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U.S. 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

OR

 

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

For the fiscal year ended December 31, 2016

OR

 

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

OR

 

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

Commission file number 001-35991

 

 

GRAÑA Y MONTERO S.A.A.

(Exact name of Registrant as specified in its charter)

 

 

N/A

(Translation of Registrant’s name into English)

Republic of Peru

(Jurisdiction of incorporation or organization)

Av. Paseo de la República 4667

Surquillo

Lima 34, Peru

(Address of principal executive offices)

Daniel Urbina Pérez, Chief Legal Officer

Tel. 011-51-1-213-6565

Av. Paseo de la República 4667

Surquillo

Lima 34, Peru

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

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

 

Title of each class

 

Name of each exchange on which registered

Common Shares, par value s/.1.00 per share,

American Depositary Shares, each representing five

Common Shares

 

New York Stock Exchange*

New York Stock Exchange

 

* Not for trading purposes, but only in connection with the registration on the New York Stock Exchange of the American Depositary Shares representing those common shares.

Securities 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:

 

At December 31, 2016

   660,053,790 shares of common stock

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 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 and posted on its corporate website, if any, every interactive data filed required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 203.405 of this chapter) during the preceding 12 months (or for such other period that the Registrant was required to submit and post such files)    Yes  ☐    No  ☐ Note: Not required for Registrant.

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definitions 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  ☒

 

 

 

 


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Explanatory Note

This is the company’s annual report on Form 20-F for the year ended December 31, 2016. As the company disclosed on a Form 6-K furnished on May 17, 2017, the company was previously unable to file this annual report on Form 20-F within the prescribed time period because the company was carrying out additional procedures in connection with the finalization of its consolidated financial statements and the assessment of its internal control over financial reporting as of and for the year ended December 31, 2016 related to its association with affiliates of Odebrecht S.A. in certain projects in Peru. Additionally, on January 24, 2017, the Peruvian government terminated the concession of Gasoducto Sur Peruano S.A., a consortium controlled and operated by Odebrecht affiliates in which the company held a minority investment, due to a failure of the consortium to obtain the required project financing by the stipulated deadline. The termination of the concession, despite the government compensation contemplated under the concession contract, has had a material impact on the consolidated financial results and backlog of the company, which has been under review due to the complexity in the accounting for the concession and expected government compensation.

In addition, as the company disclosed on Form 6-Ks furnished on October 5, 2017 and November 3, 2017, the company and its former auditor determined that the former auditor was not independent of the company with respect to the fiscal year 2016 as a consequence of non-audit services provided by it to the company beginning in the fourth quarter of fiscal year 2016. The services relate to the company’s testing of internal controls in accordance with the Sarbanes-Oxley Act. As a result, the company and its former auditor mutually agreed on October 4, 2017 to the company’s dismissal of the former auditor with respect to the company’s consolidated financial statements for the fiscal year 2016. A shareholders’ meeting of the company held on November 2, 2017 appointed Moore Stephens SCAI S.A. (“Moore Stephens”) as the new independent auditor for the fiscal year 2016.

Subsequently, on or about March 23, 2018, the former auditor informed the company that it would not authorize the use of its 2015 audit opinion without conducting substantial additional procedures, which represented a difference in understanding from what the company had since October 2017 when the company dismissed the former auditor as the company’s auditor for the 2016 fiscal year. The former auditor could not give any assurance as to when it could complete such additional procedures. To avoid further delay in filing this annual report, on April 17, 2018, the Audit and Process Committee of the company appointed Moore Stephens to re-audit the 2015 fiscal year, and the shareholders’ meeting of the company held on May 14, 2018 ratified the appointment. The previously issued consolidated financial statements of the company for the 2015 fiscal year (and the related audit opinion) included in the company’s annual report on Form 20-F for the year ended December 31, 2015 should not be relied upon. The restatement of the 2015 fiscal year has resulted in certain significant changes to the company’s consolidated financial statements. For more information on the effects of the restatement, see note 2.30 to the company’s consolidated financial statements included in this annual report.

These changes of auditor and the subsequent re-audit and audit of the company’s consolidated financial statements for the fiscal years 2015 and 2016, respectively, caused further delay in the filing of this annual report.

For more information, see “Item 5.A. Operating and Financial Review and Prospects—Recent Developments” and “Item 16.F. Change in Registrant’s Certifying Accountant” of this annual report.


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TABLE OF CONTENTS

 

     Page  

PART I INTRODUCTION

     1  

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     5  

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     5  

ITEM 3. KEY INFORMATION

     5  

A. Selected Financial Data

     5  

B. Capitalization and Indebtedness

     16  

C. Reasons for the Offer and Use of Proceeds

     16  

D. Risk Factors

     17  

ITEM 4. INFORMATION ON THE COMPANY

     38  

A. History and Development of the Company

     38  

B. Business Overview

     39  

C. Organizational Structure

     98  

D. Property, Plant and Equipment

     100  

ITEM 4A. UNRESOLVED STAFF COMMENTS

     101  

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     101  

A. Operating Results

     101  

B. Liquidity and Capital Resources

     131  

C. Research and Development, Patents and Licenses

     138  

D. Trend Information

     139  

E. Off-Balance Sheet Arrangements

     143  

F. Tabular Disclosure of Contractual Obligations

     143  

G. Safe Harbor

     143  

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     143  

A. Directors and Senior Management

     143  

B. Compensation

     150  

C. Board Practices

     151  

D. Employees

     153  

E. Share Ownership

     155  

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     155  

A. Major Shareholders

     155  

B. Related Party Transactions

     156  

C. Interests of Experts and Counsel.

     158  

ITEM 8. FINANCIAL INFORMATION

     158  

A. Consolidated Statements and Other Financial Information.

     158  

B. Significant Changes.

     160  

ITEM 9. THE OFFER AND LISTING

     160  

A. Offer and Listing Details

     160  

 

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B. Plan of Distribution

     162  

C. Plan of Distribution

     162  

D. Markets

     162  

E. Selling Shareholders

     164  

F. Dilution

     164  

G. Expenses of the Issue

     164  

ITEM 10. ADDITIONAL INFORMATION

     164  

A. Share Capital

     164  

B. Memorandum and Articles of Association

     164  

C. Material Contracts

     168  

D. Exchange Controls

     168  

E. Taxation

     169  

F. Dividends and Paying Agents

     173  

G. Statement by Experts

     173  

H. Documents on Display

     173  

I. Subsidiary Information

     174  

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     174  

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     174  

A. Debt Securities

     175  

B. Warrants and Rights

     175  

C. Other Securities

     175  

D. American Depositary Shares

     175  

PART II

     176  

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     176  

ITEM  14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     177  

ITEM 15. CONTROLS AND PROCEDURES

     177  

A. Disclosure Controls and Procedures

     177  

B. Management’s Annual Report on Internal Control Over Financial Reporting

     177  

C. Attestation Report of the Registered Public Accounting Firm

     180  

D. Changes in Internal Control Over Financial Reporting

     181  

ITEM 16. [RESERVED]

     181  

ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT

     181  

ITEM 16B CODE OF BUSINESS CONDUCT AND ETHICS

     181  

ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES

     182  

ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     182  

ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     182  

ITEM 16F CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

     183  

ITEM 16G CORPORATE GOVERNANCE

     184  

ITEM 16H MINE SAFETY DISCLOSURE

     185  

 

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ITEM 17. FINANCIAL STATEMENTS

     185  

ITEM 18. FINANCIAL STATEMENTS

     185  

ITEM 19. EXHIBITS

     185  

 

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PART I

INTRODUCTION

Certain Definitions

All references to “we,” “us,” “our,” “our company,” “the group” and “Graña y Montero” in this annual report are to Graña y Montero S.A.A., a publicly-held corporation ( sociedad an ó nima abierta ) organized under the laws of Peru. In this annual report, we refer to our principal subsidiaries, joint operations, joint ventures and associated companies as follows: (i) in our Engineering and Construction (E&C) segment: GyM S.A. as “GyM”; Stracon GyM S.A. as “Stracon GyM”; Vial y Vives—DSD S.A. as “Vial y Vives—DSD”; GMI S.A. as “GMI”; Morelco S.A.S. as “Morelco”; (ii) in our Infrastructure segment: Norvial S.A. as “Norvial”; Survial S.A. as “Survial”; Concesión Canchaque S.A. as “Canchaque”; GyM Ferrovías S.A. as “GyM Ferrovías”; Concar S.A. as “Concar”; Concesionaria La Chira S.A. as “La Chira”; GMP S.A. as “GMP”; Gasoducto Sur Peruano S.A. (investee) as “GSP”; Concesionaria Chavimochic S.A.C. (investee) as “Chavimochic”; (iii) in our Real Estate segment: Viva GyM S.A. as “Viva GyM”; Inmobiliaria Almonte S.A.C. as “Almonte”; and (iv) in our Technical Services segment, CAM Chile S.A. as “CAM”; Adexus S.A. as “Adexus.” We discuss GSP and Chavimochic in our Infrastructure segment in this annual report, however, as investees, their results are not presented within the Infrastructure segment in our consolidated financial statements. For more information on our subsidiaries, joint operations, joint ventures or associated companies, see notes 5a, 5c and 15 to our audited annual consolidated financial statements included in this annual report.

The GSP gas pipeline concession was terminated on January 24, 2017, and as a result, we recognized impairment with respect to our investment in GSP and our participation in the related construction consortium (Consorcio Constructor Ductos del Sur). Additionally, on April 24, 2017 we sold our interest in Compañía Operadora de Gas del Amazonas (“COGA”), and on June 6, 2017, we sold our interest in GMD S.A. (“GMD”). On April 11, 2018, we sold our interest in Stracon GyM. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.” Beginning on April 1, 2017, we have transferred Concar from our Technical Services segment to our Infrastructure segment.

The term “U.S. dollar” and the symbol “US$” refer to the legal currency of the United States; the term “sol” and the symbol “S/.” refer to the legal currency of Peru; the term “Chilean peso” and the symbol “CLP” refer to the legal currency of Chile; and the term “Colombian peso” and the symbol “COP” refer to the legal currency of Colombia.

Financial Information

Our consolidated financial statements included in this annual report have been prepared in soles and in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). Our annual consolidated financial statements for the years ended December 31, 2015 and 2016 have been audited by Moore Stephens in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our annual consoldiated financial statements for the years ended December 31, 2012, 2013 and 2014 have been audited by Gaveglio, Aparicio y Asociados S.C. de R.L., a member firm of PricewaterhouseCoopers. For more information, see “Item 16.F. Change in Registrant’s Certifying Accountant.”

Our consolidated financial statements for the year ended December 31, 2015 included in this annual report have been restated. The previously issued consolidated financial statements of the company for the 2015 fiscal year (and the related audit opinion) included in the company’s annual report on Form 20-F for the year ended December 31, 2015 should not be relied upon. The restatement of the 2015 fiscal year has resulted in certain significant changes to the company’s consolidated financial statements. For more information, see note 2.30 to the company’s consolidated financial statements included in this annual report.

We manage our business in four segments: Engineering and Construction (E&C); Infrastructure; Real Estate; and Technical Services. For information on our results of operations per our business segments, see note 7 to our audited annual consolidated financial statements.

We have requested that the staff of the U.S. Securities and Exchange Commission (the “SEC”) grant relief from the financial statement filing requirements of Rule 3-09 of Regulation S-X pursuant to Section 2430 of the Division of Corporation Finance Financial Reporting Manual, with respect to our investment in GSP. We have requested this relief because we believe the burden of producing financial statements of GSP as of and for the year ended December 31, 2016 would outweigh their limited utility to the company’s investors. In particular, such financial statements would not provide additional material information to our investors that is not already included in our own consolidated financial statements as of and for the year ended December 31, 2016. This request for relief is pending.

 

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Non-IFRS Data

In this annual report, we present EBITDA, a non-GAAP financial measure. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure. We present EBITDA because we believe it provides readers with a supplemental measure of the financial performance of our core operations that facilitates period-to-period comparisons on a consistent basis. Furthermore, we regularly present EBITDA in our filings with the Lima Stock Exchange in Peru. Our management uses EBITDA, among other measures, for internal planning and performance measurement purposes. We believe that EBITDA is useful in evaluating our operating performance compared to other companies operating in our sectors because the calculation of EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to overall operating performance. EBITDA should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (in each case, as determined in accordance with IFRS). EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies. For our definition of EBITDA and a reconciliation of EBITDA to the most directly comparable IFRS financial measure, see “Item 3.A. Key Information—Selected Financial Data—Non-GAAP Financial Measure and Reconciliation.”

Currency Translations

Our consolidated financial statements are prepared in soles. For a description of our translation of amounts in currencies other than soles in our consolidated financial statements, see note 2.4 to our audited annual consolidated financial statements.

We have translated some of the soles amounts contained in this annual report into U.S. dollars and some U.S. dollars amounts contained in this annual report into soles, for convenience purposes only. Unless otherwise indicated or the context otherwise requires, the rate used to translate soles amounts to U.S. dollars and U.S. dollars amounts into soles was S/.3.36 to US$1.00, which was the exchange rate reported for December 31, 2016 by the Peruvian Superintendency of Banks, Insurance and Private Pension Fund Administrators (Superintendencia de Banca, Seguros y AFPs, or “SBS”). We present our backlog in U.S. dollars. For contracts denominated in soles or other local currencies, amounts have been converted into U.S. dollars based on the exchange rate published by the SBS on December 31 of the corresponding year. When we present our ratios of backlog and revenues in this annual report, we similarly convert our revenues, which are reported in soles, into U.S. dollars based on the exchange rate reported for December 31 of the corresponding year. For conversions of macroeconomic indicators (particularly in “Item 5.D. Operating and Financial Review and Prospects—Trend Information” in this annual report), average annual exchange rates for the currencies of each of the countries addressed are used. The Federal Reserve Bank of New York does not report a noon buying rate for soles. The U.S. dollar equivalent information presented in this annual report is provided solely for convenience of the reader and should not be construed as implying that the soles or other currency amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. See “Item 3.A. Key Information—Selected Financial Data—Exchange Rates” for information regarding historical exchange rates of soles to U.S. dollars.

Rounding

Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be arithmetic aggregations of the figures that precede them.

Backlog

This annual report includes our backlog for our Engineering and Construction, Infrastructure, Real Estate and Technical Services segments. We do not include backlog in this annual report in our Infrastructure segment for: (i) our Norvial toll road concession because its revenues from the concession are derived from toll fees charged to vehicles using the highway, and, as a result, such revenues are dependent on vehicular traffic levels; (ii) our Energy line of business because: (a) its revenues from hydrocarbon extraction services are dependent on the amounts of oil and gas we produce and market prices, which fluctuate significantly; (b) our revenues from our gas processing plant are dependent on the amount of gas we process and market prices for natural gas liquids, which fluctuate significantly; and (c) our revenues from our fuel storage terminal operation partially depend on the volume of fuel dispatched; and (iii) COGA, which is not consolidated because it was jointly controlled, and which we sold on April 24, 2017. When we present backlog on a segment basis, we do not include eliminations that are included in our consolidated backlog. Backlog is not a measure defined by IFRS, and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog. Backlog is not audited. For our definition of backlog, see “Item 4.B. Information on the Company—Business Overview—Backlog.” See also “Item 3.D. Key Information—Risk Factors—Risks Related to our Company—Our backlog and our ratio of historical backlog to revenues may not be reliable indicators of future revenues or profit.”

 

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The GSP gas pipeline concession was terminated on January 24, 2017, which had a significant impact on our backlog for our E&C and our consolidated backlog. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

Reserves Estimates

This annual report includes our estimates for proved reserves in Blocks I and V, where GMP provides hydrocarbon extraction services to, and Blocks III and IV, where GMP extracts hydrocarbon under license agreements with, Perupetro S.A. (“Perupetro”). These reserves estimates were prepared internally by our team of engineers and have not been audited or reviewed by any independent external engineers. For further information on these reserves estimates, see “Item 3.D. Key Information—Rights Relating to Our Company – Additional Risks Related to our Infrastructure Business” and “Item 4.B. Information on the Company—Business Overview—Infrastructure—Principal Infrastructure Lines of Business—Energy—Oil and Gas Production.”

Market Information

We make estimates in this annual report regarding our competitive position and market share, as well as the market size and expected growth of the engineering and construction, infrastructure, real estate and technical services industries in Peru and elsewhere in Latin America. We have made these estimates on the basis of our management’s knowledge and statistics and other information, which we believe to be the most recently available as of the date of this annual report, from government agencies, industry professional organizations, industry publications and other sources. While we believe these estimates to be accurate as of the date of this annual report, we have not independently verified the data from third-party sources and our internal data has not been verified by any independent source. In addition, our former director, Hugo Santa María Guzmán, is a partner in APOYO Consultoría, and Roberto Abusada Salah, a director of the company, GMP and GyM, is a director of the Peruvian Economy Institute. We paid Great Place to Work ® Institute (“Great Place to Work”), a human resources consulting, research and training firm, for our employees to participate in their market survey referenced in this annual report (Copyright © 2016 Great Place to Work ® Institute, Inc. All rights reserved.). In this annual report we present gross domestic product (“GDP”) both on a nominal and real basis. Real GDP is nominal GDP adjusted to exclude the effect of inflation. Unless otherwise indicated, references to GDP are to real GDP.

Measurements and Other Data

In this annual report, we use the following measurements:

 

    “m” means one meter, which equals approximately 3.28084 feet;

 

    “m2” means one square meter, which equals approximately 10.7630 square feet;

 

    “km” means one kilometer, which equals approximately 0.621371 miles;

 

    “hectare” means one hectare, which equals approximately 2.47105 acres;

 

    “tonne” means one metric ton, which equals approximately 2,204.6 pounds;

 

    “bbl” or barrel of oil means one stock tank barrel, which is equivalent to approximately 0.15898 cubic meters;

 

    “boe” means one barrel of oil equivalent, which equals approximately 160.2167 cubic meters, determined using the ratio of 5,658 cubic feet of natural gas to one barrel of oil;

 

    “cf” means one cubic foot;

 

    “M,” when used before bbl, boe or cf, means one thousand bbl, boe and cf, respectively;

 

    “MM,” when used before bbl, boe or cf, means one million bbl, boe and cf, respectively;

 

    “MW” means one megawatt, which equals one million watts; and

 

    “Gwh” means one gigawatt hour, which equals one billion watt hours.

 

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In this annual report, we use the term accident incident rate with respect to our E&C segment, which is calculated as the number of injuries divided by the total number of hours worked by all full-time employees of our E&C segment during the relevant year divided by 200,000 (which reflects 40 hours worked per week in a 50-week year by 100 equivalent full-time workers).

Forward-Looking Statements

This annual report contains forward-looking statements. Forward-looking statements convey our current expectations or forecasts of future events. These statements involve known and unknown risks, uncertainties and other factors, including those listed under “Item 3.D. Key Information—Risk Factors,” which may cause our actual results, performance or achievements to differ materially from the forward-looking statements that we make.

Forward-looking statements typically are identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “project,” “plan,” “believe,” “potential,” “continue,” “is/are likely to,” or other similar expressions. Any or all of our forward-looking statements in this annual report may turn out to be inaccurate. Our actual results could differ materially from those contained in forward-looking statements due to a number of factors, including, among others:

 

    the impact on our business reputation from our association with Odebrecht S.A. (“Odebrecht”) affiliates in Peru;

 

    the potential effects of investigations of our company and of certain of our former directors and executive officers or any future investigations regarding corruption or other illegal acts;

 

    uncertainty with regards to the timing and amount of the payment we are entitled to receive in connection with the termination of the GSP pipeline concession;

 

    defaults under our debt instruments arising from certain financial covenants and our failure to deliver the company’s audited consoldiated financial statements for the 2016 and 2017 fiscal years on time;

 

    our ability to consummate asset sales on favorable terms on a timely basis, or at all;

 

    the effects on our business of having certain restrictions imposed on groups that have been convicted of, or have admitted to, corruption;

 

    the potential impact of the class action civil suit against the company and certain of our former and current executive officers;

 

    global macroeconomic conditions, including commodity prices;

 

    economic, political and social conditions in the markets in which we operate, particularly in Peru, including the resignation of former President Pedro Pablo Kuczynski in March 2018 following corruption allegations;

 

    political conflicts and deadlocks in Peru between the Peruvian Congress and the executive branch;

 

    major changes in Peruvian government policies at the national, regional or municipal levels, including in connection with infrastructure concessions, investments in infrastructure and affordable housing subsidies;

 

    social conflicts in Peru that disrupt infrastructure projects, particularly in the mining sector;

 

    interest rate fluctuation, inflation and devaluation or appreciation of the sol in relation to the U.S. dollar (or other currencies in which we receive revenue);

 

    our backlog may not be a reliable indicator of future revenues or profit;

 

    the level of capital investments and financings available for infrastructure projects of the types that we perform, both in the private and public sectors;

 

    competition in our markets, both from local and international companies;

 

    performance under contracts, where a failure to meet schedules, cost estimates or performance targets on a timely basis could result in reduced profit margins or losses and impact our reputation;

 

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    developments, some of which may be beyond our control, that affect our reputation in our markets, including a deterioration in our safety record;

 

    industry-specific operational risks, such as operator errors, mechanical failures and other accidents;

 

    availability and costs of energy, raw materials, equipment and labor;

 

    our ability to obtain financing on favorable terms, including our ability to obtain performance bonds and similar financings; required in the ordinary course of our business;

 

    our ability to attract and retain qualified personnel;

 

    our ability to enter into joint operations, and rules involved in operating under joint operation or similar arrangements;

 

    our exposure to potential liability claims and contract disputes, including as a result of environmental damage alleged to have been caused by our operations;

 

    our and our clients’ compliance with environmental, health and safety laws and regulations, and changes in government policies and regulations in the countries in which we operate;

 

    negotiations of claims with our clients of cost and schedule variances and change orders on major projects;

 

    delays in client payments, and increased financing costs for working capital resulting from those delays;

 

    volatility in global prices of oil and gas;

 

    the cyclical nature of some of our business segments;

 

    limitations on our ability to operate our concessions profitably, including changes in traffic patterns, and limitations on our ability to obtain new concessions;

 

    our ability to accurately estimate the costs of our projects;

 

    changes in real estate market prices, customer demand, preference and purchasing power, and financing availability and terms;

 

    our ability to obtain zoning and other license requirements for our real estate development;

 

    changes in tax laws;

 

    natural disasters, severe weather or other events that may adversely impact our business; and

 

    other factors identified or discussed under “Item 3.D. Key Information—Risk Factors.”

The forward-looking statements in this annual report represent our expectations and forecasts as of the date of this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this annual report.

 

Item 1. IDENTI TY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

Item 3. KEY INFOR MATION

A. Sele cted Financial Data

 

5


Table of Contents

The following selected consolidated financial data should be read together with “Part I. Introduction — Financial Information,” “Item 5. Operations and Financial Review and Prospects” and our consolidated financial statements included in this annual report.

The following selected financial data as of December 31, 2015 and 2016 and for the years ended December 31, 2014, 2015 and 2016 have been derived from our audited annual consolidated financial statements included in this annual report. The following selected financial data as of December 31, 2012, 2013 and 2014 and for the years ended December 31, 2012 and 2013 have been derived from our audited annual consolidated financial statements not included in this annual report. Our annual consolidated financial statements for the years ended December 31, 2015 and 2016 have been audited by Moore Stephens in accordance with the standards of the Public Company Accounting Oversight Board (United States). For more information, see “Item 16.F. Change in Registrant’s Certifying Accountant.” Our consolidated financial statements for the year ended December 31, 2015 included in this annual report have been restated. The previously issued consolidated financial statements of the company for the 2015 fiscal year (and the related audit opinion) included in the company’s annual report on Form 20-F for the year ended December 31, 2015 should not be relied upon. The restatement of the 2015 fiscal year has resulted in certain significant changes to the company’s consolidated financial statements. For more information on the effects of the restatement, see note 2.30 to the company’s consolidated financial statements included in this annual report.

 

     Year ended  
     2012     2013     2014     2015
Restated
    2016 (1)     2016 (1)  
           (in millions of S/.)                 (in millions
of US$) (3)
 

Income Statement Data: (2)

            

Revenues

     5,231.9     5,967.5     7,008.7     7,815.5     6,469.6       1,925.5  

Cost of sales

     (4,519.8     (4,963.4     (6,057.1     (7,165.5     (5,866.2     (1,745.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     712.1     1,004.1     951.6     650.0     603.4       179.6  

Administrative expenses

     (257.2     (361.8     (421.4     (413.4     (399.4     (118.9

Other income and expenses, net (4)

     75.9     26.0     15.2     57.4     (12.6     (3.8

Profit (losses) from sale of investments

     —         5.7     —         (8.3     46.3       13.8  

Other (expenses) income, net

     (0.3     (0.7     (0.1     (0.1     (0.7     (0.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     530.6     673.4     545.3     285.6     237.1       70.6  

Financial (expense) income, net (5)

     (10.3     (112.4     (91.4     (138.7     (210.8     (62.7

Share of the profit and loss obtained from associates and joint ventures under the equity method of accounting

     0.6     33.6     53.4     7.7     (589.7     (175.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

     520.8     594.5     507.4     154.6     (563.4     (167.7

Income tax

     (154.6     (182.3     (146.2     (99.0     111.8       33.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit

     366.3     412.1     361.2     55.6     (451.6     (134.4

Net profit (loss) attributable to controlling interest (6)

     290.0     320.0     299.7     7.1     (509.7     (151.7

Net profit (loss) attributable to non-controlling interest (6)

     76.3     92.1     61.5     48.5     58.1       17.3  

 

(1) For the effects on our results of operations for 2016 resulting from the termination of the GSP gas pipeline concession, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”
(2) Includes the results of operations of Vial y Vives since October 2012, DSD since August 2013, Morelco since January 2015 and Adexus which began consolidating in August 2016. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Factors Affecting our Results of Operations—Acquisitions.”
(3) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.
(4) Includes the reversal of provisions associated with our acquisition of CAM in February 2011. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Factors Affecting Our Results of Operations—Acquisitions” and notes 28 and 22 to our audited annual consolidated financial statements.
(5) In 2013, 2014, 2015 and 2016 we had higher exchange losses due to the depreciation of the sol against the U.S. dollar and our higher U.S. dollar denominated liability. For more information, see note 26 to our audited annual consolidated financial statements.
(6) We consolidate the results of our subsidiaries in our financial statements and we reflect the profit corresponding to the minority interests in our subsidiaries under “net profit attributable to non-controlling interests” in our income statement. With respect to our joint operations, we recognize in our consolidated financial statements the revenue and expenses, including our share of any asset, liability, revenue or expense we hold jointly with partners. We reflect the results of our associated companies under the equity method of accounting in our consolidated financial statements under the line item “share of the profit and loss in associates” in our income statement. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Factors Affecting Our Results of Operations—Acquisitions,” “—General—Accounting for Subsidiaries, Joint Operations, Joint Ventures and Associated Companies” and note 2.2 to our audited annual consolidated financial statements included in this annual report.

 

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Table of Contents
     As of December 31,  
     2012      2013      2014      2015
(Restated)
     2016 (1) )      2016 (1)  
Balance Sheet Data:    (in millions of S/.)            

(in millions of

US$) (2)

 

Total current assets

     3,017.2        3,903.5        4,623.9        5,200.4        4,328.7        1,288.3  

Cash and cash equivalents

     780.1        959.4        818.4        554.0        607.0        180.7  

Accounts receivables

     930.8        1,162.4        1,768.6        2,143.3        1,862.5        554.3  

Outstanding work in progress

     525.3        971.7        1,161.8        1,278.2        680.9        202.6  

Inventories (3)

     747.4        762.8        833.6        1,159.2        1,104.3        328.7  

Total non-current assets

     1,982.9        2,412.6        3,106.8        3,699.6        4,718.0        1,404.2  

Long-term accounts receivables (4)

     393.4        630.1        580.0        621.8        667.5        198.7  

Investments in associates and joint ventures

     37.4        88.0        229.6        637.0        389.8        116.0  

Property, plant and equipment

     938.1        952.9        1,147.0        1,111.8        1,113.6        331.4  

Intangible assets (5)

     505.1        407.5        778.7        878.3        960.3        285.8  

Total current liabilities

     2,618.1        2,416.3        3,794.9        4,092.3        4,537.0        1,350.3  

Short-term borrowings

     452.8        486.1        1,425.5        1,228.0        1,961.0        583.6  

Accounts payables (6) (7)

     1,995.2        1,762.1        2,268.4        2,779.6        2,453.1        730.1  

Total non-current liabilities

     598.8        703.1        762.1        1,725.8        2,019.9        601.2  

Long-term borrowings

     392.7        309.7        326.1        553.3        419.4        124.8  

Capital stock (8)

     558.3        660.1        660.1        660.1        660.1        196.5  

Shareholders’ equity

     1,392.2        2,765.4        2,691.7        2,558.8        1,980.4        589.4  

Non-controlling interest

     391.0        431.3        482.5        523.1        509.3        151.6  

 

(1) For the effects on our financial condition as of December 31, 2016 resulting from the termination of the GSP gas pipeline concession, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”
(2) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.
(3) Includes investments for the purchase of land by our Real Estate segment. These investments in land are recorded at acquisition cost and are not marked-to-market for changes in fair value. See note 14 to our audited annual consolidated financial statements included in this annual report.
(4) Includes payments required to be made by the Peruvian government for the amounts we invest to purchase trains and other infrastructure for the Lima Metro. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Results of Operations—General—Infrastructure” and note 10 to our audited annual consolidated financial statements included in this annual report.
(5) We recognize our investments in the construction of the highway of our Norvial concession as intangible assets. See note 2.15(c) to our audited annual consolidated financial statements included in this annual report.
(6) Includes S/.848.1 million, S/.701.8 million, S/.684.3 million, S/.607.1 million and S/.810.8 million in advance payments made by our clients as of December 31, 2012, 2013, 2014, 2015 and 2016, respectively, in connection with our E&C and operation and maintenance of infrastructure assets contracts. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Results of Operations—General—Engineering and Construction” and “—Technical Services” and note 21 to our audited annual consolidated financial statements included in this annual report.
(7) Includes our US$52.5 million payable to Chubb Insurance Company relating to the termination of the GSP gas pipeline concession. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments” and “—Liquidity and Capital Resources—Indebtedness.”
(8) Reflects as of December 31, 2013, 2014, 2015 and 2016 our initial public offering of American Depositary Shares (“ADSs”) in the United States, which was consummated on July 29, 2013.

 

     As of and for the year ended December 31,  
     2012     2013     2014     2015
(Restated)
    2016 (1)     2016 (1)  
     (in millions of S/.)          

(in millions of

US$) (3)

 

Other Data: (2)

            

EBITDA (4) (in millions of S/. or US$)

     775.6       967.2       858.8       599.7       (64.4     (19.2

Gross margin

     13.6     16.8     13.6     8.3     9.3     9.3

EBITDA margin (5)

     14.8     16.2     12.3     7.7     (1.0 %)      (1.0 %) 

Outstanding shares (6)

     558,284       660,054       660,054       660,054       660,054       660,054  

Profit per share (in S/.or US$)

     0.66       0.62       0.55       0.08       (0.68     (0.20

Profit attributable to controlling interest per share (in S/.or US$)

     0.52       0.53       0.45       0.01       (0.77     (0.23

Dividend per share (in S/.or US$) (7)

     0.16       0.17       0.16       0.05       —         —    

Net debt (8) / EBITDA ratio

     0.1x       (0.2 )x      1.0x       3.4x       (42.6     (42.6

Backlog (in millions of US$) (Unaudited) (9)

     4,165.9       3,935.0       3,765.4       4,037.8       3,137.4       3,137.4  

Backlog/revenues ratio (Unaudited) (9)

     2.2x       1.9x       1.6x       1.8x       1.6x       1.6x  

 

(1) For the effects on our results of operations and backlog for 2016 resulting from the termination of the GSP gas pipeline concession, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

 

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Table of Contents
(2) Includes the results of operations of Vial y Vives since October 2012, DSD since August 2013, Morelco since January 2015 and Adexus which began consolidating in August 2016. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Factors Affecting our Results of Operations—Acquisitions.”
(3) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.
(4) For further information on the definition of EBITDA, see “—Non-GAAP Financial Measure and Reconciliation.”
(5) Reflects EBITDA as a percentage of revenues.
(6) Reflects as of December 31, 2013, 2014, 2015 and 2016 our initial public offering of ADSs in the United States, which was consummated on July 29, 2013.
(7) Payment of dividends for the year’s profit.
(8) Net debt is calculated as total borrowings (including current and non-current borrowings) less cash and cash equivalents.
(9) For further information on our backlog, see “Item 4.B. Business Overview—Backlog.” Does not include, in our Infrastructure segment, our Norvial toll road concession; our Energy line of business; or our jointly controlled COGA venture (which we sold on April 24, 2017). Backlog is calculated as of the last day of the applicable year. Revenues are calculated for that year and converted into U.S. dollars based on the exchange rate published by the SBS on December 31 of the corresponding year, which was S/.2.551 to US$1.00 as of December 31, 2012, S/.2.796 to US$1.00 as of December 31, 2013, S/.2.989 to US$1.00 as of December 31, 2014, S/.3.413 to US$1.00 as of December 31, 2015, and S/.3.36 to US$1.00 as of December 31, 2016. Includes revenues only for businesses included in our backlog.

The following tables set forth summary financial data for each of our business segments. For more information on the results of operations of our segments, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Results of Operations” and note 6 to our audited annual consolidated financial statements included in this annual report. The effects of the termination of the GSP gas pipeline concession are reflected in Corporate (the Parent Company Operations) and, with respect to the related construction consortium (Consorcio Constructor Ductos del Sur), in our E&C segment. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments” and note 7 to our audited annual consolidated financial statements.

1. Engineering & Construction

 

     Year ended December 31,  
     2012     2013     2014     2015
(Restated)
    2016     2016  
     (in millions of S/.)    

(in millions of

US$) (1)

 

Income Statement Data:

            

Revenues

     3,524.6       4,075.3       5,035.7       5,829.4       4,159.5       1,237.9  

Cost of sales

     (3,116.6     (3,515.2     (4,500.3     5,516.7       (3,934.9     (1,171.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     408.0       559.5       535.4       312.8       224.6       66.8  

Administrative expenses

     (159.8     (217.9     (258.6     (289.1     (258.6     (77.0

Other income and (expenses), net

     (1.9     10.8       (9.8     30.8       (9.2     (2.7

Other (losses) gains, net

     1.3       —         —         (0.2     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     247.6       352.4       267.0       54.2       (43.2     (12.9

Financial (expense) income, net

     19.7       (26.6     (62.4     (118.5     (53.9     (16.0

Share of the profit or loss in associates under the equity method of accounting

     9.2       42.0       48.2       (2.2     16.5       4.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) before income tax

     276.4       367.7       252.8       (66.5     (80.6     (24.0

Income tax

     (87.9     (111.2     (59.3     (55.4     (12.8     (3.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss)

     188.5       256.5       193.6       (121.8     (93.4     (27.8

Net profit attributable to controlling interest

     165.1       211.6       164.1       (131.2     (87.7     (26.1

Net profit (loss) attributable to non-controlling interest

     23.4       44.9       29.5       9.3       (5.7     (1.7

 

     As of December 31,  
     2012      2013      2014      2015
(Restated)
     2016      2016  
     (in millions of S/.)     

(in millions of

US$) (1)

 

Balance Sheet Data:

                 

Total current assets

     1,547.4        1,858.0        2,676.6        3,157.1        1,910.9        568.7  

Cash and cash equivalents

     423.3        265.8        285.4        172.1        93.5        27.8  

Accounts receivables

     555.8        737.7        1,092.9        1,526.4        1,060.5        315.6  

Outstanding work in progress

     417.1        735.0        1,145.4        1,260.5        648.9        193.1  

Other current assets

     151.2        119.6        152.9        198.1        108.0        32.1  

Total non-current assets

     875.8        931.1        1,250.0        1,118.4        1,328.0        395.2  

Long-term accounts receivables

     11.3        —          6.2        0.5        42.7        12.7  

Property, plant and equipment

     539.0        534.1        651.2        606.2        592.2        176.3  

Other non-current assets

     325.6        397.0        592.6        511.7        521.4        155.2  

Total current liabilities

     1,587.0        1,633.6        2,500.2        2,846.3        2,101.5        625.4  

Short-term borrowings

     120.0        195.1        629.6        653.0        582.3        173.3  

Accounts payables (2)

     1,356.5        1,321.5        1,799.3        2,174.0        1,482.1        441.1  

Total non-current liabilities

     260.8        385.6        445.2        629.2        471.8        140.4  

Long-term borrowings

     180.9        127.1        144.1        376.0        246.3        73.3  

 

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Table of Contents
     As of December 31,  
     2012      2013      2014      2015
(Restated)
     2016      2016  
     (in millions of S/.)     

(in millions of

US$) (1)

 

Other long-term liabilities

     80.0        258.5        301.1        253.3        225.5        67.1  

Shareholders’ equity

     472.11        622.9        817.8        639.2        551.7        164.2  

Non-controlling interest

     103.3        147.0        163.4        160.8        113.9        33.9  

2. Infrastructure

 

     Year ended December 31,  
     2012     2013     2014     2015
(Restated)
    2016     2016  
     (in millions of S/.)          

(in millions of

US$) (1)

 

Income Statement Data:

            

Revenues

     524.5       681.0       884.8       1,018.3       912.1       271.5  

Cost of sales

     (351.8     (494.2     (639.2     (833.5     (746.0     (222.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     172.6       186.8       245.6       184.8       166.1       49.4  

Administrative expenses

     (30.5     (31.0     (40.3     (39.4     (41.2     (12.3

Other income and (expenses), net

     (0.8     (3.1     (3.2     1.5       1.1       0.3  

Other (losses) gains, net

     (1.6     0.3       —         (0.1     (0.5     (0.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     139.7       153.0       201.9       146.8       125.6       37.4  

Financial (expense) income, net

     (17.3     (44.6     (25.5     (18.7     (9.8     (2.9

Share of the profit or loss in associates under the equity method of accounting

     —         1.6       —         0.9       1.6       0.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

     122.3       109.9       176.5       129.1       117.4       34.9  

Income tax

     (38.4     (35.4     (57.4     (35.1     (33.1     (9.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit

     84.0       74.5       119.1       94.0       84.2       25.1  

Net profit attributable to controlling interest

     66.7       59.9       102.2       72.7       60.1       17.9  

Net profit attributable to non-controlling interest

     17.3       14.5       16.9       21.3       24.2       7.2  

 

     As of December 31,  
     2012      2013      2014      2015
(Restated)
     2016      2016  
     (in millions of S/.)            

(in millions of

US$) (1)

 

Balance Sheet Data:

                 

Total current assets

     319.1        376.9        426.8        497.3        677.4        198.6  

Cash and cash equivalents

     149.7        122.3        167.3        221.8        288.0        85.7  

Accounts receivables

     118.9        145.7        213.0        219.2        296.4        88.2  

Outstanding work in progress

     26.8        78.1        16.4        17.7        32.1        9.6  

Other current assets

     23.8        30.8        30.0        38.6        50.9        15.1  

Total non-current assets

     826.8        1,082.6        1,260.0        1,480.2        1,751.7        521.3  

Long-term accounts receivables (3)

     349.3        603.9        602.3        670.7        915.1        272.4  

Property, plant and equipment

     211.3        201.5        209.5        200.6        177.9        52.9  

Other non-current assets

     266.2        277.3        412.2        526.7        611.0        181.8  

Total current liabilities

     486.0        892.9        1,034.7        354.7        327.7        97.5  

Short-term borrowings

     38.7        85.7        570.4        156.5        82.1        24.4  

Accounts payables

     439.3        781.2        450.0        153.8        188.4        56.1  

Total non-current liabilities

     190.5        108.1        120.3        992.1        1,397.8        416.0  

Long-term borrowings

     146.3        96.1        100.4        83.3        80.5        24.0  

Other long-term liabilities

     44.2        12.0        19.9        908.8        1,317.3        392.1  

Shareholders’ equity

     355.5        385.5        451.8        532.0        580.7        172.8  

Non-controlling interest

     113.9        73.0        80.0        98.7        112.8        33.6  

 

9


Table of Contents

3. Real Estate

 

     Year ended December 31,  
     2012     2013     2014     2015
(Restated)
    2016     2016  
     (in millions of S/.)          

(in millions of

US$) (1)

 

Income Statement Data:

            

Revenues

     240.1     313.7     224.6     215.8     411.5       122.5  

Cost of sales

     (153.4     (200.0     (162.1     (164.0     (275.0     (81.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     86.7     113.7     62.4     51.8     136.5       40.6  

Administrative expenses

     (17.4     (21.0     (21.1     (20.5     (28.4     (8.5

Other income and expenses, net

     (1.7     (0.7     (0.8     1.8     0.8       0.2  

Other (losses) gains, net

     —         (1.0     —         —         —         —    

Profit from the sale of investments

     —         3.2     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     67.6     94.2     40.5     33.0     108.9       32.4  

Financial (expense) income, net

     (2.3     (13.8     (14.7     (10.9     (11.6     (3.5

Share of the profit or loss in associates under the equity method of accounting

     —         0.1     12.2     14.9     6.8       2.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

     65.3     80.5     38.0     37.0     104.2       31.0  

Income tax

     (20.0     (21.4     (11.5     (7.6     (27.1     (8.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit

     45.3     59.0     26.5     29.3     77.2       23.0  

Net profit attributable to controlling interest (4)

     12.4     19.2     9.5     12.4     22.1       6.6  

Net profit (loss) attributable to non-controlling interest (4)

     32.9     39.9     17.0     17.0     55.1       16.4  
     As of December 31,  
     2012     2013     2014     2015
(Restated)
    2016     2016  
     (in millions of S/.)          

(in millions of

US$) (1)

 

Balance Sheet Data:

            

Total current assets

     636.0       672.6       760.8       1,109.3       1,117.1       332.5  

Cash and cash equivalents

     73.0       43.0       54.3       74.5       58.9       17.5  

Accounts receivables

     37.7       36.4       75.6       114.4       111.2       33.1  

Other current assets (5)

     525.3       593.2       631.0       920.4       947.0       281.8  

Total non-current assets

     71.4       76.5       117.4       91.7       113.6       33.8  

Long-term accounts receivables

     6.8       11.8       9.7       14.7       17.9       5.3  

Property, plant and equipment

     4.5       5.6       7.3       11.3       13.0       3.9  

Investment property

     36.0       36.9       36.2       34.7       49.4       14.7  

Other non-current assets

     24.2       22.1       64.1       30.9       33.3       9.9  

Total current liabilities

     263.6       217.6       266.6       555.1       515.8       153.5  

Short-term borrowings

     43.2       77.9       144.3       224.4       206.5       61.5  

Accounts payables

     211.8       136.6       121.1       330.7       291.2       86.7  

Total non-current liabilities

     62.6       97.8       138.9       159.6       104.2       31.0  

Long-term borrowings

     49.7     52.3     16.4     27.6     16.5       4.9  

Other long-term liabilities

     12.9     45.4     122.5     132.0     87.6       26.1  

Shareholders’ equity

     147.1     152.7     157.3     158.6     234.4       69.8  

Non-controlling interest (4)

     234.2     281.0     315.4     327.6     376.3       112.0  

4. Technical Services

 

     Year ended December 31,  
     2012     2013     2014     2015
(Restated)
    2016     2016  
     (in millions of S/.)          

(in millions of

US$) (1)

 

Income Statement Data:

            

Revenues

     1,083.3       1,169.1       1,208.2       1,152.5       1,401.8       417.2  

Cost of sales

     (979.4     (989.9     (1,065.8     (974.2     (1,229.9     (366.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     103.9       179.2       142.3       178.3       171.8       51.1  

Administrative expenses

     (105.4     (132.5     (122.5     (115.0     (119.0     (35.4

Other income and expenses, net

     73.6       24.7       5.9       15.2       4.5       1.3  

Gain from business combination

     —         —         —         0.2       —         —    

Other (losses) gains, net

     —         —         (2.1     —         (0.2     (0.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     72.2       71.4       25.7       70.3       57.1       17.0  

Financial (expense) income, net

     (5.1     (15.9     (25.6     (30.1     (26.8     (8.0

Share of the profit or loss in associates under the equity method of accounting

     —         1.1       0.6       0.6       0.4       0.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

     67.1       56.6       0.7       40.8       30.7       9.1  

Income tax

     (5.6     (16.7     (5.8     6.1       (15.8     (4.7

 

10


Table of Contents
     Year ended December 31,  
     2012      2013      2014     2015
(Restated)
     2016     2016  
     (in millions of S/.)     (in millions of
US$) (1)
 

Net profit (loss)

     61.5        39.9        (5.1     46.9        14.8       4.4  

Net profit (loss) attributable to controlling interest

     50.6        34.3        (5.3     40.3        15.9       4.7  

Net profit (loss) attributable to non-controlling interest

     10.8        5.6        0.3       6.6        (1.1     (0.3

 

 

     As of December 31,  
     2012      2013      2014      2015
(Restated)
     2016      2016  
     (in millions of S/.)            

(in millions of

US$) (1)

 

Balance Sheet Data:

                 

Total current assets

     495.5      585.2      616.6      532.0      730.7        217.5  

Cash and cash equivalents

     85.3      46.5      134.7      60.2      53.5        15.9  

Accounts receivables

     259.6      312.0      421.2      398.7      591.9        176.2  

Outstanding work in

progress

     81.4      158.7      —          —          —          —    

Other current assets

     69.2      68.0      60.7      73.1      85.3        25.4  

Total non-current assets

     192.2      197.8      252.4      257.8      411.2        122.4  

Long-term accounts receivables

     24.3      12.3      4.9      0.5      39.6        11.8  

Property, plant and

equipment

     109.3      114.1      166.3      170.7      217.7        64.8  

Other non-current assets

     58.7      71.5      80.3      86.6      153.9        45.8  

Total current liabilities

     489.4      475.0      434.7      411.7      679.7        202.3  

Short-term borrowings

     96.0      126.9      80.5      91.4      158.2        47.1  

Accounts payables

     354.2      339.6      339.9      299.5      511.3        152.2  

Total non-current liabilities

     74.4      160.1      216.1      180.0      213.5        63.5  

Long-term borrowings

     12.4      31.4      63.1      66.5      76.1        22.6  

Other long-term liabilities

     61.9      128.7      153.0      113.5      137.4        40.9  

Shareholders’ equity

     103.0      125.7      128.4      162.6      210.5        62.6  

Non-controlling interest

     20.9      22.2      89.8      35.5      38.2        11.4  

 

(1) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.
(2) Includes advance payments, which reflects advance payments made by our clients in connection with our E&C and Operation and Maintenance of Infrastructure Assets contracts. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Results of Operations—General—Engineering and Construction” and “—Technical Services” and note 21 to our audited annual consolidated financial statements included in this annual report.
(3) Includes payments required to be made by the Peruvian government for the amounts we invest to purchase trains and other infrastructure for the Lima Metro. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Results of Operations—General—Infrastructure” and note 10 to our audited annual consolidated financial statements included in this annual report.
(4) The net profit attributable to controlling interests of our Real Estate segment is significantly affected by the financing and commercial arrangements we use to purchase land and to develop real estate projects. Depending on the level of non-controlling interests used to finance our real estate projects, our Real Estate segment tends to have significant net profit attributable to non-controlling interests. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Results of Operations—General—Real Estate.”
(5) Includes inventories, which includes investments for the purchase of land by our Real Estate segment. These investments in land are recorded at book value and are not marked-to-market for changes in fair value. See note 14 to our audited annual consolidated financial statements included in this annual report.

Non-GAAP Financial Measure and Reconciliation

In this annual report, we present EBITDA, a non-GAAP financial measure. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure. We define EBITDA as net profit plus: financial (expense) income, net; income tax; and depreciation and amortization.

We present EBITDA, a non-GAAP financial measure. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure. We present EBITDA because we believe it provides readers with a supplemental measure of the financial performance of our core operations that facilitates period-to-period comparisons on a consistent basis. Furthermore, we regularly present EBITDA in our filings with the Lima Stock Exchange in Peru. Our management uses EBITDA, among other measures, for internal planning and performance measurement purposes. We believe that EBITDA is useful in evaluating our operating performance compared to that of other companies operating in our sectors because the calculation of EBITDA and

 

11


Table of Contents

EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to overall operating performance. EBITDA should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (in each case, as determined in accordance with IFRS). EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies. The following table sets forth the reconciliation of our net profit to EBITDA on a consolidated basis.

 

     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016 (1)     2016 (1)  
     (in millions of S/.)          

(in millions

of US$) (2)

 

Net profit (loss) (3)

     366.3       412.1       361.2       55.6       (451.6     (134.4

Financial expense

     310.7       569.6       460.1       604.0       993.4       295.7  

Financial income

     (300.4     (455.9     (368.8     (465.3     (782.6     (232.9

Income tax

     154.6       182.3       146.2       99.0       (111.8     (33.3

Depreciation and amortization

     244.5       259.1       260.0       306.4       288.3       85.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     775.6       967.2       858.8       599.7       (64.4     (19.2

The following table is the reconciliation of the EBITDA for our four segments, Parent company operations and elimination:

 

     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016 (1)     2016 (1)  
     (in millions of S/.)          

(in millions

of US$) (2)

 

Engineering and construction

     387.9       546.0       459.5       220.1       106.1       31.6  

Infrastructure

     207.5       218.8       272.5       233.0       210.8       62.7  

Real state

     70.5       97.9       56.5       52.8       121.4       36.1  

Technical services

     111.6       109.6       63.5       113.3       117.5       35.0  

Parent company operations

     258.8       307.9       252.3       (35.6     (1,026.4     (305.5

Eliminations intercompany

     (260.6     (312.0     (245.4     16.2       406.2       120.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (5)

     775.6       967.2       858.8       599.7       (64.4     (19.2

The following tables set forth the reconciliation of our net profit to EBITDA for each of our business segments and certain of our lines of business or subsidiaries within these segments. The effects of the termination of the GSP gas pipeline concession are reflected in Corporate (the Parent Company Operations) and, with respect to the related construction consortium (Consorcio Constructor Ductos del Sur), in our E&C segment. For more information, see note 7 to our audited annual consolidated financial statements.

1. Engineering & Construction

 

     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016 (1)     2016 (1)  
     (in millions of S/.)          

(in millions of

US$) (2)

 

Net profit (loss) (3)

     188.5       256.5       193.6       (121.8     (93.4     (27.8

Financial expense

     179.1       318.4       256.9       433.3       560.1       166.7  

Financial income

     (198.8     (291.8     (194.5     (314.8     (506.2     (150.7

Income tax

     87.9       111.2       59.3       55.4       12.8       3.8  

Depreciation and amortization

     131.1       151.2       144.2       168.1       132.8       39.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (4)

     387.9       546.0       459.5       220.1       106.1       31.6  

2. Infrastructure

2.1 Full Segment

 

     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016     2016  
     (in millions of S/.)          

(in millions of

US$) (2)

 

Net profit

     84.0       74.5       119.1       94.0       84.2       25.1  

Financial expense

     76.1       97.5       89.5       69.1       97.2       28.9  

Financial income

     (58.8     (52.6     (64.0     (50.4     (87.4     (26.0

Income tax

     38.4       35.4       57.4       35.1       33.1       9.9  

Depreciation and amortization

     67.9       64.0       70.5       85.2       83.6       24.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     207.5       218.8       272.5       233.0       210.7       62.7  

 

12


Table of Contents

2.2(a) All Toll Roads

 

     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016     2016  
     (in millions of S/.)          

(in millions

of US$) (2)

 

Net profit

     29.4       40.5       43.0       53.5       44.9       13.4  

Financial expense

     16.5       22.4       19.0       10.8       14.9       4.4  

Financial income

     (11.4     (18.0     (9.5     (14.8     (9.6     (2.9

Income tax

     12.5       15.0       16.2       18.8       15.5       4.6  

Depreciation and amortization

     24.5       10.0       11.4       10.9       11.1       3.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     71.5       69.8       80.1       79.2       76.8       22.9  

2.2(b) Norvial

 

     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016     2016  
     (in millions of S/.)          

(in millions

of US$) (2)

 

Net profit

     27.2       30.2       31.1       40.9       47.3       14.1  

Financial expense

     10.2       13.3       9.7       4.1       4.9       1.5  

Financial income

     (6.4     (3.8     (0.4     (0.4     (1.6     (0.5

Income tax

     11.6       10.3       10.9       13.6       16.3       4.9  

Depreciation and amortization

     24.2       9.8       11.0       10.8       10.9       3.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     66.7       59.6       62.3       68.9       77.7       23.1  

2.3 Mass Transit

 

     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016     2016  
     (in millions of S/.)          

(in millions

of US$) (2)

 

Net profit (loss) (5)

     (11.0     (13.1     12.1       18.8       23.9       7.1  

Financial expense

     28.0       46.5       39.8       7.9       20.5       6.1  

Financial income

     (24.0     (20.3     (35.3     (4.9     (25.8     (7.7

Income tax

     3.6       0.5       10.8       8.1       10.9       3.2  

Depreciation and amortization

     0.5       0.6       0.9       0.1       0.1       0.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     (10.2     13.2       28.3       30.0       29.6       8.8  

2.4 Energy

 

     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016     2016  
     (in millions of S/.)          

(in millions

of US$) (2)

 

Net profit

     63.4       45.0       62.7       20.2       12.0       3.6  

Financial expense

     25.0       28.5       30.6       50.3       61.7       18.4  

Financial income

     (23.3     (14.3     (19.2     (30.5     (52.0     (15.5

Income tax

     28.5       20.1       29.8       7.7       5.3       1.6  

Depreciation and amortization

     42.8       53.4       58.1       74.2       72.5       21.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     136.4       132.8       162.0       121.8       99.5       29.6  

 

13


Table of Contents

3. Real Estate

 

     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016     2016  
     (in millions of S/.)          

(in millions

of US$) (2)

 

Net profit

     45.3       59.0       26.5       29.3       77.2       23.0  

Financial expense

     14.5       27.0       30.4       47.7       65.1       19.4  

Financial income

     (12.2     (13.2     (15.6     (36.8     (53.5     (15.9

Income tax

     20.0       21.4       11.5       7.6       27.1       8.1  

Depreciation and amortization

     2.9       3.6       3.8       4.9       5.6       1.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     70.5       97.9       56.5       52.8       121.4       36.1  

4. Technical Services

4.1 Full Segment

 

     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016     2016  
     (in millions of S/.)          

(in millions

of US$) (2)

 

Net profit (loss)

     61.5       39.9       (5.1     46.9       14.8       4.4  

Financial expense

     29.1       35.2       39.9       45.7       57.6       17.1  

Financial income

     (24.0     (19.4     (14.3     (15.6     (30.9     (9.2

Income tax

     5.6       16.7       5.8       (6.1     15.8       4.7  

Depreciation and amortization

     39.4       37.2       37.2       42.3       60.1       17.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     111.6       109.6       63.5       113.3       117.5       35.0  

4.2 Concar (6)

            
     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016     2016  
     (in millions of S/.)          

(in millions

of US$) (2)

 

Net profit (loss)

     12.6       7.9       (26.5     18.5       14.0       4.2  

Financial expense

     3.4       6.2       12.0       9.1       4.5       1.3  

Financial income

     (4.1     (6.3     (7.2     (5.0     (4.6     (1.4

Income tax

     6.2       4.6       (0.8     11.4       6.7       2.0  

Depreciation and amortization

     5.1       5.6       7.1       5.3       6.4       1.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     23.2       18.0       (15.3     39.3       27.0       8.0  

4.3 GMD

            
     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016     2016  
     (in millions of S/.)          

(in millions

of US$) (2)

 

Net profit

     11.3       8.5       6.0       5.2       7.9       2.4  

Financial expense

     5.5       12.8       8.2       13.8       16.4       4.9  

Financial income

     (3.6     (7.8     (3.7     (5.5     (6.6     (2.0

Income tax

     5.3       5.8       5.3       3.1       7.5       2.2  

Depreciation and amortization

     15.9       15.4       18.6       22.4       25.7       7.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     34.5       34.8       34.4       38.9       50.8       15.1  

 

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4.4 CAM

 

     Year ended December 31,  
     2012     2013     2014     2015
Restated
    2016     2016  
     (in millions of S/.)          

(in millions

of US$) (2)

 

Net profit (loss)

     37.5       23.5       15.5       23.3       (3.0     (0.9

Financial expense

     20.1       16.2       19.6       22.8       28.2       8.4  

Financial income

     (16.3     (5.3     (3.4     (5.1     (16.2     (4.8

Income tax

     (5.9     6.2       1.2       (20.6     3.5       1.0  

Depreciation and amortization

     18.5       16.3       11.5       14.7       19.5       5.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     53.9       56.9       44.4       35.1       31.9       9.5  

 

(1) For the effects on our results of operations for 2016 resulting from the termination of the GSP gas pipeline concession, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”
(2) Calculated based on an exchange rate of S/3.36 to US$1.00 as of December 31, 2016.
(3) Includes the results of operations of Vial y Vives since October 2012, DSD since August 2013, Morelco since January 2015 and Adexus which began consolidating in August 2016. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Factors Affecting Our Results of Operations—Acquisitions.”
(4) Our E&C segment EBITDA includes S/.9.2 million, S/.42.0 million, S/.48.2 million, S/.2.2 million, and S/.16.5 million in 2012, 2013, 2014, 2015 and 2016, respectively, which represents GyM’s 39.0% equity interest in Viva GyM’s net profit.
(5) In 2012 and 2013, we generated losses as a result of the limited number of trains we initially operated in the Lima Metro. For more information on our Lima Metro, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Factors Affecting Our Results of Operations—Infrastructure.”
(6) Beginning on April 1, 2017, we have transferred Concar from our Technical Services segment to our Infrastructure segment.

 

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Exchange Rates

The Peruvian sol is freely traded in the exchange market. Current Peruvian regulations on foreign investment allow foreign equity holders of Peruvian companies to receive and repatriate 100% of the cash dividends distributed by these companies. Non-Peruvian equity holders are allowed to purchase foreign currency at free market currency rates through any member of the Peruvian banking system and transfer such foreign currency outside Peru without restriction. Peruvian law in the past, however, has imposed restrictions on the conversion of Peruvian currency and the transfer of funds abroad, and we cannot assure you that Peruvian law will continue to permit such payments, transfers, conversions or remittances without restrictions.

The following table sets forth, for the periods indicated, certain information regarding the exchange rates for soles per U.S. dollar, as published by the SBS. The Federal Reserve Bank of New York does not report a noon buying rate for soles.

 

     High      Low      Average      Period end  

2012

     2.710        2.551        2.639        2.551  

2013

     2.820        2.541        2.704        2.796  

2014

     2.990        2.761        2.840        2.989  

2015

     3.413        2.983        3.186        3.413  

2016

     3.537        3.249        3.375        3.360  

2017

     3.392        3.231        3.261        3.241  

November 2017

     3.251        3.233        3.241        3.233  

December 2017

     3.289        3.231        3.246        3.241  

January 2018

     3.229        3.207        3.215        3.216  

February 2018

     3.269        3.212        3.248        3.260  

March 2018

     3.271        3.217        3.252        3.227  

April 2018

     3.249        3.216        3.231        3.249  

May (through May 11, 2018)

     3.291        3.260        3.276        3.260  

B. Capitalization a nd Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

 

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D. Risk Factors

Risk Relating to Recent Developments

Our reputation has been adversely affected by our association with Odebrecht’s affiliates in Peru

We have participated in consortia with Odebrecht affiliates in Peru. Our reputation has been adversely affected as a result of the plea agreements and criminal convictions of Odebrecht and certain key persons related to Odebrecht in connection with corruption, money laundering and criminal organization. Peruvian authorities have initiated congressional inquiries and criminal investigations into the dealings of Odebrecht’s affiliates in Peru, the scope of which include certain consortia in which we participated. Moreover, as a result, our company and certain of our former directors and executive officers have been the subject of congressional and criminal investigations related to corruption investigations. These investigations are ongoing.

Our reputation is a key factor in our clients’ evaluation of whether to engage our services, key industry players’ willingness to partner with us, financial institutions’ willingness to provide us credit, and recruiting and retaining talented personnel to our company. The impact on our business reputation related to our association with Odebrecht and the alleged actions of our former board members and executive officers has had, and is likely to continue to have, a material adverse effect on our business, financial condition and results of operation.

Investigations regarding potential corruption or other illegal acts could have a material adverse effect on our business, financial condition and results of operations

The Lava Jato commission of the Peruvian congress has undertaken congressional inquiries into the company and other construction companies in Peru, which have included certain of the company’s former board members and executive officers.

Peruvian prosecutors have included José Graña Miró Quesada, the former Chairman of the company, in an investigation for the crime of collusion, and Hernando Graña Acuña, a former board member of the company, for the crime of money laundering against the Peruvian government, each in connection with the IIRSA South project concession (tranches II and III), in which we participated with Odebrecht. Gonzalo Ferraro Rey, the former Chief Infrastructure Officer of the company, has also been included in an investigation for the crime of money laundering in connection with the same project.

In connection with investigations relating to the IIRSA South project concession (tranches II and III), the Peruvian criminal prosecution has moved to charge the company and our construction subsidiary, GyM, as criminal defendants in connection with the projects. Separately, a Peruvian Ad Hoc Prosecutor appointed by the Peruvian executive branch to investigate matters of corruption (the “Ad Hoc Prosecutor”) has moved to directly include the company as a civilly-responsible third party. In response, the Peruvian First National Preparatory Investigation Court ( Primer Juzgado de Investigación Preparatoria Nacional ) notified us of its decision to formally include the company and GyM in its criminal investigation. We have appealed the court’s decision to include the company and GyM in the criminal investigation. A decision from the Peruvian judiciary on whether our company constitutes a civilly-responsible third party remains pending. We cannot assure you that our position in these proceedings will prevail.

The Ad Hoc Prosecutor has also moved to directly include our subsidiary, GyM, as a civilly-responsible third party in the investigation relating to Tranches 1 and 2 of Line 1 of the Lima Metro. A decision from the Peruvian judiciary regarding these matters remains pending, and we cannot assure you that our subsidiary will not be included or that our position would ultimately prevail.

We cannot assure you that other of our former or current board members and executive officers will not be included in the foregoing proceedings as criminal defendants or civilly-responsible third parties as well, or that the company will not be included in other investigations.

A conviction of corruption or settlements with government authorities could lead to criminal and civil fines as well as penalties, sanctions, injunctions against future conduct, profit disgorgement, disqualifications from directly and indirectly engaging in certain types of business, the loss of business licenses or permits or other restrictions. Moreover, our alleged involvement in corruption investigations, and any findings of wrongdoing in such investigations, could further damage our reputation and have a material adverse impact on our ability to compete for business. Such investigations may also adversely affect our ability to pursue strategic projects, and could potentially result in the termination or modification of certain existing contracts or relationships. In addition, investigations could continue to divert management’s attention and resources from other issues facing our business.

 

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There is substantial uncertainty with regard to the amount, timing and manner in which the payment for the termination of the GSP gas pipeline concession will be paid

There is substantial uncertainty with regards to the payment contemplated under the GSP gas pipeline concession contract as a result of the termination of the gas pipeline concession, including with respect to the amount, timing and manner in which the payment will be made or if it will be made at all.

Although the concession contract provides that payment must be made within one year of termination, the Peruvian Ministry of Energy and Mines has not made payment or, to our knowledge, initiated the payment process or the auction process for a new concessionaire. As a result, we may be forced to assert our rights against the Peruvian government in judicial or arbitration proceedings, which may place us in an adversarial position with the Peruvian government and/or our partners. We cannot assure you that we will pursue any such claims, or that any such claims would ultimately prevail in a timely manner, or at all.

To initiate arbitration against the Peruvian government, we need the approval of all three shareholders of GSP. We have sought such approval on two occasions but have not succeeded. We cannot assure you that we will acquire the consent needed to initiate legal proceedings in the short term. Moreover, Enagás International, S.L. (“Enagás”) has initiated separate international proceedings against the Peruvian government pursuant to international treaties, which may affect GSP’s ability to initiate proceedings against the Peruvian government.

In 2016, in connection with efforts to restructure or sell Odebrecht’s participation in GSP, due to the corruption scandal surrounding Odebrecht, Odebrecht contractually agreed to subordinate its claims under the concession to the other project partners, Enagás and ourselves. On January 2, 2018, we received a notification that Odebrecht commenced arbitration proceedings against us and Enagás, seeking to invalidate the contractual subordination and to negotiate a direct sale with the Peruvian government. While we believe that the subordination arrangement with respect to Odebrecht’s claims in connection with the anticipated payment is enforceable, we cannot assure you that our position will prevail. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

In addition, we have made certain estimates in our consolidated financial statements with respect to the expected payment for the termination of the GSP contract. If our assumptions and estimates are incorrect, our actual results could differ significantly from those reflected in our consolidated financial statements. Failure to receive the expected payment on a timely basis, or at all, would have a material adverse effect on our business, financial condition and results of operations.

We are in default under certain of our debt instruments and may not reach agreement with our creditors to amend or waive the covenants

We are currently in default under certain of our debt instruments and are initiating the process of renegotiating with our creditors under such instruments. See “Item 13. Defaults, Dividend Arrrearages and Delinquencies.” Failure to successfully renegotiate new payment terms could force us to precipitate the sale of assets, including on unfavorable terms, to repay these debt instruments. Moreover, if we are not able to renegotiate the terms of these debt instruments or repay them promptly, our ability to obtain financings, including performance guarantees or similar financings required under many of our business contracts, would be impaired, which may have a material adverse effect on our business, financial condition and results of operations.

We may not be able to sell assets on favorable terms or at all

As part of our strategic action plan, our board of directors has approved the sale of certain non-strategic assets, to make payments in respect of debt related to the termination of the GSP gas pipeline concession. We cannot assure you that we will be able to sell assets on favorable terms or at all. If we are not able to sell assets on a timely basis, our ability to address our liquidity needs could be adversely affected and we may breach our payment obligations under our debt related to the termination of the GSP gas pipeline concession.

Conversely, if we sell significant assets, our business and results of operations will be diminished.

If we cannot sell assets, we may not comply with the terms of our outstanding debt

We renegotiated with our creditors the terms of certain debt instruments related to the GSP project. We have agreed, among other things, to sell assets to repay certain such debt instruments. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments—Strategic Action Plan—Negotiations with Creditors.” If we are unable to sell assets in a timely manner, we may be forced to renegotiate these debt instruments on unfavorable terms.

 

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A class action civil lawsuit in the United States may adversely affect our company

A securities class action civil lawsuit has been filed against the company and certain of our former and current executive officers in the United States. The suit is in early stages, and we cannot assure you that our position will prevail. If our position does not prevail, the case may have substantial adverse effects on our business, financial condition and results of operations.

We may be unable to access credit that we need to operate our business

Due to ongoing regulatory uncertainty, including with respect to Section II of Law 30737, our creditors and other banks operating in the Peruvian market have placed restrictions on our ability, and the ability of other construction companies, to acquire future credit lines or other financings.

This may affect our ability to obtain financing for new or existing projects on favorable terms or at all, and also may render us unable to compete for or win new projects.

Our business and financial condition could be materially and adversely affected if the Peruvian prosecutor requires that we place an excessive amount of assets in trust

On February 13, 2017, the President of Peru issued an emergency decree ( decreto de urgencia 003-2017), prohibiting groups that have been, or whose officers or representatives have been convicted of, or have admitted to, corruption, money-laundering or similar crimes (whether in Peru or elsewhere) from, among other things, transferring or selling any assets related to investments in Peru, including the proceeds of asset or equity sales, or sending money abroad without a governmental authorization. Section II of Law 30737, promulgated on March 12, 2018 to replace the aforementioned emergency decree, includes companies that have been consortium partners of groups that have been, or whose officers or representatives have been, convicted of, or have admitted to, corruption, money-laundering or similar crimes. Our company and our subsidiary GyM are two such companies. The law requires that these companies: suspend money transfers abroad; implement a compliance program and disclose information to competent authorities; and create a trust of assets to guarantee eventual compensation in favor of the Peruvian government. A Peruvian prosecutor will indicate the amount of such guarantee, pursuant to Law 30733. On May 9, 2018, Supreme Decree No. 096-2018-EF was passed, which provides guidelines for such determination. Nevertheless, we cannot assure you of the amount of this guarantee, nor can we assure you that the Company will have sufficient assets to include in the required trust. Furthermore, we cannot assure you that these laws will not be expanded, or that subsequent laws will not be passed, that impose further obligations or restrictions on the company and our subsidiaries.

Changes in key personnel could affect our future business

Our success depends significantly on the services of our senior management, board of directors and other key personnel. On February 27, 2017, our former chairman of the board, our former CEO and board member, and our former board member and the former chairman of our subsidiary GyM resigned from their positions at our company. Effective March 2, 2017, we appointed a new CEO, and on March 31, 2017, our shareholders at the annual shareholders’ meeting appointed a new board of directors, replacing all but two of our existing directors. Moreover, other senior managers that have recently left the company.

While most of these officers have already been replaced, the replacement of existing directors and senior management is likely to have an impact on our business and results of operations. Moreover, we cannot assure you that we will be able to continue to attract and retain senior management, qualified engineers and other key personnel.

INDECOPI and Peruvian prosecutors have initiated investigations in response to a news report alleging that certain construction companies in Peru, Brazil and Spain, including our company, colluded to receive public contracts

In July 2017, media reports alleged that certain construction companies in Peru, Brazil and Spain, including our company, colluded as a “construction club” to receive public contracts. As a result of these reports, the Peruvian National Institute for the Defense of Free Competition and the Protection of Intellectual Property (“INDECOPI”) has initiated an investigation regarding the anti-competitive activities of construction companies in Peru, including our company, and have included a former employee of GyM in an investigation for collusion. In July 2017, INDECOPI conducted a search of our facilities related to these allegations. To date, there is no pending investigation of the company.

We cannot predict what the outcome of the investigations will be, the timing of any resolution, or how the resulting consequences, if any, may impact our business, financial condition and results of operations.

 

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Risks Related to Our Company

Global economic conditions could adversely affect our financial performance

The global financial crisis and ensuing global recession in 2008 and 2009 had a significant adverse effect on the development of large-scale infrastructure and real estate projects worldwide. More recently, global economic conditions, including slower growth in China, declines in global commodity, in particular oil and gas prices, the appreciation of the U.S. dollar against foreign currencies, the withdrawal of investments from emerging markets and continued concerns about the U.S. and European economies, has generated economic uncertainty which could adversely affect private- and public-sector investments. The United Kingdom voted to exit the European Union on June 23, 2016. As of the date hereof, the actions to be taken by the United Kingdom to effectively exit the European Union and the duration of this process are uncertain. The results of the referendum in the United Kingdom have caused, and are expected to continue to cause, volatility in financial markets, which in turn could have substantial adverse effects on our business, financial condition and results of operations. On November 8, 2016, Mr. Donald J. Trump was elected president of the United States. President Trump has espoused an inclination to consider greater restrictions on free trade and limitations on immigration. Changes in social, political, regulatory and economic conditions in the United States or in laws and policies governing foreign trade could create uncertainty in the international markets and could have a negative impact on emerging market economies, including the Peruvian economy, which in turn could have a negative impact on our operations. Future global economic conditions, in particular fluctuations in commodity prices and financings costs, may impact our clients’ investment decisions. Should our clients choose to postpone or suspend new investments or delay or cancel the execution of existing projects as a result of global economic conditions, demand for our products and services, including our backlog, would decline, which may result in a decline in revenues and in under-utilization of our capacity. In addition, our business may be impacted by adverse economic developments even after economic conditions have improved because of the lag time between when investments decisions are made and when the projects are executed. Furthermore, financial difficulties suffered by our clients, joint operation partners, subcontractors or suppliers due to global economic conditions could result in payment delays or defaults, or increase our costs or adversely impact our project execution. Accordingly, a global economic downturn could have a material adverse effect on our financial performance.

We face significant competition in each of our markets

Each of the markets in which we operate is competitive. We compete on the basis of, among other factors, price, performance, product and service quality, skill and execution capability, client relations, reputation and brand, and health, safety and environmental record. We face significant competition from both local and international players. Some of these competitors may have greater resources than us or specialized expertise in certain sectors. In addition, a portion of our business is derived from open bidding processes which can be highly competitive. Certain of our markets are highly fragmented with a large number of companies competing for market share. Our competitors may be more inclined to take greater or unusual risks or accept terms and conditions in a contract that we might not deem acceptable. Moreover, we cannot assure you that we will not face new competition from industry players entering or expanding their operations in our markets. If we are unable to compete effectively, our ability to continue to grow our business or maintain our market share would be affected. In addition, because one of the factors on which we generally compete is price, increased competition could impact our operating margins. Accordingly, our business and financial performance could be adversely affected by competition in our markets.

A major change in Peruvian government policies could affect our business

Our business is significantly affected by national, regional and municipal government policies and regulations, including with respect to infrastructure concessions or similar contracts to the private sector, public spending in infrastructure investment and government housing subsidies, among others. Any adverse change in government policies with respect to these matters could result in a material adverse effect on our business and financial performance.

Social conflicts may disrupt infrastructure projects

Despite Peru’s ongoing economic growth and stabilization, high levels of poverty and unemployment and social and political tensions continue to be pervasive problems in the country. Peru has, from time to time, experienced social and political turmoil, including riots, nationwide protests, strikes and street demonstrations. In recent years, certain regions experienced strikes and protests related mainly to the environmental impact of mining activities, which resulted in commercial disruptions, including in the departments of Cajamarca and Arequipa. These protests may lead to the suspension of mining projects. Social conflicts may disrupt, delay or suspend infrastructure projects in the future, which could have a material adverse effect on our business and financial performance.

 

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New projects may require the prior approval of local indigenous communities

In September 2011, Peru enacted Law No. 29,785, regarding the Prior Consultation Right of Local Indigenous Communities, in accordance with the International Labor Organization Convention No. 169 (Ley del Derecho a la Consulta Previa a los Pueblos Indígenas y Originarios, Reconocido en el Convenio 169 de la Organización Internacional del Trabajo). This law establishes a prior consultation procedure (procedimiento de consulta previa) that the Peruvian government must carry out with local indigenous communities, whose rights may be directly affected by new legislative or administrative measures, including the granting of certain permits or new concessions or similar contracts, such as for mining, energy and oil and gas projects. Local indigenous communities do not have a veto right; upon completion of this prior consultation procedure, the Peruvian government retains the discretion to approve or reject the applicable legislative or administrative measure. We cannot assure you that these consultation procedures will not adversely affect new projects and concessions. Accordingly, our business and financial performance may be materially and adversely affected.

Our backlog and our ratio of historical backlog to revenues may not be reliable indicators of future revenues or profit

Our backlog amount is subject to revision over time and our ability to realize revenues from our backlog is subject to a number of uncertainties. Cancellations, scope adjustments or deferrals may occur, from time to time, with respect to contracts reflected in our backlog and could reduce the amount of our backlog and the revenue and profits that we actually earn. Contracts may also remain in our backlog for an extended period of time and poor performance could also impact our profit from the contracts in our backlog. In addition, our backlog is expressed in U.S. dollars based on period-end exchange rates while a significant portion of our contracts are payable in soles or other local currencies. As a result, any depreciation of local currency would diminish the amount of revenues eventually earned relative to backlog. As of December 31, 2016, one client, Ecopetrol, concentrated 33.5% of Morelco’s backlog, and another client, Rio Alto, concentrated 44.9% of Stracon’s backlog. Moreover, the termination of the GSP gas pipeline concession on January 24, 2017 has reduced our backlog as of December 31, 2016 by US$855 million, 30.2% of our E&C backlog and 21.4% of our total backlog. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.” The amount of our backlog is not necessarily indicative of future revenues or profits related to the performance of the related contracts.

Our backlog may decline further. We cannot assure you that we will be able to obtain sufficient contracts in the future in number and magnitude to grow our backlog. Additionally, the amount of new contracts that we obtain can fluctuate significantly from period to period due to factors that are beyond our control.

The ratio of our historical backlog to revenues earned in subsequent years is volatile and substantially affected by a number of factors, some of which are outside our control, including levels of contract scope adjustments and our ability to enter into new contracts (which are substantially influenced by general economic conditions), delays and cancellations, foreign exchange rate movements and our ability to increase the scale of our operations to expand the amount of work we carry out beyond that previously contracted. Accordingly, historical correlations between backlog and revenues may not recur in future periods. In particular, you should not assume that the ratio of our future E&C segment revenues for 2018 to backlog as of December 31, 2017 that is currently expected to be realized in that year will be comparable to our historic ratios shown in “Item 4.B. Information on the Company—Business Overview—Backlog—E&C Backlog.”

Our success depends on key personnel

Our success depends, to a significant degree, upon the services of our senior management, board of directors and other key personnel. Members of our management team are not subject to long-term employment agreements or non-competition agreements with us. We cannot assure you that we will be successful in retaining our current senior management or members of our board of directors, nor can we assure you that, in such event, we would be able to find suitable replacements. In addition, the success of our business depends on our ongoing ability to attract, train and retain qualified engineers and other personnel. In recent years, the availability in Peru of qualified personnel who have the necessary expertise and experience has been lower than demand and, therefore, competition for human resources has become intense. We cannot assure that we will be able to hire and retain the number of qualified personnel required to meet the needs of, or to grow, our business. If we are unable to attract, train and retain the qualified personnel that we require at reasonable cost, our business and financial performance could be adversely affected.

Our success depends, to a large extent, on our reputation for the quality, reliability, timely delivery and safety of our products and services

We believe our track record and reputation are key factors in our clients’ evaluation of whether to engage our services and purchase our products, encouraging key industry players to partner with us, and recruiting and retaining talented personnel to our company. Our reputation is based, to a large extent, on the quality, reliability, timeliness and safety of our products and services. If our products do not meet expected standards or we fail to meet our deadlines, our relationship with our clients and partners could suffer, the reputation of our company could be adversely affected, we may not be invited to new bidding processes and our ability to capture new business could be severely diminished.

 

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The nature of our business exposes us to potential liability claims and contract disputes

We may be subject to a variety of legal or administrative proceedings, liability claims or contract disputes. The government, clients and other third parties may present claims against us for injury or damage caused, directly or indirectly, by our operations, for example for alleged failures in our engineering and construction, the operation of our infrastructure concessions (such as our toll roads or the Lima Metro) and real estate developments we sell. Although we have adopted a range of insurance, risk management and risk avoidance programs designed to reduce potential liabilities, a catastrophic event resulting from the services we have performed or products we have provided could result in significant professional or product liability, warranty or other claims against us as well as reputational harm, especially if public safety is impacted. We may in the future be named as a defendant in legal proceedings where our clients or third parties may make a claim for damages or other remedies with respect to our projects or other matters. Any liability not covered by our insurance, or in excess of our insurance limits, could result in a significant loss for us, which may affect our financial performance. Moreover, certain of our clients have executed the performance guarantees that we were required to deliver in connection with their project in order to gain leverage, we believe, in the negotiation of contract disputes with us.

We are susceptible to operational risks that could affect our business and financial performance

Our business is subject to numerous industry-specific operational risks, including natural disasters, adverse weather conditions, operator error or other accidents, mechanical and technical failures, explosions and other events, many of which are beyond our control. Such occurrences could result in injury or loss of life, severe damage to and destruction of property and equipment, business interruption, pollution and other environmental damage, clean-up responsibilities, regulatory requirements, investigations and penalties, potential liability claims and contractual disputes. In addition, such occurrences could materially impact our reputation. Although we maintain comprehensive insurance covering our assets and operations at levels that our management believes to be adequate, our insurance coverage will not be sufficient in all circumstances or to protect against all hazards. The occurrence of such an operational risk could have a material adverse effect on our business and financial performance.

Deterioration in our safety record could adversely affect our business and financial performance

Our ability to retain existing clients and attract new business is dependent on our ability to safely operate our business. Existing and potential clients consider the safety record of their services providers to be of high importance in their decision to award service contracts. Some of our activities, in particular in our E&C segment, as well as our electricity networks services line of business, can be high risk by their nature. If one or more accidents were to occur at a site, the affected client may terminate or cancel our contract and may be less likely to continue to use our services. We cannot assure you that we will not experience accidents in the future, causing our safety record to deteriorate. Accidents may be more likely as we continue to grow, particularly if we are required to hire less experienced employees due to shortages of skilled labor. Moreover, often times we do not perform these activities by ourselves and accidents can happen due to errors committed by partners and subcontractors over whom we have no control. Because many of our clients require us to report our safety metrics to them as part of the bidding process and because a substantial part of our client base is comprised of major companies with high safety standards, a general deterioration in our safety record could have a material adverse impact on our business including our ability to bid for new contracts.

Any safety incidents or deterioration in our safety record could adversely impact our ability to attract and retain qualified employees. In addition, we could also be subject to liability for damages as a result of accidents and could incur penalties or fines for violations of applicable safety laws and regulations.

Increases in the prices of energy, raw materials, equipment or wages could increase our operating costs

Our business requires significant purchases of energy, raw materials and components, including, among others, large quantities of fuel, cement and steel, as well as purchases or leases of equipment. Certain inputs used in our operations are susceptible to significant fluctuations in prices, over which we may have little control. The prices of some of these inputs are affected to a significant extent by the prices of commodities, such as oil and iron. Global oil prices in particular have declined significantly in recent years, although they increased in 2016 and subsequently, and we cannot assure you that oil prices will not continue to increase in the future (although increased oil prices would benefit revenues in our Energy line of business. Substantial increases in the prices of such commodities generally result in increases in our suppliers’ operating costs and, consequently, lead to increases in the prices they charge for their products. Moreover, we do not have long-term contracts for the supply of our key inputs, and, as a result, if prices increase significantly or if we are required to find alternative suppliers, our costs to procure these inputs may increase significantly. In addition, growing demand for labor, especially when coupled with shortages of qualified employees in the countries where we operate, may result in significant wage inflation. To the extent that we are unable to pass along to our clients increases in the prices of our key inputs or increases in the wages that we must pay, our operating margins could be materially adversely impacted.

 

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We may not be able to obtain financing on favorable terms

Our ability to undertake large investments (particularly in our Infrastructure and Real Estate segments) or consummate significant acquisitions will depend on the availability of equity and debt financing. We cannot assure you that we will be able to obtain new financings in the future on favorable terms or at all. Our ability to obtain financings will depend in part upon prevailing conditions in credit and capital markets, which are beyond our control. In 2008 and 2009, global markets suffered turmoil, which significantly constrained the availability of new financings. In addition, our ability to obtain new financing, or refinance existing debt, may at certain times be adversely affected by the cyclicality of our business, particularly our E&C segment, as has occurred in the past. Furthermore, in response to the ensuing global economic recession in 2009, many countries, in particular the United States as well as the countries where we operate, have maintained target interest rates at very low levels. However, more recently, the U.S. Federal Reserve began to increase target interest rates in the United States. Most emerging markets have been affected by this change in the U.S. monetary policy, resulting in a withdrawal of investments and increased volatility in the value of their currencies. If interest rates rise significantly in the United States, emerging market economies, including Peru, could find it more difficult and expensive to borrow capital and refinance existing debt. Higher interest rates globally or in Peru would in turn impact our costs of funding. If adequate funds are not available, or are not available on favorable terms, we may not be able to make future investments or take advantage of acquisitions or other opportunities.

We may not be able to recover on claims against clients for payment

If a client fails to pay our invoices on time or defaults in making its payments to us, we could incur significant losses. We occasionally bring claims against clients, principally the government, for delayed payments, additional costs that exceed the contract price or for amounts not included in the original contract price, including change orders. These types of claims can occur due to matters such as owner-caused delays or changes from the initial project scope, and, occasionally, they can be the subject of lengthy proceedings. When these types of events occur and unresolved claims are pending, we may invest significant working capital in projects to cover cost overruns pending the resolution of the relevant claims. Moreover, we have recently encountered difficulties collecting on claims, even following successful arbitration awards, particularly against the government. A failure to promptly recover on these types of claims and change orders could have a material adverse effect on our financial performance.

If we are unable to enter into consortia or other strategic alliances, our ability to compete for new business may be adversely affected

We may join with other companies to form joint operations or other strategic alliances to compete for a specific concession or contract, including with partners that contribute expertise in a specific field. Because a consortium or alliance can often offer stronger combined qualifications than a company on a stand-alone basis, these arrangements can be important to the success of a particular bid. If we are unable to enter into consortia or other strategic alliances, our ability to compete for new business may be adversely affected.

Our consortia and other strategic alliances may be affected by disputes with, or the unsatisfactory performance by, our partners

Consortia and other strategic alliances that we enter into as part of our business, including arrangements where operating control may be shared with unaffiliated third parties, may involve risks not otherwise present when we operate independently, including: sharing approval rights over major decisions; responsibility for our partners’ unpaid obligations or liabilities; and inconsistencies in our and our partners’ economic or business interests or goals. Any disputes between us and our partners may result in delays, litigation or operational impasses. We may also incur liabilities as a result of action taken by our partners. In addition, if we participate in consortia or other strategic alliances where we are not the controlling party, we may have limited control over operation decisions and actions and the success of the consortium or other strategic alliance will depend largely on the performance of our partners. These risks could adversely affect our ability to transact the business that is the subject of such consortium or other strategic alliance, and could result in the termination of the applicable concession or contract. Under these circumstances, we may be required to make additional investments and provide additional services to ensure adequate performance and delivery. These additional obligations could result in reduced profits or, in some cases, increased liabilities or significant losses for us. In addition, failure by a partner to comply with applicable laws or regulations could negatively impact our business and, in the case of government contracts, could result in fines, suspension or even debarment from participating in bidding processes. As a result, our business and financial performance could be adversely affected by disputes involving our consortia or other strategic alliances. We have recently been involved in ongoing disputes, including arbitration proceedings, with our minority partner in Adexus. These disputes could result in disruptions in Adexus’ operations.

 

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We are dependent upon third parties to complete many of our contractual obligations

We rely on third-party suppliers to provide a significant amount of the materials and equipment used in our businesses. A portion of the work performed under our infrastructure concessions and, to a lesser extent, other contracts is performed by third-party subcontractors. As a result, the timely completion and quality of our projects may depend on factors beyond our control, including the quality and timeliness of the delivery of materials supplied for use in the project and the technical skills of subcontractors hired for the project. If we are unable to find qualified suppliers or hire qualified subcontractors, our ability to meet our contractual obligations could be impaired. In addition, if the amount we are required to pay for supplies, equipment or subcontractors exceeds what we have estimated, we may suffer losses under our contract. If a supplier or a subcontractor fails to provide supplies, equipment or services as required under a negotiated arrangement for any reason, or provides supplies, equipment or services that are not of an acceptable quality, we may be required to source those supplies, equipment or services on a delayed basis or at a higher price than anticipated, which could impact our financial performance. In addition, faulty materials or equipment could result in claims against us for failure to meet contractual specifications, and failure by suppliers or subcontractors to comply with applicable laws and regulations could negatively impact our reputation and our business and, in the case of government contracts, could result in fines, suspension or even debarment from participating in bidding processes. These risks may be intensified during economic downturns if these suppliers or subcontractors experience financial difficulties. As a result, our business and financial performance may be adversely affected by our dependence on third-party providers.

Debarment from participating in government bidding processes would have a material adverse effect on our business and financial performance

We would face debarment from participating in government bidding processes for one to three years if we were found to have violated certain provisions of the Peruvian State Contracting Law (Ley de Contrataciones del Estado). We are required to comply with a large number of contractual obligations with the government in our business, and we cannot assure you that we will be in full compliance at all times. Moreover, such a debarment would affect the ability of our entire company (including any of our subsidiaries), and not just the line of business where the alleged violation took place, to participate in government bids under the Peruvian State Contracting Law. In April 2013, Perupetro initiated an administrative proceeding against a subsidiary in our E&C segment, claiming that the subsidiary had submitted a bid to provide engineering services while not being in compliance with certain technical requirements. We lost the administrative proceeding as well as the first and second instances of the judicial proceeding we had initiated to contest such administrative proceeding. We appealed the adverse judgment and are currently in annulment proceedings. Although we believe that the likelihood of an adverse outcome in this proceeding is remote, an adverse outcome would affect that particular subsidiary’s participation in government bidding processes under the Peruvian State Contracting Law. Subsequently, we canceled the road maintenance services contract because the regional government of Cusco did not pay any valuations (January, February and March of 2014) and did not give us access to the entire stretch of the related road. We have initiated an action against the regional government of Cusco for an amount of S/.97.4 million, and the government has filed a counterclaim for S/.403 million. All these proceedings remain pending as of the date of this annual report, and we cannot assure you that our position will prevail.

During 2016, 11% of our revenues on a consolidated basis was derived from public sector contracts in Peru (excluding public infrastructure concessions). As a result, if our company is debarred from participating in government bidding processes, our business and financial performance would be materially and adversely affected.

We may not be able to successfully expand outside of Peru

One of our long term strategies has been to continue to expand our operations outside of Peru, particularly in Chile and Colombia, and we expect that our international operations could become a more significant part of our consolidated business in future. We cannot assure you that we will be able to replicate our success in Peru in other countries. Our international expansion is subject to additional challenges, including: our ability to assimilate cultural differences and practices; our limited familiarity with local laws, regulators and contractors; our ability to attract and manage foreign personnel; the absence of a local workforce formed in our corporate values and familiar with our operations; competition in foreign markets, including from industry players with significantly greater local experience and reputation; and other risks specific to these countries. Many countries in Latin America have suffered significant economic, political and social crises in the past, and these events may occur again in the future. If we are unable to overcome these challenges, we may not be able to successfully expand internationally.

We may not be able to make successful acquisitions

Part of our long-term strategy has been to evaluate strategic acquisition opportunities to expand our operations and geographic footprint, especially in Chile and Colombia. We may not be able to identify appropriate acquisition opportunities, or, if we do, we may overpay for these acquisitions or may not otherwise be able to negotiate terms and conditions that are acceptable to us. We may also face difficulties obtaining financing to pay for acquisitions. In addition, we may not be able to obtain regulatory approvals, including antitrust approvals, required to consummate acquisitions. Furthermore, even if we are able to successfully consummate an acquisition, we may encounter challenges in integrating the acquired business effectively and profitably into our operations. The integration of an acquisition involves a number of factors that may affect our operations, including diversion of management’s attention, difficulties in retaining personnel and entry into unfamiliar markets. Acquired businesses may not achieve the levels of productivity anticipated or otherwise perform as expected. Acquisitions may bring us into businesses we have not previously

 

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conducted and expose us to additional business risks that are different from those we have traditionally experienced, including new geographic, market, operating and financial risks. Moreover, acquisitions involve special risks, including the potential assumption of unanticipated liabilities and contingencies. Even if such liabilities are assumed by the sellers, we may have difficulties enforcing our rights, contractual or otherwise. We cannot assure you that future acquisitions will meet our strategic objectives.

Failure to comply with, or changes in, laws or regulations could have a material adverse effect on our business and financial performance

We operate in highly regulated industries. Our business and financial performance depends on our and our clients’ ability to comply on a timely and efficient basis with extensive national, regional and municipal laws and regulations relating to, among other matters, environmental, health and safety, building and zoning, labor, tax and other matters. The cost of complying with these laws and regulations can be substantial. In addition, compliance with these laws and regulations can cause scheduling delays. Although we believe we are in compliance with all applicable concessions, other similar contracts, laws and regulations in all material respects, we cannot assure you we have been or will be at all times in full compliance. Failure by us or our clients to comply with our concessions, similar contracts or these laws and regulations could result in a range of adverse consequences for our business, including subjecting us to significant fines, civil liabilities and criminal sanctions, requiring us to comply with costly restorative orders, the shutdown of operations and revocation of permits and termination of concessions or similar contracts. In addition, we cannot assure you that future changes to existing laws and regulations, or stricter interpretation or enforcement of existing laws and regulations, will not impair our ability to comply with such laws and regulations or increase our compliance costs.

We may be held liable for environmental damage caused by our operations

The nature of certain of our operations requires us to assume risks of causing environmental and other damages. We may be held liable for the environmental damage we cause, including the incidental consequences of human exposure to hazardous substances or other environmental damage. We may be subject to clean up costs or penalties in the event of certain discharges into the environment and/or environmental contamination and damage. Our environmental liability insurance may not be sufficient or may not apply to certain types of environmental damage. Any substantial liability for environmental damage could have a material adverse effect on our financial performance.

New environmental regulation as a result of climate change could impact our business and financial performance

Growing concerns about climate change could result in the imposition of additional or more stringent environmental requirements or regulations. For example, there are ongoing international efforts to address greenhouse emissions, such as the Kyoto Protocol or the more recent Paris Agreement, which are in various stages of negotiation and implementation. If more stringent environmental regulation is adopted in the countries where we operate, we may be obliged to incur higher expenditures than anticipated, adversely affecting our financial performance. In addition, future remediation requirements in the event that we are found responsible for environmental damage may be substantial, which could impact our financial condition. Moreover, more stringent environmental regulation could increase the costs of projects for our clients or, in some cases, prevent a project from going forward, thereby potentially reducing the demand for our services. Accordingly, new environmental regulation could have a material adverse effect on our business and financial performance.

We may not be able to effectively protect ourselves against financial market risks

Our operations are exposed to financial market risks, such as risks related to exchange rates, commodity prices and, to a lesser extent, interest rates. Fluctuations in currency, commodity prices or interest rates could adversely affect our financial performance. We cannot assure you that derivative financial instruments will protect us from the adverse effects of financial market risks. While hedging transactions are intended to reduce market risks, such transactions may expose us to other risks, such as counterparty risk. We may not be able to adequately protect ourselves against financial market risks and may not ultimately achieve an economic benefit from our hedging strategy.

The loss of a key client in some of our lines of business may affect our business and financial performance

In some of our lines of business, such as our Infrastructure and Technical Services segments, a substantial amount of the revenue we receive is concentrated among a limited number of clients, including the Peruvian government. If one or more of these major clients fail or delay in paying our fees, or if there is a significant reduction or cancellation of business by one or more of these major clients, our business and financial performance may be adversely affected. In particular we cannot assure you that Enel, which acquired Enersis (from whom we acquired our electricity networks services line of business in 2011), will not reduce its use of our services. If we are not able to capture new clients to replace the loss of business from existing key clients, our financial performance may be adversely affected.

 

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Our use of the percentage-of-completion method of accounting for our Engineering and Construction segment could result in a reduction of previously recorded profits

In accordance with IFRS, we measure and recognize a large portion of our revenues under the percentage-of-completion accounting methodology. This methodology allows us to recognize revenues ratably over the life of a contract, without regard to the timing of receipt of cash payments, by comparing the amount of the costs incurred to date against the total amount of costs expected to be incurred. The effect of revisions to estimated costs, and thus revenues, is recorded when the amounts are known and can be reasonably estimated. These revisions can occur at any time and could be material. On a historical basis, we believe that we have made reasonably reliable estimates of the progress towards completion on our long-term contracts. However, given the uncertainties associated with these types of contracts and inherent in the nature of some of the industries in which we operate, it is possible for actual costs to vary from estimates previously made, which may result in reductions or reversals of previously recorded profits.

Labor unrest could adversely affect our financial performance

All of our manual laborers and a portion of our employees are members of labor unions. Our practice is generally to extend benefits we offer our unionized employees to non-unionized employees. In our E&C segment, collective bargaining agreements are negotiated at two levels, on an annual basis between the Peruvian National Federation of Civil Construction and the Peruvian Chamber of Construction, without our direct involvement, and on a per project basis directly between the unions and us in accordance with such annual agreement. We also have collective agreements with our employees in certain of our business segments, which are also negotiated periodically. Although we consider that our relationship with unions are currently positive, we cannot assure you that we will not experience work slowdowns, work stoppages, strikes or other labor disputes in the future, which could result in the interruption or delay of our operations. Such interruptions or delays could have an adverse impact on our business, including on the cost of our projects and our ability to make timely delivery. Moreover, our operations may also be affected by labor unrest in our clients’ or our partners’ workforce.

The proceeds from our insurance policies may not be sufficient and we may not be insured against all risks

We maintain insurance coverage both as a corporate risk management strategy and in order to satisfy the requirements under certain regulations and contracts. We cannot assure you that proceeds from our insurance policies, however, will be sufficient to cover the damages resulting from any event covered by such policies. Certain risks are not covered under the terms of our insurance policies, such as interruption of operations. In such event, we may incur significant expenses to rebuild our facilities, repair or replace our equipment, or cover other damages. In addition, if any of our third-party insurers fail, abruptly cancel our coverage or otherwise cannot satisfy their insurance requirements to us, then our overall risk exposure and operational expenses could be increased. Moreover, we may not be able to renew our insurance policies on favorable terms, or at all. Although in the past we have been generally able to cover our insurance needs, we cannot assure you that we will be able to secure all necessary insurance in the future.

An increase in import duties and controls may have a material adverse effect on our financial performance

Our future success depends in part on our ability to select and purchase quality mechanical instruments and equipment at attractive prices. While we have historically been able to do so, such instruments and equipment may become subject to higher import taxes than currently apply. We cannot assure you that there will not be further increases in import taxes, changes in laws related to imports or the imposition of quotas by countries from which we import mechanical instruments and equipment, which could have a material adverse effect on our business.

The government may declare the nullity of public bidding processes after we have been awarded a project or concession

Even if we win the public bidding for a project or concession, the government may subsequently declare the process void for political, budgetary or other reasons and may cancel or terminate the project or concession awarded to us. For example, in June 2014, we were determined the winner of a public bidding for a concession to operate the fare collection system of Lima’s integrated transportation system for a period of 16 years. However, in January 2015, the Municipality of Lima notified us that the board of directors of the Instituto Metropolitano Protransporte de Lima – Protransporte had declared the nullity of the public bidding process, based on a report issued by the Peruvian Ministry of Economy and Finance, which concluded that the Ministry should have pronounced itself with respect to the concession prior to the bidding process instead of afterwards. We initiated a judicial proceeding in July 2015 to challenge such declaration of nullity, which proceedings are currently under way. If upheld by the courts, the declaration of nullity of projects or concessions awarded to us could affect our future results of operations. Moreover, the uncertainty that results from these type of decisions may adversely impact investor confidence in Peru and our business.

 

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Additional Risks Related to our Engineering and Construction Business

We are vulnerable to the cyclical nature of the end-markets we serve

Demand for our engineering and construction services is dependent on conditions in the end-markets we serve, which include, among others, the mining, power, oil and gas, transportation, real estate and other infrastructure sectors in Peru, as well as the mining sector in Chile and the energy sector in Colombia. Consequently, our engineering and construction business is closely linked to the performance and growth of these sectors, and it is exposed to many of the risks faced by our clients operating in these sectors, over which we have no control. These industries tend to be cyclical in nature and, as a result, although downturns can impact our entire company, our engineering and construction business has historically been subject to periods of very high and low demand. For example, between 2000 and 2003, there was a significant decline in activity in the Peruvian real estate and construction sectors, which consequently affected our and our competitors’ business and financial performance during that time. Factors that can affect these sectors include, among others, macroeconomic conditions, climate conditions, the level of private and public investment, the availability of credit, changes in laws and regulations and political and social stability. The mining and oil and gas sectors, in particular, are also driven by worldwide demand for the underlying commodities, including, among others, silver, gold, copper, oil and gas, which can be affected by such other factors as global economic conditions and geopolitical affairs. The decline in recent years in prices for minerals, oil and gas has had a significant impact on our clients’ exploration and production activities and, as a result, on their demand for our engineering and construction services. Accordingly, continuing adverse developments in the end-markets served by our engineering and construction business could have a material adverse effect on our financial performance.

Decreases in capital investments by our clients may adversely affect the demand for our services

Our engineering and construction business is directly affected by changes in private-sector and, to a lesser extent, public-sector investments for large-scale infrastructure projects. In addition, our engineering and construction business is directly affected by the availability and cost of financings for these projects. In the markets where we operate, investments and financings for large-scale projects have historically been influenced by macroeconomic and other factors which are beyond our control, including in the case of public-sector investment, government spending levels. As a result, we cannot assure you that clients will not choose to limit or not undertake new projects or delay, suspend or cancel existing projects. Further reductions in anticipated capital investments or available financing for large-scale projects could have a material adverse effect on our financial performance. Public and private investment in Peru, Colombia and Chile slowed significantly during 2016 and 2017 as a result of market conditions and, in the case of Peru, as a result of corruption investigations and political uncertainty.

Our revenues may fluctuate based on project cycles, which we may not control

The substantial majority of the revenues from our engineering and construction business is generated from project awards, the timing of which may be unpredictable and outside of our control, especially considering the highly competitive bidding processes and complex and lengthy negotiations they involve. These processes can be impacted by a wide variety of outside factors including governmental approvals, financing contingencies and overall market and economic conditions. Moreover, because a significant portion of our revenues is generated from large-scale projects, our results of operations can fluctuate quarterly or yearly depending on whether and when project awards occur and the commencement and progress of work under awarded contracts. As a result, we are subject to the risk that revenues may not be derived from awarded projects as quickly as anticipated.

Our business may be adversely affected if we incorrectly estimate the costs of our projects

We conduct our engineering and construction business under various types of contractual arrangements where costs are estimated in advance. In some of our contracts (i.e., lump-sum, unit price and EPC), we bear the risk of some or all unanticipated cost overruns, including due to inflation or certain unforeseen events. Risks under contracts which could result in cost overruns include: difficulties in performance of our subcontractors, suppliers, or other third parties; changes in laws and regulations or difficulties in obtaining permits or other approvals; unanticipated technical problems; unforeseen increases in the cost of inputs, components, equipment, labor, or the inability to obtain these on a timely basis; delays caused by weather conditions; incorrect assumptions related to productivity or scheduling estimates; and project modifications that create unanticipated costs or delays. These risks tend to be exacerbated for longer term contracts since there is increased risk that the circumstances under which we based our original bid could change. In many of our contracts, we may not be able to obtain compensation for additional work performed or expenses incurred. Our failure to estimate accurately the resources and time required to complete a project could adversely affect our profitability. Even under our cost-plus contracts, our inability to complete projects within the estimated budget could affect our relationship with our clients and negatively impact awards of future contracts. As a result, if we incorrectly estimate the costs of our projects, our business and financial performance could be adversely affected.

 

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We may be unable to deliver our services in a timely manner

The success of our engineering and construction business depends on our ability to meet the standards and schedules required by our clients. Significant delays that prevent us from providing our services on agreed time frames could adversely affect our client relations and reputation. Delays may occur for a number of reasons, including as a result of our inability to adequately foresee the needs of our clients; delays caused by our joint operation partners, subcontractors or suppliers; insufficient production capacity; equipment failure; shortage of qualified workers; changes to customs regulations; and natural disasters. Failure to finish construction by the contractual completion date set forth in the contract could result in costs that reduce our projected profit margins, including a requirement to pay daily penalties and damages. If we are unable to meet deadlines, either due to internal problems or as a result of events over which we have no control, we may lose the trust of our clients and, therefore, experience a decrease in the demand for our services. In such event, our business and financial performance could be adversely affected.

We may not be able to obtain compensation for additional work or expenses incurred as a result of client-requested change orders

Clients often determine, after commencement of the project, to change various elements of the project. Some of our contracts may also require that clients provide us with design or engineering information or with equipment or materials to be used on the project, and, in some cases, the client may provide us with deficient design or engineering information or equipment or materials or may provide the information or equipment or materials to us later than required by the project schedule. Our project contracts generally require the client to compensate us for additional work or expenses incurred due to client requested change orders or failure of the client to provide us with specified design or engineering information or equipment or materials. Under these circumstances, we generally negotiate with the client with respect to the amount of additional time required to make these changes and the compensation to be paid to us. We are subject to the risk that we are unable to obtain, through negotiation, arbitration, litigation or otherwise, adequate amounts to compensate us for the additional work or expenses incurred by us due to client-requested change orders or failure by the client to timely provide required items. A failure to obtain adequate compensation for these matters could require us to record an adjustment to amounts of revenue and gross profit that were recognized in prior periods. Any such adjustments, if substantial, could have a material adverse effect on our financial performance.

We may have difficulty obtaining performance bonds that we require in the normal course of our operations

In our engineering and construction business, it is industry practice for customers to require performance bonds or other forms of credit enhancement to secure, among other things, bids, advance payments and performance. We cannot assure you that in the future we will not encounter difficulties in obtaining such performance bonds or credit enhancements. The Peruvian market for these types of credit instruments is small; moreover, under Peruvian banking regulations, lenders are required to impose limits on the amount of credit they extend to a group of affiliated companies. Failure to provide performance bonds or credit enhancements on terms required by clients may result in our inability to compete for or win new projects.

Additional Risks Related to our Infrastructure Business

A substantial or extended decline in oil prices may adversely affect our financial performance

A substantial part of the revenues of our infrastructure business depends upon prevailing prices for oil. Historically, oil prices and markets have been volatile and are likely to continue to be volatile in the future. Moreover, global oil prices have declined significantly in recent years, with the average Brent crude prices declining from US$111.65 in 2012, US$108.64 in 2013 and US$99.02 in 2014 to US$52.46 per barrel in 2015 and US$43.55 per barrel in 2016. During 2017, the average Brent crude price was US$52.84 per barrel. Oil is a commodity and its price is subject to wide fluctuations in response to relatively minor changes in supply and demand for oil, market uncertainty, and a variety of additional factors beyond our control. Those factors include, among others: global demand and supply; political developments in producing regions; weather conditions; governmental regulations; international conflicts and acts of terrorism; the price and availability of alternative sources of energy; and overall local and global economic conditions. Moreover, lower oil prices may not only decrease our revenues on a per unit basis, but may also reduce the amount of oil we can produce economically, if any, and, as such, may have a negative impact on the reserves of the fields in which we operate. As result, our financial performance could be materially and adversely affected by declines in oil prices.

Our reserves estimates depend on many assumptions that may turn out to be inaccurate and are not subject to review by independent reserve auditors

The process of estimating oil and gas reserves is complex, although the fields where we produce oil and gas are mature (Block I has been in production for over 100 years, Block III for approximately 100 years, Block IV for approximately 95 years and Block V for over 50 years). In order to prepare our reserves estimates presented in this annual report, we must project production rates and timing of development expenditures as well as analyze available geological, geophysical, production and engineering data, and the extent, quality and reliability of this data can vary. The process also requires economic assumptions about matters, such as oil prices,

 

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drilling and operating expenses, capital expenditures, taxes, and availability of funds. Therefore, estimates of reserves are inherently imprecise. Moreover, our reserve estimates included in this annual report have been prepared internally by our team of engineers, and have not been audited or reviewed by independent engineers. Actual future production, oil and gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable reserves will most likely vary from the estimates presented in this annual report, and those variances may be material. Any significant variance could materially affect the estimated reserves of the fields in which we operate.

Our return on our investment in our concessions may not meet estimated returns

Our return on any investment in a concession is based on the terms and conditions of the concession, its duration and the amount of capital invested as well as the amount of revenues collected, debt service costs, payment of penalties and other factors. For example, traffic volume at toll roads may be affected by a number of factors beyond our control, including security conditions; general economic conditions; demographic changes; fuel prices; reduction in commercial or industrial activities in the regions served by the roads; and natural disasters. Decreased traffic at Norvial could adversely affect our financial performance. Although some of our concessions allow for adjustments based on economic conditions, certain concessions provide that adjustment requests be approved only if certain limited events specified in our concession contracts have occurred. If a request of adjustment is not granted, our financial performance could be affected. Given these factors and the possibility that governmental authorities could implement policies that affect our contractual return on investment in a way that we did not anticipate, we cannot assure you that our return on any investment under any concession will meet our estimates.

Governmental entities may terminate prematurely our concessions and similar contracts under various circumstances, some of which are beyond our control

Our ability to continue operating our concessions and similar public-sector contracts depends on governmental authorities, which may terminate the concession or contract pursuant to the provisions set forth therein or in accordance with applicable legislation, including the failure to comply with any contractual terms (including the concessionaire’s default on debt) or applicable law. Moreover, the relevant governmental authority may terminate and/or repossess a concession at any time, if, in accordance with applicable law, the governmental authority determines that it is in the public interest to do so. The relevant governmental authority may also assume the operation of a concession in certain emergency situations, such as war, public disturbance or threat to national security. In addition, in the case of force majeure , the relevant governmental authority may require us to implement certain changes to our operations. If the government terminates any of our concessions, under Peruvian law, it is generally required to compensate us for the amount of our unrecovered investment, unless the concession is revoked pursuant to applicable law or the terms of the concession which would imply a serious breach of the concession’s terms by us. Such compensation process is likely to be time consuming and the amount paid to us may not fully compensate us. We cannot assure you that we would receive such compensation on a timely basis or in an amount equivalent to the value of our investment in a concession plus lost profits.

We are exposed to risks related to the operation and maintenance of our concessions and similar contracts

The operation and maintenance requirements under our concessions could encounter delays or cause us to exceed our budgeted costs for such projects, which could limit our ability to realize the expected return on these projects, increase our operating or capital expenses and adversely affect our business and financial performance. In addition, our operations may be adversely affected by interruptions or failures in the technology and infrastructure systems that we use to support our operations, including toll road collection and traffic measurement systems. The Lima Metro in particular may be susceptible to outages due to power loss, telecommunications failures and similar events. The failure of any of our technology systems may cause disruptions in our operations, adversely affecting our profitability. While we have business continuity plans in place to reduce the adverse impact of information technology system failures on our operations, we cannot assure you that these plans will be effective. Furthermore, accidents and natural disasters may also disrupt the construction, operation or maintenance of our projects and concessions, which could adversely affect our business and financial performance.

We may not be successful in obtaining new concessions

The market for infrastructure concessions in Peru is competitive. We compete with Peruvian and foreign companies for infrastructure concessions in Peru, some of whom may have greater financial and other resources or particular expertise pertinent to a specific concession. Additionally, our public-sector clients may face budget deficits that may prohibit the development of infrastructure concessions, which could affect our business. We may also not be able to obtain additional concessions if the government decides not to award new concessions, due to budget constraints or policy changes or because alternative financing mechanisms are used. Recently, the awarding of concessions and the use of public-private associations in Peru have stalled, due in part to concerns related to the corruption scandal surrounding Odebrecht and its potential effect on government officials in the country. Our inability to bid for or obtain new concessions may adversely affect our business and financial performance.

 

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Our contract with Petroperú S.A. (“Petroperú”) for fuel storage at the South terminal is currently scheduled to expire in August 2018. Moreover, we cannot assure you whether or when we will undertake any of the projects that have been awarded to us but for which contract negotiations are ongoing or stalled, in particular the concessions for Via Expresa Sur and Via Expresa Javier Prado.

Additional Risks Related to our Real Estate Business

We are exposed to risks associated with the development of real estate

Our real estate business is subject to the risks that generally affect the real estate industry, such as availability and prices of suitable land, environmental and zoning regulations, interruptions in supply and volatility of the prices of construction materials and equipment, and changes in the demand for real estate. Our real estate business is specifically affected by the following risks: macroeconomic conditions in Peru that may impact the growth of the real estate sector as a whole, particularly in the residential market, including an increase in unemployment or a decrease in wage levels; an increase in prevailing interest rates or lack of available credit; changes in government subsidies for affordable housing; unfavorable real estate market conditions, such as an oversupply of residential units or scarcity of suitable land in particular areas; the level of customer interest in our new projects or the sales price per unit necessary to sell the unit may be lower than expected; customer perception of the security, convenience and attractiveness of our projects and the areas in which they are located; cost overruns, many of which may be beyond our control, that exceed our estimates and affect our profit margins, including the price of labor, land, insurance, taxes and public charges; the construction and sale of units may not be completed on schedule; bankruptcy or significant financial difficulties of large industry players, which cause a loss of confidence in the industry; and restrictions on real estate development imposed by local, regional and national laws and regulations.    Recently, real estate sales have slowed due to modifications by the government to a program ( Bono de Buen Pagador ) that encourages social interest housing sales as well as less access to credit. The occurrence of any of the above events may have a material adverse effect on our business and financial performance.

Real estate prices may not continue to rise and may decline

Real estate prices in Peru have risen significantly over the last decade. We cannot assure you that this increase in real estate prices does not represent a bubble. Real estate prices in Peru may not continue to rise or may decline significantly, particularly if financing costs rise or consumer confidence in the real estate market erodes. If real estate prices decline significantly, our business and financial performance could be materially and adversely affected.

Our business may be adversely affected if we are not able to obtain the necessary licenses and/or authorizations for our developments in due time

Real estate development requires obtaining certain licenses, authorizations and registrations. In Peru, local authorities are responsible for issuing most of the licenses that are required during the development stage, including zoning, demolition and construction licenses, among others. Currently, we have approximately 22 real estate projects in various stages of development. For some of these projects, we have not yet initiated the administrative proceedings before the appropriate authorities, or such proceedings are pending approval. A denial or an extended delay in issuing licenses, authorizations or registrations may render land unsuitable for development, delay the completion of planned projects, increase our costs and adversely affect our business and financial performance. Scarcity of financing and/or an increase in interest rates could decrease the demand for real estate properties.

The scarcity of financing and/or an increase in interest rates may adversely affect the ability or willingness of prospective buyers to purchase our real estate properties. In most cases, the purchasers of our residential or commercial properties finance at least part of the purchase price with mortgage loans. In 2016, approximately 95% of our residential units was sold to purchasers who received government subsidies to finance the purchase homes. An increase in interest rates, whether as a result of market conditions or government action or otherwise, may cause a decrease in the demand for our residential and commercial properties and for land development, as well as an increase of our own financing costs, which may adversely affect our business and financial performance.

We may experience difficulties in finding desirable land and increases in the price of land may increase our cost of sales and decrease our earnings

The continued growth of our real estate business depends in large part on our ability to continue to acquire land and to do so at a reasonable cost. As more developers enter or expand their operations in the Peruvian real estate sector, land prices could rise significantly and suitable land could become scarce due to increased demand or decreased supply. A resulting rise in land prices may increase our cost of sales and decrease our earnings. We may not be able to acquire suitable land at reasonable prices in the future, which may have a negative impact on our financial performance.

 

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Changing market conditions may adversely affect our ability to sell home inventories in our land and at expected prices

There is a lag between the time we acquire land and the time that we can bring the developed properties to market. Lag time varies on a project-by-project basis. As a result, we face the risk that demand for real estate may decline or that other developments may occur during this period that affect market conditions, and that we will not be able to dispose of developed properties or undeveloped land at expected prices or profit margins or within anticipated time frames or at all. Significant expenditures associated with investments in real estate, such as maintenance costs, construction costs and debt payments, cannot generally be reduced if changes in market conditions cause a decrease in expected revenues from our properties. Moreover, the market value of home inventories and undeveloped land can fluctuate significantly because of changing market conditions. As a result of these and other factors beyond our control, we may be forced to sell properties or land at a loss or for prices that generate lower profit margins than we anticipate.

Determinations by INDECOPI may adversely affect our ability to enforce binding contracts

In resolving consumer protection complaints in the real estate and insurance sectors, INDECOPI has made determinations against real estate developers resulting in the modification of contractual provisions applicable to purchasers, including one determination against Viva GyM, which we are currently challenging in court. Moreover, some purchasers of our real estate properties have recently filed complaints against us before INDECOPI and/or made public claims through the media seeking to obtain compensation for alleged deficiencies in housing construction as well as the modification of the terms of their contracts, which may have a negative impact on our real estate business. An increase in consumer complaints and consumer protective measures, particularly those resulting in the modification of contractual terms, may affect our ability to enforce our contracts under their original terms if we are not able to counter such claims, which in turn may have a negative impact on our real estate business.

Additional Risks Related to our Technical Services Business

Our engagements with clients may not be profitable or may be terminated or not renewed

The pricing and other terms of many of our client contracts in our technical services business necessarily require us to make estimates and assumptions at the time we enter into these contracts that could differ from actual results. These estimates reflect our best judgments regarding the nature of the engagement and our expected costs to provide the contracted services. Because of the competitive nature of the markets in which we operate, particularly in IT services, the risks related to errors in these estimates are heightened. Any increased or unexpected costs of unanticipated delays or complications in connection with the performance of these engagements, including delays caused by factors outside our control, could make these contracts less profitable or not profitable, which would have an adverse effect on our profit margin. Our exposure to this risk increases generally in proportion to the scope of services provided under a contract.

In addition, the success of our technical services business is dependent on our ability to retain our clients. In our electricity networks services line of business in particular, Enel, which acquired Enersis (from whom we acquired control of the business in 2011) remains a key client; however, we cannot assure you that they will continue to use our services in the future. Also, in our IT services business in particular, we may lose clients due to their conversion to in-house service providers. We are also vulnerable to reduced volumes from our clients due to business downturns or for other reasons, which can reduce the scope and price of services we provide. A contract termination by a major client could cause us to experience a higher than expected number of unassigned employees, which would affect our profitability until we are able to reduce or reallocate our personnel. We may not be able to replace any client that elects to terminate or not renew its contract with us, and the termination or non-renewal of a significant number of our agreements, or of our most important contracts, may adversely affect our business and financial performance. In addition, non-compliance on a contract with a public-sector client may lead to debarment from participating in government bidding processes and, consequently, inability to contract with other public-sector clients, not just for the line of business where the alleged violation took place, but also for all of our other businesses.

We may not be successful in obtaining new government contracts

We compete to provide services to the Peruvian government, and some of our competitors may have greater financial and other resources or particular expertise pertinent to a specific contract. In addition, we may not be able to obtain additional government contracts for the provision of IT and electrical networks services, due to budget constraints, policy changes or otherwise. Our inability to obtain new government contracts may adversely affect our business and financial performance.

We face risks related to the delivery of products and services by our suppliers

In the course of our IT services and electricity networks services, we depend on technology providers that may commit errors or omissions related to the delivery or the quality of equipment, services or products that are essential to our business. A significant error or failure to deliver such equipment, products or services made by one of our suppliers, particularly in our IT services business where we may have an exclusive arrangement with a specific supplier for a client, may adversely affect our business and financial performance.

 

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Our IT security measures may be breached or compromised and we may sustain system outages

We rely on encryption, authentication technology and firewalls to provide security for confidential information, including personal data, transmitted to and by us over the internet. A breach of our network security measures could result in the misappropriation of proprietary or personal information or cause interruptions in our IT services or operations, could damage our reputation and harm our ability to deliver services to our clients. This may result in client dissatisfaction and a loss of business. Our security measures may be inadequate to prevent security breaches, and we may be required to expand significant capital and other resources to protect against the threat of security breaches and to alleviate problems caused by breaches as well as by any unplanned unavailability of our IT systems caused by other reasons, which may adversely affect our business and financial performance.

Our services may infringe upon the intellectual property rights of others

Our IT services, or third-party products we offer our clients, may infringe the intellectual property rights of third parties, and we may have infringement claims asserted against us. These claims may harm our reputation, increase our costs and prevent us from offering certain services or products. Any claims or litigation relating to intellectual property, even if ultimately decided in our favor, could be time-consuming and costly, injure our reputation or require us to enter into royalty or licensing arrangements. Any limitation on our ability to provide a service or product could result in our loss of revenue-generating opportunities and require us to incur additional expenses to develop new or modified solutions for future projects, which may adversely affect our business and financial performance.

Risks Relating to Peru

Economic, social and political developments in Peru could adversely affect our business and financial performance

The substantial majority of our operations are conducted in Peru and depend on economic and political developments in the country. As a result, our business may be materially and adversely affected by economic downturns, currency depreciation, inflation, interest rate fluctuation, government policies, regulation, taxation, social instability, political unrest, terrorism and other developments in or affecting the country, over which we have no control. In the past, Peru has experienced periods of severe economic recession, large currency devaluation and high inflation. We cannot assure you that Peru will not experience similar adverse economic developments in the future. In addition, Peru has experienced periods of political instability that has included a succession of regimes with differing economic policies and programs. Previous governments have imposed controls on prices, exchange rates, local and foreign investments and international trade, restricted the ability of companies to dismiss employees, expropriated private-sector assets and prohibited the remittance of profits to foreign investors. We cannot assure you that the Peruvian government will continue to pursue open-market policies that stimulate economic growth and social stability.

Moreover, investigations against former or current government officials relating to bribery payments made by Odebrecht have, and may continue to, result in political uncertainty in Peru. On March 22, 2018, President Pedro Pablo Kuczynski presented his resignation, due to allegations of corruption for vote-buying in connection with the impeachment proceeding against him. On March 23, 2018, the Congress accepted his resignation and his first vice president, Martín Vizcarra, was sworn in as acting president. We cannot assure you whether President Vizcarra will remain in office for the remainder of the presidential term, which ends in July 2021. If President Vizcarra and the current second vice president both resign, the president of the Congress would become acting president and the Congress would call for new elections. The political instability caused by these events could affect macroeconomic conditions in the country, including currency volatility, as well as have a negative effect on our business.

A separate criminal investigation and extradition order has been initiated against former President Alejandro Toledo. An investigation has also been initiated against former President Ollanta Humala, who is currently being held by Peruvian authorities in preventive detention pending investigation.

Fluctuations in the value of the sol could adversely affect financial performance

Fluctuations in the value of the sol relative to the U.S. dollar could adversely affect Peru’s economy. In addition, fluctuations in the value of the sol to the U.S. dollar can materially adversely affect our results of operations. In 2016, 46% and 33% of our revenues were denominated in soles and U.S. dollars, respectively, whereas 55% and 22% of our costs of sales were denominated in soles and U.S. dollars, respectively. In the past, the exchange rate between the sol and the U.S. dollar has fluctuated significantly. We cannot assure you that the value of sol against other currencies will not fluctuate significantly in the future, which could adversely affect the Peruvian economy and our business, financial condition and results of operations.

 

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In addition, although Peruvian law currently imposes no restrictions on the ability to convert soles to foreign currency and transfer foreign currency outside of the country, in the 1980s and early 1990s, Peru imposed exchange controls, including controls affecting the remittance of dividends to foreign investors. We cannot assure you that exchange controls in Peru will not be implemented in the future. The imposition of exchange controls could have an adverse effect on the economy and on your ability to receive dividends from us as a holder of ADSs.

Inflation could adversely affect our financial performance

In the past, Peru has suffered through periods of hyperinflation, which have materially undermined the Peruvian economy and the government’s ability to create conditions that support economic growth. A return to a high inflation environment would also undermine Peru’s foreign competitiveness, with negative effects on the level of economic activity and employment.

As a result of reforms initiated in the 1990s, Peruvian inflation decreased significantly from four-digit inflation during the 1980s. The Peruvian economy experienced annual inflation of 2.6% in 2012, 2.9% in 2013, 3.2% in 2014, 4.4% in 2015, 3.2% in 2016 and 1.4% in 2017, as measured by the Peruvian Consumer Price Index ( Índice de Precios al Consumidor del Perú ).

If Peru experiences substantial inflation in the future, our costs of sales and administrative expenses could increase which could affect our operating margins. Inflationary pressures may lead to governmental intervention in the economy, including the introduction of government policies that may adversely affect the overall performance of the Peruvian economy. For example, in response to increased inflation, the Peruvian Central Bank, which sets the Peruvian basic interest rate, may increase or decrease the basic interest rate in an attempt to control inflation or foster economic growth.

Changes in tax laws may increase our tax burden and, as a result, negatively affect our financial performance

The Peruvian congress and government regularly implement changes to tax laws that may increase our tax burden. These changes may include modifications in our tax rates and, on occasions, the enactment of temporary taxes that in some cases have become permanent taxes. Tax reforms related to the Peruvian income tax, value added tax and tax code have recently been approved, but we are unable to estimate the impacts that these reforms may have on business. The effects of any tax reforms that could be proposed in the future and any other changes that result from the enactment of additional reforms have not been, and cannot be, quantified. However, any changes to our tax regime may result in increases in our overall costs and/or our overall compliance costs, which could negatively affect our financial performance.

Earthquakes, severe weather and other natural disasters could adversely affect our business and financial performance

Peru is located in an area that experiences seismic activity and occasionally is affected by earthquakes. For example, in 2007, an earthquake with a magnitude of 7.9 on the Richter scale struck the central coast of Peru, severally damaging the region south of Lima. Such conditions may result in physical damage to our properties and equipment, closure of one or more of our project sites and infrastructure concessions, inadequate work forces in our markets and temporary disruptions in the supply of construction materials. In addition, Peru has also experienced adverse climate conditions (due to climate change or otherwise) and adverse weather patterns, such as El Niño, an oceanic and atmospheric phenomenon that causes a warming of temperatures in the Pacific Ocean, resulting in heavy rains off the coast of Peru and potentially flooding. Poor weather conditions can have significant adverse effects on our engineering and construction activities as well as on our operation and maintenance of infrastructure assets business. Any of these factors may materially adversely affect the Peruvian economy and our business and financial performance.

A resurgence of terrorism in Peru could adversely affect the Peruvian economy and, as a result, our business and results of operations

In the past, Peru experienced severe terrorist activity that reached its peak of violence against the government and private sector in the late 1980s and early 1990s. In the mid-1990s, terrorist groups suffered significant defeats, including the arrest of leaders, resulting in considerable limitations in their activities. Despite the suppression of terrorist activity, we cannot assure you that a resurgence of terrorism in Peru will not occur, or if there is such a resurgence, it will not disrupt the economy of Peru and our business.

The Peruvian economy could be affected by adverse economic developments in regional or global markets

Financial and securities markets in Peru are influenced, to varying degrees, by economic and market conditions in regional or global markets. Although economic conditions vary from country to country, investors’ perceptions of events occurring in one country may adversely affect cash flows and securities from issuers in other countries, including Peru. For example, the Peruvian economy was adversely affected by the political and economic events that occurred in several emerging economies in the 1990s, including in Mexico in 1994, the Asian crisis in 1997, the economic crisis in Russia in 1998, the Brazilian currency devaluation in 1999 and the

 

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Argentine crisis in 2001, which affected the market value of securities issued by companies from markets throughout Latin America. In addition, Peru’s economy continues to be affected by events in the economies of its major regional partners and in developed economies that are trading partners or that affect the global economy. The 2008-2009 global economic recession, principally driven by the subprime mortgage market in the United States, substantially affected the international financial system, including Peru’s securities market and economy. More recently, global economic conditions, including slower growth in China, low global commodity prices, in particular oil and gas prices, and the appreciation of the U.S. dollar against foreign currencies have generated economic uncertainty which may reduce the confidence of foreign investors, causing volatility in the securities markets and affecting the ability of companies to obtain financing globally. The United Kingdom voted to exit the European Union on June 23, 2016. As of the date hereof, the actions to be taken by the United Kingdom to effectively exit the European Union and the duration of this process are uncertain. The results of the referendum in the United Kingdom have caused, and are expected to continue to cause, volatility in financial markets, which in turn could have substantial adverse effects on our business, financial condition and results of operations. On November 8, 2016, Mr. Donald J. Trump was elected president of the United States. President Trump has espoused an inclination to consider greater restrictions on free trade and limitations on immigration. Changes in social, political, regulatory and economic conditions in the United States or in laws and policies governing foreign trade could create uncertainty in the international markets and could have a negative impact on emerging market economies, including the Peruvian economy, which in turn could have a negative impact on our operations. The worsening of current global conditions or a new economic or financial crisis could affect Peru’s economy, and, consequently, materially adversely affect our business and financial performance.

Risks relating to Chile, Colombia and other Latin American Countries

We face risks relating to our operations outside of Peru

Latin American economic, political and social conditions may adversely affect our business. Our financial performance may be significantly affected not only by general economic, political and social conditions in Peru but also in other markets where we operate or intend to operate, including Chile and Colombia.

These countries have suffered significant economic, political and social crises in the past, and these events may occur again in the future. We cannot predict whether changes in current administrations will result in changes in governmental policy and whether such changes will affect our business. Instability in the region has been caused by many different factors, including: significant governmental influence over local economies; substantial fluctuations in economic growth; high levels of inflation; changes in currency values; exchange controls or restrictions on expatriation of earnings; high domestic interest rates; wage and price controls; changes in governmental economic or tax policies, including retroactive changes; imposition of trade barriers, including import duties on information technology equipment; electricity rationing; liquidity of domestic capital and lending markets; unexpected changes in regulation; expropriations; and high levels of organized crime, terrorism and social conflicts, as well as overall political, social and economic instability. More recently, tax and other governmental reforms in Chile have led to concerns about potential negative effects on the Chilean economy, and the decline in global oil prices has also led to concerns about potential negative effects on the Colombian economy.

Risks Relating to our ADSs

We have identified material weaknesses in our internal control over financial reporting, and if we cannot maintain effective internal controls or provide reliable financial and other information in the future, investors may lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our ADSs

Based on the assessment of our internal control over financial reporting as of December 31, 2016, management has concluded that, as of such date, our internal control over financial reporting was not effective at the reasonable assurance level due to control deficiencies that constituted material weaknesses. These material weaknesses consisted of:

 

    Control Environment . An inconsistent and ineffective tone at the top was present under the then-existing senior management that was not effective to ensure adherence to IFRS and our accounting policies and procedures. The control environment was not always sufficient to ensure adequate monitoring mechanisms were in place to secure that internal controls over financial reporting operated effectively. Personnel also lacked sufficient knowledge, experience and training in these areas.

 

    Risk Assessment . We identified deficiencies in the controls to address the risks of material misstatements, which contributed to deficiencies in controls with respect to: (i) certain business processes, such as our period-end financial reporting process; (ii) the review, approval and documentation related to journal entries; (iii) the segregation of duties; (iv) timely accounting for a signed contract relating to the construction consortium (Consorcio Constructor Ductos del Sur); (v) accounting for revenue and accounts receivable; (vi) inventory; and (vii) the review and approval of the valuation of acquired assets and liabilities as part of a step acquisition.

 

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    Information and Communication . We identified deficiencies in the controls over information and communication.

 

    Monitoring and Evidential Matter . We identified deficiencies in the monitoring controls related to the design and operational effectiveness of our internal controls.

These material weaknesses resulted in adjustments to the accounting for revenue and accounts receivable and a significant number of adjustments and reclassifications in other accounts receivable owed to dismissed personnel, prepaid expenses, acquired assets and liabilities as part of a step acquisition, the classification calculation of the exchange gains/losses related to loans with related entities, and intercompany transactions. Additionally, these material weaknesses could result in other misstatements in our financial results and disclosures, which could result in a material misstatement to our annual or interim consolidated financial statements not being prevented or detected. Because of these material weaknesses, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2016, based on criteria in Internal Control-Integrated Framework (2013) issued by the COSO.

For more information, see “Item 15. Controls and Procedures.” A “material weakness” is a deficiency, or combination of deficiencies, in internal controls such that there is a reasonable possibility that a material misstatement in financial statements will not be prevented or detected in a timely basis.

We are in the process of implementing measures to address these material weaknesses. We may not be able to remediate these identified material weaknesses. Moreover, we may in the future discover other areas of our internal controls that have material weaknesses or that need improvement, particularly with respect to businesses that we acquire.

Any failure to maintain an effective internal control over financial reporting, or implement required new or improved controls, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, or if our independent registered public accounting firm is unable to provide us with an unqualified opinion regarding the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our ADSs.

The market price of our ADSs may fluctuate significantly, and you could lose all or part of your investment

Volatility in the market price of our ADSs may prevent you from being able to sell your ADSs at or above the price you paid for them. The market price and liquidity of the market for our ADSs may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, among others: actual or anticipated changes in our results of operations, quarterly fluctuations, or failure to meet expectations of financial market analysts and investors; investor perceptions of our prospects or our industries; operating performance of companies comparable to us and increased competition in our industries; new laws or regulations or new interpretations of laws and regulations applicable to our business; general economic trends in Peru; catastrophic events, such as earthquakes and other natural disasters; and developments and perceptions of risks in Peru and in other countries.

Substantial sales of ADSs or common shares could cause the price of our ADSs or common shares to decrease

Significant shareholders hold a large number of our common shares. These securities are eligible for sale. The market price of our ADSs could decline significantly if we or our significant shareholders sell securities in our company or the market perceives that we or our significant shareholders intend to do so.

We may raise additional capital in the future through the issuance of equity securities, which may result in dilution of the interests of our shareholders

We may need to raise additional capital and may opt for obtaining such capital through the public or private placement of debt securities or securities convertible into our common shares. In the event of a public or private debt financing, or the financing through the issuance of securities convertible into our common shares, such additional funds may be obtained with the exclusion of the preemptive rights of our shareholders, including the investors in our common shares, which may dilute the percentage interests of investors in our common shares.

No shareholder or group of shareholders holds a majority of our common shares

Our former chairman beneficially owns 17.81% of our outstanding share capital. No shareholder or group of shareholders currently owns a majority of our common shares. In addition, there is no shareholders’ agreement among any of our significant shareholders. Accordingly, no shareholder or group of shareholders may on its own determine the outcome of substantially all matters

 

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submitted for a vote to our shareholders. In addition, a new investor or group of investors may in the future seek to acquire a significant stake in, or control of, our company, subject to compliance with Peruvian tender offer requirements which require that a tender offer be made to all shareholders upon, among other matters, acquisition of 25%, 50% and 60% of our voting rights. If a new investor or group of investors acquires a significant stake in, or control of, our company, we cannot assure you that such investor or group of investors will not seek to change how our business is managed.

Holders of ADSs may be unable to exercise voting rights with respect to our common shares underlying the ADSs at our shareholders’ meetings

As a holder of ADSs representing common shares being held by the depositary in your name, you may exercise voting rights with respect to the common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. Holders of our common shares will receive notice of shareholders’ meetings through publication of a notice 25 days in advance, in accordance with Peruvian law, in the official gazette in Peru, a Peruvian newspaper of general circulation and the website of the Peruvian Securities Commission, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders will not receive notice directly from us. Instead, pursuant to the deposit agreement, we will notify the depositary, who will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which voting instructions may be given. To exercise their voting rights, ADS holders must instruct the depositary how to exercise the voting rights for the common shares which underlie their ADSs. Due to these additional procedural steps involving the depositary, the process for exercising voting rights may take longer for ADS holders than for holders of our common shares.

Holders of ADSs also may not receive voting materials in time to instruct the depositary to vote the common shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADS or for the manner of carrying out such instructions, unless such failure can be attributed to gross negligence, bad faith or willful misconduct on the part of the depositary or its agents. Accordingly, holders of ADSs may not be able to exercise voting rights, and they will have little, if any, recourse if the underlying common shares are not voted as requested.

Our shareholders’ ability to receive cash dividends may be limited

Our shareholders’ ability to receive cash dividends may be limited by the ability of the depositary to convert cash dividends paid in soles into U.S. dollars. Under the terms of our deposit agreement with the depositary for the ADSs, the depositary will convert any cash dividend or other cash distribution we pay on the common shares underlying the ADSs into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If this conversion is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADR holders to whom it is possible to do so. If the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the dividend distribution.

Holders of ADSs may be unable to exercise preemptive or accretion rights with respect to the common shares underlying their ADSs

Under Peruvian corporate law, if we issue new common shares as part of a capital increase, unless otherwise agreed to by holders of 40% of our subscribed voting common shares and, provided that such capital increase does not favor, directly or indirectly, certain shareholders to the detriment of others, our shareholders will generally have the right to subscribe to a proportional number of common shares of the class held by them to maintain their existing ownership percentage, which is known as preemptive rights. In addition, shareholders are entitled to the right to subscribe for the unsubscribed common shares at the end of a preemptive rights offering, on a pro rata basis, which is known as accretion rights. You may not be able to exercise the preemptive or accretion rights relating to common shares underlying your ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the common shares relating to these preemptive and accretion rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration is available, you may receive only the net proceeds from the sale of your preemptive and accretion rights by the depositary or, if the preemptive and accretion rights cannot be sold, they will be allowed to lapse. As a result, U.S. holders of our ADSs may suffer dilution of their interest in our company upon future capital increases.

We are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such agreement without the prior consent of the ADS holders

We are entitled to amend the deposit agreement and to change the rights of the ADS holders under the terms of such agreement without the prior consent of the ADS holders. Any change related to an increase in deposits or charges for book-entry securities services or any modification that might hinder the rights of the ADS holders will be effective within 30 days after the ADS holders have received notice of such change or modification and such holders will have no right to any compensation whatsoever.

 

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Peru has different corporate disclosure and accounting standards than those you may be familiar with in the United States

Financial reporting and securities disclosure requirements in Peru differ in certain significant respects from those required in the United States. There are also material differences among IFRS, Peruvian GAAP and U.S. GAAP. Accordingly, the information about us available to you will not be the same as the information available to holders of shares issued by a U.S. company. In addition, the Peruvian Securities Market Law, which governs open or publicly listed companies, such as us, imposes disclosure requirements that are more limited than those in the U.S. in certain important respects. Although Peruvian law imposes restrictions on insider trading and price manipulation, applicable Peruvian laws are different from those in the United States, and the Peruvian securities markets are not as highly regulated and supervised as the U.S. securities markets.

Our status as a foreign private issuer allows us to follow alternate standards to the corporate governance standards of the New York Stock Exchange, which may limit the protections afforded to investors

We are a foreign private issuer within the meaning of the New York Stock Exchange corporate governance standards. Under New York Stock Exchange rules, a foreign private issuer may elect to comply with the practices of its home country and not to comply with certain corporate governance requirements applicable to U.S. companies with securities listed on the exchange. We currently follow certain Peruvian practices concerning corporate governance and intend to continue to do so. Accordingly, holders of our ADSs will not have the same protections afforded to shareholders of companies that are subject to all New York Stock Exchange corporate governance requirements.

For example, the New York Stock Exchange listing standards provide that the board of directors of a U.S. listed company must have a majority of independent directors at the time the company ceases to be a “controlled company.” Under Peruvian corporate governance practices, a Peruvian company is not required to have a majority of independent members on its board of directors. The listing standards for the New York Stock Exchange also require that U.S. listed companies, at the time they cease to be “controlled companies,” have a nominating/corporate governance committee and a compensation committee (in addition to an audit committee). Each of these committees must consist solely of independent directors and must have a written charter that addresses certain matters specified in the listing standards. Under Peruvian law, a Peruvian company may, but is not required to, form special governance committees, which may be composed partially or entirely of non-independent directors. In addition, New York Stock Exchange rules require the independent non-executive directors of U.S. listed companies to meet on a regular basis without management being present. There is no similar requirement under Peruvian law.

The New York Stock Exchange’s listing standards also require U.S. listed companies to adopt and disclose corporate governance guidelines. In July 2002, the Peruvian Securities Commission and a committee comprised of regulatory agencies and associations prepared and published a list of suggested non-mandatory corporate governance guidelines called the “Principles of Good Governance for Peruvian Companies.” Although we have implemented these measures, we are not legally required to comply with the corporate governance guidelines, only disclose whether or not we are in compliance.

Minority shareholders in Peru are not afforded equivalent protections as minority shareholders in other jurisdictions and investors may face difficulties in commencing judicial and arbitration proceedings against our company or the controlling shareholder

Our company is organized and existing under the laws of Peru. Accordingly, investors may face difficulties in serving process on our company, officers and directors or significant shareholders in the United States of certain other jurisdictions, and in enforcing decisions granted by courts located in other jurisdictions against our company, our officers and directors or significant shareholders that are based on securities laws of jurisdictions other than Peru.

In Peru, there are no proceedings to file class action suits or shareholder derivative actions with respect to issues arising between minority shareholders and an issuer, its controlling shareholders or directors and officers. Furthermore, the procedural requirements to file actions by shareholders differ from those of other jurisdictions, such as in the United States. As a result, it may be more difficult for our minority shareholders to enforce their rights against us, our directors, officers or significant shareholders as compared to the shareholders of a U.S. company. The deposit agreement provides that the depositary has no obligation to commence or become involved in any judicial proceedings and any other legal actions relating to the ADSs or the deposit agreement, either on behalf of the ADS holders or on behalf of any other person.

Judgments of Peruvian courts with respect to our common shares will be payable only in soles

If proceedings are brought in the courts of Peru seeking to enforce our obligations in respect of the common shares, we will not be required to discharge our obligations in a currency other than soles. Under Peruvian exchange control limitations, an obligation in Peru to pay amounts denominated in a currency other than soles may be satisfied in Peruvian currency only at the exchange rate, as determined by the Peruvian Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange rate may not afford non-Peruvian investors with full compensation for any claim arising out of or related to our obligations under the ADSs.

 

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If securities or industry analysts publish unfavorable research about our business or if they cease to follow our business, the price and trading volume of the ADSs could decline

The trading market for the ADSs will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades the ADSs or publishes unfavorable research about our business, the price of the ADSs would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for the ADSs could decrease, which could cause the price and trading volume of the ADSs to decline.

 

Item 4. INFORMATIO N ON THE COMPANY

A. History and Development of the Company

Graña y Montero has been operating in Peru since 1933 and it is listed on the Lima Stock Exchange since 1997 and the New York Stock Exchange since 2013. Set forth below are key highlights in our company’s history:

 

    Graña y Montero traces its origins to its predecessor company GRAMONVEL, founded 84 years ago by, and named after, engineers Alejandro Graña Garland, Carlos Montero Bernales and Carlos Graña Elizalde. We began primarily as a construction company.

 

    We expanded our operations internationally in 1943 with our contract to build a Nestle factory in Venezuela.

 

    In 1948, we began one of our largest projects since our founding—the construction of the city of Talara for the International Petroleum Company, which was completed in 1957.

 

    In 1949, GRAMONVEL merged with Morris y Montero to form Graña y Montero Contratistas Generales S.A. (now GyM S.A., our construction subsidiary), expanding its service offerings and increasing its capacity to undertake large-scale infrastructure projects.

 

    In 1983, we began a diversification strategy by developing complementary lines of business. In 1984, we founded GMP, our oil and gas subsidiary. In 1985, we partnered with Sonda S.A. (a Chilean IT services company) to form GMD, our IT services subsidiary. Beginning in 1987, we founded our real estate development business, currently Viva GyM.

 

    In 1996, we reorganized our subsidiaries and founded Graña y Montero, which became the principal shareholder of all our subsidiaries. In 1997, we listed our company on the Lima Stock Exchange.

 

    In 1998, the company built Larcomar, a landmark shopping center in Lima that has become a popular tourist destination, which we sold in 2010.

 

    In 2003, 2006 and 2007, we were awarded the concessions for the construction, operation and maintenance of the Norvial, Canchaque and Survial toll roads, respectively.

 

    In 2007, we also developed the first large-scale affordable housing project in Lima, consisting of 3,400 apartment units and located in the district of El Agustino.

 

    In 2011, Graña y Montero acquired 75.0% of CAM, a leading company in the electricity sector based in Chile and formerly part of the Latin American power generation and distribution company Enersis.

 

    In 2012, we began operating the Lima Metro.

 

    In July 2013, we listed our company on the New York Stock Exchange.

 

   

In 2012 and 2013, Graña y Montero acquired 74.0% and 6.4%, respectively, of Ingeniería y Construcción Vial y Vives S.A. (“Vial y Vives”), an engineering and construction company specializing in the Chilean mining sector. In August 2013, we acquired 86.0% of DSD Construcciones y Montajes S.A. (“DSD Construcciones y Montajes”), a Chilean engineering and construction company specialized in providing services to the energy, oil and gas, cellulose and mining

 

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sectors in Chile and Latin America. In July 2014, our subsidiary Vial y Vives merged with DSD Construcciones y Montajes to form Vial y Vives—DSD S.A. (“Vial y Vives—DSD”), through our subsidiary GyM Chile SpA, we hold an 86.2% interest in Vial y Vives—DSD. As of the date of this annual report, we hold a 94.5% interest in Vial y Vives—DSD.

 

    In March 2014, we acquired control of Coasin Instalaciones Ltda. (“Coasin”) for an amount of US$2.1 million (S/.7.1 million).

 

    In September 2014, our subsidiary Norvial established its first bond program for a maximum amount of S/.380 million or its equivalent in U.S. dollars. Norvial undertook its first and second issuances under this program for amounts of S/.80 million and S/.285 million, respectively, in July 2015.

 

    In December 2014, our subsidiary GyM S.A. acquired 70% of the share capital of Morelco S.A.S. (“Morelco”), a Colombian engineering and construction company specialized in the oil and gas and other energy sectors.

 

    In April 2015, GMP started operations of its hydrocarbon extraction services in Blocks III and IV for Perupetro, in the provinces of Talara and Paita in northern Peru.

 

    In August 2015, we acquired 44% of Adexus S.A., an information technology firm in Chile, for an approximate value of US$13.8 million (S/.44.1 million). In January 2016, we acquired an additional 8% stake in Adexus for US$2.5 million (S/.8.4 million) and, in August 2016, we increased our interest to 91%.

 

    In July 2016, our subsidiary GyM Ferrovías S.A., subscribed the Addendum N° 4 to the Line one concession contract of the Basic Metro Network of Lima—Mass Electrical Transport System for Lima and Callao, in order to purchase a total of 20 trains and 39 railcars. The total amount of the investment is approximately US$505 million (S/.1,696.8 million).

Graña y Montero, S.A.A. was incorporated in 1996 and is a publicly-held corporation (sociedad anónima abierta) organized under the laws of Peru. Our principal executive office is located at Avenida Paseo de la República 4667, Lima 34, Peru, and our main telephone number is +511-213-6565. Our website address is www.granaymontero.com.pe. Information contained on, or accessible through, our website is not incorporated in this annual report, and you should not consider any such information part of this annual report.

For information on our organizational structure, see “Item 4.C. Information on the Company – Organizational Structure.”

For information on our capital expenditures and divestitures, see “Item 5.B. Operating and Financial Review and Prospect— Liquidity and Capital Resources—Capital Expenditures.”

B. B usiness Overview

Overview

We are the largest engineering and construction company in Peru as measured by revenues during 2016, and one of the largest publicly-traded engineering and construction company in Latin America as measured by market capitalization as of December 31, 2016, with strong complementary businesses in infrastructure, real estate and technical services.

With more than 80 years of operations, we have a long track record of successfully completing the engineering and construction of many of Peru’s landmark private- and public-sector infrastructure projects, such as the Lima International Airport and the Peru LNG gas liquefaction plant, and we believe we have earned a reputation for operational excellence in our markets. We have developed a highly-experienced management team, a talented pool of more than 2,900 engineers and a skilled work force that share our core corporate values of quality, professionalism, reliability and efficiency. As a company listed on the Lima Stock Exchange since 1997 and the New York Stock Exchange since 2013, we also abide by the highest corporate governance standards in Peru.

Beginning in the mid-1980s, we leveraged our engineering and construction expertise into complementary lines of business, such as the development, ownership, operation and maintenance of infrastructure assets (including the Lima Metro, Peru’s only urban railway system), real estate development, and the provision of technical services primarily to infrastructure-related assets. We believe our business mix creates significant opportunities across our lines of business, generates more stable revenues and earnings on a consolidated basis, and provides additional financial stability to our company.

 

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As a result of our performance in Peru, we have been requested by clients to undertake the engineering and construction of large and complex projects outside our home market, such as the Pueblo Viejo gold mine for Barrick Gold in the Dominican Republic. Through the successful execution of those projects, we have developed operational experience in other Latin American countries. We have further expanded our activities in other key markets of the region through the acquisition of businesses with solid positions in those markets. In February 2011, we acquired a controlling interest in Compañía Americana de Multiservicios (CAM), which is headquartered in Chile and provides technical services to power utility companies in Chile, Peru and Colombia. In October 2012, we acquired a controlling interest in Vial y Vives, an engineering and construction company specializing in the Chilean mining sector, and in August 2013, we acquired a controlling interest in DSD Construcciones y Montajes, a Chilean engineering and construction company specialized in providing services to the energy, oil and gas, cellulose and mining sectors in Chile and Latin America. In December 2014, we acquired a controlling interest in Morelco, an engineering and construction company specialized in the Colombian oil and gas and other energy sectors.

The tables below show our backlog, revenues and EBITDA from 2012 to 2016.

 

Backlog (in millions of US$)   Revenues (in millions of S/.)   EBITDA (in millions of S/.)

LOGO

During 2016, we generated revenues of S/.6,469.6 million (US$1,925.5 million), EBITDA of S/.(64.4) million (US$(19.2) million), and net profit of S/.(451.6) million (US$(134.4) million) including net profit attributable to controlling interest of S/.(509.7) million (US$(151.7) million).

Our Strengths

We believe our company’s strengths provide us with significant competitive advantages. Our principal strengths include the following:

Leader in growing markets

We are the largest engineering and construction company in Peru as measured by revenues during 2016, and one of the largest publicly-traded engineering and construction company in Latin America as measured by market capitalization as of December 31, 2016. Peru is undergoing a period of development, with over 4.3% average annual real GDP growth between 2009 and 2017 and significant private and public investments in the mining, power, oil and gas, transportation, real estate and other infrastructure sectors. We have completed some of the most complex and large-scale infrastructure projects in the country, and we believe we are an integral part of Peru’s ongoing transformation with projects that contribute to the overall economic development of the country. We believe our expertise, reputation, scale and operational capabilities in Peru position us to take advantage of the country’s favorable economic conditions and growth opportunities. We believe we are also a significant infrastructure concessionaire in Peru, a large apartment building developer in Peru, and a leading IT company in Peru.

We believe we are well-positioned to leverage our platform in the Peruvian market to continue to grow our business in other countries in Latin America, primarily Chile and Colombia. Throughout our history, we have undertaken complex E&C projects in the region and have recently completed acquisitions in Chile and Colombia. Moreover, we believe we are one of the leading mining E&C companies in Latin America.

Long-standing track record and reputation for operational excellence

During our more than 80-year history, we have focused on the successful and on-time execution of complex projects, through our “deliver before deadline” and “lean construction” initiatives. Our extensive experience has allowed us to gain deep market knowledge and expertise, which help us better serve our clients and manage risks in our contractual arrangements. We believe we have a reputation for operational excellence, and were named among the 10 most admired companies in Peru through a survey

 

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conducted by PwC in 2012, 2013, 2014, 2015 and 2016. In addition, Merco ranked us seventh out of 100 companies with the best reputations in Peru in 2012, 2013, 2014, 2015 and 2016. We believe that our track record and the reputation we have earned in our markets for operational excellence are key factors in winning new and repeat business, as well as in partnering with strategic industry players and attracting top talent to our company.

Complementary lines of business which generate more stable cash flows and create additional business opportunities across our segments

We have expanded our company by developing complementary lines of business, many of which have become leaders in their respective markets. These lines of business create significant business opportunities across our segments, enabling us to capture a greater share of infrastructure spending, and also generate cost synergies. One example is Norvial, a toll-road concession operated within our Infrastructure segment. In addition to managing the concession, we used our E&C segment to design and construct the expansion of the highway and, once constructed, we are now using our Technical Services segment to operate and maintain the highway. In addition to increasing our levels of consolidated activity, many of these lines of business enable us to achieve more stable cash flows through medium and long-term client service contracts and concessions, which counter in part the cyclicality of the engineering and construction business.

Significant backlog

Our backlog amounted to US$3,137.4 million as of December 31, 2016. We believe that our backlog, which as of December 31, 2016 represented approximately 1.6x of our related 2016 revenues, provides visibility as to our potential for growth in the coming years, although backlog may not always be an accurate indicator of future revenues. See “Item 3.D. Key Information—Risk Factors—Risks Related to our Company—Our backlog and our ratio of historical backlog to revenues may not be reliable indicators of future revenues or profit.” Moreover, we believe our backlog is strategically targeted to our key end-markets such as mining, infrastructure, power, energy and real estate. Approximately, 75.8% of our backlog as of December 31, 2016 is comprised of contracts with the private sector. Furthermore, we continuously evaluate bidding on contracts arising from the significant ongoing private and public investments in Latin America.

Proven ability to create and grow businesses organically and through acquisitions

We have proven our ability to extend our engineering and construction capabilities into complementary lines of business in a diverse range of industries, some of which began as innovative start-ups in response to client needs. For example, in 1984, we created a new IT business division, which grew and evolved through the years to become the second largest IT company in Peru. Additionally, we also have successfully acquired and integrated new businesses. In February 2011, we acquired a controlling interest in CAM, our electricity services business headquartered in Santiago, Chile, and have integrated its operations and personnel into our company, while improving its operational performance. In October 2012, we acquired Vial y Vives, an engineering and construction company specializing in the Chilean mining sector which complements our leading E&C practice in the mining sector. In August 2013, we acquired a controlling interest in DSD Construcciones y Montajes, a Chilean engineering and construction company whose main focus is electromechanical works and assemblies in construction projects related to oil refineries, pulp and paper, power plants and mining plants. More recently, in December 2014 we acquired a controlling interest in Morelco, an engineering and construction company specialized in the Colombian oil and gas and other energy sectors. We believe that our proven ability to create new businesses, develop businesses organically and acquire and successfully integrate new businesses into our platform is a key competitive advantage to expand our operations in Latin America.

Highly experienced management, talented engineers and skilled workforce, with shared core corporate values

We motivate our management through performance-based compensation, which align their interests with those of our shareholders. In addition, through our efforts to attract, train and retain our workforce, we have built a talented team of employees, including more than 2,900 engineers. We also have access to a network of approximately 156,000 manual laborers throughout Peru that can supplement our workforce when required by our construction pipeline. Thanks to our extensive and talented team, we have the capability and scale to undertake large and complex projects in Peru and elsewhere.

We have developed a strong corporate culture based on principles of high-quality, professionalism, reliability and efficiency. We safeguard the health and safety of our collaborators and of all the persons participating in our operations and services. To that end, we provide safe work conditions, we manage risks in a timely manner and we promote a culture of prevention, starting from the leadership and commitment of our senior management. In 2016, we had an accident incidence rate of 0.4, calculated over 86,303.933 hours worked.

 

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Our Strategies

In response to the impact of our association with Odebrecht in certain projects in Peru and the termination of the GSP pipeline concession, we are implementing a strategic action plan, as described in “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

Our vision is to be “the most reliable engineering services company in Latin America.” Our key long-term strategies to achieve this vision include the following:

Be the contractor of choice for large-scale and complex projects in Peru and other key Latin American markets

We intend to enhance our position as a contractor of choice for large-scale and complex infrastructure projects in Peru and other key Latin American markets, by (i) utilizing the scale, expertise and market knowledge we have accumulated during our more than 80-year operating history to strengthen and expand our E&C segment; (ii) maintaining and further developing our long-standing client relationships based on our ongoing pursuit of operational excellence; (iii) continuing to strategically partner with global industry leaders, such as Bechtel and Fluor, with complementary capabilities for specific projects that we undertake; and (iv) leveraging our expertise in the mining sector with a view to becoming the premier mining services provider throughout Latin America.

Maintain highly capitalized balance sheet

We seek to maintain a prudent and sustainable capital structure and a strong financial position to allow us to capitalize on additional business opportunities as they arise. With the renegotiation and eventual repayment of debt related to GSP, we intend to regain our financially disciplined approach by significantly limiting our debt incurrence to identified projects with repayment sources.

Continue fostering our core corporate values throughout the organization

We will continue to instill our core corporate values throughout our organization, while also transmitting these values to surrounding communities. We will continue to attract and develop our human capital through various training, mentorship and reward programs in order to maintain our position as the best company in Peru to learn and work in the engineering and construction field. We also seek to promote social welfare by fostering relationships with the communities that surround our areas of operation. We strive to promote our corporate values to strengthen our organization and improve our performance as well as to have a positive impact on the markets where we operate.

Engineering and Construction

Our E&C segment has a more than 80-year track record and is the largest player in Peru as measured by revenues during 2016, according to our estimates based on Peru: The Top 10,000 Companies 2016 undertaking a broad range of activities relating to: engineering; civil construction; electromechanic construction; building construction; and contract mining. We provide E&C services for a diverse range of end-markets, focusing on the mining, power, oil and gas, transportation, real estate and other infrastructure sectors. The following chart sets forth our 2016 revenues by end-market.

 

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2016 E&C Revenues by End-Market

 

LOGO

We mainly undertake private-sector projects, particularly projects with a high degree of complexity, which enable us to develop innovative and tailor-made solutions to our clients. We provide our clients with an integral service offering by leveraging our various areas of expertise and engaging in virtually all aspects of project execution, thereby capturing a larger share of investment projects.

In 1999, we began adopting the “lean construction” philosophy as a pillar in our design and construction projects. “Lean construction” aims to create value for customers by better understanding and considering clients’ needs to improve project design, functionality and cost optimization. “Lean construction” also provides techniques and tools that significantly reduce construction waste by improving planning reliability, process design, coordination and collaboration.

Although we primarily undertake engineering and construction projects in Peru, our clients often ask us to undertake the engineering and construction of large and complex projects in other countries, such as Mexico, the Dominican Republic, Bolivia, Panama and Chile. As a result, we have developed extensive experience executing projects throughout Latin America. To further capitalize on our capabilities and expertise, we have decided to expand our activities into other key markets, such as Chile and Colombia, which have been benefitting from high levels of investment and are aligned with our areas of strategic focus. In 2016, approximately US$254 million (S/.853.4 million) of our E&C revenues were derived from international projects outside of Peru.

The acquisition of Vial y Vives – DSD has solidified our presence in Chile. While we have been undertaking projects in Chile since 1995, such as the construction of the transmission line and crusher of the Caserones mine for SCM Minera Lumina Copiapo, we believe we will benefit from the established and long-lasting presence in the country of both Vial y Vives and DSD Construcciones y Montajes. Moreover, through the acquisition in December 2014 of Morelco, an engineering and construction company focused on the oil and gas and other energy sectors, we established our presence in the Colombian market.

Given the prevalence of mining operations in our principal markets—Peru has projected investment flows of approximately US$41 billion between 2016 and 2021 and Chile as projected investment flows of approximately US$49 billion between 2016 and 2025, according to the Lima Chamber of Commerce and Cochilco, respectively—we have significant expertise with respect to specialized engineering and construction services for the mining sector. As a result, we believe we are one of the leading mining construction companies in Latin America and we leverage this expertise both within our principal markets as well as to selectively undertake complex projects across the region.

The table below sets forth selected financial information for our E&C business segment.

 

     As of and for the year ended December 31,  
     2014      2015 Restated (1)      2016 (2)      2016 (2)  
     (in millions of S/., except as indicated)     

(in millions of

US$)(3)

 

Revenues

     5,035.7        5,829.4        4,159.5        1,238.0  

Net profit

     193.6        (121.8      (93.4      (27.8

Net profit (loss) attributable to controlling interest

     164.1        (131.2      (87.7      (26.1

 

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     As of and for the year ended December 31,  
     2014     2015 Restated (1)     2016 (2)     2016 (2)  
     (in millions of S/., except as indicated)    

(in millions of

US$)(3)

 

EBITDA

     459.5       220.1       106.1       31.6  

EBITDA margin

     9.1     3.8     2.6     2.6

Backlog (in millions of US$) (4) (5)

     2,835.3       3,129.4       1,977.9       1,977.9  

Backlog/revenues ratio (4) (5)

     1.7x       1.8x       1.6x       1.6x  

 

(1) Includes results from our Morelco acquisition beginning in January 2015.
(2) For the effects on our results of operations and backlog for 2016 resulting from the termination of the GSP gas pipeline concession, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”
(3) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.
(4) For more information on our backlog, see “—Backlog.” Backlog is calculated as of the last day of the applicable year. Revenues are calculated for such year and converted into U.S. dollars based on the exchange rate published by the SBS on December 31 of the corresponding year.
(5) In the third quarter of 2015 we added US$1,067 million in backlog from our participation in the engineering procurement and construction contract for the southern gas pipeline project of GSP. When the GSP gas pipeline concession was terminated on January 24, 2017, our E&C backlog as of December 31, 2016 decreased by US$855 million, representing 30.2% of our E&C backlog.

Principal Engineering and Construction Activities

The following chart sets forth our 2016 revenues by E&C activity.

2016 E&C Revenues by Activities

 

LOGO

Engineering Services

Our engineering activities consist of a broad range of services relating to engineering, supervision, geometrics and environmental consultancy, including pre-investment studies, pre-feasibility studies, process design, project development, supervision of executive designs and construction management, including construction site reviews.

Civil Construction

Our civil construction activities focus on infrastructure projects, including earthworks, the construction of roads, highways, transportation facilities (e.g., mass transit systems such as the Lima Metro), dams, hydroelectric plants, water supply and sewage projects, excavation, structural concrete construction and tunneling. Our civil construction projects are generally large and complex, requiring the use of large construction equipment and sophisticated managerial and engineering techniques.

 

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Electromechanic Construction

Our electromechanic construction activities include the construction and assembly of concentrator plants, pipelines, transmission lines, gas and oil networks, and substations, predominantly for energy projects and industrial plants.

Building Construction

Through our building construction activities, we respond to the demands of the Peruvian real estate market with a focus on the construction of hotels, affordable housing projects, residential buildings, office buildings, shopping centers, and industrial plants.

Contract Mining

Our contract mining activities consist of mine planning, development, construction works, operation (including earthworks, blasting, loading and hauling ore) and mine closure.

Major Projects

We have played an active role in the development of the infrastructure sector in Peru, as well as other countries in Latin America, including the construction of roads, hotels, hospitals, shopping centers, housing developments, concentrator plants, hydroelectric power plants, thermal power plants and transmission lines as well as water supply and sewage projects, irrigation projects and dam building, among others. Throughout our history, we have participated, on our own or through minority or majority interests in joint operations, in a diverse range of landmark projects, including the following:

 

    in 1948, Talara city in northern Peru for the International Petroleum Company, consisting of 2,000 homes, schools, churches, a movie theater and airport;

 

    in 1950, a 430 km stretch of the Panamericana Sur highway;

 

    in 1952, the Rebagliati hospital, the largest public hospital in Peru;

 

    in 1960, the Cañón del Pato hydroelectric power plant, the second largest hydroelectric plant in Peru in terms of installed capacity;

 

    in 1961, the Jorge Chavez International Airport, Peru’s first international airport, located in Lima;

 

    in 1969, the Cuajone mining project, the largest copper mine and smelter complex in the world at that time and, in 1997, the Ilo smelter and refinery for Southern Copper Corporation;

 

    in 1974, the Sheraton Hotel in Lima, and, in 1995, the Sheraton Hotel in Santiago, Chile;

 

    in 1988, the Chavimochic irrigation project, the most significant irrigation project in Peru;

 

    in 1992, the Four Seasons Hotel in Mexico City, Mexico;

 

    in 1995, the U.S. Embassy in Peru;

 

    in 1998, the Mantaro-Socobaya 605 km transmission line, which connected the country’s electrical grids;

 

    in 2000, the Marriot Hotel in Lima;

 

    in 2002, began providing open pit mining services, which are ongoing, to Brocal;

 

    in 2004, the Ralco hydroelectric power plant in Chile;

 

    in 2004, the gas fractionation plant and, in 2008, its expansion for Consorcio Camisea, Camisea project, the largest energy project in Peru’s history;

 

    in 2005, the San Cristobal concentrator plant in Bolivia;

 

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    in 2005, the Cerro Verde mine concentrator plant for Phelps Dodge; in 2008, the Cerro Corona concentrator plant for GoldFields;

 

    in 2008, the Parque Agustino real estate development project, the first major affordable housing project in Peru, which consists of 3,400 units;

 

    in 2009, the Westin Lima Hotel, currently the tallest building in Peru;

 

    in 2010, the Melchorita liquefaction plant for Peru LNG, Camisea project;

 

    in 2010, the Bayóvar plant for Vale;

 

    in 2010, the Gran Teatro Nacional, the most modern theater in Peru;

 

    in 2011, the Pueblo Viejo Mine concentrator plant for Barrick Gold Corp. in the Dominican Republic;

 

    in 2011, the first stretch of Line One of the Lima Metro for the Peruvian Ministry of Transport and Communications;

 

    in 2012, for project manager Bechtel, the Antapaccay copper concentrator developed by Xstrata Copper, the world’s fourth largest copper producer;

 

    in 2013, expansion of the plant for Cementos Lima, the largest cement producer in Peru;

 

    in 2013, the Huanza hydroelectric plant for Compañía de Minas Buenaventura;

 

    in 2013, the leaching pad La Quinua for the Yanacocha mine;

 

    in 2014, the second stretch of Line One of the Lima Metro for the Peruvian Ministry of Transport and Communications;

 

    in 2014, construction of a natural gas distribution network for Contugas, providing access to natural gas for five districts south of Lima;

 

    in 2014, construction of the Nueva Fuerabamba city, an integral real estate development project for the population surrounding the Las Bambas mining project;

 

    in 2014, construction of a concentrator plant for the Toromocho copper mine, developed by Chinalco Mining;

 

    in 2014, construction of a primary crusher for Mina Caserones, developed by Minera Lumina Copiapo, which is expected to have a daily production capacity of 144,230 tonnes;

 

    in 2015, construction of a copper concentrator plant for the Las Bambas mining project, managed by Bechtel and developed by Xstrata Copper;

 

    in 2015, expansion of the process plant for the Cerro Verde mine, one of the biggest concentrator plants in Latin America;

 

    in 2015, engineering, procurement and construction of Guyana Goldfields’ Aurora gold project in Guyana, with the scope of works including a 1.75 Mt/a processing plant, power station and integration management;

 

    in 2015, design, engineering, procurement and construction of a new stock pile and 10,000 conveyor belts for the Escondida Mine, managed by Bechtel;

 

    in 2016, engineering, procurement and construction of the 510 MW Cerro del Águila S.A. hydroelectric plant for IC Power, which is expected to represent approximately 10% of Peru’s installed generation capacity;

 

    in 2016, engineering, procurement and construction of La Chira, a waste water treatment plant for the city of Lima for which we also have the concession through a joint operation with Acciona Agua;

 

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    in 2016, engineering, procurement and construction of a concentrator plant for the La Inmaculada silver and gold project, developed by Hochschild Mining. This project is expected to have a daily processing capacity of 3,500 tonnes;

 

    in 2016, construction of an Open Plaza shopping center in the city of Huancayo, province of Junin; and

 

    in 2016, construction of civil works and electromechanical assembly of the combined cycle power plant in the Kelar combined cycle thermoelectric plant located in Mejillones, Antofagasta Region, Chile.

We currently have a diversified portfolio of ongoing projects, on our own or through majority or minority interests in joint operations, in a wide range of sectors in Peru and the other countries where we operate, including the following:

 

    construction and design of a luxury business complex consisting of offices and a hotel in Lima, with state-of-the-art technology which will make it a smart building. This project named Talbot is scheduled to be completed in July 2018;

 

    execution of civil and electromechanical works in the interconnections area and off-sites of Talara’s refinery modernization project, which are scheduled to be completed in August 2018, respectively; and

 

    execution of civil works and assembly of structures for the wet area of Toquepala, which are scheduled to be completed in July 2018, and assembly of equipment and installation of pipelines, electricity and instrumentation of the wet area of Toquepala’s unit expansion, which is scheduled to be completed in July 2018.

Clients

We believe that we have developed long-term relationships with many clients as a result of our performance over the years and are focused on the successful and on-time execution of complex projects through our “deliver before deadline” and “lean construction” initiatives. Our extensive experience has earned us a reputation for operational excellence and allowed us to gain deep market knowledge and expertise, which help us better serve our clients. The principal clients of our E&C segment include renowned domestic and multinational mining, power, oil and gas, transportation and infrastructure development companies, such as Glencore, Sociedad Minera Cerro Verde, Guyana Goldfields, Luz Del Sur, Kallpa Generación, Samsung Engineering, Rio Alto, Chinalco Mining, Hudbay Minerals and Red Eagle Mining Corporation, among others. We have a well-diversified client base, as none of our engineering and construction clients accounted for 8% or more of our consolidated revenues in 2016.

Project Selection and Bidding

We win new engineering and construction contracts through public bidding processes or direct negotiation from a variety of sources, including potential client requests, proposals from existing or former clients, opportunities sought by our commercial team and from requests by the Peruvian government. Approximately 89% of our 2016 revenues came from private-sector contracts. The Peruvian government and its agencies typically award construction contracts through a public bidding process conducted in accordance with the Peruvian State Contracting Law ( Ley de Contrataciones del Estado ). In the private sector, in addition to obtaining new projects, another important source of revenue involves increases in the scope of work to be performed in connection with already existing projects. These arrangements are typically negotiated directly with the client, often during the course of the work we are already performing for that client.

We have a designated team that oversees the management of project proposals and a commercial team that reviews and evaluates potential projects in order to estimate costs. In considering whether to bid for a potential project, we principally consider the following factors: competition and the probability of being awarded the project; project size; the client; our experience undertaking similar projects; and the availability of resources, including human resources. As part of the project selection process, our commercial team performs a detailed cost analysis utilizing sophisticated software we developed to assist in determining whether the project is viable and cost-effective. If we choose to pursue a project, a budget leader is assigned to prepare the offer that is eventually presented to our potential client.

Despite the budgeting risks generally associated with engineering and construction contracts, our management believes that our experience generally allows us to estimate our project costs accurately. Our project management teams also periodically review project budgets for inconsistencies between budgeted and actual costs in order to recover for cost variations through contract renegotiation. Budgeting risks are also mitigated through advance payments. Considering that we receive advance payments for most of our E&C contracts, our E&C projects typically do not require significant working capital investment. Our E&C segment secures financing primarily to purchase machinery and equipment for our construction and contract mining services.

 

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We are required, in the majority of our construction contracts, to provide a performance bond to guarantee project performance and completion, which remain in effect for the contract’s duration. We are also required to provide performance bonds to secure any advance payments provided to us by our clients. These bonds are periodically reduced during the project’s execution in accordance with project advancement. After the expiration of the contract term, we are typically required to provide an additional performance bond that remains valid for one year.

Contracts

We principally enter into four types of engineering and construction contracts:

 

    Cost-plus fee contracts . The contract price is based upon actual costs incurred for time and materials plus a fee, which may be a percentage of the costs incurred or a pre-determined fee. Sometimes, cost-plus fee contracts include a target price, and a contractual arrangement that determines our responsibility in the event the total cost of the project exceeds the target price or the benefit we receive if the total contract price results in cost savings. Cost-plus fee contracts tend to involve the least budgeting risk for us.

 

    Unit price contracts . The contract price is based upon a price per unit (i.e., variable quantities of work priced at defined unit rates). Each line item of the project budget, such as cubic meter of earth excavated or cubic meter of concrete poured, has a defined price, but the quantities of the units may vary. Our bid price reflects our estimate of the costs that we expect to incur for each work unit. These contracts typically include an “escalation” clause which is essentially an adjustment mechanism to account for Peruvian inflation.

 

    Lump-sum contracts . The contract price is fixed. Our bid is meant to cover all costs and include a profit. The principal risk in these types of contracts are errors in calculating our costs, including those of raw materials; miscalculation of the number of units or workers needed to complete the project; unanticipated technical complexities; or other unexpected events or circumstances that may increase our costs.

 

    Engineering, procurement and construction (EPC) contracts . EPC contracts, known as “single source” or “turn-key” contracts, are also lump-sum contracts. Pursuant to EPC contracts, we provide a broad range of basic and detailed engineering services, including preparation of the technical project specifications, detailed drawings and construction specifications; technical studies; and identification of lists of materials and equipment necessary for the project. These contracts, which we utilize predominantly for our mining contracts, require a high-level of expertise and generally involve the most budgetary risks for us.

For further information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Results of Operations.”

Raw Materials

The principal inputs we use in our E&C segment are, among others, fuel, cement and steel. These and the other products we require in our E&C segment may be subject to the availability of raw materials, such as oil and iron, and commodity pricing fluctuations, which we monitor on a regular basis. We typically aim to enter into master supply agreements for a period of six months to one year. Although we obtain the majority of our inputs needs in Peru, we believe we have access to numerous global supply sources. The availability of these inputs, however, may vary significantly from year to year due to various factors including client demand, producer capacity, market conditions, transport costs and specific material shortages, and we may incur additional costs in obtaining them.

We purchase and lease the equipment we require for our E&C segment business from several local and international suppliers, currently with no significant concentration with any particular suppliers. While we do not have difficulty obtaining the equipment we need, we may face difficulties finding skilled personnel who are able to operate certain equipment and machinery.

Competition

We generally compete with some of the largest contractors in Peru and the other countries where we operate. Because the E&C sector is highly competitive, the markets served by our business generally require substantial resources and highly-skilled and experienced technical personnel. The principal competitors of our E&C segment include local companies such as Besalco Cosapi S.A., San Martin Contratistas Generales, ICCGSA, JJC Contratistas Generales S.A., and international companies such as Techint S.A.C., SSK Montajes e Instalaciones S.A.C., Skanska del Perú S.A., Mota-Engil Peru S.A., Salfacorp S.A., OHL, Acciona, Astaldi, Grupo FCC, Ismocol, Termotecnica, Masa, Thiess, Redpath, among others. For certain projects, due to the size of the project, expertise required and other factors, we may choose to partner with our competitors, including the aforementioned companies.

 

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Competition for our E&C segment is driven by performance, skill and project execution capabilities for completing complex projects in a safe, timely and cost-efficient manner, as well as price.

Infrastructure

We are an important toll road concessionaire in Peru, operating three toll roads. Moreover, we are the concessionaire for the Lima Metro, the largest mass-transit rail system in Peru, and a waste water treatment plant. Additionally, we operate 10 multiple fuel storage facilities, four producing oil fields under long-term government contracts and we own a gas processing plant.

The table below sets forth selected financial information for our Infrastructure business segment.

 

     As of and for the year ended December 31,  
     2014     2015
Restated (1)
    2016     2016  
     (in millions of S/., except as indicated)    

(in millions of

US$) (2)

 

Revenues

     884.8       1,018.1       912.1       271.5  

Net profit

     119.1       94.0       84.2       25.1  

Net profit attributable to controlling interest

     102.2       72.7       60.1       17.9  

EBITDA

     272.5       233.0       210.8       62.7  

EBITDA margin

     30.8     22.9     23.1     23.1

Backlog (in millions of US$) (3)

     311.6       256.5       300.7       300.7  

Backlog/revenues ratio (3)

     1.1     0.9     1.1     1.1

 

 

(1) Two of our four oilfields started operations in April 2015.
(2) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.
(3) For more information on our backlog, see “—Backlog.” Does not include our Norvial toll road concession, our Energy line of business and our jointly controlled COGA venture (which we sold on April 24, 2017). Backlog is calculated as of the last day of the applicable year. Revenues are calculated for such year and converted into U.S. dollars based on the exchange rate published by the SBS on December 31 of the corresponding year. Includes revenues only for businesses included in backlog.

Our strategy is to pursue concessions with the potential to generate business opportunities across our organization. Once we obtain a concession, our goal is to be involved virtually in all aspects of project execution through the participation of our different business segments, from the design and construction to the operation and maintenance of the infrastructure asset.

Through our Infrastructure segment we participate in a number of joint operations with the objective of bidding for government concessions or other long-term contracts. When bidding, we occasionally look for partners to reduce our risks and achieve the level of expertise needed to meet the demands of each particular project.

The following table shows selected information about our current concessions and long-term contracts as of December 31, 2016.

 

Project

   Year
Granted
     Initiated
Operations
     Expiration     

Characteristics

   % Owned
by Us
    Status  

Toll Roads:

                

Norvial

     2003        2003        2028      183 km      67.0     Operating  

Survial

     2007        2008        2032      750 km      99.9     Operating  

Canchaque

     2006        2010        2025      78 km      99.9     Operating  

Mass Transit:

                

Lima Metro

     2011        2012        2041      33.1 km      75.0     Operating  

Water Treatment:

                

La Chira

     2010       

June

2016

 

 

     2037      Avg. treatment capacity of 6.3 m3/sec (expected)      50.0     Operating  

Energy:

                

Oil Production (1)

Block I

     1995        1995        2021      Avg. daily production of 1,307 bbl (2016)      100.0     Operating  

Block V

     1993        1993        2023      Avg. daily production of 728 bbl (2016)      100.0     Operating  

 

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Project

   Year
Granted
     Initiated
Operations
     Expiration     

Characteristics

   % Owned
by Us
    Status  

Block III

     2015        2015        2045      Avg. daily production of 950 bbl (2016)      100.0     Operating  

Block IV

     2015        2015        2045      Avg. daily production of 638 bbl (2016)      100.0     Operating  

Gas Processing(2)

     2006        2006        N/A      Avg. daily processing capacity of 44 MMcf (2016)      100.0     Operating  

North and Central Fuel Terminals

     2014        2014        2034      Aggregate storage capacity of 2.2 MMbbl      50.0     Operating  

South Fuel Terminals

     1997        1998       

August

2018

 

 

   Aggregate storage capacity of 1.4 MMbbl      50.0     Operating  

 

(1) Percentages owned in Energy reflect GMP’s ownership. We own 95% of GMP.
(2) We own a gas processing plant and have a long-term delivery and gas processing contract with Enel Generación Piura S.A.

Additionally, the Chavimochic concession was awarded in 2013 for the design, construction, operation and maintenance of major hydraulic works in northern Peru. Affiliates of Odebrecht own 73.5% of the Chavimochic consortium, with the remaining 26.5% stake held by us. The second phase of the hydraulic works project has not begun as a result of the government’s failure to deliver the required lands for the project. Chavimochic has requested the termination of the concession in light of the government’s breach, and the parties are currently in discussions, including for a potential sale of the project to the government.

On November 11, 2013, we entered into a memorandum of understanding with Canada Pension Plan Investment Board (“CPPIB”), to create an alliance regarding a partnership to invest in infrastructure projects in Latin America, mainly Peru, Chile and Colombia. This alliance is non-exclusive and investments will be determined on a case-by-case basis. In December 2014, we undertook our first large investment with CPPIB, by formalizing an agreement with Enagás (as defined below) and CPPIB whereby we acquired 51% of Tecgas and owner of 100% of the shares of COGA, the current operator of TGP while Enagás acquired 30% and CPPIB maintained 19% of the participation. COGA is dedicated to the management, operation, maintenance, and integrity management of transport and distribution hydrocarbon pipelines and installations as well as industrial plants and ancillary installations. COGA operates and maintains more than 1,430km of pipelines, one compression plant with 72,000 horse power and four pump stations with 19,200 horse power each. COGA operates two pipelines: one which is 730 km and transports natural gas (GN) with a 1,275 MM cubic feet per day capacity; and the other one which is 530 km and transports natural gas liquids (NGL) with a 130,000 barrels per day capacity. Both pipelines run from Cusco to Ayacucho and Huancavelica, with the GN pipeline extending to Lurin and the NGL pipeline continuing to the Pisco fractionation plant. As this is a joint operation, we do not include the results of our COGA venture in our consolidated results under our Infrastructure segment. On April 24, 2017, we sold our interest in COGA.

On September 29, 2015, we entered into a memorandum of understanding with Odebrecht Latinvest to participate with a 20% stake in the shareholder equity of Concesionaria Gasoducto Sur Peruano S.A., for an amount of US$215 million (S/.722.4 million). The other shareholders are Odebrecht Latinvest with a 55% stake and Enagás with a 25% stake. Concesionaria Gasoducto Sur Peruano S.A. was responsible for the design, financing, construction and operation of the southern gas pipeline, a project which would bring natural gas to the southern region of Peru, particularly to the provinces of Cuzco, Arequipa, Puno and Moquegua. The GSP gas pipeline concession was terminated by the Peruvian Ministry of Energy and Mines on January 24, 2017.

For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

Principal Infrastructure Lines of Business

Toll Roads

Peru’s economic development is underpinned by a strong government commitment to infrastructure investment, with a particular focus on improving the country’s road system through the award of new concessions to the private sector. We believe this commitment offers significant opportunities to our Infrastructure segment.

 

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Our Infrastructure segment currently has three toll road concessions through our subsidiaries Norvial, Survial and Canchaque. All three toll roads are currently in operation and we have the authorizations, permits and licenses necessary to fulfill our obligations under each concession, including releases of rights of way. All of our toll road concessions have utilized the construction services of our E&C segment and the roads are currently operated and maintained by our Technical Services segment. The table below sets forth selected financial information relating to our toll roads.

 

     Year ended December 31,  
     2014     2015 Restated     2016     2016  
     (in millions of S/.)    

(in millions of

US$) (1)

 

Revenues

     338.2     394.5     264.4     78.7

EBITDA

     80.1     79.2     76.8     22.9

EBITDA margin

     24.5 %     20.1 %     29.0 %     29.0 %

 

(1) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.

The charts below set forth the breakdown of our revenues and EBITDA from our toll road concessions for 2016.

 

LOGO

Norvial

Under our Norvial concession, we operate and maintain part of the only major highway that connects Lima to the northwest of Peru. This 183-km road, known as Red Vial 5, runs from the cities of Ancón to Pativilca and has three toll stations. The concession was awarded to Norvial in 2003 for a 25-year term. We own 67% of Norvial; and our partner in this concession is JJC Contratistas Generales. The following map shows the location of the Red Vial 5 road in Peru.

 

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LOGO

Norvial’s revenue derives from the collection of tolls. For the Norvial toll road, the toll rate is set out in the Norvial concession agreement and adjusted in accordance with a contractual formula that takes into account the sol/U.S. dollar exchange rate and Peruvian and U.S. inflation. We are required to transfer 5.5% of our monthly toll revenue to the Peruvian Ministry of Transport and Communications and pay a 1% regulatory fee to the Peruvian Supervisory Agency for Investment in Public Transportation Infrastructure.

Our obligations under the concession include expanding the already existing road by, among other things, adding two additional lanes. The first stage of construction was completed in 2008, and the second stage commenced in the second quarter of 2014 and is expected to be completed by March 2019. We estimate that our capital investment for the second stage will be approximately US$95 million (S/.319.2 million).

Unlike other toll roads in Peru, Norvial charges toll fees in both directions. Our road is highly transited both by heavy vehicles, primarily for the purpose of transporting goods, and also by passenger vehicles, which typically use the road to access tourist destinations. The following table sets forth average daily traffic volume and average toll fees charged for vehicle equivalents in respect to the Norvial toll road concession for 2014, 2015 and 2016.

 

     Year ended December 31,  
     2014      2015      2016  

Average daily traffic by vehicle equivalents (1)

     19,750      21,965      24,140

Average toll fee charged for vehicle equivalents (in S/.)

     13.81      13.83      14.30

 

(1) Each automobile is counted as one equivalent vehicle and commercial vehicles (such as trucks or buses) represent the number of equivalent vehicles equal to the ratio between the toll rate applicable to commercial vehicles and that which is applicable to one automobile.

The table below sets forth selected financial information relating to Norvial.

 

     Year ended December 31,  
     2014     2015 Restated     2016     2016  
     (in millions of S/.)    

(in millions of

US$) (1)

 

Revenues

     178.2       246.2       216.3       64.4  

Net profit

     31.1       40.9       47.3       14.1  

EBITDA

     62.3       68.9       77.7       23.1  

EBITDA margin

     35.0     28.0     35.9     35.9

 

(1) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.

 

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Survial

Under our Survial concession, we operate and maintain a 750 km road from the San Juan de Marcona port to Urcos, Peru, which is connected to an interoceanic road that runs up to the Peruvian-Brazilian border. The road has five toll stations and three weigh stations. The concession was awarded to Survial in 2007 for a 25-year term. We own 99.9% of Survial. The following map shows the location of the road in Peru.

 

LOGO

Our obligations under the concession include the construction of the road, which was completed in 2010.

Our revenue from this concession consists of an annual fee paid to Survial by the Peruvian Ministry of Transport and Communications in consideration for the operation and maintenance of the road, which fee can vary depending on the amount of maintenance required due to road damages. In 2014, 2015 and 2016 the fee amounted to US$8.9 million (S/.26.6 million), US$33.9 million (S/.115.7 million) and US$8.1 million (S/.27.2 million), respectively. Our revenue in this concession does not depend on traffic volume.

Canchaque

Under our Canchaque concession, we operate and maintain a 78 km road from the towns of Buenos Aires to Canchaque, in Peru. The road has one toll station. The concession was awarded to Canchaque in 2006 for a 15-year term. We own 99.9% of Canchaque. Our obligations under the concession include the construction of the road, which was completed in 2009. Our revenue from this concession consists of an annual fee paid by the Peruvian Ministry of Transport and Communications in consideration for the operation and maintenance of the road, which fee can vary depending on the amount of road maintenance required due to road wear and tear. In 2014, 2015 and 2016, the fee amounted to US$1.4 million (S/.4.2 million), US$1.3 million (S/.4.4 million) and US$1.2 million (S/.4.0 million), respectively. Our revenue in this concession does not depend on traffic volume.

Additional Toll Road Projects

We continuously evaluate infrastructure projects and strategically present public-private partnership proposals and participate in bidding processes for road concessions. In 2012 we were awarded, and in 2013 we signed the contract for, a 40-year concession for a 4.6 km extension of Vía Expresa Sur, one of the main roads in Lima, which crosses the city from north to south. The road will connect downtown Lima to Panamericana Sur, a highway that runs from Ecuador to Chile. Our estimate of the total investment under the concession, as submitted in our bid, is approximately US$200 million (S/.672 million). Such investment will be made during the construction phase, which was originally to be completed in 2018. Our revenue will derive from the collection of a toll fee upon completion of the construction. The concession is expected to generate a minimum annual revenue of US$18 million (S/.60.5 million) during the first two years of the concession term, US$19.6 million (S/.65.9 million) for the third year. If in a particular year, our annual revenue is lower than the minimum guaranteed, we expect the government to compensate us for the difference, up to an

 

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amount not to exceed US$10 million (S/.33.6 million). The beginning of the construction phase is subject to expropriation by the government of the land necessary for the construction of the road. Moreover, in June of 2017, we signed Initial and Additional Acts of Suspension of the Concession with the municipality of Lima to freeze the reponsibilities of the government, on the one hand, and the concessionaire, on the other hand, with respect to the concession for a period of 12 months. The concessionaire continues to act as custodian of certain assets of which it had taken possession and continues to maintain certain performance guaranties in connection with the concession. Also, the government and the concessionaire continue to meet and coodinate aspects of the project, with the goal of resuming operations. We cannot assure you that this concession contract will be resumed.

A joint operation in which we have a 50% interest has been awarded, and is in the process of negotiating the terms for, a 37-year concession for Via Expresa Javier Prado, a 20 km toll road that crosses Lima from east to west, traversing through eight districts. According to estimates from the Municipality of Lima, the total investment in the concession is expected to amount to approximately US$700 million (S/.2,352 million). Such investment will be made during the construction phase which is expected to take between five to seven years. Our revenue will derive from the collection of a toll fee upon completion of the construction. This concession was awarded to the joint operation at the end of the 1990s and negotiations were discontinued but were resumed in 2012. A project contract was approved by the City of Lima’s Council in November 2013 and was submitted to the Peruvian Ministry of Economy and Finance, which requested additional studies prior to approving the project. Subsequently, the municipality of Lima signed an agreement that annulled the granting of the private initiative. The company has initiated legal action in Peru against such decision. A preliminary injunction is pending that would prevent the municipality of Lima from granting the private initiative to another party. We cannot assure you that our position in these proceedings will prevail, nor can we assure you if or when the concession contracts will be agreed or whether the contractual terms will be favorable to us. See “Item 3.D. Key Information—Risk Factors—Risks Related to our Infrastructure Business.”

Mass Transit

Lima Metro

In 2011, we were awarded a 30-year concession for the operation of Line One of the Lima Metro, Peru’s only urban railway system. The concession was awarded to our subsidiary GyM Ferrovías, in which we hold a 75% ownership interest, with the other 25% being held by Ferrovías S.A.C. Our obligations under the contract include: (i) the operation and maintenance of the five trains provided by the government; (ii) the acquisition of 19 new trains on behalf of the Peruvian government, which will be the legal owner of such trains; (iii) the operation and maintenance of the 19 new trains (24 trains in the aggregate); and (iv) the design and construction of the railway maintenance and repair yard, which was built by our E&C segment. We currently have all 24 trains (including two backup trains) in operation. The construction of the second stretch of Line One was completed in July 2014, and started operations on July 25, 2014.

We entered into the fourth addendum to the Lima Metro concession contract on July 11, 2016, in order to expand the transportation capacity of Line One. In accordance with the fourth addendum, the expansion project involves: (i) the purchase of 20 new trains with five-car from Alstom; (ii) the purchase of 39 new cars from Alstom, to be coupled with the 19 existing Alstom trains and the 20 new Alstom trains, resulting in a consolidated fleet of 39 Alstom trains with a six-car configuration; and (iii) the expansion and improvement of the existing infrastructure, including revamping and improvement of five stations, improvements in the electrical systems, a new access route to the maintenance workshop and new switches on the main track. The construction of the expansion of the infrastructure will be carried out by our E&C segment and it is scheduled to be completed by the end of 2018 with the additional trains and rail cars to be delivered by the end of 2019.

As compensation for the investments of the expansion project, we are entitled to receive from the Ministry of Transportation and Communication, an advance payment of 30% of each investment component as well as the balance of 70% of each investment component compensated through an annual payment for complementary investments ( pago annual por inversiones complementarias ), which represents the unconditional and irrevocable right to receive a series of 56 quarterly payments from the Ministry of Transportation and Communication. In 2016 we already received the advance payment of the trains and cars, and in the third quarter of 2017 we expect to receive the advance payment corresponding to the infrastructure expansion.

The construction of the first and second stretches of Line One was carried out by our E&C segment. The operation and maintenance of the trains is carried out by our Technical Services segment. The map below shows the route of Line One.

 

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LOGO

As of December 31, 2016, GyM Ferrovías had spent a total of S/.660 million (US$196 million) in capital expenditures in connection with the Lima Metro.

Our revenue from this concession consists of a quarterly fee that we receive from the Ministry of Transport and Communications based on the kilometers travelled per train and adjusted for inflation, with the fee per kilometer, the number of trains required to be in operation and the number of kilometers that we are required to travel established by the terms of the concession. Our revenues do not depend on passenger traffic volume.

We currently operate 24 trains (including two backup trains) on the first and second stretches which enable us to travel 2,603,453 kilometers per year based on required schedule and frequency. The full Line One consists of 33.1 kilometers. The average frequency of the trains is 6 to 10 minutes and the fee per kilometer travelled is S/.80.37.

Additionally, as of April 30, 2018, we operate eight new trains from a complementary investment, which we expect to enable us to travel 581,106 kilometers per year. The fee per kilometer travelled is S/.53.50.

 

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Pursuant to the concession, we must comply with certain requirements in the operation of the trains. According to the concession, at least 95% of our trains must be running and available for use and not less than 85% of our trains that are available for use must arrive to destination on scheduled time. The table below shows our monthly average results during 2016.

 

LOGO

 

LOGO

Trujillo Urban Transportation

In October 2014, our subsidiary GMD was awarded a concession for the electronic collection of public transportation fares in the city of Trujillo in northern Peru for a period of 20 years. The concession includes equipping buses with communication systems, GPS, video and fare collection systems; managing a bus fleet control center (for speed, punctuality, and observance of the routes); installing card sale and charge points; and conducting inspections onboard buses. The estimated initial investment for the first three years is US$22 million (S/.73.9 million). We have committed to renew the equipment upon its wear down due to common use. Such technological renovation is estimated at US$18 million (S/.60.5 million), which will be paid over the following eight years. The contract was signed in April 2016. On June 6, 2017, we sold our interest in GMD.

Water Treatment

In 2010, we were awarded a 25-year concession for the construction, operation and maintenance of La Chira waste water treatment plant in the south of Lima. The project is aimed at addressing Lima’s environmental problems caused by sewage discharged directly into the sea. We hold a 50% share in this concession and our partner Acciona Agua holds the remaining 50%. The plant began operations in June 2016.

La Chira’s total investment in the concession was S/.250 million (US$74.4 million). Once the project is completed, La Chira will be entitled to collect (i) an annual payment for the investment made in the construction of the project for an amount of S/.24.2 million (approximately US$7.1 million), and (ii) and annual payment for the operation and maintenance of the project for an amount

 

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of S/.6.8 million. These fees will be paid by Sedapal S.A., the public utility company responsible for the supervision of the water service in Lima, for a period of 25 years. We funded our construction costs related to La Chira through the sale of government certificates to financial institutions, and, as a result, will not receive future cash flows from item (i). See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Factors Affecting Our Results of Operations—Infrastructure.” A joint operation in which our E&C segment participates is undertaking the construction of the waste water treatment plant.

Energy

We currently operate three energy businesses within our Infrastructure segment: Exploration and Production; Natural Gas; and Transport and Distribution. We operate and extract oil from four onshore fields (Block I, Block III, Block IV and Block V) located in the provinces of Talara and Paita in northern Peru. We have two long-term hydrocarbon extraction service contracts with Perupetro, the Peruvian entity responsible for the administration and supervision of all exploration and production contracts in Peru, under which we operate two oil producing fields, Blocks I and V. In addition, we have two long-term license contracts with Perupetro for two other blocks, Block III and IV, which started operations in April 2015. During 2016, the oil production of our four blocks was approximately 2,756 bbl per day. We also own and operate a natural gas processing plant located in northern Peru, which processes and fractions natural gas liquids and delivers dry gas to a gas-fired power generation company under a long-term processing and fractionation agreement. In addition, we are a 50% partner in two consortiums named Consorcio Terminales (CT) and Terminales del Peru (IP) both of which have contract with Petroperú, a state owned oil and gas company, to operate and maintain ten fuel storage terminals.

In addition, we are a 50% partner in Oil Tanking Andina Services S.A.C. (“OTAS”). This subsidiary operates a fuel terminal named Terminal Marino Pisco Camisea under a contract subscribed with Pluspetrol to operate an export terminal for gasoline, diesel, propane and butane.

The table below sets forth selected financial information relating to our Energy line of business.

 

     Year ended December 31,  
     2014     2015
Restated (1)
    2016     2016  
     (in millions of S/.)          

(in millions of

US$) (2)

 

Revenues

     350.3       389.4       382.2       113.8  

Net profit

     62.7       20.2       12.0       3.6  

EBITDA

     162.0       121.8       99.5       29.6  

EBITDA margin

     46.2     31.3     26.0     26.0

 

(1) Includes production from the start of operations of Blocks III and IV in April 2015.
(2) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.

 

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The pie charts below set forth the breakdown of our revenues and EBITDA from our Energy line of business for 2016.

Revenues                                                                    EBITDA

 

LOGO

Oil and Gas Production

We operate and extract oil from four mature fields (Block I, Block III, Block IV and Block V) located in the provinces of Talara and Paita in northern Peru. Two of these fields, Blocks I and V, are operated under long-term service contracts under which we provide hydrocarbon extraction services to Perupetro. Hydrocarbons extracted from these two blocks belong to Perupetro, which in turn pays us, twice a month, a variable fee per barrel of lifted hydrocarbons. This extraction fee is based on a basket of international crude prices and the level of production. The other two fields, Blocks III and IV, are operated under long-term license contracts with Perupetro. The hydrocarbons extracted are owned by our subsidiary GMP, which in turn pays royalties, on a fortnightly basis, to Perupetro, based on a basket of international crude prices and the level of production. Our activities are focused on proved reserves development and production and are conducted in mature oil fields, which have been producing oil for over 100 years in the case of Block I, approximately 96 years in the case of Block III, approximately 95 years in the case of Block IV, and over 50 years in the case of Block V. We believe our activities in these fields bear limited exploration risk.

The following table shows selected information about our fields.

 

Property

   Basin      GMP’s
Ownership
    Expiration      Developed
Acres
     Undeveloped
Acres
 

Block I

     Talara        100     2021        25,154        4,110  

Block III

     Talara        100     2045        7,475        80,986  

Block IV

     Talara        100     2045        8,400        64,550  

Block V

     Talara        100     2023        6,320        2,220  

Block I:

We operate and extract oil and natural gas from Block I under a 20-year hydrocarbon extraction service contract with Perupetro, which was extended for an additional 10-year term and expires in December 2021. Average daily production during 2016 was 1,040 barrels of crude oil. We operate 241 wells using various oil extraction systems and operate a network of production batteries and pipelines to collect, measure and deliver oil in fiscalization point close to the Talara refinery. The field is located in the province of Talara, department of Piura, in northern Peru, approximately five miles from the Talara refinery, the second largest refinery in the country. Block I is the oldest oil producing field in Peru and has been producing oil since around 1890.

Block III:

We operate and extract oil and natural gas from Block III under a 30-year license agreement with Perupetro, which expires in April 2045. Average daily production during 2016 was 953 barrels of crude oil. We operate 207 wells using various oil extraction systems and operate a network of production batteries and pipelines to collect, measure and deliver oil in a fiscalization point close to the Talara refinery. The field is located between the provinces of Talara and Paita, department of Piura, in northern Peru, approximately 21 miles from the Talara refinery.

 

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Block IV:

We operate and extract oil and natural gas from Block IV under a 30-year license agreement with Perupetro, which expires in April 2045. Average daily production during 2016 was 640 barrels of crude oil. We operate 250 wells using various oil extraction systems and operate a network of production batteries and pipelines to collect, measure and deliver oil in a fiscalization point close to the Talara refinery. The field is located in the province of Talara, department of Piura, in northern Peru, approximately 21 miles from the Talara refinery.

Block V:

We operate and extract oil and natural gas from Block V under a 20-year hydrocarbon extraction service contract with Perupetro, which was extended for an additional 10-year term and expires in October 2023. Average daily production during 2016 in this field was 128 barrels of crude oil. We operate 59 wells in this field using various oil extraction systems. The Block V field is located in the province of Los Organos, department of Piura, Peru, close to the border with Ecuador. Block V has been producing oil since the 1950s.

The map below shows the geographic location of our oil producing blocks in northern Peru.

 

LOGO

For Block I and Block V, we are entitled to a variable fee, which is based on the level of production of each field and a price formula that is based on an average price of three international crude oil prices: fortis blend, suez blend and oman crudes, and a discount over this price of approximately of 17% per barrel.

For Block III and Block IV, the formula price is also based on an average price of three international crude oil prices: fortis blend, suez blend and oman crudes. The royalties paid to Perupetro were US$16.58 per barrel during 2015 and US$12.76 per barrel during 2016.

During 2014, 2015 and 2016, we received an average revenue (for all blocks) of US$77.33, US$45.59 and US$38.55 per barrel of extracted oil, which was equivalent to approximately 78.1%, 84.26 % and 88.52%, respectively, of average Brent crude oil prices in the same years. We are not committed to provide a fixed volume of oil or natural gas under our four contracts.

We produce natural gas as a byproduct of the production of crude oil (an average of 9.4 MMcf per day during 2016). In Block I, we provide natural gas to EEPSA under a “take or pay” contract (an average of 3 MMcf per day), and we pay to Perupetro a fee which varies depending on market conditions. The additional volume of natural gas extracted is sent to our Pariñas plant to be processed and commercialized as liquid natural gas. In Block V, we reinject the natural gas produced back into the wells. In Block III, we use part of the produced gas as fuel to operate wells equipment (pumping units) and we are looking for a market to sell the excess. In Block IV, we also use a volume of gas as fuel and the residual volume is burnt. Our revenues for the sale of natural gas are not material relative to our oil production revenues.

 

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Estimated Proved Reserves:

The following table sets forth estimated proved crude oil and natural gas reserves in Blocks I, III, IV and V as of December 31, 2016. We have only included estimates of proved and have not included any estimates of probable and possible reserves.

 

     Crude Oil
(Mbbl)
     Natural Gas
(MMcf)
     Crude Oil
Equivalents
(MBoe)
 

Block I:

        

Proved developed producing

     1,363        10,186        3,174  

Proved developed non-producing

     68        334        127  

Proved undeveloped

     0        0        0  

Total proved reserves

     1,431        10,521        3,301  

Block III:

        

Proved developed producing

     2,974        0        2,974  

Proved developed non-producing

     17        0        17  

Proved undeveloped

     10,603        0        10,603  

Total proved reserves

     13,594        0        13,594  

Block IV:

        

Proved developed producing

     3,749        0        3,749  

Proved developed non-producing

     17        0        17  

Proved undeveloped

     6,068        0        6,068  

Total proved reserves

     9,834        0        9,834  

Block V:

        

Proved developed producing

     285        0        285  

Proved developed non-producing

     48        0        48  

Proved undeveloped

     0        0        0  

Total proved reserves

     333        0        333  

Total:

        

Proved developed producing

     8,370        10,186        10,181  

Proved developed non-producing

     151        334        210  

Proved undeveloped

     16,670        0        16,670  

Total proved reserves

     25,191        10,521        27,061  

Proved reserves are those quantities of oil and natural gas which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. The term “reasonable certainty” implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate. To achieve reasonable certainty, we employed methodologies that have been demonstrated to yield results with consistency and repeatability. The methodologies and economic data used in the estimation of the proved reserves in the fields include, but are not limited to, well logs, geologic maps and available down hole and production data, seismic data, and well test data.

Reserve amounts were based on the 12-month unweighted arithmetic average of the first-day-of-the-month Brent crude price for each month in the period January through December 2016, which, pursuant to our contractual agreements, resulted in average oil and gas prices of US$42.9 per barrel and US$1.324 per Mmbtu, respectively, that for the purpose of reserve amount estimation were assumed to remain constant.

Proved undeveloped reserves in the fields as of December 31, 2016 were 16,670 MBbbl consisting of 16,670 Mbbl of crude oil (0 MMcf of proved undeveloped reserves of natural gas). We estimate that during 2016, proved undeveloped reserves increased by 2,729 Mboe of crude oil and approximately 621 Mboe of crude oil of proved undeveloped reserves were converted into proved developed reserves. Capital expenditures, for both drilling activities and workovers, made during 2016 to convert undeveloped reserves to prove developed reserves amounted to approximately US$5.9 million (S/.19.8 million).

 

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The principal changes in proved undeveloped reserves during 2016 were:

 

    Crude oil reserves: proved undeveloped crude oil reserves increased 2,108 MMbbl during 2016; 2,729 MMbbl were re-categorized due to oil price increase from resource to reserves and 621 MMbbl were re-categorized as proved developed producing reserves, mainly in Block III and IV.

 

    Natural associated gas reserves decreased 4,860 Mboe (27,340 MMcf) during 2016.

For changes in proved developed and undeveloped reserves from December 31, 2013 to December 31, 2016, see supplementary data (unaudited) annexed to our audited annual consolidated financial statements included in this annual report.

Qualifications of Technical Persons and Internal Controls Over Reserves Estimation Process:

The reserves estimates shown in this annual report have been prepared internally by our engineers in accordance with the definitions and guidelines of the SEC. Our reserves are estimated at the property level and compiled by our engineering staff. Our engineering staff interacts with our internal staff of operations engineers and geoscience professionals and with accounting employees to obtain the necessary data for the reserves estimation process. Our reservoir engineers and geoscience professionals have worked to ensure the integrity, accuracy and timeliness of the data, methods and assumptions used in the preparation of the reserves estimates. Mr. Luis Huaranga and Javier Portuguez are our Reservoir Engineers. The reserves estimate report was submitted to our Committee of Reserves, which is formed by Mr. Anthony Alfaro (Exploration and Production Manager), Mr. Iván Miranda (Exploration and Production Technical Manager), Mr. Jose Pisconte Lomas (Chief of Geology), and Mr. Manuel Gomez (Chief of Reservoir Engineering). Mr. Huaranga holds a Petroleum Engineering degree from Universidad Nacional de Ingeniería in Lima, Peru and has 20 years of experience, developed as a reservoir engineer at Pluspetrol, Petrobras, and Repsol. From September -2016 he is working for GMP. Mr. Portuguez holds a Petroleum Engineering degree from Universidad Nacional de Ingeniería in Lima, Peru and has 23 years of experience, developed as a production and reservoir engineer at Mercantile and Interoil Peru. Mr. Gomez holds a Petroleum Engineering degree from Universidad Nacional de Ingeniería in Lima, Peru and has 10 years of experience, most of it as drilling, completion, stimulation, and reservoir engineer. Mr. Pisconte Lomas, holds a Geologist Engineering degree and a Regional Geology Master’s degree from Universidad Nacional Mayor de San Marcos and has 25 years of experience in the oil industry. Mr. Miranda, holds a degree in Petroleum Engineering from Universidad Nacional de Ingeniería in Lima and a Petroleum Engineering Master’s degree from Texas A&M University of Texas—USA, and has 33 years of experience in the oil industry developed at Petroperu, Unipetro ABC, and GMP. Mr. Alfaro holds a Petroleum Engineering degree from Universidad Nacional de Ingeniería in Lima, Peru, Master´s degree in Business Administration from Universidad Rafael Belloso Chacin in Maracaibo, Venezuela, Master´s degree in Projects Management an Administration from Universidad de Ciencias Aplicadas in Lima, Peru and has 28 years of experience developed at Petroperu, Perez Companc Peru and Argentina, Petrobras Venezuela and Peru, Grupo Synergy E&P Ecuador, and GMP.

 

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Production, Revenues, Prices and Costs:

The following table sets forth information regarding our production, revenues, prices and production costs for 2014, 2015 and 2016.

 

     Year ended December 31,  
     2014      2015 (1)      2016  

Production volumes (2) :

        

Crude oil (Mbbl)

        

Block I

     592.5        507.9        381.3  

Block III

        319.7        347.7  

Block IV

        174.7        232.7  

Block V

     48.4        59.0        46.9  
  

 

 

    

 

 

    

 

 

 

Total (crude oil Mbbl)

     640.9        1,061.40        1,008.60  

Natural gas (MMcf)

        

Block I

     3,238.30        3,729.90        2,025.77  

Block III

        1,075.70     

Block IV

        156.7     

Block V

     157.5        175.7     
  

 

 

    

 

 

    

 

 

 

Total (natural gas MMcf)

     3,395.80        5,138.00        2,025.77  

Crude oil equivalents (Mboe)

     603.6        913.4        360.14  
  

 

 

    

 

 

    

 

 

 

Total Company

     1,244.50        1,974.80        1,368.75  

Average sales prices (3) :

        

Crude oil (US$/bbl)

     77.33        45.59        38.48  

Natural Gas (US$/Mcf)

     3.08        2.15        1.53  

Crude oil equivalents (US$/boe)

     50.17        37.56        30.62  

Costs and expenses (3) :

        

Production expenses (US$/boe)

     6.16        10.07        10.08  

Royalties (US$/boe)

     —          4.0        5.4  

General and administrative expenses (US$/boe)

     4.95        2.42        2.09  

Depreciation, depletion, amortization and accretion expenses (US$/boe)

     11.78        8.57        12.58  

 

(1) Includes operations of Blocks III and IV starting in April 2015.
(2) Hydrocarbons extracted from Blocks I and V belong to Perupetro, which in turns pays us a per barrel fee for lifted hydrocarbons. Hydrocarbons extracted from Blocks III and IV belong to GMP, which in turn pays Perupetro a royalty as per the extracted hydrocarbons.
(3) Crude oil sales volume differs from total production volume due to operational circumstances such as the inventory of product stored in our field batteries at the end of each monthly measurement. “Average sales prices” refers to the fees received in consideration for our extraction services, which do not equal the sales prices of crude oil. Average sales prices have been calculated using a basket price formula according to the service and license contracts of each block. Such formulation is at a discount to global oil prices for Blocks I and V, and for Blocks III and IV we pay royalties on the oil extracted. Per unit costs have been calculated using sales volumes.

 

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Acreage, Productive and Development Wells, Drilling:

The following table sets forth certain information regarding the total developed and undeveloped acreage as of December 31, 2016.

 

Formation

   Developed Acreage      Undeveloped Acreage  

Block I

     

Pariñas

     2,271        70  

Mogollón

     2,583        320  

Basal Salina

     1,850        100  

Mesa

     1,485        1,650  
  

 

 

    

 

 

 

Total Block I

     8,189        2,140  

Block III

     

Salina Mogollón

     7,475        3,983  

Amotape

     1,750        2,370  
  

 

 

    

 

 

 

Total Block III

     9,225        6,353  

Block IV

     

Pariñas

     4,155        3,402  

Palegreda

     5,170        3,741  

Mogollón

     1,240        2,460  
  

 

 

    

 

 

 

Total Block IV

     10,565        9,603  

Block V

     

Verdún

     530        650  

Ostrea

     175        115  

Mogollón

     1,350        120  
  

 

 

    

 

 

 

Total Block V

     2,055        885  
  

 

 

    

 

 

 

Total

     30,034        18,981  

As of December 31, 2016, we had a total of 757 producing wells. Our wells are oil wells, many of which also produce natural gas. We do not have interests in wells that only produce natural gas.

