repayment schedule of loans is based on the instalments schedule as set out in the agreement within 10 years from the first draw down date. The arrangement is secured by the Company's land use right, equipment, properties and construction in progress and is guaranteed by Wuhu Chery and Changshu Port Development and Construction Co., Ltd ("CPDC") respectively. Each party provides guarantee to an aggregate principal amount of no more than RMB 1.5 billion or its equivalent. The guarantee from Wuhu Chery and CPDC are several but not joint. In connection with CPDC's guarantee, the Company made a guarantee deposit of RMB 100 million to CPDC and Wuhu Chery also entered into an agreement to provide a counter-guarantee to CPDC in September 2012. The guarantee deposit was initially recorded in trade and other receivables at fair value and subsequently measured at amortised cost. The difference between RMB100 million and fair value on the initial date was deferred and amortised as interest expenses over the loan period using effective interest rate as the guarantee deposit is directly attributable to the loan.

F - 169

23	Loans and borrowings (continued)

As at 31 December 2016, the Company has drawn down RMB loans of RMB 2,906 million (31 December 2015: RMB 2,906 million) with an interest rate of 4.90% and repaid RMB 148 million accumulatively.

The loans drawn down from this consortium arrangement contains financial related covenants, that is, debt-to-asset ratio not exceeding 65% and current ratio not below 1.0. In 2013, the Company obtained a confirmation from the banks that compliance of the financial covenants is not required for 2013 and 2014. In September 2014, the banks further extended the covenant waiver to July 2017. In 2016, the Company obtained further confirmation from the banks that the compliance of the financial covenants is not required for the next three years until July 2020.

(ii)

Consortium loan II: On 31 July 2014, the Company entered into an additional consortium financing arrangement with a bank consortium. Under this arrangement, the Company can draw down loans in either RMB or USD, up to an aggregate maximum principal amount of RMB 1.2 billion. The RMB loan bears the 5-year interest rate quoted by the People's Bank of China with 10% mark-up and the USD loan bears interest rate of LIBOR+5% per annum. The repayment schedule of loans is based on the instalment schedule as set out in the agreement within 10 years from the first draw down date.

Wuhu Chery Automobile Investment Co., Ltd. and Quantum, shareholders of the Company, have each pledged 17.5% of its then equity interest in the Company, which is being equivalent to a registered capital of RMB 1.1 billion respectively to the bank consortium.

As at 31 December 2016, the Company has drawn down in full an amount of RMB 1.2 billion (31 December 2015: RMB 1.2 billion) with the interest rate of 5.39%.

(iii)

Consortium loan III: On 12 May 2015, the Company entered into a financing arrangement with a bank consortium. Under the arrangement, the Company can draw down loans in either RMB or USD, up to an aggregate maximum principal amount of RMB 700 million. The loan agreement covers a period of 102 months starting from 15 May 2015, secured by Chery Automobile Co., Ltd ("Chery") and pledged by the Company's 90 vehicle patents with an appraisal value totalling no less than RMB 3.1 billion. The RMB loan bears the 5-year interest rate quoted by the People's Bank of China with 10% mark-up and the USD loan bears interest of LIBOR+3.5% per annum. Kenon Holdings Ltd. ("Kenon") provided a back-to-back guarantee to Chery for RMB 350 million, plus up to RMB 60 million of related fees, in connection with the Company's drawdown of RMB 700 million.

As at 31 December 2016, the Company has drawn down in full an amount of RMB 700 million (31 December 2015: RMB 700 million) with the interest rate of 5.39%.

F - 170

23	Loans and borrowings (continued)

(iv)

Ping An: On 30 November 2016, the Company entered into a 15-month financing arrangement with Ping An International Financing and Leasing Co., Ltd through a designated bank loan arrangement with Bank of Ningbo. The Company drew down the maximum principal amount of RMB 62.5 million with an interest rate of 6.70%. The Company provided guarantee deposit of RMB 12.5 million with Bank of Ningbo. Under this arrangement, the Company will make a monthly repayment on principal of RMB 4.2 million for the 15-month period ending 28 February 2017. The current portion of the loan is RMB 50 million as at 31 December 2016.

(b)	Current loan and borrowings

Current loans and borrowings represented unsecured bank loans of RMB 774 million with maturity period within one year with the interest rates from 4.35% to 6.70%; current portion of the long-term loans (Note 23(a)); and shareholder loans payable to Wuhu Chery and Quantum totalling RMB 1.4 billion.

As at 31 December 2016, the Company has unutilised loan facilities of RMB 205 million (31 December 2015: RMB 284 million).

24	Deferred income

In thousands of RMB	2016			2015

Balance at 1 January		494,245			205,324
Addition for the year		9,686			300,000
Income for the year		(44,496	)		(11,079	)

Balance at 31 December		459,435			494,245

Non-current		412,083			169,396
Current		47,352			324,849

		459,435			494,245

In November 2012, the Group received RMB 213.5 million from the Management Committee of Changshu Economic & Technology Development Zone, as a result of the Group's investment in the Development Zone. Such government grant was initially recognised as "deferred income" upon receipt and is amortised and recognised as "other income" over the Group's expected remaining period of operation.

In 2015, the Group received RMB 300 million from Chery Auto as a payment in connection with the licence agreement for the use of the Group's platform technology and patent, which is recognised as current liability in "deferred income". In 2016, after the licence agreement became effective, this amount started to amortise over the period of the agreement as "other income".

F - 171

25	Trade and other payables

	At 31 December
In thousands of RMB	2016		2015

Trade payables		826,070		638,241
Bills payables		43,000		138,303
Other payables for
-research and development activities		246,763		362,402
-property, plant and equipment		181,717		322,817
-marketing and promotion		519,642		470,620
-services		267,503		238,550
Accrued payroll and other employee benefits		53,628		111,651
Interest payable		37,379		10,145
Liabilities due to related parties		402,188		106,887
Receipt in advance		39,950		31,009
Others		179,317		184,916

		2,797,157		2,615,541

Non-current		112,488		-
Current		2,684,669		2,615,541

		2,797,157		2,615,541

26	Provisions

The provision balance as at 31 December 2016 and 2015 mainly represents warranties related to cars sold. As no adequate historical warranty data associated with cars sold is available, the Group accrues warranty provisions based on the estimation made by the Group's technical department taking into account available warranty data of similar cars in the market.

27	Financial risk management and fair values of financial instruments

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group's business.