The following table shows the number of development and exploratory wells drilled during 2014, 2015 and 2016 in Blocks I, III, IV and V.

 

     Year ended December 31,  
     2014      2015 (1)      2016  

Development Wells

        

Productive

     26        4        11  

Dry

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Total

     26        4        11  

Exploratory Wells

        

Productive

     —          —          —    

Dry

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Total

     —          —          —    

 

(1) Includes operations of Blocks III and IV, starting in April 2015.

During 2014, 2015 and 2016 we invested US$25.6 million (S/.76.5 million), US$3.8 million (S/.13.0 million) and US$5.4 million (S/.18.1 million), respectively, in drilling activities. We drilled a total of eleven wells during 2016 in Block IV. All of them are productive wells.

Under the terms of our agreements with Perupetro, at the time the contract terminates, we are required to close non-producing wells that we have drilled. As of December 31, 2016, we estimated that we will be required to close 48 wells in Block I in December 2021 and 6 wells in Block V in October 2023, 40 wells in Block III and 50 wells in Block IV in December 2045. We have created a provision in our financial statements for the costs relating to those well closings. See notes 4.1(d) and 17(d) to our audited annual consolidated financial statements included in this annual report.

 

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Gas Processing Plant

We own a gas processing plant located 7 km north of the city of Talara in Piura, Peru. We currently have under a long-term delivery and gas processing and fractioning contract with EEPSA, according to which EEPSA delivers wet natural gas that it purchases from onshore and offshore gas operators in the area. We then process and fraction the gas into two products: (i) dry natural gas, which can be used as fuel in EEPSA’s gas-fired turbine; and (ii) natural gas liquids, which are sold in the Peruvian market. Under the terms of the agreement, we are responsible for all operating costs of the gas processing plant but are also entitled to keep revenues from the sale of the natural gas liquids to third parties after payment of a variable royalty, based on the volume of gas processed, to EEPSA. Our current gas processing and fractionation contract with EEPSA expires in 2023.

Our gas processing plant has the capacity to process up to 44 MMcf per day. We processed 27.3 MMcf per day during 2014, 31.7 MMcf per day during 2015 and 33.2 MMcf per day during 2016. Approximately 70% of the volume processed by our gas processing plant depends on the gas volumes provided by EEPSA for processing and use on its gas-fired turbines. These volumes vary per month and depend upon the power dispatch curve of EEPSA among Peruvian power generation plants. In rainy months (December to April) where hydroelectric power generation in Peru is typically higher, gas volumes demanded by EEPSA are lower than in dryer months (May to November) in which activity of thermal generators tends to be higher. The remaining approximately 30% of the volume processed by our gas processing plant depends on the volumes of gas extracted by GMP in Block I, which we process and commercialize as liquid natural gas.

Fuel Storage Terminals

We are a 50% partner in Consorcio Terminales with a Peruvian affiliate of Oiltanking GmbH, one of the world’s largest operators of independent terminals for bulk liquid storage. Consorcio Terminales had a contract with Petroperú to operate the North and South Fuel Terminals in Peru, which expired in August 2014. In May 2014, there was a public bidding for the operation of the North, Center and South Terminals. In June 2014, Terminales del Perú, a new consortium also integrated by our subsidiary GMP S.A. and Oiltanking Peru was awarded a concession for the operation of the North and Central Fuel Terminals for Petroperú. The contracts have a 20-year term and consist of the operation of four terminals in the north and one terminal in the center of the country, providing storage and dispatching bulk liquid fuel. The total amount of the committed investment for both projects is approximately US$37.2 million (S/.125 million), while the total amount of the additional investment, which will be reimbursed, is approximately US$186 million (S/.625 million). There was no winner in the public bidding for the operation of the South Fuel Terminals, and the contract of Consorcio Terminales was extended through contract amendments: first, for an additional year until August 2015; subsequently, for two more years until August 2017; and most recently, in July 2017 for an additional year until August 2018. The total amount of the additional investment required during this two year period, which will be reimbursed, is approximately US$10 million (S/.84 million).

 

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Our open-access terminals offer our customers dependable and critical handling and storage services for refined petroleum liquid products, maintaining high quality, safety and environmental standards. We provide storage, handling and loading and uploading services for a broad range of refined petroleum liquid products, including gasoline, aircraft fuel, diesel and heavy fuel oil. We deliver the liquids into two types of transportation systems, railroad cars and cistern trucks. Because of the strategic location of our assets, our deep-water access, inland terminals and our aggregate storage capacity of 2.2 MMbbl in the North and Central Terminals and of 1.4 MMbbl in the South Terminals, we believe that we are well-positioned to cover the needs of our clients, the two principal refineries in Peru. The map below shows the location of each of our fuel storage terminals in Peru.

 

LOGO

Under the current contracts, Consorcio Terminales and Terminales del Perú receive revenues paid in connection with monthly reserved volume in tanks for refined crude products (storage fee) and for volumes loaded and delivered into railroad cars or cistern trucks to each terminal (throughput fee). The storage fee per barrel, is based upon reserved volumes whether they are received or not. The throughput fee is paid based on effective barrels delivered per month. During 2014, 2015 and 2016 Consorcio Terminales and Terminales del Perú generated revenues of US$44.5 million (S/.133.0 million), US$66.8 million (S/.228.0 million) and US$74.1 million (S/.249.0 million) (we are entitled to 50% of the joint operation revenues), respectively. Under the contracts, Consorcio Terminales and Terminales del Perú are responsible for paying the fuel terminals operating and maintenance costs and also paying a royalty fee to Petroperú based on effective barrels delivered each month.

At the current stage of the contracts, any capital expenditure we invest in the fuel storage terminals can be recouped from any present and future royalties we owe to Petroperú.

Other Terminal Operations

We are a 50% partner in Oiltanking Andina Services S.A.C. (“OTAS”). This subsidiary operates a fuel terminal named “Terminal Marino Pisco Camisea” under a contract subscribed with Pluspetrol to operate an export terminal for gasoline, diesel, propane and butane. In 2016, this terminal dispatched 30.0 million barrels of natural gas liquids. Additionally, through OTAS, we are also a 25% partner in Logística Químicos del Sur S.A. (“LQS”), that operates the “Terminal de Químicos de Matarani,” which in 2016 dispatched 56,713 tonnes of sodium hydrosulfide for international mining companies. During 2014, 2015 and 2016 these activities generated revenues in the aggregate of approximately US$4.1 million (S/.12.3 million), US$4.6 million (S/.15.7 million) and US$6.3 million (S/.21.2 million), respectively.

Competition

Our ability to grow through successful bids for new infrastructure concessions or other long-term contracts could be affected as a result of competition. We view our competition as including both Peruvian and international infrastructure concession operators including joint operations with partners with specialized expertise in the relevant sector. Competition varies on a case-by-case basis, depending on the main purpose of the concession.

 

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Real Estate

Our Real Estate segment is one of the largest apartment building developers in Peru, in terms of number of units sold and value of sales in 2016, and is focused on the development and sale of affordable housing and housing as well as other real estate projects. Since commencing our operations in 1987, we have developed approximately 705,253 m2 of affordable housing (approximately 10,833 units); approximately 329,876 m2 of housing (approximately 1,635 units); approximately 170,075 m2 of office space (approximately 902 offices); and approximately 43,000 m2 of shopping centers (three shopping centers). Moreover, we are currently building approximately 121,196 m2 of affordable housing (approximately 2,028 units); approximately 49,743 m2 of housing (approximately 148 units); and approximately 3,631 m2 of office space (approximately 17 offices, with an average size of 214 m2 each). Our Real Estate segment also owns significant land parcels in Lima, comprising of approximately 930 hectares as of December 31, 2016, and we have sold undeveloped land in the past and intend to continue such sales in the future.

The table below sets forth selected financial information for our Real Estate business segment.

 

     Year ended December 31,  
     2014     2015
Restated
    2016 (1)     2016 (1)  
     (in millions of S/., except as indicated)          

(in millions of

US$) (2)

 

Revenues

     224.6       215.8       411.5       122.5  

Net profit

     26.5       29.3       77.2       23.0  

Net profit attributable to controlling interest

     9.5       12.4       22.1       6.6  

EBITDA

     56.5       52.8       121.4       36.1  

EBITDA margin

     25.2     24.5     29.5     29.5

Backlog (in millions of US$) (3)

     70.0       111.0       95.9       95.9  

Backlog/revenues ratio (3)

     0.9     1.8     0.8     0.8

 

(1) In 2016 S/.97.0 million (US$28.9 million) in revenues from land sales.
(2) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.
(3) For more information on our backlog, see “—Backlog.” Backlog is calculated as of the last day of the applicable period. Revenues are calculated for such period and converted into U.S. dollars based on the exchange rate published by the SBS at such period.

We undertake a significant amount of the activities in our Real Estate segment with partners through financing and commercial arrangements we use to purchase land and to develop real estate projects. See “—Financing.” As a result, a significant amount of our net profit in the Real Estate segment is attributable to the non-controlling interest of our partners. See also “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Results of Operations—General—Real Estate.”

Principal Real Estate Activities

Our real estate developments include the following products:

 

    affordable housing;

 

    housing; and

 

    commercial real estate.

We began developing affordable housing projects in 2001, following the Peruvian government’s efforts to address the country’s housing deficit, particularly for low-income families. We launched the first major affordable housing project in Peru in 2007, Parque Agustino in Lima’s El Agustino neighborhood. Since 2001, we have completed 16 affordable housing projects. As of December 31, 2016, we are developing eight affordable housing projects, which are in various stages of development, including six for which the construction phase has been completed, one which is in the construction phase, and one for which we have purchased land, but is still in the process of obtaining the required approvals and permits. Three of our ongoing affordable housing projects consist of expansions of projects previously completed by us. Affordable housing consists of apartments, usually ranging between 50 and 72 m2, that are purchased through government subsidies. The Peruvian government has adopted the Nuevo Crédito Mi Vivienda and Techo Propio programs, among others, which promote access to affordable housing in Peru by providing government subsidies to individuals for the purchase of homes. In order for a unit to qualify for the Nuevo Crédito MiVivienda program, its selling price must range between 14 UIT and 50 UIT (approximately between S/.55,300 and S/.197,500). In order for a unit to qualify for the Techo Propio program, its selling price must range between 5.5 UIT and 20 UIT (approximately between S/.21,725 and S/.79,000).

 

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In order to be eligible for an affordable housing subsidy under the Nuevo Crédito MiVivienda program, a purchaser must not own any other home or have benefitted from a housing subsidy program in the past, among other requirements. A purchaser must also provide a down payment between 10% and 30% of the total purchase amount. Housing subsidies under this program fluctuate between S/.12,500 and S/.17,000, which incentivize purchasers with reduced monthly rates so long as they pay their mortgage loan payments on a timely basis. In order to be eligible for an affordable housing subsidy under the Techo Propio program, a purchaser must have a monthly income that does not exceed 0.48 UIT (approximately S/.1,896) and must not have received any other government-sponsored housing benefit in the past, among other requirements. A Techo Propio purchaser must also show proven savings equal to at least 10% of the total purchase amount. Housing subsidies under this program fluctuate between four UIT and five UIT (approximately between S/.15,800 and S/.19,750). Purchasers of subsidized housing under both programs are also not required to pay a value-added tax normally applicable to residential purchases.

We develop substantially all of our affordable housing projects on land purchased from the private sector. To the extent these projects meet the requirements of a particular government subsidy program, purchasers can purchase units with government subsidies. Some of our affordable housing projects, however, such as Parque Agustino, are developed through government bidding processes. Government subsidy programs like Nuevo Crédito MiVivienda and Techo Propio have driven the demand for affordable housing in Peru, which has in turn increased our sales of affordable housing units.

Our housing developments consist of residential buildings comprised of apartments with a mid- to high-price range that do not qualify for government subsidies. Since 1987, we have developed 38 housing developments. As of December 31, 2016, we are developing three housing projects, which are in the construction stage. Our housing units typically range between 130 and 400 m2 in size.

Substantially all of our affordable housing and housing development projects are located in Lima. We have also purchased land to develop four affordable housing projects in Piura, Chimbote and Huancayo, two cities north of Lima and one in the center of the country. We intend to develop affordable housing projects in other cities outside of Lima.

The table below sets forth number of units sold and not yet delivered and number of units delivered, as well as the value of units sold and our sales revenue for the periods indicated.

 

     Year ended December 31,  
     2014      2015      2016  

Number of Units Delivered (1) :

        

Affordable Housing

     772        792        855  

Housing

     59        41        79  
  

 

 

    

 

 

    

 

 

 

Total

     831        833        934  

Number of Units Sold and Not Yet Delivered (1) :

        

Affordable Housing

     579        1316        1,620  

Housing

     47        96        97  
  

 

 

    

 

 

    

 

 

 

Total

     653        1,412        1,717  

Total m2 Delivered:

        

Affordable Housing

     49,150        46,894        48,460  

Housing

     14,539        12,962        19,398  
  

 

 

    

 

 

    

 

 

 

Total

     63,689        59,885        67,858  

Total m2 Sold and Not Yet Delivered:

        

Affordable Housing

     36,257        74,911        55,404  

Housing

     15,619        29,939        21,825  
  

 

 

    

 

 

    

 

 

 

Total

     51,875        104,849        77,229  

Value of Units Delivered (in millions of S/.):

        

Affordable Housing

     101.1        99.0        138.0  

Housing

     72.2        92.0        163.0  
  

 

 

    

 

 

    

 

 

 

Total

     191.4        191.0        301.0  

 

(1) We typically pre-sell our affordable housing and housing units before construction begins and continue to sell during construction, although we recognize revenues at the time of delivery of units.

 

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We develop and sell office and commercial buildings, such as shopping centers. On certain occasions, we have operated our commercial real estate and later sold it, such as Larcomar, a landmark shopping center which we built in 1998 and sold in 2010. We have also developed commercial real estate buildings in connection with our affordable housing and housing projects, such as the Parque Agustino shopping center. Since 1987, we have developed 14 office buildings, three shopping centers and one medical center. We are currently in the process of developing one office building in Lima: Real II project, which is in the construction phase and is expected to be a 14-floor office building (30% of which is owned by us and 70% of which is owned by Inversiones Centenario S.A.A.).

Land Bank

We typically purchase land to develop real estate projects with the intention to begin construction within a 12- to 18-month period after the purchase of the land. We may also, from time to time, purchase land for subsequent resale. As of December 31, 2016, we owned approximately 930 hectares, of which 87% is located in Lima and 13% outside of Lima. We continually evaluate opportunities to purchase new land for our real estate development projects.

We have a 50.4% interest in Almonte, which owns approximately 812 hectares of undeveloped land in Lurin, located 30 km south of Lima. We previously sold 24 hectares of the land for industrial use, and we expect to sell 71 hectares of the remaining land for industrial use in the next five years. We also expect to develop affordable housing projects on the land once water and sewage services become available.

On February 24, 2017, we sold our interest in Project Espacio (formerly known as Cuartel San Martín) to Urbi Propiedades S.A., our partner in the project, for US$50 million (S/.168 million). On April 28, 2017, we also sold our interest (approximately 20.8%) in Promoción Inmobiliaria del Sur S.A. (PRINSUR) of Inversiones Centenario, which owns approximately 937.66 hectares of undeveloped land also located in Lurin, to its partner Inversiones Centenario S.A.A. for US$25 million (S/.84 million). For more information, see “Item 5.A. Operating and Financial Review and Prospect— Operating Results—Recent Developments.”

Financing

We generally fund land purchases for our housing and commercial real estate projects through cash from our operations. For our affordable housing projects, we generally partner with real estate investment funds and insurance companies that provide between 60% and 70% of the total capital required to purchase the land and cover certain pre-construction costs in exchange for equity in the project. Once we acquire land for a particular real estate development project, we obtain working capital through a credit line from a financial institution, which we utilize to finance additional project needs as they arise. We also obtain financing through pre-construction sales for our affordable housing and housing projects and, to a lesser extent, our commercial real estate projects. Our affordable housing and housing projects generally require less outside financing because they are generally financed with pre-construction sales.

Sales and Marketing

We typically pre-sell our affordable housing and housing units prior to and during construction, and use the related proceeds we receive to finance the construction of the units. Our commercial and sales processes differ depending on the type of development and market segment of the development. We primarily sell our real estate development projects through an internal sales force that is assigned to particular projects and, to a lesser extent, external brokers on a non-exclusive, commission-fee basis. Our marketing efforts primarily consist of newspaper advertisements, radio and television commercials, billboards and promotional offers for referrals. We also advertise our real estate projects on our website.

We believe our brand is associated with product quality, professional operations and reliable post-sale customer service. We provide customer service call centers through which residents can report complaints or defects. Engineers respond with site visits, and repairs are made as long as the property continues to be covered by the applicable warranty or guarantee.

For our affordable housing projects, we provide post-sale customer service through our Ayni program, which aims to preserve the long-term value of our affordable housing developments by promoting a cooperative community life. Through this program, we distribute manuals that teach best practices for living in communities, offer leadership workshops, budget workshops, promote small business development, facilitate conflict resolution and provide other services. These services are provided for a six- to eight-month period following project delivery. In 2012, we initiated the Ayni contest for residents of our affordable housing projects with the aim of stimulating the sustainability of their community. Participants present an enhancement project for their community, such as a recreation center, and a jury selects the best project, which we fund and construct.

Competition

The Peruvian real estate development industry is highly competitive. The market is fragmented and no single company has a significant share of the national market. The principal competitors for our Real Estate segment are Paz Centenario Global S.A., Paz Centenario Inmobiliaria, Corporación Líder Perú S.A., Urbana Perú, Los Portales, Imagina Grupo Inmobiliario, ENACORP, Besco S.A. and Gerpal. In the coming years, we expect more competition from domestic and foreign real estate development companies who recognize the growth potential in the Peruvian residential market. The main factors that drive competition are product design and amenities, price, location and post-sale service offerings.

 

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Technical Services

Our Technical Services segment undertakes a broad range of activities, including (i) the operation and maintenance of infrastructure assets; (ii) information technology (IT) services for private clients and the government; and (iii) electricity networks services. Characterized by mid-to long-term contracts, our Technical Services segment further adds a more stable cash flow stream to our consolidated activities.

On June 6, 2017, we sold our 89.19% interest in our subsidiary GMD to Advent International for US$84.7 million (S/.276.9 million). Beginning on April 1, 2017, we have transferred Concar from our Technical Services segment to our Infrastructure segment. We believe that this strategic decision will strengthen and boost the operating capacity of our Infrastructure segment by incorporating the experience and knowledge of our Concar team members for concession management.

The table below sets forth selected financial information for our Technical Services business segment.

 

     As and for the year ended December 31,  
     2014     2015 Restated     2016     2016  
     (in millions of S/., except as indicated)     (in millions of
US$) (1)
 

Revenues

     1,208.2       1,152.5       1,401.8       417.2  

Net profit (loss)

     (5.1     46.9       14.8       4.4  

Net profit (loss) attributable to controlling interest

     (5.3     40.3       15.9       4.7  

EBITDA

     63.5       113.3       117.5       35.0  

EBITDA margin

     5.3     9.8     8.4     8.4

Backlog (in millions of US$) (2)

     646.3       613.0       857.8       857.8  

Backlog/revenues ratio (2)

     1.6     1.8     2.1     2.1

 

(1) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.
(2) For more information on our backlog, see “—Backlog.” Backlog is calculated as of the last day of the applicable year. Revenues are calculated for such year and converted into U.S. dollars based on the exchange rate published by the SBS on December 31 of the corresponding year.

 

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The pie charts below set forth the breakdown of our revenues and EBITDA from our Technical Services for 2016.

 

Revenues   EBITDA
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Operation and Maintenance of Infrastructure Assets

We began providing our operation and maintenance of infrastructure assets services in 1994 when we were awarded the concession for the Arequipa Matarani highway in southern Peru. With this experience, in 2003, we began providing operation and maintenance services to Norvial. In 2007, the Peruvian government initiated Proyecto Peru, a program aimed at maintaining roads not under concession to ensure their longevity. Proyecto Peru allowed us to develop new business opportunities providing maintenance services to more than 4,000 km of public roads in Peru. We believe the experience we have gained operating highway and transportation concessions positioned the company to capitalize on the Peruvian government’s initiatives to increase infrastructure development.

Our revenue in the operation and maintenance of infrastructure assets is generated either from fees we charge to Norvial, Survial, Canchaque and the Lima Metro to operate and maintain our concessions or from government payments through maintenance service contracts we have been awarded. As depicted in the chart below, we operate and maintain more than 3,684 km of Peruvian roads and highways, including our own highway concessions, in addition to the Lima Metro.

Operation and Maintenance of Infrastructure Assets

Total 3,684 KM

 

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The table below sets forth selected financial information for our operation and maintenance of infrastructure assets activities.

 

     Year ended December 31,  
     2014     2015 Restated     2016     2016  
     (in millions of S/.)    

(in millions of

US$) (1)

 

Revenues

     364.4       334.8       262.7       78.2  

Net profit (loss)

     (26.5     18.5       14.0       4.2  

EBITDA

     (15.3     39.3       27.0       8.0  

EBITDA margin

     (4.2 %)      11.7     10.3     10.3

 

(1) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.

 

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The below map illustrates the roads in Peru for which we currently provide operation and maintenance services.

 

LOGO

We provide the following road operation and maintenance services:

 

    Routine Maintenance. These services aim to preserve roads through ongoing maintenance, including: road demarcation; cleaning; drainage; road fissure treatment, which seals cracks in roads to prevent water infiltration; slurry sealing; and micro-paving, which seals asphalt to prevent aging and improve resistance to water and surface wear.

 

    Periodic Maintenance. These services entail activities that are performed periodically, intended to prevent the occurrence or exacerbation of defects, conserve the structural integrity of roads and correct major defects.

 

    Emergency maintenance. This maintenance work is performed whenever the need arises, such as when natural disasters damage road surfaces.

We also administer toll stations and weighing stations; offer road patrolling services; operate assistance call centers; and provide emergency medical services.

The operation and maintenance services we provide to the Lima Metro aim to preserve the mass transit system through ongoing maintenance, including cleaning of the trains and stations and providing train operators, among other services.

With respect to operation and maintenance contracts with the Peruvian government, we obtain new contracts through public bidding. With respect to contracts with our Infrastructure segment, we participate in direct negotiation. Contract length typically ranges from three to five years.

 

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IT Services

We began our IT services business in 1984 providing computer equipment to companies and evolved into a technology solutions provider in 2000. In the early 1980s, Sonda, one of the main IT services providers in Latin America, was looking for a partner to represent Digital Equipment Corp. (currently, Hewlett Packard Enterprise) for the sale of hardware in Peru. Sonda’s need coincided with our diversification strategy and, therefore, we decided to jointly constitute GMD. In 1994, we bought out Sonda. Our main focus was the provision of business process and IT outsourcing services, and providing the necessary corresponding equipment, to well-known large companies and public institutions in Peru. On June 6, 2017, we sold our interest in GMD.

The infrastructure through which we operate our business includes the largest software factory in the country, two world class data centers, one of which is Tier III certified and two call centers with high availability for help desk services. In addition, we have successfully entered into strategic partnerships with key international IT vendors such as Cisco Systems, Microsoft, Hewlett-Packard, Oracle, SAP, IBM, Citrix, VMware, CA Technologies and Louis Berger Group.

On January 4, 2016, we completed the acquisition of a 52% stake in Adexus. Adexus is a leading Chilean company in the development and implementation of solutions for information technology, with the ability to integrate technological systems of high added value and over 25 years of experience in the market. It has a significant regional presence distributed between Chile, Peru and Ecuador. The remainder of Adexus is owned by Sistemas y Redes Ltda. with a 47.5% stake and Asesorías e Inversiones Busso with the remaining 0.5%.

The table below sets forth selected financial information relating to our IT services.

 

     Year ended December 31,  
     2014     2015
Restated
    2016     2016  
     (in millions of S/.)          

(in millions of

US$) (1)

 

Revenues

     247.9       253.9       411.1       122.4  

Net profit

     6.0       5.2       3.8       1.1  

EBITDA

     34.4       38.9       58.6       17.4  

EBITDA margin

     13.9     15.3     14.3     14.3

 

(1) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.

Services

We provide the following services to our clients:

 

    Systems Integration: includes installation and maintenance of hardware; 24-hour technical service; monitoring performance of IT systems; implementation of information recovery systems; and installation of systems that enable collaboration across multiple platforms such as Windows, Apple, Android and Blackberry, among others. For example, we provide equipment maintenance services to Backus, an affiliate of SABMiller. Our technology solutions optimize the reliability and performance of our client’s infrastructure with the goal of helping them reduce costs, improve security and integrate new technologies.

 

    IT Outsourcing: includes servers on demand in the cloud (our internet network) which provide virtual memory.

 

    Processing and Storage Capacities; virtual working spaces, including operating systems and databases; email accounts on the cloud; technical support help desk; among others. For example, we provide help desk services to Barrick Gold Corporation, serving a total of 3,700 users in four countries. Moreover, all of the trading transactions on the Lima Stock Exchange are electronically processed through our facilities. Our outsourcing services are designed to facilitate our clients’ operational continuity by means of an appropriate IT platform, managed in accordance with high standards of security and quality.

 

    Application Outsourcing: includes corrective and continued maintenance of software; development of customized software (software factory); software testing and certification; and functional support through a service desk platform. For example, we have a software factory contract with an affiliate of Telefónica. Our application outsourcing services enable our clients to shift the burden of supporting, maintaining and operating their business software and systems.

 

    Business Processes Outsourcing: consists of the outsourcing of specific business processes including billing and delivery, facilities monitoring, digital management; customer care services such as management of complaints; organization and control of voting processes; inventory, shipping and custody of documents; among others. For example, we provide billing services to an affiliate of Repsol, and provide document authentication services to BBVA Banco Continental.

 

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The pie chart below shows our revenues by service for 2016.

Revenues by Service

 

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Clients

We provide services to our clients pursuant to service level agreements which enable us to customize each contract to the needs of the particular client. We set specific parameters and standards which can include maximum times for response and levels of equipment performance, among others. The average term of our contracts is three to five years and we have achieved a significant level of contract renovation.

We have built a strong client base in Peru, including local affiliates of global companies, spanning a broad range of industries, including key clients from the energy, government, banking, insurance, pension funds, industrial, commercial, education and mining sectors. Our principal clients are the Peruvian National Pension System (Sistema Nacional de Pensiones), the water authority of Lima (SEDAPAL), BBVA Continental, the Peruvian National Superintendence of Tax Administration, Saint Ignatius of Loyola University, Bolsa de Valores de Lima S.A. and Honda del Perú S.A.

Competition

The IT services industry is highly competitive. The market includes both international companies and local or regional companies. Our main competitors, which are sometimes also our partners, include companies such as IBM, Telefónica, Indra, Tata Consultancy Services and Cosapi Data, among others.

Electricity Networks Services

We offer field and specialized services consisting of installation and routine operation and maintenance of electricity infrastructure, primarily for power utility companies in Chile and, to a lesser extent, Colombia, Brazil and Peru. Field services include day-to-day services and troubleshooting required to maintain the electric grid. Specialized services require more sophisticated and more tailored technology and expertise. With over 20 years operating experience developing, installing, operating and maintaining metering systems, we have also developed a broad range of specialized solutions to reduce electricity theft, one of the main concerns for power utility companies in Latin America.

 

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The table below sets forth selected financial information for our Electricity Networks Services.

 

     Year ended December 31,  
     2014     2015 Restated     2016     2016  
     (in millions of S/.)    

(in millions of

US$) (1)

 

Revenues

     595.9       563.9       S/. 727.9       S/. 216.6  

Net profit

     15.5       23.3       S/. (3.0     S/. (0.9

EBITDA

     44.4       35.1       S/. 31.9       S/. 9.5  

EBITDA margin

     7.5     6.2     4.4     4.4

 

(1) Calculated based on an exchange rate of S/.3.36 to US$1.00 as of December 31, 2016.

The field services we provide include, among others, installing and maintaining medium- and high-voltage electricity networks and public lighting networks; connecting new residential, commercial and industrial customers to the electrical grid; disconnecting and reconnecting the power supply of our clients’ customers; meter reading; verification of electricity theft; and the installation of meters and antitheft solutions. We also provide services that include changing and repairing damaged electrical equipment and maintaining, transferring and expanding the electrical grid. We have developed a sophisticated management system to monitor the efficiency of the field services we provide and increase the daily productivity of our field crews.

We also provide specialized services, which involve more technical expertise and specialized equipment, including the monitoring of electrical consumption for approximately 420,000 industrial, commercial and residential customers. We have developed specialized metering systems and anti-theft solutions for the Latin American markets. We believe we are one of two companies with a relevant market penetration of these antitheft solutions for power utility companies in our markets. We also operate laboratories that offer an array of services in response to local regulation requirements, such as meter certification, equipment testing and theft reports.

In Brazil and Chile, we also operate the warehouse facilities of local power utility companies, which store and distribute the necessary equipment for operations, such as cables, insulators and meters. In addition, in Chile, we lease residential electricity meters to a power utility company, for which we also provide maintenance services. We have formed strategic alliances with equipment manufacturers in order to develop and commercialize specialized metering systems and anti-theft solutions.

The chart below sets forth the percentage of our 2016 revenues in each of the countries where we operate.

Revenue by Country

 

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Contracts and Clients

We typically provide our services pursuant to long-term contracts ranging between three and five years. Most of our contracts are awarded through a non-public bidding process, although some contracts are negotiated directly with the client.

Our principal clients are power utility companies and, to a lesser extent, industrial clients, predominantly in the private sector. In Peru, we also provide services to the telecommunications industry. Our principal clients are the distribution companies of

 

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Enel, which acquired Enersis. Over the years, we have worked with the principal power utility companies in the region, including Chilectra, Saesa, Chilquinta, AES, E-CL, Endesa Chile, Ampla, Coelce, Cemig, Coelba, Elektro, Light, Codensa, Emgesa, EEC, Enertolima, Emcalo, Edelnor, Electrocentro, Enosa, and the telecommunication companies VTR, Entel, Claro and Telefonica.

Competition

The market for electricity networks services is highly fragmented and no single company has a significant share of the national market in the countries where we operate. We primarily compete with small, local privately-held service companies. We expect competition to increase in the coming years as electricity consumption grows in response to the economic growth, and relatively low per capita consumption, in the countries where we operate. The main factors that drive competition are safety; product and service quality; reliability; price; and ability to respond to increased industry regulations.

Backlog

We define our backlog as the U.S. dollar equivalent value of revenue we expect to realize in the future as a result of performing work under multi-period contracts that we have entered into. Backlog is not a measure defined by IFRS, and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog. For contracts denominated in soles or other local currencies, amounts have been converted into U.S. dollars based on the exchange rate published by the SBS on December 31 of the corresponding year.

We do not include backlog in this annual report in our Infrastructure segment for: (i) our Norvial toll road concession because its revenues from the concession are derived from toll fees charged to vehicles using the highway, and, as a result, such revenues are dependent on vehicular traffic levels; and (ii) our Energy line of business because: (a) its revenues from hydrocarbon extraction services are dependent on the amounts of oil and gas we produce and market prices, which fluctuate significantly; (b) our revenues from our gas processing plant are dependent on the amount of gas we process and market prices for natural gas liquids, which fluctuate significantly; and (c) our revenues from our fuel storage terminal operation partially depend on the volume of fuel dispatched; and (iii) our COGA venture, which is not consolidated because it is jointly controlled (which we sold on April 24, 2017).

When we present backlog on a segment basis, we do not include eliminations that are included in our consolidated backlog. For a description of how we calculate our backlog, see our segment backlog presented below.

Our consolidated backlog as of December 31, 2016 was US$3,137.4 million. We recognized as revenues 44% of our backlog by December 31, 2017, and we expect to recognize as revenues 28% of such backlog by December 31, 2018 and 27% of such backlog thereafter. The following table sets forth our consolidated backlog from December 31, 2012 to December 31, 2016.

Backlog (in US$ million)

 

LOGO

 

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Our backlog declined in 2016 and may decline further in the future. We cannot assure you that we will be able to continue obtaining sufficient contracts in the future in number and magnitude to grow our backlog. Additionally, the amount of new contracts signed can fluctuate significantly from period to period due to factors that are beyond our control.

The table below sets forth our ending backlog for 2014, 2015 and 2016 accounting for opening backlog for each year, annual contract bookings and adjustments, cancellations during the year and annual revenues recognized.

 

     2014     2015     2016  
     (in millions of US$)  

Opening backlog (end of prior year)

     3,935.0       3,815.3       4,037.8  

Contract bookings and adjustments during the year

     2,046.4       2,381.2       1,759.8  

Cancellations during the year

     —         —         (855.0 ) (1)  

Revenues recognized during the year

     (2,215.9     (2,158.7     (1,805.3
  

 

 

   

 

 

   

 

 

 

Ending backlog (end of current year)

     3,765.4       4,037.8       3,137.4  

 

(1) In the third quarter of 2015, we acquired a 29% participation in the construction consortium of the GSP gas pipeline project, and, as a result, we incorporated US$1.0 billion in backlog. Due to the termination of the GSP gas pipeline concession on January 24, 2017, we have removed US$855 million from the backlog, representing 21.4% of our total backlog.

The chart below sets forth our consolidated backlog breakdown by end-market, geography and client sector as of December 31, 2016.

 

Backlog by End-Market

 

LOGO

 

Backlog by Geography

 

LOGO

 

Backlog by Client Type

 

LOGO

 

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The chart below shows new facts on our backlog of our participation in the GSP pipeline concession and the subsequent termination of the concession.

 

LOGO

E & C Backlog

To include an engineering and construction contract in our backlog, we assume that each party will satisfy all of its respective obligations under the contract. We also make assumptions, in agreement with the client, regarding the total expected contract price in the case of unit price and cost-plus fee contracts and the amount of the contract that will be completed in each year. We adjust our backlog periodically to account for developments related to each project. For projects related to joint operations or equity investments, we only include our percentage ownership of the joint operation’s or equity investment’s backlog. Our E&C segment backlog does not include intersegment eliminations.

Our E&C backlog as of December 31, 2016 was US$1,977.9 million. We recognized as revenues 43% of our backlog by December 31, 2017, and we expect to recognize as revenues 30% of our backlog by December 31, 2018 and 27% of our backlog thereafter. The following table sets forth of our E&C backlog from December 31, 2012 to December 31, 2016.

 

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E&C Backlog (in US$ million)

 

LOGO

The number and amounts of new contracts signed can fluctuate significantly from period to period. For example, two large mining services contracts were signed in the fourth quarter of 2012 for an aggregate amount of backlog of US$1.1 billion. During that same quarter we also recorded US$259 million in backlog from our Vial y Vives acquisition. These contracts and acquisition accounted for a significant portion of the growth between December 31, 2012 and December 31, 2013. In the third quarter of 2015, we acquired a 29% participation in the construction consortium of the GSP gas pipeline project, and, as a result, we incorporated US$1.0 billion in backlog. Due to the termination of the GSP gas pipeline concession on January 24, 2017, we have removed US$855 million from the backlog, representing 30.2% of our E&C backlog. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

The following pie charts set forth our E&C backlog breakdown by end-market, geography, client sector and contract type as of December 31, 2016.

 

Backlog by End-Market   Backlog by Geography
LOGO   LOGO

 

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Backlog by Client Type   Backlog by Client Type

 

LOGO

The table below sets forth our ending E&C backlog for 2014, 2015 and 2016 accounting for opening backlog for each year, annual contract bookings and adjustments, cancellations during the year and annual revenues recognized.

 

     2014      2015      2016  
     (in millions of US$)  

Opening backlog (end of prior year)

     3,044.0      2,885.1      3,129.4  

Contract bookings and adjustments during the year

     1,476.1      1,954.6      926.2  

Cancellations during the year

     —          —          (855.0

Revenues recognized during the year

     (1,684.7      (1,710.3      (1,222.8
  

 

 

    

 

 

    

 

 

 

Ending backlog (end of current year)

     2,835.3      3,129.4      1,977.9  

 

(1) In the third quarter of 2015, we acquired a 29% participation in the construction consortium of the GSP gas pipeline project, and, as a result, we incorporated US$1.0 billion in backlog. Due to the termination of the GSP gas pipeline concession on January 24, 2017, we have removed US$855 million from the backlog, representing 30.2% of our E&C backlog.

Infrastructure Backlog

In reflecting an Infrastructure contract in our backlog, we assume that each party will satisfy all of its respective obligations under the contract. For our Infrastructure backlog, we only include contracted revenues expected to be paid during the next three years following the backlog calculation date. Infrastructure backlog in this annual report does not include our Norvial toll road concession or our Energy line of business. Our Infrastructure segment backlog does not include intersegment eliminations. We calculate our Infrastructure backlog as follows:

 

  for the Lima Metro, our Infrastructure backlog assumes that for 2017 we will operate our 24 trains in the Line One, which in the aggregate will travel 2,603,453 kilometers for that year, per fare per year, and for 2018 and 2019 we will operate 44 trains, which in the aggregate will travel 4,811,780 kilometers per year (when the 20 additional trains are at full operation);

 

  for our Survial and Canchaque concessions, we assume our contractually agreed upon annual fee, adjusted for inflation. For our 2017 and 2018 backlog, we utilize the same adjustment amount that was utilized for our 2016 fee, which has already been negotiated; and

 

  for La Chira, for 2017 and 2018, backlog is calculated to include the fees we will receive under the concession for our operation and maintenance, with no adjustment for inflation.

Our Infrastructure backlog as of December 31, 2016 was US$300.7 million. We recognized as revenues 32% of our backlog by December 31, 2017, and we expect to recognize as revenues 31% of our backlog by December 31, 2018 and 37% of our backlog thereafter. The following chart sets forth the growth of our Infrastructure backlog from December 31, 2012 to December 31, 2016.

 

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Infrastructure Backlog (in US$ million)

 

LOGO

The following pie chart sets forth our Infrastructure backlog breakdown by line of business as of December 31, 2016.

Backlog by Line of Business

 

LOGO

The table below sets forth our ending Infrastructure backlog for 2014, 2015 and 2016, accounting for opening backlog for each year, annual contract bookings, cancellations during the year and adjustments and annual revenues recognized.

 

     2014      2015      2016  
   (in millions of US$)  

Opening backlog (end of prior year)

     320.2        311.6        256.5  

Contract bookings and adjustments during the year

     107.1        54.8        134.7  

Cancellations during the year

     —          —          —    

Revenues recognized during the year

     (115.6      (109.9      (90.5
  

 

 

    

 

 

    

 

 

 

Ending backlog (end of current year) Real Estate Backlog

     311.6        256.5        300.7  

Real Estate Backlog

Our Real Estate segment backlog reflects sales contracts with buyers for units that have not yet been delivered and will be recognized as revenues once they are delivered.

Our Real Estate segment backlog as of December 31, 2016 was US$95.9 million. We recognized as revenues 92% of our backlog by December 31, 2017, and we expect to recognize as revenues 7% of our backlog by December 31, 2018 and 1% of our backlog thereafter.

 

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The following pie chart sets forth our Real Estate backlog breakdown by type of real estate activities as of December 31, 2016.

 

LOGO

The table below sets forth our ending Real Estate backlog for 2014, 2015 and 2016, accounting for opening backlog for each year, annual contract bookings and adjustments, cancellations during the year and annual revenues recognized.

 

     2014      2015      2016  
   (in millions of US$)  

Opening backlog (end of prior year)

     85.0      81.3      111.0  

Contract bookings and adjustments during the year

     71.5      92.9      107.3  

Revenues recognized during the year

     (75.1      (63.2      (122.5

Cancellations during the year

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Ending backlog (end of current year)

     81.4      111.0      95.9  
  

 

 

    

 

 

    

 

 

 

Technical Services Backlog

In reflecting a Technical Services contract in our backlog, we assume that each party will satisfy all of its respective obligations under the contract and that work under the contract will be completed on a straight-line basis. Our Technical Services segment backlog does not include intersegment eliminations. The following information on our backlog for technical services does include our backlog from GMD, which we sold on June 6, 2017. GMD’s backlog as of December 31, 2016 was US$125.7 million.

 

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Our Technical Services backlog as of December 31, 2016 was US$857.8 million. We recognized as revenues 44% of our backlog by December 31, 2017, and we expect to recognize as revenues 28% of our backlog by December 31, 2018 and 28% of our backlog thereafter. The following chart sets forth the growth of our Technical Services backlog from December 31, 2012 to December 31, 2016.

Technical Services Backlog (in US$ million)

 

LOGO

 

* Includes CAM, which we acquired on February 24, 2011.

The table below sets forth our ending Technical Services backlog for 2014, 2015 and 2016, accounting for opening backlog for each year, annual contract bookings and adjustments, cancellations during the year and annual revenues recognized.

 

     2014      2015      2016  
     (in millions of US$)  

Opening backlog (end of prior year)

     619.0      646.3      613.0  

Contract bookings and adjustments during the year

     431.5      304.2      666.3  

Cancellations during the year

     —          —          —    

Revenues recognized during the year

     (404.2      (337.4      (421.6
  

 

 

    

 

 

    

 

 

 

Ending backlog (end of current year)

     646.3      613.0      857.8  

 

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The following pie charts set forth our Technical Services backlog breakdown by geography, end-market and client sector as of December 31, 2016.

 

LOGO

Warranties

For certain of our contracts, we are required to provide performance bonds to ensure compliance with contractual obligations such as construction works, operation and maintenance of infrastructure assets, among others. The amount of the performance bond varies on a case-by-case basis, depending on the value of the project. Performance bonds are usually renewed annually until the contractual obligation which they intend to guarantee is fully satisfied.

As part of our real estate sales contracts, we provide a six-months warranty for latent defects, which covers hidden flaws not discoverable through inspection. The warranty extends to a five-year term if the defects are caused by: (i) the use of materials below the requisite quality standards; (ii) poor execution; or (iii) faulty land. We also provide a five-year warranty for structural defects, and assume the terms and conditions of our finishes suppliers’ warranties.

We provide warranties in connection with our IT services. All government contracts include a latent defects clause, in accordance with Article 51 of the Procurement Act which establishes a minimum warranty of one year, although, for some contracts, we provide warranties for two or three years. For contracts involving the sale of equipment or licensing, we provide the manufacturer’s warranty and, if a claim arises, we transfer the claim to the manufacturer unless we provided an extended warranty. For software development contracts, we provide a one to three years good performance warranty.

We have had no material disbursement or expenditure related to our warranties in the recent past.

 

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Quality Assurance

In 2017, our operations were certified according to the following international standards:

 

          ISO
9001
     ISO
14001
     OHSAS
18001
     ISO
27001
     ISO
20000
     Other
standards
 

Engineering and Construction

  

GMI

     x        x        x           
  

GyM

     x        x        x           
  

MORELCO

     x        x        x              x  
  

Vial y Vives - DSD

     x        x        x           

Infrastructure

  

GMP

     x        x        x           
  

CONCAR

     x        x        x           
  

GyM Ferrovias

     x                 

Technical Services

  

CAM Chile

     x        x        x              x  
  

CAM Colombia

     x        x        x              x  
  

CAM Perú

     x        x        x              x  
  

ADEXUS

     x        x        x        x        x        x  

Engineering and Construction:

 

  GMI: ISO 14001, ISO 9001 and OHSAS 18001; these certifications include ECOTEC, the environmental consulting company of GMI.

 

  GyM: ISO 9001 for Electromechanical Division and Transport´s Lines of Hydrocarbons; ISO 14001 and OHSAS 18001 for Electromechanical Division.

 

  Morelco: ISO 14001, ISO 9001 and OHSAS 18001; in addition, ASME ESTAMPES U/S NATIONAL BOARD ESTAMPER.

 

  Vial y Vives—DSD: ISO 14001, ISO 9001 and OHSAS 18001.

Infrastructure:

 

  GMP: ISO 14001, ISO 9001 and OHSAS 18001: certified for oil and gas production processes in lots I and V, gas processing at the Pariñas plant, storage and dispatch of hydrocarbons-derived products in nine terminals (Eten, Salaverry, Chimbote, Supe, Pisco, Ilo, Mollendo, Cusco and Juliaca) and operations carried out at GMP’s Lima headquarters.

 

  CONCAR: ISO 9001, ISO 14001 and OHSAS 18001 (since Feb 2017).

 

  CONCAR: ISO 9001, ISO 14001 and OHSAS 18001 (since Feb 2017).

Technical Services:

 

  CAM Colombia, CAM Chile and CAM Perú have tri-standard. In addition, CAM Chile has NCh ISO 17025 Calibration Laboratory, NCh ISO 17025 Testing Laboratory and NCh ISO 17065 Product Certification Agency. CAM Colombia has ISO/IEC 17020 Certification and ISO/IEC 17025 accreditation. CAM Perú has NTP ISO 17020.

 

  Adexus: ISO 9001, ISO 14001, OHSAS 18001, ISO/IEC 27001, ISO/IEC 20000-1, SAP Provide of Hosting Partner and SAP in Cloud Provide.

Corporate Social Responsibility

We are committed to the sustainable development of our operations. We seek to create long-term value and conduct business in a manner that is not only economically viable, but also beneficial to greater society and environmentally responsible.

Our Sustainability Policy was approved by our board of directors on January 28, 2016, and its guidelines allow us to focus on seven managerial priorities linked to our stakeholders: ethical conduct, development of people, operational excellence, health and safety, the environment, communication and dialogue and sharing wellbeing.

The focuses of our social investment projects include education and capacity building to foster job creation and the promotion of responsible citizen behavior, particularly among our users, suppliers and neighboring communities.

 

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The following are key programs we perform for the benefit of society:

 

    Corporate Volunteering: Our corporate volunteering program endeavors to train and promote the community integration of our employees. It brings together enthusiastic employees who want to leave a positive footprint on their environment by volunteering their time and knowledge to improve the community.

In 2017, volunteers participated in the Project to Expand the National Institute of Neoplastic Illnesses (INEN), in which engineers led playshops for children in a local hospital.

 

    Metro Culture: We conduct workshops that transform trains and train stations into centers of social and cultural education to promote respect and tolerance. In 2017, we carried out 40 workshops.

 

    Road Safety Education: This program promotes our culture of safety and accident prevention by training communities surrounding roads and highways that we operate or maintain. In 2017, approximately 4,000 road users participated in these workshops.

 

    Ayni: This social support program aims to improve the quality of life in urban areas by promoting respectful coexistence among new owners of our real estate projects. The initiative trains neighbors on several legal and managerial matters and on conflict management and leadership. In 2017, the program trained 2,400 people.

 

    Training: This program trains, during six-month periods, certain stand-out students in Peruvian schools of engineering. Since its creation in 2010, the program has enabled us to recruit 801 junior engineers from Lima and other provinces, lowering the barriers that many young people face to formal employment. In 2017, we recruited 35 outstanding students from Peruvian engineering schools.

 

    Development of local suppliers: We build the capacities of our local suppliers and help them to develop their businesses by improving the quality of the goods and services they provide and encouraging the adoption of formal and responsible managerial styles. In this way, we make local economies more dynamic.

 

    Construction Management: In partnership with the Instituto de Educación Superior Tecnológico Público Fe y Alegría (Fe y Alegría Public Higher Technological Institute), we are implementing a technical career titled, “Planning and Control of Construction Projects,” certified by the Peruvian Ministry of Education. The program aims to train young people who cannot afford to increase their employability in construction projects. By 2017, we achieved 44 graduates, 100% of whom were employed.

 

    Labor Capabilities: This is a recruitment program where we share construction knowledge and train community members on building techniques, risk prevention and leadership skills. In this way, we increase the employability of members of local communities, generate formal jobs, reduce project risks, develop more efficient recruiting processes, and strengthen the trust with local communities. In 2017, we trained 1,429 participants, 53% of whom joined the Group.

Regulatory Matters

Set forth below is a description of the regulatory framework applicable to our company. We believe we are in compliance, in all material respects, with applicable laws and regulations in all of our business segments.

Engineering and Construction

Regulatory Framework Applicable to Contracts with the Public Sector

As of the date of this annual report, Peru’s State Contracting Law, approved by Law No. 30225 ( Ley de Contrataciones del Estado ) and its regulations, approved by Supreme Decree No. 350-2015-EF, which entered into force on January 9, 2016, governs services and construction agreements entered into with public entities. Article 8 of Supreme Decree No. 350-2015-EF establishes that, at the beginning of the contracting process, the contracting public entity must prepare a technical file describing the characteristics of the services it intends to purchase and the selection process for its counterparts, among other specifications.

 

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The selection processes are established in Articles 32, 15, 16, 17 and 18 of Supreme Decree No. 350-2015-EF as follows:

 

    public biddings ( licitación pública), applicable to goods and works;

 

    public tenders ( concurso público ), applicable to services, including consulting services;

 

    simplified award ( adjudicación simplificada ), applicable to (i) goods, if the value is greater than S/.31,600 and less than S/.400,000; (ii) services, if the value is greater than S/.31,600 and less than S/.400,000; and (iii) works, if the value is greater than S/.31,600 and less than S/.180,000;

 

    electronic reverse auction ( subasta electronica inversa ), applicable to goods and services with a value greater than S/.31,600;

 

    selection of individual consultants ( selección de consultores individuales ), applicable for the hiring of qualified consultants who do not need teams of personnel or additional professional support;

 

    price comparison ( comparación de precios ), applicable to goods and services that are easy to obtain in the market and that are not manufactured, produced, supplied or provided under a particular description or set of instructions given by the contracting entity; and

 

    direct contracting ( contratación directa ), applicable to goods and services, in situations of emergency arising from catastrophic events, involvement of national security, shortages, among other similar reasons.

With the exception set forth in Article 49 of the Supreme Decree No. 350-2015-EF, the selection processes include the following phases:

 

    in the case of public biddings, public tenders and simplified award: notice; registration of participants; submission and reply of inquiries; submission and reply of comments; preparation of the terms and conditions of the selection process; submission of bids; evaluation and qualification of bids; and adjudication;

 

    in the case of the selection of individual consultants: notice; registration of participants; submission of bids; evaluation and qualification of bids; and

 

    in the case of price comparison: notice, submission of bids, and adjudication.

Article 46 of Peru’s State Contracting Law establishes that participants of any of the foregoing selection processes must be registered in the Peruvian National Registry of Suppliers ( Registro Nacional de Proveedores ) and must not be disqualified from contracting with the state. Article 234 of the Supreme Decree No. 350-2015-EF establishes that this registration is renewable as long as a request is submitted to the Peruvian National Registry of Suppliers 60 days prior to expiration of the registry.

Bidders may participate in the selection process as part of a joint operation, in which case all members of the joint operation must be registered in the Peruvian National Registry of Suppliers and will be jointly liable for all consequences arising from the joint operation’s participation in the selection process and the execution of the agreement.

GyM and GMI are registered in the Peruvian National Registry of Suppliers as a construction and a consulting company, respectively.

Article 14 of the Supreme Decree No. 350-2015-EF establishes the types of contracts that may be entered into by public entities:

 

    lump-sum ( sistema a suma alzada ), applicable when the amounts, magnitudes and quality are determined in the terms and conditions of the selection process. The bidder submits its proposal indicating a fixed amount and a term for the completion of the agreement;

 

    unit price, rates or percentages ( sistema de precio unitario, tarifas o porcentajes ), applicable when the nature of the service to be provided does not allow accurate determination of the required quantities;

 

    lump-sum and unit price, rates or percentages mix ( esquema mixto de suma alzada y precios unitarios ), applicable when accurate determination of the quantities required for some of the components cannot be made; and

 

    fixed amount plus success fee ( honorario fijo y comisión de éxito ), applicable in contracts for rendering services. The fixed amount and success fee may be estimated on the basis of percentages.

 

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Article 15 of the Supreme Decree No. 350-2015-EF establishes that, in the case of goods and works, the terms and conditions of the selection process must indicate the execution type of the agreement as follows:

 

    “turn-key” ( llave en mano ), when completion is subject to the construction, equipment and operations, and, if applicable, the submission of the technical file in connection with the bidding process; and

 

    bid contest ( concurso oferta ), when completion is subject to the submission of the technical file, the completion of the work or land, as applicable. This completion type is only applicable to lump-sum contracts and public bidding selection process.

Peru’s State Contracting Supervising Agency ( Organismo Supervisor de las Contrataciones del Estado , or “OSCE”), a public-sector entity within the Peruvian Ministry of Economy and Finance, supervises and oversees the selection processes carried out by public entities; manages the Peruvian National Registry of Suppliers; imposes penalties to suppliers that violate the provisions set forth in Peru’s State Contracting Law, its regulation and other related provisions; and informs the government’s General Comptroller ( Contraloría General de la República ) regarding violations to the regulations when damages are caused against the state. As of the date of this annual report we do not believe that Peru’s State Contracting Law and Supreme Decree No. 350-2015-EF will have a material impact on our business.

Regulatory Framework Applicable to Contracts with the Private Sector

Parties to a private-sector agreement may freely determine the contract type and its contents as long as it complies with certain legal requirements, including the provisions set forth in Article 1353 of the Peruvian Civil Code (which states that all contracts, including innominate contracts, must comply with the rules of Section VIII of the Peruvian Civil Code, absent a statute specific to said contract type that collides with said rules). GyM and GMI participate in private-sector contracts for engineering and constructions.

Construction Activities in Peru

Legal Framework

Peru’s Law for the Promotion of Private Investment in Construction, approved by Legislative Decree No. 727 ( Ley de Promoción de la Inversión Privada en Construcción ), states that construction activities in Peru are in the public interest and a national priority. According to Section F of the Fourth review of the United Nations International Statistical Industrial Classification (ISIC), construction activities typically consist of the construction of dwellings, buildings and stores; and the construction of large scale infrastructure projects such as highways, bridges, tunnels, railways, irrigation systems, sewage systems, industrial facilities, pipelines and electric lines, among others. GyM has developed numerous projects in the construction sector. Currently, the company focuses on buildings (ISIC Division 41), civil works (ISIC Division 42) and specialized activities (ISIC Division 43).

Construction entities must comply with the National Building Regulation, approved by Supreme Decree No. 011-2006-VIVIENDA ( Reglamento Nacional de Edificaciones ), which establishes that urban allotments and buildings must be developed in compliance with the rules governing safety, functionality, accessibility, habitability and environmental impact. According to Article 25 of the National Building Regulation, construction companies, such as GyM and GMI, are responsible for (i) executing works in accordance with project specifications and applicable regulations; (ii) possessing sufficient organization and infrastructure to guarantee the feasibility of the project; (iii) appointing the party responsible for the construction to assume its technical representation; (iv) providing the resources and materials to complete the project pursuant to the terms of the agreement and required standards and within the approved budget; (v) executing subcontracts within contractual limitations; and (vi) delivering to the client documented information regarding the executed works.

Notwithstanding any legal actions that the construction company may take against suppliers, manufacturers or subcontractors, the construction company may be responsible for all the works, including those executed by subcontractors, and for the use of defective materials or supplies.

Penalties for violating the National Building Regulation are determined by the municipal government in the jurisdiction where the project is developed, and set forth in its corresponding regulations. In addition, they may also pursue criminal actions or civil claims if applicable.

 

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Safety Regulation in Construction Projects

The Law on Safety and Health at Work (Law No. 29783) is intended to promote workplace accident prevention and applies to all business sectors. The principal safety rules applicable to construction projects include the following:

 

    companies with 20 or more employees must establish a committee for the promotion of workplace safety and health that oversees the implementation of the required internal safety and health regulation policy;

 

    all projects must have a safety and health plan consisting of all the technical and administrative mechanisms to guarantee the physical integrity and health of workers and third parties during project execution;

 

    companies shall hire an occupational physician and establish an area of occupational medicine;

 

    companies shall perform periodic audits to verify whether internal safety and health regulations are in accordance with law;

 

    occupational diseases and work accidents detected during project execution must be recorded and the competent authority must be notified in accordance with the regulation of the Law on Safety and Health at Work, approved by Supreme Decree No. 005-2012-TR, and with Occupational Health Manual, approved by Ministerial Resolution No. 510-2005-MINSA;

 

    companies must provide for medical examinations of its employees prior to, during and at the termination of their employment;

 

    companies must show a safety and health plan; an index of frequency; and the company’s performance in safety and health in order to be awarded public and private projects;

 

    use of individual protective equipment, including gloves, safety goggles, boots and helmets, is mandatory when risks to safety and health cannot be prevented by other means; and

 

    personnel responsible for safety must comply with all requirements in Rule NTP 399.010.1 for fire prevention.

The Peruvian Ministry of Labor and Employment Promotion, the National Superintendence of Labor Inspection (the “SUNAFIL”) and the Peruvian Ministry of Health are the competent organisms in the safety and health fields, respectively.

Safety Regulations Applicable to Subsectors

In addition to the Law on Safety and Health at Work applicable to all our business sectors, our Engineering and Construction segment must also comply with the regulations set forth below.

Power and Utilities

GyM and CAM Peru must comply with the Rules of Safety and Health at Work with Electricity, approved by Ministerial Resolution No. 111-2013-MEM-DM, for its activities relating to the construction of hydroelectric plants, transmission lines and substations. OSINERGMIN is the authority responsible for supervising and enforcing compliance of the foregoing rules. The most relevant of the safety rules with which GyM and CAM Peru must comply include: (i) providing employees with necessary information regarding safety measures related to the tasks they perform; (ii) providing employees with adequate safety equipment; and (iii) evaluating and remedying potential sources of danger.

Mining

GyM must comply with the Mining Occupational Health and Safety Regulation, approved by Supreme Decree No. 024-2016-EM, and other related regulations for their mining-related construction activities including the construction of mineral processing plants and other mining-related buildings, among others. In developing mining projects, our subsidiaries’ personnel must follow the safety programs and be familiar with internal rules from their mining sector client. The SUNAFIL and OSINERGMIN are the authorities responsible for supervising and enforcing compliance of the foregoing rules. The most relevant of the safety rules with which GyM must comply include: (i) creating an internal safety and health regulation policy and selecting a manager responsible for its implementation; (ii) monitoring and recording workplace accidents and occupational diseases; (iii) providing information to employees regarding the safety risks related to their work; (iv) providing employees necessary first aid and medical attention in the event of a workplace accident; (v) providing employees the necessary tools, equipment or materials to perform their activities safely; and (vi) evaluating risks in order to establish accident prevention and mitigation plans.

 

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Oil and Gas

GMP must comply with the Hydrocarbons Safety Regulations, as approved by Supreme Decree No. 043-2007-EM, which are enforced by the OSINERGMIN, while performing any hydrocarbon activities. The most relevant safety rules with which GMP must comply include: (i) assuring that senior project managers are responsible for the safety and health of workers; (ii) assigning specialized personnel responsible for safety and health matters; and (iii) monitoring and recording workplace accidents on a monthly basis.

Industrial Construction

GyM must comply with the Industrial Safety Regulation, approved by Supreme Decree No. 42-F ( Reglamento de Seguridad Industrial ), for its activities relating to the construction of industrial plants. The most relevant of the safety rules with which GyM must comply include: (i) overseeing that worksites are constructed, equipped and managed to provide security and protection to employees; (ii) instructing employees about risks to which they are exposed related to their work and adopting necessary measures to avoid accidents and damage to employee health; and (iii) overseeing inspections to verify the proper installation of safety equipment.

Registries and Permits

According to Supreme Decree No. 008-2013-TR, civil contractors must be registered in the National Civil Construction Works Registry, and comply with the rules of Ministerial Resolution No. 195-2007-TR which sets out the requirements for registration, including registering through the corresponding local agency and filing an affidavit indicating compliance with the registration requirements before the effective date of registration. GyM is currently registered in the National Civil Construction Contractors and Subcontractor Registry.

According to Supreme Decree No. 005-2008-EM mining contractors must register with the National Mining Contractors and Specialized Companies Registry. GyM is currently registered. Proper registration requires the filing of a request with the Regional Agency of Energy and Mines with jurisdiction in the area where the mining activities will take place. In addition, within five days upon commencement of construction, GyM must provide in writing its employees with the following information: (i) the company’s legal name; (ii) the scope of the contract; (iii) the place of execution; (iv) the applicable health and safety regulations; (v) the Safe Work Written Procedures (PETS); and, (vi) risk insurance policies.

Labor Law Requirements in Civil Construction

Labor law requirements in civil construction consist of the specific legal framework for civil construction workers and the general legal framework applicable to the administrative personnel in the civil construction sector set forth in the Single Revised Text of the Labor Productivity and Competitiveness Law, approved by Supreme Decree No. 003-97-TR.

Seasonality of services is one of the main features in the specific legal framework due to the temporary nature of construction contracts. Consequently, certain general rules such as the trial period are not applicable to construction workers.

The principal terms and conditions relating to collective bargaining from our civil construction workers have been agreed upon and recorded in the 2015-2016 agreement, dated August 6, 2015, and entered into between the Peruvian Chamber of Construction and the Federation of Civil Construction Workers ( Federación de Trabajadores en Construcción Civil ). The 2015-2016 agreement included the following benefits: (i) pay increase; (ii) bonuses for employees working 28 consecutive days or more in projects with difficult access; and (iii) paid leave in case of death of a relative of the employee.

The Supreme Decree No. 009-97-SA, Law No. 26790 and Supreme Decree No. 003-98-SA require construction companies to have complementary high risk insurance for workers that perform high risk tasks. As of the date of this annual report, GyM has this insurance coverage.

The insurance coverage provides medical care for injured workers to allow them to achieve full recovery. Moreover, it provides pensions to workers or their beneficiaries in case the worker becomes handicapped or dies as a result of a work accident or occupational disease.

 

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Environmental Regulations

Section 24 of the General Environmental Law, approved by Law No. 28611 (the “General Environmental Law”), provides that all human activity likely to cause significant environmental impact is subject of regulation by the National System of Environmental Impact Assessment. The Peruvian Ministry of the Environment, through the Environmental Supervising and Enforcement Agency ( Organismo de Evaluación y Supervisión Ambiental, or “OEFA”) supervises compliance with the law and enforces environmental rules related to mining, oil and gas and electricity.

In addition to being responsible for the impact that its activities, by action or omission, may have on the environment, GyM is also subject to an environmental impact assessment and must obtain an environmental certification necessary to obtain project permits or licenses. GyM must also adopt measures for the management of hazardous materials intrinsic to its activities to mitigate the negative environmental impact its activities may have.

Civil Construction

The Supreme Decree No. 015-2012-VIVIENDA (modified by the Supreme Decree No. 004-2015-VIVIENDA) regulates the environmental aspects of projects related to housing, urbanism, construction and sanitation activities in urban or rural areas. The National Directorate of Housing, Urbanism, Construction and Sanitation supervises the compliance and enforces the applicable rules. Projects are categorized according to their environmental impact during and after their execution and different rules are established for each category including compliance with the following environmental studies prior to starting construction works: (i) projects expected to cause minor environmental impacts require an environmental impact statement; (ii) projects expected to cause moderate environmental impacts require a semi-detailed environmental impact assessment; and (iii) projects expected to cause a major environmental impact require a detailed environmental impact assessment.

Other Subsectors

Depending on the subsector in which it operates, GyM is required to follow specific environmental provisions issued by the competent authorities. For example, with respect to hydrocarbon activities, the Ministry of Energy and Mines has enacted the Oil and Gas Environmental Regulations, by means of Supreme Decree No. 039-2014-EM.

Tax Legal Regime Applicable to Construction

Section 63 of the Peruvian Income Tax Law, approved by Supreme Decree No. 179-2004-EF, establishes that construction companies engaged in construction contracts for a period longer than one fiscal year can choose to be taxed under any of the following systems:

 

    allocate to each fiscal year the gross income resulting from applying the percentage of gross margin estimated for the work over the amounts collected for the same work; or

 

    allocate to each fiscal year the gross income calculated by deducting the costs corresponding to the tasks performed during that year from the amount collected or that is expected to be collected corresponding to that work.

In both situations, a special accounting registry must be kept for each project, which is meant to keep a record of the costs, expenses and income of each project in an account separate from the general analytical accounts ( cuentas analíticas de gestión ).

Until December 31, 2012, construction companies could defer revenues related to each individual project until the total completion of the project, provided the project was completed in three years or less. In such cases, the income was to be recognized in the fiscal year in which the project concluded or was delivered. In case the project was scheduled to conclude in a period exceeding three years, the results would be determined in the third year in accordance with the progress of the works over the three-year period. Beginning in the fourth year, results were determined following the foregoing methods.

Starting on January 1, 2013, in accordance with Legislative Decree No. 1112, which amended the Peruvian Income Tax Law, construction companies that adopted the deferral method are authorized to continue with the use of such method only with respect to income arising from the execution of work contracts initiated prior to January 1, 2013, until their completion, and for execution of work contracts initiated on or after January 1, 2013 the deferral method is no longer accepted.

The Peruvian Income Tax Law also provides that the difference that may result from a comparison between the real gross income and the income assessed pursuant to any of the methods described above shall be allocated to the fiscal year in which the work concluded. Additionally, the company must apply the same system to all its construction contracts and must receive prior authorization from tax authorities to change the applied system.

 

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Prevention of Money Laundering and Financing of Terrorism

Regulations for money laundering and terrorism financing prevention, approved by SBS Resolution No. 486-2008, require construction and real estate companies to implement a money laundering and terrorism financing prevention system, including the appointment of a compliance officer, setting up a registry of operations and notifying the Financial Intelligence Unit of the SBS, the entity responsible for supervising and enforcing compliance, of any suspicious activity.

Infrastructure

Infrastructure and Public Services through Public Private Partnership Contracts

As a result of entering into “ Programa País ” in December 2014 with the Organization for Economic Co-operation and Development (OECD), the Peruvian state is implementing a new regulatory framework (Legislative Decree No. 1224 and its regulations, approved by Supreme Decree No. 410-2015-EF) establishing the procedures and ways of promoting private investment for the development of public infrastructure, public services, any ancillary services, applied research projects and/or technological innovation, through Public-Private Partnerships (PPP) and Projects with State Assets.

The main aspects of the new legal framework are the following:

 

  1. The Ministry of Economy and Finance ( Ministerio de Economía y Finanzas ) is the governing authority of the National System for the Promotion of Private Investment (SNPIP), composed by ministries and public agencies of the national government, The Agency for the Promotion of Private Investment— ProInversión , and regional and local governments.

 

  2. Private investment projects will comprise the following stages: (i) planning and programming, (ii) formulation, (iii) structuring, (iv) transaction, and (v) contract execution. Great emphasis is given to the Evaluation Report ( Informe de Evaluación ), a document determining the economic, financial and legal viability of a potential Public Private Partnership applying, where appropriate, the national public investment system. Investors are entitled to receive from the Peruvian state: (a) in the case of self-financed projects, taxes and tolls to be collected from final consumers; (b) in the case of co-financed projects, subsidies and payments from the public entity awarding the project; and (c) any other financing structure agreed between the parties.

 

  3. The management of Public Private Partnership contracts by the three levels of government (central, regional and local) is regulated.

 

  4. For projects in regulated sectors, the monitoring of Public Private Partnership contracts is subject to the provisions of the Law No. 27332, Framework Law on Regulators. According to this law, OSIPTEL, OSITRAN, SUNASS and OSINERGMIN should primarily safeguard the compliance of service levels agreed in Public Private Partnership contracts. For this purpose, Public Private Partnership contracts must establish the necessary arrangements to ensure timely and efficient supervision during the contract execution stage. To this end, public entities are required to ensure timely participation of regulatory agencies in the arbitration, when decisions and matters related to the competence of those bodies are discussed.

 

  5. Favorable opinions for the Public Private Partnership contracts from the General Comptroller of Peru are required. The General Comptroller will issue a report on any aspects that may jeopardize the financial capacity of the Peruvian state, according to Law No. 27785, Organic Law of the National Control System and the General Comptroller of Peru.

 

  6. Investors interested in participating as bidders in private investment processes must review the list of impediments and prohibitions established in the State Contracting Law. Whether an investor is barred from participating shall be determined through administrative channels, and such impediment will apply to any expected strategic partners as well. Such partners usually accredit their technical capacity during the promotion process. Furthermore, it is stated that, in case the contract does not set a strategic partner, the impediment would apply to those who have exercised direct control over the investor, as indicated in the regulations approved by the Superintendence of the Stock Market. If barred, the ban shall stand for two years; except for the impediments established in the State Contracting Law, which will be valid for the terms indicated in such law.

 

  7. The development of projects related to assets owned by the Peruvian state (Legislative Decree No. 674, Law Promoting Private Investment in State Enterprises) can be carried out by private sector initiatives, without committing any public resources or transferring any risks to public entities, unless expressly required by law.

 

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Each of our subsidiaries Norvial, Survial, Canchaque and GyM Ferrovías has entered into a concession agreement with ProInversión and the Peruvian Ministry of Transportation and Communications. La Chira has entered into concession agreements with ProInversión and Sedapal S.A. The abovementioned agreements were entered into in accordance with the provisions in force at the time of their execution.

Infrastructure Construction and Safety

Infrastructure concessionaires must assure that the construction companies they hire to construct infrastructure projects comply with the foregoing rules relating to construction projects. In addition, companies engaged in road construction must comply with the guidelines issued by the Road and Railways General Directorate of the Peruvian Ministry of Transportation and Communications and with the National Road Infrastructure Management Regulation regarding road construction, maintenance and safety. These regulations establish procedures for authorizing road construction and approving work contracts, among others.

Environmental Regulations

Peruvian environmental laws and regulations have become increasingly stringent over the last decade. All industries and projects are subject to Peruvian laws and regulations concerning water, air and noise pollution, and the discharge of hazardous substances. The main legislation governing environmental matters is the General Environmental Law; the Law of the National System of the Environmental Impact Evaluation, approved by Law No. 27446 (the “SEIA”); the regulations of the SEIA Law, approved by Supreme Decree No. 019-2009-MINAM; and several environmental regulations that have been issued under the General Environmental Law, SEIA and other laws by the government with the collaboration of the Peruvian Ministry of the Environment.

Since the enactment of the General Environmental Law in October 15, 2005, several technical environmental regulations have been issued and this environmental regulatory framework is generally revised and updated regularly. Some regulations apply generally to Peruvian industries and some technical regulations are issued for specific industries.

The main environmental rules applicable to infrastructure projects include those described above in “—Engineering and Construction—Environmental Regulation.”

Peruvian Hydrocarbon Regulation

Our hydrocarbon operations are subject to governmental regulations as described below.

Exploration and Production

GMP is engaged in two major activities relating to the exploration and production of oil and gas: exploration and production of oil fields; and providing services to the oil industry.

Exploration and Production of Oil Fields

Peru’s hydrocarbon legislation regarding oil and gas exploration and production activities includes, among others, the Hydrocarbon Organic Law and the regulations governing the qualification of petroleum companies; the exploration and production of hydrocarbons; the transportation of hydrocarbons; hydrocarbons pipelines and safety requirements in such activities.

The foregoing regulations define the roles of Peruvian government agencies which regulate the oil and gas industry; provide the framework for the promotion and development of hydrocarbon activities based on the principles of private-sector competition and access to all economic activities; and set the safety and security standards as well as the legal proceedings for carrying out operations.

The Peruvian Constitution establishes that the government is the sole proprietor of underground hydrocarbons within its national territory. However, the Peruvian government has granted Perupetro, a state-owned company authorized to negotiate and enter into agreements for the exploration and/or production of hydrocarbons, the ownership right over the hydrocarbons extracted which allows Perupetro to enter into such agreements. Furthermore, the Peruvian Ministry of Energy and Mines, the Environmental Evaluation and Supervision Agency (“OEFA”) and OSINERGMIN constitute public entities that play an active role in oil and gas regulation.

The Peruvian Ministry of Energy and Mines is responsible for devising energy and mining policies; supervising activities in the energy and mining sectors; and promoting investments in those sectors. Within the Peruvian Ministry of Energy and Mines, the General Directorate of Hydrocarbons (“DGH”) is responsible for regulating the development of oil and gas fields and the General Directorate of Energy-Related Environmental Affairs (“DGAAE”) is responsible for reviewing and approving regulations related to environmental risks associated with hydrocarbon exploration and production activities.

 

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OEFA is a public entity ascribed to the Peruvian Ministry of the Environment and is responsible for evaluating and ensuring compliance with applicable environmental rules covering hydrocarbon activities, as well as for initiating sanctioning proceedings when a breach of an environmental regulation occurs. OSINERGMIN is a public entity ascribed to the Presidency of the Council of Ministers’ ( Presidencia del Consejo de Ministros ) office and is responsible for ensuring compliance with safety and security standards in the hydrocarbon industry, as well as for sanctioning proceedings. GMP is subject to the supervision, authority and regulations enacted by the foregoing agencies.

Regarding hydrocarbon exploration and production activities, companies are required to enter into either a licensing or a services agreement with Perupetro; other contractual arrangements are permitted with prior approval from the Peruvian Ministry of Energy and Mines. The foregoing agreements are governed by private law and must be approved by the Peruvian Ministry of Energy and Mines and the Peruvian Ministry of Economy and Finance. In licensing agreements, licensees obtain authorizations to explore and produce hydrocarbons in a determined area, are granted ownership over the extracted hydrocarbons and are subject to the payment of royalties. Licensees may trade the hydrocarbons with no limitations on sales prices, except in the event of a national emergency.

Services agreements grant contractors the right to perform hydrocarbon exploration and production activities in a determined area and receive compensation according to the production of hydrocarbons. The contractor is technically and financially responsible for the operations, but Perupetro maintains the ownership over the hydrocarbons extracted. GMP is party to services agreements with respect to Blocks I and V, and to licensing agreements with respect to Blocks III and IV. Each block has an independent contract with Perupetro.

Services and licensing agreements are intended for the development, production and eventually transportation of hydrocarbons, as well as for certain storage activities. Services and licensing agreements commonly include a minimum performance schedule guaranteed by performance bonds and require corporate guarantees to be issued to secure the contractor’s compliance to the provisions established by the parties.

Additionally, a company must be qualified by Perupetro prior to entering into hydrocarbon exploration and production agreements. In order to qualify, a company must meet the standards under the Regulations on the Qualification of Petroleum Companies, requiring companies to demonstrate that they have the technical, legal and financial capacity to comply with all the obligations they will assume under the agreement with Perupetro. Such capacities are measured according to the characteristics of the area to be explored or produced, the expected investment required for the project, and the strict fulfillment of the rules regarding prior consultation (if applicable), citizen participation and environmental issues related to the operation’s performance. Upon a positive evaluation, the company is issued a qualification certificate from Perupetro that allows it to initiate the negotiations of the agreement; notwithstanding the company remains responsible for obtaining all other licenses, permits and approvals required by applicable regulation.

Under the current regulation, 30 years is the maximum term of services and licensing agreements for the production of crude oil. On the other hand, natural gas and condensates-related services or licensing agreements have a maximum term of 40 years. Graña y Montero acts as GMP’s guarantor in all of the Block I, Block III, Block V and Block VI contracts.

GMP must comply with Supreme Decree No. 043-2007-EM for its activities relating to hydrocarbons in all phases. The OSINERGMIN is the authority responsible for the supervision and enforcement of the foregoing rules.

Services to the Petroleum Industry

Peruvian regulation provides that all companies that enter into a service agreement with any company that holds a licensing or services agreement must be registered as a subcontractor in the Hydrocarbons Public Registry in case they render any of the following services: (i) geological studies, geophysical studies, petroleum engineering related to drilling operations, production and well services; or (ii) construction of oil pipelines, gas pipelines, refineries and their maintenance, and specialized transportation by land, air, sea or river. In order to register a company as a subcontractor in the Hydrocarbons Public Registry, prior authorization from the General Directorate of Hydrocarbons (“DGH”) of the Peruvian Ministry of Energy and Mines is required.

On June 1, 2004, GMP was included as a subcontractor for the petroleum industry in the Hydrocarbons Registry of Lima’s Public Registry of Legal Entities; such registry remains in force as of the date of this annual report.

 

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Environmental Regulations

The Peruvian Ministry of Energy and Mines is responsible for enacting environmental regulation for the oil and gas sector. The Oil and Gas Environmental Protection Regulation, approved by Supreme Decree No. 039-2014-EM, sets out the legal framework and specific rules applicable to the exploration, production, refinement, processing, transportation, commercialization, storage and distribution of hydrocarbons, with the aim of preventing, controlling and remedying the negative environmental impacts arising from the foregoing activities.

The Peruvian Ministry of the Environment establishes general rules applicable to different activities in several sectors, in contrast to the specific rules enacted by the Peruvian Ministry of Energy and Mines regarding the oil and gas sector. Environmental laws and regulations are enforced by the National Environmental Enforcement Agency, OEFA ( Organismo de Evaluación y Fiscalización Ambiental ) which was created in 2008. Sanctions range from warnings and fines to suspensions of activities and mitigation of environmental damages, among others. In this regard, a breach of the obligations contemplated in the Environmental Impact Assessments in the hydrocarbons sector may originate fines up to 30,000 Tax Units (approximately US$42 million or S/.141 million) according to the applicable law.

The main environmental rules applicable to GMP’s hydrocarbon projects include:

 

    filing an environmental impact study or adopting the necessary measures to prevent and/or mitigate the environmental impact resulting from their activities;

 

    meeting minimum size, environmental and safety requirements applicable to worksites; handling and storing of hydrocarbons pursuant to safety and environmental requirements; establishing programs to monitor environmental issues; and

 

    providing training on environmental matters related to employee and personnel activities and responsibilities, especially with respect to regulations and procedures established for environmental protection and the environmental and legal consequences of non-compliance.

Operation of Terminals

In accordance with the Glossary, Acronyms and Abbreviations for the Hydrocarbons Subsector approved by Supreme Decree No. 032-2002-EM, a terminal is a facility that includes storage tanks, submarine lines or docks for receiving or dispatching liquid hydrocarbons and facilities related to activities of storage and reception and/or dispatch of liquid hydrocarbon from/to vessels.

Consorcio Terminales and Terminales del Perú are two joint operations conducted by GMP and Oiltanking Peru S.A.C. which currently operates ten of Petroperú’s terminals in Peru: (i) the South Terminals of Pisco, Mollendo, Ilo, Juliaca and Cuzco; and (ii) the North Terminals of Eten, Salaverry, Chimbote and Supe; including Callao, respectively. Consorcio Terminales and Terminales del Perú provides hydrocarbons handling and storage services in Peru for gasoline, aviation fuel and diesel, among others.

The operation of both the South and North Terminals was granted through the “South Terminal Operation Agreement” and the “North Terminal Operation Agreement” (the “Operation Agreements”) dated February 2, 1998, by and among Petroperú and Consorcio Terminales. The Operation Agreements resulted from two tenders in accordance with Legislative Decree No. 674, and mandate that Consorcio Terminales, as operator of the terminals, be responsible for the storage, handling, additivation and dispatch of hydrocarbons in such facilities.

The initial term of the Operation Agreements was 15 years; however the parties agreed to extend the duration of the agreement to an additional 18 months ending in August 2014. The purpose of this extension was to undertake the additional investments that were necessary to satisfy the national demand increase and to perform operative and safety-related improvements to the facilities. In July of 2014, the Operation Agreements were extended for an additional four years ending in July of 2018. We expect to extend such agreements, at least for a few months.

In executing its operations, Consorcio Terminales is committed to develop and follow a work program which must include an investment schedule. The work program performed included the installation of fire protection systems and loading systems, among others and was secured by a performance bond.

GMP’s activities as a part of Consorcio Terminales fall under the scope of the Hydrocarbons Storage Safety Regulation, approved by Supreme Decree No. 052-93-EM. Consorcio Terminales is registered in the Hydrocarbon Registry of OSINERGMIN and is authorized to perform transportation activities such as loading and unloading hydrocarbons from vessels on the terminals. This regulation establishes the conditions under which GMP can operate and maintain storage facilities for hydrocarbons. For instance, the regulation specifies the technical requirements for storage systems, which vary depending upon the kinds of hydrocarbons stored. Moreover, pursuant to this regulation, GMP must establish procedures to minimize potential risks that these facilities present for employees, third parties and properties.

 

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Gas Processing Plants

In accordance with the Glossary, Acronyms and Abbreviations for the Hydrocarbons Subsector, approved by Supreme Decree No. 032-2002-EM, a processing plant is a facility where the natural characteristics of hydrocarbons are changed to break them into the different compounds that comprise them, as well as the subsequent transformations to convert the hydrocarbons into fuel of specific qualities and suitable for transportation. This includes the facilities where the impurities, hydrogen sulfide, carbon dioxide, water and hazardous components are removed from natural gas.

Our processing and fractionation activities fall under the scope of regulations governing hydrocarbons refinement and processing including regulations on the design, construction, operation and maintenance of refineries and hydrocarbons processing plants, the oil refining process, the manufacture of natural asphalts, oil and lubricants, basic petrochemical activities and the processing of natural gas and condensates. In order to comply with these regulations, GMP must take cautionary measures in order to protect the safety of its employees and its facilities, protect the environment, preserve energy resources and ensure the quality of the products or services it delivers. For instance, GMP’s plant operations must be authorized by the General Direction of Hydrocarbons and comply with fire safety regulations. In the event of an accident, GMP must notify the Peruvian Ministry of Energy and Mines, the Peruvian Ministry of Labor and the Peruvian Social Security Administration.

Terms of our Concessions

Our concessions are subject to certain terms and conditions established in each concession agreement. During the term of the concessions, we are responsible for the construction and maintenance of the infrastructure necessary to their operation. The concession agreements establish minimum capital stock requirements for our concessionaire subsidiaries as follows: US$15 million (S/.50 million), US$8 million (S/.27 million), US$0.8 million (S/.2.7 million), S/.46 million and S/.100 million for Norvial, Survial, Canchaque, La Chira and the Lima Metro, respectively.

The concession agreements establish grounds for termination including mutual agreement of the parties thereto, force majeure and breach of certain contractual obligations. Additionally, in the case of La Chira and the Lima Metro, the agreement can be terminated unilaterally by the grantor, with the payment of compensation. On the expiration date, all of the assets that are essential for the operation of the concession are considered the state’s property and no compensation is paid to the concessionaire.

In the event that changes in legislation or regulations that are exclusively related to the financial conditions of the earnings and/or costs associated with the investment, operation or conservation of the infrastructure, affect the economic terms of the contract by 10% or more, the concession agreements set forth economic terms adjustment mechanisms aimed at restoring the economic and financial equilibrium. See “—Infrastructure—Principal Infrastructure Lines of Business.”

Real Estate

Since 1987, we have been operating in the Peruvian real estate sector. In 2008, we incorporated Viva GyM to concentrate the group’s activities in this sector including promoting and managing real estate projects including affordable housing and housing and commercial real estate projects.

Zoning Regulations

Article 79 of the Municipalities Organic Law (Law No. 27972) establishes that municipal governments are the exclusive authority responsible for approving urban and rural development plans, as well as the zoning of urban areas under their jurisdiction. Peruvian regulation states that urban zoning refers to the division of a municipal jurisdiction in zones for specific usage, such as residential, commercial, industrial or mixed-use.

The main zoning rules applicable to our real estate projects include the following: obtaining a construction license from the corresponding local municipality before commencing construction, reconstruction, conservation or repair of any property.

Environmental Regulations

The Environmental Protection Regulation for real estate, urbanism, construction and regularization related projects, approved by Supreme Decree No. 015-2012-VIVIENDA, sets out to prevent, mitigate, control and remedy negative environmental impacts that may arise from real estate developments. Prior to initiating construction works, companies are required to obtain an environmental authorization from the Housing, Urbanism, Regularization or Construction National Directorate of the Peruvian Ministry of Housing, Construction and Sanitation and to comply with the provisions set forth in the corresponding environmental impact assessment.

 

 

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The main environmental rules applicable to our real estate projects include the following:

 

    undertaking an environmental impact assessment; and

 

    requesting the environmental classification of our projects, which depends on the environmental risks associated therewith.

Licenses

Article 10 of the Regulation of Urban Habilitation and Buildings Law, approved by Law No. 29090, establishes the license requirements for urban habilitation and construction, depending on land size, the dimensions of the work to be undertaken and the financial target.

Upon completion of the real estate development and construction stages, as the case may be, the following requirements must be met:

 

    for urban development, the reception of the works ( recepción de la obra ) must be requested to the corresponding municipal government in compliance with Article 19 of the Habilitation and Construction Law; and

 

    for construction, the conformity of the works ( conformidad de obra ) must be requested to the corresponding municipal government in compliance with Article 28 of the Habilitation and Construction Law, accompanying the request with the construction plans and the construction statement (a description of the technical conditions and characteristics of the work performed).

Exclusive and Common Property Real Estate Units Regimes

The Regularization Buildings Factory Declaration Proceeding and Real Estate Units Regimen of Exclusive and Common Property Law, approved by Law No. 27157, establishes the legal regime applicable to real estate comprised of assets with exclusive and common property, including, among others, (i) apartment buildings; (ii) condominiums; (iii) units under co-ownership; and (iv) commercial spaces, such as galleries and malls. The foregoing construction projects must include internal by-laws prepared or approved by the sponsor or builder, or by the owners with the vote of the majority of participating owners, the content of which is regulated in Article 42 of the Regularization Buildings Factory Declaration Proceeding and Real Estate Units Regimen of Exclusive and Common Property Law. Articles 40 and 41 of the foregoing law itemize the assets and services that qualify as common.

Owners of the real estate units have the opportunity to choose between the exclusive and common property regime, and the independent and co-ownership regime. The internal by-laws, the owner’s assembly minutes, all construction plans, architectural division plans, perimetric boundaries and the construction statement must be registered in the Real Estate Registry of the corresponding jurisdiction. Upon completion of the proper registries, units are registered independently from one another.

Fondo Mivivienda

The acquisition of affordable housing units developed by Viva GyM is often financed by Fondo Mivivienda S.A., a publicly owned financial institution established in 1998 by Law No. 26912, with the purpose of (i) promoting and financing the acquisition, bettering and construction of houses, especially those of social interest; (ii) carrying out activities related to the fostering of capital flows to the housing financing market; (iii) participating in the primary and secondary markets of mortgage credits; and (iv) contributing to the development of the capital markets.

Prevention of Money Laundering and Financing of Terrorism

SBS Resolution No. 486-2008, as amended from time to time, requires construction and real estate companies to implement a money laundering and terrorism financing prevention system, including appointing a compliance officer, setting a registry of operations and notifying the Financial Intelligence Unit of the SBS, the entity responsible for supervising and enforcing compliance to the resolution referred to herein, of any suspicious activity.

Technical Services

Public- and Private-Sector Contracts

Concar provides services in compliance with Peru’s State Contracting Law and its regulation, approved by Supreme Decree No. 350-2015-EF, as amended, when dealing with public counterparties; and with the regulation set forth in the Civil Code when dealing with private counterparties. Such regulations establish the different types of selection processes which companies may undergo when contracting with the state, as well as the rules and conditions applicable to such processes. They also establish general rules applicable to contractual relationships among private parties. See “—Engineering and Construction” for more information on the applicable legal frameworks. Concar is registered with the Peruvian National Registry of Suppliers, required to act as supplier for public entities.

 

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Intellectual Property

Certain operations of GMI and GMD are protected by Peruvian Copyright Law, approved by Legislative Decree No. 822, specifically the engineering drawings and software registered in the INDECOPI Copyright Registry. However, the company’s business and profitability are not dependent on patents or licenses; industrial, commercial or financial contracts; or new manufacturing processes.

Dimension Testing Services

CAM Peru S.R.L. provides the dimension testing service of electrical meters, for which it must be a registered testing entity as provided by Technical and Commercial Regulations Commission Resolution No. 0065-1999/INDECOPI-CRT. As of the date of this annual report, Cam Peru S.R.L, is registered as an accredited dimension testing of electrical meters services provider. The pertaining registration can be renewed for consecutive periods, provided that a request is filled 60 days prior to expiration. If Cam Peru S.R.L. does not comply with the rules approved by the INDECOPI, said governmental authority may impose a suspension or revoke the registry.

C. Organizational Structure

The following organizational chart sets forth our principal operating subsidiaries within our four business segments.

 

LOGO

 

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The following charts set forth the principal activities of each of our four business segments:

 

LOGO

The following is a brief description of our principal operating subsidiaries:

 

    Engineering and Construction:

 

    GyM S.A. (“GyM”), incorporated in Peru, is one of the oldest and largest construction companies in Peru. Graña y Montero owns 98.2% of GyM; the remaining 2.0% is held by former and current company executives.

 

    Vial y Vives—DSD S.A. (“Vial y Vives—DSD”), incorporated in Chile, is an engineering and construction company specialized in the mining sector and in providing services to the energy, oil and gas, and cellulose sector. GyM owns 86.2% of Vial y Vives—DSD; Inversiones VyV S.A., a company controlled by the founders of Ingeniería y Construcción Vial y Vives S.A. (now Vial y Vives—DSD), which owns 6.8%; and the remaining 7.0% is held by third parties.

 

    GMI S.A. Ingenieros Consultores (“GMI”), incorporated in Peru, is primarily engaged in engineering consultancy for projects in the mining, hydrocarbons, electrical, agricultural, industrial, tourism and transportation sectors. Graña y Montero owns 89.4% of GMI; 4.0% is held by current and former company executives; and the remaining 6.6% is held by third parties.

 

    Morelco S.A.S. (“Morelco”), incorporated in Colombia, is a recognized specialist in electromechanical assemblies, civil works, and services for the oil and gas and other energy sectors. Our subsidiary GyM S.A. owns 70.0% of Morelco, and the remaining 30% is held by the Serna family in trust.

 

    Infrastructure:

 

    Toll Roads:

 

    Norvial S.A. (“Norvial”), incorporated in Peru, is the concessionaire of the 183 km stretch between Ancón and Pativilca of the Panamericana Norte road. Graña y Montero owns 67.0% of Norvial and JJC Contratistas Generales S.A., a Peruvian construction company, owns the remaining 33.0%.

 

    Survial S.A. (“Survial”), incorporated in Peru, is the concessionaire of the 750 km highway between Marcona and Urcos in Peru. Graña y Montero owns 99.9% of Survial.

 

    Concesión Canchaque S.A.C. (“Canchaque”), incorporated in Peru, is the concessionaire of the 78 km highway between the towns of Buenos Aires and Canchaque in Peru. Graña y Montero owns 99.97% of Canchaque.

 

    Concar S.A. (“Concar”), incorporated in Peru, is engaged in the operation and maintenance of infrastructure assets. We own 99.8% of Concar and the remaining 0.2% is held by GyM S.A. and Concar’s former chief executive officer. Beginning on April 1, 2017, we have transferred Concar from our Technical Services segment to our Infrastructure segment.

 

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    Mass Transit:

 

    GyM Ferrovías S.A. (“GyM Ferrovías”), incorporated in Peru, is the concessionaire of the Lima Metro. Graña y Montero owns 75.0% of GyM Ferrovías; the other 25.0% is held by Ferrovías Participaciones S.A., a railway infrastructure company.

 

    Water Treatment:

 

    Concesionaria La Chira S.A. (“La Chira”), incorporated in Peru, is the concessionaire of La Chira waste water treatment plant in southern Lima, Peru. Graña y Montero owns 50.0% of La Chira; the other 50.0% is held by Acciona Agua S.A, an affiliate of a waste water treatment and distribution company.

 

    Energy:

 

    GMP S.A. (“GMP”), incorporated in Peru, is engaged in the oil and gas business and provides hydrocarbon extraction services to Perupetro S.A., a Peruvian state oil company; owns a gas processing plant; and, through a joint operation with a Peruvian affiliate of Oiltanking GmbH, operates ten fuel terminals in Peru. Graña y Montero owns 95.0% of GMP; the remaining 5.0% is held by a former company executive.

 

    Real Estate:

 

    Viva GyM S.A. (“Viva GyM”), incorporated in Peru, is focused on the development and sale of affordable housing and housing, as well as other real estate projects such as office buildings and shopping centers. Graña y Montero directly owns 63.4% of Viva GyM, with GyM owning an additional 36.1%; and the other 0.5% is owned by a company executive.

 

    Technical Services:

 

    CAM Chile S.A. (“CAM”), incorporated in Chile, provides field and specialized electrical services in Chile, Colombia, and Peru. Graña y Montero owns 73.16% of CAM; and the other 26.84% is held by El Condor Combustibles S.A., which is part of a Chilean economic group and Inversiones y Asesoría Samburu Limitada.

 

    Adexus S.A. (“Adexus”), incorporated in Chile, provides development and implementation solutions for information technology in Chile, Peru and Ecuador. Graña y Montero owns 91.03% of Adexus; and the other 8.97% is held by a third party.

D. Property, Plant and Equipment

Approximately 79.0% of our assets are located in Peru, with the balance located primarily in Chile and Colombia. At December 31, 2016, the book value of all our land (excluding real estate inventories) and buildings, machinery and equipment was US$335.7 million (S/.1,128.1 million). We currently lease certain machinery and equipment from vendors. The term of our leasing contracts ranges from two to five years, depending on the nature of the equipment. Leased machinery and equipment are capitalized for accounting purposes. Our principal executive offices, which we lease, are located at Av. Paseo de la República 4667, Surquillo, Lima 34, Peru and Av. Petit Thouars 4957, Miraflores, Lima 18, Perú.

Insurance and Contingency Planning

We have insurance coverage for fire; strike, riot, malicious damage, vandalism and terrorism; loses or damages to construction machinery and equipment; destruction or disappearance of property; civil liability, including physical harm to third parties; professional liability; transportation; vehicle theft, collision, rollover, fire and accidents; and directors and officers’ liability. Additionally, we carry different policies for specific risks related to our business segments. Our management considers this coverage to be sufficient to cover probable losses and damages, taking into consideration the nature of our activities, the risks involved in our transactions and the advice of our insurance brokers.

We also have contingency plans in place in order to protect our company and the interests of our clients. In the event of an emergency, we have procedures in place designed to minimize any resulting interruption in service to our most critical business processes.

 

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Moreover, in the event of an emergency, we have systems and procedures in place that minimize the impact of unplanned downtime to our IT services’ clients. Our data centers have redundant facility systems and infrastructure to provide continued operation on each of them, complying with international standards such as ISO/IEC 27001 and ISO 9001.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

 

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with our consolidated financial statements included in this annual report, which have been prepared in accordance with IFRS issued by the IASB. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth under “Part I. Introduction—Forward-Looking Statements” and “Item 3.D. Key Information—Risk Factors.”

A. Operating Results

Overview

We are the largest engineering and construction company in Peru as measured by revenues during 2016, and one of the largest publicly traded engineering and construction company in Latin America as measured by market capitalization as of December 31, 2016, with strong complementary businesses in infrastructure, real estate and technical services. With more than 80 years of operations, we have a long track record of successfully completing the engineering and construction of many of the country’s landmark private and public sector infrastructure projects. Beginning in the mid-1980s, we decided to leverage our engineering and construction expertise into complementary lines of business. We have also undertaken the engineering and construction of large and complex projects outside our home market throughout our history. More recently, we decided to expand our activities into other key markets of the Latin American region through the acquisition of businesses with solid positions in those markets.

Recent Developments

Overview

We have participated in six consortia with affiliates of Odebrecht related to the construction and operation of infrastructure projects in Peru during the period from 2005 to 2017. On December 21, 2016, Odebrecht entered into a plea agreement with U.S., Brazilian and other authorities in which they admitted to making illegal bribery payments in connection with projects in various countries, including Peru. These projects include certain consortia in which we participated. As a result of the plea agreement, Peruvian authorities have initiated congressional inquiries and criminal investigations, including against our company and certain of our former directors and executive officers.

Additionally, on January 24, 2017, the Peruvian government terminated the gas pipeline concession held by GSP, consortium in which we participated with Odebrecht affiliates, due to failure of GSP to obtain the required project financing by the stipulated deadline. The termination of the GSP gas pipeline concession, despite the government payment contemplated under the concession contract, has had a material impact on our consolidated financial results and backlog.

In response to these events, we have instituted a multi-step strategic action plan that we are currently in the process of implementing. This strategic action plan includes: (i) monitoring the process for government payment resulting from the termination of the GSP gas pipeline concession; (ii) renegotiations with creditors of certain debts that became due upon termination of the GSP gas pipeline concession contract; (iii) board approval of the sale of certain non-strategic assets to repay debt related to GSP; (iv) an internal investigation relating to our participation in consortia with Odebrecht; (v) an assessment to strengthen our anti-corruption compliance program; and (vi) changes to our board of directors and senior management.

See “Item 3.D. Key Information—Risk Factors —Risks Related to Recent Developments.”

Our Association with Odebrecht

We have participated in six construction and operation of infrastructure projects in Peru with affiliates of Odebrecht during the period from 2005 to 2017 (known as: IIRSA South Tranche II; IIRSA South Tranche III; IIRSA North; Electric Train Platform; Gasoducto Sur Peruano; and Chavimochic). Our stakes in these projects ranged from 17% to 33%. During 2016 we only participated

 

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in two of these projects (Gasoducto Sur Peruano and Chavimochic), neither of which are currently ongoing. During the period from January 1, 2005 to December 31, 2016 83% of the projects carried out by our company, in terms of consolidated revenues, involved the private sector, while projects with Odebrecht accounted for less than 5% of our consolidated revenues during this period. In its plea agreement, Odebrecht admitted to paying bribes in connection with the IRSA South Tranche II, the IRSA South Tranche III and the Electric Train Platform.

The Chavimochic concession, awarded in 2013 for the design, construction, operation and maintenance of major hydraulic works in northern Peru, is the only project in which we are currently associated with Odebrecht. Affiliates of Odebrecht own 73.5% of the Chavimochic-related concessionaire company and construction consortium, and we hold the remaining 26.5% stake. As a result of the government’s failure to deliver land required for the project, the project’s first phase, hydraulic works, cannot be concluded, and the project’s second phase cannot begin. Since February 2017, the Chavimochic consortium has requested the termination of the concession in light of the government’s breach, and the parties are currently in discussions, including for a potential sale of the project. As of December 31, 2017, our investment in this project amounted to US$8.6 million (S/.29 million) and our portion of the performance guarantee amounted to US$9.5 million (S/.31.9 million).

Termination of the Gasoducto Sur Peruano Concession

In September 2015, we entered into a memorandum of understanding to invest US$215 million (S/.722 million) for a 20% stake in GSP, a company that had previously been awarded the concession for the design, construction and operation of the southern gas pipeline, a project to deliver natural gas to the southern region of Peru, particularly to the provinces of Cuzco, Arequipa, Puno and Moquegua. With our 20% investment commitment, an affiliate of Odebrecht owned a 55% interest and an affiliate of Enagás International, S.L. (“Enagas”) owned a 25% interest in GSP. As of the date of this annual report, we have made total investments in the project in an amount of US$243 million (S/.811 million).

On January 24, 2017, the Peruvian government terminated the concession due to GSP’s failure to obtain the required project financing by the stipulated deadline. As a result, we recognized impairment with respect to our investment in GSP and our participation in the related construction consortium (Consorcio Constructor Ductos del Sur).

In accordance with the concession contract, the Peruvian government is required to carry out an auction process to sell GSP’s assets and obtain a new concessionaire within one year of the contract termination, with the funds raised in the sale to be used to pay the existing concessionaire for its investment in the project. The amount of the termination payment is required to be no more than 100% and no less than 72.25% of the net carrying amount ( valor contable neto ), as defined in the concession contract. Consequently, the auction process should initiate with a base price equivalent to 100% of the net carrying amount. If the auction is unsuccessful in the first round, the government is required to undertake a second round, with a base price equal to 85% of the net carrying amount; and, if the second round is unsuccessful, the government is required to undertake a third round, with a base price equal to 72.25% of the net carrying amount. If a successful bidder is not obtained within one year of the termination of the contract, the termination payment to the existing concessionaire would be 72.25% of the net carrying amount.

The Peruvian Ministry of Energy and Mines announced on April 18, 2017 that the auction process for the new concessionaire of the project assets will be carried out during the first quarter of 2018, notwithstanding the requirements under the concession contract. On April 28, 2017, a third party was appointed, through an adjudication process, as temporary custodian and administrator of the gas pipeline assets until the new bidder is awarded the concession. Although the concession contract provides that payment must be made within one year of termination, the Peruvian Ministry of Energy and Mines has not made payment or, to our knowledge, initiated the auction or payment process. Because this payment had not been made, GSP’s right to compensation pursuant to the concession contract should be 100% of the net carrying amount.

In 2016, in connection with efforts to restructure or sell Odebrecht’s participation in GSP, due to the corruption scandal surrounding Odebrecht, Odebrecht contractually agreed to subordinate its claims under the concession to the other project partners, Enagás and ourselves. As a result, we and Enagas may be entitled to repayment of our percentage payment under the concession contract prior to Odebrecht. However, on January 3, 2018, Odebrecht commenced arbitration proceedings against us, our subsidiary GyM and Enagás, seeking to invalidate the contractual subordination and certain voting and other arrangements.

As of the date of this annual report, we have made investments in the GSP project of US$243 million (S/.811 million), which we financed in part with borrowings. We have also assumed our proportional obligation to repay the project’s bridge loan in an amount of US$129 million (S/.433 million) and the project’s performance guarantee in amount of US$52.5 million (S/.176 million) and recorded them as other financial liabilities and other accounts payable, respectively, in our consolidated financial statements as of December 31, 2016. We also recorded an account receivable for the same amounts, since we have the right to collect these amounts from GSP. According to our estimates, under the terms of the concession contract, taking into account the subordination arrangement, and based on receiving payment equal to 72.25% of the net carrying amount, in accordance with IFRS, we recorded a provision related to the equity investment in GSP project in the amount of S/.593.1 million (approximately US$176.5 million) to reflect a write-

 

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off of equity value in GSP. Although GSP’s right to compensation pursuant to the concession contract, due to the Peruvian government’s failure to pay, is 100% of the net carrying amount, the company has accounted for 72.25% due to political uncertainty, the bankruptcy process at INDECOPI, and disagreements with the other GSP shareholders. In addition, the gross profit decreased by S/.15.2 million (US$4.5 million) due to the impact of the early termination of the construction consortium (Consorcio Ductos del Sur), in accordance with IFRS. Also, we registered a discount of the related long term account receivable in financial expenses of S/.76.9 million (US$22.9 million). Adding these three effects, plus the deferred tax effect, we had a net impact of S/.498.0 (US$148.2 million) on our income statement for the year ended December 31, 2016.

The following table shows the effects of the termination of the GSP gas pipeline concession on our results of operations for the year ended December 31, 2016.

 

                   GSP Effects  
Financial Results    2016
(Millions of Soles)
     2016
without GSP
effects
     Millions
of Soles
     US$ Millions  

Revenues

     6,469.6        6,469.6        

GROSS PROFIT

     603.4        618.6        (15.2      (4.5
  

 

 

    

 

 

    

 

 

    

 

 

 

General Expenses

     (399.4      (399.4      

Other Operational Expenses

     (13.3      (13.3      

Profit from sale of investments in subsidiaries

     46.3        46.3        

OPERATIONAL INCOME

     237.1        252.2        
  

 

 

    

 

 

       

Financial Expenses

     (198.3      (121.4      (76.9      (22.9

Participation in Associates

     (589.7      3.4        (593.1      (176.5

Exchange rate difference

     (12.5      (12.5      

PRETAX INCOME

     (563.4      121.7        
  

 

 

    

 

 

    

 

 

    

 

 

 

Taxes

     111.8        (75.3      187.1        55.7  

Minority Interests

     (58.1      (58.1      

NET INCOME

     (509.7      (11.7      (498.0      (148.2
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

     (64.4      543.9        (608.3      (181.0
  

 

 

    

 

 

    

 

 

    

 

 

 

In addition, the termination of the GSP gas pipeline concession has reduced our backlog as of December 31, 2016, by US$855 million, representing 30.2% of our E&C backlog and 21.4% of our total backlog.

The effects of the termination of the GSP gas pipeline concession recorded in our consolidated financial statements as of and for the year ended December 31, 2016 are based on our estimates, based on the terms of the concession contract, taking into account the subordination arrangement, receiving payment equal to 72.25% of the net carrying amount and with the information that we have available to date. The actual impact on our results, however, could change materially from our estimates. Moreover, we cannot assure you that we will receive the government payment provided for under the GSP gas pipeline concession contract on a timely basis or at all.

Investigations

The Lava Jato commission of the Peruvian congress, which was formed in November 2016 to investigate alleged bribes made by Brazilian companies to Peruvian public officials, has initiated congressional inquiries into the company and other construction companies in Peru. These investigations have required certain of the company’s former board members and executive officers to provide testimony at hearings before the commission.

In July 2017, media reports alleged that certain construction companies in Peru, Brazil and Spain, including our company, colluded as a “construction club” to receive public contracts. As a result of these reports, INDECOPI has initiated an investigation regarding the anti-competitive activities of construction companies in Peru, including our company. In July 2017, the Peruvian government conducted a search of our facilities related to these allegations. We have provided the information requested by INDECOPI.

 

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In December 2017, Peruvian prosecutors included José Graña Miró Quesada, the former Chairman of the company, in an investigation for the crime of collusion, and Hernando Graña Acuña, a former board member of the company, for the crime of money laundering against the Peruvian government, each in connection with the IIRSA South project concession (tranches II and III), in which we participated. Both were placed in preventive detention and have since been released. Gonzalo Ferraro Rey, the former Chief Infrastructure Officer of the company, has also been included in an investigation for the crime of money laundering in connection with the same project.

In December 2017, we received a notification from Peruvian criminal prosecutors seeking to include the company as a criminal defendant in the investigation relating to the IIRSA South project concession (tranches II and III). On March 5, 2018, the Peruvian First National Preparatory Investigation Court ( Primer Juzgado de Investigación Preparatoria Nacional ) notified us of its decision to formally include the company and GyM in its criminal investigation. We have appealed the court’s decision to include the company and GyM in the criminal investigation. Separately, the Ad Hoc Prosecutor has also moved to directly include the company as a civilly-responsible third party in connection with the project. A decision from the Peruvian judiciary on whether our company constitutes a civilly-responsible third party remains pending. We cannot assure you that our position in these proceedings will prevail.

On January 12, 2018 criminal prosecutors conducted a search of our facilities regarding the “construction club” investigation. We have provided the information requested by the Ad Hoc Prosecutor and the Peruvian criminal prosecutors. A former employee of GyM has been included in the investigation for collusion. To date, there is no formal investigation of the company. We have provided the information requested by the Ad Hoc Prosecutor.

On February 19, 2018, we also received notice from the Ad Hoc Prosecutor seeking to directly include our subsidiary, GyM S.A., as a civilly-responsible third party in the investigation relating to Tranches 1 and 2 of Line 1 of the Lima Metro. If our subsidiary’s officer or former or current officers are included and convicted, it may be required to pay civil damages to the Peruvian government. A decision from the Peruvian judiciary regarding these matters remains pending, and we cannot assure you that our subsidiary will not be included or that our position would ultimately prevail.

We cannot assure you that other of our former or current board members and executive officers will not be included in the foregoing proceedings as civilly-responsible third parties or criminal defendants as well.

A conviction of corruption or resolutions with government authorities may lead to criminal and civil fines as well as penalties, sanctions, injunctions against future conduct, profit disgorgement, disqualifications from directly and indirectly engaging in certain types of business, the loss of business licenses or permits or other restrictions. Moreover, our involvement in corruption investigations, and any findings of wrongdoing in such investigations, could further damage our reputation and have a material adverse impact on our ability to compete for business. Such investigations may also adversely affect our ability to pursue strategic projects, and could potentially result in the termination or modification of certain existing contracts or relationships.

Emergency Decree and Subsequent Legislation

On February 13, 2017, the President of Peru issued an emergency decree ( decreto de urgencia 003-2017), prohibiting groups that have been, or whose officers or representatives have been convicted of, or have admitted to, corruption, money-laundering or similar crimes (whether in Peru or elsewhere) from, among other things, transferring or selling any assets related to investments in Peru, including the proceeds of asset or equity sales, or sending money abroad without a governmental authorization. Section II of Law 30737, promulgated in March 2018 to replace the aforementioned emergency decree, includes companies that have been consortium partners of groups that have been, or whose officers or representatives have been, convicted of, or have admitted to, corruption, money-laundering or similar crimes. Our company and our subsidiary GyM are two such companies. The law requires that they: suspend money transfers abroad; implement a compliance program and disclose information to competent authorities; and create a trust of assets to guarantee eventual compensation in favor of the Peruvian government. A Peruvian prosecutor will determine the amount of such guarantee, pursuant to Law 30733. On May 9, 2018, Supreme Decree No. 096-2018-EF was passed, which provides guidelines for such determination. We estimate that we will be required to include in the trust assets worth approximately US$41 million and that our potential liability should not exceed approximately US$51 million, based on the guidelines. We cannot assure you of the amount of this potential liability, nor can we assure you that the company will have sufficient assets to include in the trust. Furthermore, we cannot assure you that these laws will not be expanded, or that subsequent laws will not be passed, that impose further obligations or restrictions on our company and our subsidiaries.

Strategic Action Plan

In response to the recent events described above, we have instituted a multi-step strategic action plan that we are currently in the process of implementing.

 

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Negotiation with Creditors

We have renegotiated three debt instruments related to GSP as follows:

 

    Syndicated Loan Related to our Equity Investment in GSP : As a result of the termination of the GSP gas pipeline concession, our syndicated loan used to finance our equity investment in GSP became due. The principal amount outstanding under our syndicated loan was US$150 million (S/.504 million) as of December 31, 2016, and is US$76.3 million (S/.256.45 million) as of the date of this annual report. On June 27, 2017, we entered into an amendment to the credit agreement. According to the terms of the amendment our syndicated loan matures on 2020, with required prepayments to be made with the proceeds of asset sales of 40% in the first year and an additional 30% in the second year of the amendment. The syndicated loan continues to accrue interest at LIBOR plus 4.90% per year. In addition, we are prohibited from paying dividends until the loan is repaid in full. Also, we have provided additional security interests, including: (i) a first lien on our shares of GyM and Concar; (ii) a second priority lien on our shares of Almonte; (iii) a first lien on certain real estate properties in Surquillo; (iv) liens on certain related amounts; (v) a second priority lien on our shares of CAM and CAM Servicios del Perú S.A.; and (vi) a first lien on cash flows from the sale of certain assets. For additional information on our syndicated loan, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources”;

 

    Proportional guarantee of the GSP Bridge Loan: As a result of the termination of the GSP gas pipeline concession, our proportional guarantee of the GSP bridge loan became due. As of December 31, 2016, there was US$129 million (S/.433.3 million) of principal amount outstanding under our corporate guarantee. As of the date of this annual report the principal amount outstanding under the GSP bridge loan has been entirely paid. On June 27, 2017 we entered in a new, US$78.7 million (S/.264.8 million) term loan with Natixis, BBVA, SMBC and MUFJ, the proceeds of which were used to repay the GSP bridge loan. The new term loan matures on 2020, with required prepayments to be made with the proceeds of asset sales of 40% in the first year and an additional 30% in the second year of the closing date. The term loan accrues interest at LIBOR plus 4.50% per year, which will increase to 5.00% during the second year and to 5.50% during the third year. In addition, we will be prohibited from paying dividends until our guarantee is repaid in full. Also, we have provided the following security interests to secure repayment of the term loan: (i) a first lien on our rights to receive the termination payment derived from the GSP termination, (ii) a second priority lien on our shares of GyM and Concar; (iii) a second priority lien on our shares of Almonte; (iv) a second priority lien on certain real estate properties in Surquillo; (v) a second priority lien on our shares of CAM and CAM Servicios del Perú S.A.; and (vi) a first lien on cash flows from the sale of certain assets. As of the date of this annual report, there is US$72.4 million outstanding on the term loan; and

 

    Proportional Repayment Obligations under the GSP Performance Guarantee: As a result of the termination of the GSP gas pipeline concession, the government exercised the GSP performance guarantee. As of December 31, 2016, we had US$52.5 million (S/.176.4 million) in obligations outstanding and, as of the date of this annual report, we have US$15.6 million (S/.52.55 million) in obligations outstanding. On March 31, 2017, we renegotiated the terms of our repayment obligations owed to Chubb Insurance Company regarding our proportional share of the performance guarantee issued in connection with the GSP gas pipeline concession. The new terms required repayment by March 31, 2018, extended until June 30, 2018, with interest accruing at 6% per year, and provide a security interest over our shares in CAM and over the cash flows from the sale of certain assets.

 

    In addition, in July 2017, we entered into a financial stability framework agreement with certain banks providing for new lines of credit to support our financial stability and liquidity. In April of 2018, we repaid US$79.3 million of the facility with the proceeds of the sale of Stracon and as of the date of this annual report we had US$76.9 million outstanding. For more information, see “—Liquidity and Capital Resources—Indebtedness.”

We are currently in default of certain of the covenants under these financial instruments. For more information, see “Item 13. Defaults, Dividend Arrearages and Delinquencies.”

Asset Sales

In order to strengthen our liquidity and financial flexibility, particularly in the event of potential delays in receiving the government payment contemplated under the GSP gas pipeline concession contract, and make payments on our debt related to the GSP project, our board has approved the sale of non-strategic assets in the amount of up to US$350 million (S/.1,176 million) in proceeds.

 

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As of the date of this annual report, we have entered into the following transactions:

 

    Sale of Cuartel San Martin : On February 3, 2017, our subsidiary Viva GyM sold all of its interests in the Cuartel San Martin real estate project, which represented a 50% stake in the project, to its partner Urbi Propiedades S.A. for US$50 million (S/.163 million);

 

    Sale of Promoción Inmobiliaria del Sur: On February 24, 2017, our subsidiary Viva GyM sold all of its interests in Promoción Inmobiliaria del Sur S.A. (PRINSUR), which owns undeveloped land located in Lurin, representing 22.5% of the share capital, to its partner Inversiones Centenario S.A.A. for US$25 million (S/.81 million);

 

    Sale of Shares in Red Eagle Mining Corporation : In February and March 2017, our subsidiary Stracon GyM sold shares of Red Eagle Mining Corporation, representing 9.97% of the share capital, in a stock exchange transaction for US$13.3 million (S/.43.0 million). Stracon GyM continues to own 2.70% of the share capital of Red Eagle Mining Corporation;

 

    Sale of our Interest in COGA : On April 24, 2017, we sold our 51% interest in COGA to our partners Enagas and Carmen Corporation for a price of US$21.5 million (S/.69.8 million). COGA is in charge of the operation and maintenance of TGP, the trans-Andean gas pipeline from Camisea to the Pacific coast in Peru;

 

    Sale of our Interest in GMD : On June 6, 2017, we sold our 89.19% interest in GMD, our IT services subsidiary, to Advent International for a price of US$84.7 million (S/.276.9 million);

 

    Sale of the building Petit Thouars : On September 29, 2017, we sold a building located in block 49 of Petit Thouars Avenue to VOLCOMCAPITAL Deuda Perú for a price of US$20.5 million (S/.68.9 million);

 

    Sale of Interest in Stracon GyM : On April 11, 2018, we sold our 88% interest in Stracon GyM for a price of US$77 million (S/.249 million); and

 

    Sale of Almonte Properties . On March 22, 2018, Almonte signed an agreement to sell certain properties owned by Almonte related to the “Almonte” industrial and logistics center project for a price of US$100 million.

Internal Investigation

In light of the recent events described above, we conducted an internal investigation led by external counsel with respect to our participation in consortia with Odebrecht. The new Risk, Compliance and Sustainability Committee of our board of directors was charged with monitoring the progress of the internal investigation. The internal investigation identified no evidence to conclude that any company personnel engaged in bribery in connection with any of the company’s public projects in Peru with Odebrecht or its subsidiaries, or that any company personnel was aware of or knowingly participated in any corrupt payments made in relation to such projects.

Strengthening of Anti-Corruption Program

We have approved a plan to continue strengthening our anti-corruption compliance program. This has included the creation of a Risk, Compliance and Sustainability Committee of our board of directors, the creation of a Corporate Risk and Compliance Function, the hiring of a Chief Risk and Compliance Officer, and the reinforcement of our procedures related to the third-party risk evaluation and mitigation.

New CEO, New Board of Directors and Board Committee

On February 27, 2017, our former chairman of the board, our former CEO and board member, and our board member and the former chairman of the board of our subsidiary GyM resigned from their positions.

Effective March 2, 2017, we appointed a new CEO. On March 31, 2017, our shareholders at the annual shareholders’ meeting appointed a new board of directors, replacing seven of our nine existing directors. For more information, see “Item 6. Directors, Senior Management and Employees.”

 

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Securities Class Action

Two securities class action complaints have been filed against us and certain of our current and former executive officers in the Eastern District of New York during the first quarter of 2017. These complaints are consolidated into a single class action. We believe that we have meritorious defenses to the claims asserted, and we intend to defend ourselves vigorously in these matters.

Restatement of Financial Results for Fiscal Year 2015

As more fully described in “Item 16.F. Change in Registrant’s Certifying Accountant,” we appointed Moore Stephens to re-audit our financial results for fiscal year 2015. The previously issued consolidated financial statements of the company for the 2015 fiscal year (and the related audit opinion) included in the company’s annual report on Form 20-F for the year ended December 31, 2015 should not be relied upon. The restatement of the 2015 fiscal year has resulted in certain significant changes to the company’s consolidated financial statements. For more information on the effects of the restatement, see note 2.30 to the company’s consolidated financial statements included in this annual report.

Factors Affecting Our Results of Operations

General

Peruvian, Chilean and Colombian Economic Conditions

80.1%, 72.9%, and 72.6% of our revenues in 2014, 2015 and 2016 were derived from activities in Peru. Accordingly, our results of operations are substantially affected by economic conditions in the country and our growth is driven in significant part by growth in the Peruvian economy. In addition 14.4%, 12.1%, and 12.13% of our revenues in 2014, 2015 and 2016 were derived from activities in Chile. We commenced operations in Colombia in December 2014, and 9.3% and 9.4% of our revenues in 2015 and 2016, respectively, were derived from activities in Colombia.

The Peruvian real GDP has grown at an average rate of 3.2% during the three years from 2014 to 2016. With increasing disposable income and an expanding middle class, private consumption grew at an average annual rate of 4.8% in real terms from 2014 to 2016. In 2014, 2015 and 2016 private investment decreased at an average rate of 2.1%, 4.1% and 6.1%, respectively, in real terms, primarily due to lower investment in mining. Inflation in Peru, as measured by the change in the consumer price index, was 3.2% in 2014, 4.4% in 2015 and 3.2% in 2016. The sol depreciated versus the U.S. dollar by 6.9% in 2014 and 14.2% in 2015, and appreciated by 1.6% in 2016. Peru’s sovereign debt has been rated investment grade by S&P, Fitch and Moody’s. At the end of 2016, Peruvian sovereign debt had one of the highest credit ratings in the South American region, rated BBB+ by S&P (August 2013) and Fitch (October 2013), and A3 by Moody’s (July 2014).

The Chilean economy grew at an average annual rate of 1.9% during the three years from 2014 to 2016 in real terms. Total fixed investment declined at an annual average rate of 2.1% in real terms during the three years from 2014 to 2016. Inflation in Chile, as measured by the change in the consumer price index, was 4.6% in 2014, 4.4% in 2015 and 2.7% in 2016. The Chilean peso depreciated versus the U.S. dollar by 16.0% in 2014 and 16.5% in 2015, and appreciated by 5.7% in 2016. Chilean sovereign debt has the highest rating in the South America region, rated AA- by S&P (January 2017), Aa3 by Moody’s (July 2016) and A+ by Fitch (December 2016).

The Colombian real GDP grew at an average annual rate of 3.2% during the three years from 2014 to 2016. Inflation has increased during recent years, with inflation of 3.7% in 2014, 6.8% in 2015 and 5.8% in 2016. The Colombian peso depreciated against the U.S. dollar by 24.2% in 2014, 31.6% in 2015, and appreciated by 4.7% in 2016. Colombia’s sovereign debt was rated BBB by Fitch in March 2017 and S&P in February 2016, and Baa2 by Moody’s in July 2014.

From 2012 to 2016 our revenues grew at a compound annual growth rate (CAGR) of 3.7% ((0.3)% excluding acquisitions). Our organic revenues decreased 22.7% in 2016 from 2015, principally as a result of lower activity levels in our E&C segment in 2016.

Fluctuations in Exchanges Rates

We estimate that in 2016, 46%, 33% and 21% of our revenues were denominated in soles, U.S. dollars and other currencies respectively, while 55%, 22% and 23% of our cost of sales during the year were denominated in soles, U.S. dollars and other currencies. In addition, as of December 31, 2016, 46.7%, 45.6% and 7.6% of our total debt was denominated in soles, U.S. dollars and other currencies, respectively. Accordingly, fluctuations in the value of these currencies can materially affect our results of operations. When the sol appreciates against the U.S. dollar, our operating margins tend to decrease; when the sol depreciates against the U.S. dollar, our operating margins tend to increase (if everything else were held equal). Conversely, the appreciation of the sol against the U.S. dollar tends to decrease our indebtedness and financial expenses as expressed in soles; and the depreciation of the sol against the

 

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U.S. dollar tends to increase our indebtedness and financial expenses as expressed in soles. We enter into derivatives, from time to time, to hedge part of our financial exposure to currency fluctuations. The value of the sol to the U.S. dollar depreciated in 2014 and 2015, and appreciated slightly in 2016, which impacted our results of operations. See “Item 3.A. Key Information—Selected Financial Data—Exchange Rates.”  

We have included estimates of the approximate effects of fluctuations in exchange rates on our consolidated and segment revenues and costs of sales in “—Results of Operations.” These estimates were calculated based on daily average exchange rates and estimated aggregate revenues and cost of sales denominated in U.S. dollars, Chilean pesos and Colombian pesos, and were not calculated on a transaction by transaction basis. For additional information on the effect of exchange rate fluctuations on our results of operations, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Exchange Rate Risk.”

Cost of Labor, Third-Party Services and Inputs

The largest components of our costs are: labor, which in 2016 represented 26.3% of our cost of sales and 61.0% of our administrative expenses; services provided by third parties, which in 2016 represented 40.6% of our cost of sales and 27.9% of our administrative expenses; and inputs (including raw materials), which in 2016 represented 16.1% of our cost of sales. For a breakdown of our cost of sales and administrative expenses, see note 27 to our audited annual consolidated financial statements included in this annual report.

Our cost of labor is influenced by, among other factors, the number of our employees, as well as inflation, competition we face for personnel in each of our business segments and the availability of qualified candidates. From 2014 to 2015 our personnel charges increased by 14.2% and from 2015 to 2016 our personnel charges decreased by 27.4%. Services provided by third parties include: subcontracting in our E&C segment, such as carpentry work; advisory and consultancy work, including external audit and legal services; and renting of equipment. From 2014 to 2015 our costs related to services provided by third parties increased by 38.9% and from 2015 to 2016 our costs related to services provided by third parties decreased by 18.5%. The principal inputs we use are fuel, cement and steel, which in the aggregate represented 18% of our total input costs in 2016. Our costs for these inputs are affected by, among other factors, the growth or decline of our operations, market prices, including global prices in the case of fuel, and transportation costs. We do not have long-term contracts for the supply of our key inputs. From 2014 to 2015, our input costs decreased by 4.7% and from 2015 to 2016, our input costs decreased by 13.9%. Our cost of labor, third-party services and inputs decreased in 2016 primarily due to lower activity levels in our E&C segment.

Acquisitions and Dispositions

In November 2014, we acquired an additional 13.5% interest of Stracon GyM for S/.74.7 million (US$25 million), increasing our stake in Stracon GyM to 87.6%. In December 2014, we acquired a 70% interest in Morelco for S/.277.1 million (US$93.7 million). This transaction represents our first acquisition in Colombia, which is a key part of our international strategy. The results of Morelco are included in our results of operations beginning in January 2015.

In December 2014, we also acquired 51% of the share capital of Tecgas, which holds 100% the share capital of COGA for a total of S/.75.8 million (US$25.4 million). This investment included goodwill resulting from the purchase amounting to S/.61.4 million. COGA is a jointly controlled entity and accordingly we reflected its results in “Share of the profit or loss in associates and joint ventures under the equity method of accounting.” On April 24, 2017, we sold our 51% interest in COGA to our partners Enagas and Carmen Corporation for a price of US$21.5 million (S/.69.8 million). For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

In August 2015, we acquired 44% of Adexus S.A., an information technology firm in Chile, for an approximate value of US$13.8 million (S/.44.1 million) through a participation in a capital increase. In January 2016 we acquired an additional 8% stake in Adexus for an approximate value of US$2.5 million (S/.8.3 million), and in August 2016 we increased our stake in Adexus to 91% for an approximate value of US$4.2 million (S/.14 million).

In September 2015, we acquired a 20% participation in the shareholder´s equity of Gasoducto Sur Peruano, the concessionaire of the southern gas pipeline project for a total of US$215 million (S/.722 million). In addition, our subsidiary GyM S.A. participates with a 29% stake in the construction consortium for this project (Consorcio Ductos del Sur), which represented approximately US$1.0 billion of our backlog as of December 31, 2015. The GSP gas pipeline concession was terminated on January 24, 2017, and as a result, we recognized impairment with respect to our investment in GSP and our participation in the related construction consortium (Consorcio Constructor Ductos del Sur). For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

 

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As of the date of this annual report, in order to strengthen our liquidity and financial flexibility, particularly in the event of potential delays in receiving the government payment contemplated under the GSP gas pipeline concession contract, and make payments on our debt related to the GSP project, our board has approved the sale of non-strategic assets in the amount of up to US$350 million (S/.1,176 million) in proceeds. For a detailed description of the sale of these non-strategic assets, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

Cyclicality

Our Engineering and Construction segment is cyclical as a result of being closely linked to the conditions, performance and growth of the end-markets we serve, which include, among others, the mining, power, oil and gas, transportation, real estate and other infrastructure sectors in Peru, as well as the mining sector in Chile and, the energy sector in Colombia. These industries tend to be cyclical in nature and tend to be affected by factors such as macroeconomic conditions, climate conditions, the level of private and public investment, the availability of credit, changes in laws and regulations and political and social stability. As a result, although downturns impact our entire company, our Engineering and Construction segment has historically been subject to periods of very high and low demand. For example, between 2000 and 2003, there was a significant decline in activity in the Peruvian real estate and construction sectors, which consequently affected our and our competitors’ business and financial performance during that time. The mining and oil and gas sectors, in particular, are also driven by worldwide demand for the underlying commodities, including, among others, silver, gold, copper, oil and gas, which can be affected by such other factors as global economic conditions and geopolitical affairs. Furthermore, prevailing prices and expectations about future prices for minerals or oil and gas, costs of exploration, production and delivery of product and similar factors can have a significant impact on our clients’ exploration and production activities and, as a result, on their demand for our engineering and construction services.

Our Real Estate segment is also cyclical and is significantly affected by changes in general and local economic conditions, such as employment levels and job growth, availability of financing for home buyers, interest rates, foreclosure rates, inflation, consumer confidence and housing demand. In addition, in our Infrastructure segment, our Energy line of business is cyclical and affected by global supply and demand for oil.

Seasonality

Our business, on a consolidated basis, has not historically experienced seasonality. In our Infrastructure segment, we have experienced moderate seasonality at (i) Norvial, due to heightened vehicular traffic activity during the summer season in the first quarter of the year, and (ii) GMP’s gas processing plant, which typically closes for maintenance during the rainy season in the first quarter of the year, as demand for gas is lower during this time.

Internal Control over Financial Reporting

In 2016, we identified material weaknesses regarding our internal control over financial reporting. For more information, see “Item 3. Key Information— D. Risk Factors —We have identified material weaknesses in our internal control over financial reporting, and if we cannot maintain effective internal control or provide reliable financial and other information in the future, investors may lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our ADSs.” and “Item 15. Controls and Procedures.”

Engineering and Construction

The principal driver of our E&C results is economic growth in Peru, particularly private and public investment in the country’s mining, power, oil and gas, transportation, real estate and other infrastructure sectors. See “—Peruvian and Chilean Economic Conditions.”

Appropriate pricing and budgeting of our engineering and construction projects is also key to our results of operations in our E&C segment and can be affected by such factors as competition, direct negotiations with clients as opposed to competitive bidding processes, the accuracy of our estimation of project costs and unexpected cost overruns. The types of contracts in this segment consist of cost-plus fee, unit price, lump-sum and EPC contracts. For a description of our E&C contracts, see “Item 4.B. Information on the Company—Business Overview—Engineering and Construction—Contracts.” The nature of our contractual arrangements can affect our margins, both because, depending on the type of contract, the burden of cost overruns may be placed on the client or on us, and because certain contractual arrangements tend to have lower gross margins. For the years from 2014 to 2016, our E&C segment has trended towards more contractual arrangements based on cost—plus fee and EPC contracts. The types of contractual arrangements we enter into in our E&C segment vary significantly from period to period.

During 2015, we suffered losses of S/.138.2 million from a dispute with respect to an E&C contract with Hochschild Mining for the Inmaculada mining project, which affected our operating results. The dispute was terminated in August 2015, and we expect no further losses to be incurred on account of this project. Additionally, we incurred losses for a total amount of S/.59.7 million because

 

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of the cancellation of the El Nuble hydroelectric project, for which our subsidiary Vial y Vives was carrying on civil works in Chile. As a consequence of the cancellation of this project, we also wrote down US$155 million of our consolidated backlog. We expect no further losses to be incurred on account of this project. Delays in obtaining payments from our E&C clients during 2015, in particular in the mining sector, increased financing needs for working capital. We managed to stabilize working capital requirements by the end of 2015.

During 2016, we suffered lower activity levels in our E&C segment due to the completion of two large mining projects at the end of 2015 (Las Bambas and Cerro Verde). These lower activity levels were not fully compensated by new works at the GSP gas pipeline project in Peru and, to a lesser extent, works in Chile and Colombia. Additionally, Stracon GyM completed one mining services contract for our E&C segment, which was not renewed, and had another contract reduced in scope. The 2016 presidential elections in Peru and the subsequent change in administration also contributed to lower activity levels in our E&C segment during 2016. Activity levels in our E&C segment remained low during 2017.

Infrastructure

Traffic and Fees for Toll Roads

The majority of our toll roads revenues derive from the Norvial concession. Unlike our other toll road concessions, our revenues from the Norvial concession depend on traffic volume. Traffic volume on the Norvial road increased 6.6% from 2014 to 2015 and 7.1% from 2015 to 2016 (based on vehicle equivalents, as defined in “Item 4.B. Information on the Company—Business Overview—Infrastructure—Principal Infrastructure Activities—Toll Roads—Norvial”) and such increases are largely driven by economic activity levels in Peru. For the Norvial toll road, the toll rate is set out in the Norvial concession agreement and adjusted in accordance with a contractual formula that takes into account the sol/U.S. dollar exchange rate and Peruvian and United States inflation. Under our Survial and Canchaque road concessions, our revenues consist of annual fees paid by the Peruvian Ministry of Transport and Communications in consideration for the operation and maintenance of the roads, which can vary depending on the amount of road maintenance required due to road wear and tear.

Under the Norvial concession, we are required to expand certain stretches of the highway, by, among other things, adding two additional lanes. The first stage of construction was completed in 2008 and the second stage started on April 2014 and is expected to be completed by July 2018 due to delays in the government’s delivery of lands required for the project. We estimate that Norvial’s capital investment for the second stage will be approximately US$95 million (S/.319.2 million).

Mass Transit

We generate revenue from our Lima Metro concession based on kilometers travelled per train, with the fee per kilometer, the number of trains required to be in operation and the number of kilometers that we are required to travel established by the terms of the concession. Our revenues do not depend on passenger traffic volume. Our results in this concession between 2014 and 2016 were influenced by the timely acquisition, set up, reliability and proper operation of our trains as well as by the timing of the government’s completion of the 12.1 kilometer second stretch of Line One. We currently have all 24 trains in operation (including two backup trains). In addition, the second tranche of Line One was completed in the third quarter of 2014. As of December 31, 2016, GyM Ferrovías has spent a total of US$196 million (S/.659 million) in capital expenditures in connection with the Lima Metro.

On July 11, 2016, we entered into the fourth addendum to the Lima Metro concession contract in order to expand the transportation capacity of Line One. In accordance with the fourth addendum, the expansion project involves: (i) the purchase of 20 new trains with five-car from Alstom; (ii) the purchase of 39 new cars from Alstom, to be coupled with the 19 existing Alstom trains and 20 new Alstom trains, resulting in a consolidated fleet of 39 Alstom trains with a six-car configuration; and (iii) the expansion and improvement of the existing infrastructure, including revamping and improvement of five stations, improvements in the electrical systems, a new access route to the maintenance workshop and new switches on the main track.

Energy

A part of the revenues in our Infrastructure segment depends on global prices for oil. Under our hydrocarbon extraction service contracts, we are entitled to a variable fee, which is based on the level of production of each field and a basket of international crude oil prices. Under our contracts, we acquire the extracted hydrocarbons and pay royalties, which are also based on a basket of international crude prices and the level of production. Historically, oil prices have been volatile and are likely to be volatile again in the future. During 2014, 2015 and 2016 average Brent crude prices were approximately US$99.02, US$52.46, and US$43.55 per barrel and the average fee we received in these years was US$77.33, US$45.59, and US$38.54 per barrel of extracted oil, respectively. During the first quarter of 2018, the Brent crude price was approximately US$68.81 per barrel and our fee was approximately US$64.37 per barrel of extracted oil. Because our activities are conducted in mature oil fields, which have been producing oil for over 100 years in the case of Block I, approximately 100 years in the case of Block III, approximately 95 years in the case of Block IV and for over 50 in the case of years Block V, our oil production depends primarily on the level of our drilling and production activities.

 

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Our Pariñas gas processing plant has a long-term delivery and gas processing and fractionation contract with Empresa Eléctrica de Piura S.A. (“EEPSA”), a thermal power generation subsidiary of the Endesa group. Under this contract, EEPSA delivers natural gas that it purchases from onshore and offshore gas producers in the Talara area. We are responsible for all operating costs of the gas processing plant but are entitled to keep revenues from the sale of all resulting natural gas liquids to third parties after delivery of all dry gas and payment of a variable royalty to EEPSA. Approximately 75% of the total volume of natural gas processed by our Pariñas gas processing plant depend upon gas volumes demanded by EEPSA for its gas-fired turbines, which can vary significantly. The other 25% of the volume of natural gas is extracted from our Block I. Prices for natural gas liquids can also fluctuate significantly and are affected by market prices for crude oil. We processed 27.3 MMcf per day during 2014, 31.7 MMcf per day during 2015 and 33.2 MMcf per day during 2016 . These volumes vary per month and depend upon the power dispatch curve of EEPSA among Peruvian power generation plants. In rainy months (December to April) where hydroelectric power generation in Peru is typically higher, gas volumes demanded by EEPSA are lower than in dryer months (May to November) in which activity of thermal generators tends to be higher.

In connection with our fuel storage terminal business, under three operation contracts with Petroperu, we receive revenues related to monthly reserved volume in storage tanks for refined crude products (storage fee) and for volumes loaded and delivered into railroad cars or cistern trucks to each terminal (throughput fee). These fees are adjusted annually to account for U.S. inflation. Our fuel storage activities in the North and Central terminals are carried out under 20-year contracts, which expire in 2034. Our contract for the operation of the South terminals was to expire in August 2017 but was extended for an additional year until August 2018.

Awarding and Timing of Infrastructure Concessions and Government Contracts

The results of operations of our Infrastructure segment are affected by our ability to win new concessions and government contracts, which depend in part on government policies and our ability to compete effectively. As of December 31, 2016, we have seven concessions as well as long-term government contracts in this segment. These include the concession for Via Expresa Sur, for which contract negotiations are currently stalled, and the concession for Chavimochic, for which Chavimochic has requested the termination of the concession in light of the government’s failure to deliver the required lands for the project. Joint operations in which we participate have been awarded one additional concession for Via Expresa Javier Prado for the expansion of another major highway within the city of Lima. We cannot assure you that we will be able to negotiate the pending concessions on favorable terms or at all. A consortium led by Odebrecht Latinvest, in which we acquired a 20% stake in September 2015, was awarded the concession for the southern gas pipeline project in July 2014, however, the GSP gas pipeline concession was terminated by the Peruvian Ministry of Energy and Mines on January 24, 2017. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

Our results in our Infrastructure segment are also affected by the timing of the commencement of operations under our concessions, as well as when we were required to undertake significant capital investments or major construction works under the terms of our concessions. Under our Norvial and Lima Metro concessions, we are required to undertake capital investments during the initial years of the concessions for which we are compensated throughout the term of the concessions by our toll rate in the case of the Norvial concession and tariffs in the case of the Lima Metro concession. Under our Survial, Canchaque and La Chira concessions, we generate revenues in our Infrastructure segment from our construction activities during the pre-operational phase, and once operations commence we generate revenues from fees related to operation and maintenance. Survial, Canchaque and La Chira have financed their construction costs through the sale of government certificates of construction to financial institutions at a discount from face value. Certificates of construction are negotiable instruments that the Peruvian government typically delivers upon completion of each stage of a project and which entitle the holder to receive payment from the government equal to the capital investment made in the corresponding stage upon completion of the entire project. Accordingly, the results of our Infrastructure segment may be affected by the discount rates obtained on the sale of government certificates of construction. For more information on our obligations and compensation under our concessions, see “Item 4.B. Information on the Company—Business Overview—Infrastructure.”

Real Estate

The results of operations of our Real Estate segment are driven by the number of units we develop and deliver in a reporting period, our mix of unit sales (affordable housing versus housing), unit prices, land purchase prices and our costs of construction. These results are also affected by a number of factors that may impact the Peruvian real estate sector as a whole, including: the availability of government subsidies for affordable housing; prices of suitable land in particular areas; regulation of real estate development imposed by national, regional and local laws and regulators, and the time required to obtain applicable construction permits and licenses; the unemployment rate and wage levels; prevailing interest rates and availability of financing; the supply in the market; the level of customer interest in our new projects; and our costs, such as the price of labor, materials, insurance, taxes and other public charges. We delivered 831, 835, and 934 units in 2014, 2015 and 2016, respectively.

 

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The results of operations of our Real Estate segment are also significantly affected by our sales of land parcels. Due to the appreciation of land prices in Peru, and because we record our land holdings at book value (i.e., without marking to market), our recent land sales have resulted in high margins. Our board has approved the sale of non-strategic assets and, consequently, we have sold our interests in certain real estate projects as fully described in “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

In addition, the net profit attributable to controlling interests of our Real Estate segment is significantly affected by the financing and commercial arrangements we use to purchase land and to develop real estate projects. Depending on the level of non-controlling interests used to finance our real estate projects, our Real Estate segment tends to have significant net profit attributable to non-controlling interests. See “—Results of Operations—General—Real Estate.”

Technical Services

The results of operations of our Technical Services segment, especially our activities relating to IT and electricity networks services, are affected by the economic growth of the countries in which we operate. As companies expand in response to economic growth, they tend to outsource certain activities in order to focus on their core businesses.

Our results in the operation and maintenance of infrastructure assets depend on our ability to obtain contracts from the government or infrastructure concessionaires, such as those in our Infrastructure segment, which depend on government policies and our ability to compete effectively. We had one of the contracts with a regional government terminated in 2014, which impacted our results of operations for the year. In 2015, we obtained four new contracts (Sullana, La Merced, Iacapal and Bappo) and in 2016 two new contracts (Chiquibambilla and Chincaypuijio) each with Provías Nacional. We typically obtain higher revenues from these contracts during the commencement of services as we bring the road to proper operating condition, and lower revenues at the end of the contract term as services wind down.

Critical Accounting Estimates and Judgments

For information on critical accounting estimates and judgments, see note 4 to our audited annual consolidated financial statements included in this annual report.

New Accounting Pronouncements, Amendments and Interpretations

For information on new accounting pronouncements, amendments and interpretations, see note 2.30 to our audited annual consolidated financial statements included in this annual report.

Results of Operations

General

Accounting for Subsidiaries, Joint Operations, Joint Ventures and Associated Companies

Results of our subsidiaries, joint operations, joint ventures and associated companies are reflected in our financial results. We refer to our subsidiaries as those entities over which we exercise control. We consolidate the results of our subsidiaries in our financial statements and we reflect the profit corresponding to the minority interests in our subsidiaries under “profit attributable to non-controlling interests” in our income statement. Our consolidation of the results of our subsidiaries include subsidiaries in which we have less than 50% of the equity. We refer to business activities in which we share control with unrelated entities as joint arrangements, including joint operations and joint ventures, which are typically conducted through an agreement with a third party to carry out specific projects. We contribute our assets to these projects and derive revenue from their use. In our financial statements we recognize, in relation to our interest in a joint operation, our assets and liabilities, including our share of any asset or liability we hold jointly with our partner, as well as our share of revenue and expense from the joint operation. We refer to our associated companies as those entities over which we have significant influence but do not control. We reflect the results of our associated companies and joint ventures under the equity method of accounting in our financial statements under the line item “share of the profit and loss in associates” in our income statement. For further information, including a list of our subsidiaries, joint operations, joint ventures and associated companies, see notes 5a, 5c and 15 to our audited annual consolidated financial statements included in this annual report.

Intersegment Transactions

Some of our segments from time to time provide services to our other segments. In 2016, we obtained 5.2% of the revenues in our E&C segment from the construction of La Chira waste water treatment plant and the second stage of the highway at Norvial for our Infrastructure segment and the construction of real estate for our Real Estate segment; 37.7% of the revenues in our operation and

 

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maintenance of infrastructure assets line of business derived from services provided to Norvial, Survial, Canchaque and the Lima Metro; and 6.6% of the revenues in our IT services line of business derived from IT and outsourcing services provided to several of our other lines of businesses. Accordingly, in such circumstances, the segment providing services recognizes revenues and the segment receiving such services recognizes costs of sales relating to the services provided. For example, in the case of La Chira, in which our E&C segment provides services to our Infrastructure segment, our E&C segment recognizes revenues and our Infrastructure segment recognizes costs of sales with respect to the fees charged by our E&C segment for those services. In consolidation, these intersegment revenues and cost of sales are eliminated in our financial results. Nonetheless, our Infrastructure segment, in particular, may recognize gross profits or losses based on the difference between the fees the segment charges in accordance with concession terms and costs it incurs relating to services provided by our other segments. For more information on our segments, see note 7 to our audited annual consolidated financial statements.

Engineering and Construction

We obtain revenues in our E&C segment from the engineering and construction services we provide to our clients, which we recognize under the percentage-of-completion method of accounting. For further information, see note 2.25 to our audited annual consolidated financial statements included in this annual report. We receive unrestricted client advances in a substantial majority of our E&C projects, on average equal to approximately 12% of the contract price in 2016, which we record as an account payable. We typically invoice our clients on a periodic basis as each project progresses, deducting from the related advances on a proportional basis. For further information, see note 21 to our audited annual consolidated financial statements included in this annual report. Our cost of sales in our E&C segment includes labor, subcontractor expenses, materials, equipment, and project-specific general expenses.

Infrastructure

In our Infrastructure segment, we recognize revenues and cost of sales as follows:

(1) Toll Roads:

 

    For Norvial, we obtain revenues for toll fees collected, minus deductions required to be transferred to the government as described in “Item 4.B. Information on the Company—Business Overview—Infrastructure—Principal Infrastructure Activities—Toll Roads—Norvial,” which we recognize upon receipt. Cost of sales for Norvial include fees paid to third parties (primarily our subsidiary Concar) for operation and maintenance services as well as the amortization of the road concession registered as an intangible asset in our financial statements; and

 

    For Survial and Canchaque, we obtain revenues for routine and periodic maintenance services, which we recognize in the period in which the services are performed. Cost of sales for Survial and Canchaque include fees paid to third parties (primarily our subsidiary Concar) for operation and maintenance services. We do not recognize the Survial and Canchaque concessions as intangible assets and therefore do not amortize the concessions.

For further information, see notes 2.16(c) and 17 to our audited annual consolidated financial statements included in this annual report.

(2) Mass Transit: We obtain revenues from our Lima Metro concession based on a tariff per kilometer traveled by our trains in operation in accordance with a schedule established in our concession agreement, which we recognize in the period in which the services are performed. Under the concession, the tariff is comprised of three components: (i) fees related to our operation and maintenance services; (ii) fees related to the Peruvian government’s repayment of the amounts we invest to purchase trains, ongoing capital expenditures and other infrastructure for the Peruvian government; and (iii) fees related to interest we charge to the Peruvian government in connection with the amounts we invest to purchase such trains, ongoing capital expenditures and other infrastructure. In 2016, the fees related to items (i), (ii) and (iii) were S/.166.1 million, S/.9.4 million and S/.42.4 million, respectively. We only recognize in our income statement the portion of the tariff that relates to items (i) and (iii) We record the amounts paid by us that relate to item (ii) as long-term accounts receivables from the Peruvian government. Accordingly, tariff payments received relating to item (ii) reduce our accounts receivables but do not impact our income statement, and we do not amortize our investments in our income statement as our investment in the concession is recorded as an account receivable with the government rather than a depreciable investment.

We entered into the fourth addendum to the Lima Metro concession contract on July 11, 2016, in order to expand transportation capacity. In accordance with the fourth addendum, the expansion project will involve: (i) the purchase of 20 new trains; (ii) the purchase of 39 new cars; and (iii) the improvement and expansion of the existing infrastructure. As compensation for the investments of the expansion project, we will be entitled to receive the following: (i) an advance payment of 30% of each investment component; and (ii) the balance of 70% of each investment component, compensated through the annual payment for additional investments ( pago anual por inversiones complementarias ). We register the estimated compensation related to the direct cost in the income statement, plus a margin in the same period. In 2016, the income related to the investment components was S/.32.1 million.

 

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For further information, see note 10 to our audited annual consolidated financial statements included in this annual report. Cost of sales for the Lima Metro include fees paid to third parties (primarily our E&C segment, our subsidiary Concar and other subcontractors) for construction and operation and maintenance services, energy, and our financing costs related to the purchase of trains.

(3) Water Treatment: We obtain revenues from the engineering design and construction of La Chira waste water treatment plant, which we recognize based on the percentage-of-completion method of accounting. Once the plant began operating in August 2016, we obtain revenues only for operation and maintenance services, which we recognize in the period in which the services are performed. During the construction phase, cost of sales for La Chira included fees paid to third parties, primarily our E&C segment, for engineering and construction services. During the operation phase, cost of sales for La Chira include personnel charges and maintenance of infrastructure.

(4) Energy: We obtain revenues from extraction services and license contracts related to oil and gas production, fuel storage services, and the sale of natural gas liquids derived from our gas processing and fractionation services, which we recognize in the period in which the services are performed and, in the case of sale of natural gas liquids, when the sale is made. Cost of sales for our energy line of business includes labor, materials, amortization of oil wells, depreciation of the gas plant, maintenance and general expenses.

Real Estate

We obtain revenues in our Real Estate segment from sales of affordable housing and housing units, commercial buildings and land parcels, which we recognize at the time of delivery of the unit or building and, in the case of land parcels, at the time of the sale. We typically pre-sell our affordable housing and housing units prior to and during construction, and use the related proceeds we receive to finance the construction of the units. These pre-sale funds are restricted and released from escrow to us periodically as construction progresses. Our Real Estate cost of sales includes the cost to purchase land, costs of architectural design and construction (which usually includes payments to third parties, primarily our E&C segment), licensing and permit costs, personnel costs, and fees to third parties related to sanitation or electrical engineering. In 2016, our cost of land that is allocated to units delivered during these periods amounted to S/.45 million. We recognize land purchases as inventory, and, accordingly, do not mark-to-market the value of our land for changes in fair value. For further information, see note 14 to our audited annual consolidated financial statements included in this annual report.

In our Real Estate segment, we have significant net profit attributable to non-controlling interests. We hold a significant portion of our land bank through Almonte in which we have a 50.4% interest, and we consolidate Almonte’s results in our financial statements. In addition, we undertake a significant number of our real estate projects through entities in which we may have a majority interest, co-equal interest or minority interest; when we have control over these entities, we consolidate their results in our financial statements regardless of whether we own a majority of the capital. Furthermore, in connection with our affordable housing projects, we generally partner with real estate investment funds and insurance companies that provide between 60% and 70% of the total capital required to purchase the land and cover certain pre-construction costs in exchange for equity in the project. Although we typically own a minority interest in these projects, we consolidate their results in our financial statements because we exercise control over the project. Accordingly, we reflect the profit corresponding to our real estate partners under net profit attributable to non-controlling interests in our income statement. See “—Accounting for Subsidiaries, Joint Operations, Joint Ventures and Associated Companies.”

Technical Services

In our Technical Services segment, we recognize revenues and cost of sales as follows:

(1) Operation and Maintenance of Infrastructure Assets: We obtain revenues from our operation and maintenance of infrastructure assets line of business for the operation and maintenance services we provide to the government and concessionaires (currently concessions within our Infrastructure segment), which we recognize in the period in which the services are performed. We receive unrestricted advances with respect to our service contracts with the government, that vary from approximately 10% to 30% of the contract price, which we record as an account payable. We typically invoice our clients on a periodic basis as the project progresses, deducting from the related advances on a proportional basis. For further information, see note 21 to our audited annual consolidated financial statements included in this annual report. Our cost of sales in this line of business includes personnel costs, services provided by third parties, machinery and other materials (primarily trucks), and depreciation of equipment utilized to provide services. Beginning on April 1, 2017, we have transferred Concar from our Technical Services segment to our Infrastructure segment.

 

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(2) IT Services: We obtain revenues from our IT services line of business for IT and outsourcing services we perform for government and private sector clients, which we recognize in the period in which the services are performed. Our IT services cost of sales includes personnel costs, services provided by third parties, equipment and other materials, depreciation of equipment utilized to provide services, and amortization of software.

(3) Electricity Networks Services: We obtain revenues from the electrical services we provide to our clients, which we recognize in the period in which the services are performed. Our cost of sales in this line of business includes personnel costs, services provided by third parties, machinery and other materials (primarily trucks and meters), and depreciation of equipment utilized to provide services.

Comparison of Results of Operations of 2015 and 2016

The following table sets forth the components of our consolidated income statement for 2015 and 2016.

 

     Year ended December 31,         
   2015 Restated      2016      Variation  
   (in millions of S/.)      %  

Revenues

     7,815.5      6,469.6        (17.2 )% 

Cost of sales

     (7,165.5      (5,866.2      (18.1 )% 
  

 

 

    

 

 

    

Gross profit

     650.0      603.4        (7.2 )% 

Administrative expenses

     (413.4      (399.4      (3.4 )% 

Other income (expenses)

     57.4      (12.6      (122.0 )% 

Other (losses) gains, net

     (0.1      (0.7      NM  

Profit from sale of investments

     (8.3      46.3        NM  
  

 

 

    

 

 

    

Operating profit

     285.6      237.0        (17.0 )% 

Financial (expense) income, net

     (138.7      (210.8      (52.0 )% 

Share of profit and loss in associates

     7.7      (589.7      NM  
  

 

 

    

 

 

    

Profit (loss) before income tax

     154.6      (563.5      NM  

Income tax

     (99.0      111.8        NM  
  

 

 

    

 

 

    

Net profit (loss)

     55.6      (451.7      NM  

Net profit (loss) attributable to controlling interest

     7.1      (509.7      NM  

Net profit attributable to non-controlling interest

     48.5      58.1        19.8

Revenues

Our total revenues decreased by 17.2%, or S/.1,345.9 million, from S/.7,815.5 million for 2015 to S/.6,469.6 million for 2016. Revenues decreased due mainly to lower revenues in our E&C segment as a result of the completion of two large mining projects at the end of 2015 (Las Bambas and Cerro Verde), which were not fully compensated by new works at the GSP project in Peru and, to a lesser extent, works in Chile and Colombia. The 2016 presidential elections in Peru and the subsequent change in administration also contributed to lower activity levels in our E&C segment during 2016. Additionally, Stracon GyM completed one mining services contract for our E&C segment, which was not renewed, and had another contract reduced in scope. On the other hand, in the Infrastructure segment, revenues decreased mainly due to the timing of works on the second stage of the Norvial toll road and lower amount of maintenance works on the Survial highway. This reduction is partially offset by: the increase in revenues in the Real Estate segment, which is the result of the sale of land in Almonte for S/.97.0 million in 2016 compared to S/.12.0 million in 2015, as well as by more units delivered in 2016 (938 units versus 835 units in the previous year), and the increase in revenues of the Technical Services segment due to the consolidation of Adexus acquisition as of August 2016 and higher revenues in CAM for the new contracts awarded during the year.

 

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The following table sets forth a breakdown of our revenues by segment for 2015 and 2016.

 

     Year ended December 31,        
     2015 Restated     2016     Variation  
    

(in millions

of S/.)

    % of Total    

(in millions

of S/.)

    % of Total     %  

Engineering and Construction

     5,829.4       74.6       4,159.5       64.3     (28.6 )% 

Infrastructure

     1,018.3       13.0       912.1       14.1     (10.4 )% 

Real Estate

     215.8       2.8       411.5       6.3     90.7

Technical Services

     1,152.5       14.7       1,401.8       21.7     21.6

Corporate

     70.5       0.9       62.1       1.0     (11.9 )% 

Eliminations

     (471.0     (6.0     (477.4     (7.4 )%      1.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     7,815.5       100.0       6,469.6       100.0     (17.2 )% 

Cost of Sales

Our total cost of sales decreased by 18.1%, or S/.1,299.3 million, S/.7,165.5 million for 2015 to S/.5,866.2 million for 2016. This decrease is mainly due to the reduction of revenues.

Gross Profit

Our gross profit decreased by 7.2% or S/.46.6 million, from S/.650.0 million for 2015 to S/.603.4 million for 2016. Our gross margin (i.e. gross profit as a percentage of revenues) for 2016 was 9.3% compared to 8.3% for 2015. In 2015 gross profit was impacted by losses incurred from a dispute with respect to an E&C contract with Hochschild Mining for the Inmaculada mining project and losses incurred because of the cancellation of the El Nuble hydroelectric plant project, for which our subsidiary Vial y Vives was carrying on civil works in Chile. In 2016, gross profit was impacted by the early termination of GSP construction consortium in our E&C segment and partially offset by the profit generated by the sale of land of Almonte in our Real Estate segment. During 2016, gross profit was also impacted in our Infrastructure segment by the decrease in oil price.

The following table sets forth a breakdown of our gross profit by segment for 2015 and 2016.

 

     Year ended December 31,        
     2015 Restated     2016     Variation  
    

(in millions

of S/.)

    % of Total    

(in millions

of S/.)

    % of Total     %  

Engineering and Construction

     312.8       48.1       224.6       37.2       (28.2 )% 

Infrastructure

     184.8       28.4       166.1       27.5       (10.1 )% 

Real Estate

     51.8       8.0       136.5       22.6       163.5

Technical Services

     178.3       27.4       171.8       28.5       (3.6 )% 

Corporate

     (7.0     (1.0     (0.2     0.0       (97.1 )% 

Eliminations

     (70.7     (10.9     (95.5     -15.8       35.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     650.0       100.0       603.3       100.0     (7.2 )% 

Administrative Expenses

Our administrative expenses decreased by 3.4%, or S/.14.0 million, from S/413.4 million for 2015 to S/.399.4 million for 2016. This decrease is mainly due to a reduction in services provided by third parties principally relating to legal, accounting and tax consultancy. As a percentage of revenues, our administrative expenses increased to 6.2% in 2016 from 5.3% in 2015.

Other Income (Expenses)

Our other income (expenses) decreased by 122.0%, or S/.70.0 million, from S/.57.4 million in income for 2015 to S/.12.6 million in expenses for 2016. In 2015 our other income included the reversion of tax and labor provisions in connection with the acquisition of CAM, the sale of machinery, equipment and scrap and dividend payments from our subsidiary TGP, and in 2016, our other income included the sale of machinery and equipment, price adjustments as well as a reversion of legal and tax provisions in connection with the acquisition of Morelco, and extraordinary income from the settlement agreement reached in connection with the legal proceeding related to the Collahuasi project in Chile.

 

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Profit from Sale of Investments

We registered a profit of S/.46.3 million from the sale of the certain investments, mainly the sale of our 1.64% stake in TGP in April 2016.

Operating Profit

Our operating profit decreased 17.0%, or S/.48.6 million, from S/.285.6 million for 2015 to S/.237.0 million for 2016. Our operating margin (i.e., operating profit as a percentage of revenues) was 3.7% for 2016 and 3.7% for 2015 as well.

The following table sets forth a breakdown of our operating profit by segment for 2015 and 2016.

 

     Year ended December 31,        
     2015 Restated     2016     Variation  
    

(in millions

of S/.)

    % of Total    

(in millions

of S/.)

    % of Total     %  

Engineering and Construction

     54.2       19.0       (43.2     (18.2     (179.7

Infrastructure

     146.8       51.4       125.6       53.0       (14.4

Real Estate

     33.0       11.6       108.9       45.9       230.0  

Technical Services

     70.3       24.6       57.1       24.1       (18.8

Corporate

     (25.8     (9.0     4.6       1.9       (117.8

Eliminations

     7.0       2.5       (15.9     (6.7     (327.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     285.6       100.0       237.1       100       (17.0

The following discussion analyzes our key results of operations on a segment basis. For further information on our business segments, see note 7 to our audited annual consolidated financial statements included in this annual report.

Engineering and Construction

The table below sets forth selected financial information related to our E&C segment.

 

     Year ended December 31,         
     2015 Restated      2016      Variation  
     (in millions of S/.)      %  

Revenue

     5,829.4        4,159.5        (28.6

Gross profit

     312.8        224.6        (28.2

Operating profit

     54.2        (43.2      (179.7

Revenues . Our E&C revenues decreased 28.6%, or S/.1,669.9 million, from S/.5,829.4 million for 2015 to S/.4,159.5 million for 2016. This decrease is the result of the completion of two large mining projects at the end of 2015 (Las Bambas and Cerro Verde), which were not fully compensated by the works at the GSP project in Peru and, to a lesser extent, works in Chile and Colombia. Additionally, Stracon GyM completed one mining services contract for our E&C segment, which was not renewed, and had another contract reduced in scope. The 2016 presidential elections in Peru and the subsequent change in administration also contributed to lower activity levels in our E&C segment during 2016.

The following tables set forth variations in our E&C revenues by business activities, types of contracts and end-markets:

 

     Year ended December 31,  
     (in millions of S/.)  
     2015             2016             Variation  
            %             %      %  

Engineering services

     169.3        2.9        128.1        3.1        (24.4

Electromechanic construction

     1,603.2        27.6        1,343.3        32.2        (16.2

Civil construction

     1,360.1        23.3        1,029.9        24.8        (24.3

 

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     Year ended December 31,  
     (in millions of S/.)  
     2015 Restated             2016             Variation  
            %             %      %  

Contract mining

     2,066.4        35.4        1,222.2        29.4        (40.9

Building construction activities

     630.4        10.8        436.0        10.5        (30.8
  

 

 

    

 

 

    

 

 

    

 

 

    

Total

     5,829.4        100.0        4,159.5        100.0     

 

     Year ended December 31,  
     2015 Restated      2016  
     %      %  

Cost + fee

     28.0        32.0  

Unit price

     49.0        25.6  

Lump sum

     11.0        35.1  

EPC contracts

     12.0        7.3  
  

 

 

    

 

 

 

Total

     100.0        100.0  

 

     Year ended December 31,  
     2015 Restated      2016  
     %      %  

Mining

     60.1        38.3  

Real estate buildings

     9.0        11.0  

Power

     10.0        12.6  

Oil and gas

     15.9        30.9  

Transportation

     3.0        3.9  

Water and sewage

     2.0        3.1  

Other end markets

     —          0.2  
  

 

 

    

 

 

 

Total

     100.0        100.0  

The breakdown of E&C revenues by different business activities, types of contracts and end-markets tends to vary from period to period due to a variety of factors, including the timing of the execution of larger projects in any particular period, which is typically outside of our control.

Gross Profit . Our E&C gross profit decreased 28.2%, or S/.88.2 million, from S/.312.8 million for 2015 to S/.224.6 million for 2016. Our E&C gross margin for 2015 was 5.4% and for 2016 was 5.4% as well. The decrease in our E&C gross profit was mainly due to a decline in revenues and the impact of the early termination of the GSP construction consortium.

Operating Profit . Our E&C operating profit decreased 179.7%, or S/.97.4 million, from S/.54.2 million profit for 2015 to S/.43.2 million loss for 2016, due to reduction of gross profit, partially offset by the decrease in administrative expenses, related to a reduction of personnel and lower expenses relating to bid proposals. Our E&C operating margin was 1.0 for 2016 compared to 0.9% for 2015.

Other income (expenses) . Other income (expenses) increased in our E&C segment, from S/.30.8 million income for 2015 to S/.9.2 million in expenses in 2016, mainly as a result of the settlement agreement reached in connection with the legal proceeding related to the Collahuasi project in Chile and the reversion of legal and tax provisions in connection with the acquisition of Morelco.

 

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In addition, our E&C segment had S/.5.7 million in expenses in 2016, compared to S/.9.3 million in income in 2015, relating to minority interests held by Vial y Vives in several of its projects undertaken in Chile, as well as the minority participation of GyM in Viva GyM reflected under “share of profit and loss in associates” in our audited annual consolidated financial statements.

Infrastructure

The table below sets forth selected financial information related to our Infrastructure segment.

 

     Year ended December 31,         
     2015 Restated      2016      Variation  
     (in millions of S/.)      %  

Revenue

     1,018.3        912.1        (10.4

Gross profit

     184.8        166.1        (10.1

Operating profit

     146.8        125.6        (14.4

Revenues . The table below sets forth the breakdown of our Infrastructure revenues by principal lines of business.

 

     Year ended December 31,         
     2015 Restated      2016      Variation  
     (in millions of S/.)      %  

Toll Roads

     394.5        264.4        (33.0

Mass Transit

     206.5        247.0        19.6  

Water Treatment

     28.0        18.5        (33.9

Energy

     389.4        382.2        (1.8
  

 

 

    

 

 

    

 

 

 

Total

     1,018.3        912.1        (10.4

Our Infrastructure revenues decreased 10.4% or S/.106.2 million, from S/.1,018.3 million for 2015 to S/.912.1 million for 2016. The variation in our Infrastructure revenues principally reflected the following:

 

    Toll Roads : a 33.0%, or S/.130.1 million, decrease in revenues, from S/.394.5 million for 2015 to S/.264.4 million for 2016, primarily due to the timing of the work for the second stage of the Norvial toll road and a decrease in revenues in Survial due to less maintenance executed on the road;

 

    Mass Transit : a 19.6%, or S/.40.5 million, increase in revenues, from S/.206.5 million for 2015 to S/.247.0 million for 2016, primarily due to the revenues recognized for the advance of the construction of the infrastructure expansion;

 

    Water Treatment : a 33.9%, or S/.9.5 million, decrease in revenues, from S/.28.0 million for 2015 to S/.18.5 million for 2016, primarily due to conclusion of the construction works of the La Chira waste water treatment plant. The operation of the plant started in the second quarter of 2016; and

 

    Energy: a 1.8%, or S/.7.2 million, decrease in revenues, from S/.389.4 million for 2015 to S/.382.2 million for 2016, primarily due to a reduction in our barrel daily production (2,756 barrel daily production in 2016 versus 3,356 in 2015), as well as a decrease in international oil prices (average price per basket of oils of US$41.8 bbl in 2016 versus US$50.9 bbl in 2015), partially offset by better results in our fuel terminals business (3.18 MM barrels in storage per month in 2016 versus 3.12 MM barrels in storage in 2015, and 3.34 MM barrels dispatched per month in 2016 versus 3.19 MM barrels dispatched per month in 2015), the fact that operations in Blocks III and IV commenced in April 2015 and higher processing levels at our gas processing plant which increased from 31.7 MMcf per day in 2015 to 33.2 MMcf per day in 2016.

Gross Profit . The table below sets forth the breakdown of our Infrastructure gross profit by principal lines of business.

 

     Year ended December 31,         
     2015 Restated      2016      Variation  
     (in millions of S/.)      %  

Toll Roads

     78.5        75.8        (3.4 )% 

Mass Transit

     40.5        42.5        4.9

Water Treatment

     2.2        5.7        159.1

Energy

     63.5        42.1        (33.7 )% 
  

 

 

    

 

 

    

 

 

 

Total

     184.7        166.1        (10.1 )% 

 

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Our Infrastructure gross profit decreased 10.1%, or S/.18.6 million, from S/.184.7 million for 2015 to S/.166.1 million for 2016. Our Infrastructure gross margin was 18.2% for 2016 compared to 18.1% for 2015. The variation in our Infrastructure gross profit principally reflected the following:

 

    Toll Roads: a 3.4%, or S/.2.7 million, decrease in gross profit, from S/.78.5 million for 2015 to S/.75.8 million for 2016. Even though the gross profit decreased, due to the lower construction activities in Norvial, our Toll Roads gross margin increased from 19.9% for 2015 to 28.7% for 2016, as a consequence of a lesser impact on gross profit from lower construction activities in Norvial, because these activities have lower margins;

 

    Mass Transit: a 4.9%, or S/.2.0 million, increase in gross profit, from S/.40.5 million for 2015 to S/.42.5 million gross profit for 2016, primarily due to the profit registered for the construction of the infrastructure expansion. Our gross margin for 2016 was 30.8%, compared to 7.9% for 2015;

 

    Water Treatment: a 159.1%, or S/.3.5 million, increase in gross profit for 2016, from S/.2.2 million gross profit for 2015 to S/.5.7 million gross profit for 2016, due to financial gains from the refinancing of the project La Chira. Our Water Treatment gross margin was 30.8% for 2016 compared to 7.9% for 2015; and

 

    Energy: a 33.7%, or S/.21.4 million, decrease in gross profit, from S/.63.5 million for 2015 to S/.42.1 million for 2016, primarily due to lower fees resulting from the decrease of international oil prices. Our Energy gross margin was 11.0% for 2016 compared to 16.3% for 2015.

Operating Profit. The table below sets forth the breakdown of our Infrastructure operating profit by principal lines of business .

 

     Year ended December 31,         
     2015 Restated      2016      Variation  
     (in millions of S/.)      %  

Toll Roads

     68.3        65.7        (3.8 )% 

Mass Transit

     29.9        29.5        (1.3 )% 

Water Treatment

     1.9        4.9        157.9  

Energy

     46.7        25.4        (45.6 )% 
  

 

 

    

 

 

    

 

 

 

Total

     146.8        125.6        (14.5 )% 

Our Infrastructure operating profit decreased 14.5%, or S/.21.2 million, from S/.146.8 million for 2015 to S/.125.6 million for 2016. Our Infrastructure operating margin was 13.8% for 2016 compared to 14.4% for 2015. The variation in our Infrastructure operating profit principally reflected the following:

 

    Toll Roads: a 3.8%, or S/.2.6 million, decrease in operating profit, from S/.68.3 million for 2015 to S/.65.7 million for 2016, primarily due to the decrease in gross profit given that administrative expenses remained at the same level. Our Toll Roads operating margin was 24.8% for 2016 compared to 17.3% for 2015;

 

    Mass Transit : a 1.3%, or S/.0.4 million, decrease in operating profit, from an operating profit of S/.29.9 million for 2015 to S/.29.5 million for 2016, due to an increase in administrative expenses as a consequence of a tax fine from prior years and legal expenses for the negotiation of the credit agreement for the project expansion. Our Mass Transit operating margin for 2016 was 17.2% compared to 19.6% for 2015;

 

    Water Treatment : a 157.9%, or S/.3.0 million, increase in operating profit, from an operating profit of S/.1.9 million for 2015 to S/.4.9 million for 2016, due to the increase in gross profit partially offset by an increase in administrative expenses due to an increase in legal expenses for the closing of the refinancing of the project. Our Water Treatment operating margin for 2016 was 26.5% compared to 6.8% for 2015; and

 

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    Energy : a 45.6%, or S/.21.3 million, decrease in operating profit, from S/.46.7 million for 2015 to S/.25.4 million for 2016, primarily due to the decrease in gross profit given that the administrative expenses remained at the same level. Our Energy operating margin was 6.6% for 2016 compared to 12.0% for 2015.

Real Estate

The table below sets forth selected financial information related to our Real Estate segment.

 

     Year ended December 31,         
     2015 Restated      2016      Variation  
     (in millions of S/.)      %  

Revenue

     215.8        411.5        90.7

Gross profit

     51.8        136.5        163.5

Operating profit

     33.0        108.9        230.0

Revenues . Our Real Estate revenues increased 90.7%, or S/.195.7 million, from S/.215.8 million for 2015 to S/.411.5 million for 2016. The increase is primarily due to the sale of land in Almonte for S/.97.0 million in 2016, compared to S/.12.0 million from land sales in 2015, as well as more units delivered in 2016 (938 units in 2016 and 835 units in 2015).

Gross Profit . Our Real Estate gross profit increased 163.5%, or S/.84.7 million, from S/.51.8 million for 2015 to S/.136.5 million for 2016, mainly as a result of the sale of land in Almonte, partially offset by lower margins in units delivered in 2016, specifically the Rancho project, compared to 2015, when more housing units with higher margins were delivered. Our Real Estate gross margin was 33.2% for 2016 compared to 24.0% for 2015.

Operating Profit . Our Real Estate operating profit increased 230.0%, or S/.75.9 million, from S/.33.0 million for 2015 to S/.108.9 million for 2016, primarily as a result of the increase in our gross profit partially offset by an increase in administrative expenses due to write-offs of pre-operational costs for projects that were not executed.

Technical Services

The table below sets forth selected financial information related to our Technical Services segment.

 

     Year ended December 31,         
     2015 Restated      2016      Variation  
     (in millions of S/.)      %  

Revenue

     1,152.5        1,401.8        21.6

Gross profit

     178.3        171.8        (3.6 )% 

Operating profit

     70.3        57.1        (18.8 )% 

Revenues . The table below sets forth the breakdown of our Technical Services revenues by principal lines of business.

 

     Year ended December 31,         
     2015 Restated      2016      Variation  
     (in millions of S/.)      %  

Operation and Maintenance of Infrastructure Assets

     334.8        262.7        (21.5 )% 

IT Services

     253.9        411.1        61.9

Electricity Networks Services

     563.9        727.9        29.1
  

 

 

    

 

 

    

 

 

 

Total

     1,152.5        1,401.8        21.6

Our Technical Services revenues increased 21.6% or S/.249.3 million, from S/.1,152.5 million for 2015 to S/.1,401.8 million for 2016. The variation in our Technical Services revenues principally reflected the following:

 

    Operation and Maintenance of Infrastructure Assets : a 21.5%, or S/.72.1 million, decrease in revenues, from S/.334.8 million for 2015 to S/.262.7 million for 2016, primarily due to the termination of the Red Vial 3 and Covial contracts by the end of 2015;

 

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    IT Services : a 61.9%, or S/.157.2 million, increase in revenues, from S/.253.9 million for 2015 to S/.411.1 million for 2016, primarily as a result of the consolidation of Adexus, as of August 2016. In addition the increase is due to the initiation of new projects mainly in the business process outsourcing and information system outsourcing divisions; and

 

    Electricity Networks Services : a 29.1%, or S/.164.0 million, increase in revenues, from S/.563.9 million for 2015 to S/.727.9 million for 2016, primarily due to an increase in revenues in the electric and telecommunications division in Chile and Colombia as a consequence of contracts awarded during 2016.

Gross Profit. The table below sets forth the breakdown of our Technical Services gross profit by principal lines of business.

 

     Year ended December 31,         
     2015 Restated      2016      Variation  
     (in millions of S/.)      %  

Operation and Maintenance of Infrastructure Assets

     61.1        45.3        (25.9 )% 

IT Services

     40.4        65.0        61.0

Electricity Networks Services

     76.7        61.6        (19.7 )% 
  

 

 

    

 

 

    

 

 

 

Total

     178.3        171.8        (3.5 )% 

Our Technical Services gross profit decreased 3.5%, or S/.6.5 million, from S/.178.3 million for 2015 to S/.171.8 million for 2016. Our Technical Services gross margin was 12.3% for 2016 compared to 15.5% for 2015. The variation in our Technical Services gross profit principally reflected the following:

 

    Operation and Maintenance of Infrastructure Assets : a 25.9%, or S/.15.8 million, decrease in gross profit, from S/.61.1 million for 2015 to S/.45.3 million for 2016, due to the reduction of revenues and reworks required in connection with a project executed in prior years and additional costs recognized in the Red Vial 3 project. Our Operation and Maintenance of Infrastructure Assets gross margin was 17.2% for 2016 compared to 18.3% for 2015;

 

    IT Services : a 61.0%, or S/.24.6 million, increase in gross profit, from S/.40.4 million for 2015 to S/.65.0 million for 2016, due to the consolidation of Adexus as of August 2016. Our IT Services gross margin was 15.8% for 2016 compared to 15.9% for 2015; and

 

    Electricity Networks Services : a 19.7%, or S/.15.1 million, decrease in gross profit, from S/.76.7 million for 2015 to S/.61.6 million for 2016. Our Electricity Networks Services gross margin was 8.5% for 2016 compared to 13.6% for 2015, primarily due to the initial stages of the new contracts, which tend to have lower margins in the initial stage.

Operating Profit. The table below sets forth the breakdown of our Technical Services operating profit by principal lines of business.

 

     Year ended December 31,         
     2015 Restated      2016      Variation  
     (in millions of S/.)      %  

Operation and Maintenance of Infrastructure Assets

     34.0        20.6        (39.4 )% 

IT Services

     16.5        24.4        47.5

Electricity Networks Services

     19.8        12.1        (38.9 )% 
  

 

 

    

 

 

    

 

 

 

Total

     70.3        57.1        (18.8 )% 

Our Technical Services operating profit decreased 18.8%, or S/.13.2 million, from S/.70.3 million for 2015 to S/.57.1 million for 2016. Our Technical Services operating margin for 2016 was 4.1% compared to 6.1% for 2015. The variation in our Technical Services operating profit principally reflected the following:

 

    Operation and Maintenance of Infrastructure Assets : a S/.13.4 million decrease in operating profit, from a S/.34.0 million profit for 2015 to a S/.20.6 million profit for 2016, primarily due to the decrease in gross profit. Our Operation and Maintenance of Infrastructure Assets operating margin was 7.8% for 2016 compared to 10.2% for 2015;

 

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    IT Services : a 47.5%, or S/.7.9 million, increase in operating profit, from S/.16.5 million for 2015 to S/.24.4 million for 2016, primarily due to the increase in gross profit, partially offset by an increase in administrative expenses mostly relating to the acquisition of Adexus. Our IT Services operating margin was 5.9% for 2016 compared to 6.5% for 2015; and

 

    Electricity Networks Services : a 38.9%, or S/.7.7 million, decrease in operating profit, from S/.19.8 million for 2015 to S/.12.1 million for 2016, In 2015, the operating profit was impacted by the sale of the division in Brazil of CAM at a value lower than book value. Our Electricity Network Services operating margin was 1.7% for 2016 compared to 3.5% for 2015.

Financial (Expense) Income, Net

Our net financial expense increased S/.72.1 million from net financial expenses of S/.138.7 million in 2015 to net financial expenses of S/.210.8 million in 2016. Excluding foreign exchange differences, our net financial expense increased 255.4%, or S/.142.5 million, from net financial expenses of S/.55.8 million for 2015 to net financial expenses of S/.198.3 million for 2016 due to the interest paid on our syndicated loan and a discount of the long term account receivable related to the termination of the GSP gas pipeline concession. Our net exchange difference decreased S/.70.4 million, from a loss of S/.82.9 million for 2015 to a loss of S/.12.5 million for 2016. This decrease is due to the appreciation of the sol against the U.S. dollar from 2015 to 2016.

Share of Profit and Loss in Associates

Our share of profit and loss in associates decreased S/.597.4 million from a profit of S/.7.7 million in 2015 to a loss of S/.589.7 million in 2016. This decrease is primarily due to the impairment of our investment in GSP as a consequence of the cancellation of the concession on January 24, 2017. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

Income Tax

Our income tax decreased 212.9%, or S/.210.8 million, from S/.(99.0) million for 2015 to S/.111.8 million for 2016. This decrease in income tax was primarily due to a decrease in profit before tax. Our effective tax rates for 2016 and 2015 were (19.8)% and 64.0%, respectively.

Net Profit

Our net profit decreased S/.507.3 million, from S/.55.6 million profit for 2015 to a S/.451.7 million loss for 2016. Net profit attributable to controlling interests decreased S/.516.8 million, while net profit attributable to non-controlling interests increased S/9.6 million. Net profit attributable to non-controlling interests increased primarily due to our Real Estate segment. See “—General—Accounting for Subsidiaries, Joint Operations, Joint Ventures and Associated Companies.”

Comparison of Results of Operations of 2014 and 2015

The following table sets forth the components of our consolidated income statement for 2014 and 2015.

 

     Year ended December 31,         
   2014      2015 Restated      Variation  
   (in millions of S/.)      %  

Revenues

     7,008.7      7,815.5      11.5  

Cost of sales

     (6,057.1      (7,165.5      18.3  
  

 

 

    

 

 

    

Gross profit

     951.6      650.0      (31.7

Administrative expenses

     (421.4      (413.4      (1.9

Other income (expenses)

     15.2      57.4      277.6  

Other (losses) gains, net

     (0.1      (0.1      NM  

Profit from sale of investments

     0.0      (8.3      NM  
  

 

 

    

 

 

    

Operating profit

     545.3      285.6        (47.6

Financial (expense) income, net

     (91.4      (138.7      51.8  

Share of profit and loss in associates

     53.4      7.7      (85.6
  

 

 

    

 

 

    

Profit (loss) before income tax

     507.3      154.6      (69.5

Income tax

     (146.2      (99.0      (32.3
  

 

 

    

 

 

    

 

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     Year ended December 31,         
   2014      2015 Restated      Variation  
   (in millions of S/.)      %  

Net profit

     361.1      55.6      (84.6

Net profit attributable to controlling interest

     299.7      7.1      (97.6

Net profit attributable to non-controlling interest

     61.5      48.5      (21.1

Revenues

Our total revenues increased by 11.5%, or S/.806.8 million, from S/.7,008.7 million for 2014 to S/.7,815.5 million for 2015. This increase was due mainly to growth in our E&C segment, primarily due to the acquisition of Morelco in December 2014 and the increase in electromechanic construction and contract mining services activities, and in our Infrastructure segment, primarily due to higher revenues of Norvial, the increase of trains in operation in the Lima Metro, and the commencement of operations in Blocks III and IV in April 2015 in GMP.

The following table sets forth a breakdown of our revenues by segment for 2014 and 2015.

 

     Year ended December 31,        
     2014     2015 Restated     Variation  
    

(in millions

of S/.)

    % of Total    

(in millions

of S/.)

    % of Total     %  

Engineering and Construction

     5,035.7     71.8     5,829.4     74.6     15.8

Infrastructure

     884.8     12.6     1,018.3     13.0     15.1

Real Estate

     224.6     3.2     215.8     2.8     (3.9

Technical Services

     1,208.2     17.2     1,152.5     14.7     (4.6

Corporate

     53.2     0.8     70.5     0.9     32.5

Eliminations

     (397.8     (5.7     (471.0     (6.0     18.5
  

 

 

   

 

 

   

 

 

   

 

 

   

Total

     7,008.7     100.0     7,815.5     100.0     11.5

Cost of Sales

Our total cost of sales increased by 18.3%, or S/.1,108.4 million, S/.6,057.1 million for 2014 to S/.7,165.5 million for 2015. This increase was related to the growth in our revenues as well as in our E&C segment, an increase in cost in certain civil construction projects, losses incurred from a dispute with respect to an E&C contract with Hochschild Mining for the Inmaculada mining project and losses incurred because of the cancellation of the El Nuble hydroelectric project, for which our subsidiary Vial y Vives was carrying on civil works in Chile.

Gross Profit

Our gross profit decreased by 31.7%, or S/.301.6 million, from S/.951.6 million for 2014 to S/.650.0 million for 2015. Our gross margin (i.e., gross profit as a percentage of revenues) for 2015 was 8.3% compared to 13.6% for 2014. This decrease in our gross margin was mainly due to lower gross margins in our E&C segment, primarily due to lower margins in certain civil construction projects and our Real Estate segment, primarily due to lower margins in the units delivered and the lower number of units. In 2015 our E&C margins were impacted by losses incurred from a dispute (errors in the engineering, which led to reworks and extension of the term of the project which carries out more general expenses) with respect to an E&C contract with Hochschild Mining for the Inmaculada mining project and losses incurred because of the cancellation of the El Nuble hydroelectric plant project, for which our subsidiary Vial y Vives was carrying out civil works in Chile. These two contracts were lump-sum contracts. As of December 2015, both projects have been completed, therefore all the impact was registered that year.

 

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The following table sets forth a breakdown of our gross profit by segment for 2014 and 2015.

 

     Year ended December 31,        
     2014     2015 Restated     Variation  
    

(in millions

of S/.)

    % of Total    

(in millions

of S/.)

    % of Total     %  

Engineering and Construction

     535.4     56.3     312.8     48.1     (41.6

Infrastructure

     245.6     25.8     184.8     28.4     (24.8

Real Estate

     62.4     6.6     51.8     8.0     (17.0

Technical Services

     142.3     15.0     178.3     27.4     25.3

Corporate

     (7.6     (0.8     (7.0     (1.1     (7.9

Eliminations

     (26.5     (2.8     (70.6     (10.9     166.4
  

 

 

   

 

 

   

 

 

   

 

 

   

Total

     951.6     100.0     650.0     100.0     (31.7

Administrative Expenses

Our administrative expenses decreased by 1.9%, or S/.8.0 million, from S/.421.4 million for 2014 to S/.413.4 million for 2015, primarily due to the decrease of administrative expenses in the Technical Services segment, specifically in CAM and GMD. As a percentage of revenues, our administrative expenses decreased to 5.3% in 2015 from 6.0% in 2014.

Other Income (Expenses)

Our other income (expenses) increased S/.42.2 million, from S/.15.1 million for 2014 to S/.57.4 million for 2015. This increase was primarily due to an increase in our E&C segment, from a S/.9.8 million loss to a S/.30.8 million profit as a result of a gain on the fair value of the liability for a put option related to the Morelco acquisition in 2014, the reversal of provisions in connection with the CAM acquisition, the dividends received from TGP and the sale of certain machinery and equipment.

Operating Profit

Our operating profit decreased 47.6% or S/.259.7 million, from S/.545.3 million for 2014 to S/.285.6 million for 2015. Our operating margin (i.e., operating profit as a percentage of revenues) was 3.7% for 2015 compared to 7.8% for 2014. This decrease is primarily due to the decrease in gross profit, partially offset by our decrease in administrative expenses and our increase in other income (expenses). The following table sets forth a breakdown of our operating profit by segment for 2014 and 2015.

The following table sets forth a breakdown of our operating profit by segment for 2014 and 2015.

 

     Year ended December 31,        
     2014     2015 Restated     Variation  
    

(in millions

of S/.)

    % of Total    

(in millions

of S/.)

    % of Total     %  

Engineering and Construction

     267.0     49.0     54.2     19.0     (79.9

Infrastructure

     201.9     37.0     146.8     51.4     (27.3

Real Estate

     40.5     7.4     33.0     11.6     (18.5

Technical Services

     25.7     4.7     70.3     24.6     173.5

Corporate

     (21.0     (3.9     (25.8     (9.0     22.9

Eliminations

     31.2     5.7     7.0     2.5     (77.5
  

 

 

   

 

 

   

 

 

   

 

 

   

Total

     545.3     100.0     285.6     100.0     (47.6

The following discussion analyzes our key results of operations on a segment basis. For further information on our business segments, see note 6 to our audited annual consolidated financial statements included in this annual report.

Engineering and Construction

The table below sets forth selected financial information related to our E&C segment.

 

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     Year ended December 31,         
     2014      2015
Restated
     Variation  
     (in millions of S/.)      %  

Revenue

     5,035.7      5,829.4      15.8

Gross profit

     535.4      312.8      (41.6

Operating profit

     267.0      54.2      (79.7

Revenues . Our E&C revenues increased 15.8%, or S/.793.7 million, from S/.5,035.7 million for 2014 to S/.5,829.4 million for 2015, primarily due to the acquisition of Morelco in December 2014 and the growth in revenues in our electromechanic and contract mining activities.

The following describes variations in our E&C revenues by business activities, types of contracts and end-markets:

 

     Year ended December 31,  
     (in millions of S/.)  
     2014             2015
Restated
            Variation  
            %             %      %  

Engineering services

     361.1        7.2        169.3        2.9        53.1  

Electromechanic construction

     1,082.9        21.6        1,603.2        27.6        48.1  

Civil construction

     1,754.1        35.0        1,360.1        23.3        22.5  

Contract mining

     1,312.7        26.2        2,066.4        35.4        57.4  

Building construction activities

     505.9        10.1        630.4        10.8        24.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

Total

     5,035.7        100.0        5,829.4        100.0     

 

     Year ended December 31,  
     2014      2015
Restated
 
     %      %  

Cost + fee

     43.9        28.0  

Unit price

     29.5        49.0  

Lump sum

     11.4        11.0  

EPC contracts

     15.3        12.0  
  

 

 

    

 

 

 

Total

     100.0        100.0  

 

     Year ended December 31,  
     2014      2015
Restated
 
     %      %  

Mining

     70.4        60.1  

Real estate buildings

     10.4        9.0  

Power

     10.2        10.0  

Oil and gas

     2.6        15.9  

Transportation

     4.2        3.0  

Water and sewage

     1.2        2.0  

Other end markets

     1.1        —    
  

 

 

    

 

 

 

Total

     100.0        100.0  

 

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The breakdown of E&C revenues by different business activities, types of contracts and end-markets tends to vary from period to period due to a variety of factors, including the timing of the execution of larger projects in any particular period, which is typically outside of our control.

Gross Profit . Our E&C gross profit decreased 41.6%, or S/.222.6 million, from S/.535.4 million for 2014 to S/.312.8 million for 2015. Our E&C gross margin for 2015 was 5.4% compared to 10.6% for 2014. The decrease in gross profit was due to losses incurred from a dispute (errors in the engineering, which led to reworks and extension of the term of the project which carries out more general expenses) with respect to an E&C contract with Hochschild Mining for the Inmaculada mining project and losses incurred because of the cancellation of the El Nuble hydroelectric plant project, for which our subsidiary Vial y Vives was carrying out civil works in Chile. As of December 2015, both projects have been completed, therefore all the impact was register that year.

Operating Profit . Our E&C operating profit decreased 79.7%, or S/.212.8 million, from S/.267.0 million for 2014 to S/.54.2 million for 2015. Our E&C administrative expenses decreased 11.8%, or S/.30.6 million, which resulted in administrative expenses as a percentage of revenues of 5.0% for 2015 compared to 5.1% for 2014, due mainly to a decrease in the administrative expenses of GyM. Our E&C operating margin for 2015 was 0.9% compared to 5.3% for 2014.

In addition, our E&C segment had S/.12.9 million in profit from minority interests held by Vial y Vives in several of its projects undertaken in 2015 in Chile, as well as the minority participation of GyM in Viva GyM reflected under “share of profit and loss in associates” in our audited annual consolidated financial statements.

Infrastructure

The table below sets forth selected financial information related to our Infrastructure segment.

 

     Year ended December 31,         
     2014      2015
Restated
     Variation  
     (in millions of S/.)      %  

Revenue

     884.8      1,018.3      15.1

Gross profit

     245.6      184.8      (24.8

Operating profit

     201.9      146.8      (27.3

Revenues . The table below sets forth the breakdown of our Infrastructure revenues by principal lines of business.

 

     Year ended December 31,         
     2014      2015
Restated
     Variation  
     (in millions of S/.)      %  

Toll Roads

     338.2      394.5      16.6

Mass Transit

     167.0      206.5      23.7

Water Treatment

     29.3      28.0      (4.4

Energy

     350.3      389.4      11.2
  

 

 

    

 

 

    

Total

     884.8      1,018.3      15.1

Our Infrastructure revenues increased 15.1% or S/.133.5 million, from S/.884.8 million for 2014 to S/.1,018.3 million for 2015. The variation in our Infrastructure revenues principally reflected the following:

 

    Toll Roads : a 16.6%, or S/.56.3 million, increase in revenues, from S/.338.2 million for 2014 to S/.394.5 million for 2015, primarily due to the recognition of the work progress for the second stage of the Norvial toll road partially offset by a decrease in revenues in Survial.;

 

    Mass Transit : a 23.7%, or S/.39.5 million, increase in revenues, from S/.167.0 million for 2014 to S/.206.5 million for 2015, primarily due to the increase of trains in operation from 14 trains at the beginning of 2014 to 24 trains (including the backup trains) in September 2014;

 

    Water Treatment : a 4.4%, or S/.1.3 million, decrease in revenues, from S/.29.3 million for 2014 to S/.28.0 million for 2015, primarily due to slower progress in the construction of the La Chira waste water treatment plant due to anomalous water movements; and

 

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    Energy: a 11.2%, or S/.39.1 million, increase in revenues, from S/.350.3 million for 2014 to S/.389.4 million for 2015, primarily due to a 65.8% growth in our barrel daily production (2,910 barrel daily production in 2015 versus 1,755 in 2014) resulting from the commencement of operations in Blocks III and IV in April 2015, despite a decrease in international oil prices (average price per basket of oils of US$52.4 bbl in 2015 versus US$97.1 bbl in 2014), in addition to higher processing levels at the our gas processing plant which increased from 27.6 MMcf per day in 2014 to 31.6 MMcf per day in 2015.

Gross Profit . The table below sets forth the breakdown of our Infrastructure gross profit by principal lines of business.

 

     Year ended December 31,         
     2014      2015
Restated
     Variation  
     (in millions of S/.)      %  

Toll Roads

     76.7      78.5      2.4

Mass Transit

     42.1      40.5      (3.8

Water Treatment

     2.3      2.2      (4.6

Energy

     124.5      63.5      (49.0
  

 

 

    

 

 

    

Total

     245.6      184.8      (24.8

Our Infrastructure gross profit decreased 24.8%, or S/.60.8 million, from S/.245.6 million for 2014 to S/.184.8 million for 2015. Our Infrastructure gross margin was 18.1% for 2015 compared to 27.8% for 2014. The variation in our Infrastructure gross profit principally reflected the following:

 

    Toll Roads: a 2.4%, or S/.1.8 million, increase in gross profit, from S/.76.7 million for 2014 to S/.78.5 million for 2015. This increase was primarily due to the increase in revenues from Norvial, partially offset by a decrease in gross profit in Survial. Our Toll Roads gross margin was 19.9% for 2015 compared to 22.7% for 2014, primarily due to the recognition of revenues from construction activities in Norvial which have lower margins and impact the overall margins in Toll Roads;

 

    Mass Transit: a 3.8%, or S/.1.6 million, decrease in gross profit, from S/.42.1 million for 2014 to S/.40.5 million gross profit for 2015, primarily due to an increase in costs due to the increase in trains in operation. Our Mass Transit gross margin for 2015 was 19.6% compared to 25.2% for 2014;

 

    Water Treatment: a 4.6%, or S/.0.1 million, decrease in gross profit for 2015, from S/.2.3 million gross profit for 2014 to S/.2.2 million gross profit for 2015, primarily due to effects on our revenues derived from the deduction of construction costs. Our Water Treatment gross margin was 7.9% for 2015 compared to 7.9% for 2014; and

 

    Energy: a 49%, or S/.61.0 million, decrease in gross profit, from S/.124.5 million for 2014 to S/.63.5 million for 2015, primarily due to lower fees resulting from the decrease of international oil prices. Our Energy gross margin was 16.3% for 2015 compared to 35.5% for 2014.

Operating Profit . The table below sets forth the breakdown of our Infrastructure operating profit by principal lines of business.

 

     Year ended December 31,         
     2014      2015
Restated
     Variation  
     (in millions of S/.)      %  

Toll Roads

     68.7      68.3      (0.6

Mass Transit

     27.4      29.9      9.1

Water Treatment

     2.0      1.9      (5.0

Energy

     103.8      46.7      (55.1
  

 

 

    

 

 

    

Total

     201.9      146.8      (27.3

Our Infrastructure operating profit decreased 27.3%, or S/.55.1 million, from S/.201.9 million for 2014 to S/.146.8 million for 2015. Our Infrastructure operating margin was 14.4% for 2015 compared to 22.8% for 2014. The variation in our Infrastructure operating profit principally reflected the following:

 

    Toll Roads: a 0.6%, or S/.0.4 million, decrease in operating profit, from S/.68.7 million for 2014 to S/.68.3 million for 2015, primarily due to the decrease in gross profit in Survial. Our Toll Roads operating margin was 17.3% for 2015 compared to 20.3% for 2014, primarily due to the recognition of revenues from construction activities in Norvial which have lower margins and impact the overall margins in Toll Roads;

 

 

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    Mass Transit : a 9.1%, or S/.2.5 million, increase in operating profit, from an operating profit of S/.27.4 million for 2014 to S/.29.9 million for 2015, primarily due to the decrease in administrative expenses. Our Mass Transit operating margin for 2015 was 14.5 % compared to 16.4% for 2014;

 

    Water Treatment : a 5.0%, or S/.0.1 million, decrease in operating profit, from an operating profit of S/.2.0 million for 2014 to S/.1.9 million for 2015, due to the decrease in gross profit. Our Water Treatment operating margin for 2015 was 6.8% compared to 6.8% for 2014; and

 

    Energy : a 55.0%, or S/.57.1 million, decrease in operating profit, from S/.103.8 million for 2014 to S/.46.7 million for 2015, primarily due to the decrease in gross profit. Our Energy operating margin was 12.0% for 2015 compared to 29.6% for 2014.

Real Estate

The table below sets forth selected financial information related to our Real Estate segment.

 

     Year ended December 31,         
     2014      2015
Restated
     Variation  
     (in millions of S/.)      %  

Revenue

     224.6      215.8      (3.9

Gross profit

     62.4      51.8      (17.0

Operating profit

     40.5      33.0      (18.5

Revenues . Our Real Estate revenues decreased 3.9%, or S/.8.8 million, from S/.224.6 million for 2014 to S/.215.8 million for 2015. Even though the total units (housing plus affordable housing) delivered increased by 1.0%, the decrease in revenue was primarily due to a 29.2 % decrease in the number of housing units delivered, with 42 units delivered in 2015 compared to 59 units delivered in 2014.

Gross Profit . Our Real Estate gross profit decreased 17.0%, or S/.10.6 million, from S/.62.4 million for 2014 to S/.51.8 million for 2015, mainly as a result of lower margins in units delivered in 2015 compared to 2014, when more housing units with higher margins were delivered. Our Real Estate gross margin was 24.0% for 2015 compared to 27.8% for 2014.

Operating Profit . Our Real Estate operating profit decreased 18.5%, or S/.7.5 million, from S/.40.5 million for 2014 to S/.33.0 million for 2015, primarily as a result of the decrease in our Real Estate gross profit.

Technical Services

The table below sets forth selected financial information related to our Technical Services segment.

 

     Year ended December 31,         
     2014      2015
Restated
     Variation  
     (in millions of S/.)      %  

Revenue

     1,208.2      1,152.5      (4.6

Gross profit

     142.3      178.3      25.3

Operating profit

     25.7      70.3      173.5

Revenues . The table below sets forth the breakdown of our Technical Services revenues by principal lines of business.

 

     Year ended December 31,         
     2014      2015
Restated
     Variation  
     (in millions of S/.)      %  

Operation and Maintenance of Infrastructure Assets

     364.4      334.8      (8.1

IT Services

     247.9      253.9      2.4

Electricity Networks Services

     595.9      563.9      (5.4
  

 

 

    

 

 

    

Total

     1,208.2      1,152.5      (4.6

 

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Our Technical Services revenues decreased 4.6% or S/.55.6 million, from S/.1,208.2 million for 2014 to S/.1,152.5 million for 2015. The variation in our Technical Services revenues principally reflected the following:

 

    Operation and Maintenance of Infrastructure Assets : a 8.1%, or S/.29.6 million, decrease in revenues, from S/.364.4 million for 2014 to S/.334.8 million for 2015, primarily due to lower revenues in the Red Vial 3 and Cora Cora projects;

 

    IT Services : a 2.4%, or S/.6.0 million, increase in revenues, from S/.247.9 million for 2014 to S/.253.9 million for 2015, primarily as a result of the increase of 15.8% in IT outsourcing services revenues; and

 

    Electricity Networks Services : a 5.4%, or S/.32 million, decrease in revenues, from S/.595.9 million for 2014 to S/.563.9 million for 2015, primarily due to lower revenues in the divisions of network construction and automation and telemetry.

Gross Profit. The table below sets forth the breakdown of our Technical Services gross profit by principal lines of business.

 

     Year ended December 31,         
     2014      2015
Restated
     Variation  
     (in millions of S/.)      %  

Operation and Maintenance of Infrastructure Assets

     8.2      61.1      648.0

IT Services

     46.5      40.4      (13.1

Electricity Networks Services

     87.7      76.7      (12.6
  

 

 

    

 

 

    

Total

     142.3      178.2      25.2

Our Technical Services gross profit increased 25.2%, or S/.36.0 million, from S/.142.3 million for 2014 to S/.178.3 million for 2015. Our Technical Services gross margin was 15.5% for 2015 compared to 11.8% for 2014. The variation in our Technical Services gross profit principally reflected the following:

 

    Operation and Maintenance of Infrastructure Assets : a 648.0%, or S/.52.9 million, increase in gross profit, from S/.8.2 million for 2014 to S/.61.1 million for 2015, primarily due to the execution of a new maintenance project for Survial as well as higher margins in the Cerro de Pasco-Tingo María project (22.3% in 2015 vs 17.1% in 2014). Our Operation and Maintenance of Infrastructure Assets gross margin was 18.3% for 2015 compared to 2.2% for 2014;

 

    IT Services : a 13.1%, or S/.6.1 million, decrease in gross profit, from S/.46.5 million for 2014 to S/.40.4 million for 2015, primarily related to lower margins in systems integration and business processes outsourcing services. Our IT Services gross margin was 15.9% for 2015 compared to 18.7% for 2014; and

 

    Electricity Networks Services : a 12.6%, or S/.11.0 million, decrease in gross profit, from S/.87.7 million for 2014 to S/.76.7 million for 2015, primarily due to lower margins in projects in Chile and Colombia and termination of certain contracts. Our Electricity Networks Services gross margin was 13.6% for 2015 compared to 14.7% for 2014.

Operating Profit. The table below sets forth the breakdown of our Technical Services operating profit by principal lines of business.

 

     Year ended December 31,         
     2014      2015
Restated
     Variation  
     (in millions of S/.)      %  

Operation and Maintenance of Infrastructure Assets

     (22.4      34.0      N/M

IT Services

     15.8      16.5      4.7

Electricity Networks Services

     32.3      19.8      (38.7
  

 

 

    

 

 

    

Total

     25.7      70.3      173.7

 

 

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Our Technical Services operating profit increased 173.7%, or S/.44.6 million, from S/.25.7 million for 2014 to S/.70.3 million for 2015. Our Technical Services operating margin for 2015 was 6.1% compared to 2.1% for 2014. The variation in our Technical Services operating profit principally reflected the following:

 

    Operation and Maintenance of Infrastructure Assets : a S/.56.4 million increase in operating profit, from a S/.22.4 million loss for 2014 to a S/.34.0 million profit for 2015, primarily due to a higher gross profit and lower administrative expenses. Our Operation and Maintenance of Infrastructure Assets operating margin was 10.2% for 2015 compared to (6.1)% for 2014;

 

    IT Services : a 4.7%, or S/.0.7 million, increase in operating profit, from S/.15.8 million for 2014 to S/.16.5 million for 2015, primarily due to lower administrative expenses. Our IT Services operating margin was 6.5% for 2015 compared to 6.4% for 2014; and

 

    Electricity Networks Services : a 38.7%, or S/.12.5 million, decrease in operating profit, from S/.32.3 million for 2014 to S/.19.8 million for 2015, primarily due to lower margins in projects in Chile and Colombia and termination of certain contracts and lower reversal of provisions in 2015 (S/.9.4 million) than in 2014 (S/.7.8 million) in connection with the CAM acquisition which offset the increase in gross profit between the two periods. Our Electricity Network Services operating margin was 3.5% for 2015 compared to 5.4% for 2014.

Financial (Expense) Income, Net

Our net financial expense increased S/.47.3 million from net financial expenses of S/.91.4 million in 2014 to net financial expenses of S/.138.7 million in 2015. This increase is a consequence of the increase of the working capital debt in the E&C area throughout the year due to delays in obtaining payments from our E&C clients during 2015, in particular in the mining sector. Excluding foreign exchange differences, our net financial expense decreased 18.5%, or S/.8.7 million, from net financial expenses of S/.47.1 million for 2014 to net financial expenses of S/.55.8 million for 2015. Our net exchange difference increased S/.38.6 million, from a loss of S/.44.3 million for 2014 to a loss of S/.82.9 million for 2015. This increase is due to both the depreciation of the sol against the U.S. dollar from 2014 to 2015, partially offset by the replacement of dollar-denominated debt with soles denominated debt.

Share of Profit and Loss in Associates

Our share of profit and loss in associates decreased S/.45.7 million from a profit of S/.53.4 million in 2014 to a profit of S/.7.7 million in 2015. This decrease is primarily due to lower profits generated in projects where Vial y Vives –DSD, Viva GyM and CAM have minority participation and are not consolidated.

Income Tax

Our income tax decreased 32.3%, or S/.47.2 million, from S/.146.2 million for 2014 to S/.99.0 million for 2015. This decrease in income tax was primarily due to a decrease in profit before tax. Our effective tax rates for 2015 and 2014 were 64.0% and 28.8%, respectively.

Net Profit

Our net profit decreased 84.6%, or S/.305.5 million, from S/.361.1 million for 2014 to S/.55.6 million for 2015. Net profit attributable to controlling interests decreased 97.6%, while net profit attributable to non-controlling interests decreased 21.1%. Net profit attributable to non-controlling interests decreased primarily due to our E&C and Real Estate segments. See “—General—Accounting for Subsidiaries, Joint Operations, Joint Ventures and Associated Companies.”

B. Liquidity and Capital Resources

Our principal sources of liquidity have historically been cash flows from operating activities and, to a lesser extent, equity capitalization and indebtedness. We conducted an initial public offering of ADSs in July 2013 from which we received approximately US$411.3 million in net proceeds. During 2015 we entered into a medium term loan credit agreement for up to US$200 million (S/.672 million) with Credit Suisse and our subsidiaries GyM Ferrovías and Norvial issued bonds for S/.629 million (US$184.3 million) and S/.365 million (US$106.9 million), respectively.

 

 

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As a result of the termination of the GSP gas pipeline concession, we have renegotiated three debt instruments as follows: (i) we amended the terms of our syndicated loan related to our equity investment in GSP; (ii) we repaid our proportional guarantee of the GSP bridge loan and entered a new term loan in a principal amount of US$78.7 million (S/.264.8 million); and (iii) we amended the terms of our proportional repayment obligations under the GSP performance guarantee. In order to strengthen our liquidity and financial flexibility, particularly in the event of potential delays in receiving the government payment contemplated under the GSP gas pipeline concession contract, and make payments on our debt related to the GSP project, our board has approved the sale of non-strategic assets in the amount of up to US$350 million (S/.1,176 million) in proceeds. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

Our principal uses of cash (other than in connection with our operating activities) have historically been: capital expenditures in all our business segments, including acquisitions and investments in our infrastructure concessions; servicing of our debt; and payment of dividends. We believe that these sources of cash will be sufficient to cover our working capital needs in the ordinary course of business. We believe that our cash from operations, our current financing sources and the sale of non-strategic assets, as described in “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments”, are sufficient to satisfy our current capital expenditures and debt service obligations through the next 12 months.

We had credit lines with various financial institutions for a total amount of US$2,877.4 million as of December 31, 2016 and for a total amount of US$2,659.9 million as of December 31, 2015. Our available lines of credit as of December 31, 2017 totaled US$1,427.33 million. However, our banks have currently restricted us from taking out further lines of credit to finance new operations. See “Recent Developments— Emergency Decree and Subsequent Legislation.”

We are currently in default of certain of the covenants under these financial instruments. For more information, see “Item 13. Defaults, Dividend Arrearages and Delinquencies.”

At December 31, 2016, our cash and cash equivalents totaled S/.606.9 million (US$180.6 million), of which S/.16.2 million (US$4.8 million) was held by our foreign subsidiaries. We currently intend to distribute these funds to our company to the extent we believe they are not required for the local operations. We are not currently required to accrue or pay any material taxes associated with the repatriation of these funds. In addition, our foreign subsidiaries have no contractual restrictions, and we are not aware of any material legal restrictions, on their ability to transfer funds to us in the form of cash dividends, loans or advances.

Cash Flows

The table below sets forth certain components of our cash flows for 2014, 2015 and 2016.

 

     Year ended December 31,  
     2014      2015      2016  
     (in millions of S/.)  

Net cash provided by (used in) operating activities

     (23.2      (286.8      377.4  

Net cash provided by (used in) investing activities

     (530.1      (568.7      (373.7

Net cash provided by (used in) financing activities

     412.3      573.5        85.8  
  

 

 

    

 

 

    

 

 

 

Net increase (net decrease) in cash

     (141.0      (281.9      89.4  

Cash Flow from Operating Activities

Net cash flow used in operating activities in 2016 was lower than in 2015. For 2016 this reflects a reduction in the account receivables in the E&C segment mainly explained by the termination of two significant mining projects to the end of 2015.

Net cash flow used in operating activities in 2015 was higher than in 2014. For 2015 this reflects an increase in accounts payable, other accounts receivables, account receivables from related parties and inventory, mainly related to the proportional consolidation of the GSP construction consortium, and the advances of work of the expansion of Norvials Toll Road.

 

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Cash Flow from Investing Activities

Net cash flow used in investing activities in 2016 was lower than in 2015. In 2016 we continued with the equity contribution to the GSP consortium.

Net cash flow used in investing activities in 2015 was higher than in 2014. This mainly reflects the purchase of a 20% stake in the GSP consortium.

Cash Flow from Financing Activities

Net cash flow provided by financing activities in 2016 was lower than in 2015. This is primarily due to a reduction of indebtedness in our E&C segment due to the collection of account receivables and a reduction of debt in the Real Estate segment due to more projects in execution, with sufficient cash flows to repay their debt, partially offset by an increase in the Infrastructure and Technical Services segments, mainly due to the increase in the Norvial bond and consolidation of Adexus. Additionally, in 2016 less dividends were paid and there was an increase in the participation of Vial y Vives –DSD.

Net cash flow provided by financing activities in 2015 was higher than in 2014. This is primarily due to a 60.0% increase in the loans received because of higher levels of indebtedness in our E&C segment.

 

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Indebtedness

As of December 31, 2016, we had a total outstanding indebtedness of S/.3,348.3 million (US$996.5 million) as set forth in the table below.

 

                 Currency                          Range of Maturity
Dates
 

Segment

  

Type

   (in millions
of US$)
     (in millions
of S/.
     (in millions
of CLP) (1)
     (in millions
of COP)
     Total in
millions
of S/.
     Total in
millions
of US$
     Weighted
average
interest
rate
    Earliest      Latest  

Engineering and Construction:

   Leasing      37.9        1.8        2,210.0        5,853.7        146.7        43.7        3.91     01/01/2017        02/01/2023  
   Promissory note      86.2        309.6        7,031.7        42,572.3        681.9        202.9        4.12     01/01/2017        06/07/2020  

Infrastructure:

   Leasing      3.9                 13.2        3.9        6.93     20/03/2017        01/04/2020  
   Long-term loan      28.6        967.7              1,063.7        316.6        5.79     03/09/2017        25/11/2039  
   Promissory note      15.9                 53.4        15.9        2.58     06/01/2017        18/02/2017  

Real Estate:

   Leasing         21.4              21.4        6.4        7.84     01/06/2018        01/07/2022  
   Promissory note         201.6              201.6        60.0        7.28     01/01/2017        13/08/2017  

Technical Services:

   Leasing      1.8        22.7        5,755.8        6,947.0        65.4        19.5        7.40     17/01/2017        30/10/2020  
   Promissory note         18.3        25,299.8        21,137.9        168.9        50.3        7.76     03/01/2017        27/10/2020  

Corporate:

   Long- term loans (2)      277.4                 932.1        277.4        6.19     27/06/2020        10/12/2020  

Total

        451.7        1,543.1        40,297.2        76,510.9        3,348.3        996.5          

 

(1) Includes debt held by CAM and its subsidiaries that is denominated in Chilean pesos, Colombian pesos and Brazilian reais, all of which is presented in Chilean pesos in the table above.
(2) Does not include our payable to Chubb Insurance Company related to our proportional repayment obligation under the GSP performance guarantee.

As of December 31, 2017, S/.808.5 million (US$240.6 million) of our total indebtedness indicated in the table above has matured, of which S/.562.1 million (US$167.3 million) was repaid and S/.246.4 million (US$73.3 million) was renewed by extending the maturities. The weighted average interest rate of this renewed indebtedness and additional indebtedness was 4.8% and the maturity dates ranged from January 5, 2018 to December 18, 2019.

In June 2017, we renegotiated the terms of our syndicated loan and our obligations with respect to the GSP bridge loan and the GSP performance guarantee. In July 2017, we entered into a financial stability framework agreement providing for new lines of credit.

Below is a description of our material outstanding indebtedness as of December 31, 2016. As of such date, we were not in compliance with certain of the financial covenants related to our syndicated loan. We subsequently entered into an amendment of the syndicated loan, which modified the effective date of compliance with the covenants. However, as of the date of this annual report, we were in continuing default under the syndicated loan and certain of our other debt instruments due to, among other things, the delay in furnishing the company’s 2016 audited consolidated financial statements. See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments,” and “Item 13. Defaults, Dividends, Arreages and Delinquencies.”

Leasing . As of December 31, 2016, we were party to numerous leasing agreements with several financial institutions which in the aggregate amounted to approximately S/.246.8 (US$73.5 million). We entered into such agreements primarily for the purpose of leasing the equipment and other assets necessary to run our operations. Upon maturity of each leasing agreement, we have the option to purchase or return the equipment or assets to the lessor. The amounts owed under these leasing agreements are generally repaid in monthly installments, subject to a minimum guaranteed payment corresponding to the minimum amount for which the equipment or assets could be sold to a third-party.

Citibank, N.A. Secured Loan . Our subsidiary GMP has a secured loan with Citibank, N.A. under a loan agreement dated September 19, 2008 and amended on August 27, 2012 in an outstanding principal amount of S/.44.1 million (US$13.1 million) as of December 31, 2016 . This loan accrues interest at an annual rate of three month LIBOR plus: (i) 1.70% if, at the installment payment date, the exchange rate between the sol and U.S. dollar remains between S/.2.60 to S/.2.75 per US$1.00 or (ii) 1.95%, if otherwise. The loan matures in August 2020. The proceeds of the loan were used by our subsidiary GMP to finance the construction, equipment and operation of the Gas Pariñas plant in Talara. The agreement is secured by certain land, equipment and accounts receivable of GMP. The agreement contains certain customary covenants, including restrictions on the ability of GMP to pay dividends if it is in default under the loan and the obligation by GMP to maintain the following financial covenants during the term of the agreement: (a) Leverage Ratio (as defined therein) shall not be greater than 1.50; (b) Debt Service Coverage Ratio (as defined therein) shall not be less than 1.20; (c) Liquidity Ratio (as defined therein) shall not be less than 1.10; and (d) Debt Coverage Ratio (as defined therein) shall not be greater than 2.20.

 

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Norvial Corporate Bonds. In July 2015, Norvial established its first corporate bond program on the Lima Stock Exchange, for a total amount of S/.365 million (US$106.9 million). The first tranche under this program was issued for an amount of S/.80 million, due 2020 with an annual interest rate of 6.75%. The second tranche was issued for an amount of S/.285 million, due 2027 with an annual interest rate of 8.375%, structured in three disbursements. In July 2015 we received the first disbursement for S/.105 million, in January 2016 we received the second disbursement for S/.100 million and in July 2016 we received the third disbursement of S/.80 million. These bonds are secured by: (i) certain cash flows; (ii) a mortgage on the Norvial concession; (iii) a lien over Norvial shares; (iv) the assignment of Norvial’s rights over a performance bond provided by GMP; and (v) any additional guarantees granted in favor of other secured creditors. The proceeds of these bonds were used to pay S/.85 million of debt outstanding under a short-term loan agreement with Banco de Crédito del Perú (BCP) for a total S/.150 million, and the rest was used to finance the construction of the second stage of Ancon – Huacho Pativilca highway and the value added tax linked to the implementation of the project expenses. As of December 31, 2016, Norvial had S/.363 million (US$108.1 million) outstanding under these bonds.

Senior Secured Notes. On February 2015, GyM Ferrovías issued a total of S/.629,000,000 (US$184.3 million) Series A Senior Secured VAC-Indexed Notes due 2039, with an annual interest rate of 4.75% plus adjustments for inflation. The bonds are secured by (i) a mortgage on the Lima Metro concession, (ii) a lien on GyM Ferrovías shares, (iii) certain collection rights, (iv) certain cash flows and (v) liens on certain accounts. The proceeds from the issuance were used to repay a short term loan provide by Banco de Crédito del Perú-BCP for S/.400 million, funding of the reserve accounts, payment of the issuance expenses, and for the partial repayment of a subordinated loan provided by certain shareholders of GyM Ferrovias to GyM Ferrovías. According to the indenture, in order to make any payment of a subordinated loan or distribute any dividends, our Debt Service Coverage Ratio (as defined therein) should be at least 1.2x. Under the indenture GyM Ferrovías has fund the debt service reserve account on a quarterly basis with the equivalent of the amounts due in the next two succeeding interest payment dates. Moreover, the operation and maintenance reserve account must be funded annually with an amount equal to twenty-five percent (25%) of operation and maintenance costs of the corresponding current annual budget. As of December 31, 2016, GyM Ferrovías had S/.604 million (US$179.5 million) outstanding under these notes.

Financing of the Expansion Project of the Lima Metro Concession . On August 23, 2017, GyM Ferrovias entered into a US$396 million financing structure with Mizuho Bank, Ltd and Sumitomo Mitsui Banking Corporation. The particular structure for the expansion project of the Lima Metro involves the securitization of irrevocable and unconditional payment obligations of the Government of Peru (CPAOs), which have been sold by GyM Ferrovias to a borrower under a long-term loan facility. The expansion project includes the improvement of civil works and the purchase of additional rolling stock, including trains and cars that will be designed, built, operated and maintained by GyM Ferrovías, as concessionaire under the Lima Metro concession. The financing is structured as a long-term loan facility and a working capital facility.

As of the date of this annual report, GyM Ferrovias is in continuing default under the financing of the expansion project due to the non-delivery of our audited consolidated financial statements for the 2016 fiscal year, in our capacity as guarantor of the obligations of GyM Ferrovias under the agreement. We have initiated the process of obtaining a waiver from lenders.

BCP Loan. In December 2015, our subsidiary GMP S.A. and Oiltanking Peru S.A.C. subscribed in equal parts to a medium term loan credit agreement for up to US$100 million with Banco de Credito del Peru, comprised of (i) a medium term tranche for up to US$70 million (for additional investments) with an annual interest rate of 6.04% and a term of five years, and (ii) a medium term tranche for up to US$30 million (for committed investments) with an annual interest rate of 6.32% and a term of eight years. The tranches of the loan mature in 2024 and 2027, respectively. The proceeds of this loan are to finance Terminales del Peru’s obligations in the operation contracts that it maintains with Petroperu in regards to the Central Terminal (corresponding to the Callao Port), and North Terminals (corresponding to the Etén, Salaverry, Chimbote and Supe Ports). As of December 31, 2016, GMP S.A. had US$8.2 million (S/.27.6 million) outstanding under this loan.

Syndicated Loan. In December 2015 we entered into a medium term loan credit agreement for up to US$200 million (S/.672 million) with Credit Suisse AG, Cayman Islands Branch, and Credit Suisse Securities (USA) LLC. The term of the loan is five years, with quarterly installments starting on the 18th month. The loan accrued interest at a rate of three months Libor plus 3.9% per year. The proceeds were used to finance our equity participation in Gasoducto Sur Peruano (“GSP”), which was the concessionaire of the southern gas pipeline project. As of December 31, 2016, the principal amount outstanding under this loan was US$150 million (S/.504 million) and, as of the date of this annual report, the principal amount outstanding under this loan is US$76.3 million (S/.256.5 million).

As a result of the termination of the GSP gas pipeline concession, in June 2017, we entered into an amendment to the credit agreement. According to the terms of the amendment, our syndicated loan matures in December 2020, with required prepayments to be made with the proceeds of asset sales of 40% in the first year and an additional 30% in the second year of the amendment. The syndicated loan continues to accrue interest at LIBOR plus 4.90% per year. In addition, we are prohibited from paying dividends until the loan is repaid in full. Also, we have provided additional security interests, so that the amended syndicated loan will be secured by: (i) a first lien on our shares of GyM and Concar; (ii) a first lien on our shares of Almonte; (iii) a first lien on certain real estate properties in Surquillo; (iv) liens on certain related accounts; (v) a second priority lien on our shares of CAM and CAM Servicios del Perú S.A.; and (vi) a first lien on cash flows from the sale of certain assets.

 

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The amendment to the credit agreement contains certain covenants, including the obligation by us to maintain the following financial ratios during the term of the agreement: (i) the Consolidated EBITDA to Consolidated Interest Expense Ratio (as defined therein) shall not be less than 3.5:1.0 commencing on April 1, 2018 and thereafter; (ii) the Consolidated Leverage Ratio (as defined therein) shall not be greater than (a) 3.5:1.0 at any time during the period commencing on December 31, 2016 and ending on March 31, 2017; (b) 3.5:1.0 at any time during the period commencing on April 1, 2017 and ending on June 30, 2017; (c) 3.0:1.0 at any time during the period commencing on July 1, 2017 and ending on September 30, 2017; and (d) 2.5:1.0 at any time thereafter; and (iii) the Debt Service Coverage Ratio (as defined therein) as of the last day of any fiscal quarter of the borrower, falling on or after the first anniversary of the closing date, shall not be less than 1.5:1.0 commencing on April 1, 2018 and thereafter. Furthermore, the agreement contains a covenant restricting the CAM Chile Leverage Ratio (as defined therein) from exceeding 2.5:1.0 at any time. The agreement also imposes limitations, in an event of default, on ours and our subsidiaries’ ability to distribute dividends, including, among others, that we may only distribute cash dividends to our stockholders out of 40% of our net income available for distribution in accordance with IFRS, as reflected in our audited consolidated financial statements for the fiscal year most recently ended.

As of the date of this annual report, and due to the accounting adjustments in connection to the termination of the GSP concession, we are again under certain continuing defaults under the syndicated loan with respect to the financial ratios and the non-delivery of the company’s audited consolidated financial statements for the fiscal years 2016 and 2017 on time. We are in the process of requesting waivers from the lenders.

GSP Bridge Loan and New Term Loan. With the termination of the GSP gas pipeline concession, our proportional guarantee under the GSP bridge loan became due. As of December 31, 2016, there was US$129 million (S/.433.4 million) of principal amount outstanding under our corporate guarantee. As of the date of this annual report the principal amount outstanding under the GSP bridge loan has been entirely paid. On June 27, 2017 we entered into a new US$78.7 million (S/.264.8 million) term loan with Natixis, BBVA, SMBC and MUFJ, the proceeds of which were used to prepay GSP bridge loan. The new term loan matures on 2020, with required prepayments to be made with the proceeds of asset sales of 40% in the first year and an additional 30% in the second year of the amendment. The agreement with respect to such term loan contains a covenant restricting the Consolidated Leverage Ratio (as defined therein) from exceeding 3.5:1.0 at any time and the CAM Chile Leverage Ratio (as defined therein) from exceeding 2.5:1.0 at any time. The term loan accrues interest at LIBOR plus 4.50% per year, which will increase to 5.00% during the second year and to 5.50% during the third year. In addition, we will be prohibited from paying dividends until the loan is repaid in full. Also, the term loan will be secured by: (i) a first lien on our rights to receive the termination payment derived from the GSP termination (the “VCN”); (ii) a second priority lien on our shares of GyM and Concar; (iii) a second priority lien on our shares of Almonte; (iv) a second priority lien on certain real estate properties in Surquillo; (v) a second priority lien on our shares of CAM; (vi) a second priority lien on our shares of CAM Servicios del Perú S.A.; and (vii) a first lien on cash flows from the sale of certain assets. As of the date of this annual report, there is US$72.5 million outstanding on the GSP bridge loan.

As of the date of this annual report, we are under certain continuing defaults under the term loan with respect to the financial ratios and the non-delivery of the audited consolidated financial statements of the company for the 2016 and 2017 fiscal years on time. We are in the process of requesting waivers from the lenders.

GSP Performance Guarantee. Upon the termination of the GSP gas pipeline concession, our proportional repayment obligations under the GSP performance guarantee from Chubb Insurance Company became due. As of December 31, 2016, we had US$52.5 million (S/.176.4 million) in obligations outstanding and, as of the date of this annual report, we had US$15.6 million (S/.52.6 million) in obligations outstanding. We recorded this amount as other accounts payable in our financial statements as of December 31, 2016. On March 31, 2017, we renegotiated the terms of our repayment obligations. The new terms required repayment by March 31, 2018 and were extended until June 30, 2018, with interest accruing at 6% per year. The new terms also provide a security interest over our shares in CAM and over cash flows from the sale of certain assets.

Financial Stability Framework Agreement

On July 31, 2017, we, and certain of our subsidiaries, GyM, CAM Peru S.A., Vial y Vives—DSD and Concesionaria Vía Expresa Sur S.A., entered into a Financial Stability Framework Agreement (together with certain complementary contracts, the “Framework Agreement”) with the following financial entities: Scotiabank Peru S.A.A., Banco Internacional del Perú S.A.A., BBVA Banco Continenal, Banco de Crédito del Perú, Citibank del Perú S.A. and Citibank N.A. The Framework Agreement aims to: (i) grant GyM a syndicated revolving line of credit for working capital for up to US$1,630,538 and S/.143,934,533, which may be increased by an additional US$14,000,000 subject to certain conditions; (ii) grant GyM a line of credit of up to US$51,566,849 and S/.33,563,807; (iii) grant us, GyM, CAM Peru S.A., Vial y Vives – DSD and Concesionaria Vía Expresa Sur S.A. a non-revolving line of credit to finance reimbursement obligations under performance bonds; (iv) grant a syndicated line of credit in favor of us and GyM for the issuance of performance bonds up to an amount of US$100,000,000 (which may be increased by an additional US$50,000,000, subject to compliance with certain conditions); and (v) to commit to maintain existing standby letters of credit issued at the request of GyM and us, as well as the request of CAM Peru S.A., Vial y Vives – DSD and Concesionaria Vía Expresa Sur S.A. In April of 2018, we repaid US$73.9 million of the facility with the proceeds of the sale of Stracon.

 

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As of the date of this annual report, we are under continuing default due to the non-delivery of our audited consolidated financial statements and those of our subsidiary, GyM, for the 2016 and 2017 fiscal years. We are in the process of requesting waivers from the lenders.

Derivative Financial Instruments

In February 2012, our subsidiary GyM Ferrovías entered into a forward rate agreement with BBVA S.A. for an initial amount of EUR 98.6 million to hedge the foreign exchange risk pertaining to expenditures incurred in euros to a foreign supplier for the development, maintenance and operation of the Lima Metro. GyM Ferrovías received EUR39.2 million outstanding under the agreement at a fixed exchange rate of S/.3.5952 per euro beginning in March 2013 and up to S/.3.6412 per euro in January 2014.

In August 2012, our subsidiary GMP entered into two interest rate swaps with Citibank, N.A. to hedge its exposure to fluctuations in LIBOR under its unsecured loan with Citibank, N.A. described above. These interest rate swaps establish a fixed annual rate of 5.05%, payable at each interest payment date under the loan.

In September 2012, our subsidiary Viva GyM entered into a forward foreign exchange agreement with Banco de Crédito del Peru to hedge the foreign exchange risk on the amount to be received in U.S. dollars as proceeds from a loan agreement with Banco de Crédito del Peru in connection with the construction of the Torre Real 8 project. Under the agreement, Viva GyM received in soles the equivalent of US$3.6 million in 12 equal installments payments of US$300,000 determined at a fixed exchange rate of S/.2.5921 per U.S. dollar on the first installment in October 2012 and up to S/.2.6242 per U.S. dollar on the final installment in September 2013. In February 2013, Viva GyM settled a second forward exchange agreement with Banco de Crédito related to the same project pursuant to which it received in soles the equivalent of US$3.3 million in scheduled installments (between July 2013 and January 2014).

In August 2014, our subsidiary CAM Chile entered into two forward foreign exchange agreements for US$0.9 million and US$0.8 million, respectively. In addition, in February 2015, CAM entered into two forward foreign exchange agreements for US$0.9 million and US$0.5 million respectively.

For additional information about our derivative financial instruments and borrowings, see notes 2.9, 18 and 19 to our audited annual consolidated financial statements included in this annual report.

Capital Expenditures

The table below provides our total capital expenditures incurred in 2014, 2015 and 2016.

 

     Year ended December 31,  
     2014      2015
Restated
     2016      2016  
     (in millions of S/.)     

(in millions

of US$)

 

Engineering and Construction(1)(2)

     485.0      124.2      115.0        34.2  

Infrastructure

     226.8      247.4      141.5        42.1  

Real Estate(3)

     119.4      41.4      49.7        14.8  

Technical Services(2)(4)

     120.9      65.9      59.5        17.7  

Corporate

     200.1      469.1      421.9        125.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,152.2      948.0      787.55        234.40  

 

(1) In our consolidated financial statements, in accordance with IFRS, we record in “cash flow used in investing activities” with respect to equipment leases only the amounts paid during the period as opposed to the total amount of lease payments, which is included in the table above.
(2) Includes S/.328.8 million, S/.415.9 million, and S/.72.9 million of capital expenditures related to acquisitions in 2014, 2015 and 2016, respectively.
(3) Includes S/.115.9 million, and S/.0 million and S/.13.9 million in investments in 2014, 2015 and 2016, respectively, for the purchase of land by our Real Estate segment, which in accordance with IFRS are recorded in our consolidated financial statements as “inventory.”
(4) In our consolidated financial statements, in accordance with IFRS, we record as “cash flow used in investing activities” with respect to equipment leases only the amounts paid during the period as opposed to the total amount of lease payments which is included in the table above.

 

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Capital expenditures for our E&C segment of approximately S/.485.0 million (US$162.2 million), S/.124.2 million (US$36.4 million) and S/.115.0 million (US$34.23 million) in 2014, 2015 and 2016, respectively, primarily correspond to the purchase of equipment and machinery and, to a lesser extent, investments relating to mining services contracts. In 2014, capital investments in the E&C segment included S/.74.7 million (US$25 million) with respect to additional stake of Stracon GyM, S/.17.9 million (US$6 million) with respect to an additional stake in CAM Peru and S/.234.3 million (US$78.4 million) with respect to the acquisition of Morelco. In 2015 capital investments in the E&C segment also included S/.22.0 million (US$7.3 million), with respect to the acquisition of 20% of the participation of Red Eagle in the San Ramon Project (Colombia). In 2016 capital investments in the E&C segment also included S/.51.38 million (US$15.1 million) with respect to an additional stake in Vial y Vives- DSD.

Capital expenditures for our Infrastructure segment of approximately S/.226.8 million (US$75.9 million), S/.247.4 million (US$72.4 million), and S/.141.5 million (US$42.1 million) in 2014, 2015 and 2016, respectively, correspond to periodic maintenance and the construction of the second stage of our Norvial toll road concession and, in our Energy line of business, oil development drilling activities as well as improvements for our gas processing plant and investments in Metro de Lima. In 2014 and 2015 capital expenditures for our Infrastructure segment also included the purchase of trains for Line One of the Lima Metro and the construction of the railway maintenance and repair yard, while in 2016 we only had capital expenditures relating to work maintenance of our trains and infrastructure.

Capital expenditures for our Real Estate segment of approximately S/.119.4 million (US$40.0 million), S/.41.4 million (US$12.4 million) and S/.49.7 million (US$14.8 million) in 2014, 2015, and 2016, respectively, primarily correspond to the purchase of land for real estate projects, including El Tigre, Panorama and Huancayo projects in 2014, the Ancon project in 2015, and the Pezet and Paul Harris projects in 2016.

Capital expenditures for our Technical Services segment of approximately S/.120.9 million (US$40.4 million), S/.65.9 million (US$19.3 million), and S/.59.5 million (US$17.7 million) in 2014, 2015 and 2016, respectively, primarily correspond to maintenance of equipment relating to Concar, CAM and GMD.

In 2014, Corporate segment investments include S/.75.8 million (US$25.4 million) for the acquisition of COGA and S/.88.3 million (US$29.5 million) for additional stake in GyM and Viva GyM plus the construction of the new office building for corporate use. In 2015, investments include S/.346.5 million (US$115.9) for the acquisition of a 20% stake of Concesionaria Gasoducto Sur Peruano S.A. and S/.47.4 million (US$13.9 million) for the acquisition of Adexus. In 2016, investments include S/.426.7 million (US$127 million) for the acquisition of our 20% stake in GSP and S/.22.3 million (US$6.7 million) for an additional stake in Adexus.

Divestitures in 2014 consisted of approximately S/.43.0 million (US$14.4 million) relating to sale of equipment by GyM and Stracon GyM. Divestitures in 2015 consisted of approximately S/.10.4 million (US$2.9 million) relating to sale of equipment of GyM Divestitures in 2016 consisted of S/.107.6 million (US$32.0 million) relating to the sale of our 1.64% stake in Transportadora de Gas del Perú S.A. (TGP) and S/.107.0 million (US$31.8 million) relating to sale of equipment of GyM.

We have budgeted S/.352.6 million (US$103.7 million) in capital expenditures for 2017. Our current plans for our E&C segment contemplate capital expenditures in 2017 of approximately S/.94.2 million (US$27.7) million mainly for the purchase of equipment and machinery. Our current plans for our Infrastructure segment contemplate capital expenditures in 2017 of approximately S/.185.1 million (US$54.5 million) principally for the construction of the second stage of Norvial, the expansion of the Line 1 of the Lima Metro and for investments in oil development drilling activities. Our current plans for our Real Estate segment contemplate expenditures in 2017 of approximately S/.7.2 million (US$2.1 million) for the purchase of land for real estate development projects. Our current plans for our Technical Services segment contemplate capital expenditures in 2017 of approximately S/80.4 million (US$23.7 million) principally for the purchase of equipment used in our operations. Our current plans for our Corporate segment contemplate divestitures in 2017 of approximately S/.291.6 million (US$85.7 million). In addition, we have entered into a financial stability framework agreement providing for new lines of credit. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

These estimates are subject to change. We routinely evaluate acquisitions, new infrastructure concessions, land purchases and other investment or divestiture opportunities that are aligned with our strategic goals, particularly in Peru, Chile and Colombia. We cannot assure you that we will find opportunities on terms that we consider to be favorable to us, whether we will be able to take advantage of such opportunities should they arise, or the timing of and funds required by such opportunities. In addition, should we undertake any such investments, we expect to finance these opportunities with a combination of cash on hand, new borrowings and/or financial contributions from partners, depending on a variety of commercial considerations at such time. See “Part I. Introduction—Forward-Looking Statements.”

C. Research and Development, Patents and Licenses

Not applicable.

 

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D. Trend Information

Our Main Market: Peru

The following sets forth key macroeconomic trends in our markets, Peru, Chile and Colombia. For additional information on trends in our business, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Factors Affecting our Results of Operations” and “Item 4.B. Business Overview—Backlog.”

Overview of the Peruvian Economy

Our results are substantially affected by economic conditions prevailing in Peru. The Peruvian economy has been one of the fastest growing economies globally during the period from 2013 to 2017. According to the Peruvian Central Bank, Peruvian real GDP grew at an average rate of 3.5% during that period, one of the highest rates in South America. The economic expansion during this period was a result of robust domestic demand, increase in investment, price stability, increase in foreign direct investment, and an improvement in public finances, among other factors.

Nominal GDP per capita has increased from S/.17,645 in 2013 to S/.22,046 in 2017, a 24.9% increase. Average annual inflation, measured by the change in the CPI index, was 3.0% in the period from 2013 to 2017. On the other hand, Peru’s Sol, depreciated from an average of S/.2.70 per US$1.00 in 2013 to an average of S/.3.26 per US$1.00 in 2017, a depreciation of 21%. Peru’s sovereign debt has been granted investment grade rating by S&P, Fitch and Moody’s. At the end of 2017, Peruvian sovereign debt had one of the highest credit ratings in the South American region, rated BBB+ by S&P (August 2013) and Fitch (October 2013) and A3 by Moody’s (July 2014).

The following table sets forth the main economic indicators of the Peruvian economy from 2013 to 2017:

 

     2013     2014     2015     2016     2017  

Nominal GDP (US$ billions)

     202.1       202.8       192.3       195.3       215.1  

Nominal GDP / capita (US$)

     6,529.6       6,455.0       6,172.7       6,204.5       6,756.7  

Real GDP growth rates (% based on local currency GDP)

     5.0     2.4     3.3     4.0     2.5

Private consumption growth rate

     5.2     3.9     4.0     3.3     2.5

Private investment growth rate

     3.9     (2.3 %)      (4.3 %)      (5.9 %)      0.1

Foreign direct investment growth rate

     (24.0 %)      (15.2 %)      4.9     (17.0 %)      (1.4 %) 

Public expenditure (consumption and investment) growth rate

     9.4     3.6     3.6     (0.2 %)      1.1

Total private and public fixed investment growth rate (1)

     5.9     (2.1 %)      (5.3 %)      (4.6 %)      0.0

Exports growth rate

     1.0     (0.9 %)      4.0     9.5     8.5

Imports growth rate

     5.1     (1.4 %)      2.4     (2.2 %)      4.0

Inflation (measured by change in CPI)

     2.9     3.2     4.4     3.2     1.4

Average exchange rate (S/./US$)

     2.70       2.84       3.19       3.38       3.26  

End of period exchange rate (S/./US$)

     2.80       2.99       3.41       3.36       3.25  

Central Bank interest rate (end of period)

     4.00     3.50     3.75     4.25     3.25

Population (million)(1)

     30.9       31.4       31.1       31.5       31.8  

Unemployment rate(1)

     7.5     6.0     6.4     6.7     6.7

Total public debt (US$ billions)

     38.3       38.6       41.8       46.7       53.6  

Public debt/nominal GDP (%)

     19.6     20.0     23.3     23.8     24.8

Net reserves (US$ billions)

     65.7       62.3       61.5       61.7       63.6  

Net reserves/nominal GDP (%)

     32.5     30.7     32.0     31.6     29.6

Fiscal surplus (deficit)/nominal GDP (%)

     0.9     (0.3 %)      (2.1 %)      (2.6 %)      (3.1 %) 

 

Source: Peruvian Central Bank, SBS, Ministry of Economy and Finance, National Statistical Institute of Peru (INEI), IMF.

 

(1) 2017 projected by IMF.

The following table sets forth real gross domestic product by expenditure for the years indicated.

 

GDP by Expenditure (% of GDP unless otherwise stated)

   2013      2014      2015      2016     2017  

Government consumption

     11.2        12.2        12.6        12.0       11.8  

Private consumption

     61.5        63.0        65.5        65.5       64.8  

Total fixed investment

     27.9        26.3        24.6        22.6       21.1  

Public sector

     5.8        5.6        5.0        4.8       4.6  

Private sector

     20.7        20.1        19.3        17.8       16.9  

Change in inventories (1)

     1.4        0.6        0.3        (0.0     (0.5

Exports of goods and services

     24.1        22.4        21.0        22.1       24.3  

 

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GDP by Expenditure (% of GDP unless otherwise stated)

   2013     2014     2015     2016     2017  

Imports of goods and services

     24.8       24.0       23.7       22.2       22.0  

Net exports

     (0.7     (1.6     (2.7     (0.1     2.3  

GDP (in billions of US$)

     202.1       202.8       192.3       195.3       215.1  

 

Source: Peruvian Central Bank

 

(1) Defined as the difference between the volume at the end of the period and the volume at the beginning of the period; valued at the average price over the period.

Key Industry Sectors Relating to Our Business in Peru

Construction and Infrastructure

The Peruvian construction industry nominal GDP is estimated at US$12.4 billion and accounted for 5.8% of the country’s nominal GDP in 2017 according to the Peruvian Central Bank. Construction GDP grew at an average of 4.2% annually in nominal terms during the five years from 2013 to 2017. The following table illustrates, from 2013 to 2017, the average real growth rate in both private investment and construction in Peru vis-à-vis the average real GDP growth rate.

Growth of Real Private Investment GDP and Real Construction Sector GDP vs. Real GDP

 

LOGO

Source: Peruvian Central Bank.

Mining

Peru is a poly-metallic resources producer and exports several metals including silver, copper, zinc, gold and lead, among others. Peru is also a major contributor to global metal reserves. According to the U.S. Geological Survey of 2018, Peru holds 17.5% of global silver reserves, 12.2% of global zinc reserves, 10.3% of global copper reserves and 4.3% of global gold reserves, as of January 2018. According to the Peruvian Central Bank, mining exports reached approximately US$27.2 billion and represented 60.5% of total Peruvian exports in 2017.

Upcoming mining projects comprise estimated capital expenditures of approximately US$18.9 billion from 2015 to 2017, according to APOYO Consultoría. As of December 2017, the Peruvian Ministry of Energy and Mines estimates 46 mining projects at various stages of development involving an estimated investment of US$46.1 billion.

Mining Investment Projects by Level of Development

 

     Number of
Projects
     US$
billion
 

Expansion

     5        5.2  

With approved Environmental Impact Assessment (“EIA”)

     14        15.7  

With EIA under evaluation

     2        0.6  

Exploration

     25        24.5  
  

 

 

    

 

 

 

Total

     46        46.1  

 

Source: Peruvian Ministry of Energy and Mines.

 

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Power and Utilities

The power and utilities market in Peru has shown sustained growth with maximum electricity demand reaching 6,596 MW and growing at an average annual rate of 4.5% during the five years from 2013 to 2017, according to the Economic Operations Committee of Peru’s National Interconnected System. The growth of the power and utilities market has led to the construction of power generation facilities, as well as the expansion of the power transmission and distribution network.

According to the Economic Operation Committee of the National Interconnected System (“COES SINAC”), Peru had an installed generation capacity of 11,970 MW as of December 2017. As of 2017, the Peruvian market was served by 54 generation companies. As of December 2017, the nation’s power transmission network spanned approximately 28,537 kilometers, according to the COES SINAC. As of 2017, there were 13 electric distribution companies across Peru.

Oil and Gas

The oil and gas activity in Peru has decreased with a sector nominal GDP average annual growth rate of (1.6)% during the five years from 2013 to 2017. Oil and gas activity includes the exploration and production, and transportation and commercialization of hydrocarbon products and derivatives.

According to the Peruvian Ministry of Energy and Mines, during 2017, local production of hydrocarbons was approximately 16 MMbbl of Petroleum, 33 MMboe of liquefied natural gas (LNG) and 81 MMboe of natural gas. These levels decreased an average of 3.3% annually from 2013 to 2017. Peruvian gas production increased considerably since 2004, when the Camisea project, the largest gas project in Peruvian history, began operations. The Peruvian Ministry of Energy and Mines reports that as of 2016 proven reserves of oil and gas amounted to 3,906 MMboe. These reserves have increased since 2009, due to increased exploration activities, as evidenced in the chart below. The Peruvian government’s reserves methodology may differ materially from the one mandated by the SEC.

Hydrocarbons Proven Reserves and Production Evolution in Peru (in MMboe)

 

LOGO

 

 

Source: Peruvian Ministry of Energy and Mines

Our Other Markets: Chile and Colombia

Chile

Overview of the Chilean Economy

Our activities in Chile span across the E&C and power services sectors. The following table sets forth the main economic indicators of the Chilean economy for the period from 2013 to 2017.

 

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Values in nominal US$ billion unless otherwise stated

   2013     2014     2015     2016     2017  

Nominal GDP

     278.5       261.1       244.0       250.1       276.9  

Nominal GDP / capita (US$)

     15,797.4       14,655.5       13,548.4       13,743.8       15,057.6  

Real GDP growth rate (%)

     4.2     1.9     2.2     1.3     1.5

Inflation (%, measured by change in CPI)

     3.0     4.6     4.4     2.7     2.3

Total private and public fixed investment

     69.1       57.1       49.6       47.6       49.1  

Average exchange rate (CLP/US$)

     495.0       570.0       654.2       676.8       649.3  

End of period exchange rate (CLP/US$)

     523.8       607.4       707.3       667.3       615.2  

Population (million) (1)

     17.6       17.8       18.0       18.2       18.4  

Unemployment rate (2)

     5.9     6.4     6.2     6.5     7.0

Public Debt / nominal GDP (%)

     12.0     14.0     16.0     21.3     24.9

Net reserves / nominal GDP (%)

     14.8     15.5     15.8     16.2     14.1

Fiscal surplus (deficit) / nominal GDP (%)

     (0.5 %)      (1.5 %)      (2.1 %)      (2.7 %)      (2.8 %) 

 

Source: Chilean Central Bank, Chilean Government Budget Office, IMF, Global Insight

(1) 2017 and 2016 projected by the IMF
(2) 2017 projected by the IMF

The Chilean real GDP grew at an average annual rate of 2.2% during the five years from 2013 to 2017 in real terms. The country’s nominal GDP per capita has increased 25.0% from CLP 7,819,646 in 2013 to CLP 9,777,343 in 2017. This expansion was mainly driven by a strong domestic demand in real terms: total consumption grew on average at 3.2% per year during the five years from 2013 to 2017. Inflation has remained stable since 2013, averaging 3.4% between 2013 and 2017, in line with the Chilean Central Bank’s inflation target of 3% +/- 1%. Chile’s sovereign debt has the highest rating in the region, rated A+ by S&P (July 2017), Aa3 by Moody’s (July 2016) and A by Fitch (February 2018).

Colombia

Overview of the Colombian Economy

Our current activities in Colombia involve technical services provided primarily to the power services sector. The following table sets forth the main economic indicators of the Colombian economy for the period from 2013 to 2017.

 

Values in nominal US$ billion unless otherwise stated

   2013     2014     2015     2016     2017  

Nominal GDP

     380.0       377.9       288.4       280.4       309.2  

Nominal GDP / capita (US$)

     8,065.2       7,928.1       5,983.0       5,751.6       6,272.4  

Real GDP growth rate (%)

     4.9     4.6     3.1     2.0     1.8

Inflation (%, measured by change in CPI)

     1.9     3.7     6.8     5.8     4.1

Total private and public fixed investment

     92.2       97.6       76.2       68.9       70.7  

Average exchange rate (COP/US$)

     1,868.9       2,001.1       2,771.5       3,051.0       2,951.3  

End of period exchange rate (COP/US$)

     1,926.8       2,392.5       3,149.5       3,000.7       2,984.0  

Population (million) (1)

     47.1       47.7       48.2       48.7       49.3  

Unemployment rate (1)

     9.7     9.1     8.9     9.2     9.3

Public Debt / nominal GDP (%)

     34.5     37.7     41.4     42.8     45.3

Net reserves / nominal GDP (%)

     11.5     12.5     16.2     16.6     15.4

Fiscal surplus (deficit) / nominal GDP (%)

     (2.2 %)      (2.6 %)      (3.1 %)      (3.9 %)      (3.3 %) 

 

Source: Colombian National Department of Administration of Statistics (DANE), Colombian Central Bank, Colombian Treasury Department, IMF, Global Insight

(1) 2017 and 2016 projected by the IMF

Colombian real GDP grew at an average annual rate of 3.3% during the five years from 2013 to 2017. The country’s nominal GDP per capita has increased 22.8% from COP 15,073,046 in 2013 to COP 18,511,888 in 2017. Inflation has increased in recent years, averaging 4.4% per year from 2013 to 2017, higher than the Colombian Central Bank’s inflation target of 3% +/- 1%. On the other hand, the Colombian peso depreciated from an average of COP 1,869 per US$1.00 in 2013 to an average of COP 2,951 per US$1.00 in 2017. Colombia’s sovereign debt currently holds BBB rating from Fitch (October 2017) BBB- from S&P (December 2017), and Baa2 from Moody’s (July 2014). Colombia is also recognized for its investor-friendly legal regime.

 

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E. Off-Balance Sheet Arrangements

As of December 31, 2016, we did not have off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

For information about performance guarantees and similar instruments that we obtained in the ordinary course of business, see note 31 to our audited annual consolidated financial statements.

F. Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations with payment terms as of December 31, 2016.

 

     Payments Due By Period (in millions of S/.)  
     Less than
1 year
     1-2 years      3-5 years      More
than 5
Years
     Total  

Indebtedness(1)

     1,223.7        411.2        672.0        801.1        3,108.0  

Capitalized Lease Obligations(1)

     117.3        80.9        25.1        16.9        240.2  

Interest(2)

     126.2        174.7        307.0        536.1        1,144.0  

Purchase Obligations(3)

     176.4        —          —          —          176.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total(4)

     1,643.7        666.8        1,004.1        1,354.0        4,668.6  

 

(1) Includes principal only of our indebtedness and capitalized lease obligations.
(2) Includes the effect of our interest swap agreements described in “—Derivative Financial Instruments.”
(3) Includes the debt from performance guarantee with Chubb.
(4) Excludes building leases, which are not material.

G. Safe Harbor

See “Part I. Introduction—Forward-Looking Statements.”

 

Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

General

Our business and affairs are managed by our board of directors in accordance with our by-laws, shareholder meeting rules of procedure, board of directors rules of procedure, internal rules of conduct and Peruvian Corporate Law No. 26887 (“Peruvian Corporate Law”). Our bylaws provide for a board of directors of between five and nine members. Our shareholders may appoint an alternate director for each director to act on his or her behalf when absent from meetings or unable to exercise his or her duties. Alternate directors have the same responsibilities, duties and powers of directors to the extent they are called to replace them.

Directors are elected at a shareholders’ meeting and hold office for three years. Directors may be elected to multiple terms. Our current board of directors is composed of nine directors and no alternates. If a director resigns or otherwise becomes unable to continue with the duties, a majority of our directors may appoint one of the alternate directors, or in the absence of alternate directors, any other person, to serve as director for the remaining term of the board. In the first board meeting held after the annual shareholders’ meeting where members of the board are elected, the board of directors must elect among its members a chairman and a vice chairman if the shareholders’ meeting did not elect them.

The board of directors typically meets in regularly scheduled quarterly meetings and when called by any director or our Chief Executive Officer. Resolutions must be adopted by a majority of the directors present at the meeting and the chairman is entitled to cast the deciding vote in the event of a tie.

Duties and Liabilities of Directors

Pursuant to Article 177 of Peruvian Corporate Law, directors are jointly and severally liable to a corporation, shareholders and third parties for any damages caused by abuse of power, fraud, willful misconduct or gross negligence. In addition, pursuant to Article 3 of Law No. 29720, as amended, directors of companies with common shares listed on the Lima Stock Exchange are liable to the company and its shareholders for damages caused by resolutions which are favorable to their individual interest (or the interest of a related party) to the detriment of the company’s interest if: (i) the listed company is a party to the transaction; (ii) the controlling

 

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shareholder of the listed company controls the legal entity acting as counterparty; (iii) the transaction is not carried out on an arm’s length basis; and (iv) at least 10% of the listed company’s assets are involved in the transaction. A director cannot be found liable if he/she did not participate in the respective meeting or if the director’s express disagreement is noted in the corresponding record.

Article 180 of the Peruvian Corporate Law requires a director with a conflicting interest on a specific matter to disclose such interest and abstain from the deliberation and decision-making process with respect to such matter. A director who violates this requirement is liable for any damages caused to us and may be removed by a majority of the board of directors upon request of any member of the board or by a majority vote of the shareholders.

Pursuant to Article 181 of Peruvian Corporate Law, shareholders are entitled to protect the interest of a company through derivative law suits against directors in order to remedy or prevent a wrong to the corporation. In addition, pursuant to Article 4 of Law No. 29720, with respect to companies listed on the Lima Stock Exchange, a shareholder holding shares which represent at least 10% of the paid capital may bring said action against the directors.

 

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Board of Directors

The following sets forth our directors and their respective positions as of the date of this annual report. All directors were elected at our annual shareholders’ meeting held on March 31, 2017, and their term expires in March 2020, on the third anniversary from the date of election.

 

Name

  

Position

   Year of
Birth
     Year of First
Appointment
 

Augusto Baertl

Rafael Venegas

  

Chairman of the Board (Independent)*

Vice Chairman of the Board (Independent)**

    

1945

1950

 

 

    

2017

2017

 

 

Carlos Montero

   Director      1942        1996  

Pedro Pablo Errazuriz

   Director (Independent)**      1961        2014  

Roberto Abusada

   Director (Independent)**      1946        2017  

Alfonso de Orbegoso

   Director (Independent)**      1962        2017  

Manuel del Río

   Director (Independent)**      1952        2017  

Alfonso García Miró

   Director      1964        2017  

José Antionio Rosas

  

Director (Independent)**

     1970        2017  

 

* Independent member under Peruvian independence standards.
** Independent member under Peruvian and NYSE independence standards.

The following sets forth selected biographical information for each of the members of our board of directors. The business address of each of our current directors is Av. Paseo de la República 4667, Surquillo, Lima 34, Perú.

Augusto Baertl Montori . Mr. Baertl is a mine engineer from the Universidad Nacional de Ingeniería with postgraduate programs at Harvard Business School and at Northwestern University. He has assumed important senior management positions in Peruvian and international mining and oil companies. For 30 years, Mr. Baertl held various positions in the mining company Milpo, ranging from mine superintendent, assistant manager and COO, to CEO. From 1997 to 2003, he served as president and CEO of Compañia Minera Antamina. Since 1997 he has been CEO of Agrícola Chapi S.A., and since 2003, he has been the executive president of Gestora de Negocios e Inversiones.

Mr. Baertl is the former chairman of the board of directors of the National Society of Mining, Oil and Energy at the Institute of Mining Engineers of Peru, as well as of the Latin American Business Council (CEAL) and of the Chamber of Commerce Canada- Peru. He has also been chairman of the board of Atlas Copco Peru, Downing Teal-Peru, and Petroperu. In addition, he has been member of the board of directors of different companies such as Milpo, Atacocha, Huarón, Chungar, Castrovirreyna Mining Corporation, Interbank, BISA, Graña y Montero S.A.A., Norsemont and of the Prospectors and Developers Association of Canada (PDAC). He is currently chairman of the board of Agrícola Chapi, as well as a member of the board of Alturas Minerals, Chinalco International, FIMA, Stevia One and Ligabue Catering Perú S.A.C. He is also an active member of the board of directors of the National Society of Mining, Petroleum and Energy and COMEX. He has also participated in the board of directors of various non-profit institutions.

Rafael Venegas Vidaurre . Mr. Venegas is an industrial and systems engineer from Universidad Nacional de Ingeniería and holds post-graduate specializations in administrative and finance processes at A.Andersen School in Chicago, and has completed the Management and CEO programs at the Graduate School Kellogg, as well as the strategic planning, human management and marketing program at Harvard University. He has been CEO of Banco Internacional de Colombia, Citibank Peru, BankBoston Peru, Banco Sudamericano, Hermes/Brinks and, from 2010 to 2016, of Rimac Seguros y Reaseguros.

In addition, Mr. Venegas has served as director of several institutions and companies such as Diners Peru, Profuturo AFP, Banco Financiero, Scotiabank Perú, Compass Group Peru and as chairman of the board of directors in Citileasing, Citicorp S.A.B., Clínica Internacional and Rímac EPS.

Carlos Montero Graña . Mr. Montero is a civil engineer from Universidad Nacional de Ingeniería, and completed postgraduate studies in the senior management program at the University of Piura. He has been director of Graña y Montero S.A.A. since August 1996 to date. Mr. Montero is also chairman of the board of our subsidiary Concar S.A. and director of our subsidiary GMP S.A. He previously served as managing director of our subsidiary GyM until 2007, and was director of IPAE, GMD, GMI and UNICON.

 

 

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Pedro Pablo Errázuriz Domínguez. Mr. Errázuriz is a civil engineer from Universidad Católica de Chile, with a master’s degree in engineering sciences from the same university and a master’s degree in operational research (Finance) from the London School of Economics. He is currently a partner of Veta Tres and director of companies. Until March 2014, he served as Minister of Transport and Telecommunications in the Chilean administration of president Sebastián Piñera, a position he assumed in 2011. He has been a director of several companies representing the Ontario Teachers’ Pension Plan Holding and CEO of its investments’ subsidiary in Chile, AndesCan, between 2009 and 2011. At the same time, he served as chairman of the board of Biodiversa, Esval, Aguas del Valle and SAESA Group. He was CEO and president of the board of the health services company ESSBIO. He was also CEO of Lan Express between 2000 and 2006 and Vice President of corporate planning for Lan Chile between 1999 and 2000. Mr. Errázurriz has been a member of the Graña y Montero board from 2014 to date.

Roberto Abusada Salah. Mr. Abusada studied Economics at Universidad Católica del Perú and at Cornell and Harvard Universities in the USA. He holds a Bachelor’s degree in economics from Universidad Católica as well as a master’s and PhD in economics from Cornell University. He has been senior advisor to the Minister of Economy during the years of the Peruvian economic reform (1993 and 1997). In 1994 he co-founded the Peruvian Institute of Economics (IPE), which he presides over. Dr. Abusada has taught economics at Universidad Católica del Perú, Universidad del Pacífico, UPC, ESAN and Boston University. He was director of the program of graduates in economics of the Universidad Católica and in the 1980s he held the positions of vice minister of commerce, vice minister of economy and member of the board of directors of the Central Reserve Bank. He has been director of the Corporación Andina de Fomento, as well as of Graña y Montero S.A.A. and TECSUP. He has been a member of the Global Strategic Advisory Group (GSAG) of the Konrad Adenauer Foundation. He has been a consultant to the United Nations (UNIDO, Vienna) World Bank, Inter-American Development Bank and various governments. He is currently an Ad Honorem advisor of the Peruvian government for matters of the Pacific Alliance and representative of the presidency of the council of ministers to the board of the fiscal stabilization fund and chairman of the board of GMD S.A., director in GMP S.A. and UNACEM S.A.A.

Dr. Abusada has written several books and academic articles in various economic areas and is currently writing a fortnightly opinion column at El Comercio newspaper in Lima, Peru.

Alfonso de Orbegoso Baraybar . Mr. de Orbegoso is a lawyer from Pontificia Universidad Católica del Perú. He holds a master’s degree from Duke University School of Law and has completed specialization courses at the London School of Economics, Georgetown University and The McDonough School of Business. During 1991 and 1998 was partner of the Ludowieg, Andrade & Associates law firm and during 1998 to 2013 he served as legal vice president and regulatory affairs at Nextel del Perú S.A. During 2014 and 2015 he served as vice president legal, regulatory and interconnection at Nextel Telecomunicações Ltda, Brazil.

Manuel del Río Jiménez . Mr. Del Río is a mechanical engineer from Pontificia Universidad Católica del Perú and holds a master’s degree in industrial management from the Krannert Graduate School of Management—Purdue University—Indiana, USA. Since October 2016, Mr. Del Río has been serving as manager of administration and finance at MZM Mining. From July 2013 to September 2016, he was partner in tax & legal at KPMG in Peru and responsible for transactions, transfer pricing, corporate finance and business development.

During 2010 and 2013, he was the lead partner in the practice of advisory at KPMG in Peru. Previously, and since joining KPMG in 2004 until 2010, he was the managing partner of the transfer pricing division of KPMG Tax & Legal in Peru. He has more than nine years as leader of the financial control area and CFO of Citibank Perú. He was vice president of Profuturo AFP as well as member of the executive committee and director for ten years. In addition to this, he has been in charge of the professional and medical equipment business unit at Philips for eight years. Moreover, for ten years he has held various positions in the industrial and internal consulting sectors of Philips Peruana. He has taught several courses and lectures at the ESAN School of Business for Graduates and at the Pontificia Universidad Católica del Perú, as well as in private companies.

Alfonso García Miró Peschiera . Mr. Alfonso Garcia Miro holds a degree in economics and an MBA from the Universidad de Piura, Peru. He is chairman and CEO of IPN Investments, a real assets investment & holding company based in Peru. He also leads IPN Properties, a Peruvian real estate development firm, and Swissport GBH Honduras, an airport handling & cargo services company. Mr. Garcia Miro is Past President of CONFIEP, the National Confederation of Private Business Associations; board member and former president of COMEXPERU, the Peruvian Foreign Trade Association; board member of the Chilean-Peruvian business council, a private initiative tasked to foster the economic ties between these two countries.

He is also board member of Instituto Proeducación, an educational NGO; board member of IPE, the Peruvian Institute of Economics, a private think tank supporting free economy principles and practices; and board member of MALI, the Lima Art Museum. In the past, Mr. Garcia Miro sponsored, as founder, chairman and CEO of several infrastructure companies, such as GBH Investments, Swissport GBH Perú and Aeropuertos del Perú.

José Antonio Rosas Dulanto . Mr. Rosas holds a bachelor’s degree in business administration and accounting from Universidad del Pacífico. He also holds an MBA in finance from the Wharton School de University of Pennsylvania and has completed the high potential leadership program and the advanced management program at Harvard Business School. He has been CFO of Supermercados Peruanos S.A. and of Intercorp Perú Ltd. In addition, he has served as vice president of finance at Interbank and as CEO of Universidad Tecnológica del Perú. He is currently director of the MLW Institute for the Development of DreamFutures and managing partner at Nexus Group.

 

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Executive Officers

Our executive officers oversee our business and are responsible for the execution of the decisions of the board of directors. Our executive officers are appointed for an indefinite period of time and their term of office may be terminated by our board of directors at its discretion. The following table presents information concerning the current executive officers of the company and their respective positions:

 

Name

  

Position

   Year of
Birth
     Year of
Appointment
     Year of First
Employment
at the
Company
 

Luis Francisco Díaz Olivero

   Chief Executive Officer      1970        2017        1993  

Mónica Miloslavich

   Chief Financial Officer      1966        2009        1993  

Antonio Rodríguez

   Chief Investment Officer      1963        2017        1999  

Daniel Urbina Pérez

   Chief Legal Officer      1969        2018        2018  

Jorge Luis Izquierdo

   Chief Human Resources Officer      1973        2015        1999  

Antonio Cueto

   Chief Operating Officer      1966        2017        1996  

Rolando Ponce

   Chief Executive Officer of Viva GyM      1963        2008        1993  

Renato Rojas

   Chief Executive Officer of GyM      1972        2014        1995  

Eduardo Villa Corta

   Chief Executive Officer of GMI      1964        2014        1995  

Reynaldo Llosa

   Chief Executive Officer of GMP      1960        2014        2014  

Oscar Pando

   Chief Executive Officer of CONCAR      1973        2016        2016  

Manuel Wu

   Chief Executive Officer of GyM Ferrovías      1977        2011        2001  

Stephen Dixon

   Chief Executive Officer of Stracon GyM      1970        2015        2011  

Arturo Serna

   Chief Executive Officer of Morelco      1957        2014        2014  

Pablo Ruiz

   Chief Executive Officer of Vial y Vives-DSD      1965        2017        2017  

Luis Fukunaga

   Roads Concessions Officer      1970        2012        2002  

Sergio Morales

   Chief Executive Officer of Adexus      1958        2017        2016  

Carlos Gómez Pinto

   Chief Audit Executive      1961        2018        2018  

Javier Vaca Terron

   Regional Manager of Engineering and Construction      1970        2018        2018  

Fernando Dyer

   Chief Risk and Compliance Officer      1962        2017        2017  

Manuel Fernández Pollan

   Executive Director, CAM and Adexus      1958        2017        2016  

Julia Sobrevilla

   Corporate Affairs Officer      1969        2018        2018  

 

* Appointed by CAM in 2007.

The following sets forth selected biographical information for each of our executive officers:

Luis Francisco Díaz Olivero. Mr. Díaz joined the group in 1993, and has been our chief executive officer since March 2, 2017 and was our deputy chief executive officer from February to March 2, 2017. Before that, he served as chief operating officer since 2015, as infrastructure officer between April 2013 and December 2014, and as the chief executive officer of our subsidiary GMP between 2011 and April 2013. He holds a degree in industrial engineering, and an MBA from University of Pittsburgh. He also served as the deputy chief executive officer of GMP from 2009 to 2011; chief financial officer of Graña y Montero from 2004 to 2009; and chief financial officer of our subsidiary GyM from 2001 to 2004. He is a member of the boards of directors of GyM, GMP, Viva GyM, Adexus and Stracon GyM.

Mónica Miloslavich. Mrs. Miloslavich joined the group in 1993 and has served as our chief financial officer since 2009. She holds a degree in economics from Universidad de Lima. She worked as chief financial officer of Graña y Montero Edificaciones S.A.C. from 1998 to 2004, and as chief financial officer of our subsidiary GyM from 2004 to 2009.

Antonio Rodriguez. Mr. Rodríguez joined the group in 1999, and has been our chief commercial officer since 2017. Previously, he was our investment officer since 2017. Before that, he served as chief commercial officer since January 2015. He previously served as chief investment officer, from 2010 to 2014. He holds a degree in accounting from Universidad de Lima, a master’s in business administration from ESAN, and a master’s in business administration from Birmingham Business School in the UK. He was the chief executive officer of Larcomar from 1999 to 2010, and is currently a director of our subsidiaries CAM and GMD.

 

 

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Daniel Urbina Pérez. Mr. Urbina joined the group in 2018 as Chief Legal Officer. Before that, he served as general counsel for Inkia Energy since 2008, as vice president for Standard Chartered Bank between July 2005 and October 2008, as head of legal and compliance for Banco Standard Chartered between March 2000 and July 2005, as director general of the legal department for the Ministry of the Presidency between June 1999 and March 2000, as advisor to the Minister for the Advancement of Women between July 1997 and July 1998 and as associate for Benites Mercado & Ugaz between July 1993 and July 1998. He holds a law degree and an LLM from Columbia University and is authorized to practice law in Peru and New York.

Jorge Luis Izquierdo. Mr. Izquierdo joined the group in 1999, and was appointed chief human resources management officer in December 2015. Prior to that, he was our chief operational excellence officer between 2011 and 2015. In addition, from 2011 to 2013, he worked as chief officer of the Learning Center (currently known as Academia), and had previously served as project management officer. He holds a degree in civil engineering from Pontificia Universidad Católica del Perú, and a master’s degree in construction management from University of California, Berkeley.

Antonio Cueto. Mr. Cueto joined the group in 1996 and has been our chief operating officer since 2017. Previously, he was our infrastructure area officer since January 2015. He formerly served as country manager in Chile and held different management positions in the group. He holds a degree in economics from Universidad Católica del Perú and has a Masters degree in business administration from Universidad del Pacífico. He also has master’s in management and finance from HEC (France). He is a director of our subsidiaries GMP, GyM Ferrovías, Norvial, La Chira, Concesionaria Vía Expresa Sur, Survial and GMI.

Rolando Ponce. Mr. Ponce joined the group in 1993 and has served as the chief executive officer of our subsidiary Viva GyM since 2008, and as our chief real estate area officer since 2014. He holds a degree in civil engineering from Universidad Ricardo Palma. He also holds a master’s degree in construction and real estate business management from Pontificia Universidad Católica de Chile-Politécnica de Madrid, Spain. He previously served as manager of GyM’s real estate division. He is currently a member of the boards of directors of our subsidiaries Viva GyM and Almonte.

Renato Rojas. Mr. Rojas joined the group in 1995, and has served as the chief executive officer of GyM since February 2014. Prior to that, he held the position of manager of GyM’s civil works division from 2010 to 2014, and of assistant manager of that same division from 2002 to 2010. He holds a degree in civil engineering from Pontificia Universidad Católica del Perú. In addition, he pursued a master’s in company management at Universidad de Piura. He is currently a member of the boards of directors of GMI and GyM.

Eduardo Villa Corta. Mr. Villa Corta joined the group in 1995, and has served as chief executive officer of GMI since February 2014. He was the chief technical officer of GyM from 2010 to 2014; and GMI’s manager of the industry division from 2003 to 2010. In 2000 he joined GyM Mexico as its chief executive officer. He holds a degree in civil engineering from Pontificia Universidad Católica del Perú. In addition, he pursued an MBA at Universidad de Piura. He is currently a member of the board of directors of our subsidiary GMI.

Reynaldo Llosa. Mr. Llosa joined the group in 2014, and has served as the chief executive officer of GMP since February 2014. He holds a degree in mechanical engineering from University of Houston, as well as an MBA from Universidad de Piura. He has completed several technical and executive programs, including certificate programs at Rice University and Northeastern Kellogg School of Management. He served as the chief executive officer of BPZ Energy from 2010 to 2013. Prior to that, he had worked in Schlumberger for 25 years, the last 15 of which he spent in management positions.

Oscar Pando. Mr. Pando joined the group in May 2016, and is the chief executive officer of our subsidiary Concar. He is a business administrator at the Universidad de Lima with a master’s degree from Georgetown University. Mr. Pando has national and international experience of more than 20 years assuming various functional responsibilities, previously passed by Doe Run Perú, APC Corporation S.A., Philip Morris International, Securitas Peru, between other companies.

Manuel Wu. Mr. Wu is a civil engineer from the Pontificate Catholic University of Peru and holds a master’s degree in business administration from the University of Piura, Peru. He joined the group in 2001, and acted as chief technical officer for the oil and gas, electricity, infrastructure and sanitation areas of GyM S.A. from 2003 until 2007. He became manager of purchases and logistics of GyM S.A. in 2007, and general manager of the consortium Lima Actividades Comerciales comprised by GyM S.A. and Aguas de Barcelona from 2009 until 2011. Since 2011, he has worked as chief executive officer of GyM Ferrovias S.A.

Stephen Dixon. Mr. Dixon joined the group in 2012, and has served as chief executive officer of Stracon GyM S.A. since 2015. Prior to that, he held the position of chief operating officer of Stracon GyM from 2012 to 2014 and had served as chief executive officer of Stracon S.A.C. Mr. Dixon holds the New Zealand certificate of (civil) engineering from Wellington. In addition, he has pursued studies in finance at London Business School. He is currently a member of the board of directors of Stracon GyM S.A.

 

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Arturo Serna. Mr. Serna has been part of the group since 2014, when we acquired the majority shareholding of Morelco where he now serves as chief executive officer. Mr. Serna has a degree in chemistry from Universidad del Valle, and over 35 years of experience. He has held the position of chief executive officer of Morelco for 17 years.

Pablo Ruiz. Mr. Ruiz joined the group in 2017 and has been the chief executive officer of Vial y Vives – DSD S.A. since 2017. He holds a degree in civil engineering from the Polytechnic University of Madrid, he has a master degree in business administration from the University of La Laguna (Canary Island) and a master in civil engineering from the Universidad de Chile. Mr. Ruiz has more than 27 years of national and international experience in the construction of highways, roads, bridges, tunnels, environmental works, hydraulic works, marine works, railways, subways, industrial mining, urbanization and residential building, as well as a large design-build public-private partnerships on road and building projects. Mr. Ruiz previously worked as construction director at Acciona Contruction and, chief operating officer of Habtoor Leighton Group and area southern cone area director of Dragados.

Luis Fukunaga. Mr. Fukunaga joined the group in 2002 and has been our roads concessions manager in the infrastructure area since October 2012. In addition, he has held several management positions, including chief executive officer of Survial S.A and Concesión Canchaque S.A.C. He is a civil engineer with a degree from Universidad de Piura. He also completed a MBA at ESAN with studies at Kenan Flagler Business School–University of North Carolina at Chapel Hill, and completed a financial management Program at Universidad de Piura. He currently serves as director of our subsidiaries Survial, Norvial, Concesionaria Vía Expresa Sur and Concar.

Sergio Morales. Mr. Morales joined the group in 2016, and has served as the chief executive officer of Adexus S.A since April 2017. He holds a degree in civil industrial engineer from Santiago of Chile University. He has completed several technical and executive programs. He served as commercial manager of Adexus from June 2016 to April 2017. Prior to that, he worked at American Movil Group for nine years and also at Unisys Company for 11 years.

Javier Vaca Terron. Mr. Vaca graduated as a Civil Engineer, Channels and Ports from the Polytechnic University of Madrid in 1996. He joined the Spanish company, Ferrovial Agroman, participating in the study of international works and directing the execution of projects in Madrid. In 2004, he completed an Executive MBA master’s degree at IESE and joined Grupo Assignia as Director of International Production at the construction company, developing his work mainly in Latin America. In 2007, he was assigned new responsibilities within the Assignia group, as CEO of another group company, Eductrade, dedicated to foreign trade in the field of Health and Education. In 2014, he returned to the construction industry, this time directing the Business Development and Studies, Hiring and Institutional Relations Areas of the Spanish FCC. In 2016, he joined the OHL company as Southern Cone Zone Director, based in Santiago, Chile. In February 2018, he joined Graña y Montero as Regional Manager of the Engineering and Construction Area.

Carlos Gómez Pinto. Mr. Gomez has worked for Seagrams, Coca-Cola, Merril Lynch and Pacific Exploration & Production, in various leadership positions including as a CFO, Vice President of Internal Audit, Corporate Governance, Risks, Compliance, and Corporate Finance Manager. His experience includes responsibilities for implementing re-engineering processes, identifying non-value added activities and helping departments change their structure and improve work process efficiency. Currently, Mr. Gomez is a senior executive of Graña y Montero as Corporate Internal Auditor. Mr. Gomez is a Licensed International Financial Advisor and board member of certain companies and non-profit organizations. Mr Gomez earned a bachelor’s degree in Economics at Rosario University, a top private university in Colombia. He also obtained a MBA from Southern New Hampshire University in the USA.

Fernando Dyer. Mr. Dyer is the Chief Risk and Compliance Officer of Graña y Montero, and is responsible for the company’s Corporate Risk and Compliance Program. Fernando has more than 30 years of international experience in audit, finance, internal controls, governance, ethics, compliance and management at leading multinationals. His experience includes the design, implementation, management and leading international programs on risk assessment, code of conduct, whistle blower, due diligence, anti-corruption, anti-money-laundering and international sanctions aimed to deter, detect and protect companies from crimes (focused on FCPA and UK Bribery Act). Mr. Dyer holds an MBA form Université de Genève (Switzerland), specialized in International Management, and a BA in Accounting from the Universidad del Pacífico (Perú). He is a Certified Anti-Money Laundering Specialist (CAMS) by the Association of Certified Anti-Money Laundering Specialists (USA), a Certified Corporate Compliance & Ethics Professional (CCEP) by the Society of Corporate Compliance and Ethics (USA), and an International Faculty of the International Training Compliance and International Compliance Association – ICT/ICA – (United Kingdom). Mr. Dyer speaks English, French and Spanish fluently.

 

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Manuel Fernández Pollan. Mr. Fernández joined the Group in December 2015 as chief executive officer of Adexus in Chile. He currently leads the Corporate Management of Services of GyM, is the President of Adexus and a director of CAM. Mr. Fernández holds a Bachelor’s degree in Industrial Engineering from the Polytechnic University of Madrid, an MBA from CEPADE in Madrid and a Master’s in Strategic Planning and Finance from IDE in Madrid. He has worked for 10 years at Emerson Network Power, the last three years as Vice President of Sales and Regional Operations of Latin America. Before that he was chief executive officer for the Andean Countries (Colombia, Ecuador, Venezuela and Peru). Previously he worked in the Telefónica group, occupying different positions in Spain and Latin America, the last two years in Peru as chief executive officer of Telefónica Servicios Compartidos and Vice President of Resources of Telefónica del Perú.

Julia Sobrevilla Perea. Ms. Sobrevilla joined Graña y Montero in April 2018 as Corporate Affairs Officer. She joins Graña y Montero most recently from Coca-Cola Perú, where she was Public Affairs Director from 2012 to 2018. Before joining Coca-Cola Ms. Sobrevilla was Institutional Relations Manager at Grupo ACP, a Peruvian group dedicated to microfinance in Latin America. Prior to that, from 2002 to 2010 she was Country Representative for Population Services International, a Washington, DC-based not for profit, serving in Rwanda, Mexico and Mozambique. Previously she held several positions in MTV Networks and Nickelodeon Latin America from 1994 to 2001, based in Miami, Florida. She holds a Bachelors in Linguistics and Literature from the Pontificia Universidad Católica del Perú and completed Masters Courses in Communication at Stanford University. She sits on the board of SERNANP (Servicio Nacional de Areas Naturales Protegidas), Kunan and Premio Protagonistas del Cambio UPC.

Executive Commission

The Executive Commission is currently comprised by our Chief Executive Officer, the Business Segment Executive Officer for each of the four segments, our Chief Financial Officer, our Chief Investment Officer, our Chief Legal and Corporate Affairs Officer, our Chief Human Resources Officer, our Chief Audit Executive, our Chief Risk and Compliance Officer, and our Corporate Business Development Officer. The Executive Commission evaluates, at the management level, among other matters, our strategic plan, annual budget and annual investment plan.

Business Segments Executive Commission

The Business Segments Executive Commissions are comprised by the Business Segment Executive Officer and the CEOs of the companies in each of the relevant business segments. Each Business Segment Executive Commission evaluates the applicable business segment’s annual budget, finances and operations as well as a summary of the information discussed in the Executive Commission.

Kinship

Mr. José Graña Miró Quesada, a significant shareholder and our former chairman of the board of directors, has first degree kinship by blood with María Teresa Graña Canepa, a shareholder of our company; and third degree kinship by blood with Ms. Yamile Brahim Graña, a shareholder of our company.

B. Compensation

Compensation of Directors and Executive Officers

Director compensation must be approved by a majority of shareholders at our annual shareholders’ meeting.

In 2016, total compensation paid to our former board of directors amounted to S/.1,502,920 including compensation paid to directors that serve on our subsidiaries’ board of directors. In 2016, total compensation paid to our executive officers amounted to S/.20,461,319. See “Item 4.B Information on the Company—Business Overview—Regulatory Matters—Labor Regulations” for additional information on profit sharing regulatory requirements.

Neither we nor any of our subsidiaries have entered into any agreement that provides for any benefit or compensation to any director or senior executive upon expiration of his or her term or termination of employment. Under Peruvian law, unless we dismiss someone for justified cause, we are required to pay the dismissed employee (but not directors) 1.5x annual salary for every year with the company for a period not to exceed 12 years. We are not required to make such payments in the event of voluntary termination. Although we have no ongoing obligation to do so, in the past we have provided, and in the future we may provide, such benefits to our executive officers upon their retirement. We have not set aside or reserved any amounts to provide for pension, retirement or other similar benefits.

 

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Executive Compensation Plan

We establish and pay executive compensation in compliance with applicable labor and tax regulations and corporate governance standards and in accordance with market conditions.

We establish pay scales taking into consideration executives’ responsibilities, including the degree of complexity of those responsibilities, power of decision-making and scope of supervision entrusted.

The fixed salary component of compensation is established for each position based on a pay scale. Fixed salary includes family allowance and cost of living payments, if applicable. We evaluate executives at least once a year to develop action plans in furtherance of continuously improving management performance.

The variable component of compensation is paid to executives and other employees for meeting specific goals, and is related both to his or her performance and our financial results. Variable compensation is typically paid as an annual bonus.

In addition, labor regulation establishes a mandatory profit sharing provision of 5% of our total annual taxable income, to be distributed among all employees, calculated based on a formula established by law that considers the days worked in the year and remuneration.

Our executives also receive additional benefits, typically non-pecuniary. The benefits granted include: (i) a vehicle owned and maintained by the company, with the purpose of facilitating transportation of executives in the performance of their functions; (ii) a fuel allowance to offset transportation costs in the performance of their functions; and (iii) an insurance policy, including work accident and high risk coverage.

In addition, we have established a plan for certain executives effective March 2013 that awards cash bonuses for the exclusive use of purchasing shares of our company or of our subsidiaries. The executive must agree to hold the shares for a specific period. If the executive is no longer employed with the company during such period, we are entitled to repurchase the shares at the original purchase price. This benefit is awarded at the discretion and subject to the approval of the Human Resource Management Committee of our board of directors.

C. Board Practices

Board Committees

We have four board committees comprised of members of our board of directors.

Audit and Process Committee

Our Audit and Process Committee is comprised of four directors, all of which are independent in accordance with the SEC rules applicable to foreign private issuers. The current members of our Audit and Process Committee are Mr. Pedro Pablo Errazuriz Domínguez, Mr. Manuel del Rio, Mr. José Antonio Rosas and Mr. Alfonso de Orbegoso. These directors have extensive business and economic experience in Peru. Mr. Manuel del Rio and Mr. José Antonio Rosas each qualify as an “audit committee financial expert” in accordance with SEC rules. Our Audit and Process Committee oversees our corporate accounting and financial reporting process. The Audit and Process Committee is responsible for:

 

    reviewing our financial statements;

 

    evaluating our internal controls and procedures, and identifying deficiencies;

 

    recommending to our annual shareholders’ meeting the appointment of our external auditors, determining their compensation, retention and oversight, and resolving any disagreements that may arise between management and our external auditors;

 

    evaluating the company’s compliance with the Board of Director’s internal regulation, as well as with general principles of corporate governance;

 

    informing our board of directors regarding any issues that arise with respect to the quality or integrity of our financial statements, our compliance with legal or regulatory requirements, the performance and independence of the external auditors, or the performance of the internal audit function;

 

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    establishing procedures for the reception, retention and treatment of complaints regarding accounting, internal controls or other auditing matters, including the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;

 

    independently engaging its own counsel and any other advisers it deems necessary to fulfill its functions; and

 

    establishing policies and procedures to pre-approve audit and permissible non-audit services.

Our board of directors has adopted a written charter for our Audit and Process Committee, which is available on our website at www.granaymontero.com.pe.

Human Resource Management Committee

Our Human Resource Management Committee is comprised of three directors, all of which are independent in accordance with Peruvian and NYSE independence standards. The current members of the committee are Mr. Rafael Venegas, Mr. Pedro Errázuriz and Mr. Alfonso de Orbegoso. The Human Resource Management Committee is responsible for:

 

    reporting to our board of directors on the appointment and dismissal of senior executives;

 

    reviewing and approving corporate goals and objectives relevant to CEO compensation, evaluating the CEO’s performance in light of those goals and objectives, and determining and approving CEO compensation;

 

    establishing compensation arrangements for senior executives in accordance with the financial results of the company; proposing measures to ensure transparency in the remuneration of directors and senior executives;

 

    evaluating our human resources policies;

 

    reporting to our board of directors on matters regarding related party transactions that could result in a conflict of interest; establishing our social responsibility policies; and

 

    appointing third-party, independent compensation consultants and establishing the compensation of and overseeing the third-party independent compensation consultants;

As a foreign private issuer, we are not required to maintain a compensation committee that complies with all of the U.S. laws and regulations and NYSE requirements applicable to U.S. issuers.

Investment Committee

Our Investment Committee is comprised of five directors, with independent members under Peruvian and NYSE independence standards, currently comprising the majority of the committee. The current members of the committee are Mr. José Antonio Rosas, Mr. Manuel del Río, Mr. Alfonso Garcia-Miro, Mr. Augusto Baertl and Mr. Pedro Pablo Errazuriz. The Investment Committee is responsible for:

 

    establishing our investment policies;

 

    approving our annual investment plan; and

 

    analyzing the projects that would require an investment greater than US$5 million.

Risk, Compliance and Sustainability Committee

Our Risk, Compliance and Sustainability Committee is comprised of five directors, with independent members under Peruvian and NYSE independence standards, currently comprising the majority of the committee. The current members of the committee are Mr. Alfonso de Orbegoso Baraybar (chairman of the committee), Mr. Pedro Errázuriz, Mr. Augusto Baertl and Mr. Manuel del Río. The Risk, Compliance and Sustainability Committee is responsible for:

 

 

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    approving the structure, and evaluating the performance of the organization, in matters of risks and compliance;

 

    approving the policies and limits of exposure to risk, monitoring the risk profile of the company, and supervising the development of the risks and compliance area;

 

    ensuring compliance with the company’s policies, in particular with the anti-corruption policy and the sustainability policy, as well as with applicable laws. This committee can also propose policies, directives and/or complementary procedures that contribute to strengthening the responsible management of the company; and

 

    supervising and reporting to our board of directors on social responsibility practices and management.

Operating Board Committees

We also have two operating board committees that meet monthly and are comprised of members of our board of directors, including at least one independent member under Peruvian and NYSE independence standards per committee.

Engineering and Construction Committee

Our Engineering and Construction Committee supervises the operations of our E&C segment, and is comprised of six directors. The current members of the committee are Mr. Augusto Baertl, Mr. Rafael Venegas, Mr. Roberto Abusada, Mr. Alfonso de Orbegoso, Mr. Pedro Errázuriz and Mr. Alfonso García-Miro.

Infrastructure Committee

Our Infrastructure Committee supervises the operations of our Infrastructure segment and is comprised of five directors. The current members of the committee are Mr. Augusto Baertl, Mr. Rafael Venegas, Mr. José Antonio Rosas, Mr. Alfonso García Miró and Mr. Manuel del Río.

D. Employees

We have developed an extensive and talented team, including more than 3,800 engineers, which gives us the capability and scale to undertake large and complex projects. We also have access to a network of approximately 156,000 manual laborers throughout Peru that can supplement our workforce when required by our projects. Moreover, we have the flexibility to engage our own workers on projects outside Peru, avoiding the need to seek new employees in other countries.

As of December 31, 2016, we had a total of 32,513 full-time employees, including approximately 8,493 manual laborers, a number that fluctuates depending on our project backlog. At such date, we also worked with 4,434 employees of subcontractors. Occasionally, we employ subcontractors for particular aspects of our projects, such as carpenters, specialists in elevator installation and specialists in glassworks. We are not dependent upon any particular subcontractor or group of subcontractors. As of December 31, 2016, 40.4% of our employees worked outside Peru. The following table sets forth a breakdown of our employees by category as of December 31, 2016.

 

Salaried Employees    E&C      Infrastructure      Real Estate      Technical
Services
     Corporate      TOTAL  

Engineers

     1,504      192        37      2,041      29      3,803

Other Professionals

     758      106        40      782      122      1,808

Technical specialists

     1,010      258        50      10,633      29      11,980

Manual Laborers(1)

     8,493      —          —          —          —          8,493

Joint operation employees(2)

     1,455      —          —          540      —          1,995

Subtotal

     13,220      556        127      13,996      180      28,079

Subcontracted employees

     3,181      175        —          1,078      —          4,434

Total

     16,401      731        127      15,074      180      32,513

 

(1) The number of manual laborers, who form part of our network of approximately 156,000 manual laborers, varies in relation to the number and size of projects we have in process at any particular time.
(2) Includes engineers, professionals, technical specialists and manual laborers employed by our joint operations.

The following chart sets forth the growth of our total employees from December 31, 2013 to December 31, 2016.

Total Employees

 

LOGO

 

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Our talent development system has allowed us to develop a team of professionals who are able to design and implement sophisticated projects. Our talent development system is based on three main pillars: (i) specialized training for all levels, including senior management; (ii) mentoring; and (iii) feedback from managers to employees.

We have implemented programs to attract young and qualified candidates. Our Trainee, Academic Excellence and Young Engineers programs offer various types of internships and training opportunities to engineering students and recent graduates, rewarding the most successful candidates with the opportunity to work as full-time, permanent employees. Our focus is not only to attract talented people but also to retain them. Therefore, during the last eight years we have worked together with Great Place to Work ® , a human resources consulting, research and training firm, to measure our employee’s satisfaction with the working environment. According to studies carried out by Great Place to Work ® during 2016, 74% of our engineers, technical specialists and other professional employees confirmed that we are a “great place to work.” Moreover, our subsidiaries Viva GyM, Stracon GyM, GMP and GMD were recognized by Great Place to Work ® as being among the 45 best companies to work for in Peru. In April 2016, our subsidiary Viva GyM was recognized by Great Place to Work among the best 50 companies in Latin America.

Through our Graña y Montero Academy, we offer continuing education opportunities through a wide selection of courses and training programs targeted at each level. We believe the knowledge that our employees gain through these programs is reflected in the way they work and relate to our clients, adding value in every step. During 2016, we invested more than US$6.5 million in continuing education, reaching approximately 380,617 hours of capacitation activities for our employees.

We place significant emphasis on instilling our core corporate values of quality, professionalism, reliability and efficiency on our employees, and on promoting safety, environmental sustainability and social responsibility throughout the entire organization. Our Code of Conduct and Charter of Ethics regulate the conduct of our employees while promoting the foregoing values. In addition, our employees participate in ethics seminars on a periodic basis.

Substantially all of our manual laborers and some of our other employees are members of labor unions. Our practice is generally to extend the benefits we offer our unionized employees to non-unionized employees. We consider our current relationship with unions to be positive.

In our E&C segment, collective bargaining agreements are negotiated at two levels: (i) on an annual basis between the National Federation of Civil Construction and the Peruvian Chamber of Construction, without our direct involvement; and (ii) on a per project basis directly between the unions and our project committees, in accordance with such annual agreement. In addition, some of our personnel in our gas processing plant belongs to the labor union Unicode Workers Union GMP S.A. We currently have collective bargaining agreements with some of our gas processing plant workers. In the case of our operation and maintenance of infrastructure assets business, some of our personnel in CAM Perú are subject to a collective bargaining agreement. These collective bargaining agreements are negotiated on an annual basis.

Safety

We safeguard the health and safety of our employees and of all the persons present in our operations and services. To that end, we provide safe work conditions, we manage risks in a timely manner and we promote a culture of prevention, starting from the leadership and commitment of our senior management.

In 2016, our company reached a total of 86,303,933 hours worked. During this period, we reported an accident frequency index (FI) of 0.40 accidents for every 200,000 hours worked, thus remaining at a level similar to 2015 (0.39) and confirming the positive trend over the last three years.

Our occupational health and safety management system in our subsidiaries GyM, GMI, Stracon GyM, Morelco, GMP, CAM, GMD Adexus and Concar (February 2017) are certified by OHSAS 18001. We believe a safe job site contributes to our reputation and ability to gain new business while enhancing employee morale and reducing costs and exposure to liability.

Under our framework, we provided over 100 thousand hours of training in risk prevention for managers and directors, 794 thousand hours of training for employees and nearly 200 thousand hours of training for subcontractors. Additionally, to improve the leadership and commitment of our chain of command, these training sessions were complemented with periodic manager’s visits to projects, the establishment of annual safety goals based on the type of activity, the generation of opportunities to share lessons learned, and the monitoring of safety panels by our board of directors.

 

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E. Share Ownership

As of April 30, 2018, persons who are currently members of our board of directors and our executive officers held as a group 34,534,193 of our common shares. This amount represented 5.23% of our outstanding share capital as of such date.

Our directors and executive officers hold, in the aggregate, less than 1% of our outstanding share capital, with the exception of Carlos Montero, who owns 33,785,285 common shares, representing 5.12% of our outstanding share capital, through Bethel Enterprises.

Our other directors and executive officers who in the aggregate hold less than 1% interest in our company are: Mr. Pedro Pablo Errázuriz, Mr. Roberto Abusada, Mr. Luis Francisco Díaz Olivero, Mr. Antonio Rodríguez, Ms. Mónica Miloslavich and Mr. Antonio Cueto.

Our directors and executive officers do not have different voting rights.

We have established a plan for certain executives effective since March 2013 that awards cash bonuses for the exclusive use of purchasing shares of our company or of our subsidiaries. The executive must agree to hold the shares for a specific period. If the executive is no longer employed with the company during such period, we are entitled to repurchase the shares at the original purchase price. This benefit is awarded at the discretion and subject to the approval of the Human Resource Management Committee of our board of directors.

 

Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

As of December 31, 2016, our issued and outstanding share capital was comprised of 660,053,790 common shares. The following table sets forth the beneficial ownership of our common shares as of December 31, 2016, which is based on information provided to us by CAVALI S.A. ICLV, the Peruvian clearing house (“CAVALI”), except as set forth below.

 

Shareholder

   Number of shares      Percentage owned  

GH Holding Group(1)

     117,538,203        17.81

IN-CARTADM (AFP Integra-Sura Group)

     38,384,976        5.82

PR-CARTADM (Profuturo AFP-Grupo Scotiabank)

     36,968,166        5.60

Aberdeen Asset Management PLC(2)

     35,501,465        5.38

Bethel Enterprises Inc.(3)

     33,785,285        5.12

Other Shareholders (4)

     168,192,125        25.48

JPMorgan Chase Bank NA, as depositary for the holders of ADS(5)

     229,683,570        34.80
  

 

 

    

 

 

 

Total

     660,053,790        100

 

(1) Mr. José Graña Miró Quesada, our former chairman, indirectly owns 117,538,203 common shares, representing 17.81% of our outstanding share capital, through GH Holding Group.
(2) Based on Amendment No. 2 to a Schedule 13G filed by Aberdeen Asset Management PLC with the SEC on February 8, 2017, Aberdeen Asset Management PLC has shared voting power over 31,745,514 of our common shares and has shared dispositive power over 35,527,659 of our common shares, representing 5.38% as of February 8, 2017.
(3) Mr. Carlos Montero, through Bethel Enterprises Inc., indirectly owns 33,785,285 common shares, representing 5.12% of our outstanding share capital.
(4) Among other shareholders, the following directors and executive officers hold directly or indirectly common shares of our outstanding share capital:

Mr. Roberto Abusada, a member of our board of directors, Mr. Pedro Pablo Errazuriz, a member of our board of directors, Mr. Luis Francisco Díaz Olivero, Chief Executive Officer, Ms. Mónica Miloslavich, our Chief Financial Officer, Mr. Antonio Rodríguez, Chief Investment Officer, Mr. Renato Rojas, Chief Executive Officer of GyM, and Mr. Antonio Cueto, Chief Operations Officer, hold in aggregate less than 1% of our outstanding share capital.

(5) Excluding Aberdeen Asset Management PLC´s beneficial ownership of our common shares as of December 31, 2016.

 

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As of December 31, 2016, 38 record holders of our common shares were located in the United States (including JPMorgan Chase Bank NA, as depositary for the holders of ADS), according to CAVALI.

Certain of our directors and executive officers directly or indirectly own shares of our subsidiaries: Mr. Renato Rojas, Chief Executive Officer of GyM, owns 108,854 common shares of GyM, representing 0.04% of its outstanding capital share; Mr. Rolando Ponce, Chief Executive Officer of Viva GyM owns 1,111,690 shares of Viva GyM, representing 0.46% of its oustanding capital share; and Eduardo Villa Corta, chief executive officer of GMI, owns 108,854 shares of GyM, representing 0.0421% of its outstanding capital share.

The following table sets forth the changes in beneficial ownership of our common shares from December 31, 2014, to December 31, 2016, based on information provided to us by CAVALI.

 

     As of December 31, 2014     As of December 31, 2015     As of December 31, 2016  
Shareholders    No. of Shares      Percentage
Owned
    No. of Shares      Percentage
Owned
    No. of Shares      Percentage
Owned
 

GH Holding Group (1)

     117,538,203        17.81     117,538,203        17.81     117,538,203        17.81

IN-CARTADM (AFP Integra-Sura Group)

     40,304,651        6.11     39,656,375        6.01     38,384,976        5.82

PR-CARTADM (Profuturo AFP-Grupo Scotiabank)

     37,488,166        5.68     36,968,166        5.60     36,968,166        5.60

Aberdeen Asset Management PLC (2)

     29,495,155        4.47     37,323,615        5.70     35,501,465        5.38

Bethel Enterprises Inc .(3)

     33,785,285        5.12     33,785,285        5.12     33,785,285        5.12

JPMorgan Chase Bank NA, as depositary for the holders of ADS( 4)

     224,370,830        33.99     251,040,140        38.03     229,683,570        34.80

 

(1) Mr. José Graña Miró Quesada, our former chairman, indirectly owns 117,538,203 common shares, representing 17.81% of our outstanding share capital, through GH Holding Group.
(2) Based on Amendment No. 2 to a Schedule 13G filed by Aberdeen Asset Management PLC with the SEC on February 8, 2017, Aberdeen Asset Management PLC has shared voting power over 31,745,514 of our common shares and has shared dispositive power over 35,527,659 of our common shares, representing 5.38% as of February 8, 2017.
(3) Mr. Carlos Montero indirectly owns 33,785,285 common shares, representing 5.12% of our outstanding share capital, through Bethel Enterprises Inc.
(4) Excluding Aberdeen Asset Management PLC´s beneficial ownership of our common shares as of December 31, 2013 and December 31, 2016, respectively.

Our major shareholders do not have different voting rights.

B. Related Party Transactions

Peruvian Law Concerning Related Party Transactions

Peruvian law sets forth certain restrictions and limitations on transactions with certain related parties.

For instance, from a tax standpoint, the value of those transactions must be equal to the fair market value assessed under transfer pricing rules, i.e., the value agreed to by non-related parties under the same or similar circumstances. Similarly, companies with securities registered in the Peruvian Public Registry of Securities ( Registro Público del Mercado de Valores ), such as us, are required to comply with the following rules:

 

    The directors and managers of the company cannot, without the prior authorization of the board of directors, (i) receive in the form of a loan money or assets of the company; or (ii) use, for their own benefit or for the benefit of related parties, assets, services or credits of the company.

 

    The execution of agreements that involve at least 5% of the assets of the company with persons or entities related to directors, managers or shareholders that own, directly or indirectly, 10% of the share capital, requires the prior authorization of the board of directors (with no participation of the director involved in the transaction, if any).

 

    The execution of agreements with a party controlled by the company’s controlling shareholder requires the prior authorization of the board of directors and an evaluation of the terms of the transaction by an external independent company (audit companies or other to be determined by the Peruvian Securities Commission).

The external independent company that reviews the transaction should not be related to the parties involved therein, nor to directors, managers or shareholders that own at least 10% of the share capital of the company.

 

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As a general policy, we do not enter into transactions with directors and executive officers on terms more favorable than what we would offer third parties. Any related party transaction we have entered into in the past has been in the ordinary course of business and on an arm’s length basis.

Article 30 of the internal regulations of our board of directors establishes a review procedure for identifying, approving and accounting for related party transactions. Related party transactions are defined as any transaction entered into by and among our company and any shareholder that owns 1% or more of our company’s or of our subsidiaries’ outstanding shares, directors, senior executives and persons related to them. The Human Resource Management Committee is responsible for identifying, analyzing and approving each such transaction considering market conditions and potential benefits for us and the related party. For ordinary course transactions carried out under market conditions, a general authorization for the operations of the business line is sufficient. For more information, see “Item 6. Directors Senior Management and Employees—Management.”

Related Party Transactions

The following sets forth our related party transactions during 2016:

 

    architectural services agreements entered into among Mr. Oscar Borasino, the brother in law of Mario Alvarado Pflucker, our former chief executive officer and director, as architect, and our subsidiary Viva GyM, as customer, in the project Parques del Mar for an aggregate amount of US$40.6 thousand (S/.136.4 thousand) during 2016;

 

    architectural services agreements entered into among Mrs. Ruth Alvarado, the sister of Mario Alvarado Pflucker, as architect, and our subsidiary Viva GyM, as customer, in the project Paul Harris for an aggregate amount of US$38.5 thousand (S/.129.4 thousand) during 2016;

 

    architectural services agreements entered into among De la Piedra Consultores, a company owned by the brother of Julio de la Piedra, manager of the building division in our subsidiary GyM, as architect, and our subsidiary Viva GyM, as customer, in the project VIS for an aggregate amount of US$73.1 thousand (S/.245.8 thousand) during 2016;

 

    advertising services agreements entered among Servicios Empresariales El Administrador E.I.R.L., a company related to the brother of Rolando Ponce Vergara, the chief executive officer of Viva GyM and our corporate real estate officer, as advertising intermediary, and our subsidiary Viva GyM as customer, for an aggregate amount of US$13.4 thousand (S/.45.0 thousand) during 2016;

 

    during 2016, our subsidiary CAM entered into a computer equipment lease agreement with CSI for an aggregate amount of US$113.0 thousand (S/.379.7 thousand), with Alfredo Chavez, the brother of Pedro Chavez, who is the chief executive officer in CAM, is the chief commercial officer of CSI;

 

    our subsidiary Stracon GyM entered into several services agreements with one of its directors, Mr. Miguel Aramburu, for an aggregate amount of US$9.8 thousand (S/.33.0 thousand) during 2016;

 

    our subsidiary Stracon GyM entered into an operation management service agreement with Stracon S.A.C., a company of Stracon GyM’s partner, Mr. Stephen Dixon and Hayden Halsted, for an aggregate amount of US$1,621.6 thousand (S/.5,448.5 thousand) during 2016;

 

    lease agreement for administrative offices entered among Sistemas y Redes Cia, one of Adexus shareholders, as lessor, and our subsidiary Adexus, as lessee, for an aggregate amount of US$1,441.8 thousand (S/.4,844.4 thousand) during 2016;

 

    lease agreement for vehicles used by our subsidiary Adexus in some operations entered with Microrenta, a company owned by one of Adexus shareholders, for an aggregate amount of US$660.1 thousand (S/.2,218 thousand) during 2016;

 

    advising services agreement entered among our subsidiary Vial y Vives – DSD S.A. and Gabriel Vives, a Vial y Vives – DSD board member, for an aggregate amount of US$53.8 thousand (S/.180.7 thousand) during 2016;

 

    advising services agreement entered among our subsidiary Vial y Vives – DSD S.A. and Felipe Vial, a Vial y Vives – DSD board member, for an aggregate amount of US$22.4 thousand (S/.75.2 thousand) during 2016;

 

    our subsidiary Morelco entered into a service provision agreement for uniforms, shoes, helmets and goggles and equipment for an aggregate amount of US$210.1 thousand (S/.705.6 thousand) during 2016 with Agora, a company that is a minority shareholder of Morelco;

 

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    our subsidiary Morelco entered into a service provision agreement for uniforms, shoes, helmets and goggles for an aggregate amount of US$34.1 thousand (S/.114.5 thousand), during 2016 with Noralba Serna Henao, is the sister of Arturo Serna, the chief executive officer of Morelco; and

 

    during 2016, our company and our subsidiaries Norvial, Terminales del Peru, Consorcio Terminales, Concar, GyM, Survial, GMI S.A. Ingenieros Consultores, Viva GyM paid an aggregate amount of US$360.0 thousand (S/.1,210 thousand) to Editora El Comercio S.A., of which José Graña Miró Quesada, our former chairman, is a shareholder, for advertising, publishing and editing services.

C. Interests of Experts and Counsel.

Not applicable.

Item 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information.

See Item 18 of this annual report on Form 20-F.

Legal and Administrative Proceedings

We may, from time to time, become subject to various legal and administrative proceedings that are incidental to the ordinary conduct of our business. We are currently not party to any material legal or administrative proceedings, other than as described below. As of December 31, 2016, we had recorded provisions amounting to S/.19.4 million in connection with legal and administrative proceedings. See note 30.e to our audited annual consolidated financial statements included in this annual report.

Two securities class action complaints have been filed against us and certain of our current and former executive officers in the Eastern District of New York during the first quarter of 2017. These complaints are consolidated into a single class action. We believe that we have meritorious defenses to the claims asserted, and we intend to defend ourselves vigorously in these matters.

In July 2017, media reports alleged that certain construction companies in Peru, Brazil and Spain, including our company, colluded as a “construction club” to receive public contracts. As a result of these reports, INDECOPI initiated an investigation regarding the anti-competitive activities of construction companies in Peru, including our company. To date, there is no pending investigation of the company.

The Lava Jato commission of the Peruvian congress, which was formed in November 2016 and tasked with investigating the alleged bribes of Brazilian companies to Peruvian public officials, has initiated congressional inquiries into the company and other construction companies in Peru. Certain of the company’s former board members and executive officers to have been required to give testimony at hearings before the commission, during which they have affirmed that the company was unaware of Odebrecht’s illicit activities.

Peruvian prosecutors have included José Graña Miró Quesada, the former Chairman of the company, in an investigation for the crime of collusion, and Hernando Graña Acuña, a former board member of the company, for the crime of money laundering against the Peruvian government, each in connection with the IIRSA South project concession (tranches II and III), in which we participated. Both were placed in preventive detention and have since been released. Gonzalo Ferraro Rey, the former Chief Infrastructure Officer of the company, has also been included in an investigation for the crime of money laundering in connection with the same project.

Also in connection with investigations relating to the IIRSA South project concession (tranches II and III), the Peruvian criminal prosecution has moved to charge the company and our construction subsidiary, GyM, as criminal defendants. Separately, the Ad Hoc Prosecutor has moved to directly include the company as a civilly-responsible third party in connection with the same projects. A decision from the Peruvian judiciary on whether our company constitutes a civilly-responsible third party remains pending. In response, the Peruvian First National Preparatory Investigation Court ( Primer Juzgado de Investigación Preparatoria Nacional ) notified us of its decision to formally include the company and GyM in its criminal investigation. We have appealed the court’s decision to include the company and GyM in the criminal investigation. We cannot assure you that our position in these proceedings will prevail.

 

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The Ad Hoc Prosecutor has also moved to directly include our subsidiary, GyM S.A., as a civilly-responsible third party in the investigation relating to Tranches 1 and 2 of Line 1 of the Lima Metro. If our subsidiary’s former or current officers are included and convicted, it may be required to pay civil damages to the Peruvian government. A decision from the Peruvian judiciary regarding these matters remains pending, and we cannot assure you that our subsidiary will not be included or that our position would ultimately prevail.

A conviction of corruption or resolutions with government authorities may lead to criminal and civil fines as well as penalties, sanctions, injunctions against future conduct, profit disgorgement, disqualifications from directly and indirectly engaging in certain types of business, the loss of business licenses or permits or other restrictions. Moreover, our involvement in corruption investigations, and any findings of wrongdoing in such investigations, could further damage our reputation and have a material adverse impact on our ability to compete for business. Such investigations may also adversely affect our ability to pursue strategic projects, and could potentially result in the termination or modification of certain existing contracts or relationships.

Dividends and Dividend Policy

Dividend Policy

Our current dividend policy, adopted on March 26, 2013, is to distribute between 30% and 40% of the net profit from the preceding year, as long as we hold such net profit on a consolidated basis, subject to contractual restrictions on our indebtedness. Holders of our common shares are entitled to receive dividends on a pro rata basis in accordance with their respective number of shares held. Our dividend policy can be modified by a favorable vote of a majority of our shareholders and any changes become effective 30 days after approval.

Article 23 of our by-laws establishes that dividends distribution must be approved by our shareholders during the annual shareholders’ meeting. The recommendation of our board of directors is required for the distribution of interim dividends, which must be subsequently ratified at a shareholders’ meeting.

Under Peruvian law, companies may distribute up to 100% of their profit (after payment of income tax) subject to a 10% legal reserve until the legal reserve equals 20% of the total value of their capital stock. According to Article 40 of the Peruvian Corporate Law, in order to distribute dividends, profits must be determined in accordance with the individual financial statements of the company.

Payment of Dividends

Dividends are paid to holders of our common shares as of a record date determined by us. In order to allow for the settlement of securities, under the rules of the Peruvian Securities Commission, investors who purchase shares of a publicly-held company three business days prior to a dividend payment date do not have the right to receive such dividend payment. Dividends on issued and outstanding common shares are distributed pro rata.

We may not make any dividend payments until all outstanding amounts under our repayment obligations of the GSP performance guarantee have been repaid in full. In addition, we may not be able to make any dividend payments until all outstanding amounts under our syndicated loan and our corporate guarantee of the GSP bridge loan have been repaid or discharged, as the case may be, in full. For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

In addition, the indentures of the Senior Secured Notes issued by GyM Ferrovías and the Corporate Bonds issued by Norvial, contain, respectively, certain customary covenants, including restrictions on our ability to pay dividends if we are in default under the agreement, and our medium term loan with Credit Suisse imposes, certain limitations in an event of default, on our ability to distribute cash dividends. See “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.”

Holders of common shares are not entitled to interest on accrued dividends. In addition, under Article 232 of the Peruvian Corporate Law, the right to collect accrued dividends declared by a publicly-held company expires ten years from the original dividend payment date.

Previous Dividend Payments

The following table sets forth the amounts of cash dividends declared and paid since 2015 for our common shares.

 

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     Dividends Paid      Per Share  
     (in S/.)  

2015

     104,910,523      0.158942384  

2016

     30,854,000      0.046700000  

2017

     —          —      

B. Significant Changes.

Except as disclosed in our audited consolidated financial statements and in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

 

Item 9. THE OFFER AND LISTING

A. Offer and Listing Details

Market Price of Our Common Shares and ADSs

Our ADSs

On July 29, 2013, we completed our initial equity offering in the United States of 19,534,884 ADSs, representing 97,674,420 common shares. Our ADSs are listed on the New York Stock Exchange under the symbol “GRAM.” On May 11, 2017, the closing price on the New York Stock Exchange was US$3.26 per ADS.

The following table sets forth, for the periods indicated below, the high and low market prices for our ADSs in U.S. dollars, as reported by the New York Stock Exchange.

 

     High      Low  
Full year:    in US$  

2013 (since July 29)

     22.07        18.52  

2014

     21.97        11.70  

2015

     12.68        2.88  

2016

     8.79        2.20  

2017

     6.88        2.17  

Quarters:

     

2016

     

First Quarter

     4.20        2.20  

Second Quarter

     7.64        3.93  

Third Quarter

     8.79        7.10  

Fourth Quarter

     8.67        6.35  

2017

     

First Quarter

     6.88        2.17  

Second Quarter

     4.50        2.91  

Third Quarter

     4.81        2.99  

Fourth Quarter

     5.12        2.58  

2018

     

First Quarter

     3.16        2.29  
     High      Low  
Last Six Months:    in US$  

2017

     

November

     5.03        2.98  

December

     3.24        2.58  

2018

     

January

     3.16        2.73  

February

     3.11        2.45  

March

     3.04        2.29  

April

     3.70        2.95  

May (through May 11, 2018)

     3.54        3.26  

 

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Our Shares

Our common shares are registered in the Public Registry of Securities held with the Peruvian Securities Commission and are listed on the Lima Stock Exchange under the symbols “GRAMONC1”. On March 31, 2017, the closing price on the Lima Stock Exchange was S/.2.1 per common share. As of December 31, 2016, 38 record holders of our common shares were located in the United States, according to CAVALI.

The following table sets forth, for the periods indicated below, the high and low closing prices of our common shares as reported by the Lima Stock Exchange.

 

     High      Low  
     (in S/.)  

2013

     12.79        9.76  

2014

     12.30        6.90  

2015

     7.30        1.94  

2016

     5.90        1.60  

2017

     4.63        1.47  

The following table sets forth, for the periods indicated below, the high and low market prices, as well as the average daily trading volume for such periods, of our common shares as reported by the Lima Stock Exchange.

 

     High      Low      Average
Daily
Trading
Volume
 
     (in S/.)  

Full year:

        

2015

     7.30        1.94        150,100  

2016

     5.90        1.60        307,874  

2017

     4.63        1.47        467,517  

Quarters:

        

2015

        

First quarter

     7.30        4.80        156,468  

Second quarter

     5.45        4.55        110,936  

Third quarter

     4.60        2.38        153,138  

Fourth quarter

     2.68        1.94        181,680  

2016

        

First quarter

     3.00        1.60        282,537  

Second quarter

     5.00        2.70        353,154  

Third quarter

     5.90        4.64        359,053  

Fourth quarter

     5.84        4.35        231,603  

2017

        

First quarter

     4.63        1.47        586,273  

Second quarter

     2.90        1.88        630,419  

Third quarter

     3.10        1.98        212,057  

Fourth quarter

     3.39        1.70        442,321  

2018

        

First quarter

     2.00        1.50        286,157  

 

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The following table sets forth for each of the most recent six months the high and low closing prices of our common shares as reported by the Lima Stock Exchange.

 

     High      Low  
     (in S/.)  

2017

     

November

     3.24        1.95  

December

     1.99        1.70  

2018

January

     2.00        1.81  

February

     2.00        1.63  

March

     1.91        1.50  

April

     2.42        1.90  

May (through May 11, 2018)

     2.35        2.25  

B. Plan of Distribution

Not applicable.

C. Plan of Distribution

Not applicable.

D. Markets

Our common shares are traded on the Lima Stock Exchange and our ADSs are traded on the New York Stock Exchange.

Trading in the Peruvian Securities Market

Lima Stock Exchange

As of the day of this annual report, there were 280 companies listed on the Lima Stock Exchange. Established in 1970, the Lima Stock Exchange is Peru’s only securities exchange. On November 19, 2003, the members of the Lima Stock Exchange approved to convert its corporate status to a publicly held corporation. As of the day of this annual report, Lima Stock Exchange had a share capital of S/.182,092,340, divided into 173,659,481 class “A” shares and 8,432,859 class “B” shares of par value S/.1.00 each. Class “A” shares are entitled to one vote per share while class “B” shares do not have voting rights. As of the day of this annual report, the Lima Stock Exchange had 160 class “A” shareholders and 64 class “B” shareholders.

Trading on the Lima Stock Exchange is primarily done on an electronic trading system that became operational in August 1995. From the second Sunday of March through the first Sunday of November of each year, trading hours are Monday through Friday (except holidays) as follows: 8:20 a.m.-8:30 a.m. (pre-market ordering); 8:30 a.m.-2:55 p.m. (trading); 2:55 p.m.-3:00 p.m. (after-market sales); and 3:00 p.m.-3:10 p.m. (after-market trading). At all other times, trading hours are from Monday to Friday (except holidays) as follows: 9:00 a.m.-9:30 a.m. (pre-market ordering); 9:30 a.m.-3:55 p.m. (trading); 3:55 p.m.-4:00 p.m. (after-market sales); and 4:00 p.m.-4:10 p.m. (after-market trading).

Substantially all of the transactions on the Lima Stock Exchange are traded on the electronic system. Transactions during the electronic sessions are executed through brokerage firms and stock brokers on behalf of their clients. Brokers submit orders in the order in which they are received. The orders must specify the type of security as well as the amount and price of the proposed sale or purchase. In order to control price volatility, the Lima Stock Exchange imposes a 15-minute suspension on trading when the price of a security varies on a single day by more than 15% for Peruvian companies and 30% for non-Peruvian companies.

Certain information regarding trading on the Lima Stock Exchange is set forth in the table below:

 

     2012      2013      2014      2015      2016  

Market capitalization (in millions of soles)(1)

     391,181      337,226      360,960      309,412      416,787

Volume (in millions of soles)

     19,951      16,124      17,301      12,001      15,584

Average daily trading volume (in millions of soles)

     79      64      69      48      62

 

(1) End-of-period figures for trading on the Lima Stock Exchange.

 

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The stock market capitalization of companies listed on the Lima Stock Exchange was US$124.0 billion at the end of 2016, compared to US$153.4 billion, US$120.7 billion, US$120.8 billion, and US$90.7 billion at the end of 2012, 2013, 2014, and 2015 respectively.

Total market volume in 2016 was US$4.6 billion, reflecting a 29.86% increase compared with 2015. Equity market volume, which represented 58.4% of total market volume, ended the year at US$2.7 billion, 40.33% more than the previous year. The repo market, which represented 10.91% of total market volume, reported volume of US$498 million in 2016, reflecting a decrease of 12.50%.

The total number of operations in the market in 2016 increased by 38.9%, closing the year at 131,649 operations. The number of operations in the equity market in 2016 increased by 45.6% amounting to 122,216 operations.

The S&P/BVL Peru General Index (Indice S&P/BVL Peru General) reached 20,629 points as of December 31, 2012. In 2013, the index registered a decrease of 23.6% while in 2014, it reached 14,794 points, decreasing 6.1% compared to 2013. In 2015, it reached 9,849 points, decreasing 33.4% compared to 2014. In 2016, it reached 15,567 points, increasing 58.1% compared to 2015.

Regulation of the Peruvian Securities Market

The regulatory framework for the Peruvian securities market is established in the Securities Market Law approved by Legislative Decree No. 861, whose unified sole text was enacted by Supreme Decree No. 093-2002-EF, as amended ( Ley del Mercado de Valores ), and the resolutions issued from time to time by the Peruvian Securities Commission. The purpose of the Securities Market Law is to promote the ordered development and transparency of the Peruvian securities markets, adequate protection for investors and the principles under which the Peruvian securities market is intended to operate. The Securities Market Law contains the general rules for: (i) primary and secondary public offerings of securities; (ii) public offering of securities for acquisitions and sales; (iii) local and international offerings, including simultaneous offerings; (iv) the Public Registry of Securities ( Registro Público del Mercado de Valores ); (v) reporting obligations of material information ( hechos de importancia ) by the issuers of securities recorded in the Public Registry of Securities and by the entities that are subject to the regulation and supervision of the Peruvian Securities Commission; (vi) the enforcement of insider trading; (vii) privileged information and confidentiality regulations and prohibitions against price manipulation; (viii) the broker-dealers; (ix) the Lima Stock Exchange; (x) CAVALI (the settlement and registry entity for transactions executed on the Lima Stock Exchange); (xi) other entities that are required to be registered at the Peruvian securities market Public Registry of Securities; (xii) capital market instruments and operations, including securitizations; and (xiii) mutual funds and investments funds publicly placed and their respective management companies.

The Peruvian securities market is regulated and supervised by the Peruvian Securities Commission ( Superintendencia de Mercado de Valores ), a governmental entity reporting to the Peruvian Ministry of Economy and Finance, with functional, administrative, economic, technical and budgetary autonomy. The Peruvian Securities Commission is governed by the Superintendent, designated by the Peruvian Ministry of Economy and Finance, and by a five member board of directors convened by the Superintendent (who acts as Chairman of the board). The other four members are appointed by the government under applicable legislation. The Peruvian Securities Commission issues from time to time resolutions which provide specific regulations or may impose sanctions in cases of violations of the Securities Market Law or the resolutions issued by the Peruvian Securities Commission.

The Peruvian Securities Commission, in order to achieve the Securities Market Law´s purposes, has broad regulatory and supervisory powers, including (i) issuing general mandatory rules; (ii) supervision and oversight of compliance with applicable legislation (including the power to order inspections and require the submission of information and documentation by entities that are under its jurisdiction and summon and interrogate any person that may contribute to its investigations); (iii) imposing sanctions; (iv) managing the Peruvian securities market public registry; (v) verifying that public offerings meet filing requirements and that the securities subject to such offerings are duly recorded at the Peruvian securities market public registry of securities; (vi) authorizing the incorporation and functioning of entities under its scope of supervision; and (vii) monitoring the content and accuracy of the financial and other information that is filed with the Peruvian Securities Commission. The Peruvian Securities Commission is responsible for the enactment, interpretation and enforcement of rules and regulations issued under the Securities Market Law.

Disclosure Obligations

Issuers of securities registered with the Peruvian Securities Commission are required to disclose material information relating to the issuer. Pursuant to the Securities Market Law and relevant regulations enacted thereunder, all material information in connection with the issuer of registered securities (such as our common shares), its activities or securities issued or secured by such issuer which may influence the liquidity or price of such securities must be disclosed. Accordingly, issuers must file with the Peruvian Securities Commission mainly two types of information: (i) financial information, including unaudited interim financial statements on a quarterly basis (which are not required to be subject to limited review by external auditors), and audited annual consolidated financial statements on an annual basis, and (ii) material information relating to the issuer and its activities that may significantly affect the price, offering or trading of the issued securities, and in general, all the information that may be relevant for investors to be able to make investment decisions.

 

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In order to comply with the foregoing disclosure obligations, issuers must disclose information to the Peruvian Securities Commission and, if the securities are listed, with the Lima Stock Exchange as soon as practicable but not later than the day on which the event took place or the issuer became aware of such information.

E. Selling Shareholders

Not applicable.

F. Dilution

Not applicable.

G. Expenses of the Issue

Not applicable.

 

Item 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Set forth below is certain information relating to our share capital, including brief summaries of certain material provisions of our bylaws, Peruvian Corporate Law and certain other laws and regulations of Peru, all as in effect as of the date hereof.

General

We are a publicly-held corporation under Peruvian Corporate Law and registered with the Public Registry of Corporations in Lima. We are listed on the Lima Stock Exchange and the New York Stock Exchange.

Our by-laws provide that our principal corporate purposes are to engage in any and all activities related to the construction and real estate businesses; to provide services related to the mining and hydrocarbons industries; to participate in all stages of development of public services and other infrastructure concessions; and to provide management and corporate services to related and third parties. In addition, our company can realize investments and corporate transactions, including the acquisition, holding and transfer of securities of Peruvian and foreign companies.

Common Shares and ADSs

As of December 31, 2016, we had 660,053,790 common shares outstanding. As of December 31, 2016, there were 2,000 owners of record of our common shares. Our common shares have a par value of S/.1.00 per share and have been fully subscribed and are fully paid. Our common shares are registered in the Securities Public Registry of the Peruvian Securities Commission and are listed on the Lima Stock Exchange. Our ADSs are listed on the New York Stock Exchange.

Shareholders’ Liability

Under Peruvian Corporate Law, holders of our common shares cannot vote on matters with respect to which they have a conflict of interest.

Under Article 133 of the Peruvian Corporate Law, a shareholder must abstain from voting when faced with a conflict of interest. A resolution approved in disregard of this provision may be challenged under Article 139 of the Peruvian Corporate Law and the shareholders that participated in the determination in breach of this provision, if their vote was key in attaining the required majority, may be held jointly liable.

 

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Redemption and Rights of Withdrawal

Under Article 200 of the Peruvian Corporate Law, holders of our common shares have redemption rights if: (i) we change our corporate purpose; (ii) a change occurs in the place of organization to a foreign country; or (iii) any transformation, merger or significant spin-off occurs with respect to our company.

Preemptive and Accretion Rights

If we increase our share capital, holders of our common shares have the right to subscribe to new common shares on a pro rata basis. Holders of common shares have preemptive rights in order to maintain their share interest in our share capital, unless the capital increase (i) results from a conversion of debt to common shares, (ii) is approved by shareholders representing at least 40% of the subscribed voting shares provided that the capital increase does not favor, directly or indirectly, certain shareholders to the detriment of others, or (iii) results from a corporate reorganization.

Shareholders who are in default of any payments relating to subscribed but unpaid shares may not exercise their preemptive rights.

Voting Rights and Dividends

Holders of common shares are entitled to one vote per share, with the exception of the election of the board of directors, where each holder is entitled to one vote per share per nominee. Each holder’s votes may be cast for a single nominee or distributed among the nominees at the holder’s discretion. To that effect, each of our common shares gives the holder the right to as many votes as there are directors to be elected. Shareholders may pool votes in favor of one person or distribute them among various persons. Those candidates for the board who receive the most votes are elected directors. Holders of common shares may attend and vote at shareholders’ meetings either in person or through a proxy.

Holders of common shares have the right to participate in the distribution of dividends and shareholder equity resulting from liquidation. Our by-laws do not establish a maximum time limit for the payment of the dividends. However, according to Article 232 of the Peruvian Corporate Law, the right to collect past-due dividends in the case of companies that are publicly held companies, such as ours, expires ten years after the date on which the dividend payment was due.

Our share capital may be increased by a decision of holders of common shares at a shareholders’ meeting. Capital reductions may be voluntary or mandatory and must be approved by holders of common shares at a shareholders’ meeting. Capital reductions are mandatory when accumulated losses exceed 50% of the capital and to the extent such accumulated losses are not offset by accumulated earnings and capital increases within the following fiscal year. Capital increases and reductions must be communicated to the Peruvian Securities Commission, the Lima Stock Exchange and SUNAT. Voluntary capital reductions must also be published in the official gazette El Peruano and in a widely circulated newspaper in the city in which we are located.

Liquidation Rights

If we are liquidated, our shareholders have the right to receive net assets resulting from the liquidation, after we comply with our obligation to pay all our creditors and after discounting any existing dividend liabilities. For this reason, we cannot assure that we will be able to reimburse 100% of the book value of the common shares in case of bankruptcy or liquidation.

Ordinary and Extraordinary Meetings

Pursuant to Peruvian Corporate Law and our by-laws, the annual shareholders’ meeting must be held during the three-month period after the end of each fiscal year. Additional shareholders’ meetings may be held during the year. Because we are a publicly-held corporation, we are subject to the special control of the Peruvian Securities Commission, as provided in Article 253 of the Peruvian Corporate Law. If we do not hold the annual shareholders’ meeting during the three-month period after the end of each fiscal year or any other shareholders’ meeting required by our by-laws, a public notary or a competent judge shall call for such a meeting at the request of at least one shareholder of the common shares. Such meeting will take place within a reasonable period of time.

Pursuant to the Peruvian Corporate Law, other shareholders’ meetings are convened by the board of directors when deemed convenient by the company or when it is requested by notarized letter by the holders of at least 5% of our common shares which voting rights are not suspended according to Peruvian Law. Pursuant to section 255 of the Peruvian Corporate Law, if the board expressly or implicitly refuses to convene the shareholders’ meeting, a notary public or a competent judge will call for such meeting at the request of holders of at least 5% of our common shares. If a notary public or competent judge calls for a shareholders’ meeting, the place, date and hour of the meeting, the agenda, the person who will preside the meeting and the notary public who will certify the resolutions of the meeting shall be indicated in the meeting notice. If the meeting called is other than the annual shareholders’ meeting or a shareholders’ meeting required by the Peruvian Corporate Law or the by-laws, the agenda will contain those matters requested by the shareholders who requested the meeting.

 

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Notices of Meetings

Since we are a publicly-held corporation, notice of shareholders’ meetings must be given by publication of a notice. The publication shall occur at least 25 days prior to any shareholders’ meeting in the Peruvian Official Gazette, El Peruano, and in a widely circulated newspaper in the city in which we are located.

Quorum and Voting Requirements

According to Article 33 of our by-laws and Article 257 of the Peruvian Corporate Law, shareholders’ meetings called for the purpose of considering a capital increase or decrease, the issuance of obligations, a change in the by-laws, the sale in a single act of assets with an accounting value that exceeds 50% of our share capital, a merger, division, reorganization, transformation or dissolution, are subject to a first, second and third quorum call, with each of the second and third quorum call to occur upon the failure of the preceding one. A quorum for the first call requires the presence of shareholders holding 50% of our total common shares. For the second call, the presence of shareholders holding at least 25% of our total common shares is adequate, while for the third call there is no quorum requirement. These decisions require the approval of the majority of the common shares represented at the shareholders’ meeting. Shareholders’ meetings convened to consider all other matters are subject to a first and second quorum call, with the second quorum call to occur upon the failure of the first quorum.

In accordance with Peruvian Corporate Law, only those holders of common shares whose names are registered in the company’s stock ledger not less than 10 days in advance of a meeting will be entitled to attend the shareholders’ meeting and to exercise their rights.

Limitations on the Rights of Non-Residents or Foreign Shareholders

There are no limitations under our by-laws or Peruvian Corporate Law on the rights of non-residents or foreign shareholders to own securities or exercise voting rights with respect to our securities.

Disclosure of Shareholdings and Tender Offer Regulations

Disclosure of Shareholdings

There are no provisions in our by-laws governing the ownership threshold above which share ownership must be disclosed.

However, according to Article 10 of CONASEV Resolution Nº 090-2005-EF-94.10, as amended, we must inform the Peruvian Securities Commission of the members of our economic group, comprised by our subsidiaries, and a list of our holders of common shares owning more than a 5% share interest, as well as any change to such information.

Tender Offer Regulations

Peruvian securities regulations include mandatory takeover rules applicable to the acquisition of control of a publicly held company.

Subject to certain conditions, such regulations generally establish the obligation to launch a tender offer when a person or group of persons acquires a significant interest in a publicly held company. According to the provisions set forth in CONASEV Resolution No. 009-2006-EF-94.10, a person acquires a significant interest in a listed company when such person (i) holds or has the power to exercise directly or indirectly 25%, 50% or 60% of the voting rights in a listed company, or (ii) has the power to appoint or remove the majority of the board members or to amend its by-laws.

A tender offer may be launched prior or following an acquisition of the significant interest. The tender offer may be launched after the “significant interest” is acquired if it is acquired (i) by means of an indirect transaction, defined as a relevant acquisition or interest increase through the acquisition of securities issued by a company that in turn holds share capital of the target company; (ii) as a consequence of a public sale offer, or (iii) in no more than four transactions within a three-year period.

This mandatory procedure has the effect of alerting other shareholders and the market that an individual or financial group has acquired a significant percentage of a company’s voting shares, and gives other shareholders the opportunity to sell their shares at the price offered by the purchaser. The purchaser is required to launch a tender offer unless: (i) shareholders representing 100% of the voting rights consent in writing, (ii) voting shares are acquired by a depositary in order to subsequently issue ADSs, or (iii) voting shares are acquired pursuant to the exercise of preemptive rights.

 

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Changes in Capital

Our by-laws do not establish special conditions to increase or reduce our share capital beyond what is required under Peruvian Corporate Law.

Anti-Takeover Provisions

Our by-laws do not contain any provision that would have the effect of delaying, deferring or preventing a change of control.

Board of Directors

For additional information regarding our board of directors, see “Item 6. Directors, Senior Management and Employees—Directors and Senior Management.”

Form and Transfer

Common shares may be either physical share certificates in registered form or book-entry securities in the CAVALI S.A. ICLV book-entry settlement system also in registered form. Furthermore, in the case of shares represented in book entries, the issuance of new shares which result from share splits or similar corporate events must also be represented in said form.

Furthermore, the Peruvian Corporate Law forbids publicly-held corporations, such as us, from including in their by-laws stipulations limiting the transfer of their shares or restraining their trading in other ways. According to Article 18 of our by-laws, we cannot recognize a shareholders’ agreement that contemplates limitations, restrictions or preferential rights on the transfer of shares, even if such an agreement is recorded in our stock ledger ( matrícula de acciones ) or in CAVALI. As of the date of this annual report, no shareholders’ agreement is recorded in our stock ledger.

Arbitration

Our by-laws include an arbitration clause applicable to disputes arising from the interpretation of our bylaws or Peruvian Corporate Law and their complementary provisions, among our company, our management and our shareholders. Any such arbitration will be subject to the regulations of the Arbitration Center of the Lima Chamber of Commerce. The material terms of the arbitration clause are as follows:

 

    any dispute, controversy or claim arising out of the performance and the interpretation of the by-laws and any action or remedy set forth in the Peruvian Corporate Law (Ley General de Sociedades) among us, our current or former shareholders and/or our current or former management shall be settled by arbitration;

 

    any dispute, controversy or claim between us and a third party shall be also settled by arbitration, if agreed upon by all parties either expressly or tacitly;

 

    arbitrations shall be conducted before a panel of three arbitrators;

 

    arbitrators shall consider only the applicable law for their award (arbitration in law and not arbitration in equity);

 

    each party to a dispute shall appoint an arbitrator within 10 business days from receiving the notice of arbitration. The two selected arbitrators shall appoint the third arbitrator. If one of the parties fails to appoint its arbitrator within 10 business days, the Center of Arbitration of the Lima Chamber of Commerce shall appoint the arbitrator;

 

    the rules of the Center of Arbitration of the Lima Chamber of Commerce shall apply to the arbitration; and

 

    the arbitration clause is not applicable to the cases that must be submitted to the jurisdiction of the courts or of the Superintendencia del Mercado de Valores, such as when arbitration would present hardship to minority shareholders or when Peruvian law otherwise requires it.

The arbitration clause does not apply to claims based on violations of U.S. securities laws.

 

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C. Material Contracts

Syndicated Loan

In December 2015 we entered into a medium term loan credit agreement for up to US$200 million (S/.672 million) with Credit Suisse AG, Cayman Islands Branch, and Credit Suisse Securities (USA) LLC. As a result of the termination of the GSP gas pipeline concession, in June 2017, we entered into an amendment to the credit agreement. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.” This agreement and the amendments thereto have been filed as Exhibit 10.01 to this annual report.

Term Loan

As a result of the termination of the GSP gas pipeline concession, our proportional guarantee of the GSP bridge loan became due. On June 27, 2017 we entered into a new US$78.7 million (S/.264.8 million) term loan with Natixis, BBVA, SMBC and MUFJ, the proceeds of which were used to prepay GSP bridge loan in full. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.” This agreement and an amendment thereto has been filed as Exhibit 10.02 to this annual report.

Financial Stability Framework Agreement

On July 31, 2017, we, and certain of our subsidiaries, GyM, CAM Peru S.A., Vial y Vives—DSD and Concesionaria Vía Expresa Sur S.A., entered into a Financial Stability Framework Agreement with the following financial entities: Scotiabank Peru S.A.A., Banco Internacional del Perú S.A.A., BBVA Banco Continenal, Banco de Crédito del Perú, Citibank del Perú S.A. and Citibank N.A. In April 2018, we repaid US$73.9 million of the facility with the proceeds of the sale of Stracon. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.” This agreement has been filed as Exhibit 10.03 to this annual report.

GSP Concession and Subordination Arrangements

In November 2015 we acquired a 20% interest in GSP, an entity which, on July 22, 2014, signed a concession agreement with the government of Peru to build, operate and maintain the natural gas pipeline transportation system to satisfy the demand of certain cities in the southern region of Peru.

On January 24, 2017, the government of Peru terminated the contract, due to the impossibility of obtaining financial closing. In accordance with the concession contract, the Peruvian government is required to carry out an auction process to sell GSP’s assets and obtain a new concessionaire within one year of the contract termination, with the funds raised in the sale to be used to pay the existing concessionaire for its investment in the project. Although the concession contract provides that payment must be made within one year of termination, the Peruvian Ministry of Energy and Mines has not made payment or, to our knowledge, initiated the payment process. A summary of these provisions of the concession contract have been filed as Exhibit 10.04 to this annual report.

In 2016, in connection with efforts to restructure or sell Odebrecht’s participation in GSP, due to the corruption scandal surrounding Odebrecht, Odebrecht contractually agreed to subordinate its claims under the concession to the other project partners, Enagás and ourselves. As a result, we and Enagas may be entitled to repayment of our percentage payment under the concession contract prior to Odebrecht. However, on January 3, 2018, Odebrecht commenced arbitration proceedings against us, our subsidiary GyM and Enagás, seeking to invalidate the contractual subordination and certain voting and other arrangements. These contractual arrangements have been filed as Exhibit 10.05 to this annual report.

For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments.”

D. Exchange Controls

Since August 1990, there have been no exchange controls in Peru and all foreign exchange transactions are based on free market exchange rates. Prior to August 1990, the Peruvian foreign market consisted of several alternative exchange rates. Additionally, during the 1990s, the Peruvian currency experienced a significant number of large devaluations, and Peru has consequently adopted, and operated under, various exchange rate control practices and exchange rate policies, ranging from strict control over exchange rates to market determination of rates. Current Peruvian regulations on foreign investment allow the foreign holders of equity shares of Peruvian companies to receive and repatriate 100 percent of the cash dividends distributed by such companies. Such investors are allowed to purchase foreign exchange at free market currency rates through any member of the Peruvian banking system and transfer such foreign currency rates through any member of the Peruvian banking system and transfer such foreign currency outside Peru without restriction.

 

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E. Taxation

Peruvian Tax Considerations

The following is a general summary of material Peruvian tax matters under Peruvian law, as in effect on the date of this annual report, and describes the principal tax consequences of ownership of ADSs and common shares by non-resident individuals or entities (“Non-Peruvian Holders”). Legislative, judicial or administrative changes or interpretations may, however, be forthcoming. Any such changes or interpretations could affect the tax consequences to holders of ADSs and common shares and could alter or modify the conclusions set forth herein. This summary is not intended to be a comprehensive description of all of the tax considerations that may be relevant to a decision to make an investment in the ADSs or common shares. In addition, it does not describe any tax consequences arising under the laws of any taxing jurisdiction other than Peru or applicable to an individual or entity resident of Peru or to a person with a permanent establishment in Peru.

For purposes of Peruvian taxation:

 

    individuals are residents of Peru, if they are Peruvian nationals who have established their place of residence in Peru or if they are foreign nationals with a permanence of more than 183 days in Peru in any 12-month period (in the latter case, the condition of Peruvian resident can only be acquired as of the 1st of January of the year following the fulfillment of residence conditions); and

 

    legal entities are residents of Peru if they are established or incorporated in Peru.

Cash Dividends and Other Distributions

Cash dividends paid to Non-Peruvian Holders with respect to common shares and amounts distributed with respect to ADSs are currently subject to Peruvian withholding income tax at a rate of 6.8%. For distributions occurring in 2017 and 2018, the applicable withholding rate will be 8%, whereas from 2019 the applicable withholding rate will be 9.3%. Nevertheless, a 4.1% withholding tax rate will apply on distributions of retained profits and other concepts distributable as dividends reflected in the accounting statements of 2014. As a general rule, the distribution of additional common shares representing profits, the distribution of shares which differ from the distribution of earnings or profits, as well as the distribution of preemptive rights with respect to common shares, which are carried out as part of a pro rata distribution to all shareholders, will not be subject to Peruvian income tax or withholding taxes.

Capital Gains

Pursuant to Article 6 of the Peruvian income tax law, individuals and domiciled entities in Peru are subject to Peruvian income tax on their worldwide income while non-domiciled entities are subject to Peruvian income tax only on their Peruvian source income.

Peruvian income tax law provides that income derived from the disposal of securities issued by Peruvian entities is considered Peruvian source income and is therefore subject to income tax. Under current Peruvian income tax law, capital gains resulting from the disposal of American Depositary Receipts (ADRs) that represent shares issued by Peruvian entities are considered Peruvian source income and therefore are subject to Peruvian income tax. Peruvian income tax law also provides that the taxable income resulting from the disposal of securities is equal to the difference between the sale price of the securities (which may not be less than their fair market value) and their tax basis.

Notwithstanding the foregoing, capital gains resulting from the disposal of ADSs or beneficial interest in ADSs that represent shares issued by a Peruvian entity are not considered Peruvian source income, and therefore are not subject to Peruvian income tax.

In the event ADSs are exchanged into common shares and such common shares are disposed of, capital gains resulting therefrom will be subject to an income tax rate of either 5% or 30%, depending on where the transaction takes place. If the transaction is consummated in Peru, any capital gain will be subject to an income tax rate of 5%; and if the transaction is performed outside of Peru, any capital gain will be subject to a 30% income tax rate.

Peruvian income tax law regulations have stated with respect to the transfer of common shares, that transactions are deemed to be consummated in Peru if the common shares are transferred through the Lima Stock Exchange. From 2016 through December 31 of 2019, pursuant to the Law 30341, capital gains resulting from a transfer of: (i) Common shares and investment shares, (ii) ADRs and Global Depositary Receipts (GDRs), (iii) Exchange Trade Funds (ETF) units that have underlying shares and / or securities

 

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representing debt, (iv) representative securities of debt, (v) Certificates of participation in mutual funds for investment in securities, (vi) Certificates of participation in investment Funds in Rent of Real Property (FIRBI) and certificates of participation in Trustee of Securitization for Investment in Rent of Real Estate (FIBRA), and (vii) Negotiable invoices, in each case, through the Lima Stock Exchange will be exempt from income tax, provided, however, that the following conditions are met:

(a) The transfer must be performed through a centralized trading mechanism supervised by the Securities Market Superintendence;

(b) In any 12 months period, neither the seller or any person related to him must dispose of more than 10% of the total number of common shares issued by the company through one or more simultaneous or successive operations; and

(c) The shares must have a “market presence”, meaning that transactions in respect of those shares for a value exceeding four Tax Units (currently, S/.16,200) shall have occurred in at least 27 business days out of any 180 business day period including the date of the transaction.

Any gain resulting from the conversion of ADSs into common shares or common shares into ADSs will not be subject to taxation in Peru.

Likewise, it is important to notice that if after applying the exemption, the issuer delisted the securities from the Registry of the Lima Stock Exchange, in whole or in part, in an act or progressively, within the next 12 months after the disposal is made, the exemption that is applied to the securities unlisted is lost.

Any Non-Peruvian Holder entities who acquires common shares will have the following tax basis: (i) for common shares purchased by the transferor, the acquisition price paid for the shares; (ii) for common shares received by the transferor as a result of a share capital increase because of a capitalization of net profits, the par value of such common shares; (iii) for other common shares received free of any payment, tax basis will be: (x) zero or the cost borne by the transferor, in the case of individuals and (y) the fair market value at the time of the acquisition, in the case of entities; and (iv) for common shares of the same type acquired at different opportunities and at different values, the tax basis will be the weighted average cost. In cases where common shares are sold by Non-Peruvian Holders outside the Lima Stock Exchange, the tax basis must be certified by the Peruvian tax administration prior to the time payment is made to the transferor; otherwise it would not be possible to deduct the tax basis and the 30% Peruvian income tax would apply to the total sale price. Under Peruvian income tax law, tax basis certification is granted by the Peruvian tax authorities within 30 business days after the filing of the corresponding application. If the Peruvian tax authorities do not respond within the abovementioned period, the tax basis calculation will be deemed automatically approved.

In any transaction relating to Peruvian securities through the Lima Stock Exchange, CAVALI will act as withholding agent of the Peruvian income tax. If the purchaser is a resident in Peru and the sale is not performed through the Lima Stock Exchange, the purchaser will act as withholding agent. In other cases, the transferor shall be obliged to self-assess the tax and pay it to the Peruvian tax authorities within the first 12 business days of the month following the transfer.

Other Considerations

No Peruvian estate or gift taxes are imposed on the gratuitous transfer of ADSs or common shares. No stamp, transfer or similar tax applies to any transfer of ADSs or common shares, except for commissions payable by seller and buyer to the Lima Stock Exchange (0.021% of value sold), fees payable to the Peruvian Securities Commission (0.0135% of value sold), brokers’ fees (about 0.05% to 0.50% of value sold) and value added tax (at the rate of 18%) on commissions and fees. Any investor who sells its common shares on the Lima Stock Exchange will incur these fees and taxes upon purchase and sale of the common shares.

United States Federal Income Tax Considerations

The following summary describes certain United States federal income tax consequences to a United States Holder (as defined below) of the purchase, ownership and disposition of our common shares and ADSs as of the date of this annual report. Except where noted, this summary deals only with common shares and ADSs held as capital assets (generally, property held for investment). As used herein, the term “United States Holder” means a beneficial owner of common shares or ADSs that is for United States federal income tax purposes:

 

    an individual citizen or resident of the United States;

 

    a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

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    an estate the income of which is subject to United States federal income taxation regardless of its source; or

 

    a trust if it (i) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust, or (ii) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

This summary does not represent a detailed description of the United States federal income tax consequences applicable to you in light of your particular circumstances and does not address the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:

 

    a dealer in securities or currencies;

 

    a financial institution;

 

    a regulated investment company;

 

    a real estate investment trust;

 

    an insurance company;

 

    a tax-exempt organization;

 

    a person holding our common shares or ADSs as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;

 

    a trader in securities that has elected the mark-to-market method of accounting for your securities;

 

    a person liable for alternative minimum tax;

 

    a person who owns or is deemed to own 10% or more of our voting stock;

 

    a partnership or other pass-through entity for United States federal income tax purposes; or

 

    a person whose “functional currency” is not the U.S. dollar.

The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in United States federal income tax consequences different from those discussed below. There is currently no income tax treaty between the United States and Peru that would provide for United States federal income tax consequences different than the consequences under the foregoing authorities. In addition, this summary is based, in part, upon representations made by the depositary to us and assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms.

If a partnership (or other entity or arrangement treated as a partnership for United States federal income tax purposes) holds our common shares or ADSs, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common shares or ADSs, you should consult your tax advisors.

This summary does not address the effects of the Medicare tax on net investment income or other United States income tax consequences such as United States federal estate or gift tax consequences, and does not address the effects of any state, local or non-United States tax laws. If you are considering the purchase, ownership or disposition of our common shares or ADSs, you should consult your own tax advisors concerning the United States federal income tax consequences to you in light of your particular situation as well as any consequences arising under the laws of any other taxing jurisdiction.

ADSs

If you hold ADSs, for United States federal income tax purposes, you generally will be treated as the owner of the underlying common shares that are represented by such ADSs. Accordingly, deposits or withdrawals of common shares for ADSs will not be subject to United States federal income tax.

 

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Taxation of Dividends

The gross amount of distributions, other than certain pro rata distributions of common shares, on the ADSs or common shares (including amounts withheld to reflect Peruvian withholding taxes) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles.

To the extent that the amount of any distribution (including amounts withheld to reflect Peruvian withholding taxes) exceeds our current and accumulated earnings and profits for a taxable year, as determined under United States federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the ADSs or common shares, and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange. However, we do not expect to keep earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend. Such dividends (including any withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of the common shares, or by the depositary, in the case of ADSs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code.

With respect to non-corporate United States Holders, certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation. A non-United States corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on common shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that our ADSs, which are listed on the New York Stock Exchange, will be considered readily tradable on an established securities market in the United States. Based on existing guidance, it is not entirely clear whether our common shares will be considered readily tradable on an established securities market in the United States because only the ADSs, not the underlying common shares, are listed on a securities market in the United States. We believe that dividends we pay on our common shares that are represented by ADSs, but not our common shares that are not so represented, will meet such conditions required for the reduced tax rates. There can be no assurance that our ADSs will be considered readily tradable on an established securities market in later years. Non-corporate United States Holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You should consult your own tax advisors regarding the application of these rules given your particular circumstances.

The amount of any dividend paid in soles will equal the U.S. dollar value of the soles received, calculated by reference to the exchange rate in effect on the date the dividend is actually or constructively received by you, in the case of the common shares, or by the depositary, in the case of ADSs, regardless of whether the soles are converted into U.S. dollars at that time. If the soles received as a dividend are converted into U.S. dollars on the date they are received, you generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. If the soles received as a dividend are not converted into U.S. dollars on the date of receipt, you will have a tax basis in the soles equal to their U.S. dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the soles will be treated as United States source ordinary income or loss.

Subject to certain conditions and limitations, Peruvian withholding taxes on dividends may be treated as foreign taxes eligible for credit against your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ADSs or common shares will be treated as foreign source income and will generally constitute passive category income. However, in certain circumstances, if you have held the ADSs or common shares for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for any Peruvian withholding taxes imposed on dividends paid on the ADSs or common shares. If you do not elect to claim a United States foreign tax credit, you may instead claim a deduction for Peruvian income tax withheld, but only for a taxable year in which you elect to do so with respect to all foreign income taxes paid or accrued in such taxable year. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.

Taxation of Capital Gains

For United States federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of ADSs or common shares in an amount equal to the difference between the amount realized for the ADSs or common shares and your tax basis in the ADSs or common shares, in each case as determined in U.S. dollars. Such gain or loss will generally be capital gain or loss. Capital gains of non-corporate United States Holders derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

 

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If a Peruvian income tax is withheld on the sale or other disposition of our ADSs or common shares, your amount realized will include the gross amount of the proceeds of that sale or other disposition before deduction of the Peruvian income tax. See “—Peruvian Tax Considerations—Capital Gains” for a description of when a sale or other disposition of our ADSs or common shares may be subject to taxation by Peru. Any gain or loss recognized by you will generally be treated as United States source gain or loss for foreign tax credit purposes. Consequently, in the case of gain from the disposition of ADSs or common shares that is subject to Peruvian income tax, you may not be able to benefit from the foreign tax credit for that Peruvian income tax (i.e., because the gain from the disposition would be United States source), unless you can apply the credit (subject to applicable limitations) against United States federal income tax payable on other income from foreign sources. Alternatively, you may take a deduction for the Peruvian income tax if you do not take a credit for any foreign taxes paid or accrued during the taxable year. You are urged to consult your tax advisors regarding the tax consequences if Peruvian income tax is imposed on a disposition of ADSs or common shares, including the availability of the foreign tax credit under your particular circumstances.

Passive Foreign Investment Company

We do not believe that we are, for United States federal income tax purposes, a passive foreign investment company (a “PFIC”), and we expect to operate in such a manner so as not to become a PFIC. If, however, we are or become a PFIC, you could be subject to additional United States federal income taxes on gain recognized with respect to the ADSs or common shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. Non-corporate United States Holders will not be eligible for reduced rates of taxation on any dividends received from us (as discussed above under “—Taxation of Dividends”) if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.

Information Reporting and Backup Withholding

In general, information reporting will apply to dividends in respect of our ADSs or common shares and the proceeds from the sale, exchange or redemption of our ADSs or common shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient. Backup withholding may apply to such payments if you fail to provide a taxpayer identification number or certification of other exempt status or fail to report in full dividend and interest income.

Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided the required information is furnished to the Internal Revenue Service in a timely manner.

The above description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership or disposition of our ADSs or common shares. You should consult your own tax advisors concerning the overall tax consequences to you, including the consequences under laws other than United States federal income tax laws, of an investment in our ADSs or common shares.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We are subject to the informational requirements of the U.S. Securities Exchange Act of 1934, or the Exchange Act. Accordingly, we are required to submit reports and other information to the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information submitted to the SEC at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. Copies of the materials may be obtained from the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. In addition, the SEC maintains an Internet website at http://www.sec.gov, from which you can electronically access these materials.

As a foreign private issuer, we are required to file with the SEC annual reports on Form 20-F, but we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act. For example, we are not required to prepare and issue quarterly reports. However, we have furnished, and intend to continue to furnish, our shareholders with quarterly reports containing unaudited financial data for the first three quarters of each fiscal year. In addition, as a foreign issuer, we are not subject to the proxy rules under Section 14 of the Exchange Act and our officers and directors are subject to Section 16 of the Exchange Act relating to insider short-swing profit disclosure and recovery regime.

 

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We send the depositary a copy of all notices that we give relating to meetings of our shareholders or to distributions to shareholders or the offering of rights and a copy of any other report or communication that we make generally available to our shareholders. The depositary makes all these notices, reports and communications that it receives from us available for inspection by registered holders of ADSs at its office. The depositary mails copies of those notices, reports and communications to you if we ask the depositary to do so and furnish sufficient copies of materials for that purpose.

We file financial statements and other periodic reports with the Peruvian Securities Commission in Peru. Issuers of securities registered with the Peruvian Securities Commission are required to disclose material information relating to the issuer. Pursuant to the Securities Market Law and relevant regulations enacted thereunder, all material information in connection with the issuer of registered securities, its activities or securities issued or secured by such issuer which may influence the liquidity or price of such securities must be disclosed. Accordingly, issuers must file with the Peruvian Securities Commission mainly two types of information: (a) financial information, including unaudited interim financial statements on a quarterly basis (which are not required to be subject to limited review), and audited annual consolidated financial statements on an annual basis, and (b) material information relating to the issuer and its activities that may significantly affect the price, offering or negotiation of the issued securities, and in general, all the information that may be relevant for investors to be able to make investment decisions.

I. Subsidiary Information

See the notes 2.2 and 7 to our consolidated financial statements included in this annual report for a description of our subsidiaries.

 

Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a number of market risks arising from our normal business activities, including the possibility that changes in currency exchange rates or interest rates will adversely affect future cash flows and profit or the value of our financial assets and liabilities. From time to time, we enter into derivative transactions to hedge against foreign currencies and interest rate fluctuations. For further information regarding our market risk, see note 3 to our audited annual consolidated financial statements included in this annual report.

Exchange Rate Risk

We are exposed to market risk associated with changes in foreign currency exchange rates. Our revenues and costs, and our assets and liabilities, are denominated in soles, U.S. dollars, Chilean pesos and, to a lesser extent, other currencies. In 2016, 46%, 33% and 21% of our revenues were denominated in soles, U.S. dollars and other currencies (principally Chilean pesos), respectively, while 55%, 22% and 23% of our cost of sales during the year were denominated in soles, U.S. dollars and other currencies. In addition, as of December 31, 2016, 46.7%, 45.6% and 7.6% of our total debt was denominated in soles, U.S. dollars and other currencies, respectively. If, at December 31, 2016, the sol had strengthened/weakened by 2% against the U.S. dollar, with all other variables remaining constant, or pre-tax profit for the year would have increased/decreased by S/.0.2 million. This sensitivity analysis does not take into account our payable to Chubb Insurance Company relating to our reimbursement obligations under the GSP performance guarantee.

Interest Rate Risk

We may from time to time incur variable interest rate indebtedness, and accordingly our financial expenses are affected by changes in interest rates. Based upon our indebtedness at December 31, 2016, and taking into account our interest rate derivative instruments, a change in interest rates of five percent (or 500 basis points) would impact our net profit by S/.80.3 million annually. This sensitivity analysis does not take into account our payable to Chubb Insurance Company relating to our reimbursement obligations under the GSP performance guarantee.

Commodity Price Risk

We are exposed to market risk associated with changes in commodity prices, primarily for oil, steel and cement, which in aggregate represented a majority of our total input cost in 2016. We do not have long-term contracts for the supply of these key inputs. Based upon our consumption of these inputs during 2016, a 10% increase/decrease in the prices of each of oil, steel and cement would have increased/decreased our costs of sales by S/.59.1 million, S/.15.2 million and S/.3.0 million, respectively. However, based on our production of oil during 2016, a 10% increase/decrease in the price of oil would have increased/decreased our revenues by S/.66.0 million.

 

Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

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A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

Fees and Expenses

The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of common shares, issuances in respect of common share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or reduced for any other reason, US$5.00 or less for each 100 ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of a common share distribution, rights and/or other distribution prior to such deposit to pay such charge.

The following additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing common shares or by any party surrendering ADSs or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADRs or the deposited securities or a distribution of ADSs), whichever is applicable:

 

    a fee of US$1.50 per ADR or ADRs for transfers of certificated or direct registration ADRs;

 

    a fee of US$0.05 or less per ADS for any cash distribution made pursuant to the deposit agreement;

 

    a fee of US$0.05 or less per ADS per calendar year (or portion thereof) for services performed by the depositary in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary during each calendar year and shall be payable in the manner described in the next succeeding provision);

 

    a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of the depositary’s agents (including, without limitation, the custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the common shares or other deposited securities, the sale of securities, the delivery of deposited securities or otherwise in connection with the depositary’s or the custodian’s compliance with applicable law, rule or regulation (which charge shall be assessed on a proportionate basis against holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions);

 

    a fee for the distribution or sale of securities pursuant to paragraph 10 of the deposit agreement, such fee being in an amount equal to the US$0.05 per ADS issuance fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were common shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those holders entitled thereto;

 

    stock transfer or other taxes and other governmental charges;

 

    cable and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery of common shares;

 

    transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities; and

 

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    expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars.

We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The charges described above may be amended from time to time by agreement between us and the depositary.

Our depositary has agreed to reimburse us for certain expenses we incur that are related to establishment and maintenance of the ADR program, including investor relations expenses and exchange application and listing fees. The amounts of reimbursements available to us are not based upon the amounts of fees the depositary collects from investors. The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing common shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting on their behalf. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary will generally set off the amounts owing from distributions made to holders of ADSs. If, however, no distribution exists and payment owing is not timely received by the depositary, the depositary may refuse to provide any further services to holders that have not paid those fees and expenses owing until such fees and expenses have been paid. At the discretion of the depositary, all fees and charges owing under the deposit agreement are due in advance and/or when declared owing by the depositary.

During 2016, the depositary reimbursed us for expenses in an aggregate amount of US$89,950.06 (S/.302,232.20).

PART II

 

Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Financing of the Expansion Project of the Lima Metro Concession

On August 23, 2017, GyM Ferrovias entered into a US$396 million financing structure with Mizuho Bank, Ltd and Sumitomo Mitsui Banking Corporation. The particular structure for the expansion project of the Lima Metro involves the securitization of irrevocable and unconditional payment obligations of the Government of Peru (CPAOs), which have been sold by GyM Ferrovias to a borrower under a long-term loan facility. The expansion project includes the improvement of civil works and the purchase of additional rolling stock, including trains and cars that will be designed, built, operated and maintained by GyM Ferrovías, as concessionaire under the Lima Metro concession. The financing is structured as a long-term loan facility and a working capital facility.

As of the date of this annual report, GyM Ferrovias is in continuing default under the financing of the expansion project due to the non-delivery of our audited consolidated financial statements for the 2016 fiscal year, in our capacity as guarantor of the obligations of GyM Ferrovias under the agreement. The financing required that we provide the financial statements no later than April 4, 2018. Also, the financing requires that we deliver our audited consolidated financial statements for the 2017 fiscal year by May 15, 2018. We will not be able to deliver those financial statements on time. We have initiated the process of requesting a waiver from the lenders.

Syndicated Loan

Due to the termination of the GSP gas pipeline concession on January 24, 2017, we were in breach of our covenants under our syndicated loan as of December 31, 2016, as the effects on our financial condition and results of operations of the concession termination were taken into account for the purposes of calculating compliance with our financial covenants for 2016. As of December 31, 2016, (a) our Consolidated EBITDA to Consolidated Interest Expense (as defined therein) was 3.33x rather than at least 3.5x as required under the syndicated loan, (b) our Consolidated Leverage Ratio (as defined therein) was 5.75x rather than no more than 3.5x as required under the syndicated loan, and (c) our Debt Service Coverage Ratio (as defined therein) was 3.83x rather than at least 1.5x as required under the syndicated loan. Additionally, upon the termination of the GSP gas pipeline concession on January 24, 2017, we were required to prepay our syndicated loan. We amended the terms of our syndicated loan, including certain financial covenants and certain prepayment requirements.

As of the date of this annual report, and due to the accounting adjustments in connection to the termination of the GSP gas pipeline concession, we are again under certain continuing defaults under the syndicated loan with respect to certain financial ratios and the non-delivery of our audited consolidated financial statements for the 2016 and 2017 fiscal years. The syndicated loan required that we provide the financial statements for the 2016 and 2017 fiscal years no later than April 30, 2018. As of March 2018, our Consolidated Leverage Ratio (as defined therein) was 2.62, rather than no more than 2.50 as required under the syndicated loan. We are in the process of requesting waivers from the lenders.

 

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GSP Bridge Loan and New Term Loan.

With the termination of the GSP gas pipeline concession, our proportional guarantee under the GSP bridge loan became due. As of December 31, 2016, there was US$129 million (S/.433.4 million) of principal amount outstanding under our corporate guarantee. As of the date of this annual report the principal amount outstanding under the GSP bridge loan has been entirely paid. On June 27, 2017 we entered into a new US$78.7 million (S/.264.8 million) term loan with Natixis, BBVA, SMBC and MUFJ, the proceeds of which were used to prepay GSP bridge loan.

As of the date of this annual report, we are under certain continuing defaults under the term loan with respect to certain financial ratios and the non-delivery of our audited consolidated financial statements for the 2016 and 2017 fiscal years. The term loan required that we provide the financial statements for the 2016 and 2017 fiscal years no later than April 30, 2018. As of the date hereof, our Consolidated Leverage Ratio (as defined therein) was 2.62, rather than no more than 2.50 as required under the syndicated loan. We are in the process of requesting waivers from the lenders.

Financial Stability Framework Agreement

As of the date of this annual report, we are under continuing default due to the non-delivery of our audited consolidated financial statements and those of our subsidiary, GyM, for the 2016 and 2017 fiscal years. The loan required that we provide such financial statements no later than April 30, 2018. We are in the process of requesting waivers from the lenders.

For more information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Recent Developments” and “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.”

 

Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Material Modifications to the Rights of Security Holders

None.

Use of Proceeds

On July 29, 2013, we completed our initial public offering in the United States by issuing 20,353,920 ADSs, representing 101,769,600 common shares (including partial exercise of the underwriters’ over-allotment option on August 23, 2013, for cash consideration of US$21.13 per ADS. We received approximately US$411.3 million in net proceeds from our initial public offering. We have used these net proceeds for capital investments, acquisitions and other general corporate purposes, consistent with our disclosure in the registration statement relating to the initial public offering.

 

Item 15. CONTROLS AND PROCEDURES

A. Disclosure Controls and Procedures

Management, with the participation of the company’s Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2016, our disclosure controls and procedures were not effective as a result of the material weaknesses in internal control over financial reporting described below.

B. Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for our company as such term is defined by Exchange Act rules 13(a)-15(f) and 15(d)-15(f). In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), management has conducted an assessment, including testing, using the criteria in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our company’s system of internal control over financial reporting is 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. Because of its

 

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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 assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016, we have identified certain material weaknesses. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified are described below:

Control Environment

The control environment, which is the responsibility of senior management, helps set the tone of the organization, influences the control consciousness of its officers and employees, and is an important component affecting how the organization performs risk management, financial analysis, accounting and financial reporting. A proper organizational tone can be promoted through a variety of means, such as policies and codes of ethics, a commitment to hiring competent employees, the manner and content of oral and written communications, and structures that promote and reward openness, strong internal controls, effective governance, risk management, compliance and ethical behavior.

As of December 31, 2016, we did not maintain an effective control environment primarily attributable to the following identified material weaknesses:

 

    Our assessment found that an inconsistent and ineffective tone at the top was present, under the then-existing senior management, that was not effective to ensure adherence to IFRS and our accounting policies and procedures. This resulted in an environment which in some instances may have led to incorrect accounting decisions and the failure to disclose information that may be necessary for an effective review of transactions and accounting entries to the appropriate finance and accounting personnel, our Board, our Audit and Process Committee, and/or independent registered public accounting firm. In addition, we identified an inadequate oversight by the Audit Committee regarding the role of the Internal Audit Department. The control environment was not always sufficient to ensure that adequate entreprise risk management (including fraud risk) and monitoring mechanisms were in place to secure that our internal control over financial reporting operated effectively, including that the relevant risk/control activities were carried out properly and that corrective actions were taken on a priority basis and in timely manner.

 

    We did not have sufficient personnel with an appropriate level of knowledge, experience and training in the application of IFRS and with requirements of internal control over financial reporting commensurate with the complexity of our financial reporting requirements.

These material weaknesses in the risk and control environment contributed to the following additional material weaknesses, including the material weaknesses in risk assessment, information and communication, and monitoring and evidential matter.

Risk Assessment

We identified deficiencies in the controls to address the risks of a material misstatement. Specifically, changes to existing controls or the implementation of new controls were not sufficient to respond to changes to the risks of material misstatements to financial reporting, due in part to acquisitions, dispositions and other changes to the business. These deficiencies contributed to the following additional material weaknesses:

 

    Accounting closing process with respect to the review of the consolidated and separate financial statements: we identified deficiencies in the controls over certain business processes including our period-end financial reporting process, including the identification and execution of controls over financial statement analyses required to assess the appropriateness of certain account balances at period-end and the control over the completeness and accuracy of interim and annual financial statement presentation and disclosure.

 

    Controls over the review, approval and documentation related to journal entries: we identified deficiencies in design and operational effectiveness of the controls over the review, approval and documentation related to journal entries. Specifically, effective controls were not in place to verify and properly approve that journal entries were prepared with sufficient supporting documentation, reports and spreadsheets used to support the journal entries were complete and accurate.

 

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    Deficiencies in the design and operational effectiveness of controls over segregation of duties: we identified deficiencies in design and operational effectiveness of the controls over segregation of duties to ensure that conflicted individuals were not involved in activities related to their conflicts or that such activities were monitored by appropriate individuals using complete and accurate information.

 

    Deficiencies in the design of controls over the timely accounting for signed contracts: we identified deficiencies in the design of the controls, including entity-level controls and process-level controls to prevent or detect material inaccuracies, related to the accounting for the contracts signed with certain companies with which we are associated (Consorcio Constructor Ductos del Sur), one of the company’s significant joint arrangements. Specifically, we identified deficiencies related to the accounting assessment of joint arrangement contracts and the assessment of the completeness of contracts, which is relevant to verifying all contracts and addenda are accounted for, including any changes in the percentage-of-interests held in certain entities. We noted that certain entities (i.e. consortia) were accounted for using an accounting basis that was not consistent with the nature/type of the joint arrangement contracts. Nevertheless, there were no significant impacts in our consolidated financial statements because clarifying addendums were signed by the parties.

 

    Deficiencies in the design and operational effectiveness of controls established with respect to the recognition of revenue: we identified deficiencies in design and operational effectiveness of the controls related to the accounting for revenue and accounts receivable, including construction contract revenues and contingent revenues. Specifically, with respect to construction contract revenues and costs, we identified deficiencies in the controls to verify that unbilled services at the closing date of the financial statements were completely and accurately identified and recorded, projected margins by project/work were reasonable, supported and accurately calculated, and revenues billed related to actual transactions were authorized by the customer and stated at the correct amounts. Further, with respect to contingent revenues, we did not have effective controls to verify that revenues that were contingent in nature were not recognized until all of the recognition criteria were met. We identified deficiencies in design and operational effectiveness of the controls over the valuation of provisions for revenue. Specifically, we identified deficiencies in the controls to ensure the provisions stated in the financial statements were recoverable and were not impaired.

 

    Deficiencies in the determination of related estimates and the accounting for inventory and inventory entries received: We identified deficiencies in design and operational effectiveness of the controls related to the accounting for inventory and inventory entries received. Specifically, one of our subsidiaries has not implemented the controls in all locations where they receive inventories. Also, we identified deficiencies in the design and operational effectiveness of the control over the review, approval and documentation related to purchases of services.

 

    Deficiencies in design and operational effectiveness of the controls over the review and approval of the valuation of acquired assets and liabilities as part of a step acquisition: We identified deficiencies in the controls to verify the data, assumptions, model and calculations used to value acquired assets and liabilities were appropriate and reasonable.

Information and Communication

We identified deficiencies in the controls over information and communications. Specifically, we identified deficiencies in the process to verify all information necessary to be provided to the accounting department to achieve complete and accurate financial reporting from other operating departments were provided completely, accurately and on a timely basis.

Monitoring and Evidential Matter

Deficiencies in operational effectiveness of controls over SOX compliance: we identified deficiencies in design and operational effectiveness of the monitoring controls related to the design and operational effectiveness of our internal controls. Specifically, we did not maintain personnel and systems within the internal audit function that were sufficient to ensure the adequate monitoring of control activities. This control deficiency resulted in some instances of the internal audit function’s failure to identify or sufficiently follow through on the analysis of certain inappropriate accounting decisions and changes in accounting methodology.

We did not consistently maintain sufficient evidential matter, including documentation, to provide reasonable support for management’s assessment of the effectiveness of internal control over financial reporting.

 

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Conclusion

These material weaknesses resulted in adjustments to the accounting for revenue and accounts receivable and a number of adjustments and reclassifications in other accounts receivables owed to prepaid expenses, acquired assets and liabilities as part of a step acquisition, the classification to calculate the exchange gains/losses related to loans with related entities, and intercompany transactions. Additionally, these material weaknesses could result in other misstatements in our financial results and disclosures, which could result in a material misstatement to our annual or interim consolidated financial statements not being prevented or detected. Because of these material weaknesses, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2016, based on criteria in Internal Control-Integrated Framework (2013) issued by the COSO.

Moore Stephens SCAI S.A. (a member firm of Moore Stephens International), an independent registered public accounting firm, which has audited and reported on the consolidated financial statements as of and for the year ended December 31, 2015 and 2016 contained in this annual report on Form 20-F, has issued an attestation report on our internal control over financial reporting as of December 31, 2015 and 2016.

Remediation Plan

We continue to evaluate our internal control over financial reporting and are taking remedial actions to address the material weaknesses that have been identified.

Our board of directors established a new Risk, Compliance and Sustainability Committee in March 2017, which is charged with, among other things, risk management. We believe that the role of the new committee reflects, along with the role of the Audit and Process Committee and our senior management, the priority that our company gives to the improvement of our enterprise and fraud risk management, internal control environment and will reinforce from the top of our company a culture of compliance with internal controls across our subsidiaries and other entities.

In addition, our internal audit function is being reorganized, and new personnel with the appropriate training and experience is being hired by us to ensure that the internal control system and processes are executed in an adequate and timely manner.

Our management is communicating to employees the need for effective internal control over financial reporting and is having meetings with process owners to reinforce the purpose and importance of controls, review and analyze the identified deficiencies, and promote top-down ownership and accountability over the control environment. Also, we will be conducting a formal training program, including related to IFRS, at our subsidiaries with employees responsible for our internal controls to ensure they have an appropriate level of knowledge of and build the experience with those controls, specifically, those relating to monitoring, evaluation and accountability, in order to execute their control responsibilities.

We are in the process of reviewing our employees’ access to our accounting and key systems and we are designing and implementing new information technology tools in order to improve our control process over the segregation of accounting duties and for the proper custody and recording of all supporting documentation, including information related to contracts.

Furthermore, moving forward, we will continue to monitor and assess our remediation activities to address the material weaknesses discussed above through remediation as soon as practicable.

The implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting described above. Such material weaknesses have not been, nor can we ensure by what date they will be, fully remediated. The process of designing and implementing an effective reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. See “Item 3. Key Information— D. Risk Factors —We have identified material weaknesses in our internal control over financial reporting, and if we cannot maintain effective internal control or provide reliable financial and other information in the future, investors may lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our ADSs.” If we fail to implement and maintain an effective system of internal control, we may be unable to accurately report our results of operations or prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price of our ADSs may be materially and adversely affected.

C. Attestation Report of the Registered Public Accounting Firm

See Item 18. Financial Statements.

 

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D. Changes in Internal Control Over Financial Reporting

We identified material weaknesses in our internal control as described in Item 15.B. above. There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item  16. [RESERVED]

Item 16A AUDIT COMMITTEE FINANCIAL EXPERT

Mr. Manuel del Rio and Mr. José Antonio Rosas each qualify as an “audit committee financial expert” and are independent in accordance with SEC rules.

Item 16B CODE OF BUSINESS CONDUCT AND ETHICS

We are committed to responsible, honest, transparent and ethical conduct. Our management system enables us to communicate our corporate values and principles to all levels of the organization, offers a confidential reporting mechanism ( canal ético ), and has a governance structure to investigate and remedy potential breaches of our code.

We have adopted a code of conduct and it applies to our directors, officers and employees. Our code of conduct is available on our website www.granaymontero.com.pe. Information on our website is not incorporated by reference in this annual report.

If we make any substantive amendment to the code of conduct or if we grant any waiver, including any implicit waiver, from a provision of the code of conduct that applies to our chief executive officer, chief financial officer or controller, we will disclose the nature of such amendment or waiver in our website or in our next Form 20-F to be filed with the SEC to the extent required under applicable rules. During the year ended December 31, 2016, no such amendment was made or waiver granted.

In 2015, we reinforced our ethics management system as a preventative measure. Our board of directors approved an anti-corruption compliance program, which establishes the leadership and commitment of senior management on this matter, defines supervisory bodies and the reporting lines, establishes new policies and procedures, identifies additional internal controls, and proposes training plans for the entire organization. This program applies to all companies in the group and to any third parties that may act on our behalf. Within the program, the anti-corruption policy provides the guidelines required to avoid acts of corruption in our business or in our relations with any state entity, and reinforces the obligation to have accounting records and internal controls.

During 2016, our efforts regarding compliance and prevention were focused on the deployment of the anti-corruption program across our companies. As part of this process, we implemented in our web-based platform, a training program with respect to the principal anti-corruption guidelines. Additionally, we have included anti-corruption matters in our board of directors’ periodic agenda, and we also have established a compliance officer who reports to the Audit and Processes Committee. We continue performing due diligence in connection with acquisitions, and used the “Know Your Partner” initiative (2015), through which preventive assessments were performed on potential strategic partners, suppliers and potential recipients of grants in 2016. In this regard, anti-corruption clauses were included in contracts with suppliers and a specific procedure was implemented for charitable donations.

In February 2017, our board of directors created the Risk, Compliance and Sustainability Committee to enhance our ethics and compliance program. That committee then created the Risk and Compliance Corporate Function, which reports to the committee. A new Chief Risk and Compliance Officer for the Group was appointed to enhance and develop further our ethics and compliance program. Our board of directors also appointed an External Advisory Council to provide the Board with independent advice and recommendations on corporate governance and compliance matters. We launched in 2017 training sessions combined with specialized courses addressed to middle and senior managers as well as to all members of our board of directors.

In December 2017, the Group launched a project to renew our Code of Ethics. We are bringing together, in a single and enhanced document, our current Ethics Charter and our Code of Conduct. The launch of the new Code of Ethics is planned for the second half of 2018 and will come with revised training and communication campaigns on values, conduct, the compliance program and our confidential reporting mechanism.

In January 2018, we continued to reinforce our compliance program by launching new projects that include an enhanced due diligence policy, a revised policy on donations and a strengthened manual on relationships with government officials.

 

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Item 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit and Non-Audit Fees

The following table sets forth the fees billed to the company by our current independent registered public accounting firm, Moore Stephens, in connection with its audit of our annual consolidated financial statements for the fiscal years ended December 31, 2015 and 2016, which are included in this report.

 

     Year Ended December 31,  
     2015      2016  
     (in thousands of S/.)  

Audit fees

     4,709.9        5,107.2  

Audit-related fees

     —          —    

Tax fees

     —          —    

All other fees

     —          —    

Total fees

     4,709.9        5,107.2  

The following table sets forth the fees billed to the company by our former independent registered public accounting firm, PwC, in connection with audit procedures in connection with our annual consolidated financial statements for the years ended December 31, 2015 and 2016. See “Item 16.F. Change in Registrant’s Certifying Accountant.”

 

     Year Ended December 31,  
     2015      2016  
     (in thousands of S/.)  

Audit fees

     5,843.5        8,703.4  

Audit-related fees

     369.5        276.7  

Tax fees

     920.0        1,945.9  

All other fees

     1,797.6        1,040.4  

Total fees

     8,930.6        11,966.4  

Audit fees in the tables above are the aggregate fees billed and billable by our current or former independent auditor, as the case may be, in connection with the audit of, or audit procedures in connection with, our annual consolidated financial statements and review of our internal controls.

Audit-related fees in 2016 in each table above relates to accounting consultation.

Tax fees in the above tables are fees billed relating to tax compliance services.

All other fees in 2015 primarily correspond to consultancy in respect of transfer pricing, consultancy in elaboration of acquisition agreements, assistance before SUNAT’s (Peruvian Tax Authorities) audit findings, tax consultancy, among others, while all other fees in 2016 primarily correspond to high-level methodological consultancy in respect of internal controls testing plans.

Our Audit and Process Committee is responsible for the oversight of the independent auditors and has established pre-approval procedures for the engagement of our registered public accounting firm for audit and non-audit services. Such services can only be contracted if they are approved by the Audit and Process Committee, they comply with the restrictions provided under applicable rules and they do not jeopardize the independence of our auditors. All services provided by our current independent auditor for our fiscal years ended December 31, 2015 and 2016 were pre-approved by our Audit and Process Committee.

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

(a) Dismissal of Independent Registered Public Accounting Firm

The company and Gaveglio, Aparicio y Asociados S.C. de R.L., a member firm of PricewaterhouseCoopers (“PwC”) determined that PwC lacked independence from the company with respect to the company’s financial statements for the fiscal year 2016 as a consequence of non-audit services provided by PwC to the company beginning in the fourth quarter of the fiscal year 2016. The services related to the company’s testing of internal controls in accordance with the Sarbanes-Oxley Act. As a result, the company and PwC mutually agreed on October 4, 2017 to the company’s dismissal of PwC as auditor of the company’s consolidated financial statements for the fiscal year 2016. The company’s Audit and Process Committee and Board of Directors participated in and approved the decision to dismiss PwC and recommended the appointment of the company’s new independent registered public accounting firm.

(b) New Audit of 2015

The independence issue described above did not affect the independence of PwC with respect to PwC’s audit of the company’s consolidated financial statements for the fiscal years 2014 and 2015. The audit reports of PwC on the company’s consolidated financial statements for the fiscal years 2014 and 2015 did not contain any adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

On or about March 23, 2018, PwC informed the company that it would not authorize the use of its 2015 audit opinion in connection with the filing of the company’s annual report on Form 20-F without conducting substantial additional procedures. PwC could not give any assurance as to when it could complete such additional procedures and stated it could take several months. PwC informed the company that professional standards required the performance of substantial additional procedures with respect to the 2015 consolidated financial statements because of publicly reported procedural developments since the firm’s dismissal in October 2017 concerning the cumulative effect of the decision of the Peruvian court to include three former executives of the company and the company in its ongoing criminal investigation relating to projects involving Odebrecht, coupled with a 2015 agreement that was first provided to PwC in May 2017 while PwC was conducting the audit for the fiscal year 2016.

On April 17, 2018, to avoid further delay, the company appointed Moore Stephens SCAI S.A. (“Moore Stephens”) as its new independent registered public accounting firm for the fiscal year 2015 and announced that the previously issued consolidated financial statements of the company for the 2015 fiscal year (and the related audit opinion of PwC) should no longer be relied upon. Among other factors, as the company’s current auditor, Moore Stephens, was in the process of completing its audit work with respect to the 2016 fiscal year (see (d) below) and thus, in the company’s view, could more timely and efficiently complete the 2015 audit processes as well.

(c) Disagreements and Reportable Events

During the 2015 and 2016 fiscal years and the subsequent interim period through October 4, 2017, there were no “disagreements” (as described in Item 16.F(a)(1)(iv) of Form 20-F) with PwC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of PwC, would have caused them to make reference thereto in their reports on the financial statements for such years.

During the 2015 and 2016 fiscal years and the subsequent interim period through October 4, 2017, there were “reportable events” (as that term is defined in Item 16.F(a)(1)(v) of Form 20-F) as follows: (i) as disclosed in the company’s annual report on Form 20-F for the 2015 fiscal year, the company’s management and PwC each concluded that the company did not maintain effective internal control over financial reporting as of December 31, 2015, because of a material weakness related to inadequate controls over segregation of duties in certain activities in some subsidiaries; (ii) PwC advised the company that the company did not maintain effective internal control over financial reporting as of December 31, 2016 as a result of the material weaknesses described in Item 15.B of this annual report, except that the following items were not advised by PwC: (1) inadequate oversight by the Audit Committee regarding the role of the Internal Audit Department, (2) a control environment not always sufficient to ensure adequate enterprise risk management (including fraud risk), and (3) the conclusion which states that there were no significant impacts in our consolidated financial statements because clarifying addendums were signed by the parties; and (iii) at the time of PwC’s dismissal, as described in (a) above, PwC’s audit of the consolidated financial statements for the fiscal year 2016 was not complete, including the final resolution of matters related to the accounting for two contracts and any related implications from the finalization of the internal investigation conducted by the company.

 

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The Audit and Process Committee of the company discussed the subject matter of each of the reportable events with PwC. The company authorized PwC to fully respond to the inquiries of the successor accountant concerning these reportable events.

The company has requested that PwC furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter, dated May 15, 2018, is filed as Exhibit 16.01 to this annual report.

(d) Appointment of New Independent Registered Public Auditing Firm

A shareholders’ meeting of the company held on November 2, 2017 appointed Moore Stephens as the new independent auditor for the fiscal year 2016.

On April 17, 2018, the Audit and Process Committee of the company appointed Moore Stephens to audit the 2015 fiscal year. The shareholders’ meeting of the company held on May 14, 2018 ratified the appointment.

During the 2015 and 2016 fiscal years and the subsequent interim period through April 16, 2018, the company did not consult with Moore Stephens 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 the company’s consolidated financial statements, other than in connection with the ongoing audit work by Moore Stephens of the company’s consolidated financial statements for the 2016 fiscal year; or (ii) any matter that was either the subject of a disagreement or a reportable event.

Item 16G CORPORATE GOVERNANCE

We are a “foreign private issuer” within the meaning of the New York Stock Exchange corporate governance standards. Under New York Stock Exchange rules, a foreign private issuer may elect to comply with the practices of its home country and not to comply with certain corporate governance requirements applicable to U.S. companies with securities listed on the exchange.

We currently follow certain Peruvian practices concerning corporate governance and intend to continue to do so. There are significant differences in the Peruvian corporate governance practices as compared to those followed by United States domestic companies under the New York Stock Exchange’s listing standards.

The New York Stock Exchange listing standards provide that the board of directors of a U.S. listed company must have a majority of independent directors. Under Peruvian corporate governance practices, a Peruvian company is not required to have a majority of independent members on its board of directors. However we currently have a majority of independent directors on our board in accordance with Peruvian and NYSE independence standards. Our Audit and Process Committee is comprised of independent directors under SEC rules applicable to foreign private issuers. Additionally, our Human Resources Management Committee is currently comprised of independent directors, while our Investment Committee and our Risk, Compliance and Sustainability Committee are currently comprised of a majority of independent directors, in each case under Peruvian and NYSE independence standards. Our Human Resources Management Committee is not the equivalent of, or wholly comparable to, a U.S. compensation committee.

The listing standards for the New York Stock Exchange also require that U.S. listed companies have a nominating/corporate governance committee and a compensation committee (in addition to an audit committee). Each of these committees must consist solely of independent directors and must have a written charter that addresses certain matters specified in the listing standards. Under Peruvian law, a Peruvian company may, but is not required to, form such committees, which may be composed partially or entirely of non-independent directors. Accordingly, we do not have a nominating/corporate governance committee and a compensation committee.

In addition, New York Stock Exchange rules require the independent non-executive directors of U.S. listed companies to meet on a regular basis without management being present. There is no similar requirement under Peruvian law, accordingly, we do not have such meetings.

The New York Stock Exchange’s listing standards also require U.S. listed companies to adopt and disclose corporate governance guidelines. In July 2002, the Peruvian Securities Commission and a committee comprised of regulatory agencies and associations prepared and published a list of suggested non-mandatory corporate governance guidelines called the “Principles of Good Governance for Peruvian Companies.” These principles are disclosed on the Peruvian Securities Commission web page http://www.smv.gob.pe and the Lima Stock Exchange web page http://www.bvl.com.pe. Although we have implemented a number of these measures and have been selected to form part of the Best Corporate Governance Practices Index of the Lima Stock Exchange, we are not required to comply with the referred corporate governance guidelines by law or regulation.

 

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Item 16H MINE SAFETY DISCLOSURE

Not applicable.

Item 17. FINANCIAL STATEMENTS

Not applicable.

Item 18. FINANCIAL STATEMENTS

See our consolidated financial statements beginning at page F-1 of this annual report. See also Oil and Gas Supplementary Schedules beginning on page S-1.

Item 19. EXHIBITS

The agreements and other documents filed as exhibits to this annual report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and for the benefit of the other parties to the agreements and they may not describe the actual state of affairs as of the date they were made or at any other time.

 

Exhibit Number  

Description

1.01*   By-Laws of the Registrant, as currently in effect
2.01**   Registrant’s Form of American Depositary Receipt
2.02***   Form of Deposit Agreement among the Registrant, JP Morgan Chase Bank, N.A., as depositary, and the holders from time to time of American depositary shares issued thereunder
8.01   Subsidiaries of the Registrant
10.01   Credit Agreement, dated as of December 10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.1   Amendment No. 1, dated as of December 22, 2015, to the Credit Agreement, dated as of December 10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.2   Amendment No. 2, dated as of February 1, 2016, to the Credit Agreement, dated as of December 10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.3   Amendment No. 3, dated as of February 12, 2016, to the Credit Agreement, dated as of December 10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.4   Amendment No. 4, dated as of February 29, 2016, to the Credit Agreement, dated as of December 10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.5   Amendment No. 5, dated as of April 15, 2016, to the Credit Agreement, dated as of December 10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.6   Waiver and Amendment No. 6, dated as of September 15, 2016, to the Credit Agreement, dated as of December 10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.

 

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Exhibit Number  

Description

10.01.7   Amendment No. 7, dated as of December 16, 2016, to the Credit Agreement, dated as of December 10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.8   Amendment No. 8, dated as of June 27, 2017, to the Credit Agreement, dated as of December 10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.9   Amendment No. 9, dated as of October 12, 2017, to the Credit Agreement, dated as of December 10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.02   Loan Agreement, dated as of June 27, 2017, by and among, inter alia , the company, as borrower, and Natixis, New York Branch, as administrative agent.
10.02.1   Waiver and Amendment, dated as of March 26, 2018, to the Credit Agreement, dated as of June 27, 2017, by and among, inter alia , the company, as borrower, and Natixis, New York Branch, as administrative agent.
10.03   English translation of Financial Stability Framework Agreement, dated as of July 31, 2017, by and among, inter alia , the company, as borrower, and Scotiabank Perú S.A.A., Banco Internacional del Perú S.A.A., BBVA Banco Continenal, Banco de Crédito del Perú, Citibank del Perú S.A. and Citibank, N.A., as lenders.
10.04   English translation of Section 20 of Concession Agreement, dated as of July 22, 2014, by and among the Peruvian Minstry of Energy and Mines, as contracting authority and the concessionaire party thereto.
10.05   English translation of Memorandum of Understanding, dated as of September 26, 2017, by and among the company, Negocios de Gas S.A., Enagás S.A., Odebrecht S.A., and Inversiones en Infraestructura de Transporte por Ductos S.A.C.
10.05.1   English translation of Rights Subordination Agreement, dated as of April 29, 2016, by and among Odebrecht Latinvest Peru Ductos, S.A., Odebrecht S.A., Enagás, S.A., the company, Negocios de Gas S.A., Inversiones en Infraestructura de Transporte por Ductos S.A.C., and Gasoducto Sur Peruano S.A.
10.05.1.1   English translation of Addendum No. 1, dated as of June 24, 2016, to the Rights Subordination Agreement, dated as of April 29, 2016, by and among, inter alia , Odebrecht Latinvest Peru Ductos, S.A., Odebrecht S.A., Enagás, S.A., the company, GyM S.A., Negocios de Gas S.A., Inversiones en Infraestructura de Transporte por Ductos S.A.C., Gasoducto Sur Peruano S.A., Odebrecht Perú Ingeniería y Construcción S.A.C., and Constructora Norberto Odebrecht S.A., Sucursal del Perú.
10.05.1.2   English translation of Addendum No. 2 and Assignment Agreement, dated as of August 11, 2016, to the Rights Subordination Agreement, dated as of April 29, 2016, by and among, inter alia , Odebrecht Latinvest Peru Ductos, S.A., Odebrecht S.A., Enagás, S.A., the company, GyM S.A., Negocios de Gas S.A., Inversiones en Infraestructura de Transporte por Ductos S.A.C., Gasoducto Sur Peruano S.A., Odebrecht Perú Ingeniería y Construcción S.A.C., and Constructora Norberto Odebrecht S.A., Sucursal del Perú.
10.05.1.3   English translation of Modification to Addendum No. 2 and Assignment Agreement, dated as of October 25, 2016, to the Rights Subordination Agreement, dated as of April 29, 2016, by and among, inter alia , Odebrecht Latinvest Peru Ductos, S.A., Odebrecht S.A., Enagás, S.A., the company, GyM S.A., Negocios de Gas S.A., Inversiones en Infraestructura de Transporte por Ductos S.A.C., Gasoducto Sur Peruano S.A., Odebrecht Perú Ingeniería y Construcción S.A.C., and Constructora Norberto Odebrecht S.A., Sucursal del Perú.
12.01   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
12.02   Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
13.01****   Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
13.02****   Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act

 

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Exhibit Number   

Description

16.01    Letter dated May 15, 2018 by Gaveglio, Aparicio y Asociados S.C. de R.L., a member firm of PricewaterhouseCoopers, as required by Item 16F of Form 20-F.

 

* Incorporated herein by reference to exhibit 1.01 of the registrant’s Form 20-F (File No. 333-172855) filed with the SEC on April 30, 2014.
** Incorporated herein by reference to the exhibit 4.1 to the registrant’s registration statement on Form F-1 (File No. 333-178922) filed with the SEC on June 4, 2013.
*** Incorporated herein by reference to the exhibit 4.2 to the registrant’s registration statement on Form F-1 (File No. 333-178922) filed with the SEC on June 4, 2013.
**** This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. §78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
+ Confidential treatment requested.

 

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(Free translation from the original in Spanish)

(All amounts expressed in thousands of S/ unless otherwise stated)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014, 2015 AND 2016


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(Free translation from the original in Spanish)

(All amounts expressed in thousands of S/ unless otherwise stated)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014, 2015 AND 2016

 

CONTENTS    Page  

Independent auditor’s report

     F-1 - 2  

Consolidated Statement of Financial Position

     F-3  

Consolidated Income Statement

     F-4  

Consolidated Statement of Comprehensive Income

     F-5  

Consolidated Statement of Changes in Equity

     F-6  

Consolidated Statement of Cash Flows

     F-7  

Consolidated Income Statement

     F-9  

Notes to the Consolidated Financial Statements

     F-10 -114  

S/ = Peruvian Sol

US$ = United States dollar


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LOGO

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Graña y Montero S.A.A. and its subsidiaries

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of Graña y Montero S.A.A. and its subsidiaries (the “Company”) as of December 31, 2015 and 2016, the related consolidated statements of operations, comprehensive loss, changes in equity and cash flows for each of the years then ended, and the related notes. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2016, and the results of their operations and their cash flows for each of the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also, in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2015 and 2016, based on criteria established in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because the following material weaknesses in internal control over financial reporting existed as of those dates:

 

- Lack of a formally established and documented process for enterprise and fraud risk management.

 

- Deficiencies in the design and operational effectiveness of controls over segregation of duties to help ensure that personnel with potential conflicts were not involved in incompatible activities.

 

- Deficiencies in the design and operational effectiveness of the controls established in the accounting closing process with respect to the review of the consolidated and separate financial statements, including controls over the review, approval and documentation related to journal entries.

 

- Deficiencies in the design and operational effectiveness of controls established with respect to the recognition of revenue and determination of related estimates, including construction contract revenues and contingent revenues, and the accounting for inventory.

 

- Deficiencies in the design of controls over the timely accounting for signed contracts.

 

- Deficiencies in design and operational effectiveness of the controls over the review and approval of the valuation of acquired assets and liabilities as part of a step acquisition.

 

- Lack of adequate supervision, monitoring and follow-up by the Audit Committee regarding the role of the Internal Audit Department.

 

- Deficiencies in operational effectiveness of controls over SOX compliance.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Management Report on Internal Control over Financial Reporting appearing under Item 15. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audits of the 2015 and 2016 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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.

 

F-1


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LOGO

 

Emphasis of Certain Matters

As discussed in Note 1 to the financial statements, Peruvian prosecutors included three former executives of the Company in an investigation for the alleged crimes of collusion and money laundering, and included Graña y Montero S.A.A and GyM S.A. as subjects of investigation and as third parties responsible on a civil basis. The Note also describes the results of an independent investigation and estimates that the cases will be resolved in a manner favorable to their interests. We are not able to anticipate the final result of those undertakings and the possible contingencies which may arise.

As discussed in Note 2.30 to the consolidated financial statements, the Company made adjustments to the consolidated financial statements as of December 31, 2015, which were presented in the previous Form 20-F. These adjustments consisted of reversals of estimates of work in progress and impairments of accounts receivable for S/ 44.7 million, as well as corrections in the recording of goodwill for S/ 14.7 million, reversal of deferred tax asset for S/ 23.4 million and other items for S/ 3.3 million.

Basis for Opinion

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the Management’s Report on Internal Control over Financial Reporting referred to above. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

/s/ Moore Stephens SCAI S.A.

Moore Stephens SCAI S.A.
We have served as the Company’s auditor since 2017.
Bogota, Colombia
May 15, 2018

 

F-2


Table of Contents

(Free translation from the original in Spanish)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(All amounts are expressed in thousands of S/. unless otherwise stated)

 

ASSETS              
            As at December 31,  
     Note      2015      2016  
           

Restated see

Note 2.30

        

Current assets

     

Cash and cash equivalents

     9        554,002        606,950  

Financial asset at fair value through profit or loss

        3,153        352  

Trade accounts receivables, net

     11        1,042,455        1,031,270  

Unbilled work in progress, net

     12        1,278,227        680,929  

Accounts receivable from related parties

     13        280,153        181,664  

Other accounts receivable

     14        820,717        649,516  

Inventories, net

     15        1,159,154        1,104,293  

Prepaid expenses

        40,022        51,301  
     

 

 

    

 

 

 
        5,177,883        4,306,275  

Non-current assets classified as held for sale

        22,511        22,385  
     

 

 

    

 

 

 

Total current assets

        5,200,394        4,328,660  
     

 

 

    

 

 

 

Non-current assets

     

Long-term trade accounts receivable, net

     11        621,831        667,519  

Long-term unbilled work in progress, net

     12        59,754        197,586  

Long-term accounts receivable from related parties

     13        —          531,384  

Prepaid expenses

        22,386        23,526  

Other long-term accounts receivable

     14        65,929        357,952  

Available-for-sale financial assets

     10        120,134        —    

Investments in associates and joint ventures

     16        637,005        389,759  

Investment property

        34,702        49,357  

Property, plant and equipment, net

     17        1,111,757        1,113,599  

Intangible assets, net

     18        878,286        960,286  

Deferred income tax asset

     25        147,845        427,008  
     

 

 

    

 

 

 

Total non-current assets

        3,699,629        4,717,976  
     

 

 

    

 

 

 

Total assets

        8,900,023        9,046,636  
     

 

 

    

 

 

 

 

LIABILITIES AND EQUITY              
            As at December 31,  
     Note      2015     2016  
            Restated see 
Note 2.30
       

Current liabilities

     

Borrowings

     19        1,228,020       1,961,043  

Bonds

     20        37,083       46,091  

Trade accounts payable

     21        1,635,762       1,276,617  

Accounts payable to related parties

     13        77,832       80,217  

Current income tax

        34,116       62,160  

Other accounts payable

     22        1,066,000       1,096,307  

Provisions

     23        13,468       14,531  
     

 

 

   

 

 

 

Total current liabilities

        4,092,281       4,536,966  
     

 

 

   

 

 

 

Non-current liabilities

     

Borrowings

     19        553,336       419,395  

Long-term bonds

     20        757,008       921,623  

Other long-term accounts payable

     22        246,396       512,803  

Long-term accounts payable to related parties

     13        20,136       65,320  

Provisions

     23        47,460       26,542  

Derivative financial instruments

        2,331       1,081  

Deferred income tax liability

     25        99,163       73,169  
     

 

 

   

 

 

 

Total non-current liabilities

        1,725,830       2,019,933  
     

 

 

   

 

 

 

Total liabilities

        5,818,111       6,556,899  
     

 

 

   

 

 

 

Equity

     24     

Capital

        660,054       660,054  

Legal reserve

        132,011       132,011  

Optional reserve

        29,974       29,974  

Share Premium

        897,532       882,464  

Other reserves

        (143,784     (167,456

Retained earnings

        982,987       443,377  
     

 

 

   

 

 

 

Equity attributable to controlling interest in the Company

 

     2,558,774       1,980,424  

Non-controlling interest

        523,138       509,313  
     

 

 

   

 

 

 

Total equity

        3,081,912       2,489,737  
     

 

 

   

 

 

 

Total liabilities and equity

        8,900,023       9,046,636  
     

 

 

   

 

 

 

 

 

 

The accompanying notes on pages 8 to XXX are part of the consolidated financial statements.

 

F-3


Table of Contents

(Free translation from the original in Spanish)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENT

(All amounts are expressed in thousands of S/. unless otherwise stated)

 

          For the year ended December 31,  
     Note    2014     2015     2016  
                Restated see
Note 2.30
       

Revenues from construction activities

        4,749,159       5,501,537       3,945,599  

Revenues from services provided

        1,912,646       1,896,678       1,880,634  

Revenue from real estate and sale of goods

        346,875       417,280       643,373  
     

 

 

   

 

 

   

 

 

 
        7,008,680       7,815,495       6,469,606  
     

 

 

   

 

 

   

 

 

 

Cost of construction activities

        (4,336,388     (5,342,379     (3,751,221

Cost of services provided

        (1,489,574     (1,526,875     (1,674,180

Cost of real estate and goods sold

        (231,150     (296,267     (440,786
     

 

 

   

 

 

   

 

 

 
   27      (6,057,112     (7,165,521     (5,866,187
     

 

 

   

 

 

   

 

 

 

Gross profit

        951,568       649,974       603,419  

Administrative expenses

   27      (421,367     (413,385     (399,402

Other income and expenses, net

   29      15,136       57,287       (13,270

Gain from the sale of investments

   6 a) - 10      —         (8,289     46,336  
     

 

 

   

 

 

   

 

 

 

Operating profit

        545,337       285,587       237,083  

Financial expenses

   28      (102,816     (176,802     (231,571

Financial income

   28      11,462       38,107       20,794  

Share of the profit or loss in associates and joint ventures under the equity method of accounting

   16      53,445       7,724       (589,710
     

 

 

   

 

 

   

 

 

 

Profit (Loss) before income tax

        507,428       154,616       (563,404

Income tax

   30      (146,196     (99,027     111,806  
     

 

 

   

 

 

   

 

 

 

Profit (Loss) for the period

        361,232       55,589       (451,598
     

 

 

   

 

 

   

 

 

 

Profit (Loss) attributable to:

         

Equity holders of the Company

        299,743       7,097       (509,699

Non-controlling interest

        61,489       48,492       58,101  
     

 

 

   

 

 

   

 

 

 
        361,232       55,589       (451,598
     

 

 

   

 

 

   

 

 

 

Earnings per share from continuing operations attributable to owners of the Company during the period

   35      0.454       0.011       (0.772
     

 

 

   

 

 

   

 

 

 

The accompanying notes on pages 8 to XXX are part of the consolidated financial statements.

 

 

F-4


Table of Contents

(Free translation from the original in Spanish)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(All amounts are expressed in thousands of S/. unless otherwise stated)

 

            For the year ended December 31,  
     Note      2014     2015     2016  
                  Restated see
Note 2.30
       

Profit (Loss) for the period

        361,232       55,589       (451,598
     

 

 

   

 

 

   

 

 

 

Other comprehensive income:

         

Items that will not be reclassified to profit or loss

         
     

 

 

   

 

 

   

 

 

 

Re-assessment of actuarial gains and losses, net of tax

     31        (1,777     (3,860     (1,531
     

 

 

   

 

 

   

 

 

 

Items that may be subsequently reclassified to profit or loss

         

Cash flow hedge, net of tax

     31        568       723       883  

Currency translation adjustment, net of tax

        (20,463     (59,660     14,307  
         

Impairment of available-for-sale financial assets

     10        4,649       19,973       (2,220

Impairment of financial assets available for sale, net of tax

     10        —         —         (41,461

Exchange movements on translation of foreign subsidiaries, net of tax

     31        —         (5,220     7,860  

Exchange difference from foreign net investment, net of tax

     31        (12,794     —         1,563  
     

 

 

   

 

 

   

 

 

 
        (28,040     (44,184     (19,068
     

 

 

   

 

 

   

 

 

 

Other comprenhensive income for the period, net of tax

        (29,817     (48,044     (20,599
     

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

        331,415       7,545       (472,197
     

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to:

         

Equity holders of the Company

        277,912       (25,713     (534,492

Non-controlling interest

        53,503       33,258       62,295  
     

 

 

   

 

 

   

 

 

 
        331,415       7,545       (472,197
     

 

 

   

 

 

   

 

 

 

The accompanying notes on pages 8 to XXX are part of the consolidated financial statements.

 

F-5


Table of Contents

(Free translation from the original in Spanish)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2015 AND 2016

(All amounts are expressed in thousands of S/. unless otherwise stated)

 

     Attributable to the controlling interests of the Company              
     Number
of shares
In thousands
     Capital      Legal
reserve
     Optional
reserve
     Premium
for issuance
of shares
    Other
reserves
    Retained
earnings
    Total     Non-controlling
interest
    Total  

Balances as of January 1, 2014

     660,054        660,054        111,657        —          1,027,533       18,423       947,766       2,765,433       431,262       3,196,695  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the year

     —          —          —          —          —         —         299,743       299,743       61,489       361,232  

Cash flow hedge

     —          —          —          —          —         540       —         540       28       568  

Adjustment for actuarial gains and losses

     —          —          —          —          —         —         (1,332     (1,332     (445     (1,777

Foreign currency translation adjustment

     —          —          —          —          —         (13,086     —         (13,086     (7,377     (20,463

Change in value of available-for-sale financial assets

     —          —          —          —          —         4,649       —         4,649       —         4,649  

Exchange difference from net investment in a foreign operation

     —          —          —          —          —         (12,602     —         (12,602     (192     (12,794
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income of the year

     —          —          —          —          —         (20,499     298,411       277,912       53,503       331,415  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with shareholders:

                        

- Transfer to legal reserve

     —          —          20,354        —          —         —         (20,354     —         —         —    

- Dividend distribution (Note 34 and 36 g)

     —          —          —          —          —         —         (112,127     (112,127     (68,062     (180,189

- Contributions of non-controlling shareholders (Note 36 d)

     —          —          —          —          —         —         —         —         47,376       47,376  

- Additional acquisition of non-controlling (Note 36 a)

     —          —          —          —          (128,222     —         —         (128,222     (50,109     (178,331

- Sale to non-controlling interest in GyM Chile Spa (Note 36 b)

     —          —          —          —          —         —         —         —         1,627       1,627  

- Deconsolidation of subsidiaries (Note 36 e)

     —          —          —          —          —         —         —         —         2,284       2,284  

- Put option liability from acquisition of non-controlling (Note 22)

     —          —          —          —          —         (111,819     —         (111,819     (2,010     (113,829

- Purchase of subsidiaries (Note 33 a)

     —          —          —          —          —         —         —         —         66,659       66,659  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

     —          —          20,354        —          (128,222     (111,819     (132,481     (352,168     (2,235     (354,403
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of December 31, 2014

     660,054        660,054        132,011        —          899,311       (113,895     1,113,696       2,691,177       482,530       3,173,707  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of January 1, 2015

     660,054        660,054        132,011        —          899,311       (113,895     1,113,696       2,691,177       482,530       3,173,707  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

     —          —          —          —          —         —         7,097       7,097       48,492       55,589  

Derivative instruments for cashflow

     —          —          —          —          —         687       —         687       36       723  

Re-assessment of actuarial gains and losses

     —          —          —          —          —         —         (2,921     (2,921     (939     (3,860

Foreign currency translation adjustment

     —          —          —          —          —         (45,411     —         (45,411     (14,249     (59,660

Change in value of available-for-sale financial assets

     —          —          —          —          —         19,973       —         19,973       —         19,973  

Exchange difference from net investment in a foreign operation

     —          —          —          —          —         (5,138     —         (5,138     (82     (5,220
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income of the year

     —          —          —          —          —         (29,889     4,176       (25,713     33,258       7,545  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with shareholders:

                        

- Transfer to legal reserve

     —          —          —          29,974        —         —         (29,974     —         —         —    

- Dividend distribution (Note 34, 36 d)

     —          —          —          —          —         —         (104,911     (104,911     (4,535     (109,446

- Contributions of non-controlling shareholders (Note 36 d)

     —          —          —          —          —         —         —         —         10,329       10,329  

- Additional acquisition of non-controlling (Note 36 a)

     —          —          —          —          (894     —         —         (894     (971     (1,865

- Sale to non-controlling interest (Note 36 b)

     —          —          —          —          (885     —         —         (885     2,527       1,642  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

     —          —          —          29,974        (1,779     —         (134,885     (106,690     7,350       (99,340
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of December 31, 2015—Restated

     660,054        660,054        132,011        29,974        897,532       (143,784     982,987       2,558,774       523,138       3,081,912  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of January 1, 2016

     660,054        660,054        132,011        29,974        897,532       (143,784     982,987       2,558,774       523,138       3,081,912  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss for the period

     —          —          —          —          —         —         (509,699     (509,699     58,101       (451,598

Derivative instruments for cashflow

     —          —          —          —          —         839       —         839       44       883  

Re-assessment of actuarial gains and losses

     —          —          —          —          —         —         (1,121     (1,121     (410     (1,531

Foreign currency translation adjustment

     —          —          —          —          —         9,885       —         9,885       4,422       14,307  

Change in value of available-for-sale financial assets

     —          —          —          —          —         (2,220     —         (2,220     —         (2,220

Transfer to profit or loss of available-for-sale financial assets

     —          —          —          —          —         (41,461     —         (41,461     —         (41,461

Exchange difference from net investment in a foreign operation

     —          —          —          —          —         7,722       —         7,722       138       7,860  

Transfer to profit or loss of exchange difference from net investment in a foreign operation, net of tax

     —          —          —          —          —         1,563       —         1,563       —         1,563  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income of the period

     —          —          —          —          —         (23,672     (510,820     (534,492     62,295       (472,197
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with shareholders:

                        

- Transfer to Optional reserve

     —          —          —          —          —         —         —         —         —         —    

- Dividend distribution (Note 34, 36 d)

     —          —          —          —          —         —         (30,853     (30,853     (25,473     (56,326

- Contributions (devolution) of non-controlling shareholders,net (Note 36 d)

     —          —          —          —          —         —         —         —         (19,099     (19,099

- Additional acquisition of non-controlling (Note 36 a)

     —          —          —          —          (15,167     —         —         (15,167     (35,972     (51,139

- Sale to non-controlling interest (Note 36 b)

     —          —          —          —          99       —         —         99       236       335  

- Acquisition of subsidiary Adexus

     —          —          —          —          —         —         —         —         4,153       4,153  

- Deconsolidation of former subsidiary

     —          —          —          —          —         —         2,063       2,063       35       2,098  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total transactions with shareholders

     —          —          —          —          (15,068     —         (28,790     (43,858     (76,120     (119,978
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of December 31, 2016

     660,054        660,054        132,011        29,974        882,464       (167,456     443,377       1,980,424       509,313       2,489,737  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes on pages 8 to XXX are part of the consolidated financial statements.

 

F-6


Table of Contents

(Free translation from the original in Spanish)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW

(All amounts are expressed in thousands of S/. unless otherwise stated)

 

            For the year ended December 31,  
     Note      2014     2015     2016  
                  Restated see
Note 2.30
       

CASH FLOW FROM OPERATING ACTIVITIES

         

Profit (Loss) before income tax

        507,428       154,616       (563,404

Adjustments to profit not affecting cash flows from operating activities:

         

Depreciation

     17        185,310       217,070       205,522  

Amortization of other assets

     18        74,730       89,355       82,743  

Impairment of inventories

     17        62       17       36,353  

Impairment of accounts receivable and other accounts receivable

     11-12        71       5,806       419,584  

Debt forgiveness

        —         —         (431,484

Impairment of property, plant and equipment

     17        2,415       3,796       9,263  

Impairment of other assets

     18        14,170       —         54,308  

Impairment of intangible assets

        —         —         —    

Recovery of impairment of inventory

        (1,169       —    

Financial expenses-CCDS

        —         —         7,004  

Expenses for liquidation of work in progress - CCDS

        —         —         164  

Indemnification for loss of profits

        —         —         (33,600

Change on fair value of financial asset through profit or loss

        —         (2,740     31  

Change in the fair value of the liability for put option

     22        —         (18,627     (984

Provisions

     23        6,559       6,398       9,486  

Dividends from available-for-sale financial assets

        (9,350     (7,215     —    

Income from return receipt from Morelco

        —         —         (6,658

Re-assessment of purchase consideration of Morelco

     33 b)        —         —         (7,166

Financial expense,net

        76,102       125,096       106,739  

Demobilization provisions in CCDS

        —         —         24,915  

Share of profit and loss in associates and joint ventures

          —         —    

under equity method

     16 a) b)        (53,445     (24,993     589,710  

Reversal of provisions

     23        (9,394     (7,796     (17,883

Disposal of property, plant and equipment

        —         5,881       3,951  

Disposal on fair value of financial asset through

        —        

profit or loss

        —         2,755       1,227  

Profit on sale of property, plant and equipment

     16        (4,845     (17,385     (18,393

Loss on financial asset at fair value through profit or loss

        —         450       221  

Loss on sale of non-current asset held for sale

        —         —         22  

Profit on sale from available-for-sale financial assets

     10        —         —         (46,337

Loss on sale of investments in subsidiaries

        —         8,289       —    

Loss on re-assessment of accounts receivable

        —         —         76,864  

Loss on re-assesment of investment

        —         —         6,832  

Increase / (decrease) in assets and liabilities:

         

Trade accounts receivable and Unbilled work in progress

        (594,993     (50,150     115,263  

Other accounts receivable

        32,159       (184,180     (85,234

Accounts receivable from related parties

        (15,291     (133,286     84,448  

Inventories

        (51,489     (220,670     33,709  

Pre-paid expenses and other assets

        (8,634     11,667       (99

Trade accounts payable

        82,051       199,402       (87,553

Other accounts payable

        (19,731     (60,073     114,666  

Accounts payable to related parties

        55,316       14,777       45,902  

Provisions

        (7,208     (6,770     (2,756

Interest paid

        (46,411     (110,884     (171,572

Payments related to Norvial Concession

        (82,698     (142,575     (97,711

Payment of income tax

        (154,878     (150,337     (125,619
     

 

 

   

 

 

   

 

 

 

Net cash applied to operating activities

        (23,163     (292,306     332,474  
     

 

 

   

 

 

   

 

 

 

 

F-7


Table of Contents

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW (continue)

(All amounts are expressed in thousands of S/. unless otherwise stated)

 

     Note    For the year ended December 31,  
      2014     2015     2016  
                Restated see
Note 2.30
       

CASH FLOW FROM INVESTING ACTIVITIES

         

Sale of available-for-sale investment

        —         5,613       107,341  

Sale of a financial asset through profit or loss

        —         —         —    

Sale of property, plant and equipment

        42,968       55,832       66,086  

Sale of financial asset at fair value through profit or loss

        —         —         1,427  

Sale of non-current assets held for sale

        —         (13,496     117  

Refunding for price adjustment

        —         —         6,658  

Return of contributions

        —         481       1,963  

Interest received

        8,909       32,162       15,370  

Dividends received

   16 b) 34      46,068       59,175       27,992  

Payment for purchase of a non-current asset held for sale

        —         —         —    

Payment for purchase of investments properties

        (1,450     (748     (17,543

Payments for intangible purchase

        (60,846     (32,883     (45,706

Payments for purchase and contributions on investment in associates and joint ventures

   16 a) b)      (129,859     (464,086     (389,657

Direct cash outflow from acquisition of subsidiaries

        (170,372     —         —    

Purchase of property, plant and equipment

        (265,567     (193,156     (147,732
     

 

 

   

 

 

   

 

 

 

Net cash flow from investing activities

        (530,149     (551,106     (373,684
     

 

 

   

 

 

   

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES

         

Loans received

        2,770,286       4,448,332       3,941,750  

Bonds issued

   20      —         814,016       178,640  

Amortization of loans received

        (2,053,422     (4,549,000     (3,914,570

Amortization of bonds issued

        —         (16,480     (25,281

Payment for debt cost transaction

        —         (18,516     (650

Dividends paid to holders of the parent

        (112,127     (104,911     (30,853

Dividends paid to non-controlling interest

        (63,990     (4,535     (25,473

Cash received from non-controlling shareholders

   36 d)      47,376       10,329       (19,099

Acquisition or sale of interest in a subsidiary of non-controlling shareholders

   36 a)      (177,451     (223     (19,037

Sale of interest in a subsidiary of non-controlling shareholders

   36 b)      1,627       —         335  
     

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

        412,299       579,012       85,762  
     

 

 

   

 

 

   

 

 

 

Net increase (net decrease) in cash

        (141,013     (264,400     44,552  

Cash and cash equivalents at the beginning of the year

        959,415       818,402       554,002  
     

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

        818,402       554,002       598,554  
     

 

 

   

 

 

   

 

 

 

NON-CASH TRANSACTIONS:

         

Debt capitalization

        —         —         8,308  

Acquisition of assets through finance leases

        163,399       92,093       65,336  

Recognition of debt as guarantor

        —         —         608,247  

Change in fair value of available-for-sale financial assets

        4,649       19,973       —    

Adjustment for deconsolidation of former subsidiaries

        2,284       9,298       —    

Establishment of joint operation - Panorama Plaza de negocios (net assets)

        —         36,180       —    

Account payable - acquisition of Morelco

        45,684       —         —    

Put option liability from acquisition of non-controlling

        113,829       —         —    

The accompanying notes on pages 8 to XXX are part of the consolidated financial statements.

 

F-8


Table of Contents

(Free translation from the original in Spanish)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENT

(All amounts are expressed in thousands of S/. unless otherwise stated)

 

     2015     Profit
Increase/
(decrease)
    2015  
     Restated see
Note 2.30
             

Revenues from construction activities

     5,501,537       (12,118     5,513,655  

Revenues from services provided

     1,896,678       (4,820     1,901,498  

Revenue from real estate and sale of goods

     417,280       —         417,280  
  

 

 

   

 

 

   

 

 

 
     7,815,495       (16,938     7,832,433  
  

 

 

   

 

 

   

 

 

 

Cost of construction activities

     (5,342,379     (32,376     (5,310,003

Cost of services provided

     (1,526,875     (3,517     (1,523,358

Cost of real estate and goods sold

     (296,267     —         (296,267
  

 

 

   

 

 

   

 

 

 
     (7,165,521     (35,893     (7,129,628
  

 

 

   

 

 

   

 

 

 

Gross profit

     649,974       (52,831     702,805  

Administrative expenses

     (413,385     (5     (413,380

Other income and expenses, net

     57,287       —         57,287  

Gain from the sale of investments

     (8,289     —         (8,289
  

 

 

   

 

 

   

 

 

 

Operating profit

     285,587       (52,836     338,423  

Financial expenses

     (176,802     —         (176,802

Financial income

     38,107       —         38,107  

Share of the profit or loss in associates and joint

       —         —    

ventures under the equity method of accounting

     7,724       (9,879     17,603  
  

 

 

   

 

 

   

 

 

 

Profit (Loss) before income tax

     154,616       (62,715     217,331  

Income tax

     (99,027     (23,408     (75,619
  

 

 

   

 

 

   

 

 

 

Profit (Loss) for the period

     55,589       (86,123     141,712  
  

 

 

   

 

 

   

 

 

 

Profit (Loss) attributable to:

      

Equity holders of the Company

     7,097       (81,057     88,154  

Non-controlling interest

     48,492       (5,066     53,558  
  

 

 

   

 

 

   

 

 

 
     55,589       (86,123     141,712  
  

 

 

   

 

 

   

 

 

 

Earnings per share from continuing operations attributable to owners of the Company during the period

     0.011      
  

 

 

     

The accompanying notes on pages 9 to 110 are part of the consolidated financial statements.

 

F-9


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014, 2015 AND 2016

 

1 GENERAL INFORMATION

 

  a) Incorporation and operations

Graña y Montero S.A.A. (hereinafter the Company) was established in Peru on August 12, 1996 as a result of the equity spin-off of Inversiones GyM S.A. (formerly Graña y Montero S.A.). The Company’s legal address is Av. Paseo de la República 4675, Surquillo Lima, Peru and is listed on the Lima Stock Exchange and the New York Stock Exchange (NYSE).

The Company is the parent of the Graña y Montero Group (hereinafter the Group, which includes the Company and subsidiaries) and it is mainly engaged in holding investments in different Group companies. Additionally, the Company provides services of general management, financial management, commercial management, legal advisory and human resources management to the Group companies; it is also engaged in leasing offices to the Group companies.

The Group is a conglomerate of companies with operations including different business activities, the most significant are engineering and construction, infrastructure (public concession ownership and operation), real estate businesses and services. See details of operating segments in Note 7.

 

  b) Authorization for issue of the financial statements

The consolidated financial statements for the year ended December 31, 2016 were prepared and issued with Management and Board of Directors authorization on May 15, 2018 and will be submitted for consideration and approval at the General Shareholders’ Meeting. Management expects that the consolidated financial statements as of December 31, 2016 will be approved with no changes.

 

  c) Current situation of the Company

 

  i) Legal Status

 

  (A) Projects conducted in association with Odebrecht

Our company participated as minority shareholder in certain entities that developed six infrastructure projects in Peru with Odebrecht. In 2016, Odebrecht entered into a Plea Agreement with the authorities of the United States Department of Justice and the Office of the District Attorney for the Eastern District of New York by which it admitted the commission of corrupt acts in connection to two these projects (sections 2 and 3 of the Interoceánica Sur highway (“IIRSA Sur”) and the project to construct the Tren Eléctrico). As a consequence of this agreement, the Peruvian authorities initiated investigations.

 

  (I) IIRSA Sur

With respect to the investigations conducted in relation to IIRSA Sur, the Public Prosecutor’s Office included the former Chairman of the Board of Directors, for bribery; a former Director, and a former executive of the company, for money laundering.

Subsequently, Graña and Montero S.A.A. and GyM S.A. were incorporated as subjects investigated in the case described above. The companies have appealed this judgment and the appeals are pending resolution by the Superior Court.

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

In addition, the Peruvian authorities has requested incorporation of Graña y Montero S.A.A. as third party responsible on a civil basis and the Company has filed an opposition to the government’s motion. Oral arguments will be made before the court on a hearing that is yet to be scheduled.

The Company believes that it has a solid defense and that therefore, the case would be resolved in its favor.

 

  (II) Electric Train

The Peruvian authorities also requested to incorporate GyM S.A. as a third party responsible on a civil basis in the case related to the project to construct the electric train. The Company has filed an opposition. Oral arguments will be made before the court on a hearing that is yet to be scheduled.

The Company believes that it has a solid defense and that therefore, the case would be resolved in its favor.

 

  (B) The Constructor Club

On July 11, 2017, Commision de libre competence of “Indecopi” initiated an investigation against several construction companies, including GyM S.A., about the existence of an alleged cartel called the Constructor Club, gathering information from the Company. Throughout the investigation, the Company has provided to the Indecopi with all the information requested.

The Company’s former commercial manager is under a criminal investigation, as well as other individuals related to other construction companies. However, the Company is not included in this case.

To the date the result of the case described is uncertain because it is in the preliminary phase and depends on the action of the third parties that have been included in it, However, management believes that the contingency to which the Company is exposed should not have a significant financial impact due to the lack of links I has with the alleged facts.

 

  (C) Anticorruption Law application to the Company

Law 30737 and its regulation issued by Supreme Decree 096-2018-EF has mitigated the Company’s exposure to the cases described in sub sections (A) and (B) above. These rules set clear guidelines to estimate the potential compensation that would be paid by the Company in the improbable case that it would be convicted. Furthermore, these rules have significantly reduced the uncertainty derived from the legal proceedings, by among other things, preventing the imposition of liens or attachments of assets that would impair the ability of the Company to operate.

The benefits of the mentioned rules are subject to the fullfilment of the following obligations:

 

    The obligation to set up a trust that will guarantee any potential payment obligation of an eventual civil compensation and the interests in favor of the Peruvian State;

 

    The obligation not to transfer funds abroad without the prior consent of the Ministry of Justice;

 

    The implementation of a compliance program; and

 

    The obligation to disclose information to the authorities and to collaborate in the investigation.

The Company has designed a robust compliance program which is currently under implementation. In addition, it fully cooperates with the authorities in its investigations of the alleged facts. It is also engaged in preliminary works necessary to set up the trust while it receives from the authorities the amount of the trust. Management estimated that it would need to assign to the trust assets worth approximately USD 41 million and that its potential liability should not exceed USD 51 million.

 

F-11


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

  ii) Independent Investigation related to Company business with Odebrecht S.A.