The Group's exposure to these risks and the financial risk management policies and practice used by the Group to manage these risks are described below.

F - 172

27	Financial risk management and fair values of financial instruments (continued)

(a)	Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from counterparties and the Group's deposits with banks (including available-for-sale financial assets).

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures.

The management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. Individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer's past history of making payments when due and current liability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade debtors are mainly due within 30 days to 360 days from the date of billing.

The Group is also subject to potential financial loss in connection with the guarantee provided in 2016 to Chery Huiyin Motor Finance Service Co., Ltd ("Huiyin"), a subsidiary of Chery, for the financing arrangement between dealers and Huiyin. In case of loan default, the Group may need to compensate Huiyin for an amount up to the actual loss incurred. As at 31 December 2016, the outstanding loan balance were RMB 483 million and none of them were overdue. Refer to note 30(c)(i) for this guarantee arrangement with Huiyin.

The Group limits its exposure to credit risk by investing only in liquid investment products issued by financial institutions. Management actively monitors credit ratings and given that the Group only has invested in investment products with high credit ratings, management does not expect any counterparty to fail to meet its obligations.

The carrying amounts of cash and cash equivalents, pledged deposits, trade and other receivables and available-for-sale financial assets represent its maximum credit exposure on these assets.

(b)	Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

The Group's policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and readily realisable marketable securities and adequate committed lines of funding from major financial institutions and/or from two shareholders to meet the liquidity requirements in the short and long term.

F - 173

27	Financial risk management and fair values of financial instruments (continued)

(b)	Liquidity risk (continued)

Consortium loan II and III (see Note 23), contains a "cross-default" provision which provides for an event of default if any other debt of Qoros in excess of RMB 50 million becomes payable prior to maturity, so a default under other debt facilities would result in a default under the facilities referenced above and a default that leads to acceleration under either facility above will result in an event of default under the other facility.

The following are the remaining contractual maturities at the end of the reporting period of financial liabilities, including estimated interest payments and excluding the impact of netting agreements:

	Contractual undiscounted cash flow
	Within 1 year or on demand		More than 1 year but less than 2 years		More than 2 years but less than 5 years		More than 5 years		Total		Carrying amount at balance sheet date

As at 31 December 2016
Trade and other payables		2,684,669		21,426		103,885		-		2,809,980		2,797,157
Loans and borrowings		2,881,389		852,455		2,646,014		1,489,919		7,869,777		6,890,146

Total		5,566,058		873,881		2,749,899		1,489,919		10 , 679,757		9,687,303

As at 31 December 2015
Trade and other payables		2,615,541		-		-		-		2,615,541		2,615,541
Loans and borrowings		3,147,205		653,642		2,647,693		2,341,573		8,790,113		7,489,188

Total		5,762,746		653,642		2,647,693		2,341,573		11,405,654		10,104,729

(c)	Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Currency risk

The Group is exposed to currency risk on purchases relating to research and development activities, bank borrowings as well as normal productions that are denominated in currencies other than the functional currencies. The currencies in which these transactions primarily are denominated are RMB, US dollars ("USD") and Euros ("EUR"). The functional currency of the Company is RMB.

F - 174

27	Financial risk management and fair values of financial instruments (continued)

(c)	Market risk (continued)

In respect of monetary assets and liabilities denominated in foreign currencies, the Group's policy is to ensure that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

Exposure to currency risk

The summary quantitative data about the Group's exposure to currency risk as reported to the management of the Group is as follows:

	At 31 December
EUR	2016			2015
	RMB'000			RMB'000

Cash and cash equivalent		1,549			5,419
Prepayments		784			898
Trade and other payables		(18,673	)		(18,400	)

Net statement of financial position exposure		(16,340	)		(12,083	)

		At 31 December
USD		2016			2015
	RMB'000			RMB'000

Cash and cash equivalent		9,987			6,484
Prepayments		284			3,624
Trade and other payables		(7,922	)		(331	)
Loans and borrowings		-			(993,321	)

Net statement of financial position exposure		2,349			(983,544	)

	At 31 December
GBP		2016			2015
	RMB'000			RMB'000

Trade and other payables		(706	)		-

Net statement of financial position exposure		(706	)		-

F - 175

27	Financial risk management and fair values of financial instruments (continued)

(c)	Market risk (continued)

The following significant exchange rates have been applied during the year:

	Average rate				Year end spot rate
	2016		2015		2016		2015

EUR		7.2010		7.2754		7.3068		7.0952
USD		6.7153		6.3063		6.9370		6.4936
GBP		9.0627		9.5798		8.5094		9.6159

A reasonably possible strengthening (weakening) of the Euro and US dollar against RMB at 31 December would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

	At 31 December
	2016						2015
	Strengthening			Weakening			Strengthening			Weakening
	RMB'000			RMB'000			RMB'000			RMB'000

EUR (10% movement)		(1,634	)		1,634			(1,207	)		1,207
USD (10% movement)		235			(235	)		(98,355	)		98,355
GBP (10% movement)		(71	)		71			-			-

- Interest rate risk

Profile

The Group's interest rate risk arises primarily from bank deposits and bank loans. The Group's policy is to obtain the most favourable interest rates available in respect of its bank loans. The Group has not used any derivatives to mitigate its interest rate risk exposure.

Bank deposits are with fixed interest rates ranging from 0.30% ~ 1.75%, 0.35% ~ 3.00%, 0.35% ~ 3.30% per annum as at 31 December 2016, 2015 and 2014 respectively.

The Group's interest-bearing borrowings and interest rates as at 31 December 2016 and 2015 are set out as follows:

				At 31 December
	Interest rate			2016		2015
				RMB'000		RMB'000

Borrowings		4.35% - 6.70	%		6,890,146		7,488,709

Loan interest rates are disclosed in Note 23.

F - 176

27	Financial risk management and fair values of financial instruments (continued)

(c)	Market risk (continued)

Sensitivity analysis

A change of 100 basis points in interest rates would have increased or decreased equity by RMB 69,452 thousand (2015: RMB 91,934 thousand; 2014: RMB 92,915 thousand).

(d)	Fair value

The fair value of each financial instrument is categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

● Level1:

(highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments;

● Level2:

fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data;

● Level3:

(lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data.

If the input used to measure the fair value of an assets or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

At 31 December 2016, the only financial instrument of the Company carried at fair value was available-for-sale financial asset. The instrument is measured at fair value on a recurring basis and their fair value measurements fall into Level 2 of the fair value hierarchy described above.

During the years ended 31 December 2016, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3. The group's policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur.

(e)	Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Capital consists of paid in capital and retained earnings.

There were no changes in the Group's approach to capital management during the year.

F - 177

28	Operating leases

(a)	Leases as lessee

As at 31 December, the future minimum lease payments under non-cancellable operating lease rentals were payable as follows:

	At 31 December
In thousands of RMB	2016		2015

Within 1 year		35,202		30,206
After 1 year but within 5 years		96,197		82,009
After 5 years		49,762		72,481

		181,161		184,696

(b)	Leases as lessor

The Group leases out its part of machinery.

As at 31 December, the future minimum lease payments under non-cancellable leases were receivable as follows:

	At 31 December
In thousands of RMB	2016		2015

Within 1 year		20,016		9,367
After 1 year but within 5 years		-		-

		20,016		9,367

29	Commitments

Capital commitments outstanding not provided for in the financial statements:

	At 31 December
In thousands of RMB	2016		2015

Contracted for		266,103		652,587
Authorised but not contracted for		-		-

		266,103		652,587

F - 178

30	Related parties

(a)	Parent and ultimate controlling party

As at 31 December 2016, 2015 and 2014, the Company was jointly-controlled by Wuhu Chery and Quantum (2007) LLC. Chery Automobile Co., Ltd. ("Chery Auto") is the ultimate parent company of Wuhu Chery and Kenon Holdings Ltd. is the immediate parent company of Quantum (2007) LLC.

The following is a summary of principal related parties transactions carried out by the Group with the related parties for the year presented.

(b)	Transactions with key management personnel

In thousands of RMB	2016		2015		2014

Salaries, benefit and contribution to the defined contribution retirement plan		12,979		19,700		10,941

(c)	Other related party transactions

In thousands of RMB	Note	2016		2015		2014

Loan from Wuhu Chery			975,000		1,662,783		800,000
Loan from Quantum (2007)			975,000		800,000		750,000
Conversion of loan to capital
- Wuhu Chery			1,046,820		900,000		-
- Quantum (2007)			1,046,820		900,000		50,000
Sale of goods
- Chery Auto			11,170		6,717		-
- Fund & Liberty Car Rental/Leasing Co., Ltd. ("Fund")			-		1,153		4,520
- Chery Auto's subsidiary			4,533
Purchase of material and parts
- Chery Auto			327,694		189,754		90,306
- Chery Auto's subsidy			2,317		-		-
Price adjustment on purchase of material and parts - Chery Auto	11		72,953		42,877		-
Service fee
- Chery Auto			4,817		42,339		8,495
- Shanghai SICAR Vehicle Technology Development Co., Ltd. ("SICAR")			-		4,453		13,182
Rental and other expenses
- Chery Huiyin Motor Finance Service Co., Ltd. ("Huiyin")			33,644		16,821		1,777
- Chery Auto's subsidy			-		18		80
- Fund			2,703		-		-
- Chery Holdings Ltd.			59		-		-
- Kenon Holdings Ltd.			-		2,167		1,321
Charge for licence agreement	24		-		300,000		-
Sales proceeds received from Huiyin pursuant to tri-party agreements	(i)		2,425,437		1,173,051		542,292

F - 179

30	Related parties (continued)

(c)	Other related party transactions (continued)

In addition to the above transactions, guarantees provided by Wuhu Chery and Kenon in respect of the consortium financing agreement were disclosed in Note 23.

The outstanding balances arising from the above transactions at the end of the reporting periods are as follows:

In thousands of RMB	Note	At 31 December 2016		At 31 December 2015

Amounts due from related parties
- trade receivables from Fund			3,790		3,790
- trade receivables from Chery Auto's subsidiary			1,689		1,832
- trade receivables from Chery Auto			1,144		-
- other receivables from Chery Auto			9,661		3,011
- other receivables from Chery Auto's subsidiary			-		5

			16,284		8,638

- loan payable to Wuhu Chery			700,000		762,783
- loan payable to Quantum (2007) LLCs			700,000		745,917
- payables to Chery Auto			373,058		103,454
- payables to Kenon Holdings Ltd.			-		176
- payables to Fund			200		771
- payables to Chery Auto's subsidiary			624		916
- payables to SICAR			1,570		1,570
- receipt in advance from Huiyin	(i)		26,408		-
- receipt in advance from Chery Auto's subsidiary			328		-

			1,802,188		1,615,587

F - 180

30	Related parties (continued)

(c)	Other related party transactions (continued)

Notes :

(i)

In 2014, the Group entered into tri-party arrangements with Huiyin and certain car dealers, who are the Group's direct customers. According to such arrangements, Huiyin provides financing to the dealers for their purchases from the Group. Huiyin is a subsidiary of Chery Group, which is engaged in providing financing to buyers of car manufacturing companies. Huiyin performs credit assessment on dealers and grants short-term (12-month or less) revolving lines of credit to them. The Group accepts purchase orders from these dealers only if they have sufficient unused credit from Huiyin. Upon confirmation of sales orders accepted by the Group, Huiyin remits purchase amount directly to the Group on behalf of individual dealers, and outstanding loan balances payable of dealers due to Huiyin are increased by the equivalent amount at the same time. The Group was not responsible for the repayment of loans between the dealers and Huiyin.

In March 2016, in order to help increase the credit lines of dealers from Huiyin, the Group offered guarantees to Huiyin for selected dealers pursuant to which the Group was responsible for any default of the loans released during the period between March 2016 and February 2017, including both principal and interests, for a maximum amount of RMB 700 million which were the amount of total lines of credit of these dealers with Huiyin. The interest rate of loans offered by Huiyin to dealers before and after the Group committed such guarantee was the same. As at 31 December 2016, the outstanding loan balance were RMB 483 million and none of them were overdue. The guarantee was subsequently extended in February 2017 to February 2018.

(d)	Relationship with the related parties under the transactions stated in 30(c) above

Name of the entities	Relationship with the Group

Kenon Holdings Ltd.	Immediate parent company of Quantum
Wuhu Chery Automobile Investment Co., Ltd.		Parent Company
Quantum (2007) LLC	Parent Company
Wuhu Chery Car Rental Co., Ltd	Chery Auto's subsidiary
Chery Investment Co., Ltd in Ordos	Chery Auto's subsidiary
Huiyin	Chery Auto's subsidiary
SICAR	Joint venture invested by Chery Auto
Fund	Associate invested by the Group

31	Subsequent event

According to the announcement made by Kenon Holding Ltd. ("Kenon") on 10 March 2017, Kenon and Wuhu Chery Automobile Investment Co., Ltd. will together provide loans of RMB 777 million to the Company. The Company received the first tranche of RMB 388.5 million in March 2017, and a second instalment of RMB 388.5 million will be provided whenever needed.