On January 9, 2017, the Company Board of Directors approved a plan to conduct an independent investigation related to six projects executed in association with Odebrecht.

On March 30, 2018, the Board of Directors created a Risk, Compliance and Sustainability Committee who was in charge of the oversight of the investigation independent from management. The investigation was entrusted to Simpson, Thatcher and Bartlett that reported exclusively to the Risk, Compliance and Sustainability Committee to preserve its independence.

The independent investigation concluded on November 2, 2017, and found no evidence that the Group or any of its former or current directors or executives had intentionally or knowingly participated in acts of corruption related to the 6 projects developed in association with Odebrecht.

 

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied in all the years presented, unless otherwise stated.

 

2.1 Basis of preparation

The consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRIC) applicable to companies reporting under IFRS. The financial statements comply with IFRS as issued by the IASB in force as of 31 December, 2015 and 2016 respectively.

The consolidated financial statements have been prepared under the historical cost convention, except for derivative financial instruments, financial assets at fair value through profit and loss, available-for-sale financial assets measured at fair value. The financial statements are presented in thousands of Peruvian Soles, unless otherwise stated.

The preparation of the consolidated financial statements in conformity with IFRS requires Management to make estimates and assumptions in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

 

2.2 Consolidation of financial statements

 

  a) Subsidiaries

Subsidiaries are entities over which the Company has control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

 

F-12


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

The Group evaluates measurement of the non-controlling interest on an acquisition-by-acquisition basis. At December 31, 2015 and 2016, the measurement of the non-controlling interest in the Group’s acquisitions was made at the non-controlling interest’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets.

Business acquisition-related costs are expensed as incurred.

Any contingent consideration assumed by the Group with the selling party is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration is recognized in accordance with IAS 39 as profit or loss.

Goodwill is initially measured as the excess of the acquisition cost, the fair value at the acquisition date of any interest previously acquired plus the fair value of the non-controlling interest, over the net identifiable assets acquired and liabilities and contingent liabilities assumed. If the acquisition cost is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss at the time of acquisition.

For consolidating subsidiaries, balances, income and expenses from transactions between Group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognized as assets are also eliminated. If required, accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group.

 

  b) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions, in other words as transactions with owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interest, are also recorded in equity at the time of disposal.

 

  c) Disposal of subsidiaries

When the Group ceases to have control over a subsidiary, any retained interest in the entity is re-measured at its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss at such date. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that the amount previously recognized in other comprehensive income is reclassified to profit or loss.

 

  d) Joint arrangements

Contracts in which the Group and one or more of the contracting parties have joint control on the relevant joint activities are called joint arrangements.

Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be both joint ventures as well as joint operations.

Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially recognized at cost and adjusted thereafter to recognize the Group’s share of the post-acquisition profits or losses and movements in the comprehensive income statement.

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

The Group assesses on an annual basis whether there is any objective evidence that the investment in the joint ventures and associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the impairment loss in ‘share of profit or loss in associates and joint ventures under the equity method of accounting in the income statement.

Joint operations are joint arrangements whereby the parties that have joint control of the arrangement, have rights over the assets, and obligations for the liabilities, relating to the arrangement. Each party recognizes its assets, liabilities, revenue and cost and its share of any asset or liability jointly held and on any revenue or cost arisen from the joint operation.

In the Group, joint operations mainly relate to consortiums (entities without legal personality) created exclusively for the development of a construction contract. Considering that the only objective of the consortium is to develop a specific construction contract, all costs and revenue are included within revenue from construction activities and cost of construction activities, respectively.

 

  e) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a holding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting (see section d above).

Profits and losses resulting from transactions between the Group and its associates are recognized in the Group’s financial statements only to the extent of unrelated investor’s interests in the associates. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates are changed where necessary to ensure consistency with the policies adopted by the Group.

Impairment losses are measured and recorded in accordance with section d) above.

 

2.3 Segment reporting

Operating segments are reported in a consistent manner with internal reporting provided to Management of the Group.

If an entity changes the structure of its internal organization in a manner that causes the composition of its reportable segments to change, the Group restates the information for earlier periods unless the information is not available.

 

2.4 Foreign currency translation

 

  a) Functional and presentation currency

The consolidated financial statements are presented in Peruvian Soles, which is the Company’s functional currency and the Group’s presentation currency. All subsidiaries, joint arrangements and associates use the Peruvian Sol as their functional currency, except for foreign entities, for which the functional currency is the currency of the country in which they operate.

 

  b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the date of the transactions or valuation when items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated income statement, except when deferred in other comprehensive income.

Exchange differences arising on loans from the Company to its subsidiaries in foreign currencies are recognized in the separate financial statements of the Parent and individual financial statements of the subsidiaries. In the consolidated financial statements, such exchange differences are recognized in other comprehensive income and are subsequently re-classified in the income statement on the disposal of the subsidiary or debt repayment, to the extent such loans qualify as part of the “net investment in a foreign operation”.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Foreign exchange gains and losses of all monetary items are included in the income statement within financial income or expense.

 

  c) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency of the Group are translated into the presentation currency as follows:

 

  i) Assets and liabilities for each statement of financial position presented are translated using the closing exchange rate prevailing at the date of the consolidated statement of financial position;

 

  ii) income and expenses for each income statement are translated at the average exchange rate (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated using the exchange rate on the date of the transaction);

 

  iii) capital is translated by using the historical exchange rate for each capital contribution made; and

 

  iv) all exchange differences are recognized as separate components in other comprehensive income (loss), within foreign currency translations adjustment.

Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rate. Exchange differences are recognized in other comprehensive income.

 

2.5 Public services concession agreements

Concession agreements signed between the Group and the Peruvian Government entitle the Group, as a Concessionaire, to assume obligations for the construction or improvement of infrastructure and which qualify as public service concessions are accounted as defined by IFRIC 12, “Service Concession Arrangements”. The consideration to be received from the Government for the services of constructing or improving public infrastructure is recognized as a financial asset or as an intangible asset (bifurcated model), as set forth below.

 

  The Group manages three types of concessions, for which accounting treatment is as follows:

 

  a) Recognizes a financial asset to the extent that it has a contractual right to receive cash or other financial assets either because the Government secures the payment of specified or determinable amounts or because the Government will cover any difference arising from the amounts actually received from public service users in relation with the specified or determinable amounts. These financial assets are recognized initially at fair value and subsequently at amortized cost (the financial model).

 

  b) Recognizes an intangible asset to the extent that the service agreement grants the Group a contractual right to charge users of the public service. The resulting intangible asset is measured at cost and is amortized as described in Note 2.15 (intangible asset model).

 

  c) Recognizes a financial asset and an intangible asset when the Group recovers its investment partially by a financial asset and partially by an intangible asset (the bifurcated model).

 

2.6 Cash and cash equivalents

In the consolidated statements of financial position and cash flows, cash and cash equivalents include cash on hand, on-demand bank deposits, other highly liquid investments with original maturities of three months or less and bank overdrafts. In the consolidated statement of financial position, bank overdrafts are included in the balance of financial obligations as current liabilities.

 

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2.7 Financial assets

 

2.7.1 Classification

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, financial assets held-to-maturity, loans and account receivables and financial assets available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

As of the date of the consolidated financial statements, the Group has classified its financial assets in the following three categories:

 

  a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are non-derivatives that are designated by the Group as at fair value upon initial recognition and are held-for-trading. They are included in current assets in the consolidated statement of financial position. The derivative financial instruments policy is included at Note 2.9.

 

  b) Loans and accounts receivable

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those whose maturity is greater than twelve months after the date of the consolidated financial statements. These are classified as non-current assets on the consolidated financial position. The Group’s loans and receivables comprise “trade accounts receivables”, “accounts receivable from related parties”, “other accounts receivable”, “unbilled work in progress” and “cash and cash equivalents”.

 

  c) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets as “Other Financial Assets” unless Management intends to dispose them within 12 months of the date of the statement of financial position.

 

2.7.2 Recognition and measurement

Regular purchases and sales of financial assets are recognized on the trade-date, the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in profit or loss within “Other income and expenses, net” in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the income statement as part of “Other income and expenses, net” when the Group’s right to receive payments is established.

 

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Changes in the fair value of monetary securities classified as available for sale are recognized in other comprehensive income. When a financial asset classified as available for sale is sold or impaired, the accumulated fair value adjustments recognized in equity are reclassified to profit or loss. Dividends on available-for-sale equity instruments are recognized in the income statement as part of “Other income and expenses, net” when the Group’s right to receive payments is established.

 

2.8 Impairment of financial assets

 

  a) Assets carried at amortized cost

At the end of each reporting period the Group assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. If a financial asset or a group of financial assets is impaired, the impairment losses are recognized only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

For the loans and receivables category, the amount of any loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the statement of comprehensive income. If a loan or an account receivable has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

 

  b) Assets classified as available-for-sale -

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets classified as available-for-sale is impaired.

For equity investments, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss—measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss—is removed from equity and recognized in profit or loss. Impairment losses recognized in the income statement on equity instruments are not reversed through the income statement.

 

2.9 Derivative financial instruments and hedging activities

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value at the end of each reporting period. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

The Group designates certain derivatives as hedges of a particular risk associated with a recognized asset or liability (fair value hedge) or a highly probable forecast transaction (cash flow hedge). Derivatives are initially recognized at fair value on the date of subscription of the contract and are subsequently recognized at their fair value. The method to recognize the gain or loss resulting from changes in the fair values of the derivatives depends on the nature of the item being covered.

The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

 

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The fair values of various derivative instruments used for hedging purposes and changes in the account reserves for hedging in equity are disclosed in Note 8. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity period of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity period of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as fair value hedges is recognized as other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the income statement.

Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecasted sale that is hedged takes place).

The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognized in the income statement as “Financial income or Financial expenses”.

However, when the forecasted transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets), the gains or losses previously deferred in equity are transferred from equity and are included in the initial measurement of the cost of the non-financial asset. The deferred amounts are ultimately recognized in cost of goods sold in the case of inventory or in depreciation in the case of fixed assets.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecasted transaction is ultimately recognized in the income statement. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within “other income and expenses, net”.

 

2.10 Trade receivables

Trade receivables are amounts due from customers for goods or services sold by the Company’s subsidiaries. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less any provision for impairment, except for receivables of less than one year that are stated at nominal amount which is similar to their fair values since they are short term.

 

2.11 Unbilled work in progress

Unbilled work in progress comprises the estimation made by the Management of the Engineering and Construction segment related to the unbilled rights receivable for services rendered and not yet approved by the client (valuation based on the percentage of completion).

It also includes the balance of work in progress costs incurred that relates to future activities of the construction contracts and the constructions phase in concessions (see Note 2.25 for detail on Revenue from construction and concession activities).

Changes in estimates of contract revenues and costs can increase or decrease the estimated margin. When a change in the estimate is known, the cumulative impact of the change is recorded in the period in which it is known based on the progress made.

 

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2.12 Inventories

Inventory mainly includes land, work in progress and finished properties which are assigned to the real- estate activity. Land intended to carry out real estate projects is recognized at acquisition cost. Work in progress and finished properties comprise design costs, material, labor costs, financial costs (directly attributable to the acquisition, construction and production of qualified assets), other indirect costs and general expenses related to the construction.

Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. The Company reviews annually whether inventories have been impaired identifying three groups of inventories to measure their net realizable value: i) the first group consists of land bought for future real estate projects which are compared to their net appraisal value; if the acquisition value is higher, a provision of impairment is made; ii) the second group consists of land under construction, impairment is measured based on cost projections; if these costs are higher than selling prices of each real estate unit, a provision is made for impairment; and iii) the third group comprises completed real estate units; these inventory items are compared to the selling prices less selling expenses; if these selling expenses are higher, a provision for impairment is made. For the reductions in the carrying amount of these inventories to their net realizable value, a provision is made for impairment of inventories with a charge to profit or loss for the year in which those reductions occur.

It also includes material used in the construction activity. Goods and supplies correspond to goods that the Group trades as part of its IT segment. Materials and supplies used in construction activities and IT equipment are determined under the weighted average cost method. Materials and other supplies are not written down below cost if the finished products in which they will be incorporated are expected to generate margin.

 

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2.13 Investment properties

Investment properties are shown at cost less accumulated depreciation and impairment losses, if any. Subsequent costs attributable to investment properties are capitalized only if it is probable that future economic benefits will flow to the Company and the cost of these assets can be measured reliably; if not, they are recognized as expenses when incurred.

Repair and maintenance expenses are recognized in profit and loss when they are incurred. If the property’s carrying amount is greater than its estimated recoverable amount, an adjustment to reduce the carrying amount to the recoverable amount is recognized.

Depreciation is determined at rates calculated to write off cost, less estimated residual value, of each asset on a straight line basis over its estimated useful life. The estimated useful lives of those properties range from 5 to 33 years.

The investment property held by the Group consists of two Shopping Centers owned by subsidiary Viva GyM S.A. Fair value is estimated to be US$29.5 million, equivalent to S/99 million, at December 31, 2016 (US$16.7 million, equivalent to S/58 million, at December 31, 2015). The sales stores of these properties have been leased as an operating lease with third parties.

 

2.14 Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of these items.

Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Repairs and maintenance expense are charged to the income statement during the financial period in which they are incurred.

Assets under construction are capitalized as a separate component. At their completion, the cost of such assets is transferred to their definitive category.

Replacement units are major spare parts in which depreciation starts when the units are installed for use within the related asset.

Depreciation of machinery and equipment and vehicles recognized as “Major equipment” are depreciated based on their hours of use. Under this method, the total number of work hours that machinery and equipment is capable to produce is estimated and a charge per hour is determined. The depreciation of other assets that do not qualify as “Major equipment” is calculated under the straight-line method to allocate their cost less their residual values over their estimated useful lives, as follows:

 

     Years  

Buildings and facilities

     Between 3 and 50  

Machinery and equipment

     Between 4 and 10  

Vehicles

     Between 2 and 10  

Furniture and fixtures

     Between 2 and 10  

Other equipment

     Between 2 and 10  

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Residual values and useful lives are reviewed and adjusted as appropriate at each date of the statement of financial position. Gains and losses on disposals are recognized in “Other income and expenses, net” in the income statement. Regarding joint operations that carry out construction activities, the difference between the proceeds from disposals of fixed assets and their carrying amount is shown within “revenue from construction activities” and “cost of construction activities”, respectively.

 

2.15 Intangible assets

 

  i) Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the purchase consideration, the amount of any non-controlling interest and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired. If the total of consideration transferred, non-controlling interest recognized and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is recognized directly in the income statement.

Goodwill acquired in a business combination is allocated to each cash-generating units (CGU), or group of CGUs, that is expected to benefit from the synergies of the combination. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are performed at least annually and when events or changes in circumstances indicate a potential impairment. Any impairment is recognized immediately as an expense in item “Other income and expenses, net” and cannot be reversed later.

 

  ii) Trademarks

Trademarks acquired separately are shown at historical cost. Trademarks acquired in a business combination are recognized at fair value at the acquisition date. Management has determined that these trademarks have indefinite useful lives. These trademarks have a long trajectory (between 24 and 39 years) in each market and the Group is committed to continue investing in the long-term to extend the period over which they are expected to continue to provide economic benefits.

Trademark impairment reviews are performed at least annually and when events or changes in circumstances indicate a potential impairment. Any impairment is recognized immediately as an expense in item “Other income and expenses, net” and cannot be reversed later.

 

  iii) Concession rights

The intangible asset consisting of the right to charge users for the services related to service concessions agreements (Note 2.5 and Note 6.b) is initially recorded at the fair value of construction or improvement services. Before amortization is started, an impairment test is performed; it is amortized under the straight-line method, from the date revenue starts using the lower of its estimated expected useful life or effective period of the concession agreement.

 

  iv) Contractual relationships with customers

Contractual relationships with customers are assets resulting from business combinations that were initially recognized at fair value as determined based on the expected cash flows from those relations over an estimated period of time based on the time period those customers will remain as customers of the Group (the estimation of useful life is based on the contract terms which fluctuate between 5 and 9 years). The useful life and the impairment of these assets are individually assessed.

 

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  v) Cost of developing wells

Costs incurred in preparing wells to extract hydrocarbons in Blocks I, III, IV and V, located in Talara, are capitalized as part of intangible assets. These costs are amortized over the useful lives of the wells (10 years for Blocks III, IV and V and 9 years for Block I), when is less than the period of the service agreement signed with Perupetro.

 

  vi) Internally generated software and development costs

Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the following criteria are met:

 

    It is technically feasible to complete the software product so that it will be available for use;

 

    management intends to complete the software product and use or sell it;

 

    there is an ability to use or sell the software product;

 

    it can be demonstrated how the software product will probably generate future economic benefits;

 

    technical, financial and other resources are available to complete the development and to use or sell the software product; and

 

    software expense during its development can be reliably measured.

Other development expenditures that do not meet these criteria are expensed as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Computer software development costs recognized as assets are amortized over their estimated useful lives, which fluctuate between 2 to 8 years.

 

  vii) Rights of use of land

Refers rights maintained by the Promotora Larcomar subsidiary S.A. Rights of use of land are stated at historical cost less amortization and any accumulated impairment losses. The useful life of this asset is based on the agreement signed (60 years) and the effective period may be extended if agreed to the parties. Amortization will begin when it becomes ready for its intended use by Management.

 

2.16 Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortization and are subject to review annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.

 

2.17 Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Accounts payable are initially recognized at their fair value and subsequently are amortized at amortized cost using the effective interest method, except for accounts payable less than one year that are recorded at their nominal value that is similar to their fair value due to its expiration in the short term.

 

2.18 Other financial liabilities

Correspond to loans and bonds issued by the Group, which are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the cash received (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method.

 

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Fees paid for entering into loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs.

 

2.19 Borrowing costs

Borrowing costs are recognized in the income statement in the period in which they are incurred except for intangible assets and inventories (Note 18 and 15) in which the Group proceeds to capitalize borrowing costs.

General and specific borrowing costs directly attributable to acquisitions, construction or development of qualifying assets, which are assets that necessarily take a substantial period of time (over 12 months) to get ready for their intended use or sale, are added to the cost of those assets, until assets are substantially ready for their intended use or sale. The Company suspends capitalization of a qualifying asset during periods in which qualify asset development is interrupted .Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

 

2.20 Current and deferred income tax

Income tax expense comprises current and deferred tax. Tax expense is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or equity, in which case, it is recognized in the statement of comprehensive income or directly in equity, respectively.

The current income tax is calculated on the basis of the tax laws enacted or substantively enacted at the date of the statement of financial position in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Management, where appropriate, establishes provisions on the basis of amounts expected to be paid to the tax authorities.

Deferred tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority.

 

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2.21 Employee benefits

 

  a) Profit sharing

Peruvian entities of the Group recognize a liability and an expense for statutory workers’ profit sharing under laws and regulations currently in force. Workers’ profit sharing is equivalent to 5% or 8% of the taxable income determined separately by each of the Group’s Peruvian entities, according to the income tax currently in force. The branch based in the Dominican Republic has a similar profit sharing scheme, with a rate of 10% on the taxable income. For Chile, workers’ profit sharing is a component of remuneration (equivalent to 4.75 minimum salary per year) rather than a percentage based on profits. In Colombia and Guyana no such benefits are paid to workers. In Bolivia workers’ profit sharing is equivalent to a one-month salary and the total amount distributed cannot exceed 25% of company’s profits determined under local regulations.

 

  b) Statutory bonuses

Entities of the Group recognize the expense and the related liability for statutory bonuses based on applicable laws and regulations effective in Peru, Chile, Bolivia, Guyana and Colombia.

 

  c) Severance Compensation

Employees’ severance payments for time of service of the Peruvian Group staff comprise their indemnification rights, calculated in accordance with the regulations in force, which have to be deposited on bank accounts designated by workers in May and November each year. The compensation for time of service amounts to one-month’s salary effective at the date of bank deposits. There is no such benefit in Chile and Guyana. The Group does not have any additional payment obligation once the annual deposits are made of the amounts to which workers are entitled.

 

  d) Vacation leave

Annual vacation leave is recognized on an accrual basis. Provision for the estimated obligations of annual vacations is recognized at the date of the statement of financial position and it corresponds to one month for Peruvian employees and fifteen days for Dominican and Colombian employees per year. In Bolivia and Chile vacation leave depends on seniority of a worker and ranges from fifteen to thirty days.

 

  e) Pension plans

The subsidiary CAM has in place a pension plan scheme with its workers. These commitments comprise both defined benefit and defined contribution plans. A defined benefit plan defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognized in the statement of financial position with respect to the defined benefit pension plan is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used.

Re-measurements arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.

 

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  f) Restructuring Cost

Group companies recognize the liability and the expense for employees’ severance indemnities when they are incurred. Under Peruvian laws, in the event of an arbitrary termination of a worker, the related indemnities equal an additional one-month salary and a half per each year actually worked by the terminated worker.

Under Colombian laws, this type of indemnities is determined based on the salary. Under Chilean laws, termination indemnities equal an additional 30-day salary per each year actually worked up to a maximum 330 days.

 

2.22 Other provisions

 

  a) General

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 will be required to settle the obligation; and the amount has been reliably estimated. Provisions are reviewed at year - end. If the time value of money is significant, provisions are discounted using a pre-tax rate that reflects, when applicable, the specific risks related to the liability. Reversal of the discount due to the passage of time results in the obligation being recognized with a charge to the income statement as a financial expense. Provisions are not recognized for future operating losses.

Contingent obligations are disclosed for possible obligations that are not yet determined to be probable. Contingent assets are not recognized and only disclosed if it is probable that future economic benefits will flow to the Company.

b) Provision for the closure of production wells -

The subsidiary GMP recognizes a provision for the closure of operating units that correspond to the legal obligation to close oil production wells once the production phase has been completed. At the initial date of recognition, the liability that arises from said obligation is measured at the amount of expected cash flow discounted to present value, the same amount is simultaneously charged to the intangible account in the statement of financial position. Subsequently, the liability will increase in each period to reflect the financial cost considered in the initial measurement of the discount, and the capitalized cost is depreciated based on the useful life of the related asset. When a liability is settled, the Group’s entities will recognize any gain or loss that may arise. The fair value changes estimated for the initial obligation and interest rates are recognized as an increase or decrease of the carrying amount of the obligation and related asset, any decrease in the provision, and any decrease of the asset that may exceed the carrying amount of said asset is immediately recognized in the income statement.

If the review of the estimated obligation results in the need to increase the provision and, accordingly, increase the carrying amount of the asset, the Group’s entities will also take into consideration if said increase corresponds to an indicator that the asset has been impaired and, if so, impairment tests are carried out (Note 2.16).

 

2.23 Put option arrangement

The Group has written put options over the equity of its subsidiary Morelco SAS (Note 33 b) which permit the holder to put their shares of the subsidiary back to the Group over a 10 -year period. The amount that may become payable under the option upon exercise is initially recognized at the present value of the redemption amount within other accounts payable with a corresponding charge directly to equity. The charge to equity is recognized separately as written put options over non-controlling interests, adjacent to non-controlling interest in the net assets of the consolidated subsidiaries.

 

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Subsequently, the financial liability is updated for changes in the assumptions on which the estimated expected cash outflows were based and a financial component for the passage of time. The effects of this update are recognized in the income statement as Other income/expense. In the event that the option expires unexercised, the liability is derecognized with a corresponding adjustment to equity.

 

2.24 Capital

Common shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity, as a deduction, net of taxes, of the proceeds.

Where any Group company purchases the Company’s equity shares (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects is included in equity attributable to the Group’s equity holders.

 

2.25 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. The Group recognizes revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities.

The Group’s revenue recognition policy is described as follows:

 

  i) Revenue from construction activities

Revenues from construction contracts are recognized using the percentage-of-completion method which is based on the completion of a physical proportion of the overall work contract considering total costs and revenues estimated at the end of the project, in accordance with IAS 11, Construction Contracts. Under this method revenues are determined based on the proportion of actual physical completion compared to the total contracted physical construction commitment.

When it is probable that the total costs of the contract will be above the related revenue, the expected loss will be immediately expensed.

When the outcome of a construction contract cannot be estimated reliably, the associated revenue is recognized to the extent costs incurred are recoverable. Revenue is billed once approval is received by the owners of the work in progress.

In the statement of financial position, the Company shows the net position of each contract as an asset or a liability. A contract is considered an asset when the costs incurred plus recognized earnings less the sum of all the recognized losses and assessments exceed work in progress billings; this asset is shown in the statement of financial position as “Unbilled work in progress”; otherwise they are presented as a liability within “Trade accounts payables”.

A change order is an instruction by the customer for a change in the scope of the work to be performed under the contract that may lead to an increase or a decrease in contract revenue. A variation is included in contract revenue when it is probable that the customer will approve the variation and the amount of revenue arising from the variation; and the amount of revenue can be reliably measured.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

A claim is an amount that the Group seeks to collect from the customer or third party as reimbursement for costs not included in the contract price. Claims are included in contract revenue only when negotiations have reached an advanced stage such that it is probable that the customer will accept the claim; and the amount that it is probable will be accepted by the customer can be measured reliably.

 

  ii) Revenue from engineering, advisory, consulting services and other services

Revenues from service contracts are recognized in the accounting period in which they are performed using the percentage of completion method, calculated based on the percentage of costs incurred. Additionally, there are contracts whereby income is recognized as it is earned, regardless of when the related fees are received.

 

  iii) Sales of real-estate properties

Revenue from sales of real estate properties is recognized in the results of the period when sales occur, that is, when the properties are delivered and the risks and rewards inherent to ownership are transferred to the buyer and the collection of the corresponding receivables is reasonably assured.

 

  iv) Revenue from IT services

The sale of computer equipment includes some services to be provided in a subsequent date to the asset sale as installation and maintenance. When sales agreements include multiple elements, the amount of the revenue is attributed to each element based on their related fair values. The fair value of each element is determined based on the market price prevailing for each element when sold separately. Revenue derived from computer equipment is recognized when the related risks and rewards are transferred to the customer, which occurs upon delivery. Revenue relating to each service element is recognized using the straight line method.

 

  v) Interest income

Interest income is recognized on a time-proportion basis, using the effective interest method.

 

  vi) Revenue for concession services

Revenue from concession services is recognized according to its nature. Construction and restoration activities are accounted for applying the percentage-of-completion method as described above and operation and maintenance services in the accounting period when they are provided (see Note 2.5).

 

2.26 Construction contract costs

Contract costs include all direct costs such as materials, labor, subcontracting costs, manufacturing and supply costs of equipment, start-up costs and indirect costs. Periodically, the Company evaluates the reasonableness of the estimates used in the determination of the percentage-of-completion. If, as a result of this evaluation, there are modifications to the revenue or cost previously estimated, or if the total estimated cost of the project exceeds expected revenues, an adjustment is made in order to reflect the effect in results of the period in which the adjustment or loss is incurred.

When the outcome of a construction work cannot be estimated reliably, the revenue of the contract is recognized only up to the amount of the contractual costs incurred and that are likely to be recovered.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

2.27 Leases

 

  a) The Group as a lessee

Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases, including prepayments (net of any incentives received from lessor) are charged to the consolidated income statement under the straight-line method over the lease term. The Group’s major kinds of operating leases are leases of machinery, computer equipment, printing equipment, among others.

Finance leases

Leases in which the Group assumes substantially all the risks and rewards of ownership of an asset are classified as finance leases. Each lease payment is allocated between the liability and finance charges so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The corresponding rental obligations, net of finance charges, are included in other payables, short- and long-term in the consolidated statement of financial position.

The interest element of the finance cost is charged to the consolidated statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the useful life of the asset or the lease term.

 

  b) Group as a lessor

The Group only has operating leases and the leased assets are stated in the statement of financial position based on the nature of the asset. Revenue from operating leases are recognized under the straight-line method over the lease term and the incentives given to lessees reduce the revenue obtained from leases.

 

2.28 Dividend distribution

Dividend distribution to the Company’s shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders.

 

2.29 Significant non-operating items

Significant non-operating items are separately shown in the financial statements when they are necessary to provide a more adequate understanding of the Group’s financial performance. These material items are income or expenses shown separately due to their nature or significant amount.

 

2.30 Restatement of Consolidated Financial Statements

Company Management identified the need to make adjustments to the consolidated financial statements for the year 2015, so proceed to correct and restructure the financial statements as of December 31, 2015 in the items detailed below:

 

           2015     Adjustment     2015  
                      

Restated

See Note 2.30

 

Asset Restated

        

Trade accounts receivables, net

     (1     1,050,791       (8,336     1,042,455  

Unbilled work in progress, net

     (1     1,319,187       (40,960     1,278,227  

Other accounts receivable

     (1     824,589       (3,872     820,717  

Investments in associates and joint ventures

       646,884       (9,879     637,005  

Intangible assets, net

       881,020       (2,734     878,286  

Deferred income tax asset

     (3     173,851       (26,006     147,845  

Liability Restated

        

Provisions

       35,618       11,842       47,460  

Deferred income tax liability

     (3     101,664       (2,501     99,163  

Other liabilities

       5,671,484       4       5,671,488  

Equity Control Entity

        

Translation Adjustment

     (2     (129,059     (14,725     (143,784

Profit (loss) for the period

       88,153       (81,057     7,096  

Minority Interest

       528,489       (5,350     523,138  

Gross profit

     (1     702,805       (52,831     649,974  

Other expenses / other income, net

       (364,382     (5     (364,387

Financial expenses/income

       (138,695     —         (138,695

Share of the profit or loss in associates and joint ventures under the equity method accounting

       17,603       (9,879     7,724  

Income Tax

     (3     (75,619     (23,408     (99,027
    

 

 

   

 

 

   

 

 

 

Profit (Loss) for the period

       141,712       (86,123     55,589  
    

 

 

   

 

 

   

 

 

 

Profit (Loss) attributable to:

        

Equity holders of the Company

       88,154       (81,057     7,097  

Non-controlling interest

       53,558       (5,066     48,492  
    

 

 

   

 

 

   

 

 

 
       141,712       (86,123     55,589  
    

 

 

   

 

 

   

 

 

 

 

  (1) The Company performed a review of the estimates made of the work in progress, as well as impairments to the accounts receivable, determining the need to make adjustments to the account balances.
  (2) The Goodwill of Morelco S.A. during 2015 was recorded using the group the functional currency (soles). In the review conducted in 2016, it was identified that the registration should be made in the currency of the subsidiary, generating a conversion adjustment.
  (3) Likewise, a review of deferred tax assets was conducted, determining the need to record adjustments in accordance with the adjustments described above.

As a result of the recording of these adjustments in the consolidated financial statements as of December 31, 2015, the Company’s equity decreased by approximately S / 86 million.

 

3 ADOPTION OF NEW INTERNATIONAL FINANCIAL INFORMATION REGULATIONS (IFRS), AMENDMENTS AND INTERPRETATIONS

 

3.1. Standards, amendments and interpretations adopted by the Group

The Company has adopted as of January 1, 2016 the following amendments to the IFRSs and amendments to IFRSs considered for the first time in the preparation of the financial statements:

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

    Annual improvements to IFRS, 2012-2014 cycles, which has required additional minor disclosures.

 

    Acquisition of interest in an entity, amendment to IFRS 11 ‘Joint Arrangements’, this amendment clarifies that a joint operator that acquires an asset or group of assets in a joint operation that represents a business in accordance with IFRS 3, applies the principles of IFRS 3 when accounting for the business combinations of the acquisition. This will result in a separate recognition of goodwill, if any arise in the acquisition. If the asset or group of assets acquired does not constitute a business, the principles of IFRS 3 do not apply.

 

    The amendment also clarifies that a joint operator that increases its interest in an existing joint operation in which the operator retains joint control does not again measure the interest previously held in the joint operation

 

    Amendments to the disclosure initiatives, IAS 1 ‘Presentation of the financial statements’. The amendments intend to clarify a series of disclosure requirements that cover:

 

    The disclosure of significant accounting policies;

 

    The application of materiality to the financial statements;

 

    Presentation of subtotals;

 

    Information to be presented in the other comprehensive income section of the performance statement; and

 

    The structure of financial statements.

The adoption of these changes did not have a material impact on the current year or prior years’ balances and they are not likely to affect future periods; however, the Group will give continuous consideration to the areas addressed in the amendments to help clear and concise information.

 

3.2. New standards, amendments and interpretations effective for financial statements of annual periods beginning on or after January 1, 2017 which have not been early adopted

 

    Amendments to IAS 7 “Statement of cash flows” requires the Group to include an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities.

 

    Amendments to IAS 12 “Income taxes” clarifies i) the requirements for recognizing deferred tax assets on unrealized losses ii) the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base and iii) certain other aspects of accounting for deferred tax assets. These amendments are effective for annual financial periods beginning on or after January 1, 2017 and early application is permitted. The Group does not expect these amendments may have a significant impact on its financial statements.

 

    IFRS 9, “Financial instruments”, addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the guidance in IAS 39 on the classification and measurement of financial instruments.

The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Group does not expect that the changes in IFRS 9 may have a material impact on its criteria of classification and measurement of financial assets and liabilities.

 

    IFRS 15, “Revenue from contracts with customers”, it replaces IAS 18 “Revenue” and IAS 11 “Construction contracts” and the related interpretations.

The new standard is based on the principle that income is recognized when the control of a good or service is transferred to a customer, in such a way that the notion of control replaces the existing notion of risks and benefits. The new standard establishes a new five-step process that guides the revenue recognition, these are: (i) identify contracts with customers, (ii) identify the performance obligation, (iii) determine the transaction price of the contract, (iv) allocate the transaction price to each of the performance obligations; and, (v) recognize the income as each performance obligation is satisfied

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

The application of IFRS 15 may have flow-on effects on the entity’s business practices regarding systems, processes and controls, compensation and bonus plans, contracts, tax planning and investor communication.

The standard is effective for annual periods beginning on or after January 1, 2018 and early application is permitted.

The Group is in the process of estimating the effects of the application of IFRS 15; its assessment is being conducted by operating segment: engineering and construction, infrastructure, real estate, technical services and parent company operation. At December 31, 2016, the Group has conducted qualitative assessment to identify impacts.

The Group estimates that the current procedure of revenue recognition defined according to its types of ordinary activities will not be materially different from the current definition of the standard that is based on compliance with performance obligations, whether for a period or a point in time.

The Group is in the process of evaluating the methodology to be used for the transition of IFRS 15. At this point, despite the qualitative evaluation, the Group cannot reasonably estimate the quantitative impacts that this standard would have on the financial statements.

 

    IFRS 16 “Leases”, this standard replaces the current rules relating to the treatment of leases IAS 17 “Leases” and IFRIC 4 “Contracts may contain a lease” and other related interpretations.

IFRS 16 is effective for financial periods beginning on or after January 1, 2019; early application if permitted provided IFRS 15 is also early adopted. The Group is presently evaluating the impact of these standard on the preparation of its consolidated financial statements.

 

    IFRIC 22, “Foreign currency transactions and advance consideration”, the new interpretation clarifies which date should be used for translation when a foreign currency transaction involves an advance payment/receipt.

This interpretation will impact all entities that enter into foreign currency transactions for which consideration is paid or received in advance.

This interpretation is effective for financial periods beginning on or after January 1, 2018; early application is permitted. The Group is evaluating whether the changes introduced in IFRIC 22 may have a material impact on the qualifying criteria of “date of transaction” at their engineering and construction segment, which is the one with significant advances balances.

 

    IFRIC 23 “Uncertainty over income tax treatments”, it clarifies how the recognition and measurement requirements of IAS 12 ‘Income taxes’, are applied on the recognition and measurement of a tax liability or asset in circumstances where there is uncertainty in the application of the tax law in concern.

The Group is required to consider whether it is probable that a taxation authority will accept an uncertain tax treatment. If an entity concludes that it is not probable that the treatment will be accepted, it should reflect the effect of the uncertainty in its income tax accounting in the period in which that determination is made.

This IFRIC is effective for financial periods beginning on or after January 1, 2019 and early application is permitted. The Group is evaluating the impact of this standard on its financial statements.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

No other IFRS or IFRIC interpretations not yet effective are expected to have a material impact on the Group’s financial statements.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

4 FINANCIAL RISK MANAGEMENT

Financial risk management is carried out by the Group’s Management. Management oversees the general management of risks in specific areas, such as foreign exchange rate risk, price risk, cash flow and fair value interest rate risk, credit risk, the use of derivative and non-derivative financial instruments and the investment of excess liquidity as well as financial risks, and carries out periodic supervision and monitoring.

 

4.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk.

The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures in one of its subsidiaries and considers the use of other derivatives in the event that it identifies risks that may generate an adverse effect for the Group in the short and medium-term.

 

  a) Market risks

 

  i) Foreign exchange risk

The Group is exposed to exchange rate risk as a result of the transactions carried out locally in foreign currency and due to its operations abroad. As of December 31, 2016 and 2015, this exposure is mainly concentrated in fluctuations of U.S. dollar, the Chilean and Colombian Pesos. The foreign exchange risk of the investments in Bolivia and Panama are not significant due to the volume of operations.

At December 31, 2016, the consolidated statement of financial position includes assets and liabilities in foreign currency (mainly in U.S. dollars) equivalent to S/2,770.9 million and S/2,708.3 million, respectively (S/1,659 million and S/2,404 million, respectively, at December 31, 2015) equivalents to US$826.6 million and US$806 million, respectively (US$486.7 million and US$704.5 million, respectively at December 31, 2015).

During 2016, the Peruvian Sol, the Chilean and Colombian Pesos were exposed against the U.S. dollar. The Group’s exchange gains and losses for 2016 amounted to S/761.8 million and S/774.3 million, respectively (S/427.2 million and S/510.1 million, respectively, in 2015 and S/357.3 million and S/401.6 million, respectively in 2014).

If at December 31, 2016 the Peruvian Sol and the Chilean and Colombian Pesos had strengthened/weakened by 2% against the U.S. dollar, with all other variables held constant, the pre-tax profit for the year would have increased/decreased by S/0.3 million (S/1.7 million in 2015 and S/0.9 million in 2014).

At December 31, 2016 the consolidated statement of changes in equity comprises a foreign currency translation adjustment originated by its subsidiaries. Their financial position includes assets and liabilities in functional currency equivalent to CLP$75,561.3 million and CLP$87,221.1 million, respectively (CLP$85,238 million and CLP$80,378 million, respectively at December 2015), COP$169,774.8 million and COP$166,091.8 million, respectively (COP$265,370 million and COP$309,446, respectively at December 2015).

The Group’s foreign exchange translation adjustment for 2016 amounted to S/0.6 million (expenses for S/44.6 million in 2015 and S/20.5 million in 2014).

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

  ii) Price risk

Management considers that the exposure of the Group to the price risk of its investments in mutual funds, bonds and equity securities is low, since the invested amounts are not significant. Any fluctuation in their fair value will not have any significant impact on the balances reported in the consolidated financial statements.

 

  iii) Cash flow and fair value interest rate risk

The Group’s interest rate risk mainly arises from its long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain most of its borrowings at fixed rate instruments; 52.8% of total debt in 2016 (72.7% in 2015) was contracted at fixed rates and 47.2% at variable rates (27.3% in 2015) which consisted of a 18.0% fixed rate plus VAC (adjusted for inflation) and the remaining 29.2% at a variable rate (23.6% fixed rate + VAC and the remaining 3.7% at a variable rate in 2015).

The debt subject to fixed rate plus VAC is related to a bond issued in Peruvian soles to finance the GyM Ferrovías Project, Metro Line 1 (Note 20). Any increase in the interest rate resulting from higher inflation will have no significant impact on the Group’s profit because these revenues are also adjusted for inflation.

During 2016 and 2015 borrowings at variable rates are denominated in Peruvian Soles and U.S. dollars and the Group’s policy is to manage their cash flow risk by using interest-rate swaps, which are recognized under hedge accounting. However, regarding the variable rate loans related to GSP (Note 19-a), Management decided to assume the risk since it expects to pre-pay them before due. If at December 31, 2016, the libor rate plus 3 months had increased/ decreased by 5%, with all other variables held constant, the pre-tax profit for the year would have increased/ decreased by S/1.4 million (there was not a material effect on the Group’s results in 2015). There was no material ineffectiveness on cash flow hedges occurred in fiscal years 2016 and 2015.

 

  b) Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as customer credit counterparties, including the outstanding balance of accounts receivable and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted.

With respect to loans to related parties, the Group has measures in place to ensure the recovery of these loans through the controls maintained by the Corporate Finance Management and the performance evaluation conducted by the Board.

No credit limits were exceeded during the reporting period, and Management does not expect the Group to incur any losses from performance by these counterparties, except for the ones already recorded at the financial statements.

 

  c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate number of sources of committed credit facilities and the capacity to close out positions in the market. Historically, the Group cash flows enabled it to maintain sufficient cash to meet its obligations. However, as of December 31, 2016, the Group started to experienced liquidity risk due to the early termination of the GSP concession agreement and the obligations assumed (Note 16 a-i). As a consequence, the Group has started a disinvestment plan to be able to meet the obligations resulting from this scenario (Note 37).

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Group Corporate Finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn borrowing facilities (Note 19), so that the Group does not breach borrowing limits or covenants, where applicable, on any of its borrowing facilities. Less significant financing transactions are controlled by the Finance Management of each subsidiary.

Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal statement of financial position ratio targets and, if applicable, external regulatory or legal requirements; for example, foreign currency restrictions.

Surplus cash held by the operating entities over the balance required for working capital management are invested in interest-bearing checking accounts or time deposits, selecting instruments with appropriate maturities and sufficient liquidity.

The table below analyzes the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the date of the statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

 

     Less than 1
year
     From 1 to
2 years
     From 2 to
5 years
     Over
5 years
     Total  

At December 31, 2015

              

Other financial liabilities (except for finance leases)

     1,102,855        181,729        223,713        —          1,508,297  

Finance leases

     157,957        118,311        42,513        10,431        329,212  

Bonds

     69,823        82,916        217,418        1,445,187        1,815,344  

Trade accounts payables

     1,635,762        —          —          —          1,635,762  

Accounts payables to related parties

     77,832        19,728        —          408        97,968  

Other accounts payables

     181,113        36,456        121,678        —          339,247  

Other non-financial liabilities

     —          2,331        —          —          2,331  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     3,225,342        441,471        605,322        1,456,026        5,728,161  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2016

              

Other financial liabilities (except for finance leases)

     1,936,825        128,508        173,145        —          2,238,478  

Finance leases

     127,496        85,989        26,780        19,506        259,771  

Bonds

     113,299        180,431        365,697        1,334,485        1,993,912  

Trade accounts payables

     1,276,617        —          —          —          1,276,617  

Accounts payables to related parties

     80,217        28,082        37,238        —          145,537  

Other accounts payables

     303,827        49,064        143,655        —          496,546  

Other non-financial liabilities

     —          1,081        —          —          1,081  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     3,838,281        473,155        746,515        1,353,991        6,411,942  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

4.2 Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. As described at Note 1, in 2016 the current situation of the Company, has lead Management to monitor deviations that might cause the non-compliance of covenants and may hinder renegotiation of liabilities (Note19-a and Note 37-c).

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings), less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated statement of financial position plus net debt.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

As of December 31, 2016 and 2015, the gearing ratio is presented below indicating the Company’s strategy to keep it in a range from 0.10 to 0.70.

As of December 31, the gearing ratio was as follows:

 

     2015      2016  

Total financial liabilities

     2,575,447        3,348,152  

Less: Cash and cash equivalents

     (554,002      (606,950
  

 

 

    

 

 

 

Net debt

     2,021,445        2,741,202  

Total equity

     3,081,912        2,489,737  
  

 

 

    

 

 

 

Total capital

     5,103,357        5,230,939  
  

 

 

    

 

 

 

Gearing ratio

     0.40        0.52  
  

 

 

    

 

 

 

 

4.3 Fair value estimation

For the classification of the type of valuation used by the Group for its financial instruments at fair value, the following levels of measurement have been established.

 

•  

   Level 1:    Measurement based on quoted prices in active markets for identical assets or liabilities.

•  

   Level 2:    Measurement based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

•  

   Level 3:    Measurement based on inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs, generally based on internal estimates and assumptions of the Group).

The table below shows the Group’s assets and liabilities measured at fair value at December 31, 2015 and 2016:

 

     Level 1      Level 2      Level 3      Total  

At December 31, 2015

           

Financial assets

           

Financial assets at fair value through profit or loss

     10,104        —          —          10,104  

Available-for-sale financial assets: TGP S.A. investment (i)

     —          —          120,134        120,134  

Financial liabilities

           

Derivatives used for hedging

     —          2,331        —          2,331  

At December 31, 2016

           

Financial assets

           

Financial assets at fair value through profit or loss

     6,379        —          —          6,379  

Financial liabilities

           

Derivatives used for hedging

     —          1,081        —          1,081  

There were no transfers between levels 1 and 2 during the year.

Financial instruments in level 3

The fair value of the investment held in Transportadora de Gas del Perú S.A. (TGP) classified as available-for-sale financial asset was based on observable inputs in the market and unobservable inputs. The Group calculated its fair value based on its discounted cash flows as of the financial statement date. The information used to determine the fair value of this investment corresponds to Level 3 (Note 10).

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

The following table shows the changes in fair value by the investment held in TGP for the years ended on December 31:

 

     2014      2015      2016  

Opening balance

     88,333        93,144        120,134  

Unrealized gains (losses) recognized in the period

     4,811        26,990        (2,996

Derecognition of investment sold:

        

- Historical cost of investment

     —          —          (61,105

- Cumulative fair value

     —          —          (56,033
  

 

 

    

 

 

    

 

 

 

Final balance

     93,144        120,134        —    
  

 

 

    

 

 

    

 

 

 

The carrying amounts of cash and cash equivalents correspond to their fair values. The Company considers that the carrying amount of trade accounts receivable and payable is similar to their fair values since they are short term. The fair value for long-term receivables and liabilities is disclosed in Note 11, Note 12, Note 19-c, Note 20 and Note 22. The fair value of financial liabilities has been estimated by discounting the future contractual cash flows at the interest rate currently prevailing in the market and which is available to the Company for similar financial instruments (Level 2).

 

5 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments used are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

5.1 Critical accounting estimates and assumptions

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

 

  a) Estimated impairment of goodwill and other intangible assets with indefinite useful life

Impairment reviews are undertaken annually to determine if goodwill arising from business acquisitions and other intangible assets with indefinite useful life are impaired, in accordance with the policy described in Note 2.15-i). For this purpose, goodwill is allocated to the different CGUs to which it relates while other intangible assets with indefinite useful life are assessed individually. The recoverable amounts of the CGUs and of other intangible assets with indefinite useful life have been determined based on the higher of their value-in-use and fair value less costs to sell. This evaluation requires the exercise of Management’s professional judgment to analyze any potential indicators of impairment as well as the use of estimates in determining the value in use, including preparing future cash flows, macro-economic forecasts as well as defining the interest rate at which said cash flows will be discounted.

If the Group experiences a significant drop in revenues or a drastic increase in costs or changes in other factors, the fair value of their business units might decrease. If management determines the factors that reduce the fair value of the business are permanent, those economic factors will be taken into consideration to determine the recoverable amount of those business units and therefore, goodwill as well as other intangible assets with indefinite useful life may be deemed to be impaired, which may cause their write-down to be required.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Based on the impairment tests performed by Group Management, no goodwill nor intangible (trademarks) impairment losses were required to be recognized because the recoverable amount of the CGUs subject to testing was substantially higher than their related carrying amounts.

The most significant assumptions used in impairment testing are gross margin, discount rate, terminal growth rate and revenue growth rate which are included in Note 18.

At December 31, 2015 and 2016 the Group has performed a sensitivity analysis increasing or decreasing the assumptions of gross margin, discount rate and revenue and terminal growth rate by a 10%, with all the other variables held constant, as follows:

 

     Difference between recoverable amount and carrying amounts  
     2015      2016  

Goodwill

                           

Gross margin:

     (10%)        +10%        (10%)        +10%  

Mining construction services

     68.69%        184.39%        19.18%        71.19%  

Engineering and construction

     (17.96%)        30.43%        (42.68%)        17.85%  

Electromechanical

     159.40%        240.58%        32.16%        74.41%  

IT equipment and services

     92.38%        98.22%        200.93%        289.04%  

Telecommunication services

     205.49%        619.81%        (110.85%)        176.40%  

Discount rate:

     (10%)        +10%        (10%)        +10%  

Mining construction services

     136.90%        116.77%        65.94%        28.99%  

Engineering and construction

     26.15%        (8.77%)        8.22%        (27.56%)  

Electromechanical

     234.27%        172.83%        74.42%        36.77%  

IT equipment and services

     132.94%        98.22%        285.63%        212.65%  

Telecommunication services

     468.23%        367.15%        70.31%        4.59%  

Terminal growth rate:

     (10%)        +10%        (10%)        +10%  

Mining construction services

     123.27%        129.95%        42.92%        47.55%  

Engineering and construction

     7.90%        13.02%        (16.49%)        (7.84%)  

Electromechanical

     196.39%        203.75%        51.14%        55.62%  

IT equipment and services

     —          —          243.21%        247.06%  

Telecommunication services

     —          —          26.14%        39.94%  

Trademarks

                           

Revenue growth rate:

     (10%)        +10%        (10%)        +10%  

Morelco

     46.23%        78.73%        22.37%        42.03%  

Vial y Vives - DSD

     32.87%        47.60%        17.01%        43.01%  

Adexus

     —          —          (8.18%)        9.91%  

Discount rate:

     (10%)        +10%        (10%)        +10%  

Morelco

     89.07%        42.12%        53.35%        15.66%  

Vial y Vives - DSD

     61.96%        23.43%        56.88%        10.88%  

Adexus

     —          —          15.42%        (10.59%)  

Terminal growth rate:

     (10%)        +10%        (10%)        +10%  

Morelco

     59.07%        66.12%        29.19%        34.94%  

Vial y Vives - DSD

     36.06%        44.28%        23.19%        37.83%  

Adexus

     —          —          (0.12%)        1.89%  

In 2016 if the gross margin, the discount rate or terminal growth rate had been 10% below or 10% above Management’s estimates, respectively, the Group would have recognized a provision for impairment of goodwill of the Engineering and Construction CGU and Telecommunication Services CGU (within the Engineering and Construction CGU in 2015).

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

In 2016 if the revenue growth rate or terminal growth rate had been 10% below Management’s estimates, or the discount rate had been 10% above Management’s estimates, the Group would have recognized a provision for impairment of their trademark Adexus.

At December 31, 2016, as a result of these evaluations, an impairment was identified and recorded in one of the CGU, Vial and Vives DSD (Note 18).

 

  b) Income taxes

Determination of the tax obligations and expenses requires interpretations of the applicable tax laws and regulations. The Company seeks legal and tax counsel before making any decision on tax matters. Although Management considers its estimates to be prudent and appropriate, differences of interpretation may arise with Tax Authorities (mainly Peruvian, Chilean and Colombian Authorities) which may require future tax adjustments.

Deferred tax assets and liabilities are calculated on the temporary differences arising between the tax basis of assets and liabilities and the amounts stated in the financial statement using the tax rates in effect in each of the years in which the difference is expected to reverse. Any change in tax rates will affect the deferred income tax assets and liabilities. This change will be recognized in the income statement in the period in which the change takes effect.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences and tax loss carryforwards can be utilized. For this purpose, the Group takes into consideration all available evidence, including factors such as historical data, projected income, current operations and tax planning strategies. A tax benefit related to a tax position is only recognized if it is more likely than not that the benefit will ultimately be realized.

The Group’s maximum exposure to tax contingencies amounts to S/11.3 million.

 

  c) Percentage of completion revenue recognition

Revenues from construction contracts are recognized using the percentage-of-completion method which is based on the completion of a physical proportion of the overall work contract considering total costs and revenues estimated at the end of the project (Note 2.25 i).

As of December 31, 2016, 2015 and 2014, a sensitivity analysis was performed considering a 10% increase/decrease in the Group’s gross margins, as follows:

 

     2014      2015      2016  

Sales

     4,749,159        5,501,537        3,945,599  

Gross profit

     412,771        159,158        194,378  

%

     8.69        2.89        4.93  

Plus 10%

     9.56        3.18        5.42  
  

 

 

    

 

 

    

 

 

 

Increase in pre-tax profit

     41,249        15,787        19,473  
  

 

 

    

 

 

    

 

 

 
     454,020        174,949        213,851  
  

 

 

    

 

 

    

 

 

 

Less 10%

     7.82        2.60        4.44  
  

 

 

    

 

 

    

 

 

 

Decrease in pre-tax profit

     (41,249      (15,787      (19,473
  

 

 

    

 

 

    

 

 

 
     371,522        143,371        174,905  
  

 

 

    

 

 

    

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

  d) Provision for well closure costs

At December 31, 2016 the present value of the estimated provision for closure of 144 wells located in Talara amounted to S/17.2 million (S/7.3 million as of December 31, 2015 for closure of 78 wells). The well closure liability is adjusted to reflect the changes that resulted from the passage of time and from reviews of either the date of occurrence or the amount of the present value of the originally estimated obligations (Note 18).

The Group estimates the present value of its future obligation for well closure costs, or well closure liability, and increases the carrying amount of the asset that will be withdrawn in the future and that is shown under the heading of intangibles in the statement of financial position.

The pre-tax discount rate used for the present value calculation was 1.93% for Blocks I and V, and 2.93% for Blocks III and IV, respectively, based on a 5 to 30-year rate used on U.S. bonds effective at December 31, 2016 (2.09% based on the 7-year bond rate at December 2015 for Blocks I and V).

If, at December 31, 2016 and 2015, the estimated rate had increased or decreased by 10%, with all variables held constant, the impact on pre-tax profit would have not been significant.

 

  e) Impairment of investment in Gasoducto Sur Peruano

Based on the termination of the concession agreement, on which Gasoducto Sur Peruano S.A. (GSP) acts as concessionaire (Note 16.a-i and Note 37), the Group identified potential impairment indicators affecting the recoverability of its investment. Consequently, the Group has applied the rules stated in IAS 36, ‘Impairment of assets” to determine the recoverable amount of this investment.

In that process, the Group has applied judgement to weight the various uncertainties surround the amount that can be recovered from this investment. Management has determined the recoverable amount assuming two key factors: (i) the amount that GSP will recover as a result of the public auction, and (ii) the validity of its right to subordinate the Odebrecht Group’s debts in GSP.

With relation to the amount to be recovered by GSP; the Group is assuming a recovery of the minimum amount established in the concession agreement, which is equivalent to 72.25% of the Net Carrying Amount (NCA) of the Concession assets. This amount, in substance, represents a minimum secured payment to be obtained by GSP based on a public auction (liquidation) to be set up for the adequate transfer of the Concession’s assets to a new Concessionaire within a year, under the relevant contractual terms and conditions.

With relation to the validity of its right to subordinate the Odebrecht Group’s liabilities in GSP, Management assessment, in consultation with its legal advisors, is that, although some uncertainties exist, these do not represent a material risk for exercising this right.

The concession agreement also established two additional tranches of 82.5% or 100% of the NCA to be recovered as a result of public auction, depending on several factors. In any of these scenarios, the Group would be able to recover their total investment and no additional impairment would be necessary to be recognized.

Depending on the date in which the NCA is actually cashed, the Group may need to take into account additional costs ranging from S/18.95 million (US$5.64 million) to S/42.2 million (US$12.56 million), due to higher financial expense.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

  f) Impairment of the investment in Consorcio Constructor Ductos del Sur (CCDS)

CCDS was mainly engaged in performing the engineering, procurement and construction work for GSP. Due to the early termination of GSP, the Group applied the rules stated in IAS 36 “Impairment of assets” and IAS 37 “Provisions” to determine the recoverable amounts of the assets and liabilities to be recorded, respectively. As a result, the following adjustments were included at the financial statements:

 

     S/  

Income for debt forgiveness (i)

     431,484  

Indemnification income

     33,600  

Unbilled work in progress impairment (ii)

     (410,199

Other provisions

     (24,915

Inventories impairment (iii)

     (33,824

Financial expenses

     (7,004

Property, plant and equipment impairment

     (4,143

Other’s (liability) asset, net

     (164
  

 

 

 
     ( 15,165
  

 

 

 

 

  (i) The extinguished trade accounts payable relates to the recognition of the construction project estimated margin recorded as a liability (Note 2.25.i)
  (ii) The recoverable of unbilled work in progress relates to the minimum secured payment to be obtained from GSP.
  (iii) Inventories were specialized assets that could not be sold in an active market.

In 2016, the net impact of the early termination of CCDS construction contract is a loss of S/15.2 million.

 

5.2 Critical judgments in applying the entity’s accounting policies

Consolidation of entities in which the Group holds less than 50%

The Company owns some direct and indirect subsidiaries of which the Group has control even though it has less than 50% of the voting rights. These subsidiaries mainly comprise indirect subsidiaries in the real-estate business owned through Viva GyM S.A., where even though the Group holds interest between 30% and 50%, has the power to affect the relevant activities that impact the subsidiaries’ returns. Additionally, the Group has de facto control over Promotora Larcomar S.A. of which it owns 46.55% of equity interest.

Consolidation of entities in which the Group does not have join control but have rights and obligations over the assets and liabilities

The Group assesses, on an ongoing basis, the nature of the contracts signed with one or more parties. If no control or joint control is determined to be held by the Group but it has rights to assets and obligations for liabilities under the arrangement, then the Group recognizes its assets, liabilities, revenue and expenses and its share of any jointly controlled assets or liabilities and any revenue or expense arising under the arrangement as a joint operation in accordance with IFRS 11—Joint arrangements (Note 2.2-d).

 

     Percentage of interest  

Joint operations

       2016             2015      

- Consorcio de Gestión de Información

     56.00     56.00

- Consorcio de la Disponibilidad PKI

           70.00

CONCAR S.A.

    

- Consorcio Ancón-Pativilca

     67.00     67.00

- Consorcio Peruano de Conservación

     50.00     50.00

- Consorcio Manperan

     67.00     67.00

- Consorcio Vial Sierra

           50.00

Viva GyM S.A.

    

- Consorcio Panorama

           35.00

Cam Holding S.p.A.

    

- Consorcio Mecam

     50.00     50.00

- Consorcio Seringel

     50.00     50.00

All of the joint arrangements listed above operate in Peru, Chile and Colombia.

The table below provides a description of the major activities carried out by these joint operations:

 

Joint Operations in

  

Economic activity

Graña y Montero S.A.A.    Construction, operation and maintenance of La Chira waste water treatment plant south of Lima. The project is aimed to solve Lima’s environmental problems caused by sewage discharged directly into the sea.
GyM S.A.    Theses joint operations carried out activities through the four divisions of the engineering and construction segment (Note 6).
GMP S.A.    Consorcio Terminales and Terminales del Peru provide services for receiving, storing, shipping and transporting liquid hydrocarbons, such as gasoline, jet fuel, diesel fuel and residual among others.
CONCAR S.A.    Joint operations Concar provides rehabilitation service, routine and periodic maintenance of the road; it further provides conservation and supervision services.
GMD S.A.    Outsourcing service of online BPO processes (Business Process Outsourcing).
Viva GyM S.A.    Construction of a five-star hotel with a convention center, a business center and entertainment center.
CAM Holding S.p.A.    Execution of outsourcing services to the electric power sector.

 

6 INTERESTS IN OTHER ENTITIES

The consolidated financial statements of the Group include the accounts of the Company and its subsidiaries. Additionally, the consolidated financial statements of the Group include its interest in joint operations in which the Company or certain subsidiaries have joint control with their partners (Note 2.2-d).

 

  a) Principal subsidiaries

The following table shows the principal direct and indirect subsidiaries classified by operating segment (Note 7):

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Name

  

Country

  

Economic activity

Engineering and Construction:      
GyM S.A.    Peru, and Colombia    Civil construction, electro-mechanic assembly, buildings management and implementing housing development projects and other related services.
Stracon GyM S.A.    Peru and Panama    Mining contracting activities, providing mining services and carrying out drilling, demolition and any other activity related to construction and electro-mechanics; services in the power sector, as well as mining operations.
GyM Chile S.p.A.    Chile    Electromechanical assemblies and services to energy, oil, gas and mining sector.
Vial y Vives - DSD S.A.    Chile    Electromechanical assemblies and services. Develop activities related to the construction of engineering projects, civil construction projects and electromechanical assemblies, as well as architectural design and installations in general. Construction and electromechanical assemblies and services in the areas of energy, oil, gas and mining.
GMI S.A.    Peru    Advisory and consultancy services in engineering, carrying out studies and projects, managing projects and supervision of works.
Morelco S.A.S    Colombia and Ecuador    Providing construction and assembly services, supplying equipment and material to design, build, assemble, operate and maintain all types of mechanical engineering, instrumentation and civil work.
Infrastructure:      
GMP S.A.    Peru    Natural oil and oil by-products extraction services, as well as providing storage and fuel dispatch services.
Oiltanking Andina Services S.A.    Peru    Operation of the gas processing plant of Pisco - Camisea.
Transportadora de Gas Natural Comprimido Andino S.A.C.    Peru    Supply, process and market natural gas and its derivates.
GyM Ferrovías S.A.    Peru    Concession for the operation of the public transportation system (Metro de Lima Metropolitana).
Survial S.A.    Peru    Concession for constructing, operating and maintaining the Section 1 of the “Southern Inter-oceanic” road.
Norvial S.A.    Peru    Concession for restoring, operating and maintaining the “Ancón - Huacho - Pativilca” section of the Panamericana Norte road.
Concesión Canchaque S.A.    Peru    Concession for operating and maintaining the Buenos Aires - Canchaque road.
Concesionaria Vía Expresa Sur S.A.    Peru    Concession for designing, constructing, operating and maintaining the Via Expresa - Paseo de la República in Lima.
Real estate:      
VIVA GyM S.A.    Peru    Developing and managing real estate projects directly or together with other partners.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Name

  

Country

  

Economic activity

Technical services:      
GMD S.A.    Peru    Information technology services.
Gestión de Servicios Digitales S.A.    Peru    Information technology services.
CAM Holding S.p.A.    Chile and Colombia    Electric and technological services for the power industry. Colombia
Concar S.A.    Peru    Operating and maintaining roads.
Coasin Instalaciones Ltda.    Chile    Installing and maintaining network and equipment for telecommunications.
Adexus S.A.    Chile, Peru, Colombia and Ecuador    IT solutions services.
Parent company operation:      
Generadora Arabesco S.A.    Peru    Implementing projects related to electric power-generating activities.
Larcomar S.A.    Peru    Exploiting land right to use the Larcomar Shopping Center.
Promotora Larcomar S.A.    Peru    Building a hotel complex on a plot of land located in the district of Miraflores.
Promotores Asociados de Inmobiliarias S.A.    Peru    Operating in the real-estate industry and engaged in the development and selling office facilities in Peru.
Negocios del Gas S.A.    Peru    Construction, operation and maintenance of the pipeline system to transport natural gas and liquids of natural gas.

The following are the Group’s subsidiaries and related interests at December 31, 2016:

 

     Percentage of
common shares
directly held
by Parent (%)
    Percentage of
common shares
held by
Subsidiaries (%)
    Percentage of
common shares
held by

the Group (%)
    Percentage of
common shares
held by non-
controlling
interests (%)
 

Engineering and Construction:

        

GyM S.A.

     98.23     —         98.23     1.77

- GyM S.A. subsidiaries

     —         87.06     87.06     12.94

Stracon GyM S.A.

     —         87.59     87.59     12.41

GyM Chile SpA

     —         99.99     99.99     0.01

Vial y Vives - DSD S.A.

     —         94.49     94.49     5.51

GMI S.A.

     89.41     —         89.41     10.59

Morelco S.A.S.

     —         70.00     70.00     30.00

Infrastructure:

        

GMP S.A.

     95.00     —         95.00     5.00

Oiltanking Andina Services S.A.

     —         50.00     50.00     50.00

Transportadora de Gas Natural

        

Comprimido Andino S.A.C

     —         99.93     99.93     0.07

GyM Ferrovias S.A.

     75.00     —         75.00     25.00

Survial S.A.

     99.99     —         99.99     0.01

Norvial S.A.

     67.00     —         67.00     33.00

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Concesión Canchaque S.A.

     99.96     —         99.96     0.04

Concesionaria Vía Expresa Sur S.A.

     99.98     0.02     100.00     —    

Real Estate:

        

Viva GyM S.A.

     63.44     36.10     99.54     0.46

- Viva GyM S.A. subsidiaries

     —         60.51     60.51     39.49

Services:

        

GMD S.A.

     89.23     —         89.23     10.77

Cam Holding S.p.A.

     100.00     —         100.00     —    

Concar S.A.

     99.75     —         99.75     0.25

Gestión de Servicios Digitales S.A.

     —         100.00     100.00     —    

Coasin Instalaciones Ltda.

     —         100.00     100.00     —    

CAM Servicios del Perú S.A.

     73.16     —         73.16     26.84

Adexus S.A.

     91.03     —         91.03     8.97

Parent company operations:

        

Generadora Arabesco S.A.

     99.00     —         99.00     1.00

Larcomar S.A.

     79.66     —         79.66     20.34

Promotora Larcomar S.A.

     46.55     —         46.55     53.45

Promotores Asociados de Inmobiliarias S.A.

     99.99     —         99.99     0.01

Negocios del Gas S.A.

     99.99     0.01     100.00     —    

Agenera S.A.

     99.00     1.00     100.00     —    

In August 2016, the Company acquired additional interest in the share capital of Adexus S.A. to obtained control (Note 33 a).

The following are the Group’s subsidiaries and related interests at December 31, 2015:

 

     Percentage of
common shares
directly held by
Parent (%)
    Percentage of
common shares
held by
Subsidiaries (%)
    Percentage of
common shares
held by
the Group (%)
    Percentage of
common shares

held by non-
controlling
interests (%)
 

Engineering and Construction:

        

GyM S.A.

     98.23     —         98.23     1.77

- GyM S.A. subsidiaries

     —         82.49     82.49     17.51

Stracon GyM S.A.

     —         87.59     87.59     12.41

GyM Chile SpA

     —         99.99     99.99     0.01

Vial y Vives – DSD S.A.

     —         80.79     80.79     19.21

GMI S.A.

     89.41     —         89.41     10.59

Morelco S.A.S.

     —         70.00     70.00     30.00

Infrastructure:

        

GMP S.A.

     95.00     —         95.00     5.00

Oiltanking Andina Services S.A.

     —         50.00     50.00     50.00

Transportadora de Gas Natural

        

Comprimido

        

Andino S.A.C

     —         99.93     99.93     0.07

GyM Ferrovias S.A.

     75.00     —         75.00     25.00

Survial S.A.

     99.99     —         99.99     0.01

Norvial S.A.

     67.00     —         67.00     33.00

Concesión Canchaque S.A.

     99.96     —         99.96     0.04

Concesionaria Vía Expresa Sur S.A.

     99.98     0.02     100.00     —    

Real Estate:

        

Viva GyM S.A.

     60.62     38.97     99.59     0.41

- Viva GyM S.A. subsidiaries

     —         53.81     53.81     46.19

Services:

        

GMD S.A.

     89.37     —         89.37     10.63

Cam Holding S.p.A.

     100.00     —         100.00     —    

Concar S.A.

     99.81     —         99.81     0.19

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Gestión de Servicios Digitales S.A.

     —         100.00     100.00     —    

Coasin Instalaciones Ltda.

     —         100.00     100.00     —    

CAM Servicios del Perú S.A.

     73.16     —         73.16     26.84

Parent company operations:

        

Generadora Arabesco S.A.

     99.00     —         99.00     1.00

Larcomar S.A.

     79.66     —         79.66     20.34

Promotora Larcomar S.A.

     46.55     —         46.55     53.45

Promotores Asociados de

        

Inmobiliarias S.A.

     99.99     —         99.99     0.01

Negocios del Gas S.A.

     99.99     0.01     100.00     —    

Agenera S.A.

     99.00     1.00     100.00     —    

GYM Colombia S.A.

     66.20     33.80     100.00     —    

On November 17, 2015, Cam Holding S.p.A. sold 100% of its shares in Cam Brasil Multiservicos S.A., at a total US$300 thousand; as a result, a loss of S/8.3 million was recorded, which is shown in the statement of income, within “Profit (loss) on sale of investments” (a cash balance of S/0.98 million was presented net of the cash received for the sale of this investment in the statement of cash flow).

All investments in subsidiaries have been included in the consolidation. The percentage of voting rights in those subsidiaries is directly held by the Parent Company and do not significantly differ from the percentage of shares held. There are no restrictions to the access or use of the Group’s assets and liabilities.

The following are the Group’s subsidiaries non-controlling interests at December 31:

 

     2015      2016  

Viva GyM S.A. and subsidiaries

     214,260        241,140  

Viva GyM S.A.

     1,481        1,700  

GyM S.A. and subsidiaries

     145,699        100,840  

GyM S.A.

     10,854        9,354  

Norvial S.A.

     52,993        61,349  

CAM Holding S.p.A.

     27,652        26,589  

GMP S.A.

     21,110        20,879  

GyM Ferrovias S.A.

     24,584        30,548  

Promotora Larcomar S.A.

     13,609        13,539  

Others

     10,896        3,375  
  

 

 

    

 

 

 
     523,138        509,313  
  

 

 

    

 

 

 

Summarized financial information of subsidiaries with material non-controlling interests

Set out below is the summarized financial information for each subsidiary that has non-controlling interests that are material to the Group.

Summarized statement of financial position

 

     Viva GYM S.A. and subsidiaries     GyM S.A. and subsidiaries     Norvial S.A.  
     At December 31,     At December 31,     At December 31,  
     2015     2016     2015     2016     2015     2016  

Current:

            

Assets

     1,109,270       1,117,065       3,140,222       1,849,077       43,513       107,838  

Liabilities

     (555,148     (515,781     (2,809,890     (2,050,803     (79,634     (49,721
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current net assets (liabilities)

     554,122       601,284       330,332       (201,726     (36,121     58,117  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-current:

            

Assets

     91,677       113,594       1,144,066       1,326,599       377,392       467,449  

Liabilities

     (159,583     (104,179     (628,670     (471,424     (180,686     (339,661
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-current net assets (liabilities)

     (67,906     9,415       515,396       855,175       196,706       127,788  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net assets

     486,216       610,699       845,728       653,449       160,585       185,905  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Summarized income statement    

 

    Viva GYM S.A. and subsidiaries     GyM S.A. and subsidiaries     Norvial S.A.  
    For the year ended     For the year ended     For the year ended  
    2014     2015     2016     2014     2015     2016     2014     2015     2016  

Revenue

    224,560       215,764       411,518       4,861,362       5,660,738       4,036,226       178,170       246,231       216,260  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) before income tax

    37,967       36,985       104,223       239,597       (86,373)       (85,857)       41,998       54,470       63,582  

Income tax

    (11,452)       (7,649)       (27,054)       (54,657)       (49,304)       (11,228)       (10,908)       (13,611)       (16,262)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) for the period

    26,515       29,336       77,169       184,940       (135,677)       (97,085)       31,090       40,859       47,320  

Other comprehensive Income

    (25)       —         —         ( 26,199)       (60,380)       19,486       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive Income for the period

    26,490       29,336       77,169       158,741       (196,057)       (77,599)       31,090       40.859       47,320  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends paid to non-controlling interest Note (36-d)

    23,785       3,066       5,050       26,640       —         8,288       8,250       —         7,260  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Summarized statement of cash flows

 

    Viva GYM S.A. and subsidiaries     GyM S.A. and subsidiaries     Norvial S.A.  
    For the year ended     For the year ended     For the year ended  
    2014     2015     2016     2014     2015     2016     2014     2015     2016  

Cash flows from operating activities (used), net

    9,916       (68,360     44,910       147,249       (303,970     224,428       (30,858     (111,423     (42,051
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities (used), net

    (39,351     23,865       ( 546     (208,314     11,884       (29,853     ( 32     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities (used), net

    40,677       64,686       (59,931     79,432       176,987       (283,296     17,262       144,199       99,193  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents, net

    11,242       20,191       (15,567     18,367       (115,101     (88,721     (13,628     32,776       57,142  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the year

    43,026       54,268       74,459       264,353       282,721       167,620       19,128       5,500       38,276  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the year

    54,268       74,459       58,892       282,720       167,620       78,899       5,500       38,276       95,418  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The information above is the amount before inter-company eliminations.

 

  b) Public services concessions

The Group acts as an operator in various public service concessions. When applicable, revenue attributable to the construction or restoration of infrastructure has been accounted for by applying the models set forth in Note 2.5 (financial asset, intangible asset and bifurcated models).

Subsidiary Transportadora de Gas Natural Comprimido Andino S.A.C. (hereinafter TGNCA) held a concession to design, finance, construct, maintain and operate the compressed natural gas supply system to be implemented in certain cities. The Concession was recognized under the financial asset model. In September 2016 the Concession Agreement was terminated on the grounds of counterparty’s failure to meet the required conditions (availability of assets and resources). As a result, TGNCA recognized an impairment loss of receivables amounting to S/6.3 million, which is included in the income statement within “cost of services provided” (Note 27). The balance remaining relates to trade accounts receivable for S/38.7 million, to be received from the Ministry of Energy and Mines. This balance was classified as current assets because Management expects a favorable outcome of the award.

In all the Group concessions’, the infrastructure is returned to grantor at the end of the concession agreement. The concessions held by the Group are as follows at December 31, 2016:

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

Name of concession

 

Description

  Estimated
investment
 

Consideration

  Ordinary
shares held
    Concession
termination
    Accounting
model
 

Survial S.A.

  This company operates and maintains a 750 km road from the San Juan de Marcona port to Urcos, Peru, which is connected to an interoceanic road. The road has five toll stations and three weigh stations.   US$98.9 million   Transaction secured by the Peruvian Government involving from annual payments for the maintenance and operation of the road, which is in charge of the Peruvian Ministry of Transport and Communications (MTC).     99.9     2032       Financial asset  

Canchaque S.A.C.

  This company operates and periodically maintains a 78 km road from the towns of Buenos Aires to Canchaque, in Peru The road has one toll station.   US$29 million   Transaction secured by the Peruvian Government regardless the traffic volume. Revenue is secured by an annual minimum amount of US$0.3 million.     99.96     2025       Financial asset  

La Chira S.A.

  Designing, financing, constructing, operating and maintaining project called “Planta de Tratamiento de Aguas Residuales y Emisario Submarino La Chira”. The Project will treat approximately 25% of waste waters in Lima.   S/450 million   Transaction secured by the Peruvian Government consisting of anual payment settled by Sedapal S.A.     50.00     2036       Financial asset  

GyM Ferrovías S.A.

  Concession for the operation of Line 1 of the Lima Metro, Peru’s only urban railway system in Lima city, which includes (i) operation and maintenance of the five existing trains, (ii) operation and maintenance and the acquisition of 19 trains on behalf of the Peruvian government and (iii) design and construction of the repair yard and maintenance of railway.   S/548.8 million   Transaction secured by the Peruvian Government involving a quarterly payment received from MTC based on km travelled per train.     75.00     2041       Financial asset  

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

Name of concession

 

Description

  Estimated
investment
   

Consideration

  Ordinary
shares held
    Concession
termination
    Accounting
model
 

Norvial S.A.

  The Company operates and maintains part of the only highway that connects Lima to the northwest of Peru. This 183 km road known as Red Vial 5 runs from the cities of Ancón to Pativilca and has three toll stations.   US$ 152 million     From users (self-financed concession; revenue is derived from collection of tolls).     67.00     2028       Intangible  

Vía Expresa Sur S.A.

  The Company obtained the concession for designing, financing, building, operating and maintaining the infrastructure associated with the Vía Expresa Sur Project. This project involves the second stage expansion of the Via Expresa—Paseo de la República,between Av. República de Panamá and and Panamericana highway.   US$ 196.8 million     Contract give the right of collection from users; however the Peruvian government shall pay the difference when the operating revenue obtained is below US$18 million during the first two years and below US$19.7 million from the third year to the fifteenth year of the effective period of the financing, with a ceiling of US$10 million. In June 2017, the contract was suspended temporarily for one year by agreement between Concessionaire and grantor.     99.98     2053       Bifurcated  

Recaudo Trujillo S.A.C.

  Design, implementation, operation, technological maintenance and renewal (estimate) of the single system of electronic collection. Design, implementation, operation and maintenance of the Clearing house Implementation of the Fleet Control Center, as well as training to personnel.   US$ 40.2 million     Economic consideration resulting from applying the “price for validation” considering daily validations input on the system to be managed through a trust.     95.00     2036       Intangible  

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

  c) Principal Joint Operations

At December 31, 2016, the Group is a partner to 69 Joint Operations with third parties (65 at December 31, 2015). The table below lists the Group’s major Joint Operations.

 

     Percentage of interest  

Joint operations

   2015     2016  

Graña y Montero S.A.A.

    
- Concesionaria la Chira S.A.      50.00     50.00

GyM S.A.

    

- Consorcio Constructor Alto Cayma

     50.00     50.00

- Consorcio Rio Pallca – Huanza

     40.00     40.00

- Consorcio Alto Cayma

     49.00     49.00

- Consorcio Vial Ayacucho

     50.00     —    

- Consorcio Lima Actividades Comerciales

     50.00     50.00

- Consorcio GyM – COSAPI

     50.00     50.00

- Consorcio Atocongo

     40.00     40.00

- Consorcio Norte Pachacutec

     49.00     49.00

- Consorcio La Chira

     50.00     50.00

- Consorcio Río Urubamba

     50.00     50.00

- Consorcio Vial Quinua

     46.00     46.00

- Consorcio Rio Mantaro

     50.00     50.00

- Consorcio GyM – CONCIVILES

     66.70     66.70

- Consorcio Toromocho

     55.00     55.00

- Consorcio Construcciones y Montajes CCN

     25.00     25.00

- Consorcio HV GyM

     50.00     50.00

- Consorcio Stracon Motta Engil JV

     50.00     50.00

- Consorcio Huacho Pativilca

     67.00     67.00

- Consorcio Constructor Chavimochic

     26.50     26.50

- Consorcio Constructor Ductos del Sur

     29.00     29.00

- Consorcio Italo Peruano

     48.00     48.00

- Consorcio Incolur

     50.00     50.00

- Consorcio Menegua

     50.00     50.00

- Consorcio Energía y Vapor

     50.00     50.00

- Consorcio Ermitaño

     —         50.00

- Consorcio para la Atención y Mantenimiento de Ductos

     —         50.00

GMP S.A.

    

- Consorcio Terminales

     50.00     50.00

- Terminales del Perú

     50.00     50.00

GMD S.A.

    

- Consorcio Cosapi-Data – GMD S.A.

     70.00     70.00

- Consorcio The Louis Berger Group Inc. - GMD

     66.45     66.45

- Consorcio Procesos digitales

     43.65     43.65

- Consorcio GMD S.A. – Indra S.A.

     50.00     50.00

- Consorcio Fábrica de Software

     50.00     50.00

- Consorcio Gestión de Procesos Electorales (ONPE)

     50.00     50.00

- Consorcio Lima Actividades Sur

     50.00     50.00

- Consorcio Latino de Actividades Comerciales de Clientes Especiales

     50.00     50.00

- Consorcio Latino de Actividades Comerciales

     75.00     75.00

- Consorcio Gestión de Procesos Junta de Gobernadores

     45.00     45.00

- Consorcio Soluciones Digitales

     38.00     38.00

- Consorcio de Gestión de la Información

     56.00     56.00

- Consorcio de la Disponibilidad PKI

     —         70.00

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

     Percentage of interest  

Joint operations

   2015     2016  

CONCAR S.A.

    

- Consorcio Ancón-Pativilca

     67.00     67.00

- Consorcio Peruano de Conservación

     50.00     50.00

- Consorcio Manperan

     67.00     67.00

- Consorcio Vial Sierra

     —         50.00

Viva GyM S.A.

    

- Consorcio Panorama

     —         35.00

Cam Holding S.p.A.

    

- Consorcio Mecam

     50.00     50.00

- Consorcio Seringel

     50.00     50.00

All of the joint arrangements listed above operate in Peru, Chile and Colombia.

The table below provides a description of the major activities carried out by these joint operations:

 

Joint Operations in

  

Economic activity

Graña y Montero S.A.A.    Construction, operation and maintenance of La Chira waste water treatment plant south of Lima. The project is aimed to solve Lima’s environmental problems caused by sewage discharged directly into the sea.
GyM S.A.    Theses joint operations carried out activities through the four divisions of the engineering and construction segment (Note 7).
GMP S.A.    Consorcio Terminales and Terminales del Peru provide services for receiving, storing, shipping and transporting liquid hydrocarbons, such as gasoline, jet fuel, diesel fuel and residual among others.
CONCAR S.A.    Joint operations Concar provides rehabilitation service, routine and periodic maintenance of the road; it further provides conservation and supervision services.
GMD S.A.    Outsourcing service of online BPO processes (Business Process Outsourcing).
Viva GyM S.A.    Construction of a five-star hotel with a convention center, a business center and entertainment center.
CAM Holding S.p.A.    Execution of outsourcing services to the electric power sector.

The Group’s consolidated financial statements do not include any other type of entities in addition to those mentioned above, such as trust funds or special purpose entities.

 

7 SEGMENT REPORTING

Operating segments are reported consistently with the internal reports that are reviewed by the Group’ chief decision-maker; that is, the Executive Committee, which is led by the Corporate General Manager. This Committee is the chief operating decision maker, responsible for allocating resources and evaluating the performance of each operating segment.

The Group’s operating segments are assessed by the activities of the following business units: (i) engineering and construction, (ii) infrastructure, (iii) real estate and (iv) technical services.

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

As set forth under IFRS 8, reportable segments based on the level of revenue are: ‘engineering and construction’ and ‘technical services’. However, the Group has voluntarily decided to report on all its operating segments as detailed in this Note.

The revenues derived from foreign operations (Chile, Panama, Dominican Republic, Colombia, Bolivia, Ecuador and Guyana) comprise 25.4% of the Group’s total revenue reported in 2016 (27.1% in 2015 and 19.9% in 2014).

Sales between segments are carried out at arm’s length, are no material, and are eliminated on consolidation. The revenue from external parties is measured in a manner consistent with that in the income statement. Sale of goods relate to the real state segment. Revenue from services relate to all other segments.

Group sales and receivables are not concentrated in a few customers. There is no external customer that represents 10% or more of the Group’s revenue.

The following segments set forth the principal activities of the Group:

 

  a) Engineering and construction: This segment includes from traditional engineering services such as structural, civil and design engineering, and architectural planning to advanced specialties including process design, simulation, and environmental services at four divisions; i) civil works, such as the construction of hydroelectric power stations and other large infrastructure facilities; (ii) electro mechanic construction, such as concentrator plants, oil and natural gas pipelines, and transmission lines; iii) building construction, such as office buildings, residential buildings, hotels, affordable housing projects, shopping centers and industrial facilities; and iv) services related to mining, such as earthworks, blasting, loading and hauling ore.

 

  b) Infrastructure: The Group has long-term concessions or similar contractual arrangements in Peru for three toll roads, the Lima Metro, a waste water treatment plant in Lima, four producing oil fields, and a gas processing plant.

 

  c) Real Estate: The Group develops and sells homes targeted to low and middle-income population sectors which are experiencing a significant increase in disposable income, as well as, office and commercial space to a lesser extent.

 

  d) Technical Services: The Group provides: (i) operation and maintenance services for infrastructure assets; (ii) information technology (IT) services, including IT outsourcing, systems integration, application and business process outsourcing services; and (iii) electricity networks services (maintenance) in telecommunications.

 

  e) Parent Company Operation corresponds to the services which the Holding company provides, management, logistics and accounting services, among others.

The Executive Committee uses a measurement of adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to assess the performance of operating segments.

Profit before income tax reconciles to EBITDA as follows:

 

     2014      2015      2016  

Profit (loss) before income tax

     507,428        154,616        (563,404

Financial expense/income, net

     91,354        138,696        210,778  

Depreciation

     185,310        217,070        205,522  

Amortization

     74,730        89,355        82,743  
  

 

 

    

 

 

    

 

 

 

EBITDA

     858,822        599,737        (64,361
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

EBITDA for each segment is as follows:

 

     2014      2015      2016  

Engineering and construction

     459,487        220,137        106,106  

Infrastructure

     272,489        232,954        210,791  

Real state

     56,502        52,794        121,421  

Technical services

     63,469        113,276        117,490  

Parent company operations

     252,312        (35,591      (1,026,394

Eliminations intercompany

     (245,437      16,167        406,225  
  

 

 

    

 

 

    

 

 

 

EBITDA

     858,822        599,737        (64,361
  

 

 

    

 

 

    

 

 

 

The “Backlog” refers to the expected future revenue under signed contracts and legally binding letters of intent. The breakdown by operating segments as of December 31, 2016, and the dates in which they are estimated to, is shown in the following table:

 

            ANUAL BACKLOG  
     2016      2017      2018      2019+  

Engineering and Construction

     6,645,729        2,883,254        1,964,435        1,798,041  

Infrastructure

     2,403,023        678,165        792,616        932,242  

Real Estate

     322,062        296,077        21,616        4,368  

Technical Services

     2,882,175        1,281,772        806,966        793,437  

Eliminations intercompany

     (318,790      (108,710      (106,097      (103,984
  

 

 

    

 

 

    

 

 

    

 

 

 
     11,934,199        5,030,559        3,479,536        3,424,104  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

The table below shows the Group’s financial statements by operating segments:

Operating segments financial position

Segment reporting

 

    Engineering     Infrastructure                 Parent              
    and                       Water           Technical     Company              
    construction     Energy     Toll roads     Mass transit     treatment     Real estate     services     Operations     Eliminations     Consolidated  

As of December 31, 2015

                   

Assets.-

                   

Cash and cash equivalents

    172,116       42,638       58,640       111,454       9,094       74,459       60,193       25,408       —         554,002  

Financial asset at fair value through profit or loss

    3,153       —         —         —         —         —         —         —         —         3,153  

Trade accounts receivables, net

    614,917       43,260       22,045       55,180       —         59,108       247,945       —         —         1,042,455  

Unbilled work in progress, net

    1,260,541       —         —         —         17,686       —         —         —         —         1,278,227  

Accounts receivable from related parties

    316,188       12,145       18,820       301       —         34,724       48,520       132,735       (283,280     280,153  

Other accounts receivable

    595,255       25,857       5,699       25,668       10,250       20,535       102,204       35,249       —         820,717  

Inventories, net

    159,557       10,025       —         13,678       —         920,092       61,734       389       (6,321     1,159,154  

Prepaid expenses

    12,899       2,207       1,401       10,787       458       349       11,402       519       —         40,022  

Non-current assets classified as held for sale

    22,511       —         —         —         —         —         —         —         —         22,511  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    3,157,137       136,132       106,605       217,068       37,488       1,109,267       531,998       194,300       (289,601     5,200,394  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term trade accounts receivable, net

    —         —         —         621,831       —         —         —         —         —         621,831  

Long-term unbilled work in progress, net

    —         40,727       19,027       —         —         —         —         —         —         59,754  

Long-term accounts receivable from related parties

    —         —         408       —         —         —         500       256,022       (256,930     —    

Prepaid expenses

    —         3,692       15,584       2,112       998       —         —         —         —         22,386  

Other long-term accounts receivable

    534       14,214       30,473       2,198       1,589       14,726       —         2,195       —         65,929  

Available-for-sale financial assets

    —         —         —         —         —         —         —         120,134       —         120,134  

Investments in associates and joint ventures

    122,717       8,265       —         —         —         28,732       9,228       2,476,689       (2,008,626     637,005  

Investment property

    —         —         —         —         —         34,702       —         —         —         34,702  

Property, plant and equipment

    606,158       198,774       1,624       217       —         11,303       170,660       130,113       (7,092     1,111,757  

Intangible assets

    288,416       148,972       364,819       311       —         1,043       37,564       23,561       13,600       878,286  

Deferred income tax asset

    100,544       1,325       3,003       —         —         1,171       39,825       656       1,321       147,845  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current assets

    1,118,369       415,969       434,938       626,669       2,587       91,677       257,777       3,009,370       (2,257,727     3,699,629  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    4,275,506       552,101       541,543       843,747       40,075       1,200,944       789,775       3,203,670       (2,547,328     8,900,023  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities.-

                   

Borrowings

    652,974       101,096       55,428       —         —         224,380       91,366       102,776       —         1,228,020  

Bonds

    —         —         5,537       31,546       —         —         —         —         —         37,083  

Trade accounts payable

    1,409,984       35,428       3,768       24,498       154       14,334       134,973       12,623       —         1,635,762  

Accounts payable to related parties

    118,383       3,990       40,578       9,962       10,560       58,790       39,476       79,709       (283,616     77,832  

Current income tax

    19,337       —         753       —         166       26       13,750       84       —         34,116  

Other accounts payable

    645,648       20,340       2,841       1,682       —         257,616       125,020       12,853       —         1,066,000  

Provisions

    —         6,341       —         —         —         —         7,127       —         —         13,468  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    2,846,326       167,195       108,905       67,688       10,880       555,146       411,712       208,045       (283,616     4,092,281  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Borrowings

    375,952       83,307       —         —         —         27,562       66,515       —         —         553,336  

Long-term bonds

    —         —         180,686       576,322       —         —         —         —         —         757,008  

Other long-term accounts payable

    176,644       —         493       —         —         —         68,045       1,214       —         246,396  

Long-term accounts payable to related parties

    —         —         —         94,172       24,035       120,083       38,332       —         (256,486     20,136  

Provisions

    24,624       18,876       —         —         —         —         3,960       —         —         47,460  

Derivative financial instruments

    —         2,331       —         —         —         —         —         —         —         2,331  

Deferred income tax liability

    52,016       4,250       107       7,222       270       11,937       3,164       20,197       —         99,163  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current liabilities

    629,236       108,764       181,286       677,716       24,305       159,582       180,016       21,411       (256,486     1,725,830  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    3,475,562       275,959       290,191       745,404       35,185       714,728       591,728       229,456       (540,102     5,818,111  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity attributable to controlling interest in the Company

    639,194       255,032       198,345       73,751       4,890       158,605       162,550       2,961,763       (1,895,356     2,558,774  

Non-controlling interest

    160,750       21,110       53,007       24,582       —         327,611       35,497       12,451       (111,870     523,138  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

    4,275,506       552,101       541,543       843,737       40,075       1,200,944       789,775       3,203,670       (2,547,328     8,900,023  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-52


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

Operating segments financial position

Segment reporting

 

    Engineering     Infrastructure                 Parent              
    and                       Water           Technical     Company              
    construction     Energy     Toll roads     Mass transit     treatment     Real estate     services     Operations     Eliminations     Consolidated  

As of December 31, 2016

                   

Assets.-

                   

Cash and cash equivalents

    93,543       35,396       110,007       139,414       3,229       58,892       53,521       112,398       550       606,950  

Financial asset at fair value through profit or loss

    352       —         —         —         —         —         —         —         —         352  

Trade accounts receivables, net

    334,426       84,996       23,579       56,665       256       83,704       449,848       —         (2,204     1,031,270  

Unbilled work in progress, net

    648,851       —         —         32,078       —         —         —         —         —         680,929  

Accounts receivable from related parties

    327,385       3,255       19,684       392       12,379       7,284       48,691       50,582       (287,988     181,664  

Other accounts receivable

    398,666       58,235       6,189       25,895       4,841       20,198       93,359       42,133       —         649,516  

Inventories, net

    76,058       12,561       —         16,862       —         946,657       65,270       387       (13,502     1,104,293  

Prepaid expenses

    9,203       2,614       1,428       17,265       167       329       19,988       307       —         51,301  

Non-current assets classified as held for sale

    22,385       —         —         —         —         —         —         —         —         22,385  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    1,910,869       197,057       160,887       288,571       20,872       1,117,064       730,677       205,807       (303,144     4,328,660  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term trade accounts receivable, net

    149       —         —         629,310       —         —         38,060       —         —         667,519  

Long-term unbilled work in progress, net

    171,752       —         24,165       —         —         —         —         —         1,669       197,586  

Long-term accounts receivable from related parties

    —         —         408       —         —         —         492       700,614       (170,130     531,384  

Prepaid expenses

    —         —         20,554       2,029       943       —         —         —         —         23,526  

Other long-term accounts receivable

    42,511       29,533       22,924       225,565       7,347       17,887       1,077       11,108       —         357,952  

Investments in associates and joint ventures

    116,512       8,516       —         —         —         31,768       9,589       2,358,917       (2,135,543     389,758  

Investment property

    —         —         —         —         —         49,357       —         —         —         49,357  

Property, plant and equipment

    592,191       176,486       1,243       193       21       13,008       217,727       130,421       (17,691     1,113,599  

Intangible assets

    246,715       139,353       456,000       269       —         950       79,850       22,793       14,356       960,286  

Deferred income tax asset

    158,168       4,983       1,839       —         —         623       64,408       189,230       7,757       427,008  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current assets

    1,327,998       358,871       527,133       857,366       8,311       113,593       411,203       3,413,083       (2,299,582     4,717,976  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    3,238,867       555,928       688,020       1,145,937       29,183       1,230,657       1,141,880       3,618,890       (2,602,726     9,046,636  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities.-

                   

Borrowings

    582,260       82,063       —         —         —         206,456       158,151       932,113       —         1,961,043  

Bonds

    —         —         25,540       20,551       —         —         —         —         —         46,091  

Trade accounts payable

    876,849       59,830       2,310       23,882       599       30,617       276,766       6,704       (940     1,276,617  

Accounts payable to related parties

    119,989       3,902       27,757       33,009       237       66,190       44,211       67,685       (282,763     80,217  

Current income tax

    30,576       3,631       44       —         1,064       17,944       8,901       —         —         62,160  

Other accounts payable

    485,247       11,711       10,512       14,622       27       194,441       190,303       189,444       —         1,096,307  

Provisions

    6,615       6,441       —         —         —         131       1,344       —         —         14,531  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    2,101,536       167,578       66,163       92,064       1,927       515,779       679,676       1,195,946       (283,703     4,536,966  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Borrowings

    246,315       80,488       —         —         —         16,541       76,051       —         —         419,395  

Long-term bonds

    —         —         338,143       583,480       —         —         —         —         —         921,623  

Other long-term accounts payable

    147,839       —         493       246,522       —         32,000       83,516       2,433       —         512,803  

Long-term accounts payable to related parties

    41,672       —         —         87,200       23,445       40,074       42,667       395       (170,133     65,320  

Provisions

    7,670       17,115       —         —         —         —         1,757       —         —         26,542  

Derivative financial instruments

    —         1,081       —         —         —         —         —         —         —         1,081  

Deferred income tax liability

    28,278       3,546       1,518       14,482       283       15,564       9,498       —         —         73,169  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-current liabilities

    471,774       102,230       340,154       931,684       23,728       104,179       213,489       2,828       (170,133     2,019,933  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    2,573,310       269,808       406,317       1,023,748       25,655       619,958       893,165       1,198,774       (453,836     6,556,899  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity attributable to controlling interest in the Company

    551,652       265,241       220,337       91,643       3,528       234,449       210,542       2,406,573       (2,003,541     1,980,424  

Non-controlling interest

    113,905       20,879       61,366       30,546       —         376,250       38,173       13,543       (145,349     509,313  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

    3,238,867       555,928       688,020       1,145,937       29,183       1,230,657       1,141,880       3,618,890       (2,602,726     9,046,636  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-53


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

Operating segment performance

Segment Reporting

 

   

Engineering

    Infrastructure                 Parent              
    and                 Mass     Water     Real     Technical     Company              
    construction     Energy     Toll roads     transit     treatment     estate     services     operations     Eliminations     Consolidated  

Year 2014 -

                   

Revenue

    5,035,674       350,339       338,153       166,951       29,323       224,560       1,208,168       53,241       (397,729     7,008,680  

Gross profit (loss)

    535,360       124,455       76,697       42,109       2,307       62,413       142,342       (7,574     (26,541     951,568  

Administrative expenses

    (258,554     (17,256     (8,035     (14,714     (317     (21,058     (122,506     (35,444     56,517       (421,367

Other income and expenses,net

    (9,796     (3,359     33       18       —         (852     5,856       22,063       1,173       15,136  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

                   

Operating profit (loss)

    267,010       103,840       68,695       27,413       1,990       40,503       25,692       (20,955     31,149       545,337  

Financial expenses

    (69,046     (11,564     (11,321     (5,245     (55     (14,807     (27,393     (1,725     38,340       (102,816

Financial income

    6,623       120       1,819       727       16       93       1,821       59,893       (59,650     11,462  

Share of the profit or loss in associates and joint ventures under the equity method of accounting

    48,242       29       —         —         —         12,178       590       270,045       (277,639     53,445  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) before income tax

    252,829       92,425       59,193       22,895       1,951       37,967       710       307,258       (267,800     507,428  

Income tax

    (59,252     (29,768     (16,158     (10,842     (588     (11,452     (5,788     (12,582     234       (146,196
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) for the year

    193,577       62,657       43,035       12,053       1,363       26,515       (5,078     294,676       (267,566     361,232  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) attributable to:

                   

Owners of the Company

    164,095       59,010       32,774       9,040       1,363       9,527       (5,342     294,948       (265,672     299,743  

Non-controlling interest

    29,482       3,647       10,261       3,013       —         16,988       264       (272     (1,894     61,489  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    193,577       62,657       43,035       12,053       1,363       26,515       (5,078     294,676       (267,566     361,232  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-54


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

Operating segment performance

Segment Reporting

 

   

Engineering

    Infrastructure                 Parent              
    and                 Mass     Water     Real     Technical     Company              
    construction     Energy     Toll roads     transit     treatment     estate     services     operations     Eliminations     Consolidated  

Year 2015 -

                   

Revenue

    5,829,441       389,377       394,462       206,459       27,994       215,764       1,152,544       70,531       (471,077     7,815,495  

Gross profit (loss)

    312,780       63,530       78,544       40,468       2,225       51,755       178,303       (7,004     (70,627     649,974  

Administrative expenses

    (289,149     (18,214     (10,319     (10,529     (310     (20,521     (115,018     (29,882     80,557       (413,385

Other income and expenses,net

    30,616       1,365       55       2       —         1,759       15,348       11,114       (2,972     57,287  

Loss on sales of investments

        —         —         —         —         (8,289     —         —         (8,289
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

    54,247       46,681       68,280       29,941       1,915       32,993       70,344       (25,772     6,958       285,587  

Financial expenses

    (127,383     (19,953     (4,713     (5,303     (45     (11,642     (32,246     (2,818     27,301       (176,802

Financial income

    8,875       158       8,722       2,316       121       746       2,145       56,101       (41,077     38,107  

Share of the profit or loss in associates and joint ventures under the equity method of accounting

    (2,234     944       —         —         —         14,888       589       (14,709     8,246       7,724  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) before income tax

    (66,495     27,830       72,289       26,954       1,991       36,985       40,832       12,802       1,428       154,616  

Income tax

    (55,350     (7,650     (18,794     (8,129     (520     (7,649     6,102       (9,208     2,171       (99,027
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) for the year

    (121,845     20,180       53,495       18,825       1,471       29,336       46,934       3,594       3,599       55,589  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) attributable to:

                   

Owners of the Company

    (131,181     17,072       40,010       14,118       1,471       12,377       40,322       4,337       8,571       7,097  

Non-controlling interest

    9,336       3,108       13,485       4,707       —         16,959       6,612       (743     (4,972     48,492  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (121,845     20,180       53,495       18,825       1,471       29,336       46,934       3,594       3,599       55,589  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-55


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

Operating segment performance

Segment Reporting    

 

   

Engineering

    Infrastructure                 Parent              
    and                 Mass     Water     Real     Technical     Company              
    construction     Energy     Toll roads     transit     treatment     estate     services     operations     Eliminations     Consolidated  

Year 2016 -

                   

Revenue

    4,159,538       382,211       264,384       247,040       18,459       411,518       1,401,781       62,070       (477,395     6,469,606  

Gross profit (loss)

    224,621       42,129       75,780       42,473       5,698       136,540       171,842       (171     (95,493     603,419  

Administrative expenses

    (258,568     (17,260     (10,185     (12,952     (786     (28,430     (119,003     (35,740     83,522       (399,402

Other income and expenses,net

    (9,250     542       128       10       —         838       4,228       (5,843     (3,923     (13,270

Gain on sales of investments

    —         —         —         —         —         —         —         46,336       —         46,336  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

    (43,197     25,411       65,723       29,531       4,912       108,948       57,067       4,582       (15,894     237,083  

Financial expenses

    (65,138     (10,801     (6,478     (2,810     (38     (14,388     (30,989     (115,225     14,296       (231,571

Financial income

    11,216       1,040       1,145       8,037       86       2,816       4,220       18,688       (26,454     20,794  

Share of the profit or loss in associates and joint ventures under the equity method of accounting

    16,501       1,615       —         —         —         6,850       360       (1,036,889     421,853       (589,710
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) before income tax

    (80,618     17,265       60,390       34,758       4,960       104,226       30,658       (1,128,844     393,801       (563,404

Income tax

    (12,828     (5,308     (15,490     (10,904     (1,433     (27,054     (15,835     193,425       7,233       111,806  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) for the year

    (93,446     11,957       44,900       23,854       3,527       77,172       14,823       (935,419     401,034       (451,598
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) attributable to:

                   

Owners of the Company

    (87,710     9,370       29,284       17,891       3,527       22,106       15,918       (934,508     414,423       (509,699

Non-controlling interest

    (5,736     2,587       15,616       5,963       —         55,066       (1,095     (911     (13,389     58,101  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (93,446     11,957       44,900       23,854       3,527       77,172       14,823       (935,419     401,034       (451,598
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

Segments by geographical area

 

     2014      2015      2016  

Revenue:

        

- Peru

     5,611,844        5,690,160        4,826,738  

- Chile

     1,011,822        944,198        707,364  

- Colombia

     125,929        778,333        570,203  

- Panama

     139,666        206,137        346,065  

- Guyana

     49,525        111,924        717  

- Brazil

     68,045        39,253        —    

- Ecuador

     —          —          3,682  

- Bolivia

     1,849        45,490        14,837  
  

 

 

    

 

 

    

 

 

 
     7,008,680        7,815,495        6,469,606  
  

 

 

    

 

 

    

 

 

 

Non-current assets:

        

- Peru

     2,461,288        3,230,288        3,995,453  

- Chile

     359,686        320,094        446,998  

- Colombia

     272,543        124,820        260,732  

- Bolivia

     1,890        15,043        13,043  

- Ecuador

     —          —          888  

- Guyana

     2,974        8,800        862  

- Brazil

     8,398        —          —    

- Panama

     —          584        —    
  

 

 

    

 

 

    

 

 

 
     3,106,779        3,699,629        4,717,976  
  

 

 

    

 

 

    

 

 

 

Until March 2017, the subsidiary Concar belonged to the ‘technical services’ segment, on April 2017, the Company transferred its subsidiary to the ‘infrastructure’ segment.

 

8 FINANCIAL INSTRUMENTS

 

8.1 Financial instruments by category

At December 31 the classification of financial assets and liabilities by category is as follows:

 

     2015      2016  

Assets according to the statement of financial position

     

Loans and accounts receivable:

     

- Cash and cash equivalents

     543,898        600,923  

- Trade accounts receivable and other accounts receivable not including advances to suppliers, net

     1,292,081        1,329,262  

- Unbilled work in progress

     1,337,981        878,515  

- Financial assets related to concession agreements

     699,056        685,975  

- Accounts receivable from related parties

     280,153        713,048  
  

 

 

    

 

 

 
     4,153,169        4,207,723  
  

 

 

    

 

 

 

Available-for-sale financial asset (Note 10)

     120,134        —    
  

 

 

    

 

 

 

Financial asset at fair value through profit or loss

     

- Cash and cash equivalents (Mutual funds)

     10,104        6,027  

- Other financial asset

     3,153        352  
  

 

 

    

 

 

 
     13,257        6,379  
  

 

 

    

 

 

 

Financial assets related to concession agreements are recorded in the statement of financial position within the line items of short-term trade accounts receivable and long-term trade accounts receivable.

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

     2015      2016  

Financial liabilities according to the statement of financial position

     

Other financial liabilities at amortized cost

     

- Other financial liabilities

     1,480,071        2,140,297  

- Finance leases

     301,285        240,141  

- Bonds

     794,091        967,714  

- Trade and other accounts payable
(excluding non-financial liabilities)

     1,967,270        1,769,444  

- Accounts payable to related parties

     97,968        145,537  
  

 

 

    

 

 

 
     4,640,685        5,263,133  
  

 

 

    

 

 

 

Hedging derivatives:

     

- Derivative financial instruments

     2,331        1,081  
  

 

 

    

 

 

 

 

8.2 Credit quality of financial assets

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external risk ratings (if available) or to historical information about counterparty default rates.

At December 31 the credit quality of financial assets is shown as follows:

 

     2015      2016  

Cash and cash equivalents (*)

     

Banco de Crédito del Perú (A+)

     237,870        147,759  

Banco Continental (A+)

     43,074        136,805  

Banco Scotiabank (A+)

     38,345        121,480  

Citibank (A)

     82,471        105,812  

Banco de la Nación (A)

     64,456        30,007  

Banco Santander—Perú (A)

     21,660        17,480  

Banco Interbank (A)

     17,145        6,344  

Banco de Chile (AAA)

     1,523        4,822  

Banco Interamericano de Finanzas (A)

     —          4,035  

Banco Bogotá (A)

     4,124        3,756  

Larrain Vial de Chile (A)

     3,368        3,514  

GNB

     —          2,080  

Banco Santander - Chile (AAA)

     7,181        1,941  

Scotiabank Chile (AAA)

     6,758        1,117  

Banco de Crédito e Inversiones - Chile (AA+)

     6,331        937  

Banco Scotiabank de Guyana (A)

     5,462        125  

Others

     5,064        5,061  
  

 

 

    

 

 

 
     544,832        593,075  
  

 

 

    

 

 

 

The ratings in the above table “A and AAA” represent high quality credit ratings. For banks located in Peru, the ratings were derived from risk rating agencies authorized by the Peruvian banking and insurance regulator “Superintendencia de Banca, Seguros y AFP” (SBS). For banks located in Chile, the ratings were derived from risk rating agencies authorized by the Chilean stock and insurance regulator “Superintendencia de Valores y Seguros” (SVS).

 

(*) The difference between the balances shown above with the balances shown in the statement of financial position corresponds to cash on hand and in-transit remittances (Note 9).

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

The credit quality of customers is assessed in three categories (internal classification):

 

  A: New customers/related parties (less than 6 months),

 

  B: existing customers/related parties (with more than 6 months of trade relationship) with no previous default history; and

 

  C: existing customers/related parties (with more than 6 months of trade relationship) with previous default history.

 

     2015      2016  

Trade accounts receivable (Note 11 and Note 12)

     

Counterparties with no external risk rating

     

A

     540,573        117,797  

B

     2,119,217        2,052,356  

C

     342,477        407,151  
  

 

 

    

 

 

 
     3,002,267        2,577,304  
  

 

 

    

 

 

 

Receivable from related parties (Note 13)

     

B

     280,153        713,048  

The total balance of trade accounts receivable and receivable from related parties is in compliance with contract terms and conditions; none of them have been re-negotiated.

With respect to available-for-sale financial assets, the counterparty held an external credit rating of AAA at December 31, 2015.

 

9 CASH AND CASH EQUIVALENTS

At December 31 this account comprises:

 

     2015      2016  

Cash on hand

     6,116        5,944  

In-transit remittances

     3,054        7,931  

Bank accounts

     411,695        475,025  

Time deposits

     123,033        112,023  

Mutual funds

     10,104        6,027  
  

 

 

    

 

 

 
     554,002        606,950  
  

 

 

    

 

 

 

At December 31, 2016, short-term deposits were mainly derived from subsidiaries GyM S.A., GyM Ferrovías, Viva GyM S.A., and GMP S.A. for S/43.7 million, S/24.7 million, S/19.6 million and S/16.4 million respectively and interest rates ranged from 0.10% to 4.95% (GyM S.A., Viva GyM S.A., GyM Ferrovías and Concar S.A. for S/36.7 million, S/33 million, S/23 million and S/11.1 million respectively, at interest rates ranging from 0.10% and 4.70%, at December 31, 2015).

(i) Reconciliation to cash flow statement

The above figures reconcile to the amount of cash shown in the statement of cash flows at the end of the financial year as follows:

 

     2015      2016  

Cash and Cash Equivalent on Balance Sheet

     554,002        606,950  

Bank overdrafts (Note 19)

     —          (8,396
  

 

 

    

 

 

 

Balances per statement of cash flows

     554,002        598,554  
  

 

 

    

 

 

 

 

F-59


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

10 OTHER FINANCIAL ASSETS

On April 2016, the Company sold their 1.64% of interest held in Transportadora de Gas del Perú S.A. (TGP) for S/107.3 million, resulting in a net profit of S/46.3 million, as shown in the income statement, within “Profit (loss) on sale of investments”. The balance of its investment at the date of sale was S/117.1 million.

The cumulative amount of fair values at the date of sale amounting to S/41.5 million (S/56 million of gain on fair value and S/14.6 million of income tax), as recognized in the statement of other comprehensive income was transferred to profits for the period.

At December 31, 2015 the fair value of the Group’s interest in TGP equals S/120.1 million based on the discounted cash flow method. The information used in the calculation was as follows:

 

    Discounted cash flows from operating activities of TGP net of cash flows from investment activities (CAPEX).

 

    Cash flows were estimated for a 30-year term.

 

    The discount rate used was 7.5% corresponding to estimated TGP’s WACC.

 

    The interest of the Company in TGP was 1.64%.

The fluctuation in the fair value of this investment in 2015 amounted to S/19.9 million (S/4.6 million in 2014) net of its income tax effect amounting to S/7 million (S/1.3 million in 2014), which was recognized in the statement of other comprehensive income.

In 2015 dividends from this investment were received for a total S/7.2 million (S/9.3 million in 2014) included within Other income (Note 29).

The most significant assumptions are the discount rate and cash flows affected by the U.S. Wholesale Price Index; the Group performed a sensitivity analysis of this assumptions: if the discount rate were adjusted down by 5% the fair value would be 7.4% lower; and if the discount rate were adjusted up by 5% the fair value would be 7.1% higher; if the cash flows were adjusted down by 5% the fair value would be 9.1% lower and if the cash flows were adjusted up by 5% the fair value would be 8.8% higher.

 

11 TRADE ACCOUNTS RECEIVABLE, NET

At December 31 this account comprises:

 

     2015      2016  

Invoices receivable

     1,548,669        1,556,817  

Collection rights

     135,267        164,645  
  

 

 

    

 

 

 
     1,683,936        1,721,462  

Impairment of receivables

     (19,650      (22,673
  

 

 

    

 

 

 
     1,664,286        1,698,789  

Less: non-current portion

     

Invoices receivable

     (610,695      (652,939

Collection rights

     (11,136      (14,580
  

 

 

    

 

 

 

Total non-current

     (621,831      (667,519
  

 

 

    

 

 

 

Total current

     1,042,455        1,031,270  
  

 

 

    

 

 

 

Invoices receivable are related to estimated percentages of completion approved by customers.

The fair value of current receivables is similar to their carrying amount since their average collection turnover is less than 60 days. These current receivables do not bear interest and have no specific guarantees.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

The non-current portion of the trade accounts receivable is related to the financial asset model (Note 2.5) of subsidiary GyM Ferrovías S.A.

At December 31, 2016 the fair value of non-current accounts receivable amounted to S/606 million (S/514 million at December 31, 2015), which was calculated under the discounted cash flows method, using rates of 7.14% (8.98% at December 31, 2015).

At December 31, 2016, collection rights primarily relate to GyM Ferrovías S.A., GMD S.A., GMI S.A., Concar S.A., CAM Servicios del Perú S.A. and Survial amounting to S/68 million, S/49 million, S/19 million, S/13 million, S/12 million and S/11 million, respectively (GyM Ferrovías S.A., GMD S.A., GMI S.A. and Survial S.A. for S/65 million, S/37 million, S/22 million and S/16 million, respectively in 2015).

Aging of trade accounts receivable is as follows:

 

     At December 31,  
     2015      2016  

Current

     1,245,266        1,396,040  

Past due up to 30 days

     256,743        103,617  

Past due from 31 days up to 180 days

     122,948        113,825  

Past due from 181 days up to 360 days

     16,988        29,506  

Past due over 360 days

     41,991        78,474  
  

 

 

    

 

 

 
     1,683,936        1,721,462  
  

 

 

    

 

 

 

At December 31, 2016 trade accounts receivables with maturity greater than 31 days for S/221.8 million (S/182 million in 2015) are not fully impaired. For 2016 the Group recognized impairment of S/3.1 million (S/5.8 million in 2015) in the consolidated income statement (Note 27).

The maximum exposure to credit risk at the reporting date is the carrying amount of the accounts receivable and of unbilled work in progress (Note 12).

 

12 UNBILLED WORK IN PROGRESS, NET

At December 31 this account comprises:

 

     2015      2016  

Unbilled rights receivable

     1,092,877        1,143,634  

Rights for concessions in progress

     77,440        57,912  

Cost of work in progress

     167,664        87,168  
  

 

 

    

 

 

 
     1,337,981        1,288,714  

Impairment of work in progress (Note 5.1-f)

     —          (410,199
  

 

 

    

 

 

 
     1,337,981        878,515  

Less: non-current portion

     

Unbilled rights receivable

     —          (171,752

Rights for concessions in progress

     (59,754      (25,834
  

 

 

    

 

 

 

Total non-current

     (59,754      (197,586
  

 

 

    

 

 

 

Total current

     1,278,227        680,929  
  

 

 

    

 

 

 

Unbilled rights receivable are the rights that were not billed by the Engineering and Construction segment. Until that revenue is billed, they are stated as unbilled rights receivable. At December 31, 2016, the book value of non-current unbilled rights receivable is similar to its fair value since it was recorded using the discounted cash flow method, using a 1.71% rate.

Rights for concessions in progress include rights of future collections from public services concessions that are in pre-operational stage.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Deferred costs of work in progress include all those expenses incurred by the Group comprising future activities to be carried out under construction contracts currently effective. The Group estimates that all incurred cost will be billed and collected.

At December 31, 2016 and 2015 work in progress that remained to be billed are shown net of any advances received from customers for S/10.58 million and S/42.5 million, respectively under the terms and conditions set forth in each specific agreement. These advances are mostly related to subsidiary GyM S.A.

 

13 TRANSACTIONS WITH RELATED PARTIES AND JOINT OPERATORS

 

  a) Transactions with related parties

Major transactions between the Company and its related parties are summarized as follows:

 

     2014      2015      2016  

Revenue from sales of goods and services:

        

- Associates

     6,040        1,400        —    

- Joint operations

     43,897        52,384        36,901  
  

 

 

    

 

 

    

 

 

 
     49,937        53,784        36,901  
  

 

 

    

 

 

    

 

 

 

Purchase of goods and services:

        

- Associates

     42        18        —    

- Joint operations

     715        489        3,228  
  

 

 

    

 

 

    

 

 

 
     757        507        3,228  
  

 

 

    

 

 

    

 

 

 

Inter-company transactions are based on the price lists in force and terms and conditions that would be agreed with third parties.

 

  b) Key management compensation

Key management includes directors (executives and non-executives), members of the Executive Committee and Internal Audit Management. The compensation paid or payable to key management in 2016 amounted to S/106.9 million (S/111.7 million in 2015) and only relates to short-term benefits.

 

  c) Balances at the end of the year were:

 

     At December 31, 2015      At December 31, 2016  
     Receivable      Payable      Receivable      Payable  

Joint operations:

           

Consorcio Constructor Ductos del Sur

     154,383        —          62,834        37,238  

Consorcio GyM Conciviles

     57,679        —          61,006        —    

Consorcio Rio Urubamba

     10,856        2,819        9,072        —    

Consorcio Peruano de Conservación

     6,270        —          8,784     

-Consorcio Vial Quinua

     1,036        89        4,198        738  

Consorcio Italo Peruano

     465        21,907        4,174        17,325  

Consorcio La Gloria

     3,116        3,077        3,521        3,080  

Terminales del Perú

     9,459        —          3,215        259  

Consorcio Rio Mantaro

     6,021        15,941        3,191        6,886  

Consorcio Vial Sierra

     —          —          940        5,400  

Consorcio Constructor Chavimochic

     2,558        6,422        915        2,471  

Consorcio Energía y Vapor

     3,328        —          491        3,203  

Consorcio Ermitaño

     —             83        6,372  

Consorcio Menegua

     1,910        —          30        3,803  

Consorcio para la Atención y Mantenimiento de Ductos -

     —          —             21,790  

Consorcio Huacho Pativilca

     80        5,041        —          3,434  

Ingeniería y Construcción Sigdo Koppers-Vial

     2,659        3,900        —          —    

Complementarios Ltda.

     84        6,956        —          —    

Other minors

     11,728        7,390        10,134        2,472  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

     At December 31, 2015      At December 31, 2016  
     Receivable      Payable      Receivable      Payable  

Carried forward:

     271,632        73,542        172,588        114,471  

Brought forward:

     271,632        73,542        172,588        114,471  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other related parties:

           

Adexus S.A.

     8,521        —          —          —    

Gaseoducto Sur Peruano S.A

     —          —          531,383        —    

Perú Piping Spools S.A.C.

     —          —          9,077        —    

Ferrovias Participaciones

     —          20,136        —          20,813  

Ferrovias Argentina

     —          —          —          2,835  

Arturo Serna

     —          4,290        —          7,418  
  

 

 

    

 

 

    

 

 

    

 

 

 
     8,521        24,426        540,460        31,066  
  

 

 

    

 

 

    

 

 

    

 

 

 
     280,153        97,968        713,048        145,537  
  

 

 

    

 

 

    

 

 

    

 

 

 

Less non-current portion:

           

Gaseoducto Sur Peruano S.A

     —          —          (531,384      —    

Consorcio Constructor Ductos del Sur

     —          —          —          (37,238

Ferrovias Participaciones

     —          (20,136      —          (20,813

Ferrovias Argentina

     —          —          —          (2,835

Arturo Serna

     —          —          —          (4,434
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-current portion

     —          (20,136      (531,384      (65,320
  

 

 

    

 

 

    

 

 

    

 

 

 

Portion current

     280,153        77,832        181,664        80,217  
  

 

 

    

 

 

    

 

 

    

 

 

 

Receivables and payables are mainly of current maturity and do not have specific guarantees, except for the receivable account from GSP. Accounts receivable from related parties have maturity periods of 60 days and arise from sales of goods and services. These balances are non-interest-bearing due to their short-term maturities and are not impaired.

This balance relates to the commitments that resulted from the early termination of GSP project (Note 16.a-i). At December 31, 2016 the non-current account receivables from related parties is similar to its fair value since it was accounted for using the discounted cash flow method with a 1.71% rate which originated a discount value of US$25.8 million. View events after the date of the statement of financial position in Note 37.

Accounts payable to related parties have maturity periods of 60 days and arise from engineering, construction, maintenance and other services received. These balances are not interest-bearing due to their short-term maturities.

Transactions with non-controlling interest are disclosed in Note 36.

 

14 OTHER ACCOUNTS RECEIVABLE

At December 31 this account comprises:

 

     2015      2016  

Advances to suppliers (a)

     170,126        305,022  

Income tax on-account payments (b)

     165,705        202,045  

Fiscal credit (c)

     146,785        132,316  

Guarantee deposits (d)

     125,269        95,916  

Claims to third parties

     17,846        59,198  

Petróleos del Perú S.A.- Petroperú S.A.

     8,891        46,413  

Temporary tax on net assets

     20,051        21,204  

Taxes receivable

     42,404        13,954  

Claims to SUNAT (pre-paid taxes)

     19,544        16,479  

Restricted funds

     —          14,067  

Rental and sale of equipment

     9,919        13,640  

Receivables from personnel

     8,168        10,726  

Advances pending liquidation

     3,478        2,447  

Loans to third parties

     83,657        1,065  

Other

     64,803        72,976  
  

 

 

    

 

 

 

Carried forward:

     886,646        1,007,468  
  

 

 

    

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

     2015      2016  

Brought forward:

     886,646        1,007,468  

Less non-current portion:

     

Advances to suppliers

     (2,200      (225,567

Fiscal credit

     (55,663      (52,225

Claims to third parties

     —          (32,669

Petróleos del Perú S.A.- Petroperú S.A.

     (7,948      (29,534

Other

     (118      (17,957
  

 

 

    

 

 

 

Non-current portion

     (65,929      (357,952
  

 

 

    

 

 

 

Current portion

     820,717        649,516  
  

 

 

    

 

 

 

Other receivables are neither past due nor impaired. Other non-current accounts receivable have maturities between 2 and 5 years.

The fair value of the short-term receivables approximates their carrying amount due to their short-term maturities. The non-current portion mainly comprises non-financial assets such as advances to suppliers and fiscal credit; the remaining balance is not significant for any period shown in the financial statements.

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of above-mentioned other receivables. The Group does not demand guarantees.

The following paragraph contains a description of major accounts receivable:

 

  (a) Advances to suppliers

In 2016, the balance mainly comprises advances that subsidiary GyM Ferrovias S.A. gave to Alsthom Transporte for S/230 million. In 2015 the balance mainly comprises advances that subsidiary GyM S.A. gave for importing equipment to be used in Consorcio Río Mantaro Project amounting to S/76 million.

 

  (b) Income tax on-account payment

This balance mainly consists of income tax on-account payments made by GyM S.A., GMP S.A., Graña y Montero S.A.A., CAM Holding S.p.A., Viva GyM S.A., GMI S.A. and GMD S.A. for S/133 million, S/17 million, S/16 million, S/16 million, S/5 million, S/4 million and S/4 million, respectively (GyM S.A., Graña y Montero S.A.A., GMP S.A., CAM Holding S.p.A., Concar S.A. and Viva GyM S.A. for S/95 million, S/16 million, S/12 million, S/8 million, S/5 million and S/4 million, respectively in 2015).

 

  (c) Fiscal credit

This item is related to subsidiaries GyM S.A., Viva GyM S.A., Norvial S.A., Negocias del Gas S.A., La Chira S.A. and Concesionaria Vía Expresa Sur S.A. amounting to S/55 million, S/25 million, S/15 million, S/8 million, S/5 million and S/5 million, respectively (GyM S.A., Viva GyM S.A., Norvial S.A., Survial S.A., GyM Ferrovías S.A., La Chira and GMP S.A. for S/41 million, S/22 million, S/15 million, S/14 million, S/13 million, S/12 million and S/3 million, respectively in 2015). Management considers that this VAT fiscal credit will be recovered in the normal course of future operations of these subsidiaries.

 

  (d) Guarantee deposits -

Guarantee deposits are the funds retained by customers for work contracts assumed basically by subsidiary GyM S.A. These deposits are retained by the customers to secure the Subsidiary’s compliance with its obligations under the contracts. The amounts retained will be recovered once the contracted work is completed.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

15 INVENTORIES, net

At December 31 this account comprises:

 

     2015      2016  

Land

     361,082        398,120  

Work in progress - Real estate

     415,538        289,775  

Finished properties

     136,621        244,240  

Construction material

     162,538        114,919  

Merchandise and supplies

     87,643        97,860  
  

 

 

    

 

 

 
     1,163,422        1,144,914  

Impairment of inventories (Note 5.1-f)

     (4,268      (40,621
  

 

 

    

 

 

 
     1,159,154        1,104,293  
  

 

 

    

 

 

 

Land -

At December 31, land comprises properties for the implementation of the following projects of subsidiary Viva GyM:

 

     2015      2016  

Lurín (a)

     92,071        95,634  

Miraflores (b)

     79,971        80,552  

San Miguel (c)

     69,859        70,556  

San Isidro (d)

     —          46,606  

Ancón (e)

     33,068        35,934  

Nuevo Chimbote

     15,834        17,054  

Huancayo

     11,324        11,618  

Villa el Salvador

     19,143        —    

San Martín de Porres

     12,978        —    

Others

     26,834        40,166  
  

 

 

    

 

 

 
     361,082        398,120  
  

 

 

    

 

 

 

 

  (a) Plot of land of 750 hectares located in the district of Lurín, province of Lima, for industrial development and public housing.
  (b) Plot of land located in Av. El Ejército, Urbanización. Santa Cruz, Miraflores, province of Lima, a development complex consisting of a 5-star hotel, convention center, business, cultural, commercial and residential building center.
  (c) Plot of land located in the district San Miguel of 1.4 hectares to develop a traditional multi-family building of 1,004 apartments in 4 stages.
  (d) A plot of land in the district of San Isidro in which a 15-storey building will be built with 28 apartments and 121 parking spaces.
  (e) A 108-hectare land property in which a mega housing-project will be implemented, including apartments ranging from 55 m 2 to 75 m 2 , as well as houses of 75 m 2 .

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Land properties maintained from 2015 consist of assets of projects, the construction of which have not begun. Changes in these balances over 2016 primarily reflects higher costs of project engineering, license paperwork and other smaller costs. Construction in these land properties is expected to begin in late 2017 and the first quarter of 2019. The land property located in San Martín de Porres was reclassified to “Finished properties” since the construction started and finished at December 31, 2016. The plot of land in Villa El Salvador was sold in 2016.

Real estate - work in progress

At December 31, real state work in progress comprises the following projects:

 

     2015      2016  

Klimt

     67,910        100,751  

Los Parques de Comas

     77,346        89,074  

Los Parques del Callao

     57,672        51,613  

Real 2

     7,497        17,181  

Villa El Salvador 2

     9,918        12,674  

El Rancho

     166,256        —    

Los Parques de San Martín (2nd phase)

     19,063        —    

Others

     9,876        18,482  
  

 

 

    

 

 

 
     415,538        289,775  
  

 

 

    

 

 

 

During 2016 the Company has capitalized financing costs of these construction projects amounting to S/12.2 million at interest rates between 6.75% and 8.90% (S/4 million in 2015 at interest rates between 5.3% and 9.5%; and S/9 million in 2014 at interest rates between 3.12% and 8.5%).

Finished properties -

At December 31, the balance of finished properties consists of the following investment properties:

 

     2015      2016  

El Rancho

     —          121,302  

Panorama

     70,951        33,443  

Los Parques de San Martín de Porres

     21,557        30,724  

Los Parques del Callao

     —          19,736  

Rivera Navarrete

     14,085        11,966  

Los Parques de Carabayllo 2nd phase

     9,848        7,497  

Los Parques de Comas

     4,115        7,336  

Los Parques de Villa El Salvador II

     12,604        5,951  

Others

     3,461        6,285  
  

 

 

    

 

 

 
     136,621        244,240  
  

 

 

    

 

 

 

Construction materials

At December 31, 2016 and 2015, construction materials relates mainly to GSP project for S/54.8 million and S/68.3 million, respectively, of which S/33.8 million corresponding to Consorcio Constructor Ductos del Sur (CCDS) were impaired in 2016 (Note 5.1-f).

At December 31, 2016 borrowings are secured with land properties and work in progress comprising the following projects: Los Parques de Callao, Ancón and El Rancho. The total amount of the guarantee is S/101.2 million (S/175 million in 2015).

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

16 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

At December 31 this account comprises:

 

     2015      2016  

Associates

     490,702        286,403  

Joint ventures

     146,303        103,356  
  

 

 

    

 

 

 
     637,005        389,759  
  

 

 

    

 

 

 

The amounts recognized in the income statement are as follows:

 

     2014      2015      2016  

Associates

     29,132        22,800        (584,801

Joint ventures

     24,313        2,193        (4,909
  

 

 

    

 

 

    

 

 

 
     53,445        24,993        (589,710
  

 

 

    

 

 

    

 

 

 

 

  a) Investment in associates

Set out below are the associates of the Group at December 31, 2015 and 2016. The associates listed below have share capital solely consisting of common shares, which are held directly by the Group. None of the associates are listed companies; therefore, there is no quoted market price available for their shares.

 

                          Carrying amount  
     Class      Interest in capital      At December 31,  

Entity

   of share      2015      2016      2015      2016  
            %      %                

Gasoducto Sur Peruano S.A.

     Common        20.00        20.00        437,494        218,276  

Promoción Inmobiliaria del Sur S.A.

     Common        22.50        22.50        28,733        31,768  

Concesionaria Chavimochic S.A.C.

     Common        26.50        26.50        17,202        32,394  

Betchel Vial y Vives Servicios

              

Complementarios Ltda.

     Common        40.00        40.00        6,187        69  

Others

              1,086        3,896  
           

 

 

    

 

 

 
              490,702        286,403  
           

 

 

    

 

 

 

The most significant associates are described as follows:

 

  i) Gasoducto Sur Peruano S.A. -

In November 2015, the group acquired a 20% interest in Gasoducto Sur Peruano (hereinafter GSP) and obtained a 29% interest in the Ductos del Sur Consortium (CCDS) through its subsidiary GyM. GSP signed on July 22, 2014 a concession contract with the Peruvian government (Grantor) to build, operate and maintain the transportation system by natural gas pipelines to meet the demand of the cities of the Peruvian southern region. Additionally, GSP signed an engineering, procurement and construction (EPC) contract with the Ductos del Sur Consortium (CCDS). The Group made an investment of US $ 242.5 million (S / 811 million), and was required to assume 20% of the performance guarantee established in the Concession contract for US $ 262.5 million (equivalent to S / 882 million) and 20% of the guarantee for the bridge loan obtained by GSP for US $ 600 million (equivalent to S / 2,016 million) See subsequent events after the date of the statement of financial position in Note 37.

 

  ii) Promoción Inmobiliaria del Sur S.A.

An entity engaged in purchasing land properties to obtain gains from their subsequent appreciation and disposal in the long term. Major assets consist of plots of land of 891.08 hectares in Lurín and 2.07 hectares in Punta Hermosa, both in Lima. Based on recent appraisals of the properties,

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Management believes that the commercial value of these properties is higher than their carrying amount.

 

  iii) Concesionaria Chavimochic S.A.C.

An entity that was awarded with the implementation of the Chavimochic irrigation Project, including: a) design and construction of the work required for the third-phase of the Chavimochic irrigation project in the province of La Libertad; b) operation and maintenance of works; and c) water supply to the Project users. Construction activities started in 2015; the concession effective period is 25 years and the total investment amounts US$647 million.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

The following table shows financial information of the principal associates:

Summarized financial information for associates -

 

     Gaseoducto Sur Peruano S.A.     Promoción Inmobiliaria
del Sur S.A.
    Chavimochic S.A.C.  
     At December, 31     At December, 31     At December, 31  
     2015     2016     2015     2016     2015     2016  

Current

            

Assets

     303,219       375,547       124,887       149,300       171,400       120,342  

Liabilities

     (3,357,508     (6,747,492     (32,072     (187,380     (110,799     (3,160

Non-current

            

Assets

     4,943,392       8,522,099       47,699       193,127       8,608       8,282  

Liabilities

     (7,442     —         (13,090     (13,855     (2,547     (1,918
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net assets

     1,881,661       2,150,154       127,424       141,192       66,662       123,546  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Gasoducto Sur Peruano S.A.     Promoción Inmobiliaria
del Sur S.A.
    Chavimochic S.A.C.  
     2015     2016     2014     2015     2016     2014     2015     2016  

Revenues

     3,007,799       3,323,410       88,870       90,970       65,071       67,473       376,124       264,386  

Profit (loss) from continuing operations

     69,191       (1,372,594     82,080       80,372       42,281       175       22,995       (2,994

Income tax

     (19,828     —         (24,521     (25,373     (11,839     (57     (6,656     921  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) from continuing operations after income tax

     49,363       (1,372,594     61,402       65,245       30,442       118       16,339       (2,073
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     —         —         —         —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     49,363       (1,372,594     61,402       65,245       30,442       118       16,339       (2,073
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

The movement of the investments in associates is as follows:

 

     2014      2015      2016  

Opening balance

     28,209        82,494        490,702  

Contributions

     —          —          390,506  

Acquisition of Gasoducto Sur Peruano (Note 16 a-i)

     —          437,494        —    

Acquisitions

     51,244        —          —    

Change in corporate structure of

        

Panorama Project (Note 16 a-ii)

     —          (39,180      —    

Dividends received

     (25,191      (9,838      (10,149

Equity interest in results

     29,132        22,800        8,304  

Impairment of GSP

     —          —          (593,105

Decrease in capital

     —          —          (166

Derecognition of investments

     —          (2,755      —    

Conversion adjustment

     (900      (313      311  
  

 

 

    

 

 

    

 

 

 

Final balance

     82,494        490,702        286,403  
  

 

 

    

 

 

    

 

 

 

In addition to the GSP acquisition described in Note 16 a-i); in 2014, 2015 and 2016 the following significant movements were noted:

 

    During 2016 cash contributions were made principally to Gasoducto Sur Peruano S.A. and Concesionaria Chavimochic amounting to S/373.9 million and S/15.7 million, respectively.

 

    In 2016 the Group obtained dividends mainly from Betchel Vial y Promoción Inmobiliaria del Sur S.A. amounting to S/6.3 million and S/3.8 million, respectively. In 2015 the Group received dividends from Promoción Inmobiliaria del Sur S.A. amounting to S/9.8 million (from Promoción Inmobiliaria del Sur S.A., Ingeniería y Construcción Vial y Vives OGP -1 Limitada y Betchel Vial y Vives Servicios Complementarios Ltda. for S/3.4 million, S/16.6 million and S/4.9 million, respectively in 2014).

 

    In 2016, the Group included an impairment provision of GSP for S/593.1 million (US$176.49 million). See subsequent events after the date of the statement of financial position in Note 37.

 

    In 2015, the “share of the profit or loss in associates and joint ventures under the equity method” shown in the income statement includes S/17.3 million as expenses that subsidiary GyM S.A. had to pay for the execution of the letter of guarantee in JV Panama.

 

    In March 2014, Constructora Norberto Odebrecht S.A. and Odebrecht Partipacoes e Investimentos S.A. formed Concesionaria Chavimochic S.A.C., in which the Company had a 26.5% interest based on a capital contribution of S/13.3 million.

 

    In December 2014, subsidiary Viva GyM S.A. made a capital contribution of S/37.8 million, by which it joined the Panama Project initially carried out by a third party and the Group and by which a 35% interest was obtained. On December 17, 2015 the business operating structure was decided to be changed, which resulted in the extinguishment of the association and the formation of a consortium by which the partners would have joint control of the business, with no effect on their percentage share in profit distribution. From that date onwards, the Group ceased to use the equity method of accounting to recognize the investment and began to use the joint operation accounting treatment.

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

  b) Investment in Joint Ventures -

Set out below are the joint ventures of the Group as of December 31:

 

Entity

   share      2015      2016      2015      2016  
            %      %                

Tecgas N.V.

     Common        51.00        51.00        79,450        84,100  

Sistemas SEC

     Common        49.00        49.00        9,228        9,591  

Logistica Químicos del Sur S.A.C.

     Common        50.00        50.00        8,265        8,515  

G.S.J.V. SCC

     Common        50.00        50.00        8,800        861  

Constructora SK-VyV Ltda.

     Common        50.00        50.00        3,287        59  

Adexus S.A. (Note 33 a)

     Common        44.00        —          37,034        —    

Others

     Common              239        230  
           

 

 

    

 

 

 
              146,303        103,356  
           

 

 

    

 

 

 

 

  i) Tecgas N.V. -

This entity provides services of operations and maintenance of oil pipelines and related activities, its activities are focused in the service agreement of operations and maintenance of oil pipelines of the concession of Transportadora de Gas del Perú S.A.A. - TGP (its largest customer).

 

  ii) Sistemas SEC -

The company’s activities include the renovation and automation of the electrical system and signaling of railways and communications within the Santiago - Chillán - Bulnes - Caravans and Conception areas. The contract was awarded in 2005 for a period of 16 years.

 

  iii) Adexus S.A. -

It is mainly engaged in providing specialized technological IT services and communications solutions, including system integration to companies in a wide range of industries, such as financial services, telecommunications, manufacturing, mining, retail, among others. The Group acquired control of this company since August 2016, going from a joint venture to a subsidiary (Note 33-a).

The following table shows the financial information of the principal joint ventures:

Summarized financial information for joint ventures -

 

     Tecgas N.V.      Adexus S.A.  
     At December 31,      At December 31,  
     2015      2016      2015  

Current

        

Cash and cash equivalents

     71,903        67        13,626  

Other current assets

     41,219        92,843        128,616  
  

 

 

    

 

 

    

 

 

 

Total current assets

     113,122        92,910        142,242  
  

 

 

    

 

 

    

 

 

 

Financial liabilities (excluding trade payables)

     —          —          (100,618

Other current liabilities

     (103,941      (87,780      (68,116
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     (103,941      (87,780      (168,734
  

 

 

    

 

 

    

 

 

 

Non-current

        

Total non-current assets

     192,360        33,336        174,159  

Total non-current liabilities

     (47,686      (7,367      (63,397
  

 

 

    

 

 

    

 

 

 

Net assets

     153,855        31,099        84,270  
  

 

 

    

 

 

    

 

 

 

 

F-71


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

     Tecgas N.V.      Adexus S.A.  
     At December 31,      At December 31,  
     2015      2016      2015  

Revenue

     426,487        457,554        334,376  

Depreciation and amortization

     (11,749      (2,266      (18,387

Interest income

     138        215        47  

Interest expense

     (122      —          (23,026

Profit (loss) from continuing operations

     1,876        (3,209      (35,573

Income tax expense

     (892      (4,078      2,391  
  

 

 

    

 

 

    

 

 

 

Post-tax profit (loss) from continuing operations

     984        (7,287      (33,182
  

 

 

    

 

 

    

 

 

 

Other comprehensive income

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Total comprehensive income

     984        (7,287      (33,182
  

 

 

    

 

 

    

 

 

 

The movement of the investments in joint ventures was as follows:

 

     2014      2015      2016  

Opening balance

     59,758        147,069        146,303  

Debt capitalization

     —          —          8,308  

Contributions

     —          —          6,889  

Equity interests in profits

     24,313        2,193        (4,909

Acquisitions

     78,615        44,145        —    

Transfer of Adexus from acquisition of control

     —          —          (35,870

Dividends received

     (11,527      (42,122      (17,843

Decrease in capital

     —          (3,364      (1,798

Translation adjustment

     (4,090      (1,618      2,276  
  

 

 

    

 

 

    

 

 

 

Final balance

     147,069        146,303        103,356  
  

 

 

    

 

 

    

 

 

 

In 2016, 2015 and 2014 the following significant movements were carried out:

 

    The Group obtained dividends in 2016 principally from Consorcio G.S.J.V.SCC and Constructora SK - VyV Ltda. for S/13.1 y S/3.3 million (S/41.1 million in 2015 and S/11.5 million in 2014 from Constructora SK - VyV Ltda.).

 

    In February and December 2016 a debt with Adexus was capitalized and a cash contribution was made to Tecgas N.V. for S/8.3 million and S/6.9 million, respectively.

 

    In August 2015 the Company acquired a 44% interest in the share capital of Adexus S.A. amounting to S/44.1 million. This investment includes goodwill arising from the acquisition for S/20.7 million. In February 2016 the Group acquired 8% of additional interest by capitalizing debt for S/8.3 million. In August 2016, the Group obtained control over Adexus S.A. and the balance of the investment at that date was transferred to investments in subsidiaries for S/35.9 million. Since that date, the Company consolidated the financial statements of Adexus S.A (Note 33 a).

 

    In December 2014, the Company acquired 51% of the share capital of Tecgas N.C. current strategic partner of Transportadora de Gas del Perú, which holds 100% the share capital of Compañía Operadora de Gas del Amazonas (hereinafter COGA) for a total of S/75.8 million. This investment included goodwill resulting from the above-mentioned acquisition amounting to S/68.2 million.

 

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Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

17 PROPERTY, PLANT AND EQUIPMENT, NET

The movement in property, plant and equipment accounts and its related accumulated depreciation for the year ended December 31, 2014, 2015 and 2016 is as follows:

 

                             Furniture and     Other     Replacement     In-transit     Work        
     Land     Buildings     Machinery     Vehicles     fixtures     equipment     units     units     in progress     Total  

At January 1, 2014

                    

Cost

     29,342       110,456       855,084       361,876       37,675       149,438       10,646       21,829       98,043       1,674,389  

Accumulated depreciation

     —         (26,130     (380,281     (180,793     (23,906     (110,305     (68     —         —         (721,483
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

     29,342       84,326       474,803       181,083       13,769       39,133       10,578       21,829       98,043       952,906  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net opening carrying amount

     29,342       84,326       474,803       181,083       13,769       39,133       10,578       21,829       98,043       952,906  

Additions

     17       19,349       133,230       87,958       8,434       40,125       98       19,982       119,773       428,966  

Acquisition of subsidiary - Morelco (Note 33 b)

     1,993       8,869       53,942       1,844       254       1,653       —         —         526       69,081  

Acquisition of subsidiary - Coasin (Note 33 c)

     —         —         —         —         —         711       —         —         —         711  

Reclassifications

     —         67,454       24,523       (3,048     468       (3,316     (2,043     (31,415     (52,623     —    

Transfers to intangibles (Note 18)

     —         —         —             —         —         —         (66,604     (66,604

Deduction for sale of assets

     —         (3,066     (61,508     (52,364     (2,514     (3,087     (851     (830     —         (124,220

Disposals - cost

     —         (2,327     (10,404     (1,402     (585     (8,319     (605     —         801       (22,841

Depreciation charge

     —         (11,996     (89,463     (52,697     (6,896     (22,100     (7     —         —         (183,159

Depreciation for transfers

     —         (2,222     375       (3,036     958       3,925       —         —         —         —    

Depreciation for sale deductions

     —         2,959       45,001       33,458       2,214       2,394       71       —         —         86,097  

Disposals - accumulated depreciation

     —         1,910       8,339       1,253       351       5,753       —         —         —         17,606  

Translations adjustments

     (677     (285     ( 8,380     (787     (586     (336     —         (389     (85     (11,525
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net final carrying amount

     30,675       164,971       570,458       192,262       15,867       56,536       7,241       9,177       99,831       1,147,018  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2014

                    

Cost

     30,675       200,450       986,487       394,077       43,146       176,869       7,245       9,177       99,831       1,947,957  

Accumulated depreciation and impairment

     —         (35,479     (416,029     (201.815     (27,279     (120,333     (4     —         —         (800,939
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

     30,675       164,971       570,458       192,262       15,867       56,536       7,241       9,177       99,831       1,147,018  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-73


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

                             Furniture and     Other     Replacement     In-transit     Work        
     Land     Buildings     Machinery     Vehicles     fixtures     equipment     units     units     in progress     Total  

At January 1, 2015

                    

Cost

     30,675       200,450       986,487       394,077       43,146       176,869       7,245       9,177       99,831       1,947,957  

Accumulated depreciation and impairment

     —         (35,479     (416,029     (201,815     (27,279     (120,333     (4     —         —         (800,939
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

     30,675       164,971       570,458       192,262       15,867       56,536       7,241       9,177       99,831       1,147,018  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net initial carrying amount

     30,675       164,971       570,458       192,262       15,867       56,536       7,241       9,177       99,831       1,147,018  

Additions

     —         9,021       105,575       86,923       12,684       22,802       —         16,018       44,933       297,956  

CAM Brazil deconsolidation

     —         (839     ( 1,462     ( 633     (70     —         —         —         —         (3,004

Reclassifications

     —         36,180       32,389       9,300       1,245       7,272       10,529       (23,092     (73,823     —    

Transfers to intangibles (Note 18)

     —         —         68       —         —         —         —         —         (36,785     (36,717

Transfers to accounts receivable

     —         (3,635     —         —         (777     (4,442     —         —         (5,168     (14,022

Deduction for sale of assets

     (2,001     (1,235     ( 35,118     (42,464     (1,491     (7,979     —         —         (14,185     (104,473

Disposals - cost

     —         (5,057     ( 10,224     ( 362     (2,299     (1,810     (2,326     (89     (1,206     (23,373

Depreciation charge

     —         (13,598     (116,993     (54,808     (5,156     (24,225     —         —         —         (214,780

Depreciation for sale deductions

     —         1,003       23,907       32,566       799       7,751       —         —         —         66,026  

Disposals - accumulated depreciation

     —         3,060       4,373       323       503       1,331       —         —         —         9,590  

Translations adjustments

     (265     (306     ( 8,288     ( 2,221     (128     (506     —         (197     (553     (12,464
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net final carrying amount

     28,409       189,565       564,685       220,886       21,177       56,730       15,444       1,817       13,044       1,111,757  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2015

                    

Cost

     28,409       231,029       1,074,195       443,239       52,225       191,238       15,448       1,817       13,044       2,050,644  

Accumulated depreciation and impairment

     —         (41,464     (509,510     (222,353     (31,048     (134,508     (4     —         —         (938,887
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

     28,409       189,565       564,685       220,886       21,177       56,730       15,444       1,817       13,044       1,111,757  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-74


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

     Land     Buildings     Machinery     Vehicles     Furniture and
fixtures
    Other
equipment
    Replacement
units
    In-transit
units
    Work in
progress
    Total  

At January 1, 2016

                    

Cost

     28,409       231,029       1,074,195       443,239       52,225       191,238       15,448       1,817       13,044       2,050,644  

Accumulated depreciation and impairment

     —         (41,464     (509,510     (222,353     (31,048     (134,508     (4     —         —         (938,887
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

     28,409       189,565       564,685       220,886       21,177       56,730       15,444       1,817       13,044       1,111,757  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net initial carrying amount

     28,409       189,565       564,685       220,886       21,177       56,730       15,444       1,817       13,044       1,111,757  

Additions

     6,238       12,126       81,378       50,574       4,423       24,870       553       19,312       13,594       213,068  

Acquisition of subsidiary – Adexus (Note 33 a)

     —         13,913       —         420       1,525       26,130       —         —         —         41,988  

Reclassifications

     —         588       1,927       ( 1,172     4,456       13,156       2,583       (17,349     (4,189     —    

Transfers from inventories

     2,941       —         —         —         —         —         —         —         —         2,941  

Transfers to intangibles (Note 18)

     —         —         —         —         —         —         —         —         (1,257     (1,257

Deduction for sale of assets

     (5,256     (14,333     ( 60,374     (48,521     (1,724     (5,766     —         —         —         (135,974

Disposals - cost

     —         ( 1,232     ( 15,149     ( 1,354     (1,579     (4,364     (661     (2     —         (24,341

Depreciation charge

     —         (14,842     (104,638     (48,041     (7,548     (28,127     (5     —         —         (203,201

Impairment loss

     —         ( 73     ( 5,190     ( 317     (3,301     (382     —         —         —         (9,263

Depreciation for sale deductions

     —         8,113       48,266       29,536       1,026       1,907       —         —         —         88,848  

Disposals - accumulated depreciation

     —         939       14,430       886       1,540       3,991       —         —         —         21,786  

Translations adjustments

     282       130       5,987       922       176       (344     —         —         94       7,247  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net final carrying amount

     32,614       194,894       531,322       203,819       20,171       87,801       17,914       3,778       21,286       1,113,599  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2016

                    

Cost

     32,614       241,150       1,088,229       443,641       59,593       246,102       17,923       3,778       21,286       2,154,316  

Accumulated depreciation and impairment

     —         (46,256     (556,907     (239,822     (39,422     (158,301     (9     —         —         (1,040,717
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

     32,614       194,894       531,322       203,819       20,171       87,801       17,914       3,778       21,286       1,113,599  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-75


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

In 2016 and 2015 additions to the carrying amount correspond to the acquisition of fixed assets under finance leases or by direct acquisition.

The balance of work in progress at December 31, 2016 relates mainly to investments made by the subsidiary GMP S.A. for S/19 million (S/3 million at December 31, 2015) for the activities of oil drilling in order to increase the volume of exploitation of oil and gas. Additionally, the balance includes the construction work of Proyecto Hotel Larcomar for S/14.4 million (S/11 million in 2015).

In 2016 fixed asset sales amounted to S/70.5 million (S/55.8 million and S/42.4 million in 2015 and 2014, respectively) resulting in profits of S/18.4 million (profits of S/17.4 and S/4.3 million in 2015 and 2014, respectively) that are shown in the statement of income within “other income and expenses, net” (Note 29), the difference between the income proceeds from disposals of fixed assets and their profit are shown within “revenue from construction activities” and “gross profit”, respectively.

Depreciation of fixed assets and investment properties for the year is broken down in the statement of income as follows:

 

     2014      2015      2016  

Cost of services and goods

     168,634        196,725        191,113  

Administrative expenses

     14,525        18,055        12,088  
  

 

 

    

 

 

    

 

 

 

Total depreciation related to property, plant and equipment

     183,159        214,780        203,201  
  

 

 

    

 

 

    

 

 

 

(+) Depreciation related to investment property

     2,151        2,290        2,321  
  

 

 

    

 

 

    

 

 

 

Total depreciation charged to expenses

     185,310        217,070        205,522  
  

 

 

    

 

 

    

 

 

 

The Group determined indicators of impairment of items of property, plant and equipment relating to: i) early termination of the GSP concession in respect of Consorcio Constructor Ductos del Sur (CCDS) and ii) assets under stand-by status. Management calculated the recoverable amount of those assets as the fair value; fair value was determined taking into account appraisals performed by independent experts. The recognized impairment loss is mainly related to Consorcio Constructor Ductos del Sur (CCDS) for a total of S/4.1 million (Note 5.1-f), GyM for S/2.39 million and Stracon GyM S.A. for S/2.34 million, which are shown within “Expenses by nature” (Note 27).

The net carrying amount of machinery and equipment, vehicles and furniture and fixtures acquired under finance lease agreements is broken down as follows:

 

     At December 31,  
     2015      2016  

Cost of acquisition

     735,591        800,927  

Accumulated depreciation

     (327,465      (386,411
  

 

 

    

 

 

 

Net carrying amount

     408,126        414,516  
  

 

 

    

 

 

 

Other financial liabilities are secured with items of property, plant and equipment for S/617.9 million (S/440.8 million in 2015).

At December 31, 2016 the Group have fully depreciated property, plant and equipment items that are still in use for S/151.6 million (S/155.8 million, at December 31, 2015).

 

F-76


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

18 INTANGIBLE ASSETS, NET

The movement of intangible assets and that of their related accumulated amortization, as of December 31, 2014, 2015 and 2016, is as follows:

 

    Goodwill     Trade-
marks
    Concession
rights
    Contractual
relations
with clients
    Internally
generated
software and
development
costs
    Costs of
development
of wells
    Development
costs
    Land use
right
    Other
assets
    Totals  

At January 1, 2014

                   

Cost

    95,342       75,812       438,167       57,791       27,547       217,214       3,623       13,288       11,636       940,420  

Accumulated amortization

    (21,995     (2,868     (258,172     (28,256     (23,450     (118,612     (3,623     —         (2,559     (459,535
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

    73,347       72,944       179,995       29,535       4,097       98,602       —         13,288       9,077       480,885  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net initial carrying amount

    73,347       72,944       179,995       29,535       4,097       98,602       —         13,288       9,077       480,885  

Additions

    —         —         135,502       —         2,804       —         —         —         5,238       143,544  

Acquisition of subsidiary - Morelco (Note 33 b)

    103,055       33,326       847       30,318       —         —         —         —         —         167,546  

Acquisition of subsidiary - Coasin (Note 33 c)

    6,413       —         6       —         1,371       —         —         —         —         7,790  

Transfers from assets under construction (Note 17)

    —         —         1,845       —         1,677       64,759       —         —         (1,677     66,604  

Reclassifications

    —         —         920       —         180       (251     —         —         (849     —    

Derecognition - cost

    —         —         (16,016     —         (29     —         —         —         (91     (16,136

Amortization charge

    —         —         (26,823     (14,987     (3,013     (31,780     —         —         (778     (77,381

Derecognition - accumulated amortization

    —         —         15,491       —         1       —         —         —         —         15,492  

Amortization reversal (Vial y Vives)

    —         2,651       —         —         —         —         —         —         —         2,651  

Translations adjustments

    (2,666     (6,303     (88     (1,876     (1,319     —         —         —         —         (12,252
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net final carrying amount

    180,149       102,618       291,679       42,990       5,769       131,330       —         13,288       10,920       778,743  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2014

                   

Cost

    202,144       102,835       561,183       86,233       32,231       281,722       3,623       13,288       14,257       1,297,516  

Accumulated amortization

    (21,995     (217     (269,504     (43,243     (26,462     (150,392     (3,623     —         (3,337     (518,773
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

    180,149       102,618       291,679       42,990       5,769       131,330       —         13,288       10,920       778,743  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-77


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

    Goodwill     Trade-
marks
    Concession
rights
    Contractual
relations
with clients
    Internally
generated
software and
development
costs
    Costs of
development
of wells
    Development
costs
    Land use
right
    Other
assets
    Totals  

At January 1, 2015

                   

Cost

    202,144       102,835       561,183       86,233       32,231       281,722       3,623       13,288       14,257       1,297,516  

Accumulated amortization

    (21,995     (217     (269,504     (43,243     (26,462     (150,392     (3,623     —         (3,337     (518,773
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

    180,149       102,618       291,679       42,990       5,769       131,330       —         13,288       10,920       778,743  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net initial carrying amount

    180,149       102,618       291,679       42,990       5,769       131,330       —         13,288       10,920       778,743  

Additions

    5,418       —         165,149       —         9,141       11,842       —         —         3,429       194,979  

CAM Brazil Deconsolidation

    —         —         —         —         (129     —         —         —         —         (129

Transfers from assets under construction (Note 17)

    —         —         —         (68     1,562       33,396       —         —         1,827       36,717  

Transfers to accounts receivable

    —         —         (2,278     —         —         —         —         —         —         (2,278

Transfers to pre-paid expenses

    —         —         (10,923     —         —         —         —         —         (3,684     (14,607

Reclassifications

    —         —         —         —         188       (188     —         —         (3     (3

Amortization charge

    —         —         (25,683     (14,697     (6,033     (42,117     —         —         (825     (89,355

Translations adjustments

    (15,335     (6,084     (51     (4,031     (280     —         —         —         —         (25,781
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net final carrying amount

    170,232       96,534       417,893       24,194       10,218       134,263       —         13,288       11,664       878,286  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2015

                   

Cost

    192,227       96,751       716,125       82,134       42,761       326,723       3,623       13,288       15,425       1,489,057  

Accumulated amortization

    (21,995     (217     (298,232     (57,940     (32,543     (192,460     (3,623     —         (3,761     (610,771
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

    170,232       96,534       417,893       24,194       10,218       134,263       —         13,288       11,664       878,286  

 

F-78


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

    Goodwill     Trade-
marks
    Concession
rights
    Contractual
relations
with clients
    Internally
generated
software and
development
costs
    Costs of
development
of wells
    Development
costs
    Land use
right
    Other
assets
    Totals  

At January 1, 2016

                   

Cost

    192,227       96,751       716,125       82,134       42,761       326,723       3,623       13,288       15,425       1,489,057  

Accumulated amortization

    (21,995     (217     (298,232     (57,940     (32,543     (192,460     (3,623     —         (3,761     (610,771
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

    170,232       96,534       417,893       24,194       10,218       134,263       —         13,288       11,664       878,286  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net initial carrying amount

    170,232       96,534       417,893       24,194       10,218       134,263       —         13,288       11,664       878,286  

Additions

    —         —         118,222       —         16,477       17,772       —         —         19,255       183,568  

Acquisition of subsidiary – Adexus (Note 33 a)

    930       9,088       6,090       12,822       —         —         —         —         4,203       33,133  

Transfers from assets under construction (Note 17)

    —         —         —         —         —         —         —         —         1,257       1,257  

Reclasifications

    —         —         5,258       —         345       —         —         —         (5,603     —    

Disposals – net cost

    —         —         (1,395     —         —         (2,395     —         —         —         (3,790

Amortization charge

    —         —         (28,206     (4,376     (8,043     (40,918     —         —         (1,200     (82,743

Impairment loss

    (38,680     (15,628     —         —         —         —         —         —         —         (54,308

Translations adjustments

    12,038       3,672       (102     171       1,024       —         —         —         (78     2,149  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net final carrying amount

    144,520       93,666       517,760       32,811       20,021       108,722       —         13,288       29,498       960,286  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2016

                   

Cost

    205,195       109,511       844,213       95,127       60,607       342,100       3,623       13,288       34,294       1,707,958  

Accumulated amortization and impairment

    (60,675     (15,845     (326,453     (62,316     (40,586     (233,378     (3,623     —         (4,796     (747,672
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net carrying amount

    144,520       93,666       517,760       32,811       20,021       108,722       —         13,288       29,498       960,286  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-79


Table of Contents

(All amounts expressed in thousands of S/ unless otherwise stated)

 

  a) Goodwill -

Management reviews the results of its businesses based on the type of economic activity carried out.

At December 31 goodwill allocated to cash-generating units (CGU) are:

 

     2015      2016  

Engineering and construction

     125,514        98,587  

Electromechanical

     20,737        20,737  

Mining and construction services

     13,366        13,366  

IT equipment and services

     4,172        5,102  

Telecommunications services

     6,443        6,728  
  

 

 

    

 

 

 
     170,232        144,520  
  

 

 

    

 

 

 

As a result of the impairment testing on goodwill performed by Management on an annual basis, the recoverable amount of the related cash-generating unit is determined based on the higher of its value in use and fair value less cost of disposal. Value in use is determined based on the future cash flows expected to be generated by the assessed CGU.

As a result of these assessments an impairment was identified in one of the CGU’s, Vial y Vives—DSD, and was accounted as of December 31st, 2016. The loss to impairment was generated due to the decrease in the expected flows, as a result of the reduction of the contracts linked to the Backlog. The amount of the impairment it impacted the total amount of goodwill was S/38.7 million.

Major assumptions used by the Group in determining the fair value less cost of disposal and the value in use were as follows:

 

     Engineering and
construction
     Electro-
mechanical
     Mining and
construction
     IT equipment
and services
     Telecommunication
services
 
     %      %      %      %      %  

2015 -

              

Gross margin

     10.80 to 11.50        10.33        11.81        24.31        14.39  

Terminal growth rate

     3.00        2.00        2.00        —          —    

Discount rate

     9.66 to 12.72        11.01        11.71        21.74        10.02  

2016 -

              

Gross margin

     9.50 to 12.99        11.10        12.04        15.00 to 23.19        11.75  

Terminal growth rate

     3.00 to 4.00        2.00        2.00        2.00 to 3.00        3.00  

Discount rate

     9.87 to 11.85        11.48        11.31        14.64 to 24.10        10.80  

These assumptions have been used for the analysis of each CGU included in the operating economic activities for a period of 5 years.

Management determines the budgeted gross margins based on past results and market development expectations. Average growth rates are consistent with those prevailing in the industry. Discount rates used are pre-tax or post-tax as appropriate and reflect the specific risk related to the assessed CGUs.

 

  b) Trademarks -

This item mainly comprises the trademarks acquired in the business combination processes with Vial y Vives S.A.C. (S/75.4 million) in October 2012; Morelco S.A.S. (S/33.33 million) in December 2014; and Adexus S.A. (S/9.1 million) in August 2016. Management determined that the brands obtained from Vial y Vives, Morelco and Adexus have indefinite lives; consequently, annual impairment tests are performed on these intangibles, as described in paragraph a) above.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

As a result of these tests, at December 31, 2016, the Vial y Vives - DSD trademark was partially impaired, the amount of the impairment was S/15.6 million. No provision for impairment was considered necessary to be recorded for 2015.

Major assumptions used by the Group in determining the fair value less cost of disposal are as follows:

 

     Engineering and
construction and
     IT equipment
services
 
     Morelco
%
    

Vial y

Vives - DSD
%

    

Adexus

%

 

2015 -

        

Average revenue growth rate

     13.65        44.49        —    

Terminal growth rate

     3.00        3.00        —    

Discount rate

     12.72        9.66        —    

2016 -

        

Average revenue growth rate

     14.39        24.53        12.60  

Terminal growth rate

     3.00        4.00        3.00  

Discount rate

     11.85        9.87        16.05  

 

  c) Concessions -

The Concession’s intangibles at December 31, 2016 mainly consist of: i) EPC contract for S/405 million (S/317.5 million at December 31, 2015) comprising the construction of the second section of “Ancón-Huacho-Pativilca” highway; ii) improvement of highway for S/18.1 million (S/19.6 million at December 31, 2015), and iii) Borrowing costs that were capitalized for a total of S/22.5 at an interest rate ranging from 7.14% y 8.72% (S/7.7 million in 2015 at an interest rates ranging from 6.75% to 8.375%). By those contracts, the Concessionaire should perform activities to construct, improve and remediate road infrastructure during the Concession effective period.

 

  d) Costs of development of wells -

Through one of its subsidiaries, the Group operates and extracts oil from two oil fields (Block I and Block V) located in the province of Talara in northern Peru. Both oil fields are operated under long-term service agreements by which the Group provides hydrocarbon extraction services to Perupetro.

On December 10, 2014 the Peruvian Government granted subsidiary GMP S.A. a right of exploiting for 30 years the oil blocks III and IV (owned by the Peruvian government-run entity- Perupetro) located in Talara, Piura, 230 wells and 330 wells respectively. The total investment expected to be made in both wells is estimated to be US$560 million; operations began in April 2015 in both blocks.

As part of the Group’s obligations under the relevant service agreements, certain costs will be incurred in preparing the wells in Blocks I, III, IV and V. These costs are capitalized as part of intangible assets at a carrying amount of S/80 million at December 31, 2016 (S/118.4 million at December 31, 2015).

All blocks are amortized on the basis of the useful lives of the wells (estimated to be 5 years for Blocks I and V and 10 years for Blocks III and IV), which is less than the total effective period of the service agreement with Perupetro.

 

  e) Amortization of intangible assets -

Amortization of intangibles is broken down in the income statement as follows:

 

     2014      2015      2016  

Cost of sales and services (Note 27)

     68,089        81,841        74,849  

Administrative expenses (Note 27)

     6,641        7,514        7,894  
  

 

 

    

 

 

    

 

 

 
     74,730        89,355        82,743  
  

 

 

    

 

 

    

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

19 OTHER FINANCIAL LIABILITIES

At December 31 this account comprises:

 

     Total      Current      Non-current  
     2015      2016      2015      2016      2015      2016  

Bank overdrafts

     —          8,396        —          8,396        —          —    

Bank loans

     1,480,071        2,131,901        1,082,860        1,835,340        397,211        296,561  

Finance leases

     301,285        240,141        145,160        117,307        156,125        122,834  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,781,356        2,380,438        1,228,020        1,961,043        553,336        419,395  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  a) Bank loans -

At December 31, 2016 and 2015, this item comprises bank borrowings contracted in local and foreign currency intended for working capital. These obligations are subject to fixed interest rates ranging between 1.0% and 14.4% in 2016 and between 1.0% and 13.1% in 2015.

 

                Current     Non-current  
    Interest     Date of     At December 31     At December 31  
    rate     maturity     2015     2016     2015     2016  

Graña y Montero S.A.A.

   
Libor USD 3M +
from 4.9% to 5.5%
 
 
    2016 / 2020       102,776       932,114       —         —    

GyM S.A.

    1.00% / 7.80%       2016 / 2020       535,776       492,910       286,671       187,029  

Viva GyM S.A.

    6.75% / 8.90%       2016 / 2017       220,423       201,609       8,372       —    

GMP S.A.

    3.65% / 6.04%       2016 / 2020       95,824       77,857       70,220       71,453  

CAM Holding S.A.

    1.30% / 14.43%       2016 / 2018       42,534       69,702       31,948       24,889  

Adexus S.A.

    5.9%       2019       —         42,782       —         13,190  

GMD S.A.

    6.20% / 7.47%       2016 / 2017       30,107       14,746       —         —    

Norvial S.A.

    8.37%       2016       54,706       —         —         —    

Others

    5.56% / 7.18%       2016       714       3,620       —         —    
     

 

 

   

 

 

   

 

 

   

 

 

 
        1,082,860       1,835,340       397,211       296,561  
     

 

 

   

 

 

   

 

 

   

 

 

 

 

  i) Credit Suisse Syndicated Loan -

In December 2015, the Group entered into a medium term loan credit agreement for up to US$200 million (equivalent to S/672 million), with Credit Suisse AG, Cayman Islands Branch, Credit Suisse AG, Cayman Islands Branch and Credit Suisse Securities (USA) LLC. The initial term of the loan was set at five years, with quarterly installments starting to be paid on the 18th month. The loan accrued interest at a rate of three months Libor plus 3.9% per year. The proceeds were used to finance the equity interest in GSP. As of December 31, 2016, the outstanding balance amounted to US$148.5 million (equivalent to S/498.8 million), and it is included within the current portion.

On June 27, 2017, the Group renegotiated the terms of this loan to clear breaches related to the termination of the GSP concession. The new terms require repayment by December, 2020, with required prepayments to be made with the proceeds of asset sales of 40% in the first year and an additional 30% in the second year of the amendment. The syndicated loan accrues interest at LIBOR plus 4.90% per year. Under the amendment, the Group is prohibited from paying dividends until the loan is fully repaid. The loan is secured by (i) a lien on Concar’s shares; (ii) a lien on Almonte’s shares; (iii) a mortgage over certain real estate properties in Miraflores and Surquillo; (iv) liens on certain accounts; (v) a lien on GyM’s share; (vi) a second lien on CAM Holding SPA’s shares; (vii) a second lien on CAM Servicios del Perú S.A.’s shares; and (viii) a first lien on cash flows from the sale of certain assets.

The agreement contains certain covenants, including the obligation by the Company to maintain the following financial ratios during the term of the agreement: (1) the Consolidated EBITDA to Consolidated Interest Expense Ratio shall not be less than 3.5:1.0 commencing on April 1, 2018 and thereafter; (2) the Consolidated Leverage Ratio (as defined therein) shall not be greater than 3.5:1.0 at any time during the period commencing on December 31, 2016 and ending on March 31, 2017; 3.5:1.0 at any time during the period commencing on July 1, 2017 and ending on September 30, 2017; and no greater than 2.5:1.0 at any time thereafter; and (3) the Debt Service Coverage Ratio as of the last day of any fiscal quarter of the borrower, falling on or after the first anniversary of the closing date, shall not be less than 1.5:1.0, commencing on April 1, 2018 and thereafter.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

As of the date of this annual report, we are under continuing default in this financing due to the non-delivery of the audited consolidated financial statements of Graña y Montero and GyM for the 2016 and 2017 fiscal years. The syndicated loan required that we provide the financial statements for the 2016 and 2017 fiscal years no later than April 30, 2018. We are in the process of obtaining waivers from the lenders.

As of to date, the outstanding balance of the loan capital is US$81.1 million (equivalent to S/264.9 million).

 

  ii) GSP Bridge Loan -

At December 31, 2016, the current balance includes US$129 million (equivalent to S/433.3 million) of the corporate guarantee issued by the Company to secure the bridge loan given to GSP, which was enforceable at that date. On June, 2017, the Company has reached a new term loan with Natixis, BBVA, SMBC and MUFJ for US$78.7 million (equivalent to S/264.8 million), the proceeds of which were used to repay the GSP bridge loan.

The maturity is June, 2020, with required prepayments to be made with the proceeds of asset sales of 40% in the first year and an additional 30% in the second year. The new term contains the following covenant: the consolidated leverage ratio shall not be more than 3.5:1.0 at any time, and accrues interest at LIBOR plus 4.50% per year, which increases to 5.00% during the second year and 5.50% during the third year. Under the new term, the Group is prohibited from paying dividends until the loan is fully repaid. Also, the new term is secured by (i) a first lien on rights to receive the termination payment derived from the GSP termination (the “VCN”), (ii) a second lien on our shares of GyM and Concar; (iii) a second lien on our shares of Almonte; (iv) a second lien on certain real estate properties in Miraflores and Surquillo; (v) a second lien on our shares of CAM Holding SPA; (vi) a second lien on our shares of CAM Servicios del Perú S.A.; and (vii) a first lien on cash flows from the sale of certain assets.

As of the date of this annual report, we are under certain continuing defaults under the term loan with respect to certain financial ratios and the non-delivery of the audited consolidated financial statements of Graña y Montero for the 2016 and 2017 fiscal years. The term loan required that we provide the financial statements for the 2016 and 2017 fiscal years no later than April 30, 2018. As of March 2018, (a) our Consolidated Leverage Ratio (as defined therein) was 2.62, rather than no more than 2.50 as required under the syndicated loan and (b) [●]. We are in the process of obtaining waivers from the lenders.

 

  b) Finance lease obligations -

 

                   Current      Non-current  
     Interest      Date of      At December 31      At December 31  
     rate      maturity      2015      2016      2015      2016  

GyM S.A.

     1.90% / 8.96%        2016 / 2023        116,205        80,570        88,715        58,937  

GMD S.A.

     4.99% / 7.00%        2016 / 2020        10,474        10,404        20,024        12,099  

Adexus S.A.

     3.36% / 18.00%        2016 / 2020        —          9,884        —          12,287  

Viva GyM S.A.

     7.30% / 8.95%        2018 / 2022        3,957        4,847        19,190        16,541  

GMP S.A.

     2.65% / 7.20%        2016 / 2018        5,272        4,206        13,087        9,035  

CAM Holding S.A.

     7.19% / 9.27%        2016 / 2020        4,633        3,729        12,382        10,590  

Others

     3.23% / 7.75%        2016 / 2019        4,619        3,667        2,727        3,345  
        

 

 

    

 

 

    

 

 

    

 

 

 
           145,160        117,307        156,125        122,834  
        

 

 

    

 

 

    

 

 

    

 

 

 

The minimum payments to be made by maturity and present value of the finance lease obligations are as follows:

 

     At December 31,  
     2015      2016  

Up to 1 year

     157,957        127,496  

From 1 to 5 years

     160,824        112,769  

Over 5 years

     10,431        19,506  
  

 

 

    

 

 

 
     329,212        259,771  

Future financial charges on finance leases

     (27,927      (19,630
  

 

 

    

 

 

 

Present value of the obligations for finance lease contracts

     301,285        240,141  
  

 

 

    

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

The present value of finance lease obligations is broken down as follows:

 

     At December 31,  
     2015      2016  

Up to 1 year

     145,160        117,307  

From 1 year to 5 years

     146,316        105,978  

Over 5 years

     9,809        16,856  
  

 

 

    

 

 

 
     301,285        240,141  
  

 

 

    

 

 

 

 

  c) Fair value of borrowings -

The carrying amount and fair value of borrowings are broken down as follows:

 

     Carrying amount      Fair value  
     At December 31,      At December 31,  
     2015      2016      2015      2016  

Bank overdrafts

     —          8,396        —          8,396  

Loans

     1,480,071        2,131,901        1,493,981        2,142,890  

Leases

     301,285        240,141        308,202        240,089  
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,781,356        2,380,438        1,802,183        2,391,375  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair values are determined based on discounted expected cash flows using borrowing rates between 1.3% and 14.3% (between 4.8% and 13.1% in 2015) that corresponds to level 2 of the fair value hierarchy.

 

20 BONDS

At December 31 this account comprises:

 

     Total      Current      Non-current  
     2015      2016      2015      2016      2015      2016  

GyM Ferrovías

     607,868        604,031        31,546        20,551        576,322        583,480  

Norvial

     186,223        363,683        5,537        25,540        180,686        338,143  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     794,091        967,714        37,083        46,091        757,008        921,623  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

GyM Ferrovías S.A. -

In February 2015, subsidiary GyM Ferrovías carried out an international issue of corporate bonds under the U.S. Regulation S. The issue was carried out in Soles VAC (the Spanish acronym for constant value update) for a total amount of S/629 million. The costs of issue in this transaction were S/22 million. Maturity of these bonds is November 2039 and interest is accrued at a rate of 4.75% (plus VAC adjustment); they have a risk rating of AA+ (local level) granted by Apoyo & Asociados Internacionales Clasificadora de Riesgo and a guarantee scheme that includes a mortgage on the concession to which GyM Ferrovías is the concessionaire, security interest over the shares of GyM Ferrovías, Cession of the Collection Rights of the Administration Trust, a Flow and Reserve Account Trust for the Debt, Operation and Maintenance Service and Capex currently in progress. At December 31, 2016 the Group amortized a total of S/38.4 million (S/16 million in 2015).

At December 31, 2016 the balance included accrued interest and VAC adjustments payable for S/34.5 million (S/17.3 million at December 31, 2015).

As part of the process of bond structuring, GyM Ferrovías engaged to report on and verify the following covenants measured on the basis of the individual financial statements:

 

    Maintaining debt service coverage ratio of not less than 1.2 times.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

    Mantaining a constant minimum balance of trust equal to a quarter of operating and maintenance costs (including VAT)

 

    Maintaining a constant minimum balance of trust equal to two coupons as per schedule.

Norvial S.A. -

In July 2015, Norvial S.A. issued the First Corporate Bond Program on the Lima Stock Exchange for a total S/365 million. The first issue was for S/80 million at 5 years, bearing an interest rate of 6.75% and funds drawdown performed on July 23, 2015. The second issue was for S/285 million at 11.5 years, bearing an interest rate of 8.375%, structured in 3 disbursements: the first disbursement of S/105 million was on July 23, 2015; the second disbursement of S/100 million was on January 25, 2016; and the third disbursement of S/80 million will be made effective in July 25, 2016. The issues costs corresponding to the first issue and the first disbursement of the second issue were for S/3.9 million. Risk rating agencies Equilibrium y Apoyo & Asociados Internacionales graded this debt instrument AA.

This financing transaction has been secured by (i) a cash flow trust, related to the consideration and the regulatory rate; (ii) a mortgage on the concession in which Norvial S.A. is a concessionaire; (iii) a security on shares; (iv) collection rights and (v) in general, all those additional collaterals given to the secured creditors.

The capital raised is intended to finance the construction of the Second Phase of Red Vial No.5 and the financing of VAT arising from project-related expenses.

At December 31, 2016 the balance included interest payables for S/4.9 million (S/2.7 million at December 31, 2015).

As part of the process of bond structuring, Norvial engaged to report on and verify periodically the compliance of the following covenants:

 

    Debt service coverage ratio of not less than 1.3 times.

 

    Proforma gearing ratio lower than 4 times.

As of December 31, 2015 and 2016 both Companies have complied with their covenants.

Fair value of the bonds of both Companies at December 31, 2016 amounted to S/1,055 million (S/769.5 million at December 31, 2015), which was calculated under discounted cash flows method, using rates between 4.20% and 7.99% (between 4.88% and 8.89% at December 31, 2015), which are within level 2 of the fair value hierarchy.

 

21 TRADE ACCOUNTS PAYABLE

At December 31 this account comprises:

 

     2015      2016  

Unbilled services received

     703,801        924,025  

Invoices payable

     911,793        350,559  

Bills of exchange payable

     20,168        2,033  
  

 

 

    

 

 

 
     1,635,762        1,276,617  
  

 

 

    

 

 

 

Unbilled services received include the estimate made by Management of the valuation of the percentage of completion, amounting to S/127.2 million at December 31, 2016 (S/164.1 million at December 31, 2015).

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

22 OTHER ACCOUNTS PAYABLE

At December 31, this account comprises:

 

     2015      2016  

Advances received from customers

     607,097        810,755  

Salaries and profit sharing payable

     232,102        176,022  

GSP performance guarantee (Note 37-a-i)

     —          176,401  

Put option liability on Morelco acquisition (Note 29 and 33-b)

     111,349        110,604  

Third-party loans

     94,553        69,991  

VAT payable

     77,461        51,607  

Other taxes payable

     51,893        50,548  

Supplier funding

     59,992        40,612  

Acquisition of non-controlling interest (Note 36-a,i)

     —          32,102  

Guarantee deposits

     26,806        16,799  

VAT payable - Fractional

     —          14,170  

Post-retirement benefits

     9,043        9,088  

Interest payable to Oiltanking Perú S.A.C.

     9,015        —    

Other accounts payables

     33,085        50,411  
  

 

 

    

 

 

 
     1,312,396        1,609,110  

Less non-current portion:

     

Advances received from customers

     (80,936      (300,388

Put option liability - Morelco acquisition

     (111,349      (110,604

Third-party loans

     —          (32,000

Supplier funding

     (33,031      (14,086

VAT payable - Fractional

     —          (12,099

Post-retirement benefits

     (9,043      (9,088

Others

     (12,037      (34,538
  

 

 

    

 

 

 
     (246,396      (512,803
  

 

 

    

 

 

 

Current portion

     1,066,000        1,096,307  
  

 

 

    

 

 

 

Advances received from customers relate mainly to construction projects and are discounted from billing under the terms of the relevant agreements.

The fair value of the short-term payables approximates their carrying amount due to their short-term maturities. The non-current portion, mainly comprises non-financial liabilities such as advances received from customers; the remaining balance is not significant for any period shown in the financial statements.

 

23 PROVISIONS

At December 31 this account comprises:

 

     2015      2016  

Legal claims

     15,000        15,732  

Contingent liabilities from the acquisition of Morelco

     15,374        5,182  

Contingent liabilities from the acquisition of Coasin and Vial yVives - DSD

     7,586        1,815  

Contingent liabilities from the acquisition of Adexus

     —          1,128  

Contingent liabilities from CAM acquisition

     3,819        —    

Provision for well closure (Note 5.1 d)

     19,149        17,216  
  

 

 

    

 

 

 
     60,928        41,073  

Less:

     

Non-current portion

     (47,460      (26,542
  

 

 

    

 

 

 

Current portion

     13,468        14,531  
  

 

 

    

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

At December 31, 2016, legal claims mainly comprise provisions for labor liabilities and tax claims for S/14.7 million (S/8 million at December 31, 2015). Claims with the tax authority have been accounted for based on management estimates of the amounts the Group would most likely be required to pay in regard of these current court actions. Due to the fact those amounts will depend on the tax authority, the Group does not have an estimated timing of when these cash outflows would be required.

This legal claims balance also includes court actions brought against the Group by the Peruvian energy regulator (OSINERGMIN) resulting from the storage of hydrocarbons and the applicable environmental laws and regulations for S/6.3 million (S/6.1 million at December 31, 2015).

The gross movement of other provisions is broken down as follows:

 

Other provisions

   Legal
claims
     Contingent
liabilities
resulting from
acquisitions
     Provision
for well
closure
     Total  

At January 1, 2015

     13,056        45,349        7,210        65,615  

Additions

     6,297        —          11,943        18,240  

Reversals

     —          (7,796      —          (7,796

Offsetting

     —          (1,216      —          (1,216

Deconsolidation of CAM Brazil

     (2,353      —          —          (2,353

Payments

     (1,580      (5,186      (4      (6,770

Translation adjustments

     (420      (4,372      —          (4,792
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2015

     15,000        26,779        19,149        60,928  
  

 

 

    

 

 

    

 

 

    

 

 

 

At January 1, 2016

     15,000        26,779        19,149        60,928  

Additions

     9,486        —          462        9,948  

Acquisition of subsidiaries

     1,926        1,149        —          3,075  

Reversals

     (10,569      (17,883      (2,395      (30,847

Payments

     (298      (2,458      —          (2,756

Translation adjustments

     187        538        —          725  
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2016

     15,732        8,125        17,216        41,073  
  

 

 

    

 

 

    

 

 

    

 

 

 

The reverses relate mainly to contingent liabilities in 2016 from subsidiaries Morelco, Vial y Vives - DSD and CAM Chile for S/10.1 million, S/4.0 million and S/3.8 million, respectively (from subsidiaries CAM Chile for S/7.8 million in 2015).

 

24 EQUITY

 

  a) Capital -

At December 31, 2016 and 2015, the authorized, subscribed and paid-in capital, according to the Company’s by laws, and its amendments, comprises 660,053,790 common shares at S/1.00 par value each.

At December 31, 2014 a total of 253,635,480 shares were represented by ADS, equivalent to 50,727,096 ADS at a ratio of 5 shares per ADS; a total of 250,860,370 shares were represented by ADS, equivalent to 50,172,074 ADSs at December 31, 2015 and a total of 264,809,545 shares were represented by ADS, equivalent to 52,961,909 ADSs at December 31, 2016

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

As of December 31, 2016 the Company’s shareholding structure was as follows:

 

Percentage of individual interest in capital

   Number of
shareholders
     Total
percentage of
interest
 

Up to 1.00

     1,988        15.77  

From 1.01 to 5.00

     9        21.13  

From 5.01 to 10.00

     1        5.12  

Over 10

     2        57.98  
  

 

 

    

 

 

 
     2,000        100.00  
  

 

 

    

 

 

 

As of December 31, 2016 the year-end quoted price of the Company’s shares was S/4.7 per share, with a trading frequency of 97.60% (quoted price of S/1.97 per share and a trading frequency of 91.94% at December 31, 2015).

 

  b) Other reserves -

This item comprises legal reserve exclusively. In accordance with Peruvian Company Law, the Company’s legal reserve is formed by the transfer of 10% of the annual net profits, up to a maximum of 20% of the paid-in capital. In the absence of profits or freely available reserves, this legal reserve can be applied to offset losses but it has to be replenished with the profits to be obtained in subsequent years. This reserve can also be capitalized but its subsequent replenishment is equally mandatory. At December 31, 2016 and 2015 the legal reserve balance reached the above-mentioned limit.

 

  c) Voluntary reserve -

At December 31, 2016 and 2015 the balance of this reserve of S/29.97 million correspond to the excess legal reserve, which is above the limit established of 20% of paid-in capital.

 

  d) Share premium -

This item comprises the excess of the total proceeds obtained for the issuance of common shares in 2013 in comparison with the nominal value of those for S/1,055,488.

Also, this balance shows the difference between the par value and transaction value of the non-controlling interest acquired. A detail of this transactions is disclosed in Note 36.

 

  e) Retained earnings -

Dividends to be distributed to shareholders other than legally resident entities are subject to a 4.1% rate (based on 2014’s profits), 6.8% (based on 2015’s and 2016’s profits) and 5.00% (on profits for 2017 and onwards) of income tax payable by these shareholders; this tax rate should be withheld and settled by the Company. Dividends were distributed over 2016 and 2015 (Note 34).

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

 

25 DEFERRED INCOME TAX

Deferred income tax is broken down by its estimated reversal period as follows:

 

     At December 31,  
     2015      2016  

Deferred income tax asset:

     

Reversal expected in the following 12 months

     76,469        86,990  

Reversal expected after 12 months

     71,376        340,018  
  

 

 

    

 

 

 

Total deferred tax asset

     147,845        427,008  
  

 

 

    

 

 

 

Deferred income tax liability:

     

Reversal expected in the following 12 months

     (10,551      (166

Reversal expected after 12 months

     (88,612      (73,003
  

 

 

    

 

 

 

Total deferred tax liability

     (99,163      (73,169
  

 

 

    

 

 

 

Deferred income tax (liability) asset, net

     48,682        353,839  
  

 

 

    

 

 

 

The gross movement of the deferred income tax item is as follows:

 

     2014      2015      2016  

Deferred income tax asset (liability), net as of January 1

     (3,033      58,723        48,682  

Credit to income statement (Note 29)

     57,689        (175      263,806  

Adjustment for changes in rates of income tax

     2,746        (2,008      17,105  

Credit (charge) to other comprehensive income

     (1,328      (7,298      15,004  

Tax charged to equity

     —          —          159  

Acquisition of a subsidiary

     6,172        —          10,363  

Acquisition of joint operation

     —          1,476        —    

Other movements

     (3,523      (2,036      (1,280
  

 

 

    

 

 

    

 

 

 

Total as of December 31

     58,723        48,682        353,839  
  

 

 

    

 

 

    

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

The movement of deferred tax assets and liabilities in the year, without taking into account the offsetting of balances, is as follows:

 

Deferred income tax liability

  Non-taxable
income
    Difference
in depreciation
rates
    Fair value
gains
    Outstanding
work in
progress
    Difference in
depreciation
rates of assets
leased
    Receivables
from local
Government
    Borrowing
costs
recognized
as assets
    Purchase
price
allocation
    Others     Total  

At January 1, 2014

    14,190       13,121       27,857       86,774       10,500       —         —         —         3,628       156,070  

Charge (credit) to P&L

    —         9,936       (8,585     (72,488     219       —         —         —         5,754       (65,164

Charge (credit) to OCI

    —         —         —         —         —         —         —         —         1,328       1,328  

Reclassification of prior years

    —         13,458       (5,540     82       (274     —         —         —         7,777       15,503  

Other

    —         —         —         —         —         —         —         —         3,047       3,047  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2014

    14,190       36,515       13,732       14,368       10,445       —         —         —         21,534       110,784  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge (credit) to P&L

    —         2,791       15,338       16,393       —         9,986       15,178       —         1,347       61,032  

Charge (credit) to OCI

    —         —         7,016       —         —         —         —         —         281       7,297  

Reclassification of prior years

    (14,190     5,849       (5,402     (6,038     (10,445     15,557       —         —         (11,354     (26,020
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2015

    —         45,155       30,684       24,723       —         25,543       15,178       —         11,808       153,093  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge (credit) to P&L

    —         16,595       13,587       (16,481     —         3,324       6,240       —         2,619       25,883  

Charge (credit) to OCI

    —         —         (15,348     —         —         —         —         —         —         (15,348

Reclassification of prior years

    —         —         (28,923     —         —         —         —         30,187       (1,264     —    

Acquisition of Adexus

    —         —         —         —         —         —         —         (3,069     —         (3,069
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2016

    —         61,750       —         2,452       —         28,867       21,418       27,118       13,163       160,559  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Deferred income tax asset

  Provisions     Accelerated
tax
depreciation
    Tax
losses
    Outstanding
work in
progress
    Provision for
unpaid
vacations
    Investments in
subsidiaries
    Impairment     Tax
goodwill
    Others     Total  

At January 1, 2014

    23,887       8,343       52,880       51,645       7,294       —         —         —         8,990       153,039  

Credit (charge) to P&L

    1,579       9,054       2,492       (24,886     4,083       5,613       —         —         (2,664     (4,729

Acquisition of Coasin (Note 32-c)

    16       —         —         —         —         —         —         —         —         16  

Acquisition of Morelco (Note 32-b)

    —         —         —         —         —         6,156       —         —         —         6,156  

Others

    —         —         —         —         —         —         —         —         (473     (473

Reclassification of prior years

    324       5,953       3,664       (2,818     5,596       —         —         —         2,783       15,502  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2014

    25,806       23,350       59,036       23,941       16,973       11,769       —         —         8,636       169,511  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Credit (charge) to P&L

    342       4,076       26,661       18,623       772       (13,832     —         17,522       4,646       58,810  

Acquisition of joint operation

    —         —         —         —         —         1,476       —         —         —         1,476  

Others

    —         —         —         —         —         —         —         —         (1,895     (2,002

Reclassification of prior years

    (5,199     (12,534     5,615       (19,544     (2,768     2,063     —         —         5,263       (26,020
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2015

    20,973       14,892       91,313       24,103       14,977       1,476       —         17,522       16,463       201,775  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge (credit) to P&L

    84,571       1,489       51,163       (6,486     (2,005     (312     172,052       3,003       3,322       306,794  

Charge (credit) to equity

    159       —         —         —         —         —         —         —         —         159  

Charge (credit) to OCI

    —         —         —         —         —         —         —         —         (343     (343

Acquisition of Adexus (Note 32-a)

    —         —         10,607       —         —         —         —         —         (3,313     7,294  

Others

    —         —         —         —         —         (556     —         —         (724     (1,280
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2016

    105,679       16,381       153,083       17,614       12,972       608       172,052       20,525       15,487       514,398  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2016, total tax losses amounted to S/507.3 million of which S/22.28 million are expected to be applied in 2017, S/57.55 million in 2018 and the remaining balance in the following fiscal years (S/334.5 million in 2015, of which S/53.6 were expected to be applied in 2016, S/56.9 million in 2017 and the remaining balance in the following fiscal years).

Tax goodwill arose from a tax credit balance resulting from the reorganization of Chilean subsidiaries in 2014 under Chilean tax laws and regulations. In 2016, the arbitration process relating to Project Collahuasi was completed and an additional payment was determined to be paid to the Chilean subsidiary selling party; which resulted in a higher balance in this item.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

26 WORKERS’ PROFIT SHARING

Worker’s profit sharing is broken down in the income statement as of December 31 as follows:

 

     2014      2015      2016  

Cost of sales of goods and services

     27,396        27,618        15,234  

Administrative expenses

     9,541        7,263        1,297  
  

 

 

    

 

 

    

 

 

 
     36,937        34,881        16,531  
  

 

 

    

 

 

    

 

 

 

 

27 EXPENSES BY NATURE

For the years ended December 31 this item comprises the following:

 

     Goods and      Administrative  
     services      expenses  

2014:

     

Inventories, materials and consumables used

     1,148,533        52  

Wages, salaries and fringe benefits

     1,864,053        210,028  

Services provided by third-parties

     2,105,226        120,714  

Taxes

     11,356        6,212  

Other management charges

     686,593        63,124  

Depreciation

     170,785        14,525  

Amortization

     68,089        6,641  

Impairment of inventories

     62        —    

Impairment of accounts receivable

     —          71  

Impairment of property, plant and equipment

     2,415        —    
  

 

 

    

 

 

 
     6,057,112        421,367  
  

 

 

    

 

 

 

2015:

     

Inventories, materials and consumables used

     1,094,836        —    

Wages, salaries and fringe benefits

     2,128,130        215,101  

Services provided by third-parties

     2,953,247        137,980  

Taxes

     37,129        1,919  

Other management charges

     651,057        30,225  

Depreciation

     199,015        18,055  

Amortization

     81,841        7,514  

Impairment of inventories

     62        —    

Impairment of accounts receivable

     13,118        —    

Impairment of property, plant and equipment

     7,086        2,591  
  

 

 

    

 

 

 
     7,165,521        413,385  
  

 

 

    

 

 

 

2016:

     

Inventories, materials and consumables used

     942,354        —    

Wages, salaries and fringe benefits

     1,544,128        234,474  

Services provided by third-parties

     2,358,699        118,293  

Taxes

     13,922        1,771  

Other management charges

     273,601        24,882  

Depreciation

     193,434        12,088  

Amortization

     74,849        7,894  

Impairment of inventories

     36,353        —    

Impairment of accounts receivable (Note 5.1-f)

     419,584        —    

Impairment of property, plant and equipment

     9,263        —    
  

 

 

    

 

 

 
     5,866,187        399,402  
  

 

 

    

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

For the years ended December 31 wages, salaries and fringe benefits comprise the following items:

 

     2014      2015      2016  

Salaries

     1,579,515        1,792,723        1,312,968  

Social contributions

     133,760        177,307        107,340  

Statutory bonuses

     134,892        135,980        147,311  

Employee’s severance indemnities

     91,100        98,604        72,608  

Vacations

     69,417        79,354        66,305  

Worker’s profit sharing (Note 26)

     36,937        34,881        16,531  

Others

     28,460        24,382        55,539  
  

 

 

    

 

 

    

 

 

 
     2,074,081        2,343,231        1,778,602  
  

 

 

    

 

 

    

 

 

 
  

 

 

    

 

 

    

 

 

 

 

28 FINANCIAL INCOME AND EXPENSES

For the years ended December 31 these items comprise the following:

 

     2014      2015      2016  

Financial income:

        

Interest on short-term bank deposits

     8,010        12,413        9,229  

Interest on loans to third parties

     899        19,749        6,142  

Commissions and collaterals

     969        3,026        4  

Others

     1,584        2,919        5,419  
  

 

 

    

 

 

    

 

 

 
     11,462        38,107        20,794  
  

 

 

    

 

 

    

 

 

 

Financial expenses:

        

Interest expense:

        

- Bank loans

     21,307        55,027        99,730  

- Bonds

     —          6,370        25,352  

- Financial lease

     12,872        15,243        13,847  

- Commissions and collaterals

     4,927        9,368        10,168  

- Loans from third parties

     2,432        6,335        4,681  

- Interest on loans from related parties

     3,026        814        3,452  

- Multilateral loans

     5,022        —          —    

Exchange difference loss, net

     44,282        82,851        12,527  

Derivative financial instruments

     1,819        1,691        1,248  

Lost by Measurement of Financial Asset VR

     —          —          76,864  

Other financial expenses

     9,992        12,256        18,402  

Less capitalized interest

     (2,863      (13,153      (34,700
  

 

 

    

 

 

    

 

 

 
     102,816        176,802        231,571  
  

 

 

    

 

 

    

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

29 OTHER INCOME AND EXPENSES, NET

For the years ended December 31 these items comprise the following:

 

     2014      2015      2016  

Other income:

        

Sales of fixed assets

     33,711        25,690        40,146  

Reversal of legal and tax provisions (Note 23)

     9,394        7,796        18,778  

Legal indemnities

     —          —          8,957  

Sales of investments

     7,481        60        46  

Dividends received from TGP (Note 10)

     9,350        7,215        —    

Disposal of non-current assets classified as held for sale

     —          8,775        —    

Present value of the liability from put option

     —          18,627        —    

Others

     7,509        14,467        18,792  
  

 

 

    

 

 

    

 

 

 
     67,445        82,630        86,719  
  

 

 

    

 

 

    

 

 

 

Other expenses:

        

Impairment of goodwill and trademarks

     —          —          54,308  

Net cost of fixed assets disposal

     29,367        15,669        31,339  

Loss on remeasurement of previously held interest (Note 33-a)

     —          —          6,832  

Present value of the liability from put option

     —          —          984  

Cost of sales of non-current assets classified as held for sale

     —          8,945        —    

Others

     22,942        729        6,526  
  

 

 

    

 

 

    

 

 

 
     52,309        25,343        99,989  
  

 

 

    

 

 

    

 

 

 
     15,136        57,287        ( 13,270
  

 

 

    

 

 

    

 

 

 

 

30 TAX SITUATION

 

  a) In accordance with current legislation in Peru, Chile, Brazil, Colombia, Ecuador, Bolivia, Guyana and Panama, each company in the Group is individually subject to the applicable taxes. Management considers that it has determined the taxable income under general income tax laws in accordance with the tax legislation current effective of each country.

 

  b) Changes in the Peruvian Income Tax Law -

By means of Law No.30296 enacted on December 31, 2014 amendments to Income Tax Law have been made, which are effective starting in fiscal year 2015 onwards. Among these amendments, it should be noted the progressive reduction in the corporate income tax rate (on the Peruvian third-category income earners) from 30% to 28% for fiscal years 2015 and 2016; then a reduction to 27% for fiscal years 2017 and 2018; and a final reduction to 26% from fiscal year 2019 onwards. Tax on dividends and other forms of profit distribution, agreed on by any legal entities to individuals and non-domiciled legal persons is to be progressively increased from 4.1% to 6.8% for distributions that are agreed on or paid during fiscal years 2015 and 2016; then an increase to 8.8% for fiscal years 2017 and 2018 will be effective; and a final increase to 9.3% will be effective from fiscal year 2019 onwards. The distribution of retained earnings until December 31, 2015 will continue to be subject to a 4.1% tax even when the distribution is to be made in the subsequent years.

By means of Legislative Decree No. 1261, enacted on December 10, 2016 the Peruvian income tax law was amended to be effective from fiscal 2017 onwards. This amendment sets forth a corporate income tax rate of 29.5%. It also sets forth an income tax rate on dividends of 5% applicable to non-domiciled legal entities and individuals effective from fiscal 2017 onwards. Undistributed profits up to December 31, 2016 will continue to be affected to a 6.8% income tax rate regardless of whether the distribution is agreed or occurs in subsequent periods.

 

  c) Amendments to Income Tax Law in Chile -

On September 29, 2014, Law No 20780 was enacted by which certain changes are made to the Chilean tax system, such as: changes in the Income Tax Law, VAT Law and Tax Code. Also, on February 1, 2016 Law No 20899 was enacted to simplify and define the application of the above-mentioned tax reform. With respect to income tax, two systems have been established:

 

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  i) Attributable income system: the tax rate of first-category applicable on entities will be progressively increased, 21% in 2014, 22.5% in 2015, 24% in 2016, up to 25% in 2017. Its choice is being restricted to companies whose partners are individuals domiciled or resident in Chile or individuals or legal persons non-domiciled and non-resident in Chile. This system levies the shareholders of Chilean entities with taxes on an annual basis regardless of any effective distribution of profits from the local entity; and entitles them to use the total taxes paid as income tax fiscal credit.

 

  ii) Partially integrated system: of first-category taxes applicable on entities will be progressively increased, 21% in 2014, 22.5% in 2015, 24% in 2016, 25.5% in 2017, up to 27% in 2018. Subject to this system are corporations and entities in which at least one of its owners is not an individual (whether domiciled or not) or non-domiciled legal entity. This system levies the shareholders of Chilean entities that distribute dividends and entitle them to use such distribution as a fiscal credit at a 65% of the total taxes paid. This limit does not apply to investors with whom Chile had signed double taxation agreements, such as Peru.

 

  d) Changes in the Income Tax Law in Colombia -

In December 2014 Law No 1739 was enacted amending the Tax Code and introducing diverse temporary changes in Income Tax, CREE (Tax on income for equity) and includes the tax on wealth (Impuesto a la Riqueza). Major changes are as follows:

 

    Setting the CREE tax rate at 9% and creating an incremental additional overrate effective until 2018, as follows: for fiscal 2015, 2016, 2017 and 2018 the applicable CREE tax overrate will be 5%, 6%, 8% and 9%, respectively.

 

    Starting 2015 tax losses can be offset to the CREE taxable amount.

 

    The tax on wealth levies the wealth owned by an individual or legal entity that are income taxpayers; this is determined on the basis of the gross equity less current debts that are equal to or higher than a 1,000 million Colombian pesos (S/1.1 million approximately) at January 01, 2015.

 

    The tax on wealth rates are marginal and cascaded in ranges of taxable base ranging from 0.2% to 1.15% in 2015, from 0.15% to 1% in 2016 and from 0.05% to 0.4% in 2017.

In December 2016 Law No.1819 was published with another amendment to the tax laws, effective from fiscal 2017. Major changes are as follows:

 

    Income tax rates effective until 2016 (Income tax + CREE+ Overrate + Wealth) are now simplified with one single rate, i.e. 34% income tax rate and a temporary overrate of 6% for fiscal 2017 and an income tax rate of 33% and a temporary overrate of 4% for fiscal 2018 and onwards on a taxable income of above S/895 thousand (equivalent to COP800 million).

 

    The Colombian taxable income, applicable when there are tax losses, will be subject to a tax base of 4% of the liquid equity (formerly 3%) and will be considered as a “on-account payment” of the taxable income.

 

    Tax losses can be offset in the following eight (8) years from the date they were generated.

 

    The special rate on dividends and interests obtained by non-domiciled foreign legal entities and individuals will be 5%

 

    VAT rate changes from 18% to 19%

 

  e) The income tax expense shown in the consolidated income statement comprises:

 

     2014      2015      2016  

Current income tax

     212,569        138,164        176,894  

Deferred income tax (Note 25)

     (60,435      2,222        (280,911

PPUA

     (5,938      (41,359      (7,789
  

 

 

    

 

 

    

 

 

 

Income tax expense

     146,196        99,027        (111,806
  

 

 

    

 

 

    

 

 

 

 

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Under Chilean Legislation, when a Company reports tax losses, it can apply for a refund of first-category taxes paid in prior years up to an amount that equals the taxes that would be levied on the tax losses, provided that no dividends have been distributed on the income obtained from the refund. The amount to be refunded by the Chilean Tax Authorities is called “provisional payment on absorbed profits - PPUA”. The Company recognizes income from income tax and an account receivable when applying for this tax refund.

In 2016 the PPUA-derived income is related to the tax losses reported by of subsidiary VyV-DSD. In 2015 this item was related to the tax losses reported by CAM Chile Spa and VyV-DSD, amounting to S/19.4 million and S/21.9 million, respectively.

 

  f) The Group’s income tax differs from the theoretical amount that would have resulted from applying the weighted-average income tax rate applicable to the profit reported by of the consolidated companies, as follows:

 

     2014      2015      2016  

Pre-tax profit

     507,428        154,616        (563,404
  

 

 

    

 

 

    

 

 

 

Income tax by applying local applicable tax rates on profit generated in the respective countries

     146,113        54,631        (157,276

Tax effect on:

        

- Non-taxable income

     (14,420      (31,266      (1,068

- Equity method (profit) loss

     1,790        2,171        3,673  

- Non-deductible expenses

     25,967        9,831        57,044  

- Unrecognized deferred tax asset income (expense)

     13,922        31,432        (4,535

- Adjustment for changes in rates of income tax

     (2,746      2,008        (17,105

- Tax goodwill

     (20,542      —          —    

- PPUA adjustment for changes in tax rates

     (5,938      15,296        4,871  

- Change in prior years estimations

     3,891        12,762        (181

- Others, net

     (1,841      2,162        2,771  
  

 

 

    

 

 

    

 

 

 

Income tax charge

     146,196        99,027        (111,806
  

 

 

    

 

 

    

 

 

 

 

  g) The theoretical tax disclosed resulted from applying the income tax rate stipulated in the tax laws of the country in which a Group company is legally resident. Accordingly, for fiscal 2016, companies that are legally resident in Peru, Chile and Colombia applied income tax rates of 28%, 24% and 40% respectively (28%, 22.5% and 39% for 2015; 28%, 21% and 34% for 2014). Norvial, GyM Ferrovías, Vesur and GMP (Blocks III and IV) have legal stability agreements with Peruvian Government, in force for all years preserved. In this sense, the consolidated theoretical amount is obtained as a weighted average pre-tax profit or loss and the applicable income tax rate.

 

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Country

   Statutory
tax rate
    Pre - tax
profit
     Tax at
statutory
tax rate
 
     (A)     (B)      (A)*(B)  

2016

       

Perú

     28.00     (1,071,663      (300,066

Perú - Norvial

     27.00     63,583        17,167  

Perú - GyM Ferrovías

     30.00     34,760        10,428  

Perú – Vesur

     30.00     888        267  

Perú – GMP

     30.00     8,602        2,581  

Chile

     24.00     (86,151      (20,676

Colombia

     40.00     (25,555      (10,222

Bolivia

     25.00     (703      (176

Unrealized gains

       512,836        143,421  
    

 

 

    

 

 

 

Total

       (563,404      (157,276
    

 

 

    

 

 

 

2015

       

Perú

     28.00     174,432        48,841  

Perú - Norvial

     27.00     54,471        14,707  

Perú - GyM Ferrovías

     30.00     26,954        8,086  

Perú – Vesur

     30.00     2,336        701  

Perú – GMP

     30.00     15,007        4,502  

Chile

     22.50     (95,284      (21,439

Colombia

     39.00     40,900        15,951  

Bolivia

     25.00     (57,382      (14,345

Unrealized gains

       (6,817      (2,045
    

 

 

    

 

 

 

Total

       154,616        54,631  
    

 

 

    

 

 

 

2014

       

Perú

     30.00     288,917        86,675  

Perú - Norvial

     27.00     41,999        11,340  

Perú - GyM Ferrovías

     30.00     22,894        6,868  

Perú – Vesur

     30.00     96        29  

Perú – GMP

     30.00     92,425        27,728  

Chile

     21.00     49,484        10,392  

Colombia

     34.00     1,290        439  

Bolivia

     25.00     484        121  

Others - elimination

       9,839        2,521  
    

 

 

    

 

 

 

Total

       507,428        146,113  
    

 

 

    

 

 

 

 

  h) Peruvian tax authorities have the right to examine, and, if necessary, amend the income tax determined by the Company in the last four years - from January 1 of the year after the date when the tax returns are filed (years subject to examination). Therefore, years 2012 through 2016 are subject to examination by the tax authorities. Since differences may arise over the interpretation by the tax authorities of the regulations applicable to the Company, it is not possible at present to estimate if any additional tax liabilities will arise as a result of any eventual examinations. Any additional tax, fines and interest, if they occur, will be recognized in the results of the period when such differences with the tax authorities are resolved. Management considers that no significant liabilities will arise as a result of these possible tax examinations. Additionally, income tax returns for fiscal years 2013 to 2014 and those to be filed for fiscal year 2016 remain open for examination by the Chilean tax authorities who have the right to carry out said examination within the three years following the date the income tax returns have been filed. Fiscal years 2014 and 2015 are open for tax audit by Colombian tax authorities; fiscal 2016 will also be open for audit. Colombian tax authorities are entitled to audit two consecutive years following the date the income tax returns were filed.

 

  i) As established under regulations in force in Peru, for purposes of determining income tax and the general sales tax, transfer pricing must be taken into account for transactions with related parties and/or tax havens, which must be supported with the relevant documentation and information on the methods and valuation criteria applied in their determination. Peruvian tax authorities are entitled to request such information from the taxpayer.

 

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  j) Temporary tax on net assets -

The temporary tax on net assets is applied by the companies which operate in Peru, to third category income generators subject to the Peruvian Income Tax General Regime. Effective in the year 2012, the tax rate is 0.4%, applicable to the amount of the net assets exceeding S/1 million.

The amount effectively paid may be used as a credit against payments on account of income tax under the General Regime or against the provisional tax payment of the income tax of the related period.

 

  k) The weighted average rate applicable is 19.84% (64.05% in 2015 and 28.8% in 2014). The decrease in the effective tax rate , as compared to that one effective in the previous year, primarily to the following:

 

    CCDS. In 2016, expenses related to manager cost and expenses provisions did not meet the requirements of the Peruvian tax legislation.

 

    Morelco. In 2016, assets were written off because their supporting documentation did not meet the requirements of the Colombia tax legislation.

 

    GyM. In 2016, a provision of taxes, fines and interests related to an appeal of Tax Court process (VAT and Income Tax 2001) was registered. This provision of expense is not deductible for tax purposes.

 

    CAM SPA. In 2015 a deduction was obtained in the base of the taxable income resulting from the disposal of CAM Brazil, in respect of which the tax cost was higher than the accounting cost.

 

  l) At December 31, 2015 deferred income tax asset was not recognized on tax losses mainly of Consorcio Rio Mantaro, Graña y Montero Construcciones y Montajes S.A., Consorcio Norte Pachacutec y Consorcio Urubamba, since of some no taxable profits are expected to be obtained . The deferred income tax asset not recognized was for S/30.6 million. At 2016, Consorcio Río Mantaro obtained a profit applied to tax losses and adjust the deferred income tax asset no recognized for S/5 millon.

 

  m) The current income tax payable, after applying the corresponding tax credits and whose due date arrives until the first week of April of the following year, includes mainly:

 

    CCDS, S/14.9 million in 2016

 

    Consorcio AMDP, S/9.3 million in 2016

 

    Terminales del Perú, S/3.6 million in 2016

 

    Concar, S/3.3 million in 2016

 

31 ACCUMULATED OTHER COMPREHENSIVE INCOME

 

The analysis of the movement is as follows:

 

                       Exchange        
           Foreign     Increase in     difference from        
           currency     fair value of     net investment        
     Cash flow     translations     available-for     in a foreign        
     hedge     adjustment     sale assets     operation     Total  

At January 31, 2014

     (2,153     (5,944     26,520       —         18,423  

(Charge) credit for the year

     750       (13,086     4,811       (17,030     (24,555

Tax effects

     (210     —         (1,251     4,428       2,967  

Adjustment for changes in rates of income tax

     —         —         1,089       —         1,089  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income of the year

     540       (13,086     4,649       (12,602     (20,499
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2014

     (1,613     (19,030     31,169       (12,602     (2,076
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Charge) credit for the year

     954       (45,411     26,991       (6,942     (24,408

Tax effects

     (267     —         (7,018     1,804       (5,481
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income of the year

     687       (45,411     19,973       ( 5,138     (29,889
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2015

     (926     (64,441     51,142       (17,739     (31,965
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Charge) credit for the year

     1,190       9,885       (3,149     10,965       18,891  

Tax effects

     (351     —         929       (3,243     (2,665

Transfer to profit or loss (Note 10)

     —         —         (41,461     1,562       (39,899
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income of the year

     839       9,885       (43,681     9,284       (23,673
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2016

     (87     (54,556     7,461       (8,455     (55,638
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Amounts in the table above represent only amounts attributable to the Company’s controlling interest net of taxes. Below is the movement in Other Comprehensive Income for each year:

 

     2014      2015      2016  

Controlling interest

     (20,499      (29,889      (23,673

Non-controlling interest

     (7,986      (15,235      4,191  

Adjustment for actuarial gains and losses, net of tax

     (1,332      (2,921      (1,119
  

 

 

    

 

 

    

 

 

 

Total value in OCI

     ( 29,817      (48,045      (20,601
  

 

 

    

 

 

    

 

 

 

 

32 CONTINGENCIES, COMMITMENTS AND GUARANTEES

 

  a) Tax contingencies -

 

    For fiscal 2016 an appeal is in progress with the Peruvian Tax Court and another administrative action with the Judiciary involving the results of tax audits of VAT (IGV) and Income Tax returns performed by the Peruvian tax authorities for fiscal years 1999 to 2002. The maximum exposure amount is S/5.2 million.