F - 181

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.

	Kenon Holdings Ltd.

	By:	/s/ Yoav Doppelt
		Name: Yoav Doppelt
		Title: Chief Executive Officer

Date: April 19, 2017

ITEM 19. Exhibits

Index to Exhibits

Exhibit Number		Description of Document

1.1		Kenon Holdings Ltd.’s Constitution (Incorporated by reference to Exhibit 1.1 to Amendment No. 1 to Kenon’s Registration Statement on Form 20-F, filed on December 19, 2014)

2.1		Form of Specimen Share Certificate for Kenon Holdings Ltd.’s Ordinary Shares (Incorporated by reference to Exhibit 2.1 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)

2.2		Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and Millenium Investments Elad Ltd. (Incorporated by reference to Exhibit 99.5 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)

2.3		Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and Bank Leumi Le-Israel B.M. (Incorporated by reference to Exhibit 99.6 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)

2.4		Registration Rights Agreement, dated as of January 7, 2015, between Kenon Holdings Ltd. and XT Investments Ltd. (Incorporated by reference to Exhibit 99.7 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)

4.1		Sale, Separation and Distribution Agreement, dated as of January 7, 2015, between Israel Corporation Ltd. and Kenon Holdings Ltd. (Incorporated by reference to Exhibit 99.2 to Kenon’s Report on Form 6-K, furnished to the SEC on January 8, 2015)

4.2		Loan Agreement, dated as of January 7, 2015, between Israel Corporation Ltd. and Kenon Holdings Ltd, as supplemented by Supplement No. 1 to the Loan Agreement, dated March 17, 2016 (Incorporated by reference to Exhibit 4.2 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)
4.3		English translation of Natural Gas Supply Agreement, dated as of January 2, 2006, as amended, among Kallpa Generación S.A., Pluspetrol Peru Corporation S.A., Pluspetrol Camisea S.A., Hunt Oil Company of Peru L.L.C. Sucursal del Peru, SK Corporation Sucursal Peruana, Sonatrach Peru Corporation S.A.C., Tecpetrol del Peru S.A.C. and Repsol Exploración Peru Sucursal del Peru (Incorporated by reference to Exhibit 4.3 to Amendment No. 1 to Kenon’s Draft Registration Statement on Form 20-F, filed on August 14, 2014)

4.4		English translation of Natural Gas Transportation Agreement, dated as of December 10, 2007, as amended, between Kallpa Generación S.A. and Transportadora de Gas del Peru S.A. (Incorporated by reference to Exhibit 4.4 to Amendment No. 1 to Kenon’s Draft Registration Statement on Form 20-F, filed on August 14, 2014)

4.5		Turnkey Engineering, Procurement and Construction Contract, dated as of November 4, 2011, among Cerro del Águila S.A., Astaldi S.p.A. and GyM S.A., as amended (Incorporated by reference to Exhibit 4.5 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.6		English translation of Contract of Concession, dated as of October 23, 2010, as amended, between the Government of Peru and Kallpa Generación S.A., relating to the provision of electric energy services to the public (Incorporated by reference to Exhibit 4.6 to Amendment No. 1 to Kenon’s Draft Registration Statement on Form 20-F, filed on August 14, 2014)

4.7†		Joint Venture Contract, dated as of February 16, 2007, as amended, between Wuhu Chery Automobile Investment Co., Ltd. and Quantum (2007) LLC (Incorporated by reference to Exhibit 4.7 to Amendment No. 1 to Kenon’s Registration Statement on Form 20-F, filed on December 19, 2014)

4.8†		Gas Sale and Purchase Agreement, dated as of November 25, 2012, among Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership, Isramco Negev 2 Limited Partnership, Avner Oil Exploration Limited Partnership, Dor Gas Exploration Limited Partnership, and O.P.C. Rotem Ltd. (Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to IC Power Pte. Ltd.’s Form F-1, filed on November 2, 2015)

Exhibit Number

Description of Document


4.9		Indenture, dated as of April 4, 2011, between Inkia Energy Limited, as issuer, and Citibank, N.A.as trustee, relating to Inkia Energy Limited’s 8.375% Senior Notes due 2021 (Incorporated by reference to Exhibit 4.9 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)

4.10		Facility Agreement, dated as of January 2, 2011, among O.P.C. Rotem Ltd., as borrower, Bank Leumi Le-Israel B.M., as arranger and agent, Bank Leumi Le-Israel Trust Company Ltd., as security trustee, and the senior lenders named therein (Incorporated by reference to Exhibit 4.10 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)


4.11		Credit Agreement, dated as of August 17, 2012, among Cerro del Águila S.A., as borrower, Sumitomo Mitsui Banking Corporation, as administrative agent, and other parties party thereto (Incorporated by reference to Exhibit 4.11 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed on March 31, 2015)

4.12		Guarantee Contract, dated as of June 9, 2015, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd. (Incorporated by reference to Exhibit 4.12 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.13		Guarantee Contract, dated as of November 5, 2015, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd. (Incorporated by reference to Exhibit 4.13 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.14		Stock Purchase Agreement, dated as of December 29, 2015, among IC Power Distribution Holdings PTE, Limited, as Purchaser, Inkia Energy, Limited, as Purchaser Guarantor, DEORSA-DEOCSA Holdings Limited, as Seller, and Estrella Cooperatief BA (Incorporated by reference to Exhibit 4.14 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.15		Pledge Agreement, dated as of March 17, 2016, between Israel Corporation Ltd. and IC Power Pte. Ltd. (Incorporated by reference to Exhibit 4.15 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.16		Security over Shares Agreement, dated as of March 17, 2016, between Israel Corporation Ltd. and Kenon Holdings Ltd. (Incorporated by reference to Exhibit 4.16 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)

4.17*		Amendment and Restatement Agreement, dated as of September 2, 2016, relating to the Loan Agreement dated as of April 22, 2016, between Quantum (2007) LLC, as borrower, and Ansonia Holdings Singapore B.V., as lender, as amended

4.18		Undertaking Agreement, dated as of April 22, 2016, among Qoros Automotive Co., Ltd., Quantum (2007) LLC, Kenon Holdings Ltd., Wuhu Chery Automobile Investment Co., Ltd., Chery Automobiles Limited, and Ansonia Holdings Singapore B.V. (Incorporated by reference to Exhibit 4.18 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed on April 22, 2016)
4.19*		Additional Undertaking Agreement, dated as of September 2, 2016, among Qoros Automotive Co., Ltd., Quantum (2007) LLC, Kenon Holdings Ltd., Wuhu Chery Automobile Investment Co., Ltd., Chery Automobiles Limited, and Ansonia Holdings Singapore B.V.

4.20*		Fourth Amended and Restated Limited Liability Company Agreement of Quantum (2007) LLC, dated as of September 2, 2016

4.21*		Release Agreement, dated December 21, 2016, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd.

4.22*		Equity Pledge Contract, dated December 21, 2016, between Quantum (2007) LLC, as Pledgor, and Chery Automobile Co. Ltd., as Pledgee

4.23**		Further Release and Cash Support Agreement, dated March 9, 2017, between Kenon Holdings Ltd. and Chery Automobile Co. Ltd.

4.24**		The Second Equity Pledge Contract in relation to 700 Million Loan, dated March 9, 2017, between Quantum (2007) LLC, as Pledgor, and Chery Automobile Co. Ltd., as Pledgee

8.1*		List of subsidiaries of Kenon Holdings Ltd.

12.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

12.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

13.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit Number

Description of Document


15.1*		Consent of KPMG LLP, Independent Registered Public Accounting Firm of Kenon Holdings Ltd.

15.2*		Consent of Somekh Chaikin, a Member Firm of KPMG International

15.3*		Consent of KPMG Huazhen LLP, Independent Auditor of Qoros Automotive Co., Ltd.

15.4*		Consent of Deloitte, Inc. (Panamá), Independent Registered Public Accounting Firm of the Combined Entities (Distribuidora de Electricidad de Oriente, S.A. and Distribuidora de Electricidad de Occidente, S.A.)

15.5*		Consent of Brightman Almagor Zohar & Co., a Member Firm of Deloitte Touche Tohmatsu, independent auditor of Tower Semiconductor Ltd.

*	Filed herewith.

**	To be filed by amendment shortly after the date of this annual report.

†	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.

	Year Ended December 31, 2016
Entity	Installed Capacity (MW) ¹		Proportionate Capacity ²		Gross energy generated (GWh)		Availability factor (%)			Average heat rate ³		Average sales price ($ per MWh) ⁴		Average fuel cost ($ per MWh)
	Operating Companies
Peru segment
Kallpa		1,063		797		6,015		96	%		7,675		74		26
Samay I		632		473		103		33	%		10,240		426		106
CDA		545		409		693		33	%		-		73		—
Israel segment
OPC-Rotem		440		352		3,487		91	%		6,759		91		37
OPC-Hadera		18		18		102		95	%		4,258		511		65
Central America segment
ICPNH		185		117		978		88	%		5,845		95		41
Puerto Quetzal		179		179		364		95	%		9,088		159		49
Nejapa		140		140		387		97	%		9,621		217		65
Kanan		92		92		169		69	%		9,939		409		61
Other
COBEE		228		228		889		92	%		13,594		47		—
Central Cardones		153		133		1		98	%		—		—		—
Colmito		58		58		9		99	%		9,252		2,625		125
CEPP		67		65		264		78	%		9,550		113		51
JPPC		60		60		408		85	%		8,166		108		59
Surpetroil		31		19		75		97	%		12,606		107		27
Pedregal		54		11		264		97	%		8,832		134		50
Total		3,945		3,152		14,208

	Year Ended December 31, 2015
Entity	Installed Capacity (MW) ¹		Proportionate Capacity ²		Gross energy generated (GWh)			Availability factor (%)		Average heat rate		Average sales price ($ per MWh) ³		Average fuel cost ($ per MWh)
	Operating Companies
Peru segment
Kallpa		1,063		797		5,166			97		7,868		57		28
Israel segment
OPC-Rotem		440		352		3,811			99		6,730		80		36
OPC-Hadera		18		18		26	⁴		58		4,630		53		40
Central America segment
ICPNH		185		117		1,095			90		8,926		99		51
Puerto Quetzal		179		179		673			94		9,107		113		74
Nejapa		140		140		440			96		9,591		117		83
Other
COBEE		228		228		1,081			89		13,594		39		16
Central Cardones		153		133		4			97		11,241		217		229
Colmito		58		58		27			99		9,221		95		114
CEPP		67		65		298			81		9,470		125		73
JPPC		60		60		445			86		7,989		101		69
Surpetroil		20		12		43			96		13,829		104		38
Pedregal		54		11		356			94		8,859		107		71
Total		2,665		2,170		13,465

	Year Ended December 31, 2014
Entity ¹	Installed Capacity (MW) ²		Proportionate Capacity ³		Gross energy generated (GWh)		Availability factor (%)		Average heat rate		Average sales price ($ per MWh) ⁴		Average fuel cost ($ per MWh)
	Operating Companies
Peru segment
Kallpa		1,063		797		5,920		97		7,105		55		24
Israel segment
OPC-Rotem		440		352		3,465		90		6,754		104		40
Central America segment
ICPNH		185		117		1,099		95		9,011		143		96
Puerto Quetzal		179		179		490		97		9,182		126		137
Nejapa		140		99		376		97		9,597		178		158
Other
COBEE		228		228		1,085		91		13,786		40		15
Central Cardones		153		133		—		97		12,238				—
Colmito		58		58		6		95		8,521		148		241
CEPP		67		65		242		89		9,539		227		146
JPPC		60		60		425		85		8,306		182		137
Surpetroil		15		9		48		84		14,900		140		21
Pedregal		54		11		405		93		8,800		196		129
Total		2,642		2,108		13,561

		As of		Years Ended December 31,
		December 31, 2016		201 6				2015				2014
Turbine	Year of Commission	Installed Capacity		Gross Energy Generated		Availability Factor		Gross Energy Generated		Availability Factor		Gross Energy Generated		Availability Factor
		(MW)		(GWh)		(%)		(GWh)		(%)		(GWh)		(%)
Kallpa I ¹	2007		186		1,314		98		954		91		1,243		96
Kallpa II ¹	2009		195		1,109		84		1,126		99		1,266		97
Kallpa III ¹	2010		197		1,257		99		1,218		99		1,262		96
Kallpa IV ²	2012		292		2,016		99		1,759		95		2,027		98
Las Flores	2014		193		319		99		109		100		122		96
Total			1,063		6,015				5,166				5,920