 

    With respect to our subsidiary GyM S.A., as a result of the tax audits of fiscal 1999, 2001 and 2010, SUNAT issued tax determination and tax penalties resolutions amounting to approximately S/19.1 million (S/24.5 million as of December 31, 2015):

In fiscal year 2017, the tax litigation process related to 2001 was resolved, where the Tax Court orders SUNAT to recalculate the observations, determining an amount lower than initially claimed. Our subsidiary has decided to accept the conclusions of this resolution and submit fractionation requests for the payment of the debt in reference amounting to S/14.1 million

Likewise, at the end of fiscal year 2017, the contentious-administrative process related to the 1999 fiscal year was resolved, where the Judicial Branch rejected our arguments and confirmed what was stated by SUNAT. Regarding this process, there was already a contingency provision of S/5 million.

An administrative tax process related to the 2010 fiscal year is still underway, however, its resolution will not imply economic damage since it corresponds to a greater refund of the balance in favor in 2011, already audited by the Tax Administration

 

    Consortiums in which subsidiary GyM S.A takes part, brought claims with SUNAT against the results of the tax inspection, which had a maximum exposure at December 31, 2016 of S/2.8 million (S/0.8 million at December 31, 2015).

 

    GMD and its subsidiaries have tax claims currently in progress involving fiscal years 2002, 2011 and 2012 with a maximum exposure of S/2.7 million at December 31, 2016.

 

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Management expects the outcome of the other court actions will be favorable to the Company considering their nature and characteristics as well as the opinion of its legal advisor.

 

  b) Other contingencies -

Year 2016 -

 

  i) Civil-court lawsuits mainly related to indemnities for damages, contract termination and workplace accidents amounting to S/0.61 million (S/0.15 million attributable to GyM; S/0.19 million attributable to Concar; S/0.17 million attributable to Viva GyM while the remaining S/0.1 million attributable to GMP and CAM Peru).

 

  ii) Contentious administrative lawsuits for S/4 million, of which, S/3.4 million is related to 14 processes of GMP S.A. and Consorcio Terminales, S/0.5 million resulting from an action brought against GyM Ferrovías for alleged noncompliance with OSITRAN’s General Rules of Oversight. In addition, it includes S/0.1 million GyM S.A. related to a contentious administrative process.

 

  iii) Administrative lawsuits for S/3.29 million, S/0.85 million is related to 24 processes of GMP S.A., Consorcio Terminales and Terminales del Perú; S/2 million involving GyM Ferrovías resulting from an action brought by OSITRAN, the Municipalities of Villa María del Triunfo and San Juan de Miraflores comprising the property tax; S/0.24 million against Viva GyM for a claim made by the Asociación Peruana de Consumidores y Usuarios before Indecopi in relation to the Parques del Agustino project; and S/0.2 million involving an action brought against Concesionaria Canchaque for alleged contractual noncompliance with OSITRAN).

 

  iv) Labor lawsuits for a total S/6.12 million (S/5 million comprising actions brought against GyM, S/0.35 million against STRACON GyM; S/0.65 million against GMP, S/0.2 million against GMD S.A., and the remaining balance of S/0.1 million comprising actions brought against Concar, CAM Colombia and CAM Perú S.A.).

 

  v) Two securities class action have been filed against the Company, an executive and a former executive officers in the Eastern District of New York during the first quarter of 2017. Both complaints allege false and misleading statements during the class period. In particular, they allege that the Company failed to disclose, among other things, that a) the company knew that its partner Odebrecht was engaged in illegal activities, and b) the Company profited from such activities in violation of its own corporate governance standards. All parties have agreed to unify the two lawsuits and appoint a single lead plaintiff, with one single council to control the class action. On March 6, 2018, the court appointed Treasure Finance Holding Corp. as the plaintiffs’ representative. In addition, the court has established the following schedule: i) on May 4, 2018, consolidation of files; ii) on July 3, 2018, presentation of the request for dismissal; iii) September 4, 2018, presentation of the opposition to the request for dismissal; and iv) October 3, 2018, submission of allegations by GyM. After this, the court could dismiss the claim or admit it. Management believe that both of those actions would likely be dismissed by the court for failure to adequately file a claim. Therefore, at the reporting date, we consider the risk of a material loss to the company is not probable.

 

  vi) On March 30, 2017, the minority interest holders of Adexus (Sistemas y Redes S.A. and Asesorías e Inversiones Busso Ltda.) filed three lawsuits against Graña y Montero S.A.A., GMD, Adexus and their major executives, related to: a) the unenforceability of the Investment Agreement and Shareholders’ Agreement under the provisions of Law 18.046 (“Ley de Sociedades Anónimas” in Chile), for a total amount claimed of US$11.4 million (equivalent to S/38.3 million); b) the declaration of nullity because of fraud of the Investment Agreement and other acts and damages and the order of forced execution of the Investment Agreement, plus damages for a total amount claimed of US$50 million (equivalent to S/168 million); c) the declaration of nullity of the Shareholders’ Agreement and its amendments. The parties have responded and counterclaimed and up to date we are waiting for the date of the Conciliation Hearing. The probability of loss of the present litigations is classified as remote.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Year 2015 -

 

  vii) Civil court actions mainly involving costs and damages and contract terminations as well as work accidents amounting to S/1.1 million (S/0.5 million for GyM S.A., S/0.3 million for Viva GyM and S/0.3 million for Concar SA.).

 

  viii) Arbitration processes amounting to S/122.3 million related to an action brought by Contugas S.A.C. and IMECON S.A. against the court action brought by GyM S.A. involving recognition of expenses and indemnification for costs and damages for S/112.3 million and S/10 million, respectively.

 

  ix) Administrative challenge actions amounting to S/4.1 million, of which, S/4 million comprising an action brought by the Peruvian mining and energy regulator—OSINERMIN for an alleged noncompliance by GMP S.A. and Consorcio Terminales. Also included is S/.0.1 million to be assumed by GyM S.A.as a result of an actions brought by the Peruvian Ministry of Labor.

 

  x) Administrative actions amounting to S/3.1 million (S/2 million comprising an action brought by the Peruvian Mining and Energy regulator (OSINERMIN) for the alleged noncompliance of GMP S.A., Consorcio Terminales and Terminales del Peru; S/0.9 million of GyM Ferrovías S.A. comprising an action brought by Municipality of La Victoria, Lima, Villa María del Triunfo and San Juan de Luriganch o for property tax; and S/.0.2 million compromising action brought against Morelco S.A.S.)

 

  xi) Labor-related court actions amounting to S/3.7 million (S/1.4 million were actions against Vial y Vives-DSD S.A., S/0.9 million against GMP S.A., S/0.6 million against GyM S.A, S/0.2 million against GMD S.A, S/0.2 million against Concar S.A, S/0.1 million against Stracon GyM S.A. and S/0.1 million against CAM Perú S.A.).

 

  c) Performance Bonds and Guarantees -

At December 31, 2016, the Group holds current performance bonds and guarantees with a number of financial institutions to secure transactions for US$1,258.5 million and US $330.5 million, respectively (US$820.2 million and US$27.4 million, respectively, as of December 31, 2015).

 

33 BUSINESS COMBINATIONS

 

  a) Acquisiton of Adexus S.A. -

In June 2015 the Company acquired 44% interest in the capital stock of Chilean entity Adexus S.A., which is mainly engaged in providing IT solutions services. At December 31, 2015 the Company arrived at the conclusion that joint control existed and that the joint arrangement qualified as a joint venture; therefore, the investment was recorded under the equity method of accounting in the consolidated financial statements of the Group (Note 16-b).

In January 2016 the Group acquired an additional interest of 8%, totaling 52% of total interest; the consideration agreed totaled S/8.3 million which was settled through debt capitalization. This larger interest did not affected the investment classification as a joint venture.

Subsequently, in August 2016, the Group acquired an additional interest of 39.03% to obtain total interest in its capital stock of 91.03%; thus gaining control over this entity. The consideration agreed totaled S/14 million which was initially stated as debt and then capitalized in the same period.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Upon obtaining control, the Company accounted for the transaction using the acquisition method of accounting set forth in IFRS 3 “Business Combination” and determined goodwill resulting from the acquisition. The balance at December 31, 2016 was stated at provisional values.

The table below itemizes the provisional determination of the fair value of the identifiable assets acquired, liabilities assumed, non-controlling interest held and goodwill at the acquisition date:

 

     Provisional fair values  
     S/      US$000  

Purchase consideration

     14,040        4,179  

Fair value of previously held interest

     29,039        8,643  
  

 

 

    

 

 

 

Total consideration (a)

     43,079        12,822  
  

 

 

    

 

 

 

Carried forward:

     43,079        12,822  
  

 

 

    

 

 

 
     Provisional fair values  
     S/      US$000  

Brought forward:

     43,079        12,822  
  

 

 

    

 

 

 

Fair value of assets and liabilities of Adexus S.A.:

     

Cash and cash equivalents

     7,737        2,303  

Trade receivables

     107,426        31,972  

Receivables from related parties

     2,610        777  

Other receivables

     1,160        345  

Inventories

     1,647        490  

Prepaid expenses

     11,587        3,449  

Long-term trade receivables

     26,886        8,195  

Other long-term receivables

     2,063        614  

Property, plant and equipment

     41,988        12,496  

Intangibles

     32,204        9,585  

Deferred income tax assets

     18,115        5,198  

Borrowings

     (108,808      (32,383

Trade payables

     (59,399      (17,678

Payables to related parties

     (15,683      (4,667

Current income tax

     (2,763      (822

Other payables

     (10,291      (3,063

Other provisions

     (1,926      (573

Contingent liabilities

     (1,149      (342

Deferred income tax liabilities

     (7,102      (2,114
  

 

 

    

 

 

 

Fair value of net identifiable assets

     46,302        13,782  

Non-controlling interest (8.97%)

     (4,153      (1,236
  

 

 

    

 

 

 

Fair value of net assets attributable to the Group (b)

     42,149        12,546  
  

 

 

    

 

 

 

Goodwill (Note 18) (a) - (b)

     930        276  
  

 

 

    

 

 

 

Losses arising from the re-measurement at fair value of the previously held interest amounted to S/6.8 million, which was recognized in the statement of income within “Other income and expenses, net”, at the date of acquisition of that additional interest (Note 29).

Acquisition transaction costs amounting to S/1.4 million were charged to profit or loss within administrative expenses.

Revenue and net losses obtained for the period from the acquisition date to December 31, 2016 were S/113.2 million and S/3.7 million, respectively. If Adexus had been consolidated from January 1, 2016, the balances of revenue and net losses would have been S/272.7 million and S/20.2 million, respectively.

 

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Provided that the distribution of the consideration is divided between the fair values on a provisional basis for the 2016 financial statements, the Group will complete the distribution process over a period that should not exceed one year as of the acquisition date of Adexus.

During such review period, additional assets and liabilities will be recognized as they may arise from updated data that may be obtained in relation with the information that existed at the acquisition date and that does not comprise new incidents occurred after the acquisition date; that is, if the Group were to adjust initial amounts recognized at the business combination dates.

 

  b) Acquisition of Morelco S.A.S. -

In December 23, 2014, through subsidiary GyM S.A. the Company obtained control of Morelco S.A.S. (Morelco) by acquiring 70.00% of its capital shares. Morelco is an entity domiciled in Colombia that is mainly engaged in providing construction and assembly services. This acquisition is part of the Group’s plan to increase its presence in markets that present high growth potential as in Colombia, and in attractive industries, such as mining and energy.

At December 31, 2014 the Company determined goodwill resulting from this acquisition on the basis of an estimated purchase price of US$93.7 million (equivalent to S/277.1 million), which included cash payments made for US$78.5 million and cash payable estimated to be US$15.1 million (equivalent to S/45.7 million), which, under the agreement of the parties, would be defined after a review of the acquiree’s balance sheet, mainly working capital, cash and financial debt as well as the final carrying amount of the acquiree’s work backlog. The estimated purchase price was allocated to the provisional carrying amounts of the assets acquired and the liabilities assumed.

As a result of this allocation, the balance of goodwill was determined to be US$36.1 million (equivalent to S/105.8 million).

In 2015 as part of the review of the provisional allocation of the purchase price, the following situations arose:

 

  a) The balance at December 31, 2014 of the consideration payable of US$15 million (equivalent to S/46 million) was adjusted in 2015 to US$9.1 million (S/32 million) as a result of the final determination of the working capital, cash and financial debt balances, under the purchase agreement. This amount was fully paid in 2015.

 

  b) The provisional fair values of certain assets acquired and liabilities assumed were reviewed.

As a result of the above, the purchase price was adjusted to US $87.5 million (equivalent to S/258.6 million); the provisional fair values of certain asset and liabilities were modified, giving rise to an adjustment of goodwill to US$35.2 million (equivalent to S/103 million).

The table below summarizes the consideration paid by Morelco and the determination of the fair value of the assets acquired and liabilities assumed as well as a non-controlling interest at the date of acquisition:

 

     Provisional fair values      Final amounts  
     S/      US$000      S/      US$000  

Cash and cash equivalents

     69,930        23,514        69,930        23,514  

Trade receivables

     92,138        30,981        67,716        22,769  

Work in progress remaining to collect from customers

     101,533        34,140        110,777        37,248  

Other accounts receivables

     63,949        21,503        63,949        21,504  

Inventories

     18,037        6,065        18,037        6,065  

Prepaid expenses

     2,133        717        2,127        715  

Financial asset through profit or loss

     7,291        2,452        5,747        1,932  

Property, plant and equipment

     70,756        23,792        69,081        23,228  

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Intangibles

     64,491        21,685        64,491        21,685  

Deferred income tax asset

     8,031        2,700        24,560        8,258  

Other short-term financial liabilities

     (31,204      (10,492      (31,204      (10,492

Other long-term financial liabilities

     (9,315      (3,132      (9,315      (3,132

Trade accounts payables

     (103,739      (34,882      (102,438      (34,444

Other accounts payable

     (87,863      (29,544      (87,863      (29,544

Contingent liabilities

     (17,533      (5,895      (24,993      (8,404

Deferred income tax liabilities

     (3,801      (1,278      (18,404      (6,188
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value of net assets

     244,834        82,326        222,198        74,714  

Non-controlling interest (30.00%)

     (73,450      (24,697      (66,659      (22,414

Goodwill (Note 18)

     105,764        36,118        103,055        35,240  
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchase consideration

     277,148        93,747        258,594        87,540  
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash paid at year-end

     231,464        78,462        231,464        78,462  

Cash and cash equivalents of the acquired subsidiary

     (69,930      (23,514      (69,930      (23,514
  

 

 

    

 

 

    

 

 

    

 

 

 

Direct cash outflows for acquisition for the year

     161,534        54,948        161,534        54,948  
  

 

 

    

 

 

    

 

 

    

 

 

 

Acquisition-related costs of S/4.5 million have been recognized to 2014’s profits within administrative expenses.

If Morelco had been consolidated from January 1, 2014 revenue and profit would have been S/722.57 million and S/80.8 million, respectively.

Put and call options of non-controlling interest -

Under the shareholder agreement signed for the acquisition of Morelco, the subsidiary GyM signed a purchase-sale agreement for 30% of Morelco’s capital stock held by the non-controlling shareholders. By this agreement, the non-controlling shareholders obtained a right to sell their shares over a period and for an amount set in the agreement (put option). The period to exercise the option began on the second anniversary of the acquisition of the option and expires on its tenth anniversary. The option exercise price is based on a EBITDA multiple less the net debt and until months 51 and 63 until from the date of the agreement a minimum amount is set that is based on the price per share that GyM paid to buy 70% of Morelco’s share capital.

On the other hand, the subsidiary GyM obtains call option to buy those shares over a period of 10 years and at a price that is determined the same way as the put option price is determined, except for the fact the minimum amount is effective for the entire effective period of the option (call option).

Under the IFRS framework, the put option is for the Company an obligation to purchase non-controlling interest shares, and therefore, the Group recognizes a liability measured on the basis of the present value of that option. Since the Group arrived at the conclusion that as a result of this agreement, it did not obtained the risks and rewards inherent to the ownership of this share package underlying the option, initial recognition of this liability was a charge to equity of controlling shareholders within other reserves.

The amount of the liability arising from the put option was estimated at the present value of the redemption amounts expected on the basis of minimum amount of the Morelco’s agreement and the exercise rights of the option. The Company expects that purchase options are to be exercised at the date following the date of transfer. The expected redemption of the non-controlling interest is as follows: 41.66% in the second year, 41.66% in the fourth year and the remaining shares will be sold on the fifth anniversary of the option grant date. The discount rate used to determine the present value of the expected redemption amounts is a risk-free rate available to comparable market participants and indicates the fact that the Group estimates to pay the minimum price of the agreement. At December 31, 2016 the liability is estimated to be S/109.9 million, using a 0.78% discount rate for the first year, 1.37% discount rate for the third year and 1.76% for the fourth year (at December 31, 2015 it was S/113.5 million, using a 0.65% discount rate for the first year, 1.31% discount rate for the third year

 

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and 1.76% for the fourth year). In 2016 the changes in the present value of the put option estimated to be S/0.7 million were recognized in the statement of income (an expense by S/1 million stated within “Other income and expenses, net” and an income by S/1.7 million stated within “Exchange losses, net”, Note 28).

 

  c) Acquisition of Coasin Instalaciones Ltda.

In March 2014, through the subsidiary CAM Chile S.A., the Group acquired control of Coasin Instalaciones Limited with the purchase of 100% of its capital shares. Coasin is an entity incorporated in Chile and is mainly engaged in providing installation and maintenance services for networks and equipment related to the telecommunications industry.

This acquisition is part of the Group’s plan to increase its market share considering the significant growth potential in Chile, and in other attractive industries, such as utilities.

During a period of twelve months after the date of acquisition, the Group reviewed the allocation of the purchase price for the acquisition of Coasin Instalaciones Limitada.

Over a period of twelve months after the acquisition, the Group reviewed the allocation of the purchase price and fair values determined provisionally for certain assets and liabilities. As a result of this process, the balance of goodwill was changed to US$2.2 million (equivalent to S/6.4 million).

 

     Provisional values      Final amounts  
     S/      US$000      S/      US$000  

Cash and cash equivalents

     3        1        3        1  

Trade accounts receivables

     4,675        1,564        3,811        1,275  

Inventories

     276        92        276        92  

Prepaid expenses

     33        11        33        11  

Property, plant and equipment

     711        238        711        238  

Intangibles

     1,377        461        1,377        461  

Deferred income tax liability

     (178      (60      16        4  

Trade accounts payables

     (3,592      (1,202      (3,592      (1,202

Contingent liabilities

     (2,658      (889      (2,658      (889
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value of net assets

     647        216        (23      (9

Goodwill (Note 18)

     5,743        1,921        6,413        2,146  
  

 

 

    

 

 

    

 

 

    

 

 

 

Consideration provided for the acquisition

     6,390        2,137        6,390        2,137  
  

 

 

    

 

 

    

 

 

    

 

 

 

Payment for the acquisition settled in cash

     6,390        2,137        6,390        2,137  

Cash and cash equivalents of the subsidiary acquired

     (3      (1      (3      (1
  

 

 

    

 

 

    

 

 

    

 

 

 

Direct outflow of cash for the acquisition

     6,387        2,136        6,387        2,136  
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenue and profit resulting for the period between the date of acquisition and December 31, 2014 amounted to S/66.3 million and S/0.7 million, respectively.

 

34 DIVIDENDS

Due to the loss reported for fiscal 2016, no dividends will be paid.

At the General Shareholders’ meeting held on March 29, 2016 the decision was made to distribute dividends for S/30,853 (S/0.0467 per share), which correspond to 2015 earnings.

At the General Shareholders’ meeting held on March 27, 2015 the decision was made to distribute dividends for S/104,911 (S/0.159 per share), which correspond to 2014 earnings.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

At the General Shareholders’ meeting held on March 28, 2014, the decision was made to distribute dividends amounting to S/112,127 (S/0.169 per share), corresponding to 2013 earnings.

 

35 EARNINGS (LOSSES) PER SHARE

Basic earnings per share are calculated by dividing the net profit of the period attributable to common shareholders of the Group by the weighted average number of common shares outstanding during the year. No diluted earnings per common share were calculated because there are no common or investment shares with potential dilutive effects (i.e., financial instruments or agreements that give the right to obtain common or investment shares); therefore, it is equal to basic earnings per share.

The basic earnings per share are broken down as follows:

 

     2014      2015      2016  

Profit (Losses) attributable to the controlling interest in the Company

     299,743        7,097        (509,699
  

 

 

    

 

 

    

 

 

 

Weighted average number of shares in issue at S/1.00 each, at December 31,

     660,053,790        660,053,790        660,053,790  
  

 

 

    

 

 

    

 

 

 

Basic and diluted earnings per share (in S/)

     0.454        0.011        (0.772
  

 

 

    

 

 

    

 

 

 

 

36 TRANSACTIONS WITH NON-CONTROLLING INTERESTS

 

  a) Additional acquisition of non-controlling interest -

 

  i) In May, November and December 2016, GyM Chile SPA acquired 5.43%, 6.77% and 1.49% respectively additional capital stock in Vial y Vives—DSD S.A. at a purchase price of S/21.6 million, S/25.7 million y S/3.8 million, respectively. The carrying amounts of the non-controlling interests at the date of the acquisitions were S/13.9 million, S/17.9 million and S/3.9 million. The Group de-recognized the non-controlling interests by reducing the equity attributable to the owners of the parent Company by S/15.4 million. At December 31, 2016, there is an outstanding balance of S/32.1 million (Note 22).

 

  ii) In January 2015, the Company acquired 0.102% of additional shares in GyM S.A. at a price of S/1.87 million. The carrying amount of non-controlling interests at the acquisition date was S/0.97 million. The Group eliminated the non-controlling interest and recognized a decrease in equity attributable to the parent owners of S/0.89 million.

 

  iii) In July 2014, GyM S.A. acquired 13.49% of additional shares in Stracon GyM at a price of US$24.9 million (equivalent to S/72.8 million). The carrying amount of non-controlling interest at the acquisition date was S/22.5 million. The Group eliminated the non-controlling interest and recognized a decrease in equity attributable to the parent owners of S/50.7 million.

 

  iv) In August, November and December 2014, the Company acquired 4.567% (2.25%, 1.95% and 0.367% respectively) additional shares in GyM S.A. at a total purchase price of S/93.2 million. The carrying amount of the non-controlling interest at the acquisition date was S/24.6 million. The Group eliminated non-controlling interest and recognized a decrease in equity attributable to the owners of the parent for S/71.5 million.

 

  v) In August 2014, the Company acquired 1.37% additional shares in Viva GyM S.A. at a price of S/9.4 million. The carrying amount of the non-controlling interest at the acquisition date was S/3.4 million. The Group eliminated non-controlling interest and recorded a decrease in equity attributable to the parent owners of S/6.03 million.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

The effect of these changes is broken down as follows:

 

     2014      2015      2016  

Carrying amount of non-controlling interest acquired

     50,109        971        35,972  

Consideration provided for non-controlling interest

     (178,331      (1,865      (51,139
  

 

 

    

 

 

    

 

 

 

Higher payment attributable to the Company’s controlling interest

     (128,222      (894      (15,167
  

 

 

    

 

 

    

 

 

 

 

  b) Disposal of interests in subsidiary without loss of control -

 

  i) In March 2015, GyM S.A. sold 0.048% (S/97) of its total 87.64% interest held in Stracon GyM for a payment of S/377. The carrying amount of this non-controlling interest in Stracon GyM at the date of disposal was S/23.7 million (a 12.36% interest).

 

  ii) In June 2015, GyM S.A. sold 1.92% (S/385) of its total 82.04% interest held in Vial y Vives - DSD S.A. for a payment of S/385. The carrying amount of this non-controlling interest in Vial y Vives - DSD S.A. at the date of disposal was S/3.6 million (a 17.96% interest).

 

  iii) In April 2015, CAM Holding Spa sold a 2.45% (S/2,045) of its total 75.61% interest held in CAM Chile S.A. for S/880. The carrying amount of the non-controlling interest in CAM Chile at the disposal date was S/20.4 million (a 24.39% interest).

 

  iv) In November 2014, GyM Chile Spa sold 1.01% (S/1.6 million) of its total 82.04% interest held in Vial y Vives - DSD for a total US$0.582 million (equivalent to S/1.6 million). The carrying amount of this non-controlling interest in Vial y Vives - DSD at the date of disposal was S/1.6 million

The effect of this changes at December 31 is summarized below:

 

     2014      2015      2016  

Carrying amount of the non-controlling interest sold

     (1,627      (2,527      (236

Consideration received from non-controlling interest

     1,627        1,642        335  
  

 

 

    

 

 

    

 

 

 

Decrease in equity of the Company‘s controlling interest

     —          (885      99  
  

 

 

    

 

 

    

 

 

 

 

  c) Contributions of non-controlling shareholders -

This balance mainly corresponds to the contributions and returns made by the partners of subsidiary Viva GyM S.A. of their real estate projects. At December 31 this balance comprises:

 

     2014      2015      2016  

Viva GyM S.A.:

        

Contributions received

     48,793        20,446        6,380  

Returns of contributions

     (4,240      (14,987      (27,134
  

 

 

    

 

 

    

 

 

 
     44,553        5,459        (20,754
  

 

 

    

 

 

    

 

 

 

Plus:

        

Contributions from other subsidiaries

     2,823        4,870        1,655  
  

 

 

    

 

 

    

 

 

 

Increase (decrease) in equity of non controlling parties

     47,376        10,329        (19,099
  

 

 

    

 

 

    

 

 

 

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

Returns of contributions mainly correspond to the following projects: “Los Parques de Comas” for S/6.3 million, “Los Parques de Villa El Salvador II” for S/12.6 million and “Klimt” for S/7.1 million in 2016 (“Los Parques del Callao” for S/6.7 million, “Los Parques de San Martín de Porres” for S/4.8 million and “Los Parques de Piura” for S/3.3 million in 2015).

 

  d) Dividends -

At December 31, 2016, 2015 and 2014 dividends were distributed for S/25.5 million, S/4.5 million and S/68.1 million, respectively.

 

37 EVENTS AFTER THE DATE OF THE STATEMENT OF FINANCIAL POSITION

 

  a) Early termination of the GSP’s concession agreement -

According to a notification issued by the Ministry of Energy and Mines of Peru on January 24, 2017, the early termination of the Concession Contract was declared, based on the provisions of clause 6.7 of the Concession Agreement “Improvements to the country’s energy security and development of the South Peru Gas Pipeline “, as GSP failed to certify the financial closing within the established contractual deadline and proceeded to the immediate execution of the performance guarantee. This situation generated the execution of the counter-guarantees offered by the Group to the company issuing the performance guarantee of the Concession Contract for US $ 52.5 million (S /. 176.6 million) and US $ 129 million (S / 433.3 million). for the corporate guarantee of the bridge loan granted to GSP.

On October 11, 2017, the agreement was signed for the delivery of the goods of the Southern Peru Gas Pipeline concession between GSP and the Ministry of Energy and Mines (MEM). As stated in the agreement, GSP delivered most of the Concession Assets in possession to the administrator designated by the MEM for its custody and conservation. The assets include all the works, equipment and facilities provided for the execution of the project, as well as the engineering studies that were prepared by the concessionaire company.

After the termination of the contract, the Peruvian Government, in accordance with the contract, had to hire an audit entity of recognized international prestige to calculate the Net Book Value (“VCN” for its Spanish definition “Valor Contable Neto”) of the Concession Assets and the subsequent call for up to three public auctions, being the base amount for the first of them 100% of the VCN, guaranteeing in any case that after the third auction, in case the concession has not been awarded, the payment to GSP would be at least 72.25% of the VCN. Having elapsed more than a year since the termination of the contract, the Peruvian Government has not taken any action to calculate the VCN and call for auctions. In the opinion of the external and internal legal advisors, since the previous procedure had not been done within the established deadlines, the Peruvian Government would be obliged to pay GSP 100% of the VCN. Regarding the amount of the VCN there is a previous calculation commissioned by GSP reviewed by an audit firm as an independent expert as of December 31, 2016, which determined a VCN of US $ 2,602 million.

GSP as of December 4, 2017 entered into a bankruptcy proceeding that will be carried out by the National Institute for the Defense of Competition and Intellectual Protection of Peru (hereinafter, INDECOPI), and the Group registered a claim for accounts receivable in 2017 charge for US $ 434,465.77 and the fiduciary based in its capacity as administrator accounts receivable amounting US $ 169,287,006

 

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Based on the amount of the VCN, applying the payments foreseen in the insolvency proceedings, the subordination contracts and the loan cession agreements between the Group and GSP partners, the assumption that an international arbitration will be required to achieve the payment by the Government, and, in accordance with the conclusions of the internal and external legal advisors, it is estimated that the international arbitration would take approximately 5 years to resolve. This is why an impairment of the investment was recorded, which includes a finance update and estimation of costs for US $ 202.3 million before taxes at the income statement, as indicated in notes 13. c) and 16.

In addition, considering the early termination of the GSP contract, the Group evaluated the impairment of the financial statements of CCDS. As a result, a net loss before taxes of S / 15.2 million was determined (Note 5.1-f), that was recognized in gross profit in the Engineering and Construction segment.

Same as in the Emergency Decree 003, Law 30737 (see note 1 c) iii) in its First Section, includes Odebrecht and its related companies, which include GSP. According to this Law, GSP will not be able to make transfers abroad, will require the consent of the Ministry of Justice in case it wishes to sell assets and must deposit the proceeds of such sale in a guarantee trust. Likewise, the entities of the Government that must make some payment to the entities included in the Law, must withheld according to the contract 10%, equivalent to the net profit margin, and deposit it in the aforementioned trust in guarantee. According to our internal and external legal advisors, Government payment for the VCN is not within the scope of the withholding, as this payment does not include net profit margin, nor is a sale of assets.

 

  b) Renegotiations of liabilities and credit lines -

 

  i) Credit Suisse Syndicated Loan

On June 27, 2017, the Company renegotiated the terms of this loan to clear breaches related to the termination of the GSP concession. The new terms establish repayment by December, 2020. See Note 19-i)

 

  ii) GSP Performance Guarantee

On March 31, 2017, the Company renegotiated the terms for repayment obligations regarding the proportional share of the performance guarantee issued in connection with the GSP concession (Note 22). The new terms require repayment by June 30, 2018, with interest accrual 6% per year, and provide a security interest over our shares in CAM, and lien on certain assets’ cash flows.

 

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  iii) GSP Bridge Loan

On June 27, 2017 the Company entered in a new US$78.7 million term loan with Natixis, BBVA, SMBC and MUFJ, the proceeds of which were used to repay the GSP bridge loan. The maturity is June, 2020. See Note 19-ii)

 

  iv) Financial Stability Framework Agreement -

On July 31, 2017, GyM S.A., Graña y Montero S.A.A., CAM Peru S.A., Vial and Vives—DSD S.A. and Concesionaria Vía Expresa Sur S.A. entered into a Financial Stability Framework Agreement (together with certain complementary contracts) with the following financial entities: Scotiabank Peru S.A.A., Banco Internacional del Perú S.A.A, BBVA Banco Continental, Banco de Crédito del Perú, Citibank del Peru SA And Citibank N.A.. The Framework Agreement (together with its complementary contracts) was intended to: (i) grant GyM S.A. a line of a syndicated revolving loan for working capital of up to US$1.6 million and S/143.9 million (extendable to an additional US$14 million subject to certain conditions; (ii) grant GyM S.A. a non-revolving line of up to US$51.6 million and S/33.6 million; (iii) grant GyM S.A., Graña y Montero S.A.A., CAM Peru S.A., Vial and Vives—DSD S.A. and Concessionaire Vía Expresa Sur S.A a non-revolving line to finance the amounts payable resulting from the performance bonds that may become enforceable; (iv) grant a line of a syndicated loan to GyM S.A. and Graña y Montero S.A.A. for the newly-issued performance bonds of up to US$100 million (extendable up to US$150 million, subject to compliance with certain conditions); and (v) commit to maintaining the existing stand-by letters of credit issued at the request of GyM S.A. and Graña y Montero S.A.A as well as of CAM Perú S.A., Vial and Vives-DSD S.A. and Concesionaria Vía Expresa Sur S.A.

 

  c) Divestment process -

 

  The Company has initiated a divestment process of non-strategic assets for up to US$300 million (equivalent to S/1,008 million) to meet the obligations arose from the early terminations of the GSP project. It should be noted that outside the situation described above, the subsidiaries of the Group are operating normally with their own capital and financing needs. To date these divestments are the following:

 

  On February 3, 2017 subsidiary Viva GyM S.A. signed a purchase-sales agreement comprising all its shares and rights (representing 50%) of the property at which Project Cuartel San Martín was to be developed jointly with another entity. The agreed selling price was US$50 million (equivalent to S/163 million), which were fully paid on April 3, 2017 with the signing of public deeds.

 

  On February 24, 2017 subsidiary Viva GyM S.A. signed a purchase-sales agreement comprising its equity interest (representing 22.5%) held in associate Promoción Inmobiliaria del Sur S.A. (Note 16.a-ii) The agreed selling price was US$25 million (equivalent to S/81 million), which was fully paid.

 

  In February and March, 2017 subsidiary Stracon GyM S.A. sold in a trade session at the Lima Stock Exchange a portion of its equity interest (representing 9.97%) of Red Eagle Mining Corporation (included as non-current assets at the consolidated financial statement), keeping an interest of 2.70%. The agreed selling price was US$13.3 million (equivalent to S/43 million), which was fully paid.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

  On April 24, 2017 the Company signed a purchase-sale agreement for their total capital stock (representing 51%) held in their joint venture with Compañía Operadora de Gas del Amazonas S.A.C. (COGA). The selling price was agreed at US$21.5 million (equivalent to S/69.8 million), which was fully paid.

 

  On June 6, 2017 the Company signed a purchase-sale agreement for their total share (representing 89.19%) of GMD S.A. The selling price was agreed at US$84.7 million (equivalent to S/281.3 million), which was fully paid.

 

  On the other hand, on March 28, 2018, the subsidiary GYM sold its total share (87.59%) in Stracon GyM S.A. for a total of US $ 76.8 million. All of the inflows will be used to amortize their financial obligations.

 

  d) Legal processes arising in 2017 -

 

  i) Consorcio Rio Mantaro

 

  a) On February 2, 2017, ULMA Encofrados Perú S.A. (hereinafter “ULMA”) started an arbitration process against Consorcio Río Mantaro (hereinafter, the “Consortium”) involving S/5.1 million for the alleged breach of returning in optimum conditions the equipment that was leased to them, and for not making the corresponding payment to ULMA for the reduction of the equipment

On September 14, 2017, the Consortium and ULMA signed an out-of-court settlement for which ULMA agrees to grant Consortium a final reduction in the amount due to shortages and unusable. Therefore, the Consortium was obliged to pay ULMA the total amount of S/2 million, amount that includes the VAT.

 

  b) On June 1, 2017, Consorcio Rĺo Mantaro (the “Consortium”) filed a lawsuit against Andritz Hydro GmbH; Andritz Hydro SRL and Andritz Hydro S.A ( the “Subcontractors”) , who participated as electromechanical subcontractors of the Cerro del Águila Project (Hydroelectric Power Plant). The Consortium demands US$ 73.5 million (US $ 36.7 million what corresponds to GyM) for several breaches (including delays) in the execution of the electromechanical subcontract that binds them, in addition to demanding compensation for the other damages caused by the subcontractors.

To date, the Consortium has complied with submitting its briefs to the Arbitral Tribunal, so we are waiting for the counterclaim.

 

  ii) Consorcio Ermitaño

On March 3, 2017, Consorcio Ermitaño (hereinafter, the “Consortium”) initiated an arbitration against the Potable Water and Sewerage Service of Lima S.A. (hereinafter, “SEDAPAL”) for:

 

  a. recognition of the Extension of Term No. 5 and payment of the respective general expenses, equivalent to S/13 million (being S/6.5 million what corresponds to GyM S.A.)

On May 10, 2018, the Court heard oral arguments on this matter..

 

  b. recognition of the Term Extensions N ° 3 and N ° 4 and payment of the respective variable general expenses, equivalent to S/9.3 million (being S/4.6 million what corresponds to GyM SA).

To date, the Arbitral Tribunal has declared that the arbitration is in a period to be waived, which expires on June 14.

 

  c. claiming the variable general expenses corresponding to the Extension of Term No. 6, equivalent to S/10.7 million (with S/5.3 million corresponding to GyM S.A.).

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

On April 9, 2018, by means of Resolution No. 20, the Arbitral Tribunal declares that the arbitration is within a period of 30 business days

 

  d. recognition of the Extension of Term N ° 7 and N ° 9 and payment of the respective variable general expenses, equivalent to S / 4.4 million (S / 2.2 million corresponds to GyM ).

To date, it is still pending that the Arbitral Tribunal sets the rules of the arbitration, after which the period to formulate the claim will begin.

 

  e. On April 12, 2018, (the “Consorcio”) initiated an arbitration against “SEDAPAL” by recognition of the Extension of Term N ° 7 and N ° 9 and payment of the respective variable general expenses, equivalent to S / 4.4 million (S / 2.2 million corresponds to GyM).

 

  iii) Consorcio Constructor Ductos del Sur

On May 31, 2017, Elecnor Perú S.A.C. (hereinafter “ELECNOR”) started an arbitration process against Consorcio Constructor Ductos del Sur, through the Companies partners of this Consortium, at their proportional share, to honor a payment of US$29.3 million (equivalent to S/95.9 million), for the alleged breach of the obligations expressly set forth in the contract.

On June 14, 2017, CCDS filed and responded to ELECNOR’s arbitration request.

At the reporting date, two arbitrators have been appointed and a third one remains pending to appoint.

 

  iv) Consorcio La Gloria

On August 9, 2017, the Consorcio La Gloria (hereinafter, the “Consortium”) initiated an arbitration against the Drinking Water and Sewerage Service of Lima S.A. (hereinafter, “SEDAPAL”), with the aim of resolving all pending matters pertaining to the settlement of the work contract signed with SEDAPAL.

On March 7, 2018 the Consortium filed its claim with the Arbitral Tribunal, and now we are waiting for the reply from SEDAPAL.

 

  v) GyM S.A.

On October 10, 2017, Workbe Latam S.p.A. (hereinafter, “Workbe”) initiated an arbitration to order GyM S.A. (hereinafter, “GyM”) the compensation payment of US$0.7 million (equivalent to S/2.3 million) for early termination of service contract signed between the parties in 2016.

On April 26, 2018, GyM submitted to the Arbitral Tribunal the answer to the lawsuit.

 

  vii) Consorcio Italo Peruano

On January 26, 2018, GyM S.A. (hereinafter, “GyM”) initiated an arbitration against the National Institute of Neoplastic Diseases (hereinafter, “INEN”), its claim being the approval of the Extension of Term No. 1 for a period of 62 calendar days and, recognition of expenses S / 1.3 million (S / 664 thousands corresponds to GyM SA).

To date, the installation of the Arbitral Tribunal is pending.

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

  vii) Consorcio Norte Pachacutec.

On February 8, 2018, the North Pachacutec Consortium (hereinafter, the “Consortium”) initiated an arbitration against the Drinking Water and Sewerage Service of Lima S.A. (hereinafter, “SEDAPAL”), its main claim being the determination of the final cost of the work executed by the Consortium, considering unrecognized, recognized concepts and awards previously issued and that has not yet been met with the payment in favor of the Consortium, equivalent to the sum of S / 36.3 million (S / 17.8 million corresponds to GyM).

To date, the installation of the Arbitral Tribunal is pending.

 

38 DISCONTINUED OPERATION

As part of the divestment process conducted by the Company (Note 37 c) subsidiaries and joint ventures were dispose. The effect in the consolidated income statement is summarized as follows:

SUBSIDIARIES

 

GMD      
     2015      2016  
Revenue      232,582        279,289  
Operating costs      (219,433      (257,294
Finance costs, net      (8,249      (9,758
  

 

 

    

 

 

 
Operating profit from discontinued activities before taxation      4,901        12,237  
Income tax expense      (3,129      (7,466
  

 

 

    

 

 

 
Profit from discontinued ordinary activities after taxation      1,772        4,771  
Profit from discontinued activities attributable to owners of the Company      1,581        4,257  
  

 

 

    

 

 

 
Earnings per share relating to the discontinued operation are as follows:      
Basic      0.138        0.372  
  

 

 

    

 

 

 
Cash flows relating to the discontinued operation are as follows:      
Operating cash flows      (14,193      78,286  
Investing cash flows      (17,499      (30,712
Financing cash flows      (53,501      (48,516
STRACON GyM S.A.      
     2015      2016  

Revenue

     1,476,764        1,222,707  

Operating costs

     (1,305,806      (1,099,789

Finance costs, net

     (21,478      (3,104
  

 

 

    

 

 

 

Operating loss from discontinued activities before taxation

     149,480        119,814  

Income tax expense

     (40,492      (32,558
  

 

 

    

 

 

 

Profit from discontinued ordinary activities after taxation

     108,988        87,256  

Profit from discontinued activities attributable to owners of the Company

     95,463        76,428  
  

 

 

    

 

 

 

Earnings per share relating to the discontinued operation are as follows

     

Basic

     1.395        1.117  
  

 

 

    

 

 

 

Cash flows relating to the discontinued operation are as follows:

     
Operating cash flows      166,438        49,105  
Investing cash flows      (19,914      (31,132
Financing cash flows      (120,655      (71,382

 

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(All amounts expressed in thousands of S/ unless otherwise stated)

 

JOINT OPERATION

 

CONSORCIO CONSTRUCTOR DUCTOS DEL SUR

     
     2015      2016  

Revenue

     154,110        998,463  

Operating costs

     (133,674      (977,729

Finance costs

     (882      (3,670
  

 

 

    

 

 

 

Operating profit from discontinued activities before taxation

     19,554        17,064  

Income tax expense

     (5,471      (19,347
  

 

 

    

 

 

 

Profit from discontinued ordinary activities after taxation

     14,083        (2,283
  

 

 

    

 

 

 

JOINT VENTURE

 

TECGAS N.V.

     
     2015      2016  

Revenue

     426,487        457,554  

Finance costs

     16        215  
  

 

 

    

 

 

 

Operating profit from discontinued activities before taxation

     1,876        (3,209

Income tax expense

     (892      (4,078
  

 

 

    

 

 

 

Loss from discontinued ordinary activities after taxation

     984        (7,287
  

 

 

    

 

 

 

 

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Supplementary Data (Unaudited)

Oil and Gas Producing Activities

In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 932, “Extractive Activities-Oil and Gas,” and regulations of the U.S. Securities and Exchange Commission (SEC), the company has included certain supplemental disclosures about its oil and gas exploration and production operations.

All information in the following supplemental disclosures related to Blocks I, III, IV and V. Information with respect to Blocks III and IV has been included from April 5, 2015, when the company began operating these blocks.

 

A. Reserve Quantity Information

Graña y Montero Petrolera S.A. net proved reserves in the fields in which they operate and changes in those reserves for operations are disclosed below. The net proved reserves represent the company’s best estimate of proved oil and natural gas reserves. For 2015 and 2016 reserve estimates have been evaluated by its technical staff (reservoir engineers and geoscience professionals) and submitted to its Reserve Development Committee. The estimates for all years presented conform to the definitions found in FASB ASC paragraph 932-10-65-1 and Rule 4-10(a) of Regulation S-X.

Proved oil reserves are those quantities of oil, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible, based on prices used to estimate reserves, from a given date forward from known reservoirs, and under existing economic conditions, operating methods, and government regulation prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain.

The term “reasonable certainty” implies a high degree of confidence that the quantities of oil actually recovered will equal or exceed the estimate. To achieve reasonable certainty, the company’s engineers and independent petroleum consultants relied on technologies that have been demonstrated to yield results with consistency and repeatability. The technologies and economic data used to estimate the company’s proved reserves include, but are not limited to, well logs, geologic maps, seismic data, well test data, production data, historical price and cost information and property ownership interests.

PROVED RESERVES (1)

 

     Total     Peru  
     Oil (MBBL)     Gas (MMcf)     Oil (MBBL)     Gas (MMcf)  

Proved developed and undeveloped reserves, December 31, 2014

     4,007       16,709       4,007       16,709  

Revisions of previous estimates

     (1,127     (3,380     (1,127     (3,380

Enhanced oil recovery

     0       0       0       0  

Purchases

     21,417       40,504       21,417       40,504  

Production (a)

     (570     (3,730     (570     (3,730

Sales in place

     0       0       0       0  

Proved developed and undeveloped reserves, December 31, 2015

     23,727       50,103       23,727       50,103  

Revisions of previous estimates

     2,472       (36,543     2,472       (36,543

Enhanced oil recovery

     0       0       0       0  

Purchases

     0       0       0       0  

Production

     (1,008     (3,039     (1,008     (3,039

Sales in place

     0       0       0       0  

Proved developed and undeveloped reserves, December 31, 2016 (2)(3)

     25,191       10,521       25,191       10,521  

 

(1) Proved reserves estimated in oil and gas properties located in Blocks I, III, IV and V (Talara and Paita) under two service contracts and two license contracts with Perupetro. The rights to produce hydrocarbons expire in December 2021 for Block I, April 2045 for Blocks III and IV, and October 2023 for Block V. The proved reserves estimated in this report constitute all of the proved reserves under contracts by Graña y Montero Petrolera S.A.
(2) The revisions in reserve estimates are based on new information obtained as a result of drilling activities and workovers. During 2016, proved developed reserves of crude oil increased due to drilling activities in Block IV and the impact of the higher price in reserve estimations. In 2015, natural gas proved reserves decreased as a result of reviews of Block I oil reserves.
(3) As of December 31, 2015, the associated gas reserves were 50,103 MMCF and included gas reserves of the Blocks I, III and IV. As of December 31, 2016, associated gas reserves decreased to 10,521 MFCF because the associated gas reserves of the Blocks III and IV had been re-categorized as resources, due, mainly, to the low certainty that such reserves would be economically producible in the future under existing commercial conditions, operating methods and regulations. This reduction in gas reserves did not have an impact on the company’s financial statements after the results obtained from the impairment tests of the mentioned assets.

 

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RESERVE QUANTITY INFORMATION

FOR THE YEAR ENDED DECEMBER 31, 2014

 

     Total      Peru  
            Gas                
     Oil (MBBL)      (MMCF)      Oil (MBBL)      Gas (MMCF)  

Proved developed reserves

           

Beginning of year

     2,880        9,187        2,880        9,187  

End of year

     2,882        11,960        2,882        11,960  

Proved undeveloped reserves

           

Beginning of year

     1,386        5,018        1,386        5,018  

End of year

     1,125        4,748        1,125        4,748  

RESERVE QUANTITY INFORMATION

FOR THE YEAR ENDED DECEMBER 31, 2015

 

     Total      Peru  
            Gas                
     Oil (MBBL)      (MMCF)      Oil (MBBL)      Gas (MMCF)  

Proved developed reserves

           

Beginning of year

     2,882        11,960        2,882        11,960  

End of year

     9,168        23,384        9,168        23,384  

Proved undeveloped reserves

           

Beginning of year

     1,125        4,748        1,125        4,748  

End of year

     14,562        26,719        14,562        26,719  

RESERVE QUANTITY INFORMATION

FOR THE YEAR ENDED DECEMBER 31, 2016

 

     Total      Peru  
            Gas                
     Oil (MBBL)      (MMCF)      Oil (MBBL)      Gas (MMCF)  

Proved developed reserves

           

Beginning of year

     9,168        23,384        9,168        23,384  

End of year

     8,521        10,521        8,521        10,521  

Proved undeveloped reserves

           

Beginning of year

     14,562        26,719        14,562        26,719  

End of year

     16,670        —          16,670        —    

 

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B. Capitalized Costs Relating to Oil and Gas Producing Activities

The following table sets forth the capitalized costs relating to the company’s crude oil and natural gas producing activities for the years indicated:

 

     Total Peru  
     2012     2013     2014     2015     2016  
     (in US$ thousands)  

Proved properties

          

Mineral property, wells and related equipment

     53,255       44,974       47,267       54,582       39,069  

Drilling and Works in progress and Replacement Units

     12,834       11,444       11,290       5,682       6,188  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Proved Properties

     66,090       56,418       58,557       60,264       45,257  

Unproved properties

     0       0       0       0       0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Property, Plant and Equipment

     66,090       56,418       58,557       60,264       45,257  

Accumulated depreciation, depletion, and amortization, and valuation allowances

     (10,990     (13,864    
(
13,735
 
    (17,875     (17,774
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net capitalized costs

     55,099       42,554       44,822       42,389       27,482  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

C. Costs Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development Activities

The following table sets forth costs incurred related to the company’s oil and natural gas activities for the years ended December 31, 2012, 2013, 2014 2015 and 2016 (in thousands):

 

     Total Peru  
     2012     2013     2014     2015     2016  
     (in US$ thousands)  

Acquisition costs of properties (1)

          

Proved

     0       0       0       0       0  

Unproved

     0       0       0       0       0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total acquisition costs

     0       0       0       0       0  

Exploration costs

     0       0       0         0  

Development costs

     (10,869     (13,465     (13,126     (17,179     (19,161
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     (10,869     (13,465     (13,126     (17,179     (19,161
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The company has not incurred in any cost related to Oil and Gas property acquisition for all years presented

 

D. Results of Operations for Oil and Natural Gas Producing Activities

The results of operations for oil and natural gas producing activities, excluding overhead costs and interest expenses, are as follows for the years indicated:

 

     Total Peru  
     2012     2013     2014     2015     2016  
     (in US$ thousands)  

Revenues

     52,172       58,275       59,233       57,938       50,556  

Additional Revenues of Gas Extraction Services (1)

       11,892        
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues (2)

     52,172       70,167       59,233       57,938       50,556  

Production Costs

     (13,802     (16,692     (16,257     (25,976     (24,645
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs of Labor

     (2,024     (1,715     (1,602     (1,660     (1,767

Repairs and Maintenance

     (911     (1,024     (958     (1,828     (1,563

Materials, supplies, and fuel consumed and supplies utilize

     (4,482     (7,103     (6,486     (10,775     (9,540

External services, insurances, security and others

     (2,975     (3,297     (3,605     (6,938     (6,388

Operation office and staff expenses

     (3,410     (3,553     (3,607     (4,776     (5,388

Additional Natural Gas supply costs after price adjustment (1)

       (14,843      

Royalties

           (7,982     (7,402

DD&A Expenses

     (10,949     (13,811     (13,672     (16,931     (17,223

Income (loss) before income taxes

     27,421       24,821       29,304       7,048       1,286  

Income tax expense (3)

     (8,226     (7,446     (8,791     (1,974     (373

Results of operations from producing activities

     19,195       17,375       20,513       5,075       913  

 

(1) During 2013, GMP finished a negotiation setting prices of natural gas extraction services provided to Perupetro retroactively since 2008 to 2013. Likewise, prices for natural gas supply paid by GMP to Perupetro were adjusted. The effects in revenues and costs of sales were registered in 2013.
(2) Income after deductions for Graña y Montero Petrolera S.A.’s share of government royalties according to contract obligations. There are no sales or transfers to the company’s other operations.
(3) 30% of income before income tax, until 2014. In 2015, the legal rate was 28% and during 2016 was 27%.

 

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E. Standardized Measure of Discounted Future Net Cash Flows

The standardized measure of discounted future net cash flows, related to the proved reserves is based on estimates of net proved reserves and the period during which they are expected to be produced. Future cash inflows are computed by applying the 12 month period unweighted arithmetic average of the price as of the first day of each month within that 12 month period, unless prices are defined by contractual arrangements, after royalty share of estimated annual future production from proved oil and gas reserves.

Future production and development costs to be incurred in producing and further developing the proved reserves are based on year end cost indicators. Future income taxes are computed by applying year end statutory tax rates.

Standardized measure of discounted future net cash flows

 

     Total  
     2012     2013     2014     2015     2016  
     (in US$ thousands)  

Future Cash inflows (1)

     375,655       360,386       251,695       1,461,565       1,106,849  

Future production costs (2)

     (94,793     (107,031     (72,857     (507,212     (285,608

Future development costs

     (43,663     (63,643     (37,423     (368,873     (463,224

Future production and development costs

     (138,455     (170,674     (110,280     (876,085     (748,832

Future income tax expenses (3)

     (71,160     (56,913     (37,264     (153,178     (105,615

Future Net cash flows (4)

     166,040       132,799       104,151       432,301       252,402  

10% annual discount for estimates timing of cash flows

     (49,887     (35,325     (29,483     (209,039     (115,028

Standardized measure of discounted Future Net Cash Flows

     116,153       97,474       74,668       223,262       137,374  

 

(1) For oil volumes, per barrel prices after deductions of Graña y Montero Petrolera S.A.’s share government royalties used in determining future cash inflows for the years ended December 31, 2012, 2013, 2014, 2015 and 2016 were US$86.29, US$87.25, US$83.96, US$77.33, US$45.59 and US$38.54 respectively. For gas volumes, gas price is linked to the oil price according to the gas purchase contract.
(2) Production costs and developments costs relating to future production of proved reserves are based on the continuation of existing economic conditions. Future estimated decommissioning costs are included.
(3) Taxation is computed using the appropriate year-end statutory corporate income tax rates.
(4) Future net cash flows from oil production are discounted at 10% regardless of assessment of the risk associated with its production activities.

 

S-4


Table of Contents
F. Changes in standardized Measure of Discounted Future Net Cash Flows

 

     Year Ended December 31,  
     2012     2013     2014     2015     2016  
     (in US$ thousands)  

Standardized measure of discounted Future Net Cash Flows, beginning of the year.

     145,604       116,153       97,474       74,668       223,262  

Revenue less production and other costs

     (65,974     (89,810     (75,490     (103,058     (75,202

Net changes in future development costs

     18,441       24,533       11,497       (185,387     (53,464

Changes in price, net of production costs

     (15,482     (34,973     (53,214     (284,832     560  

Development cost incurred

     10,869       13,465       13,126       17,179       19,161  

Revisions of previous quantity estimates

     (2,245     47,511       23,273       674,410       (54,052

Accretion of discount

     23,931       23,616       16,836       67,666       55,438  

Net change in income taxes

     10,452       3,593       9,286       (53,715     21,327  

Timming difference and other

     (9,444     (6,613     31,879       (16,330     (343

Standardized measure of discounted Future Net Cash Flows, end of the year.

     116,153       97,474       74,668       223,262       137,374  

 

S-5


Table of Contents

EXHIBIT INDEX

 

Exhibit Number

 

Description

1.01*   By-Laws of the Registrant, as currently in effect
2.01**   Registrant’s Form of American Depositary Receipt
2.02***   Form of Deposit Agreement among the Registrant, JP Morgan Chase Bank, N.A., as depositary, and the holders from time to time of American depositary shares issued thereunder
8.01   Subsidiaries of the Registrant
10.01   Credit Agreement, dated as of December 10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.1   Amendment No. 1, dated as of December 22, 2015, to the Credit Agreement, dated as of December  10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.2   Amendment No. 2, dated as of February 1, 2016, to the Credit Agreement, dated as of December  10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.3   Amendment No. 3, dated as of February 12, 2016, to the Credit Agreement, dated as of December  10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.4   Amendment No. 4, dated as of February 29, 2016, to the Credit Agreement, dated as of December  10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.5   Amendment No. 5, dated as of April 15, 2016, to the Credit Agreement, dated as of December  10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.6   Waiver and Amendment No. 6, dated as of September 15, 2016, to the Credit Agreement, dated as of December  10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.7   Amendment No. 7, dated as of December 16, 2016, to the Credit Agreement, dated as of December  10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.8   Amendment No. 8, dated as of June 27, 2017, to the Credit Agreement, dated as of December  10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.01.9   Amendment No. 9, dated as of October 12, 2017, to the Credit Agreement, dated as of December  10, 2015, by and among, inter alia , the company, as borrower, and Credit Suisse AG, Cayman Islands Branch, as administrative agent.
10.02   Loan Agreement, dated as of June 27, 2017, by and among, inter alia , the company, as borrower, and Natixis, New York Branch, as administrative agent.
10.02.1   Waiver and Amendment, dated as of March 26, 2018, to the Credit Agreement, dated as of June  27, 2017, by and among, inter alia , the company, as borrower, and Natixis, New York Branch, as administrative agent.


Table of Contents

Exhibit Number

 

Description

10.03   English translation of Financial Stability Framework Agreement, dated as of July  31, 2017, by and among, inter alia , the company, as borrower, Scotiabank Perú S.A.A., Banco Internacional del Perú S.A.A., BBVA Banco Continenal, Banco de Crédito del Perú, Citibank del Perú S.A. and Citibank, N.A., as lenders.
10.04   English translation of Section 20 of Concession Agreement, dated as of July  22, 2014, by and among the Peruvian Minstry of Energy and Mines, as contracting authority and the concessionaire party thereto.
10.05   English translation of Memorandum of Understanding, dated as of September  26, 2017, by and among Graña y Montero S.A.A., Negocios de Gas S.A., Enagás S.A., Odebrecht S.A., and Inversiones en Infraestructura de Transporte por Ductos S.A.C.
10.05.1   English translation of Rights Subordination Agreement, dated as of April  29, 2016, by and among Odebrecht Latinvest Peru Ductos, S.A., Odebrecht S.A., Enagás, S.A., the company, Negocios de Gas S.A., Inversiones en Infraestructura de Transporte por Ductos S.A.C., and Gasoducto Sur Peruano S.A.
10.05.1.1   English translation of Addendum No. 1, dated as of June 24, 2016, to the Rights Subordination Agreement, dated as of April  29, 2016, by and among, inter alia , Odebrecht Latinvest Peru Ductos, S.A., Odebrecht S.A., Enagás, S.A., the company, GyM S.A., Negocios de Gas S.A., Inversiones en Infraestructura de Transporte por Ductos S.A.C., Gasoducto Sur Peruano S.A., Odebrecht Perú Ingeniería y Construcción S.A.C., and Constructora Norberto Odebrecht S.A., Sucursal del Perú.
10.05.1.2   English translation of Addendum No. 2 and Assignment Agreement, dated as of August 11, 2016, to the Rights Subordination Agreement, dated as of April  29, 2016, by and among, inter alia , Odebrecht Latinvest Peru Ductos, S.A., Odebrecht S.A., Enagás, S.A., the company, GyM S.A., Negocios de Gas S.A., Inversiones en Infraestructura de Transporte por Ductos S.A.C., Gasoducto Sur Peruano S.A., Odebrecht Perú Ingeniería y Construcción S.A.C., and Constructora Norberto Odebrecht S.A., Sucursal del Perú.
10.05.1.3   English translation of Modification to Addendum No. 2 and Assignment Agreement, dated as of October 25, 2016, to the Rights Subordination Agreement, dated as of April  29, 2016, by and among, inter alia , Odebrecht Latinvest Peru Ductos, S.A., Odebrecht S.A., Enagás, S.A., the company, GyM S.A., Negocios de Gas S.A., Inversiones en Infraestructura de Transporte por Ductos S.A.C., Gasoducto Sur Peruano S.A., Odebrecht Perú Ingeniería y Construcción S.A.C., and Constructora Norberto Odebrecht S.A., Sucursal del Perú.
12.01   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
12.02   Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
13.01****   Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
13.02****   Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
16.01   Letter dated May 15, 2018 by Gaveglio, Aparicio y Asociados S.C. de R.L., a member firm of PricewaterhouseCoopers, as required by Item 16F of Form 20-F.

 

* Incorporated herein by reference to exhibit 1.01 of the registrant’s Form 20-F (File No. 333-172855) filed with the SEC on April 30, 2014.
** Incorporated herein by reference to exhibit 4.1 to the registrant’s registration statement on Form F-1 (File No. 333-178922) filed with the SEC on June 4, 2013.
*** Incorporated herein by reference to exhibit 4.2 to the registrant’s registration statement on Form F-1 (File No. 333-178922) filed with the SEC on June 4, 2013.
*** This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. §78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
+ Confidential treatment requested.


Table of Contents

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 Form 20-F on its behalf.

 

GRAÑA Y MONTERO S.A.A.
By:  

/s/ Luis Francisco Díaz Olivero

Name:   Luis Francisco Díaz Olivero
Title:   Chief Executive Officer
By:  

/s/ Monica Miloslavich

Name:   Monica Miloslavich
Title:   Chief Financial Officer

Date: May 15, 2018

Exhibit 8.01

Subsidiaries of the Registrant

 

Subsidiary

  

Jurisdiction of
Incorporation

  

Name Under Which the
Subsidiary Does Business

  

Ownership Interest

Viva GyM S.A.    Peru    Viva GyM    Graña y Montero owns 63.4%; GyM owns 36.1%
GyM S.A.    Peru    GyM    Graña y Montero owns 98.2%
Concesionaria La Chira S.A.    Peru    La Chira    Graña y Montero owns 50.0%
Concesión Canchaque S.A.    Peru    Canchaque    Graña y Montero owns 99.96%
Concar S.A.    Peru    Concar    Graña y Montero owns 99.8%
GMP S.A.    Peru    GMP    Graña y Montero owns 95.0%
GyM Ferrovías S.A.    Peru    GyM Ferrovías    Graña y Montero owns 75.0%
Norvial S.A.    Peru    Norvial    Graña y Montero owns 67.0%
CAM Holding SPA    Peru    CAM Holding    Graña y Montero owns 100%
CAM Chile S.A.    Chile    Cam    Graña y Montero owns 73.16%
Survial S.A.    Peru    Survial    Graña y Montero owns 99.9%
GMI S.A. Ingenieros Consultores    Peru    GMI    Graña y Montero owns 89.4%
Vial y Vives – DSD S.A.    Chile    Vial y Vives    GyM owns 94.49%
Inmobiliaria Almonte S.A.C.    Peru    Almonte    Viva GyM owns 50.45%
Morelco S.A.S    Colombia        Morelco    GyM owns 70.0%
Concesionaria Via Expresa Sur S.A.    Peru    VESUR    Graña y Montero owns 99.98%; GyM owns the remaining 0.02%
Agenera S.A.C.    Perú    Agenera    Graña y Montero owns 99%; GyM owns the remaining 1%
GyM Colombia S.A.S.    Colombia    GyM Colombia    Graña y Montero owns 66.2%, GyM owns the remaining 33.8%
Tecgas Inc*    Canadá    Tecgas    Graña y Montero owns 51%,
Generadora Arabesco S.A.    Peru    Generadora Arabesco    Graña y Montero owns 99%,
Adexus S.A.    Chile    Adexus    Graña y Montero owns 91.03%,
Recaudo Lima S.A.    Perú    Recaudo Lima    Graña y Montero owns 70%, GMD owns the remaining 30%
CAM Servicios del Perú S.A.    Perú    CAM Servicios del Perú    Graña y Montero owns 73.16%
Promotora Larco Mar S.A.    Perú    Promotora Larco Mar    Graña y Montero owns 46.55%
TGNCA S.A.    Perú    TGNCA    Graña y Montero owns 99.93%
Coasin Instalaciones Limitada    Chile    Coasin    CAM Chile owns 99.89%, the remaining 0.11% is owned by Inversiones y Construcción GyM Limitada
Billetera Electrónica de Transporte Lima S.A.C.    Perú    BETL    Graña y Montero owns 95.5%


Subsidiary

  

Jurisdiction of
Incorporation

  

Name Under Which the
Subsidiary Does Business

  

Ownership Interest

GyM Chile SPA    Chile    GyM Chile SPA    GyM owns 100%
Gestión de Soluciones Digitales S.A.C.    Perú    GSD    Graña y Montero owns 100%
Larcomar S.A.    Perú    Larcomar    Graña y Montero owns 79.66%
Promotores Asociados de Inmobiliaria S.A.    Perú    Promotoroes Asociados de Inmobiliaria    Graña y Montero owns 99.99%
Oiltanking Andina Services S.A.    Perú    OTAS    GMP owns 50%

Exhibit 10.01

 

 

 

U.S.$200,000,000

CREDIT AGREEMENT

dated as of

December 10, 2015

among

GRAÑA Y MONTERO S.A.A.,

as Borrower

the LENDERS referred to herein

and

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,

as Administrative Agent

 

 

CREDIT SUISSE SECURITIES (USA) LLC

as Lead Arranger

 

 

 

 

 


TABLE OF CONTENTS

 

         Page  

ARTICLE I

 

DEFINITIONS

 

Section 1.1

  Certain Defined Terms      1  

Section 1.2

  Interpretation of Terms Generally      26  

Section 1.3

  Accounting Terms and Determinations; IFRS      27  

ARTICLE II

 

THE LOANS

 

Section 2.1

  The Loans      27  

Section 2.2

  Loans and Borrowings      27  

Section 2.3

  Method of Borrowing      28  

Section 2.4

  Funding of Borrowings      28  

Section 2.5

  Termination of Commitments      29  

Section 2.6

  Repayment of Loans; Evidence of Debt      29  

Section 2.7

  Promissory Notes      30  

Section 2.8

  Prepayment of the Loans      31  

Section 2.9

  Fees      33  

Section 2.10

  Interest      34  

Section 2.11

  Alternate Rate of Interest      35  

Section 2.12

  Illegality      36  

Section 2.13

  Increased Costs      36  

Section 2.14

  Taxes      37  

Section 2.15

  Payments Generally; Pro Rata Treatment; Sharing of Set-offs      39  

Section 2.16

  Break Funding Payments      41  

Section 2.17

  Mitigation Obligations; Replacement of Lenders      41  

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

Section 3.1

  Corporate Existence; Qualification; Power; Capitalization      42  

Section 3.2

  Authorization; Enforceability      43  

Section 3.3

  Governmental Approvals; No Conflicts, Etc.      43  

Section 3.4

  Financial Condition; No Material Adverse Change      44  

Section 3.5

  Properties      44  

Section 3.6

  Permits      45  

Section 3.7

  Litigation      46  

Section 3.8

  Compliance with Laws and Agreements      46  

 

i


Section 3.9

  Taxes      46  

Section 3.10

  Environmental Matters      47  

Section 3.11

  Reports; Disclosure      48  

Section 3.12

  Legal Form      48  

Section 3.13

  Rank of Debt      49  

Section 3.14

  Investment Company Act; Other Regulations      49  

Section 3.15

  Commercial Activity; Absence of Immunity      49  

Section 3.16

  Insurance      49  

Section 3.17

  Labor Matters      49  

Section 3.18

  Collateral Matters; Liens      49  

Section 3.19

  Solvency      50  

Section 3.20

  Use of Proceeds      50  

Section 3.21

  Equity Contribution      51  

Section 3.22

  Sanctions Laws      51  

Section 3.23

  Anti-Corruption Laws      51  

Section 3.24

  Anti-Money Laundering Laws      51  

Section 3.25

  Exchange Controls      51  

Section 3.26

  Concession Documents      52  

Section 3.27

  Reference Shareholders’ Agreement      52  

ARTICLE IV

 

CONDITIONS

 

Section 4.1

  Closing Date      53  

Section 4.2

  Conditions to each Borrowing      57  

ARTICLE V

 

AFFIRMATIVE COVENANTS

 

Section 5.1

  Financial Statements and Other Information      59  

Section 5.2

  Notices of Material Events      62  

Section 5.3

  Existence; Conduct of Business      62  

Section 5.4

  Payment of Obligations      62  

Section 5.5

  Maintenance of Properties      63  

Section 5.6

  Insurance      63  

Section 5.7

  Books and Records; Inspection Rights      63  

Section 5.8

  Compliance with Laws and Contracts      63  

Section 5.9

  Compliance with Environmental Laws, Etc.      64  

Section 5.10

  Use of Proceeds      64  

Section 5.11

  Governmental Approvals      65  

Section 5.12

  Pari Passu Ranking      65  

Section 5.13

  Maintenance of Accounts; Preservation of Rights Under the Security Documents      65  

Section 5.14

  Payment of Reference Payments      66  

Section 5.15

  Additional Documents      66  

 

ii


ARTICLE VI

 

NEGATIVE COVENANTS

 

Section 6.1

  Liens      67  

Section 6.2

  Fundamental Changes      67  

Section 6.3

  Transactions with Affiliates      68  

Section 6.4

  Accounting Changes; Limitation on Changes in Fiscal Year      68  

Section 6.5

  Limitation on Sale and Leaseback Transactions      68  

Section 6.6

  Limitation on Indebtedness      68  

Section 6.7

  Certain Ratios      70  

Section 6.8

  Limitation on Investments      70  

Section 6.9

  Limitation on Dispositions      71  

Section 6.10

  Limitation on Restricted Payments      72  

Section 6.11

  Limitation on Restrictions Concerning Distributions by Subsidiaries      72  

Section 6.12

  Optional Payments; Modifications of Certain Documents      73  

Section 6.13

  Sanctions      73  

Section 6.14

  Anti-Corruption Laws      73  

Section 6.15

  Anti-Money Laundering Laws      73  

ARTICLE VII

 

EVENTS OF DEFAULT

 

Section 7.1

  Events of Default      74  

Section 7.2

  Rights upon an Event of Default      77  

ARTICLE VIII

 

THE ADMINISTRATIVE AGENT

 

Section 8.1

  Appointment, Powers and Immunities      77  

Section 8.2

  Reliance by Administrative Agent      79  

Section 8.3

  Sub-Agents      79  

Section 8.4

  Resignation or Removal of Administrative Agent      79  

Section 8.5

  Non-Reliance on Administrative Agent and Other Lenders      80  

Section 8.6

  Compensation of Administrative Agent      80  

Section 8.7

  Indemnification      80  

ARTICLE IX

 

MISCELLANEOUS

 

Section 9.1

  Notices      81  

Section 9.2

  Waivers; Amendments      82  

Section 9.3

  Expenses; Indemnity; Damage Waiver      83  

Section 9.4

  Successors and Assigns      85  

 

iii


Section 9.5

  Survival      88  

Section 9.6

  Integration      88  

Section 9.7

  Severability      88  

Section 9.8

  Right of Set-off      88  

Section 9.9

  Governing Law; Jurisdiction; Service of Process; Etc.      89  

Section 9.10

  WAIVER OF JURY TRIAL      90  

Section 9.11

  No Immunity      90  

Section 9.12

  Special Waiver      90  

Section 9.13

  Judgment Currency      90  

Section 9.14

  Use of English Language      91  

Section 9.15

  Headings      91  

Section 9.16

  Treatment of Certain Information; Confidentiality      91  

Section 9.17

  Counterparts      92  

Section 9.18

  Electronic Execution of Assignments      92  

Section 9.19

  USA PATRIOT Act      92  

 

iv


List of Schedules

 

Schedule 1.1-I

  

Lenders and Commitments

Schedule 1.1-II

  

Existing Liens

Schedule 1.1-III

  

Existing Shareholder Loans

Schedule 3.1(c)

  

Subsidiaries of the Borrower

Schedule 3.4(d)

  

Existing Indebtedness

Schedule 3.6(a)

  

Permits

Schedule 6.1(b)

  

Existing Liens of Concar

Schedule 6.6(c)

  

Existing Indebtedness of Concar

Schedule 6.8(a)

  

Existing Investments

List of Exhibits

 

Exhibit A

   —      Form of Assignment and Acceptance Agreement

Exhibit B

   —      Form of Borrowing Request

Exhibit C

   —      Form of Peruvian Account Pledge Agreement

Exhibit D

   —      Form of Peruvian Mortgage Agreement

Exhibit E-I

   —      Form of Almonte Peruvian Share Pledge Agreement

Exhibit E-II

   —      Form of GyM and Concar Peruvian Share Pledge Agreement

Exhibit F

   —      Form of Process Agent Acceptance

Exhibit G

   —      Form of Promissory Note

Exhibit H

   —      Form of Reserve Account Control Agreement

Exhibit I

   —      Form of Reserve Account Security Agreement

Exhibit J

   —      Form of Officer’s Certificate

Exhibit K

   —      Form of Opinion of Payet, Rey, Cauvi, Pérez Abogados

Exhibit L

   —      Form of Opinion of Clifford Chance US LLP

Exhibit M

   —      Form of Certificate of Financial Officer

 

v


INDEX OF DEFINED TERMS

 

Term

   Page  

Administrative Agent

     1  

Administrative Agent’s Account

     1  

Administrative Questionnaire

     1  

Affiliate

     1  

Agreement

     1  

Almonte

     2  

Almonte Sale Proceeds

     2  

Anti-Corruption Laws

     2  

Anti-Money Laundering Laws

     2  

Applicable Law

     2  

Applicable Margin

     2  

Applicable Percentage

     2  

Approved Fund

     2  

Assignment and Acceptance Agreement

     3  

Availability Period

     3  

Base Equity Contribution

     1  

Base Rate

     3  

Board

     3  

Borrower

     1  

Borrowing

     3  

Borrowing Date

     3  

Borrowing Request

     4  

Bridge Loan Letter of Credit

     4  

Bridge Loan”

     4  

Business Day

     4  

Capital Lease Obligations

     4  

Capital Stock

     4  

Cash Equivalents

     4  

Change in Control

     6  

Change in Law

     6  

Closing Date

     53  

Code

     6  

Collateral

     6  

Collection Account

     7  

Commitment

     7  

Commitment Fee

     33  

Concar

     7  

Concessionaire

     1  

Concessionaire Disposition Proceeds

     7  

Connection Income Taxes

     8  

Consolidated

     8  

Consolidated EBITDA

     8  

Consolidated EBITDA to Consolidated Interest Expense Ratio

     8  

 

vi


Consolidated Interest Expense

     8  

Consolidated Leverage Ratio

     8  

Consolidated Total Indebtedness

     8  

Contest

     9  

Contested

     9  

Contingent Equity Letter of Credit

     9  

Control

     9  

Controlled

     9  

Controlling

     9  

Debt Service Amount

     9  

Debt Service Coverage Ratio

     9  

Default

     9  

Defaulting Lender

     9  

Dispose

     10  

Disposed of

     10  

Disposition

     10  

Dollar Equivalent

     10  

Dollars

     10  

Entitled Person

     91  

Environmental Laws

     10  

Environmental Permits

     10  

Equity Contribution Shareholders’ Meeting

     10  

Equity Rights

     11  

Events of Default

     74  

Excluded Dispositions

     11  

Excluded Taxes

     11  

Executive Order

     11  

Fair Market Value

     11  

FATCA

     11  

FCPA

     11  

Fee Letter

     12  

Financial Officer

     12  

Financing Documents

     12  

Fitch

     12  

Gasoducto Sur Peruano Concession Agreement

     12  

Gasoducto Sur Peruano Pipeline Financing

     12  

Governmental Authority

     12  

Guarantee

     12  

GyM

     13  

GyM Ferrovias

     13  

Hazardous Materials

     13  

Hedging Agreement

     13  

IFRS

     13  

Incur

     13  

Indebtedness

     14  

Indemnified Taxes

     14  

 

vii


Indemnitee

     84  

Initial Equity Contribution

     14  

Interest Payment Date

     14  

Interest Period

     14  

Investment

     15  

Judgment Currency

     90  

Lead Arranger

     15  

Lender

     1  

Lender Insolvency Event

     15  

Lenders

     1  

Lending Office

     15  

Letters of Credit

     15  

LIBO Rate

     16  

Lien

     16  

Lima Metro

     16  

Line of Business

     16  

Loan

     16  

Master Agreement

     13  

Material Adverse Effect

     16  

Maturity Date

     16  

Moody’s

     17  

Negotiation Period

     35  

Net Asset Sale Proceeds

     17  

Net Debt Incurrence Proceeds

     17  

Non-Controlled Subsidiary

     17  

Non-Recourse Indebtedness

     17  

Non-Recourse Subsidiary

     18  

Non-Recourse Subsidiary Pledge Agreement

     18  

Norvial

     18  

OFAC

     18  

Option Right

     6  

Other Connection Taxes

     19  

Other Taxes

     19  

Parent Company

     19  

Participant

     87  

Patriot Act

     92  

Permits

     45  

Permitted Encumbrances

     19  

Permitted Holders

     20  

Person

     20  

Peru

     20  

Peruvian Account Pledge Agreement

     20  

Peruvian Financial Institution

     20  

Peruvian Mortgage Agreement

     20  

Peruvian Security Trust Agreement

     20  

Peruvian Share Pledge Agreements

     21  

 

viii


Peruvian Sol

     21  

Principal Repayment Date

     29  

Process Agent

     89  

Process Agent Acceptance

     21  

Project

     21  

Promissory Notes

     21  

Prudent Industry Practices

     21  

Reference Ferrovias Project

     21  

Reference Payments

     21  

Reference Project Receivables

     22  

Reference Shareholders’ Agreement

     22  

Register

     87  

Regulation U

     22  

Regulation X

     22  

Regulation Y

     22  

Related Parties

     22  

Required Lenders

     23  

Reserve Account

     23  

Reserve Account Control Agreement

     23  

Reserve Account Financial Institution

     23  

Reserve Account Required Balance

     23  

Reserve Account Security Agreement

     23  

Restricted Payment

     23  

Rolling Period

     24  

S&P

     24  

Sale and Leaseback Transaction

     24  

Sanction(s)

     24  

Sanctioned Jurisdiction

     24  

Sanctions Laws

     24  

Sanctions Target

     24  

Scotiabank Credit Agreement

     25  

SEC

     25  

Securities Act

     25  

Security Documents

     25  

Solvent

     25  

Subsidiary

     25  

Substitute Basis

     35  

Synthetic Purchase Agreement

     25  

Taxes

     26  

Termination Date

     26  

Transactions

     26  

U.S.$

     10  

Via Expresa

     26  

Viva GyM

     26  

Wholly Owned Subsidiary

     26  

 

ix


CREDIT AGREEMENT, dated as of December 10, 2015 (the “ Agreement ”) among GRAÑA Y MONTERO S.A.A., a sociedad anónima abierta incorporated and existing under the laws of Peru (as defined below) (the “ Borrower ”), each lender from time to time party hereto (collectively, the “ Lenders ” and individually, a “ Lender ”), and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Administrative Agent (in such capacity, the “ Administrative Agent ”).

WHEREAS, the Borrower intends to make, directly or indirectly, in Gasoducto Sur Peruano S.A., a sociedad an ó nima incorporated and existing under the laws of Peru (the “ Concessionaire ”), holder of the concession granted pursuant to the Gasoducto Sur Peruano Concession Agreement, contributions in cash, subordinated shareholder loans or any combination of the foregoing in an aggregate amount of up to U.S.$208,600,000 (the “ Base Equity Contribution ”); and

WHEREAS, to finance a portion of the Base Equity Contribution and replenish investments made prior to the date hereof in the Concessionaire in the amount of U.S.$105,959,883.26, the Borrower has requested that the Lenders provide a senior secured term facility, and the Lenders are willing to do so on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Certain Defined Terms . As used in this Agreement the following terms have the meanings specified below:

Administrative Agent’s Account ” means the bank account maintained by the Administrative Agent with The Bank of New York Mellon, number 8900492627, ABA: 021000018, or such other bank account notified by the Administrative Agent to the Borrower.

Administrative Questionnaire ” means, with respect to each Lender, an administrative questionnaire in a form supplied by the Administrative Agent and submitted to the Administrative Agent duly completed by such Lender.

Affiliate ” means, with respect to a specified Person, another Person that, directly or indirectly, through one or more intermediaries, Controls, is Controlled by or is under common Control with the Person specified.

 

1


Almonte ” means Inmobiliaria Almonte S.A.C. a sociedad anónima cerrada incorporated and existing under the laws of Peru.

Almonte Sale Proceeds ” means with respect to any Disposition by Almonte, an amount equal to the product of (i) cash payments (including any cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received by Almonte, and (ii) the percentage (expressed as a fraction) of equity interests in Almonte held by the Borrower, directly or indirectly, on the date of such Disposition, minus any reasonable and documented costs and expenses actually incurred by Almonte in connection with such Disposition, including the amount of all Taxes payable and that are attributable to such event.

Anti-Corruption Laws ” means all laws, rules, regulations and requirements of any jurisdiction (including the U.S. and Peru) applicable to the Borrower, its Affiliates or any party to the Financing Documents concerning or relating to bribery or corruption, including, without limitation, the FCPA and applicable anti-corruption laws in Peru.

Anti-Money Laundering Laws ” means all laws of any jurisdiction applicable to the Borrower or its Affiliates concerning or relating to anti-money laundering and anti-terrorism financing, including, without limitation, the Currency and Financial Transactions Reporting Act of 1970, as amended by Title III of the USA PATRIOT Act, the Money Laundering Control Act of 1986 and other legislation, which legislative framework is commonly referred to as the “Bank Secrecy Act”, and all rules and regulations implementing these Laws, as any of the foregoing may be amended from time to time.

Applicable Law ” means, as to any Person, all applicable constitutions, treaties, laws, statutes, codes, ordinances, orders, decrees, rules and regulations of any Governmental Authority binding upon such Person or to which such Person is subject.

Applicable Margin ” means, for each Loan, a rate per annum equal to 3.90%.

Applicable Percentage ” means, with respect to any Lender, the percentage of the total Loans represented by the aggregate amount of such Lender’s Loans hereunder.

Approved Fund ” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

 

2


Assignment and Acceptance Agreement ” means the assignment and acceptance agreement entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section  9.4 ), and accepted by the Administrative Agent, substantially in the form of Exhibit A .

Availability Period ” means the period from (and including) the date on which each of the conditions under Section  4.1 are satisfied (or waived) to (and including) the Termination Date.

Base Rate ” means, for any day, a fluctuating rate per annum equal to the highest of (a) the rate of interest in effect for such day as announced from time to time by the Administrative Agent as its “prime rate,” (b) the Federal Funds Effective Rate plus 0.5%, and (c) the LIBO Rate for an interest period of three months on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%; provided that, for the avoidance of doubt, the LIBO Rate for any day shall be based on the rate determined on such day at approximately 11:00 a.m. (London time) by the Administrative Agent by reference to the London interbank offered rate administered by ICE Benchmark Administration Limited (or any other person which takes over the administration of that rate) for deposits in Dollars (as set forth by any service selected by the Administrative Agent that has been nominated by ICE Benchmark Administration Limited as an authorized vendor for the purpose of displaying such rates) with a term of three months commencing that day. The “prime rate” is a rate set by the Administrative Agent based upon various factors including its costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate. Any change in such prime rate announced by the Administrative Agent shall take effect at the opening of business on the day specified in the announcement of such change. Any change in the Base Rate due to a change in the prime rate, the Federal Funds Effective Rate or the LIBO Rate shall be effective on the effective date of such change in the prime rate, the Federal Funds Effective Rate or the LIBO Rate, as the case may be.

Board ” means the Board of Governors of the Federal Reserve System of the United States (or any successor thereto).

Borrowing ” means a borrowing of the Loans made or to be made by the Borrower hereunder.

Borrowing Date ” means a Business Day within the Availability Period, specified in a Borrowing Request as the date on which, upon the terms and subject to the conditions set forth herein, the Borrower shall make a Borrowing hereunder.

 

3


Borrowing Request ” means the request by the Borrower for a borrowing of Loans in accordance with Section  2.3 , substantially in the form of Exhibit B with all blanks therein properly completed.

Bridge Loan ” means the term loan agreement dated August 29, 2014, among the Concessionaire, the lenders listed therein and Natixis, New York Branch as Administrative Agent.

Bridge Loan Letter of Credit ” means any standby letter of credit, issued to backstop the guaranty obligations of the Borrower in respect of the Bridge Loan.

Business Day ” means a day other than a Saturday or Sunday on which (a) commercial banks are open for general business in New York, New York, and Lima, Peru, or (b) when used in connection with any determination of the interest rate applicable to a Loan, dealings in Dollar deposits are carried out between banks in the London interbank market.

Capital Lease Obligations ” of any Person, means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under IFRS, and the amount of such obligations shall be the capitalized amount thereof, determined in accordance with IFRS.

Capital Stock ” means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person’s capital stock whether now outstanding or issued after the date of this Agreement.

Cash Equivalents ” means any of the following, to the extent owned by the Borrower or a Subsidiary of the Borrower and having a maturity of not greater than 90 days from the date of issuance thereof:

(a) Dollar-denominated investments in

(i) readily marketable direct obligations of the Government of the United States or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the Government of the United States,

(ii) insured certificates of deposit of or time deposits with any commercial bank that is a Lender or a member of the Federal Reserve System, issues (or the parent of which issues) commercial paper rated as described in clause (iii) below, is organized under the laws of the United States or any State thereof and has combined capital and surplus of at least U.S.$1,000,000,000,

 

4


(iii) commercial paper issued by any corporation organized under the laws of any State of the United States and rated at least “ Prime -1 ” (or the then equivalent grade) by Moody’s, “ A -1 ” (or the then equivalent grade) by S&P’s or “ F -1 ” (or the then equivalent grade) by Fitch,

(iv) Investments, classified in accordance with IFRS as current assets of the Borrower or such Subsidiary of the Borrower, in money market funds that are registered under the Investment Company Act of 1940, as amended, that are administered by financial institutions that have the highest rating obtainable from Moody’s, S&P or Fitch and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a)(i), (ii) and (iii) of this definition,

(v) marketable securities issued or expressly and unconditionally guaranteed by the government of Peru with a credit rating of at least “ BBB -” (or the then equivalent grade) by S&P or the equivalent rating by Moody’s or Fitch and

(vi) marketable securities issued by any corporation organized under the laws of Peru or by any Peruvian Financial Institution and rated at least “ BBB- ” (or the then equivalent grade) by S&P or the equivalent rating by Moody’s or Fitch; and

(b) Peruvian Sol denominated investments in

(i) securities issued or expressly and unconditionally guaranteed by the government of Peru with a local currency credit rating of at least “ BBB -” (or the then equivalent grade) by S&P or the equivalent rating by Moody’s or Fitch,

(ii) certificates of deposit issued by any Peruvian Financial Institution with a local currency credit rating of at least “ BBB -” (or the then equivalent grade) by S&P or the equivalent rating by Moody’s or Fitch or

(iii) commercial paper issued by any corporation organized under the laws of Peru and rated at least “ BBB ” (or the then equivalent grade) by S&P or the equivalent rating by Moody’s or Fitch.

 

5


Change in Control ” means an event or series of events by which:

(a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934), directly or indirectly, of 50% or more of the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any Option Right (as defined below)); provided that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “ Option Right ”); or

(b) the Permitted Holders (individually or in the aggregate) cease to own, directly or indirectly, beneficially and of record, at least 25% (on a fully diluted basis) of the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower.

Change in Law ” means, with respect to a Lender, the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority, in each case, that is binding on and applicable to such Lender; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.

Code ” means the Internal Revenue Code of 1986, as amended.

Collateral ” means the property of any Person from time to time subject to the Security Documents as security, inter alia , for the obligations of the Borrower hereunder and under the other Financing Documents.

 

6


Collection Account ” means the Peruvian Soles denominated account number 193-2304280-0-55 established and maintained with Banco de Crédito del Perú in the name of the Borrower.

Commitment ” means, with respect to each Lender, the commitment of such Lender to make Loans expressed as an amount representing the maximum principal amount of the Loan to be made by such Lender hereunder, as such commitment may be reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section  9.4 . The amount of each Lender’s Commitment is set forth on Schedule 1.1-I , or in the Assignment and Acceptance Agreement pursuant to which such Lender shall have assumed its Commitment, as applicable.

Concar ” means Concar, S.A., a sociedad anónima incorporated and existing under the laws of Peru.

Concessionaire Disposition Proceeds ” means, collectively, (i) with respect to any direct or indirect Disposition of shares of capital stock of the Concessionaire owned by the Borrower or any of its Subsidiaries (but excluding any such Disposition made to a Wholly Owned Subsidiary of the Borrower), an amount equal to the cash payments (including any cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when received) received by the Borrower or such Subsidiary in connection with such Disposition, and (ii) with respect to any form of termination or cancellation of the Gasoducto Sur Peruano Concession Agreement which does not trigger a mandatory prepayment of the Loans under Section  2.8(b)(vi) , an amount equal to any cash proceeds actually received by the Borrower or any of its Subsidiaries in connection with such termination or cancellation ( provided that (A) if the Borrower or any of its Subsidiaries makes any Disposition of shares of capital stock of any Subsidiary (the “reference Subsidiary”), which Disposition triggered a mandatory prepayment of the Loans pursuant to Section  2.8(b)(iii) , and (B) such reference Subsidiary receives any proceeds in connection with any form of termination or cancellation of the Gasoducto Sur Peruano Concession Agreement, for purposes of calculating the Concessionaire Disposition Proceeds the amount under this clause (ii) shall be the product of (1) the cash proceeds actually received by such reference Subsidiary in connection with such termination or cancellation and (2) the percentage (expressed as a fraction) of equity interest in such reference Subsidiary held by the Borrower, directly or indirectly, on a fully diluted basis, on the date of such termination or cancellation), in each case, minus (x) any reasonable and documented costs and expenses actually incurred by Borrower or such Subsidiary in connection with such Disposition or termination or cancellation or the Gasoducto Sur Peruano Concession Agreement (as applicable), including the amount of all Taxes payable and that are attributable to such event, and (y) in case of a Disposition of such shares of capital stock, any amount payable by the Borrower to Infraestructura de Transporte por Ductos S.A.C. pursuant to the Memorandum of Understanding dated August 10, 2015, as amended on September 29, 2015, in connection with such Disposition.

 

7


Connection Income Taxes ” means Other Connection Taxes that are imposed on or measured by net income or assets (however denominated) or that are franchise Taxes or branch profits Taxes.

Consolidated ” refers to the consolidation of accounts of a Person and its Subsidiaries in accordance with IFRS.

Consolidated EBITDA ” for any period, means, with respect to the Borrower and its Subsidiaries on a Consolidated basis, without duplication, net profit plus , to the extent deducted in calculating such net profit, (i) financial (expense) income, net; (ii) income tax; (iii) depreciation and amortization; (iv) the amount corresponding to the tariff for the Lima Metro concession actually paid to GyM Ferrovias during such period (on account of the Peruvian government’s repayment of amounts invested by GyM Ferrovias to purchase trains and other infrastructure for the Lima Metro concession); and (v) the portion of costs of sales during such period related to purchase of land in the Borrower’s real estate segment, in each case determined in accordance with IFRS, minus the EBITDA of any Non-Recourse Subsidiary. As used in connection with any Non-Recourse Subsidiary in this definition, the term “ EBITDA ” shall have a correlative meaning with the foregoing.

Consolidated EBITDA to Consolidated Interest Expense Ratio ” means, on any day, the ratio of (i) Consolidated EBITDA for the Rolling Period ended on such day (or, if such day is not the last day of a fiscal quarter of the Borrower, ended on the last day of the fiscal quarter of the Borrower most recently ended prior to such day) (for purposes of this definition, such period, the “ reference period ”) to (ii) Consolidated Interest Expense for the reference period.

Consolidated Interest Expense ” for any period, means, with respect to the Borrower and its Subsidiaries (other than any Non-Recourse Subsidiary), the aggregate interest expense in respect of Indebtedness (including amortization of original issue discount and non-cash interest payments or accruals) of the Borrower and its Subsidiaries for such period, determined on a Consolidated basis in accordance with IFRS.

Consolidated Leverage Ratio ” means, on any day, the ratio of (i) Consolidated Total Indebtedness as of such day to (ii) Consolidated EBITDA for the Rolling Period ended on such day (or, if such day is not the last day of a fiscal quarter of the Borrower, ended on the last day of the fiscal quarter of the Borrower most recently ended prior to such day).

Consolidated Total Indebtedness ” means, with respect to the Borrower and its Subsidiaries (other than any Non-Recourse Subsidiary) on any date, the aggregate principal amount of all Indebtedness of the Borrower and its Subsidiaries on such date, minus the aggregate amount of Indebtedness of the Borrower (if any) of the type permitted under Section  6.6(a)(iii) or (iv) , determined on a Consolidated basis in accordance with IFRS.

 

8


Contest ” means, with respect to the payment of Taxes or any other claims or liabilities by any Person, to contest the validity or amount thereof in good faith by appropriate proceedings; provided , that such Person has posted a bond or other security in accordance with Applicable Law (if required) or has established adequate reserves with respect to the contested items in accordance with, and to the extent required by, IFRS. “ Contested ” shall have a meaning correlative thereto.

Contingent Equity Letter of Credit ” means any standby letter of credit, issued to backstop certain funding obligations of the Borrower under the Gasoducto Sur Peruano Pipeline Financing.

Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.

Debt Service Amount ” means, as of any date of determination, the sum of all amounts payable by the Borrower in respect of principal of and interest on the Loans on each of the four Interest Payment Dates immediately succeeding such date of determination (or if such date of determination is an Interest Payment Date, the Interest Payment Date falling on such date and the three Interest Payment Dates immediately succeeding such date of determination).

Debt Service Coverage Ratio ” means as of any date of determination, the ratio of (i) the aggregate amount in Dollars (or if in a currency other than Dollars, the Dollar Equivalent thereof) in respect of Reference Payments from any Non-Controlled Subsidiary or Subsidiary of the Borrower actually paid in cash directly for credit to the Collections Account during the 12 calendar month period then ended (calculated as of 4:00 p.m. (New York City time) on the last day of such period), to (ii) the Debt Service Amount as of such date.

Default ” means any event or condition that constitutes an Event of Default, or that upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

Defaulting Lender ” means, at any time, a Lender (i) as to which the Administrative Agent has notified the Borrower that such Lender has failed for three or more Business Days to comply with its obligations under this Agreement to make a Loan (a “funding obligation”), (ii) that has notified the Administrative Agent, or has stated publicly, that it will not comply with its funding obligations hereunder, or has defaulted on its funding obligations under any other loan agreement or credit agreement or other financing agreement, (iii) that has, for three or more Business Days, failed to confirm in writing to the Administrative Agent, in response to a written request of the Administrative Agent, that it will comply with its funding obligations hereunder, or (iv) as to which a Lender Insolvency Event has occurred and is

 

9


continuing. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (i) through (iv) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed a Defaulting Lender upon delivery of written notice of such determination to the Borrower and each Lender.

Disposition ” means, with respect to any property or asset, any sale, sale and leaseback, assignment, conveyance, transfer or other disposition thereof. The terms “ Dispose ” and “ Disposed of ” shall have correlative meanings.

Dollar Equivalent ” means, with respect to any monetary amount in a currency other than Dollars, at any time for the determination thereof, the amount of Dollars obtained by converting such foreign currency involved in such computation into Dollars at the spot rate for the purchase of Dollars with the applicable foreign currency that is published on the website of the Peruvian Superintendency of Banks, Insurance Companies and Pension Fund Managers (“ SBS ”) (www.sbs.gob.pe) for the Business Day immediately preceding the date of such determination; provided that : (a) in the event such publication is not available, the publication of the immediately preceding Business Day will be used and (b) in the event both such publications are not available, the “Quote of Supply and Demand—Weighted Average Exchange Rate” (“ Cotización de Oferta y Demanda – Tipo de Cambio Promedio Ponderado ”) (Exchange Resolution No. 007-91-EF/90) ( Resolución Cambiaria 007-91-EF/90) published by the SBS in the legal gazette ( Diario Oficial El Peruano ) for the Business Day immediately preceding the date of such determination will be used, or, to the extent such quote is not available, the publication of the immediately preceding Business Day. 1

Dollars ” or “ U.S.$ ” refers to lawful currency of the United States.

Environmental Laws ” means, as to any Person, all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters binding on such Person or to which such Person is subject.

Environmental Permits ” means, as to any Person, any and all permits, licenses and any other authorizations applicable to such Person pursuant to any Environmental Law.

Equity Contribution Shareholders’ Meeting ” means the shareholders’ meeting of the Concessionaire, dated November 2, 2015.

 

1   Subject to review by Muñiz

 

10


Equity Rights ” means, with respect to any Person, any subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including any shareholders’ or voting trust agreements) for the issuance, sale, registration or voting of, or securities convertible into, any additional shares of Capital Stock of any class, or partnership or other ownership interests of any type in, such Person.

Excluded Dispositions ” means any Disposition by the Borrower or any of its Subsidiaries, (i) of obsolete assets and scrap, (ii) of worn out, surplus, depleted or uneconomic equipment, (iii) of inventory or machinery in the ordinary course of business of the Borrower or such Subsidiaries, (iv) any Disposition expressly permitted by Section  6.2(a) , or (v) of Reference Project Receivables.

Excluded Taxes ” means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder or under any other Financing Document, (i) Taxes imposed on or measured by its overall net income (however designated), branch profits and franchise taxes imposed on it by the jurisdiction (or any political subdivision thereof) under the Applicable Law of which such recipient is organized, is doing business (other than solely in connection with this Agreement), is considered a resident for tax purposes, or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (ii) any Taxes imposed by reason of any connection between such recipient and the taxing jurisdiction other than entering into this Agreement or any other Financing Document and receiving payments hereunder or thereunder, (iii) Taxes attributable to the Administrative Agent’s or any Lender’s failure to comply with Section  2.14(e) , and (iv) any U.S. federal withholding Taxes imposed under FATCA.

Executive Order ” means the Executive Order No. 13224 of September 23, 2001, entitled Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism.

Fair Market Value ” means, with respect to any asset, the price which could be negotiated in an arm’s-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under compulsion to complete the transaction.

FATCA ” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amendment or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.

FCPA ” means the Foreign Corrupt Practices Act of 1977, as amended.

 

11


Fee Letter ” means the Fee Letter dated the date hereof, among the Borrower, the Administrative Agent and the Lead Arranger.

Financial Officer ” means the chief financial officer, principal accounting officer, treasurer or comptroller of the Borrower.

Financing Documents ” means, collectively, this Agreement, the Promissory Notes, the Security Documents, the Fee Letter and such other agreements, instruments, certificates and documents executed and delivered by the Borrower in connection with any of the foregoing.

Fitch ” means Fitch Inc., and any successor thereto.

Gasoducto Sur Peruano Concession Agreement ” means the concession agreement dated July 23, 2014, between the Concessionaire and the Republic of Peru, acting through the Ministry of Energy and Mines.

Gasoducto Sur Peruano Pipeline Financing ” means the senior credit facility to be entered among the Concessionaire and the financial institutions party thereto, relating to the financing of the Mejoras a la Seguridad Energética del País y Desarrollo del Gasoducto Sur Peruano project.

Governmental Authority ” means the government of Peru, the United States or any other nation, any state, department or any other political subdivision thereof, and any governmental body, agency, authority, instrumentality, regulatory body, court, tribunal, central bank or other entity (including any federal or other association of or with which any such nation may be a member or associated) exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

Guarantee ” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation (whether arising by virtue of partnership arrangements, sponsor support agreement, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof, to protect such obligee against loss in respect thereof (in whole or in part) or to maintain working or equity capital of the primary obligee or otherwise maintain the net worth or solvency of such obligee; provided , however , that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term “ Guarantee ” used as a verb has a corresponding meaning.

 

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GyM ” means GyM S.A., a sociedad anónima incorporated and existing under the laws of Peru.

GyM Ferrovias ” means GyM Ferrovias S.A., a sociedad anónima incorporated and existing under the laws of Peru.

Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

Hedging Agreement ” means (a) any and all interest rate protection agreements, interest rate future agreements, interest rate option agreements, interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, interest rate hedge agreements, foreign exchange contracts, currency swap agreements, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts or any other similar transactions or any combination of the foregoing (including any option to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, traded at the over-the-counter or standardized markets and (b) any and all transactions of any kind, and the related confirmations, that are subject to the terms and conditions of, or are governed by any form of master agreement published by the International Swaps and Derivative Association, Inc., any International Foreign Exchange Master Agreement or any other master agreement (including such master agreement, together with any related schedules, a “ Master Agreement ”) including any such obligations or liabilities under any Master Agreement.

IFRS ” means the International Financial Reporting Standards, as adopted, and in effect from time to time, by the International Accounting Standards Board, consistently applied throughout the periods involved.

Incur ” means, with respect to any Indebtedness, to incur, create, issue, assume, guarantee or otherwise, contingently or otherwise, become liable, directly or indirectly, for or with respect to, or to extend the maturity of, or become responsible for, the payment of such Indebtedness. The terms “ Incurrence ” and “ Incurring ” have corresponding meanings.

 

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Indebtedness ” of any Person at any date means, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (iii) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (iv) all obligations of such Person in respect of the deferred purchase price of property or services (excluding trade accounts payable arising in the ordinary course of business that are not overdue), (v) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (vi) all Indebtedness of others Guaranteed by such Person, (vii) all Capital Lease Obligations of such Person, (viii) all obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, of such Person (including in respect of Sale and Leaseback Transactions) that are not classified and accounted for as capital leases on the balance sheet of such Person under IFRS, (ix) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit acceptance facilities, letters of guaranty or similar instruments, but excluding those entered into in the ordinary course of business to pay trade accounts payable and other obligations that do not constitute Indebtedness (including, but not limited to, performance bonds, advance payment bonds and bid/offer payment bonds), (x) all obligations of such Person to purchase securities or other property that arise out of or in connection with the sale of the same or substantially similar securities or property, (xi) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, (xii) all net obligations of such Person under Hedging Agreements, (xiii) all obligations of such Person under Synthetic Purchase Agreements and (xiv) all other obligations of such Person that are required to be reflected in, or are reflected in, such Person’s financial statements, recorded or treated as “debt” under IFRS. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

Indemnified Taxes ” means (a) all Taxes other than Excluded Taxes and (b) to the extent not otherwise described in (a), Other Taxes.

Initial Equity Contribution ” means a cash contribution by the Borrower (directly or indirectly) to the Concessionaire actually made prior to the date hereof, in the form of a subscription of newly issued shares of the Capital Stock of the Concessionaire, in an aggregate amount equal to U.S.$105,959,883.26.

Interest Payment Date ” means the last day of each Interest Period.

Interest Period ” means (i) with respect to the first Borrowing hereunder, initially, the period commencing on the date on which such Borrowing is made and ending on March 10, 2016 and, thereafter, each period commencing on the last day of the immediately preceding Interest Period and ending on the 10 th day of the third calendar month thereafter; and (ii) with

 

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respect to each additional Borrowing hereunder, the period commencing on the Borrowing Date corresponding to such Borrowing and ending on the last day of the then current Interest Period pursuant to clause (i) above and, thereafter, each period commencing on the last day of the immediately preceding Interest Period and ending on the 10 th day of the third calendar month thereafter; provided , however , that (i) if an Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (ii) in no case shall any Interest Period end after the Maturity Date, and (iii) any Interest Period that begins on the last day of a calendar month (or a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month.

Investment ” means, for any Person (i) the acquisition (whether for cash, property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of, or assets constituting a business unit of, any other Person, or any agreement to make any such acquisition (other than any such agreement which provides that such acquisition shall be consummated (including the making of any payment with respect to such acquisition) after the Loans have been repaid in full in cash), (ii) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such Person) or (iii) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person.

Lead Arranger ” means Credit Suisse Securities (USA) LLC.

Lender Insolvency Event ” means that (i) a Lender or its Parent Company is insolvent, or is generally unable to pay its debts as they become due, or admits in writings its inability to pay its debts as they become due, or makes a general assignment for the benefit of its creditors, or (ii) a Lender or its Parent Company is the subject of a bankruptcy, insolvency, reorganization, liquidation or similar proceeding, or a receiver, trustee, conservator, intervenor or sequestrator or the like has been appointed for such Lender or its Parent Company, or such Lender or its Parent Company has taken any action in furtherance of or indicating its consent to or acquiescence in any such proceeding or appointment.

Lending Office ” means, as to each Lender, its office, branch or Affiliate located at its address set forth in its Administrative Questionnaire or such other office, branch or Affiliate of such Lender as it may hereafter designate as its Lending Office by written notice to the Borrower and the Administrative Agent.

Letters of Credit ” means the Bridge Loan Letter of Credit and the Contingent Equity Letter of Credit.

 

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LIBO Rate ” means, for any Interest Period, the rate per annum equal to the London Interbank Offered Rate (“ LIBOR ”) or a successor rate, which rate is approved by the Administrative Agent, as published on the applicable Reuters screen page, currently LIBOR03 (or such other commercially available source providing such quotations as may be designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London, England time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to three months; provided , that in no event shall the “ LIBO Rate ” be less than 0%; provided , further that to the extent a successor rate is approved by the Administrative Agent in connection herewith, the approved rate shall be applied in a manner consistent with market practice; provided , further that to the extent such market practice is not administratively feasible for the Administrative Agent, such approved rate shall be applied in a manner as otherwise reasonably determined by the Administrative Agent.

Lien ” means, with respect to any asset, (i) any mortgage, deed of trust, fideicomiso , lien, pledge, hypothecation, encumbrance, charge, assignment in trust or by way of security, for the purpose of constituting a security interest or encumbrance in respect of such asset, (ii) the interest of a vendor or lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (iii) in the case of securities, any purchase option, call or similar contractual right of a third party with respect to such securities.

Lima Metro ” means the Línea 1 del Metro de Lima .

Line of Business ” means business activities of the Borrower or its Subsidiaries, as the case may be, as of the Closing Date and activities reasonably related thereto.

Loan ” means a Loan outstanding hereunder made by a Lender to the Borrower on a Borrowing Date pursuant to Section  2.1 .

Material Adverse Effect ” means (a) a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent) or condition (financial or otherwise) of the Borrower or the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Borrower to perform its obligations under any Financing Document to which it is a party; (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Borrower of any Financing Document to which it is a party; or (d) a material adverse effect upon the validity or priority of the security interests purported to be granted to the Administrative Agent under the Security Documents.

Maturity Date ” means December 10, 2020, provided , however , that if such date is not a Business Day, the Maturity Date shall be the Business Day immediately preceding such date.

 

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Moody’s ” means Moody’s Investors Services, Inc. or any successor thereto.

Net Asset Sale Proceeds ” means,

(a) with respect to any Disposition by the Borrower (other than any Excluded Disposition), an amount equal to (i) cash payments (including any cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received by the Borrower from such Disposition, minus (ii) any reasonable and documented costs and expenses actually incurred by Borrower in connection with such Disposition, including the amount of all Taxes payable and that are attributable to such event; and

(b) with respect to any Disposition by any Subsidiary of the Borrower (other than any Excluded Disposition), an amount equal to the product of (A) (i) cash payments (including any cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received by such Subsidiary from such Disposition, minus (ii) any reasonable and documented costs and expenses actually incurred by Borrower or such Subsidiary in connection with such Disposition, including the amount of all Taxes payable and that are attributable to such event, and (B) the percentage (expressed as a fraction) of equity interests in such Subsidiary, held by the Borrower directly or indirectly, on a fully diluted basis, on the date of such Disposition.

Net Debt Incurrence Proceeds ” means an amount equal to (i) any cash proceeds received by the Borrower in connection with any Indebtedness Incurred by the Borrower, of the type permitted by Section  6.6(a)(viii) , minus any reasonable and documented costs and expenses actually incurred by the Borrower in connection with the Incurrence of such Indebtedness.

Non-Controlled Subsidiary ” means, with respect to the Borrower, at any date, any corporation, limited liability company, partnership, association or other entity (in each case, other than any Subsidiary of the Borrower) of which any securities or other ownership interests with ordinary voting power or, in the case of a partnership, any general partnership interest are, as of such date, held directly or indirectly by the Borrower.

Non-Recourse Indebtedness ” means any indebtedness for borrowed money incurred for the purpose of financing a Project (including any costs, expenses and working capital related to such Project) which meets the following conditions:

(a) the rights and recourse of the Person or Persons to whom such indebtedness is owed (the “non-recourse creditors”) are limited, in connection with such indebtedness, to the assets of the relevant Project, the Capital Stock and any asset of any Non-Recourse Subsidiary owning, directly or indirectly, such assets;

 

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(b) the Liens, if any, granted to the non-recourse creditors or for their benefit, in order to secure such indebtedness do not charge any asset or right of the Borrower or its Subsidiaries other than the assets and rights mentioned in clause (a) above;

(c) subject to the proviso below, neither the Borrower nor any of its Subsidiaries (other than any Non-Recourse Subsidiary) has Guaranteed or otherwise agreed to become liable to pay such Indebtedness; provided , however that solely in respect of GyM Ferrovias, a Guarantee by the Borrower of indebtedness of GyM Ferrovias Incurred in connection with the Reference Ferrovias Project in an aggregate amount not exceeding, at any time, U.S.$40,000,000, shall be disregarded for purposes of this clause (c) ; and

(d) the acceleration or demand for payment prior to scheduled maturity of such indebtedness further to a default does not constitute an event of default under any Indebtedness of the Borrower and its Subsidiaries, except for such Indebtedness, any other Non-Recourse Indebtedness and Indebtedness under the Financing Documents.

Non-Recourse Subsidiary ” means Norvial, GyM Ferrovías, Via Expresa or any other Subsidiary of the Borrower formed or organized, as applicable, following the Closing Date and, in each case, only to the extent such Person meets each of the following conditions:

(a) it owns, at all times, no material asset other than assets related to a Project,

(b) it owes, at all times, no Indebtedness for borrowed money other than Non-Recourse Indebtedness; and

(c) such Person is, at the time it intends to become a Non-Recourse Subsidiary, acceptable to the Required Lenders; provided, however that the condition under this clause (c) shall not apply so long as the credit rating of the Borrower by at least two of S&P, Fitch and Moody’s is “BB-,” “Ba3,” as applicable, or higher, at such time; provided , further that the condition under this clause (c) shall not apply, in any case, to Via Expresa.

Non-Recourse Subsidiary Pledge Agreement ” means any share pledge agreement (or other types of agreements or instruments with similar effect, including, without limitation, fideicomisos ) entered into by the Borrower or any of its Subsidiaries for the sole purpose of pledging the Capital Stock of a Non-Recourse Subsidiary as collateral security in support of Non-Recourse Indebtedness.

Norvial ” means Norvial S.A., a sociedad anónima incorporated and existing under the laws of Peru.

OFAC ” means the Office of Foreign Assets Control of the United States Department of the Treasury.

 

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Other Connection Taxes ” means, with respect to any Lender or the Administrative Agent, Taxes imposed as a result of a present or former connection between such Lender or the Administrative Agent and the jurisdiction imposing such Tax (other than connections arising from such Lender or the Administrative Agent having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Financing Document, or sold or assigned an interest in any Loan or Financing Document).

Other Taxes ” means any and all present or future stamp, transfer, court or documentary taxes or any other excise or property taxes, charges or similar levies (together with any interest, charges, penalties, additions to tax and additional amounts) arising from any payment made under any Financing Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Financing Document, except for any Excluded Taxes, or such Taxes that are Other Connection Taxes imposed with respect to an assignment or participation pursuant to Section  9.4 .

Parent Company ” means, with respect to a Lender, the bank holding company (as defined in Regulation Y), if any, of such Lender, and/or any Person owning, beneficially or of record, directly or indirectly, a majority of the shares of such Lender.

Permitted Encumbrances ” means (i) Liens imposed by law for taxes that are not yet due or are being Contested; (ii) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlords’, vendors’ salary and social security and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 90 days or are being Contested; (iii) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, disability or unemployment insurance, pensions and other social security laws or regulations; (iv) cash deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance and return-of-money bonds, tenders and other obligations of a like nature, in each case in the ordinary course of business; (v) judgment liens in respect of judgments that do not constitute an Event of Default under Section  7.1(j) ; (vi) minor irregularities in title to real property that do not secure any monetary obligations and which do not materially interfere with the occupation, use or enjoyment by the Borrower or any of its Subsidiaries, of any of their respective properties or assets; (vii) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any of its Subsidiaries; (viii) purchase money Liens created or arising over any property or asset which is acquired, constructed or created by the Borrower or any of its Subsidiaries but only if (a) such Lien secures only principal amounts (not exceeding the cost of such acquisition, construction or creation) raised for the purposes of such acquisition, construction or creation, together with any costs, expenses, interest and fees incurred in relation thereto, (b) such Lien is created or arises on or before 90 days after the completion of such acquisition, construction or creation and (c) such Lien is confined solely to the property so acquired, constructed or created; (ix) Liens in form and

 

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substance reasonably acceptable to the Administrative Agent, securing Indebtedness under the Letters of Credit; (x) Liens created pursuant to the Security Documents; (xi) Liens in existence on the date hereof and described in Schedule 1.1-II ; (xii) Liens created pursuant to Non-Recourse Subsidiary Pledge Agreements; and (xiii) customary rights of setoff as to bank accounts maintained with financial institutions, provided , however , that except as expressly contemplated by clauses (viii) through (xii) above, the term “ Permitted Encumbrances ” shall not include any Lien securing Indebtedness.

Permitted Holders ” means, collectively, GH Holding Group Corp., Bethel Enterprises Inc., Byron Development S.A and Mr. Hernando Graña Acuña (including with respect to Mr. Hernando Graña Acuña, his lineal descendants, estates, heirs, or any trust for the primary benefit of any of the foregoing).

Person ” means any natural person, corporation, limited liability company, trust, fideicomiso , joint venture, association, company, partnership, Governmental Authority or any other entity or organization.

Peru ” means the Republic of Peru.

Peruvian Account Pledge Agreement ” means the account pledge agreement ( Contrato de Constitución de Garantía Mobiliaria sobre Cuenta Bancaria y Saldos en Cuenta) to be entered into by the Borrower and the Administrative Agent, substantially in the form of Exhibit C , as amended, amended and restated, supplemented or otherwise modified from time to time.

Peruvian Financial Institution ” means a financial institution organized under and existing pursuant to and in accordance with the laws of Peru and authorized to conduct banking activities in Peru by the SBS.

Peruvian Mortgage Agreement ” means the mortgage agreement ( Contrato de Hipoteca ) to be entered into by the Borrower and the Administrative Agent, substantially in the form of Exhibit D , as amended, amended and restated, supplemented or otherwise modified from time to time.

Peruvian Security Trust Agreement ” means a Peruvian collateral trust agreement in substance and form reasonably acceptable to the Administrative Agent and the Borrower, providing for a first priority Lien on the Capital Stock of Almonte held, directly or indirectly, by the Borrower, as amended, amended and restated, supplemented or otherwise modified from time to time.

 

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Peruvian Share Pledge Agreements ” means, collectively, (i) the stock pledge agreement ( Contrato de Garantía Mobiliaria sobre Acciones ) to be entered into by the Borrower, GyM S.A., Concar and the Administrative Agent, substantially in the form of Exhibit E-I , as amended, amended and restated, supplemented or otherwise modified from time to time, and (ii) the stock pledge agreement ( Contrato de Garantía Mobiliaria sobre Acciones ) to be entered into by Viva GyM and the Administrative Agent, substantially in the form of Exhibit E-II , as amended, amended and restated, supplemented or otherwise modified from time to time; provided that, the stock pledge agreement referred to in clause (ii) above, shall cease to be part of the definition of the term “Peruvian Share Pledge Agreement” on the date the Peruvian Security Trust Agreement becomes effective.

Peruvian Sol ” means the lawful currency of Peru.

Process Agent Acceptance ” means a letter from the Process Agent to the Administrative Agent, substantially in the form of Exhibit F .

Project ” means (i) the acquisition, construction, development or expansion of assets forming an undertaking capable (on the basis of reasonable initial assumptions) to generate sufficient cash flow to cover the operating costs and debt service required to finance such undertaking and the subsequent commercial operation for which such assets were so acquired, constructed, developed or expanded; or (ii) any business undertaking existing on the date of this Agreement which, at the time of its acquisition, construction, development or expansion by the Borrower or any of its Subsidiaries, satisfies the criteria set forth in (i) above; provided that the term Project excludes a business or undertaking consisting primarily of providing engineering, construction or operation and maintenance services.

Promissory Notes ” means a promissory note ( pagaré incompleto governed by the laws of Peru) issued by the Borrower, as issuer, pursuant to law number 27287 of Peru ( Ley de Títulos Valores) , in favor of a Lender evidencing Loans made by such Lender, and its corresponding Acuerdo de Llenado de Pagaré , substantially in the form of Exhibit G .

Prudent Industry Practices ” means those practices, methods, equipment, specifications and standards of safety and performance, as the same may change from time to time, as are commonly used in Peru by companies engaged in the Line of Business.

Reference Ferrovias Project ” means the expansion of the Lima Metro, which will include the purchase of additional trains and the expansion of the existing infrastructure for the Lima Metro.

 

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Reference Payments ” means, with respect to any Non-Controlled Subsidiary or Subsidiary of the Borrower (i) any payment in cash of dividends or other distributions in cash on any Capital Stock of such Non-Controlled Subsidiary or such Subsidiary, (ii) any payment in cash on account of the purchase, redemption, retirement or acquisition of, or the setting apart of money for a sinking or other analogous fund for the purchase, redemption, retirement or acquisition of (x) any Capital Stock of or equity interest in such Non-Controlled Subsidiary or such Subsidiary of the Borrower, or (y) any option, warrant or other right to acquire Capital Stock of such Non-Controlled Subsidiary or such Subsidiary, (iii) any payment or reimbursement in cash in respect of irrevocable contributions made to the shareholders’ equity of such Non-Controlled Subsidiary or of such Subsidiary of the Borrower on account of future increases of the Capital Stock of or equity interests in such Non-Controlled Subsidiary or such Subsidiary of the Borrower, (iv) any payment in cash in respect of management fees payable by such Non-Controlled Subsidiary or such Subsidiary to the Borrower and (v) any payment in cash in respect of fees, principal and interest payable by such Non-Controlled Subsidiary or such Subsidiary to the Borrower under loans described in Schedule 1.1-III and under any shareholder loans made by the Borrower to such Non-Controlled Subsidiary or such Subsidiary at any time following the Closing Date.

Reference Project Receivables ” means any “ Pago por Obras – PAO ,” “ Remuneración por Inversión – RPI ,” “ Remuneración por Inversión correspondiente a un avance por obra – RPICAO ” on account of payment by the Government of Peru for acquisitions, developments, expansion, construction or works performed by any Subsidiary of the Borrower in connection with a Project, or any similar right to such payments.

Reference Shareholders’ Agreement ” means the shareholders’ agreement dated as of December 29, 2009, between Inversiones Sur S.A. and Viva GyM.

Regulation U ” means Regulation U (12 C.F.R. Part 221) of the Board, as the same may be modified and supplemented and in effect from time to time.

Regulation X ” means Regulation X (12 C.F.R. Part 224) of the Board, as the same may be modified and supplemented and in effect from time to time.

Regulation Y ” means Regulation Y (12 C.F.R. Part 225) of the Board, as the same bay be modified and supplemented and in effect from time to time.

Related Parties ” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.

Required Lenders ” means, at any time, Lenders having 50.01% or more of the aggregate amount of the Commitments and of the aggregate unpaid principal amount of the Loans.

 

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Reserve Account ” means the dollar-denominated account designated “Graña y Montero Reserve Account” established and maintained with the Reserve Account Financial Institution in the name of the Borrower, in accordance with the Reserve Account Control Agreement.

Reserve Account Control Agreement ” means the Reserve Account Control Agreement to be entered into among the Borrower, the Administrative Agent and the Reserve Account Financial Institution, substantially in the form of Exhibit H , as amended, amended and restated, supplemented or otherwise modified from time to time.

Reserve Account Financial Institution ” means The Bank of New York Mellon, in its capacity as “bank” under the Reserve Account Control Agreement, or any successor thereof.

Reserve Account Required Balance ” means, as of any date of determination, the sum of all amounts payable by the Borrower in respect of interest on the Loans on each of the two Interest Payment Dates immediately succeeding such date of determination (or if such date of determination is an Interest Payment Date, the Interest Payment Date falling on such date and the immediately succeeding Interest Payment Date).

Reserve Account Security Agreement ” means the Reserve Account Security Agreement to be entered into between the Borrower and the Administrative Agent, substantially in the form of Exhibit I , as amended, amended and restated, supplemented or otherwise modified from time to time.

Restricted Payment ” means (i) any dividend or other distribution on any Capital Stock or other equity interests in the Borrower or any of its Subsidiaries (except dividends payable solely in Equity Rights of the same class of the same issuer), (ii) any payment on account of the purchase, redemption, retirement or acquisition of, or the setting apart of money for a sinking or other analogous fund for the purchase, redemption, retirement or acquisition of (x) any Capital Stock of or equity interest in the Borrower or any of its Subsidiaries or (y) any option, warrant or other right to acquire Capital Stock of the Borrower or any of its Subsidiaries, and (iii) any payment or reimbursement in respect of irrevocable contributions made to the Borrower’s shareholders’ equity or any of its Subsidiary’s shareholders’ equity on account of future increases of the Capital Stock of or equity interest in the Borrower or any of its Subsidiaries, as the case may be.

Rolling Period ” means, with respect to any fiscal quarter of the Borrower, such fiscal quarter and the three immediately preceding fiscal quarters considered as a single accounting period.

 

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S&P ” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc. and any successor thereto.

Sale and Leaseback Transaction ” means, with respect to any Person, an arrangement with any bank, insurance company or other lender or investor providing for the leasing by such Person or any of its Subsidiaries of any property or asset which has been or is being sold or transferred in connection with such lease by such Person or such Subsidiary to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset.

Sanctioned Jurisdiction ” means at any time, a country, territory or geographical region which is itself the subject or target of any Sanctions (including, without limitation, Cuba, Iran, North Korea, Sudan, Crimea and Syria).

Sanction(s) ” means economic or financial sanctions, requirements or trade embargoes imposed, administered or enforced from time to time by U.S. Governmental Authorities (including, but not limited to, OFAC, the U.S. Department of State and the U.S. Department of Commerce), the United Nations Security Council, the European Union, or Her Majesty’s Treasury.

Sanctions Laws ” means all laws, rules, regulations and requirements of any jurisdiction (including the U.S. and Peru) applicable to the Borrower, its Subsidiaries, or any party to the Agreement concerning or relating to Sanctions, terrorism or money laundering, including, without limitation, (a) the Executive Order; (b) the USA PATRIOT Act; (c) the U.S. International Emergency Economic Powers Act; (d) the U.S. Trading with the Enemy Act; (e) the U.S. United Nations Participation Act; (f) the U.S. Syria Accountability and Lebanese Sovereignty Act; (g) the U.S. Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010; (h) the Iran Sanctions Act, Section 1245 of the National Defense Authorization Act of 2012; and (i) any similar laws, rules, regulations and requirements enacted, administered or enforced by the U.S.), the United Nations Security Council, the European Union or Her Majesty’s Treasury.

Sanctions Target ” means any Person: (a) that is the subject or target of any Sanctions; (b) listed in the annex to, or otherwise subject to the provisions of, the Executive Order; (c) named in any Sanctions-related list maintained by OFAC, the U.S. Department of State, the U.S. Department of Commerce or the U.S. Department of the Treasury, including the “Specially Designated National and Blocked Person” list; (c) located, organized or resident in a Sanctioned Jurisdiction that is, or whose government is, the subject or target of Sanctions; (d) which otherwise is, by public designation of the United Nations Security Council, the European Union or Her Majesty’s Treasury, the subject or target of any Sanction; (e) with which any party to the Loan Documents is prohibited from dealing or otherwise engaging in any transaction pursuant to any Sanctions Laws; or (f) owned or Controlled by any such Person or Persons described in the foregoing clauses (a)-(f).

 

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Scotiabank Credit Agreement ” means the credit agreement dated July 14, 2015, between GyM S.A., as borrower, and Scotiabank Peru S.A.A., as lender, as amended, amended and restated, supplemented or otherwise modified from time to time.

SEC ” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

Securities Act ” means the Securities Act of 1933, as amended.

Security Documents ” means, collectively, the Peruvian Share Pledge Agreements, the Peruvian Mortgage Agreement, the Reserve Account Control Agreement, the Reserve Account Security Agreement, the Peruvian Account Pledge Agreement and, when entered into by all parties thereto, the Peruvian Security Trust Agreement.

Solvent ” means, with respect to any Person, on a particular date, that on such date, such Person is not the subject of any insolvency proceeding under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, including the Bankruptcy Code of the United States and Law 27809 of Peru dated August 5, 2002, as amended.

Subsidiary ” means, with respect to any Person (for purposes of this definition, the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity (i) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, (ii) that is, as of such date, otherwise Controlled, in each case, by the parent or one or more Subsidiaries of the parent or (iii) the financial statements of which shall be (or should have been) Consolidated with the financial statements of the parent in accordance with IFRS, consistently applied during a relevant period.

Synthetic Purchase Agreement ” means any “total return swap” or sale and repurchase agreement with respect to any Equity Right or any Indebtedness, or any other swap, derivative or other agreement or combination of agreements pursuant to which the Borrower or any of its Subsidiaries is or may become obligated to make (i) any payment in connection with the purchase by any third party, from a Person other than the Borrower, of any Equity Rights or any Indebtedness or (ii) any payment the amount of which is determined by reference to the price or value at any time of any Equity Rights or any Indebtedness.

Taxes ” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

 

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Termination Date ” means the earlier of (i) September 10, 2016, and (ii) the date on which the Commitments shall have been entirely utilized or terminated in accordance with this Agreement.

Transactions ” means the execution, delivery and performance by the Borrower of this Agreement, each of the other Financing Documents to which it is a party and the transactions contemplated hereby and thereby.

Via Expresa ” means Via Expresa Sur S.A., a sociedad anónima incorporated and existing under the laws of Peru.

Viva GyM ” means Viva GyM S.A., a sociedad anónima incorporated and existing under the laws of Peru.

Wholly Owned Subsidiary ” of any Person, means a Subsidiary of such Person, all of the Capital Stock of which (other than directors’ qualifying shares or nominee or other similar shares required pursuant to Applicable Law) are owned by such Person or another Wholly Owned Subsidiary of such Person or by such Person together with one or more of its other Wholly Owned Subsidiaries.

Section 1.2 Interpretation of Terms Generally . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.”

(a) Unless the context requires otherwise:

(i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set out herein);

(ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns;

(iii) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof;

 

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(iv) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement; and

(v) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

Section 1.3 Accounting Terms and Determinations; IFRS . All terms of an accounting or financial nature shall be construed in accordance with, and all determinations of an accounting or financial nature shall be made in accordance with, IFRS, applied on a basis consistent with the Consolidated financial statements of the Borrower most recently delivered hereunder.

ARTICLE II

THE LOANS

Section 2.1 The Loans . During the Availability Period and subject to the terms and conditions set out herein, each Lender severally agrees to make a Loan in Dollars to the Borrower in an aggregate principal amount not to exceed the Commitment of such Lender.

Section 2.2 Loans and Borrowings .

(a) The failure of any Lender to make a Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided , however , that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make its Loan as required.

(b) Each Lender at its option may make any Loan by causing any domestic or foreign Lending Office of such Lender to make such Loan; provided , however , that the exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement; and provided , further , that, in case any Lender exercises such option at any time after the date of this Agreement, the Borrower shall not be required to pay to such Lender additional amounts pursuant to Section  2.13 or Section  2.14 in excess of such additional amounts that would have been payable to such Lender if such Lender had not changed its Lending Office, unless the circumstances giving rise to such excess payment result from a Change in Law after the date of the exercise of such option.

(c) There shall be no more than three Borrowings hereunder; provided that the first Borrowing hereunder shall be made on the Closing Date and any Borrowing following the Closing Date shall be made on a Borrowing Date following December 31, 2015, in each case within the Availability Period (subject to the terms and conditions set out herein). A Borrowing shall only be made on a Business Day during the Availability Period and the aggregate amount of all Borrowings shall not exceed the aggregate amount of the Commitments.

 

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(d) This Agreement is not a revolving credit agreement. Any amounts prepaid or repaid hereunder may not be reborrowed.

Section 2.3 Method of Borrowing .

(a) To request the Loans on a Borrowing Date, the Borrower shall give the Administrative Agent a written Borrowing Request signed by the Borrower not later than 11:00 a.m. (New York City time), three Business Days prior to such Borrowing Date. Each Borrowing Request shall be given by e-mail in portable document format (.pdf), facsimile (with confirmation of transmission) or by hand delivery and shall be irrevocable.

(b) The Borrowing Request shall specify the following information:

(i) the aggregate amount of the requested Borrowing to be made on the applicable Borrowing Date, which shall not exceed with respect to the Borrowing to be made on the Closing Date, U.S.$120,000,000, and with respect to any Borrowing after the Closing Date, the aggregate amount of the unused portion of the Commitments;

(ii) with respect to the first Borrowing hereunder, the proposed Closing Date, and with respect to any Borrowing after the Closing Date, the proposed Borrowing Date, which, in any case, shall be a Business Day within the Availability Period; and

(iii) the account or accounts of the Borrower into which the remaining portion of the proceeds of the requested Borrowing should be made.

(c) Promptly following receipt of the Borrowing Request, the Administrative Agent shall advise each Lender of the details thereof and of the amount of the Loan of such Lender to be made as part of the requested Borrowing.

Section 2.4 Funding of Borrowings .

(a) Each Lender shall make its Loan available on the relevant Borrowing Date by wire transfer of immediately available funds by 12:00 p.m. (New York City time) to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make the Loans available to the Borrower by promptly crediting from the amounts so received, in like funds, to the account(s) designated by the Borrower in the Borrowing Request.

 

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(b) Unless the Administrative Agent shall have received notice from a Lender prior to 2:00 p.m. (New York City time) on the Business Day immediately preceding the relevant Borrowing Date that such Lender will not make available to the Administrative Agent such Lender’s share of the borrowing to be made on such Borrowing Date, the Administrative Agent may assume that such Lender has made such share available on such Borrowing Date in accordance with Section  2.4(a) and may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. In such event, if a Lender has not in fact made its share of such Borrowing available to the Administrative Agent, then the Administrative Agent shall be entitled to recover such corresponding amount from such Lender on demand. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the Borrower, and the Borrower (without prejudice to any rights of the Borrower against such Lender) shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover on demand from such Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from and including the date such amount is made available by the Administrative Agent to the Borrower to but excluding the date of payment to the Administrative Agent, at a rate per annum equal to (i) if such amount is recovered from such Lender, a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation and (ii) if such amount is recovered from the Borrower, the interest rate applicable thereto pursuant to Section  2.10 . If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in the Borrowing for the purposes of this Agreement.

Section 2.5 Termination of Commitments . The Commitment of each Lender shall automatically terminate at 5:00 p.m. (New York City time) on the Termination Date. The Borrower may not reduce or terminate the Commitments.

Section 2.6 Repayment of Loans; Evidence of Debt .

(a) The Borrower hereby unconditionally promises to repay to the Administrative Agent, for the account of each Lender, the outstanding principal amount of each Loan on each Interest Payment Date falling in or after June, 2017 (each such Interest Payment Date, a “ Principal Repayment Date ”), in consecutive quarterly installments, each such installment in an amount equal to the lesser of (i) the percentage of the aggregate outstanding principal amount of the Loans made on or prior to the Termination Date set forth in the table below opposite the calendar month in which such Principal Repayment Date falls, and (ii) the principal amount of the Loans outstanding on such Principal Repayment Date; provided , however , that all unpaid principal of the Loans on the Maturity Date shall be repaid by the Borrower on the Maturity Date:

 

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Calendar Month

   Amount  

June, 2017

     6.07

September, 2017

     6.07

December, 2017

     6.07

March, 2018

     6.07

June, 2018

     6.07

September, 2018

     6.07

December, 2018

     6.07

March, 2019

     6.07

June, 2019

     6.07

September, 2019

     6.07

December, 2019

     6.07

March, 2019

     6.07

June, 2020

     6.07

September, 2020

     6.09

Maturity Date

     15

(b) Each Lender shall maintain, in accordance with its usual practice, records evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(c) The Administrative Agent shall maintain records in which it shall record (i) the amount of the Loans made hereunder and the Interest Periods therefor, (ii) the amount of any principal or interest due and payable, or to become due and payable, from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for account of the Lenders and each Lender’s share thereof.

(d) The entries made in the records maintained pursuant to Section  2.6(b) or 2.6(c) shall be, absent manifest error, prima facie evidence of the existence and amounts of the obligations recorded therein; provided , however , that the failure of any Lender or the Administrative Agent to maintain such records or any error therein shall not, in any manner, affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

Section 2.7 Promissory Notes .

(a) Each loan shall be evidenced by a Promissory Note. The Promissory Notes shall be delivered to the Administrative Agent for the benefit of the applicable Lender on or before the Closing Date. Each Loan and interest thereon shall at all times (including after assignment pursuant to Section  9.4 ) be represented by one or more Promissory Notes in such form payable to the payee named therein.

 

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(b) The payment of any part of the principal of any such Promissory Note shall discharge the obligation of the Borrower under this Agreement to pay principal of the Loan evidenced by such Promissory Note pro tanto , and the payment of any principal of a Loan in accordance with the terms hereof shall discharge the obligations of the Borrower under the Promissory Note evidencing such Loan pro tanto . The payment of any interest accrued on any Promissory Note shall pro tanto discharge the obligation of the Borrower to pay any such amount of interest on that portion of the Loan to which such Promissory Note relates, and payment of interest accrued on any Loan shall pro tanto discharge the obligation of the Borrower to pay such amount of interest in respect of the Promissory Note relating to the Loan to which such Promissory Note relates. Notwithstanding the discharge in full of any Promissory Note, (i) if the amount paid or payable under any such Promissory Note is less than the amount due and payable in accordance with this Agreement with respect to the Loan evidenced by such Promissory Note, to the fullest extent permitted under Applicable Law, the Borrower agrees to pay to the Administrative Agent upon demand such difference and (ii) if the amount paid or payable under any such Promissory Note (whether arising from the enforcement thereof in Peru or otherwise) exceeds the amount due and payable in accordance with this Agreement with respect to the Loan evidenced by such Promissory Note, each Lender that has received any amounts under such Promissory Notes in excess of the amounts due to such Lender hereunder agrees, to the fullest extent permitted under Applicable Law, to pay such excess to the Borrower upon demand.

(c) Upon discharge of all obligations of the Borrower under the Loan evidenced by a Promissory Note, the Lender holding such Promissory Note shall cancel such Promissory Note and promptly return it to the Borrower.

(d) Notwithstanding article 1233 of the Civil Code of Peru (Legislative Decree N° 295), the obligations under any Promissory Note shall not be extinguished even if such Promissory Note is prejudiced under the laws of Peru due to negligence of any Lender.

Section 2.8 Prepayment of the Loans .

(a) Voluntary Prepayment . The Borrower shall have the right at any time and from time to time thereafter to prepay the Loans in whole (but not in part) subject always to Section  2.1 6 and the payment by the Borrower concurrently with (and on the same date of) such prepayment of the amounts required to be paid by the Borrower pursuant to Section  2.8(d) . The Borrower shall notify the Administrative Agent by e-mail in portable document format (.pdf), facsimile (with confirmation of transmission) or hand delivery of any prepayment under this Section  2.8(a) not later than 11:00 a.m. (New York City time) 30 days prior to the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date, the principal amount of each Loan or portion thereof to be prepaid and the amount of accrued interest thereon to the date of the prepayment. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof.

 

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(b) Mandatory Prepayment .

(i) In case of receipt by the Borrower of any Net Debt Incurrence Proceeds, the Borrower shall prepay the Loans, concurrently with and on the same Business Day of (or on such other date acceptable to the Required Lenders) the receipt of such Net Debt Incurrence Proceeds, in an amount equal to the lesser of (x) the aggregate principal of, and interest on, the Loans then outstanding, and (y) the aggregate amount of such Net Debt Incurrence Proceeds.

(ii) In case of receipt by the Borrower or any of its Subsidiaries of any Net Asset Sale Proceeds during any fiscal year of the Borrower, in excess of U.S.$25,000,000 (or the Dollar Equivalent thereof), individually or in the aggregate, in connection with any Disposition or series of Dispositions by the Borrower or any of its Subsidiaries (other than Excluded Dispositions) made during such fiscal year of the Borrower (the amount of such excess, the “reference Net Asset Sale Proceeds amount”), the Borrower shall, or shall cause such Subsidiary to, prepay the Loans, concurrently with and on the same Business Day of (or on such other date acceptable to the Required Lenders) the receipt of such Net Asset Sale Proceeds, in an amount equal to the lesser of (x) the aggregate principal of, and interest on, the Loans then outstanding, and (y) the product of (A) the aggregate amount of such reference Net Asset Sale Proceeds amount and (B) 0.50.

(iii) In case of receipt by the Borrower or any of its Subsidiaries of any Concessionaire Disposition Proceeds, the Borrower shall, or shall cause such Subsidiary to, prepay the Loans, concurrently with and on the same Business Day of (or on such other date acceptable to the Required Lenders) the receipt of such Concessionaire Disposition Proceeds, in an amount equal to the lesser of (x) the aggregate principal of, and interest on, the Loans then outstanding, and (y) the aggregate amount of such Concessionaire Disposition Proceeds.

(iv) In case of receipt by Almonte of any Almonte Sale Proceeds, the Borrower shall prepay the Loans, concurrently with and on the same Business Day of (or on such other date acceptable to the Required Lenders) the receipt by Almonte of such Almonte Sale Proceeds, in an amount equal to the lesser of (x) the aggregate principal of, and interest on, the Loans then outstanding, and (y) the aggregate amount of such Almonte Sale Proceeds.

(v) In the event a Change in Control occurs, the Borrower shall, concurrently with and on the same day of the occurrence of such Change in Control (or on such other date acceptable to the Required Lenders), prepay all Loans then outstanding.

 

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(vi) In the event the Gasoducto Sur Peruano Concession Agreement is terminated or cancelled for any reason, the Borrower shall, in the case of clause (A) below, concurrently with and on the same day of the occurrence of such termination or cancellation (or on such other date acceptable to the Required Lenders) and in the case of clause (B) below, concurrently with and on the same day of the credit rating downgrade set forth therein (or on such other date acceptable to the Required Lenders), prepay all Loans then outstanding, if, and only to the extent that, (A) the credit rating of the Borrower by at least two of S&P, Fitch or Moody’s is not “BB-” or “Ba3,” as applicable, or higher, on the day of the occurrence of such termination or cancellation, or (B) a downgrade to any credit rating of the Borrower by S&P, Fitch or Moody’s results after the occurrence of such termination or cancellation, but only to the extent such downgrade occurs as a result of such termination or cancellation.

(c) The Borrower shall notify the Administrative Agent by e-mail in portable document format (.pdf) or facsimile (with confirmation of transmission) or hand delivery of any prepayment of the Loans pursuant to Section  2.8(b) not later than 11:00 a.m. (New York City time) at least ten Business Days before the date the Borrower, or any of its Subsidiaries (as applicable) expects to receive any Net Debt Incurrence Proceeds, Net Asset Sale Proceeds, Concessionaire Disposition Proceeds, Almonte Sale Proceeds, or on which the Borrower expects a Change in Control to occur. Each such notice shall specify the prepayment date, the principal amount of each Loan to be prepaid and the amount of accrued interest thereon to the date of the prepayment. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof.

(d) Each prepayment of Loans under Section  2.8(a) or 2.8(b) shall be (i) accompanied by accrued interest to the date of such prepayment on the amount prepaid and all other amounts in respect therewith then due and payable hereunder, and (ii) subject to Section  2.16 .

(e) Each prepayment of the Loans pursuant to Section  2.8(b) shall be applied ratably to all unpaid installments of the Loans.

Section 2.9 Fees .

(a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender on each Interest Payment Date and on the Termination Date (or, if such day is not a Business Day, on the immediately preceding Business Day), a commitment fee (the “ Commitment Fee ”), at a rate per annum equal to 1.25% on the unused portion of the Commitment of such Lender. The Commitment Fee shall be computed on the basis of actual number of days elapsed in a year of 360 days. The Commitment Fee due to each Lender shall commence to accrue on the date hereof, shall be payable in arrears and shall cease to accrue on the Termination Date.

 

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(b) The Borrower agrees to pay to the Administrative Agent and the Lead Arranger, as applicable, any and all fees payable in the amounts and at the times set forth in the Fee Letter.

(c) All fees payable hereunder or under the Fee Letter, as applicable, shall be paid on the dates due, in Dollars, in immediately available funds and shall not be subject to reduction by way of set-off or counterclaim. Fees paid hereunder or under the Fee Letter, as applicable, shall not be refundable under any circumstances.

(d) Defaulting Lenders shall not be entitled to receive any fees pursuant to the Financing Documents for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender and shall be entitled to reimbursement from such Lender of any fees paid to it that accrued during such period).

Section 2.10 Interest .

(a) Each Loan shall bear interest on the unpaid principal amount thereof, for the period from (and including) the date on which such Loan is made to (but excluding) the date such Loan shall be repaid in full, at a rate per annum equal to the LIBO Rate determined for the Interest Period then in effect, plus the Applicable Margin. Accrued (and theretofore unpaid) interest shall be payable (i) in arrears on each Interest Payment Date, (ii) on the date of any prepayment (on the amount prepaid), and (iii) at maturity (whether at stated maturity, by acceleration or otherwise) and, after such maturity, on demand.

(b) Notwithstanding the foregoing, during the continuance of any Event of Default, (i) all principal of any Loan, and (ii) to the extent permitted by Applicable Law, any overdue interest in respect of any Loan or other amounts owing hereunder, shall bear interest at a rate equal to 2% plus the interest rate then applicable to the Loans. Accrued and unpaid interest on past due amounts (including interest on past due interest, to the extent permitted by Applicable Law) shall be due and payable upon demand.

(c) All computations of interest for Loans determined by reference to the Base Rate shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including the first day but excluding the last day). All other interest hereunder shall be computed on the basis of a year of 360 days, and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The Administrative Agent shall calculate the amounts of interest pursuant to this Section  2.10 , and each such calculation shall be conclusive absent manifest error.

(d) The Administrative Agent shall notify to the Borrower the interest rate applicable for any Interest Period promptly following the determination of such rate.

 

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Section 2.11 Alternate Rate of Interest . If prior to the commencement of any Interest Period for any amounts outstanding hereunder:

(a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the LIBO Rate for such Interest Period; or

(b) the Administrative Agent is advised by the Required Lenders that the LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining the Loans for such Interest Period,

then the Administrative Agent shall give notice (the “ Rate Determination Notice ”) thereof to the Borrower and the Lenders by telephone, e-mail in portable document format (.pdf) or facsimile as promptly as practicable thereafter, and

(a) during the 30-day period next succeeding the date of delivery of such Rate Determination Notice (the “ Negotiation Period ”), the Administrative Agent (in consultation with the Lenders) and the Borrower will negotiate in good faith for the purpose of agreeing upon an alternative, mutually acceptable basis (the “ Substitute Basis ”) for determining the rate of interest to be applicable to the Loans or amounts for such Interest Period, as the case may be;

(b) if at the expiry of the Negotiation Period, the Required Lenders and the Borrower have agreed upon a Substitute Basis and the Administrative Agent has received confirmation from its New York and Peruvian counsel that such Substitute Basis has received all necessary governmental approvals and consents, if any, then the Loans will accrue interest at a rate per annum equal to the Substitute Basis in effect from time to time plus the Applicable Margin until the circumstances giving rise to such Rate Determination Notice have ceased to apply and such substitute rate shall be retroactive to, and take effect from, the beginning of such Interest Period;

(c) if, at the expiry of the Negotiation Period, a Substitute Basis shall not have been agreed upon as aforesaid or the Administrative Agent shall not have received the above-mentioned confirmation as to requisite governmental approvals or consents, the Loans will accrue interest at a rate per annum equal to the Base Rate in effect from time to time plus the Applicable Margin and such rate shall be retroactive to, and take effect from, the beginning of such Interest Period; and

(d) the procedures specified in clauses (a), (b) and (c) above shall apply to each Interest Period following the first such period to which such procedures were applied unless and until the Administrative Agent shall determine in consultation with the

 

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Required Lenders that the circumstances giving rise to such Rate Determination Notice no longer exist and so notifies the Borrower and the Lenders (which notice shall be given as promptly as reasonable practicable upon such determination), whereupon interest on the Loans or amounts shall again be determined in accordance with the provisions of Section  2.10 commencing on the first day next succeeding the date of such notice during such Interest Period.

Section 2.12 Illegality . If any Lender determines that any Change in Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its Lending Office to make, maintain or fund Loans or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, such Lender shall promptly notify the Borrower thereof (with a copy to the Administrative Agent) following which (a) such Lender’s Commitment shall be suspended until such time as such Lender may again make and maintain its Loans hereunder and (b) if such Change in Law shall so mandate, such Lender’s Loans shall be prepaid by the Borrower, together with accrued and unpaid interest thereon and all other amounts payable by the Borrower under this Agreement, on or before such date as shall be mandated by such Change in Law, to the Administrative Agent for the account of such Lender, on the last day of the then current Interest Period for such Loans (or on such earlier date as shall be certified by the Lender as being the last permissible date for such prepayment under the relevant Applicable Law).

Section 2.13 Increased Costs .

(a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, including any reserve against “Eurocurrency liabilities” (as defined in Regulation D of the Board (or any successor provision thereof)), special deposit, compulsory loan or similar requirement against assets of, deposits with or for account of, or credit extended by, any Lender (or its Lending Office);

(ii) impose on or subject any Lender or the Administrative Agent to any tax or mandatory contribution, or change the basis of taxation of payment to any such Lender in respect of this Agreement (except for Indemnified Taxes, Taxes described in clause (ii)-(iv) of the definition of Excluded Taxes and Connection Income Taxes); or

(iii) impose on any Lender or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender or participant therein,

 

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and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

(b) If any Lender determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company, if any, regarding capital or liquidity requirements, has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, or the Loans made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

(c) A certificate of a Lender setting out (i) the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in Sections 2.13(a) or 2.13(b) and delivered to the Borrower, shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

(d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section  2.13 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions, and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

Section 2.14 Taxes .

(a) Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Financing Document shall be made free and clear of and without any withholding or deduction for or on account of any Taxes (including any interest, charges, penalties and expenses in connection therewith), except as required by Applicable Law. If the Borrower shall be required by Applicable Law to deduct any Indemnified Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required withholdings or deductions (including withholdings or deductions applicable to additional sums payable under this Section  2.14 ) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such withholdings or deductions been made, (ii) the Borrower shall make such withholdings or deductions and (iii) the Borrower shall pay the full amount so withheld or deducted to the relevant Governmental Authority in accordance with Applicable Law.

 

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(b) To the extent Other Taxes have not been paid pursuant to Section  2.14(a)(iii) , the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with Applicable Law.

(c) The Borrower shall indemnify the Administrative Agent and each Lender, within 30 Business Days after written demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section  2.14 ) paid by the Administrative Agent or such Lender, as the case may be, and all reasonable out of pocket expenses arising therefrom or with respect thereto, plus interest thereon for each day from (and including) the day of delivery to the Borrower of a request for such payment to (but excluding) the date of actual reimbursement at a rate per annum equal to the interest rate then applicable to the Loans, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or certified copy of a receipt issued by such Governmental Authority evidencing such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e) The Administrative Agent and each Lender agrees to use their best efforts to comply with any reasonable certification, identification, information, documentation or reporting requirement identified to it by the Borrower if such compliance is required by Applicable Law, regulation, administrative practice or any applicable treaty as a precondition to exemption from, or reduction in the rate of, withholding or deduction of Tax of any amounts payable by the Borrower pursuant to this Section  2.14 . Notwithstanding anything to the contrary in the preceding sentence, the completion, execution and submission of any such certification, identification, information, documentation or reporting shall not be required if in the Administrative Agent’s or Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would prejudice the legal or commercial position of the Administrative Agent or such Lender. Notwithstanding the foregoing, it is understood and agreed that nothing in this Section  2.14(e) shall interfere with the rights of any Lender or the Administrative Agent to conduct its fiscal or tax affairs in such manner as it deems appropriate.

(f) If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section  2.14 (including by the payment of additional amounts pursuant to this Section  2.14 ), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of

 

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indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (f) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (f), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (f) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

(g) Nothing herein shall be deemed to restrict the manner in which the Borrower pays, withholds or deducts any Indemnified Taxes under Section  2.14 , including by assuming those Indemnified Taxes; provided that the Borrower will hold the Administrative Agent and the Lenders harmless and indemnify such relevant party against any cost, loss or liability arising from the manner selected by the Borrower to pay, withhold or deduct such Indemnified Taxes.

Section 2.15 Payments Generally; Pro Rata Treatment; Sharing of Set-offs .

(a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or under Sections  2.13 , 2.14 , or 2.16 , or otherwise) prior to 1:00 p.m. (New York City time) on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent Account (or to such other account specified from time to time by the Administrative Agent) except for payments pursuant to Sections  2.13 , 2.14 , 2.16 and 9.3 , which shall be made directly by the Borrower to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for account of any other Person to the appropriate recipient promptly following receipt thereof. Except as otherwise provided herein, if any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder or under any other Financing Document shall be made in Dollars.

 

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(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal and interest and fees then due hereunder, such funds shall be applied (i)  first , to pay interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties and (ii)  second , to pay principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.

(c) Except to the extent otherwise provided herein (i) each payment or prepayment of principal of Loans shall be made for the account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Loans, and (ii) each payment of interest by the Borrower shall be made for the account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Loans.

(d) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon then due than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans; provided , however , that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to (a) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any other Financing Document or (b) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under Applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(e) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the rate specified in Section  2.10(a) .

 

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(f) If any Lender shall fail to make any payment required to be made by it pursuant to Section  2.15(e) , then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for account of such Lender to satisfy such Lender’s obligations under Section  2.15(e) until all such unsatisfied obligations are fully paid.

Section 2.16 Break Funding Payments . In the event of:

(a) the failure by the Borrower in making a Borrowing after the Borrower has delivered a Borrowing Request in accordance with Section  2.3 (including as a result of the failure of any of the conditions set forth in Article IV to be satisfied or waived, as applicable);

(b) the payment or prepayment (other than on an Interest Payment Date) of the principal of any Loan (including as a result of an Event of Default); or the payment or prepayment of any principal of the Loans other than on the scheduled date of repayment thereof pursuant to Section  2.6(a) ; or

(c) the failure to prepay any Loan on the date specified in any notice delivered pursuant hereto,

then , in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event (but excluding loss of margin).

A certificate of any Lender setting out (i) any amount or amounts that such Lender is entitled to receive pursuant to this Section  2.16 and (ii) in reasonable detail how such amount or amounts were calculated, which description shall in no event contain any disclosure of matters deemed by such Lender in good faith to be confidential or proprietary, shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

Section 2.17 Mitigation Obligations; Replacement of Lenders .

(a) Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section  2.13 or Section  2.14 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another Lending Office for any Loans affected by such event with the object of avoiding the consequences of such event; provided , however , that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage; and provided , further , that nothing in this Section  2.17 shall affect or postpone any of the obligations of the Borrower or the rights of any Lender pursuant to Section  2.13 or Section  2.14 .

 

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(b) If any Lender requests compensation under Section  2.13 , then the Borrower shall have the right, at its own expense and effort, upon notice to such Lender and the Administrative Agent, to require such Lender to assign, without recourse (in accordance with and subject to the restrictions contained in Section  9.4 ) all its interests, rights (other than its existing rights to payments pursuant to Section  2.13 and Section  2.14 ) and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section  9.4(b)(iii) , (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts), (iii) in the case of any such assignment resulting from a claim for compensation under Section  2.13 , such assignment will result in a reduction in such compensation or payments, and (iv) such assignment does not conflict with Applicable Law. A Lender shall not be required to make any such assignment if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment cease to apply.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and the Lenders that:

Section 3.1 Corporate Existence; Qualification; Power; Capitalization . The Borrower and each of its Subsidiaries (i) is duly organized or formed, validly existing and in good standing (where applicable) under the laws of its respective jurisdiction of incorporation or organization, (ii) has all requisite power to carry on its business as now conducted, except to the extent a failure to have any such license, authorization, consent or approval could not reasonably be expected to have a Material Adverse Effect, and (iii) is duly qualified and licensed and, as applicable, in good standing under the laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license.

(b) All of the Borrower’s Capital Stock has been duly authorized, validly issued and is fully paid and nonassessable.

(c) Schedule 3.1(c) contains a list of each Subsidiary of the Borrower existing on the date of this Agreement, including its name, jurisdiction of incorporation, number of shares of Capital Stock outstanding and class and holders thereof on such date. All of the Capital Stock of each Subsidiary of the Borrower has been duly authorized, validly issued and is fully paid (other than the Capital Stock of Survial S.A. and Cam Servicios del Perú S.A.) and non-assessable.

 

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Section 3.2 Authorization; Enforceability . The execution, delivery and performance by the Borrower of the Financing Documents to which it is a party are within such Person’s corporate powers and have been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Agreement has been duly executed and delivered by the Borrower and constitutes, and each other Financing Document to which the Borrower is to be a party, when executed and delivered by the Borrower, shall constitute, a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

Section 3.3 Governmental Approvals; No Conflicts, Etc .

(a) All governmental authorizations, if any, and actions of any kind necessary for the due execution, delivery and performance by the Borrower of the Financing Documents to which it is a party, or required for the validity or enforceability against the Borrower of the Financing Documents to which it is a party, have been obtained or performed and are valid and subsisting in full force and effect, and the performance thereof as well as the continuing obligations of the Borrower in connection therewith do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority.

(b) The Transactions, the performance thereof and the continuing obligations of the Borrower under or in connection with the Financing Documents to which it is a party and the Transactions do not and will not violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Borrower or any order of any Governmental Authority.

(c) The Transactions, the performance thereof and the continuing obligations of the Borrower under or in connection with the Financing Documents to which it is a party do not and will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or its property or assets, or give rise to a right thereunder to require any payment to be made by it to any Person.

(d) The Transactions, the performance thereof and the continuing obligations of the Borrower under or in connection with the Financing Documents to which it is a party do not and will not result in the creation or imposition of any Lien on any property or asset of the Borrower or any of its Subsidiaries (other than the Liens created pursuant to the Security Documents and, in respect of the Reserve Account, the Permitted Encumbrances of the type specified in clause (xiii) of the definition of the term “Permitted Encumbrances”).

 

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Section 3.4 Financial Condition; No Material Adverse Change .

(a) The Borrower has furnished to the Lenders (i) the audited Consolidated balance sheet and related statements of income and cash flows of the Borrower and its Subsidiaries as of and for the years ended on December 31, 2012, December 31, 2013 and December 31, 2014, audited by Gaveglio, Aparicio y Asociados S.C. de R.L., independent public accountant; and (ii) the unaudited Consolidated balance sheet and related statements of income and cash flows of the Borrower and its Subsidiaries as of and for the fiscal quarter ended September 30, 2015, certified by the chief financial officer of the Borrower.

(b) Such financial statements present fairly, in all material respects, the financial position and results of operations and sources and uses of funds of the Borrower and its Subsidiaries as of such dates and for such periods in accordance with IFRS, consistently applied, subject (in the case of quarterly financial statements) to normal year-end audit adjustments.

(c) The Borrower does not have any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the financial statements referred to in Section  3.4(a) (including the notes thereto).

(d) The Borrower does not have any Indebtedness outstanding as of the date of this Agreement, except as provided under Schedule 3.4(d) .

(e) Since December 31, 2014, there has been no Material Adverse Effect.

(f) No Default has occurred and is continuing.

Section 3.5 Properties .

(a) The Borrower has good and marketable title to, or valid leasehold interests in, all its real and personal property material to its business, in each case free and clear of all Liens other than those Liens permitted by Section  6.1 and except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. With respect to any material lease or rental agreement to which the Borrower is a party, (i) such material lease or rental agreement is valid and binding, and in full force and effect, (ii) the Borrower has complied in all material respects with all of the terms of such lease or rental agreement, (iii) there exists no event of default or an

 

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event, act or condition which with notice or lapse of time, or both, would constitute an event of default thereunder by the Borrower or, to the knowledge of the Borrower, the lessor thereunder and (iv) the Borrower is in possession of the premises demised under all such leases and rental agreements and is conducting business on such premises. The properties and assets owned or leased by the Borrower, collectively, are sufficient to enable the Borrower to conduct its business in all material respects as presently conducted.

(b) The Borrower owns, or is licensed to use, all material trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower does not infringe upon the rights of any other Person.

(c) The Borrower has good and marketable title to all the property over which it purports to grant a Lien pursuant to the Security Documents to which it is a party free and clear of all Liens (other than Permitted Encumbrances of the type specified in clause (x) and, in respect of the Reserve Account, of the type specified in clause (xiii), of the definition of the term “Permitted Encumbrances”) and holds such title and all such property in its own name and not in the name of any nominee or other Person (and no right or option to acquire the same exists in favor of any Person).

Section 3.6 Permits .

(a) Set forth in Schedule 3.6(a) is a list of all material public, regulatory or governmental licenses, concessions, franchises, certificates, permits, consents, orders, approvals and other authorizations (collectively, “ Permits ”) necessary for the Borrower to own, lease and operate its properties and assets and to conduct its business as currently owned, leased, operated and conducted. Except as disclosed in Schedule 3.6 , the Borrower has all Permits (subject to, with respect to Environmental Permits, Section  5.9(a) ), all of which are in full force and effect, and the Borrower is in compliance with all such Permits (subject to, with respect to Environmental Permits, Section  3.10(f) ). The Borrower has not received any notice of proceedings relating to the revocation, cancellation, expropriation or modification of any Permit.

(b) The Borrower has no reason to believe that:

(i) any Permit which requires renewal will not be renewed as and when required under Applicable Law and without imposing any further restrictions or conditions thereon;

(ii) any Permit will be withdrawn, suspended, cancelled, varied, surrendered or revoked; or

 

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(iii) any Permit required to be obtained following the date hereof will not be obtained in the ordinary course.

Section 3.7 Litigation . There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority now pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower, any of its Subsidiaries, or any director, officer or employee thereof (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or (ii) that purport to affect the legality, validity or enforceability of this Agreement, any of the other Financing Documents, or the Transactions, or to prevent or enjoin any of the transactions contemplated hereby and thereby.

Section 3.8 Compliance with Laws and Agreements .

(a) The Borrower and each of its Subsidiaries is in compliance in all material respects with all laws (including, without limitation, labor and social security laws), regulations and orders of any Governmental Authority applicable to the Borrower, its Subsidiaries or their businesses, properties or assets, except to the extent that any such failure to comply could not reasonably be expected to have a Material Adverse Effect.

(b) Except to the extent failure to so comply could not reasonably be expected to have a Material Adverse Effect, the Borrower and each of its Subsidiaries are in compliance with all indentures, agreements and other instruments binding upon the Borrower or any of its Subsidiaries, its businesses, properties or assets. No default has occurred and is continuing under any such indenture, agreement or instrument, except to the extent that such default could not reasonably be expected to have a Material Adverse Effect.

Section 3.9 Taxes .

(a) The Borrower and each of its Subsidiaries has timely filed or caused to be filed all Tax returns, Tax-related information returns and Tax statements and other information required to have been filed by it under Applicable Law and has paid or caused to be paid all Taxes required to have been paid by it under Applicable Law, except for Taxes that are being Contested.

(b) As of the date hereof, there are no Indemnified Taxes imposed either (i) on or by virtue of the Transactions, its enforcement or admissibility into evidence or (ii) on any payment to be made by the Borrower pursuant to any Financing Document, in each case, other than Peruvian income tax.

(c) Under Applicable Law, there is no restriction or limitation on the obligation of the Borrower to pay any additional amounts payable pursuant to Section  2.14(a) .

 

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Section 3.10 Environmental Matters .

(a) Except as could not reasonably be expected, individually or in the aggregate to have a Material Adverse Effect, the properties presently owned, leased or otherwise operated by the Borrower and its Subsidiaries and all operations and facilities at such properties are in compliance with all Environmental Laws, and there is no contamination or violation of any Environmental Law which could interfere with the continued operation of, or impair the otherwise fair saleable value of, such properties;

(b) Except as could not reasonably be expected, individually or in the aggregate to have a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries has received or has knowledge of any complaint, notice of violation, alleged violation or notice of investigation or potential liability under Environmental Laws with regard to the Borrower or any of its Subsidiaries, or any properties presently owned, leased or otherwise operated by the Borrower or any of its Subsidiaries, nor does the Borrower or any of its Subsidiaries have knowledge that any such action is being contemplated, considered or threatened.

(c) Except as could not reasonably be expected, individually or in the aggregate to have a Material Adverse Effect, Hazardous Materials have not been generated, treated, stored or disposed of at, on or under any properties presently owned, leased or otherwise operated by the Borrower or any of its Subsidiaries or during the Borrower’s or any of its Subsidiaries’ ownership, lease or operation of any property formerly owned, leased or otherwise operated by the Borrower or any of its Subsidiaries nor have any Hazardous Materials been transported from such property by the Borrower or any of its Subsidiaries, in each case, in violation of or in manner that could reasonably be expected to give rise to liability on the part of the Borrower or any of its Subsidiaries under any Environmental Laws.

(d) Except as could not reasonably be expected, individually or in the aggregate to have a Material Adverse Effect, there are no administrative actions or judicial proceedings pending or, to the knowledge of the Borrower, threatened under any Environmental Law against the Borrower or any of its Subsidiaries, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders or agreements to which the Borrower or any of its Subsidiaries is a party which could reasonably be expected to result in liability or costs on the part of the Borrower or any of its Subsidiaries under any Environmental Law.

(e) Except as could not reasonably be expected, individually or in the aggregate to have a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries is currently conducting any response or other corrective action pursuant to any Environmental Law at any of their properties or at any other location.

 

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(f) Except as could not reasonably be expected, individually or in the aggregate to have a Material Adverse Effect, the Borrower and each of its Subsidiaries is in compliance with all Environmental Permits.

Section 3.11 Reports; Disclosure . The reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Lenders in connection with the negotiation of this Agreement and the other Financing Documents or delivered hereunder or thereunder (as modified or supplemented by other information so furnished), do not contain any material misstatement of fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that with respect to projected financial information and pro forma financial statements, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

Section 3.12 Legal Form .

(a) Each of the Financing Documents to which the Borrower is a party is in proper legal form under the laws of Peru for the enforcement thereof against the Borrower under such laws, subject to the proviso below. To ensure the legality, validity, enforceability or admissibility in evidence of this Agreement and each other Financing Document in Peru, it is not necessary that this Agreement or any other Financing Document be filed or recorded with any Governmental Authority in Peru or that any stamp or similar tax be paid on or in respect of this Agreement or any other document to be furnished under this Agreement, unless such stamp or similar taxes have been paid on or prior to the date hereof; provided that:

(i) the enforcement or admissibility into evidence before the Peruvian courts of any Financing Document governed by the laws of New York is subject to (1) the filing of such documents with the courts of Peru, (2) such document must be translated into Spanish by a duly authorized translator ( traductor oficial ), and (3) the party seeking enforcement must pay court taxes at a rate that will depend upon the jurisdiction in which enforcement is sought; and

(ii) the validity and enforceability of the Lien under the Peruvian Mortgage Agreement is subject to the registration of such Security Document with the Registro de la Propiedad Inmueble – Oficina Registral Lima .

(b) Each of the Promissory Notes shall entitle the holder thereof to commence executory proceedings ( proceso ejecutivo ) against the Borrower in the Peruvian courts. If any Lender enforces any Promissory Note before the courts of Peru, it shall not be required to evidence to the Borrower or any other Person that such Promissory Note represents obligations of the Borrower under this Agreement nor that any condition herein has been satisfied.

 

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Section 3.13 Rank of Debt . The obligations evidenced by each Financing Document to which the Borrower is a party are and will at all times be direct and unconditional general obligations of the Borrower, and rank and will at all times rank in right of payment and otherwise at least pari passu with all other senior Indebtedness of the Borrower, if any, whether now existing or hereafter outstanding, except for obligations mandatorily preferred pursuant to Applicable Law.

Section 3.14 Investment Company Act; Other Regulations . The Borrower is not required to register as an “investment company” under the Investment Company Act of 1940, as amended, and is not “controlled” by any “company” (within the meaning of the Investment Company Act of 1940, as amended) that is organized under the laws of any state of the United States of America. The Borrower is not subject to regulation under Applicable Law which limits its ability to incur the Indebtedness to be incurred hereunder or satisfy its obligations under the Financing Documents.

Section 3.15 Commercial Activity; Absence of Immunity . The Borrower is subject to civil and commercial law with respect to its obligations under the Financing Documents to which it is a party. The execution, delivery and performance by the Borrower of the Financing Documents to which it is a party constitute private and commercial acts rather than public or governmental acts. Neither the Borrower nor any of its properties, assets or revenues is entitled to any right of immunity in any jurisdiction from suit, court jurisdiction, judgment, attachment (whether before or after judgment), set-off or execution of a judgment or from any other legal process or remedy relating to the obligations of the Borrower under the Financing Documents to which it is a party.

Section 3.16 Insurance . The Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies (not being Affiliates thereof), in such amounts, with such deductibles and covering such risks as are customarily maintained by Persons engaged in a similar business, owning similar properties and operating in similar localities where the Borrower and its Subsidiaries maintain their principal places of operation

Section 3.17 Labor Matters . There is no strike, slowdown or work stoppage or other labor disputes actually pending or, to the knowledge of the Borrower, threatened against or involving the Borrower or any of its Subsidiaries, and there are no representation proceedings pending with any Governmental Authority in Peru involving the employees of the Borrower, except to the extent that such strike, slowdown or work stoppage or other labor disputes or representation proceedings, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

Section 3.18 Collateral Matters; Liens .

(a) Effective on the date of the Peruvian Share Pledge Agreements, the provisions of the Peruvian Share Pledge Agreements shall be effective to create in favor of the Lenders a legal, valid and enforceable fully perfected Lien in all the Collateral described therein in accordance with the terms thereof, subject to no other Liens.

 

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(b) Effective upon its registration with the Registro de la Propiedad Inmueble – Oficina Registral Lima , the provisions of the Peruvian Mortgage Agreement shall be effective to create in favor of the Lenders a legal, valid and enforceable fully perfected Lien in the Collateral described therein in accordance with the terms thereof, subject to no other Liens.

(c) Effective as of the date of the Reserve Account Control Agreement and the Reserve Account Security Agreement, the provisions of the Reserve Account Control Agreement and the Reserve Account Security Agreement are effective to create in favor of the Administrative Agent a legal, valid and enforceable fully perfected first priority Lien in the Collateral described therein in accordance with the terms thereof, subject to no other Liens (other than a Permitted Encumbrance of the type specified in clause (xiii) of the definition of the term “Permitted Encumbrance”).

(d) Effective as of the date of the Peruvian Account Pledge Agreement, the provisions of the Peruvian Account Pledge Agreement are effective to create in favor of the Administrative Agent a legal, valid and enforceable fully perfected first priority Lien in the Collateral described therein in accordance with the terms thereof, subject to no other Liens.

(e) Neither the establishment of the Liens created by the Security Documents, nor the exercise of the rights and remedies contemplated by the Security Documents at any time, contravenes any provision of Applicable Law or any order, writ, injunction or decree of any Governmental Authority.

(f) The Borrower has not received any notice of any adverse claims by any Person in respect of its ownership or entitlement to the assets and rights assigned as Collateral, and the Collateral and the distribution of the proceeds resulting from the enforcement of the Security Documents shall be governed solely by the terms of the Security Documents.

Section 3.19 Solvency . Upon giving effect to the execution and delivery of the Financing Documents by the parties thereto and the consummation of the Transactions, the Borrower will be Solvent as of the Closing Date.

Section 3.20 Use of Proceeds .

(a) The proceeds of the Loans will be used solely as set forth in Section  5.10 .

(b) No part of the proceeds of the Loans will be used for the purpose of “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U as now in effect or for any purpose that violates or is inconsistent with the provisions of Regulation U or Regulation X.

 

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Section 3.21 Equity Contribution .

(a) As of the Closing Date, the Borrower is the holder of record of not less than 20% of all outstanding Capital Stock of and Equity Rights in the Concessionaire.

(b) The Borrower has delivered to the Administrative Agent a true, complete and correct copy of the minutes of the Equity Contribution Shareholders’ Meeting. No provision of the minutes of the Equity Contribution Shareholders’ Meeting has been amended, supplemented or modified in any respect.

Section 3.22 Sanctions Laws .

(a) Neither the Borrower nor its Subsidiaries or, to the knowledge of the Borrower, any director, officer, employee, agent, or Affiliate of the Borrower or any of its Subsidiaries is a Person that is, or is owned or Controlled by Persons that are: (a) a Sanctions Target; or (b) located, organized or resident in a Sanctioned Jurisdiction.

(b) The Borrower and its Subsidiaries, and, to the knowledge of the Borrower, their respective directors, officers, employees, agents, and Affiliates, are in compliance with Sanctions Laws.

(c) The Borrower and its Subsidiaries have instituted and maintain policies and procedures designed to ensure continued compliance with the Sanctions Laws.

Section 3.23 Anti-Corruption Laws .

(a) Neither the Borrower nor any of its Subsidiaries nor, to the knowledge of the Borrower, any director, officer, agent, employee or other Person acting on behalf of the Borrower or any of its Subsidiaries has taken any action, directly or indirectly, that would result in a violation by such Persons of the Anti-Corruption Laws.

(b) The Borrower and its Subsidiaries have instituted and maintain policies and procedures designed to ensure continued compliance with the Anti-Corruption Laws.

Section 3.24 Anti-Money Laundering Laws . None of the Borrower, any of its Subsidiaries, or, to the knowledge of the Borrower, any director, officer, employee, agent, or Affiliate of the Borrower or any of its Subsidiaries, has violated or is violating any Anti-Money Laundering Laws.

Section 3.25 Exchange Controls . Under current laws of Peru and each political subdivision thereof, all interest, principal, premium, if any, and other payments due or to be made on the Loan, or otherwise pursuant to the Financing Documents may be freely transferred out of Peru and may be paid in, or freely converted into, Dollars.

 

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Section 3.26 Concession Documents .

(a) The Borrower has delivered to the Administrative Agent a true, correct and complete copy of the definitive documentation evidencing the Bridge Loan as in effect on the Closing Date (the “ Bridge Loan Financing Documents ”) duly executed and delivered by the parties thereto. No provision of any Bridge Loan Financing Document has been amended, supplemented or modified in any respect, other than, any such amendment, supplement or modification providing for a Guarantee by the Borrower of the Indebtedness under the Bridge Loan Agreement or the delivery by the Borrower of the Bridge Loan Letter of Credit and any other such amendment, supplement or modification that would not adversely affect the interests of the Lenders hereunder in any material respect. Each Bridge Loan Financing Document has been validly authorized, executed and delivered by each party thereto and constitutes the valid and binding obligation of each party thereto in accordance with the terms thereof. No “default,” “event of default” or similar event has occurred and is continuing under any Bridge Loan Financing Document.

(b) The Borrower has delivered to the Administrative Agent a true, correct and complete copy of the definitive term sheet evidencing the indicative terms and conditions of the Gasoducto Sur Peruano Pipeline Financing (the “ Term Loan Term Sheet ”).

(c) The Borrower has delivered to the Administrative Agent a true, correct and complete copy of the Gasoducto Sur Peruano Concession Agreement duly executed and delivered by the parties thereto. No provision of the Gasoducto Sur Peruano Concession Agreement has been amended, supplemented or modified in any respect, other than, at any time following the Closing Date, any such amendment, supplement or modification that would not adversely affect the interests of the Lenders hereunder in any material respect. The Gasoducto Sur Peruano Concession Agreement has been validly authorized, executed and delivered by each party thereto and constitutes the valid and binding obligation of each party thereto in accordance with the terms thereof. No “default,” “event of default” or similar event has occurred and is continuing under the Gasoducto Sur Peruano Concession Agreement.

Section 3.27 Reference Shareholders’ Agreement . The Borrower has delivered to the Administrative Agent a true, correct and complete copy of the Reference Shareholders’ Agreement as in effect on the Closing Date. No provision of the Reference Shareholders’ Agreement has been amended, supplemented or modified in any respect. No “default,” “event of default” or similar event has occurred and is continuing under the Reference Shareholders’ Agreement.

 

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ARTICLE IV

CONDITIONS

Section 4.1 Closing Date . The obligations of the Lenders to make a Loan hereunder shall become effective on the date on which the Administrative Agent shall have received each of the following documents or each of the following conditions shall have been satisfied or waived, as applicable, which date shall fall on or prior to December 22, 2015 (such date, the “ Closing Date ”), each of which shall be satisfactory to the Administrative Agent (and to the extent specified below, to each Lender) in form and substance (or such condition shall have been waived in accordance with Section  9.2 ):

(a) Organizational Documents . The Administrative Agent shall have received certified copies of the articles of incorporation or association, estatuto social , shareholder agreements or declarations and by-laws, or similar constitutive documents with at least equivalent authority, as applicable, of the Borrower and of all corporate authority for the Borrower (including all necessary action of the board of directors, board of managers, shareholders, members or other governing body) with respect to the execution, delivery and performance of each Financing Document.

(b) Officer’s Certificate . The Administrative Agent shall have received a certificate from the Borrower, dated as of the Closing Date, substantially in the form of Exhibit J , with appropriate insertions and attachments, in form and substance reasonably satisfactory to the Administrative Agent, executed by the President, a Vice President or a Financial Officer of the Borrower.

(c) Financing Documents . The Administrative Agent shall have received each Financing Document (other than the Peruvian Security Trust Agreement) duly executed and delivered by each of the parties named as a proposed signatory thereto, and such Financing Document shall be in full force and effect.

(d) Opinions of Counsel . The Administrative Agent shall have received the following legal opinions, each dated the Closing Date, in the English language, addressed to the Administrative Agent and each Lender:

(i) an opinion of Payet, Rey, Cauvi, Pérez Abogados, special Peruvian counsel to the Borrower, in the form of Exhibit K (and the Borrower has instructed such counsel to deliver such opinion to the Administrative Agent and the Lenders);

 

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(ii) an opinion of Clifford Chance US LLP, special New York counsel to the Borrower, in the form of Exhibit L (and the Borrower has instructed such counsel to deliver such opinion to the Administrative Agent and the Lenders);

(iii) an opinion of Muñiz, Ramirez, Perez-Taiman & Olaya Abogados, special Peruvian counsel to the Administrative Agent, covering such matters relating to the transactions contemplated hereby as the Administrative Agent may reasonably request;

(iv) an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special New York counsel to the Administrative Agent, covering such matters relating to the transactions contemplated hereby as the Administrative Agent may reasonably request.

(e) Financial Statements . The Administrative Agent shall have received a true, correct and complete copy of the financial statements described in Section  3.4(a) , and such financial statements shall be in form and substance reasonably satisfactory to the Administrative Agent.

(f) Valuations . The Borrower shall have delivered to the Administrative Agent (i) a copy of a valuation prepared by JFMR S.A.C., dated not earlier than 60 days prior to the Closing Date, setting forth the Fair Market Value of the real estate subject to the Liens under the Peruvian Mortgage Agreement, with a Fair Market Value not less than U.S.$46,300,000 (or the Dollar Equivalent thereof), and (ii) a copy of a valuation prepared by Vanet S.A.C., dated not earlier than 30 days prior to the Closing Date, setting forth the Fair Market Value of the real estate owned by Almonte, with a Fair Market Value not less than U.S.$193,928,006.60 (or the Dollar Equivalent thereof).

(g) Reserve Account . The Borrower shall have established the Reserve Account pursuant to the Reserve Account Control Agreement.

(h) Collection Account . The Borrower shall have established the Collection Account.

(i) KYC Requirements . The Administrative Agent shall have received all documentation and other information that each Lender or the Administrative Agent reasonably requires in order to comply with its obligations under applicable “know your customer” rules and regulations, including the Patriot Act.

 

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(j) Equity Contribution . The Administrative Agent shall have received documentation in form and substance reasonably satisfactory to the Administrative Agent evidencing the consummation of the Initial Equity Contribution.

(k) Equity Contribution Shareholders’ Meeting . The Administrative Agent shall have received a true, correct and complete copy of the minutes of the Equity Contribution Shareholders’ Meeting.

(l) Promissory Notes . The Administrative Agent shall have received the corresponding Promissory Notes duly executed and delivered by the Borrower, as issuer, dated as of the Closing Date, complying with the provisions of Section 2.7.

(m) Collateral . Except for such actions permitted to be taken after the Closing Date pursuant to Section  5.13 , all actions specified in the Security Documents (other than the Peruvian Trust Agreement) for the Liens purported to be created, pursuant to the terms of the Security Documents (other than the Peruvian Trust Agreement), shall have been taken so that such Liens shall be perfected as first priority Liens, in accordance with Applicable Law, subject to no other Liens (including, without limitation, the filing of the corresponding bloqueo registral in respect of the Peruvian Mortgage Agreement with the Registro de la Propiedad Inmueble – Oficina Registral Lima ), other than, in respect of the Reserve Account, the Permitted Encumbrances of the type specified in clause (xiii) of the definition of the term “Permitted Encumbrances.”

(n) Payment of Fees . The Administrative Agent and the Lead Arranger shall have received all reasonable and documented fees and other amounts due and payable on or prior to the Closing Date, including reimbursement or payment of all reasonable and documented out-of-pocket expenses (including reasonable and documented fees, charges and disbursements of Muñiz, Ramirez, Perez-Taiman & Olaya Abogados and Skadden, Arps, Slate, Meagher & Flom LLP) required to be reimbursed or paid by the Borrower hereunder or under any other Financing Document; provided , however , that if the Borrower requests that a Borrowing be made on the Closing Date, the Borrower hereby irrevocably instructs and directs the Administrative Agent to withhold and deduct from the proceeds of any such Borrowing the aggregate amount of fees and other amounts payable hereunder, under any other Financing Document, as a condition to such Borrowing, and apply, on behalf of the Borrower, the aggregate amount so deducted to the payment of such fees and amounts payable by the Borrower on the Closing Date and the amount of such Borrowing shall be the aggregate actually disbursed to the Borrower and the amounts so withheld and deducted.

(o) Process Agent Acceptance . The Borrower shall have appointed the Process Agent (as defined below) as its agent for service of process in New York in respect of any dispute arising from or relating to this Agreement and the other Financing Documents to which it is a party (except for the Financing Documents governed by Peruvian laws), and shall have furnished evidence of such appointment and a Process Agent Acceptance, duly executed and delivered by each such process agent.

 

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(p) Scotiabank Credit Agreement . There shall not have occurred and be continuing any “breach,” “default,” “event of default” or similar event (however designated) under the Scotiabank Credit Agreement (irrespective of whether any right or remedy of any Person in connection with such “default,” “event of default” or similar event is actually asserted, exercised or waived).

(q) Representations and Warranties . Each of the representations and warranties of the Borrower set out in this Agreement and in each of the other Financing Documents to which it is a party shall be true and correct in all material respects as of the Closing Date, as if made on and as of each such date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case, they shall be true and correct in all material respects as of such earlier date.

(r) Material Adverse Effect . Since December 31, 2014, no event, development or circumstance has occurred that has had or could reasonably be expected to have a Material Adverse Effect, both immediately prior to the occurrence of the Closing Date and also after giving effect thereto, including the making of the Loans on the Closing Date and the intended use thereof.

(s) Change in Law . No Change in Law shall have imposed, modified or deemed applicable any reserve, special deposit, compulsory loan or similar requirement with respect to any Loan.

(t) No Order . There shall not (i) be in effect any statute, regulation, order, decree or judgment of any Governmental Authority that makes illegal or enjoins or prevents the consummation of the Transactions or (ii) have been commenced any action or proceeding that seeks to prevent or enjoin any Transactions.

(u) No Default . No event, act or condition shall have occurred and is continuing or would result from the execution, delivery or performance of this Agreement or the other Financing Document which would constitute a Default, both immediately prior to the making of the Loans and also after giving effect thereto, and the intended use thereof.

(v) Consents . The Administrative Agent shall have received originals (or copies certified to be true and correct copies by the Borrower, or other acceptable evidence) of such licenses, consents and approvals of, and filings and registrations with, any Governmental Authority, and of all third party consents and approvals, as are then necessary under Applicable Laws in connection with the execution, delivery and performance by the Borrower of the Financing Documents and the Transactions.

 

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(w) Taxes . All applicable taxes and stamp duties due and payable, if any, arising in connection with the execution, delivery and performance of this Agreement and the other Financing Documents shall have been paid in full.

Section 4.2 Conditions to each Borrowing . The obligation of each Lender to make a Loan on a Borrowing Date is subject to the satisfaction of the further conditions precedent that:

(a) Closing Date . The Closing Date shall have occurred.

(b) Borrowing Request . The Administrative Agent shall have received a Borrowing Request, as required by Section  2.3 .

(c) Reserve Account . With respect to the Borrowing to be made on the Closing Date, the Borrower shall have made arrangements in substance and form satisfactory to the Administrative Agent so that, substantially concurrently with the funding of the Loans on such Borrowing Date, the balance on deposit in the Reserve Account shall be equal to or exceed the Reserve Account Required Balance as of such Borrowing Date (after giving effect to the Borrowing on such date).

(d) Use of Proceeds . The Borrower shall have made arrangements in substance and form satisfactory to the Administrative Agent, to use the proceeds of such Loan, substantially concurrently with the funding thereof, in accordance with Section  5.10 .

(e) Project Documents . (i) Each of the Gasoducto Sur Peruano Pipeline Concession Agreement, the Bridge Loan (unless repaid or prepaid in full prior to such Borrowing Date) and, if executed by all parties thereto and all conditions precedent (if any) for its effectiveness satisfied, the definitive documentation evidencing the Gasoducto Sur Peruano Pipeline Financing, shall be in full force and effect; and (ii) there shall not have occurred and be continuing any “breach,” “default,” “event of default” or similar event (however designated) under any of the Gasoducto Sur Peruano Pipeline Concession Agreement, the Bridge Loan and, if executed by all parties thereto and in full force and effect, the definitive documentation evidencing the Gasoducto Sur Peruano Pipeline Financing (irrespective of whether any right or remedy of any Person in connection with such “default,” “event of default” or similar event is actually asserted, exercised or waived).

 

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(f) Equity Contribution . The Borrower shall have informed the Administrative Agent of any cash contribution to the Concessionaire (other than with the proceeds of the Loans), made prior to the date of such Borrowing by the Borrower.

(g) Peruvian Security Trust Agreement . With respect to any borrowing of the Loans to be made on any Borrowing Date following the Closing Date, the Administrative Agent shall have received the Peruvian Security Trust Agreement duly executed and delivered by each of the parties named as a proposed signatory thereto, such Financing Document shall be in full force and effect, and all actions specified in the Peruvian Security Trust Agreement for the Liens purported to be created, pursuant to the terms of such Security Document, shall have been taken so that such Liens shall be perfected as first priority Liens, in accordance with Applicable Law, subject to no other Liens.

(h) Gasoducto Sur Peruano Pipeline Financing . With respect to any borrowing of the Loans to be made on a Borrowing Date falling on or following March 31, 2016 (or such other date agreed between the Concessionaire and the Republic of Peru, acting through the Ministry of Energy and Mines, and notified to the Administrative Agent promptly following such agreement, as the date required under the Gasoducto Sur Peruano Concession Agreement to achieve “ cierre financiero ”), the Administrative Agent shall have received an executed copy of the definitive documentation evidencing the Gasoducto Sur Peruano Pipeline Financing, executed by each of the parties named as a proposed signatory thereto, and such documentation shall be in full force and effect.

(i) Term Loan Financing . With respect to any borrowing of the Loans to be made on a Borrowing Date falling on or following July 31, 2016, the Closing Date (as defined in the Term Loan Term Sheet) of the Gasoducto Sur Peruano Pipeline Financing shall have occurred.

(j) Representations and Warranties . Each of the representations and warranties of the Borrowers set out in this Agreement and in each of the other Financing Documents to which it is a party shall be true and correct in all material respects as of the date of such Loan, both immediately prior to the making of each Loan and also after giving effect thereto and to the intended use thereof, as if made on and as of each such date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case, they shall be true and correct in all material respects as of such earlier date.

(k) Change in Law . No Change in Law after the date of this Agreement shall have imposed, modified or deemed applicable any reserve, special deposit, compulsory loan or similar requirement with respect to such Loan.

(l) No Order . There shall not (i) be in effect any statute, regulation, order, decree or judgment of any Governmental Authority that makes illegal or enjoins or prevents the consummation of the Transactions or (ii) have been commenced any action or proceeding that seeks to prevent or enjoin any Transactions.

 

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(m) No Default . No event, act or condition shall have occurred and be continuing or would result from making such Loan which would constitute a Default, both immediately prior to the making of such Loan and also after giving effect thereto and to the intended use thereof.

(n) No Material Adverse Effect . No event, development or circumstance has occurred that has had or could reasonably be expected to have a Material Adverse Effect, both immediately prior to the making of such Loan and also after giving effect thereto.

(o) Material Adverse Change . Since the date of this Agreement, there shall not have occurred a material adverse change in the political or financial stability or condition of Peru.

(p) Date of Borrowings following Closing Date . With respect to the second and third borrowing of the Loans hereunder, the Borrowing Date in respect of such borrowing shall fall after December 31, 2015.

ARTICLE V

AFFIRMATIVE COVENANTS

Until the Loans and all other amounts outstanding hereunder and under the other Financing Documents shall have been paid in full, the Borrower covenants and agrees with the Lenders that:

Section 5.1 Financial Statements and Other Information . The Borrower will furnish to the Administrative Agent (and the Administrative Agent shall make available for distribution to each Lender):

(a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, (i) the audited Consolidated balance sheet and related statements of income and cash flows of the Borrower and its Subsidiaries as of the end of and for such year, setting forth in each case in comparative form the figures for (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all reported on by independent public accountants of recognized international standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such Consolidated financial statements present fairly in all material respects the

 

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financial condition and results of operations of the Borrower and its Consolidated Subsidiaries on a Consolidated basis in accordance with IFRS, and (ii) the audited balance sheet and related statements of income and cash flows of each Non-Recourse Subsidiary as of the end of and for such year, setting forth in each case in comparative form the figures for (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all reported on by independent public accountants of recognized international standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such financial statements present fairly in all material respects the financial condition and results of operations of such Non-Recourse Subsidiary in accordance with IFRS;

(b) as soon as available and in any event within 45 days after the end of each of the first three fiscal quarters of the Borrower, (i) the unaudited Consolidated balance sheet and related statements of income and cash flows of the Borrower and its Consolidated Subsidiaries for the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for (or, in the case of the balance sheet, as of the end of) the corresponding period or periods of the previous fiscal year, all certified by a Financial Officer of the Borrower as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Consolidated Subsidiaries on a Consolidated basis in accordance with IFRS consistently applied, subject to normal year-end audit adjustments, and (ii) the unaudited balance sheet and related statements of income and cash flows of each Non-Recourse Subsidiary for the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for (or, in the case of the balance sheet, as of the end of) the corresponding period or periods of the previous fiscal year, all certified by a Financial Officer of such Non-Recourse Subsidiary as presenting fairly in all material respects the financial condition and results of operations of such Non-Recourse Subsidiary in accordance with IFRS consistently applied, subject to normal year-end audit adjustments;

(c) documents required to be delivered pursuant to clauses (a) and (b) of this Section  5.1 may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (on which the Borrower posts such documents, or provides a link thereto, on the Borrower’s Web site at www.granaymontero.com.pe; provided that the Borrower shall notify the Administrative Agent (by telecopier or electronic mail) of the posting of any such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide executed paper or electronic copies of the Compliance Certificates required by clause (d) below to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery of or to maintain paper copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request by a Lender for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

(d) concurrently with any delivery of financial statements under clauses (a) and (b) of this Section  5.1 , a certificate of a Financial Officer of the Borrower substantially in the form of Exhibit M (i) certifying as to whether a Default has occurred and, if a

 

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Default has occurred, specifying the details thereof and any action taken or proposed to be taken by the Borrower with respect thereto, (ii) certifying the compliance by the Borrower with Section  6.7 and setting forth in reasonable detail the calculations required to establish the compliance by the Borrower with Section  6.7 , and (ii) stating whether any change in the relevant IFRS or in the application thereof has occurred since the date of the audited financial statements referred to in Section  3.4 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;

(e) concurrently with any delivery of financial statements under clause (a) of this Section  5.1 in respect of the fiscal year of the Borrower ending on December 31, 2016 and in respect of any fiscal year of the Borrower thereafter, a valuation report prepared by an independent valuation firm of reputable standing acceptable to the Administrative Agent, dated not earlier than 30 days prior to the date on which such financial statements are required to be delivered pursuant to Section  5.1(a) , setting forth the Fair Market Value of the real estate subject to the Liens under the Peruvian Mortgage Agreement and the Fair Market Value of the real estate owned by Almonte as of such date;

(f) within ten Business Days from the last day of each fiscal quarter of the Borrower following the Closing Date and ending on the date on which all works relating to the Project shall have been completed, a report dated as of the last day of such fiscal quarter, setting forth the progress on the works relating to the Project (as defined in the Term Loan Term Sheet) as of such date;

(g) promptly after receipt thereof by the Borrower or any Subsidiary thereof, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation by such agency regarding financial or other operational results of the Borrower or any Subsidiary thereof, to the extent not otherwise subject to confidentiality and, in any event, to the extent the delivery of any such document to the Administrative Agent is permitted by Applicable Law;

(h) if requested by the Administrative Agent, written information setting forth in reasonable detail the actual application of the proceeds from the Loans made by the Borrower and such other information relating to the Transactions as the Administrative Agent or any Lender may reasonably request; and

(i) promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any of its Subsidiaries, or compliance with the terms of the Financing Documents, as the Administrative Agent or any Lender may from time to time reasonably request.

 

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Section 5.2 Notices of Material Events . The Borrower will furnish to the Administrative Agent and each Lender written notice of the following:

(a) within five Business Days after any Financial Officer of the Borrower obtains knowledge thereof, notice of the occurrence of any Default;

(b) prompt notice of the filing or commencement of any material action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower which, if determined adversely to the Borrower, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect;

(c) prompt notice of any other material notices given to or received by the Borrower pursuant to the Financing Documents;

(d) within five Business Days after the Borrower obtains knowledge thereof, notice of any findings materially adverse to the interests of any Financing Party (as defined in the Term Loan Term Sheet) under any due diligence report relating to the Gasoducto Sur Peruano Concession Agreement or any Project Document (as defined in the Term Loan Term Sheet); and

(e) prompt notice of any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered pursuant to this Section  5.2 shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken by the Borrower with respect thereto.

Section 5.3 Existence; Conduct of Business .

(a) The Borrower shall, and shall cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect (i) its legal existence and good standing under the laws of its jurisdiction of organization, except, with respect to the Subsidiaries of the Borrower only, in connection with a transaction permitted by Section  6.2(a) and (ii) the rights, licenses, concessions, permits, privileges and franchises material to the conduct of its business, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.

(b) The Borrower shall cause its Subsidiaries to, conduct their respective businesses in accordance with Prudent Industry Practices.

Section 5.4 Payment of Obligations . The Borrower shall, and shall cause each of its Subsidiaries to, pay its material obligations, including (i) Tax liabilities, before the same shall become delinquent or in Default, except where the validity or amount thereof is being Contested, and (ii) lawful claims which, if unpaid, would by law become a Lien upon its property.

 

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Section 5.5 Maintenance of Properties . The Borrower shall, and shall cause each of its Subsidiaries to (i) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, (ii) supply such properties in all material respects with all necessary equipment, (iii) with respect to such Subsidiaries, make all necessary repairs, renewals, replacements, betterments and improvements thereto in accordance with Prudent Industry Practices, and (iv) with respect to such Subsidiaries, otherwise ensure the continued operation of all property material to the conduct of its business in a manner consistent with Prudent Industry Practices.

Section 5.6 Insurance . The Borrower shall, and shall cause each of its Subsidiaries to, at all times maintain, with financially sound and reputable insurance companies (not being Affiliates thereof), insurance in such amounts and against such risks as are required by Applicable Law and otherwise as are customarily maintained by companies engaged in the same or similar Line of Businesses operating in the same or similar locations.

Section 5.7 Books and Records; Inspection Rights .

(a) The Borrower shall, and shall cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities.

(b) The Borrower shall, and shall cause each of its Subsidiaries to, permit each Lender and any representatives designated by the Administrative Agent, upon three Business Days prior notice, and during normal business hours, in a manner that does not disrupt the operation of the Borrower or Subsidiary, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, in each case, to the extent permitted by Applicable Law. Any such visits, inspections, examinations and extracts shall be at the sole cost and expense of the Borrower.

Section 5.8 Compliance with Laws and Contracts .

(a) The Borrower shall, and shall cause each of its Subsidiaries to, comply in all material respects with all Applicable Laws (subject to, with respect to Environmental Laws, Section  5.9(a) ) which are material to the Borrower, each of its Subsidiaries, their respective assets or properties or the conduct of their respective businesses, as applicable.

(b) The Borrower shall, and shall cause each of its Subsidiaries to (i) comply with all the terms and conditions of all contracts to which the Borrower or such Subsidiary is a party or by which any of its properties or assets is bound, (ii) keep each such contract in full force and effect and (iii) enforce such contract in accordance with its terms, except, in each case, to the extent failure to do so could not reasonably be expected to result in a Material Adverse Effect.

 

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Section 5.9 Compliance with Environmental Laws, Etc. The Borrower shall, and shall cause each of its Subsidiaries to,

(a) (i) comply, with all Environmental Laws applicable to it, and obtain, comply with and maintain any and all Environmental Permits necessary for its operations as conducted and as planned, and (ii) use its commercially reasonable efforts to cause all of its tenants, subtenants, contractors, subcontractors and invitees to comply with all Environmental Laws, and obtain, comply with and maintain any and all Environmental Permits, applicable to any of them, except, in each case, to the extent failure to do so could not reasonably be expected to result in a Material Adverse Effect;

(b) comply in a timely manner with all orders and lawful directives regarding Environmental Laws issued to the Borrower or to any of its Subsidiaries by any Governmental Authority, other than such orders and lawful directives as to which an appeal or other challenge has been timely and properly taken in good faith, except to the extent failure to do so could not reasonably be expected to result in a Material Adverse Effect;

(c) promptly notify the Administrative Agent and provide copies upon receipt of any written claims, complaints, notices of violation or information requests of any Governmental Authority related to any actual, alleged or potential material non-compliance with or material liability under applicable Environmental Laws or material Environmental Permits; and

(d) promptly notify the Administrative Agent of any release or discovery of Hazardous Materials at any of its properties that is reasonably likely to require material expenditures to investigate and/or remediate said Hazardous Materials.

Section 5.10 Use of Proceeds .

(a) The proceeds of the Loans shall be used solely (i) to finance a portion of the Base Equity Contribution, (ii) to fund the Reserve Account (after receiving the proceeds of the first borrowing of the Loans hereunder in the account designated for such purpose in the relevant Borrowing Request), (iii) to pay the fees and expenses incurred in connection with the Transactions and (iv) solely with respect to a portion of the Loans made on the Closing Date in an aggregate amount not exceeding U.S.$105,959,883.26, for general corporate purposes; provided , that neither the Administrative Agent nor any Lender shall have any responsibility as to the use of any of such proceeds.

 

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(b) No part of the proceeds of the Loans will be used for “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect or for any purpose which violates or is inconsistent with the provisions of Regulation U or Regulation X.

Section 5.11 Governmental Approvals . The Borrower shall, and shall cause each of its Subsidiaries to, promptly obtain, maintain and renew or extend (as appropriate) from time to time at its own expense all such Permits (other than, with respect to Environmental Permits, to the extent provided in Section  5.9(a) ) as may be required for (i) the Borrower to comply with its obligations under each Financing Document to which it is a party, and (ii) for the Borrower, or such Subsidiary, to own its properties that are material to its business and conduct its businesses and operations as presently conducted and as proposed to be conducted in all material respects.

Section 5.12 Pari Passu Ranking . The Borrower shall take, or cause to be taken, all actions which may be or become necessary or appropriate to ensure that the obligations of the Borrower under the Financing Documents will continue to constitute its direct and unconditional obligations ranking at least pari passu in right of payment with all other senior unsecured Indebtedness of the Borrower, except for the obligations mandatorily preferred pursuant to Applicable Law.

Section 5.13 Maintenance of Accounts; Preservation of Rights Under the Security Documents .

(a) The Borrower shall maintain the Reserve Account pursuant to the Reserve Account Control Agreement.

(b) The Borrower shall maintain the Collection Account.

(c) The Borrower shall cause the balance on deposit in the Reserve Account to be, on and at all times following the Closing Date, equal to or exceeding the Reserve Account Required Balance.

(d) Not later than two Business Days immediately following the Closing Date, the Borrower shall deliver to the Administrative Agent documentation evidencing the due filing for registration of the Peruvian Mortgage Agreement with the Registro de la Propiedad Inmueble – Oficina Registral Lima .

(e) The Borrower shall deliver to the Administrative Agent documentation evidencing the due registration of the Peruvian Mortgage Agreement with the Registro de la Propiedad Inmueble – Oficina Registral Lima , within the period specified in Section  6.5 of the Peruvian Mortgage Agreement.

 

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(f) Not later than two Business Days immediately following the date of execution of the Peruvian Security Trust Agreement, the Borrower shall deliver to the Administrative Agent documentation evidencing the due filing for registration of the Peruvian Security Trust Agreement with the Registro Mobiliario de Contratos – Oficina Registral Lima .

(g) The Borrower shall deliver to the Administrative Agent documentation evidencing the due registration of the Peruvian Security Trust Agreement with the Registro Mobiliario de Contratos – Oficina Registral Lima , within the period agreed therefor under the Peruvian Security Trust Agreement.

(h) The Borrower shall pay all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, including reasonable fees, charges and disbursements of counsel for the Administrative Agent and the Lenders, in connection with the preparation, negotiation, execution and delivery of the Peruvian Security Trust Agreement.

(i) The Borrower shall from time to time take such actions as may be necessary or advisable in order to preserve the rights of the Administrative Agent and the Lenders under each of the Security Documents. Without limiting the generality of the foregoing, the Borrower shall execute any documents, filing statements, agreements and instruments, and take all further action that may be required under Applicable Law, or that the Administrative Agent may reasonably request, in order to effectuate the transactions contemplated by the Financing Documents to which it is a party and in order to grant, preserve, protect and perfect the validity and first priority of the Liens created or intended to be created by the Security Documents.

Section 5.14 Payment of Reference Payments . The Borrower shall, shall cause each of its Subsidiaries to, and shall instruct each Non-Controlled Subsidiary to, take such actions as may be required to cause all amounts payable to the Borrower or any of its Subsidiaries in respect of Reference Payments, to be deposited directly by each such Non-Controlled Subsidiary or such Subsidiary of the Borrower into the Collection Account. In the event that the Borrower, or any of its Subsidiaries receives amounts on account such Reference Payments, the Borrower shall, or shall cause such Subsidiary to, promptly (but in any event no later than on the immediately succeeding Business Day) transfer the amounts so received to the Collection Account.

Section 5.15 Additional Documents . The Borrower shall from time to time take such actions and execute and deliver, or cause to be executed and delivered, any and all such further documents and instruments as may reasonably be requested by the Administrative Agent that are necessary for the compliance by the Borrower with its obligations under this Agreement and the other Financing Documents to which it is a party.

 

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ARTICLE VI

NEGATIVE COVENANTS

Until the Loans and all other amounts outstanding hereunder and under the other Financing Documents shall have been paid in full, the Borrower covenants and agrees with the Lenders that:

Section 6.1 Liens .

(a) The Borrower shall not incur, assume or permit to exist any Lien on any property or asset, income or revenues (including accounts receivable) or rights in respect of any thereof, whether presently owned or hereafter acquired, other than Permitted Encumbrances; provided , however that anything herein to the contrary notwithstanding, the Borrower shall not, and shall not permit any of its Subsidiaries to, incur, assume or permit to exist any Lien securing Indebtedness on any Capital Stock of Viva GyM.

(b) The Borrower shall not permit Concar or Almonte to incur, assume or permit to exist any Lien on any property or asset, income or revenues (including accounts receivable) or rights in respect of any thereof, whether presently owned or hereafter acquired, other than, solely with respect to Concar, (x) Liens in existence on the date hereof and described in Schedule 6.1(b) and (y) Liens on any property or asset, income or revenues (including accounts receivable) or rights in respect of any thereof, with a Fair Market Value not exceeding, at any time, individually or in the aggregate, together with other property or asset, income or revenues (including accounts receivable) or rights in respect of any thereof subject to Liens permitted by this Section  6.1(b) , U.S.$7,000,000.

(c) Notwithstanding the foregoing, the Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Lien on any property or asset, income or revenues (including accounts receivable) or rights in respect of any thereof, whether presently owned or hereafter acquired, of any Person constituting or intended to constitute Collateral, other than the Permitted Encumbrances of the type specified in clauses (x) or, in respect of the Reserve Account, (xiii) of the definition of the term “Permitted Encumbrances.”

Section 6.2 Fundamental Changes .

(a) Mergers; Consolidations; Disposal of Assets; Etc. The Borrower shall not, and shall not permit any of its Subsidiaries to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise Dispose of all or substantially all, the assets of the Borrower or any such Subsidiary, or liquidate, apply to be wound up or dissolve, except that (i) any Subsidiary of the Borrower may merge with and into the Borrower or with another Subsidiary of the Borrower and (ii) any Non-Recourse Subsidiary may make a Disposition of all or substantially all of its assets to any trust, fideicomiso or any other similar arrangement in a transaction constituting a Lien securing Non-Recourse Indebtedness of such Non-Recourse Subsidiary.

 

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(b) Lines of Business . The Borrower shall not, and shall not permit any of its Subsidiaries to, engage in any lines of business other than the Line of Business.

Section 6.3 Transactions with Affiliates . The Borrower shall not, and shall not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except for transactions on fair and reasonable terms substantially as favorable to the Borrower or such Subsidiary, as applicable, as would be obtainable by the Borrower or such Subsidiary, as the case may be, at the time in a comparable arm’s length transaction with a Person other than an Affiliate.

Section 6.4 Accounting Changes; Limitation on Changes in Fiscal Year . The Borrower shall not, and shall not permit any of its Subsidiaries to (a) make any change in accounting treatment and reporting practices except as (i) required or permitted by IFRS, consistently applied, or Applicable Law and, to the extent material, disclosed to the Administrative Agent and (ii) agreed to by its independent public accountants (who shall be of recognized international standing); or (b) change its current fiscal year end to end on a day other than on December 31.

Section 6.5 Limitation on Sale and Leaseback Transactions . The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any Sale and Leaseback Transaction.

Section 6.6 Limitation on Indebtedness .

(a) The Borrower shall not Incur any Indebtedness other than:

(i) Indebtedness under the Financing Documents;

(ii) Guarantees of Indebtedness outstanding as of the Closing Date and listed in Schedule 3.4(d) ;

(iii) Indebtedness Incurred under the Bridge Loan Letter of Credit or Guarantees of Indebtedness Incurred under the Bridge Loan, in an aggregate amount not to exceed, at any time, U.S.$120,000,000; provided , that if such Indebtedness is secured by a Lien permitted hereunder, the Bridge Loan Letter of Credit shall be in form and substance reasonable satisfactory to the Administrative Agent;

 

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(iv) Indebtedness Incurred under the Contingent Equity Letter of Credit in an aggregate amount not to exceed, at any time, U.S.$145,000,000, if (and only to the extent that) the Borrower does not have any Indebtedness of the type set forth in clause (iii) above; provided , that if such Indebtedness is secured by a Lien permitted hereunder, the Contingent Equity Letter of Credit shall be in form and substance reasonable satisfactory to the Administrative Agent;

(v) Guarantees of Indebtedness of any of its Subsidiaries or any Non-Controlled Subsidiary; provided , that (x) no Default or Event of Default shall have occurred and be continuing or would occur after giving effect on a pro forma basis to the Incurrence of such Indebtedness and (y) after giving effect on a pro forma basis to the Incurrence of such Indebtedness, the aggregate amount of such Indebtedness, together with any other Indebtedness of the Borrower Incurred pursuant this Section  6.6(a)(v) and Sections 6.6(a)(ii) does not exceed, at any time, U.S.$70,000,000 (or the Dollar Equivalent thereof);

(vi) Indebtedness for borrowed money of the Borrower with any of its Subsidiaries; provided that (x) such Indebtedness is expressly subordinated in right of payment to the obligations of the Borrower under any of the Financing Documents, (y) such Indebtedness is unsecured and (z) the Borrower and such Subsidiary shall have executed and delivered such agreements, instruments and other documents, and shall have taken such actions as the Administrative Agent reasonably requests, so that all rights of such Subsidiary under such Indebtedness shall be subject to a first priority fully perfected Lien securing the repayment and other obligations of the Borrower under the Financing Documents; provided , further that clause (z) above shall not apply (1) in respect of Indebtedness for borrowed money of the Borrower with Viva GyM if (and only to the extent that) such Indebtedness is funded by Viva GyM with Almonte Sale Proceeds; or (2) in respect of Indebtedness for borrowed money of the Borrower with any of its Subsidiaries in an amount not exceeding, during any fiscal year of the Borrower, individually or in the aggregate, U.S.$5,000,000 (or the Dollar Equivalent thereof);

(vii) Guarantees of obligations of GyM Ferrovias in respect of the deferred purchase price of property or services, if (and only to the extent that) such Guaranty is permitted under Section  6.8(e) ; and

(viii) additional Indebtedness of the Borrower for borrowed money provided that (x) no Default or Event of Default shall have occurred and be continuing or would occur after giving effect on a pro forma basis to the Incurrence of such Indebtedness, and (y) the Net Debt Incurrence Proceeds therefrom are applied to prepay the Loans pursuant to Section  2.8(b)(i) .

 

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(b) The Borrower shall not permit any of its Subsidiaries (other than Almonte and Concar) to Incur any Indebtedness, unless at the time of Incurrence of any such Indebtedness and after giving effect on a pro forma basis to the Incurrence of such Indebtedness, (x) the Borrower shall be in compliance with Section  6.7 and (y) no Default shall have occurred and be continuing or would occur after giving effect on a pro forma basis to the Incurrence of such Indebtedness.

(c) The Borrower shall not permit Almonte or Concar to Incur any Indebtedness, other than, solely with respect to Concar, (x) Indebtedness of Concar in existence on the date hereof and described in Schedule 6.6(c) and (y) any other Indebtedness of Concar; provided , that with respect to clause (y) only, (1) no Default or Event of Default shall have occurred and be continuing or would occur after giving effect on a pro forma basis to the Incurrence of such Indebtedness and (2) after giving effect on a pro forma basis to the Incurrence of such Indebtedness, the aggregate amount of such Indebtedness, together with any other Indebtedness of Concar permitted pursuant to this Section  6.6(c) does not exceed, at any time, U.S.$7,000,000 (or the Dollar Equivalent thereof).

Section 6.7 Certain Ratios .

(a) The Borrower shall not permit the Consolidated EBITDA to Consolidated Interest Expense Ratio to be less than 3.5:1.00 at any time.

(b) The Borrower shall not permit the Consolidated Leverage Ratio to be more than (i) 4.5:1.00 at any time during the period commencing on the Closing Date and ending on March 31, 2016; (ii) 3.5:1.00 at any time during the period commencing on April 1, 2016 and ending on December 31, 2017; and (iii) 2.5:1.00 at any time thereafter.