	As of Year Ended December 31,
	December 31, 2016		2016					2015					2014
Plant	Installed Capacity		Gross Energy Generated		Availability Factor			Gross Energy Generated		Availability Factor			Gross Energy Generated		Availability Factor
	(MW)		(GWh)		(%)			(GWh)		(%)			(GWh)		(%)
OPC-Rotem		440		3,487		91	%		3,811		99	%		3,465		90	%

		As of		Years Ended December 31,
		December 31,		2016				2015				2014
Plant	Year of Commission	2016 Installed Capacity		Gross Energy Generated		Availability Factor		Gross Energy Generated		Availability Factor		Gross Energy Generated		Availability Factor
		(MW)		(GWh)		(%)		(GWh)		(%)		(GWh)		(%)
Corinto	1999		71		368		71		476		93		494		93
Tipitapa Power	1999		51		369		94		345		92		327		98
Amayo I	2009		40		144		95		186		94		174		98
Amayo II	2010		23		97		98		88		70		104		96
Total			185		978				1,095				1,099

		As of		Years Ended December 31,
		December 31, 2016		2016				2015				201 4
Plant	Year of Commission	Installed Capacity		Gross Energy Generated		Availability Factor		Gross Energy Generated		Availability Factor		Gross Energy Generated		Availability Factor
		(MW)		(GWh)		(%)		(GWh)		(%)		(GWh)		(%)
Nejapa	1995		140		387		97		440		96		376		97



	Principal Customer	Commencement	Expiration	Contracted Capacity ¹
Peru Segment
Kallpa	Enel Distribución Perú S.A.A., Luz del Sur S.A.A., Hidrandina S.A., Edecañete S.A.A., Electosureste S.A., Seal S.A. ²	January 2014	December 2021	350
	Enel Distribución Perú S.A.A., Luz del Sur S.A.A., Hidrandina S.A., Electosureste S.A., Seal S.A., Electrosur S.A. ³	January 2014	December 2023	210
	Sociedad Minera Cerro Verde S.A.A.	January 2011	December 2020	132
	Compañía Minera Antapaccay S.A.	November 2011	December 2025	100
	Southern Perú Copper Corporation	April 2017	April 2027	120
	Southern Perú Copper Corporation (Toquepala)	May 2017	May 2029	70-85 ⁴
	Inretail Properties Management S.R.L.	September 2016	December 2021	93
CDA	Electroperú S.A.	August 2016	December 2030	200
	Luz del Sur S.A.A. ⁵	January 2018	December 2027	169
	Enel Distribución Perú S.A.A.	January 2022	December 2031	30
	Edecañete	January 2018	December 2027	3
	Luz del Sur S.A.A.	January 2022	December 2031	65
	Enel Distribución Perú S.A.A.	January 2022	December 2031	16
Samay I	Peruvian Investment Promotion Agency ( Pro Inversión )	May 2016	April 2036	600
Israel Segment
OPC-Rotem	PPA with Israel Electric Corporation ⁶	July 2013	June 2032	447
OPC-Hadera	Hadera Paper	August 2015	September 2036	12-51 ⁷
	Hebrew University	January 2019	December 2028	22
	Migdal	January 2019	December 2028	37
	Alrov Group	January 2019	December 2028	9
Central America Segment
Corinto	Distribuidora de Electricidad del Norte S.A., Distribuidora de Electricidad del Sur S.A.	June 1999	December 2018	50
Tipitapa Power	Distribuidora de Electricidad del Norte S.A., Distribuidora de Electricidad del Sur S.A.	April 1999	December 2018	51
Amayo I and Amayo II	Distribuidora de Electricidad del Norte S.A.,	March 2009	March 2024	40
	Distribuidora de Electricidad del Sur S.A.,	March 2010	March 2025	23
Nejapa	Seven distribution companies	August 2013	January 2018	71
	Seven distribution companies	August 2013	July 2017	39
	Seven distribution companies	January 2015	December 2017	30
Puerto Quetzal	Comegsa	January 2013	April 2017	30
	MEL	August 2014	December 2017	15
	Ingenio La Unión	May 2015	April 2017	13
	Cenérgica	August 2015	January 2017	30
	CAES	August 2014	December 2017	15
	DEOCSA	May 2016	April 2017	13
Kanan	Empresa de Distribución Eléctrica Chiriqui (EDECHI)	December 2015	December 2020	7
	Empresa de Distribución Eléctrica Elektra Nor Este S.A. (ENSA)	December 2015	December 2020	34
	Empresa de Distribución Eléctrica Metro Oeste S.A. (EDEMET)	December 2015	December 2020	45
Other Segment
COBEE	Minera San Cristóbal	December 2008	October 2017	43
Colmito	ENAP Refinerías S.A.	January 2014	December 2017	38
JPPC	Jamaica Public Services Company	January 1998	January 2018	60
Surpetroil	PETROSUD	March 2015	June 2018	2
	GEOPARK	November 2015	June 2017	9


	Gross Energy Generation
	For the Year Ended December 31,
	2016				2015				2014
Company	(GWh)		Market Share (%)		(GWh)		Market Share (%)		(GWh)		Market Share (%)
IC Power (Kallpa, Samay I and CDA)		6,811		14.09		5,166		11.60		5,920		14.17
Enel Generación Perú S.A.A. ¹		8,832		18.28		8,370		18.79		8,848		21.17
Engie Energía Perú S.A. (formerly EnerSur S.A.)		8,182		16.93		7,172		16.10		7,098		16.98
Electroperú S.A. (a state-owned generation company)		6,644		13.75		7,172		16.10		7,041		16.85
Orazul Energy Egenor ²		2,423		5.01		2,648		5.95		2,534		6.06
Other generation companies		15,434		31.94		14,012		31.46		10,351		24.77
Total		48,326		100		44,540		100.0		41,792		100.0


Company/Plant	Location	Installed Capacity	Fuel Type
		(MW)
Operating Companies
Peru Segment
Kallpa:
Kallpa I, II, III and IV	Chilca district, Peru	870	Natural gas (combined cycle)

Las Flores	Chilca district, Peru	193	Natural gas

Kallpa Total		1,063

Samay I	Mollendo, Peru	632	Diesel and natural gas
CDA	Huancavelica, Peru	545	Hydroelectric

Israel Segment
OPC-Rotem	Mishor Rotem, Israel	440	Natural gas and diesel (combined cycle)
OPC-Hadera ¹	Hadera, Israel	18	Natural gas

Central America Segment
ICPNH
Corinto ²	Chinandega, Nicaragua	71	HFO
Tipitapa Power	Managua, Nicaragua	51	HFO
Amayo I	Rivas, Nicaragua	40	Wind
Amayo II ³	Rivas, Nicaragua	23	Wind

ICPNH Total		185

Puerto Quetzal	Escuintla, Guatemala	179	HFO

Nejapa	Nejapa, El Salvador	140	HFO

Kanan ⁴	Colon, Panama	92	HFO
Other Segment
CEPP	Puerto Plata, Dominican Republic	67	HFO

COBEE:
Zongo Valley plants:
Zongo	Zongo Valley, Bolivia	11	Hydroelectric
Tiquimani	Zongo Valley, Bolivia	9	Hydroelectric
Botijlaca	Zongo Valley, Bolivia	7	Hydroelectric
Cutichucho	Zongo Valley, Bolivia	23	Hydroelectric
Santa Rosa	Zongo Valley, Bolivia	18	Hydroelectric
Sainani	Zongo Valley, Bolivia	10	Hydroelectric
Chururaqui	Zongo Valley, Bolivia	25	Hydroelectric
Harca	Zongo Valley, Bolivia	26	Hydroelectric
Cahua	Zongo Valley, Bolivia	28	Hydroelectric
Huaji	Zongo Valley, Bolivia	30	Hydroelectric

		187

Miguillas Valley plants:
Miguillas	Miguillas Valley, Bolivia	4	Hydroelectric
Angostura	Miguillas Valley, Bolivia	6	Hydroelectric
Choquetanga	Miguillas Valley, Bolivia	6	Hydroelectric
Carabuco	Miguillas Valley, Bolivia	6	Hydroelectric

		22

El Alto-Kenko	La Paz, Bolivia	19	Natural gas

COBEE Total		228

Central Cardones	Copiapó, Chile	153	Diesel

Colmito	Concón, Chile	58	Natural gas and diesel

JPPC	Kingston, Jamaica	60	HFO

Surpetroil
La Hocha	Huila, Colombia	2	Natural gas
Purificación	Tolima, Colombia	10	Natural gas
Entrerios	Casanare, Colombia	3	Natural gas
Geopark	Casanare, Colombia	16	Natural gas

Surpetroil Total		31

	As of December 31,
	2016		2015 ¹		2014 ¹
Number of employees by category of activity:
Plant operation and maintenance		1,489		879		842
Administrative support		484		317		310
Corporate management, budget and finance		48		38		33
Other, including project management		48		72		50
Total		2,069		1,306		1,235
Number of employees by segment:
Generation		1,309		1,306		1,235
Peru		250		230		182
Israel		82		66		61
Central America		385		386		443
Other		592		624		549
Distribution		760		—		—
Total		2,069		1,306		1,235

Category	Vehicle category	Wheel base (millimeter)	Length of vehicles (millimeter)	Engine displacement (liter) (excluding turbo)
Mini	A	2,000 – 2,300	Below 4,000	Below 1.0
Small-size	B	2,300 – 2,500	4,000 – 4,300	1.0 – 1.5
Compact	C	2,500 – 2,700	4,200 – 4,600	1.6 – 2.0
Mid-size	D	2,700 – 2,900	4,500 – 4,900	1.8 – 2.4
Mid- to large-size	E	2,800 – 3,000	4,800 – 5,000	Above 2.4
Large-size	E	Above 3,000	Above 5,000	Above 3.0

Segment		Examples of Brands
Joint venture Brands
Premium		Mercedes Benz, BMW, Audi, Cadillac
Mid- to High-end		Volkswagen, Nissan, Buick, Toyota, Honda, Hyundai
Economy		Suzuki
Local Chinese Brands
Mid- to High-end		Roewe, Senova, MG
Economy		BYD, Geely, Great Wall

	Container Vessels
	Number		Capacity (TEU)		Other Vessels			Total
Vessels owned by ZIM		7		32,023		-			7

Vessels chartered from parties related to ZIM
Periods up to 1 year (from December 31, 2016)		3		15,592		2	¹		5
Periods between 1 to 5 years (from December 31, 2016)		2		10,600		-			2
Periods over 5 years (from December 31, 2016)		2		8,442		-			2

Vessels chartered from third parties
Periods up to 1 year (from December 31, 2016)		33		118,470		-			33
Periods between 1 to 5 years (from December 31, 2016)		17		87,820		-			17
Periods over 5 years (from December 31, 2016)		6		49,619		-			6

Total		70		322,566		2	¹		72

Years Ended December 31, 2015 and 2016
	Ownership Percentage	Method of Accounting	Treatment in Consolidated Financial Statements
IC Power ¹	100%	Consolidated ²	Consolidated
Qoros	50%	Equity	Share in losses of associated companies, net of tax
ZIM	32%	Equity	Share in losses of associated companies, net of tax
Other
Primus	91%	Consolidated	Consolidated

	Six Months Ended December 31, 2014			All Periods Prior to June 30, 2014
	Ownership Percentage	Method of Accounting	Treatment in Combined Carve-Out Financial Statements	Ownership Percentage	Method of Accounting	Treatment in Combined Carve-Out Financial Statements
IC Power	100%	Consolidated ¹	Consolidated	100%	Consolidated ¹	Consolidated
Qoros	50%	Equity	Share in losses of associated companies, net of tax	50%	Equity	Share in losses of associated companies, net of tax
ZIM ²	32%	Equity	Share in losses of associated companies, net of tax ³	99.7% ²	Consolidated—Discontinued Operations	Income (loss) for the year from discontinued operations (after taxes)

Tower	29%	Equity	Share in income of associated companies, net of tax	29%	Equity	Share in losses of associated companies, net of tax ⁴

Other
Primus	91%	Consolidated	Consolidated	91%	Consolidated	Consolidated
Petrotec	— ³	Equity— Discontinued Operations	Income (loss) for the year from discontinued operations (after taxes)	69%	Consolidated— Discontinued Operations	Income (loss) for the year from discontinued operations (after taxes)
HelioFocus	70%	Consolidated	Consolidated	70% ⁴	Equity	Share in losses of associated companies, net of tax