(c) The Borrower shall not permit the Debt Service Coverage Ratio to be less than 1.5:1.00 as of the last day of any fiscal quarter of the Borrower falling on or after the first anniversary of the Closing Date.

Section 6.8 Limitation on Investments . The Borrower shall not, and shall not permit any of its Subsidiaries to make any Investment in any Person, except,

(a) Investments in existence on the date hereof and described in Schedule 6.8(a) ;

(b) Investments held by the Borrower or such Subsidiary in the form of Cash Equivalents;

(c) Investments of the Borrower in any Subsidiary of the Borrower (other than any Non-Recourse Subsidiary) and Investments of any Subsidiary of the Borrower in the Borrower or in another Subsidiary of the Borrower (other than any Non-Recourse Subsidiary);

 

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(d) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;

(e) Investments of the Borrower in GyM Ferrovias relating to the Reference Ferrovias Project; provided, that (x) no Default or Event of Default shall have occurred and be continuing or would occur after giving effect on a pro forma basis to the making of such Investments and (y) the aggregate amount of such Investments do not exceed, at any time, individually or in the aggregate, U.S.$70,000,000;

(f) so long as no Default shall have occurred and be continuing at the time of such Investment, Investments of the Borrower or of any Subsidiary of the Borrower in any Non-Recourse Subsidiary or in any Person, made in the ordinary course of business, not exceeding, individually or in the aggregate, U.S.$20,000,000 (or the Dollar Equivalent thereof), during any fiscal year of the Borrower;

(g) Investments in the Concessionaire in the form of (i) the Base Equity Contribution and (ii) to the extent permitted by Sections 6.6(a)(iii) and (iv) , the Bridge Loan Letter of Credit or the Contingent Equity Letter of Credit or Guarantees of Indebtedness Incurred under the Bridge Loan; and

(h) to the extent not permitted under clauses (a) through (g) above, Investments by any Subsidiary of the Borrower made in the ordinary course of business and consistent with past practice (1) in consorcios or asociaciones en participación to which such Subsidiary is a party, and (2) in the form of equity contributions to Persons engaged in the construction, development or acquisition of real estate projects, but only to the extent that such Investments are necessary in the reasonable judgment of such Subsidiary for the development and/or completion thereof.

Section 6.9 Limitation on Dispositions .

(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, make any Disposition (directly or indirectly) of any asset or property of the Borrower or such Subsidiary to any Person (other than any Excluded Disposition), except if (i) no Default or Event of Default shall have occurred and be continuing at the time of consummation thereof or would occur as a result of the consummation of such Disposition; (ii) such Disposition is consummated in accordance with Applicable Law and for Fair Market Value; (iii) such Disposition is not of any asset or property that constitutes or is intended to constitute Collateral; and (iv) if applicable, the Loans are prepaid with a portion of the Net Asset Sale Proceeds relating to such Disposition in accordance with Section  2.8(b)(ii) .

 

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(b) Notwithstanding the foregoing, the Borrower shall not, and shall not permit any of its Subsidiaries to, make any Disposition (directly or indirectly) of any Capital Stock of Viva GyM.

(c) Anything herein to the contrary notwithstanding, the Borrower shall not, and shall not permit any of its Subsidiaries, to make any Disposition (directly or indirectly) of any asset or property that constitutes or is intended to constitute Collateral.

Section 6.10 Limitation on Restricted Payments . The Borrower shall not, and shall not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (a) any Subsidiary of the Borrower may declare and pay dividends to the Borrower and any other Person that owns Capital Stock of such Subsidiary, ratably according to their respective holdings of the type of Capital Stock in respect of which such Restricted Payment is being made, (b) the Borrower and any Subsidiary thereof may declare and pay any dividends with respect to its Capital Stock payable solely in additional shares of its common stock, (c) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, and (d) subject to the proviso below, the Borrower may declare or pay cash dividends to its stockholders solely out of 40% of net income of the Borrower available for distribution to its shareholders in accordance with IFRS, as reflected in the audited consolidated financial statements of the Borrower for the fiscal year most recently ended actually delivered to the Administrative Agent pursuant to Section 5.1(a); provided , however , that such Restricted Payment will only be permitted to the extent that (x) such Restricted Payment is declared or made, as applicable, in compliance with Applicable Law, and (y) no Default shall have occurred and is continuing or would occur after giving effect on a pro forma basis to the making or declaration, as applicable, of such Restricted Payment.

Section 6.11 Limitation on Restrictions Concerning Distributions by Subsidiaries . The Borrower shall not, and shall not permit any of its Subsidiaries to, suffer to exist any consensual encumbrance or restriction on the ability of any such Subsidiary (a) to pay, directly or indirectly, dividends or make any other distributions in respect of its Equity Rights or pay any Indebtedness or other obligation owed to the Borrower, (b) to make loans or advances to the Borrower, or (c) to transfer any of its property or assets to the Borrower; provided , that the foregoing shall not apply to customary restrictions and conditions that apply to any Subsidiary of the Borrower, which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; provided , however that this Section  6.11 shall not prohibit any such encumbrance or restriction imposed by the Financing Documents.

 

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Section 6.12 Optional Payments; Modifications of Certain Documents .

(a) The Borrower shall not (i) make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of, or otherwise optionally or voluntarily defease or segregate funds with respect to, any Indebtedness that is junior and subordinate in right of payment to any of the obligations of the Borrower under the Financing Documents to which it is a party, or (ii) amend, modify, waive or otherwise change or consent or agree to any amendment, modification, waiver or other change to, any of the terms of any Indebtedness that is junior and subordinate in right of payment to any of the obligations of the Borrower under the Financing Documents to which it is a party in a manner that is adverse to the Lenders in any material respect.

(b) The Borrower shall not, and shall not permit any of its Subsidiaries to, amend, supplement, terminate or otherwise modify its respective by-laws, articles of association, shareholders agreements or similar constitutive document, without the prior written consent of the Required Lenders, other than any such amendment or supplement that would not adversely affect the interests of the Lenders hereunder in any material respect.

(c) The Borrower shall not, and shall not permit any of its Subsidiaries to, amend, supplement or otherwise modify the Reference Shareholders’ Agreement, without the prior written consent of the Required Lenders, other than any such amendment or supplement that would not adversely affect the interests of the Lenders hereunder in any material respect.

Section 6.13 Sanctions . The Borrower shall not, directly or indirectly, use the proceeds of any Loan, or lend, contribute or otherwise make available such proceeds to any Subsidiary of the Borrower, joint venture partner or other individual or entity, to fund any activities of or business with any individual or entity, or in any Sanctioned Jurisdiction, that, at the time of such funding, is the subject of Sanctions, or in any other manner that will result in a violation by any individual or entity (including any individual or entity participating in the transaction, whether as Lender, Lead Arranger, Administrative Agent or otherwise) of Sanctions.

Section 6.14 Anti-Corruption Laws . The Borrower shall not, directly or indirectly, use the proceeds of any Loan for any purpose which would breach any Anti-Corruption Laws.

Section 6.15 Anti-Money Laundering Laws . The Borrower will not (i) directly or indirectly use the proceeds of the Loans, or (ii) lend, contribute or otherwise make available proceeds of the Loans to its Subsidiaries, its Affiliates, any director, officer, employee, or agent of the Borrower, its Subsidiaries or its Affiliates, joint venture partner or other Person, in any manner that would result in a violation of any Anti-Money Laundering Laws by any Person, including any Person participating in the Loans, whether as underwriter, advisor, investor or otherwise.

 

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ARTICLE VII

EVENTS OF DEFAULT

Section 7.1 Events of Default . Each of the following events shall be and constitute “ Events of Default ”:

(a) the Borrower (i) shall fail to pay when due any principal of any Loan, or (ii) shall fail to pay within three or more days any interest on any Loan, any fee or any other amount payable by it hereunder or under any other Financing Document to which it is a party when and as the same shall become due and payable; or

(b) any representation or warranty made or deemed made by the Borrower in or in connection with any Financing Document (or any amendment or modification hereof or thereof or waiver hereunder or thereunder), or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Financing Document (or any amendment or modification hereof or thereof or waiver hereunder or thereunder), shall prove to have been materially incorrect when made or deemed made, unless the circumstances giving rise to the misrepresentation are capable of remedy and are remedied within 10 days of the earlier of (i) the date on which the Borrower receives a written notice of such misrepresentation from the Administrative Agent or (ii) the Borrower becomes aware of such misrepresentation; or

(c) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in any of Sections 5.1 , 5.2 , 5.3 , 5.10 , 5.12 , 5.13 , 5.14 , or Article VI or any of the Security Documents; or

(d) the Borrower shall fail to observe or perform any covenant or agreement contained in any Financing Document (other than those specified in clause (a)  or (c) of this Section  7.1 ), and such failure shall continue unremedied for a period of 10 or more days; or

(e) the Borrower shall fail to pay any amount or amounts, which individually or in the aggregate, are equal to or greater than U.S.$10,000,000 (or the Dollar Equivalent thereof) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) under any Indebtedness of the Borrower (other than Indebtedness under this Agreement and the other Financing Documents), and such failure shall continue after the applicable notice and grace period, if any, specified in the corresponding agreements or instruments; or any other event shall occur or condition shall exist under any agreement or instrument relating to such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if as a result of such event or condition the holder or holders (or an agent or trustee on its or their behalf) thereof shall have caused or may cause such Indebtedness to become due prior to its scheduled maturity; or

 

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(f) any Subsidiary of the Borrower shall fail to pay any amount or amounts, which individually or in the aggregate, are equal to or greater than U.S.$20,000,000 (or the Dollar Equivalent thereof) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) under any Indebtedness of such Subsidiary, and such failure shall continue after the applicable notice and grace period, if any, specified in the corresponding agreements or instruments; or any other event shall occur or condition shall exist under any agreement or instrument relating to such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if as a result of such event or condition the holder or holders (or an agent or trustee on its or their behalf) thereof shall have caused or may cause such Indebtedness to become due prior to its scheduled maturity; or

(g) (i) an involuntary proceeding or other proceeding shall be commenced or an involuntary petition shall be filed, in each case seeking liquidation, reorganization, arrangement, adjustment, an adjudication of bankruptcy, insolvency, judicial management, reorganization, administration or relief of debtors or other similar relief in respect of the Borrower, any of its Subsidiaries, or any of its debts, or of a substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, including the Bankruptcy Code of the United States, or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of its Subsidiaries or for a substantial part of their respective assets shall have been entered and, in any such case described in clause (i)  or (ii) hereof, such proceeding or petition shall continue undismissed or shall not be stayed for a period of 60 or more days; or

(h) the Borrower, or any of its Subsidiaries, shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization, arrangement, adjustment, an adjudication of bankruptcy, insolvency, judicial management, reorganization, administration or relief of debtors or other similar relief under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, including the Bankruptcy Code of the United States, (ii) consent to the institution of any proceeding or petition described in clause (i)  above, apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Person, or for a substantial part of its respective assets, (iii) file an answer admitting the material allegations of a petition filed against it in any such proceeding or (iv) make a general assignment for the benefit of creditors; or

(i) the Borrower or any of its Subsidiaries, shall admit in writing its inability, or fail generally, to pay its debts as they become due; or

 

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(j) one or more final non-appealable judgments for the payment of money in an aggregate amount in excess of U.S.$10,000,000 (or the Dollar Equivalent thereof) shall be rendered by one or more courts, administrative tribunals or other bodies against the Borrower, with respect to any single or related series of transactions, incidents or conditions, and such judgment(s) shall not have been paid, vacated or discharged; or

(k) one or more final non-appealable judgments for the payment of money in an aggregate amount in excess of U.S.$20,000,000 (or the Dollar Equivalent thereof) shall be rendered by one or more courts, administrative tribunals or other bodies against any Subsidiary of the Borrower, with respect to any single or related series of transactions, incidents or conditions, and such judgment(s) shall not have been paid, vacated or discharged; or

(l) any Governmental Authority shall take any action to condemn, seize, nationalize or appropriate any substantial portion of the property of the Borrower or any of its Subsidiaries (either with or without payment of compensation), or the Borrower or any of its Subsidiaries shall be prevented from exercising normal control over all or a substantial part of their property (and the same shall continue for ten or more days); or

(m) the validity or enforceability of any Financing Document shall be contested by the Borrower in such a way so as to render any material provision of any of the Financing Documents invalid or unenforceable or to purport or delay the performance or observance by the Borrower of any of its obligations under any of the Financing Documents, or any of the Financing Documents shall for any reason cease to be in full force and effect; or

(n) the Borrower or any of its Subsidiaries which is a party to the Financing Documents, shall deny any further liability or renounce any of its obligations under any Financing Document to which each of them is a party; or

(o) the Administrative Agent shall cease at any time to have a perfected first priority Lien (subject, in respect of the Reserve Account, to Permitted Encumbrances of the type specified in clause (xiii) of the definition of the term “Permitted Encumbrances”) on all or any portion of the Collateral purported to be encumbered, as applicable, pursuant to the Security Documents; or

(p) any Governmental Authority shall, by imposition of moratorium laws, exchange controls, currency convertibility controls, currency transferability controls or otherwise, take any action which has or could reasonably be expected likely to have a Material Adverse Effect and such action shall continue for 45 or more consecutive days; or

 

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(q) the Administrative Agent shall not have received the Peruvian Security Trust Agreement on or prior to February 15, 2016, duly executed and delivered by each of the parties named as a proposed signatory thereto.

Section 7.2 Rights upon an Event of Default . If any Event of Default shall occur, then :

(a) in the case of any Event of Default other than an Event of Default referred to in Sections  7.1(f) or 7.1(g) , and at any time thereafter during the continuance of such Event of Default, the Administrative Agent shall, by notice to the Borrower, upon request of the Required Lenders, declare all or any portion of the Commitments terminated and/or the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the Commitments shall be terminated and the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and

(b) in the case of any Event of Default referred to in Sections 7.1(f) or 7.1(g) , automatically the Commitments shall immediately terminate and the principal of the Loans then outstanding, together with accrued interest thereon, and all fees and other obligations of the Borrower accrued hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower.

ARTICLE VIII

THE ADMINISTRATIVE AGENT

Section 8.1 Appointment, Powers and Immunities .

(a) Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent hereunder and under the other Financing Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers and exercise such duties as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. Furthermore, each Lender hereby authorizes and appoints the Administrative Agent as an agent to execute, deliver and perform any of the Financing Documents, and any other document or agreement derived, related or ancillary thereto to which the Administrative Agent is a party, as well as any other document, agreement or instrument necessary or convenient for the delivery, perfection, execution and foreclosure of the referred agreements and any other Collateral that may be granted in connection with any of the Financing Documents or any of the Loans. The provisions of this Article VIII are solely for the benefit of the Administrative Agent and the Lenders, and neither the Borrower nor any other party shall have rights as a third-party beneficiary of any of such provisions.

 

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(b) The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower and any of its Affiliates as if the Person serving as the Administrative Agent were not the Administrative Agent hereunder.

(c) The Administrative Agent shall not have any duties or obligations except those expressly set out herein and in the other Financing Documents. Without limiting the generality of the foregoing:

(i) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

(ii) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Financing Documents that the Administrative Agent is required to exercise in writing by the Required Lenders; and

(iii) except as expressly set out herein and in the other Financing Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity.

(d) Neither the Administrative Agent nor any of its Related Parties shall be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders, or in the absence of its own gross negligence or willful misconduct. The Administrative Agent and its Related Parties shall be deemed not to have knowledge of any Default, unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and neither the Administrative Agent nor any of its Related Parties shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Financing Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set out herein or therein, or (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Financing Document or any other agreement, instrument or document. Except for actions expressly required of the Administrative Agent hereunder, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Lenders, of their indemnification obligations hereunder against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action.

 

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Section 8.2 Reliance by Administrative Agent . The Administrative Agent shall be entitled to rely upon, and neither the Administrative Agent nor any of its Related Parties shall incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone or telecopy and believed by it to be made by the proper Person, and neither the Administrative Agent nor any of its Related Parties shall incur any liability for relying thereon. The Administrative Agent may consult with legal counsel, independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

Section 8.3 Sub-Agents . The Administrative Agent may perform any and all of its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

Section 8.4 Resignation or Removal of Administrative Agent . The Administrative Agent may resign at any time by notifying the Lenders, the Borrower and the Administrative Agent may be removed with due cause at any time by the Required Lenders. The Administrative Agent agrees to continue to perform its duties and obligations hereunder until the earlier of the appointment of a successor thereof and the period ending 50 days following the resignation of the Administrative Agent hereunder. Upon any such resignation or removal, the Required Lenders shall have the right, in consultation with the Borrower (unless a Default shall have occurred and be continuing), to appoint a successor reasonably acceptable to the Borrower, which shall be a Lender or an entity that is an Affiliate of a Lender. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 50 days after the retiring Administrative Agent gives notice of its resignation or the Required Lenders’ removal of the retiring Administrative Agent, then the retiring Administrative Agent’s resignation or removal, as the case may be, shall nonetheless become effective and (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and (b) the Required Lenders (or any Person temporarily appointed by the Required Lenders) shall perform the duties of the Administrative Agent (and all payments and communications provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly) until such time as the Required Lenders appoint a successor agent as provided for above in this Section  8.4 . Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder (if not already discharged therefrom as provided above in this Section  8.4 ). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its

 

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predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent’s resignation or removal hereunder, the provisions of this Article VIII and Section  9.3 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.

Section 8.5 Non-Reliance on Administrative Agent and Other Lenders . Each Lender expressly acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement and the other Financing Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under the Financing Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other conditions and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other conditions or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.

Section 8.6 Compensation of Administrative Agent . The Borrower shall pay from time to time all fees, costs and expenses of the Administrative Agent required to be paid by the Borrower as previously agreed in writing by the Borrower and the Administrative Agent.

Section 8.7 Indemnification . The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed under Section  9.3 , but without limiting the obligations of the Borrower under Section  9.3 ) ratably in accordance with the aggregate principal amount of the Loans held by the Lenders (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments), for any and all losses, liabilities, claims, obligations, damages or expenses (including the fees and disbursements of counsel) incurred by it arising out of or by reason of any investigation in any way relating to or arising out of this Agreement or any other Financing Documents to which the Administrative Agent is a party or the transactions contemplated hereby (including the costs and expenses that the Borrower is obligated to pay under Section  9.3 , but excluding, other than additional administrative costs and expenses resulting from a Default or Event of Default, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or of any such other documents; provided , that no Lender shall be liable for any of the foregoing to the extent that they arise solely from the gross negligence or willful misconduct of the Administrative Agent as determined by a final, nonappealable judgment by a court of competent jurisdiction. In no event shall any Lender be liable to the Administrative Agent for any punitive or consequential damages in connection with any of the Financing Documents. The obligations of the Lenders under this Section  8.7 shall survive the termination of this Agreement, the repayment of the Loans and/or the earlier resignation or removal of the Administrative Agent.

 

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ARTICLE IX

MISCELLANEOUS

Section 9.1 Notices . Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by e-mail in portable document format (.pdf) or facsimile, as follows:

if to the Borrower, at :

Graña y Montero S.A.A.

Av. Paseo de la República 4675

Surquillo, Lima

Perú

Attention: Mónica Miloslavich Hart / Dennis Gray Febres

E-mail: mmiloslavich@gym.com.pe / dgray@gym.com.pe

Telephone No. +511 213-6565 ext. 6475 / +511 213-6565 ext. 6597

if to the Administrative Agent, at :

Credit Suisse AG, Cayman Islands Branch

One Madison Avenue

New York, NY 10010

United States

Attn: Agency Manager / Andreas Schenk Caviezel

Tel: +1 (919) 994 6369

Fax: +1 (212) 322 2291

Email: agency.loanops@credit-suisse.com / list.structured-lendinglatam@credit-suisse.com

if to a Lender , at its address (or telex or telecopy number) set out in its Administrative Questionnaire.

Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto (or, in the case of any such change by a Lender, by notice to the Borrower and the Administrative Agent). All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

 

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Section 9.2 Waivers; Amendments .

(a) No Deemed Waivers; Remedies Cumulative . No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by Section  9.2(b) , and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.

(b) Amendments . Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders, or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided , however , that no such agreement shall:

(i) increase or extend any Commitment of any Lender without its written consent;

(ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder without the written consent of each Lender affected thereby;

(iii) postpone the scheduled date of payment (whether at stated maturity, upon prepayment or acceleration or otherwise) of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment without the written consent of each Lender affected thereby;

(iv) impose any obligation to the Lenders without the written consent of each Lender;

(v) alter the manner in which payments or prepayments of principal, interest or other amounts hereunder shall be applied as among the Lenders without the written consent of each Lender;

(vi) change the currency in which amounts are payable hereunder without the written consent of each Lender;

 

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(vii) release any of the Collateral from the Liens created pursuant to the Security Documents, except as expressly contemplated by the Financing Documents, without the consent of each Lender;

(viii) change any of the provisions of this Section  9.2 or the definition of the term Required Lenders or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender; or

(ix) waive any condition set out in Article IV without the written consent of each Lender;

provided , further , that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent.

Anything herein to the contrary notwithstanding, during such period as a Lender is a Defaulting Lender, to the fullest extent permitted by Applicable Law, such Lender will not be entitled to vote in respect of amendments and waivers hereunder and the Commitment and the outstanding Loan or other extensions of credit of such Lender hereunder will not be taken into account in determining whether the Required Lenders or all of the Lenders, as required, have approved any such amendment or waiver (and the definition of “ Required Lenders ” will automatically be deemed modified accordingly for the duration of such period); provided , that any such amendment or waiver that would increase or extend the term of the Commitment of such Defaulting Lender, extend the date fixed for the payment of principal or interest owing to such Defaulting Lender hereunder, reduce the principal amount of any obligation owing to such Defaulting Lender, reduce the amount of or the rate or amount of interest on any amount owing to such Defaulting Lender or of any fee payable to such Defaulting Lender hereunder, or alter the terms of this proviso, will require the consent of such Defaulting Lender.

Section 9.3 Expenses; Indemnity; Damage Waiver .

(a) Costs and Expenses . The Borrower agrees to pay (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, including reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the Loans and the preparation and administration of this Agreement and the other Financing Documents or any amendments, modifications or waivers of the provisions hereof or thereof requested or agreed to by the Borrower (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all expenses incurred by the Administrative Agent or any Lender, including fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with (x) the enforcement or protection of its rights in connection with this Agreement and the other Financing Documents, including its rights under this Section  9.3 , (y) the exercise of its rights under Section  7.2 upon the occurrence of a Default or an Event of Default or (z) any amendment, waiver, workout, restructuring or negotiations in respect of the Loans.

 

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(b) Indemnification by the Borrower . The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party thereof (each such Person being called an “ Indemnitee ”) against, and shall hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, the other Financing Documents or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto and thereto of their respective obligations hereunder or the consummation of the Transactions, (ii) the Loans and the use of the proceeds therefrom or (iii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided , however , that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses have resulted from the gross negligence, willful misconduct, intentional illegal acts or fraud of such Indemnitee as determined by nonappealable judgment of a court of competent jurisdiction.

(c) Reimbursement by Lenders . To the extent that the Borrower fails to indefeasibly pay any amount required to be paid by it to the Administrative Agent under Section  9.3(a) or 9.3(b) , each Lender severally agrees to pay to the Administrative Agent such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided , however , that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was actually incurred by or asserted against the Administrative Agent in its capacity as such.

(d) Payments . All amounts due under this Section  9.3 shall be payable promptly after written demand therefor and in no event later than five Business Days from the day of delivery to the Borrower of an invoice or other appropriate statement therefor.

(e) Waiver of Consequential Damages, Etc . To the fullest extent permitted by Applicable Law, the Borrower shall not assert, and the Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Financing Document or any agreement or instrument contemplated hereby, the Transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. No Indemnitee referred to in clause (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the

 

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other Financing Documents or the Transactions contemplated hereby or thereby other than for damages resulting from the gross negligence, willful misconduct, intentional illegal acts or fraud of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.

Section 9.4 Successors and Assigns .

(a) Assignments Generally . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder or under any Financing Document to which it is a party without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Assignments by Lenders . Subject to the foregoing sentence, any Lender may assign to one or more assignees all or a portion of its rights, benefits and obligations under this Agreement and the other Financing Documents (including all or a portion of its Loans at the time owing to it); provided , however , that:

(i) the amount of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance Agreement with respect to such assignment is delivered to the Administrative Agent) shall not be less than U.S.$5,000,000 (or such lower amount approved by the Borrower, which approval shall not be unreasonably withheld) and increments of U.S.$1,000,000 in excess thereof (or the aggregate principal amount of the Loans of the assigning Lender); provided that simultaneous assignments by or to two or more Related Parties of such assigning Lender shall be combined for purposes of determining whether the minimum assignment requirement is met; provided , further that no minimum amount shall be needed in respect of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, or in case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and/or Loans at the time owing to it;

(ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;

(iii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance Agreement, together with a processing and recordation fee of U.S.$3,500;

 

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(iv) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and

(v) any corresponding Promissory Note must also be assigned together with the Lender’s rights and obligations;

(vi) no consent shall be required for any assignment, except that if such assignment is to a Person that is not a Lender, an Affiliate of a Lender or an Approved Fund, the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required; provided , that the Administrative Agent shall promptly inform the Borrower in writing upon receipt of a request from any Lender in connection with any assignment to a Person that is not a Lender, an Affiliate of a Lender or an Approved Fund; provided , further that failure by the Administrative Agent to give such notice shall not affect the validity of such assignment; and

(vii) for so long as no Default shall have occurred and be continuing, the Borrower shall not be obligated to pay to any assignee any additional amounts pursuant to Section  2.14 in excess of the maximum amounts that the Borrower would have been obligated to pay to the assigning Lender if the assigning Lender had not assigned such Loan to such assignee, unless the circumstances giving rise to such excess payment result from a Change in Law after the date of such assignment.

Upon acceptance and recording pursuant to Section  9.4(d) , from and after the effective date specified in each Assignment and Acceptance Agreement, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance Agreement, have the rights and obligations of a Lender under this Agreement and the other Financing Documents, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance Agreement covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections  2.13 , 2.14 and 9.3 ). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section  9.4(e) . If requested by an assignee Lender, within ten days after its receipt of notice from the Administrative Agent stating that the Administrative Agent has received and accepted the documents referred to in Section  9.4(d) , the Borrower shall execute and deliver to the Administrative Agent (for delivery to the relevant assignee Lender) a new Promissory Note evidencing such assignee Lender’s assigned Loans.

(c) Maintenance of Register by the Administrative Agent . The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in New York City a copy of each Assignment and Acceptance Agreement delivered

 

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to it and a register for the recordation of the names and addresses of the Lenders and principal amount of the Loans owing to each Lender pursuant to the terms hereof from time to time (the “ Register ”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender at any reasonable time and from time to time upon reasonable prior notice.

(d) Effectiveness of Assignments . Upon its receipt of a duly completed Assignment and Acceptance Agreement executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in Section  9.4(b)(iii) , the Administrative Agent shall accept such Assignment and Acceptance Agreement and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

(e) Participations . Any Lender may sell participations to one or more banks or other entities (a “ Participant ”) in all or a portion of such Lender’s Loans; provided , however , that (i) such Lender’s obligations under this Agreement and the other Financing Documents shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and the other Financing Documents. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and the other Financing Documents and to approve any amendment, modification or waiver of any provision of this Agreement or any other Financing Document; provided , however , that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section  9.2(b) that affects such Participant. Subject to this Section  9.4(e) , the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.13 and 2.14 to the same extent (and subject to the same limitations and obligations) as if it were a Lender and had acquired its interest by assignment pursuant to Section  9.4(b) .

(f) Certain Pledges . Any Lender may at any time pledge or assign a security interest in all or any portion of its rights and benefits under this Agreement and the other Financing Documents to secure obligations of such Lender, including any such pledge or assignment to a Federal Reserve Bank, and this Section  9.4 shall not apply to any such pledge or assignment of a security interest; provided , however , that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto.

 

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(g) No Assignments to the Borrower or Affiliates Etc . Anything in this Section  9.4 to the contrary notwithstanding, no Lender may assign or participate any interest in any Loan held by it hereunder to the Borrower or any of its Affiliates or Subsidiaries without the prior consent of each Lender.

Section 9.5 Survival . All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of the Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on the Loans or any fee or any other amount payable under this Agreement is outstanding and unpaid. The provisions of Sections 2.13 , 2.14 , 2.15 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans or the termination of this Agreement or any provision hereof.

Section 9.6 Integration . This Agreement and the other Financing Documents constitute the entire contract between and among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Upon the occurrence of the Closing Date, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

Section 9.7 Severability . Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof, and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

Section 9.8 Right of Set-off . If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by Applicable Law to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement or any other Financing Document held by such Lender or Affiliate, irrespective of whether or not such Lender or Affiliate shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender and its Affiliates under this Section  9.8 are in addition to other rights and remedies (including other rights of set-off) which such Lender or Affiliate may have.

 

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Section 9.9 Governing Law; Jurisdiction; Service of Process; Etc .

(a) Governing Law . This Agreement shall be construed in accordance with and governed by the law of the State of New York.

(b) Submission to Jurisdiction . Each of the parties hereto agrees that any suit, action or proceeding with respect to this Agreement, the other Financing Documents to which they are a party or any judgment against the Borrower entered by any court in respect thereof may be brought in the United States District Court for the Southern District of New York, in the Supreme Court of the State of New York sitting in New York County (including its Appellate Division), or in any other appellate court in the State of New York, and each of the parties hereto hereby irrevocably submits to the non-exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment.

(c) Process Agent . The Borrower hereby agrees that service of all writs, process and summonses in any such suit, action or proceeding brought in the State of New York may be made upon CT Corporation System, presently located at 111 Eighth Avenue, New York, New York 10011, United States (the “ Process Agent ”), and the Borrower hereby confirms and agrees that the Process Agent has been duly and irrevocably appointed as its agent and true and lawful attorney-in-fact in its name, place and stead to accept such service of any and all such writs, process and summonses, and agrees that the failure of the Process Agent to give any notice of any such service of process to the Borrower shall not impair or affect the validity of such service or of any judgment based thereon. If the Process Agent shall cease to serve as agent for the Borrower to receive service of process hereunder, the Borrower shall promptly appoint a successor agent reasonably satisfactory to the Administrative Agent. The Borrower hereby further irrevocably consents to the service of process in any suit, action or proceeding in such courts by the mailing thereof by the Administrative Agent or any Lender by registered or certified mail, postage prepaid, at its address set forth in Section  9.1 .

(d) Other Service . Nothing herein shall in any way be deemed to limit the ability of the Administrative Agent or any Lender to serve any such writs, process or summonses in any other manner permitted by Applicable Law or to obtain jurisdiction over the Borrower in such other jurisdictions, and in such manner, as may be permitted by Applicable Law.

(e) Waiver of Venue . The Borrower hereby irrevocably waives any objection that it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Financing Document to which the Borrower is a party brought in the Supreme Court of the State of New York, County of New York or in the United States District Court for the Southern District of New York, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

 

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Section 9.10 WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)  CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B)  ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.10 .

Section 9.11 No Immunity . To the extent that the Borrower may be or become entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Agreement or any other Financing Document to which it is a party, to claim for itself or its properties, assets or revenues any immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, execution of a judgment or from any other legal process or remedy relating to its obligations under this Agreement or any other Financing Document to which it is a party, and to the extent that in any such jurisdiction there may be attributed such an immunity (whether or not claimed), the Borrower hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the fullest extent permitted by the laws of such jurisdiction.

Section 9.12 Special Waiver . To the extent that the Borrower may be entitled to the benefit of any provision of law requiring the Administrative Agent or any Lender in any suit, action or proceeding brought in a court of Peru or other jurisdiction arising out of or in connection with any provision of this Agreement, any other Financing Documents to which the Borrower is a party and the Transactions, to post security for litigation costs or otherwise post a performance bond or guaranty, or to take any similar action, the Borrower hereby irrevocably waives such benefit, in each case, to the fullest extent now or hereafter permitted under the laws of Peru or, as the case may be, such other jurisdiction.

Section 9.13 Judgment Currency . This is an international loan transaction in which payment in New York is of the essence, and the obligations of the Borrower under this Agreement to make payment to (or for account of) the Administrative Agent or a Lender in Dollars shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any other currency or in another place except to the extent that such tender or recovery results in the effective receipt by such Person in New York of the full amount of Dollars payable to such Person under this Agreement. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in Dollars into another currency (in this Section  9.13 called the “ Judgment Currency ”), the rate of exchange that shall be applied shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase such Dollars at the principal office of the Administrative Agent in New York with the Judgment Currency on the Business Day next preceding the day on which such judgment is rendered. The obligation of the Borrower in respect of any such sum due to the

 

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Administrative Agent or any Lender hereunder or under any other Financing Document (in this Section  9.13 called an “ Entitled Person ”) shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any sum adjudged to be due hereunder in the Judgment Currency, such Entitled Person may in accordance with normal banking procedures purchase and transfer Dollars to New York with the amount of the Judgment Currency so adjudged to be due, and the Borrower hereby, as a separate obligation and notwithstanding any such judgment, agrees to indemnify such Entitled Person against, and to pay such Entitled Person on demand, in Dollars, the amount (if any) by which the sum originally due to such Entitled Person in Dollars hereunder exceeds the amount of the Dollars so purchased and transferred.

Section 9.14 Use of English Language . This Agreement has been negotiated and executed in the English language. All certificates, reports, notices and other documents and communications given or delivered pursuant to this Agreement (including any modifications or supplements hereto) shall be in the English language, or accompanied by a certified English translation thereof. Except in the case of (i) laws or official communications of Peru or (ii) documents filed with any Governmental Authority in Peru, in the case of any document originally issued in a language other than English, the English language version of any such document shall for purposes of this Agreement, and absent manifest error, control the meaning of the matters set out therein.

Section 9.15 Headings . Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

Section 9.16 Treatment of Certain Information; Confidentiality . Each of the Administrative Agent and the Lenders agree to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); (b) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners); (c) to the extent required by Applicable Laws or regulations or by any subpoena or similar legal process; (d) to any other party hereto; (e) in connection with the exercise of any remedies hereunder or under any other Financing Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder; (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement, or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder; (g) on a confidential basis to (i) any rating agency in connection with rating the Borrower or its Subsidiaries or the Loans or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to the Loans; (h) with the consent of the Borrower; or (i) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section, or (y) becomes available to the Administrative Agent, or any Lender, or

 

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any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower. In addition, the Administrative Agent and the Lenders may disclose the existence of this Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry and service providers to the Agents and the Lenders in connection with the administration of this Agreement, the other Financing Documents, and the Commitments. For purposes of this Section, “ Information ” means all information received from the Borrower or any of its Subsidiaries relating to the Borrower or any of its Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent, or any Lender on a nonconfidential basis prior to disclosure by the Borrower or any of its Subsidiaries; provided , that in the case of information received from the Borrower or any of its Subsidiaries after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

Section 9.17 Counterparts . This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement by e-mail in portable document format (.pdf) or facsimile (with acknowledgment of receipt) will be effective as delivery of a manually executed counterpart of this Agreement.

Section 9.18 Electronic Execution of Assignments . The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption Agreement shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any Applicable Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

Section 9.19 USA PATRIOT Act . Each Lender (whether a party hereto on the date hereof or hereafter) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that, pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ Patriot Act ”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Patriot Act and to provide notice of these requirements, and this notice shall satisfy such notice requirements of the Patriot Act.

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92


[Signature Page]

Credit Agreement

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written.

 

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

/s/ Claudia Drago Morante

  Name: Claudia Drago Morante
  Title: Legal and Corporate Affairs Officer

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

/s/ Mónica Miloslavich Hart

  Name: Mónica Miloslavich Hart
  Title: Chief Financial Officer


[Signature Page]

Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH

as Administrative Agent

By:  

/s/ Andreas Schenk Caviezel

  Name: Andreas Schenk Caviezel
  Title: Managing Director
By:  

/s/ Alon Lederman

  Name: Alon Lederman
  Title: Managing Director


[Signature Page]

Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH

as Lender

By:  

/s/ Andreas Schenk Caviezel

  Name: Andreas Schenk Caviezel
  Title: Managing Director
By:  

/s/ Alon Lederman

  Name: Alon Lederman
  Title: Managing Director

Exhibit 10.01.1

FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of December 22, 2015 (this “ Amendment ”), among GRAÑA Y MONTERO S.A.A., as borrower (the “ Borrower ”) under the Credit Agreement, dated as of December 10, 2015 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, the Lenders and the Administrative Agent (each as defined below); the LENDERS party to the Credit Agreement (collectively, the “ Lenders ”) and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent under the Credit Agreement (in such capacity, the “ Administrative Agent ”).

WHEREAS, the Borrower has requested the Lenders to amend certain provisions of the Credit Agreement and the Lenders are agreeable to such request upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the parties hereto agree as follows:

ARTICLE I

RATIFICATION; DEFINITIONS AND RULES OF CONSTRUCTION

Section 1.1 Relation to Credit Agreement; Ratification . This Amendment is entered into in accordance with Section  9.2(b) of the Credit Agreement and constitutes an integral part of the Credit Agreement. Except as amended by this Amendment, the provisions of the Credit Agreement are in all respects ratified and confirmed and shall remain in full force and effect.

Section 1.2 Definitions . Unless otherwise defined herein, terms defined in the Credit Agreement (as amended by this Amendment) are used herein as therein defined, and the rules of interpretation set forth in Section 1.2 of the Credit Agreement shall apply mutatis mutandis to this Amendment.

ARTICLE II

AMENDMENTS AND WAIVER TO CREDIT AGREEMENT

Section 2.1 Amendments to Credit Agreement . Effective as of the Amendment Effective Date (as defined below),

(a) Section 4.1 of the Credit Agreement is hereby amended by replacing the reference to “December 22, 2015” therein with “January 8, 2016;”

(b) Section 4.1(f)(i) of the Credit Agreement is hereby amended by replacing the reference to “60 days” therein with “75 days;”

(c) Section 4.1(f)(ii) of the Credit Agreement is hereby amended by replacing the reference to “30 days” therein with “45 days;” and

(d) Section 4.2 of the Credit Agreement is hereby amended by adding the following new clause (q) at the end thereof:


“(q) Date of Borrowings on the Closing Date . With respect to the first borrowing of the Loans hereunder, the Borrowing Date in respect of such borrowing shall fall on or after January 4, 2016.”

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and the Lenders that:

Section 3.1 Authorization. Enforceability . The execution, delivery and performance by the Borrower of this Amendment is within such Person’s corporate powers and has been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Amendment has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

Section 3.2 Governmental Approvals, No Conflict .

(a) All governmental authorizations, if any, and actions of any kind necessary for the due execution, delivery and performance by the Borrower of this Amendment, or required for the validity or enforceability against the Borrower of this Amendment, have been obtained or performed and are valid and subsisting in full force and effect, and the performance thereof as well as the continuing obligations of the Borrower in connection therewith do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority.

(b) This Amendment, the performance thereof and the continuing obligations of the Borrower under or in connection with this Amendment do not and will not violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Borrower or any order of any Governmental Authority.

ARTICLE IV

CONDITIONS TO EFFECTIVENESS

Section 4.1 Conditions to Effectiveness . This Amendment shall become effective on the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of each of the following conditions on or prior to such date in a manner satisfactory to the Administrative Agent and the Lenders:

(a) Execution of Amendment . The Administrative Agent shall have received a true, correct and complete copy of this Amendment, duly executed and delivered by a duly authorized officer of each party hereto.

 

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(b) No Material Adverse Effect . No event, development or circumstance shall have occurred that has had or could reasonably be expected to have a Material Adverse Effect.

(c) Taxes . All applicable taxes and stamp duties due and payable, if any, arising in connection with the execution, delivery and performance of this Amendment, and the other Financing Documents shall have been paid in full.

ARTICLE V

MISCELLANEOUS

Section 5.1 Notices . All notices, requests and other communications to any party hereto shall be given or served in the manner contemplated in Section 9.1 of the Credit Agreement.

Section 5.2 No Waiver; Status of Financing Documents . This Amendment shall not constitute an amendment, supplement or waiver of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as an amendment, supplement, waiver or consent to any action on the part of any party hereto that would require an amendment, supplement, waiver or consent of the Lenders except as expressly stated herein. Except as expressly amended, supplemented or waived hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. No failure or delay on the part of the Lenders in the exercise of any power, right or privilege hereunder or under any other Financing Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Amendment and the other Financing Documents are cumulative to, and not exclusive of, any rights or remedies available at equity or law. Nothing in this Amendment shall constitute a novation of the Borrowers’ obligations under the Credit Agreement or any other Financing Document.

Section 5.3 Amendment . This Amendment may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

Section 5.4 Amendment Binding . This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and permitted assigns of the parties hereto.

Section 5.5 Headings . Section headings used herein are for convenience of reference only, are not part of this Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this Amendment.

Section 5.6 Governing Law . This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflicts of laws principles.

 

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Section 5.7 Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by e-mail in portable document format (.pdf) or facsimile (with acknowledgment of receipt) will be effective as delivery of a manually executed counterpart of this Amendment.

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4


Signature Page

First Amendment to Credit Agreement

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the day and year first above written.

 

Yours truly,

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

/s/ Luis Díaz Olivero

  Name: Luis Díaz Olivero
  Title: Chief Operating Officer
By:  

/s/ Mónica Miloslavich Hart

  Name: Mónica Miloslavich Hart
  Title: Chief Financial Officer


Signature Page

First Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Administrative Agent

By:  

/s/ Martin Cameo

  Name: Martin Cameo
  Title: Managing Director
By:  

/s/ Hieu Pham

  Name: Hieu Pham
  Title: Director


Signature Page

First Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Lender

By:  

/s/ Martin Cameo

  Name: Martin Cameo
  Title: Managing Director
By:  

/s/ Hieu Pham

  Name: Hieu Pham
  Title: Director

Exhibit 10.01.2

SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of February 1, 2016 (this “ Amendment ”), among GRAÑA Y MONTERO S.A.A., as borrower (the “ Borrower ”) under the Credit Agreement, dated as of December 10, 2015 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, the Lenders and the Administrative Agent (each as defined below); the LENDERS party to the Credit Agreement (collectively, the “ Lenders ”) and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent under the Credit Agreement (in such capacity, the “ Administrative Agent ”).

WHEREAS, the Borrower has requested the Lenders to amend certain provisions of the Credit Agreement and the Lenders are agreeable to such request upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the parties hereto agree as follows:

ARTICLE I

RATIFICATION; DEFINITIONS AND RULES OF CONSTRUCTION

Section 1.1 Relation to Credit Agreement; Ratification . This Amendment is entered into in accordance with Section  9.2(b) of the Credit Agreement and constitutes an integral part of the Credit Agreement. Except as amended by this Amendment, the provisions of the Credit Agreement are in all respects ratified and confirmed and shall remain in full force and effect.

Section 1.2 Definitions . Unless otherwise defined herein, terms defined in the Credit Agreement (as amended by this Amendment) are used herein as therein defined, and the rules of interpretation set forth in Section 1.2 of the Credit Agreement shall apply mutatis mutandis to this Amendment.

ARTICLE II

AMENDMENTS AND WAIVER TO CREDIT AGREEMENT

Section 2.1 Amendments to Credit Agreement . Effective as of the Amendment Effective Date (as defined below),

(a) Section 4.1 of the Credit Agreement is hereby amended by replacing the reference to “January 8, 2016” therein with “February 5, 2016;”

(b) Section 4.1(f)(i) of the Credit Agreement is hereby amended by replacing the reference to “75 days” therein with “120 days;”

(c) Section 4.1(f)(ii) of the Credit Agreement is hereby amended by replacing the reference to “45 days” therein with “90 days;” and

(d) Schedule 1.1-I of the Credit Agreement is hereby amended by replacing it in its entirety with Annex I hereto.


ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and the Lenders that:

Section 3.1 Authorization, Enforceability . The execution, delivery and performance by the Borrower of this Amendment is within such Person’s corporate powers and has been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Amendment has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

Section 3.2 Governmental Approvals, No Conflict .

(a) All governmental authorizations, if any, and actions of any kind necessary for the due execution, delivery and performance by the Borrower of this Amendment, or required for the validity or enforceability against the Borrower of this Amendment, have been obtained or performed and are valid and subsisting in full force and effect, and the performance thereof as well as the continuing obligations of the Borrower in connection therewith do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority.

(b) This Amendment, the performance thereof and the continuing obligations of the Borrower under or in connection with this Amendment do not and will not violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Borrower or any order of any Governmental Authority.

ARTICLE IV

CONDITIONS TO EFFECTIVENESS

Section 4.1 Conditions to Effectiveness . This Amendment shall become effective as of January 8, 2016 (the “ Amendment Effective Date ”), subject to the satisfaction of each of the following conditions on or prior to the date hereof in a manner satisfactory to the Administrative Agent and the Lenders:

(a) Execution of Amendment . The Administrative Agent shall have received a true, correct and complete copy of this Amendment, duly executed and delivered by a duly authorized officer of each party hereto.

(b) No Material Adverse Effect . No event, development or circumstance shall have occurred that has had or could reasonably be expected to have a Material Adverse Effect.

 

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(c) No Default . No event, act or condition shall have occurred and be continuing which constitutes a Default or Event of Default.

(d) Taxes . All applicable taxes and stamp duties due and payable, if any, arising in connection with the execution, delivery and performance of this Amendment, and the other Financing Documents shall have been paid in full.

ARTICLE V

MISCELLANEOUS

Section 5.1 Notices . All notices, requests and other communications to any party hereto shall be given or served in the manner contemplated in Section 9.1 of the Credit Agreement.

Section 5.2 No Waiver; Status of Financing Documents . This Amendment shall not constitute an amendment, supplement or waiver of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as an amendment, supplement, waiver or consent to any action on the part of any party hereto that would require an amendment, supplement, waiver or consent of the Lenders except as expressly stated herein. Except as expressly amended, supplemented or waived hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. No failure or delay on the part of the Lenders in the exercise of any power, right or privilege hereunder or under any other Financing Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Amendment and the other Financing Documents are cumulative to, and not exclusive of, any rights or remedies available at equity or law. Nothing in this Amendment shall constitute a novation of the Borrowers’ obligations under the Credit Agreement or any other Financing Document.

Section 5.3 Amendment . This Amendment may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

Section 5.4 Amendment Binding . This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and permitted assigns of the parties hereto.

Section 5.5 Headings . Section headings used herein are for convenience of reference only, are not part of this Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this Amendment.

Section 5.6 Governing Law . This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflicts of laws principles.

Section 5.7 Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an

 

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original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by e-mail in portable document format (.pdf) or facsimile (with acknowledgment of receipt) will be effective as delivery of a manually executed counterpart of this Amendment.

[ Remainder of this page intentionally left blank ]

 

4


Signature Page

Second Amendment to Credit Agreement

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the day and year first above written.

 

Yours truly,

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

/s/ Claudia Drago

  Name: Claudia Drago
  Title: Legal and Business Affairs Officer
By:  

/s/ Mónica Miloslavich

  Name: Mónica Miloslavich
  Title: Chief Financial Officer


Signature Page

Second Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Administrative Agent

By:  

/s/ Michael Jakob

  Name: Michael Jakob
  Title: Director
By:  

/s/ Hieu Pham

  Name: Hieu Pham
  Title: Director


Signature Page

Second Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Lender

By:  

/s/ Michael Jakob

  Name: Michael Jakob
  Title: Director
By:  

/s/ Hieu Pham

  Name: Hieu Pham
  Title: Director


Signature Page

Second Amendment to Credit Agreement

 

CATERPILLAR FINANCIAL SERVICES

CORPORATION,

as Lender

By:  

/s/ Robert W. Gaddis, Jr.

  Name: Robert W. Gaddis, Jr.
  Title: Managing Director


Annex I

Schedule 1.1-I

Lenders and Commitments

 

Lenders

   Commitment  

Credit Suisse AG, Cayman Islands Branch

   U.S.$ 150,000,000.00  

Caterpillar Financial Services Corporation

   U.S.$ 50,000,000.00  

Exhibit 10.01.3

THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of February 12, 2016 (this “ Amendment ”), among GRAÑA Y MONTERO S.A.A., as borrower (the “ Borrower ”) under the Credit Agreement, dated as of December 10, 2015 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, the Lenders and the Administrative Agent (each as defined below); the LENDERS party to the Credit Agreement (collectively, the “ Lenders ”) and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent under the Credit Agreement (in such capacity, the “ Administrative Agent ”).

WHEREAS, the Borrower has requested the Lenders to amend certain provisions of the Credit Agreement and the Lenders are agreeable to such request upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the parties hereto agree as follows:

ARTICLE I

RATIFICATION; DEFINITIONS AND RULES OF CONSTRUCTION

SECTION 1.1.  Relation to Credit Agreement; Ratification . This Amendment is entered into in accordance with Section  9.2(b) of the Credit Agreement and constitutes an integral part of the Credit Agreement. Except as amended by this Amendment, the provisions of the Credit Agreement are in all respects ratified and confirmed and shall remain in full force and effect.

SECTION 1.2.  Definitions . Unless otherwise defined herein, terms defined in the Credit Agreement (as amended by this Amendment) are used herein as therein defined, and the rules of interpretation set forth in Section 1.2 of the Credit Agreement shall apply mutatis mutandis to this Amendment.

ARTICLE II

AMENDMENTS TO CREDIT AGREEMENT

SECTION 2.1.  Amendment to Credit Agreement . Effective as of the Amendment Effective Date (as defined below), Section 7.1(q) of the Credit Agreement is hereby amended by replacing the reference to “February 15, 2016” therein with “February 29, 2016.”

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and the Lenders that:

SECTION 3.1.  Authorization. Enforceability . The execution, delivery and performance by the Borrower of this Amendment is within such Person’s corporate powers and has been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Amendment has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in


accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

SECTION 3.2.  Governmental Approvals, No Conflict .

(a) All governmental authorizations, if any, and actions of any kind necessary for the due execution, delivery and performance by the Borrower of this Amendment, or required for the validity or enforceability against the Borrower of this Amendment, have been obtained or performed and are valid and subsisting in full force and effect, and the performance thereof as well as the continuing obligations of the Borrower in connection therewith do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority.

(b) This Amendment, the performance thereof and the continuing obligations of the Borrower under or in connection with this Amendment do not and will not violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Borrower or any order of any Governmental Authority.

ARTICLE IV

CONDITIONS TO EFFECTIVENESS

SECTION 4.1.  Conditions to Effectiveness . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of each of the following conditions on or prior to the date hereof in a manner satisfactory to the Administrative Agent and the Lenders:

(a) Execution of Amendment . The Administrative Agent shall have received a true, correct and complete copy of this Amendment, duly executed and delivered by a duly authorized officer of each party hereto.

(b) No Material Adverse Effect . No event, development or circumstance shall have occurred that has had or could reasonably be expected to have a Material Adverse Effect.

(c) No Default . No event, act or condition shall have occurred and be continuing which constitutes a Default or Event of Default.

(d) Taxes . All applicable taxes and stamp duties due and payable, if any, arising in connection with the execution, delivery and performance of this Amendment, and the other Financing Documents shall have been paid in full.

 

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ARTICLE V

MISCELLANEOUS

SECTION 5.1.  Notices . All notices, requests and other communications to any party hereto shall be given or served in the manner contemplated in Section 9.1 of the Credit Agreement.

SECTION 5.2.  No Waiver; Status of Financing Documents . This Amendment shall not constitute an amendment, supplement or waiver of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as an amendment, supplement, waiver or consent to any action on the part of any party hereto that would require an amendment, supplement, waiver or consent of the Lenders except as expressly stated herein. Except as expressly amended, supplemented or waived hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. No failure or delay on the part of the Lenders in the exercise of any power, right or privilege hereunder or under any other Financing Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Amendment and the other Financing Documents are cumulative to, and not exclusive of, any rights or remedies available at equity or law. Nothing in this Amendment shall constitute a novation of the Borrowers’ obligations under the Credit Agreement or any other Financing Document.

SECTION 5.3.  Amendment . This Amendment may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

SECTION 5.4.  Amendment Binding . This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and permitted assigns of the parties hereto.

SECTION 5.5.  Headings . Section headings used herein are for convenience of reference only, are not part of this Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this Amendment.

SECTION 5.6.  Governing Law . This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflicts of laws principles.

SECTION 5.7.  Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by e-mail in portable document format (.pdf) or facsimile (with acknowledgment of receipt) will be effective as delivery of a manually executed counterpart of this Amendment.

[ Remainder of this page intentionally left blank ]

 

3


Signature Page

Third Amendment to Credit Agreement

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the day and year first above written.

 

Yours truly,

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

/s/ Mónica Miloslavich Hart

  Name: Mónica Miloslavich Hart
  Title: Chief Financial Officer
By:  

/s/ Claudia Drago Morante

  Name: Claudia Drago Morante
  Title: Legal and Business Affairs Officer


Signature Page

Third Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Administrative Agent

By:  

/s/ Michael Jakob

  Name: Michael Jakob
  Title: Director
By:  

/s/ Martin Cameo

  Name: Martin Cameo
  Title: Managing Director


Signature Page

Third Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Lender

By:  

/s/ Michael Jakob

  Name: Michael Jakob
  Title: Michael Jakob
 

/s/ Martin Cameo

  Martin Cameo
  Managing Director


Signature Page

Third Amendment to Credit Agreement

 

CATERPILLAR FINANCIAL SERVICES

CORPORATION,

as Lender

By:  

/s/ Robert W. Gaddis, Jr.

  Name: Robert W. Gaddis, Jr.
  Title: Managing Director

Exhibit 10.01.4

FOURTH AMENDMENT TO CREDIT AGREEMENT, dated as of February 29, 2016 (this “ Amendment ”), among GRAÑA Y MONTERO S.A.A., as borrower (the “ Borrower ”) under the Credit Agreement, dated as of December 10, 2015 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, the Lenders and the Administrative Agent (each as defined below); the LENDERS party to the Credit Agreement (collectively, the “ Lenders ”) and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent under the Credit Agreement (in such capacity, the “ Administrative Agent ”).

WHEREAS, the Borrower has requested the Lenders to amend certain provisions of the Credit Agreement and the Lenders are agreeable to such request upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the parties hereto agree as follows:

ARTICLE I

RATIFICATION; DEFINITIONS AND RULES OF CONSTRUCTION

Section 1.1. Relation to Credit Agreement; Ratification . This Amendment is entered into in accordance with Section  9.2(b) of the Credit Agreement and constitutes an integral part of the Credit Agreement. Except as amended by this Amendment, the provisions of the Credit Agreement are in all respects ratified and confirmed and shall remain in full force and effect.

Section 1.2. Definitions . Unless otherwise defined herein, terms defined in the Credit Agreement (as amended by this Amendment) are used herein as therein defined, and the rules of interpretation set forth in Section 1.2 of the Credit Agreement shall apply mutatis mutandis to this Amendment.

ARTICLE II

AMENDMENTS TO CREDIT AGREEMENT

Section 2.1. Amendment to Credit Agreement . Effective as of the Amendment Effective Date (as defined below), Section 7.1(q) of the Credit Agreement is hereby amended by replacing the reference to “February 29, 2016” therein with “March 11, 2016.”

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and the Lenders that:

Section 3.1. Authorization. Enforceability . The execution, delivery and performance by the Borrower of this Amendment is within such Person’s corporate powers and has been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Amendment has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in


accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

Section 3.2. Governmental Approvals, No Conflict .

(a) All governmental authorizations, if any, and actions of any kind necessary for the due execution, delivery and performance by the Borrower of this Amendment, or required for the validity or enforceability against the Borrower of this Amendment, have been obtained or performed and are valid and subsisting in full force and effect, and the performance thereof as well as the continuing obligations of the Borrower in connection therewith do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority.

(b) This Amendment, the performance thereof and the continuing obligations of the Borrower under or in connection with this Amendment do not and will not violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Borrower or any order of any Governmental Authority.

ARTICLE IV

CONDITIONS TO EFFECTIVENESS

Section 4.1. Conditions to Effectiveness . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of each of the following conditions on or prior to the date hereof in a manner satisfactory to the Administrative Agent and the Lenders:

(a) Execution of Amendment . The Administrative Agent shall have received a true, correct and complete copy of this Amendment, duly executed and delivered by a duly authorized officer of each party hereto.

(b) No Material Adverse Effect . No event, development or circumstance shall have occurred that has had or could reasonably be expected to have a Material Adverse Effect.

(c) No Default . No event, act or condition shall have occurred and be continuing which constitutes a Default or Event of Default.

(d) Taxes . All applicable taxes and stamp duties due and payable, if any, arising in connection with the execution, delivery and performance of this Amendment, and the other Financing Documents shall have been paid in full.

 

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ARTICLE V

MISCELLANEOUS

Section 5.1. Notices . All notices, requests and other communications to any party hereto shall be given or served in the manner contemplated in Section 9.1 of the Credit Agreement.

Section 5.2. No Waiver; Status of Financing Documents . This Amendment shall not constitute an amendment, supplement or waiver of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as an amendment, supplement, waiver or consent to any action on the part of any party hereto that would require an amendment, supplement, waiver or consent of the Lenders except as expressly stated herein. Except as expressly amended, supplemented or waived hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. No failure or delay on the part of the Lenders in the exercise of any power, right or privilege hereunder or under any other Financing Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Amendment and the other Financing Documents are cumulative to, and not exclusive of, any rights or remedies available at equity or law. Nothing in this Amendment shall constitute a novation of the Borrowers’ obligations under the Credit Agreement or any other Financing Document.

Section 5.3. Amendment . This Amendment may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

Section 5.4. Amendment Binding . This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and permitted assigns of the parties hereto.

Section 5.5. Headings . Section headings used herein are for convenience of reference only, are not part of this Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this Amendment.

Section 5.6. Governing Law . This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflicts of laws principles.

Section 5.7. Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by e-mail in portable document format (.pdf) or facsimile (with acknowledgment of receipt) will be effective as delivery of a manually executed counterpart of this Amendment.

[ Remainder of this page intentionally left blank ]

 

3


Signature Page

Fourth Amendment to Credit Agreement

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the day and year first above written.

 

Yours truly,

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

/s/ Mónica Miloslavich Hart

  Name: Mónica Miloslavich Hart
  Title: Chief Financial Officer
By:  

/s/ Claudia Drago Morante

  Name: Claudia Drago Morante
  Title: Legal and Business Affairs Officer


Signature Page

Fourth Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Administrative Agent

By:  

/s/ Michael Jakob

  Name: Michael Jakob
  Title: Director
By:  

/s/ Martin Cameo

  Name: Martin Cameo
  Title: Managing Director


Signature Page

Fourth Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Lender

By:  

/s/ Michael Jakob

  Name: Michael Jakob
  Title: Director
By:  

/s/ Martin Cameo

  Name: Martin Cameo
  Title: Managing Director


Signature Page

Fourth Amendment to Credit Agreement

 

CATERPILLAR FINANCIAL SERVICES

CORPORATION,

as Lender

By:  

/s/ Charles C. Shupe III

  Name: Charles C. Shupe III
  Title: Global Portfolio Manager

Exhibit 10.01.5

FIFTH AMENDMENT TO CREDIT AGREEMENT, dated as of April 15, 2016 (this “ Amendment ”), among GRAÑA Y MONTERO S.A.A., as borrower (the “ Borrower ”) under the Credit Agreement, dated as of December 10, 2015 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, the Required Lenders party hereto and the Administrative Agent (each as defined below); the LENDERS party to the Credit Agreement (collectively, the “ Lenders ”) and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent under the Credit Agreement (in such capacity, the “ Administrative Agent ”).

WHEREAS, the Borrower has requested the Lenders to amend certain provisions of the Credit Agreement and the Required Lenders party hereto are agreeable to such request upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the parties hereto agree as follows:

ARTICLE I

RATIFICATION; DEFINITIONS AND RULES OF CONSTRUCTION

Section 1.1 Relation to Credit Agreement; Ratification . This Amendment is entered into in accordance with Section  9.2(b) of the Credit Agreement and constitutes an integral part of the Credit Agreement. Except as amended by this Amendment, the provisions of the Credit Agreement are in all respects ratified and confirmed and shall remain in full force and effect.

Section 1.2 Definitions . Unless otherwise defined herein, terms defined in the Credit Agreement (as amended by this Amendment) are used herein as therein defined, and the rules of interpretation set forth in Section 1.2 of the Credit Agreement shall apply mutatis mutandis to this Amendment.

ARTICLE II

AMENDMENTS TO CREDIT AGREEMENT

Section 2.1 Amendment to Credit Agreement . Effective as of the Amendment Effective Date (as defined below):

(a) Section 1.1 of the Credit Agreement is hereby amended by adding the following definitions of the terms “Bridge Loan Guarantee,” “Bridge Loan Standstill and Amendment Agreement,” “Standstill Period” and “Suspended Default” therein in the corresponding alphabetical order:

““ Bridge Loan Guarantee ” means the Indebtedness and other obligations of the Borrower in respect of the Guarantee provided by it in connection with the Bridge Loan.

Bridge Loan Standstill and Amendment Agreement ” means the Standstill and Amendment Agreement, dated as of April 8, 2016, among the Concessionaire, the guarantors party thereto, the Borrower, Natixis New York Branch, as administrative agent, and the lenders under the Bridge Loan party thereto, as in effect on the date hereof.


Standstill Period ” shall have the meaning assigned to such term under the Bridge Loan Standstill and Amendment Agreement.

Suspended Default ” shall have the meaning assigned to such term under the Bridge Loan Standstill and Amendment Agreement.”

(b) Section 1.1 of the Credit Agreement is hereby amended by replacing the definition of the terms “Applicable Margin” and “Permitted Encumbrances” it in their entirety with the following:

““ Applicable Margin ” means, for each Loan, a rate per annum equal to 4.90%.”

Permitted Encumbrances ” means (i) Liens imposed by law for taxes that are not yet due or are being Contested; (ii) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlords’, vendors’ salary and social security and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 90 days or are being Contested; (iii) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, disability or unemployment insurance, pensions and other social security laws or regulations; (iv) cash deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance and return-of-money bonds, tenders and other obligations of a like nature, in each case in the ordinary course of business; (v) judgment liens in respect of judgments that do not constitute an Event of Default under Section  7.1(j) ; (vi) minor irregularities in title to real property that do not secure any monetary obligations and which do not materially interfere with the occupation, use or enjoyment by the Borrower or any of its Subsidiaries, of any of their respective properties or assets; (vii) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any of its Subsidiaries; (viii) purchase money Liens created or arising over any property or asset which is acquired, constructed or created by the Borrower or any of its Subsidiaries but only if (a) such Lien secures only principal amounts (not exceeding the cost of such acquisition, construction or creation) raised for the purposes of such acquisition, construction or creation, together with any costs, expenses, interest and fees incurred in relation thereto, (b) such Lien is created or arises on or before 90 days after the completion of such acquisition, construction or creation and (c) such Lien is confined solely to the property so acquired, constructed or created; (ix) Liens in form and substance reasonably acceptable to the Administrative Agent, securing Indebtedness under the Letters of Credit; (x) Liens created pursuant to the Security Documents; (xi) Liens in existence on the date hereof and described in Schedule 1.1-II ; (xii) Liens created pursuant to

 

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Non-Recourse Subsidiary Pledge Agreements; (xiii) customary rights of setoff as to bank accounts maintained with financial institutions; and (xiv) Liens over (a) Capital Stock of (x) GMD S.A., and/or (y) Negocios de Gas S.A. or the Concessionaire held by Negocios de Gas S.A., and (b) cash deposits not exceeding U.S.$30,000,000 (or the Dollar Equivalent thereof), in each case, securing Indebtedness of the Borrower under the Bridge Loan Guarantee or (in the case of clause (a) above only) the Converted Term Loan Financing Documents, provided , however , that except as expressly contemplated by clauses (viii) through (xii) and clause (xiv) above, the term “ Permitted Encumbrances ” shall not include any Lien securing Indebtedness.”

(c) Section 3.26(a) of the Credit Agreement is hereby amended by adding the following at the end of the last sentence thereof:

“, other than, at any time during the Standstill Period, the Suspended Default.”

(d) Section 4.2 of the Credit Agreement is hereby amended by,

(i) adding the following to the last sentence of clause (e)(ii) thereof:

“; other than the Suspended Default; provided that (i) the continuation conditions set forth in Annex A of the Bridge Loan Standstill and Amendment Agreement shall have been satisfied prior to such Borrowing Date, pursuant to the terms and conditions of the Bridge Loan Standstill and Amendment Agreement, and the Administrative Agent shall have received documentation in form and substance satisfactory to the Administrative Agent to such effect; and (ii) the Standstill Period shall not have expired.”

(ii) replacing clauses (h) and (i) thereof in their entirety with the following:

“(h) Closing of Gasoducto Sur Peruano Financing . With respect to any borrowing of the Loans on any Borrowing Date exceeding (together with all prior borrowing of the Loans hereunder, and regardless of any prepayment of the Loans on or prior to such Borrowing Date) U.S.$150,000,000, (a) the Closing Date (as defined in the Term Loan Term Sheet) of the Gasoducto Sur Peruano Pipeline Financing shall have occurred prior to such Borrowing Date, and (b) arrangements in substance and form reasonably satisfactory to the Required Lenders shall have been made by the parties to the Gasoducto Sur Peruano Pipeline Financing, for the funding of the loans thereunder in an amount sufficient to refinance in full the Bridge Loan to occur prior to the expiration of the Standstill Period.

(i) [Reserved]

 

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(e) Article V of the Credit Agreement is hereby amended by adding the following new Sections 5.16 and 5.17 therein:

“Section 5.16 Most Favored Terms . If at any time any Converted Term Loan Financing Document shall include any term or condition (including, without limitation, pricing, covenants, events of default and prepayment events, but excluding tenor), not set forth in the Financing Documents or that would be more beneficial to the Lenders than any analogous provision contained in this Agreement (any such term or condition, an “ Additional Provision ”), then the Borrower shall substantially concurrently with (and on the same date on which such Additional Provision becomes effective under the Converted Term Loan) provide written notice thereof to the Administrative Agent setting forth a description in reasonable detail of such Additional Provision. Thereupon, unless waived in writing by the Required Lenders within five days of receipt of such notice by the Required Lenders, such Additional Provision (and any related definitions) shall be deemed automatically incorporated by reference into this Agreement, mutatis mutandis (including any grace period, if applicable, with respect thereto), as if set forth fully herein, without any further action required on the part of any Person, effective as of the date when such Additional Provision became effective under the Converted Term Loan. Thereafter upon the request of the Administrative Agent, the Borrower shall enter into any additional agreement or amendment to this Agreement reasonably satisfactory to the Administrative Agent evidencing any of the foregoing.

Section 5.17 Amendments under the Bridge Loan Guarantee . The Borrower shall use commercially reasonable efforts to amend, as promptly as reasonably practicable, the Bridge Loan Guarantee to provide that, in the event that any obligation under the Bridge Loan Guarantee is not paid in full by the date the Borrower is required to pay such obligation pursuant to the terms thereof (the “reference date”), (a) all cash collateral posted pursuant to clause (xiv) of the definition of the term “Permitted Encumbrances” shall be applied towards the payment of the Borrower’s obligations under the Bridge Loan Guarantee and (b) all remaining outstanding Indebtedness of the Borrower under the Bridge Loan Guarantee shall, effective on the reference date, be automatically converted (without need of consent of any lender thereof or any other action by any party thereto) into a term loan facility of the Borrower maturing on the third anniversary of the reference date and having an average life to maturity greater than 18 months, which converted term loan shall not exceed an aggregate principal amount of U.S.$90,000,000 (the “ Converted Term Loan ”) (the definitive documentation evidencing such amendments, the “ Converted Term Loan Financing Documents ”).”

 

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(f) Section 6.6(a) of the Credit Agreement is hereby amended by adding the following new clause (ix) at the end thereof:

“(ix) Without duplication of (and in lieu of) Indebtedness of the Borrower under the Bridge Loan Guarantee, Indebtedness under the Converted Term Loan Financing Documents.”

(g) Section 6.12 of the Credit Agreement is hereby amended by adding the following new clause (d) at the end thereof:

“(d) The Borrower shall not, and shall not permit any of its Subsidiaries to, amend, supplement, or otherwise modify any Converted Term Loan Financing Document or any of the Borrower’s obligations under the Bridge Loan Guarantee (including, without limitation, the scope or guaranteed amount thereof), without the prior written consent of the Required Lenders, other than any such amendment or supplement that would not adversely affect the interests of the Lenders hereunder in any material respect.”

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and the Lenders that:

Section 3.1 Authorization. Enforceability . The execution, delivery and performance by the Borrower of this Amendment is within such Person’s corporate powers and has been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Amendment has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

Section 3.2 Governmental Approvals, No Conflict .

(a) All governmental authorizations, if any, and actions of any kind necessary for the due execution, delivery and performance by the Borrower of this Amendment, or required for the validity or enforceability against the Borrower of this Amendment, have been obtained or performed and are valid and subsisting in full force and effect, and the performance thereof as well as the continuing obligations of the Borrower in connection therewith do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority.

(b) This Amendment, the performance thereof and the continuing obligations of the Borrower under or in connection with this Amendment do not and will not violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Borrower or any order of any Governmental Authority.

 

5


Section 3.3 Bridge Loan Standstill and Amendment Agreement . The Borrower has made available to the Administrative Agent a true, correct and complete copy of the Bridge Loan Standstill and Amendment Agreement (as defined in the Credit Agreement after giving effect to the Amendment Effective Date) as in effect on the date hereof. The Bridge Loan Standstill and Amendment Agreement has been validly authorized, executed and delivered by each of the Borrower and each party thereto and constitutes the valid and binding obligation of each of the Borrower and each party thereto in accordance with the terms thereof. No default has occurred and is continuing under the Bridge Loan Standstill and Amendment Agreement.

ARTICLE IV

CONDITIONS TO EFFECTIVENESS

Section 4.1 Conditions to Effectiveness . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of each of the following conditions on or prior to the date hereof in a manner satisfactory to the Administrative Agent and the Lenders:

(a) Execution of Amendment . The Administrative Agent shall have received a true, correct and complete copy of this Amendment, duly executed and delivered by a duly authorized officer of each party hereto.

(b) No Material Adverse Effect . No event, development or circumstance shall have occurred that has had or could reasonably be expected to have a Material Adverse Effect.

(c) No Default . No event, act or condition shall have occurred and be continuing which constitutes a Default or Event of Default.

(d) Bridge Loan Standstill and Amendment Agreement . The Administrative Agent shall have received a true, correct and complete copy of the Bridge Loan Standstill and Amendment Agreement (as defined in the Credit Agreement after giving effect to the Amendment Effective Date).

(e) Representations and Warranties . Each of the representations and warranties of the Borrower set out in the Credit Agreement (as amended by this Amendment), in this Amendment and in each of the other Financing Documents to which it is a party shall be true and correct in all material respects as of the date hereof, as if made on and as of such date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case, they shall be true and correct in all material respects as of such earlier date.

(f) Taxes . All applicable taxes and stamp duties due and payable, if any, arising in connection with the execution, delivery and performance of this Amendment, and the other Financing Documents shall have been paid in full.

 

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ARTICLE V

MISCELLANEOUS

Section 5.1 Notices . All notices, requests and other communications to any party hereto shall be given or served in the manner contemplated in Section 9.1 of the Credit Agreement.

Section 5.2 No Waiver; Status of Financing Documents . This Amendment shall not constitute an amendment, supplement or waiver of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as an amendment, supplement, waiver or consent to any action on the part of any party hereto that would require an amendment, supplement, waiver or consent of the Lenders except as expressly stated herein. Except as expressly amended, supplemented or waived hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. No failure or delay on the part of the Lenders in the exercise of any power, right or privilege hereunder or under any other Financing Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Amendment and the other Financing Documents are cumulative to, and not exclusive of, any rights or remedies available at equity or law. Nothing in this Amendment shall constitute a novation of the Borrowers’ obligations under the Credit Agreement or any other Financing Document.

Section 5.3 Amendment . This Amendment may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

Section 5.4 Amendment Binding . This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and permitted assigns of the parties hereto.

Section 5.5 Headings . Section headings used herein are for convenience of reference only, are not part of this Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this Amendment.

Section 5.6 Governing Law . This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflicts of laws principles.

Section 5.7 Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by e-mail in portable document format (.pdf) or facsimile (with acknowledgment of receipt) will be effective as delivery of a manually executed counterpart of this Amendment.

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7


Signature Page

Fifth Amendment to Credit Agreement

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the day and year first above written.

 

Yours truly,

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:

 

/s/ Luis Diaz

 

Luis Diaz

 

Chief Operating Officer

By:

 

/s/ Monica Miloslavich Hart

 

Monica Miloslavich Hart

 

Chief Financial Officer


Signature Page

Fifth Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Administrative Agent

By:  

/s/ Michael Jakob

  Michael Jakob
  Director
By:  

/s/ Martin Cameo

  Martin Cameo
  Managing Director


Signature Page

Fifth Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Lender

By:  

/s/ Michael Jakob

  Michael Jakob
  Director
By:  

/s/ Martin Cameo

  Martin Cameo
  Managing Director


Signature Page

Fifth Amendment to Credit Agreement

 

BANCO DE OCCIDENTE (PANAMA), S.A., as Lender
By:  

/s/ Carlos Echeverri

  Carlos Echeverri
  General Manager

Exhibit 10.01.6

SIXTH WAIVER AND AMENDMENT TO CREDIT AGREEMENT, dated as of September 15 2016 (this “ Amendment ”), among GRAÑA Y MONTERO S.A.A., as borrower (the “ Borrower ”) under the Credit Agreement, dated as of December 10, 2015 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, the Lenders and the Administrative Agent (each as defined below); the LENDERS party to the Credit Agreement (collectively, the “ Lenders ”) and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent under the Credit Agreement (in such capacity, the “ Administrative Agent ”).

WHEREAS, the Borrower has informed the Administrative Agent and the Lenders that Almonte intends to transfer the real estate property identified as the “Inmueble” (such real estate property, the “ Reference Real Estate ”) under that certain Land Purchase Agreement ( Contrato de Compraventa de Inmueble Futuro y Constitución de Garantía Hipotecaria ) dated April 7, 2016, between Inmobiliaria Almonte S.A.C., as seller, and LatAm Logistic PER PropCo Lurín I S.R.L., as buyer (such agreement, as in effect on the date hereof, the “ Reference Purchase Agreement ”), for an aggregate purchase price of not less than U.S.$15,333,701 (such disposition, the “ Reference Disposition ”). A copy of the Reference Purchase Agreement is attached hereto as Schedule I ;

WHEREAS, the Borrower has also informed the Administrative Agent that Almonte intends to create, (i) a mortgage in respect of the Reference Real Estate pursuant to Clause 6.1 of the Reference Purchase Agreement (the “ Initial Mortgage ”), and (ii) a mortgage in respect of real estate owned by Almonte pursuant to Clause 6.7.1 of the Reference Purchase Agreement (the “ Definitive Mortgage ” and together with the Initial Mortgage, the “ Reference Liens ”);

WHEREAS, the Borrower intends to use the Almonte Sale Proceeds received by Almonte in connection with the Reference Disposition (the “ Reference Almonte Sale Proceeds ”) to prepay the Loans within 30 days following the consummation of the Reference Disposition; and

WHEREAS, the Borrower has requested the Lenders to amend and waive certain provisions of the Credit Agreement and the Lenders are agreeable to such request upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the parties hereto agree as follows:

ARTICLE I

RATIFICATION; DEFINITIONS AND RULES OF CONSTRUCTION

Section 1.1. Relation to Credit Agreement; Ratification . This Amendment is entered into in accordance with Section  9.2(b) of the Credit Agreement and constitutes an integral part of the Credit Agreement. Except as amended by this Amendment, the provisions of the Credit Agreement are in all respects ratified and confirmed and shall remain in full force and effect.


Section 1.2. Definitions . Unless otherwise defined herein, terms defined in the Credit Agreement (as amended by this Amendment) are used herein as therein defined, and the rules of interpretation set forth in Section 1.2 of the Credit Agreement shall apply mutatis mutandis to this Amendment.

ARTICLE II

WAIVER AND AMENDMENT TO CREDIT AGREEMENT

Section 2.1. Amendment to Credit Agreement . Effective as of the Amendment Effective Date (as defined below), Section 1.1 of the Credit Agreement is hereby amended by replacing the reference to “September 10, 2016” in the definition of the term “Termination Date” with “December 20, 2016.”

Section 2.2. Waiver . Effective as of the Amendment Effective Date, the Lenders hereby agree that the failure by the Borrower to comply with Section 6.1(b) of the Credit Agreement solely as a result of the creation of the Reference Liens shall not be deemed to constitute an Event of Default, if (and only to the extent that), (i) no Default or Event of Default shall have occurred and be continuing immediately prior to the creation of any of the Reference Liens, (ii) not more than one Reference Lien shall exist at any time, (iii) the Reference Liens are created, maintained and terminated pursuant to the terms and conditions set forth under the Reference Purchase Agreement, (iv) the Borrower shall not, and shall not permit Almonte to, amend, supplement, terminate or otherwise modify the Reference Purchase Agreement without the prior written consent of the Administrative Agent, other than any such amendment or supplement that would not adversely affect the interests of the Lenders under the Credit Agreement in any material respect, (v) the Borrower shall have made arrangements in substance and form satisfactory to the Administrative Agent, to prepay the Loans pursuant to Section 2.8(b)(iv) of the Credit Agreement within 30 days following the consummation of the Reference Disposition, (vii) the Definitive Mortgage only secures obligations of the Almonte under the Reference Purchase Agreement, in an aggregate amount not exceeding, at any time, U.S.$19,000,000, and (viii) the surface of the real estate property of Almonte mortgaged pursuant to the Definitive Mortgage does not exceed, at any time, 760,000 square meters.

Section 2.3. Consent . The Lenders hereby consent and agree that, in connection with the receipt by the Borrower or Almonte of the Reference Almonte Sale Proceeds, the Borrower prepay the Loans within 30 days following the consummation of the Reference Disposition pursuant to Section 2.8(b)(iv) of the Credit Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and the Lenders that:

Section 3.1. Authorization. Enforceability . The execution, delivery and performance by the Borrower of this Amendment is within such Person’s corporate powers and has been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Amendment has been duly executed and delivered by the Borrower and constitutes

 

2


a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

Section 3.2. Governmental Approvals, No Conflict .

(a) All governmental authorizations, if any, and actions of any kind necessary for the due execution, delivery and performance by the Borrower of this Amendment, or required for the validity or enforceability against the Borrower of this Amendment, have been obtained or performed and are valid and subsisting in full force and effect, and the performance thereof as well as the continuing obligations of the Borrower in connection therewith do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority.

(b) This Amendment, the performance thereof and the continuing obligations of the Borrower under or in connection with this Amendment do not and will not violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Borrower or any order of any Governmental Authority.

ARTICLE IV

CONDITIONS TO EFFECTIVENESS

Section 4.1. Conditions to Effectiveness . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of each of the following conditions on or prior to the date hereof in a manner satisfactory to the Administrative Agent and the Lenders:

(a) Execution of Amendment . The Administrative Agent shall have received a true, correct and complete copy of this Amendment, duly executed and delivered by a duly authorized officer of each party hereto.

(b) No Material Adverse Effect . No event, development or circumstance shall have occurred that has had or could reasonably be expected to have a Material Adverse Effect.

(c) No Default . No event, act or condition shall have occurred and be continuing which constitutes a Default or Event of Default.

(d) Taxes . All applicable taxes and stamp duties due and payable, if any, arising in connection with the execution, delivery and performance of this Amendment, and the other Financing Documents shall have been paid in full.

 

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ARTICLE V

MISCELLANEOUS

Section 5.1. Notices . All notices, requests and other communications to any party hereto shall be given or served in the manner contemplated in Section 9.1 of the Credit Agreement.

Section 5.2. No Waiver; Status of Financing Documents . This Amendment shall not constitute an amendment, supplement or waiver of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as an amendment, supplement, waiver or consent to any action on the part of any party hereto that would require an amendment, supplement, waiver or consent of the Lenders except as expressly stated herein. Except as expressly amended, supplemented or waived hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. No failure or delay on the part of the Lenders in the exercise of any power, right or privilege hereunder or under any other Financing Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Amendment and the other Financing Documents are cumulative to, and not exclusive of, any rights or remedies available at equity or law. Nothing in this Amendment shall constitute a novation of the Borrowers’ obligations under the Credit Agreement or any other Financing Document.

Section 5.3. Amendment . This Amendment may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

Section 5.4. Amendment Binding . This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and permitted assigns of the parties hereto.

Section 5.5. Headings . Section headings used herein are for convenience of reference only, are not part of this Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this Amendment.

Section 5.6. Governing Law . This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflicts of laws principles.

Section 5.7. Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by e-mail in portable document format (.pdf) or facsimile (with acknowledgment of receipt) will be effective as delivery of a manually executed counterpart of this Amendment.

[ Remainder of this page intentionally left blank ]

 

4


Signature Page

Sixth Waiver and Amendment to Credit Agreement

 

IN WITNESS WHEREOF, the parties have caused this Waiver and Amendment to be duly executed and delivered as of the day and year first above written.

 

Yours truly,

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

/s/ Mónica Miloslavich

  Name: Mónica Miloslavich
  Title: CFO
By:  

/s/ Luis Díaz Olivero

  Name: Luis Díaz Olivero
  Title: COO


Signature Page

Sixth Waiver and Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Administrative Agent

By:  

/s/ Alon Lederman

  Name: Alon Lederman
  Title: Managing Director
By:  

/s/ Manuel Rodríguez Moreno

  Name: Manuel Rodríguez Moreno
  Title: Managing Director


Signature Page

Sixth Waiver and Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS

BRANCH,

as Lender

By:  

/s/ Alon Lederman

  Name: Alon Lederman
  Title: Managing Director
 

/s/ Manuel Rodríguez Moreno

  Manuel Rodríguez Moreno
  Managing Director


Signature Page

Sixth Waiver and Amendment to Credit Agreement

 

CATERPILLAR FINANCIAL SERVICES CORPORATION,

as Lender

By:  

/s/ Robert W. Gaddis, Jr.

  Name: Robert W. Gaddis, Jr.
  Title: Managing Director


Signature Page

Sixth Waiver and Amendment to Credit Agreement

 

BANCO DE OCCIDENTE (PANAMA), S.A.,

as Lender

By:  

/s/ Carlos Echeverri

  Name: Carlos Echeverri
  Title: General Manager


Signature Page

Sixth Waiver and Amendment to Credit Agreement

 

BANCO DE CRÉDITO DEL PERÚ, as Lender
By:  

/s/ Alejandro Molinari A.

  Name: Alejandro Molinari A.
  Title: Gerente de Banca Corporativa
By:  

/s/ Aida Fiorella Sánchez R.

  Name: Aida Fiorella Sánchez R.
  Title: Gerente Adjunto Banca Corporativa


Signature Page

Sixth Waiver and Amendment to Credit Agreement

 

INTELIGO BANK LTD, as Lender
By:  

/s/ Víctor Vinatea

  Name: Víctor Vinatea
  Title: General Manager
By:  

/s/ Raul Iñigo

  Name: Raul Iñigo
  Title: Authorized Signer


SCHEDULE I

Reference Purchase Agreement

[This document, drafted in Spanish language, refers to a Land Purchase Agreement, dated April 7, 2016, between Inmobiliaria Almonte S.A.C., as seller, and LatAm Logistic PER PropCo Lurín I S.R.L., as buyer, for the transfer of a real estate property of a total area of 132,047.21m² located in the Lurín district in Lima, Peru, for an aggregate purchase price to be determined per the approval of the property’s urban habilitation project.

The purchase price will be paid in several quotas and the agreement includes certain due diligence and regulatory compliance as conditions precedent to the transfer of the real estate property. The agreement also contains a mortgage to be created by the seller in favor of the buyer with respect to the real estate property, which is a condition precedent to payment, and secures the payment of the penalty provided for in the agreement to be paid by the seller to the buyer in case the agreement is terminated for a cause imputable to the seller.]

Exhibit 10.01.7

SEVENTH AMENDMENT TO CREDIT AGREEMENT, dated as of December 16, 2016 (this “ Amendment ”), among GRAÑA Y MONTERO S.A.A., as borrower (the “ Borrower ”) under the Credit Agreement, dated as of December 10, 2015 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, the Lenders and the Administrative Agent (each as defined below); the LENDERS party to the Credit Agreement (collectively, the “ Lenders ”) and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent under the Credit Agreement (in such capacity, the “ Administrative Agent ”).

WHEREAS, the Borrower has requested the Lenders to amend certain provisions of the Credit Agreement and the Lenders are agreeable to such request upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the parties hereto agree as follows:

ARTICLE I.

RATIFICATION; DEFINITIONS AND RULES OF CONSTRUCTION

Section 1.1 Relation to Credit Agreement; Ratification . This Amendment is entered into in accordance with Section  9.2(b ) of the Credit Agreement and constitutes an integral part of the Credit Agreement. Except as amended by this Amendment, the provisions of the Credit Agreement are in all respects ratified and confirmed and shall remain in full force and effect.

Section 1.2 Definitions . Unless otherwise defined herein, terms defined in the Credit Agreement (as amended by this Amendment) are used herein as therein defined, and the rules of interpretation set forth in Section 1.2 of the Credit Agreement shall apply mutatis mutandis to this Amendment.

ARTICLE II.

AMENDMENT TO CREDIT AGREEMENT

Section 2.1 Amendment to Credit Agreement . Effective as of the Amendment Effective Date (as defined below), Section 1.1 of the Credit Agreement is hereby amended by replacing the reference to “December 20, 2016” in the definition of the term “Termination Date” with “January 30, 2017.”

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and the Lenders that:

Section 3.1 Authorization. Enforceability . The execution, delivery and performance by the Borrower of this Amendment is within such Person’s corporate powers and has been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Amendment has been duly executed and delivered by the Borrower


and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

Section 3.2 Governmental Approvals, No Conflict .

(a) All governmental authorizations, if any, and actions of any kind necessary for the due execution, delivery and performance by the Borrower of this Amendment, or required for the validity or enforceability against the Borrower of this Amendment, have been obtained or performed and are valid and subsisting in full force and effect, and the performance thereof as well as the continuing obligations of the Borrower in connection therewith do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority.

(b) This Amendment, the performance thereof and the continuing obligations of the Borrower under or in connection with this Amendment do not and will not violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Borrower or any order of any Governmental Authority.

ARTICLE IV.

CONDITIONS TO EFFECTIVENESS

Section 4.1 Conditions to Effectiveness . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of each of the following conditions on or prior to the date hereof in a manner satisfactory to the Administrative Agent and the Lenders:

(a) Execution of Amendment . The Administrative Agent shall have received a true, correct and complete copy of this Amendment, duly executed and delivered by a duly authorized officer of each party hereto.

(b) No Material Adverse Effect . No event, development or circumstance shall have occurred that has had or could reasonably be expected to have a Material Adverse Effect.

(c) No Default . No event, act or condition shall have occurred and be continuing which constitutes a Default or Event of Default.

(d) Taxes . All applicable taxes and stamp duties due and payable, if any, arising in connection with the execution, delivery and performance of this Amendment, and the other Financing Documents shall have been paid in full.

 

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ARTICLE V.

MISCELLANEOUS

Section 5.1 Notices . All notices, requests and other communications to any party hereto shall be given or served in the manner contemplated in Section 9.1 of the Credit Agreement.

Section 5.2 No Waiver; Status of Financing Documents . This Amendment shall not constitute an amendment, supplement or waiver of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as an amendment, supplement, waiver or consent to any action on the part of any party hereto that would require an amendment, supplement, waiver or consent of the Lenders except as expressly stated herein. Except as expressly amended, supplemented or waived hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. No failure or delay on the part of the Lenders in the exercise of any power, right or privilege hereunder or under any other Financing Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Amendment and the other Financing Documents are cumulative to, and not exclusive of, any rights or remedies available at equity or law. Nothing in this Amendment shall constitute a novation of the Borrowers’ obligations under the Credit Agreement or any other Financing Document.

Section 5.3 Amendment . This Amendment may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

Section 5.4 Amendment Binding . This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and permitted assigns of the parties hereto.

Section 5.5 Headings . Section headings used herein are for convenience of reference only, are not part of this Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this Amendment.

Section 5.6 Governing Law . This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflicts of laws principles.

Section 5.3 Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by e-mail in portable document format (.pdf) or facsimile (with acknowledgment of receipt) will be effective as delivery of a manually executed counterpart of this Amendment.

[ Remainder of this page intentionally left blank ]

 

 

3


Signature Page

Seventh Amendment to Credit Agreement

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the day and year first above written.

 

Yours truly,

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

/s/ Luis Díaz

  Name: Luis Díaz
  Title: Chief Operating Officer
By:  

/s/ Mónica Miloslavich

  Name: Mónica Miloslavich
  Title: Chief Financial Officer


Signature Page

Seventh Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH

as Administrative Agent

By:  

/s/ Hieu Pham

  Name: Hieu Pham
  Title:   Director
By:  

/s/ Alon Lederman

  Name: Alon Lederman
  Title:   Managing Director


Signature Page

Seventh Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH

as Lender

By:  

/s/ Hieu Pham

  Name: Hieu Pham
  Title:   Director
By:  

/s/ Alon Lederman

  Name: Alon Lederman
  Title:   Managing Director


Signature Page

Seventh Amendment to Credit Agreement

 

CATERPILLAR FINANCIAL SERVICES CORPORATION,

as Lender

By:  

/s/ Karen Johnson

  Name: Karen Johnson
  Title:   Credit & Operations Manager


Signature Page

Seventh Amendment to Credit Agreement

 

BANCO DE OCCIDENTE (PANAMA), S.A.,

as Lender

By:  

/s/ Carlos Echeverri

  Name: Carlos Echeverri
  Title: General Manager


Signature Page

Seventh Amendment to Credit Agreement

 

BANCO DE CRÉDITO DEL PERÚ, as Lender
By:  

/s/ Fernando Kaelin L.

  Name: Fernando Kaelin L.
  Title: Gerente Adjunto Banca Corporativa
By:  

/s/ Alejandro Molinari

  Name: Alejandro Molinari
  Title: Gerente de Banca Corporativa


Signature Page

Seventh Amendment to Credit Agreement

 

INTELIGO BANK, LTD,

as Lender

By:  

/s/ Víctor Vinatea

  Name: Víctor Vinatea
  Title: General Manager
By:  

/s/ Jorge Montes G.

  Name: Jorge Montes G.
  Title: Gerente de División—Operaciones

Exhibit 10.01.8

EIGHTH AMENDMENT TO CREDIT AGREEMENT, dated as of June 27, 2017 (this “ Amendment ”), among GRAÑA Y MONTERO S.A.A., as borrower (the “ Borrower ”) under the Credit Agreement, dated as of December 10, 2015 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, the lenders party thereto (the “ Lenders ”) and the Administrative Agent (as defined below); the Lenders and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent under the Credit Agreement (in such capacity, the “ Administrative Agent ”).

WHEREAS, the Borrower has requested the Lenders to amend and waiver certain provisions of the Credit Agreement and the Lenders are agreeable to such request upon the terms and subject to the conditions set forth herein; and

WHEREAS, the Borrower has sold its interests in GMD S.A. (“ GMD ”), consisting of 89.19% of the issued and outstanding capital stock of GMD for an aggregate price of U.S.$84,732,062.30 (the “ GMD Sale ”), payable in several installments, the first of which has been paid and in respect of which the Borrower has received Net Asset Sale Proceeds in the amount of U.S.$29,200,000 (the “ Initial GMD Payment ”).

NOW THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the parties hereto agree as follows:

ARTICLE I

RATIFICATION; DEFINITIONS AND RULES OF CONSTRUCTION

Section 1.1  Relation to Credit Agreement; Ratification . This Amendment is entered into in accordance with Section 9.2(b) of the Credit Agreement and constitutes an integral part of the Credit Agreement. Except as amended by this Amendment, the provisions of the Credit Agreement are in all respects ratified and confirmed and shall remain in full force and effect.

Section 1.2  Definitions . Unless otherwise defined herein, terms defined in the Credit Agreement (as amended by this Amendment) are used herein as therein defined, and the rules of interpretation set forth in Section 1.2 of the Credit Agreement shall apply mutatis mutandis to this Amendment.

ARTICLE II

AMENDMENT TO CREDIT AGREEMENT

Section 2.1  Amendment to Credit Agreement . Effective as of the Amendment No. 8 Effective Date (as defined below):

(a) Section 1.1 of the Credit Agreement is hereby amended by,

(i) adding the following definitions of the following terms in the corresponding alphabetical order:

 


Addenda to the Peruvian Security Trust Agreement ” means the addenda to the Peruvian Security Trust Agreement, to be entered into among Viva GyM, the BL Agent, the Administrative Agent, the trustee party thereto and, upon accession thereto, the Local Agent, in form and substance reasonably satisfactory to the Administrative Agent, providing for (a) a second priority Lien and security interest on the Capital Stock of Almonte held directly or indirectly by the Borrower for the benefit of the BL Lenders and (b) a third priority Lien and security interest on the Capital Stock of Almonte for the benefit of the Local Facility Lenders so that payments to the Local Facility Lenders will be made only after all obligations of the Borrower to the Senior Lenders have been paid in full.

Adexus ” means Adexus S.A., a sociedad anónima incorporated and existing under the laws of Chile.

Almonte Permitted Restructuring ” means the corporate spin-off process of Almonte by which the land identified in Public Entry No. 12576152 of the Real Estate Registry of the Public Registry of Lima, currently owned by Almonte, will be transferred to a special purpose vehicle, the Capital Stock of which will have the same shareholder allocation as the shareholding structure of Almonte existing on the Amendment No. 8 Effective Date.

Amendment No.  8 Effective Date ” shall have the meaning ascribed to such term in the Eighth Amendment to Credit Agreement.

[**]

BL Agent ” means the administrative agent under the BL Facility.

BL Facility ” means the loan agreement, dated June 27, 2017, among the Borrower, Banco Bilbao Vizcaya Argentaria S.A., as a lender, Natixis, New York Branch, as a lender and administrative agent, Sumitomo Mitsui Banking Corporation, as a lender and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as a lender.

BL Lenders ” means the lenders under the BL Facility.

BL Security Documents ” means, collectively, (a) the G&M Collection Rights Trust Agreement, (b) the Proceeds Trust Agreement, (c) the Second Lien Share Trust Agreement, (d) the CAM Peru Share Trust Agreement, (e) the CAM Chile Share Pledge, (f) the Corporate Building Trust Agreement and (g) the Peruvian Security Trust Agreement.

CAM Chile ” means CAM Chile S.A., a sociedad anónima incorporated and existing under the laws of Chile.

CAM Chile EBITDA ” means for any period, with respect to CAM Chile and its Subsidiaries on a Consolidated basis, without duplication, net profit plus, to the extent deducted in calculating such net profit, (i) financial (expense) income, net; (ii) income tax; and (iii) depreciation and amortization, in each case determined in accordance with IFRS.

CAM Chile Leverage Ratio ” means, on any day, the ratio of (i) the aggregate principal amount of all Indebtedness of CAM Chile and its Subsidiaries on such date to (ii) CAM Chile EBITDA for the Rolling Period ended on such day (or, if such day is not the last day of a fiscal quarter of CAM Chile, ended on the last day of the fiscal quarter of CAM Chile most recently ended prior to such day).

 

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CAM Chile Permitted Restructuring ” means the corporate transformation of CAM Chile S.A. (a company incorporated under Chilean laws) from a sociedad anónima or S.A. into a sociedad por acciones or SpA.

CAM Chile Share Pledge ” means the Prenda sin Desplazamiento sobre Acciones to be entered into among the Borrower, CAM Chile, CAM Holding S.p.A., the Administrative Agent, the BL Agent, any agent bank party thereto and, upon accession thereto, the Local Agent, in form and substance reasonably satisfactory to the Administrative Agent, as amended, amended and restated, supplemented or otherwise modified from time to time, granting (a) a second priority Lien and security interest under Chilean law in favor of the Senior Lenders in respect of 73.16% of the issued and outstanding Capital Stock of CAM Chile and (b) a third priority Lien and security interest under Chilean law in favor of the Local Facility Lenders in respect of 73.16% of the issued and outstanding Capital Stock of CAM Chile, such that the Local Facility Lenders will receive payment only after all obligations of the Borrower to Chubb and the Senior Lenders have been paid in full.

CAM Peru ” means CAM Servicios del Perú S.A., a sociedad anónima organized and existing under the laws of Peru.

CAM Peru Share Trust Agreement ” means the Contrato de Fideicomiso de Acciones CAM Peru to be entered into among the Borrower, Chubb, the Administrative Agent, the BL Agent, the trustee party thereto and, upon accession thereto, the Local Agent, in form and substance reasonably satisfactory to the Administrative Agent, as amended, amended and restated, supplemented or otherwise modified from time to time, granting (a) a first priority Lien in and to the CAM Peru Shares in favor of Chubb, (b) a second priority Lien in favor of the Senior Lenders in and to the CAM Peru Shares, so that payments to the Senior Lenders will be made only after all obligations of the Borrower to Chubb have been paid in full and (c) a third priority Lien in favor of the Local Facility Lenders in and to the CAM Peru Shares so that payments to the Local Facility Lenders will be made only after all obligations of the Borrower to Chubb and the Senior Lenders have been paid in full.

CAM Peru Shares ” means 73.16% of the issued and outstanding Capital Stock of CAM Peru.

Chile ” means the Republic of Chile.

Chubb ” means Chubb Peru S.A. Compania de Seguros y Reaseguros, a sociedad anonima organized and existing under the laws of Peru.

Chubb CAM Chile Share Pledge ” means the Prenda sin Desplazamiento sobre Acciones en CAM Chile S.A., dated March 31, 2017, between CAM Holding S.p.A. and Chubb, granting a first priority Lien and security interest under Chilean law in favor of Chubb in respect of 73.16% of the issued and outstanding Capital Stock of CAM Chile, as amended, amended and restated, supplemented or otherwise modified from time to time.

 

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Chubb Facility ” means the Acuerdo de Reconocimiento de Deuday Compromiso de Pago, dated March 31, 2017, between the Borrower and Chubb.

Concessionaire Equity Payments ” means any dividend or other distribution in cash with respect to any capital stock or other equity interests of the Concessionaire, or any payment in cash on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other equity interests, or on account of any return of capital to the Concessionaire’s stockholders, partners or members (or the equivalent Person thereof), or any other payment or distribution received by the Borrower or any of its Subsidiaries associated to the capital stock of, or equity interests in, the Concessionaire held by the Borrower or such Subsidiary, directly or indirectly, in each case, other than Concessionaire Disposition Proceeds. For the avoidance of doubt, “Concessionaire Equity Payments” shall not include any Concessionaire Surety Reimbursement and any proceeds paid or payable in respect of the Borrower’s fiduciary rights under the EPC Trust Agreement.

Concessionaire Surety Reimbursement ” means any present or future monies payable to the Borrower or any of its Subsidiaries, whether arising out of a right of subrogation, reimbursement or otherwise, in respect of the obligations of the Borrower or any of its Subsidiaries under the Bridge Loan Guaranty and/or the Gasoducto Sur Peruano Performance Bond.

Corporate Buildings ” means (i) the building owned by the Borrower located in the district of Surquillo in Lima and recorded in the partida electrónica No. 41776862 of the Registro de PropiedadInmueble de Lima and (ii) the building owned by the Borrower located in the district of Miraflores in Lima and recorded in partida electronica No. 13334259 of the Registro de Propiedad Inmueble de Lima.

Corporate Building Trust Agreement ” means the Contrato de Fideicomiso de Inmuebles, to be entered into among the Borrower, the Administrative Agent, the BL Agent, the trustee party thereto and, upon accession thereto, the Local Agent, in form and substance reasonably satisfactory to the Administrative Agent, as amended, amended and restated, supplemented or otherwise modified from time to time, granting (a) a first priority Lien and security interest (subordinated to the Peruvian Mortgage Agreement) in favor of the Lenders in respect of the Corporate Buildings; (b) a second priority Lien and security interest (subordinated to the Peruvian Mortgage Agreement) in favor of the BL Lenders in respect of the Corporate Buildings and (c) a third priority Lien and Security Interest (subordinated to the Peruvian Mortgage Agreement) in favor of the Local Facility Lenders in respect of the Corporate Buildings, so that payments to the Local Facility Lenders will be made only after all obligations of the Borrower to the Senior Lenders have been paid in full. The Corporate Building Trust Agreement will contemplate a first priority order of payment in favor of the Lenders, so that payments to the BL Lenders will be made only after all obligations of the Borrower to the Lenders have been paid in full.

Eighth Amendment to Credit Agreement ” means the Eighth Amendment to Credit Agreement, dated as of June 27, 2017, among the Borrower, the Lenders party thereto and the Administrative Agent.

 

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EPC Agreement ” means the EPC Agreement (Contrato Llave en Mano — EPC a Suma Alzada para la Ingeniería (Diseño), Procura y Construcción del Sistema de Transporte del Proyecto “Mejoras a la Seguridad Energetica del País y Desarrollo del Gasoducto Sur Peruano”) entered into among the Concessionaire, Consorcio Constructor Ductos del Sur, Odebrecht Peru Ingenieria y Construccion S.A.C., Constructora Norberto Odebrecht S.A. and GyM, dated June 25, 2014.

EPC Trust Agreement ” means the Contrato de Fideicomiso executed on April 29, 2016 between Consorcio Constructor Ductos del Sur, Odebrecht Perú Ingeniería y Construcción S.A.C., GyM, Constructora Norberto Odebrecht S.A. Sucursal Perú, Enagás S.A., the Borrower, the BL Agent and La Fiduciaria S.A., with the intervention of the Concessionaire; providing for the irrevocable transfer of certain rights and cash flows resulting from the EPC Agreement in favor of the BL Lenders (among other beneficiaries).

G&M Collection Rights Trust Agreement ” means the Contrato de Fideicomiso en Administración y Garantía to be governed by Peruvian law, to be entered into among the Borrower, the BL Agent and the trustee party thereto, as amended, amended and restated, supplemented or otherwise modified from time to time, providing for the irrevocable transfer, in favor of a trust estate for the benefit of the BL Lenders, of all rights (and cash flows) arising from (a) the Concessionaire Surety Reimbursement and (b) the Borrower’s fiduciary rights under the EPC Trust Agreement.

Gasoducto Sur Peruano Performance Bond ” means the Garantía de Fiel Cumplimiento, dated July 18, 2016, issued by Chubb in favor of MINEM, with the Borrower as account party, in respect of the obligations of the Concessionaire under the Gasoducto Sur Peruano Concession Agreement.

Local Agent ” means the administrative agent for the Local Facility Lenders under the Local Facility.

Local Facility ” means (a) a syndicated loan facility of up to U.S.$162,000,000 to be granted by the Local Facility Lenders, consisting of (i) a revolving facility of GyM, (ii) a term loan facility of GyM and (iii) a term loan facility for the reimbursement of outstanding surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit and similar instruments issued for the account of the Borrower or any of its Subsidiaries in their ordinary course of business, (b) a stand by letter of credit facility of up to U.S.$150,000,000 for the issuance of new standby letters of credit for the account of the Borrower and GyM to serve as surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit or similar instruments of the Borrower or any of its Subsidiaries in their ordinary course of business to be granted by the Local Facility Lenders and (c) a commitment for the maintenance and renewal of existing standby letters of credit for the account of (i) the Borrower, (ii) GyM and/or (iii) Affiliates of the Borrower.

Local Facility Lenders ” means Banco de Credito del Perú, Banco Internacional del Perú S.A.A., Scotiabank Perú S.A.A. and BBVA Banco Continental, or any of their affiliates who are lenders under the Local Facility, and any other financial institutions from time to time party to the Local Facility as lenders.

 

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Proceeds Collateral ” means all proceeds in respect of the Disposition, whether in one or a series of transactions, of (a) 67% of the issued and outstanding Capital Stock of Norvial, (b) 75% of the issued and outstanding Capital Stock of GyM Ferrovias, (c) 73.16% of the issued and outstanding Capital Stock of CAM Chile, (d) the CAM Peru Shares and (e) 91.03% of the issued and outstanding Capital Stock of Adexus.

Proceeds Trust Agreement ” means the Contrato de Fideicomiso de Flujos to be entered into among the Borrower, the Administrative Agent, the BL Agent, Chubb, the trustee party thereto and, upon accession thereto, the Local Agent, in form and substance reasonably satisfactory to the Administrative Agent, as amended, amended and restated, supplemented or otherwise modified from time to time, granting (a) a first priority Lien and security interest in favor of the Lenders in and to all proceeds from the sale of the Capital Stock of Almonte and the Corporate Buildings, (b) a second priority Lien and security interest in favor of the BL Lenders and Chubb in and to all proceeds from the sale of the Capital Stock of Almonte and the Corporate Buildings remaining after application of all such proceeds to the repayment in full of the obligations of the Borrower under this Agreement, (c) a third priority Lien and security interest in favor of the Local Facility Lenders in and to all proceeds from the sale of the Capital Stock of Almonte and the Corporate Buildings remaining after application of all such proceeds to the repayment in full of the obligations of the Borrower under this Agreement, the BL Facility and the Chubb Facility, (d) a first priority Lien and security interest in favor of the Senior Lenders and Chubb in and to the Proceeds Collateral (other than pursuant to the enforcement by any Secured Party of its rights under the CAM Peru Share Trust Agreement or the CAM Chile Share Pledge) and (e) a second priority Lien and security interest in favor of the Local Facility Lenders in and to the Proceeds Collateral (other than pursuant to the enforcement by any Secured Party of its rights under the CAM Peru Share Trust Agreement or the CAM Chile Share Pledge) remaining after application of all such proceeds to the repayment in full of the obligations of the Borrower under this Agreement, the BL Facility and the Chubb Facility, and providing that the effectiveness of the Lien and security interest therein with respect to the proceeds of any disposition of Norvial or GyM Ferrovias shall be subject to the consent of their respective bondholders, if applicable.

Recaudo Lima ” means Recaudo Lima S.A., a sociedad anónima organized and existing under the laws of Peru.

Red Eagle Mining ” means Red Eagle Mining Corporation, corporation organized and existing under the laws of Canada.

Second Lien Share Trust Agreement ” means the Fideicomiso de Acciones CONCAR-GyM to be entered into among the Borrower, the Administrative Agent, the BL Agent, the trustee party thereto and, upon accession thereto, the Local Agent, in form and substance reasonably satisfactory to the Administrative Agent, as amended, amended and restated, supplemented or otherwise modified from time to time, providing for (a) a first priority Lien and security interest (subordinated to the Peruvian Share Pledge Agreement) over the Second Lien Shares in favor of the Lenders; (b) a second priority Lien and security interest (subordinated to the Peruvian Share Pledge Agreement) over the Second Lien Shares in favor of the BL Lenders and (c) a third priority Lien and Security Interest (subordinated to the Peruvian Share Pledge Agreement) over the Second Lien Shares in favor of the Local Facility Lenders so that payments

 

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to the Local Facility Lenders will be made only after all obligations of the Borrower to Senior Lenders have been paid in full. The Second Lien Share Trust Agreement will contemplate a first priority order of payment in favor of the Lenders so that payments to the BL Lenders will be made only after all obligations of the Borrower to the Lenders have been paid in full.

Second Lien Shares ” means (i) 98.24% of the issued and outstanding Capital Stock of GyM and (ii) 99.9983% of the issued and outstanding Capital Stock of Concar.

Secured Parties ” means, collectively, each Senior Lender, Chubb, and any agent or trustee therefor.

Senior Lenders ” means, collectively, the Lenders and the BL Lenders.

(ii) replacing the definitions of the terms “Consolidated EBITDA,” “Consolidated Total Indebtedness,” “Excluded Dispositions,” “Permitted Encumbrances,” “Peruvian Security Trust Agreement,” “Reserve Account Required Balance” and “Security Documents” in their entirety with the following:

Consolidated EBITDA ” for any period, means, with respect to the Borrower and its Subsidiaries on a Consolidated basis, without duplication, net profit plus, to the extent deducted in calculating such net profit, (i) financial (expense) income, net; (ii) income tax; (iii) depreciation and amortization; (iv) the amount corresponding to the tariff for the Lima Metro concession actually paid to GyM Ferrovias during such period (on account of the Peruvian government’s repayment of amounts invested by GyM Ferrovias to purchase trains and other infrastructure for the Lima Metro concession); and (v) the portion of costs of sales during such period related to purchase of land in the Borrower’s real estate segment, in each case determined in accordance with IFRS, minus (A) the EBITDA of (i) any Non-Recourse Subsidiary, (ii) Adexus, (iii) CAM Chile and (iv) CAM Peru; and (B) [**]. As used in connection with any Non-Recourse Subsidiary, Adexus, and CAM Chile, in this definition, the term “EBITDA “ shall have a correlative meaning with the foregoing.

Consolidated Total Indebtedness ” means, with respect to the Borrower and its Subsidiaries (other than any Non-Recourse Subsidiary) on any date, the aggregate principal amount of all Indebtedness of the Borrower and its Subsidiaries on such date, minus the aggregate amount of any Indebtedness of (i) the Borrower described in Section 6.6(a)(iv)(ii), (ii) Adexus, (iii) CAM Chile, (iv) CAM Peru and (v) the Borrower under the Loans, the BL Facility and the Chubb Facility, determined on a Consolidated basis in accordance with IFRS.

Excluded Dispositions ” means any Disposition by the Borrower or any of its Subsidiaries, (i) of obsolete assets and scrap, (ii) of worn out, surplus, depleted or uneconomic equipment, (iii) of inventory or machinery in the ordinary course of business of the Borrower or such Subsidiaries, (iv) expressly permitted by Section 6.2(a), (v) of Reference Project Receivables, (vi) of the equity interests in Red Eagle Mining or (vii) associated with Liens permitted hereunder.

Permitted Encumbrances ” means (i) Liens imposed by law for taxes that are not yet due or are being Contested; (ii) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlords’, vendors’ salary and social security and other like Liens imposed by

 

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law, arising in the ordinary course of business and securing obligations that are not overdue by more than 90 days or are being Contested; (iii) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, disability or unemployment insurance, pensions and other social security laws or regulations; (iv) cash deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance and return-of-money bonds, tenders and other obligations of a like nature, in each case in the ordinary course of business; (v) judgment liens in respect of judgments that do not constitute an Event of Default under Section 7.1(j); (vi) minor irregularities in title to real property that do not secure any monetary obligations and which do not materially interfere with the occupation, use or enjoyment by the Borrower or any of its Subsidiaries, of any of their respective properties or assets; (vii) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any of its Subsidiaries; (viii) purchase money Liens created or arising over any property or asset which is acquired, constructed or created by the Borrower or any of its Subsidiaries but only if (a) such Lien secures only principal amounts (not exceeding the cost of such acquisition, construction or creation) raised for the purposes of such acquisition, construction or creation, together with any costs, expenses, interest and fees incurred in relation thereto, (b) such Lien is created or arises on or before 90 days after the completion of such acquisition, construction or creation and (c) such Lien is confined solely to the property so acquired, constructed or created; (ix) Liens securing the obligations of the Borrower, GyM and other Subsidiaries in respect of bonds guaranteed by the Borrower, under the Local Facility consisting of one or more of the following: (a) Liens over the Collateral, solely to the extent that such Liens’ priority is lower than the priority of the Secured Parties and the beneficiaries of such Lien will not have the right to enforce such Lien, (b) Liens over Capital Stock of Stracon GyM S.A. and (c) Liens over accounts receivable and cashflows of GyM; (x) Liens created pursuant to the Security Documents, the BL Security Documents and the Chubb CAM Chile Share Pledge; (xi) Liens in existence on the date hereof and described in Schedule 1.1-II; (xii) Liens created pursuant to Non-Recourse Subsidiary Pledge Agreements;(xiii) customary rights of setoff as to bank accounts maintained with financial institutions; (xiv) until one (1) Business Day after the Closing Date (as defined in the BL Facility), Liens securing Indebtedness of the Borrower under the Bridge Loan Guarantee or the Bridge Loan; and (xv) Liens over the assets of CAM Chile securing Indebtedness of CAM Chile Incurred in accordance with Section 6.6; provided, however, that except as expressly contemplated by clauses (viii) through (xii) and clauses (xiv) and (xv) above, the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness.

Peruvian Security Trust Agreement ” means the Peruvian collateral trust agreement dated March 11, 2016, providing for a first priority Lien on the Capital Stock of Almonte held, directly or indirectly, by the Borrower, as amended by the Addenda to the Peruvian Security Trust Agreement, and as further amended, amended and restated, supplemented or otherwise modified from time to time.

Reserve Account Required Balance ” means, as of any date of determination, the lesser of (i) U.S.$3,000,000 and (ii) the aggregate outstanding principal amount of, and interest on, the Loans as of such date of determination.

 

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Security Documents ” means, collectively, the Peruvian Share Pledge Agreements, the Peruvian Mortgage Agreement, the Reserve Account Control Agreement, the Reserve Account Security Agreement, the Peruvian Account Pledge Agreement, the Peruvian Security Trust Agreement, the Proceeds Trust Agreement, the CAM Chile Share Pledge, the Corporate Building Trust Agreement, the Second Lien Share Trust Agreement and the CAM Peru Share Trust Agreement.”

(iii) amending the definition of the term “Concessionaire Disposition Proceeds” by adding the following sentence at the end thereof:

“For the avoidance of doubt, “Concessionaire Disposition Proceeds” shall not include any Concessionaire Surety Reimbursement and any proceeds paid or payable in respect of the Borrower’s fiduciary rights under the EPC Trust Agreement.”

(iv) amending the definition of the term “Non-Recourse Indebtedness” by replacing clause (c) thereof in its entirety with the following:

“(c) subject to the proviso below, neither the Borrower nor any of its Subsidiaries (other than any Non-Recourse Subsidiary) has Guaranteed or otherwise agreed to become liable to pay such Indebtedness; provided, however that solely in respect of GyM Ferrovias, Guarantees by the Borrower of indebtedness of GyM Ferrovias Incurred in connection with the Reference Ferrovias Project in an aggregate amount not exceeding, at any time, (i) U.S.$40,000,000 in respect of Indebtedness of GyM Ferrovias and (ii) U.S.$26,000,000 in respect of the obligations of GyM Ferrovias under one or more interest rate hedging agreements shall be disregarded for purposes of this clause (c) ; and”

(v) deleting the definitions of the terms “Contingent Equity Letter of Credit” and “Letters of Credit” in their entirety.

(b) Section 2.8(b) of the Credit Agreement is hereby amended by,

(i) replacing clauses (ii), (iii), (iv) and (vi) thereof in their entirety with the following:

“(ii) In case of receipt by the Borrower or any of its Subsidiaries of any Net Asset Sale Proceeds during any fiscal year of the Borrower, in connection with any Disposition or series of Dispositions by the Borrower or any of its Subsidiaries (other than (A) Excluded Dispositions, (B) Dispositions in connection with the enforcement of the Liens under the Security Documents, the BL Security Documents or the Chubb CAM Chile Share Pledge or the Liens described in clause (ix) of “Permitted Encumbrances, “ (C) Dispositions of the Capital Stock of Almonte or (D) the Disposition of any Corporate Building) made during such fiscal year of the Borrower, subject to Section  2.8(d) , the Borrower shall, or shall cause such Subsidiary to, prepay the Loans, concurrently with and on the same Business Day of (or on such other date acceptable to the Required Lenders) the receipt of such Net Asset Sale Proceeds, in an amount equal to the lesser of (x) the aggregate principal of, and interest on, the Loans then outstanding, and (y) the product of (A) the aggregate amount of such Net Asset Sale Proceeds amount and (B) 0.50.

 

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(iii) In case of receipt by the Borrower or any of its Subsidiaries of any Concessionaire Disposition Proceeds, subject to Section  2.8(d) , the Borrower shall, or shall cause such Subsidiary to, prepay the Loans, concurrently with and on the same Business Day of (or on such other date acceptable to the Required Lenders) the receipt of such Concessionaire Disposition Proceeds, in an amount equal to the lesser of (x) the aggregate principal of, and interest on, the Loans then outstanding, and (y) the aggregate amount of such Concessionaire Disposition Proceeds.

(iv) In case of receipt by Almonte of any Almonte Sale Proceeds or of the Borrower of any Net Asset Sale Proceeds in connection with the Disposition of the Capital Stock of Almonte or the Disposition of any Corporate Building, subject to Section  2.8(d). the Borrower shall prepay the Loans, concurrently with and on the same Business Day of (or on such other date acceptable to the Required Lenders) the receipt by Almonte of such Almonte Sale Proceeds or the Borrower of such Net Asset Sale Proceeds, as applicable, in an amount equal to the lesser of (x) the aggregate principal of, and interest on, the Loans then outstanding, and (y) the aggregate amount of such Almonte Sale Proceeds or Net Asset Sale proceeds, as applicable.

(v) In case of receipt by the Borrower or any of its Subsidiaries of any Concessionaire Equity Payments, subject to Section  2.8(d) , the Borrower shall, or shall cause such Subsidiary to, prepay the Loans, concurrently with and on the same Business Day of (or on such other date acceptable to the Required Lenders) the receipt of such Concessionaire Equity Payments, in an amount equal to the lesser of (x) the aggregate principal of, and interest on, the Loans then outstanding, and (y) the aggregate amount of such Concessionaire Equity Payments.”

(ii) adding the following new clauses (vii), (viii) and (ix) at the end thereof:

“(vii) In case of receipt by the Borrower or any of its Subsidiaries, at any time following the repayment in full of the Indebtedness of the Borrower under the BL Facility, of any Concessionaire Surety Reimbursement, subject to Section  2.8(d) , the Borrower shall, or shall cause such Subsidiary to, prepay the Loans, concurrently with and on the same Business Day of (or on such other date acceptable to the Required Lenders) the receipt of such Concessionaire Surety Reimbursement, in an amount equal to the lesser of (x) the aggregate principal of, and interest on, the Loans then outstanding, and (y) the aggregate amount of such Concessionaire Surety Reimbursement.

(viii) In case the aggregate outstanding principal amount of the Loans as of May 27, 2018 (or if such day is not a Business Day, as of the immediately succeeding Business Day), is not equal to or less than U.S.$90,000,000, the Borrower shall prepay the Loans on such date in an amount that, after giving effect to such prepayment, shall cause the aggregate outstanding principal amount of the Loans to be equal to, or less than, U.S.$90,000,000 as of such date.

(ix) In case the aggregate outstanding principal amount of the Loans as of May 27, 2019 (or if such day is not a Business Day, as of the immediately succeeding Business Day), is not equal to or less than U.S.$45,000,000, the Borrower shall prepay the Loans on such date in an amount that, after giving effect to such prepayment, shall cause the aggregate outstanding principal amount of the Loans to be equal to, or less than, U.S.$45,000,000 as of such date.”

 

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(c) Section 2.8(c) of the Credit Agreement is hereby amended by replacing it in its entirety with the following:

“(c) The Borrower shall notify the Administrative Agent by e-mail in portable document format (.pdf) or facsimile (with confirmation of transmission) or hand delivery of any prepayment of the Loans pursuant to Section  2.8(b) not later than 11:00 a.m. (New York City time) at least three Business Days before (A) the date the Borrower, or any of its Subsidiaries (as applicable) expects to receive any Net Debt Incurrence Proceeds, Net Asset Sale Proceeds, Concessionaire Disposition Proceeds, Almonte Sale Proceeds, Concessionaire Equity Payments, Concessionaire Surety Reimbursements, (B) the date on which the Borrower expects a Change in Control to occur or (C) each of May 27, 2018 and May 27, 2019 if the outstanding balance of the Loans as of such dates is less than the amounts set forth in clause (b)(xi) or (b)(xii) above, as applicable. Each such notice shall specify the prepayment date, the principal amount of each Loan to be prepaid and the amount of accrued interest thereon to the date of the prepayment. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof”.

(d) Section 2.8(d) of the Credit Agreement is hereby amended by replacing it in its entirety with the following:

“(d) Each prepayment of Loans under Section  2.8(a) or 2.8(b) shall be (i) accompanied by accrued interest to the date of such prepayment on the amount prepaid and all other amounts in respect therewith then due and payable hereunder, (ii) subject to Section  2.16 and (iii) subject to Section  5.13(c) ; provided, that the amounts applied toward prepayment of the Loans pursuant to Sections 2.8(b)(ii) , (iii) , (iv) , (vi), and (vii) , shall be inclusive of (and not net of) interest. The proceeds described in such clauses shall be applied (A) first, if such amounts were received by the Borrower or any of its Subsidiaries after the date on which the Borrower exercises the right described in Section  5.13(c), to fund the Reserve Account until the balance on deposit therein is U.S.$4,500,000, (B) second, toward the payment of interest and (C) third, toward the prepayment of principal of the Loans in accordance with Section  2.8(e) .”

(e) Section 2.8(e) of the Credit Agreement is hereby amended by replacing it in its entirety with the following:

“(e) Each prepayment of the Loans made at any time following the Amendment No. 8 Effective Date pursuant to Section  2.8(b) shall be applied in the following order: (A) First, amounts received in respect of any such prepayment of up to U.S.$45,525,000 (individually or in the aggregate), shall be applied to the unpaid installments of the Loans required to be made on each Principal Repayment Date falling on or prior to June 30, 2018, in direct order of maturity, and (B) Second, amounts received in respect of any such prepayment in excess of U.S.$45,525,000 (individually or in the aggregate), shall be applied ratably to the remaining unpaid installments of the Loans.”

 

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(f) Section 2.16(b) of the Credit Agreement is hereby amended by replacing it in its entirety with the following:

“(b) the payment or prepayment (other than on an Interest Payment Date) of the principal of any Loan (including as a result of an Event of Default), other than prepayments under Sections 2.8(b)(ii) , (iii) , (iv) , (vi) , and (vii) ; or the payment or prepayment of any principal of the Loans other than on the scheduled date of repayment thereof pursuant to Section  2.6(a) ; or”

(g) Section 5.1 of the Credit Agreement is hereby amended by deleting clause (f) thereof and renumbering each subsequent clause thereof accordingly.

(h) Section 5.2 of the Credit Agreement is hereby amended by deleting clause (d) thereof and renumbering each subsequent clause thereof accordingly.

(i) Section 5.13 of the Credit Agreement is hereby amended by replacing it in its entirety with the following:

“Section 5.13 Maintenance of Accounts; Preservation of Rights Under the Security Documents :

(a) The Borrower shall maintain the Reserve Account pursuant to the Reserve Account Control Agreement.

(b) The Borrower shall maintain the Collection Account.

(c) The Borrower shall cause the balance on deposit in the Reserve Account to be, on and at all times following the Closing Date, equal to or exceeding U.S.$4,500,000; provided , however that the Borrower shall have the right to request a withdrawal from the Reserve Account on any Interest Payment Date in an amount which, after giving effect to such withdrawal, would not cause the balance on deposit in the Reserve Account to be less than the Reserve Account Required Balance, if (and only to the extent that) the funds so withdrawn are directly transferred to the Administrative Agent on such Interest Payment Date to be further applied by the Administrative Agent, on behalf of the Borrower, towards the payment of interest of the Loans due and payable on such Interest Payment Date.

(d) Not later than two Business Days immediately following the Closing Date, the Borrower shall deliver to the Administrative Agent documentation evidencing the due filing for registration of the Peruvian Mortgage Agreement with the Registro de la Propiedad Inmueble — Oficina Registral Lima.

(e) The Borrower shall deliver to the Administrative Agent documentation evidencing the due registration of the Peruvian Mortgage Agreement with the Registro de la Propiedad Inmueble — Oficina Registral Lima, within the period specified in Section  6.5 of the Peruvian Mortgage Agreement.

 

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(f) Not later than 45 days following the Amendment No. 8 Effective Date, the Borrower shall deliver to the Administrative Agent (i) the CAM Chile Share Pledge, duly executed and delivered by each of the parties thereto, together with evidence of the filing thereof with the applicable public registry and (ii) legal opinions addressed to the Administrative Agent and each Lender, issued by Chilean counsel to the Borrower acceptable to the Administrative Agent and covering such matters relating to the CAM Chile Share Pledge and the transactions contemplated thereby as the Administrative Agent may reasonably request.

(g) Not later than 60 days following the Amendment No. 8 Effective Date, the Borrower shall deliver to the Administrative Agent (i) the CAM Peru Share Trust Agreement, the Corporate Building Trust Agreement, the Second Lien Share Trust Agreement and the Proceeds Trust Agreement, each duly executed and delivered by each of the parties named as a proposed signatory thereto, together with evidence of the filing thereof with the applicable public registry and (ii) a legal opinion addressed to the Administrative Agent and each Lender, issued by Peruvian counsel to the Borrower acceptable to the Administrative Agent and covering such matters relating to each of the CAM Peru Share Trust Agreement, the Corporate Building Trust Agreement, the Second Lien Share Trust Agreement and the Proceeds Trust Agreement and the transactions contemplated thereby as the Administrative Agent may reasonably request.

(h) The Borrower shall deliver to the Administrative Agent documentation evidencing the due registration of the CAM Chile Share Pledge in the shareholders registry of CAM Chile by a notary public and written acknowledgement of CAM Chile of the CAM Chile Share Pledge, within the period specified in the CAM Chile Share Pledge.

(i) The Borrower shall deliver to the Administrative Agent documentation evidencing the due registration of the CAM Peru Share Trust Agreement with the Registro Mobiliario de Contratos, within the period specified in the CAM Peru Share Trust Agreement.

(j) The Borrower shall deliver to the Administrative Agent documentation evidencing the due registration of the Corporate Building Trust Agreement with the Registro Mobiliario de Contratos and the Registro de Propiedad Inmueble, within the period specified in Section  10.12 of the Corporate Building Trust Agreement.

(k) The Borrower shall deliver to the Administrative Agent documentation evidencing the due registration of the Second Lien Share Trust Agreement with the Registro Mobiliario de Contratos, within the period specified in Section  10.14 of the Second Lien Share Trust Agreement.

(l) The Borrower shall deliver to the Administrative Agent documentation evidencing the due registration of the Proceeds Trust Agreement with the Registro Mobiliario de Contratos, within the period specified in the Proceeds Trust Agreement.

(m) The Borrower shall from time to time take such actions as may be necessary or advisable in order to preserve the rights of the Administrative Agent and the Lenders under each of the Security Documents. Without limiting the generality of the foregoing, the Borrower shall execute any documents, filing statements, agreements and instruments, and take all further action that may be required under Applicable Law, or that the Administrative Agent may reasonably request, in order to effectuate the transactions contemplated by the Financing Documents to which it is a party and in order to grant, preserve, protect and perfect the validity and first priority or second priority, as applicable, of the Liens created or intended to be created by the Security Documents.”

 

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(j) Section 5.16 of the Credit Agreement is hereby amended by replacing it in its entirety with the following:

“Section 5.16 Most Favored Terms . If at any time after the Amendment No. 8 Effective Date the BL Facility shall include any term or condition (including, without limitation, pricing, covenants, events of default and prepayment events, but excluding tenor), not set forth in the Financing Documents or that would be more beneficial to the Lenders than any analogous provision contained in this Agreement (any such term or condition, an “Additional Provision ”), then the Borrower shall substantially concurrently with (and on the same date on which such Additional Provision becomes effective under the BL Facility) provide written notice thereof to the Administrative Agent setting forth a description in reasonable detail of such Additional Provision. Thereupon, unless waived in writing by the Required Lenders within five days of receipt of such notice by the Required Lenders, such Additional Provision (and any related definitions) shall be deemed automatically incorporated by reference into this Agreement, mutatis mutandis (including any grace period, if applicable, with respect thereto), as if set forth fully herein, without any further action required on the part of any Person, effective as of the date when such Additional Provision became effective under the BL Facility. Thereafter upon the request of the Administrative Agent, the Borrower shall enter into any additional agreement or amendment to this Agreement reasonably satisfactory to the Administrative Agent evidencing any of the foregoing.”

(k) Section 5.17 of the Credit Agreement is hereby amended by deleting it in its entirety.

(l) Section 6.1 of the Credit Agreement is hereby amended by replacing clauses (b) and (c) thereof in their entirety with the following:

“(b) The Borrower shall not permit Concar or Almonte to incur, assume or permit to exist any Lien on any property or asset, income or revenues (including accounts receivable) or rights in respect of any thereof, whether presently owned or hereafter acquired, other than, solely with respect to Concar, (x) Liens in existence on the date hereof and described in Schedule 6.1(b), (y) Liens on the cash flows of Concar securing Indebtedness Incurred, and performance bonds, advance payment bonds and bid/offer payment bonds procured, in the ordinary course of business of Concar and (z) Liens on any other property or asset, income or revenues (including accounts receivable) or rights in respect of any thereof, with a Fair Market Value not exceeding, at any time, individually or in the aggregate, together with other property or asset, income or revenues (including accounts receivable) or rights in respect of any thereof subject to Liens permitted by this Section  6.1(b)(x), U.S.$7,000,000.

(c) Notwithstanding the foregoing, the Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Lien on any property or asset, income or revenues (including accounts receivable) or rights in respect of any thereof, whether presently owned or hereafter acquired, of any Person constituting or intended to constitute Collateral, other than the Permitted Encumbrances of the type specified in clauses (ix) or (x) or, in respect of the Reserve Account, (xiii) of the definition of the term “Permitted Encumbrances”.”

 

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(m) Section 6.2 of the Credit Agreement is hereby amended by replacing clause (a) thereof in its entirety with the following:

“(a) Mergers; Consolidations; Disposal of Assets; Etc. The Borrower shall not, and shall not permit any of its Subsidiaries to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise Dispose of all or substantially all, the assets of the Borrower or any such Subsidiary, or liquidate, apply to be wound up or dissolve, except that (i) any Subsidiary of the Borrower may merge with and into the Borrower or with another Subsidiary of the Borrower, (ii) any Non-Recourse Subsidiary may make a Disposition of all or substantially all of its assets to any trust, fideicomiso or any other similar arrangement in a transaction constituting a Lien securing Non-Recourse Indebtedness of such Non-Recourse Subsidiary, (iii) Almonte may consummate the Almonte Permitted Restructuring and (iv) CAM Chile may consummate the CAM Chile Permitted Restructuring.”

(n) Section 6.5 of the Credit Agreement is hereby amended by adding the following sentence at the end thereof:

“except with respect to the Corporate Buildings; provided that any Net Asset Sale Proceeds resulting therefrom are applied by the Borrower or such Subsidiary pursuant to Section  2.8(b)(iv) .”

(o) Section 6.6(a) of the Credit Agreement is hereby amended by replacing it in its entirety with the following:

“(a) The Borrower shall not Incur any Indebtedness other than:

(i) Indebtedness under the Financing Documents;

(ii) Guarantees of Indebtedness outstanding as of the Closing Date and listed in Schedule 3.4(d);

(iii) until one (1) Business Day after the Closing Date (as defined in the BL Facility), Indebtedness Incurred under the Bridge Loan Letter of Credit or Guarantees of Indebtedness Incurred under the Bridge Loan, in an aggregate amount not to exceed, at any time, U.S.$130,000,000; provided, that if such Indebtedness is secured by a Lien permitted hereunder, the Bridge Loan Letter of Credit shall be in form and substance reasonable satisfactory to the Administrative Agent;

(iv) Guarantees by the Borrower or any of its Subsidiaries of obligations of GyM Ferrovias incurred in connection with the Reference Ferrovias Project, in an aggregate amount not exceeding, at any time (i) U.S.$40,000,000 in respect of Indebtedness of GyM Ferrovias and (ii) U.S.$26,000,000 in respect of the obligations of GyM Ferrovias under one or more interest rate hedging agreements;

 

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(v) Indebtedness for borrowed money of the Borrower with any of its Subsidiaries; provided that (x) such Indebtedness is expressly subordinated in right of payment to the obligations of the Borrower under any of the Financing Documents, (y) such Indebtedness is unsecured and (z) the Borrower and such Subsidiary shall have executed and delivered such agreements, instruments and other documents, and shall have taken such actions as the Administrative Agent reasonably requests, so that all rights of such Subsidiary under such Indebtedness shall be subject to a first priority fully perfected Lien securing the repayment and other obligations of the Borrower under the Financing Documents;

(vi) Guarantees of obligations of GyM Ferrovias in respect of the deferred purchase price of property or services, if (and only to the extent that) such Guaranty is permitted under Section  6.8(e);

(vii) additional Indebtedness of the Borrower for borrowed money provided that (x) no Default or Event of Default shall have occurred and be continuing or would occur after giving effect on a pro forma basis to the Incurrence of such Indebtedness, and (y) the Net Debt Incurrence Proceeds therefrom are applied to prepay the Loans pursuant to Section  2.8(b)(i) ;

(viii) Indebtedness of the Borrower under the BL Facility;

(ix) Indebtedness of the Borrower under the Chubb Facility;

(x) Indebtedness of the Borrower under the Local Facility;

(xi) Indebtedness of the Borrower to Viva GyM and CAM Holding S.p.A. in connection with the disposition of (i) the Capital Stock of Almonte and CAM Chile in accordance with the Security Documents and (ii) CSM and the Capital Stock of Prinsur; provided, that such Indebtedness is repaid by set-off of dividends and/or reductions of capital within ten Business Days following (x) the date of incurrence thereof (in the case of the dispositions described in clause (i) above) or (y) the Amendment No. 8 Effective Date (in the case of the dispositions described in clause (ii) above); and

(xii) Indebtedness of the Borrower to GyM in connection with the repayment of Indebtedness under the Local Facility used to reimburse draws on surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit and similar instruments; provided that such Indebtedness of the Borrower to GyM is subordinated in accordance with clause (v) above within ten Business Days following the date of incurrence thereof.”

(p) Section 6.6(b) of the Credit Agreement is hereby amended by replacing it in its entirety with the following:

“(b) The Borrower shall not permit any of its Subsidiaries (other than Almonte and Concar, CAM Chile, Adexus and CAM Peru) to Incur any Indebtedness, unless at the time of Incurrence of any such Indebtedness and after giving effect on a pro forma basis to the Incurrence of such Indebtedness, (x) the Borrower shall be in compliance with Section  6.7(a) through (c) and (y) no Default shall have occurred and be continuing or would occur after giving effect on a pro forma basis to the Incurrence of such Indebtedness.”

 

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(q) Section 6.6 of the Credit Agreement is hereby amended by adding new clauses (d), (e), (f) and (g) at the end thereof:

“(d) The Borrower shall not permit CAM Chile to Incur any Indebtedness, unless at the time of Incurrence of any such Indebtedness and after giving effect on a pro forma basis to the Incurrence of such Indebtedness, (x) CAM Chile shall be in compliance with Section  6.7(d) and (y) no Default shall have occurred and be continuing or would occur after giving effect on a pro forma basis to the Incurrence of such Indebtedness.

(e) The Borrower shall not permit Adexus to Incur any Indebtedness exceeding, at any time outstanding, individually or in the aggregate, a principal amount of U.S.$25,000,000 (or the Dollar Equivalent thereof).

(f) The Borrower shall not permit CAM Peru to Incur any Indebtedness exceeding, at any time outstanding, individually or in the aggregate, a principal amount of U.S.$1,500,000 (or the Dollar Equivalent thereof).

(g) The Borrower shall not permit GyM to Incur any secured Indebtedness other than Indebtedness under the Local Facility secured by Liens of the type specified in clause (ix) of the definition of the term “Permitted Encumbrances.”

(r) Section 6.7 of the Credit Agreement is hereby amended by,

(i) replacing clauses (a), (b) and (c) thereof in their entirety with the following:

“(a) Commencing on April 1, 2018, the Borrower shall not permit the Consolidated EBITDA to Consolidated Interest Expense Ratio to be less than 3.5:1.00 at any time.

(b) The Borrower shall not permit the Consolidated Leverage Ratio to be more than (i) 3.5:1.00 at any time during the period commencing on December 31, 2016 and ending on March 31, 2017; (ii) 3.5:1.00 at any time during the period commencing on April 1, 2017 and ending on June 30, 2017; (iii) 3.0:1.00 at any time during the period commencing on July 1, 2017 and ending on September 30, 2017; and (iv) 2.5:1.00 at any time thereafter.

(c) Commencing on April 1, 2018, the Borrower shall not permit the Debt Service Coverage Ratio to be less than 1.5:1.00.”

(ii) adding new clause (d) at the end thereof:

“(d) The Borrower shall not permit the CAM Chile Leverage Ratio to be less than 2.5:1.00 at any time.

 

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(s) Section 6.8 of the Credit Agreement is hereby amended by replacing clauses (f), (g) and (h) in their entirety with the following new clauses (f), (g), (h), (i) and (j):

“(f) at any time after the aggregate outstanding Indebtedness under this Agreement, the Chubb Facility and the BL Facility is less than U.S.$90,000,000, so long as no Default shall have occurred and be continuing at the time of such Investment, Investments of the Borrower or of any Subsidiary of the Borrower in any Non-Recourse Subsidiary or in any Person, made in the ordinary course of business, not exceeding, individually or in the aggregate, U.S.$20,000,000 (or the Dollar Equivalent thereof), during any fiscal year of the Borrower;

(g) Investments consisting of Guarantees permitted under Section  6.6;

(h) the (i) acquisition by GyM of Capital Stock of Morelco S.A.S. in connection with the put options exercised by Patrimonio Autónomo (Arturo José Serna) in respect of the Capital Stock of Morelco S.A.S. in an amount not exceeding, individually or in the aggregate, U.S.$15,136,932 and (ii) loans and capital contributions by GyM to GyM Chile S.p.A. in connection with the put options exercised prior to the Amendment No. 8 Effective Date by the shareholders of Vialy Vives — DSD S.A. (other than GyM, IyC GYM Ltda. and GyM Chile S.p.A.) in respect of Capital Stock of Vial y Vives — DSD S.A. in an amount not exceeding, individually or in the aggregate, U.S.$7,812,333;

(i) Investments in the Concessionaire in the form of (i) the Base Equity Contribution and (ii) to the extent permitted by Sections 6.6(a)(iii) , the Bridge Loan Letter of Credit or Guarantees of Indebtedness Incurred under the Bridge Loan; and

(j) to the extent not permitted under clauses (a) through (g) above, Investments by any Subsidiary of the Borrower made in the ordinary course of business and consistent with past practice (1) in consorcios or asociaciones en participacion to which such Subsidiary is a party, and (2) in the form of equity contributions to Persons engaged in the construction, development or acquisition of real estate projects, in the case of each of (1) and (2), but only to the extent that such Investments are necessary in the reasonable judgment of such Subsidiary for the development and/or completion thereof.”

(t) Section 6.9 of the Credit Agreement is hereby amended by,

(i) replacing clause (a) thereof in its entirety with the following:

“(a) The Borrower shall not, and shall not permit any of its Subsidiaries to, make any Disposition (directly or indirectly) of any asset or property of the Borrower or such Subsidiary to any Person (other than any Excluded Disposition and any Disposition contemplated under the Security Documents), except if (i) no Default or Event of Default shall have occurred and be continuing at the time of consummation thereof or would occur as a result of the consummation of such Disposition; (ii) such Disposition is consummated in accordance with Applicable Law and for Fair Market Value; (iii) if applicable, such Disposition is permitted under the BL Facility and the Chubb Facility; and (iv) if applicable, the Loans are prepaid with a portion of the Net Asset Sale Proceeds relating to such Disposition in accordance with Section  2.8(b) .”

 

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(ii) deleting clause (c) thereof in its entirety.

(u) Section 6.10 of the Credit Agreement is hereby amended by replacing it in its entirety with the following:

“Section 6.10 Limitation on Restricted Payments . The Borrower shall not make or declare at any time any Restricted Payment.”

(v) Section 6.12 of the Credit Agreement is hereby amended by replacing clause (d) thereof it in its entirety with the following:

“(d) The Borrower shall not, and shall not permit any of its Subsidiaries to, amend, supplement, or otherwise modify any documentation evidencing the BL Facility, the Chubb Facility or the Local Facility, without the prior written consent of the Required Lenders, other than any such amendment or supplement that would not adversely affect the interests of the Lenders hereunder in any material respect.”

(w) Section 7.1 of the Credit Agreement is hereby amended by,

(i) replacing clauses (c) and (o) thereof in their entirety with the following:

“(c) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in any of Sections 5.1 , 5.2 , 5.3 , 5.10 , 5.12 , 5.13 , 5.14 , or Article VI or any of the Security Documents; provided , that no Event of Default with respect to Sections 5.13(f) or (g) shall be deemed to occur to the extent that, prior to the date specified in such clause, the assets intended to be pledged or conveyed as Collateral pursuant to the relevant Security Document described in such clause have been the subject of a Disposition and the proceeds of such Disposition have been applied in accordance with Section 2.8(b); or

(o) the Administrative Agent shall cease at any time to have a perfected first priority Lien or second priority Lien, as applicable (subject, in respect of the Reserve Account, to Permitted Encumbrances of the type specified in clause (xiii) of the definition of the term “Permitted Encumbrances”), on all or any portion of the Collateral purported to be encumbered, as applicable, pursuant to the Security Documents; or”

(ii) deleting clause (q) at the end thereof;

(iii) adding the following new clauses (q) and (r) at the end thereof:

“(q) the occurrence of any “Event of Default” under the BL Facility or any “Evento de Incumplimiento” under the Chubb Facility; or

(r) the representations made in Section 5.15 of Clause Fifth of the Second Lien Share Trust Agreement or in Section 5.14 of Clause Fifth of the Corporate Building Trust Agreement shall, at any time, be incorrect.”

 

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(x) Article VIII of the Credit Agreement is hereby amended by adding the following new Section 8.8 at the end thereof:

“Section 8.8 Collateral Matters :

(a) The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion, to release any Lien on any property granted to or held by the Administrative Agent under any Financing Document, that is sold or otherwise disposed of or to be sold or otherwise disposed of as part of or in connection with any sale or other disposition permitted hereunder or under any other Financing Document.

(b) In case the balance on deposit in the Reserve Account, on any date, is greater than the sum of the aggregate outstanding principal amount of, and interest on, the Loans, and any other amounts due and payable hereunder or under the other Financing Documents as of such date, the Lenders hereby irrevocably authorize the Administrative Agent to, upon the written request of the Borrower, instruct the Reserve Account Financial Institution to withdraw the amount on deposit in the Reserve Account to the extent such amount is directly transferred to the Administrative Agent on account of prepayment of the Loans and any other payment obligation hereunder then outstanding; provided , that nothing herein shall constitute an obligation on the part of the Administrative Agent to comply with any such written request from the Borrower.”

(y) The following Exhibit is added at the end of the list of Exhibits of the Credit Agreement:

“Exhibit N - [**]”

(z) Annex I hereto is added as new Exhibit N to the Credit Agreement.

ARTICLE III

WAIVERS, CONSENTS AND AGREEMENTS

Section 3.1  Waivers . Effective as of the Amendment No. 8 Effective Date, the Lenders hereby agree that,

(a) non-compliance by the Borrower with its obligations under Section 5.1(a) of the Credit Agreement solely with respect to the late delivery of its audited financial statements for the fiscal year of the Borrower ended December 31, 2016 shall not be deemed to constitute an Event of Default so long as such financial statements are delivered to the Administrative Agent on or before June 30, 2017; provided , however that except to the extent expressly set forth in this Section 3.1(a), nothing herein shall release or be deemed to release the Borrower from its obligations under the Financing Documents, including compliance at all times with Section 5.1(a) of the Credit Agreement;

(b) non-compliance by the Borrower with its obligations under Sections 6.1 and 6.6 of the Credit Agreement at any time prior to the Amendment No. 8 Effective Date, solely as a result of executing and performing its obligations under the Chubb Facility, the BL Facility, the BL Security Documents and the Chubb CAM Chile Share Pledge

 

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prior to the Amendment No. 8 Effective Date, shall not be deemed to constitute an Event of Default; provided , however that except to the extent expressly set forth in this Section 3.1(b), nothing herein shall release or be deemed to release the Borrower from its obligations under the Financing Documents, including compliance at all times with Sections 6.1 and 6.6 of the Credit Agreement;

(c) non-compliance by the Borrower with its obligations under Section 6.7(a), Section 6.7(b) and Section 6.7(c) of the Credit Agreement at any time prior to the Amendment No. 8 Effective Date, shall not be deemed to constitute an Event of Default; provided , however that except to the extent expressly set forth in this Section 3.1(c), nothing herein shall release or be deemed to release the Borrower from its obligations under the Financing Documents, including compliance at all times with Section 6.7 of the Credit Agreement;

(d) non-compliance by the Borrower with its obligations under Section 2.8 of the Credit Agreement, solely with respect to the late delivery of the notice of, and late prepayment of the Loans with the proceeds resulting from, the sale of the Borrower’s interests in GMD, Cuartel San Martin, Compania Operadora de Gas del Amazonas S.A., Tecgas Inc. and Promotion Inmobiliaria del Sur S.A., and the application of the proceeds of the Initial GMD Payment in accordance with Section 5.1(f), shall not be deemed to constitute an Event of Default; provided , however that except to the extent expressly set forth in this Section 3.1(d), nothing herein shall release or be deemed to release the Borrower from its obligations under the Financing Documents, including compliance at all times with Section 2.8 of the Credit Agreement; and

(e) non-compliance by the Borrower with its obligations under Section 6.6(a)(iii) of the Credit Agreement, solely as a result of the amount of Indebtedness guaranteed by the Borrower under the Bridge Loan Guarantee exceeding U.S.$120,000,000 due to the dilution of another shareholder of the Concessionaire, shall not be deemed to constitute an Event of Default; provided , however that except to the extent expressly set forth in this Section 3.1(e), nothing herein shall release or be deemed to release the Borrower from its obligations under the Financing Documents, including compliance at all times with Section 6.6 of the Credit Agreement.

Section 3.2  Consents . Effective as of the Amendment No. 8 Effective Date, the Lenders hereby consent to the execution by the Borrower of the BL Facility, the Chubb Facility, the BL Security Documents and the Chubb CAM Chile Share Pledge.

Section 3.3  Almonte and Corporate Buildings . Effective as of the Amendment No. 8 Effective Date, the Lenders hereby agree, promptly and no later than three (3) Business Days following receipt of a notice from the Borrower that it has signed a sale and purchase agreement with respect to the Capital Stock of Almonte held by the trust under the Peruvian Security Trust Agreement or with respect to one or both of the Corporate Buildings held by the trust under the Corporate Building Trust Agreement, as applicable, to instruct La Fiduciaria, S.A., in its capacity as trustee, to (a) terminate, at the expense of the Borrower, the relevant trust and (b) return, at the expense of the Borrower, such Capital Stock of Almonte or such Corporate Buildings, as applicable, to the ownership of the Borrower to permit the Disposition of such

 

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assets; provided, that arrangements in substance and form acceptable to the Administrative Agent and the Lenders shall have been made to apply the proceeds from the Disposition of such Capital Stock of Almonte or such Corporate Buildings to the prepayment of the Loans pursuant to Section 2.8 of the Credit Agreement, substantially concurrently with such termination.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and the Lenders that:

Section 4.1  Authorization, Enforceability .

(a) The execution, delivery and performance by the Borrower of this Amendment is within such Person’s corporate powers and has been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Amendment has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

(b) The Credit Agreement, as amended by this Amendment, constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

Section 4.2  Governmental Approvals, No Conflict .

(a) All governmental authorizations, if any, and actions of any kind necessary for the due execution, delivery and performance by the Borrower of this Amendment, or required for the validity or enforceability against the Borrower of this Amendment, have been obtained or performed and are valid and subsisting in full force and effect, and the performance thereof as well as the continuing obligations of the Borrower in connection therewith do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority.

(b) This Amendment, the performance thereof and the continuing obligations of the Borrower under or in connection with this Amendment do not and will not violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Borrower or any order of any Governmental Authority.

 

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(c) The Credit Agreement (as amended by this Amendment), the performance thereof and the continuing obligations of the Borrower under or in connection therewith do not and will not violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Borrower or any order of any Governmental Authority.

Section 4.3  Other Loan Documents . The Borrower has delivered to the Administrative Agent a true, correct and complete copy of the Chubb Facility and the BL Facility as in effect on the Amendment No. 8 Effective Date duly executed and delivered by the parties thereto (the “ Other Credit Documentation ”). No provision of any Other Credit Documentation has been amended, supplemented or modified in any respect. The Other Credit Documentation has been validly authorized, executed and delivered by the Borrower and constitutes the valid and binding obligation of the Borrower in accordance with the terms thereof. No “default,” “event of default” or similar event has occurred and is continuing under the Other Credit Documentation.

Section 4.4  Outstanding Principal Amount . The outstanding principal amount of the Loans as of the Amendment No. 8 Effective Date (after giving effect to any repayment of the Loans on or prior to such date, if any) is U.S.$116,717,300.71.

Section 4.5  Outstanding Interest Amount . The aggregate accrued and unpaid interest on the Loans as of the Amendment No. 8 Effective Date (after giving effect to any payment of interest on the Loans on or prior to such date, if any) is U.S.$31,746.75.

Section 4.6  No Material Adverse Effect . Since December 31, 2016, there has been no Material Adverse Effect except the termination of the Gasoducto Sur Peruano Concession Agreement.

Section 4.7  No Default . No Default has occurred and is continuing, other than as disclosed by the Borrower to the Lenders, in writing, prior to the date hereof and waived by the Lenders pursuant hereto.

ARTICLE V

CONDITIONS TO EFFECTIVENESS

Section 5.1  Conditions to Effectiveness . This Amendment shall become effective as of the date hereof (the “ Amendment No.  8 Effective Date ”), subject to the satisfaction of the following conditions on or prior to the date hereof in a manner satisfactory to the Administrative Agent and the Lenders:

(a) Execution of Amendment . The Administrative Agent shall have received a true, correct and complete copy of this Amendment, duly executed and delivered by each of the parties named as a proposed signatory hereto.

(b) Representations and Warranties . (i) Each of the representations and warranties of the Borrower contained in the Credit Agreement (other than Sections 3.1(c), 3.4, 3.19, 3.20, 3.26 and 3.27 thereof), in each of the other Financing Documents and in this Amendment shall be true and correct on and as of the Amendment No. 8 Effective Date, and (ii) the Administrative Agent shall have received a certificate, dated as of the Amendment No. 8 Effective Date and signed by the President or Vice President of the Borrower, certifying as to the matter required in clause (i) above.

 

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(c) Taxes . All applicable taxes and stamp duties due and payable, if any, arising in connection with the execution, delivery and performance of this Amendment, and the other Financing Documents shall have been paid in full.

(d) Opinions of Counsel . The Administrative Agent shall have received the following legal opinions, each dated the Amendment No. 8 Effective Date, in the English language, addressed to the Administrative Agent and the Lenders:

(i) an opinion of Payet, Rey, Cauvi, Perez Abogados, special Peruvian counsel to the Borrower, substantially in the form of Annex II hereto; and

(ii) an opinion of Paul Hastings LLP, special New York counsel to the Borrower, substantially in the form of Annex III hereto.

(e) Fees . The Administrative Agent and the Lenders shall have received all fees and other amounts due and payable on or prior to the Amendment No. 8 Effective Date, including reimbursement or payment of all expenses (including fees, charges and disbursements of Muñiz, Ramirez, Perez-Taiman & Olaya Abogados and Skadden, Arps, Slate, Meagher & Flom LLP) required to be reimbursed or paid by the Borrower under the Credit Agreement or under any other Financing Document.

(f) GMD Prepayment . The Borrower shall have made a prepayment of the Loans with the proceeds of the Initial GMD Payment in the amount of U.S.$12,768,686.10, which payment shall have been applied First, to fund the Reserve Account until the balance on deposit therein is U.S.$4,500,000, Second, toward the payment of interest on the amount of principal to be prepaid, and Third, toward the prepayment of principal in direct order of maturity.

ARTICLE VI

MISCELLANEOUS

Section 6.1  Notices . All notices, requests and other communications to any party hereto shall be given or served in the manner contemplated in Section 9.1 of the Credit Agreement.

Section 6.2  No Waiver; Status of Financing Documents .

(a) This Amendment shall not constitute an amendment, supplement or waiver of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as an amendment, supplement, waiver or consent to any action on the part of any party hereto that would require an amendment, supplement, waiver or consent of the Lenders except as expressly stated herein. Except as expressly amended, supplemented or waived hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. No failure or delay on the part of the Lenders in the exercise of any power, right or privilege hereunder or under any other Financing Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of

 

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any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Amendment and the other Financing Documents are cumulative to, and not exclusive of, any rights or remedies available at equity or law. Nothing in this Amendment shall constitute a novation of the Borrowers’ obligations under the Credit Agreement or any other Financing Document.

(b) From and after the Amendment No. 8 Effective Date, references in the Credit Agreement to “this Agreement” (and indirect references such as “hereunder,” “hereby,” “herein” and “hereof” or words of like import referring to the Credit Agreement), and references in the other Financing Documents to “the Credit Agreement” (and indirect references such as “thereunder,” “thereby,” “therein” and “thereof” or words of like import referring to the Credit Agreement) shall be deemed to be references to the Credit Agreement, as amended by this Amendment.

Section 6.3  Amendment . This Amendment may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

Section 6.4  Amendment Binding . This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and permitted assigns of the parties hereto.

Section 6.5  Headings . Section headings used herein are for convenience of reference only, are not part of this Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this Amendment.

Section 6.6  Governing Law . This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

Section 6.7  Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by e-mail in portable document format (.pdf) or facsimile (with acknowledgment of receipt) will be effective as delivery of a manually executed counterpart of this Amendment.

[Remainder of this page intentionally left blank]

 

 

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Annex I

Exhibit N

[**]


Annex II

Form of Opinion of Borrower’s Peruvian Counsel

[See attached]

 

27


LOGO

 

June 27, 2017

Each of the Lenders party

to the Credit Agreement referred to below

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,

as Administrative Agent for the Lenders

Ladies and Gentlemen:

We have acted as Peruvian counsel to Grana y Montero S.A.A., a company (sociedad anónima abierta) organized and existing under the laws of Peru (the “Borrower”), in connection with the execution and delivery of the Eight Amendment to the Credit Agreement dated June 27, 2017 (the “Amendment”) under the Credit Agreement, dated as of December 10, 2015 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) among the Borrower, as borrower, Credit Suisse AG, Cayman Islands Branch, as administrative agent (the “Administrative Agent”), and the Lenders as named in the Credit Agreement.

We are giving this opinion at the request of the Borrower pursuant to section 5.1(d)(i) of the Amendment. Capitalized terms used herein which are defined in the Amendment, the Credit Agreement or in the other Financing Documents (as this term is defined below) shall have the respective meanings set forth therein, unless otherwise defined herein.

In rendering the opinions set forth below, we have examined an executed copy of the following documents (collectively, the “ Financing Documents ”):

 

(i) the Amendment;

 

(ii) the Credit Agreement, as modified by the Amendment;

 

(iii) the Second Lien Share Trust Agreement (Contrato de Fideicomiso de Acciones CONCAR-GyM) dated June 27, 2017 among the Borrower, the Administrative Agent, Natixis, New York Branch (“ Natixis ”) and La Fiduciaria S.A., acting as trustee (the “Second Lien Share Trust Agreement” );

 

(iv) the Addenda to the Peruvian Security Trust Agreement (Adenda al Contrato de Fideicomiso de Acciones) dated June 27, 2017 among Viva GyM S.A. (“Viva GyM”), the Administrative Agent, Natixis and La Fiduciaria S.A., acting as trustee (the “Addenda to the Peruvian Security Trust Agreement ”);

 

 


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(v) the Corporate Building Trust Agreement (Contrato de Fideicomiso de Inmuebles) dated June 27, 2017 among the Borrower, the Administrative Agent, Natixis and La Fiduciaria S.A., acting as trustee (the “Corporate Building Trust Agreement” ); and,

 

(vi) the Amendment Fee Letter dated June 27, 2017 (the “Fee Letter ”).

Documents in (iii), (iv) and (v) above are collectively referred to as the “ Peruvian Security Documents ”.

In rendering this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary or appropriate. In examining the documents, we have assumed, and in giving this opinion, we assume, without independent verification, the genuineness of all signatures on such documents or the originals thereof, the authenticity of all documents submitted to us as originals and the completeness and conformity to original documents of all documents submitted to us as photocopies, telecopied or certified copies and the authenticity of the originals of such copies.

We render this opinion on the following matters only insofar as they are governed by the laws of the Republic of Peru (“Peru”). We have not made any investigation of the laws of any jurisdiction other than aforesaid.

In rendering the opinions expressed below, we have assumed (without investigation on our part), with respect to all of the documents referred to in this opinion letter, save as expressly set forth in the opinions below, as to all parties thereto that:

 

(a) all signatories to the Financing Documents (other than the representatives of the Borrower and Viva GyM) have been duly authorized;

 

(b) all of the parties to the Financing Documents (other than the Borrower and Viva GyM) are duly organized and validly existing;

 

(c) all of the parties to the Financing Documents (other than the Borrower and Viva GyM) have the power and authority to execute, deliver and perform such documents; and

 

(d) the execution, delivery and performance of each of their obligations under the Financing Documents does not and will not violate, breach or constitute a default under, or require any consent under, (i) any statute, rule, law or regulation to which the parties to the Financing Documents (other than the Borrower and Viva GyM) are subject, or (ii) except to the extent expressly covered by our opinion 3(iii) below, any order, writ, injunction or decree of any court or governmental authority or any arbitral award, or (iii) any agreement or instrument to which the parties to the Financing Documents (other than the Borrower and Viva GyM) or their property are subject.

 


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Based upon the foregoing and subject to the limitations set forth herein, and having considered such questions of Peruvian law, as we have deemed necessary as a basis for the opinions expressed below, we are of the opinion that:

 

1. The Borrower and Viva GyM (i) have been duly organized and are validly existing under the laws of Peru, and (ii) are duly registered companies with the Peruvian Public Registries and are duly qualified and authorized to do business in Peru as now conducted.

 

2. The Borrower and Viva GyM (i) have the corporate power and authority necessary to enter into and perform each of the Financing Documents to which they are a party, (ii) have duly executed and delivered each of the Financing Documents to which they are a party, and (iii) the officers who signed the Financing Documents to which they are a party have the power to execute them on behalf of the Borrower and Viva GyM. Each Financing Document to which the Borrower and Viva GyM is a party, as applicable, is its legal, valid and binding obligation, enforceable against such party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance, transfer or similar laws affecting the enforcement of creditors’ rights generally.

 

3. The execution, delivery and performance by the Borrower and Viva GyM of each of the Financing Documents to which they are a party, and the consummation of the transactions contemplated thereunder, have been duly authorized by all necessary corporate action, and do not (i) contravene any of their organizational documents, or (ii) violate any applicable law, rule or regulation in Peru or Peruvian public policy, or (iii) to the extent of our knowledge (without having made a legal review on the situation of the Borrower and Viva GyM), violate any order, writ, injunction or decree of any governmental authority in Peru or any arbitral award in Peru notified to the Borrower or to Viva GyM.

 

4. The Second Lien Share Trust Agreement is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, and, therefore, the “ Bienes Fideicometidos ” (as this term is defined in the Second Lien Share Trust Agreement) have been effectively fiduciary assigned by the Borrower to La Fiduciaria S.A., acting as trustee, as of such date. The Second Lien Share Trust Agreement (i) creates a valid and perfected first priority lien (subordinated to the Peruvian Share Pledge Agreement) on all of the Borrower’s shares in GyM and Concar in favor of the Administrative Agent, for the benefit of the Lenders and (ii) does not affect the validity and enforceability of the Peruvian Share Pledge Agreement.

Upon (i) registration of the Second Lien Share Trust Agreement before the “Registro Mobiliario de Contratos” and (ii) an annotation being made in respect of the Second Lien Share Trust Agreement in each of GyM and Concar’s stock ledger, said agreement will have erga omnes effects with respect to any third parties.

 


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5. The Addenda to the Peruvian Security Trust Agreement is the legal, valid and binding obligation of Viva GyM, enforceable against the Borrower and Viva GyM in accordance with its terms, and, therefore, the amendments provided therein are effective among the parties, as of such date. The execution of the Addenda to the Peruvian Security Trust Agreement does not affect the validity and enforceability of the Peruvian Security Trust Agreement.

Upon (i) registration of the Addenda to the Peruvian Security Trust Agreement before the “Registro Mobiliario de Contratos” and (ii) an annotation being made in respect of the Addenda to the Peruvian Security Trust Agreement in Almonte’s stock ledger, said agreement will have erga omnes effects with respect to any third parties.

 

6. The Corporate Building Trust Agreement is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, and, therefore, the “Bienes Fideicometidos ’ (as this term is defined in the Corporate Building Trust Agreement) have been effectively fiduciary assigned by the Borrower to La Fiduciaria S.A., acting as trustee, as of such date. The Corporate Building Trust Agreement (i) creates a valid and perfected first priority lien (subordinated to the Peruvian Mortgage Agreement) on the Corporate Buildings in favor of the Administrative Agent, for the benefit of the Lenders and (ii) does not affect the validity and enforceability of the Peruvian Mortgage Agreement.

Upon registration of the Corporate Building Trust Agreement before the “ Registro Mobiliario de Contratos” and the “Registro de Propiedad Inmueble” in Lima, said agreement will have erga omnes effects with respect to any third parties.

 

7. Other than as set forth in Sections 4, 5 and 6 above, it is not necessary under the laws of Peru that any Peruvian Security Documents be filed, registered or recorded before or with any court or public office or that any stamp or similar tax be paid on or in respect thereof in order to create any rights thereunder.

 

8. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Peruvian governmental authority is required to authorize, or is required in connection with the remittance to the Administrative Agent of all monies payable in respect of the Financing Documents.

There is no foreign exchange or other restrictions in effect in Peru adversely affecting the ability or right of the Borrower or Viva GyM to acquire and to remit to the Administrative Agent Dollars to pay and satisfy the Borrower and Viva GyM’s obligations under the Financing Documents.

 


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A judgment issued by a Peruvian court may be expressed in a currency other than Peruvian currency if the parties to the relevant agreement convened in paying the obligations arising thereunder in such foreign currency.

 

9. No authorization or approval or other action by, or notice to or filing with, any governmental authority is required for the due execution and delivery by the Borrower of the Amendment, the Peruvian Security Documents or the Fee Letter, or for the performance by the Borrower or Viva GyM of the Credit Agreement (as amended by the Amendment), the Peruvian Security Documents or the Fee Letter, or for the validity or enforceability of the Financing Documents or for the enforcement of the rights and remedies of each of the Lenders and the Administrative Agent under the Financing Documents.

 

10. The Borrower’s obligations under the Financing Documents, rank and will, under current law, at least pari passu in priority of payment and in all other respects with all present or future unsecured and unsubordinated Indebtedness of the Borrower.

 

11. The appointment of the Process Agent as the agent for service of process of the Borrower is legal, valid and binding under the laws of Peru, and a court sitting in Peru would recognize such appointment.

 

12. Each of the Financing Documents is in proper legal form under the laws of Peru for the enforcement thereof against the Borrower and Viva GyM, in accordance with their terms; provided that the enforcement or admissibility into evidence before the Peruvian courts of any Financing Document governed by the laws of New York is subject to (1) the filing of such documents with the courts of Peru, (2) such document must be translated into Spanish by a duly authorized translator (traductor oficial), and (3) the party seeking enforcement must pay court taxes at a rate that will depend upon the jurisdiction in which enforcement is sought.

 

13. Neither the Lenders nor the Administrative Agent shall be deemed to be resident, domiciled or carrying out business in Peru, or subject to taxation in Peru (except for the Peruvian Income Tax (Impuesto a la Renta) withholding at a rate of 4.99% (subject to the compliance with certain conditions) applicable on interest, fees and commissions paid by the Borrower or Viva GyM and deemed income of a Peruvian source) by reason only of the execution, delivery, performance and/or enforcement of the Financing Documents.

 

14.

The choice of New York law under the Amendment and the Fee Letter is valid, binding and enforceable against the Borrower, provided it does not conflict with Peruvian provisions related to international public policy or good morals. We have no reason to believe the choice of New York law under the abovementioned agreements would conflict with Peruvian provisions related to international public policy or good morals.

 


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The Borrower’s submission to jurisdiction and consent to service of process is valid, binding and effective.

 

15. A final, non-appealable judgment against the Borrower in respect of the Amendment or the Fee Letter, or the Credit Agreement as amended by the Amendment, obtained from the New York State courts in New York or federal courts of the United States of America sitting in the Southern District of New York, will be recognized and enforceable against the Borrower in the competent courts of the Republic of Peru without re-examination, review of the merits of the cause of action in respect of which such judgment was given or relitigation of the merits adjudicated upon, provided that the following conditions are met:

 

  (i) such judgment does not resolve matters under the exclusive jurisdiction of Peruvian courts (e.g., when dealing with the in rem rights incorporated over tangible assets located in Peru);

 

  (ii) the court rendering such judgment had jurisdiction under its own private international law rules and under international rules on jurisdiction;

 

  (iii) the defendant was served with process in accordance with the laws of the place where such court sits, was granted a reasonable opportunity to appear before such foreign court and was guaranteed due process rights;

 

  (iv) the judgment has the status of res judicata in the jurisdiction of the court rendering such judgment;

 

  (v) there is no pending litigation in Peru between the same parties for the same dispute, which shall have been initiated before the commencement of the proceeding that concluded with the foreign judgment;

 

  (vi) such judgment is not incompatible with another enforceable judgment in Peru unless such foreign judgment was rendered first;

 

  (vii) such judgment is not contrary to the public order or good morals of Peru; and

 

  (viii) there is a treaty between Peru and the country in which such judgment has been rendered, and the provisions of such treaty shall apply. In the absence of a treaty, the reciprocity rule is applicable (such reciprocity being presumed), under which a judgment given by a foreign competent court will be admissible in the Peruvian courts and will be enforceable thereby, except if according to such foreign law (a) judgments issued by Peruvian courts are not admissible in such foreign country, or (y) judgment issued by Peruvian courts are subject to re-examination by such competent court of the issues dealt with therein.

 


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As of this date, there is no treaty between Peru and the United States of America on the enforcement of foreign judicial resolutions. However, we have no reason to believe that any obligation under the Amendment or the Credit Agreement as amended by the Amendment would be contrary to Peruvian public policy and international treaties to which Peru is subject or generally accepted principles of international law.

Assuming that the foreign final judgment complies with the standards set forth in this opinion, and in the absence of any condition referred to above which would render a foreign judgment unenforceable, the respective parties would be entitled to enforce such judgment in Peru by proceedings for the enforcement of a foreign final judgment under the laws of Peru.

 

16. Pursuant to Peruvian laws, neither the Borrower or Viva GyM or their properties enjoy any right of immunity from set-off, suit or execution with respect to its assets or its obligations under any of the Financing Documents. The Borrower and Viva GyM are subject to civil and commercial law with respect to their obligations under each of the Financing Documents, and the execution, delivery and performance by the Borrower and Viva GyM of their obligations thereunder constitute private and commercial acts rather than public or governmental acts.

 

17. It is not necessary under the laws of Peru (i) in order to enable any person to exercise or enforce its rights under any Financing Document, or (ii) by reason of any person being or becoming a party to any Financing Document or by reason of the performance by any person of its obligations thereunder or in respect thereof; that such person should be licensed, qualified or otherwise entitled to carry on business in Peru.

The foregoing opinions are subject to the following limitations and qualifications:

 

A. The enforceability of each Financing Documents against the Borrower and Viva GyM may be limited by bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, reorganization, moratorium, proceso concursal and other similar laws relating to or affecting creditors’ rights generally by general equitable principles (regardless of whether enforcement is sought in equity or at law), including, without limitation, principles regarding good faith and fair dealing, and by any principles of public policy (orden público) and good morals in force in Peru.

 

B. The above opinions are hereby specifically qualified by reference to and are based solely upon laws, rulings and regulations of Peru in effect on the date hereof, and are subject to modification to the extent that such laws, rulings and regulations may be changed in the future. We undertake no obligation to advise you of facts or changes in law occurring after the date of this opinion letter which might affect the opinions expressed herein.

 


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This opinion is addressed to you and, other than as set forth below, is solely for your benefit, and only in connection with the transactions contemplated by the Financing Documents. A copy of this opinion letter may be delivered by any of you to any Person that becomes a Lender in accordance with the provisions of the Credit Agreement or to prospective Lenders. Any such Person may rely on the opinions expressed above as if this opinion letter were addressed and delivered to such person on the date hereof. Additionally, this opinion may be disclosed on a non-reliance basis (i) to governmental authorities, provided that such disclosure is made in accordance with applicable laws, and (ii) to legal advisers and auditors of the Administrative Agent or the Lenders. Save for the foregoing, this opinion may not be relied upon by you for any other purpose or furnished to, circulated, quoted or relied upon by any other person for any purpose without our prior written consent.

Very truly yours,

PAYET, REY, CAUVI, PÉREZ ABOGADOS

 


Annex III

Form of Opinion of Borrower’s New York Counsel

[See attached]


June 27, 2017

To the Addressees listed on Schedule 1:

Ladies and Gentlemen:

We have acted as special New York counsel to Graña y Montero S.A.A., a sociedad anónima abierta organized under the laws of Peru (the “ Borrower ”) in connection with the Eighth Amendment to Credit Agreement dated as of June 27, 2017 (the “ Amendment ”), among the Borrower, the Lenders party thereto and Credit Suisse AG, Cayman Islands Branch, as the Administrative Agent. This opinion letter is being delivered to you pursuant to Section 5.1(d)(ii) of the Amendment. Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Amendment.

In rendering the opinions expressed below, we have examined a copy or an original of:

 

  (i) the Credit Agreement dated as of December 10, 2015, among the Borrower, the Lenders party thereto and the Administrative Agent (the “ Credit Agreement ”);

 

  (ii) the Amendment; and

 

  (iii) the Amendment Fee Letter dated as of June 27, 2017, between the Borrower and the Administrative Agent (the “ Amendment Fee Letter ” and, together with the Amendment, the “ Opinion Documents ”).

For purposes of this opinion letter, the Opinion Documents together with the Credit Agreement (as amended by the Amendment) are referred to herein as the “ Covered Documents ”.

In our examination and in rendering the opinions expressed below we have assumed the genuineness of all signatures, the authenticity and completeness of all documents submitted to us as originals and the conformity with authentic original documents of all documents, corporate records, certificates and other instruments reviewed by us; that photocopy, electronic, certified, conformed, facsimile and other copies of original documents, corporate records, certificates and other instruments reviewed by us conform to such original documents, corporate records, certificates and other instruments; and the legal capacity and competency of all individuals executing documents. When relevant facts were not independently established, we have relied, without special investigation, upon representations and warranties made in or pursuant to the Covered Documents or in certificates delivered by or on behalf of the Borrower pursuant thereto or in connection therewith. We have assumed that each party to the Covered Documents is duly organized and validly existing, has the power and authority to execute, deliver and perform the Covered Documents to which it is a party, has taken all action necessary to authorize the execution, delivery and performance of the Covered Documents to which it is a party, has duly executed and delivered the Covered Documents to which it is a party and, except to the extent expressly covered by our opinion 3 below, all authorizations, approvals or consents of (including without limitation all foreign exchange control approvals), and filings or


registrations with, any governmental or regulatory authority or agency required for the execution, delivery and performance of the Covered Documents to which it is a party have been obtained or made and are in effect. We have also assumed that: (i) each Covered Document is the valid and binding obligation of each of the parties thereto (other than the Borrower) under New York law, enforceable against such parties (other than the Borrower) under New York law in accordance with its terms and has not been amended or terminated orally or in writing; (ii) that there are no agreements or understandings between or among any of the parties to the Covered Documents or third parties that would expand, modify or otherwise affect the terms of the Covered Documents or the respective rights or obligations of the parties thereunder; (iii) the statements in respect of factual matters contained in the certificates and comparable documents of public officials, officers and representatives of the Borrower and other Persons on which we have relied for the purposes of this opinion letter are true and correct on and as of the date hereof; (iv) the officers and directors of the Borrower have properly exercised their fiduciary duties; and (v) the rights and remedies set forth in the Covered Documents will be exercised reasonably and in good faith and were granted without fraud or duress and for good, valuable and adequate consideration and without intent to hinder, delay or defeat any rights of any creditors or stockholders of, or other holders of equity interests in the Borrower. We have assumed that the Borrower is not a party to any agreement or subject to any writ or order, that might affect any of our opinions below, and we express no opinion as to any agreements or understandings between and among any of the parties to the Covered Documents or third parties that would expand, modify or otherwise affect the terms of the Covered Documents or the respective rights or obligations of the parties thereunder or the effect of such agreement or understandings on the Covered Documents (other than any such agreement or understanding contained in the Covered Documents). As to all questions of fact material to this opinion letter, we have relied (without independent investigation, except as expressly indicated herein) upon certificates or comparable documents of officers and representatives of the Borrower and upon the representations and warranties of the Borrower contained in the Covered Documents.

We have been retained as a special New York counsel to the Borrower in connection with the transactions contemplated by the Opinion Documents and have not represented the Borrower in a general capacity and are not familiar with the nature and full extent of the Borrower’s assets, activities, characteristics and operations. Accordingly, we have assumed that the assets, activities and operations of the Borrower are not of such nature as to cause the transactions contemplated by the Covered Documents to be governed by laws or regulations of the State of New York or of the United States of America applicable only because of particular assets, activities, characteristics or operations and not applicable to business corporations generally. We have also assumed that the Borrower is in compliance with all laws and regulations applicable to it because of the nature of its assets, activities and operations (and other characteristics) if non-compliance impairs or affects the enforceability of the Covered Documents, that the execution, delivery and performance of the Covered Documents will not violate any of those laws or regulations, and that none of those laws or regulations prohibits, invalidates or affects the execution, delivery or performance of the Covered Documents by the Borrower.

Based upon and subject to the foregoing, and in reliance thereon, and subject to the assumptions, limitations, qualifications and exceptions set forth herein, we are of the following opinions:


1. Each Covered Document constitutes a valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms.

2. The execution and delivery by the Borrower of each Opinion Document do not, and the performance by the Borrower of its obligations under each Covered Document will not, cause the Borrower to violate any applicable law of the State of New York or federal law of the United States of America as such laws are in effect on the date hereof.

3. No order, consent, license, approval, authorization or validation of, or filing, recording or registration with, or exemption by, any federal or New York State governmental body or authority is required to be obtained or made by the Borrower in connection with the execution and delivery by the Borrower of each Opinion Document and the performance by the Borrower of each Covered Document.

The foregoing opinions are subject to the following assumptions, exceptions, qualifications and limitations:

A. We express no opinion with respect to any of the following (collectively, the “ Excluded Laws ”): (i) anti-fraud laws or other federal or state securities laws; (ii) Federal Reserve Board margin regulations; (iii) pension or employee benefit laws, e.g., ERISA; (iv) federal or state antitrust, trade or unfair competition laws, including, without limitation, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; and the Exon-Florio Act; (v) the statutes, ordinances, administrative decisions or rules and regulations of counties, towns, municipalities and other political subdivisions (whether created or enabled through legislative action at the federal, state or regional level); (vi) federal or state environmental laws; (vii) federal or state land use, building codes or subdivision laws; (viii) federal or state tax laws; (ix) federal or state laws relating to communications (including, without limitation, the Communications Act of 1934, as amended, and the Telecommunications Act of 1996, as amended); (x) federal patent, copyright or trademark, state trademark or other federal or state intellectual property laws; (xi) federal or state racketeering laws, e.g., RICO; (xii) federal or state health care laws or federal or state safety laws, e.g., OSHA; (xiii) federal or state laws concerning aviation, vessels, railways or other means of transportation; (xiv) federal or state laws concerning public utilities; (xv) federal or state labor or employment laws; (xvi) federal or state laws or policies concerning (A) national or local emergencies, (B) possible judicial deference to acts of sovereign states including judicial acts, or (C) criminal or civil forfeiture laws; (xvii) federal or state banking or insurance laws; (xviii) export, import or customs laws; (xix) anti-terrorism orders, as the same may be renewed, extended, amended or replaced, or any federal, state or local laws, statutes, ordinances, orders, governmental rules, regulations, licensing requirements or policies relating to the same, including, without limitation, Executive Order 13224, effective September 24, 2001; (xx) the USA Patriot Improvement and Reauthorization Act of 2005, its successor statutes or similar statutes in effect from time to time, or the policies promulgated thereunder or any foreign assets control regulations of the United States Treasury Department or any enabling legislation or order relating thereto; (xxi) federal or state laws concerning bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, including, without limitation, fraudulent transfer or fraudulent conveyance laws; or (xxii) other federal or state statutes of general application to the extent they provide for criminal prosecution (e.g., mail fraud and wire fraud statutes); or, in the case of each of the foregoing, any rules or regulations promulgated thereunder or administrative or judicial decisions with respect thereto.


B. Our opinions are subject to (i) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors’ rights generally, including, without limitation, fraudulent transfer or fraudulent conveyance laws; (ii) the effect of public policy considerations, statutes or court decisions that may limit rights to obtain exculpation, indemnification or contribution (including, without limitation, indemnification regarding violations of the securities laws and indemnification for losses resulting from a judgment for the payment of any amount other than in United States dollars); (iii) the effect of general principles of equity (including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing) and the availability of equitable remedies (including, without limitation, specific performance and equitable relief), regardless of whether considered in a proceeding in equity or at law; and (iv) the possible judicial application of foreign laws or foreign governmental action affecting the rights of creditors generally.

C. We express no opinion with respect to (i) the truth of the factual representations and warranties contained in the Covered Documents, (ii) the effect of the law of any jurisdiction other than the State of New York that limits the rates of interest legally chargeable or collectible, or (iii) any document or agreement other than the Covered Documents, regardless of whether such document or agreement is referred to in the Covered Documents.

D. The enforceability of provisions in any Covered Document to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances.

E. We express no opinion with respect to the effect that the introduction of extrinsic evidence as to the meaning of the Covered Documents may have on the opinions expressed herein.

F. No opinion is expressed herein with respect to the validity, binding effect or enforceability of: (i) any provision of any Covered Document allowing any party to exercise any remedial rights without notice to the Borrower; (ii) any waiver of demand or notice by the Borrower, or any waiver of any rights or any defense which as a matter of law or public policy cannot be waived, in either case to the extent contained in any Covered Document; (iii) any provision of any Covered Document purporting to prohibit, restrict or condition the assignment of any agreement or instrument to the extent the same is rendered ineffective by Sections 9-401 and 9-406 through 9-409 of the Uniform Commercial Code as in effect in a relevant jurisdiction; (iv) any provision of any Covered Document purporting to establish evidentiary standards; (v) any provision of any Covered Document purporting to establish the subject matter jurisdiction of the United States District Court to adjudicate any controversy related to such Covered Document; (vi) any provision of any Covered Document requiring a Person to cause another Person to take or to refrain from taking action under circumstances in which such Person does not control such other Person; (vii) any provision of any Covered Document requiring waivers or amendments to be in writing insofar as such provision suggests that oral or other modifications, amendments or waivers could not be effectively agreed upon by the parties or that the doctrine of promissory estoppel might not apply; (viii) any provision of any Covered Document stating that rights or remedies are not exclusive, that every right or remedy is cumulative and may be


exercised in addition to any other right or remedy, that the election of some particular remedy does not preclude recourse to one or more others or that failure to exercise or delay in exercising rights or remedies will not operate as a waiver of any such right or remedy; (ix) any liquidated damage or other provision of any Covered Document that imposes (or is deemed or construed to impose) a penalty or forfeiture; (x) any provision of any Covered Document purporting to limit the liability of any party thereto to third parties; (xi) any provision of any Covered Document stating that time is of the essence; (xii) any provision of any Covered Document that constitutes (or is construed to constitute) an agreement to agree; (xiii) any right of setoff to the extent asserted by a participant in the rights of a Lender under any Covered Document; or (xiv) any provision regarding “bail-in” statutes or similar laws.

G. The enforceability of any indemnification obligation contained in any Covered Document may be limited by laws limiting the enforceability of provisions exculpating or exempting a party from, or requiring indemnification of a party for, liability of its own action or inaction, to the extent that the action or inaction involves gross negligence, recklessness, willful misconduct or unlawful conduct.

H. We express no opinion as to (i) the effect of the laws of any jurisdiction in which any Lender is located (other than New York) that limits the interest, fees or other charges it may impose for the loan or use of money or other credit or (ii) the waiver of inconvenient forum under any Covered Document with respect to proceedings in the United States District Court for the Southern District of New York.

I. We express no opinion with respect to the validity, binding effect or enforceability of any provision of any Covered Document insofar as it purports to effect a choice of governing law or choice of forum for the adjudication of disputes, other than the enforceability by a New York State court under New York General Obligations Law Section 5-1401 of the choice of New York State law as the governing law of the Covered Documents (subject, however, to the extent limited by the Constitution of the United States and by Section 1-301 of the New York Uniform Commercial Code), and the enforceability by a New York State court under New York General Obligations Law Section 5-1402 of New York State courts as a non-exclusive forum for the adjudication of disputes with respect to the Covered Documents.

J. The opinions expressed above relate only to those laws and regulations (other than the Excluded Laws) that, in our experience, are generally applicable to transactions in nature of those contemplated by the Covered Documents between unregulated parties. Without limitation of the foregoing, we express no opinion as to the effect of, or as to compliance by the Borrower with, any law or regulation that may be applicable to the transactions contemplated by the Covered Documents because of the nature of the business conducted by the Borrower or its subsidiaries.

K. We express no opinion as to the effect on our opinions regarding the Covered Documents arising out of the status of activities of, or laws applicable to, the Administrative Agent, the Lenders or any other party, if any, to the Covered Documents (other than the Borrower under federal laws of the United States of America or laws of the State of New York), and, without limiting the foregoing, we are not expressing any opinion as to the effect of compliance or non-compliance by such parties with any state or federal laws or regulations applicable to the transactions contemplated by the Covered Documents because of the nature of any of their businesses.


L. We note that effective enforcement of a foreign currency claim in the courts of the State of New York or U.S. federal courts sitting in the State of New York may be limited by requirements that the claim (or a foreign currency judgment in respect of the claim), or a claim with respect to any guarantee of the claim, be converted into U.S. dollars at the rate of exchange prevailing on the date of the judgment or decree by the New York court or U.S. federal court.

M. We express no opinion as to the enforceability of any provision relating to the severability of the provisions in any Covered Document.

N. We express no opinion with respect to (i) the right, title or interest of the Borrower in or to any property, (ii) the creation, perfection or validity of any security interests or liens or (iii) priority of any security interest or liens.

Without limiting any of the other limitations, exceptions and qualifications stated elsewhere herein (including, without limitation, the qualification set forth in paragraph A with respect to Excluded Laws), we express no opinion with regard to any law other than, as in effect on the date of this opinion letter, (i) the federal laws of the United States of America and (ii) the laws of the State of New York, and we do not express any opinion as to the laws of any other jurisdiction.

This opinion letter deals only with the specified legal issues expressly addressed herein, and you should not infer any opinion that is not explicitly addressed herein from any matter stated in this opinion letter.

The opinions expressed herein are rendered on and as of the date hereof and are not to be deemed to have been reissued or updated by any subsequent delivery of a copy hereof. We assume no obligation to advise you as to any legal development or factual matter arising subsequent to the date hereof that might affect the opinions expressed herein.

The opinions expressed herein are to be governed by the law of the State of New York and shall be construed in accordance with the customary practice in New York of lawyers who regularly give, and lawyers who regularly advise opinion recipients regarding, opinions of the kinds contained herein.

This opinion letter is provided to you by us as special New York counsel to the Borrower pursuant to Section 5.1(d)(ii) of the Amendment and may not be relied upon by any other person or for any purpose other than in connection with the transactions contemplated by the Opinion Documents without our prior written consent in each case.

[ Signature page follows ]

Very truly yours,


Schedule 1

Addresses

 

    Credit Suisse AG, Cayman Islands Branch , in its capacity as Administrative Agent;

 

    Credit Suisse AG, Cayman Islands Branch , in its capacity as Lender;

 

    Caterpillar Financial Services Corporation , in its capacity as Lender;

 

    Banco de Occidente (Panama), S.A. , in its capacity as Lender;

 

    Banco de Crédito del Perú , in its capacity as Lender;

 

    Inteligo Bank Ltd, in its capacity as Lender; and

 

    ICBC Peru Bank, n its capacity as Lender.


Signature Page

Eighth Amendment to Credit Agreement

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the day and year first above written.

 

Yours truly,

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

/s/ Mónica Miloslavich Hart

  Name: Mónica Miloslavich Hart
  Title: Representative
By:  

/s/ Luis Diaz Olivero

  Name: Luis Díaz Olivero
  Title: Representative


Signature Page

Eighth Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,

as Administrative Agent

By:  

/s/ Andreas Schenk Caviezel

  Name: Andreas Schenk Caviezel
  Title: Managing Director
By:  

/s/ Hieu Pham

  Name: Hieu Pham
  Title: Director


Signature Page

Eighth Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,

as Lender

By:  

/s/ Andreas Schenk Caviezel

  Name: Andreas Schenk Caviezel
  Title: Managing Director
By:  

/s/ Hieu Pham

  Name: Hieu Pham
  Title: Director


Signature Page

Eighth Amendment to Credit Agreement

 

CATERPILLAR FINANCIAL SERVICES CORPORATION,

as Lender

By:  

/s/ Karen Johnson

  Name: Karen Johnson
  Title: Credit & Operations Manager


Signature Page

Eighth Amendment to Credit Agreement

 

BANCO DE OCCIDENTE (PANAMA), S.A., as Lender
By:  

/s/ Carlos Echeverri

  Name: Carlos Echeverri
  Title: General Manager


Signature Page

Eighth Amendment to Credit Agreement

 

BANCO DE CRÉDITO PERÚ, as Lender
By:  

/s/ Alessandro Molinari

  Name: Alessandro Molinari
  Title: Gerente de Negocios
By:  

/s/ Fernando Kaelin

  Name: Fernando Kaelin
  Title: Gerente Adjunto de Negocios


Signature Page

Eighth Amendment to Credit Agreement

 

INTELIGO BANK LTD,

as Lender

By:  

/s/ Roberto Hoyle

  Name: Roberto Hoyle
  Title: Chairman
By:  

/s/ Reynaldo Roisenvit

  Name: Reynaldo Roisenvit
  Title: Executive Director


Signature Page

Eighth Amendment to Credit Agreement

 

ICBC PERU BANK

as Lender

By:  

/s/ Eduardo Patsiash M.

  Name: Eduardo Patsiash M.
  Title: Deputy General Manager
By:  

 

  Name:
  Title:

Exhibit 10.01.9

NINTH AMENDMENT TO CREDIT AGREEMENT, dated as of October 12, 2017 (this “ Amendment ”), among GRAÑA Y MONTERO S.A.A., as borrower (the “ Borrower ”) under the Credit Agreement, dated as of December 10, 2015 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among the Borrower, the Lenders and the Administrative Agent (each as defined below); the LENDERS party to the Credit Agreement (collectively, the “ Lenders ”) and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as administrative agent under the Credit Agreement (in such capacity, the “ Administrative Agent ”).

WHEREAS, the Borrower has requested the Lenders to amend certain provisions of the Credit Agreement and the Lenders are agreeable to such request upon the terms and subject to the conditions set forth herein.

NOW THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the parties hereto agree as follows:

ARTICLE I

RATIFICATION; DEFINITIONS AND RULES OF CONSTRUCTION

SECTION 1.1.  Relation to Credit Agreement; Ratification . This Amendment is entered into in accordance with Section 9.2(b) of the Credit Agreement and constitutes an integral part of the Credit Agreement. Except as amended by this Amendment, the provisions of the Credit Agreement are in all respects ratified and confirmed and shall remain in full force and effect.

SECTION 1.2.  Definitions . Unless otherwise defined herein, terms defined in the Credit Agreement (as amended by this Amendment) are used herein as therein defined, and the rules of interpretation set forth in Section 1.2 of the Credit Agreement shall apply mutatis mutandis to this Amendment.

ARTICLE II

AMENDMENT TO CREDIT AGREEMENT

SECTION 2.1.  Amendment to Credit Agreement . Effective as of the Amendment Effective Date (as defined below), Section 1.1 of the Credit Agreement is hereby amended by replacing the definition of the term “Local Facility” in its entirety with the following:

““Local Facility” means, collectively, (a) a syndicated loan facility of up to U.S.$53,197,387.42 and S/177,498,341.48 Peruvian Soles to be granted by the Local Facility Lenders, consisting of (i) a revolving facility of GyM, and (ii) a term loan facility of GyM, (b) a term loan facility to be granted by the Local Facility Lenders for the reimbursement of outstanding surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit and similar instruments issued for the account of the Borrower or any of its Subsidiaries in their ordinary course of business, (c) the Scotiabank Credit Agreement, (d) a stand by letter of credit facility of up to U.S.$150,000,000 for the issuance of new standby letters of credit for the account of the Borrower and


GyM to serve as surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit or similar instruments of the Borrower or any of its Subsidiaries in their ordinary course of business to be granted by the Local Facility Lenders and (e) a commitment for the maintenance and renewal of existing standby letters of credit for the account of (i) the Borrower, (ii) GyM and/or (iii) Affiliates of the Borrower.””

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and the Lenders that:

SECTION 3.1.  Authorization. Enforceability . The execution, delivery and performance by the Borrower of this Amendment is within such Person’s corporate powers and has been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Amendment has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

SECTION 3.2.  Governmental Approvals, No Conflict .

(a) All governmental authorizations, if any, and actions of any kind necessary for the due execution, delivery and performance by the Borrower of this Amendment, or required for the validity or enforceability against the Borrower of this Amendment, have been obtained or performed and are valid and subsisting in full force and effect, and the performance thereof as well as the continuing obligations of the Borrower in connection therewith do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority.

(b) This Amendment, the performance thereof and the continuing obligations of the Borrower under or in connection with this Amendment do not and will not violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Borrower or any order of any Governmental Authority.

ARTICLE IV

CONDITIONS TO EFFECTIVENESS

SECTION 4.1.  Conditions to Effectiveness . This Amendment shall become effective as of the date hereof (the “Amendment Effective Date”), subject to the satisfaction of each of the following conditions on or prior to the date hereof in a manner satisfactory to the Administrative Agent and the Lenders:

 

2


(a) Execution of Amendment . The Administrative Agent shall have received a true, correct and complete copy of this Amendment, duly executed and delivered by a duly authorized officer of each party hereto.

(b) No Material Adverse Effect . Since December 31, 2016, no event, development or circumstance shall have occurred that has had or could reasonably be expected to have a Material Adverse Effect.

(c) No Default . No event, act or condition shall have occurred and be continuing which constitutes a Default or Event of Default, other than as previously disclosed to the Lenders in writing.

(d) Taxes . All applicable taxes and stamp duties due and payable, if any, arising in connection with the execution, delivery and performance of this Amendment, and the other Financing Documents shall have been paid in full.

ARTICLE V

MISCELLANEOUS

SECTION 5.1.  Notices . All notices, requests and other communications to any party hereto shall be given or served in the manner contemplated in Section 9.1 of the Credit Agreement.

SECTION 5.2.  No Waiver; Status of Financing Documents . This Amendment shall not constitute an amendment, supplement or waiver of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as an amendment, supplement, waiver or consent to any action on the part of any party hereto that would require an amendment, supplement, waiver or consent of the Lenders except as expressly stated herein. Except as expressly amended, supplemented or waived hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. No failure or delay on the part of the Lenders in the exercise of any power, right or privilege hereunder or under any other Financing Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Amendment and the other Financing Documents are cumulative to, and not exclusive of, any rights or remedies available at equity or law. Nothing in this Amendment shall constitute a novation of the Borrowers’ obligations under the Credit Agreement or any other Financing Document.

SECTION 5.3.  Amendment . This Amendment may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

SECTION 5.4.  Amendment Binding . This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and permitted assigns of the parties hereto.

 

3


SECTION 5.5.  Headings . Section headings used herein are for convenience of reference only, are not part of this Amendment and shall not affect the construction of, or be taken into consideration in interpreting, this Amendment.

SECTION 5.6.  Governing Law . This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflicts of laws principles.

SECTION 5.7.  Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by e-mail in portable document format (.pdf) or facsimile (with acknowledgment of receipt) will be effective as delivery of a manually executed counterpart of this Amendment.

[Remainder of this page intentionally left blank]

 

 

4


Signature Page

Ninth Amendment to Credit Agreement

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the day and year first above written.

 

Yours truly,

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

/s/ Luis Díaz Olivero

  Name: Luis Díaz Olivero
  Title: Chief Executive Officer
By:  

/s/ Mónica Miloslavich Hart

  Name: Mónica Miloslavich Hart
  Title: Chief Financial Officer


Signature Page

Ninth Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,

as Administrative Agent

By:  

/s/ Austin McNurlen

  Name: Austin McNurlen
  Title: Authorized Signatory
By:  

/s/ Siddharth Swarup

  Name: Siddharth Swarup
  Title: Authorized Signatory


Signature Page

Ninth Amendment to Credit Agreement

 

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,

as Lender

By:  

/s/ Austin McNurlen

  Name: Austin McNurlen
  Title: Authorized Signatory
By:  

/s/ Siddharth Swarup

  Name: Siddharth Swarup
  Title: Authorized Signatory


Signature Page

Ninth Amendment to Credit Agreement

 

CATERPILLAR FINANCIAL SERVICES

CORPORATION,

as Lender

By:  

/s/ Karen Johnson

  Name: Karen Johnson
  Title: Credit & Operations Manager


Signature Page

Ninth Amendment to Credit Agreement

 

BANCO DE OCCIDENTE (PANAMA), S.A.,

as Lender

By:  

/s/ Carlos Echeverri

  Name: Carlos Echeverri
  Title: General Manager


Signature Page

Ninth Amendment to Credit Agreement

 

BANCO DE CRÉDITO DEL PERÚ,

as Lender

By:  

/s/ Alessandro Molinari

  Name: Alessandro Molinari
  Title:
By:  

/s/ Bertha Mariel Torres Castillo

  Name: Bertha Mariel Torres Castillo
  Title:


Signature Page

Ninth Amendment to Credit Agreement

 

INTELIGO BANK LTD,

as Lender

By:  

/s/ Victor Vinatea C

  Name: Victor Vinatea C
  Title: General Manager
By:  

/s/ Jorge Montes G

  Name: Jorge Montes G
  Title: Operations Division Manager


Signature Page

Ninth Amendment to Credit Agreement

 

ICBC PERU BANK,

as Lender

By:  

/s/ Eduardo Patsias Mella

  Name: Eduardo Patsias Mella
  Title: Gerente General Adjunto Banca Corporativa y Tesorería
By:  

 

  Name:
  Title:

Exhibit 10.02

 

 

 

$78,751,165.72

LOAN AGREEMENT

dated as of

June 27, 2017

AMONG

GRAÑA Y MONTERO S.A.A.,

as the Borrower,

THE LENDERS PARTY HERETO,

as Lenders and Mandated Lead Arrangers

AND

NATIXIS, NEW YORK BRANCH,

as the Administrative Agent

 

 

 


Table of Contents

 

          Page  
ARTICLE I  
DEFINITIONS  

SECTION 1.01

   Defined Terms      1  

SECTION 1.02

   Accounting Terms; Changes in IFRS      32  

SECTION 1.03

   Interpretation      32  

SECTION 1.04

   Currency      33  
ARTICLE II  
THE CREDITS  

SECTION 2.01

   Commitments      33  

SECTION 2.02

   Loan      33  

SECTION 2.03

   Requests for Borrowings      33  

SECTION 2.04

   Funding of the Loan      34  

SECTION 2.05

   Continuation of the Loan      34  

SECTION 2.06

   Repayment of the Loan; Evidence of Debt      34  

SECTION 2.07

   Illegality      35  

SECTION 2.08

   Optional Prepayment of the Loan      35  

SECTION 2.09

   Mandatory Prepayment of the Loan      36  

SECTION 2.10

   Notes      37  

SECTION 2.11

   Fees      38  

SECTION 2.12

   Interest      38  

SECTION 2.13

   Alternate Rate of Interest      39  

SECTION 2.14

   Increased Costs      39  

SECTION 2.15

   Break Funding Payments      40  

SECTION 2.16

   Taxes      40  

SECTION 2.17

   Payments Generally; Pro Rata Treatment; Sharing of Set-offs      42  

SECTION 2.18

   Mitigation Obligations; Replacement of Lenders      44  

SECTION 2.19

   Defaulting Lenders      45  

SECTION 2.20

   Acknowledgement and Consent to Bail-In of EEA Financial Institutions      46  
ARTICLE III  
CONDITIONS PRECEDENT  

SECTION 3.01

   Conditions Precedent to the Borrowing of the Loan      46  

SECTION 3.02

   Delivery of Documents      49  

SECTION 3.03

   Determination of Borrowing Conditions      49  

SECTION 3.04

   Release      49  

 

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Table of Contents

(continued)

 

          Page  
ARTICLE IV  
REPRESENTATIONS AND WARRANTIES  

SECTION 4.01

   Organization and Qualification      50  

SECTION 4.02

   Authorization, Validity, Enforceable Obligations, Etc.      50  

SECTION 4.03

   Governmental Consents, Etc.      50  

SECTION 4.04

   No Breach or Violation of Agreements or Restrictions, Etc.      50  

SECTION 4.05

   Properties; Liens      51  

SECTION 4.06

   Litigation and Environmental Matters      51  

SECTION 4.07

   Disclosure      51  

SECTION 4.08

   Investment Company Act      51  

SECTION 4.09

   Employee Benefit Plans; Labor Matters      52  

SECTION 4.10

   Tax Returns and Payments      52  

SECTION 4.11

   Compliance with Laws and Contractual Obligations      52  

SECTION 4.12

   Purpose of the Loan      52  

SECTION 4.13

   Foreign Assets Control Regulations, Etc.      52  

SECTION 4.14

   Financial Statements      53  

SECTION 4.15

   No Default      54  

SECTION 4.16

   Solvency      54  

SECTION 4.17

   No Immunity      54  

SECTION 4.18

   Proper Legal Form; No Need To Qualify Under Applicable Law      54  
ARTICLE V  
AFFIRMATIVE COVENANTS  

SECTION 5.01

   Financial Statements; Information      55  

SECTION 5.02

   Existence, Conduct of Business      56  

SECTION 5.03

   Maintenance of Properties      56  

SECTION 5.04

   Books and Records      57  

SECTION 5.05

   Compliance with Laws      57  

SECTION 5.06

   Use of Proceeds      57  

SECTION 5.07

   Payment of Tax Obligations      57  

SECTION 5.08

   Security Documents; Security Interests      57  

SECTION 5.09

   Pari Passu      59  

SECTION 5.10

   KYC, Sanctions, Anti-Corruption Laws, AML Legislation, Etc.      60  

SECTION 5.11

   Planned Dispositions Proceeds      60  

SECTION 5.12

   Insurance      60  
ARTICLE VI  
NEGATIVE COVENANTS  

SECTION 6.01

   Indebtedness      60  

 

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Table of Contents

(continued)

 

          Page  

SECTION 6.02

   Liens      60  

SECTION 6.03

   Permitted Dispositions      61  

SECTION 6.04

   Permitted Business      61  

SECTION 6.05

   Transactions with Affiliates      61  

SECTION 6.06

   Restricted Payments      61  

SECTION 6.07

   Accounting Changes; Fiscal Year      61  

SECTION 6.08

   Sanctions, Anti-Corruption Laws, AML Legislation, Etc.      62  

SECTION 6.09

   Investments      62  

SECTION 6.10

   Prepayments, Etc. of Debt      62  

SECTION 6.11

   No Further Negative Pledges, Etc.      62  

SECTION 6.12

   Certain Amendments      62  

SECTION 6.13

   Consolidated Leverage Ratio      62  
ARTICLE VII  
EVENTS OF DEFAULT  

SECTION 7.01

   Events of Default and Remedies      63  

SECTION 7.02

   Remedies      66  
ARTICLE VIII  
THE ADMINISTRATIVE AGENT  

SECTION 8.01

   Appointment, Powers and Immunities      67  

SECTION 8.02

   Reliance by Administrative Agent      67  

SECTION 8.03

   Defaults; Events of Default      68  

SECTION 8.04

   Rights as a Lender      68  

SECTION 8.05

   INDEMNIFICATION      68  

SECTION 8.06

   Non-Reliance on Administrative Agent and Other Lenders      69  

SECTION 8.07

   Action by Administrative Agent      69  

SECTION 8.08

   Resignation or Removal of Administrative Agent      70  
ARTICLE IX  
MISCELLANEOUS  

SECTION 9.01

   Notices, Etc.      70  

SECTION 9.02

   Waivers; Amendments      73  

SECTION 9.03

   Payment of Expenses, Indemnities, Etc.      74  

SECTION 9.04

   Successors and Assigns      75  

SECTION 9.05

   Assignments and Participations      75  

SECTION 9.06

   Survival; Reinstatement      78  

SECTION 9.07

   Counterparts; Integration; Effectiveness      78  

SECTION 9.08

   Severability      79  

 

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Table of Contents

(continued)

 

          Page  

SECTION 9.09

   Right of Setoff      79  

SECTION 9.10

   Governing Law; Jurisdiction; Consent to Service of Process      79  

SECTION 9.11

   WAIVER OF JURY TRIAL      81  

SECTION 9.12

   Confidentiality      81  

SECTION 9.13

   Appointment of Process Agent      82  

SECTION 9.14

   Judgment Currency      82  

SECTION 9.15

   USA Patriot Act      83  

SECTION 9.16

   English Language      83  

SECTION 9.17

   Notes      83  

 

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SCHEDULES :

 

Schedule 1.01-A    Commitments
Schedule 1.01-B    Liens Existing as of the Effective Date
Schedule 1.01-C    Investments Existing as of the Effective Date
Schedule 1.01-D    Indebtedness Existing as of the Effective Date
Schedule 4.06A    Material Litigation
Schedule 4.06B    Environmental Matters
Schedule 4.09    Labor Matters
Schedule 4.11    Compliance with Contractual Obligations
Schedule 6.03    Fundamental Changes
Schedule 7.01(w)    Terms of CS Facility Waiver and Amendments
EXHIBITS :   
Exhibit 1.01-A    Form of Assignment and Assumption
Exhibit 1.01-B    Form of Promissory Note
Exhibit 1.01-C    Form of Note Completion Agreement
Exhibit 2.03    Form of Borrowing Request
Exhibit 2.08    Form of Notice of Optional Prepayment
Exhibit 2.09    Form of Notice of Anticipated Mandatory Prepayment

 

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LOAN AGREEMENT

THIS LOAN AGREEMENT (this “ Agreement ”) dated as of June 27, 2017 (the “ Effective Date ”) is among GRAÑA Y MONTERO S.A.A., a sociedad anónima abierta organized and existing under the laws of Peru (the “ Borrower ”), the banks and other financial institutions listed on the signature pages hereof under the caption “ Lenders ” (together with each other Person that becomes a Lender pursuant to Section  9.05 or otherwise in accordance with the provisions of this Agreement, collectively, the “ Lenders ”), and NATIXIS, NEW YORK BRANCH, individually as a Lender, and as the administrative agent for the Lenders (in such latter capacity together with any other Person that becomes Administrative Agent pursuant to Section  8.08 , the “ Administrative Agent ”).

PRELIMINARY STATEMENTS

The Borrower has requested that a term loan facility be extended to it pursuant to which the Borrower may borrow from the Lenders to pay all obligations of the Borrower under or in respect of that certain G&M Guaranty (as hereinafter defined) in respect of obligations of GSP (as hereinafter defined), an affiliate of the Borrower, under the Bridge Facility (as hereinafter defined) outstanding as of the Closing Date (as hereinafter defined) (the “ Financing ”).

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01 Defined Terms .

As used in this Agreement, in addition to the terms defined above, the following terms have the meanings specified below:

ABR Loan ” means a Loan that bears interest at a rate determined by reference to the Alternate Base Rate.

Addenda to the Almonte Trust Agreement ” means the addenda to the Almonte Trust Agreement, to be executed after the Closing Date, among Viva, the CS Agent, the Administrative Agent, the trustee party thereto and, upon accession thereto, the Local Agent, providing (a) a second priority Lien and Security Interest on the Almonte Shares for the benefit of the Lenders and (b) a third priority Lien and Security Interest on the Almonte Shares for the benefit of the Local Facility Lenders so that payments to the Local Facility Lenders will be made only after all obligations of the Borrower to the Senior Lenders have been paid in full.

Adexus ” means Adexus S.A., a sociedad anónima organized and existing under the laws of Chile.

Adjusted LIBOR ” means, with respect to a LIBOR Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to the quotient of (i) the LIBO Rate for the Loan divided by (ii) 1 minus the Reserve Requirement for the Loan.


Administrative Agent ” has the meaning specified in the introduction to this Agreement.

Administrative Questionnaire ” means an administrative questionnaire in the form supplied by the Administrative Agent.

Affiliate ” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

Agent Parties ” has the meaning specified in Section  9.01(e)(ii) .

Agreement ” has the meaning specified in the introduction hereof (subject, however, to Section  1.03(e) ).

Agreement Currency ” has the meaning specified in Section  9.14 .

ALMONTE ” means Inmobiliaria Almonte S.A., a sociedad anónima organized and existing under the laws of Peru.

Almonte Shares ” means the issued and outstanding Capital Stock of ALMONTE held directly or indirectly by the Borrower.

Almonte Trust Agreement ” means the contrato de fideicomiso , dated March 11, 2016, among Viva, the CS Agent and the trustee party thereto, granting a first priority Lien on the Almonte Shares in favor of the CS Agent, as amended by the Addenda to the Almonte Trust Agreement following the execution thereof.

Alternate Base Rate ” means, for any day, a rate per annum equal to the highest of (a) the Federal Funds Effective Rate in effect on such day plus  1 2 of 1%, (b) the Prime Rate in effect for such day and (c) the one month Adjusted LIBOR as published on such day (or, if LIBOR is not published on such day, the previous day on which LIBOR was published) plus 1%; provided that, if the Loan is an ABR Loan due to application of Section  2.13 , “Alternate Base Rate” shall be the greater of clauses (a)  and (b) above; provided , further , that in no event shall the Alternate Base Rate at any time be equal to less than 0.00% per annum. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.

AML Legislation ” mean any applicable federal, state, international, foreign or other laws, regulations or government guidance regarding anti-money laundering, including, without limitation, Title III of the Patriot Act, the Money Laundering Control Act of 1986 (18 U.S.C. § 1956 et seq.) the Currency and Foreign Transactions Reporting Act of 1970, the 3rd EU Money Laundering Directive and international anti-money laundering principals or procedures by an intergovernmental group or organization, such as the Financial Action Task

 

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Force on Money Laundering, of which the United States is a member and with which designation the United States representative to the group or organization continues to concur, all as amended, and any executive order, directive, or regulation pursuant to the authority of any of the foregoing, or any orders or licenses issued thereunder.

Anti-Corruption Laws ” means the implementing legislation for the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 17 December 1997, and the Inter-American Convention Against Corruption of the OAS adopted on March 29, 1996, including, but not limited to, the U.S. Foreign Corrupt Practices Act (15 U.S.C. §§ 78dd-1 et seq.), the Corruption of Foreign Public Officials Act (Canada), the United Kingdom Bribery Act 2010, or any corresponding laws of jurisdictions in which the Borrower operates, to the extent applicable to the Borrower, and all other laws, rules, and regulations of any jurisdiction that concern or relate to bribery or corruption and that is or may be applicable to any Obligor.

Applicable Exchange Rate ” means, as of any date of determination, with respect to the conversion of Soles to Dollars or Dollars to Soles, as applicable, the daily rate published as the Soles to Dollars exchange rate ( venta ) or the Dollars to Soles exchange rate ( compra ) on the website of the Superintendencia de Banca, Seguros y AFP (www.sbs.gob.pe).