	Year Ended December 31, 2015
	Qoros			ZIM		Tower ¹			Other		Total
	(in millions of USD)
Income (loss) (100% of results)	$	(392	)	$	2	$	(1	)	$	—	$	(391	)
Share of Income (loss) from Associates		(196	)		10		(1	)		—		(187	)
Book Value		159			201		—			9		369

	Year Ended December 31, 2014
	Qoros			ZIM ¹			Tower			Other			Total
	(in millions of USD)
Income (loss) (100% of results)	$	(350	)	$	(73	)	$	25		$	—		$	(398	)
Share of Income (loss) from Associates		(175	)		(13	)		18			(1	)		(171	)
Book Value		221			191			14			10			436
Market Capitalization		—			—		$	774	²		—			774
Kenon Share of Market Capitalization		—			—		$	224			—			224

	Six Months Ended
	June 30, 2014
	(in millions of USD)
Sales	$	1,741
Cost of sales		(1,681	)

Gross profit (loss)		60

Operating loss		(18	)

Loss before taxes on income		(119	)
Taxes on income		(10	)

Loss after taxes on income		(129	)
Income from realization of discontinued operations		609

Income for the period from discontinued operations	$	480

	Year Ended December 31, 2016			Year Ended December 31, 2015			Year Ended December 31, 2014
Peru		79	%		97	%		97	%
Israel		91	%		97	%		90	%
Central America
Nicaragua		88	%		90	%		95	%
Guatemala		95	%		94	%		97	%
El Salvador		97	%		96	%		97	%
Panama (Kanan)		69	%		—			—
Other
Bolivia		92	%		89	%		91	%
Chile		98	%		97	%		96	%
Dominican Republic		78	%		81	%		89	%
Jamaica		85	%		86	%		85	%
Colombia		97	%		96	%		84	%


Segment	Period	Sales under PPAs	Sales in Spot Market	Net Energy Generated ²	Energy Purchased
		(GWh)
Peru	Kallpa:
	Year Ended December 31, 2016	6,182	283	5,892	573
	Year Ended December 31, 2015	6,327	106	5,027	1,406
	Year Ended December 31, 2014	6,324	235	5,698	861

	Samay I3:
	Year Ended December 31, 2016	—	94	94	—
	CDA:
	Year Ended December 31, 2016	509	182	683	8

Israel	OPC-Rotem:
	Year Ended December 31, 2016	3,908	—	3,422	486
	Year Ended December 31, 2015	3,976	—	3,759	217
	Year Ended December 31, 2014	3,973	—	3,400	573

	OPC-Hadera:
	Year Ended December 31, 2016	88	—	88	—
	Year Ended December 31, 2015	23	—	23	—

Central America	ICPNH:
	Year Ended December 31, 2016	957	51	945	63
	Year Ended December 31, 2015	1,062	28	1,054	36
	Year Ended December 31, 2014	1,063	22	1,058	27

	Puerto Quetzal
	Year Ended December 31, 2016	528	185	347	366
	Year Ended December 31, 2015	594	368	641	321
	Year Ended December 31, 2014	1,005	53	465	593

	Nejapa:
	Year Ended December 31, 2016	807	37	383	461
	Year Ended December 31, 2015	794	53	436	411
	Year Ended December 31, 2014	626	93	373	346

	Kanan:
	Year Ended December 31, 2016	523	7	164	366

	Increase			Decrease
	By 100 bps
	(US$ million)
Discount rate		(130	)		164
Terminal growth rate		106			(83	)

	Year Ended December 31,									Six Months Ended December 31,			Year Ended December 31,
	2015									2014			2014
	ZIM			Qoros			Tower ¹			ZIM			Qoros			Tower			Generandes ²
	(in millions of USD)
Revenues	$	2,991		$	232		$	462		$	1,667		$	138		$	828		$	193
Income/(Loss)		2			(392	)		(1	)		(72	)		(350	)		25			30
Other comprehensive income/(loss)		(2	)		—			—			2			—			(9	)		—

Total comprehensive income/(loss)	$	—		$	(392	)	$	(1	)	$	(70	)	$	(350	)	$	16		$	30

Share of Kenon in total comprehensive income/(loss)	$	—		$	(196	)	$	—		$	(23	)	$	(175	)	$	5		$	12
Adjustments		10			—			(1	)		10			—			13			—

Share of Kenon in total comprehensive income/(loss) presented in the books	$	10		$	(196	)	$	(1	)	$	(13	)	$	(175	)	$	18		$	12

Dividends received	$	—		$	—		$	—		$	—		$	—		$	—		$	12
Total assets	$	1,912		$	1,665		$	—		$	2,156		$	1,810		$	874		$	—
Total liabilities		1,834			1,635			—			(2,077	)		(1,670	)		(738	)		—
Book value of investment		201			159			—			191			221			14			—

ANSONIA HOLDINGS SINGAPORE B.V. as Lender

By
	Name: Chen Tou Sin David
	Title: Director

QUANTUM (2007) LLC as Borrower

By
	Name: R OBERT r OSEN
	Title: M ANAGER

Clause		Page

1.	Definitions and Interpretation	1
2.	The Facility	7
3.	Purpose	8
4.	Drawdown	8
5.	Repayment and mandatory prepayment	10
6.	Interest	12
7.	Conversion	12
8.	Tax and other deductions	18
9.	Costs and Expenses	19
10.	Representations and warranties	19
11.	Information Undertakings	20
12.	General Undertakings	20
13.	Events of Default	23
14.	Trigger Events	27
15.	Secondary Sale	28
16.	Limited Recourse	29
17.	Administration	29
18.	Assignment and Transfer	30
19.	Notices	30
20.	Calculations and Certificates	31
21.	Partial Invalidity	31
22.	Remedies and Waivers	31
23.	Amendments and Waivers	31
24.	Counterparts	31
25.	Entire Agreement	31
26.	Governing Law and Enforcement	32
SCHEDULE 1 Conditions Precedent to initial utilization		33
SCHEDULE 2 Form of Utilisation Request		35


Yours faithfully,

QUANTUM (2007) LLC as Borrower

By
	N ame: R OBERT L. R OSEN
	T itle: M ANAGER


Yours faithfully,

QUANTUM (2007) LLC as Borrower

By
	Name:
	Title:


ANSONIA HOLDINGS SINGAPORE B.V. as Lender

By
	Name: Cyril Ducau
	Title: CEO