Applicable Law ” means, as to any Person, any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, resolution, authorization or other directive or requirement (having the force and effect of law), including Environmental Laws, of any Governmental Authority applicable to such Person.

Assignment and Assumption ” means an Assignment and Assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section  9.05 ), and accepted by the Administrative Agent, substantially in the form of Exhibit 1.01-A with such changes as may be approved by the Administrative Agent.

Attorney Costs ” means all documented fees and disbursements of any law firm or other external legal counsel.

Authorized Officers ” has the meaning specified in Section  3.01(a)(iii) .

Bail-In Action ” means the exercise of any Write-Down and Conversion Powers.

Bail-In Legislation ” means (i) in relation to an EEA Member Country which has implemented, or which at any time implements, Article 55 of Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms, the relevant implementing law or regulation as described in the EU Bail-In Legislation Schedule from time to time; and (ii) and in relation to any other state, any analogous law or regulation from time to time which requires contractual recognition of any Write-down and Conversion Powers contained in that law or regulation.

Bankruptcy Act ” means Peruvian General Insolvency Law No. 27809 ( Ley 27809, Ley General del Sistema Concursal ), as amended from time to time.

 

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Bankruptcy Code ” means Title 11 of the United States Code, as amended, or any similar federal or state law for the relief of debtors.

Bankruptcy Event ” means, with respect to any Person, (a) an involuntary proceeding shall be commenced or involuntary petition shall be filed seeking (i) liquidation, reorganization, insolvency or other relief under any bankruptcy, insolvency, receivership or similar law in respect of such Person or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Person and, in any such case, such proceeding or petition shall continue undismissed and unstayed for a period of sixty (60) or more days or an order or decree approving or ordering any of the foregoing shall be entered, (b) such Person shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization, insolvency or other relief under any bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (a) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) admit in writing its inability to pay its debts generally as they become due, (vii) generally not pay its debts as they become due or (viii) take any action for the purpose of effecting any of the foregoing, or (c) any analogous procedure or step is taken in any jurisdiction.

Bankruptcy Law ” means, as applicable to the relevant Person, the Bankruptcy Code, the Bankruptcy Act and/or any other Applicable Law of any jurisdiction relating to bankruptcy, insolvency, liquidation, reorganization, moratorium, winding-up or composition or readjustment of debts or any similar circumstances.

Base Rate Margin ” means a rate per annum equal to (a) during Period 1, 3.50%, (b) during Period 2, 4.00% and (c) during Period 3, 4.50%.

Board ” means the Board of Governors of the Federal Reserve System of the United States of America.

Borrower ” has the meaning specified in the introduction to this Agreement.

Borrower Financial Statements ” means the unaudited individual and consolidated financial statements of the Borrower for the fiscal year ending on December 31, 2016.

Bridge Facility ” means the credit facilities under that certain Term Loan Agreement dated as of August 29, 2014 among GSP, as borrower thereunder, the lenders party thereto and Natixis, New York Branch, as administrative agent, as amended, amended and restated, supplemented or modified from time to time.

Business ” means, as to the Borrower or any of its Subsidiaries, the business and operations of the Borrower or such Subsidiary as conducted on the Effective Date and any operations incidental thereto conducted after the Effective Date.

 

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Business Day ” means any day that is not a Saturday, Sunday or other day on which commercial banks in (a) Lima, Peru, or (b) New York, New York, are authorized or required by law to remain closed; provided that, when used in connection with a LIBOR Loan, the term “ Business Day ” shall also exclude any day on which banks are not open for dealings in Dollar deposits in the London interbank market.

CAM Chile ” means CAM Chile S.A., a Chilean company.

CAM Chile Leverage Ratio ” means, on any date of determination, the ratio of (i) Total Indebtedness of CAM Chile as of such date to (ii) EBITDA of CAM Chile for the Rolling Period ended on such date (or, if such date is not the last day of a fiscal quarter of CAM Chile, ended on the last day of the fiscal quarter of CAM Chile most recently ended prior to such date).

CAM Chile Share Pledge ” means the prenda sin desplazamiento de Segundo grado sobre acciones , to be entered after the Closing Date, among CAM Chile, CAM Holding S.p.A., the Administrative Agent, the CS Agent, any agent bank party thereto and, upon accession thereto, the Local Agent, granting (a) a second priority Lien and Security Interest under Chilean law in favor of the Senior Lenders in respect of 73.16% of the issued and outstanding Capital Stock of CAM Chile and (b) a third priority Lien and Security Interest under Chilean law in favor of the Local Facility Lenders in respect of 73.16% of the issued and outstanding Capital Stock of CAM Chile, such that the Local Facility Lenders will receive payment only after all obligations of the Borrower to Chubb and the Senior Lenders have been paid in full.

CAM Peru ” means CAM Servicios del Perú S.A., a sociedad anónima organized and existing under the laws of Peru.

CAM Peru Share Trust Agreement ” means the Contrato de Fideicomiso de Acciones CAM Peru to be entered into after the Closing Date among the Borrower, Chubb, the Administrative Agent, the CS Agent, the trustee party thereto and, upon accession thereto, the Local Agent, granting (a) a first priority Lien in and to the CAM Peru Shares in favor of Chubb, (b) a second priority Lien in favor of the Senior Lenders in and to the CAM Peru Shares so that payments to the Senior Lenders will be made only after all obligations of the Borrower to Chubb have been paid in full and (c) a third priority Lien in favor of the Local Facility Lenders in and to the CAM Peru Shares so that payments to the Local Facility Lenders will be made only after all obligations of the Borrower to Chubb and the Senior Lenders have been paid in full.

CAM Peru Shares ” means 73.16% of the issued and outstanding Capital Stock of CAM Peru.

Capital Lease ” means, with respect to any Person, any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which is required to be classified and accounted for as a capital lease on a balance sheet of such Person under IFRS other than those that would have been accounted for as an operating lease on a balance sheet of such Person under IFRS as in effect on December 31, 2011.

 

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Capital Lease Obligations ” of any Person means the obligations of such Person to pay rent or other amounts under any Capital Lease, and the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with IFRS.

Capital Stock ” means, with respect to any Person, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents (however designated) of such Person’s equity, including all common stock and preferred stock, any limited or general partnership interest and any limited liability company member interest.

CCDS ” means Consorcio Constructor Ductos del Sur , a consortium comprised of Odebrecht Perú Ingeniería y Construcción S.A.C., Constructora Norberto Odebrecht S.A. Sucursal Peru and GyM.

CCDS Receivables ” means the proceeds of all CCDS’s present and future rights to receive payments under the EPC Agreement that have been transferred in favor of a trust estate under the EPC Trust Agreement.

Change in Law ” means the occurrence, after the Effective Date, of any of the following: (a) the adoption or taking effect of any Applicable Law, rule, regulation or treaty, (b) any change in any Applicable Law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority, (c) compliance by any Lender (or, for purposes of Section  2.14(b) , by any lending office of such Lender or by such Lender’s holding company, if any) with any request, rule, requirement, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Effective Date or (d) the non-renewal of any provision of Applicable Law that is in effect on a temporary basis on the Effective Date; provided , that notwithstanding anything herein to the contrary (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, requirements, guidelines or directives thereunder, issued in connection therewith and (ii) all requests, rules, requirements, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted, issued or implemented.

Change of Control ” means (a) any person, entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such person, entity or “group” and their respective Subsidiaries and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the G&M Holders, shall at any time (i) have acquired direct or indirect beneficial ownership (as defined in SEC Rules 13(d)-3 and 13(d)-5) of Capital Stock of the Borrower, having the power to vote or direct the voting of such Capital Stock of the Borrower, that exceeds the aggregate ordinary voting power of the Borrower that is beneficially owned, directly or indirectly, by the G&M Holders or (ii) Control the Borrower, or (b) the G&M Holders shall at any time fail to have the right or the ability, directly or indirectly, by voting power, contract or otherwise to elect or designate for election at least two members of the Board of Directors of the Borrower.

 

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Charter Documents ” means, with respect to any Person, (a) the articles or certificate of incorporation, the certificate of formation or other similar organizational document of such Person, (b) the by-laws, the operating agreement, the limited liability company agreement or other similar document of such Person, and (c) any certificate of designation or instrument relating to the rights of preferred shareholders or other holders of Capital Stock of such Person

Chubb ” means Chubb Perú S.A. Compañía de Seguros y Reaseguros, a sociedad anónima organized and existing under the laws of Peru.

Chubb Facility ” means the Acuerdo de Reconocimiento de Deuda y Compromiso de Pago , dated March 31, 2017, between the Borrower and Chubb.

Closing Date ” means, subject to the provisions of Section 2.06(a), the date on which the conditions precedent set forth in Section  3.01 have been satisfied or waived in accordance therewith and the Disbursement is made under this Agreement.

Code ” means the Internal Revenue Code of 1986, as amended.

COGA ” means Compañía Operadora de Gas del Amazonas S.A., a sociedad anónima organized and existing under the laws of Peru.

Collateral ” means all rights, assets and other Property that, in accordance with the terms of the Security Documents, are intended to be subject to any Lien in favor of the Collateral Trustee or the Administrative Agent, as applicable, for the benefit of one or more of the Secured Loan Parties.

Collateral Trustee ” means La Fiduciaria S.A., in its capacity as trustee under the Security Documents.

Commitment ” means, with respect to each Lender, the commitment of such Lender to make a Loan in a principal amount outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 1.01-A hereto as reduced as provided in this Agreement. The total Commitments of all of the Lenders as of the Effective Date, is $78,751,165.72

Communications ” has the meaning specified in Section  9.01(e)(ii) .

CONCAR ” means Concar S.A., a sociedad anónima organized and existing under the laws of Peru.

CONCAR-GyM Pledge Agreement ” means the Contrato de Garantía Mobiliari a, dated December 10, 2015, between the Borrower and Credit Suisse AG, Cayman Islands Branch in respect of: (a) 98.24% of the issued and outstanding Capital Stock of GyM and (b) 99.9983% of the issued and outstanding Capital Stock of CONCAR.

 

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Concession Agreement ” means the Contrato de Concesion del Proyecto Mejoras a la Seguridad Energética del País y Desarrollo del Gasoducto Sur Peruano , entered into by and between GSP, the Operador Calificado and the Government of Peru acting through the Ministry of Energy and Mines, dated July 23, 2014, whereby GSP was granted the concession, on the terms set forth therein, for the Project.

Connection Income Taxes ” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.

Consolidated EBITDA ” means, for any period, with respect to the Borrower and its Subsidiaries on a consolidated basis, without duplication, net profit plus, to the extent deducted in calculating such net profit, (i) financial (expense) income; (ii) income tax; (iii) depreciation and amortization; (iv) the amount corresponding to the tariff for the Lima Metro concession actually paid to GyM FERROVIAS during such period (on account of the Peruvian government’s repayment of amounts invested by GyM FERROVIAS to purchase trains and other infrastructure for the Lima Metro concession); and (v) the portion of costs of sales during such period related to purchase of land in the Borrower’s real estate segment, in each case determined in accordance with IFRS, minus the EBITDA of (a) any Non-Recourse Subsidiary and (b) each of Adexus, CAM Chile and CAM Peru.

Consolidated Leverage Ratio ” means, on any date of determination, the ratio of (i) Consolidated Total Indebtedness as of such date to (ii) Consolidated EBITDA for the Rolling Period ended on such date (or, if such date is not the last day of a fiscal quarter of the Borrower, ended on the last day of the fiscal quarter of the Borrower most recently ended prior to such date).

Consolidated Total Indebtedness ” means, on any date of determination, with respect to the Borrower and its Subsidiaries (other than any Non-Recourse Subsidiary) on any date, the aggregate principal amount of all Indebtedness of the Borrower and its Subsidiaries on such date, minus (i) the aggregate amount of Indebtedness of the Borrower (if any) of the type permitted under clauses (a), (d), (e) and (h)(ii) of the definition of “Permitted Indebtedness” and (ii) the aggregate amount of Indebtedness of Adexus, CAM Peru and CAM Chile, determined on a consolidated basis in accordance with IFRS.

Contractual Obligation ” means as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound.

Control ” means, when used in respect of any particular Person, at any time of determination, the possession, directly or indirectly, at such time, of the power to direct or cause the direction of the management or policies of such Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.

Corporate Buildings ” means (i) building owned by the Borrower located in the district of Surquillo in Lima and recorded in the partida electronica No. 41776862 of the Registro de Propiedad Inmueble de Lima and (ii) building owned by the Borrower located in the district of Miraflores in Lima and recorded in partida electronica No. 13334259 of the Registro de Propiedad Inmueble de Lima .

 

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Corporate Building Trust Agreement ” means the Contrato de Fideicomiso de Inmuebles , to be entered after the Closing Date, among the Borrower, the CS Agent, the Administrative Agent, the trustee party thereto and, upon accession thereto, the Local Agent, granting (a) a second priority Lien and Security Interest (subordinated to the Mortgage Agreement) in favor of the Lenders in respect of the Corporate Buildings and (b) a third priority Lien and Security Interest (subordinated to the Mortgage Agreement) in favor of the Local Facility Lenders in respect of the Corporate Buildings, so that payments to the Local Facility Lenders will be made only after all obligations of the Borrower to the CS Parties and the Lenders have been paid in full. The Corporate Building Trust Agreement will contemplate a first priority order of payment in favor of the CS Parties, so that payments to the Lenders will be made only after all obligations of the Borrower to the CS Parties have been paid in full.

Credit Exposure ” means, with respect to any Lender at any time, the outstanding amount of such Lender’s Commitment at such time, or, if the Commitments have been terminated, then the outstanding aggregate principal amount of such Lender’s share of the Loan at such time.

CS Agent ” means the “Administrative Agent” under and as defined in the CS Facility.

CS Facility ” means the Credit Agreement, dated as of December 10, 2015, among the Borrower, Credit Suisse AG, Cayman Islands Branch, as administrative agent and a lender, Caterpillar Financial Services Corporation, as a lender, Banco de Occidente (Panama), S.A., as a lender, Banco de Crédito del Perú, as a lender, and Inteligo Bank Ltd., as a lender.

CS Party ” means each of the CS Agent and the “Lenders” under and as defined in the CS Facility.

CS Waiver ” means a waiver and amendment with respect to the CS Facility substantially in the terms attached as Schedule 7.01(w) .

CSM ” means 50% of the rights and property shares in 58,000 square meters of real property located at Av. Pérez Aranibar No. 1300 (corner of calle Jorge Polar and Av. General Cordova), consisting of blocks 114, 115, 166, 118, 119, 120, 122, 123 of Santa Cruz, district of Miraflores, Lima, and recorded in partida electronica No. 07001527 of the Registro de Propiedad Inmueble de Lima y Callao in the name of Viva.

Debtor Relief Laws ” means the Bankruptcy Laws and all other liquidation, bankruptcy, assignment for the benefit of creditors, conservatorship, moratorium, receivership, insolvency, rearrangement, reorganization or similar debtor relief laws of Peru, the United States or other applicable jurisdictions in effect from time to time.

Default ” means any event or condition which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

 

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Default Period ” means, with respect to any Lender, the period during which such Lender is a Defaulting Lender.

Defaulting Lender ” means, subject to Section  2.19 , any Lender that (a) has failed, within three Business Days of the date required to be funded or paid, to (i) fund all or any portion of its share of the Loan, or (ii) pay over to the Administrative Agent or any Lender any other amount required to be paid by it hereunder, unless, in the case of clause (i)  above, such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s reasonable determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, (b) has notified the Borrower or the Administrative Agent in writing, or has made a public statement to the effect, that it does not intend or expect to comply with all or any portion of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s reasonable determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within three Business Days after written request by the Administrative Agent or the Borrower, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations to fund its share of the Loan, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c)  upon the Administrative Agent’s or the Borrower’s, as applicable, receipt of such certification in form and substance reasonably satisfactory to it, (d) has become the subject of a Bankruptcy Event or has a direct or indirect parent company that has become the subject of a Bankruptcy Event or (e) has a direct or indirect parent company that has become the subject of a Bail-in Action.

Disbursement ” means the disbursement of the Loan pursuant to this Agreement.

Dollars ” or “ $ ” refers to lawful money of the United States of America.

EBITDA ” means, for any period, with respect to any Person, without duplication, net profit plus, to the extent deducted in calculating such net profit, (i) financial (expense) income; (ii) income tax; (iii) depreciation and amortization, in each case determined in accordance with IFRS.

EEA Member Country ” means any state of the European Union, Iceland, Liechtenstein, and Norway.

Effective Date ” has the meaning specified in the introduction to this Agreement.

Environmental Laws ” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions or binding agreements issued, promulgated or entered into by any Governmental Authority, regulating to or imposing liability or standards of conduct concerning protection of the environment, safety in the workplace, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.

 

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Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

EPC Agreement ” means the Contrato Llave en Mano – EPC a Suma Alzada para la Ingeniería (Diseño), Procura y Construcción del Sistema de Transporte del Proyecto “Mejoras a la Seguridad Energética del País y Desarrollo del Gasoducto Sur Peruano ”, dated June 25, 2014, between GSP and CCDS, as amended by the First Addendum dated December 10, 2014, the Second Addendum dated March 13, 2015, Third Addendum dated April 29, 2016 and the Fourth Addendum dated June 14, 2016.

EPC Trust Agreement ” means the EPC Trust Agreement entered into as a public deed under Peruvian law dated May 3, 2016, among CCDS, Odebrecht Perú Ingeniería y Construcción S.A.C., Constructora Norberto Odebrecht S.A. Sucursal Peru, GyM, the Borrower and Enagás S.A., in each case, acting as guarantor and beneficiary, Natixis, New York Branch, acting as administrative agent for the Lenders and La Fiduciaria, acting as trustee, providing for the transfer of all CCDS Receivables in favor of the trust estate and the payment of all CCDS Receivables by GSP to the trust estate.

EU Bail-In Legislation Schedule ” means the document described as such and published by the Loan Market Association (or any successor person) from time to time.

Event of Default ” has the meaning specified in Section  7.01 .

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Excluded Performance Bond Obligations ” means obligations in respect of surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit or similar instruments that meet each of the following conditions:

(a) are incurred in the ordinary course of business in support of performance obligations, it being understood that “ordinary course of business” could include, with respect to the Borrower and its Subsidiaries, activities related to their equity interests in infrastructure companies, including at any time (i) a letter of credit with a face amount of $41,000,000 issued in favor of the Government of Peru to support advance payments made to GyM FERROVIAS and (ii) a performance bond for an amount of up to Soles 40,000,000 in respect of the obligations of GyM FERROVIAS under the Línea 1 concession;

(b) are unsecured or are secured by Liens (i) over Collateral of a lower priority than the priority of the Liens of the Secured Parties and the beneficiaries of such lower-priority Liens will not have the right to enforce such Liens or (ii) over Property other than the Collateral;

 

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(c) do not support indebtedness for borrowed money of the Borrower or any of its Subsidiaries; and

(d) are not incurred to support the Borrower’s and its Subsidiaries’ obligations to make capital contributions (base, contingent or otherwise, whether in the form of equity, loans or otherwise).

Excluded Taxes ” means with respect to any Lender (a) Taxes imposed on or measured by its overall net income (however denominated), franchise taxes and branch profits taxes (i) imposed by the jurisdiction (or any political subdivision thereof) under the laws of which such Lender is organized or in which its principal office is located or in which its applicable Lending Office is located or (ii) that are Other Connection Taxes, (b) Taxes attributable to such Lender’s failure to comply with Section  2.16(f) , (c) any U.S. federal withholding Taxes imposed under FATCA, (d) any backup withholding Taxes imposed by the United States or similar Taxes imposed by any other jurisdiction, and (e) without limiting (a), (b), (c) and (d) any Taxes imposed on any payment other than any Taxes for which there is (i) a connection of the Borrower to the jurisdiction imposing such taxes (including a connection arising as a result of the Borrower being engaged in business in the jurisdiction imposing such Tax) or (ii) no connection of any of the Borrower, the Lender and the Administrative Agent to the jurisdiction imposing such taxes (unless such jurisdiction is the United States of America or any political subdivision thereof, in which case this clause (ii) shall be applied as if the Administrative Agent had no connection to such jurisdiction). Excluded Taxes in connection with a Tax Payment or Increased Cost following a Lender’s transfer or assignment of its rights and obligations under the Loan Documents shall be treated as provided in Section  9.05(l) .

FATCA ” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code, and any treaty, law or regulation of any jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of the Sections of the Code referred to above.

Federal Funds Effective Rate ” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it, or, if such day is not a Business Day, the Federal Funds Effective Rate for such day shall be the Federal Funds Effective Rate for the next preceding Business Day.

Fee Letters ” means, collectively, (a) the fee letter, dated as of the date hereof, among the Lenders and the Borrower for the structuring fee and the coordination fee (as defined therein) and (b) the fee letter, dated as of the date hereof, between the Borrower and the Administrative Agent for the administrative agency fee.

 

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Financing ” has the meaning specified in the preliminary statement to this Agreement.

G&M Collection Rights Trust Agreement ” means the trust ( fideicomiso de administración y garantía ) to be entered into under Peruvian law among the Borrower, the Administrative Agent and the Collateral Trustee providing for (i) the irrevocable transfer of all GSP Claims in favor of the trust estate and (ii) the payments of all GSP Claims to the trust estate for the benefit of the Lenders.

G&M Guaranty ” means that certain Guaranty of the Borrower dated as of December 17, 2015, in favor of the administrative agent under the Bridge Facility, as amended, amended and restated, supplemented or modified from time to time.

G&M Holders ” means, collectively, (a) GH Holding Group Corp., Bethel Enterprises Inc., Byron Development S.A. or any of their respective Affiliates and (b) Hernando Graña Acuña and any trust or entity 100% owned and Controlled by or established for the sole benefit of, or the estate of, Hernando Graña Acuña or his spouse or lineal descendants.

GMD ” means GMD S.A., a sociedad anónima organized and existing under the laws of Peru.

GMD Shares ” means 89.19% of the issued and outstanding Capital Stock of GMD.

Governmental Authority ” means the government of the United States of America, Peru, any other nation or any political subdivision thereof, whether federal, state, provincial, territorial, departmental, municipal or local, and any agency, authority, instrumentality, judicial or administrative body, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

Group ” means a Person and its Subsidiaries.

GSP ” means Gasoducto Sur Peruano S.A., a sociedad anónima organized and existing under the laws of Peru.

GSP Claims ” means the claims or rights of the Borrower to receive proceeds of the Termination Payment ( Pago por Terminación ) (as defined in the Concession Agreement) (a) as a result of the Borrower’s subrogation rights under the G&M Guaranty, (b) as a result of the Borrower’s subrogation rights under the GSP Performance Bond provided for the benefit of GSP and (c) as a result of the Borrower’s rights under Clause 8.2.2.5 of the EPC Trust Agreement in its capacity as guarantor.

GSP Performance Bond ” means the Garantía de Fiel Cumplimiento , dated July 18, 2016, issued by Chubb in favor of MINEM in respect of the obligations of GSP under the Concession Agreement.

 

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Guarantee ” means any act by which any Person assumes, guarantees, endorses or otherwise incurs direct or contingent liability in connection with, or agrees to purchase or otherwise acquire or otherwise assures a creditor against loss in respect of, any debt of any Person (excluding (a) any liability by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business and (b) any liability in connection with obligations of the Borrower, including obligations under any conditional sales agreement, equipment trust financing or equipment lease).

GyM ” means GyM S.A., a sociedad anónima organized and existing under the laws of Peru.

GyM FERROVIAS ” means GyM Ferrovias S.A., a sociedad anónima organized and existing under the laws of Peru.

Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature, in each case above to the extent regulated pursuant to any Environmental Law.

Hedge Termination Value ” means, in respect of any one or more Hedging Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Hedging Agreements, (a) for any date on or after the date such Hedging Agreements have been closed out and termination values determined in accordance therewith, such termination values, and (b) for any date prior to the date referenced in subsection (a) , the amounts determined as the mark-to-market values for such Hedging Agreements, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Hedging Agreements (which may include a Lender or any Affiliate of a Lender).

Hedging Agreement ” means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or interest rate insurance, foreign exchange contract, currency swap or option agreement, forward contract or any other similar agreement or arrangement designed to alter the risks of any Person arising from fluctuations in interest rates or currency values.

IFRS ” means the International Financial Reporting Standards and applicable accounting requirements set by the International Accounting Standards Board or any successor thereto, as in effect from time to time in Peru.

Illegality ” means, as to any Lender, that it becomes unlawful in any applicable jurisdiction for that Lender to perform any of its obligations under a Loan Document or to fund or maintain its share in the Loan.

Illegality Cure Period ” has the meaning specified in Section  2.07 .

 

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Increased Cost ” means an increase in the cost to a Lender of making, converting to, continuing or maintaining its share of the Loan or of maintaining its obligation to make its share of the Loan, or any reduction of the amount of any sum received or receivable by such Lender or the Administrative Agent hereunder (whether of principal, interest or any other amount), in each case resulting from any Change in Law (a) imposing, modifying or deeming applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in Adjusted LIBOR), (b) subjecting the Administrative Agent or any Lender to any Taxes (other than (i) Indemnified Taxes, (ii) Taxes described in clauses (b), (c) and (d) of the definition of Excluded Taxes and (iii) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto, or (c) imposing on any Lender or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or the portion of the Loan made by such Lender or participation therein.

Indebtedness ” of any Person means, without duplication:

(a) all indebtedness created, issued or incurred by such Person for borrowed money;

(b) all obligations of such Person to pay the deferred purchase price of Property of such Person or services (but excluding trade payable, accounts payable or similar accrued liabilities arising in the ordinary course of business so long as such trade payables, accounts receivable and similar accrued liabilities are payable within 180 days of the date the respective goods are delivered or the respective services are rendered and are not overdue) which in accordance with generally accepted accounting principles applicable to such entity would be shown on the liability side of the balance sheet of such entity;

(c) all obligations of such Person in respect of letters of credit, bank guarantees or similar instruments issued or accepted by financial institutions for the account of such Person (excluding Excluded Performance Bond Obligations);

(d) Capital Lease Obligations of such Person;

(e) all obligations of such Person to pay a specified purchase price for goods or services whether or not delivered or accepted, i.e., take-or-pay and similar obligations;

(f) all net obligations of such Person in respect of Hedging Agreements valued on any date at the Hedge Termination Value thereof as of such date;

(g) all Guarantees by such Person in respect of indebtedness described in the foregoing clauses (a)  through (f) and clause (h)  below of others;

(h) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments; and

(i) all obligations of the kind referred to in subsections (a)  through (h) above of others secured by any Lien on Property owned by such Person.

Indemnitee ” has the meaning specified in Section  9.03(b) .

 

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Indemnified Liabilities ” has the meaning specified in Section  9.03(b) .

Indemnified Taxes ” means Taxes other than Excluded Taxes imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document.

Information ” has the meaning specified in Section  9.12 .

Interest Payment Date ” means the last Business Day of each March, June, September and December, commencing with June 30, 2017; provided that the first Interest Payment Date shall be September 30, 2017 and the last Interest Payment Date shall be the Stated Maturity Date.

Interest Period ” means, with respect to the Loan, initially the period from and including the Closing Date to but excluding the next succeeding Interest Payment Date, and, thereafter, the period from and including the relevant Interest Payment Date to but excluding the next succeeding Interest Payment Date; provided that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period.

Investment ” in any Person means, without duplication, (a) the acquisition (whether for cash, securities, other Property, services or otherwise) or holding of Capital Stock, bonds, notes, debentures, partnership or other ownership interests or other securities of such Person, or any agreement to make any such acquisition or to make any capital contribution to such Person; or (b) the making of any deposit with, or advance, loan or other extension of credit to such Person (other than advances made in the ordinary course of business that would be recorded as accounts receivable on the balance sheet of the specified Person prepared in accordance with IFRS).

Judgment Currency ” has the meaning specified in Section  9.14 .

Lenders ” has the meaning specified in the introduction to this Agreement.

Lending Office ” means the office designated in writing by a Lender to the Administrative Agent (a) on or before the date it becomes a Lender or (b) by not less than five (5) Business Days’ notice, as the office through which it will perform its obligations under this Agreement.

LIBOR Loan ” means a Loan that bears interest at a rate determined by reference to Adjusted LIBOR.

LIBOR Margin ” means a rate per annum equal to (a) during Period 1, 4.50%, (b) during Period 2, 5.00% and (c) during Period 3, 5.50%.

 

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LIBO Rate ” means for any Interest Period of the Loan:

(a) the applicable Screen Rate; or

(b) if no Screen Rate is available for such Interest Period, the arithmetic mean (rounded upward to four (4) decimal places) of the rates, as supplied to the Administrative Agent at its request, quoted by the Reference Banks to leading banks in the London interbank market,

as of 11:00 a.m., London time, two (2) Business Days prior to the beginning of such Interest Period, for the offering of deposits in Dollars for a period comparable to such Interest Period. Notwithstanding anything herein to the contrary, the LIBO Rate shall at no time be less than 0.00% per annum.

Lien ” means, with respect to any Property of any Person, any mortgage, lien, deed of trust, hypothecation, fiduciary transfer of title, transferencia de dominio fiduciario , assignment by way of security, pledge, charge, sale and lease-back arrangement, easement, servitude, trust arrangement, or security interest or encumbrance of any kind in respect of such Property, or any preferential arrangement having the practical effect of constituting a security interest with respect to the payment of any obligation with, or from the proceeds of, any Property of any kind (and a Person shall be deemed to own, subject to a Lien, any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement or other title retention agreement relating to such Property or any capital lease having substantially the same economic effect of any of the foregoing).

Litigation ” means any action, claim, lawsuit, investigation, arbitration or proceeding by or before any Governmental Authority or arbitrator or panel of arbitrators.

Loan Documents ” means, collectively, this Agreement, the Notes, the Note Completion Agreements, the Fee Letters, each Security Document, each amendment to or waiver or consent in connection with any of the foregoing, and any other instrument or document from time to time executed and delivered by the Borrower and designated in writing as a Loan Document by the Borrower and the Administrative Agent.

Loan ” means an advance made by the Lenders to the Borrower pursuant to this Agreement.

Local Agent ” means the administrative agent for the Local Facility Lenders under the Local Facility.

Local Facility ” means (a) a syndicated loan facility of up to $162,000,000 to be granted by the Local Facility Lenders, consisting of (i) a revolving facility of GyM, (ii) a term loan facility of GyM and (iii) a term loan facility for the reimbursement of outstanding surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit and similar instruments issued for the account of the Borrower or any of its Subsidiaries in their ordinary course of business, (b) a stand by letter of credit facility of up to $150,000,000 for the issuance of standby letters of credit for the account of the Borrower and GyM to serve as surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit or similar instruments of the Borrower or any of its Subsidiaries in their ordinary course of business to be granted by the Local Facility Lenders and (c) a commitment for the maintenance and renewal of existing standby letters of credit for the account of (i) the Borrower, (ii) GyM and/or (iii) Affiliates of the Borrower.

 

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Local Facility Lenders ” means Banco de Crédito del Perú, Banco Internacional del Perú S.A.A., Scotiabank Perú S.A.A. and BBVA Banco Continental, or any of their affiliates who are lenders under the Local Facility, and any other financial institutions from time to time party to the Local Facility as lenders.

Material Adverse Effect ” means a material adverse effect on (a) the business, properties or financial condition of the Borrower, (b) the ability of the Borrower to perform and comply when due with its material obligations under any Loan Document to which it is a party, (c) the validity, enforceability or perfection of the Security Interests over any portion of Collateral that is not immaterial or the validity or enforceability of any Loan Document or (d) the rights and remedies of the Secured Loan Parties granted or purported to be granted in the Loan Documents such that the rights and remedies afforded by the Loan Documents are inadequate for the practical realization of the principal benefits purported to be provided thereby.

Maturity Date ” means the earlier of (a) the Stated Maturity Date and (b) the date that the Obligations are accelerated pursuant to Section  7.02 .

MINEM ” means the government of Peru acting directly or through the Ministry of Energy and Mines ( Ministerio de Energía y Minas ) of Peru.

Mortgage Agreement ” means the Contrato de Hipoteca , dated December 10, 2015, between the Borrower and Credit Suisse AG, Cayman Islands Branch in respect of the Corporate Buildings.

Net Cash Proceeds ” means, with respect to (a) any cash amount received by any Person, such cash amount net of reasonable costs and expenses and Taxes incurred by such Person in connection with the collection thereof and (b) any disposition of Property or assets, the aggregate amount of cash payments received as consideration net of (i) the amount of any costs, expenses, commissions and fees paid or payable by or on behalf of such Person in connection with such disposition, and (ii) any Taxes imposed on and payable or reasonably estimated to be payable by such Person as a result of such disposition.

Non-Consenting Lender ” means any Lender that does not approve any consent, waiver or amendment that (a) requires the approval of all affected Lenders in accordance with the terms of Section  9.02 and (b) has been approved by the Required Lenders.

Non-Recourse Indebtedness ” means any Indebtedness for borrowed money incurred for the purpose of financing a Non-Recourse Project (including any costs, expenses and working capital related to such Non-Recourse Project) which meets the following conditions:

(a) the borrower of (and the Persons obliged to pay) such Non-Recourse Indebtedness is the Non-Recourse Subsidiary that owns the relevant Non-Recourse Project being financing;

 

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(b) the rights and recourse of the Person or Persons to whom such Indebtedness is owed (the “non-recourse creditors”) are limited, in connection with such Indebtedness, to the assets of the relevant Non-Recourse Project and the Capital Stock of the Non-Recourse Subsidiary that is the borrower of such Indebtedness and any asset of the relevant Non-Recourse Subsidiary owning, directly or indirectly, such assets;

(c) the Liens, if any, granted to the non-recourse creditors or for their benefit, in order to secure such Indebtedness do not charge any asset or right of the Borrower or its Subsidiaries other than the assets and rights mentioned in clause (b) above;

(d) neither the Borrower nor any of its Subsidiaries has Guaranteed or (other than the relevant Non-Recourse Subsidiary) otherwise agreed to become liable to pay such Indebtedness (other than, solely in respect of GyM FERROVIAS, the Guarantees described in clause (h) of “Permitted Indebtedness”); and

(e) the acceleration or demand for payment prior to scheduled maturity of such Non-Recourse Indebtedness after a default does not constitute an event of default under any Indebtedness of the Borrower and its Subsidiaries, except for such Non-Recourse Indebtedness and Indebtedness under the Loan Documents.

Non-Recourse Project ” means (i) the acquisition, construction, development or expansion of assets by a Non-Recourse Subsidiary forming an undertaking capable (on the basis of reasonable initial assumptions) to generate sufficient cash flow to cover (without any recourse or support from any Person other than such Non-Recourse Subsidiary) the operating costs and debt service required to finance such undertaking and the subsequent commercial operation for which such assets were so acquired, constructed, developed or expanded; or (ii) any business undertaking existing on the date of this Agreement which, at the time of its acquisition, construction, development or expansion by the Borrower or any of its Subsidiaries, satisfies the criteria set forth in (i) above; provided that the term Non-Recourse Project excludes a business or undertaking consisting primarily of providing engineering, construction or operation and maintenance services.

Non-Recourse Subsidiary ” means NORVIAL, GyM FERROVIAS or any other Subsidiary of the Borrower formed or organized, as applicable, following the Closing Date and, in each case, only to the extent such Person meets each of the following conditions:

(a) it owns, at all times, no material asset other than assets related to a Non-Recourse Project,

(b) it owes, at all times, no Indebtedness for borrowed money other than Non-Recourse Indebtedness;

(c) such Person is, at the time it intends to become a Non-Recourse Subsidiary, acceptable to the Required Lenders; and

(d) its obligations are not supported or Guaranteed by the Borrower, its Subsidiaries (other than the relevant Non-Recourse Subsidiary) or any assets of Borrower or its Subsidiaries.

 

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NORVIAL ” means Norvial S.A., a sociedad anónima organized and existing under the laws of Peru.

Note ” means an incomplete promissory note ( pagaré incompleto ) of the Borrower payable to any Lender, in the form of Exhibit 1.01-B , and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof.

Note Completion Agreement ” means a note completion agreement ( acuerdo de llenado de pagaré ) in the form of Exhibit 1.01-C .

Notice of Anticipated Mandatory Prepayment ” has the meaning specified in Section  2.09(d) .

Notice of Default ” has the meaning specified in Section  7.02 .

Notice of Optional Prepayment ” has the meaning specified in Section  2.08(b) .

Obligations ” means collectively:

(a) all outstanding indebtedness and liabilities, and all other obligations, of the Borrower in respect of the Loan;

(b) all other outstanding indebtedness and liabilities, and all other obligations, of the Borrower to the Administrative Agent and the Lenders under, with respect to, and arising in connection with, this Agreement and the Fee Letters, including all indebtedness and liabilities of the Borrower to the Administrative Agent and the Lenders for fees, costs, indemnification and expenses under this Agreement and the Fee Letters; and

(c) all renewals, extensions, amendments and changes of, or substitutions or replacements for, all or any part of the items described under clauses (a)  and (b) above.

Obligors ” means, collectively, the Borrower, Viva and CAM Holding S.p.A.

OFAC ” means the Office of Foreign Assets Control of the Department of the Treasury of the United States.

Other Connection Taxes ” means, with respect to any recipient of a payment under a Loan Document, Taxes imposed as a result of a present or former connection between such recipient and the jurisdiction imposing such Tax (other than connections arising from such recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).

Participant ” has the meaning specified in Section  9.05(e) .

Patriot Act ” has the meaning specified in Section  9.15 .

 

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Period 1 ” means the period commencing on the Effective Date through the earlier of (a) first anniversary of the Effective Date and (b) the Maturity Date.

Period 2 ” means the period commencing on the date immediately succeeding the first anniversary of the Effective Date through the earlier of (a) the second anniversary of the Effective Date and (b) the Maturity Date.

Period 3 ” means the period commencing on the date immediately succeeding the second anniversary of the Effective Date through the later of (a) the Maturity Date and (b) the date in which all the Obligations have been paid in full.

Permitted Indebtedness ” means:

(a) Indebtedness incurred under or pursuant to the Loan Documents;

(b) unsecured Indebtedness that is expressly subordinated in right of payment to the Indebtedness arising under the Loan Documents and in respect of which the Borrower and the relevant Subsidiary shall have executed and delivered such agreements, instruments and other documents and taken such actions as the Administrative Agent reasonably requests so that all rights of such Subsidiary under such Indebtedness shall be subordinated to a first priority fully perfected Lien securing the repayment and other obligations of the Borrower under the Loan Documents; provided that, in the case of Indebtedness described in clauses (ii) and (iii) of Section  6.06 , the relevant subordination documentation shall allow for payments permitted pursuant to Section  6.06 ;

(c) purchase money obligations incurred to finance discrete items of equipment;

(d) until one (1) Business Day after the Closing Date, Indebtedness under the G&M Guaranty;

(e) Indebtedness in respect of the CS Facility, the Chubb Facility and the Local Facility;

(f) Indebtedness existing as of the Effective Date and set forth on clause (b) of Schedule 1.01-C ; provided that, in the case of Indebtedness of the Borrower set forth in paragraphs 7, 11, 12, 16, 17 and 18 of clause (b) of Schedule 1.01-C , it has been subordinated in accordance with clause (b) above within ten (10) Business Days following the Closing Date;

(g) Indebtedness existing as of the Effective Date and set forth on Schedule 1.01-D ;

(h) Indebtedness of GyM FERROVIAS, and guarantees by the Borrower or any of its Subsidiaries of such obligations of GyM FERROVIAS incurred in connection with the expansion of the Lima Metro, which will include the purchase of additional trains and the expansion of the existing infrastructure for the Lima Metro, in an aggregate amount not exceeding, at any time (i) $40,000,000 in respect of Indebtedness of GyM FERROVIAS and (ii) $26,000,000 in respect of the obligations of GyM FERROVIAS under one or more hedging agreements;

 

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(i) Indebtedness of CAM Chile provided that no Default or Event of Default shall have occurred and be continuing or would occur after giving effect on a pro forma basis to the Incurrence of such Indebtedness, including with respect to Section  6.13(b) ;

(j) Indebtedness of Adexus and CAM Peru (including any refinancing of Indebtedness that exists as of the Effective Date) in an amount not to exceed at any time $25,000,000 (in the case of Adexus) and $1,500,000 (in the case of CAM Peru) plus, in the case of any refinancing or new Indebtedness, the amount of accrued interest thereon and fees, expenses and premiums paid in connection with such refinancing or new Indebtedness;

(k) any other Indebtedness of any Subsidiary of the Borrower (other than Adexus, NORVIAL, GyM FERROVIAS, CAM Chile, CAM Peru and ALMONTE) provided that no Default or Event of Default shall have occurred and be continuing or would occur after giving effect on a pro forma basis to the Incurrence of such Indebtedness, including with respect to Section  6.13(a) ;

(l) (i) obligation of GyM to pay up to $15,136,932 to the Patrimonio Autónomo (Arturo José Serna) in respect of the put options for the Capital Stock of Morelco S.A.S. exercised by the Patrimonio Autónomo (Arturo José Serna) and (ii) obligations of GyM and GyM Chile S.p.A. to pay, in the aggregate, $7,812,333 to the shareholders of Vial y Vives – DSD S.A. (other than GyM, IyC GYM Ltda and GyM Chile S.p.A.) in respect of the put options for the Capital Stock of Vial y Vives – DSD S.A. exercised by such shareholders prior to the Closing Date;

(m) Indebtedness of the Borrower and its Subsidiaries to any of its other Subsidiaries in connection with the disposition of (i) the Almonte Shares and the Capital Stock of CAM Chile in accordance with the Security Documents and (ii) CSM and the Capital Stock of Prinsur, so long as such Indebtedness has been repaid by set-off of dividends within ten (10) Business Days following (x) the date of incurrence thereof (in the case of the dispositions described in clause (i) above) or (y) the Closing Date (in the case of the dispositions described in clause (ii) above);

(n) Indebtedness of the Borrower or any of its Subsidiaries to GyM in connection with the repayment of Indebtedness under the Local Facility used to reimburse draws on surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit and similar instruments and, in the case of such Indebtedness of the Borrower to GyM, that has been subordinated in accordance with clause (b) above within ten (10) Business Days following the date of incurrence thereof; and

(o) additional Indebtedness of the Borrower for borrowed money provided that (x) no Default or Event of Default shall have occurred and be continuing or would occur after giving effect on a pro forma basis to the Incurrence of such Indebtedness, and (y) the Net Cash Proceeds therefrom are applied to prepay the Loan pursuant to Section  2.08 .

 

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Permitted Investments ” means:

(a) with respect to Dollar-denominated investments in New York,

(i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof ( provided that the full faith and credit of the United States is pledged in support thereof) and having maturities of no more than one (1) year;

(ii) time deposits, certificates of deposit and banker’s acceptances having maturities of no more than 1 year and issued by an entity with a credit rating of at least “A-” or better by S&P and “A3” or better by Moody’s;

(iii) Investments in funds substantially all the assets of which are comprised of securities of the types described in sub-clauses  (a)(i) and (a)(ii) above;

(iv) United States Securities and Exchange Commission registered money market mutual funds conforming to Rule 2a-7 of the Investment Company Act of 1940 (17 C.F.R. § 270.2a-7) in effect in the United States, that invest primarily in securities of the types described in sub -clause  (a)(i) above and repurchase obligations backed by those obligations;

(v) Investments in commercial paper maturing within two hundred and seventy (270) days from the date of acquisition thereof and having, at such date of acquisition, a credit rating from Standard & Poor’s of at least “A-1”, or from Moody’s of at least “Prime-1”; and

(vi) any other Dollar-denominated investments that the Required Lenders agree shall constitute a Permitted Investment;

(b) with respect to Soles- or Dollar-denominated investments in Peru,

(i) securities issued or directly and fully guaranteed or insured by the government of Peru or any agency or instrumentality thereof ( provided the full faith and credit of Peru is pledged in support thereof) and having maturities of no more than one (1) year;

(ii) obligations with a maturity of less than one (1) year of Peruvian commercial banks supervised by Superintendencia de Banca, Seguros y AFP and with a rating, as a banking entity, of at least A+ by a duly authorized Peruvian rating agency;

(iii) time deposits, certificates of deposit and banker’s acceptances having maturities of no more than one (1) year and issued by an entity with a credit rating of at least “A-” or better by S&P and “A3” or better by Moody’s; and

(iv) any other Soles- or Dollar-denominated investments in Peru that the Required Lenders agree shall constitute a Permitted Investment;

(c) Investments existing on the Closing Date and set forth on Schedule  1.01-C ;

 

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(d) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;

(e) at any time after the aggregate outstanding Indebtedness under the CS Facility, the Chubb Facility and the Loan Documents is less than $90,000,000 so long as no Default shall have occurred and be continuing at the time of such Investment, Investments of the Borrower or of any Subsidiary of the Borrower in any Non-Recourse Subsidiary or in any Person, made in the ordinary course of business, not exceeding, individually or in the aggregate, $20,000,000 (or the Dollar equivalent thereof), during any fiscal year of the Borrower;

(f) the (i) acquisition by GyM of Capital Stock of Morelco S.A.S. in connection with the put options exercised by Patrimonio Autónomo (Arturo José Serna) in respect of the Capital Stock of Morelco S.A.S. and (ii) loans and capital contributions by GyM to GyM Chile S.p.A. in connection with the put options exercised prior to the Closing Date by the shareholders of Vial y Vives – DSD S.A. (other than GyM, IyC GYM Ltda and GyM Chile S.p.A.) in respect of Capital Stock of Vial y Vives – DSD S.A.;

(g) to the extent not permitted under clauses (a) through (f) above, Investments by any Subsidiary of the Borrower made in the ordinary course of business and consistent with past practice (1) in consorcios or asociaciones en participación to which such Subsidiary is a party, or (2) in the form of equity contributions to Persons engaged in the construction, development or acquisition of real estate projects, in the case of each of (1) and (2) above, but only to the extent that such Investments are necessary in the reasonable judgment of such Subsidiary; and

(h) Investments in the form of intercompany loans to the Borrower that satisfy the requirements of clauses (b), (m) or (n) of the definition of “Permitted Indebtedness” from (x) Viva in connection with a Planned Disposition of the Almonte Shares and the disposition of CSM and the Capital Stock of Prinsur, (y) CAM Holding S.p.A. in connection with a Planned Disposition of the Capital Stock of CAM Chile, and/or (z) any of its Subsidiaries in connection with the repayment of Indebtedness under the Local Facility used to reimburse draws on surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit and similar instruments, and any repayment of such intercompany loans.

Permitted Liens ” means:

(a) any Lien incurred in connection with workmen’s compensation, unemployment insurance, temporary disability, social security, retiree health or similar laws or regulations or to secure obligations imposed by statute or governmental regulations;

(b) Liens imposed by Governmental Authorities securing taxes and assessments which are not required to be paid under Section  5.07 ;

(c) any mechanics’, materialmen’s, carriers’ or similar Lien incurred in the ordinary course of business that either (i) are not overdue for a period of more than 120 days or (ii) are for amounts being contested in good faith and by appropriate proceedings, so long as (x) enforcement of the contested item shall be effectively stayed, and (y) a bond or other security instrument has been posted or other adequate provision for payment thereof has been provided in such manner and amount as required by IFRS;

 

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(d) minor defects, encumbrances arising by reason of zoning restrictions, easements, licenses, reservations, covenants, rights-of-way (including for pipeline purposes), utility easements, building restrictions, oil and gas leases, mineral reservations, mineral conveyances, mineral interests, water rights, agreements and other similar encumbrances or restrictions on the use of real property and imperfections in title in each case that do not materially interfere with the ordinary conduct of the business conducted and proposed to be conducted by the Borrower at such real property;

(e) attachments, judgments and other similar Liens in connection with court or administrative proceedings; provided that the judgment secured by any such Lien is being contested in good faith by appropriate proceedings, so long as (i) enforcement of the contested item shall be effectively stayed, and (ii) a bond or other security instrument has been posted or other adequate provision for payment thereof has been provided in such manner and amount as required by IFRS;

(f) Liens securing purchase money obligations and obligations in respect of surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit or similar instruments incurred in the ordinary course of business;

(g) Liens existing as of the Effective Date as described in Schedule 1.01-B hereto;

(h) Liens arising by operation of law that do not materially interfere with the Borrower’s business and that would not reasonably be expected to result in a Material Adverse Effect;

(i) until one (1) Business Day after the Closing Date, Liens under the G&M Guaranty;

(j) (i) Liens under the Security Documents and (ii) other Liens securing Indebtedness in respect of the CS Facility and the Chubb Facility as described in Schedule 1.01-B ;

(k) Liens securing the obligations of the Borrower, GyM and other Subsidiaries in respect of bonds guaranteed by the Borrower, under the Local Facility consisting of one or more of the following: (i) Liens over the Collateral, solely to the extent that such Liens’ priority is lower than the priority of the Secured Parties and the beneficiaries of such Lien will not have the right to enforce such Lien, (ii) Liens over Capital Stock of GMP S.A. and/or GMI S.A. and/or Stracon GyM S.A. and, (iii) accounts receivable and cashflows of GyM;

(l) Liens securing Indebtedness of the type described in clauses (h), (j) and (i) of the definition of “Permitted Indebtedness” over Property of GyM FERROVIAS, Adexus, CAM Peru and CAM Chile, respectively;

 

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(m) Liens granted in the ordinary course of business by any Subsidiary of the Borrower (other than Adexus, NORVIAL, GyM FERROVIAS, CAM Chile, CAM Peru and ALMONTE) over the Property of such Subsidiary securing the Indebtedness of such Subsidiary; and

(n) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to in clauses (a)  through (m) above.

Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

Peru ” means the Republic of Peru.

Planned Dispositions ” means the sale or disposition of the assets, whether in a single transaction, separate or a series of related transactions (other than pursuant to the enforcement by any Secured Party of its rights under a Security Document), consisting of the shares referenced in the definition of Proceeds Collateral, the Almonte Shares, the Corporate Buildings and any other assets the proceeds of which are used to make a mandatory prepayment under the CS Facility.

Platform ” has the meaning specified in Section  9.01(e)(i) .

Prime Rate ” means the rate of interest from time to time announced by the Administrative Agent at the Principal Office as its prime commercial lending rate. Such rate is set by the Administrative Agent as a general reference rate of interest, taking into account such factors as the Administrative Agent may deem appropriate, it being understood that many of the Administrative Agent’s commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that the Administrative Agent may make various commercial or other loans at rates of interest having no relationship to such rate.

Principal Office ” means the principal office of the Administrative Agent, presently located at New York, New York, or such other location as designated by the Administrative Agent from time to time.

Prinsur ” means Promoción Inmobiliaria del Sur S.A., a sociedad anónima organized and existing under the laws of Peru.

Proceeds Collateral ” means all proceeds owing or owed to an Obligor in respect of the disposition, whether in one or a series of transactions, of (a) 67% of the issued and outstanding Capital Stock of NORVIAL, (b) 75% of the issued and outstanding Capital Stock of GyM FERROVIAS, (c) 73.16% of the issued and outstanding Capital Stock of CAM Chile, (d) the GMD Shares, (e) the CAM Peru Shares and (f) 91.03% of the issued and outstanding Capital Stock of Adexus.

 

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Proceeds Trust Agreement ” means the Contrato de Fideicomiso de Flujos to be entered into after the Closing Date among the Borrower, the Administrative Agent, the CS Agent, Chubb, the trustee party thereto and, upon accession thereto, the Local Agent, granting (a) a first priority Lien and Security Interest in favor of the CS Parties in and to all proceeds from the sale of the Almonte Shares and the Corporate Buildings, (b) a second priority Lien and Security Interest in favor of the Lenders and Chubb in and to all proceeds from the sale of the Almonte Shares and the Corporate Buildings remaining after application of all such proceeds to the repayment in full of the obligations of the Borrower under the CS Facility, (c) a third priority Lien and Security Interest in favor of the Local Facility Lenders in and to all proceeds from the sale of the Almonte Shares and the Corporate Buildings remaining after application of all such proceeds to the repayment in full of the obligations of the Borrower under the CS Facility and the Chubb Facility and the Obligations, (d) a first priority Lien and Security Interest in favor of the Senior Lenders and Chubb in and to the Proceeds Collateral (other than pursuant to the enforcement by any Secured Party of its rights under the CAM Peru Share Trust Agreement or the CAM Chile Share Pledge) and (e) a second priority Lien and Security Interest in favor of the Local Facility Lenders in and to the Proceeds Collateral (other than pursuant to the enforcement by any Secured Party of its rights under the CAM Peru Share Trust Agreement or the CAM Chile Share Pledge) remaining after application of all such proceeds to the repayment in full of the obligations of the Borrower under the CS Facility and the Chubb Facility and the Obligations, and providing that the effectiveness of the Lien and Security Interest therein with respect to the proceeds of any disposition of NORVIAL or GyM FERROVIAS shall be subject to the consent of their respective bondholders, if applicable.

Process Agent ” has the meaning specified in Section  9.13 .

Prohibited Payment ” means (a) any direct or indirect payment, gift, offer or promise of anything of value (including authorization of any of the foregoing) to or for the benefit of any official or employee of a Governmental Authority (including any official or employee of any government-owned or controlled entity or of a public international organization) or any political party or official thereof or any candidate for political office or any other person (including any “foreign official” (as such term is defined in the U.S. Foreign Corrupt Practices Act)) and (b) any other payment, gift, offer or promise of anything of value (or authorization of any of the foregoing), in each case, that constitutes a violation of any Anti-Corruption Laws.

Prohibited Practice ” means any direct or indirect acts of bribery, corruption, money laundering, public procurement fraud or other illicit conduct (including the making or authorization of any Prohibited Payment), in each case constituting a violation of any Anti-Corruption Laws or AML Legislation.

Project ” means the ownership, acquisition, development, design, engineering, construction, commissioning, financing, operation and maintenance of the Mejoras a la Seguridad Energética del País y Desarrollo del Gasoducto Sur Peruano project in accordance with the Concession Agreement and consisting of an approximately 1,200 km natural gas and liquids transportation system stretching from the Las Malvinas separation plant in the Cusco region of Peru, to the Mollendo and Ilo terminals, including Segment A1 and Segment B in the energy security zone, Segment A2, and certain FEED and base line environmental studies relating to Segment C and the Regional Pipelines (as each such term is defined in the Concession Agreement).

 

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Projections ” has the meaning specified in Section  4.07 .

Property ” means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, any Security.

Recaudo Lima ” means Recaudo Lima S.A., a sociedad anónima organized and existing under the laws of Peru.

Red Eagle Mining Assets ” means 8.69% of the Capital Stock of Red Eagle Mining Corporation.

Red Eagle Mining Proceeds ” means cash proceeds in the amount of $9,600,000 received by the Borrower as a result of the sale of the Red Eagle Mining Assets.

Reference Banks ” means, collectively, (a) Banco Bilbao Vizcaya Argentaria S.A., (b) Natixis, New York Branch, (c) Sumitomo Mitsui Banking Corporation and (d) The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Register ” has the meaning specified in Section  9.05(c) .

Related Parties ” means, with respect to any specified Person, such Person’s Affiliates, directors, officers, employees, agents and advisors.

Requested Borrowing Date ” has the meaning specified in Section  2.03 .

Required Lenders ” means, at any time, Lenders having Credit Exposures representing more than 50% of the sum of the total Credit Exposures at such time; provided that, subject to Section  2.19(a) , the Credit Exposures of any Defaulting Lender shall be disregarded for purposes of making a determination of Required Lenders.

Reserve Requirement ” means, for any day as applied to a LIBOR Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Applicable Law) maintained by a member bank of the Federal Reserve System. A LIBOR Loan shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets that may be available from time to time to any Lender under any Applicable Law.

Resolution Authority ” means any body which has authority to exercise any Write-down and Conversion Powers.

Responsible Officer ” means, as to any Person, the general manager, the chief executive, financial or operating officer (or equivalent), any authorized representative or any legal representative of such Person.

 

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Restricted Payments ” means, with respect to any Person, (a) any direct or indirect dividend or distribution (whether in cash, securities or other Property) with respect to any Capital Stock, including any payment of any kind or character (whether in cash, securities or other Property) in consideration for or otherwise in connection with any retirement, purchase, redemption or other acquisition of any equity interest of such Person or (b) principal, interest or other payments (in cash, Property or otherwise) on, or redemptions of, intercompany Indebtedness of such Person owing to Affiliates.

Rolling Period ” means, with respect to any fiscal quarter of the Borrower, such fiscal quarter and the three immediately preceding fiscal quarters considered as a single accounting period.

Sanctioned Jurisdiction ” means, at any time, a country, territory or geographical region which is itself the subject or target of any comprehensive territorial-based Sanctions (including, without limitation, Cuba, Iran, North Korea, Sudan, Crimea and Syria).

Sanctions ” means economic or financial sanctions, requirements or trade embargoes imposed, administered or enforced from time to time by any U.S. Governmental Authority (including, but not limited to, OFAC, the U.S. Department of State and the U.S. Department of Commerce), the United Nations Security Council, the European Union, Her Majesty’s Treasury, or any corresponding laws of jurisdiction in which the Borrower operates, to the extent applicable to the Borrower.

Sanctions Laws ” means all laws, rules, regulations and requirements of any jurisdiction (including the U.S., Peru and Chile) applicable to the Obligors, their Affiliates or any party to the Loan Documents concerning or relating to Sanctions, terrorism or money laundering, including, without limitation, (a) the Executive Order No. 13224 on terrorist financing, effective on September 24, 2001; (b) the Patriot Act; (c) the U.S. International Emergency Economic Powers Act; (d) the U.S. Trading with the Enemy Act; (e) United Nations Participation Act; (f) the U.S. Syria Accountability and Lebanese Sovereignty Act; (g) the U.S. Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010; (h) the Iran Sanctions Act, Section 1245 of the National Defense Authorization Act of 2012; and (i) any similar laws, rules, regulations and requirements enacted, administered or enforced by the U.S., the United Nations Security Council, the European Union, Her Majesty’s Treasury, Peru or Chile.

Sanctions Target ” means any Person: (a) that is the subject or target of any Sanctions; (b) listed in the annex to, or otherwise subject to the provisions of, the Executive Order; (c) named in any Sanctions-related list maintained by OFAC, the U.S. Department of State, the U.S. Department of Commerce or the U.S. Department of the Treasury, including the “Specially Designated National and Blocked Person” list; (c) located, organized or resident in a Sanctioned Jurisdiction that is, or whose government is, the subject or target of Sanctions; (d) which otherwise is, by public designation of the United Nations Security Council, the European Union, Her Majesty’s Treasury, or any corresponding laws of jurisdiction in which the Borrower operates, to the extent applicable to the Borrower, the subject or target of any Sanction; (e) with which any party to the Loan Documents is prohibited from dealing or otherwise engaging in any transaction by any Sanctions Laws; or (f) owned or controlled by any such Person or Persons described in the foregoing above items.

 

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Screen Rate ” means the rate appearing on the Reuters Screen LIBOR01 page (or any page substituted therefor on that service or a successor service) for Dollar deposits for the relevant Interest Period. If the relevant page is replaced or the service ceases to be available, the Administrative Agent (after consultation with the Borrower and the Lenders) may specify another page or service displaying the appropriate rate.

SEC ” means the Securities and Exchange Commission or any Governmental Authority succeeding to its function.

Second Lien Shares ” means (i) 98.24% of the issued and outstanding Capital Stock of GyM and (ii) 99.81% of the issued and outstanding Capital Stock of CONCAR.

Second Lien Share Trust Agreement ” means the Fideicomiso de Acciones CONCAR-GyM to be entered into among the Borrower, the Administrative Agent, the CS Agent, the trustee party thereto and, upon accession thereto, the Local Agent, providing for (a) a second priority Lien and Security Interest (subordinated to the CONCAR-GyM Pledge Agreement) over the Second Lien Shares in favor of the Lenders and (b) a third priority Lien and Security Interest (subordinated to the CONCAR-GyM Pledge Agreement) over the Second Lien Shares in favor of the Local Facility Lenders so that payments to the Local Facility Lenders will be made only after all obligations of the Borrower to the CS Parties and the Obligations have been paid in full. The Second Lien Share Trust Agreement will contemplate a first priority order of payment in favor of the CS Parties so that payments to the Lenders will be made only after all obligations of the Borrower to the CS Parties have been paid in full.

Secured Loan Parties ” means, collectively, the Administrative Agent, the Collateral Trustee and the Lenders.

Secured Parties ” means, collectively, each Secured Loan Party, and each CS Party and Chubb and any agent or trustee therefor.

Security ” means any Capital Stock, voting trust certificate, bond, debenture, note or other evidence of Indebtedness, whether secured, unsecured, convertible or subordinated, or any certificate of interest, share or participation in, any temporary or interim certificate for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing, but shall not include any evidence of the Obligations.

Security Documents ” means, collectively, (a) the G&M Collection Rights Trust Agreement, (b) the Proceeds Trust Agreement, (c) the Second Lien Share Trust Agreement, (d) the CAM Peru Share Trust Agreement, (e) the CAM Chile Share Pledge, (f) the Corporate Building Trust Agreement, (g) the Almonte Trust Agreement and (h) any other document or agreement creating or perfecting a Lien (or purporting to do so) on collateral in favor of the Collateral Trustee or the Administrative Agent.

Security Interest ” means the Lien on the Collateral or any other collateral purported to be granted to the Collateral Trustee or the Administrative Agent for the benefit of one or more of the Secured Loan Parties (or any trustee, sub-agent or other Person acting for or on behalf of the Collateral Trustee or the Administrative Agent) under the Security Documents.

 

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Senior Lenders ” means, collectively, the Lenders and the “Lenders” as defined under the CS Facility.

Soles ” means freely transferable, lawful money of Peru.

Solvent ” mean with respect to any Person, as of any date of determination, that the book value of the assets of such Person is, as of such date, greater than the amount of all liabilities, contingent or otherwise, of such Person, as of such date.

Stated Maturity Date ” means the date that is three years from the Effective Date.

Subsidiary ” means, with respect to any Person (the “ parent ”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with IFRS as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

Tax Deduction ” means a deduction or withholding for or on account of a Tax from a payment under this Agreement.

Tax Payment ” means a payment made by the Borrower to a Lender in any way relating to a Tax Deduction or under any indemnity given by the Borrower in respect of a Tax under any Loan Document.

Taxes ” means any tax, assessment, levy, impost, duty, deduction, fee, withholding or other charge of whatever nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same) required by any law, rule, regulation, order, interpretation, ruling or official directive of any Governmental Authority.

Tecgas ” means Tecgas Inc., a corporation organized under the laws of Ontario.

Total Indebtedness ” means, on any date of determination, with respect to a Person, the aggregate principal amount of all Indebtedness of such Person.

Transactions ” means (a) the consummation of the Financing and (b) the execution, delivery and performance by the Borrower of the Loan Documents to which it is a party, the borrowing of the Loan and the use of the proceeds thereof in accordance with this Agreement.

Type ” refers to whether the rate of interest on a Loan is determined by reference to the Adjusted LIBOR or the Alternate Base Rate.

United States ” and “ U.S. ” each means United States of America.

 

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Viva ” means Viva GyM S.A., a sociedad anónima organized and existing under the laws of Peru.

Write-down and Conversion Powers ” means (a) in relation to any Bail-In Legislation described in the EU Bail-In Legislation Schedule from time to time, the powers described as such in relation to that Bail-In Legislation in the EU Bail-In Legislation Schedule; and (b) in relation to any other applicable Bail-In Legislation: (i) any powers under that Bail-In Legislation to cancel, transfer or dilute shares issued by a person that is a bank or investment firm or other financial institution or affiliate of a bank, investment firm or other financial institution, to cancel, reduce, modify or change the form of a liability of such a person or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers; and (ii) any similar or analogous powers under that Bail-In Legislation.

SECTION 1.02 Accounting Terms; Changes in IFRS . All accounting and financial terms used herein and not otherwise defined herein and the compliance with each covenant contained herein that relates to financial matters shall be determined in accordance with IFRS applied on a consistent basis, except to the extent that a deviation therefrom is expressly stated herein.

SECTION 1.03 Interpretation . In this Agreement, unless a clear contrary intention appears:

(a) the singular number includes the plural number and vice versa;

(b) reference to any gender includes each other gender;

(c) the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, clause or other subdivision;

(d) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; provided that nothing in this clause (d)  is intended to authorize any assignment not otherwise permitted by this Agreement;

(e) except as expressly provided to the contrary herein, reference to any agreement, document or instrument (including this Agreement) means such agreement, document or instrument as amended, supplemented or modified, or extended, renewed, refunded, substituted or replaced, and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof, and reference to any note or Indebtedness or other indebtedness includes any note or indebtedness issued pursuant hereto in extension or renewal or refunding thereof or in substitution or replacement therefor;

 

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(f) unless the context indicates otherwise, reference to any Article, Section, clause, Schedule or Exhibit means such Article, Section or clause hereof or such Schedule or Exhibit hereto;

(g) the word “including” (and with correlative meaning “include”) means including, without limiting the generality of any description preceding such term;

(h) with respect to the determination of any period of time, except as expressly provided to the contrary, the word “from” means “from and including” and the word “to” means “to but excluding”;

(i) reference to any law, rule or regulation means such as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time; and

(j) the words “asset” and “property” shall be construed to have the same meaning and effect and refer to any and all tangible and intangible assets and properties.

SECTION 1.04 Currency . To the extent that the determination of compliance with any provision hereof or any other Loan Document requires the conversion of Soles into Dollars or of Dollars into Soles, then such conversion shall be made based upon the Applicable Exchange Rate.

ARTICLE II

THE CREDITS

SECTION 2.01 Commitments . Subject to the terms and conditions set forth herein (including Section  3.01 ), each Lender agrees to make its share of the Loan to the Borrower in a principal amount that (a) does not exceed such Lender’s Commitment and (b) will not cause such Lender’s share of the Loan to exceed the total Commitments of all Lenders. The Loan is not revolving in nature; amounts prepaid or repaid in respect of the Loan may not be reborrowed.

SECTION 2.02 Loan .

(a) The Loan shall be made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make the portion of the Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make its share of the Loan as required.

(b) Subject to Section  2.13 , the Loan shall consist entirely of a LIBOR Loan as the Borrower may request in accordance herewith.

SECTION 2.03 Requests for Borrowings . Initially, the Loan shall be a LIBOR Loan. To request the Disbursement, the Borrower shall notify the Administrative Agent in writing of such request not later than 12:00 noon, New York City time, three (3) Business Days before the proposed Closing Date (the “ Requested Borrowing Date ”). Such written request shall

 

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be (a) in the form of Exhibit 2.03 (the “ Borrowing Request ”) signed by an Authorized Officer, (b) irrevocable, and (c) delivered to the Administrative Agent by hand delivery, facsimile or electronic mail delivery, in PDF form. Such written Borrowing Request shall specify the following information in compliance with Section  2.02 :

(a) the aggregate amount of the requested Disbursement, which shall be in an aggregate principal amount equal to the aggregate Commitments of all Lenders;

(b) the initial Interest Period to be applied for purposes of calculating the LIBO Rate for the Loan (which Interest Period shall end on the next Interest Payment Date);

(c) the Requested Borrowing Date, which shall be a Business Day; and

(d) the location and number of the Borrower’s account, located in Lima, Peru, to which funds are to be disbursed, which shall comply with the requirements of Section  2.04 .

Promptly following receipt of the Borrowing Request in accordance with this Section  2.03 , the Administrative Agent shall advise each Lender of the details thereof.

SECTION 2.04 Funding of the Loan .

Subject to the satisfaction of the conditions set forth in Article III , each Lender shall make its ratable share of the aggregate amount of the Loan requested to be made by it hereunder on the Closing Date by wire transfer of immediately available funds by 12:00 noon, New York City time, on such date to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. Each Lender will fund the Loan from its Lending Office. The Borrower hereby irrevocably authorizes the Administrative Agent to disburse the proceeds of the Loan funded pursuant to this Section  2.04 in immediately available funds by crediting or wiring such proceeds to the deposit account of the Borrower at Banco de Crédito del Perú, in Lima, Peru or otherwise agreed upon by the Borrower and the Administrative Agent.

SECTION 2.05 Continuation of the Loan . The Loan initially shall be a LIBOR Loan. Thereafter, unless the Loan is repaid as provided herein, at the end of the applicable Interest Period, subject to Section  2.13 , the Loan shall be continued as a LIBOR Loan. Promptly following the continuation of the Loan, the Administrative Agent shall advise each Lender of the details thereof.

SECTION 2.06 Repayment of the Loan; Evidence of Debt .

(a) The Commitment of each Lender shall terminate on the date that is five (5) Business Days after the Effective Date if the Closing Date has not occurred on or before such date.

 

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(b) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of the Loan on the Maturity Date.

(c) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from the Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(d) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of the Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.

(e) The entries made in the accounts maintained pursuant to Section  2.06(c) and (d) shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error or conflict therein shall not in any manner affect the obligation of the Borrower to repay the Loan in accordance with the terms of this Agreement.

SECTION 2.07 Illegality . A Lender affected by an Illegality shall notify the Borrower (with a copy to the Administrative Agent) promptly of the same and specify the nature and cause of such Illegality in reasonable detail. After such notification, subject to Section  2.18 , (a) if Applicable Law shall so mandate, the Borrower shall, on the next Interest Payment Date occurring after receipt of such notice by the Borrower, or, if earlier, the date specified by such Lender in such notification and which shall not be earlier than the last day of any grace period allowed by Applicable Law (the “ Illegality Cure Period ”), repay or prepay the share of that Lender in the Loan to the Administrative Agent for the account of such Lender and (b) any obligation of such Lender to make or maintain from the date of such repayment or prepayment its share of the Loan shall be suspended. Upon any such repayment or prepayment, the Borrower shall also pay accrued interest on the amount so repaid or prepaid.

SECTION 2.08 Optional Prepayment of the Loan .

(a) The Borrower shall have the right at any time and from time to time to prepay the Loan in whole or in part without premium or penalty, subject to prior notice in accordance with Section  2.08(b) hereof; provided , that if any prepayment of a LIBOR Loan is made by the Borrower on a date other than on the last day of an Interest Period, the Borrower shall also pay any amount owing pursuant to Section  2.15 .

(b) The Borrower shall notify the Administrative Agent in writing (by facsimile or electronic delivery, in PDF form, in the form of Exhibit 2.08 (a “ Notice of Optional Prepayment ”)) of any prepayment hereunder (i) in the case of prepayment of a LIBOR Loan, not later than 12:00 noon, New York City time, three (3) Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Loan, not later than 12:00 noon, New

 

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York City time, on the date of prepayment. Each such notice (x) shall be irrevocable unless the Borrower states that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied ( provided that in such case the Borrower shall pay any amount owing pursuant to Section  2.15 ) and (y) shall specify the prepayment date and the principal amount of the portion of the Loan to be prepaid. Each partial prepayment shall be in an aggregate amount not less than $5,000,000, and shall be an integral multiple of $1,000,000. Each prepayment of the Loan shall be accompanied by accrued interest to the extent required by Section  2.12 and any amounts payable under Section  2.15 .

(c) Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Prepayments shall be accompanied by (i) accrued interest to the extent required by Section  2.12 , and any amounts payable under Section  2.15 and (ii) a designation by the Borrower that such prepayment is being made pursuant to this Section  2.08 .

SECTION 2.09 Mandatory Prepayment of the Loan .

(a) Planned Dispositions . No later than one (1) Business Day following the receipt by the Borrower or the trust under the Proceeds Trust Agreement of any proceeds of any Planned Disposition, the Borrower shall make a prepayment of the Obligations in an amount specified hereafter until the Obligations have been paid in full, including the then unpaid principal amount of the Loan together with accrued interest as required by Section  2.12 :

(i) with respect to any Planned Disposition other than a Planned Disposition of the Almonte Shares and the Corporate Buildings, (A) until the repayment in full of the obligations of the Borrower under the Chubb Facility, an amount equal to 25% of all Net Cash Proceeds generated from any such Planned Disposition, and (B) thereafter, an amount equal to 50% (or, if the obligations of the Borrower under the CS Facility have been repaid in full, 100%) of all Net Cash Proceeds from any such Planned Disposition;

(ii) with respect to any Planned Disposition of the Almonte Shares and the Corporate Buildings, (A) until the repayment in full of the obligations of the Borrower under the CS Facility, an amount equal to 0% of all Net Cash Proceeds generated from such Planned Disposition and (B) thereafter, 50% of the remaining Net Cash Proceeds from such Planned Disposition.

(b) GSP Claims . The Borrower shall prepay the Obligations in an amount equal to 100% of the Net Cash Proceeds received by the Borrower or the trust under the G&M Collection Rights Trust Agreement in respect of GSP Claims no later than one (1) Business Day following the date such proceeds are received by the Borrower or such trust.

(c) Voluntary Prepayments under the CS Facility or Chubb Facility . The Borrower shall prepay the Loan in an aggregate principal amount, together with accrued interest as required by Section  2.12 , on a pro rata basis concurrently with any voluntary prepayment of any loans under the CS Facility or the Chubb Facility.

 

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(d) Notice; Manner of Payment . Promptly upon knowledge by the Borrower of the likely occurrence of any event triggering the prepayment requirement under clauses (a)  through (c) above, the Borrower shall notify the Administrative Agent in writing (by facsimile or electronic delivery, in PDF form, in the form of Exhibit 2.09 (a “ Notice of Anticipated Mandatory Prepayment ”)). Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each such notice shall specify the anticipated prepayment date and the principal amount of the portion of the Loan to be prepaid. Each prepayment of the Loan shall be accompanied by accrued interest to the extent required by Section  2.12 and any amounts payable under Section  2.15 . If the anticipated event triggering the mandatory prepayment is no longer anticipated to occur, does not occur or the date thereof changes, the Borrower shall immediately notify the Administrative Agent thereof and, in the event where the date of such anticipated event changes, provide details of the new anticipated prepayment date. Each such Notice of Anticipated Mandatory Prepayment shall be revocable up to the second Business Day preceding the date specified in the notice as the anticipated prepayment date at which point such Notice of Anticipated Mandatory Prepayment will become irrevocable.

SECTION 2.10 Notes .

(a) The Borrower shall execute and deliver to the Administrative Agent for distribution to each Lender on the Closing Date and as otherwise required from time to time (including to each Lender’s assignees as may be requested in writing by such assignee and/or such assigning Lender from time to time in exchange for any existing Notes that are being replaced), a Note including its related Note Completion Agreement (for execution by the relevant Lender). Each Note shall be payable to the order of each Lender and payable on the date referred to in the applicable Note Completion Agreement.

(b) The Borrower shall execute and deliver any and all amendments (to the extent applicable) to the Notes, or replace the Notes with amended Notes, and take all further action that may be necessary in the reasonable judgment of any Lender, or that any Lender may reasonably request from time to time, in order to ensure that the Notes duly reflect the terms of this Agreement. Each Lender shall be entitled to have its Note together with the corresponding Note Completion Agreement substituted, exchanged or subdivided for a Note and the corresponding Note Completion Agreement of lesser denomination in connection with a permitted assignment of all or any portion of such Lender’s share of the Loan and Notes.

(c) Each Lender shall be entitled to complete such Note in accordance with the terms of its related Note Completion Agreement. If the Administrative Agent, on behalf of a Lender, or any Lender in accordance with the terms of this Agreement, exercises any right in any court in Peru under any Note delivered to such Lender pursuant to this Agreement, it shall not be required for such purpose to evidence to the Borrower that any condition herein has been fulfilled. Notwithstanding discharge in full of any Note, if the amount (including default interest) paid or payable to a Lender under such Note (whether arising from the enforcement thereof in Peru or otherwise) is less than the amount due and payable to such Lender in accordance with this Agreement with respect to the Loan, or portion thereof, evidenced by such Note, the Borrower agrees, to the fullest extent it may effectively do so, to pay to such Lender upon demand such difference. Notwithstanding article No. 1233° of the Peruvian Civil Code

 

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(Legislative Decree N° 295) of Peru, the obligations under any Note shall not be extinguished even if such Note is lost, destroyed or otherwise negatively affected. Within fifteen (15) Business Days after its receipt of notice that such Note has been lost, destroyed or otherwise negatively affected, the Borrower, at such Lender’s expense, shall execute and deliver to the Lender corresponding with such Note a replacement Note (in exchange for the existing Note, if available to such Lender); provided that, if such Note has been lost, destroyed or otherwise negatively affected, such Lender shall within ninety (90) days after its receipt of such replacement Note initiate proceedings to have such lost Note declared void ( declaración de ineficacia ).

SECTION 2.11 Fees .

The Borrower agrees to pay to the Administrative Agent, for the account of each Lender (or its designee(s)), the fees set forth in the relevant Fee Letter in accordance with the terms of the relevant Fee Letter.

SECTION 2.12 Interest .

(a) An ABR Loan shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Base Rate Margin.

(b) A LIBOR Loan shall bear interest at Adjusted LIBOR plus the LIBOR Margin.

(c) Notwithstanding the foregoing, if any principal of or interest on the Loan or any fee or other amount payable by the Borrower hereunder is not paid when due (after giving effect to all applicable grace periods under this Agreement), whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of the Loan, 2% plus the rate otherwise applicable to the Loan as provided above or (ii) in the case of any other amount, 2% plus the three-month LIBO Rate currently in effect.

(d) Accrued interest on the Loan shall be payable in arrears on each Interest Payment Date for the Loan; provided that (i) interest accrued pursuant to Section  2.12(c) shall be payable on demand, (ii) in the event of any repayment or prepayment of the Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) all accrued interest shall be payable on the Maturity Date.

(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate (other than at times when the Alternate Base Rate is based on the Adjusted LIBOR) shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBOR shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error (it being understood that the Administrative Agent’s failure to compute the Alternate Base Rate or Adjusted Libor shall not affect the interest rate applicable hereunder). Interest shall accrue after as well as before any bankruptcy, insolvency, reorganization liquidation, dissolution, winding up or similar event (subject to applicable Debtor Relief Laws).

 

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SECTION 2.13 Alternate Rate of Interest . If prior to the commencement of any Interest Period for a LIBOR Loan:

(a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBOR for such LIBOR Loan for such Interest Period; or

(b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBOR for such LIBOR Loan for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining such Loan for such Interest Period;

then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or facsimile as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, such LIBOR Loan shall be converted to an ABR Loan.

SECTION 2.14 Increased Costs .

(a) Increased Costs Generally . The Borrower shall pay to a Lender additional amount or amounts as will compensate such Lender for any Increased Cost incurred or suffered by it or any of its Affiliates.

(b) Capital Requirements, Etc . If any Lender determines that any Change in Law affecting such Lender or any lending office of such Lender or such Lender’s holding company, if any, regarding capital or liquidity requirements, has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the portion of the Loan made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

(c) Certificates for Reimbursement . A certificate of a Lender setting forth in reasonable detail (i) the circumstances giving rise to the Increased Cost or the reduction suffered by such Lender or its holding company, as the case may be, as specified in paragraph (b) of this Section, (ii) the date on which such Increased Cost was incurred or such reduction was suffered and (iii) the amount necessary to compensate that Lender or its Affiliates for such Increased Cost or reduction shall be delivered to the Borrower and the Administrative Agent and shall be conclusive absent manifest error. The Borrower shall pay the affected Lender the amount shown as due in any such certificate within ten (10) days after receipt thereof.

 

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(d) Delay in Requests . Failure or delay on the part of any Lender to demand compensation under this Section  2.14 shall not constitute a waiver of that Lender’s right to demand compensation; provided that the Borrower shall not be required to compensate a Lender under this Section  2.14 for any Increased Cost incurred more than six (6) months prior to the date that such Lender notifies the Borrower of the Increased Cost and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such Increased Cost is retroactive, then the six (6) month period referred to above shall be extended to include the period of retroactive effect thereof).

SECTION 2.15 Break Funding Payments . In the event of (a) the payment of any principal of any LIBOR Loan other than on the last day of an Interest Period applicable thereto (including on the Maturity Date or as a result of an Event of Default) or pursuant to Section  2.08(b) or Section  2.09 , (b) the failure to borrow (unless such failure was caused by the failure of a Lender to make its share of the Loan), convert, continue or prepay a LIBOR Loan, or the failure to convert an ABR Loan to a LIBOR Loan, on the date specified in any notice delivered pursuant hereto (including in the event of the failure to optionally prepay due to the failure to satisfy a refinancing condition), or (c) the assignment of a LIBOR Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section  2.18 , then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a LIBOR Loan, the loss to any Lender attributable to any such event shall be deemed to be the amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid or converted, or not so borrowed, continued, converted or prepaid, at the Adjusted LIBOR that would have been applicable to such LIBOR Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the Interest Period that would have commenced on the date of such failure for such Loan), over (ii) the amount of interest that would have accrued to such Lender on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for Dollar deposits of a comparable amount and period from other banks in the interbank eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section  2.15 shall be delivered to the Borrower and shall be conclusive absent manifest error. Each affected Lender requesting payment under this Section  2.15 shall submit written demand to the Borrower specifying in reasonable detail the events and circumstances resulting in such payment obligation, together with a certificate setting forth in reasonable detail the calculation of any amounts payable pursuant to this Section  2.15 . The Borrower shall pay such Lender the amount shown as due on any such certificate within 15 Business Days after receipt thereof.

SECTION 2.16 Taxes .

(a) Any and all payments by or on behalf of the Borrower under the Loan Documents shall be made without any Tax Deduction, unless a Tax Deduction is required by Applicable Law. For purposes of this Section  2.16 , the term “Applicable Law” includes FATCA.

 

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(b) If the Borrower or a Lender is aware that a Tax Deduction shall be made (or that there is a change in the rate or the basis of a Tax Deduction), in each case not previously notified to the Administrative Agent or described in the proviso to paragraph (c) below, it shall promptly notify the Administrative Agent. The Administrative Agent shall then promptly notify the affected parties to this Agreement.

(c) If a Tax Deduction for Indemnified Taxes is required by Applicable Law (as determined in the good faith discretion of the Borrower or the Administrative Agent required to make such Tax Deduction) to be made by the Borrower or the Administrative Agent or any Lender in respect of payment due from the Borrower under this Agreement, the amount of the payment due from the Borrower will be increased to an amount which, after making any Tax Deduction for Indemnified Taxes (including Tax Deductions for Indemnified Taxes applicable to additional sums payable under this Section), leaves an amount equal to the payment which would have been due if no such Tax Deduction had been required (or, alternatively, with respect to any such Taxes levied by Peru or any political subdivision thereof, the Borrower may assume directly the payment of such Taxes if allowed by Applicable Law). The Borrower shall not be obligated to make payment to any Lender or the Administrative Agent (as the case may be) for penalties attributable to any Indemnified Taxes arising from the gross negligence or willful misconduct of the Lender or the Administrative Agent.

(d) If the Borrower is required to make a Tax Deduction, the Borrower shall make the minimum Tax Deduction required by Applicable Law and shall make any payment required in connection with that Tax Deduction within the time allowed by Applicable Law.

(e) Within thirty (30) days of making either a Tax Deduction or a payment required in connection with a Tax Deduction, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(f) (i) Each Lender that is entitled to an exemption from or reduction of withholding Tax under the law of any jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall, to the extent legally entitled to do so, deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by Applicable Law, such properly completed and executed documentation prescribed by Applicable Law as will permit such payments to be made without withholding or at a reduced rate of withholding. (ii) In addition, each Lender shall, to the extent legally entitled to do so, deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (f), “FATCA” shall include any amendments made to FATCA after the date of this Agreement. Upon the reasonable request of the Borrower, each Lender shall deliver such forms that it is legally entitled to complete and deliver promptly upon the obsolescence or invalidity of any form previously delivered by such Lender.

 

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(g) Except as provided below, the Borrower indemnifies each Lender against any Indemnified Taxes in relation to a payment received or receivable (or any payment deemed to be received or receivable) under a Loan Document or in connection with the execution, delivery or performance of any Loan Document.

(h) A certificate of a Lender, delivered to the Borrower and the Administrative Agent, as to the amount of a Tax Payment owing to it shall be conclusive absent manifest error.

(i) If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section  2.16 (including by the payment of additional amounts pursuant to this Section  2.16 ), it shall within ten (10) days pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section  2.16 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (i) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (i), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (i) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph (i) shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

(j) Under the Applicable Laws of Peru, there is a Peruvian preferential withholding tax rate (which currently equals 4.99%) applicable to financings that meet the conditions set forth in section 56 a) of the Peruvian Income Tax Law, approved by Supreme Decree 179-2004-EF, and article 30 of its regulations, approved by Supreme Decree 122-94-EF, and its corresponding amendments.

SECTION 2.17 Payments Generally; Pro Rata Treatment; Sharing of Set-offs .

(a) The Borrower shall make each payment required to be made by the Borrower hereunder (whether of principal, interest or fees or under Section  2.14 , Section  2.15 or Section  2.16 , or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been

 

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received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its Principal Office, except that payments pursuant to Section  2.14 , Section  2.15, Section  2.16 and Section  9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person promptly following receipt thereof to the appropriate recipient in accordance with such Person’s ratable share of the Obligations with respect to which such payment was received. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day (except that if the Stated Maturity Date is not a Business Day then the Stated Maturity Date shall be the next preceding Business Day), and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars. If the Loan is repaid on the same day on which it is made, one day’s interest shall be paid on the Loan.

(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i)  first , to pay or reimburse the fees, costs and expenses then due to the Administrative Agent or Lender; (ii)  second , to pay interest then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest then due to such parties, and (iii) third, to pay principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.

(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on the Loan or other obligations hereunder resulting in such Lender receiving payment of a proportion of the aggregate amount of the Loan and accrued interest thereon or other such obligations greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loan and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on the Loan and other amounts owing to them; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph (c)  shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in the Loan to any assignee or participant, other than to the Borrower or Affiliate thereof (as to which the provisions of this paragraph (c)  shall apply).

(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from the date such amount is distributed to it to the date of payment to the Administrative Agent, at the Federal Funds Effective Rate.

 

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(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section  2.17(c) , then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), (i) apply any amounts thereafter received by the Administrative Agent for the account of such Lender and for the benefit of the Administrative Agent to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid and/or (ii) hold any such amounts in a segregated account as cash collateral for and application to, any future funding obligations of such Lender under such sections; in the case of each of clauses (i)  and (ii) above, in any order as determined by the Administrative Agent in its reasonable discretion.

SECTION 2.18 Mitigation Obligations; Replacement of Lenders .

(a) Designation of a Different Lending Office . If any Lender requests compensation under Section  2.14 , or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section  2.16 , or requires the Borrower to repay or prepay the Loan by reason of Illegality pursuant to Section  2.07 , then such Lender shall (at the request of the Borrower) use reasonable efforts to designate a different Lending Office for funding or booking its share of the Loan hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (x) would eliminate or reduce the amounts payable pursuant to Section  2.07 , Section  2.14 or Section  2.16 , as the case may be, in the future and (y) would not subject such Lender to any unreimbursed cost or expense that is not de minimis in amount and would not otherwise be disadvantageous to the Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. This Section  2.18(a) does not in any way limit the obligations of the Borrower under the Loan Documents.

(b) Replacement of Lenders . If the Borrower is, or will be, required to pay to a Lender a Tax Payment or an Increased Cost or to prepay a Lender’s share of the Loan under Section  2.07 (after taking into account Section  2.18(a) ), or if any Lender is a Defaulting Lender or a Non-Consenting Lender, the Borrower may (while the requirement continues in the case of a Tax Payment or an Increased Cost or within the Illegality Cure Period in the case of an Illegality or while such Lender continues to be a Defaulting Lender or a Non-Consenting Lender) give notice to the Administrative Agent and the affected Lender requesting that such Lender assign and delegate its rights and obligations to one or more assignees designated by the Borrower; provided that:

(i) Borrower may request an assignment under this clause (b) only if (A) unless the new Lender is another Lender (or an Affiliate of a Lender), the Borrower has received the prior written consent of the Administrative Agent as to such new Lender, which consent shall not be unreasonably withheld, delayed or conditioned;

 

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(ii) the Borrower shall grant a right of first refusal to the existing Lenders to acquire the assigning Lender’s interests, rights and obligations on a pro rata basis;

(iii) in connection with the assignment (A) the assigning Lender receives from the new Lender payment in full of the outstanding principal amount of its share of the Loan together with all accrued and unpaid interest and fees and all other amounts owed to it under the Loan Documents (including amounts payable pursuant to Section  2.15 ), (B) the new Lender assumes all obligations of the assigning Lender under the Loan Documents and (C) the assigning Lender assigns to the new Lender its share of the Loan and funded participations and related rights under the Loan Documents;

(iv) the assignment results in a reduction of the Tax Payment or Increased Costs otherwise payable or avoids the incurrence or continuation of, or otherwise cures, the relevant Illegality, as the case may be;

(v) in the case of any assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent;

(vi) the Borrower bears all costs of the assignment; and

(vii) such assignment does not conflict with Applicable Law.

A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. Nothing in this Section  2.18 shall be deemed to prejudice any rights that the Borrower, the Administrative Agent or any Lender may have against any Lender that is a Defaulting Lender.

SECTION 2.19 Defaulting Lenders . Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender, to the extent permitted by Applicable Law:

(a) in the event that such Defaulting Lender shall fail to respond to any request for any waiver, consent, amendment or modification requested with respect to amendments or waivers pursuant to Section  9.02(b)(i) through (vi)  within ten (10) days of written request from the Administrative Agent, such Defaulting Lender shall be deemed to have consented or agreed to such requested waiver, consent amendment or modification, as the case may be, for purposes of determining whether all Lenders or the Required Lenders have taken or may take any action hereunder; and

(b) any amount payable to such Defaulting Lender hereunder (whether on account of principal, interest, fees or otherwise and including any amount that would otherwise be payable to such Defaulting Lender pursuant to Section  2.17 but excluding Section  2.17(e) ) shall, in lieu of being distributed to such Defaulting Lender, and subject to any applicable

 

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provision of Applicable Law, be applied (i)  first , to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder, (ii)  second , to the payments of any amount then owing to a Lender as a result of a final non-appealable judgment of a court of competent jurisdiction obtained by such Lender against a Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement and (iii)  third , to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction.

SECTION 2.20 Acknowledgement and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in this Agreement or in any other agreement, arrangement or understanding between the parties, each party hereto acknowledges and accepts that any liability of any Party to any other Party under or in connection with the Loan Documents may be subject to Bail-In Action by the relevant Resolution Authority and acknowledges and accepts to be bound by the effect of:

(a) any Bail-In Action in relation to any such liability, including (without limitation):

(i) a reduction, in full or in part, in the principal amount, or outstanding amount due (including any accrued but unpaid interest) in respect of any such liability;

(ii) a conversion of all, or part of, any such liability into shares or other instruments of ownership that may be issued to, or conferred on, it; and

(iii) a cancellation of any such liability; and

(b) a variation of any term of any Loan Document to the extent necessary to give effect to any Bail-In Action in relation to any such liability.

ARTICLE III

CONDITIONS PRECEDENT

SECTION 3.01 Conditions Precedent to the Borrowing of the Loan . The obligation of any Lender to make its ratable share of the Disbursement hereunder shall be subject to the satisfaction, or waiver by each Lender, of each of the following conditions on or prior to the Closing Date, each of which shall be in form and substance satisfactory to each Lender:

(a) Each Lender shall have received the following, unless otherwise indicated below, and the following actions shall have been taken:

(i) each of the Loan Documents (other than the Security Documents, the Notes, the Note Completion Agreements and the Fee Letters) shall have been duly executed and delivered by each party thereto and be in full force and effect, and (A) each Lender and the Administrative Agent shall have received an original counterpart of this Agreement, (B) the Administrative Agent shall have received an original counterpart of the G&M Collection Rights Trust Agreement and (C) the Administrative Agent shall have received an original counterpart of each such Loan Document;

 

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(ii) the Borrower shall have duly authorized, executed and delivered to each Lender (A) one original Note and related Note Completion Agreement, and each such Note shall be appropriately completed (except for the blanks in Exhibit 1.01-B ) and the date of issuance (which shall be the Closing Date) shall be inserted therein, for such Lender, and (b) an original counterpart of the Fee Letters executed by the parties thereto;

(iii) a certificate of a legal representative of the Borrower certifying, inter alia (A) true and complete copies of each of the formation and governing documents of the Borrower, as amended and in effect, (B) the authorizing documents or resolutions adopted by the shareholders’ meeting, board of directors or similar governing body of the Borrower (1) granting, as necessary, certain general or specific powers of attorney, (2) authorizing the execution, delivery and performance by the Borrower of the Loan Documents to which it is a party and, with respect to the Borrower, the Loan to be made hereunder and (3) authorizing officers of the Borrower (“ Authorized Officers ”) to execute and deliver the Loan Documents and any related documents, including any agreement, document or certificate contemplated by this Agreement, and (C) the incumbency and specimen signatures of the officers of the Borrower executing any documents on its behalf;

(iv) a certificate of an Authorized Officer of the Borrower certifying (A) that the representations and warranties made by the Borrower, as applicable, in each Loan Document to which it is a party and which will be delivered as of the Closing Date are true and correct in all material respects (other than those representations and warranties that are subject to a materiality qualifier, in which case such representations and warranties shall be true and correct in all respects as written, including the materiality qualifiers) on and as of the Closing Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects (other than those representations and warranties that are subject to a materiality qualifier, in which case such representations and warranties shall be true and correct in all respects as written, including the materiality qualifiers) as of such earlier date, (B) the absence of any proceedings for the dissolution or liquidation of the Borrower, (C) the absence of the occurrence and continuance of any Event of Default, (D) the Borrower is Solvent, (E) the ownership structure of the Borrower, and (F) satisfaction of the conditions set forth in Section  3.01(b) ;

(v) favorable, signed opinions addressed to the Administrative Agent and the Lenders from (i) Paul Hastings LLP, as New York counsel to the Borrower, (ii) Payet, Rey, Cauvi, Pérez Abogados, as Peruvian counsel to the Borrower, (iii) Philippi Prietocarrizosa Ferrero DU & Uría, as Peruvian counsel to the Lenders and (iv) Shearman & Sterling LLP, as New York counsel to the Lenders;

(vi) except as otherwise required pursuant to Section  5.08(d) , the Administrative Agent shall have received acknowledgment copies or evidence that all filings, notarization, recording and other fees necessary for the consummation of the transactions contemplated by the Loan Documents, and all recording, stamp and other taxes and expenses related to such filings, notarizations, registrations and recordings have been paid in full;

 

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(vii) no material Litigation shall be pending against the Borrower or with respect to Properties or the transactions contemplated by the Loan Documents, except for the Litigations related to Adexus described on Schedule 4.06A;

(viii) the Financing shall be consummated or the Borrower shall have provided to the Administrative Agent a copy of the irrevocable instructions issued to Banco de Credito del Perú for the payment in full of all amounts payable in respect of the Financing with the proceeds of the Disbursement of the Loan; and

(ix) copies of appropriate public records as to the existence of the Borrower in Peru.

(b) All necessary governmental and third-party approvals in connection with the Transactions and the execution, delivery and performance of this Agreement and the other Loan Documents, if any are required, shall have been obtained and remain in full force and effect and any administrative and judicial appeal periods shall have expired (except where such failure to obtain or maintain in full force and effect, or the pending appeal in respect of such approvals has not had or would not reasonably be expected to result in a Material Adverse Effect).

(c) Each Lender shall have received all documentation and other information reasonably requested by it, through the Administrative Agent, in order to enable compliance with the customary and generally applicable “know your customer” and anti-money laundering rules and regulations, consistently applied, including the Patriot Act and the information described in Section  9.15 .

(d) The Administrative Agent shall have received on or before the Closing Date (i) the fees required to be paid to each Lender in accordance with the relevant Fee Letter and (ii) all reasonable and documented costs and expenses (including, without limitation, reasonable and documented legal fees and expenses and fees due to the Administrative Agent) incurred by the Administrative Agent in connection with the preparation, negotiation and execution of the Loan Documents and invoiced at least one day before the Closing Date.

(e) The Borrower shall have applied $28,516,257.84 of the Net Cash Proceeds from the disposition of CSM and the Borrower’s interests in Prinsur, COGA, Tecgas and GMD in satisfaction of the Borrower’s obligations under the G&M Guaranty and all fees set forth in the relevant Fee Letter, waiver fees, accrued interest and costs and expenses owing to the Secured Loan Parties.

(f) The Administrative Agent shall have received evidence of appointment by the Borrower of the Process Agent as its domestic process agent in accordance with Section  9.13 .

(g) No event shall have occurred and be continuing that has had or would reasonably be expected to have a Material Adverse Effect since December 31, 2016 other than the termination of the Concession Agreement.

 

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(h) The Borrower shall have complied with the provisions of Section  2.03 .

(i) No Default or Event of Default shall have occurred and be continuing or would result from the Loan to be made on the date of the Disbursement.

(j) The representations and warranties set forth in Article IV of this Agreement shall, in each case, be true and correct in all material respects (other than those representations and warranties that are subject to a materiality qualifier, in which case such representations and warranties shall be true and correct in all respects as written, including the materiality qualifiers) as of, and as if such representations and warranties were made on, the date of the Disbursement (unless such representation and warranty expressly relates to an earlier date in which case they are true and correct in all material respects (other than those representations and warranties that are subject to a materiality qualifier, in which case such representations and warranties shall be true and correct in all respects as written, including the materiality qualifiers) as of such earlier date).

(k) Without duplication of the certifications to be provided pursuant to Section  3.01(a)(iii) , each Lender shall have received, dated the date as of the Disbursement, a certificate of an Authorized Officer of the Borrower certifying satisfaction of the conditions set forth in Section  3.01(a)(vii) , Section  3.01(g) and Section  3.01(j).

SECTION 3.02 Delivery of Documents . All of the Loan Documents, certificates, legal opinions and other documents and papers referred to in this Article III , unless otherwise specified, shall be delivered to the Administrative Agent for the account of each of the Lenders.

SECTION 3.03 Determination of Borrowing Conditions . For purposes of determining compliance with the conditions specified in Section  3.01 , by delivery of its portion of the Disbursement, each Lender shall be deemed to have consented to, approved, accepted or be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders.

SECTION 3.04 Release . Promptly after the administrative agent under the Bridge Facility has received the Loan proceeds and in any event no later than one (1) Business Day after the Closing Date, the Lenders shall cause the administrative agent under the Bridge Facility to (i) take such actions necessary to release the GyM Account Pledge Agreement and GyM Share Pledge Agreement (each as defined in the Bridge Facility), (ii) deliver to the Borrower the original of each promissory note ( pagaré incompleto ) and note completion agreement ( acuerdo de llenado de pagaré incompleto ) delivered by the Borrower in connection with the G&M Guaranty, (iii) deliver to the Borrower the original of each confession of judgment delivered by the Borrower in connection with the G&M Guaranty and (iv) deliver to the Borrower an acknowledgment of payment in the form agreed with the Borrower prior to the Closing Date.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower makes the following representations and warranties to the Administrative Agent and the Lenders as of the Effective Date, the Closing Date and each other date required under this Agreement:

SECTION 4.01 Organization and Qualification . The Borrower and each other Obligor (a) is a duly organized and validly existing under the laws of its jurisdiction of incorporation, (b) has all requisite corporate power required to own and lease its property and assets and to carry on its business as now conducted, (c) has all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, to own and operate its Property, and to lease the Property it operates as lessee, and (d) is duly qualified to do business and is in good standing in every jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification, except to the extent that failure to be so qualified or in good standing would not reasonably be expected to result in a Material Adverse Effect.

SECTION 4.02 Authorization, Validity, Enforceable Obligations, Etc. This Agreement and the other Loan Documents to which it is a party have been duly and validly executed and delivered by or on behalf of the Borrower and each other Obligor and constitute valid and legally binding agreements of the Borrower and such Obligor, enforceable against it in accordance with the respective terms thereof, except as may be limited by applicable Bankruptcy Laws relating to or affecting the enforcement of creditors’ rights generally, and by general principles of equity (including principles of good faith, reasonableness, materiality and fair dealing) that may, among other things, limit the right to obtain equitable remedies (regardless of whether considered in a proceeding in equity or at law) and subject to each of the qualifications set forth in any legal opinion delivered pursuant to Section  3.01(a)(v)(ii) .

SECTION 4.03 Governmental Consents, Etc. Except the registrations required under Section  5.08(d) , no authorization, consent, approval, license or exemption of or registration, declaration or filing with any Governmental Authority, is necessary for the valid execution and delivery of, or the incurrence and performance by the Borrower or any other Obligor of its obligations under, any Loan Document to which it is a party, except those that have been obtained.

SECTION 4.04 No Breach or Violation of Agreements or Restrictions, Etc. The execution and delivery by the Borrower and each other Obligor of the Loan Documents to which it is a party, and the performance by it of its obligations hereunder and thereunder, have been duly authorized by all necessary corporate or other action on its part and do not and will not: (a) contravene any provision of its Charter Documents or any resolution of its shareholders, partners or directors (or any committee thereof); (b) conflict with, result in a breach of, or constitute a default or an event creating rights of acceleration, termination, modification or cancellation or a loss of rights under (with or without the giving of notice or lapse of time or both), any material Contractual Obligation; (c) violate any Applicable Law; or (d) other than as contemplated by the Loan Documents, result in, or require, the creation or imposition of any Lien on any property or assets of the Borrower or such Obligor.

 

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SECTION 4.05 Properties; Liens . The Borrower and each of its Subsidiaries has good title to, or valid leasehold or other interests in all of its respective Property that is necessary for, its business, and none of such Property is subject to a Lien except for Liens permitted under Section  6.02 .

SECTION 4.06 Litigation and Environmental Matters .

(a) There is (i) no material Litigation pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower, any of its Subsidiaries or their respective Properties, except for the Litigations set forth on Schedule 4.06A or (ii) any Litigation that purports to affect or pertain to this Agreement or any other Loan Document or the Transactions.

(b) Except for the matters set forth on Schedule 4.06B and other matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, the Borrower nor any Subsidiary (i) has not failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) is not subject to any Environmental Liability and (iii) has not received notice of any claim with respect to any Environmental Liability.

SECTION 4.07 Disclosure . None of the reports, financial statements, certificates or other written information (other than Projections (as defined below), market data, and information of a general economic or industry-specific nature) furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in light of the circumstances under which they were made, not materially misleading. Notwithstanding the foregoing, with respect to projected financial information, pro forma financial statements, estimates, forecasts, and other forward-looking information, if any, (collectively, “ Projections ”), the Borrower represents only that such information was prepared in good faith based upon assumptions believed by the Borrower to be reasonable at the time of delivery to the Administrative Agent or Lender, it being understood and agreed that financial projections are not a guarantee of financial performance and actual results may differ from financial projections, and such differences may be material.

SECTION 4.08 Investment Company Act .

(a) The Borrower and each other Obligor is not, and is not regulated as, an “investment company,” as such term is defined in the Investment Company Act of 1940, as amended.

(b) The Borrower is not a “covered fund” as defined in Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

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SECTION 4.09 Employee Benefit Plans; Labor Matters . Each Employee Benefit Plan mandated by a Governmental Authority that is intended to qualify for special tax treatment meets all of the material requirements for such treatment and has obtained all necessary approvals of all relevant Governmental Bodies. No Employee Benefit Plan has any unfunded liabilities, determined in accordance with IFRS, that have not been fully accrued on the Borrower Financial Statements (or the financial statements of the applicable Subsidiary) or that will not be fully offset by insurance. All Employee Benefit Plans are registered where required by, and are in good standing under, all Applicable Laws. For purposes of this Section  4.09 , “ Employee Benefit Plan ” means any employee benefit plan, pension plan, program, policy or arrangement sponsored, maintained or contributed to by the Borrower or any Subsidiary or with respect to which the Borrower or such Subsidiary has any liability or obligation.

The Borrower and each of its Subsidiaries is in material compliance with all Applicable Laws respecting employment and employment practices, terms and conditions of employment, pay equity and wages; there is not currently any labor disruption or conflict involving the Borrower or such Subsidiary or directly affecting any of its or such Subsidiary’s Properties. Except as set forth in Schedule 4.09 , neither the Borrower nor any of its Subsidiaries is a party to a collective bargaining agreement.

SECTION 4.10 Tax Returns and Payments . The Borrower and each of its Subsidiaries has duly filed all tax returns required to be filed by it, and has duly paid and discharged all taxes, assessments and governmental charges upon it or against its properties now due and payable, except where the validity or amount of the relevant taxes, assessments or governmental charges is being contested in good faith and by appropriate proceedings by the Borrower or such Subsidiary and for which adequate reserves in accordance with IFRS have been set aside on its books or other adequate provision for payment in respect thereof shall have been made.

SECTION 4.11 Compliance with Laws and Contractual Obligations . Except as described in Schedule 4.11 , the Borrower and each of its Subsidiaries is in compliance in all material respects with all Applicable Law applicable to it or its Property and all Contractual Obligations binding upon it or its Property.

SECTION 4.12 Purpose of the Loan . All proceeds of the Loan will be used solely for the purposes set forth in Section  5.06 .

SECTION 4.13 Foreign Assets Control Regulations, Etc.

(a) Sanctions .

(i) Neither the Borrower, any of its Subsidiaries nor, to the knowledge of the Borrower, any director, officer, employee, agent, or Affiliate of the Borrower or any of its Subsidiaries is a Person that is, or is owned or controlled by Persons that are a Sanctions Target or located, organized or resident in a Sanctioned Jurisdiction;

 

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(ii) The Borrower, its Subsidiaries and, to the knowledge of the Borrower, their respective directors, officers, employees, agents, and Affiliates are in compliance with the Sanctions Laws;

(iii) The Borrower and its Subsidiaries have instituted and maintain policies and procedures designed to promote and ensure continued compliance with the Sanctions Laws; and

(iv) The Borrower is not aware of any investigation or proceeding under Sanctions Laws.

(b) Anti-Corruption Laws .

(i) Neither the Borrower, any of its Subsidiaries nor, to the knowledge of the Borrower any director, officer, agent, employee or other Person acting on behalf of the Borrower or any of its Subsidiaries has taken any action, directly or indirectly, that would result in a violation by such Persons of Anti-Corruption Laws;

(ii) The Borrower and its Subsidiaries have instituted and maintain policies and procedures designed to promote and ensure continued compliance with Anti-Corruption Laws; and

(iii) The Borrower is not aware of any investigation or proceeding under Anti-Corruption Laws.

(c) AML Legislation .

(i) Neither the Borrower, none of its Subsidiaries nor, to the knowledge of the Borrower any director, officer, agent, employee or other Person acting on behalf of the Borrower or any of its Subsidiaries has taken any action, directly or indirectly, that would result in a violation by such Persons of the AML Legislation;

(ii) The Borrower and its Subsidiaries have instituted and maintain policies and procedures designed to promote and ensure continued compliance with the AML Legislation; and

(iii) The Borrower is not aware of any investigation or proceeding under AML Legislation.

SECTION 4.14 Financial Statements . (a) The Borrower Financial Statements (a) were prepared in accordance with IFRS consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (b) fairly present the financial condition of the Borrower or each of the companies covered thereby, as of the date thereof and its results of operations for the period covered thereby, in each case, subject to the absence of footnotes and to normal year-end audit adjustments.

(b) The Borrower does not have any material liabilities, contingent or otherwise, other than those reflected in the Borrower Financial Statements.

 

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(c) Except as disclosed in the Borrower Financial Statements, since December 31, 2016, there has been no event, change or effect which, individually or in the aggregate, has had, or would reasonably be expected to have, a Material Adverse Effect.

SECTION 4.15 No Default . No Default or Event of Default has occurred and is continuing.

SECTION 4.16 Solvency . Both before and after giving effect to (a) the Loan to be made or extended on the Closing Date, (b) the disbursement of the proceeds of the Loan made or extended on the Closing Date pursuant to the instructions of the Borrower, and (c) the payment and accrual of all transaction costs in connection with the foregoing, each Obligor is Solvent.

SECTION 4.17 No Immunity . Neither the Borrower nor any other Obligor or any of their respective assets has any immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, set-off, execution of a judgment or from any other legal process with respect to the obligations of the Borrower or such Obligor under this Agreement or any of the other Loan Documents.

SECTION 4.18 Proper Legal Form; No Need To Qualify Under Applicable Law . (a) To ensure the legality, validity, enforceability or admissibility into evidence in Peru and Chile of the Loan Documents, it is not necessary that the Loan Documents or any other document be filed or recorded with any Governmental Authority in Peru or Chile; provided that, (i) the enforceability against third parties of a Security Document under Peruvian law is subject to its registration: (y) in the relevant Peruvian public registries and (z) in the stock ledgers of the respective Subsidiaries (if applicable); and (ii) (x) perfection of the CAM Chile Share Pledge is subject to is registration in the Registro de Prendas sin Desplazamiento, (y) the CAM Chile Share Pledge has to be registered in the shareholders registry of CAM Chile by a notary public and (z) CAM Chile must provide written acknowledgement of the CAM Chile Share Pledge.

(b) Each of the Loan Documents is in proper legal form under the Applicable Laws of Peru and Chile for the enforcement thereof against the Borrower under such Applicable Laws; provided that, (i) the enforcement or admissibility into evidence before Peruvian courts of any Loan Document governed by the laws of New York is subject to (y) the filing of a translation into Spanish of such Loan Document made by a duly authorized translator ( traductor oficial ) and (z) the party seeking enforcement must pay court taxes at a rate that will depend upon the jurisdiction in which such enforcement is sought, and (ii) in order for any Loan Document executed in other language other than Spanish to be admissible into evidence in judicial proceedings in a Chilean court or arbitral tribunal, it would first have to be translated into the Spanish language (if the translation was submitted by a party to the judicial proceeding and is contested by any other party to the same proceeding, a translator would be appointed by the court or arbitral tribunal to resolve the incident), unless (y) executed in Spanish by all the parties thereto; or (z) the submission of documents in English is allowed under the corresponding court or arbitration proceeding without the need of translations. This procedure could be carried out in relation to any document issued or executed in a language other than Spanish at any time prior to such document being admitted as evidence in a proceeding held in Chilean courts or arbitral tribunals; and (iii) foreclosure of the CAM Chile Share Pledge must be carried out throughout the court system in Chile upon presenting an executive title ( t í tulo ejecutivo ) against the defendant. The submission to jurisdiction, appointment of the process agent, consents and waivers by the Borrower in Section  9.13 of the Agreement are valid and irrevocable.

 

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(c) It is not necessary in order for the Administrative Agent or any Lender to enforce any rights or remedies under the Loan Documents or solely by reason of the execution, delivery and performance by the Borrower of the Loan Documents that the Administrative Agent or any Lender be licensed or qualified with any Governmental Authority in Peru or Chile, or be entitled to carry on business in Peru or Chile.

ARTICLE V

AFFIRMATIVE COVENANTS

The Borrower covenants and agrees with the Administrative Agent and the Lenders that:

SECTION 5.01 Financial Statements; Information . The Borrower will furnish to the Administrative Agent (who agrees to promptly furnish to each Lender):

(a) within sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, an unaudited balance sheet, income statement and cash flow statement for such fiscal quarter, and an income statement and cash flow statement for such year-to-date period, of the Borrower prepared in accordance with IFRS (subject to normal year-end audit adjustments and the absence of footnotes to such financial statements), setting forth in comparative form the figures for the corresponding periods in the previous year, all in reasonable detail, and certified by a financial officer of the Borrower as fairly presenting, in all material respects the financial positions of the Borrower or companies being reported on and its or their results of operations and cash flows, subject to changes resulting from year-end adjustments;

(b) within ninety (90) days after the end of each fiscal year of the Borrower, a balance sheet, income statement and cash flow statement of the Borrower for such fiscal year, in each case prepared in accordance with IFRS (with footnotes to such financial statements) together with an audit report thereon (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of their audit) by an independent accounting firm of established national reputation; provided that, notwithstanding the foregoing, the Borrower shall provide the information required to be delivered in this clause (b) for the fiscal year ending on December 31, 2016, no later than June 30, 2017;

(c) prompt notice of the occurrence of any Default or Event of Default upon obtaining knowledge thereof, which notice shall be accompanied by a statement of a Responsible Officer setting forth the details of the relevant Default or Event of Default and any action taken or proposed to be taken with respect thereto or any material Litigation, labor dispute or environmental claim with respect to the Borrower and exceeding $10,000,000 has arisen, a written notice of such event describing the same in reasonable detail and, together with such notice, a description of the action that the Borrower has taken and/or proposes to take with respect thereto;

 

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(d) subject to confidentiality requirements, give to the Administrative Agent:

(i) promptly upon any change in the Authorized Officers of the Borrower or any other Obligor, notice thereof, and such notice shall include a certified specimen signature of any new officer so appointed and, if requested by the Administrative Agent, reasonably satisfactory evidence of the authority of such new Authorized Officer;

(ii) promptly upon any material dispute, deadlock or similar matter under any Charter Documents of the Borrower or any other Obligor, to the extent the same has had or would reasonably be expected to have a Material Adverse Effect, notice thereof;

(iii) promptly upon receipt of any written notice of implementation of a proceeding by any Governmental Authority in respect of any matters covered in Section  4.13 ; and

(iv) within ten (10) Business Days after the occurrence thereof, notice of any other event or circumstance that has had or would reasonably be expected to have a Material Adverse Effect;

(e) upon the reasonable request of the Administrative Agent, the Borrower shall promptly provide to the Administrative Agent and the Lenders information with respect to the status of the Planned Dispositions and make its general manager, chief financial officer, general counsel and other officers available to discuss such information with the Administrative Agent and the Lenders;

(f) the Borrower shall deliver or cause to be delivered to the Administrative Agent, promptly upon sending or receipt, copies of any and all management letters or other similar communication and correspondence relating to management letters, sent or received by the Borrower to or from any auditor of the Borrower; and

(g) simultaneously with the delivery of each set of financial statements referred to in Section  5.01(a) and Section  5.01(b) above, a certificate signed by a Responsible Officer of the Borrower stating whether any Default or Event of Default exists on the date of such certificate and, if any Default or Event of Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto.

SECTION 5.02 Existence, Conduct of Business . The Borrower and each other Obligor will (a) preserve and keep in full force and effect its legal existence and (b) do or cause to be done all things reasonably necessary to preserve, renew and keep in full force and effect the rights, licenses, permits, privileges and franchises material to the conduct of its current business in the ordinary course, in the case of clause (b)  except to the extent failure to do so would not reasonably be expected to result in a Material Adverse Effect.

SECTION 5.03 Maintenance of Properties . The Borrower and each of its Subsidiaries will keep all Property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted, except to the extent failure to do so would not reasonably be expected to result in a Material Adverse Effect.

 

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SECTION 5.04 Books and Records . The Borrower and each of its Subsidiaries will keep proper books of record and account in which full, true and correct entries in conformity in all material respects with IFRS and all applicable requirements of Applicable Law are made of all dealings and transactions in relation to its business and activities.

SECTION 5.05 Compliance with Laws . The Borrower will comply and will cause its Subsidiaries to comply (a) in all material respects with Environmental Laws, (b) its respective Charter Documents and (c) except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect, with all Applicable Law (other than Environmental Laws), in each case of clause (a)  and (c) that are applicable to it or its Property.

SECTION 5.06 Use of Proceeds .

(a) The proceeds of the Loan will be used solely to fund the Financing and related costs and expenses paid or to be paid by the Borrower. The Borrower and each other Obligor shall use commercially reasonable efforts to ensure that no funds used to pay the Obligations (a) constitute the property of any Person that is the target of Sanctions or (b) are derived from any transactions or business with any Person that is the target of Sanctions or any Sanctioned Jurisdiction.

(b) The Borrower, a non-bank entity located outside the United States, understands that it is the policy of the Board of Governors of the U.S. Federal Reserve System that extensions of credit by international bank facilities (as defined in Section 204.8(a) of Regulation D of the Board of Governors of the U.S. Federal Reserve System) may be used only to finance the non-U.S. operations of a customer (or its foreign affiliates) located outside the United States as provided in Section 204.8(a)(3)(vi) of Regulation D of the Board of Governors of the U.S. Federal Reserve System. Therefore, the Borrower acknowledges that the proceeds of the Loan by the respective international banking facilities of the Lender will be used solely to finance the Borrower’s operations outside the United States or that of the Borrower’s affiliates that are domiciled outside the United States.

SECTION 5.07 Payment of Tax Obligations . The Borrower will pay and will cause its Subsidiaries to pay, before the same shall become delinquent or in default, its Tax liabilities except where the validity or amount thereof is being contested in good faith by appropriate proceedings and the Borrower or the applicable Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with IFRS or other adequate provision for payment in respect thereof shall have been made and enforcement of the contested Tax liability has been effectively stayed.

SECTION 5.08 Security Documents; Security Interests .

(a) The Borrower shall take and shall cause each other Obligor to take all actions necessary under Applicable Law or reasonably requested by the Administrative Agent to (i) give effect, perfect, preserve or protect the Security Interests and the priority thereof or to exercise any of the rights conferred thereunder and (ii) maintain the validity and enforceability of the Security Interests.

 

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(b) The Borrower agrees that it and each other Obligor shall promptly correct, or cause to be corrected, any manifest defect or error discovered by the Borrower or such Obligor in any Loan Document or in the execution, acknowledgement or recordation thereof and execute, acknowledge and deliver, and record and re-record, file and re-file and register and re-register, any and all such further acts, deeds, conveyances, mortgages, deeds of trust, trust deeds, assignments, estoppel certificates, financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances and other instruments as the Administrative Agent may reasonably request from time to time in order to (i) carry out the purposes of this Agreement and any other Loan Document and (ii) convey, grant, assign, transfer, preserve, protect and confirm unto the Secured Loan Parties the rights granted or now or hereafter intended to be granted to the Secured Loan Parties under any Loan Document. The Borrower agrees that it will furnish to the Secured Loan Parties evidence reasonably satisfactory to the Administrative Agent and the Collateral Trustee, of each such recording, filing or registration.

(c) The Borrower and each other Obligor shall at all times, to the extent permitted by Applicable Law, defend, preserve and protect the Security Interests granted pursuant to the Security Documents and all the material rights of the Secured Loan Parties under the Loan Documents, against all claims, Liens and demands of all Persons whomsoever, subject to Permitted Liens.

(d)    

(i) No later than one (1) Business Day after the Closing Date, the Borrower shall deliver to the Administrative Agent (x) a copy of the public deed of the G&M Collection Rights Trust Agreement and (y) satisfactory evidence of the filing for registration of the G&M Collection Rights Trust Agreement in the Registro Mobiliario de Contratos ;

(ii) No later than the date on which each Security Document (other than the G&M Collection Rights Trust Agreement) is executed, the Borrower shall deliver to the Administrative Agent:

(x) in the case of a Security Document other than the G&M Collection Rights Trust Agreement and the CAM Chile Share Pledge:

(A) legal opinions, addressed to the Administrative Agent and the Lenders, from Peruvian counsel to the Borrower and the Lenders, in each case satisfactory to the Lenders;

(B) a certificate of an Authorized Officer of the Borrower containing the certifications described in Section  3.01(a)(iv) and of Viva containing the certifications described in Section  3.01(a)(iii) and (iv) ; and

 

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(C) evidence of the filing for registration with in Registro Mobiliario de Contratos;

(y) in the case of the CAM Chile Share Pledge:

(A) legal opinions, addressed to the Administrative Agent and the Lenders, from Chilean counsel to CAM Holdings S.p.A., and the Lenders, in each case satisfactory to the Lenders;

(B) a certificate of an Authorized Officer of each of CAM Holdings S.p.A. containing the certifications described in Section  3.01(a)(iii) and Section  3.01(a)(iv) ; and

(iii) (y) No later than thirty-five (35) Business Days (or, in the case of the CAM Chile Share Pledge, forty-five (45) days) after a Security Document has been executed, the Borrower shall provide the Administrative Agent with evidence, in form and substance satisfactory to the Lenders, of registration of such Security Document with the Registro Mobiliario de Contratos and the Registro de Prendas sin Desplazamiento ; (z) no later than three (3) Business Days after the CAM Chile Share Pledge has been executed, the Borrower shall provide the Administrative Agent with evidence, in form and substance satisfactory to the Lenders, of registration of the CAM Chile Share Pledge in the shareholders registry of CAM Chile by a notary public and written acknowledgement of CAM Chile of the CAM Chile Share Pledge; provided that the Borrower shall have an additional twenty-five (25) Business Day period to deliver such evidence of registration and acknowledgment to the Administrative Agent if the Borrower is exercising reasonable and good faith efforts to complete such registration and obtain such acknowledgment. If on or before the sixtieth (60 th ) Business Day following execution of the Security Document, the Borrower believes that it will not obtain any such registration or acknowledgment, the Borrower, if exercising reasonable and good faith efforts to complete such registration or acknowledgment, may present to the Administrative Agent an action plan to complete the applicable registration and the Administrative Agent, at the instruction of the Required Lenders (acting reasonably), may grant an additional period of time for the Borrower to complete such registration and acknowledgment.

(e) No later than the date that is four (4) Business Days after the Closing Date, the Borrower shall deliver to the Administrative Agent a copy of the Notificación de la Constitución del Patrimonio Fideicometido that the Borrower delivered to GSP pursuant to Section 7.3.1 of the G&M Collection Rights Trust Agreement.

SECTION 5.09 Pari Passu . The Borrower shall ensure that its Obligations do and shall rank at least pari passu in priority of payment with all its unsecured Indebtedness, except for any obligations of the Borrower to creditors whose claims are preferred by statute or by operation of Applicable Law (including Debtor Relief Laws).

 

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SECTION 5.10 KYC, Sanctions, Anti-Corruption Laws, AML Legislation, Etc.

(a) The Borrower and each other Obligor shall furnish to each Secured Loan Party promptly such information and documentation required by bank regulatory authorities under applicable “know your customer” and Anti-Money Laundering Laws (including the Patriot Act) as from time to time may be reasonably requested by such Secured Loan Party. The Borrower and its Subsidiaries shall adopt, implement and maintain in effect policies and procedures from time to time as appropriate to ensure they remain consistent with the current international best practice standards, designed to detect and prevent Prohibited Payments and Prohibited Practices, covering the Borrower and its Subsidiaries, and all directors, officers, and employees and third parties acting on behalf of the Borrower and its Subsidiaries and their interaction with counterparties to material contractual arrangements.

(b) The Borrower shall not, and shall cause its Subsidiaries and its or their respective directors, officers, agents, or employees or other Person on behalf of the Borrower or any of its Subsidiaries to not, take any action, directly or indirectly, that would result in a violation by such Persons of the Anti-Corruption Laws or any Sanctions Laws.

(c) The Borrower shall not, and shall cause its Subsidiaries and its or their respective directors, officers, agents, employees or other Person acting on behalf of the Borrower or any of its Subsidiaries to not, take any action, directly or indirectly, that would result in a violation by such Persons of the AML Legislation.

SECTION 5.11 Planned Dispositions Proceeds . The Borrower shall cause all proceeds and other amounts paid or received in respect of (i) the Planned Dispositions of the shares referenced in the definition of Proceeds Collateral, the Almonte Shares and the Corporate Buildings to be deposited into the trust of the Proceeds Trust Agreement and (ii) the GSP Claims to be deposited into the trust of the G&M Collection Rights Trust Agreement.

SECTION 5.12 Insurance . The Borrower will maintain and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which each such Person operates.

ARTICLE VI

NEGATIVE COVENANTS

The Borrower covenants and agrees with the Administrative Agent and the Lenders that:

SECTION 6.01 Indebtedness . Neither the Borrower nor any of its Subsidiaries shall create, incur, assume or suffer to exist any Indebtedness, except for Permitted Indebtedness.

SECTION 6.02 Liens . Neither the Borrower nor any of its Subsidiaries shall create, assume, incur or suffer to exist any Lien upon any of its Property, whether owned or leased on the Effective Date or thereafter acquired, except for Permitted Liens.

 

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SECTION 6.03 Permitted Dispositions . Neither the Borrower nor any of its Subsidiaries shall consolidate or merge with or into any other Person, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) any of its assets, or liquidate or dissolve, except for (a) the Planned Dispositions to the extent that consideration for the assets disposal is paid or payable solely in cash, (b) as contemplated under the Security Documents, (c) as set forth in Schedule 6.03 , (d) disposals of assets that are obsolete, worn-out, surplus, defective, depleted or uneconomic and of inventory or machinery in the ordinary course of business of the Borrower or such Subsidiaries or (e) with the prior approval of the Required Lenders.

SECTION 6.04 Permitted Business . Neither the Borrower nor any of its Subsidiaries shall engage in any business other than the Business and all activities related or incidental thereto.

SECTION 6.05 Transactions with Affiliates . The Borrower shall not nor shall any Subsidiary of the Borrower sell, lease or otherwise transfer any property to, or purchase, lease or otherwise acquire any property from, or otherwise engage in any other transaction with, any Affiliate of the Borrower or such Subsidiary, except transactions on fair and reasonable terms substantially as favorable to the Borrower or such Subsidiary, as applicable, as would be obtainable by the Borrower or such Subsidiary, as the case may be, at the time in a comparable arm’s length transaction with a Person other than an Affiliate.

SECTION 6.06 Restricted Payments . Neither the Borrower nor any of its Subsidiaries shall make any Restricted Payments except that if no Default or Event of Default has occurred and is continuing (i) a Subsidiary may make the Restricted Payments described in clause (a) of the definition of Restricted Payments to the Borrower (and any intermediate Subsidiaries of the Borrower to permit that such Restricted Payments be made to the Borrower) and its shareholders that are not affiliates of the Borrower, (ii) a Subsidiary may make the Restricted Payments described in clause (b) of the definition of Restricted Payments to GyM and the Borrower in respect of intercompany loans made in connection to the reimbursement, under the Local Facility, of draws on surety bonds, performance bonds, advance payment bonds, bid/offer payment bonds, letters of credit and similar instruments and (iii) the Borrower (and any intermediate Subsidiaries of the Borrower to permit that such Restricted Payments be made to Viva and CAM Holding S.p.A., respectively) may make the Restricted Payments described in clause (b) of the definition of Restricted Payments to pay the intercompany loans from (x) Viva in connection with a Planned Disposition of the Almonte Shares and the disposition of CSM and the Capital Stock of Prinsur and (y) CAM Holding S.p.A. in connection with a Planned Disposition of the disposition of the Capital Stock of CAM Chile, in each case by setting off the amounts the Borrower owes thereunder with the amounts that Viva and CAM Holding S.p.A. owe to the Borrower with respect to unpaid dividends or capital reductions.

SECTION 6.07 Accounting Changes; Fiscal Year . The Borrower shall not change or permit any Subsidiary of the Borrower to change its accounting treatment and reporting practices or tax reporting treatment, except as required by IFRS or any Applicable Law and disclosed to the Administrative Agent.

 

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SECTION 6.08 Sanctions, Anti-Corruption Laws, AML Legislation, Etc.

(a) The Borrower shall not, and shall cause its Subsidiaries and its or their respective directors, officers, agents, employees or other Person acting on behalf of the Borrower or any of its Subsidiaries to not, be owned or controlled by Persons that are: (a) a Sanctions Target; or (b) located, organized or resident in a Sanctioned Jurisdiction.

(b) The Borrower shall not, and shall cause its Subsidiaries and its or their respective directors, officers, agents, employees or other Person acting on behalf of the Borrower or any of its Subsidiaries to not, (i) use, or authorize the use of, any corporate funds or the proceeds of the Loan for any Prohibited Payment or Prohibited Practice; (ii) make, or authorize the making of, any direct or indirect Prohibited Payment from corporate funds or Loan proceeds; or (iii) violate any provision of AML Legislation, Anti-Corruption Laws or any applicable Sanctions Laws.

SECTION 6.09 Investments . Neither the Borrower nor any of its Subsidiaries shall make or hold any Investments, or enter into any profit-sharing or royalty agreement or similar arrangement whereby the Borrower’s or such Subsidiary’s income or profits are shared with any other Person, other than Permitted Investments.

SECTION 6.10 Prepayments, Etc. of Debt . Neither the Borrower nor any of its Subsidiaries shall prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any prepayment of, any Indebtedness other than mandatory prepayments of (a) the Chubb Facility and the CS Facility with the proportionate share of the proceeds of the Planned Dispositions and the Red Eagle Mining Proceeds and (b) the Local Facility with the proceeds of GyM cash flows. Without prejudice to the foregoing, the Borrower shall not voluntarily prepay the Chubb Facility, the CS Facility or the Local Facility unless the Borrower also concurrently prepays the Loan hereunder on a pro rata basis, including any accrued interest to the extent required by Section  2.12 .

SECTION 6.11 No Further Negative Pledges, Etc . Neither the Borrower nor any of its Subsidiaries shall enter into or permit to exist any agreement prohibiting (a) the creation or assumption of any Lien upon any of its Properties, whether now owned or hereafter acquired, to secure the Obligations of the Obligors under the Loan Documents or (b) restricting the ability of any Subsidiary to make dividend payments or other distributions to any Obligor, except in the case of each of (a) and (b) above for (i) the Loan Documents, (ii) agreements or documents governing, evidencing and/or securing Permitted Indebtedness, (iii) solely in the case of (b) above, customary restrictions and conditions that apply to any Subsidiary of the Borrower that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect or (iv) other Contractual Obligations in effect as of the Closing Date.

SECTION 6.12 Certain Amendments . Neither the Borrower nor any of its Subsidiaries shall (a) terminate its Charter Documents or (b) amend, modify or change (i) any provision of its Charter Documents in any manner that would be adverse to the Lenders or (ii) any term or provision of the CS Facility or Chubb Facility that in any manner that would be adverse to the Lenders.

SECTION 6.13 Consolidated Leverage Ratio . The Borrower shall not permit (a) the Consolidated Leverage Ratio to be more than 3.50:1.00 at any time and (b) the CAM Chile Leverage Ratio to be more than 2.50:1.00 at any time.

 

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ARTICLE VII

EVENTS OF DEFAULT

SECTION 7.01 Events of Default and Remedies . If any of the following events shall occur and be continuing, such event shall be an “ Event of Default .”

(a) the principal of the Loan or any interest on the Loan or any fee or any other amount payable under this Agreement or any other Loan Document shall not be paid, when and as the same shall become due and payable;

(b) (i) any representation or warranty made by the Borrower or any Obligor herein or in any Loan Document or in any document, certificate or financial statement delivered in connection with this Agreement or any other Loan Document or (ii) any certification made by the Borrower or any Obligor, shall prove to have been incorrect in any material respect when made or deemed made or reaffirmed, as the case may be and, if capable of remedy, such misrepresentation shall continue unremedied for a period of more than ten (10) days after the earlier of (A) notice of such misrepresentation having been given to the Borrower or by the Administrative Agent or (B) an Authorized Officer becoming aware of such misrepresentation;

(c) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section  5.01(c) , Section  5.08(d)(i)(x) , Section  5.02 (with respect to the Borrower’s existence), Section  5.06 , or Article VI ;

(d) (i) the Borrower or any Subsidiary shall fail to pay all or any portion of any Indebtedness (excluding any Indebtedness incurred under any Loan Document) when and as the same shall become due and payable beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created, or (ii) the Borrower or any Subsidiary shall fail to comply with any other agreement, covenant or condition contained in any agreement or instrument evidencing or governing any Indebtedness, or contained in any instrument or agreement evidencing, securing or relating to such Indebtedness, in each case other than in any Loan Document or (prior to the execution of the CS Waiver) the CS Facility, or any other event shall occur or condition exist, the result of which failure to comply or other event or condition, in each case, is to cause or permit the holders thereof to cause any such Indebtedness to become due prior to its stated maturity; or any Indebtedness of the Borrower (other than any Indebtedness incurred under any Loan Document) shall, for reason of such failure to comply, be declared, or permit the holders thereof to declare such Indebtedness, to be due and payable, or be required to be prepaid or redeemed other than by a regularly scheduled required prepayment or redemption, prior to the stated maturity thereof; provided , however , that it shall not be an Event of Default under this clause (d)  unless the aggregate outstanding principal amount of such Indebtedness is at least $10,000,000 (in the case of the Borrower) or $20,000,000 (in the case of its Subsidiaries) (or, in each case, its equivalent in any other currency);

 

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(e) the Borrower or any Obligor shall fail to perform or observe (i) any of its obligations under Section  5.01(e) such failure is not remedied within three (3) Business Days after the Borrower having actual knowledge of such failure and (ii) any other term, covenant or agreement contained in this Agreement or any other Loan Document to which it is a party (other than those specified in clauses (a)  or (c) above or the foregoing sub-clause (i)  and, in any event, such failure shall remain unremedied for a period of more than thirty (30) days after a Responsible Officer becoming aware of such failure;

(f) an involuntary proceeding shall be commenced or involuntary petition shall be filed seeking (i) liquidation, reorganization, insolvency or other relief under any Bankruptcy Laws in respect of the Borrower, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower and, in any such case, such proceeding or petition shall continue undismissed and unstayed for a period of sixty (60) or more days or an order or decree approving or ordering any of the foregoing shall be entered; provided , that for the avoidance of doubt, the occurrence of any of the events described in this paragraph (f)  in respect of any Person holding a direct or indirect Capital Stock of the Borrower shall not be a Default or Event of Default;

(g) the Borrower or any of its Subsidiaries shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization, insolvency or other relief under any Bankruptcy Law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in paragraph (f)  above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

(h) one or more final, non-appealable judgments for the payment of money in an aggregate amount in excess of $10,000,000 (in the case of the Borrower) or $20,000,000 (in the case of its Subsidiaries) (in each case, that is not covered in full by insurance) shall be rendered against the Borrower or any of its Subsidiaries by one or more Governmental Authorities of competent jurisdiction or a decision of a judicial or arbitral tribunal of competent jurisdiction and the same shall not be paid within the times set forth in such judgment;

(i) any action or series of actions, omission or series of omissions, is taken or authorized by a Governmental Authority of competent jurisdiction in Peru that has the effect of confiscation, expropriation, nationalization, condemnation, seizure or forced transfer (with or without compensation) of all or any material portion of (i) the assets of the Borrower and its Subsidiaries, taken as a whole, (ii) the Collateral, the economic interests therein or the control thereof or (iii) the Secured Loan Parties’ fundamental rights as creditors in respect of the Loan Documents in a manner that is prejudicial to foreign creditors relative to the rights of Peruvian creditors, and such act or series of acts continues for at least sixty (60) consecutive days;

(j) a Change in Law occurs that could reasonably be expected to materially and adversely affect (i) the Borrower’s or any of its Subsidiaries’ ability to effectuate any of the Planned Dispositions or to apply the funds as provided in Section  2.09 , (ii) the Borrower’s ability to make payments hereunder or (iii) the rights or remedies of the Secured Loan Parties under the Security Documents;

 

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(k) (i) any Loan Document (excluding any Security Document) is declared in a final, non-appealable judgment to be unenforceable against the Borrower or any other Obligor or otherwise ceases to be valid and binding or in full force and effect (except in connection with its expiration in accordance with its terms) or (ii) the Borrower or any Obligor expressly repudiates in writing any of its material obligations under any Loan Document (other than any Security Document) to which it is a party;

(l) there shall occur any Change of Control;

(m) (i) except as expressly contemplated thereunder or arising in connection with any action or omission by the Collateral Trustee or the Administrative Agent, any of the Security Documents fails to provide the Collateral Trustee or the Administrative Agent, as applicable, for the benefit of the Secured Loan Parties a Lien (with the priority required under the Security Documents) on any material portion of the Collateral (subject to Permitted Liens) that is not remedied within fifteen (15) days after the Borrower has knowledge thereof, (ii) except in accordance with its terms, any Security Document fails to be in full force and effect or (iii) the Borrower or any Obligor under a Security Document contests or disaffirms in writing the validity of any Security Document or the priority purported to be created thereunder in favor of the Collateral Trustee or the Administrative Agent, as applicable;

(n) any of the following shall occur (i) an aggregate principal amount of not less than 40% of the Loan on the Closing Date shall not be repaid on or prior to the end of Period 1, (ii) an aggregate principal amount of not less than 70% of the Loan on the Closing Date shall not be repaid on or prior to the end of Period 2, or (iii) an aggregate principal amount of not less than 100% of the Loan on the Closing Date shall not be repaid on or prior to the Maturity Date;

(o) after the execution of the CS Waiver, an “Event of Default” as defined under the CS Facility shall occur;

(p) an “Event of Default” as defined under the Chubb Facility shall occur;

(q) the Second Lien Share Trust Agreement has not been executed and filed with the applicable public registry within 60 days following the Closing Date;

(r) the Corporate Building Trust Agreement has not been executed and filed with the applicable public registry within 60 days following the Closing Date;

(s) the Addenda to the Almonte Trust Agreement has not been executed and filed with the applicable public registry within 30 days following the Closing Date;

(t) the CAM Peru Share Trust Agreement has not been executed and filed with the applicable public registry within 60 days following the Closing Date;

(u) the Proceeds Trust Agreement has not been executed and filed with the applicable public registry within 60 days following the Closing Date;

(v) the CAM Chile Share Pledge has not been executed and filed with the applicable public registry within 45 days following the Closing Date;

 

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(w) the CS Waiver has not been executed and delivered by the Borrower and each of the other parties required to execute the CS Waiver within 30 days following the Closing Date; or

(x) the Borrower shall become unable to access sufficient Dollar funds to repay the Loan and all other amounts due under the Loan Documents as they mature or otherwise become due or any Governmental Authority shall not permit the Borrower to access foreign exchange;

provided , that no Event of Default under clauses (p), (q), (r), (s), (t) or (u) above shall be deemed to occur to the extent that, prior to the date specified in such clause, the assets intended to be pledged or conveyed as Collateral pursuant to the relevant Security Document described in such clause have been the subject of a Planned Disposition and the proceeds of such Planned Disposition have been applied in accordance with Section  2.09(a) .

SECTION 7.02 Remedies . Upon the occurrence and during the continuation of an Event of Default the Administrative Agent, may, and upon the written request of the Required Lenders shall, by notice (including notice sent by facsimile or electronic transmission, in PDF format) to the Borrower (a “ Notice of Default ”) take any or all of the following actions, without prejudice to the rights of the Administrative Agent, any Lender or other holder of any of the Obligations to enforce its claims against the Borrower:

(i) terminate the Commitments, whereupon the Commitments shall terminate immediately; provided that, if an Event of Default specified in Section  7.01(f) or Section  7.01(g) shall occur, the Commitments shall immediately and automatically terminate without the giving of any Notice of Default;

(ii) declare the principal of and any accrued interest in respect of the Loan, and all of the other Obligations owing hereunder and under the other Loan Documents, to be, whereupon the same shall become, forthwith due and payable without presentment, demand, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intent to accelerate, declaration or notice of acceleration or any other notice of any kind, all of which are hereby waived; provided , that if an Event of Default specified in Section  7.01(f) or Section  7.01(g) shall occur with respect to the Borrower, the Obligations shall become due and payable immediately and automatically, without the giving of any Notice of Default;

(iii) exercise any other rights or remedies under the Loan Documents or at law; provided , that if an Event of Default specified in Section  7.01(f) or Section  7.01(g) shall occur with respect to the Borrower, such rights and remedies shall be exercisable without the giving of any Notice of Default; and

(iv) enforce or cause the enforcement of all or any part of the Collateral and/or take any action under any Loan Document.

 

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ARTICLE VIII

THE ADMINISTRATIVE AGENT

SECTION 8.01 Appointment, Powers and Immunities . Each Lender hereby irrevocably appoints and authorizes the Administrative Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement and such other Loan Documents, together with such other powers as are reasonably incidental thereto. The Administrative Agent (which term as used in this sentence and in Section  8.05 and the first sentence of Section  8.06 shall include reference to its Affiliates and its Affiliates’ officers, directors, employees, attorneys, accountants, experts and agents): (a) shall have no duties or responsibilities except those expressly set forth in the Loan Documents, and shall not by reason of the Loan Documents be a trustee or fiduciary for any Lender; (b) makes no representation or warranty to any Lender and shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, execution, legality, enforceability or sufficiency of this Agreement, any other Loan Document or any other document referred to or provided for herein or therein or for any failure by the Borrower or any other Person (other than the Administrative Agent) to perform any of its obligations hereunder or thereunder or for the financial or other condition of the Borrower, the Guarantors, any provider of Acceptable Credit Support or any other obligor or guarantor; (c) except pursuant to Section  8.07 shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith including its own ordinary negligence, except for its own gross negligence or willful misconduct as found in a non-appealable judgment by a court of competent jurisdiction. The Administrative Agent may employ agents, accountants, attorneys and experts and shall not be responsible for the negligence or misconduct of any such agents, accountants, attorneys or experts selected by it in good faith, except to the extent a court of competent jurisdiction determines in a final and non-appealable judgment that the Administrative Agent acted with gross negligence or willful misconduct. The Administrative Agent shall not be responsible to the Lenders for any action taken or omitted to be taken in good faith by it in accordance with the advice of such agents, accountants, attorneys or experts. The Administrative Agent is authorized to release any cash collateral that is permitted to be released pursuant to the terms of this Agreement.

SECTION 8.02 Reliance by Administrative Agent . The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by facsimile or electronic communication) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent in good faith. The Administrative Agent may treat each Lender as a Lender, entitled to payments under this Agreement and as acting through its Lending Office until it has received not less than five (5) Business Days’ prior notice from that Lender to the contrary.

 

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SECTION 8.03 Defaults; Events of Default . The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default or an Event of Default (other than the non-payment of principal or interest on the Loan or of fees) unless the Administrative Agent has received notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a “Notice of Default”. In the event that the Administrative Agent receives such a notice of the occurrence of a Default or Event of Default, the Administrative Agent shall give prompt notice thereof to the Lenders. In the event of a payment Default or Event of Default, the Administrative Agent shall give each Lender prompt notice of each such payment Default or Event of Default.

SECTION 8.04 Rights as a Lender . With respect to its Commitments and the portion of the Loan made by it, NATIXIS, NEW YORK BRANCH (and any successor acting as Administrative Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Administrative Agent, and the term “Lender” or “Lenders” shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. NATIXIS, NEW YORK BRANCH (and any successor acting as Administrative Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower (and any of its Affiliates) as if it were not acting as the Administrative Agent. NATIXIS, NEW YORK BRANCH and its Affiliates may accept fees and other consideration from the Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Lenders.

SECTION 8.05 INDEMNIFICATION . THE LENDERS AGREE TO INDEMNIFY, RATABLY ACCORDING TO THEIR RESPECTIVE PERCENTAGE OF CREDIT EXPOSURES, THE ADMINISTRATIVE AGENT FOR THE INDEMNITY MATTERS DESCRIBED IN SECTION 9.03 TO THE EXTENT NOT INDEMNIFIED OR REIMBURSED BY THE BORROWER UNDER SECTION 9.03 , BUT WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWER UNDER SAID SECTION 9.03 AND FOR ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF: (A) THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING, UNLESS A DEFAULT OR AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY DUTIES, IF ANY, HEREUNDER OR (B) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN THIS SECTION 8.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF THE ADMINISTRATIVE AGENT; PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE ADMINISTRATIVE AGENT AS DETERMINED BY A COURT OF COMPETENT JURISDICTION IN A NONAPPEALABLE JUDGMENT.

 

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SECTION 8.06 Non-Reliance on Administrative Agent and Other Lenders . Each Lender acknowledges and agrees that it has, independently and without reliance on the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower, the Guarantors, any provider of Acceptable Credit Support and its own decision to enter into this Agreement, and that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Borrower of this Agreement, the other Loan Documents or any other document referred to or provided for herein or to inspect the properties or books of the Borrower. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come into the possession of the Administrative Agent or any of its Affiliates. Each Lender will consult with its own legal counsel to the extent that it deems necessary in connection with this Agreement and other Loan Documents and the matters contemplated herein and therein.

SECTION 8.07 Action by Administrative Agent . Except for action or other matters expressly required of the Administrative Agent hereunder, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall (a) receive written instructions from the Required Lenders (or all of the Lenders as expressly required by Section  9.02 ) or instructions from any Lender in connection with matters hereunder or under any other Loan Document that do not require a Required Lender (or unanimous Lender) affirmative vote hereunder, in each case specifying the action to be taken, and (b) be indemnified to its satisfaction by the Lenders against any and all liability and expenses that may be incurred by it by reason of taking or continuing to take any such action. The instructions of the Required Lenders (or all of the Lenders as expressly required by Section  9.02 ) and any action taken or failure to act pursuant thereto by the Administrative Agent shall be binding on all of the Lenders. If a Default or Event of Default has occurred and is continuing, the Administrative Agent shall take such action with respect to such Default or Event of Default as shall be directed by the Required Lenders (or all of the Lenders as required by Section  9.02 ) or any Lender to the extent provided for in clause (a)  of this Section  8.07 in the written instructions (with indemnities) described in this Section  8.07 ; provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. In no event, however, shall the Administrative Agent be required to take any action that exposes the Administrative Agent to personal liability or which is contrary to this Agreement or Applicable Law.

 

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SECTION 8.08 Resignation or Removal of Administrative Agent .

(a) Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower, and the Administrative Agent may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent (so long as no Default or Event of Default exists) with the prior written consent of the Borrower (which consent will not be unreasonably withheld). If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent’s giving of notice of resignation or the Required Lenders’ removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent (so long as no Default or Event of Default exists) with the prior written consent of the Borrower (which consent will not be unreasonably withheld). Upon the acceptance of such appointment hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent’s resignation or removal hereunder as Administrative Agent, the provisions of this Article VIII and Section  9.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent.

If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d)  of the definition thereof, the Required Lenders may, to the extent permitted by Applicable Law, by notice in writing to the Borrower and such Person remove such Person as Administrative Agent and, in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders and the Borrower) (the “ Removal Effective Date ”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.

ARTICLE IX

MISCELLANEOUS

SECTION 9.01 Notices, Etc.

(a) The Administrative Agent, any Lender or the holder of any of the Obligations, giving consent or notice or making any request of the Borrower provided for hereunder, shall notify each Lender (in the case of the Administrative Agent) and the Administrative Agent (in the case of a Lender) thereof. In the event that the holder of any of the Obligations (including any Lender) shall transfer such Obligations, it shall promptly so advise the Administrative Agent which shall be entitled to assume conclusively that no transfer of any of the Obligations has been made by any holder (including any Lender) unless and until the Administrative Agent receives notice to the contrary.

 

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(b) All notices, consents, requests, approvals, demands and other Communications provided for herein shall be in writing (including facsimile and electronic mail Communications) and mailed, faxed or delivered:

(i) if to the Borrower, to it at:

GRAÑA Y MONTERO S.A.A.

Av. Paseo de la República 4675, Surquillo, Lima—Perú

Attention: Mónica Miloslavich Hart

Telephone: +511 213-6404 / + 511 213-0437

E-mail: mmiloslavich@gym.com.pe

With copy to:

Attention: Dennis Gray Febres

Av. Paseo de la República 4675, Surquillo, Lima—Perú

Telephone: +511 213-6597

E-mail: dgray@gym.com.pe

if to the Administrative Agent, to it at:

NATIXIS, NEW YORK BRANCH

1251 Avenue of the Americas, 5th Floor

New York, NY, 10020

Attention: Urs Fischer, Executive Director / Hana Beckles

Telephone: +1 (212) 891-1954 / +1 (212) 583-4913

Facsimile No: +1 (646) 282-2392

E-mail: AdminAgency@us.natixis.com

(ii) if to any Lender, to it at its address (or facsimile number) set forth in the Administrative Questionnaire delivered by such Person to the Administrative Agent or in the Assignment and Assumption executed by such Person;

or, in the case of any party hereto, such other address or facsimile number as such party may hereafter specify for such purpose by notice to the other parties.

(c) Any party hereto may change its address, facsimile number or email address for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent if a confirmation has been received and, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient. Notices delivered through electronic communications to the extent provided in paragraph (d)  below, shall be effective as provided in said paragraph (d) .

 

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(d) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified Administrative Agent that it is incapable of receiving notices under such Section by electronic communication. The Administrative Agent or Borrower may, in its reasonable discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an electronic mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its electronic mail address as described in the foregoing clause (i)  of notification that such notice or communication is available and identifying the website address therefor.

(e) (i) Each of the parties agrees that the Administrative Agent may, but shall not be obligated to, make the Communications available to the other Lenders by posting the Communications on Debt Domain (at the cost of the Borrower), Intralinks, Syndtrak or a substantially similar electronic transmission system (the “ Platform ”).

(ii) The Platform is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of the Platform and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or the Platform. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “ Agent Parties ”) have any liability to the Borrower, any Lender or any other Person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of communications through the Platform. “ Communications ” means, collectively, any notice, consents, requests, approvals, demand, communication, information, document or other material that the Borrower provides to the Administrative Agent pursuant to any Loan Document or the transactions contemplated herein or therein which is distributed to the Administrative Agent or any Lender by means of electronic communications pursuant to this Section  9.01 , including through the Platform.

(iii) Any failure of the Platform shall not affect the effectiveness of any Communication given in accordance with the provisions of Section  9.01(a) (d) or cause additional obligations with respect to the Communication subject to such failure.

 

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SECTION 9.02 Waivers; Amendments .

(a) No failure or delay by the Administrative Agent or any Lender in exercising, and no course of dealing with respect to, any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. No waiver of any provision of this Agreement or consent to any departure therefrom shall in any event be effective unless the same shall be permitted by Section  9.02(b) , and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of the Loan shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time.

(b) No provision of this Agreement or any other Loan Document may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of the Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender directly affected thereby, (iii) postpone or otherwise modify the scheduled or otherwise fixed date of payment of the principal amount of the Loan, any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender directly affected thereby, (iv) change Section  2.09 or Section  2.17(b) or (c)  in a manner that would alter the ratable sharing of payments required thereby, without the written consent of each Lender, (v) release any Obligor from any of its obligations under the applicable Security Agreement (other than pursuant to the terms of such Security Document) without the written consent of each Lender affected thereby, (vi) impose any greater restriction on the ability of any Lender to assign or grant participations in any of its rights or obligations hereunder without the consent of such Lender, (vii) waive, amend or modify, Section  7.01(q ), Section  7.01(r) , Section  7.01(s) , Section  7.01(t) , Section  7.01(u) , or Section  7.01(v) that will have the effect of extending the delivery dates specified therein for a period longer than thirty (30) days after the date specified therein (as of the Effective Date), (viii) change any of the provisions of this Section  9.02 or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent.

 

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SECTION 9.03 Payment of Expenses, Indemnities, Etc. The Borrower agrees, whether or not the transactions contemplated hereby are consummated:

(a) to pay (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent and each of their respective Affiliates, including the reasonable and documented fees, charges and disbursements of counsel for the Administrative Agent, in connection with the preparation and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof and thereof and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender (including the fees, charges and disbursements of counsel for such Persons, which shall be limited to one firm of counsel for all such Persons and, if necessary, one firm of local or regulatory counsel in each appropriate jurisdiction, in each case for all such Persons (and, in the case of an actual or perceived conflict of interest, where the Person affected by such conflict provides the Borrower written notice of such conflict, of another firm of counsel for such affected Person)) in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents, including its rights under this Section  9.03 , or in connection with the Loan made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of the Loan.

(b) TO PAY, INDEMNIFY, DEFEND AND HOLD EACH SECURED LOAN PARTY, AND EACH OF THEIR RESPECTIVE AFFILIATES, AND EACH OF THE OFFICERS, DIRECTORS, EMPLOYEES, TRUSTEES, ADMINISTRATORS, MANAGERS, ADVISORS, AGENTS AND REPRESENTATIVES OF EACH OF THE FOREGOING (EACH, AN INDEMNITEE ) HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, CLAIMS, ACTIONS, JUDGMENTS, SUITS, COSTS, CHARGES, EXPENSES OR DISBURSEMENTS (INCLUDING DOCUMENTED ATTORNEY COSTS) OF ANY KIND OR NATURE WHATSOEVER WHICH MAY AT ANY TIME (INCLUDING AT ANY TIME FOLLOWING REPAYMENT OF THE LOAN OR THE TERMINATION, RESIGNATION OR REPLACEMENT OF THE ADMINISTRATIVE AGENT OR ANY LENDER) BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY SUCH PERSON IN ANY WAY RELATING TO OR ARISING OUT OF THE TRANSACTIONS, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, THE SECURITY DOCUMENTS AND ANY OTHER DOCUMENT OR INSTRUMENT CONTEMPLATED BY OR REFERRED TO HEREIN OR THEREIN, OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, OR ANY ACTION TAKEN OR OMITTED BY ANY SUCH PERSON UNDER OR IN CONNECTION WITH ANY OF THE FOREGOING, INCLUDING WITH RESPECT TO ANY INVESTIGATION, LITIGATION OR PROCEEDING (INCLUDING ANY BANKRUPTCY, INSOLVENCY, REORGANIZATION OR OTHER SIMILAR PROCEEDING OR APPELLATE PROCEEDING) RELATED TO THE TRANSACTIONS, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE LOAN, OR THE USE OF THE PROCEEDS THEREOF, WHETHER OR NOT ANY INDEMNITEE IS A PARTY THERETO (ALL THE FOREGOING, COLLECTIVELY, THE INDEMNIFIED LIABILITIES ); PROVIDED , THAT THE BORROWER SHALL HAVE NO OBLIGATION HEREUNDER TO ANY INDEMNITEE WITH RESPECT TO INDEMNIFIED LIABILITIES ARISING (1)  DIRECTLY FROM THE GROSS NEGLIGENCE OR

 

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WILLFUL MISCONDUCT OF SUCH INDEMNITEE, AS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION, OR (2) RESULT FROM A CLAIM BROUGHT BY THE BORROWER AGAINST AN INDEMNITEE FOR BREACH IN BAD FAITH OF SUCH INDEMNITEE’S OBLIGATIONS HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT, IF THE BORROWER HAS OBTAINED A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION IN ITS FAVOR ON SUCH CLAIM. THIS SECTION  9.03(b) SHALL NOT APPLY WITH RESPECT TO TAXES OTHER THAN ANY TAXES THAT REPRESENT INDEMNIFIED LIABILITIES ARISING FROM ANY NON-TAX CLAIM.

SECTION 9.04 Successors and Assigns . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

SECTION 9.05 Assignments and Participations .

(a) The Borrower may not assign its rights or obligations hereunder without the prior written consent of all of the Lenders and the Administrative Agent.

(b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its share of the Loan and other Obligations at the time owing to it) to the extent such assignment is to a Person that is not a Lender or an Affiliate of a Lender with the prior written consent of the Administrative Agent and the Borrower (in each case not to be unreasonably withheld or delayed); provided that, no such consent of the Borrower shall be required if an Event of Default shall have occurred and be continuing; provided , further , that (i) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement, (ii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption and either party shall pay the Administrative Agent for its own account, on or before the date any assignment occurs, a fee of $3,500 and (iii) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Notwithstanding the foregoing, no assignments shall be permitted to the Borrower or any of its Affiliates or shall be made to a Defaulting Lender or any subsidiary thereof. Upon acceptance and recording pursuant to Section  9.05(d) , from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Section  2.14 , Section  2.15 , Section  2.16 and Section  9.03 ); provided that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.

 

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(c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices, a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, the Lending Office of such Lender, and the Commitment of, and principal amount of the Loan owing to (or for the account of) each Lender pursuant to the terms hereof from time to time (the “ Register ”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. In addition, the Administrative Agent shall maintain on the Register information regarding the designation, and revocation of designation, of any Lender as a Defaulting Lender. The Register shall be available for inspection by the Borrower and any Lender (solely with respect to its Commitment only) at any reasonable time and from time to time upon reasonable prior notice.

(d) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), any tax forms, any information required under Section  9.15 and any written consent to such assignment required by Section  9.05(b) , the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph (d) .

(e) Any Lender may, without consent of or notice to, the Borrower or any other Person, sell participations to one or more banks or other entities (excluding the Borrower or its Affiliates or any Defaulting Lender or a subsidiary thereof) (a “ Participant ”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of the Loan and other Obligations owing to it); provided , that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and the other Loan Documents and to approve any amendment, modification or waiver of any provision of this Agreement or any other Loan Document; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section  9.02(b) that affects such Participant. Subject to Section  9.05(f) , the Borrower agrees that each Participant shall be entitled to the benefits of Section  2.14 , Section  2.15 or Section  2.16 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section  9.05(b) . In addition, each agreement creating any participation must include an agreement by the Participant to be bound by the provisions of Section  9.12 and to provide any documentation or information required to be provided pursuant to Section  2.16(f) as if it were a Lender, but such documentation or information shall be provided solely to the participating Lender.

 

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(f) A Participant shall not be entitled to receive any greater payment under Section  2.14 , Section  2.15 or Section  2.16 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant.

(g) The Lenders may furnish any information concerning the Borrower in the possession of the Lenders from time to time to assignees and Participants (including prospective assignees and participants) to the extent provided in Section  9.12 hereof.

(h) Notwithstanding any other provisions of this Section  9.05 , no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration statement with the SEC or to qualify the Loan and other extensions of credit hereunder under the “Blue Sky” laws of any state.

(i) Notwithstanding any other provision of this Section  9.05 , no transfer or assignment shall be made to a natural person.

(j) In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable ratable share of the Loan previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent and each Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full ratable share of the Loan. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under Applicable Law without compliance with the provisions of this paragraph (j) , then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.

(k) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under the Loan Documents to secure obligations of such Lender, including to a Federal Reserve Bank; provided that no such action shall release such Lender from any of its obligations hereunder.

(l) Without limiting the foregoing provisions of this Section 9.05, if a Lender assigns or transfers any of its rights and obligations under the Loan Documents (other than pursuant to the Borrower’s request pursuant to the provisions of this Agreement) or changes its Lending Office and as a result of circumstances existing at the date the assignment, transfer or change occurs, the Borrower would be obligated to pay a Tax Payment or an Increased Cost to

 

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the assignee, then the Borrower shall be obligated to pay that Tax Payment or Increased Cost only to the same extent that it would have been obligated to do so if no assignment, transfer or change had occurred, provided , that in the case of an assignment or transfer by, or change in the Lending Office of, a Lender located in Peru to a Lender or Lending Office located outside of Peru the foregoing limitation will apply with respect to the portion of Tax Payment or Increased Cost that is in excess of the Tax Payment or Increased Cost applicable to a Lender or Lending Office located outside of Peru that is eligible for the preferential withholding tax rate referred to in Section 2.16(j); provided further , that if as a result of a Change in Law after the Closing Date the Borrower’s obligation to pay Peruvian withholding Taxes with respect to an existing Lender located outside of Peru continues to be the Peruvian preferential withholding tax rate referred to in Section  2.16(j) that was applicable to Lenders located outside of Peru on the Closing Date, then the Borrower shall not be required to indemnify the assignee for any Peruvian withholding taxes that are imposed on amounts payable to such assignee at a rate in excess of such Peruvian preferential withholding tax rate.

SECTION 9.06 Survival; Reinstatement .

(a) Each representation and warranty made or deemed to be made pursuant hereto shall survive the making of such representation and warranty, and no Lender or Administrative Agent shall be deemed to have waived, by reason of making any extension of credit, any Default or Event of Default which may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Lender or Security Agent may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made. The provisions of Section  2.14 , Section  2.16 , Section  9.03, Section  9.10 , Section  9.11 , Section  9.12 and Section  9.14 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loan, or the termination of this Agreement or any provision hereof.

(b) To the extent that any payments on the Obligations are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any Debtor Relief Law, common law or equitable cause, then to such extent, the Obligations so satisfied shall be revived and continue as if such payment or proceeds had not been received.

SECTION 9.07 Counterparts; Integration; Effectiveness . This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties hereto relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof (including any information memorandum). This Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or electronic mail delivery, in PDF form, shall be effective as delivery of a manually executed counterpart of this Agreement.

 

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SECTION 9.08 Severability . Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

SECTION 9.09 Right of Setoff . In addition to any rights now or hereafter granted under Applicable Law or otherwise, and not by way of limitation of any such rights, each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Lender (including by branches and agencies of any Lender wherever located), to or for the credit or the account of the Borrower against and on account of the Obligations or liabilities of the Borrower to such Lender under this Agreement or any of the other Loan Documents, including all claims of any nature or description arising out of or in connection with this Agreement or any other Loan Document, irrespective of whether such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. The rights of each Lender under this Section  9.09 are in addition to other rights and remedies (including other rights of setoff) that such Lender may have. In the event that any Defaulting Lender shall exercise any such right of setoff, (a) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section  2.19 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders, and (b) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff.

SECTION 9.10 Governing Law; Jurisdiction; Consent to Service of Process .

(a) This Agreement and each of the other Loan Documents (other than the Security Documents governed by the laws of Peru or Chile), the relationship between the parties hereto and any claim or dispute (whether sounding in contract, tort or otherwise) relating to this Agreement or such other Loan Document or such relationship shall be governed by and construed in accordance with the laws of the State of New York without regard to conflict of laws principles thereof, other than Section 5-1401 and 5-1402 of the New York General Obligations Law.

(b) THE BORROWER IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY RELATED PARTY OF THE FOREGOING IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER

 

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LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY, AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION, LITIGATION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT OF THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

(c) THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (b)  ABOVE AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO PLEAD OR CLAIM, AND AGREES NOT TO PLEAD OR CLAIM, THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

(d) EACH PARTY HERETO HEREBY (i)  IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (ii)  CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iii)  ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 9.10 .

 

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(e) TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS TO WHICH IT IS A PARTY AND, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AGREES THAT THE WAIVER SET FORTH IN THIS CLAUSE (e)  SHALL HAVE THE FULLEST SCOPE PERMITTED UNDER THE FOREIGN SOVEREIGN IMMUNITIES ACT OF 1976 OF THE UNITED STATES OF AMERICA AND IS INTENDED TO BE IRREVOCABLE FOR PURPOSES OF SUCH ACT.

SECTION 9.11 WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY EXPRESSLY, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11 .

SECTION 9.12 Confidentiality . The Administrative Agent and each Lender agrees to maintain the confidentiality of the Information, except that Information may be disclosed (a) to its Affiliates, directors, officers and employees and to its agents, including accountants, auditors, rating agencies, legal counsel and other advisors involved in the financing provided herein and who have been informed of the confidential nature of the Information provided and instructed to keep such Information confidential, (b) to the extent requested by any regulatory authority, including the National Association of Insurance Commissioners or any similar organization, (c) to the extent required by Applicable Laws or regulations or by any subpoena or similar legal process or arbitration (and such Person will provide prompt notice thereof to the Borrower to the extent not prohibited by Applicable Law), (d) to any other party to this Agreement, (e) to any credit insurance provider or direct or indirect actual or prospective counterparty (and its advisor) to any swap, derivative or securitization transaction related to the obligations under this Agreement, (f) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (g) subject to a written agreement with such Person that such Person will comply with this Section  9.12 , to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this

 

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Agreement, (h) with the consent of the Borrower, or (i) to the extent such Information (1) becomes publicly available other than as a result of a breach of this Section  9.12 or (2) becomes available to the Administrative Agent or any Lender from a source other than the Borrower, any of its Affiliates, the Administrative Agent or any other Lender (unless such source is actually known by the individual providing the information to be bound by a confidentiality agreement or other legal or contractual obligation of confidentiality with respect to such information); provided that in no event shall any Lender be obligated or required to return any materials furnished to it by the Borrower. For the purposes of this Section  9.12 , “ Information ” means all information received from the Borrower or any of its Affiliates relating to the Borrower or any of its Affiliates or their respective business, other than any such information that is known to the Administrative Agent or a Lender, publicly known or otherwise available to the Administrative Agent or any Lender, in each case on a nonconfidential basis other than through disclosure (x) by the Borrower, or (y) from a source actually known to the Administrative Agent or a Lender to be bound by a confidentiality agreement or other legal or contractual obligation of confidentiality with respect to such information (including any other party to this Agreement). Any Person required to maintain the confidentiality of Information as provided in this Section  9.12 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Nothing in the foregoing authorization shall apply to any disclosure that would constitute a violation of applicable federal and state laws. The provisions of this Section  9.12 shall be in addition to and not in derogation of any non-disclosure or similar agreement between the Borrower and any Lender or the Administrative Agent (or any Affiliates of any thereof).

SECTION 9.13 Appointment of Process Agent . The Borrower hereby appoints and shall maintain the appointment of, Cogency Global Inc. (the “ Process Agent ”), with an office on the Effective Date at 10 E. 40th Street, 10th Floor, New York, NY 10016, as its agent to receive on behalf of it and its properties service of copies of the summons and complaint and any other process which may be served in any action or proceeding referred in Section  9.01(b) . As an alternative method of service, the Borrower also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing a copy thereof by first class mail, postage prepaid, together with two copies of a statement of service by mail and acknowledgement of receipt, with a postage-prepaid return envelope addressed to the sender, to the Borrower at its address specified in Section  9.01(b) or at such other address of which the Administrative Agent shall have been notified pursuant to Section  9.01(b) . Nothing in this Section  9.13 shall affect the right of any Lender or the Administrative Agent to serve legal process in any other manner permitted by Applicable Law.

SECTION 9.14 Judgment Currency . This is an international transaction in which the specification of Dollars and payment in the United States of America is of the essence. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Loan Document in Dollars into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase Dollars in the United States of America with such other currency on the Business Day next preceding that on which such final judgment is given. The obligation of the Borrower in respect of any such sum due from it to the Administrative Agent or the Lenders hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency

 

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(the “ Judgment Currency ”) other than Dollars (the “ Agreement Currency ”), be discharged only to the extent that on the Business Day following receipt by the Administrative Agent of any sum adjudged to be so due in the Judgment Currency, the Administrative Agent may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Administrative Agent from the Borrower in the Agreement Currency, then the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or the Person to whom such obligation was owing against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Administrative Agent in such currency, the Administrative Agent agrees to return the amount of any excess to the Borrower (or to any other Person who may be entitled thereto under Applicable Law).

SECTION 9.15 USA Patriot Act . Each Lender that is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ Patriot Act ”) hereby notifies the Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify, and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Patriot Act.

SECTION 9.16 English Language . This Agreement and all other Loan Documents (other than the applicable Security Documents) shall be in the English language. All documents, certificates, reports, requests or notices to be delivered or communications to be given or made by any party hereto pursuant to the terms of this Agreement or any other Loan Document shall be in the English language or, if originally written in another language, shall be accompanied by an accurate English translation upon which the parties hereto shall have the right to rely for all purposes of this Agreement and the other Loan Documents.

SECTION 9.17 Notes . The Borrower and the Lenders agree that the Notes are issued hereunder as additional evidence of indebtedness under Peruvian law, and their terms or scope shall not be construed to limit, waive, amend or otherwise affect any right or obligation arising under this Agreement and the other Loan Documents. For the avoidance of doubt, the amounts payable by the Borrower under the Loan Documents and the Notes shall be, in any case, without duplication. Each of the parties hereto agrees that, if there is any inconsistency between the provisions of the Loan Documents (other than the Notes) and the provisions of any Note, the provisions of the former shall prevail. If any Lender exercises any right in any court in Peru under any Note governed by Peruvian law, it shall not be required for such purpose to evidence to the Borrower or any other Person that such Note represents obligations of the Borrower under this Agreement nor that any condition herein has been fulfilled. In addition, the Borrower agrees and covenants that it will execute and deliver any and all amendments to the Notes, or replace the Notes with amended Notes, and take all further action that may in the reasonable judgment of any Lender be necessary, or that the Lender may reasonably request from time to time, in each case to ensure that the Notes duly reflect the terms of this Agreement.

[Signature pages follow]

 

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The parties hereto have caused this Agreement to be duly executed as of the date and year first above written.

 

GRAÑA Y MONTERO S.A.A. ,
as the Borrower
By:  

/s/ Mónica Miloslavich Hart

  Name: Mónica Miloslavich Hart
  Title:   Representative
By:  

/s/ Luis Díaz Olivero

  Name: Luis Díaz Olivero
  Title:   Representative

[Signature Page to Term Loan Agreement]


NATIXIS , NEW YORK BRANCH ,
as the Administrative Agent
By:  

/s/ Urs B. Fischer

  Name: Urs B. Fischer
  Title:   Executive Director
By:  

/s/ Naha Beckles

  Name: Naha Beckles
  Title:   Director

[Signature Page to Term Loan Agreement]


NATIXIS , NEW YORK BRANCH ,
as a Lender
By:  

/s/ Aitor Alava

  Name: Aitor Alava
  Title:   Managing Director
By:  

/s/ Guillaume Thrierr

  Name: Guillaume Thrierr
  Title:   Vice President

[Signature Page to Term Loan Agreement]


BANCO BILBAO VIZCAYA ARGENTARIA S.A. ,
as a Lender
By:  

/s/ Jesús Muñoz

  Name: Jesús Muñoz
  Title:
By:  

/s/ Antonio Escudero

  Name: Antonio Escudero
  Title:

[Signature Page to Term Loan Agreement]


SUMITOMO MITSUI BANKING

CORPORATION ,

as a Lender
By:  

/s/ Carl Adams

  Name: Carl Adams
  Title:   Managing Director

[Signature Page to Term Loan Agreement]


THE BANK OF TOKYO-MITSUBISHI UFJ , LTD. ,
as a Lender
By:  

/s/ Lilian Coutinho

  Name: Lilian Coutinho
  Title:   Authorized Signatory

[Signature Page to Term Loan Agreement]


SCHEDULE 1.01-A

COMMITMENTS

 

Banco Bilbao Vizcaya Argentaria S.A.

   $ 20,723,990.98  

Natixis, New York Branch

   $ 20,723,990.98  

Sumitomo Mitsui Banking Corporation

   $ 20,723,990.98  

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

   $ 16,579,192.78  
  

 

 

 

TOTAL

   $ 78,751,165.72  
  

 

 

 


SCHEDULE 1.01-B

LIENS EXISTING AS OF THE EFFECTIVE DATE

 

Property

  

Type of Lien

  

Indebtedness Secured by Lien

  

Currency

26’906,532 Class “B” shares, owned by the Borrower in Norvial    Pledge   

•   Agreement: Share Pledge Agreement, dated June 18, 2015, among the Borrower and JJC Contratistas Generales S.A., as grantors, Scotiabank Peru S.A.A. as Collateral Agent, with the participation of Norvial S.A.

 

•   Secured Obligations: The repayment of the bonds issued by Norvial within a Bond Program (“ Primer Programa de Bonos Corporativos Norvial ”) up to S/365,000,000.00, in order to finance the second phase of the Ancon—Huacho—Pativilca highway located in Panamericana Norte .

   Soles
10,034,813 Class “A” shares owned by the Borrower in Norvial    Pledge   

•   Agreement: Share Pledge Agreement (“ Participación Mínima” – Class A Shares), dated June 18, 2015, among the Borrower and JJC Contratistas Generales S.A., as grantors, Scotiabank Peru S.A.A. as Collateral Agent, with the participation of Norvial S.A.

 

•   Secured Obligations: The repayment of the bonds issued by Norvial within a Bond Program (“ Primer Programa de bonos Corporativos Norvial ”) up to S/.365,000,000.00, in order to finance the second phase of the Ancon Huacho Pativilca highway located in Panamericana Norte .

   Soles


Property

  

Type of Lien

  

Indebtedness Secured by Lien

  

Currency

25,026,250 Class “A” Shares and 50’052,500 Class “B” Shares, owned by the Borrower in GyM FERROVIAS    Pledge   

•   Agreement: Share Pledge Agreement, dated February 10, 2015, among the Borrower and Ferrovías Participaciones S.A., as grantors, Citibank N.A. as Indenture Trustee, with the participation of GyM FERROVIAS, as issuer, and Citibank del Perú S.A., as Collateral Agent.

 

•   Secured obligations: Payment of principal, interest, among other concepts, on the Series A Senior Secured VAC-Indexed Notes due 2039 issued by GyM FERROVIAS, which were offered in accordance with Regulation S under the U.S. Securities Act of 1933 and other “Senior Secured Debt” as defined in the Indenture dated February 10, 2015 between GyM FERROVIAS, as Issuer, and Citibank N.A., as Indenture Trustee.

   Soles
Rights over the Concession Agreement entered into by GyM FERROVIAS and the Ministry of Transport and Communication for the operation of the Line 1 Lima Metro.    Trust   

•   Agreement: Trust Agreement, dated January 26, 2015, among GyM FERROVIAS and CONCAR S.A., as grantors, and Citibank del Perú S.A., as Trustee, as amended.

 

•   Secured obligations: Payment of principal, interest, among other concepts, on the Series A Senior Secured VAC-Indexed Notes due 2039 issued by GyM FERROVIAS, which were offered in accordance with Regulation S under the U.S. Securities Act of 1933 and other “Senior Secured Debt” as defined in the Indenture dated February 10, 2015 between GyM FERROVIAS, as Issuer, and Citibank N.A., as Indenture Trustee.

   Soles

 

3


Property

  

Type of Lien

  

Indebtedness Secured by Lien

  

Currency

11,500,000 Class B Shares and 11,500,000, Class C Shares owned by the Borrower in Concesionaria La Chira S.A.    Pledge   

•   Agreement: Share Pledge Agreement, dated February 12, 2012, among the Borrower and Acciona Agua S.A., as grantors, and the Trust “La Chira”, as Allowed Creditor with the participation of Concesionaria La Chira S.A.

 

•   Secured Obligations: Maintaining in full force and effect the irrevocable power granted by Concesionaria la Chira S.A. to Continental Sociedad Titulizadora S.A., until the total amount of the RPICAOs issued in the financing of “La Chira Project” (Construction of a waste water treatment plant) have been fully paid.

   Soles
98.24% over the issued and outstanding Capital Stock of GyM S.A. owned by the Borrower, And 99.9983% over the issued and outstanding Capital Stock of CONCAR S.A. owned by the Borrower.    Pledge   

•   Agreement: Share Pledge Agreement, dated December 10, 2015, among the Borrower, GyM S.A., CONCAR S.A. and Credit Suisse AG, Cayman Islands Branch, as administrative agent.

 

•   Secured Obligations: the CS Facility.

   Dollars

Corporate Buildings of the Borrower located at:

 

(i) Surquillo: Public Entry No. 41776862 of the Real Estate Registry of the Public Registry of Lima; and

 

(ii)  Miraflores: Public Entry No. 13334259 of the Real Estate Registry of the Public Registry of Lima.

   Mortgage   

•   Agreement: Mortgage Agreement, dated December 10, 2015, among the Borrower and Credit Suisse AG, Cayman Islands Branch, as administrative agent.

 

•   Secured Obligations: the CS Facility.

   Dollars

 

4


Property

  

Type of Lien

  

Indebtedness Secured by Lien

  

Currency

50.45% over the issued and outstanding Capital Stock of ALMONTE Shares owned by Viva GyM S.A.    Trust   

•   Agreement: Trust Agreement, dated March 11, 2016, among VIVA GyM S.A., La Fiduciaria S.A. and Credit Suisse AG, Cayman Islands Branch, as administrative agent.

 

•   Secured Obligations: the CS Facility.

   Dollars
73.16% over the issued and outstanding Capital Stock of CAM Chile owned by the Borrower    Pledge (Chilean law)   

•   Agreement: Share Pledge Agreement, dated March 31, 2017, among Chubb, CAM Holding SpA. and CAM Chile.

 

•   Secured Obligations: the Chubb Facility.

   Dollars
Equipment and machines of Stracon GyM S.A.    Pledge   

•   Agreement: Asset Pledge Agreement, dated October 3, 2016, as amended, and Asset Pledge Agreement, dated December 7, 2016, as amended, entered into Stracon GyM S.A., GyM, and Scotiabank Peru S.A.A., as lender.

 

•   Secured Obligations: The middle term local facility granted by Scotibank Perú S.A.A. to GyM, pursuant to the US$40MM and S/117MM Credit Agreement dated July 14, 2015, as amended.

   Dollars / Soles
Bank accounts of GyM up to $10,000,000   

Attachment

( embargo )

  

•   One of the subcontractors of CCDS, Elecnor, obtained a provisional attachment ( embargo fuera de proceso ) on the bank accounts of GyM for an amount up to $10,000,000, in order to ensure the result of an arbitration proceeding brought by Elecnor against CCDS in respect of its claims for work performed under its subcontract related to the EPC Agreement. Neither the claims of Elecnor nor the Lien on the bank account described herein affects any of the Collateral.

   Dollars

 

5


SCHEDULE 1.01-C

INVESTMENTS EXISTING AS OF THE EFFECTIVE DATE

 

(a) The acquisition (whether for cash, securities, other Property, services or otherwise) or holding of Capital Stock, bonds, notes, debentures, partnership or other ownership interests or other securities of such Person, or any agreement to make any such acquisition or to make any capital contribution to such Person.

 

    Participation in Graña y Montero Group companies

 

1. The Borrower is owner of 254,014,357 shares of GyM S.A., which represent a participation of 98.2373% of its total capital stock.

 

2. The Borrower is owner of 7,610,162 shares of GMI S.A., which represent a participation of 89.410% of its total capital stock.

 

3. The Borrower is owner of 11,500,000 class B and 11,500,000 class C shares of Concesionaria La Chira S.A., which jointly represent a participation of 50% of its total capital stock.

 

4. The Borrower is owner of 2,529,488 shares of Concesión Canchaque S.A.C., which represents a participation of 99.96% of its total capital stock.

 

5. Concar S.A. is owner of 1,012 shares of Concesión Canchaque S.A.C., which represents a participation of 0.04% of its total capital stock.

 

6. The Borrower is owner of 96,141,984 shares of GMP S.A., which represents a participation of 95% of its total capital stock.

 

7. The Borrower is owner of 25,026,250 class A and 50,052,500 class B shares of GyM Ferrovías S.A., which jointly represent a participation of 75% of its total capital stock.

 

8. The Borrower is owner of 10,034,813 class A and 26,906,532 class B shares of Norvial S.A., which jointly represent a participation of 67% of its total capital stock.

 

9. The Borrower is owner of 9,240,000 class A and 17,158,680 class B shares of Survial S.A., which jointly represent a participation of 99.995% of its total capital stock.

 

6


10. The Borrower is owner of 49,126,731 shares of Concesionaria Via Expresa Sur S.A., which represent a participation of 99.98% of its total capital stock.

 

11. GyM S.A. is owner of 5,100 shares of Concesionaria Via Expresa Sur S.A., which represent a participation of 0.02% of its total capital stock.

 

12. The Borrower is owner of 1,560,425 shares of Agenera S.A.C., which represent a participation of 99% of its total capital stock.

 

13. GyM S.A. is owner of 15,762 shares of Agenera S.A.C., which represent a participation of 1% of its total capital stock.

 

14. The Borrower is owner of 185,872 shares of GyM Colombia S.A.S., which represent a participation of 66.20% of its total capital stock.

 

15. GyM S.A. is owner of 94,888 shares of GyM Colombia S.A.S., which represent a participation of 33.80% of its total capital stock.

 

16. The Borrower is owner of 818,944,048 shares of Negocios de Gas S.A., which represent a participation of 99.99% of its total capital stock.

 

17. GyM S.A. is owner of 77,124 shares of Negocios de Gas S.A., which represent a participation of 0.01% of its total capital stock.

 

18. The Borrower is owner of 53,218,884 shares of Concesionaria Chavimochic S.A., which represent a participation of 26.50% of its total capital stock.

 

19. The Borrower is owner of 154,376,023 shares of Viva GyM S.A., which represent a participation of 63.44% of its total capital stock.

 

20. GyM S.A. is owner of 87,854,874 shares of Viva GyM S.A., which represent a participation of 36.10% of its total capital stock.

 

21. The Borrower is owner of 1,000 shares of Promotores Asociados de Inmobiliaria S.A., which represent a participation of 100% of its capital stock.

 

7


22. The Borrower is owner of 1,678,493 shares of Generadora Arabesco S.A., which represent a participation of 99% of its total capital stock.

 

23. GyM S.A. is owner of 16,954 shares of Generadora Arabesco S.A., which represent a participation of 1% of its total capital stock.

 

24. The Borrower is owner of 7,989,072 shares of Cam Servicios del Perú S.A., which represent a participation of 73.16% of its capital stock.

 

25. The Borrower is owner of 25,810,067 shares of Concar S.A., which represent a participation of 99.9983% of its total capital stock.

 

26. GyM S.A. is owner of 428 shares of Concar S.A., which represent a participation of 0.0017% of its total capital stock.

 

27. The Borrower is owner of 12,592,561 shares of Promotora Larco Mar S.A., which represent a participation of 46.55% of its total capital stock.

 

28. The Borrower is owner of 1,795,550,000 shares of CAM Holding S.p.A., which represent a participation of 100% of its total capital stock.

 

29. The Borrower is owner of 759,327 shares of Recaudo Lima S.A., which represent a participation of 96.76% of its total capital stock.

 

30. The Borrower is owner of 304,500 shares of Adexus S.A., which represent a participation of 91.03% of its total capital stock.

 

31. The Borrower is owner of 9,550 shares of Billetera Electrónica de Transporte Lima S.A.C., which represent a participation of 95.50% of its total capital stock.

 

32. GyM S.A. is owner of 68,449,898 shares of STRACON GyM S.A., which represent a participation of 87.5918% of its total capital stock.

 

33. GyM S.A. is owner of 2,618,290 shares of Morelco S.A.S., which represent a participation of 70% of its total capital stock.

 

34. STRACON GyM S.A. is owner of 999 shares of STRACON GyM International S.A.C., which represent a participation of 99.99% of its total capital stock.

 

8


35. GyM S.A. is owner of 1 share of STRACON GyM International S.A.C., which represent a participation of 0.01% of its total capital stock.

 

36. STRACON GyM S.A. is owner of 1,000 shares of STRACON GyM Chile S.p.A., which represent a participation of 100% of its total capital stock.

 

37. STRACON GyM S.A. is owner of 4,999 shares of STRACON GyM Mexico S.A. de C.V., which represent a participation of 99.98% of its total capital stock.

 

38. STRACON GyM International S.A.C. is owner of 1 share of STRACON GyM Mexico S.A. de C.V., which represent a participation of 0.02% of its total capital stock.

 

39. STRACON GyM International S.A.C. is owner of 50,000 shares of GDI STRACON GyM S.A. de C.V., which represent a participation of 50% of its total capital stock.

 

40. The Borrower is owner of 1 share of GyM Operaciones Internacionales S.A.C., which represent a participation of 0.01% of its total capital stock.

 

41. GyM S.A. is owner of 2,828,999 shares of GyM Operaciones Internacionales S.A.C., which represent a participation of 99.99% of its total capital stock.

 

42. GMI S.A. Ingenieros Consultores is owner of 4,684,986 shares of Ecotec S.A.C., which represent a participation of 99.99% of its total capital stock.

 

43. GyM Chile S.p.A. is owner of 111,558,091 shares of Vial y Vives – DSD S.A., which represent a participation of 94.4901% of its total capital stock.

 

44. Inversiones y Construcciones GYM Ltda is owner of 1 share of Vial y Vives – DSD S.A., which represent a participation of 0.0000008% of its total capital stock.

 

45. The Borrower is owner of 1 share of Graña y Montero Construcciones y Montajes S.A., which represent a participation of 0.145% of its total capital stock.

 

46. GyM S.A. is owner of 694 shares of Graña y Montero Construcciones y Montajes S.A., which represent a participation of 99.712% of its total capital stock.

 

9


47. Vial y Vives – DSD S.A. is owner of 1 share of Graña y Montero Construcciones y Montajes S.A., which represent a participation of 0.145% of its total capital stock.

 

48. Inversiones y Construcciones GYM Ltda is owner of 7 shares of CAM Perú S.A., which represent a participation of 0.01% of its total capital stock.

 

49. GyM S.A. is owner of 51,334,322 shares of CAM Perú S.A., which represent a participation of 99.99% of its total capital stock.

 

50. GyM Chile S.p.A. has a participation of 99.95% in Inversiones y Construcciones GYM Ltda.

 

51. CAM Holding S.p.A. has a participation of 0.05% in Inversiones y Construcciones GYM Ltda.

 

52. The Borrower is owner of 1,096 shares of GyM Servicios Mineros S.A., which represent a participation of 0.30% of its total capital stock.

 

53. GyM S.A. is owner of 368,904 shares of GyM Servicios Mineros S.A., which represent a participation of 99.70% of its total capital stock.

 

54. GyM S.A. is owner of 540,246 shares of Servisel S.A., which represent a participation of 99.99% of its total capital stock.

 

55. GyM S.A. is owner of 812,834 shares of GyM Chile S.p.A., which represent a participation of 100% of its total capital stock.

 

56. GyM S.A. is owner of 850,800 shares of Perú Pipeline Spools S.A.C., which represent a participation of 33.33% of its total capital stock.

 

57. Graña y Montero Petrolera S.A. is owner of 1,449,000 shares of TGNCA S.A.C., which represent a participation of 99.33% of its total capital stock.

 

58. Graña y Montero Petrolera S.A. is owner of 35,602 shares of Oiltanking Andina Servicios S.A.C., which represent a participation of 49.997% of its total capital stock.

 

59. Graña y Montero Petrolera S.A. is owner of 1 share of Poliductos del Perú S.A.C., which represent a participation of 0.01% of its total capital stock.

 

10


60. Agenera S.A.C. is owner of 9,999 shares of Generación Eléctrica del Centro S.A.C., which represent a participation of 99.99% of its capital stock.

 

61. Negocios de Gas S.A. is owner of 220,212,052 shares of Gasoducto Sur Peruano S.A., which represent a participation of 21% of its capital stock.

 

62. Agenera S.A.C. is owner of 700,500 shares of Generación Eléctrica del Norte S.A.C., which represent a participation of 89.25% of its capital stock.

 

63. Viva GyM S.A. is owner of 250,000 shares of GMVBS S.A., which represent a participation of 50% of its capital stock.

 

64. Viva GyM S.A. is owner of 2,610,520 shares of Proyectos Inmobiliarios Consultores S.A., which represent a participation of 92.42% of its capital stock.

 

65. Viva GyM S.A. is owner of 22,883,671 shares of Inmobiliaria Almonte S.A.C., which represent a participation of 50.45% of its capital stock.

 

66. Viva GyM S.A. is owner of 999 shares of Las Lomas S.A.C., which represent a participation of 99.99% of its capital stock.

 

67. Viva GyM S.A. is owner of 999 shares of Inmobiliaria Los Juncos, which represent a participation of 99.99% of its capital stock.

 

68. The Borrower is owner of 1 share of Inmobiliaria Los Juncos, which represent a participation of 0.01% of its capital stock.

 

69. CAM Chile S.A. is owner of 5,697,499 shares of CAM Colombia Multiservicios S.A.S., which represent a participation of 99.99% of its capital stock.

 

70. Inversiones y Construcción GyM Ltda is owner of 1 share of CAM Colombia Multiservicios S.A.S., which represent a participation of 0.01% of its capital stock.

 

71. CAM Holding S.p.A. is owner of 1,881,693 shares of CAM Chile S.A., which represent a participation of 73.16% of its capital stock.

 

72. CAM Holding S.p.A. has a participation of 99.89% in CAM Servicios de Telecomunicaciones Ltda.

 

11


73. Inversiones y Construcciones GYM Ltda. has a participation of 0.11% in CAM Servicios de Telecomunicaciones Ltda.

 

74. Adexus S.A. is owner of 15,276,455 shares of Adexus Perú S.A., which represent a participation of 99.99% of its capital stock.

 

  Others

 

1. Stracon GyM S.A. is owner of 7,139,360 shares of Red Eagle Mining Corporation, which represent a participation of 2.96% of its capital stock.

 

2. The Borrower entered into a Sponsor Support Agreement dated as of June 18, 2015, in order to guarantee cost overruns and additional costs incurred as a change in law affecting the bridges of the Norvial Project, for an amount of S/.38,725,549.46

 

3. Additionally to the put option mentioned in literal (k) (i) of the “Permitted Indebtedness” definition of the Credit Agreement, GyM S.A. is subject to a put option in order to acquire from the minoritary shareholders of Morelco S.A.S. up to 654,648 shares for a total amount of USD$ 21,197,512.23.

 

4. Additionally to the put option mentioned in literal (k) (ii) of the “Permitted Indebtedness” definition of the Credit Agreement, GyM Chile S.p.A. is subject to a put option in order to acquire from the minoritary shareholders of Vial y Vives-DSD S.A. up to 6,510,298 shares for a total amount of USD$ 3,391,978.

 

(b) The making of any deposit with, or advance, loan or other extension of credit to such Person (other than advances made in the ordinary course of business that would be recorded as accounts receivable on the balance sheet of the specified Person prepared in accordance with IFRS).

 

1. Short term loan agreements entered into by and between Graña y Montero Petrolera S.A. as lender and TGNCA S.A.C. as borrower, according the following detail:

 

Principal

(S/.)

   Principal
(USD$)
     Initial Date      Maturity
Date
 

530,000.00

        06/05/2016        01/05/2017  
     150,000.00        16/06/2016        11/06/2017  
     230,000.00        20/09/2016        15/09/2017  
     200,000.00        16/02/2017        30/06/2017  
     1,502,000.00        20/02/2017        30/06/2017  

 

12


Principal

(S/.)

   Principal
(USD$)
     Initial Date      Maturity
Date
 
     100,000.00        26/02/2017        30/06/2017  
     65,000.00        28/02/2017        30/06/2017  
     75,000.00        28/02/2017        30/06/2017  
     135,000.00        28/02/2017        30/06/2017  
     295,694.06        28/02/2017        30/06/2017  
     121,000.00        20/03/2017        30/06/2017  
     297,000.00        16/04/2017        15/07/2017  
     38,000.00        21/04/2017        20/07/2017  
31,000.00         25/04/2017        24/07/2017  

 

2. Loan Agreement, dated as of December 01, 2011, entered into by and between the Borrower as lender and GyM Ferrovías S.A. as borrower, for a credit line up to S/. 650’000,000.00.

The outstanding amount of the loan as of April 30 th 2017 is: S/.64,809,015.21.

 

3. Loan agreements entered into by and between CAM Chile S.A. as lender and CAM Colombia Multiservicios S.A.S. as borrower, according the following detail as of April 30 th 2017:

 

Principal

(USD$)

   Initial Date      Maturity
Date
 
2,177,653.00      29/02/2016        15/09/2017  
1,184,031.00      29/04/2016        15/09/2017  
461,156.00      20/02/2017        28/02/2018  
569,113.00      01/12/2016        30/06/2018  
911,782.00      29/11/2016        29/05/2018  
174,200.00      01/03/2017        01/03/2018  
450,256.00      28/02/2017        28/02/2018  
502,475.00      17/02/2017        17/02/2018  
700,274.00      27/04/2017        27/05/2018  

 

13


4. Loan agreements entered into by and between CAM Chile S.A. as lender and CAM Servicios de Telecomunicaciones Ltda. as borrower, according the following detail as of April 30 th 2017:

 

Principal (CLP)

   Initial Date      Maturity
Date
 
2,607,241      31/12/2015        10/12/2018  
1,541,224      01/01/2016        10/12/2018  
1,485,022      02/01/2016        31/12/2020  

 

5. Loan Agreement, dated as of February 27 th 2017, entered into by and between Stracon GyM International S.A.C. – Sucursal Colombia as lender and GyM S.A. as borrower, for a credit line up to USD$ 372,217.

The outstanding amount of the loan as of the date hereof is: USD$ 372,217.

 

6. Loan Agreement, dated as of March 10 th 2017, entered into by and between Stracon GyM S.A. as lender and GyM S.A. as borrower, for a credit line up to USD$ 3,000,000.

The outstanding amount of the loan as of the date hereof is: USD$ 2,000,000.

 

7. Loan Agreement, dated as of December 20 th 2016, entered into by and between Concesionaria La Chira S.A. as lender and The Borrower as borrower, for a credit line up to S/. 7,764,908.72.

The outstanding amount of the loan as of the date hereof is: S/. 7,764,908.72.

 

8. Credit facility granted by GyM S.A. (lender) to GMI S.A. (borrower), for a total amount of S/. 234,772. The outstanding amount of the facility as of the date hereof is: S/. 234,772.

 

9. Credit facility granted by GyM S.A. (lender) to GMI S.A. (borrower), for a total amount of USD$ 82,537. The outstanding amount of the facility as of the date hereof is: USD$ 82,537.

 

10. Credit facility granted by GyM S.A. (lender) to Graña y Montero Construcciones y Montajes S.A. (borrower), for a total amount of USD$ 18,632,923. The outstanding amount of the facility as of the date hereof is: USD$ 18,632,923.

 

14


11. Credit facility granted by GyM S.A. (lender) to the Borrower (borrower), for a total amount of S/. 11,000,000. The outstanding amount of the facility as of the date hereof is: S/. 11,000,000.

 

12. Credit facility granted by GyM S.A. (lender) to the Borrower (borrower), for a total amount of USD$ 4,744,560. The outstanding amount of the facility as of the date hereof is: USD$ 4,744,560.

 

13. Credit facility granted by GyM S.A. (lender) to GyM Chile S.p.A. (borrower), for a total amount of USD$ 52,065,000. The outstanding amount of the facility as of the date hereof is: USD$ 52,065,000.

 

14. Credit facility granted by GyM S.A. (lender) to Viva GyM S.A. (borrower), for a total amount of S/. 29,459,864. The outstanding amount of the facility as of the date hereof is: S/. 29,459,864.

 

15. Credit facility granted by GyM S.A. (lender) to Viva GyM S.A. (borrower), for a total amount of USD$ 424,070. The outstanding amount of the facility as of the date hereof is: USD$ 424,070.

 

16. Loan Agreement, dated as of September 8 th 2016, entered into by and between Survial S.A. as lender and The Borrower as borrower, for a credit line up to S/. 7,500,000.

The outstanding amount of the loan as of the date hereof is: S/. 7,500,000.

 

17. Loan Agreement, dated as of December 16 th 2015, entered into by and between Survial S.A. as lender and The Borrower as borrower, for a credit line up to USD$ 1,500,000.

The outstanding amount of the loan as of the date hereof is: USD$ 1,500,000.

 

18. Loan Agreement, dated as of December 15 th 2016, entered into by and between Survial S.A. as lender and The Borrower as borrower, for a credit line up to USD$ 4,000,000.

The outstanding amount of the loan as of the date hereof is: USD$ 2,000,000.

 

19. Loan Agreement, dated as of February 22 th 2011, entered into by and between The Borrower as lender and CAM Holding S.p.A. as borrower, for a credit line up to USD$ 11,400,000.

The outstanding amount of the loan as of the date hereof is: USD$ 6,952,387.41.

 

15


20. Loan Agreement, dated as of March 18 th 2016, entered into by and between The Borrower as lender and Adexus S.A. as borrower, for a credit line up to USD$ 3,000,000.

The outstanding amount of the loan as of the date hereof is: USD$ 1,834,992.19.

 

21. Loan Agreement, dated as of August 11 th 2016, entered into by and between The Borrower as lender and Adexus S.A. as borrower, for a credit line up to USD$ 200,000.

The outstanding amount of the loan as of the date hereof is: USD$ 200,000.

 

22. Loan Agreement, dated as of May 4 th 2016, entered into by and between The Borrower as lender and Adexus S.A. as borrower, for a credit line up to USD$ 1,300,000.

The outstanding amount of the loan as of the date hereof is: USD$ 1,300,000.

 

23. Loan Agreement, dated as of April 20 th 2017, entered into by and between Viva GyM S.A. as lender and The Borrower as borrower, for a credit line up to S/. 13,500,000.

The outstanding amount of the loan as of the date hereof is: S/. 13,500,000.

 

24. Loan Agreement, dated as of April 7 th 2017, entered into by and between Viva GyM S.A. as lender and The Borrower as borrower, for a credit line up to USD$ 4,813,956.00.

The outstanding amount of the loan as of the date hereof is: USD$ 4,813,956.00.

 

25. Loan Agreement, dated as of May 12 th 2017, entered into by and between Viva GyM S.A. as lender and The Borrower as borrower, for a credit line up to USD$ 9,389,645.65.

The outstanding amount of the loan as of the date hereof is: USD$ 9,389,645.65.

 

16


SCHEDULE 1.01-D

INDEBTEDNESS EXISTING AS OF THE EFFECTIVE DATE

 

Lender

  

Debtor

  

Type of
Financing

  

Total Amount

  

Outstanding amount
as of Closing Date

  

Currency

  

Execution
Date

  

Date of Final

Repayment

Bondholders

(represented by

Scotiabank Peru)

   Norvial    Bonds    S/ 365’000,000    S/349,939,326    Soles    July, 2015    January, 2027

Bondholders

(represented by

Citibank N.A.)

   GyM FERROVIAS    Bonds    S/.629,000,000.00    S/587,818,632.21    Soles    February, 2015    November, 2039

 

    Parent Guarantee granted from the Borrower to Alstom Transporte, S.A., Sociedad Unipersonal (“Alstom”), incorporated in the public deed dated as of July 21 st , 2016, by which the Borrower guaranteed to Alstom the (i) outstanding obligations of GyM FERROVIAS under the purchase and commissioning documents of the expansion of the Lima Metro; and (ii) reimbursement of the amount of the performance bonds issued by Alstom in the event these are executed by a financial entity or the grantor due to a cause different from Alstom liability.

 

    GyM is negotiating with certain subcontractors of CCDS in respect of their claims for work performed under the subcontracts related to the EPC Agreement. The total amount of claims overdue is less than $27.5 million, of which GyM would be liable for 29% (approximately $8 million). In connection with its claim (which is not overdue), one of the subcontractors, Elecnor, has obtained an attachment ( embargo fuera de proceso ) on the bank accounts of GyM as described in Schedule 1.02-B. Neither the claims of the subcontractors nor the Lien on the bank accounts described above affects any of the Collateral.

 

17


SCHEDULE 4.06-A

MATERIAL LITIGATION

 

1. Viva GyM S.A. – Petition for nullification ( Nulidad )

 

Defendant    Viva GyM S.A.
Plaintiff    Aero Club del Perú
Type    Civil lawsuit ( Demanda Civil )
Description    Aero Club del Perú seeks to nullify the sale and purchase contract titled “Sale and Purchase of Real Property for the Development of Real Estate Project with a Promise of Investment ( Compraventa de Bienes Inmuebles para el Desarrollo de Bienes Inmobiliario con Compromiso de Inversión ),” entered into among ProInversión, the Superintendency of National Goods ( la Superintendencia de Bienes Nacionales ) and “Consorcio DHMONT & CG M SAC,” and to nullify the public deed formalizing such contract, dated May 11, 2010, signed by the defendant and the notary public Manuel Reátegui Tomatis.

Probability of

losing the case

   Remote

 

2. Viva GyM S.A. – Petition for nullification ( Nulidad )

 

Defendant    Viva GyM S.A.
Plaintiff    Carlos Prado Flores
Type    Civil lawsuit ( Demanda Civil )
Description    Carlos Prado Flores seeks to nullify the sale and purchase contract titled “Sale and Purchase of Real Property for the Development of Real Estate Project with a Promise of Investment ( Compraventa de Bienes Inmuebles para el Desarrollo de Bienes Inmobiliario con Compromiso de Inversión ),” entered into among ProInversión, the Superintendency of National Goods ( la Superintendencia de Bienes Nacionales ) and “Consorcio DHMONT & CG M SAC,” and nullify the public deed formalizing such contract, dated May 11, 2010, signed by the defendant and the notary public Manuel Reátegui Tomatis.

Probability of

losing the case

   Remote

 

3. Graña y Montero S.A.A. – Arbitration proceeding, petition for unenforceability ( Inoponibilidad )

 

Defendants    Grañay Montero S.A.A.; Manuel Fernandez, former general manager of Adexus S.A.; Jaime Dasso Botto, Klaus Winkler Speringer and Juan Antonio Rodríguez Canales, directors of Adexus S.A.
Petitioners    Sistemas y Redes Ltda. and Asesorias e Inversiones Busso Ltda.
Type    Arbitration

 

18


Description    Sistemas y Redes Ltda. and Asesorias e Inversiones Busso Ltda., both owned by Carlos Busso Vyhmeister, seek unenforceability ( inoponibilidad ) of certain corporate acts of Adexus S.A. and its shareholder G&M. The petitioners claim that certain acts of Adexus S.A. in connection with an option contract for the purchase of shares of Adexus S.A. by G&M are unenforceable as they violate Corporation Law No. 18,046 ( Ley N ° 18.046 sobre Sociedades Anónimas ) of Chile.

Probability of

losing the case

   Remote

 

4. Graña y Montero S.A.A. – Arbitration proceeding, petition for nullification ( Nulidad )

 

Defendants    Grañay Montero S.A.A.; GMD S.A.; Adexus S.A.
Petitioners    Sistemas y Redes Ltda., Asesorias e Inversiones Busso Ltda. and Carlos Busso Vyhmeister
Type    Arbitration
Description    The petitioners seek to nullify the “Investment and Partnership Agreement ( Acuerdo de Inversión y Asociación )” in respect of Adexus, dated June 25, 2015, entered into between the Petitioners on the one hand and the Defendants on the other hand, and seek indemnification for the alleged damages and prejudice resulting from the nullification.

Probability of

losing the case

   Remote

 

5. Graña y Montero S.A.A. – Arbitration proceeding, petition for nullification ( Nulidad )

 

Defendant    Grañay Montero S.A.A.
Petitioners    Sistemas y Redes Ltda. and Asesorias e Inversiones Busso Ltda.
Type    Arbitration
Description    The petitioners seek to nullify the “Shareholders’ Agreement (Pacto de Accionistas)” of Adexus, dated August 4, 2015, and seek indemnification for the alleged damages and prejudice resulting from the nullification. Alternatively, the petitioners seek indemnification for the damages and prejudice arising from the alleged breach of the Shareholder’s Agreement.

Probability of

losing the case

   Remote

 

19


6. Graña y Montero S.A.A. – Criminal complaint ( Querella criminal )

 

Accused    Grañay Montero S.A.A. and “all who turn out to be responsible ( todos quienes resulten responasbles )”
Accuser    Carlos Busso Vyhmeister
Type    Criminal complaint ( querella criminal )
Description    Carlos Busso Vyhmeister filed a criminal complaint on October 27, 2016, accusing G&M and “all who turn out to be responsible” for committing fraud in its acquisition of controlling shares in Adexus S.A.

Probability of

losing the case

   Remote

 

20


SCHEDULE 4.06-B

ENVIRONMENTAL MATTERS

None.

 

21


SCHEDULE 4.09

LABOR MATTERS

Collective bargaining agreement between CAM Servicios de Telecomunicaciones Limitada (formerly “COASIN”) and Sindicato Interempresas Nacional de Telecomunicaciones (SINATE) (currently under negotiation).

 

22


SCHEDULE 4.11

COMPLIANCE WITH LAWS AND CONTRACTUAL OBLIGATIONS

The Borrower and each of its Subsidiaries are in compliance in all material respects with all Applicable Law applicable to it or its Property and all Contractual Obligation binding upon it and its Property, except with regard to the credit agreement (the “CS Credit Agreement”), dated December 10, 2015, entered into among the Borrower, Credit Suisse AG, Cayman Islands Branch as Administrative Agent and the lenders thereto. The Borrower’s non-compliance with the CS Credit Agreement is set forth below:

 

1. Non-compliance with the covenant to maintain the following financial ratios from December 2016 to March 2017:

 

  1. Consolidated EBITDA to Consolidated Interest Expense Ratio;

 

  2. Consolidated Leverage Ratio; and

 

  3. Debt Service Coverage Ratio

 

2. Non-compliance with the requirement to prepay all loans then outstanding under the CS Credit Agreement upon termination of the Concession Agreement.

 

3. Failure to provide the audited financial statements for the year ended December 31, 2016 on the date required under the CS Credit Agreement.

 

4. Non-compliance with the cap on the amount of the G&M Guaranty due to the Borrower’s increased shareholding in GSP.

 

5. Execution of the Chubb Facility and this Agreement and security documents related thereto.

 

6. Late delivery of the notice of and late prepayment of the loans under the CS Credit Agreement with regard to the disposition of CSM, COGA, Tecgas, Prinsur and GMD.

 

23


SCHEDULE 6.03

FUNDAMENTAL CHANGES

 

    Corporate spin-off process of ALMONTE by which the land identified in Public Entry No. 12576152 of the Real Estate Registry of the Public Registry of Lima, currently owned by ALMONTE, will be transferred to a specific purpose vehicle, which capital stock will have the same shareholders distribution as the one currently existing in ALMONTE.

 

    Corporate transformation of CAM Chile S.A. (company incorporated under Chilean laws) from a Sociedad Anonima or S.A. into a Sociedad por Acciones or SpA. For this purpose, the Borrower and El Condor Combustible S.A. (“ECC”) are currently reviewing the amendments to be incorporated in CAM Chile S.A. bylaws as well as in the corresponding Shareholders Agreement, which regulates the relation between the Borrower and ECC in CAM Chile S.A. The aforesaid amendments basically seek to incorporate in the new bylaws the agreed regulation already set forth in the current Shareholders Agreement of CAM Chile S.A. (mainly referred to (i) appointment of board members, (ii) restricted corporate agreements, (iii) distribution of dividends, (iv) among others).

 

24


SCHEDULE 7.01(w)

TERMS OF CS FACILITY WAIVER AND AMENDMENTS

 

Facility:    Term Loan
Borrower:    Graña y Montero S.A.A. (“G&M”)
Tenor:    5 years (as per the existing Credit Agreement)
Lenders:    Credit Suisse, BCP, CAT Financial, Cofide, BD Capital, Inteligo SAB, Banco Occidente, ICBC (the “CS Lenders”)
Currency:    US Dollars
Amortization:    Quarterly installments starting June 2017
Interest Rate:    3M Libor + 4.90%: The CS Facility includes a Most Favored Nation in respect of the BL Facility
Interest Period:    Quarterly
Fees (as applicable):    Waiver Fee of 1.50% on the outstanding amount of the CS Facility
Mandatory Prepayment:   

The Borrower will apply the net proceeds received from the following concepts for the prepayment of the CS Facility:

 

(1) 50% of net proceeds from asset sales of the Proceeds Collateral

 

(2) 100% of net proceeds from the sale of Almonte or of any other asset that constitutes collateral under the CS Facility.

 

(3) 100% of any proceeds received by G&M as equity investor in GSP in Net Asset Value (Valor Contable Neto del Activo – “VCN”), as well any balance of G&M receivables from GSP in the VCN that correspond to the Guaranty and the Performance Bond only after the BL Facility has been completely repaid.

 

Mandatory prepayments shall be made at par without any premium, penalty or make-whole (except for any break funding costs). The amortization schedule to remain unadjusted, but any prepayment shall be applied in direct order of maturity until it covers the scheduled amortizations of June 2017, September 2017, December 2017, March 2018 and June 2018 (~US$45.5MM). Once that amount is prepaid, any mandatory prepayment under the CS Facility would revert to being applied ratably to all unpaid installments of the Loan.

Collateral:   

The collateral package in favor of the CS Facility will consist of:

 

(1) First priority lien (trust) exclusively in favor the CS Lenders of (the “Existing CS Collateral”):

 

(a) GyM S.A. – 98.24% shares of the capital stock owned by G&M. GyM S.A. is the construction company of the Graña y Montero Group 1 .

 

 

1   Currently there is a pledge (“ garantía mobiliaria ”) granted over these shares in favor of CS. This pledge will be kept in place as per CS requirement and, in addition, the shares are going to be transferred into a trust.

 

25


  

(b) Concar S.A. - 99.9983% shares of the capital stock owned by G&M. Concar is a Peruvian company provider of operation and maintenance services of infrastructure assets 2 .

 

(c) Inmobiliaria Almonte S.A. - 50.45% of the shares representing the capital stock of this Peruvian company which is the owner of pieces of land located in Lima.

 

(d) Corporate Buildings - Two buildings owned by G&M and located in the districts of Surquillo and Miraflores in Lima 3 .

 

(2) First priority lien and administrative trust in favor of the CS Lenders, BL Lenders and Chubb (any proceeds of which shall be allocated 50% to the CS Lenders, 25% to the BL Lenders, and 25% to Chubb) over the proceeds from the sales of the following assets (such proceeds, together with the Pledged Shares, the “Proceeds Collateral”):

 

(a) 89.19% of the shares representing the capital stock of GMD S.A.;

 

(b) 73.16% of the shares representing the capital stock of CAM Chile S.A. (Chilean company that provides specialized electrical services in Chile, Brazil, Colombia and Perú);

 

(c) 67.0% of the shares representing the capital stock of Norvial S.A. (concessionaire of the Red Vial 5 highway in Peru);

 

(d) 75.0% of the shares representing the capital stock of GyM Ferrovías S.A. (concessionaire of Line 1 of the Lima Metro); and

 

(e) 73.16% of the shares representing the capital stock of CAM Servicios del Perú S.A.

 

(f) 91.03% of the shares representing the capital stock of Adexus S.A.

 

*The shares of Norvial S.A. and GyM Ferrovías S.A. have not been pledged because they are already pledged to the lenders of their respective project finance facilities. However, G&M will grant a first priority lien in favor of the CS Lenders and BL Lenders over the proceeds of the sales of these assets per item (2) below.

 

 

2   Currently there is a pledge (“ garantía mobiliaria ”) granted over these shares in favor of CS. This pledge will be kept in place as per CS requirement and, in addition, the shares are going to be transferred into a trust.
3   Currently there is a mortgage granted over these buildings in favor of CS. This mortgage will be kept in place as per CS requirement and, in addition, the buildings are going to be transferred into a trust.

 

26


  

(3) Second priority lien (pledge under Chilean law) in favor of the CS Lenders and BL Lenders (any proceeds of which shall be allocated pro rata to the CS Lenders and BL Lenders in accordance with their exposure) over the following collateral on which the Chubb Loan will have a first priority lien:

 

(a) CAM Chile S.A. - 73.16% of the shares representing the capital stock.

 

This second priority lien described in (3) will give the CS Lenders and BL Lenders the right to collect any proceeds remaining following enforcement by Chubb of this collateral and repayment of the Chubb Loan in full, but it will not allow the CS Lenders nor the BL Lenders to enforce this second lien collateral.

 

(4) Second priority lien (trust) in favor of the CS Lenders and BL Lenders (any proceeds of which shall be allocated pro rata to the CS Lenders and BL Lenders in accordance with their exposure) over the following collateral on which the Chubb Loan will have a first priority lien:

 

(a) CAM Servicios del Perú S.A. - 73.16% of the shares representing the capital stock.

 

This second priority lien described in (4) will give the CS Lenders and BL Lenders the right to collect any proceeds remaining following enforcement by Chubb of this collateral and repayment of the Chubb Loan in full, but it will not allow the CS Lenders nor the BL Lenders to enforce this second lien collateral.

Events of Default:   

In addition to those already considered in the CS Facility:

 

(1) If the lien over the Proceeds Collateral has not been executed and filed with the corresponding public registry within 60 days following closing date.

 

(2) If the second lien over the CAM Chile shares has not been executed and filed with the corresponding public registry within 45 days following closing date.

 

(3) If the second lien over the shares in CAM Servicios del Peru S.A. has not been executed and filed with the corresponding public registry within 60 days following closing date.

 

(4) If 40.0% of the CS Facility has not been repaid by May 2018.

 

(5) If 70.0% of the CS Facility has not been repaid by May 2019.

Distribution Block:    G&M dividend block while the CS Facility is outstanding.
Waivers:    All outstanding Events of Default

 

27


EXHIBIT 1.01-A

FORM OF ASSIGNMENT AND ASSUMPTION

1. This Assignment and Assumption (this “ Assignment and Assumption” ) is dated as of the Assignment Effective Date set forth below and is entered into by and between [the][each] 1 Assignor identified in item 1 below ([the][each, an] “ Assignor” ) and [the][each] 2 Assignee identified in item 2 below ([the][each, an] “ Assignee” ). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees] 3 hereunder are several and not joint.] 4 Capitalized terms used but not defined herein shall have the meanings given to them in the Loan Agreement identified below (as amended, the “ Loan Agreement” ), receipt of a copy of which is hereby acknowledged by [the][each] Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

2. For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Loan Agreement, as of the Assignment Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignor’s][the respective Assignors’] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Loan Agreement and any other documents or instruments delivered pursuant thereto in the amount[s] and equal to the percentage interest[s] identified below and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Loan Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] “ Assigned Interest” ). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.

 

 

 

 

1   For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language.
2   For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language.
3   Select as appropriate.
4   Include bracketed language if there are either multiple Assignors or multiple Assignees.

 

28


1. Assignor[s]:

 

                                                                         

 

    [Assignor [is] [is not] a [Defaulting Lender]

 

2. Assignee[s] : 5

 

3. Borrower : Graña y Montero S.A.A., a Peruvian sociedad anónima abierta.

 

4. Administrative Agent : Natixis, New York Branch, as the administrative agent under the Loan Agreement.

 

5. Loan Agreement : Loan Agreement, dated as of [        ], 2017, among the Borrower, the Lenders from time to time party thereto, and Administrative Agent

 

6. Assigned Interest[s] :

 

Assignor[s] 6

   Assignee[s] 7    Aggregate
Amount of Loans
for all Lenders 8
   Percentage
Assigned of
Loans 9
 
      U.S.$      %  
      U.S.$      %  
      U.S.$      %  

 

7. [ Trade Date:                     ] 10

Assignment Effective Date :                             , 20             [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

 

 

 

 

 

 

 

5   List full legal name and notice address for each Assignee.
6   List each Assignor, as appropriate.
7   List each Assignee and, if available, its market entity identifier, as appropriate.
8   Amounts in this column and in the column immediately to the right to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Assignment Effective Date.
9   Set forth, to at least 9 decimals, as a percentage of the Commitments/Loans of all Lenders thereunder.
10   To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date.

 

29


The terms set forth in this Assignment and Assumption are hereby agreed to:

 

ASSIGNOR[S] 11
[NAME OF ASSIGNOR]
By:  

 

  Name:
  Title:
ASSIGNEE[S] 12
[NAME OF ASSIGNEE]
By:  

 

  Name:
  Title:

 

 

 

11   Add additional signature blocks as needed.
12   Add additional signature blocks as needed.

 

30


Accepted:

NATIXIS, NEW YORK

BRANCH, as Administrative

Agent

 

By:  

 

  Name:
  Title:
By:  

 

  Name:
  Title:

[Consented to: ] 13

GRAÑA Y MONTERO S.A.A.

 

By:  

 

  Name:
  Title:
By:  

 

  Name:
  Title:

 

 

13   To be added only if the consent of the Borrower is required under Section 9.05(b) of the Loan Agreement.

 

31


ANNEX 1 TO ASSIGNMENT AND ASSUMPTION

STANDARD TERMS AND CONDITIONS FOR ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties .

1.1. Assignor[s]. [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and (iv) it is not a Defaulting Lender; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Loan Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2. Assignee[s]. [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Loan Agreement, (ii) it meets all the requirements to be an assignee under Section 9.05 of the Loan Agreement (subject to such consents, if any, as may be required under Section 9.05 of the Loan Agreement), (iii) from and after the Assignment Effective Date, it shall be bound by the provisions of the Loan Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Loan Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 5.01(a) and (b) thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) attached to this Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Loan Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

 

32


2. Payments . From and after the Assignment Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Assignment Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Assignment Effective Date. Notwithstanding the foregoing, the Administrative Agent shall make all payments of interest, fees or other amounts paid or payable in kind from and after the Assignment Effective Date to [the][the relevant] Assignee.

3. General Provisions . This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy or other electronic communication shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York without regard to conflict of laws principles thereof, other than Section 5-1401 and Section 5-1402 of the New York General Obligations Law.

 

33


EXHIBIT 1.01-B

FORM OF PROMISSORY NOTE

INCOMPLETE PROMISSORY NOTE

FOR : _______________________

MATURITY DATE : _______________________

We, Graña y Montero S.A.A. (the “ Debtor ”), a corporation duly established and existing in accordance with the laws of the Republic of Peru, identified with Taxpayer ID Number (RUC) [•], with legal address for the purposes hereof at [•], acting by and through [•], holder of [•]; and [•], holder of [•], as per powers registered in Electronic Filing Card No. [•] of the Registry of Companies of the Public Records Office in and for [•], by virtue of the present promissory note (the “ Promissory Note ”), issued in accordance with Section 10 of the Securities Act passed by virtue of Law 27287 (the “ Securities Act ”), owe and undertake to pay unconditionally on the maturity date established in this Promissory Note, with immediately available funds in the same foreign currency (as permitted by Section 50.1 of the Securities Act) to the order and availability of [•] (the “ Creditor ”), or to whomever this Promissory Note may have been transferred, against presentation of the original copy of this Promissory Note, duly completed, in the form of a deposit in the bank account designated by the Creditor and/or through the charging of the corresponding amounts to any of the bank accounts held by the Debtor in the Creditor, for which purpose the Debtor expressly instructs the Creditor to perform said charge against those flows available in said accounts, for the sum of US$                                          (                                         and             /100 United States Dollars), plus the applicable compensatory and default interest, and any other amount owed in accordance with this Promissory Note.

The aforementioned sum is owed by us, without any right to any claim of any kind. For the faithful and exact compliance herewith, we pledge all our assets, present and future, as provided by law, in favor of the Creditor in light of the obligations assumed by virtue of the Loan Agreement (the “ Loan Agreement ”) entered into on [•] by and between the Debtor Natixis, New York Branch, as administrative agent, to the benefit of the Creditor and the other lending banks under the aforementioned Loan Agreement.

In addition to the aforementioned sum, we unconditionally undertake to pay, as from the maturity date of this Promissory Note and up until the effective date of its payment in full, compensatory interest at the applicable rate established in the Loan Agreement.

In the event that the amount owed under this Promissory Note is not paid on the maturity date, we undertake to pay default interest at the applicable rate established in the Loan Agreement, in addition to the compensatory interest rate, which shall accrue automatically as from the maturity date until its payment in full. We shall likewise assume all reasonable taxes and notary, judicial, and non-judicial expenses that may be incurred by the holder of this Promissory Note, which are documented and requested for collection. The default interest shall apply to any past-due concept that has not been paid, with regard to which there is no prohibition under the applicable laws, and shall accrued automatically and without the need for any notice whatsoever.

 

34


The compensatory interest rates and the default interest rate shall be calculated based on a year of three hundred and sixty (360) calendar days.

For all effects that may arise from the issuing of this Promissory Note, the Debtor represents that its usual place of business is located at the address established in the first paragraph hereof.

All those payments made in accordance with this Promissory Note shall be made free of and without the deduction of taxes, present or future, including deductions or withholdings on non-domiciled parties. In the event that, due to the application of the laws in force in the Republic of Peru, we are legally obligated to perform any withholding or deduction, we will pay all additional sums necessary so that the net sum received by the Creditor is equal to that it would have received if such withholdings or deductions had not been made, or we will assume the payment of said taxes and we will pay the applicable sums directly to the Peruvian tax administration when these are enforceable, such that the net sum received by the Creditor is equal to that it would have received if the law had not obligated us to perform such withholdings or deductions.

It is likewise hereby established that the obligations contained in this Promissory Note shall not expire, even when the Creditor has acted to the detriment of this Promissory Note. This provision runs contrary to Section 1233 of the Civil Code.

In application of the provisions established in Section 49 of the Securities Act, the Debtor expressly authorizes the Creditor to extend the maturity date of this Promissory Note, without requiring the express signature of the Debtor. It shall suffice for the extension to be noted in this same document, without the need for the Debtor to once again sign it in order to be considered fully valid.

The amount of this Promissory Note and/or the corresponding compensatory and/or default interest, as well as any other sum owed by virtue of this Promissory Note, shall be paid by the Debtor in the same foreign currency in which the amount represented by this Promissory Note is established.

In accordance with the provisions established in Section 52 of the Securities Act, this Promissory Note does not need to be protested, and can be executed by the sole virtue of having matured and not extended. However, the holder shall have the power to protest it due to lack of payment, should it deem it advisable, in which case we shall assume the expenses for such notarial procedure or the corresponding substitute formality. The protest may be performed via a notice sent to the usual place of business of the Debtor established in this Promissory Note.

This Promissory Note is governed by and subject to the laws of the Republic of Peru.

We expressly submit ourselves to the jurisdiction and competence of the Judges and Courts of the Judicial District of Lima, waiving our right to the jurisdiction of our usual place of business, and establish our usual place of business for the purposes hereof at the address set forth in this Promissory Note.

 

35


Lima, [•] [•], 2017

 

 

[NAME]
[IDENTITY DOCUMENT]

 

[NAME]
[IDENTITY DOCUMENT]

In name and on behalf of

Graña y Montero S.A.A. (the “ Debtor ”)

Tax ID No. (RUC) [•]

Usual Place of Business: [•]. Corporation registered in Electronic Filing Card No. [•] of the Registry of Companies of the Public Records Office in and for [•].

 

36


EXHIBIT 1.01-C

FORM OF NOTE COMPLETION AGREEMENT

ACUERDO DE LLENADO DE PAGARÉ INCOMPLETO

By virtue hereof, [•] (the “ Creditor ”), and Graña y Montero S.A.A. (the “ Debtor ”), expressly agree that the Creditor shall complete the blank spaces in the incomplete promissory note issued on [•] by the Debtor in favor of the Creditor (the “ Promissory Note ”), in accordance with the following terms and conditions:

 

1. Those capitalized terms contained in this document that are not expressly defined herein shall have the meaning provided in the document entitled “Loan Agreement,” entered into on [•] by and among the Debtor, the Creditor, and the other parties to said agreement (the “ Loan Agreement ”).

 

2. In accordance with the Loan Agreement, the Promissory Note may be completed by the Creditor as per these instructions.

 

3. The Debtor expressly and irrevocably authorizes the Creditor, in accordance with Section 10 of the Securities Act—Law 27287, as substituted, to complete the blank spaces in the Promissory Note in the event that the Debtor fails to uphold its payment obligations to the Creditor under the Loan Agreement.

 

4. The maturity date of the Promissory Note shall be the date on which the Debtor fails to uphold its payment obligations to the Creditor under the Credit Agreement and the notice referred to in Section 7.02, Point (ii) of the Loan Agreement has been sent (“ Maturity Date ”).

Once the Creditor determines the Maturity Date in accordance with the provisions established in the preceding paragraph, the Creditor shall proceed to indicate said date in the blank space in the Promissory Note corresponding to the Maturity Date.

 

5. The amount of the Promissory Note shall be equivalent to the sum of all the Debtor’s outstanding obligations to the Creditor, as of the Maturity Date, in accordance with the Loan Agreement (the “ Amount ”).

To determine the Amount, the Creditor shall calculate, as of the Maturity Date, a settlement of all the Debtor’s outstanding obligations to the Creditor under the Loan Agreement, for which purpose the Creditor shall take the following concepts into account, among others: (i) the principal of the loan granted under the Loan Agreement; (ii) any compensatory and default interest that may have accrued under the Loan Agreement; and (iii) the expenses, costs, penalties, and any other payment obligation secured by the Debtor to the Creditor that may have arisen in accordance with the terms and conditions of the Loan Agreement.

Once the Creditor has determined the settlement referred to in the preceding paragraph and calculated the Amount as of the Maturity Date, the Creditor shall proceed to indicate said amount in the blank space in the Promissory Note corresponding to the Amount.

 

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6. The Promissory Note shall be issued with the “no protest” clause. Without prejudice to the foregoing, the holder may protest it, in which case the Debtor shall assume the expenses for said procedure.

 

7. This document is governed by the laws of the Republic of Peru, and is issued in accordance with Section 10 of the Securities Act—Law 27287.

 

8. The Creditor shall provide the Debtor with a copy of the signed Promissory Note, and shall place on record the delivery of said copy with a notice of reception.

This document is entered into on this [•] day of [•] 2017.

 

 

    

 

[•]      [•]
Graña y Montero S.A.A.

 

38


EXHIBIT 2.03

FORM OF BORROWING REQUEST

Date:                     , 20              14

To: Natixis, New York Branch, as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Loan Agreement, dated as of [        ], 2017 (the “ Loan Agreement ”), among Graña y Montero S.A.A., a Peruvian sociedad anónima abierta (the “ Borrower ”), the Lenders from time to time party thereto, and Natixis, New York Branch, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings given to them in the Loan Agreement.

Pursuant to Section 2.03 of the Loan Agreement, the Borrower irrevocably requests that the Lenders make the following Loan to the Borrower in accordance with the applicable terms and conditions of the Loan Agreement on                         , 20             (the “ Requested Borrowing Date” ): 15

 

  1. Aggregate amount of the Requested Disbursement: $             16

 

  2. Interest Period: from the Requested Borrowing Date until the next Interest Payment Date

 

  3. Location and number of Borrower’s account:

[ insert account details ]

Pursuant to Section 3.01(a)(iv) and Section 3.01(g) of the Loan Agreement, the Borrower hereby certifies as of the Requested Borrowing Date that:

 

  a) After making the Loans requested on the Requested Borrowing Date, the aggregate principal amount of Loans disbursed will not exceed the total Commitments on the Requested Borrowing Date;

 

  b) The representations and warranties made by the Borrower in the Loan Agreement and each other Loan Document to which it is a party and which will be delivered as of the Requested Borrowing Date are true and correct in all material respects (other than those representations and warranties that are subject to a materiality

 

 

 

 

14   Borrowing Request to be delivered to the Administrative Agent not later than 12:00 noon, New York City time, three (3) Business Days before the Requested Borrowing Date.
15   The Requested Borrowing Date shall be a Business Day.
16  

Insert amount which shall be in an aggregate principal amount equal to the aggregate Commitments of all Lenders.

 

39


  qualifier, in which case such representations and warranties are true and correct in all respects as written, including the materiality qualifiers) on and as of the Requested Borrowing Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties were true and correct in all material respects (other than those representations and warranties that are subject to a materiality qualifier, in which case such representations and warranties shall be true and correct in all respects as written, including the materiality qualifiers) as of such earlier date;

 

  c) No proceedings for the dissolution or liquidation of the Borrower have occurred and are continuing as of the Requested Borrowing Date;

 

  d) The Borrower is Solvent as of the Requested Borrowing Date;

 

  e) Annex 1 attached hereto sets forth as of the Requested Borrowing Date the ownership structure of the Borrower;

 

  f) As of the Requested Borrowing Date, all necessary governmental and third-party approvals in connection with the Transactions and the execution, delivery and performance of the Loan Agreement and the other Loan Documents, if any are required, have been obtained and remain in full force and effect and any administrative and judicial appeal periods have expired (except where the failure to obtain or maintain in full force and effect, or the pending appeal in respect of such approvals, has not had or would not reasonably be expected to result in a Material Adverse Effect);

 

  g) No Event of Default has occurred and is continuing as of the Requested Borrowing Date; and

 

  h) Since December 31, 2106, no event has occurred and is continuing that has had or would reasonably be expected to have a Material Adverse Effect other than the termination of the Concession Agreement.

 

  i) No material Litigation is pending against the Borrower or with respect to Properties or transactions contemplated by the Loan Documents except the Litigation related to Adexus described on Schedule 4.06A, as of the Requested Borrowing Date.

 

  j)

The Borrower hereby agrees that if the Borrower fails to execute the Loan Agreement on or before June [            ], 2017 and/or fails to satisfy the conditions set forth in Section 3.01 of the Loan Agreement on or prior to such date, for any reason, the Borrower shall compensate each Lender for the loss, cost and expense attributable to any such event. Such loss, cost or expense to any Lender shall be deemed to be the amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount not so borrowed, at the Adjusted LIBOR that would have been applicable to such LIBOR Loan, for the Interest Period that would have commenced on the date of

 

40


  such failure for such Loan, over (ii) the amount of interest that would have accrued to such Lender on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for Dollar deposits of a comparable amount and period from other banks in the interbank eurodollar market.

[ signature page follows ]

 

41


IN WITNESS WHEREOF , the undersigned Authorized Officer has executed this Borrowing Request as of the date first above written.

 

GRAÑA Y MONTERO S.A.A.,
as Borrower
By:  

 

  Name:
  Title:
By:  

 

  Name:
  Title:

 

42


EXHIBIT 2.08

FORM OF NOTICE OF OPTIONAL PREPAYMENT

Date:                         , 20             17

To: Natixis, New York Branch, as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Loan Agreement, dated as of [        ], 2017 (the “ Loan Agreement ”), among Graña y Montero S.A.A., a Peruvian (the “ Borrower ”), the Lenders from time to time party thereto, and Natixis, New York Branch, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings given to them in the Loan Agreement.

Pursuant to Section 2.08 of the Loan Agreement, the Borrower will prepay outstanding Loans (including accrued interest thereon to the extent required by Section 2.12 of the Loan Agreement and any amounts payable under Section 2.15 of the Loan Agreement) as follows:

 

1. Prepayment Date:                     , 20         

 

2. Principal Amount of Prepayment: $                     18

[The Borrower agrees that this Notice of Optional Prepayment is irrevocable.][This Notice of Optional Prepayment is conditioned upon the effectiveness of other credit facilities and may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the prepayment date specified above) if such condition is not satisfied; provided that in such case the Borrower will pay any amount owing pursuant to Section 2.15 of the Loan Agreement.]

 

 

 

17   Notice of Optional Prepayment to be delivered to the Administrative Agent not later than (i) in the case of prepayment of a LIBOR Loan, 12:00 noon, New York City time, three (3) Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Loan, 12:00 noon, New York City time, on the date of prepayment.
18   Any partial prepayment shall be in an aggregate amount not less than $5,000,000, and shall be an integral multiple of $1,000,000.

 

43


IN WITNESS WHEREOF , the undersigned Authorized Officer has executed this Notice of Optional Prepayment as of the date first above written.

 

GRAÑA Y MONTERO S.A.A.,
as Borrower
By:  

 

  Name:
  Title:
By:  

 

  Name:
  Title:

 

44


EXHIBIT 2.09

FORM OF NOTICE OF ANTICIPATED MANDATORY PREPAYMENT

Date:                     , 20         

To: Natixis, New York Branch, as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Loan Agreement, dated as of [ ] , 2017 (the “ Loan Agreement ”), among Graña y Montero S.A.A., a Peruvian sociedad anónima abierta (the “ Borrower ”), the Lenders from time to time party thereto, and Natixis, New York Branch, as Administrative Agent. Capitalized terms used but not defined herein shall have the meanings given to them in the Loan Agreement.

Pursuant to Section 2.09 of the Loan Agreement, the Borrower hereby notifies the Administrative Agent that it is required to prepay the Obligations [in whole][in part] (including accrued interest thereon to the extent required by Section 2.12 of the Loan Agreement and any amounts payable under Section 2.15 of the Loan Agreement) in accordance with Section 2.09(a)-(c) [as a result of receipt by the [Borrower] [the trust under the Proceeds Trust Agreement] of proceeds of any Planned Disposition][as a result of receipt by [the Borrower][the trust under the G&M Collection Rights Trust Agreement] of proceeds in respect of GSP Claims] [as a result of a voluntary prepayment of any loans under the CS Facility or the Chubb Facility]. The Borrower will prepay the Obligations as follows:

 

1. Prepayment Date:                     , 20         

 

2. Principal Amount of Prepayment: $                     

[The Borrower agrees that this Notice of Anticipated Mandatory Prepayment is revocable up to the second Business Day preceding the date specified in this notice as the anticipated Prepayment Date at which point this Notice of Anticipated Mandatory Prepayment will become irrevocable].

[ signature page follows ]

 

45


IN WITNESS WHEREOF , the undersigned Authorized Officer has executed this Notice of Anticipated Mandatory Prepayment as of the date first above written.

 

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

 

  Name:
  Title:
By:  

 

  Name:
  Title:

 

46

Exhibit 10.02.1

EXECUTION VERSION

WAIVER AND AMENDMENT, dated as of March 26, 2018, among GRAÑA Y MONTERO S.A.A., as borrower (the “ Borrower ”) under the Loan Agreement, dated as of June 27, 2017 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Loan Agreement ”), among the Borrower, the lenders party thereto (the “ Lenders ”) and NATIXIS, NEW YORK BRANCH, as administrative agent under the Loan Agreement (in such capacity, the “ Administrative Agent ”); the Required Lenders; and the Administrative Agent (this “ Agreement ”).

WHEREAS, on July 14, 2015 GyM S.A. (“ GyM ”), a Subsidiary of the Borrower, entered into a medium-term loan agreement (the “ Scotia Loan Agreement ”) with Scotiabank Perú S.A.A. (“ Scotia Peru ”), pursuant to which Scotia Peru agreed to provide loans to GyM in up to $40,000,000 (forty million Dollars) and Soles 117,580,000 (one hundred seventeen million five hundred eighty thousand Soles). The Scotia Loan Agreement is secured, among others, by a first priority security interest over shares of Stracon GyM S.A. (“ Stracon ”) held by GyM and contributed to a trust for the benefit of Scotia Peru and the Local Facility Lenders (the “ Stracon Shares ”);

WHEREAS, on July 31, 2017, GyM, as borrower and Banco de Crédito del Perú, Banco Internacional del Perú S.A.A., Citibank del Perú S.A., Citibank N.A., Scotiabank Perú S.A.A. and BBVA Banco Continental, as lenders, entered into the Local Facility. The Local Facility is secured, among others, by a second priority security interest over the Stracon Shares;

WHEREAS, in connection with a payment default and the subsequent extension of the payment schedules under the Scotia Loan Agreement and the Local Facility, the Borrower has requested that the Lenders consent to the sale of the Stracon Shares in favor of Stracon S.A.C. or another entity controlled by Stephen Dixon (the “ Stracon Sale ”) and the application of the proceeds thereof toward the payment in full of the Outstanding Scotiabank Peru Loans (as defined below) and the partial mandatory prepayment of the Local Facility in an amount equal to the excess Net Cash Proceeds of the Stracon Sale over the Outstanding Scotiabank Peru Loans;

WHEREAS, GyM furnished to the Administrative Agent its unaudited financial statements for the second, third and fourth fiscal quarters of the fiscal year of the Borrower ending on December 31, 2017 in accordance with Section 5.01(a) of the Loan Agreement, but did not deliver the certificate referenced in Section 5.01(g) of the Loan Agreement simultaneously with the delivery of such financial statements;

WHEREAS, the Borrower has also requested certain other waivers, consents and amendments further detailed below;

NOW THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the parties hereto agree as follows:

 


ARTICLE I

DEFINITIONS, RULES OF CONSTRUCTION AND CONDITIONS PRECEDENT

Section 1.1.  Definitions . Unless otherwise defined herein, terms defined in the Loan Agreement are used herein as therein defined, and the rules of interpretation set forth in Section 1.03 of the Loan Agreement shall apply mutatis mutandis to this Agreement.

Section 1.2.  Conditions Precedent . The waivers, consents and amendments contemplated in Article II of this Agreement shall become effective (the “ Effective Date ”) when the following conditions are met (the “ Conditions Precedent ”):

(a) the Administrative Agent shall have received counterparts of this Agreement, duly executed by the Borrower and the Required Lenders;

(b) the Administrative Agent shall have received a copy of the duly executed waiver among the Borrower and the CS Parties, pursuant to which the CS Parties waive any default or event of default existing and continuing as of the date of such waiver under the CS Facility;

(c) the Administrative Agent shall have received a copy of the duly executed waiver among the Borrower and the Local Facility Lenders, pursuant to which the Local Facility Lenders waive any default or event of default existing and continuing as of the date of such waiver under the Local Facility;

(d) the Administrative Agent shall have received a copy of the share purchase agreement for the Stracon Sale entered into between GyM and Stracon S.A.C. or another entity controlled by Stephen Dixon, duly certified by the Borrower to be a true, correct and complete copy, and providing for a purchase price in an amount equal to or greater than $74,820,000, subject to customary adjustments at closing, but in any event no less than $43,000,000; and

(e) the Administrative Agent shall have received a certificate of a legal representative of the Borrower certifying: (i) that the representations and warranties made by the Borrower under this Agreement are true and correct, (ii) the absence of any proceedings for the dissolution or liquidation of the Borrower; (iii) the Borrower is Solvent; and (iv) after the partial mandatory prepayment of the Local Facility contemplated in this Agreement, the amount available to be drawn by GyM thereunder will allow GyM to continue carrying on its business as it is now being conducted.

Section 1.3.  Information with respect to Indebtedness . The Borrower shall use commercially reasonable efforts to deliver to the Administrative Agent a certificate from a Responsible Officer of the Borrower substantially in the form attached hereto as Exhibit A with respect to: (i) all Indebtedness of the Borrower with an aggregate outstanding principal amount of at least $10,000,000 (or its equivalent in any other currency) or (ii) all Indebtedness of the Subsidiaries of the Borrower with an aggregate outstanding principal amount of at least $20,000,000 (or its equivalent in any other currency), as of the date of such certificate.

 

2


ARTICLE II

WAIVER, CONSENTS AND AMENDMENTS

Section 2.1.  Waivers . Effective as of the Effective Date, the Required Lenders hereby waive the following Events of Default (the “ Existing Events of Default ”):

(a) the Event of Default under Section 7.01(c) of the Loan Agreement resulting from the breach by the Borrower of the covenant set forth in Section 6.01 of the Loan Agreement in connection with the subordination of the Indebtedness of the Borrower set forth in paragraph 7 of clause (b) of Schedule 1.01-C of the Loan Agreement in accordance with clause (b) of the definition of “Permitted Indebtedness”;

(b) the Event of Default under Section 7.01(c) of the Loan Agreement resulting from the breach by the Borrower of the covenant set forth in Section 6.02 of the Loan Agreement in connection with the creation and registration of Liens in favor of GMD, over certain units of the building identified in item (i) of the definition of “Corporate Buildings”, arising from the lease agreement entered into between the Borrower and GMD dated June 6, 2017 (as described in Entry D00005 of Electronic Record N° 41776862 of the Registro de Propiedad Inmueble de Lima );

(c) the Event of Default under Section 7.01(c) of the Loan Agreement resulting from the breach by the Borrower of the covenant set forth in Section 6.09 of the Loan Agreement in connection with the capital contribution made by the Borrower to CAM Peru with the proceeds of distributions received by the Borrower from CAM Holding S.p.A.;

(d) the Event of Default under Section 7.01(d) of the Loan Agreement resulting from a payment default under the Local Facility and the Scotia Loan Agreement, which Event of Default is outstanding due to the wording of the Loan Agreement despite the fact that the Local Facility Lenders and Scotia Peru have granted an extension of the payment schedules thereunder;

(e) the Event of Default under Section 7.01(e) of the Loan Agreement resulting from the breach by the Borrower of the covenant set forth in Section 5.01(b) of the Loan Agreement, in connection with the delivery of its audited financial statements for the fiscal years of the Borrower ending on December 31, 2016 and December 31, 2017; provided that the Borrower shall deliver such financial statements on or before April 30, 2018;

(f) the Event of Default under Section 7.01(e) of the Loan Agreement resulting from the breach by the Borrower of the covenant set forth in Section 5.01(g) of the Loan Agreement, in connection with the delivery of the certificate referenced in Section 5.01(g) together with the quarterly and annual financial statements of the Borrower; provided that the Borrower shall deliver such certificates referenced in Section 5.01(g) (as such section is amended in this Agreement) together with the financial statements for the fiscal year of the Borrower ending on December 31, 2017 on or before April 30, 2018; and

(g) the Event of Default under Section 7.01(o) of the Loan Agreement resulting from the occurrence of any “Event of Default” under the CS Facility as a result of the Borrower’s late delivery of its audited financial statements for the fiscal year of the Borrower ending on December 31, 2016 and the non-compliance of GyM’s obligations under the Local Facility as described in clause (d) above.

 

3


Section 2.2.  Consents . Effective as of the Effective Date, and subject to the Stracon Sale being consummated within 30 (thirty) days of the date hereof and on the terms set forth in the share purchase agreement delivered to the Administrative Agent pursuant to Section 1.2(d), the Required Lenders hereby consent, notwithstanding the terms of Sections 6.03 and 6.10 of the Credit Agreement, to the Stracon Sale and the use of the Net Cash Proceeds from the Stracon Sale as follows: (i) first, the repayment in full of the Outstanding Scotiabank Peru Loan; and (ii) second, with the remaining Net Cash Proceeds, the partial mandatory prepayment of the Local Facility (as provided therein) in an amount equal to the excess of the Net Cash Proceeds of the Stracon Sale over the Outstanding Scotiabank Peru Loans.

Section 2.3.  Amendments . Effective as of the Effective Date, the Borrower and the Required Lenders agree to amend the following sections of the Loan Agreement:

(a) The definition of “Local Facility Lenders” set forth in Section 1.01 of the Loan Agreement is hereby amended and restated and shall read as follows:

Local Facility Lenders ” means Banco de Crédito del Perú, Banco Internacional del Perú S.A.A., Citibank del Perú S.A., Citibank, N.A., Scotiabank Perú S.A.A. and BBVA Banco Continental, or any of their affiliates who are lenders under the Local Facility, and any other financial institutions from time to time party to the Local Facility as lenders.”

(b) Section 1.01 of the Loan Agreement by inserting the following new definitions in the appropriate alphabetical order:

Scotiabank Perú ” means Scotiabank Peru S.A.A.”

Scotiabank Facility ” means the medium-term loan agreement entered into between GyM and Scotiabank Perú on July 14, 2015.”

Stracon ” means Stracon GyM S.A.”

Stracon Sale ” means the sale of all the Stracon Shares in favor of Stracon S.A.C. or another entity controlled by Stephen Dixon.”

Stracon Shares ” means the shares of Stracon held by GyM and contributed to a trust for the benefit of Scotia Perú and the Local Facility Lenders.”

(c) Clause (g) of Section 5.01 is amended and restated in its entirety to read as follows:

“(g) Simultaneously with the delivery of each set of financial statements referred to in Section 5.01(a) and Section 5.01(b) above, a certificate signed by a Responsible Officer of the Borrower certifying: (i) the compliance by the Borrower and, provided it remains as a Subsidiary of the Borrower, by CAM

 

4


Chile with Section  6.13 and setting forth in reasonable detail the calculations required to establish the compliance with Section  6.13 and (ii) whether any Default or Event of Default exists on the date of such certificate and, if any such Default or Event of Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto.”

(d) Article V of the Loan Agreement by inserting the following new Section 5.13, Section 5.14 and 5.15:

“SECTION 5.13 Certain Consents . The Borrower shall provide the Administrative Agent with evidence, in form and substance satisfactory to the Lenders, of the consents granted by the bondholders of the bonds specified in the second additional clause ( Segunda Clausula Adicional ) of the Proceeds Trust Agreement: (a) in the case of the bondholders of NORVIAL (as defined therein), no later than July 31, 2018; and (b) in the case of the bondholders of GyM FERROVIAS (as defined therein), no later than September 30, 2018.”

“SECTION 5.14 Sale of Stracon . No later than 5 (five) Business Days from the consummation of the Stracon Sale, the Borrower shall deliver to the Administrative Agent, in form reasonably satisfactory to the Administrative Agent: (i) a letter from Scotiabank Perú evidencing the repayment in full of the loans outstanding under the Scotiabank Facility; (ii) a letter from the Local Facility Lenders, or the administrative agent of the Local Facility, confirming the partial mandatory prepayment of the principal outstanding under the Local Facility in an amount equal to the excess of the Net Cash Proceeds of the Stracon Sale over the amount of the loans outstanding under the Scotiabank Facility; and (iii) evidence of payment by the Borrower of all reasonable and documented costs and expenses (including, without limitation, reasonable and documented legal fees and expenses) incurred by the Administrative Agent in connection with the preparation, negotiation and execution of this Agreement, invoiced at least one day before the date of the Stracon Sale.”

(e) Section 7.01 of the Loan Agreement by (i) deleting the word “or” at the end of paragraph (w), (ii) adding the word “or” at the end of paragraph (x) and (iii) inserting the following new paragraph (y):

“(y) within 5 (five) Business Days from the consummation of the sale of Stracon, the Net Cash Proceeds from the sale of Stracon shall not have been applied toward: (i) the repayment in full of the outstanding loans under the Scotiabank Facility; and (ii) the partial mandatory prepayment of the Local Facility in an amount equal to the excess of the Net Cash Proceeds of the sale of Stracon over the amount of the loans outstanding under the Scotiabank Facility;”

 

5


ARTICLE III

REPRESENTATIONS AND WARRANTIES

As of the date hereof and, except in the case of Section 3.6 below, as of the Effective Date, the Obligors represent and warrant to the Administrative Agent and the Lenders that:

Section 3.1.  Authorization, Enforceability . The execution, delivery and performance by the Obligors of this Agreement is within each of the Obligors’ corporate powers and have been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Agreement has been duly executed and delivered by the Obligors and constitutes a legal, valid and binding obligation of the Obligors, enforceable against each of the Obligors in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally, or by equitable principles relating to enforceability (regardless of whether enforcement thereof is sought in a proceeding at law or in equity).

Section 3.2.  No Conflict . This Agreement, the performance thereof and the continuing obligations of the Obligors under or in connection with this Agreement do not and will not (i) violate any Applicable Law, judgment, award, injunction, or similar legal restriction or the memorandum and articles of association, charter, by-laws, estatuto social or other organizational documents of the Obligors or any order of any Governmental Authority, (ii) conflict with or result in the breach of, or constitute a default or require any payment to be made under, any material provision of any mortgage, indenture, contract, loan agreement, deed of trust, lease or other agreement binding on the Obligors or affecting any of its Property, or (iii) result in or require the creation or imposition of any Lien upon or with respect to any of its Property other than Permitted Liens.

Section 3.3.  No Governmental Consents, etc. No authorization, license, permit or approval or other action by, and no notice to or filing with, any Person (including any Governmental Authority or any other third party) is necessary for the due execution and delivery by, performance by and the enforceability in accordance with its terms against, the Obligors of this Agreement or the consummation of the transactions contemplated hereby, that has not otherwise been obtained.

Section 3.4.  No Material Adverse Effect . There has been no Material Adverse Effect since June 27, 2017.

Section 3.5.  No Default . No Default has occurred and is continuing as of the Effective Date, other than the Existing Events of Default specifically being waived pursuant to Section  2.1 above.

Section 3.6.  Outstanding Scotiabank Peru Loans . As of the date of this Agreement, the principal outstanding amount under the Scotia Loan Agreement equals $43,130,000 (forty three million one hundred and thirty thousand Dollars) and Soles 0 (zero Soles) (the “ Outstanding Scotiabank Peru Loans ”).

 

6


Section 3.7.  Chubb Facility . No default or event of default has occurred and is continuing under the Chubb Facility.

ARTICLE IV

MISCELLANEOUS

Section 4.1.  Notices . All notices, requests and other communications to any party hereto shall be given or served in the manner contemplated in Section 9.01 of the Loan Agreement.

Section 4.2.  Loan Document . On the Effective Date, this Agreement shall for all purposes be deemed to be a Loan Document under the Loan Agreement.

Section 4.3.  No Waiver . This Agreement shall not constitute an amendment, supplement or waiver of any provision of the Loan Agreement not expressly referred to herein and shall not be construed as an amendment, supplement, waiver or consent to any action on the part of any party hereto that would require an amendment, supplement, waiver or consent of the Lenders except as expressly stated herein. Except as expressly waived hereby, the provisions of the Loan Agreement are and shall remain in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Security Documents and all of the Collateral described therein shall continue to secure the payment of all obligations of the Borrower under the Loan Documents. No failure or delay on the part of the Lenders in the exercise of any power, right or privilege hereunder or under any Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the Loan Documents are cumulative to, and not exclusive of, any rights or remedies available at equity or law. Nothing in this Agreement shall constitute a novation of the Borrowers’ obligations under the Loan Agreement or any other Loan Document.

Section 4.4.  Consent and Agreement . Viva, as settlor ( fideicomitente ) of the Almonte Trust Agreement as amended by the Addenda to the Almonte Trust Agreement (the “ Trust Agreement ”), hereby consents to this Agreement and hereby confirms and agrees that (a) notwithstanding the effectiveness of this Agreement, the Trust Agreement to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that, on and after the Effective Date, each reference in the Addenda to the Almonte Trust Agreement to the “Loan Documents” ( Documentos del Financiamiento BL ), “thereunder”, “thereof” or words of like import shall mean and be a reference to the Loan Documents, including this Agreement, and (b) the Trust Agreement to which Viva is a party and all of the Collateral described therein do, and shall continue to, secure the payment of all of the obligations under the Loan Documents.

Section 4.5.  Amendment . This Agreement may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

 

7


Section 4.6.  Agreement Binding . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and permitted assigns of the parties hereto.

Section 4.7.  Headings . Section headings used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

Section 4.8.  Governing Law .

(a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

(b) The parties hereby agree that Sections 9.10 (b), (c), (d), (e), 9.11 and 9.13 ( Jurisdiction, Consent to Service of Process, Waiver of Jury of Trial, Etc. ) of the Loan Agreement shall apply to this Agreement mutatis mutandis .

Section 4.9.  Counterparts . This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement by e-mail in portable document format (.pdf) or facsimile (with acknowledgment of receipt) will be effective as delivery of a manually executed counterpart of this Agreement.

[ Remainder of this page intentionally left blank ]

 

 

8


IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the day and year first above written.

 

Yours truly,
GRAÑA Y MONTERO S.A.A.,
as Borrower
By:  

/s/ Luis Diaz

  Luis Díaz
  Chief Executive Officer
By:  

/s/ Mónica Miloslavich

  Mónica Miloslavich
  Chief Financial Officer

[Signature Page to Waiver and Amendment]


NATIXIS, NEW YORK BRANCH,

as Administrative Agent

By:  

/s/Urs B. Fischer

  Urs B. Fischer
  Executive Director
By:  

/s/Wendy Wang

  Wendy Wang
  Vice President

[Signature Page to Waiver and Amendment]


NATIXIS, NEW YORK BRANCH,

as a Lender

By:  

/s/Mark A. Harrington

  Mark A. Harrington
  Managing Director
By:  

/s/Jovica Ivetic

  Jovica Ivetic
  Director

[Signature Page to Waiver and Amendment]


BANCO BILBAO VIZCAYA ARGENTARIA S.A.,

as a Lender

By:  

/s/Jesús Muñoz

  Name: Jesús Muñoz
  Title:
By:  

/s/ Antonio Escudero

  Name: Antonio Escudero
  Title:

[Signature Page to Waiver and Amendment]


SUMITOMO MITSUI BANKING CORPORATION,
By:  

/s/ Koichi Nunami

  Koichi Nunami
  Managing Director

[Signature Page to Waiver and Amendment]


VIVA GYM S.A.,
as settlor ( fideicommitente ) of the Almonte Trust Agreement, as amended by the Addenda to the Almonte Trust Agreement
By:  

/s/ Luis Díaz

  Name: Luis Díaz
  Title: Attorney in fact
By:  

/s/ Rolando Ponce

  Name: Rolando Ponce
  Title:

[Signature Page to Waiver and Amendment]


CAM HOLDING S.P.A.
By:  

/s/ Juan Antonio Rodríguez Canales

  Name: Juan Antonio Rodríguez Canales
  Title: CEO
By:  

/s/ Mónica Miloslavich

  Name:
  Title:

[Signature Page to Waiver and Amendment]


EXHIBIT A

[FORM OF] OFFICER’S CERTIFICATE

GRAÑA Y MONTERO S.A.A.

[•], 2018

Reference is made to that certain Loan Agreement dated as of June 27, 2017 (the “ Loan Agreement ”), among GRAÑA Y MONTERO S.A.A., a sociedad anónima abierta organized and existing under the laws of Peru (the “ Borrower ”), the banks and other financial institutions listed on the signature pages thereof under the caption “ Lenders ” (together with each other Person that becomes a Lender pursuant to Section  9.05 of the Loan Agreement or otherwise in accordance with the provisions of the Loan Agreement, collectively, the “ Lenders ”), and NATIXIS, NEW YORK BRANCH, individually as a Lender, and as the administrative agent for the Lenders (in such latter capacity together with any other Person that becomes Administrative Agent pursuant to Section  8.08 of the Loan Agreement, the “ Administrative Agent ”) and to that certain waiver and amendment to the Loan Agreement dated March 26, 2018 (the “ Waiver ”), among, the Borrower, the Administrative Agent, the Required Lenders, Viva and CAM Holding S.p.A.

Pursuant to Section 1.3 of the Waiver, the Borrower hereby certifies that, as of the date hereof, Schedule A hereto includes all Indebtedness of the Borrower with an aggregate outstanding principal amount of at least $10,000,000 (or its equivalent in any other currency) and all Indebtedness of the Subsidiaries of the Borrower with an aggregate outstanding principal amount of at least $20,000,000 (or its equivalent in any other currency) and that the information provided therein with respect to each such Indebtedness is true, correct and complete.

IN WITNESS WHEREOF, the undersigned authorized officer has executed this Officer’s Certificate as of the date first above written.

 

Yours truly,

GRAÑA Y MONTERO S.A.A.,

as Borrower

By:  

 

  Name:
  Title:


Schedule A

Information of Indebtedness

 

Description of Indebtedness

   Date    Borrower    Lender(s) /
Administrative
Agent
   Principal
Amount
Outstanding
   Amortization
Schedule 1
   Maturity
Date
   Guarantees / Collateral 2    Comments 3
[•]    [•]    [•]    [•]    [•]    [•]    [•]       [•]

 

NTD : Including, amortizations by the way of covenants or events of default.

2  NTD : Guarantees / Collateral pledged in benefits of lenders

3  NTD : To include comments on repayments (source of repayments) / extensions, etc.

Exhibit 10.03

Financial Stability Framework Agreement

V LIVE - DSD S.A.

As Borrowers

Graña y Montero S.A.A. and GyM S.A.

As Guarantors

BBVA Banco Continental

CREDIT BANK OF PERÚ SCOTIABANK PERÚ S.A.A.

CITIBANK DEL PERÚ S.A. Citibank, N.A.

and

BANCO INTERNACIONAL DEL PERÚ S.A.A.

As Lenders

BBVA Banco Continental

CREDICORP CAPITAL FINANCIAL SERVICES S.A.

SCOTIABANK PERÚ S.A.A.

CITIBANK PERÚ S.A. and Banco Internacional del Perú S.A.A. as structuring

The TRUSTEESHIP COUNCIL S.A. as Administrative Agent and Agent of Guarantees

Lima, 31 July 2017


Index

 

DEFINITIONS AND INTERPRETATION

  

Definitions

     11  

Interpretation

     25  

Object and type

     26  

Purpose

  

Single Agreement and nature of Framework Agreement

     27  

Formalization of the transaction documents

     28  

Preceding Conditions

     28  

Conditions precedent to closing

     28  

Conditions precedent to disbursement and the issuance of Bonds

     30  

Representations and Warranties

  

Positive and Negative Obligations

     43  

Non-Compliance Events

  

The bonds and the commitment of deferral

     52  

Operation guarantees under replacement of existing notes and issuance of new notes

     53  

Divestment and Accessions Agent

     55  

Securities Agent

     61  

System of Majorities

     65  

Expenses and taxes

     67  

Payments

     68  

Compensation

     68  

 

2


Cost Increases

     69  

Notifications

     70  

Form

     70  

Addresses

     73  

Change of Addresses

  

CONFIDENTIALITY

     74  

Miscellaneous

     74  

21.1 Changes

     74  

21.2 Waivers

     75  

21.3 Partial Invalidity

     75  

21.4 Language

     75  

21.5 Previous Agreements

     75  

21.6 Prevalence of this Framework Agreement on the remaining financial documents

     76  

21.7

  

22.

  

22.1

22.2

  

Exchange Rate

     76  

APPLICABLE LAW AND JURISDICTION

Applicable Law

Jurisdiction

ANNEXES

 

Annex I

  

Graña Economic Group

Annex II

  

Guarantees

Annex III

  

Senior Creditors Financing Contracts

Annex IV

  

Guarantees of Senior Creditors

Annex V

  

Affidavit model

Annex VI

  

Litigations

Annex VII

  

Auditors

Annex VIII

  

Form of Assignment

Annex IX

  

Detail of current GyM debt - Subcontractors GSP

Annex X

  

Existing trusts with customers

Annex XI

  

Guidelines for the constitution of future trusts with customers

 

3


In Lima,

31 July 2017

Mr Notary,

Please extend in its public registry of deeds by stating the Financial Stability Framework Agreement (the “Framework Agreement”) subscribed by the following Parties:

I. As Party of the first part:

GRAÑA Y MONTERO S.A.A. (“Graña’), with single taxpayer registration N· 20332600592, society registered in Electronic Item No. 11028652 of the Register of Legal Persons of Lima, duly represented by Mrs. Claudia Inés Drago Morante, identified with National Identity Document No. 09336254, and Mrs. Monica Maria Miloslavich Hart, identified with National Identity Document No. 10545024, both empowered according to powers entered in the certificate of registration afore indicated, domiciled at Av. Paseo de la República No. 4675, Surquillo district, province and department of Lima.

GyM S.A. (“GyM”), with a single Taxpayer Registration No. 20100154057, society registered in the Electronic Item No. 11006796 of the Register of Legal Persons of Lima, duly represented by Mrs. Mónica María Miloslavich Hart, identified with National Identity Document No. 10545024, and by Mr. Renato Eduardo Rojas Balta, identified with National Identity Document No. 07876979, both entitled according to powers entered in the certificate of registration indicated before, domiciled at Av. Paseo de la República N° 4675, Surquillo district, province and department of Lima.

Cam Perú S.A. (“CAM”), with single Taxpayer Registration No. 20388101971, society registered in Electronic Item No. 11225751 of the Register of Legal Persons of Lima, duly represented by Mr Renato Eduardo Rojas Balta, identified with National Identity Document No. 07876979, and Mrs. Monica Maria Miloslavich Hart, identified with National Identity Document No. 10545024, both entitled according to powers entered in the certificate of registration indicated before, domiciled at Av. Paseo de la Republica N° 4675, Surquillo district, province and department of Lima.

Concessionaire Vía Expresa Sur S.A. (“Vìa Expresa Sur”), with single Taxpayer Registration No. 20551816754, society registered in Electronic Item No. 12981865 of the Register of Legal Persons of Lima, duly represented by Mrs. Mónica María Miloslavich Hart, identified with National Identity Document No. 10545024, and Mrs. Elena Bustamante Richard Weatherley, identified with National Identity Document No. 10475431, both entitled according to powers entered in the certificate of registration indicated before, with office in Av.

 

4


Paseo de la República N° 4675, Surquillo district, province and department of Lima.

And

Vial y Vives—OSO S.A. (“Vial y Vives”), a company incorporated under the laws of Chile, duly represented by Mrs. Mónica María Miloslavich Hart, identified with National Identity Document No. 10545024 , and by Mr. Renato Eduardo Rojas Balta, identified National Identity Document No. 07876979, both entitled according to powers by extraordinary board of directors shareholders meeting meeting dated 17 July 2017, domiciled at Av. Paseo de la República N° 4675, Surquillo district, province and department of Lima.

Graña, GyM, CAM Perú, Vìa Expresa Sur and Vial y Vives and those subsidiaries of the Group that have bonds secured by Graña and/or GyM that have been implemented and the amount of which has been postponed in accordance with the provisions of the Syndicated Financing Contract, provided they have acceded to this Agreement, the syndicated financing contract and the documents in the appropriate financing, will be jointly referred to as the “Borrowers”.

II. On the other hand:

Graña, with Single Taxpayer Registration No. 20332600592, society registered in Electronic Item No. 11028652 of the Register of Legal Persons of Lima, duly represented by Mrs. Claudia Inés Drago Morante, identified with National Identity Document No. 09336254, and Mrs. Monica Maria Miloslavich Hart, identified with National Identity Document No. 10545024, both entitled according to powers entered in the item registration before indicated, domiciled at Av. Paseo de la República No. 4675, Surquillo district, province and department of Lima.

Graña will hereinafter be referred to as “Guardian¨, whilst acting as guarantor of Tier C for the case of the existing bonds secured by Graña and which have been executed and rendered in accordance with the financial documents.

GyM, with Single Taxpayer Registration No. 20100154057, society registered in Electronic Item No. 11006796 of the Register of Legal Persons of lima, duly represented by Mrs. Mónica María Miloslavich Hart, identified with National Identity Document No. 06408884, and by Mr. Renato Eduardo Rojas Balta, identified with National Identity Document N°07876979, both entitled according to powers entered in the certificate of registration before indicated, domiciled at Av. Paseo de la Republica N° 4675, Surquillo district, province and department of Lima.

 

5


GyM will hereinafter be referred to as “guarantor” as long as it acts as guarantor of Tier C for the case of the bonds that have been executed and rendered in accordance with the financial documents.

Graña and GyM will be called the “guarantors”. The Guarantors and Borrowers shall be called the “Bound”.

III. On the other hand:

BBVA Banco Continental (“BBVA”, with Single Taxpayer Registration No. 20100130204, society registered in Electronic Item No. 11014915 of the Register of Legal Persons of Lima, duly represented by Mr. Eduardo Enrique Torres Llosa Villacorta identified with National Identity Document No. 09377923, and by Mr Frank Erick Babarczy Rodríguez, identified with National Identity Document No. 09339170, both entitled according to powers entered in the certificate of registration before indicated, domiciled at Av. República de Panamà No. 3055, District of San Isidro, Province and Departament of Lima.

Banco de Crédito del Perú (“BCP”), with single Taxpayer Registration No. 20100047218, society registered in Electronic Record No. 11009127 of the Register of Legal Persons of Lima, duly represented by Mr. Guillermo Wiesse- Leòn, identified with National Identity Document No. 02865741, and Mrs. Bertha Mariel Torres Castle, identified with National Identity Document No. 40868707 both empowered according to powers entered in the certificate of registration before indicated, with address in Calle Centenario No. 156, Las Laderas de Melgarejo development, district of La Molina, Province and department of Lima.

Banco Internacional del Perú S.A.A. (“Interbank”), with single Taxpayer Registration No. 20100053455, society registered in Electronic Record No. 11009129 of the Register of Legal Persons of Lima, duly represented by Mr. José Antonio Gonzales Ramsey, identified with National Identity Document No. 08885472, and Mr. Rodrigo Gonzalo Guzmán Valenzuela, identified with National Identity Document No. 10319175, both entitled according to powers entered in the certificate of registration before indicated, domiciled at Av. Carlos Villarán #140, Santa Catalina, district of La Victoria, province and department of Lima.

Scotiabank Perú S.A.A. (“Scotiabank”), with single Taxpayer Registration No. 20100043140, society registered in Electronic Record No. 11008578 of the Register of Legal Persons of Lima, duly represented by Mr. Gonzalo Gil, identified with National Identity Document No. 09752555, and by Mr. Pedro Ignacio Belaunde Zuzunaga, identified with National Document of Identity no. 42597480, both entitled according to powers entered in the certificate of registration before indicated, domiciled at Av. Dionisio Derteano No.102, District of San Isidro, Province and Departament of Lima.

 

6


Citibank del Perú S.A. (“Citibank”), with single Taxpayer Registration No. 20100116635, society registered in Electronic Record No.11648632 of the Register of Legal Persons of Lima, duly represented by Mr. José Luis Noriega Lean, identified with National Identity Document No. 09872315, and by Mr. Luis Alberto Bas Gil, identified with Alien Registration No. 000665528, both entitled according to powers entered in the certificate of registration before indicated, domiciled at Av. Canaval y Moreyra No. 480, District of San Isidro, Province and Departament of Lima.

Citibank, N.A. (“Citibank NA”), a company incorporated under the laws of New York, duly represented by Mr. José Luis Noriega, identified with National Identity Document No. 09872315, empowered under powers entered in the certificate of registration Nº 11651028, with office in Av. Canaval y Moreyra No. 480, District of San Isidro, Province and Department of Lima.

BBVA, BCP, Interbank, Citibank, Citibank NA and Scotiabank, including any other financial institution which accedes to this Framework Agreement and its successive assignees and successors, will be referred to as the “Lenders”.

IV. On the other hand:

LA FIDUCIARIA S.A., with Single Taxpayer Registration No. 20501842771, society registered in Electronic Record No. 11263525 of the Registry of Legal Persons of Lima, duly

Represented by Mr. Alejandro Almendariz Small, identified with National Identity Document No. 44657883, and Miss Lila Miluska Pure Vizcarra, identified with National Identity Document No. 44197225, both entitled according to powers entered in the certificate of registration before indicated, with address in Calle Los Libertadores N° 155, Floor 8, San Isidro district, province and department of Lima.

In addition, LA FIDUCIARIA S.A. or the entity that replaces it in the future under this Framework Agreement, will be referred to as the “Administrative Agent” and “Guarantees Agent”, if any.

V. With the intervention of:

Scotiabank, with Single Taxpayer Registration No. 20100043140, society registered in Electronic Record No. 11008578 of the Register of Legal Persons of Lima, duly represented by Mr. Gonzalo Gil, identified with National Identity Document No. 09752555, and by Mr. Pedro Ignacio Belaunde Zuzunaga, identified with National Identity Document No. 42597480, both entitled according to powers entered in the registration certificate before indicated, domiciled at Av. Dionisio Derteano N 102, San Isidro district, province and department of Lima, in his capacity as Lender under the SBP Loan (as defined in this Framework Agreement).

 

7


The obligated and the Lenders will be jointly referred to as the “Parties”.

Background

That Graña is the parent company of a group of companies of national and international scope dedicated primarily to the provision of engineering, construction, infrastructure and real estate services (the “Group”). To date, the Group companies are those listed in Annex I of this Framework Agreement.

11. That the operation of funding referred to in the present framework agreement is based on a budget for years 2017 and 2018 prepared by the Bound and whose main guidelines have been communicated, in writing, to the Lenders prior to the conclusion of this Framework Agreement (the “Budget”).

111. The operation is based, among others, on the following fundamental principles:

(i) The viability and continuity of the business activity of the Group.

(ii) The sustainability of the financial debt of the Group through:

(A) The provision of a syndicated line of credit thereunder the syndicated financing contract that allows GyM to set new terms and conditions in order to regulate the existing financial obligations through its incorporation in Section A and/or Section B, as appropriate, and/or meet their payment obligations in the short term (Section A), as well as to defer the payment of Bonds Granted in favour of GyM and/or endorsed by GyM and/or granted under the guarantee or stand-by letters or credit, approved for GyM that are executed (Section C);

(B) The provision of a syndicated line of credit under the Syndicated Financing Contract that allows Graña and/or the Bound that corresponds to deferred payments of bonds issued in favour of Graña and/ or backed by Graña and/or granted under the guarantee letters or stand-by letters or credit, approved for Graña to be executed {Tier C}; and,

(C) The issuance of new bonds in syndicated form and/or stand by letter or credit, if applicable, in favour of Graña and/or GyM (the “New Bonds”), and the maintenance and renewal of bonds and/or stand by letters or credit, if applicable, issued by Lenders in favour of the Bound, CAM Perú, Vìa Expresa Sur and Vial y Vives, but with the backing of Graña or GyM (the existing “Bonds” and in conjunction with the new bonds, the “Bonds”) by virtue of the Syndicated Line of issuance of new bonds and the commitment of maintenance of existing bonds.

 

8


(iii) The granting of a satisfactory structure of guarantees for Lenders.

(iv) The modification of certain terms and conditions of the SBP Loan in order for it to be consistent with the financial documents.

iv. That in order to adapt to the situation the group is going through and its cash flow generation capacity, the Bound have agreed with Lenders to carry out an operation of financing that includes, among other things, formalisation of the following contracts (in conjunction with as many documents are signed in connection with such funding, the “Financial documents”):

(i) The present Framework Agreement which, among other things, regulates the principles of operation, the conditions precedent to the closure of the Operation, the conditions prior to the Effective Date, disbursements, the issuance of bonds and the renewal of certain existing bonds, the decision-making process of the financial documents and certain terms and conditions common to the financial documents (the “Framework Agreement”).

(ii) A syndicated short-term financing loan contract, divided into the following sections (the “Syndicated Financing Contract”):

(B) Section A Revolving Loan: up to the sum of US$ 1’630, 538.33 (one million six hundred and thirty thousand five hundred and thirty-eight and 33/100 Dollars) and 5/ 143’934,533.66 (one hundred and forty-three million nine hundred and thirty-four thousand five hundred and thirty and three and 66/100 Soles), which may be increased in US$ 14 ’ 000,000.00 (14 million and 00/100 Dollars) or its equivalent in soles in the terms provided for in the Syndicated Financing Contract;

(C) Section B Non Revolving: up to the sum of US$ 51’ 566,849.09 (Fifty-one million five hundred and sixty six thousand eight hundred and forty nine and 09/100 Dollars) and 5/ 33’563,807.82 (Thirty-three million five hundred and sixty three thousand eight hundred and seven and 82/100 Dollars); and

(D) Tier C Non Revolving: which will include the postponement of payments of executed Bonds, in accordance with the provisions set out in Clause 8 of this Framework Agreement

(iii) A syndicated line of issuance of new bonds for a total amount of $100,000,000 (one hundred million and 00/100 Dollars) and the commitment of maintenance and renovation of existing bonds (the “Syndicated line of issuance of new bonds and commitment to maintenance of existing bonds”). Under the terms of the contract, this syndicated line may be extended up to a maximum amount of $150,000,000 (one hundred and fifty million and 00/100 Dollars) per accession of other Lenders.

 

9


(iv) The replacement of certain promissory notes by the Lenders (excluding those related to the SBP loan) and the issuance by borrowers of new notes with filling instructions in relation to financing.

(v) A set of guarantees granted by Graña and other Group companies in accordance with the terms set forth in Clause 9 that are identified in this clause and in Annex II of this Framework Agreement in guarantee of the obligations under the Transaction Documents referred to in the previous paragraphs (the “Guarantees”). To avoid any doubts, the term “Garantías” will include the guarantee granted in favour of Lenders regarding the assets under the VCN Trust, in the terms of clause 9.4, only from the time that the warranty was constituted.

(vi) A trust contract in administration and guarantee between GyM (as trustee), the Trustee of the guarantees (as trustee), the Administrative Agent and the Securities Agent, acting on behalf and for the benefit of the Lenders and Scotiabank (in its capacity as Lender under the SBP Loan), with the aim of ensuring the full and timely implementation of the warranted obligations, as set out in the present document (the “Trust Agreement”).

vii. That in addition to the above and in order to allow the successful conclusion of the operation, Scotiabank and GyM have signed on the same date and in a single action with the underwriting of this framework agreement, Addendum 5 to the SBP loan in order for it to be consistent with certain terms and conditions of the financial documents (documents of the financing together with the SBP loan, as it results from addendum 5 to the SBP loan, the SBP Promissory Notes and Scotiabank guarantees, in conjunction with the Transaction Documents.

For its part, Scotiabank, in its capacity as Lender under the SBP Loan, declares to be aware of the terms and conditions of the financial documents, as well as the obligations assumed by the Bound and Lenders in the financial documents. In addition, it is noted for the record that the SBP Loan may not be modified without the prior agreement of the Lenders.

In this context, the Parties note for the record that the guarantees of Scotiabank will not be novated nor be affected as a result of the subscription and operation of the financial documents.

VI. That, similarly, to allow for the successful conclusion of the operation, the Parties agree that in the case of execution of the existing and/or new bonds, the corresponding Lenders who have paid the executed bails as well as those Lenders who have signed a Fronting commitment agree to defer the payment of the expenditure made in favour of the beneficiary of this security in accordance with the terms of the Syndicated Financing contract (leaving this disbursement in the so-called Tier C of the Syndicated Financing Contract).

 

10


VII. That the Parties are aware of the existence and content of the Transaction Documents listed in the preceding paragraphs and it is their intention to regulate their relations as they are part of said contracts, regardless of the fact that its formalization is instrumented through different contracts given they must be understood, for all purposes, as linked contracts that constitute a single agreement under which the operation is performed.

VIII. That, pursuant to what is stated in the previous history, and on the basis of the truthfulness and accuracy of the representations and warranties made by the required, the Parties sign this Framework Agreement, which shall be governed by the following clauses.

1. Definitions and Interpretations

1.1. Definitions

Unless explicitly stated otherwise or a different meaning is inferred out of the context, the terms and expressions which begin with a capital letter and that are not a proper name or the beginning of a sentence, shall have the meaning indicated below:

Graña reference shareholders: means, altogether:

(A) GH Holding Group Corp. with a stake of 17.81% on Graña to the Closing Date;

(B) Bethel Enterprises lnc. with a stake of 5.12% on Graña to the Closing Date;

(C) Byron Development S.A. with a stake of 3.40% on Graña to the Closing Date; and

(D) Mr. Hernando Grana Acuña with a stake of 2.35% on Graña by the Closing Date, including his direct descendants, their vehicles or companies through which their projects or investments are channeled, their heirs or any other autonomous patrimony or trust fund for the benefit of the aforementioned.

For clarification purposes, previous entries may be amended unless, as a result of this change, an effective change of control takes place at Graña.

It is specified that the term Graña Reference Shareholders also includes any vehicle, company, firm or corporate form under the effective control of the persons listed in sub-paragraphs (A) through (D).

 

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Senior Creditors: refers to the financial institutions with which Graña has signed the Financing Contracts.

Addendum 5 to the SBP loan: refers to the addendum to the SBP loan subscribed by Scotiabank and GyM simultaneously to the signing of the Framework Agreement in order to adapt the terms of the SBP loan to the Operation.

Trust Property: refers to the provisions of the Trust Agreement and are, altogether, the following:

(A) The collection rights and cash flows arising from contracts concluded by GyM with customers, present and future, in the terms set forth in the Guarantee Trust Agreement, with the exception of the collection rights (and their corresponding monetary flows) of the Duetos del Sur Constructing Consortium across from the Southern Perú S.A. Pipeline. As indicated in the Guarantee Trust Contract, the rights and cash flows in any contracts with customers which have been or will be provided in the future to any of the Trusts with Clients, with the exception of what’s stated in sub-paragraph (B), will not be Property Trust.

(B} The collection rights and cash flows credited in each of the Trusts with customers, which are freely available to GyM and, if appropriate, in payment accounts for the financing of working capital within each of the trusts with customers, subject to the terms of those trusts with customers.

(C) The collection rights and monetary flows in GyM accounts of free availability in each of the trusts that GyM holds as a result of the debt allowed with third Parties other than the Lenders.

(D) The collection rights and monetary flows that might correspond to GyM, from contentious proceedings initiated with Customers, in the terms set forth in the Trust Agreement.

(E) Dividends and repayments of loans to subsidiaries and/or consortia (if applicable) of GyM, the return of guarantee funds in favour of GyM and, in general, any collection right of GyM with its subsidiaries, in the terms set forth in the Guarantee Trust Contract.

(F) The balances in the accounts of the Guarantee Trust Contract, including balances of disbursements made by the Lenders under the Syndicated Financing Contract.

(G) The Syndicated Financing Contract disbursement flows, in accordance with the terms of the Guarantee Trust Contract.

 

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Change of Effective Control Graña: refers to the provisions of the Syndicated Financing Contract.

Capex: refers to any expense or capital investment related to the acquisition, maintenance, improvement or replacement of fixed or intangible assets, or other similar operations recorded under investment activities in the cash flow of the obliged, in accordance with the NIIF.

Customers: refers to GyM customers whose payment obligations (GyM collection rights) will be transferred to the Guarantee Trust and/or to the Trusts with Customers.

Commission Structure: Has the assigned meaning ascribed to in the Syndicated Financing Contract and in the Syndicated Issuance of New Bonds and Commitment to Maintenance of Existing Bonds whose economic terms are set forth in the Fee Letter.

Risk Commission: has the assigned meaning ascribed to in the syndicated issuance of new bonds and the commitment to maintenance of existing bonds whose economic terms are set forth in the Fee Letter.

Postponement Commitment: refers to the commitments taken on by Lenders in accordance with the provisions set out in Clause 8.2.

Additional conditions precedent to disbursement: Has the meaning ascribed to in the Syndicated Financing Contract.

Conditions precedent to closing: refers to those regulated in Clause 4.1.

Conditions precedent to the Effective Date, disbursements and issuance of Bonds: refers to those regulated in Clause 4.2.

Senior creditors financing contracts: refers to the contracts that Graña has signed, as borrower, with senior creditors and which are backed by the guarantees of senior creditors. The Financing Contracts for senior creditors are set out in Annex III.

Syndicated Financing Contract: refers to the provisions of sub-paragraph (ii) of the antecedent IV.

Guarantee Trust Agreement: refers to the provisions in paragraph {VI) of the antecedent IV.

 

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Effective Control: refers to the control exercised by one person over another when:

(A) Through the direct or indirect ownership of shares or holdings, usufruct contracts, security interest, trust or similar agreements with other shareholders or partners or other act of any nature, one can exercise more than fifty percent (50%) of the voting rights in the general shareholders meeting of a legal person; or

(B) Not counting with more than fifty percent (50%) of the voting rights in the general shareholders meeting of a legal person, may appoint or remove a majority of the members of the Board of Directors or, in the event that there is no governing board, to its manager or main executive.

Trust Accounts: has the meaning given to it in the Guarantee Trust.

Project Accounts: has the meaning given to it in the Guarantee Trust.

Statements and Warranties: refers to the statements and warranties contained in Clause 5 of this Framework Agreement and any other granted by any of the obliged in any financing document.

Business Day: refers to a working day in the Republic of Perú, which does not include Saturdays, Sundays and holidays in which banks do not operate in the city of Lima, recognized by the Republic of Perú.

Transaction Documents: as stated in the provisions of antecedent V.

Financial documents: refer to the documents specified in antecedent IV.

Dollars or USD$: refers to dollars of the United States of America.

Substantially Adverse Effect: refers to (i) any fact or circumstance, and/or (ii) course or change in the applicable legislation which, in the opinion of the majority of Lenders:

(A) Affect, or may reasonably be expected to adversely affect the financial situation, business, assets, property, rights or business prospects of Graña and/or GyM, or other group companies to the extent that in the latter case has an effect substantially negative in Graña and/or GyM;

(B) Affect, or may reasonably be expected to adversely and significantly affect the capacity of Graña and/or GyM to comply with the obligations arising from the financial documents;

(C) Produce, or may reasonably be expected to cause that some or all of the financial documents earn illegal, invalid, ineffective or unenforceable; or

 

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(D) Reveals a significant deterioration in the solvency of any of Graña and/or GyM, or the remaining group companies to the extent that in the latter case it has a substantially negative effect in Graña and/or GyM.

Confiscation in the form of retention: It refers to a confiscation as a precautionary measure as noted on file number 03973-2017-76-1817-JR-C0-09.

Indebted: refers to every moment, the sum of amounts owed in virtue of the following concepts:

(A) Loan contracts, credit, discount, factoring, confirming, payment commitments under credit lines whatever their nature, or similar instruments

(B) Issuance of debt securities in the form of debentures, bonds, notes or any other kind of security titles or transferable securities;

(C) Financial leasing contracts with or without an option to buy (excluding leasing contracts);

(D) Any contracts, agreements, purchase commitments to third Parties (including cal/options) of any kind of assets with deferred price (except those related to the purchase of raw materials);

(E) The mark-to-market of derivatives or other financial instruments of a similar nature to cover fluctuations in prices, exchange rates or interest rates;

(F) Warranties, bonds, guarantees, counter-guaranties, sponsorship letters or any other commitments that imply guaranteeing payment obligations own and/or undertaken by third Parties against their Lenders, be it in solidarity, sub-solidarity or any other form;

(G) Income received by concept of equity or premium for the issuance of redeemable shares subject to depreciation;

(H) Commitments for the acquisition of treasury shares, repurchase of previously-owned shares or sale of treasury stock below its market value; and

(I) Any other obligations, commitments or financial contracts of similar nature or effect to the above services provided by any of the companies in the Group and which constitute financial debt in accordance with NIIF, or with the accounting principles generally accepted in Perú and the applicable legislation in every moment.

 

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Allowed Debt: refers to:

(A) The debt incurred per the Transaction Documents, including the debt of other entities that adhere to the present Framework Agreement and the remaining financial documents that proceed;

(B) The debt incurred by virtue of the Financing Contracts by the senior creditors;

(C) The debt incurred as financial leasing for a maximum amount of US$ 10,000,000 (ten million and 00/100 Dollars) during the term of the financial documents;

(D) The debt incurred in order to finance the working capital needs of one or more projects for a maximum amount of US$ 20,000,000 (20 million dollars), and 00/100 provided the funding of the respective project had been requested from loan officers, through the Syndicated Financing Agreement, having its approval been denied within 30 days from the initial request (to clarify, the financing granted by loan officers or part of them up to the previously mentioned amount will also be considered Allowed Debt); and,

(E) The debt incurred to replace existing debt up to the date of this Framework Agreement (including financial leases) provided that (i) the amount does not exceed the one replaced (on the understanding that there were no early redemptions of the replacing debt or the new borrowing); (ii) it has a maturity equal to or greater than the final maturity date; and (iii) lack of real or personal guarantees other than the original ones.

Guarantor entities: refers to the provisions on the syndicated line of issuance of new bonds and to the commitment to maintenance new and existing bonds.

Issuing Guarantor Entities: refers to the provisions of the syndicated issuance of new bonds and commitment to maintenance of existing bonds.

Governmental Entity: refers to (i) any national government, municipal, local or foreign, or any entity engaged in executive, legislative, judicial, conciliatory, regulatory, tax or administrative functions of or related to the government; (ii) any public international organization; or (iii) any agency, division, department or political subdivision of any government, entity or organization described in paragraphs (i) or (ii) above.

Graña Outline for Sale of Assets: refers to the sales scheme of non-strategic assets that belong to Graña and that is being implemented to make advance payments of their debt.

Financial Statements: refers to the structured representation of the financial position and financial performance of an entity, comprised of (i) statement of financial situation; (ii} statement of results; (iii) statement of changes in equity; (iv} statement of cash flows; and (v) notes to the financial statements.

 

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Consolidated Annual Financial Statements: refers to the consolidated financial statements of Graña and subsidiaries, and GyM and subsidiaries closed to a given financial year.

Quarterly Financial Statements: refers to the consolidated financial statements of Graña and subsidiaries, and GyM and subsidiaries closed to a particular quarter.

Annual Individual Financial Statements: refers to the financial statements of each of the borrowers closed to a given financial year.

Quarterly Individual Financial Statements: refers to the financial statements of each of the borrowers closed to a given quarter.

Distinct Annual Financial Statements: refers to the financial statements of GyM and trusts closed to a given financial year.

Distinct Quarterly Financial Statements: refers to the financial statements of GyM and trusts closed to a given quarter.

Structural: it jointly refers to Credicorp Capital Financial Services S.A. (“Credicorp”), BBVA, lnterbank, Citibank and Scotiabank.

Event of Default: refers to any of the events covered in Clause 7.l.

Extension: refers to the extension of the validity of the financial documents from the initial expiration date up to the final maturity date, in case the conditions laid down in the financial documents are met.

Disbursement Dates: refers to each one of the dates in which having signed the transaction documents, the totality of the conditions precedent to the effective date and the disbursements are fulfilled, and to the issuance of bonds and the additional conditions precedent to the disbursements as described in the syndicated financing contract, and, in connection to this contract, the Lenders channel the amounts set out on it through the guarantee trust, or in connection with the syndicated issuance of new bonds and its commitment to the maintenance of existing bonds, the Lenders issue new bonds or renew existing bonds in accordance with what is established in the corresponding financial documents.

Closing date: refers to the date in which, having fulfilled the conditions precedent to the closing, this Framework Agreement and other transaction documents are signed.

 

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Final Maturity Date: refers to the date of expiration of this contract in the event of an extension, which will be two years from the closing date.

Initial Maturity Date: refers to one year from the closing date.

Effective Date: refers to the date in which having signed the transaction documents, the totality of the conditions precedent to the effective date, the disbursements and the issuance of bonds are met, according to the provisions of clause 4.2 and the existing financial obligations will be fully regulated under the terms and conditions applicable to sections A and B, as appropriate. The Effective Date may not be earlier than four (4) business days from the closing date nor later than ten (10) business days.

Fee Letter: refers to the charter of commissions that will be signed on the closing date.

Bonds: refers to the provisions on Precedent III, on the syndicated line of issuance of new bonds and on the commitment to maintain existing bonds.

Existing Bonds: refers to the provisions on Precedent III, on the syndicated line of issuance of new bonds and on the commitment to maintain existing bonds.

New Bonds: refers to the provisions on Precedent III, on the syndicated line of issuance of new bonds and on the commitment to maintain existing bonds.

Stracon Trust Shares: refers to the trust patrimony over shares issued by Stracon, owned by GyM, dated 21 July 2017, in order to support: (A) in first rank, the obligations derived from the SBP loan and (B) in second rank—provided the Administrative Agent acceded to the agreement, according to its first additional clause and the obligations arising from the financial documents.

GyM Equipment Trust: refers to GyM equipment estate trust signed on 24 July 2017 to support: (a) in first rank, the obligations derived from the SBP loan and (b) in second rank—provided the Administrative Agent acceded to the agreement in accordance with its first additional clause, the obligations arising from the financial documents.

Stracon Equipment Trust: refers to Stracon equipment estate trust signed on 24 July 2017 to support: (a) in first rank, the obligations derived from the SBP loan and (b) in second rank—provided the Administrative Agent acceded to the agreement, according to its first additional clause and the obligations derived from the financial documents.

Guarantee Trust: refers to the independent estate called “La Fiduciaria Fid. GyM—Syndicated Line” made up by the estate trust, as well as all that rightfully and by de facto corresponds to it.

 

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Trust with Clients: refers to, respectively, to the autonomous estates that GyM: (I) would have constituted and are identified in Annex X or (ii) will constitute by requirement of its customers, under which, GyM would have relinquished or will relinquish the rights to credit and cash flows from projects with these customers, aiming at ensuring the progress and completion of the projects with these customers, provided they comply with the guidelines in Annex XI to the present framework agreement.

VCN Trust: refers to the trust held between Graña as trustor, La Fiduciaria S.A. as trustee and some of the senior creditors, represented by Natixis, New York Branch, as trustees, held on 27 June 2017.

Guarantee Trust Trustee: refers to La Fiduciaria S.A. in its role as trustee of the trust, in accordance with the terms and conditions set forth in said document, or any other document that replaces it.

Graña Corporate Warranty: refers to the guarantee that will be granted by Graña to support the obligations of GyM Ferrovías S.A. incurred in the expansion project of Lima Metro Line 1 in the amount of up to US$ 40,000,000 (forty million and 00/100 Dollars).

Guarantees: refers to the provisions in paragraph (v) of Precedent IV.

First Rank Guarantee: refers to the provisions in Clause 9.2.

Graña guarantees of second or third rank: refers to the provisions on Clause 9.2.

SBP Second Rank Guarantees: refers to the provisions on Clause 9.2.

Guarantees from senior creditors: refers to the guarantees that Graña and other Group companies have granted and/or contemplate to give in the future in support of obligations derived from financing contracts of senior creditors.

Guarantees of senior creditors are described in Annex IV.

Stracon Shares Security Interest: refers to first rank security interest on Stracon shares granted in favour of Scotiabank dated 14 July 2015, as well as their modifications, clarifications and/or add-ons.

Equipment Security Interest: refers to first rank security interest on Stracon and GyM owned equipment in favour of Scotiabank, through contracts dated 3 October 2016, 7 December 2016, 27 February 2017 and 5 April 2017, as well as their modifications, clarifications and/or add-ons.

 

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Allowed Guarantees: refers to (i) the guarantees, (ii) the guarantees of senior creditors, (iii) Scotiabank guarantees, (iv) trusts with customers; (v) Graña corporate guarantees; (vi) the trust to be held with Banco Santander Perú for the Talara refinery modernization project; and (vii) the assignments in guarantee of the flows of new projects funded through allowed debt, provided that borrowers comply with the obligations set out in paragraph (V) of Clause 6.1 and paragraph (b) of Clause 6.2 of this Framework Agreement.

Scotiabank Guarantees: refers to the security interest of Stracon shares, equipment security interest, Stracon shares trust, GyM equipment trust and Stracon equipment trust.

Group: refers to the set of companies on which Graña exercises effective control.

Maximum Guaranteed Value: refers to the provisions on the syndicated issuance of new bonds and commitment to maintenance of existing bonds.

Income Taxes: refers to the income tax regulated by the Single Revised Text of the Income Tax Law, approved by Supreme Decree No. 179-2004-EF, and its regulations, as well as the modifiable standards that replace them.

Graña Investigation: refers to any investigation, audit or review linked to bribes and/or acts of corruption carried out by Graña (or any of the companies of the Group) and/or an independent third party on behalf of or at the request of Graña or its board of directors regarding Graña, the companies of the Group and/or certain infrastructure projects in which Graña and/or any of the companies of the Group could have participated, including the forensic investigation revealed by Graña through a “Communication of Relevant Information” (Relevant Information Communication) filed with the U.S. Securities and Exchange Commission on 2 February 2017.

Applicable Law: refers to the Constitution of Perú, any law, Emergency Decree, Law Decree, Legislative Decree, Supreme Decree, in general, to any rule or other legal or regulatory provision of a general nature, applicable in the Republic of Perú in every moment and any other foreign rule or other legal or regulatory provision of a general nature that has an extraterritorial application; to the extent that they are applicable to borrowers (as appropriate).

Most Lenders: refers to the set of Lenders whose participation in the Framework Agreement is equal to or greater than the 66.67% of all the shares arising from the financial documents, which will be calculated by the Administrative Agent in accordance with the provisions established on paragraph 14.2 of this Agreement.

Anti-Corruption Standards or the Prevention of Money Laundering, Financing of Terrorism or Illegal Mining: refers to the laws, regulations or orders relating to the fight against corruption, the prevention of money laundering, the financing of

 

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terrorism and the fight against illegal mining that are applicable to the Borrowers, including, without limitation, the regulations which prohibit corrupt payments, offers, payment authorizations or promises or the transfer of any object of value (including gifts or entertainment), whether they are made directly or indirectly to any official, employee, representative or agent of any governmental entity to obtain an illicit commercial advantage, whether the above standards have been issued or approved by a government entity in the Republic of Perú or by a foreign government entity but with extraterritorial application to any of the Lenders.

NIIF: refers to the Financial Information International Standards approved by the Financial Accounting Standards Board.

Guaranteed Obligations: refers to, altogether, the obligations, present and future:

(A) Undertaken by borrowers vs. Lenders under the Framework Agreement;

(B) Undertaken by borrowers vs. Lenders under the Syndicated Financing Contract;

(C) Undertaken by the ordering and guaranteeing allowed Parties with respect to the guaranteeing Parties (including, in this case, issuance guaranteeing entities) by way of the syndicated line of issuance of new bonds and commitments to maintenance of existing bonds;

(A) Undertaken by borrowers vs. Lenders under promissory notes;

(E) Undertaken by GyM vs. Scotiabank by way of the SBP loan promissory notes.

Existing Financial Obligations: its meaning as described on the Syndicated Financing Contract.

Required: refers to borrowers and guarantors, jointly.

Government Official: refers to any officer, employee or representative of any person acting for or on behalf of any governmental entity.

Operation: refers to the operation regulated by the transaction documents.

Asset Transactions: refers to the provision of guarantees (whatever their name), obligations of capital contribution or the assumption of subordinated debt (or not), the provision of financial assistance or assumption of debts unrelated, assumed or incurred by the Boundd by virtue of which the beneficiaries of the aforementioned commitments shall have the right to claim, at any time, term or subject to compliance with any type of condition, to the payment of any amount. This includes but is not limited to, the commitments, incidental or not, contained in contracts for both phases of construction and exploitation of any projects and counter guarantees rendered (whatever name they receive as long as they generate payment obligations).

 

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Ordering Parties: refers to the provisions on the syndicated line of issuance of new bonds and commitments to maintenance of existing bonds.

Promissory Notes: refers to the incomplete value title with an agreement to be filled-out and issued by borrowers in favour of each Lender to represent their guaranteed obligations (excluding the SBP loan, whose notes are in the hands of Scotiabank) in accordance with the provisions set out in Clause 4.6 of the Syndicated Financing Contract.

Existing Promissory Notes: refers to the securities issued by the Bound to the order of the Lenders who will be replaced on the effective date, different from the SBP promissory notes.

SBP Promissory Notes: refers to the securities issued by GyM to the order of Scotiabank, in its capacity as Lender under the SBP loan.

Participation: it means the following, as appropriate:

(A) Regarding the Framework Agreement, the participation of each one of the Lenders in the syndicated financing contract and in the syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds over the total sum of Lender participations in the syndicated financing contract and in the syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds.

(B) Regarding the Syndicated Financing Contract, the participation of each one of the Lenders in the amount shown on Sections A and B and, when applicable, in the main pending payment of Section C of the Syndicated Financing Contract concerning the total sum of participations by the Lenders in the amount shown on Sections A and B and, when applicable, in the main pending payment of Section C of the Syndicated Financing Contract; and

(C) Regarding the syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds, the participation of each one of the Lenders in (i) the maximum amount guaranteed (including both the amount laid out as well as the outstanding amount to be provided by the New Bonds) and (ii) the amount of the existing bonds that are in force (not cancelled) in every moment concerning the total sum of participations by the Lenders in (i) the maximum amount guaranteed (including both the amount laid out as well as the outstanding amount of the new bonds); and (ii) the amount of the existing bonds that are in force (not cancelled) in every moment.

 

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For clarification purposes, there shall be no double counting in such a way that the bonds that have been executed and, therefore, whose amount has been postponed, increasing Tier C of the Syndicated Financing Contract will be counted in Tier E, but not in the syndicated line of issuance of new bonds and commitments to maintenance of existing bonds.

For the purposes of calculating the majority, the Lenders (in their capacity as bond entities) of the syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds shall provide the Administrative Agent, as soon as possible from the issuance of the respective bonds, and in any event within three (3) working days following its request, the amount of their respective stakes in the existing bonds in the applicable currency, so that the Administrative Agent converts such participation to dollars, in accordance with the procedure laid out in paragraph 14.2 of the fourteenth clause.

Person: refers to any natural or legal person, de facto and de jure association, participating association, consortium, trust, autonomous estate, government entity or similar.

Compensable Person: as per provisions in Clause 16.

Budget: refers to the document referred to in Background 11.

Partial Mandatory Prepayment: as per the Syndicated Financing Contract.

Total Mandatory Prepayment: as per the Syndicated Financing Contract.

SBP Loan: refers to the loan granted by Scotiabank to GyM up to the sum of US$ 40’000,000.00 {forty million dollars and 00/100) and S/ 117’580,000.00 (one hundred and seventeen million five hundred and eighty thousand and 00/100 Soles), according to medium-term loan agreement dated 14 July 2015, as well as the respective addenda and amendments to the agreement that may have been given or are given from time to time, including, without limitation, Addendum 5 to the SBP Loan.

Lenders: refers to the provisions in the heading of this Framework Agreement.

Borrowers: it jointly refers to (i) Graña, only to the extent that: (A) sureties are executed and granted in favour of Graña and/or granted to subsidiaries of the Group bonded by Graña and (b) Borrowers have paid in the name of Graña (or the subsidiary bonded by Graña).

The respective executed bond, leaving this disbursement in the so-called Tier E of the syndicated financing contract, (ii) GyM and (iii) those subsidiaries of the Group that have bonds secured by Graña and/or GyM (that is, CAM Perú, Vial y Vives y Vía Expresa Sur) that have been executed, provided that in such a case:

 

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(A) the Lenders have paid the respective executed bond on behalf of said Group society, leaving this disbursement in the so-called Tier C of the Syndicated Financing Contract, and (b) provided that the respective entity has acceded to this agreement, to the Syndicated Financing Contract and to other financial documents, as appropriate.

Suppliers: refers to the suppliers of works or services for GyM for the implementation of projects.

Projects: refers to the construction works and/or engineering projects, and/or projects of a similar nature and/or to be developed in the future by GyM, in the framework of the ordinary course of their business.

Representatives: as per provisions in Clause 5 (X).

Scotiabank: refers to Scotiabank Perú S.A.A.

Stracon: refers to Stracon GyM S.A.

Soles or S/: refers to soles of the Republic of Perú.

Disbursement Application: as per the Syndicated Financing Contract.

Application for the issuance of sureties: as per the provisions on the syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds.

Replacement Assumptions: refers to the provisions in Clause 14 of the syndicated line of issuance of new bonds and commitment to maintenance of existing bonds.

Total Replacement Assumptions: refers to the provisions in the syndicated line of issuance of new bonds and commitment to maintenance of existing bonds.

Compensatory interest rate: as per the Syndicated Financing Contract.

Non-Compliance Interest Rate: as per the Syndicated Financing Contract.

Treasury: refers to positive balances from checking accounts, short-term fixed income investment funds (i.e., with a maximum maturity of one month) or any kind of investment in short-term monetary assets whose use has not been compromised in the current exercise, as net profit and equivalent to cash, which are reflected in the annual accounts temporary financial investment items.

Taxes: as per the Syndicated Financing Contract.

 

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1.2. Interpretation:

(A) With the exception of what has been expressly provided in this Agreement or unless so required by the context, this Framework Agreement will apply the following rules of interpretation:

(i) Any reference to a Lender, a borrower, a guarantor, or a Bound, and any other party in the financial documents, should be interpreted to include the successors of their rights and obligations or their authorized assignees in accordance with the provisions of this Framework Agreement and the remaining financial documents;

(ii) Any reference to a Lender in this Agreement shall be deemed performed in its condition as a “Bank” under the Syndicated Financing Contract and in its status as a “guaranteeing entity” under the syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds, unless the context clearly implies otherwise. Likewise, any reference to a Borrower in this Agreement shall be deemed to have been given in its condition as a “Borrower” under the syndicated financing contract and in its condition as “originating party” under the syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds, unless the context is clearly implies otherwise;

(iii) Any reference to a financing document shall be deemed executed to said financing document, as renewed and/or modified in every moment;

(iv) Any reference to the “Majority of Lenders” in this Framework Agreement shall be understood as the participation of Lenders calculated by the Administrative Agent pursuant to this framework agreement, unless explicitly stated otherwise;

(v) All references to gender shall include any other gender and the neutral;

(vi) Any term used in singular shall include the same term in plural and vice versa;

(vii) “Or” is used in inclusive sense (and/or) and the words “include” and “including”, as well as their variations, will not be considered in a limitation sense, but it is understood that they are followed by the words “without limitation”;

(viii) Any reference to a “day” shall refer to a calendar day and includes a 24-hour period that starts at zero (0:00) hours and ends at twenty-three hours and fifty-nine minutes (23:59); and

(ix) Any reference to time shall be deemed to have been given in the time zone applicable in Lima, Perú.

 

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(B) The titles of this Framework Agreement have been included solely to facilitate your understanding and not to determine or affect the meaning or interpretation of any given provision of this Framework Agreement.

(C) Attachments are part of this Framework Agreement for all purposes. Any reference to this framework agreement shall be deemed to include all its annexes. In the same way, any reference to any financing document, shall be understood as executed on said document along with all its corresponding annexes.

(D) Unless expressly stated otherwise, the terms used in any other financing document, as well as in any communication or notification made by any Party regarding any financing document, shall have the meaning set forth in this Framework Agreement.

(E) It shall be deemed as an outstanding breach of this Agreement if such breach has not been rectified (whenever possible) or bestowed by the Lenders according to this Agreement or the remaining financial documents.

2. Object and Character

2.1 Object

(I) The objective of the present Framework Agreement is to establish the common contractual framework of the financial documents, the principles of the operation, the preceding conditions to the closing of the operation, the preceding conditions to the effective date, the disbursements, the issuance of new bonds and the renewal of existing bonds, the decision making system by the Parties in the financial documents and certain common terms and conditions to the financial documents. Specifically, by virtue of this Framework Agreement, the Parties regulate the terms by which they agree to participate in the operation and agree, without limitation, to:

(A) Enter into a syndicated financing agreement, on the basis of: (I) new terms and conditions will be established to govern the existing financial obligations of GyM before the Lenders, which shall be governed under the terms and conditions applicable in Tiers A and B, as appropriate, and/or will allocate the amounts received under Tier A to its working capital in the development of activities related to their business and (ii) GyM and/or Graña and/or the subsidiaries of the Group (as appropriate) will pay the bonds that are executed;

(B) Hold the syndicated line of issuance of new bonds and its commitment to maintenance of existing bonds and the rest of the financial documents and comply with all the preceding obligations and conditions established in this Framework Agreement and in each of the financial documents;

 

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(C) To issue guarantees;

(D) Replace Existing Notes and issue promissory notes with filling instructions related to the operation (with the exception of those issued in connection with the SBP loan held by Scotiabank); and

(E) Establish certain conditions that will be of common application to the operation.

2.2 Single Agreement and character of the Framework Agreement

The Parties note that they have entered into the implementation of the covenants reached in this Framework Agreement, simultaneously, all the transaction documents (except the guarantees that will be established within the provided time frames in Clause 9 and that the SBP loan that had already been entered into notwithstanding that Addendum 5 to the SBP loan had been entered into simultaneously).

The financial documents are considered to be a comprehensive part of this Framework Agreement and, regardless of the fact that they are formally documented in different contracts, it shall be understood to all effects, along with the SBP loan, part of a single operation, constituting a whole unique agreement.

The term operation, as used in this Framework Agreement and, in the remaining financial documents, refers to covenants contained in the transaction documents.

The obliged acknowledge and accept that the fulfilment of the preceding conditions set out in Clause 4.1 of this Framework Agreement constitute an essential element of the consent by the Lenders without which they could not have agreed to participate in the operation or would have not consented to formalize this Framework Agreement.

The Obliged expressly and unquestioning recognize that all representations and warranties contained in Clause 5 of this Framework Agreement, have been determining cause and reason for the Lenders to decide to hold this Framework Agreement and that in the event that any such representations and warranties were partially or totally false or inaccurate, the Lenders will have the right to terminate the Framework Agreement and the other financial documents or exercise the rights or remedies referred to in the aforementioned Framework Agreement and on the other financial documents, as well as to lodge measures which the law authorizes, including compensation.

 

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3. Formalization of the Transaction Documents

This Framework Agreement and the remaining transaction documents (except the guarantees which will be constituted within the time limits referred to in Clause 9) and any other public or private document whose signature is expected in any of the transaction documents must be formalized by the Closing Date, subject to fulfilment of the conditions precedent to the closing as mentioned in clause 4.1 of this Framework Agreement.

In addition, pursuant to the terms of this Framework Agreement, the effectiveness of this Framework Agreement and the other financial documents will occur as soon as the conditions have been met, prior to the Effective Date, the disbursements and the issuance of bonds, which are described in Clause 4.2. of this Framework Agreement.

4. Preceding Conditions

4.1 Conditions precedent to closing

The signing of this Framework Agreement and remaining financial documents are subject to the preliminary compliance or simultaneous to the Closing Date, to the full satisfaction of Lenders, of each and every one of the following conditions prior to closing (the “Conditions Precedent to Closing”):

(A) That the operation conditions have been approved by the corresponding internal committees and bodies of the Lenders.

(B) That the Administrative Agent has been provided with (i) simple copy of the existing statute of the debtors; and (ii) subsistence of legal powers and/or certified copies of the corporate agreements containing the powers of the representatives of the debtors, for the granting and enforcement of all the financial documents which they are a part of, as well as any other act, contract or operation projected herein.

(C) That all information reasonably required by Lenders for the purpose of determining the guarantees to be constituted and which allow for its due establishment has been provided to the Administrative Agent.

(D) That all reasonably requested information by the Lenders is delivered to the Administrative Agent in connection with the sale of assets of Graña.

(E) That a copy of the budget is delivered to the Administrative Agent for years 2017 and 2018.

(F) That all reasonably requested information to value the economic, financial and business viability of the group is delivered to the Administrative Agent and that the Lenders have completed the review to their satisfaction.

 

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(G) That (i) the consolidated non-audited annual financial statements be delivered to the Administrative Agent as well as the non-audited annual individual financial statements for the year that ended 31 December 2016; and (ii) the quarterly individual non-audited financial statements, the non-audited quarterly financial statements and the quarterly non-audited individual financial statements for the last four quarters ending in March 2017.

(H) That all permits or licenses from third Parties have been obtained, including government authorities that, in its case, are necessary to: (a) formalize the financial documents to be signed at the closing date; and (b) run and carry out any operations set forth in said documents.

(I) That the Bound submit a written statement including the amount of the claims they maintain with the Perúvian State, with the exception of the claims associated with the Southern Perúvian Pipeline project.

(J) That the Bound have given the Lenders the information they could have requested in order to comply with the rules of money laundering and the financing of terrorism prevention, specifically with regard to the obligation of the Lenders to “know their customers”, in accordance with the applicable legislation and the domestic policies of each Lender.

(K) That the Administrative Agent has received a legal opinion from the legal advisers of the Lenders and the Bound with respect to, amongst other things, the powers of the representatives, and the capacity of the Bound to conclude the transaction documents to be signed on the closing date, the validity and enforceability of such transaction documents and the constitution of the guarantees to be signed at the Closing Date.

(L) That all statements and warranties are complete, true and accurate by the closing date.

(M) That the Administrative Agent has received an affidavit absolving the Due Diligence questionnaire that will be prepared by the legal advisers of the Lenders, which must be duly completed by the General Manager of Graña and GyM.

(N) That there is no fact or circumstance that constitutes, or could constitute, an event of default in accordance with the provisions in this Framework Agreement and in the other financial documents.

(O) That there is no fact or circumstance that constitutes, or that could likely constitute, a substantially adverse effect.

(P) To conduct a teleconference between Graña, their national and international external advisers, and the Lenders, during regular office hours (Lima time), through which a progress report of the Graña investigation is informed, to the satisfaction of the Lenders.

 

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(Q) That the 10% structuring commission has been paid.

At the Closing Date, the Administrative Agent will forward to the Lenders the information received for verification and approval. On the same date, Lenders must communicate their observations so that the Administrative Agent transfers them to the Bound. In the event the preceding conditions had been fully complied with in this section, the Lenders will instruct the Administrative Agent to communicate such compliance to the Bound.

Preceding conditions to the effective date, disbursements and the issuance of bonds: The Parties note that, except as otherwise specifically provided in this Framework Agreement, its effectiveness and the remaining financial documents are subject to compliance to the satisfaction of the Lenders of each and every one of the following preceding conditions (the “Terms and Conditions prior to the effective date, the disbursements and the issuance of bonds”):

(A) That the corresponding commissions provided for in the financial documents have been paid, professional fees and expenses corresponding to the Lenders, their legal advisers, the trustee of the guarantees, the guarantee and Administrative Agents, as applicable.

(B) That the minutes and public deeds have been paid, if appropriate, copies have been delivered to the Administrative Agent, and the relevant reports of the transaction documents that must be signed at the closing date, have been submitted to Public Records.

(C) That the trust contract report has been signed and submitted to Public Records.

(D) That all statements and warranties are complete, true and accurate by the closing date or in the corresponding disbursement date.

(E) That Graña and GyM are in compliance with all the obligations undertaken in the financial documents.

(F) That there is no fact or circumstance that constitutes, or could constitute, an event of default in accordance with the provisions in this Framework Agreement and in the other financial documents.

(G) That there is no fact or circumstance that constitutes, or that could likely constitute, a substantially adverse effect.

(H) That the operating bank accounts have been opened (or remain open) (transactional) agreed upon the Bound and each of the Lenders, in accordance with the agreements adopted by the Lenders, as indicated in Paragraph 6.1 (GG).

 

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On the Effective Date, Graña and GyM shall submit to the Administrative Agent an affidavit stating that the conditions referred to in the preceding paragraphs and in Clause 4.1 have been fully complied with. On each disbursement date Graña and GyM shall submit an affidavit to the Administrative Agent stating that the conditions referred to in paragraphs (D), (E), (F) and (G) above —have been fully complied with. The affidavits shall conform to the model attached as Annex V. Having received the affidavit, the Administrative Agent shall notify the Lenders within the next working day about compliance of the conditions preceding closing or the conditions precedent to the Effective Date, the disbursements and the issuance of bonds, as appropriate, and, if applicable, of the additional conditions precedent to disbursement stipulated in the Syndicated Financing contract. The Parties note for the record that the Administrative Agent does not assume any liability upon the other Lenders over the truth or accuracy of the statements made by Graña and/or GyM, as well as for the verification of the documents submitted by them.

The conditions prior to the Effective Date, the disbursements and the issuance of Bonds are understood to have been agreed to for the benefit of the Lenders and, consequently, will require the agreement of all of the Lenders to renounce to their compliance.

The Lenders, through the Administrative Agent, may request from the Bound at any time prior to the Effective Date or the disbursement date, as much documentation as it reasonably attests to the compliance of the conditions precedent to the Effective Date, the disbursements and the issuance of bonds which they consider appropriate, including their compliance status. To that end, the Lenders will request the indicated information from the Administrative Agent so that they process the request to the Bound within the next business day. The Bound must submit to the Administrative Agent such documentation as soon as possible. In any case, the Bound agree to maintain the Lenders informed of the status of compliance with the conditions prior to the Effective Date, the disbursements and the issuance of bonds between the Closing Date and the Effective Date.

If within fifteen (15) days from the date of closing, all the preceding conditions had not been fulfilled prior to the Effective Date, the disbursements and the issuance of Bonds and Lenders had not waived its compliance or agreed to a postponement of the deadline above, in both cases unanimously, this Agreement and the other transaction documents shall not enter into effect and will be considered un-subscribed, without possibility of complaints amongst them, except as provided for in the transaction documents. Notwithstanding the foregoing, the Parties agree that Clauses 1 (definitions and interpretation), 4 (preceding Conditions), S (Declarations and Guarantees), 12 (Administrative

 

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Agent), 13 (Guarantees Agent), 14 (majority voting system), 15 (Expenses and taxes), 17 (Compensation), 19 (notifications), 20 (Confidentiality), 21 Miscellaneous and 22 (Governing Law and Jurisdiction) will go into effect on the date of Closing.

Furthermore, the conditions prior to the Effective Date, the disbursements and the issuance of bonds must be fulfilled before, or simultaneously, on the Effective Date or on the date when any disbursement takes place (whether for purposes of disbursements to be undertaken in the framework of the Syndicated Financing Contract, or for the granting of new Bail Bonds and renovation of existing bonds) done by the Lenders in favour of the Lenders. The foregoing is understood regardless of the additional preceding conditions to the disbursements agreed upon in the different financial documents.

S. Declarations and Warranties

The Bound grant, regarding themselves, the following statements and guarantees (the “Declarations and Warranties”) in favour of Lenders, Administrative and Securities Agents:

(A) Are validly constituted and have legal capacity to act in order to develop their social objectives and provide the financial documents.

(B) Are not involved in any grounds for dissolution.

(C) Are not in a situation of insolvency, voluntary creditor bankruptcy or similar proceedings or, to the best of their knowledge, there is no procedure or request process applying for bankruptcy or similar proceedings.

Graña, in turn, declares and guarantees that: (i) on the closing date and/or the Effective Date, none of the companies belonging to the group are in a state of insolvency, voluntary bankruptcy or similar proceedings; and (ii) on the disbursement dates, none of the companies belonging to the group are in a state of insolvency, voluntary bankruptcy or similar proceedings, in case such situations could generate a substantially adverse effect.

(D) Have adopted the necessary corporate agreements for the implementation and compliance of the financial documents which they take part on.

(E) The implementation and compliance of the financial documents which they take part on (i) do not constitute a breach of any law, regulation, order or contravene any legal or administrative resolution (which include the embargo in the form of retention); (ii) do not constitute a breach of the by-laws of the Bound; (iii) do not conflict with contracts, agreements or other instruments to which Member States are obliged.

 

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(F) Have obtained all the consents, approvals, authorizations or notifications required for the implementation of the financial documents required by the Closing Date or each disbursement Date, as appropriate.

(G) Except as described in the previous paragraph, there is no need for approval, consent, license, permit or authorisation of authority or any contractual counterpart for the conclusion and implementation of the financial documents of which they are part of, or to ensure their legality, validity, binding and enforceability and that has not been obtained in the Closing Date or the date on which such approval, consent, license, permit or authorisation is required.

(H) The obligations contained in the financial documents are valid, binding and its compliance may be required for the Bound (and, as appropriate, to the other companies in the group).

(I) The credit rights of the Lenders will have at least the same rank (pori possu) as the rights of the other creditors of the Bound, regardless of the rights of senior creditors under the senior creditors guarantees and the rights of Scotiabank under Scotiabank guarantees.

(J) The guarantees constitute valid rights and of the range expressly specified in the relevant transaction document, over the assets or rights under which they fall.

(K) Meet and have complied with their civil, commercial, administrative, fiscal, labour, environmental obligations and other measures, including anti-corruption or Prevention of Money Laundering standards, terrorism financing or illegal mining.

(L) Are the holders of the relevant licenses required for the development of their activity with no breaches of its terms, without the absence of any license being able to cause significant damage to any of them which could result in the inability to meet their obligations, including those contained in the financial documents.

(M) The information provided to the Lenders and to the Administrative Agent is truthful, accurate, and, to the best of their knowledge and understanding, the assumptions on which all forecasts made in the budget are based are reasonable and in particular, the current contracts that GyM maintains with its customers to the Closing Date (current backlog) are being taken as reference.

(N) There is no arbitration, litigation or administrative procedures (including environmental) other than those identified in Annex VI for amounts in excess of US$ 2,000,000 (two million and 00/00), in which one of the Bound participates as a plaintiff and/or, having received the corresponding notification to that effect, as a defendant.

 

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(O) All the documents and accounting information of Graña and GyM delivered to the Lenders and the Administrative Agent (i) has been prepared in accordance with the NIIF and accounting principles generally accepted in Perú and the Applicable Law; and (ii) provide, in accordance with the NIIF, the accounting principles generally accepted in Perú and the applicable legislation, a true picture of their net worth and of the economic and financial situation of the Bound and the Group, and of the results of its operations in the closed periods to the dates they refer to. In addition, there are no subsequent events to the cut-off date of such documentation and accounting information that might be relevant and that has not been communicated to the Lenders.

(P) There are no facts or circumstances concerning the Bound to produce a substantially adverse effect. In addition, Graña declares and guarantees that there are no facts or circumstances pertaining the Group companies that can produce a substantially adverse effect.

(Q) There are no facts or circumstances that, in and of themselves, or along with other circumstances, constitute an event of default.

(R) Not Graña nor GyM are part of other debt or appeal operations other than the allowed debt.

(S) Not Graña nor GyM have constituted or jeopardize the constitution, of liens or collaterals on their property and assets of any kind other than the guarantees allowed.

(T) They have the right to use (either through property rights, rights of possession or any other legitimate and sufficient title) of the necessary assets for the development of their ordinary activities.

(U) None of the Bound or the Group companies maintains any kind of agreement, contract, operation or transaction (including the granting of debt) with the reference shareholders of Graña.

(V) With the exception of the location service contract signed by Hernando Alejandro Graña Acuña and Graña, dated 1 November 2016 and the commitment of assumption of costs arising from the civil processes under New York law, none of the Bound has concluded contracts or agreements with other companies in the group, unless such contracts have been executed in market conditions, responding to legitimate reasons and taking into account the social objective of the Bound.

(W) Graña declares and guarantees that the shareholder structure and composition of the Group to the date of closure is contained in Annex l.

 

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(X) Not (1) the Bound nor (2) the reference shareholders of Graña or (3) the directors, officers, employees, or representatives of those who belong to the Group or have belonged to the Group (including financial or legal adviser or any other external consultant, provided they have acted according to the instructions given by any of the Bound) (the “representatives”), have incurred directly or indirectly in the interest of the Bound in any of the cases detailed below:

(A) To participate in acts of corruption and/or bribery in respect of any: (I) Government Official, {ii) Government Entity, or (iii) any political party or candidate for political office or any person politically exposed (according to the definitions contained in SBS Resolution No. 4349-2016 or any other that modifies or replaces it or (iv) any officer or employee of any entity of any State, shareholders state company, State enterprise with private shareholders or State company with public powers, or a mixed economy company in which it develops operations;

(B) Engaging in illegal acts or practices to obtain consents, permits, licenses, approvals, authorizations, rights or privileges on the part of any State that could generate a benefit to any of the Bound;

(C) Commit to or participate in any type of crime or money laundering in Perú or the equivalent offences in case these had been committed in other countries.

(D) Infringe the anti-corruption and Prevention of Money Laundering, Financing of Terrorism or illegal mining rules.

(E) The Bound do not have any immunity regarding the jurisdiction and competence of the court, tribunal, arbitrator or any court or regarding any legal process or demand.

(F) The bank transfers that are carried out in compliance with the financial documents will not be subject to withholdings or deductions, unless the applicable law requires otherwise, to the extent that the Lender resides in Perú.

(AA) Insurance Policies underwritten by the Bound regarding their assets, business and relevant operations adequately cover their main assets from all risks of damage, loss or destruction with the coverages that are usual for companies that develop activities similar to those of the companies that make up the group, and have been contracted with insurance companies of first level in Perú, whereas the Bound are up-to-date on the payments of the corresponding premiums. The Bound have complied with the relevant obligations arising from the insurance policies to which they are subscribed.

Each of the Bound guarantees, regarding themselves, that all representations and warranties granted by them are, and will be by the Closing Date, on the Effective Date and on each disbursement date, complete, truthful and accurate in the terms that have been made. Otherwise, the respective Bound agrees to hold

 

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the Lenders, the Administrative Agent and the Agent harmless against any damages that any of them may suffer as a result of such lack of veracity or accuracy in accordance with Clause 17, as well as in paragraphs 12.5 and 13.2 of this Framework Agreement, respectively. Also, GyM will respond in solidarity with each of the Bound for the corresponding liability. The declarations and guarantees contained in this framework Agreement are subject exclusively to the exceptions expressly indicated for each one of them.

If, at any time during the term of this framework agreement, any declarations and guarantees cease to be correct, accurate, and complete the Bound shall immediately inform the Administrative Agent, with an indication of the reasons for the default of the corresponding declaration and guarantee, regardless of the fact that the lack of veracity, accuracy, and being completed constitutes an Event of Default in accordance with Clause 7.1 (C).

6. Obligations to follow and not to follow

6.1 Obligations to follow

In addition to the other obligations they assume in other clauses of this Framework Agreement and the other financial documents, Graña and GyM are obliged, as appropriate, in favour of Lenders and throughout the validity of this Framework Agreement, to the following:

(A) The timely payment of principal, interest, commissions, and other payment obligations under the financial documents. The remaining balance of the commission structure must be paid within (60) calendar days from the date of Closing.

(B) Maintain the secured obligations and guarantees in force and enforceable, and to establish, develop and achieve the entry of the guarantees in the records within the time limits referred to in Clause 9.

(C) Establish a trust fund under which Graña will transfer all remaining assets of the VCN Trust to a new equity trust fund, in case there might have been any after its liquidation, to ensure the secured obligations to Lenders and Scotiabank (in its capacity as Lender under the SBP Loan). The maximum term for the constitution of the trust fund shall be thirty (30) days from the liquidation of the VCN Trust.

(D) Allocate the amount from the Syndicated Financing Contract to the purpose for which it was originally intended as per the financial documents.

(E) Comply with the applicable laws including, amongst others, the obligations relating to (i) obtaining licenses, certificates, permits and other governmental authorizations necessary for the development of the activities that

 

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constitute their social purpose, as these activities are being carried out to the Closing Date; (ii) environment, {iii} labour rights and social security; (iv) mutual and pension funds; (v} tax revenues; and (vi) Anti-corruption standards or the Prevention of Money Laundering, Financing of Terrorism or illegal mining.

(F) To carry out all the necessary diligent actions (in accordance with the best practices of the industry, including, but not limited to actions for prevention, monitoring and/or control) to comply and ensure that the representatives and the Bound comply with the applicable laws including, amongst others, the obligations linked to anti-corruption standards and the Prevention of Money Laundering, Financing of Terrorism or illegal mining.

(G) To obtain, maintain and renew on time, as many authorizations, permits, licenses or approvals may be required by the applicable legislation for the normal development of their business.

(H) Maintain the validity and effectiveness of the Transaction Documents, including, without limitation, warranties, and perform all the necessary actions to comply with all the obligations laid down in the transaction documents of which they are a part of.

(L) Have contracted insurance policies with an insurance company of first level in Perú, covering its main assets against all risks of damage, loss or destruction with coverages that are usual for companies that develop activities similar to those of the companies that make up the group.

(J) To carry out their accounting books and records in accordance with the NIIF, the accounting principles generally accepted in Perú and the applicable law, by committing to making their annual financial statements audited by a firm of external auditors as included in Annex VII bringing to the attention of the Administrative Agent, in a timely manner, the name of the firm of auditors selected in the case of any changes to make their best efforts to comply with and to ensure that all Group companies comply with the Budget and with the sale of assets of Graña.

Regardless of the rights of senior creditors in the framework of the Financing Contracts Senior creditors under the guarantees of senior creditors and the credit rights of Scotiabank within the framework of the SBP loan under the guarantees of Scotiabank, maintain the rights to credit of Lenders, or any one of them, against the Bound arising from this Framework Agreement and the other financial documents, with the same or better range, privileges or preferences (pari passu) that the rights any other non-subordinated creditors of the Bound might hold, except those preferential required in the application of the Applicable Law.

Make sure that the flows from the trust funds that constitute the trust fund are used in accordance to the terms indicated in said Trust.

 

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(N) To inform the Administrative Agent no later than the next day to having learned or having had to learn of having acted diligently, in case any third party has requested the initiation of a bankruptcy process, insolvency or corporate restructuring, against any of the Bound or in case there is a lien notification or any other preventive measure, inside or out-of-process, against any of the Bound.

(O) Remain as incorporated corporations current and constituted under the applicable law.

(P) To preserve and maintain their social purpose and type of business, as established up to the date of conclusion and signing of this framework agreement.

(Q) To refer to the Lenders, through the Administrative Agent (i) the audited annual financial statements, the individual audited annual financial statements, and the separate audited annual financial statements for financial year 2016 no later than 15 August 2017; (ii) the quarterly unaudited financial statements, the quarterly unaudited consolidated financial statements and the separate unaudited quarterly financial statements within the sixty (60) days following the close of each quarter; and (v) the audited annual financial statements, the individual audited annual financial statements, and the separate audited financial statements within one hundred twenty (120) days following the close of the respective year.

(R) Refer to the Lenders, through the Administrative Agent (a) updates related to the sale of assets of Graña provided they (i) are requested by the Lenders (acting through the agent), (ii) a substantial change has occurred in the scheme of sale of assets of Graña, and/or (iii) any sale of the assets included in the sale of assets of Graña has occurred; and (b) information regarding any substantial change to the budget and its implementation. Regardless of the foregoing, Graña shall hold a conference call with Lenders on a monthly basis during regular office hours to share the status of their asset sales scheme.

(S) Notify the Administrative Agent, within three (3) business days of having learned or having had to learn about having acted diligently, (i) of any act or event that constitutes or may constitute an event of default or a substantially adverse effect; (ii) any act that causes any type of corporate reorganization in which any of the Bound or the companies that make up the group take part on; (iii) the start of new litigation, and/or processes (including criminal proceedings), arbitration claims or embargoes involving any of the Bound, out of which contingencies may arise greater than or equal to US$ 2,000,000 (two million and 00/00); (iv) the beginning of any criminal process affecting the Bound, the reference shareholders of Graña and/or any representative who has acted on behalf of and/or for the benefit of the Bound; (v) the situation of insolvency, the

 

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beginning of voluntary bankruptcy proceedings of creditors or similar process of any of the companies belonging to the Group, in case such a situation does not generate a substantially adverse effect; (vi) any loss above US$ 100.000 (One Hundred Thousand and 00/100 Dollars), indicating, in turn, within a period of 30 days from the loss, the destination of the flow from the relevant equipment insurance compensation, and (vii) any action or circumstance that affects or could affect substantially the result of its operations or its financial situation.

(T) To fully comply with all the obligations set out in the transaction documents and materials of which it is a part of.

(U) To open and maintain the accounts provided for in the financial documents in accordance with the provisions of the Trust Agreement under warranty.

(V) In the event of incurring in the allowed debt referred to in Clause 6.2 (B) of this Framework Agreement, deliver the free availability flows of the projects in the terms provided there.

(W) Authorize the Lenders and the Administrative Agent to make advertising about the conclusion of the financial documents or the operation, in accordance with the terms agreed upon with the Bound.

(X) To maintain at all times the treasury of GyM in the trust as security or in accounts opened with the Lenders, with the exception of the Treasury of GyM linked to the contracts concluded with Técnicas Reunidas S.A. for the modernization of the Talara Refinery project (which can be managed in accounts opened in a bank other than the Lenders).

(Y) Refer to the Supervisor all information required in accordance with the Syndicated Financing Contract within the time limits specified in the service agreement concluded with that Supervisor as well as give him access-in the offices of GyM-to all the information reasonable and in a timely manner required for the proper execution of their services.

(Z) Refer to the Lenders, through the Administrative Agent, quarterly reports on the progress of the main works of GyM with respect to the original timetable within a period of 30 working days from the date when the quarter in question closed. In addition, provided there are material deviations in the corresponding budget, Lenders may request a report from an independent engineer, hired by GyM, regarding the origin of these deviations, provided GyM does not make this report available to the Lenders (if it exists).

(AA) Lift the embargo in the form of retention within a maximum period of ninety (90) calendar days from the date of Closing and refer a copy of the corresponding document to the Administrative Agent to verify its lifting.

 

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(BB) Within ten (10) working days following the completion of the Graña investigation, Graña shall hold a teleconference between its national and international external advisers with its Lenders during regular office hours (Lima time) to share the investigation findings related to compliance with the applicable legislation and the statement included in Clause S(X).

(P) To conduct a teleconference between Graña, its national and international external advisers, and its Lenders, during regular office hours (Lima time), through which a progress report of the Graña investigation is shared, to the satisfaction of the Lenders.

(DO) Constitute the relevant trusts with customers following the guidelines as listed in Annex XI.

(EE) Notify the Administrative Agent within three (3) business days of signing a contract with a new client over which a new trust with clients will be established; and, to refer to the Administrative Agent, with a copy to the Supervisor, the budget indicated in the proposal of the corresponding project. Also, the final budget of the project must be sent to the Administrative Agent within a period of three (3) business days of being approved by the respective customer.

(FF) Comply with the invoice structure and provisions, in accordance with Clause 3.3.1 (G) of the Syndicated Financing Contract and with the value of the invoices and the value of the provisions (which serve as a basis for determining Section A), according to what is established in the Syndicated Financing Contract.

(GG) Meet the following commitments with the Lenders related to the opening and channelling of funds through bank accounts in the context of the Transaction Documents:

(A) Coordinate with the trustee of the trust fund so that, except as provided in the following paragraph, the accounts of the Trust are open at BBVA, BCP, Scotiabank and lnterbank, and in that order, for periods of three (3) calendar months, counted from the date of Closing.

As an exception to the above, it is noted for the record that:

(I) The project accounts will be opened, respectively, at BBVA, BCP, Scotiabank and lnterbank, according to what is stated in paragraph (b) below; (ii) the Trust Agreement will contemplate collecting accounts that will be opened in each of the following banks: BBVA, BCP, Scotiabank and lnterbank; (iii) the GyM Centralizadora Cascada account that will be opened at BBVA, Interbank, Scotiabank and BCP, successively, in that order for periods of three (3) calendar months from the date of closure and, iv) the account for the payment of the SBP loan will be opened at Scotiabank.

 

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(B) Coordinate the opening of project accounts for contracts with clients with the trustee of the trust fund that: (i) a trust with clients was not foreseen; and, (ii) whose total remuneration is for an amount equal to or higher than US$ 15 million and 15’000,000 (00/100).

These project accounts should be opened at BBVA, BCP, Scotiabank or lnterbank, in the framework of the agreements reached with these Lenders to channel money flows from the trust fund, as referred to in the following sub-paragraphs.

(C) Channel monetary flows (payments and receipts, present and future) existing and future projects through the Project Accounts in accordance with the above-mentioned distribution and/or in accordance with any future agreement.

The goal of the distribution of project accounts is that the actual cash flows from the Closing Date and the estimated costs for the next twelve months from the date of Closing (or estimates for the next twenty-four months from the date of closing in the event an extension takes place) are channelled under the criteria of fairness and proportionality (approximately 25% for each one of BBVA, BCP, Scotiabank and Interbank). For the purpose of establishing these rules of equity and proportionality, the following is considered: (i) the monetary flows that correspond to projects whose total remuneration is equal to or higher than US$ 15 million and 15’000,000 (00/100); (ii) monetary flows channelled through bank accounts opened by these Lenders in the framework of trust with customers; and (iii) the money flows channelled through bank accounts opened by these Lenders in consortia led by GyM (in the ones where GyM has the ability to decide in which bank the accounts of the consortium will be opened or where it represents the majority).

After the period of twelve months from the signing of the Framework Agreement, there will be a review to evaluate (on the basis of projected cash flows for the following twelve months) if it is applicable to distribute the monetary flows of such projects in a different way. If this is the case and after GyM has coordinated with the Lenders the way in which such reallocation of the projects will be handled, GyM undertakes the coordination with the trustee of the guarantee trust (or with the trustee of the trust fund with the customer, as appropriate), so that such reallocation of money flows is carried out within a period of thirty (30) calendar days.

It is noted for the record that the present treatment of bank accounts, as well as the criteria of equity and proportionality mentioned above will also apply to existing trusts and trusts that GyM might be about to constitute corresponding to the Talbot project (Afinmuebles).

 

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(D) Every time GyM gets a new project: (i) in which a trust with customers has not been set forth and (ii) whose total remuneration is an amount equal to or higher than US$ 15 million and 15’000,000 (00/100); GyM will request the opening of a new Account Project, which will open thereafter -and in that order- at BBVA, lnterbank, Scotiabank and BCP. In the event that a trust with customers has been set forth, the same criteria hereinafter referred to will be followed, specifying that in such case the opening of an Account Project in the trust fund does not apply, but the accounts of said trust with clients will be opened in the next bank. It is pointed out that this commitment will also exist for projects managed by consortia led by GyM (in which GyM has the ability to decide the bank where the accounts of the consortium will be opened or where it represents the majority in this consortium).

(E) GyM will send quarterly reports to Lenders aiming at assessing how the money flows have been distributed in the respective project accounts (or, as appropriate, in the accounts of the Trusts with clients), so that the way in which the money flows have been channelled through the open accounts at BBVA, BCP, lnterbank, and Scotiabank can be analyzed.

On the basis of those quarterly reports, or at any time provided that there is objective evidence (such as paralyzed assigned projects or with delays in progress according to initial estimates), a revision will be made to assess whether there has been a significant imbalance (up to 5 per cent in any of the months included in the above-mentioned report) in the allocation of monetary flows in the accounts at these banks. If such is the case, the bank may request a reallocation of such flows on a monthly basis. This reallocation will take place while trying to maintain the equity and proportionality criteria. GyM is committed to coordinate with the trustee of the trust fund (or with the trustee of the trust with the customer, as appropriate), so that such reallocation of cash flows is carried out no later than thirty (30) calendar days, without the need to have the approval of the majority of Lenders.

(HH) Subscribe the accessions to the guarantees of senior creditors formed including Scotiabank, in its capacity as Lender under the SBP loan, and to the Lenders, within fifteen (15) working days following the signing of this Agreement. In addition, subscribe the accessions to the second rank SBP guarantees within fifteen (15) working days following the signing of this Agreement.

(11) Comply with the delivery to Lenders of the projects questionnaires governed by SBS Regulation No. 1928-2015, Regulations for the Management of Environmental and Social Risk, duly completed and signed by the General Manager and the person responsible for environmental and social issues, if applicable, in the event the project to be financed falls within the cases covered by this regulation, as well as comply with any other obligations required by Lenders indicated in said rules and regulations.

 

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(JJ) Ensure Vial y Vives sets a payment schedule for the refinancing of certain financial obligations with Banco de Chile that are guaranteed by the Stand-by Letter of Credit—Citibank, N.A., in such a way that the depreciation of the financial obligations occur within thirty-five (35) calendar days from the dates referred to in Clauses 8.2(8), 8.4.l (A (i), 8.4.2(a) and 8.4.2(C) of the Syndicated Financing contract.

In addition, ensure Vial y Vives allocates any excess cash flow after (i) it complies with payment of the obligations of the aforementioned schedule, as appropriate, and (ii) maintain a minimum of US$ 5,250,000 (five million, two hundred and fifty thousand dollars) cash flow; provided, however, Vial y Vives is in compliance with its obligations with Banco de Chile.

In case Vial y Vives does not set a payment schedule as referred to in the first paragraph of this subparagraph (JJ) within a period of thirty (30) business days from the date of closing, the Stand-by Letter of Credit—Citibank N.A. shall be executed in full and the corresponding amount will be postponed and incorporated into Tier C in accordance with the relevant provisions of the commitment of postponement. In this case, GyM and Graña are Bound to ensure that Vial y Vives allocates the funds received from the Chilean tax authority as tax refund, within a period of not more than five (5) business days to be applied in accordance with the provisions in paragraph 9.1.2 of the Syndicated Financing Contract.

In addition, ensure Vial y Vives refrains from any prepayment or modification to the schedule of payments referred to in this subparagraph (JJ).

6.2 Obligations not to follow

In addition to the other obligations not to follow that are assumed in other clauses of this Framework Agreement and in the other financial documents, Graña and GyM are obliged, as appropriate, in favour of the Lenders and throughout the duration of this Framework Agreement, to refrain from doing the following:

(A) With the exception of the allowed guarantees, refrain from providing (i) collateral, any type of lien or charge on property, items or assets of the estate of those societies, or pertaining their rights or income, present or future; and, (ii) any type of personal guarantees or any other commitments (whatever name they receive or the legal business through which they are established) which imply ensuring, on the basis of solidarity, jointly or in any other way, own, third party or group companies financial obligations.

(B) With the exception of the allowed debt, refrain from engaging in any kind of debt or appeal transactions. Also, in the event of incurring in the allowed debt as referred to in sub-paragraph (D) of the definition of allowed debt in Clause 1 of this Framework Agreement, the Bound shall request from Lenders funding

 

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through an extension of the Syndicated Financing Contract, as appropriate, in which case the Lenders have the right to receive the cash flows of the project, and the borrowers would not be able to yield the flows of the project to a third party. In the case of an extension of the initial expiration date, on the assumption that the Bound incur in the allowed debt with third Parties other than the Lenders due to their refusal (within the limits stated above) the Bound may assign the corresponding project cash flows in favour of a third party without prior written approval from the Lenders. Regardless, Lenders will have the right to receive the remainder of these temporary free availability flows in favour of third Parties, condition that must be included in the relevant trust.

(C) Do not grant financing to any person, except for commercial financing granted within the ordinary course of business with (i) customers or (ii) joint ventures, consortia or other associative contracts or special purpose vehicles that require funding in which GyM participates for up to a maximum annual amount of USD 5’000,000 and 00/100 (5 million dollars).

In addition, none of the following operations will be allowed, in favour, benefit, or for the account of other companies, joint ventures, partnerships, or other associative contracts or similar businesses: (a) acquire, assume, subscribe, or perform any type of business with the purpose of purchasing shares representing the capital of these companies or participations in such contracts; (b) perform any kind of contribution of funds, granting of guarantees or provision of financial assistance; or (c) commitments to business creation or promotion or constitution of joint ventures, consortia or other associative contracts or similar businesses that require provision of funds, either as capital or debt, except (i) that such funding is granted to another company of the group to develop those projects that qualify as allowed debt in accordance with the provisions of paragraph (D) of the definition of allowed debt as per Clause 1 of this Agreement; or (ii) those acts related to payments for the exercise of the sale options from Vial y Vives—DSD S.A. and Morelco S.A.S.

(D) Refrain from paying (i) interest or principal of any loan against its directors, managers or shareholders at Graña, and (ii) dividends or any other form of distribution in favour of the shareholders at Graña or GyM

(E) Not to conduct business with other companies in the Group or economically linked to the Group in conditions that are not in the market.

(F) Not to carry out investments or acquire assets in such a way that their annual Capex exceeds US$ 1,000,000 (one million and 00/00) a year (regardless of Capex investments to be financed through the allowed debt).

(G) Not to modify the accounting practices of any of the Bound in any sense that differs from the NIIF, the accounting principles generally accepted in Perú and the legislation applicable, except when such modifications are carried out in the application of the external laws to which Graña is subject to in its condition of company listed on the New York Stock Exchange (NYSE).

 

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(H) Refrain from participating in any liquidation process, transformation, corporate reorganization, acquisition, merger or division of companies, nor acquire, directly or indirectly, shares or significant assets of other companies, competitors or not, unless: (i) in the case of operations provided for in the Sale of Assets of Graña known to the Lenders; or, (ii) reorganizations between group companies. In the event of a reorganization at the level of Graña and/or GyM, the companies arising from this reorganization must adhere to as guarantors of the financing and undertake all the obligations of Graña and/or GyM under the financial documents, as appropriate.

(I) Refrain from transferring its rights and/or its contractual position in the financial documents, except for the transfer of rights carried out as a means of payment and/or guarantee of allowed debt.

(J) Perform any action intended to exclude the actions of Graña from the Lima Stock Exchange and/or the New York Stock Exchange (NYSE}.

(K) Refrain from engaging in and take all the necessary diligent measures (according to best practices in the industry, including, but not limited to actions for prevention, monitoring and/or control) so that representatives and the Bound do not, directly or indirectly, carry out any offer, gift, payment or transfer, or promise of payment of money or any other object of value, or provide any benefit to any Government Official, governmental entity or person; provided that such acts may result in a violation of the anti-corruption standards and the Prevention of Money Laundering, Financing of Terrorism or Illegal Mining, directly undertaking full responsibility in the event that the Bound, reference shareholders at Graña or their representatives may incur in the future in any of the assumptions detailed in Clause 5 (X) of this Framework Agreement.

(L) Refrain from holding contracts on derivative financial instruments derived from speculative purposes. To this end, those that are not considered derivatives for speculative purposes that the borrowers contracted in the course of their operations to cover risks of exchange rate and the fluctuation in the pricing of international commodities that are required.

(M) Refrain from holding trusts with customers, except for: (I) contracts with clients in which: (a) a total remuneration for an amount that exceeds US$ 20,000,000 (20 million and 00/100 Dollars} has been agreed upon; and (b) the trust agreement is held following the guidelines previously approved by the Lenders; or (ii) it includes the approval of the majority of the Lenders.

(N) Refrain from making changes to the trusts with customers, unless (i) with prior approval from the Lenders, or (ii) they include changes that do not affect any of the rights of the Lenders under this Agreement, for which the guidelines in Annex XI will be taken into consideration.

 

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(O) Refrain from authorizing direct bank transfers to the Sub-Contractors GSP account (as such term is defined in the trust fund contract) in favour of sub-contractors with whom a written agreement for the refinancing of obligations had not been reached, in which case a copy of the Agreement shall be sent to the Administrative Agent.

Also, refrain from authorizing direct bank transfers to the Sub-Contractors GSP account (as such term is defined in the trust fund contract} until the Lenders have previously approved the Maximum amount Sub-Contractors GSP (as such term is defined in the trust fund contract).

7. NON-COMPLIANCE EVENTS

7.1 Non-compliance events

The Parties agree that each of the following circumstances constitutes a non-compliance event (a “Non-Compliance Event”):

(A) If the borrowers breach any of their payment deadlines for (i) any fees, an amount related to the capital or interest or fees owed under the Syndicated Financing Contract or the remaining financial documents, and/or (ii) any fees, expenses, services, or any other concept that they must pay and/or reimburse under the financial documents, within the established payment deadlines for each of these concepts.

(B) If the guarantees are not registered and established within the time limits referred to in Clause 9, provided that the majority of the Lenders would not have granted an additional period.

(C) If any of the representations and warranties declared in each moment that they were granted, is untrue, inaccurate or incomplete, or if one of them becomes false, incorrect, inaccurate or incomplete by the change of circumstances to the date in which they were granted.

(D) If it turned out that the data and documents provided by the Bound are incorrect, inaccurate, or omitting information that served as basis for the granting of the financial documents; so that, in the absence of such falsehood, inaccuracy or omission, Lenders would not have agreed to grant the financial documents.

(E) If any type of bankruptcy process or proceedings, financial restructuring regulated under the applicable laws, or any process of cessation of payments or liquidation, provided that this process has not been raised within a period of thirty (30) calendar days counted from the date of notification to Graña and/or GyM; or Graña and/or GyM starts any kind of process of bankruptcy, insolvency proceedings or restructuring assets regulated under the applicable law, process of cessation of payments or liquidation.

 

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(F) If the Bound fail to comply with any of the obligations undertaken under any of their contracts when as a result of this failure a substantially adverse effect takes place, or could take place. Also, it will be considered an Event of Default if any contract or agreement that the Bound hold is accelerated or resolved, so that such a situation affects their ability to pay and this generates a substantially adverse effect.

(G) If any authorization of any governmental entity that is required or may be required by Graña and/or GyM according to the applicable legislation for the normal development of its business, it ceases to be effective and in full force; and, the situation is not remedied within a period of fifteen (15) calendar days from the date in which it was acknowledged or in which it had to be acknowledged as having acted with due diligence.

(H) If Graña and/or GyM infringes any of their commercial payment obligations by amounts which, individually or accumulated, are in excess of US$ 1,000,000 (one million and $00/00); or Graña and/or GyM infringes any payment obligation derivative of any debt whose amount, individually or accumulated, is in excess of US$ 1,000,000 (one million dollars) and 00/00 (different from the one derived from the Transaction Documents or from a contract with any of the Lenders, including but not limited to the SBP loan for whom no minimum amount will apply. The payment obligations of a commercial nature or arising from debt incurred by Graña, GyM and/or their respective subsidiaries in the development of the “Improvements to the country’s energy security and development of the Southern Perú” pipeline project, are excluded from this assumption.

(I) If any debt owed by Graña and/or GyM for an individual, or accumulated amount, of more than US$ 1,000.000 (one and a half million 00/00) becomes liquid, due and enforceable before its ordinary expiration date (different from the one derived from the Transaction Documents or the one contracted with any of the Lenders, including, but not limited to the SBP loan, for whom no minimum amount will apply)

(J)

(K) If, as a result of preliminary research against any of the Bound, Graña reference shareholders and/or their representatives in connection with any of the assumptions detailed in clauses S(x) and 6.2(k) of this Framework Agreement, the judge or competent body issues a writ of prosecution.

 

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The Parties clearly establish that once the supposed content in the present sub-paragraph (a), the determination of the configuration of this particular event of default shall be agreed to by the Lenders, exceptionally, by unanimity. This determination may be made at any time and in the opportunities that Lenders consider appropriate. It is noted for the record that the Event of Default specified in this subsection (a) shall be configured when the Administrative Agent communicates to the Bound that the Lenders have unanimously decided to declare the present event of non-compliance.

(B) If, as a result of the investigation of Graña, any of the Lenders learns that any of the Bound, reference shareholders of Graña and/or their representatives have engaged in any of the situations detailed in clauses S(x) and 6.2(k) of this Framework Agreement.

(C) If any of the Bound, reference shareholders of Graña and/or their representatives (i) have recognized, supported, accepted or confessed to any of the acts specified in Clauses S(x) or 6.2 (k) of this Framework Agreement, or (ii) have applied to a procedure of effective collaboration or similar special procedure of admission of criminal responsibility regarding the acts specified in Clauses S(x) and 6.2 (k).

(K) If subsequent to the closing date the Peruvian government performs any act which, in the judgement and discretion of the Lenders (i) may result in the deprivation of any of their rights as Lenders under any of the financial documents, or (ii) confiscates, expropriates or nationalizes the ownership or control of the Bound on their property or assets, significant shares or rights, which put at risk the cash repayment of the obligations arising from the financial documents or could reasonably be expected to produce a substantially adverse effect.

(L) If any event or circumstance takes place that generates or could reasonably be expected to generate a substantially adverse effect.

(M) If any of the Bound or any company of the group starts a procedure aimed at obtaining a ruling of a governmental entity with regard to the invalidity, voidability, enforceability, rescission or resolution of one of the financial documents or if any of the financial documents is declared null, voidable, unenforceable, resolved or terminated by a governmental entity as a result of a request initiated by any person other than the Bound or the Group companies.

(N) If Graña and/or GyM (i) fail to comply with any of the obligations to do or not to do (that were not collected in another Event of Default) regulated in this Agreement and in other financial documents, or (ii) any reimbursement related to the obligation described in subsection (a)(ii) of this paragraph 7.1; and such failure was not completely resolved or in the event that it is susceptible to correction (not being in any case subject to correction, for example, the failure to comply to the provisions of Clause 6.2 (k), 6.1(e)(vi) or 6.1 (A) of this Framework Agreement) within a period of fifteen (15) days from the first of the following

 

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dates (i) the Administrative Agent will notify Graña and/or GyM about the existence of such a breach, or (ii) the time at which Graña and/or GyM learns of such breach or would have learned had they acted with due diligence.

(O) If any of the Bound:

(I) Was required, under court resolution or arbitration award, to pay third Parties quantities whose individual or accumulated amount is in excess of US$ 1,000,000 (one million and 00/00), unless the Bound had sufficient funds to meet such payments and does so with free flows (that Lenders should not be entitled to receive under the Transaction Documents) or subordinated debt. The exception here collected shall not apply in case of the imposition of any type of sanction in the event of any of the assumptions listed in clauses S(x) or 6.2 (k) of this Framework Agreement, whatever the amount;

(Ii) Suffered embargoes or executions of any real guarantees of assets of any nature, in excess of US$ 1,000,000 (one million and 00/00), or

(iii) Suffered expropriation, confiscation or seizure of assets above an annual threshold, individual or accumulated, in excess of US$ 1,000. A million and 000 (00/00).

(P) If ultimately sanctions are imposed to Graña and/or GyM in amounts which, individually or accumulated, exceed US$ 1,000,000 (one million and 00/00) in the same year, it may be an event of non-compliance with the imposition of any type of sanction for non-compliance with anti-corruption standards or the Prevention of Money Laundering, Financing of Terrorism or Illegal Mining, regardless of the amount.

(Q) If there is a change in the social object of Graña and/or GyM or the suspension or termination of a substantial part of the commercial operations that they currently carry out directly or indirectly, except for those arising from the implementation of the sale of assets of Graña and that has been informed to the Lenders.

(R) If the group auditor does not issue opinions on the financial statements of Graña and/or GyM within the time limit, or had been issued an opinion, but with caveats that question the capacity of Graña and/or GyM to comply with its undertaken obligations by virtue of the financial documents.

(S) If any of the Bound is (i) formally and with sufficient evidence to the reasonable judgement of the Lenders, in a criminal proceeding by a governmental entity or government official for crimes of drug trafficking, terrorism, kidnapping, money laundering, terrorist financing and management of resources linked to terrorist activities or other crimes related to money laundering and financing of terrorism, and the Bound had not submitted the appropriate disclaimers in a period of ten (10) days; (ii) included in lists for the control of

 

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money laundering and financing of terrorism managed by any national or foreign authority, such as the list of the Office of Foreign Assets Control—OFAC issued by the Department of the Treasury of the United States of America, the list of the Food and Agriculture Organization of the United Nations and other public lists related to the subject of money laundering and financing of terrorism that are of common reference by financial institutions, or (iii) convicted by the competent authorities in any type of judicial proceedings related to the perpetration of the previous offences.

(T) If any (i) accident, strike, unemployment or any other labour problem takes place, or (ii) an accident, fire, explosion, drought, storm, hail, earthquake, or any other circumstance, provided that, in any of the two assumptions here, affects the businesses and properties of any of the Bound, generating a substantially adverse effect.

(U) If, within a period of ninety (90) calendar days from the date of closing the embargo in the form of retention is not lifted and a copy of the relevant document was not forwarded to the Administrative Agent to verify its lifting.

7.2 Consequences of the configuration of an Event of Default

In case an event of default takes place under the Syndicated Financing Contract and the Administrative Agent notifies borrowers of the occurrence, the Borrower shall acknowledge unto the Lenders from the time the event of non-compliance takes place, over the unpaid balance of the amount provided under the Syndicated Financing Contract, the rate of compensatory interest over the interest rate for non-compliance, up to the day of payment to the Lenders of the total of the amounts due under the syndicated financing contract or any other financing document.

The interest rate for non-compliance shall automatically be paid from the date on which the borrowers fail to comply with the respective payment and the event of non-compliance referred to in subsection (a)(i) takes place, without the need of a formal declaration, additional notification or any other formality. In the event the Administrative Agent or the Lenders notify the Bound of any of the events of non-compliance referred to in Clause 7.1, the borrowers will acknowledge the increase of the risk in favour of the Lenders, according to the provisions on the syndicated line of issuance of new bonds and commitments to maintenance of existing bonds.

Also, in the event that any of the events of non-compliance described in Clause 7.1 takes place, without it being corrected in the above deadlines indicated in their case, most Lenders (except in the case that unanimity is required of Lenders, in accordance with Clause 14.2(Q)) may, as a matter of law and through the Administrative Agent and/or Securities Agent, as applicable:

 

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(A) Declare the present Framework Agreement and other financial documents resolved, and/or declare the repayment deadlines expired by virtue of the loan under the Syndicated Financing Contract and the time limits under the Syndicated issuance of new bonds and commitment to maintenance of the existing bonds, by means of notarial procedures to borrowers, along with the corresponding balance liquidation, and demand the immediate payment of all amounts owed to the Lenders under the Syndicated Financing Contract and the total replacement of the bonds under the Syndicated line of issuance of new bonds and commitment to maintenance of existing bonds;

(B) Execute and/or demand the full cancellation of the amounts due under the financial documents;

(C) Execute any promissory note in their possession;

(D) Proceed with the implementation of the guarantees referred to in paragraph (c) of sub-paragraph 9.2 and require the corresponding payments under the guarantees listed in sub-paragraphs (A) and (B) of paragraph 9.2, as appropriate in each financing document. Regardless of the foregoing, in the case of the guarantees listed in sub-paragraphs (a) and (b) of paragraph 9.2, its implementation could start provided that all obligations have been cancelled under the contracts of senior creditors and SBP loan; and/or

(E) In the event of the resolution of contracts due to which the guarantees were implemented, start the procedure to request compensation for damages.

The delay on the part of Lenders in the exercise of the rights referred to in this paragraph shall not, in any case, the presumption of waiver thereof.

In the event of the resolution of the Framework Agreement or if payment deadlines are in arrear from the secured obligations, all commitments by Lenders in connection with the financial documents and all the obligations that may arise out of these will be immediately terminated and declared non-existent so that borrowers will not be able to perform any request for disbursement under the Syndicated Financing Contract or any request for issuance of bonds under the Syndicated line of issuance of new bonds and commitment to maintenance of existing bonds.

The resolution of the different financial documents other than the guarantees does not disrupt in any way the guarantees provided to the Lenders, which shall remain in full force and effectiveness until full payment of the Bound obligations.

 

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8. The bonds and the commitment of deferral

8.1 Contracts and existing lines of bond letters

Effective from the date of closure, the Bound and the Lenders agree to hold the Syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds with the purpose of establishing, amongst other things, that the rights Lenders have at any given time upon the Bound (in their capacity as ordering Parties) by virtue of their respective bonds shall be due on the terms agreed with the corresponding Lender (in their capacity as bonding company under the contract or corresponding line of bonds) unless it expressly results in deferral by virtue of the syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds.

8.2 Commitment of Postponement

From the Effective Date and until the maturity date of the Initial or final deadline, as appropriate, the Lenders (in their capacity as loan entities) that would have issued new bonds in favour of the Bound under the syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds, or having issued any of the existing bonds, will agree to defer its enforceability in the event of the execution of any Bond, effective from when the corresponding Lender would have made the payment resulting from the execution of the bond in question, so that, from that date, the amount earned goes on to be automatically regulated and without the need to grant any additional documents by the Parties, by the terms of the Syndicated Financing Contract.

The amounts corresponding to the accrued amounts to be required from the execution of the bonds will be incorporated into the Syndicated Financing Contract as a new tier (Tier C not revolving) without reducing the amount available for Tiers A and B, in accordance with the provisions to that effect in the Syndicated Financing contract, thus increasing the total amount financed by the corresponding Lenders who were executed bonds reducing the total line available for the issuance of bonds (the maximum bonded amount or the maximum of existing bonds, as appropriate).

The Parties note for the record that to these amounts that are incorporated into the Syndicated Financing Contract the assumptions of total Prepayment Required and Partial mandatory prepayment will apply, as well as the structuring of Tier C in the amount deferred, payable on the date of the deferral. The Commitment of postponement here provided shall not apply in relation to the securities backed by Graña and/or GyM (these are the ones issued to CAM Perú, Vial y Vives and Vía Expresa Sur) that have been carried out on the assumption that CAM Perú, Vial y Vives and Vía Expresa Sur, as appropriate, would have met the payment arising from the execution of the bond. Otherwise, Lenders agree to defer the payment of such bonds, in accordance with the provisions on this Section 8.2 and in accordance with the terms of the Syndicated Financing Contract.

 

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8.3 Replacement of the Bonds

The sureties must be replaced according to what was established in the assumption of replacement provided for in the Syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds.

The means to execute the replacement of the sureties will be regulated in the syndicated line of issuance of new bonds and the commitment to maintenance of existing bonds. Alternatively, if it is not possible to refund or replace the bonds, the Bound shall constitute a monetary deposit (cash collateral), in the terms set forth in the corresponding financing Document.

9. Guarantees of the operation

9.1 In support of the Operation, the Bound have granted or will grant the guarantees in favour of the Lenders as warranty for the secured obligations, for which the Parties have signed the contracts where the guarantees are implemented.

9.2 The guarantees that will support the secured obligations will be the following:

(A) Guarantees of second or third rank, as appropriate, to the guarantees of senior creditors, once each of these have been set up within the time limits provided for in the senior creditors Financing Contracts (“Guarantees of second or third rank Graña”);

(B) Guarantee of second rank in the Stracon share trust, in the GyM equipment trust and in the Stracon Equipment trust (“Guarantees of Second Rank SBP”) provided that the Administrative Agent subscribes to the statement of commitment for each of the above-mentioned trust agreements;

(C) The Trust Fund referred to in Clause 9.5 (this guarantee referred to in paragraph (C) will be referred to as the “guarantee”); as detailed in Annex II.

9. 3 The participation of Lenders in connection to the guarantees already granted in the framework of the senior creditors guarantees, the Stracon shares trust, the Stracon Equipment trust and the GyM Equipment trust will be passive in nature, having signed the accession documents that correspond to these contracts. In the case of the Guarantee contracts of second or third rank Graña is to be subscribed after the Closing Date, the rights that the Lenders will have shall be mutatis mutandis, similar to those that have already been given in the contracts to formalize the guarantees of senior creditors that were already signed prior to the Closing Date.

 

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9.4 In addition, once each and every one of the obligations have been paid, and secured by the guarantee of first rank on the assets encumbered by the guarantees of second or third rank Graña and/or guarantees of Second Rank SBP, the Bound commit to granting as many documents, public or private, as necessary for the purposes of ratifying and formalizing the conversion of the Guarantees of second or third rank Graña and/or guarantees of Second Rank SBP in guarantees of first or second rank, respectively, in so far as it is necessary in accordance with the respective guarantees of second and third rank Graña and/or guarantees of Second Range SBP, as appropriate. Also, once the obligations of Graña under the senior creditors Financing Contracts have been settled, Graña must provide all remaining assets of the VCN trust after its liquidation, in case they had, to a new equity trust aiming at obtaining $8,500,000 to be lodged in order to ensure the secured obligations towards Lenders and Scotiabank (in its capacity as Lender under the SBP loan).

9.5 The Guarantee Trust shall be constituted with the following purposes:

(A) Support the implementation of the secured obligations, by means of a trust fund transfer of trust dominion.

(B) Following the provisions and procedures laid down in the trust fund contract, channel (i) the disbursements made by the Lenders under the Syndicated Financing Contract; (ii) the payment to suppliers, and (iii) the repayment of the secured obligations to Lenders.

9.6 The Parties note for the record that the guarantees will support all the secured obligations in the particular range according to each document.

9.7 The implementation of the guarantees may be implemented in the case of an Event of Default. In the case of the guarantees of second or third rank Graña and/or guarantees of Second Rank SBP, provided all obligations under the Financing Contracts Senior creditors and/or SBP loan have been fulfilled, as appropriate.

9.8 The Guarantee of First Rank must have been established (including registration in the public registry authorities) within a maximum period of thirty (30) days from its granting. The aforementioned period may be extended automatically by thirty (30) additional working days on the assumption that the respective warranty is still in the process of registration in the corresponding Register and borrowers can prove to the satisfaction of the Lenders who have made their best efforts to achieve the inclusion in the initial period.

In the case of the guarantees of second or third rank Graña, they shall be subscribed and enrolled within the time limits provided for in the respective Financing Contracts senior creditors.

 

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In the case of the guarantees of Second Rank SBP, these should be subscribed to no later than the closing date and enrolled in the corresponding public registry within a maximum period of thirty (30) days from its granting. The aforementioned period may be extended automatically by thirty (30) additional working days on the assumption that the respective warranty is still in the process of registration in the corresponding register and borrowers can prove to the satisfaction of the Lenders who have made their best efforts to achieve the inclusion in the initial period.

In each of the subscription dates of the first rank and/or guarantees of second and/or third rank, as appropriate, as well as on the date of formalization of the conversion of the guarantees of second or third rank Graña and/or guarantees of Second Rank SBP in guarantees of first or second rank, respectively, in so far as it is necessary to receive the legal opinion from the legal advisors for the Lenders and the legal advisers of Graña and/or GyM with respect to, amongst others, the powers of the representatives, and the capacity of the persons constituting the aforementioned guarantees, and on the validity and enforceability of such assurances.

10. Replacement of existing notes and issuance of notes

10.1 Existing Notes will be replaced on the Effective Date, at which time the Lenders will deliver the Existing Notes and the respective Bound will deliver the Promissory Notes, as set out in the Syndicated financing Loan contract and the Syndicated issuance line of new bonds and commitment to maintenance of the existing bonds.

11. Assignments and Accessions

11.1 The Parties agree that this framework agreement and the other financial documents shall be open to the adhesion of Lenders by following the procedure described in clause 11.4.

11.2 The Parties agree that the Lenders may yield their contractual position and rights under any financing document, which shall be communicated in writing to the Administrative Agent and to GyM and follow the procedure described in clause 11.4.

11.3 The Parties agree that for the purpose of the financial documents, (i) for the adhesion of new Lenders only the unanimous agreement of the Lenders will be required; and (ii) for the Lenders to yield their contractual position the unanimous agreement of the Lenders will be required unless (a) the transferee is one of the Lenders, or (b) the transferee is a Peruvian bank or branch of a foreign bank (with operational capacity for the purpose of the financial documents) and, in both cases, SBS has a rating of not less than A-. In case the new Lender does not comply with any of the conditions listed above, or with the internal policies on the prevention of money laundering and terrorist financing laid out by the Administrative Agent, the Administrative Agent may resign his post in accordance with the provisions set out in Clause 12.8.

 

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11.4 The new Lender, by transfer or by adhesion, shall comply with the provisions in paragraph 11.3 and previously or simultaneously adhere to the Framework Agreement and the other financial documents according to the following procedure:

(A) The adhesion must be formalized through unilateral adhesion document conforming to the model attached in Annex VIII of this Framework Agreement, under which, the creditor will adhere to the financial documents that apply in each case and, from the date of adhesion, it will assume all rights and obligations arising out of that position in accordance with the financial documents. It is pointed out that, the amount under the Syndicated Financing Contract could be increased, with the maximum amount secured under the Syndicated line of issuance of new bonds and commitment to maintenance of existing bonds.

(B) The adhesion shall be stated in this Framework Agreement as well as the financial documents that apply.

(C) Once the adhesion has been done, the Administrative Agent shall, on the same day or the next working day at the latest, deliver a simple copy of the public document of adhesion to the Lenders and to the Bound and the new shares of Lenders in the relevant financial documents.

11.5 The Bound shall not yield their contractual position under the financial documents without prior consent of the Lenders and the Administrative Agent, in accordance with the provisions of paragraph 11.3 above; and, according to what is established in this Framework Agreement and the other financial documents, as applicable.

12. Administrative Agent

12.1 Appointment

Regardless of the fact that the various financial documents are independent, the Lenders assign La Fiduciaria S.A so that from the date of closing they act as an Administrative Agent. Therefore, the Lenders grant by virtue of this Framework Agreement in favour of La Fiduciaria S.A. so that it acts under its instructions, as special agent of irrevocable capacity for the Lenders, to all intents and purposes set out in this Framework Agreement and the other financial documents, being vested with all the powers and powers necessary for the performance of its Functions. For these purposes, the Parties agree that:

(A) The performance of the Administrative Agent and of their responsibility will be the one established in the present clause; and,

 

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(B) The Bound are notified of the appointment of La Fiduciaria S.A. as Administrative Agent, in the terms set forth above.

12.2 Mandate

Without detracting from the independent nature of the obligations of the Lenders, it is agreed that with regard to the development and operation of the financial documents the Administrative Agent acts as a special fixed representative for the Lenders, and must therefore be understood that payments of any nature arising from the financial documents must be carried out by the Borrowers (or, as the case may be, the remaining Bound) to the Administrative Agent (such payments are those made through the trust fund, in favour of Lenders, according to the instructions of the Administrative Agent), coming into a releasing effect for borrowers as if they had been received in a proportion corresponding to the other Lenders. In the same way and while not otherwise set forth in the financial documents, any notification made or received by the Administrative Agent shall have the same effect as if it had been made or received by all Lenders.

In this regard, the Parties declare to know and accept that the Administrative Agent, at all times shall act on the instructions of the Lenders, so that in no case may make discretionary decisions with respect to the documentation submitted by the Bound or as to the content of the communications that refer to them or to the trustee of the trust fund, in accordance with the provisions set out in this Framework Agreement.

12.3 Payments

It is understood that the payment dates are those specified in the financial documents. Except as otherwise expressly provided for in the financial documents, all payments for principal, interest and fees that Borrowers (or, as the case may be, the Bound) in accordance with the financial documents, will be distributed by the trustee of the trust fund, according to the instructions of the Administrative Agent, according to the amounts that the majority of Lenders indicate.

For this purpose, with an anticipation of not less than five (5) working days to the payment date—as that term is defined in the syndicated line contract, Lenders shall notify the Administrative Agent of the amounts due that must be received by the Payment Due Date—so that at all times the Lenders are paid at rates identical to those of the credits they hold as owners in the face of the borrowers, so that they instruct the trustee to guarantee the transfer of the funds corresponding to the contributions with respect to each of the instalments, as the case may be.

 

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12.4 Powers of Representation

The powers of representation that Lenders give the Administrative Agent shall be understood to be limited to those actions and measures that may be necessary for the implementation and effectiveness of the covenants contained in the financial documents, according to the instructions that are sent by the majority of the Lenders or the unanimity of the Lenders on the basis of application. In this sense, the individual performance of the Administrative Agent shall be considered by the Bound as enough action from the Lenders.

By this, each one of the Lenders is committed to providing assistance and collaborate as necessary with the Administrative Agent, including participating in the negotiation and implementation of the documents, both public and private, that might be necessary or desirable for the implementation and effectiveness of the covenants contained in the financial documents, including, if necessary, to ratify the action taken by the Administrative Agent in fulfilment of their obligations.

The Lenders agree that the Administrative Agent will not be obliged to comply with the obligations set out in this Agreement, as long as they do not receive express instructions from the majority of Lenders or the unanimity of Lenders on the basis of application, when it would have been required.

12.5 Responsibility

In the exercise of its powers of representation, the Administrative Agent shall not incur in any liability if it complies with the instructions provided by the majority of Lenders or the unanimity of the Lenders on the basis of application. In no case shall the Administrative Agent assume the role of trustee for other Lenders, borrowers and remaining Bound or any other person.

Each of the Lenders acknowledges and agrees that they are and will continue to be the only responsible party of conducting their own assessments and investigations with respect to the financial situation, credit risk, activity, legal regime and legal nature of the obligations or of the group.

In particular, the Administrative Agent shall have the authority to sign any document on behalf of the Lenders, provided that it has obtained the consent of the majority of the Lenders or the unanimity of the Lenders on the basis of application, and is not responsible or liable for the subscription.

None of the representatives or employees of the Administrative Agent, irrespective of their category, condition or assignment, shall be liable to any kind of personal responsibility in front of the other Lenders as a result of their performance in relation to the financial documents.

The Administrative Agent will be able to abstain from doing any act that may, in its reasoned opinion, constitute a violation of a law or regulation or which may give rise to legal actions of another person, and be able to do everything, in its reasonable opinion, necessary or desirable to comply with a law or regulation.

 

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In the performance of their duties and functions, which are non-discretionary, the Administrative Agent assumes no other liability other than those arising from gross negligence or wilful misconduct. Therefore, the Administrative Agent is free of any liability for damages in respect to the Lenders and the Bound, as well as their representatives and/or third Parties, the assignees or successors for each one of them, as long as they comply with due diligence, as referred to in the present Framework Agreement and the written instructions that will be sent by the majority of the Lenders or the unanimity of the Lenders on the basis of application.

Regardless of the provisions, Lenders have an obligation of solidarity, expressly and unconditionally to indemnify the Administrative Agent and each of their respective officers, directors, employees, agents and advisers, by each and every one of the direct damages that they may suffer as a direct result of the conclusion and implementation of the Framework Agreement, despite having performed in accordance with instructions and previsions, provided no fraud or gross fault of the Administrative Agent, including but not limited to cases in which the Administrative Agent, either during the term of the Framework Agreement or subsequent to the entry into force of the same, up to ten (10) years from the date of termination of the framework Agreement , be subject to lawsuits, claims, legal actions, precautionary measures, within or outside the process or claims, brought on by any cause not attributable to any jurisdiction and judicial, arbitration or administrative by third Parties, whomever they might be, the Lenders remaining in the same terms as required, in solidarity, to assume and pay all the costs and attorney fees that are reasonable and adequately supported, of the processes judicial and/or administrative and/or arbitration awards referred to above, as well as to assume and pay all and each one of the sums of money that the Administrative Agent should be obliged to pay pursuant to orders, judgements-or mandates issued in the judicial and/or administrative and/or arbitration awards referred to above, without reservation or limitation, staying in the same terms required to pay the sums of money that the Administrative Agent requested in writing, attaching a copy of the orders, judgements, arbitration awards and payment vouchers to support their claim within the following five (5) days if required.

In relation to the expenditure on external legal counsel, the Parties agree that the Administrative Agent will hire their own external legal advisers. In case officers, directors, employees, agents and advisers of the Administrative Agent are involved in the same procedure or process either administrative, judicial or arbitration proceedings, all will be represented by a single law firm or external legal counsel, unless there is a conflict of interest between them; in which case, each of the Parties involved in the conflict will have a different external legal counsel.

 

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12.6 Costs

Lenders must make available to the Administrative Agent, within (3) days from when it was requested, in proportion to their share in the total of the amount financed under the Framework Agreement, all amounts that will be charged to borrowers in accordance with the financial documents, that would not have been voluntarily repaid by them and which, by reason of the financial documents, perform in the common interest of the other Lenders, provided that such expenses are duly justified and regardless of the outcome favourable or unfavourable performance or measures that gave rise to the disbursement. It will not be the responsibility of the Administrative Agent the assumption of costs borne by borrowers or Lenders.

12.7 [INTENTIONALLY LEFT BLANK]

12.8 Replacement and resignation of the Administrative Agent

The Administrative Agent may resign by written notification addressed to all Lenders and to all Bound, in which case Lenders shall have the right to appoint a new Administrative Agent by agreement of the majority of the Lenders.

Regardless of the foregoing, the Administrative Agent will send to the Lenders a list of proposals to take into consideration for the election of the new Administrative Agent.

In the case that, within fifteen (15) days following the notification, Lenders have not appointed, or have not accepted the appointment, the resignation of the Administrative Agent shall take effect, regardless of the actions to be taken by the Lenders for the appointment of the new Administrative Agent.

The new agent will be vested with the same rights, powers and duties of the outgoing Administrative Agent, in accordance with the terms of this Clause.

On the assumption that the Administrative Agent will merge or be absorbed by another entity, the resulting entity shall be subrogated to all the rights and obligations corresponding to the Administrative Agent.

12.9 Revocation of Administrative Agent

The possibility is expressly provided so that Lenders can revoke the appointment of the Administrative Agent for breach of their duties or the existence of reiterated differences with the rest of Lenders, provided that, at the same time, another Administrative Agent from among the Lenders is assigned to accept the charge. The revocation of the previous Administrative Agent and the appointment of the new one will be established in a public document and shall be notified to the Borrowers, going into effect from then on, both the revocation as well as the new appointment.

 

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The new agent will be vested with the same rights, powers and duties of the outgoing Administrative Agent, in accordance with the terms of this Clause. The costs incurred as a result of the revocation of the Administrative Agent shall be borne by the Bound.

The revocation of the Administrative Agent and the appointment of the new Administrative Agent shall be decided by a majority of the Lenders with the abstention of the Administrative Agent.

13. Securities Agent

13.1 Appointment

The Lenders and Scotiabank name and designate La Fiduciaria S.A. as Securities Agent, for it to represent the Lenders and Scotiabank (in its capacity as Lender under the SBP loan) for all purposes set forth in this Clause 13.

Lenders

With the signing of this framework agreement, the Securities Agent receives all the powers and faculties required to perform all those actions and measures as may be necessary or merely convenient for the implementation and effectiveness of the covenants set forth in this Clause 13.

For these purposes, the Parties agree that the Securities Agent is obliged to:

(A) Intervene in the trust fund acting on behalf and for the account of the Lenders and Scotiabank, to the effect of forwarding the instructions that the framework of this contract, in accordance with the instructions to submit to the Lenders (either by majority or unanimity, as appropriate), and Scotiabank, in virtue of the financial documents and the SBP loan, respectively.

(B) Intervene in the Guarantees of second or third rank Graña, in the interest of and on behalf of the Lenders and Scotiabank, refer to the instructions on the framework of this contract, in accordance with the instructions to be submitted to the Lenders (either by majority or unanimity, as appropriate and, under the financial documents and the SBP loan, respectively).

(C) Receive payments made as a result of the implementation of the guarantees, in order to distribute them to the Administrative Agent and to Scotiabank, according to the instructions of the majority of Lenders and Scotiabank, under the financial documents and the SBP loan, respectively.

 

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(D) Apply every amount obtained from the agents or entities that carry out the procedure of execution of guarantees, in accordance with what is established in the guarantees.

Similarly, the Parties agree that the decisions relating to the guarantees (different to the guarantees of Scotiabank), must be agreed upon by the majority of Lenders, and Scotiabank, in their capacity as Lenders under the SBP loan. For the purposes of determining the participation of each of the Lenders and Scotiabank in these agreements -which must be notified to the Administrative Agent-, they shall refer to the total participation in the transaction documents, i.e., the sum of the Lenders in the financial documents and Scotiabank and in the SBP loan.

In response to the above, in case the trustee asks the Securities Agent for specific instructions for the fulfilment of its obligations under the contract, the program will ask the Lenders and SBP to pronounce on this request. In that sense, the Lenders and the SBP are obliged to refer the instructions requested by the Securities Agent in the day of receipt of the request or at most within the next day of requested.

13.2 Responsibility

In the exercise of its powers of representation, the Securities Agent shall not incur on any liability if it complies with the instructions provided by the Administrative Agent, in accordance with the instructions of the majority of the Lenders or the unanimity of them, as appropriate in accordance with the financial documents; and the SBP, in virtue of the SBP loan. The Securities Agent may, at any time, and even if they are not obligated to do so, request instructions from the Administrative Agent and from SBP. In no case shall the Securities Agent assume the role of trustee for the other Lenders, borrowers and remaining Bound or any other person.

Each of the Lenders acknowledges and agrees that they are and will continue to be the only responsible party to conduct their own assessments and investigations with respect to the financial situation, credit risk, activity, legal regime and legal nature of the obligations or of the group.

In particular, the Securities Agent shall be empowered to sign any document on behalf of the Lenders, provided that the Administrative Agent asks them to do so; and from SBP, in accordance with the instructions of the majority of the Lenders or the unanimity of the Lenders; and of the SBP, on the basis of application, and is not responsible or liable for the subscription.

None of the representatives or employees of the Securities Agent, irrespective of their category, condition or assignment, shall be liable to any kind of personal responsibility in front of the other Lenders as a result of their performance in relation to the financial documents.

 

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The Securities Agent will be able to abstain from doing any act that may, in its reasoned opinion, constitute a violation of a law or regulation or which may give rise to legal actions of another person, and be able to do everything, in its reasonable opinion, necessary or desirable to comply with a law or regulation.

In the performance of their duties and functions, which are non-discretionary, the Securities Agent assumes no other liability other than those arising from gross negligence or wilful misconduct. Therefore, the Securities Agent is free of any liability for damages in respect to the Lenders and the Bound, as well as their representatives and/or third Parties, the assignees or successors for each one of them, as long as they comply with due diligence, as referred to in the present Framework Agreement and the written instructions that will be sent by the majority of the Lenders or the unanimity of the Lenders on the basis of application.

Regardless of the provisions, Lenders have an obligation of solidarity, expressly and unconditionally to indemnify the Securities Agent and each of their respective officers, directors, employees, agents and advisers, by each and every one of the direct damages that they may suffer as a direct result of the conclusion and implementation of the Framework Agreement, despite having performed in accordance with instructions and previsions, provided no fraud or gross fault of the Securities Agent, including but not limited to cases in which the Securities Agent, either during the term of the Framework Agreement or subsequent to the entry into force of the same, up to ten (10) years from the date of termination of the framework Agreement , be subject to lawsuits, claims, legal actions, precautionary measures, within or outside the process or claims, brought on by any cause not attributable to any jurisdiction and judicial, arbitration or administrative by third Parties, whomever they might be, the Lenders remaining in the same terms as required, in solidarity, to assume and pay all the costs and attorney fees that are reasonable and adequately supported, of the legal processes and/or arbitrations and/or administrative referred to before, as well as taking on and paying each and every one of the sums of money that the Securities Agent is obligated to pay to comply with resolutions, sentences or mandates issued in the legal proceedings and/or arbitrations and/or administrative referred to above, without reserve or any limitation, where the Bound remain in the same terms bound to pay the amounts that the Securities Agent requests in writing -attaching a copy of the orders, judgements, arbitration awards and payment vouchers to support their claim- within five (5) business days if required.

 

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In relation to the expenditure on external legal counsel, the Parties agree that the Securities Agent will hire their own external legal advisers. In the event officials, officers, directors, employees, agents and advisers of the Securities Agent are involved in the same procedure or process either administrative, judicial or arbitration proceedings, all will be represented by a single law firm or external legal counsel, unless there is a conflict of interest between them; in which case, each of the Parties involved in the conflict will have a different external legal counsel.

13.3 Replacement and resignation of the Securities Agent

The Securities Agent may resign by written notification addressed to all Lenders and to all Bound, in which case Lenders shall have the right to appoint a new Securities Agent by agreement of the majority of the Lenders. Regardless of the foregoing, the Securities Agent will send to the Lenders a list of proposals to take into consideration for the election of the new Securities Agent.

In the case that, within fifteen (15) days following the notification, Lenders have not appointed, or have not accepted the appointment, the resignation of the Securities Agent shall take effect, regardless of the actions to be taken by the Lenders for the appointment of the new Securities Agent.

The new agent will be vested with the same rights, powers and duties of the outgoing Securities Agent, in accordance with the terms of this Clause. On the assumption that the Securities Agent merges or is absorbed by another entity, the resulting entity shall be subrogated with all the rights and obligations corresponding to the Securities Agent.

13.4 Revocation of Securities Agent

The possibility is expressly provided so that Lenders can revoke the appointment of the Securities Agent for breach of their duties or the existence of reiterated differences with the rest of Lenders, provided that, at the same time, another Securities Agent from among the Lenders is assigned to accept the charge.

The revocation of the previous Securities Agent and the appointment of the new one will be established in a public document and shall be notified to the Borrowers, going into effect from then on, both the revocation as well as the new appointment.

The new agent will be vested with the same rights, powers and duties of the outgoing Securities Agent, in accordance with the terms of this Clause.

The costs incurred as a result of the revocation of the Securities Agent shall be borne by the Bound.

 

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The revocation of the Securities Agent and the appointment of the new Securities Agent shall be decided by a majority of the Lenders with the abstention of the Securities Agent.

14. System of Majorities

14.1 General Rule

In general, and except as otherwise specifically provided in any financial document, any decision, action or authorization that should be adopted, granted or executed by the Lenders by virtue of the financial documents must be agreed upon by the majority of the Lenders, except as provided in clause 14.2 below. The implementation of those majorities will be validated by the Administrative Agent, pursuant to the information submitted by Lenders to that effect, within the deadlines set out in this clause.

14.2 Unanimous Agreements

Unanimous agreement from all Lenders will be required, that is to say with the 100% of the participation of Lenders, as appropriate, in the financial documents, for the following modifications or decisions:

(A) Amendments or decisions that involve a breach of the proportionality of one or several Lenders with respect to one or more other Lenders, except with the consent of the affected Lender.

(B) Modifications or decisions whose effect is to impose additional obligations or to vary the form of payment of the rights to credit of a Lender, except with the consent of the affected Lender.

(C) Amendments or decisions affecting the initial maturity date or the expiration date of the end of any of the financial documents or the amortization schedule (including changes in dates of amortization and depreciation percentages) of the Syndicated Financing Contract (regardless of the right of the Bound to request the extension, until the final maturity date, if it complies with the requirements of the Syndicated Financing Contract.

(D) Amendments or decisions that affect the dates of payment of interest or commissions of any of the financial documents.

(E) Changes or decisions that affect the amount of funding granted under the financial documents (both the amount under the Syndicated Financing Contract, the maximum amount secured under the syndicated line of issuance of new bonds and commitment to maintenance of existing bonds), or of any of its sections or underpasses, or that alter the participation percentages that the Lenders have in the amount of funding, or in any of its stages or underpasses, granted under the financial documents.

 

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(F) Changes or decisions that involve a reduction in the interest rate applicable to any of the financial documents, or a modification of the system for the calculation or liquidation of interests, a change in the method of calculation of the interest rate applicable (including the compensatory interest rate and the interest rate for non-compliance, or reductions in the amount of commissions or changes in your method of its calculation or collection.

(G) Changes or decisions that affect the currency or currency in which payment should be made under the financial documents.

(H) Changes or decisions involving a waiver to the fulfilment of the conditions precedent to closing or to the conditions prior to the Effective Date, disbursements and to the issuance of bonds.

(I) Modifications or decisions related to the assignment of the contractual position by Borrowers or Bound.

(J) Changes or decisions that affect or alter the rights or obligations of the Administrative Agent.

(K) Changes or decisions that affect the rules for the allocation and order of payment except in the cases expressly permitted by the financial documents.

(L) Changes or decisions that affect the terms of proportionality, cost increase and change of circumstances and compensation of the financial documents.

(M) Changes or decisions that affect the stated in the present clause or in the definitions of majorities provided for in the financial documents.

(N) Changes or decisions involving the cancellation, reduction or collective resignation of any guarantee, regardless of the rights of Scotiabank as a creditor in the first range of the Guarantees of Scotiabank.

(O) Decisions concerning the accession of a new Bank to one or all of the financial documents, as applicable.

(P) Amendments to the law and the jurisdiction applicable to the financial documents.

(Q) To declare the Event of Default specified in Clause 7.1 (J).

 

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The foregoing is regardless of the majorities and the rules of decision-making, where appropriate, in the various financial documents. The provisions of this Framework Agreement shall prevail over the provisions of the remaining financial documents in case of discrepancy.

For the purposes of calculating the majority, the Lenders (in their capacity as surety entities) of the issuance of new bonds and the commitment to maintenance of existing bonds shall provide the Administrative Agent, as soon as possible, information on any modifications in their participation, either due to the implementation of a new or existing Bail Bond, at the maturity of a New or existing bail bond therefore annulling its renewal, or any other situation that alters the participation of Lenders. Lenders will provide the information to the Administrative Agent within three (3) business days following their request. For the purposes of calculating the majority the Administrative Agent will make such participation to Dollars by applying the exchange rate published in dollars on the day prior to the date on which the Administrative Agent should carry out the corresponding calculation in accordance with the provisions set out in Clause 21.7.

15. Expenses and Taxes

The Borrowers, according to the applicable to each one of them, undertake the commitment to pay any fees, tariffs, fees, expenses, taxes and other amounts that now or in the future are due or accrued as a result of the preparation, holding, compliance, modification, restructuring and, where appropriate, implementation of this Framework Agreement and the other financial documents. This obligation shall remain in force and shall be payable even if the conditions precedent to the Effective Date are not met, the disbursement and the issuance of bonds by the deadline set out in Clause 4.2.

All current and future taxes, applicable according to the applicable legislation, which could fall on the financing granted under the Syndicated Financing Contract and the issuance of new bonds and the commitment to maintenance of existing bonds, including their interests, fees and charges, shall be borne by the Borrowers.

Excluding the income tax which is levied on the operations of money lenders, and the structuring of the syndicated financing contract and any other tax that may be deductible from Income taxes that corresponds to the Lenders and the Structuring of the Syndicated Financing Contract, including any tax that encumbers the termination and/or transfer of rights, obligations and/or contractual position under the financial documents.

Also, in the event of a change of the law applicable, Borrowers are required to reintegrate the Lenders and/or the Administrative Agent any new tax that any of the Lenders and/or the Administrative Agent may be required to pay in relation to the financial documents, including their interest, surcharges, fines and penalties. The refund must be made within three (3) days following the date on which the Administrative Agent performs said request to the Borrowers.

 

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Exclusively for the case of Citibank NA, Borrowers will assume the retention of the Peruvian Income Tax applicable to payments required as a result of the financing. In this regard, Citibank NA at every opportunity shall receive a payment equal to the payment that would have been received if no retention was applied.

16. Payments

All payments of principal, interest and other costs incurred by the Borrower to the Administrative Agent under the financial documents will be made without any deduction or retention of existing or future taxes or other taxes applicable in Perú or abroad, to be the case. If the Borrowers, the Administrative Agent or the Lenders should perform any withholding or deduction for taxes, the amounts to be paid by reason of the withholding or deduction will be assumed by the Borrowers (according to what corresponds to each one of them) or, when appropriate, will raise the amount necessary for each of the Lenders to receive the total amount that would have been in the absence of such taxes, withholdings or deductions. In addition, the borrowers -as the case may be, shall- deliver to the Administrative Agent the certificate of withholdings or deductions, within five (5) working days following the date on which Borrowers have such records available, to ensure that the Administrative Agent can deliver them to the Lenders, within three (3) business days of receipt. The provisions in this clause will not apply to the income tax in Perú and the taxes that are deductible for income tax excluded in accordance with this Clause and the Applicable Law.

17. Compensation

Borrowers jointly undertake in solidarity to indemnify and to keep the Administrative Agent, the Securities Agent, the Borrowers and their respective subsidiaries and affiliates and their respective officers free of all prejudice, claim and damage, (each, a “Recoverable Person”) against any damages, claims, losses, liabilities, debts, and expenses (including attorneys’ fees and costs) incurred by any of them as a result of, derived from, or related directly or indirectly to the individual performance of each borrower under the financial documents, except in the case of losses, claims, damages, liabilities and expenses that are resulting from wilful misconduct or gross negligence attributable to the recoverable person, where this is determined by a final and non-appealable decision of a court of competent jurisdiction.

In the event that any recoverable person is involved in any action, proceeding or judicial or administrative investigation as a result of the activities carried out under this Framework Agreement and the other financial documents, Borrowers

 

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will repay the legal expenses and/or other types of expenses that they may have reasonably incurred in for the defence of such people in connection with such actions, procedures or investigations, except that such action, proceeding or investigation is the result of guilt or gross negligence of the recoverable person, duly determined by a final and non-appealable decision of a court of competent jurisdiction.

18. Increased costs

(A) If, because of a change in the applicable law after the execution of the financial documents were produced for all or part of the Lenders, as a result of carrying out or maintaining the financing current, any of the following events (each, an “Event”, or jointly the “Events”): (a) any increase in the cost of monies that affect the Lenders, (b) any requirement of greater regulatory capital, and the amount of such capital increases in or on the basis of the existence of the financing outstanding balance, or (c) a reduction of the effective rate of return on capital of Lenders as a result of changes in tax legislation applicable to the Lenders; then Lenders may, in its sole discretion, alternatively change the amount of the amounts payable on each date of payment (which will be notified and accepted by Borrowers) or to request the reimbursement of the Borrowers higher cost generated every time that is the intention of the Parties to maintain the initial equivalence of benefits in the financial documents.

(B) Upon the occurrence of any event, and in the event a refund was requested, a written communication from the Administrative Agent -instruction of the majority of Lenders- to the trustee of the trust fund and Borrowers indicating:

(i) A description in reasonable detail of the event along with the approximate date of the effectiveness of the same;

(ii) The cost for Lenders affected by this event; and

(iii) The calculation of the amount that affected Lenders, in its sole and absolute discretion, determine that it is necessary that is offset by the cost of such an event.

(C) If the borrower does not comply with such a request within ten (10) business days after the receipt of the notification referred to in paragraph ii(B) above, the Lenders will be able to load the corresponding amounts of the account(s) that Borrowers maintain in each of the Lenders and/or in the accounts of the Trust fund, as has been provided for in the trust agreement, and in accordance with the applicable law. Each Lender shall deliver the payment thus obtained to the Administrative Agent to distribute in equal preference (pari passu) and proportionally between all Lenders, in proportion to their participation in respect of the relevant financial documents. In the face of these situations, and within the following three (3) business days of receipt of the communication referred to above, the Borrowers will have the right to prepay the total amount owed (including, but not limited to, the increased cost already generated as a result of the event) to that date, together with accrued interest.

 

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19. Notices

19.1 Form

All communications between the Parties relating to this Agreement and the other financial documents, or anything arising from any of them must be forwarded to the attention of the persons referred to in this paragraph.

For this purpose, the contact details of the Parties are the following:

Lenders:

BCP:

Address:

Phone Number

E-mail:

Persons:

Calle Centenario N° 156, La Molina, Lima 511-311-9500

Amolinari@bcp.com.pe berthatorres@bcp.com.pe /

Authorized:

lnterbank:

Address: Phone Number E-mail: Authorized persons:

BBVA:

Address: Phone Number E-mail: Authorized persons:

Scotiabank:

Address: Phone Number E-mail:

Authorized persons:

Citibank:

Address:

Phone Number

E-mail:

Authorized persons:

Citibank, N.A.

Address:

Phone Number

E-mail:

 

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Authorized persons: Bertha Torres Castle/ Alejandro Molinari Stream

Carlos Villarán 101, 511-219-2000 Victoria

Lucia Vittet Garcia Lvittet@intercorp.com.pe

Avenida República de Panama No. 3055, San Isidro, Lima.

511-209-1227 / 511-209-1243

Jcvelasquez@bbva.com Walter.angulo@bbva.com / Walter Angle Vasquez / José Carlos Velasquez Chonyen

Avenida Dionisio Derteano 102, San Isidro, Lima 511-211-6000

Dara.macdonald@scotiabank.com.pe Gonzalo.gil@scotiabank.com.pe

Miguel.madueno@scotiabank.com.pe /

/ Aleksa.delatorre@scotiabank.com.pe Gonzalo Gil/ Miguel Madueño

Avenida Canaval y Moreyra Nº 480, Piso 4, San Isidro, Lima 511-215-2200

Luis.bas@citi.com Luis Bas

Avenida Canaval y Moreyra Nº 480, Piso 4, San Isidro, Lima 511-215-2200

511-215-2200

Luis.bas@citi.com Luis Bas

Borrowers:

Graña:

Address:

Phone Number

E-mail:

Authorized persons:

Address:

Phone Number

E-mail:

Authorized persons:

CAM Perú:

Address:

Phone Number

E-mail:

Authorized persons:

Vla Expresa Sur:

Address:

Phone Number

Av. Paseo de la República 4675, distrito de Surquillo, Lima 511-213-6565

Dgray@gym.com.pe mmilostavich@gym.com.pe / Monica Miloslavich / Dennis Gray

 

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Av. Paseo de la República 4675, distrito de Surquillo, Lima 511-213-6565

Sueri.isa@gym.com.pe amcastro@gym.com.pe Rrojas@gym.com.pe / /

/ Susy.cuevas@gym.com.pe

Renato Rojas/ Alvaro Castro/ Sueri Isa/ Susy Caves

Av. Paseo de la República 4675, distrito de Surquillo, Lima 511-213-6565

Sueri.isa@gym.com.pe amcastro@gym.com.pe Rrojas@gym.com.pe / / Renato Rojas/ Alvaro Castro/ Sueri lsa

Av. Paseo de la República 4675, distrito de Surquillo, Lima 511-213-6565

E-mail:

Persons:

Mm iloslavich@gym .com.pe Ebustamante@gym.com.pe Ay@gym.com.pe dgr

Authorized:

Vial y Vives:

Address:

Phone Number

E-mail:

Persons: Monica Miloslavich / Dennis Gray/ Elena Bustamante

Av. Paseo de la República 4675, distrito de Surquillo, Lima 511-213-6565

Sueri.isa@gym.com.pe amcastro@gym.com.pe Rrojas@gym.com.pe / /

Authorized: Renato Rojas/ Alvaro Castro/ Sueri Isa/ Susy Caves

Administrative Agent and Securities Agent:

Address: Santo Toribio 155 Piso 8 San Isidro. Fax: 222-4260

Phone Number 710-0660

E-mail:

Area of Operations: operations@lf. pe; pposti avelasquez@lf.pe Go@lf.pe;

All operational communications must be sent to Operaciones@lf.pe

Area of Accounting: smontes @lf.pe; Gmontenegro@lf.pe Legal Area:

Aalmendariz@lf.pe lpure@lf.pe; Other: Rparodi@lf.pe pcomitre@lf.pe:

Authorized persons:

Area of Operations:

Paola Postigo (Operations Manager); Ana Velásquez (Director of Operations)

 

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Area of Accounting:

Susana Montes (Accounting Manager); Guadalupe Montenegro {Head of Accounting)

Legal Area: Lila (Senior Counsel); Alejandro Almendariz (Senior Counsel)

Others: Paulo Comitre (General Manager); Rafael Parodi (Business Manager)

The notifications shall be considered valid and binding provided they are submitted by a duly authorized representative of the notifying party, of any of those listed in this clause. If notifications are made by courier service they will be considered delivered from its receipt by the notified party per receipt and if carried out by email or other electronic means, from the date of the delivery confirmation.

Communications of a general nature relating to this Framework Agreement and the other financial documents that the Bound might issue will be addressed to the Administrative Agent, who shall circulate it to all other Lenders as set forth in this Agreement, within the following business day of being received, it being understood that once received by the Administrative Agent it has also been received by all Lenders.

In the same way, the communications of a general nature relating to this Framework Agreement and the other financial documents and those referring to the same as a whole that could be issued by the Lenders must necessarily be channelled through the Administrative Agent.

If any communication is forwarded by a means other than e-mail, the appropriate copy of the aforementioned notification must be sent by email.

Any modification of e-mails, phone numbers, fax numbers and/or persons authorized to carry out communications, as well as the addresses listed in the appearances of this Framework Agreement, shall be brought to the knowledge of the counterparts by means of written communication, being the new data applicable only to communications that are made after the date of receipt of the written communications.

19. Addresses

For the purposes of receipt of notifications, the Parties have designated addresses and data that are indicated in the appearances of this Framework Agreement.

 

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19.3 Change of Addresses

Any change in the homes or data identified in the appearances of this Framework Agreement shall take effect for the Administrative Agent only once they have five (5) working days from the date of receipt of the notice of change of address or data, including full details of the new address for notification purposes. In case of assignment, the address of the transferee shall be communicated to the Administrative Agent in the relevant communication of assignment.

20. CONFIDENTIALITY

No Party may disclose any confidential information that had been provided exclusively for the celebration of the financial documents without the prior written consent of the other Party; except that (i) in the case of their directors, officers, employees, agents, external legal advisers or counsellors, other entities related to the Lenders, or others who are directly involved in the operation; (ii) in the case of potential participants or assignees of the transaction and, in such a case, informing advisers or potential participants of the confidentiality of such information; or (iii) was required to disclose such information by a Government entity within the framework of the applicable legislation.

Notwithstanding the above, the information received by the Lenders under the investigation of Graña shall be kept in reserve under any scenario, except: (a) when the mandate of any governmental authority within the framework of the applicable legislation and provided that they have been coordinated beforehand with Graña in the direction of the response to this requirement; and (b) in the case of external legal advisers and/or officials of other companies affiliated to the Lender that are directly involved in the operation, provided they previously sign a confidentiality agreement.

Notwithstanding the foregoing, Borrowers may disclose the Transaction Documents to the senior creditors and to any national or international financial institution. In addition, Borrowers may disclose general details of the transaction documents to their customers and the market in general by fact of importance.

21. Miscellaneous

21.1 Changes

Regardless of the provisions of Clause 13, this Agreement may be amended by agreement of the Parties. The amendment of the framework agreement will be formalized in a public document issued by the Administrative Agent and the Bound (regardless of the express and irrevocable commitment of all of the Lenders to appear in the event that the Administrative Agent so requests).

The Lenders agree to make any amendments which are necessary in any other financial documents (in what is of application to Lenders) to formalize any modification agreed between the Bound and most Lenders that corresponds or, as the case may be, all of the Lenders.

 

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21.2 Waivers

The failure to exercise or delay in exercising a right or remedy provided in the financial documents shall not be construed as a waiver of the right or remedy in question, or as a waiver of any other rights or remedies, and the single or partial exercise of a right or remedy provided for in the financial documents shall not preclude further exercise of that right or remedy or any other right or remedy.

21.3 Partial Invalidity

The Parties expressly recognize that in the event that any of the clauses of any of the financial documents were voided such situation will not determine the nullity of the financial Document in question, but only of the clause that is deemed null, which is why the financial document shall retain its full validity and enforceability. Regardless of the foregoing, in the event that, within a clause of any document of any financing of the numerals of the clause which suffered the void, this situation will not determine the invalidity of the clause if it is that this paragraph can be deleted without affecting the validity of the corresponding clause.

21.4 Language

This Agreement and the other financial documents will be signed in Spanish. Any translation of the content into English will be purely informative and non-binding. Any document submitted by the Bound in Spanish related to this framework agreement and remaining financial documents will be translated into English if so expressly required by a Lender through the Administrative Agent within a reasonable period of time. Regardless of the foregoing, the Parties expressly place on record that, in the face of any doubt or contradiction, the Spanish version will prevail and this will be the version valid and enforceable between the Parties.

21.5 Previous Agreements

This Agreement and the other financial documents constitute the entire agreement of the Parties with respect to the subject matter and replace all previous agreements, written or oral, that may exist between them in this regard, unless expressly stated otherwise.

21.6 Prevalence of this Framework Agreement on the remaining Financial Documents

The Parties agree that in the event of a conflict between the provisions of this Framework Agreement and the contents of the remaining financial documents (only related to matters that are subject to regulation in this Framework Agreement and the relationships between the Lenders and the Bound) will prevail between them in this Framework Agreement.

 

75


2l.7 Exchange Rate

The amounts denominated in a currency other than the one used in the corresponding disbursement, will be converted to the corresponding currency, using the exchange rate published by the Superintendent of Banking, Insurance and Pension Funds, the day prior to the date on which the Administrative Agent may need to update the corresponding amount.

22. APPLICABLE LAW AND JURISDICTION

22.1 Applicable Law

In all matters not provided for in this document, the agreement shall be governed by the Laws of the Republic of Perú. Also, any reference to the legislation or specific rule referred to in this document should be understood as referring to the Legislation of the Republic of Perú.

22.2 Jurisdiction

Any controversy or dispute arising out of or in connection with this framework agreement, and many issues resulting there from that cannot be resolved by the Parties through direct or assisted negotiation will be resolved in a final and definitive way through arbitration of law, under the following rules: The arbitration shall be conducted by an arbitration tribunal composed of three members:

(A) In the case that the dispute arises in respect of two (2) Parties involved in a case, each of them shall appoint an arbitrator and these, in turn, shall designate by common agreement the third arbitrator, who shall be the president of the arbitration tribunal.

(B) In the case of a plurality of Parties or one of them is made up of more than one person, who acts as plaintiffs they will have to act jointly in the designation of its arbitrator and, in the same way, those who act as defendants will appoint someone. If there is no agreement on the joint nomination of the arbitrator, their appointment will be in charge of the American Chamber of Commerce of Perú. The two (2) arbitrators appointed shall appoint the third arbitrator, who shall be the president of the arbitration tribunal. The arbitrator to be appointed by the American Chamber of Commerce of Perú as referred to above, will have experience in commercial disputes of a similar nature and relevance as the dispute that cause the designation.

 

76


The arbitration shall be conducted in the English language. The arbitration shall be an arbitration, as provided for in the law. The seat of the arbitration shall be the city of Lima, and will be made by the American Chamber of Commerce of Perú, to whose rules the Parties will submit to in any matter not covered in the present and declare to accept them in their entirety.

The arbitration tribunal shall have the power to decide any matter relating to its own jurisdiction, including any objection related to the existence, effectiveness or validity of the arbitration clause.

The award of the arbitration tribunal shall be final, binding and binding on the Parties.

The costs of the proceedings, including the fees and expenses incurred by the party that is favoured by the arbitration award shall be borne by the Party which is not favoured by the decision of the arbitration tribunal. The foregoing shall be determined by the arbitration tribunal and expressly provided in its award.

In the event any judicial measure of collaboration with the arbitration is needed, either before or after this, the Parties may resort to the Judges and Civil Commercial sub-speciality of the Judicial District of Lima, Perú, renouncing the jurisdiction of the judges that may correspond to them by reason of their domicile. Similarly, in the event of an appeal for annulment of the award against the arbitration tribunal, The Civil Chamber of the Judicial District of Lima, Perú shall be competent through its commercial sub-speciality, along with a bank letter of guarantee and in solidarity, irrevocable and automatically, without the benefit of discussion, by the amount that the award was ordered to pay, in favour of the counter party.

Such letter shall be enforceable in the event that the appeal of annulment, in final judgement, may not be declared admissible. In case the award does not contain a condemnation of compensation, the arbitration tribunal shall decide the amount of the bond. The bond shall be in force for the duration of the process promoted and up to three months after the issue has been resolved in the action for annulment.

Signed on 31 July 2017

 

77


[Signature page to the Financial Stability Framework Agreement entered into on July 31, 2017]

By the Borrowers:

 

GRAÑA & MONTERO S.A.A.      

/s/ Claudia Inés Drago Morante

     

/s/ Mónica María Miloslavich Hart

Claudia Inés Drago Morante       Mónica María Miloslavich Hart
DNI N° 09336254       DNI N° 10545024
GyM S.A.      

/s/ Mónica María Miloslavich Hart

     

/s/ Renato Eduardo Rojas Balta

Mónica María Miloslavich Hart       Renato Eduardo Rojas Balta
DNI N° 10545024       DNI N° 07876979
CAM PERÚ S.A.      

/s/ Mónica María Miloslavich Hart

     

/s/ Renato Eduardo Rojas Balta

Mónica María Miloslavich Hart       Renato Eduardo Rojas Balta
DNI N° 10545024       DNI N° 07876979
CONCESIONARIA VÍA EXPRESA SUR S.A.      

/s/ Mónica María Miloslavich Hart

     

/s/ Elena Bustamante Laynes

Mónica María Miloslavich Hart       Elena Bustamante Laynes
DNI N° 10545024       DNI N° 10475431
VIAL Y VIVES – DSD S.A.      

/s/ Mónica María Miloslavich Hart

     

/s/ Renato Eduardo Rojas Balta

Mónica María Miloslavich Hart       Renato Eduardo Rojas Balta
DNI N° 10545024       DNI N° 07876979


[Signature page to the Financial Stability Framework Agreement entered into on July 31, 2017]

By the Guarantors:

 

GRAÑA & MONTERO S.A.A.      

/s/ Claudia Inés Drago Morante

     

/s/ Mónica María Miloslavich Hart

Claudia Inés Drago Morante       Mónica María Miloslavich Hart
DNI N° 09336254       DNI N° 10545024
GyM S.A.      

/s/ Mónica María Miloslavich Hart

     

/s/ Renato Eduardo Rojas Balta

Mónica María Miloslavich Hart       Renato Eduardo Rojas Balta
DNI N° 10545024       DNI N° 07876979


[Signature page to the Financial Stability Framework Agreement entered into on July 31, 2017]

By the Lenders:

 

BBVA BANCO CONTINENTAL      

/s/ Eduardo Enrique Torres Llosa Villacorta

     

/s/ Frank Erick Babarczy Rodríguez

Eduardo Enrique Torres Llosa Villacorta       Frank Erick Babarczy Rodríguez
DNI N° 09377923       DNI N° 09339170
BANCO DE CRÉDITO DEL PERÚ      

/s/ Guillermo Wiesse León

     

/s/ Bertha Mariel Torres Castillo

Guillermo Wiesse León       Bertha Mariel Torres Castillo
DNI N° 02865741       DNI N° 40868707
BANCO INTERNACIONAL DEL PERÚ S.A.A.      

/s/ José Antonio Gonzales Ramsey

     

/s/ Rodrigo Gonzalo Guzmán Valenzuela

José Antonio Gonzales Ramsey       Rodrigo Gonzalo Guzmán Valenzuela
DNI N° 08885472       DNI N° 10319175
SCOTIABANK PERÚ S.A.A.      

/s/ Gonzalo Gil Plano

     

/s/ Pedro Ignacio Belaunde Zuzunaga

Gonzalo Gil Plano       Pedro Ignacio Belaunde Zuzunaga
DNI N° 09752555       DNI N° 42597480


[Signature page to the Financial Stability Framework Agreement entered into on July 31, 2017]

 

CITIBANK DEL PERÚ S.A.      

/s/ José Luis Noriega León

     

/s/ Luis Alberto Bas Gil

José Luis Noriega León       Luis Alberto Bas Gil
DNI N° 09872315       DNI N° 000665528
CITIBANK, N.A.      

/s/ José Luis Noriega León

     
José Luis Noriega León      
DNI N° 09872315      


[Signature page to the Financial Stability Framework Agreement entered into on July 31, 2017]

 

LA FIDUCIARIA S.A.      

/s/ Lila Miluska Pure Vizcarra

     

/s/ Alejandro Almendariz Small

Lila Miluska Pure Vizcarra       Alejandro Almendariz Small
DNI N° 44197225       DNI N° 44657883


[Signature page to the Financial Stability Framework Agreement entered into on July 31, 2017]

 

SCOTIABANK PERÚ S.A.A.      

/s/ Gonzalo Gil Plano

     

/s/ Pedro Ignacio Belaunde Zuzunaga

Gonzalo Gil Plano       Pedro Ignacio Belaunde Zuzunaga
DNI N° 09752555       DNI N° 42597480


ANNEXES

 

Annex I

  

Graña Economic Group

Annex II

  

Guarantees

Annex III

  

Senior Creditors Financing Contracts

Annex IV

  

Guarantees of Senior Creditors

Annex V

  

Affidavit model

Annex VI

  

Litigations

Annex VII

  

Auditors

Annex VIII

  

Form of assignment

Annex IX

  

Detail of current GyM debt—Subcontractors GSP

Annex X

  

Existing trusts with customers

Annex XI

  

Guidelines for the constitution of future trusts with customers


ANNEX I

GRAÑA ECONOMIC GROUP

[This exhibit, drafted in Spanish language, is a corporate structure chart of Graña y Montero S.A.A. and its subsidiaries, including the corporate name, tax ID, country of incorporation and percentage owned by Graña y Montero S.A.A. of each entity.]


ANNEX II

GUARANTEES

[This exhibit, drafted in Spanish language, is a list of guarantees granted by Graña y Montero S.A.A. and its subsidiaries.]


ANNEX III

SENIOR CREDITORS FINANCING CONTRACTS

[This exhibit, drafted in Spanish language, is a list of financing contracts executed by Graña y Montero S.A.A., as borrower, with senior creditors and which are backed by certain guarantees.]


ANNEX IV

GUARANTEES OF SENIOR CREDITORS

[This exhibit, drafted in Spanish language, is a list of guarantees in favour of senior creditors entered into by Graña y Montero S.A.A. and its subsidiaries.]


ANNEX V

AFFIDAVIT MODEL

[This exhibit, drafted in Spanish language, is a model affidavit to be signed by Graña y Montero S.A.A. and GyM S.A. stating that the conditions for disbursement referred to in Section 4 of the Credit Agreement have been fully complied with.]


ANNEX VI

LITIGATIONS

[This exhibit, drafted in Spanish language, is a chart of arbitrations, litigations and administrative procedures for amounts in excess of US$ 2,000,000 (two million and 00/00) in which Graña y Montero S.A.A., GyM S.A. and the consortiums in which they participate are involved as plaintiffs or defendants.]


ANNEX VII

AUDITORS

[This exhibit, drafted in Spanish language, is a list of external auditors (PwC, E&Y, Deloitte and KPMG).]


ANNEX VIII

FORM OF ASSIGNMENT

[This exhibit, drafted in Spanish language, is a form of assignment by which a lender may assign its rights under the financing documents.]


ANNEX IX

DETAIL OF CURRENT GyM DEBT – SUBCONTRACTORS GSP

[This exhibit, drafted in Spanish language, is a chart of the debt of Consorcio Ductos del Sur as of June 30, 2017, including information as to GyM S.A.’s proportional participation in such debt.]


ANNEX X

EXISTING TRUSTS WITH CUSTOMERS

[This exhibit, drafted in Spanish language, is a list of the trusts constituted by GyM S.A.]


ANNEX XI

GUIDELINES FOR THE CONSTITUTION OF FUTURE TRUSTS WITH CUSTOMERS

[This exhibit, drafted in Spanish language, is a list of guidelines to be taken into consideration by GyM S.A. in order for it to create new trusts, including conditions such as use of cash flows, establishing bank accounts for the cash flows under the trust, priority order of payments, limitations on clients’ rights to seize certain revenues of GyM S.A., and list of fiduciaries from which GyM S.A. may choose to create the trust.]

Exhibit 10.04

Below please find Section 20 of the GSP Concession Agreement, dated as of July 22, 2014, by and between the Peruvian Ministry of Energy and Mines, as contracting authority, and Enagas Internacional S.L.U., as concessionaire, to build, operate and maintain a natural gas pipeline transportation system to satisfy the demand of certain cities in the southern region of Peru. This agreement was terminated by the Peruvian government on January 24, 2017 due to failure to obtain financing. Section 20 of the contract, which is the section relating to termination and termination compensation, remains material to the company and is therefore translated here.

SECTION 20

CONCESSION TERMINATION AND TRANSFER OF THE CONCESSION ASSETS

 

20.1 The Concession shall terminate due to the following grounds:

 

  (a) Upon expiry of the Contract Term, in accordance with Section 39, item “a” of the Consolidated Text (TUO) and Section 45, item “a” of the Regulations, applying the procedure set forth in Section 57 of the Regulations.

 

  (b) By agreement between the Parties, in accordance with Section 39, item “c” of the TUO and Section 45, item “d” of the Regulations, applying the procedure set forth in Section 58 of the Regulations.

 

  (c) Termination of the Contract in accordance with Section 39, item “e” of the TUO, and Section 45, item “d” and Section 58 of the Regulations, which shall be declared by the Grantor as provided for in subsection 20.2, due to the following grounds:

 

  c.1 The declaration of insolvency of the Concessionaire or the Qualified Operator; or the appointment of a receiver other than the intervener mentioned in subsection 20.4.1 of the Contract, declared or designated pursuant to the Applicable Laws, for the Concessionaire or the Qualified Operator; or the granting by either the Concessionaire or the Qualified Operator of any agreement or assignment of a substantial part of their property or rights for the benefit of their creditors; or the appointment of a liquidator, administrator or manager in respect of all or any part of their assets, except for those assignments or transfers permitted by Section 10 of the Contract. In these cases, the Contract shall terminate when the Grantor becomes aware of any of the above events and serves a notice in this regard, provided that the insolvency or any other cause established in this Section has not been rectified to the Grantor’s satisfaction within a term of sixty (60) calendar days following such notice, or within any longer term granted by the Grantor in writing should there be reasonable causes for that.

 

  c.2 The breach of the provisions set forth in subsections 9.9 and 9.10 of the Contract.


  c.3 If the Force Majeure Event, or its effects, invoked by the Concessionaire or the Grantor, is not overcome within the term established in subsection 17.7 of the Contract.

 

  c.4 The unjustified, repeated or serious breach of the Concessionaire’s obligations if, despite having received a written request from the Grantor, the Concessionaire fails to cure such breach within sixty (60) calendar days after the date of such request, unless a longer term is afforded by the Grantor expressly and in writing should there be reasonable causes for that.

 

  c.5 The failure to renew the Performance Bond and/or the Supplementary Performance Bond as required by Section 9 of the Contract or the Applicable Laws.

 

  c.6 If any of the representations and warranties made by the Concessionaire or the Qualified Operator, as appropriate, as established by this Contract, either in the Tender or during the performance of the Contract, is false.

 

  c.7 Any amendment to the Concessionaire’s or Qualified Operator’s corporate bylaws that is contrary to any express provisions set forth in the Contract or the Applicable Laws, unless it has been previously approved by the Grantor.

 

  (d) Termination of the Contract in accordance with Section 39, item “e” of the TUO, and Section 45, item “d” and Section 58 of the Regulations, which shall be declared by the Concessionaire in the event of the repeated or serious breach of the Grantor’s obligations under this Contract or the Applicable Laws if, despite having received a written request from the Concessionaire through notarial means, the Grantor fails to cure such breach within sixty (60) calendar days after the date of such written request, unless a longer term is afforded by the Concessionaire expressly and in writing.

Similarly, the Concessionaire may terminate the Contract if the Force Majeure event, or its effects, continues for more than twelve (12) months, as set forth in subsection 17.7. Furthermore, the Grantor may terminate the Contract if the Force Majeure event, or its effects, continues for more than eighteen (18) months, as set forth in subsection 17.7. In both cases, the submission of a notarized letter to the appropriate Party according to the procedure described in subsection 20.2 of the Contract shall suffice.

 

  (e) Declaration of the Concession Termination by the Grantor pursuant to Section 45, item “b” of the Regulations and Section 39, item “b” of the TUO, due to the Total Destruction of the Transportation System and due to the grounds established in Section 46 of the Regulations; the procedure described in Sections 47 to 54 of the Regulations and the procedure described in subsection 20.4 of the Contract shall apply.


  (f) Relinquishment of the Concession by the Concessionaire, accepted by the Grantor, in accordance with Section 45, item “c”, and Sections 55 and 56 of the Regulations.

 

  (g) Due to public interest reasons, properly supported by the Grantor.

If any of the grounds set forth in subsections 20.1.c.5, 20.1.c.6, and 20.1.c.7, the Grantor shall grant the Concessionaire a term of no less than sixty (60) calendar days after the default is notified to cure such default. Should the Concessionaire cure the defaults within the above-mentioned term, this Contract shall not be terminated.

Once the Contract has been terminated as prescribed in this Section, the Grantor shall return to the Concessionaire the guarantees furnished hereunder that are in force, as appropriate, provided that there are no grounds for the partial or total enforcement thereof pursuant to this Contract.

 

20.2 The termination of the Contract as declared by any of the Parties shall only take place when the Party affected by the default or the event giving rise to the termination invokes such grounds and notifies the other Party, through a notarized letter, of its intention to terminate this Contract by enforcing the respective termination clause, without prejudice to the provisions of subsection 20.1, item “d”, and the penultimate paragraph of subsection 20.1. After receiving the notarized letter of Contract termination sent pursuant to the provisions of this Section, the recipient thereof may express its disagreement with the existence of any ground for termination; for this purpose, it must submit to the other Party a notarized letter that must be received within a term not to exceed fifteen (15) Days following the date of receipt of the first notarized letter. In this case, it shall be understood that there is a conflict or dispute concerning the termination of the Contract, and the provisions of Section 18 shall apply. If, upon expiry of such fifteen (15)-Day term, the recipient of the first notarized letter has not expressed any disagreement, the Contract shall terminate on the date of receipt of such letter. In that case, the Concession Termination shall operate, and the Contract shall terminate by declaration of one of the Parties due to another ground for Concession Termination, in accordance with Section 45 of the Regulations.

In the case of subsection 20.1, item g) of the Contract, the notarized letter requesting the termination of the Contract shall be sent to the Concessionaire six (6) months in advance of the term established for the termination. The Permitted Creditors shall be notified at the same time.

 

20.3 The Concession Termination by agreement of the Parties shall take effect on the date on which both Parties sign the notarial public instrument containing the Termination agreement, this ground being considered as another ground for Concession Termination in accordance with Section 45, paragraph “d” of the Regulations. In this event, the Grantor undertakes to return to the Concessionaire, within a term not to exceed fifteen (15) Days, the Performance Bond and/or Supplementary Performance Bond, as appropriate.


20.4 Upon the Concession Termination due to any of the grounds described in this Section, the Grantor or the party designated by it shall:

 

  20.4.1 Appoint a Person to act as the intervener of the Concessionaire, supervising its work. The Concessionaire shall be under the obligation to guarantee the uninterrupted provision of the Transportation Service when so ordered by the Ministry of Energy and Mines, unless this is not possible due to the Total Destruction of the Transportation System, for a term of up to one (1) year or until the Concessionaire is replaced by a new concessionaire (the “New Concessionaire”) as prescribed in this Section, whichever occurs first. During such period of uninterrupted provision of the Transportation Service, the Concessionaire shall be entitled to the respective income derived from the rates. In the event that the Concessionaire abandons the provision of the Transportation Service or makes an assignment or transfer of the Concession to a third party without the prior authorization of the Grantor, or upon expiry of the one (1)-year term referred to in this subsection, the intervener appointed shall assume the operation of the Transportation System until it is delivered to the New Concessionaire. In the case of the Concession Termination due to expiry of the Contract Term, the appointment of the intervener referred to in this Section shall be made before such expiry date and in accordance with Section 57 of the Regulations, so that it may start its activities on the first calendar day of the last year of the Contract Term.

 

  20.4.2 Call and carry out a public auction for the transfer of the Concession and delivery of the Concession Assets to the New Concessionaire, as per the following conditions:

 

  (i) The Concession Assets shall be transferred to the Peruvian State and delivered to the New Concessionaire as a whole and as one economic unit, so that the New Concessionaire may continue to use the Concession Assets to provide the Transportation Service without interruption, when the New Concessionaire has paid, as set forth in item (iii) below, the amount offered in the auction. The Concessionaire shall:

 

  a. transfer the ownership of the Concession Assets to the Peruvian State, including in such transfer the information necessary to continue providing the Transportation Service without interruption, free of any lien or encumbrance. The Peruvian State shall deliver such assets and information to the New Concessionaire that wins the public auction.

 

  b. transfer and deliver the Concession Assets in good operating condition, except for the ordinary wear and tear resulting from time and normal usage; and

 

  c. execute the notarial public instruments and other private documents that may be required, in accordance with the Applicable Laws, or those that may be reasonably required by the Grantor for the transfer, or assignment of contractual position, as the case may be, of the rights that make up the Concession Assets.


  (ii) The bidders of the public auction referred to in this Section shall be short-listed by the Grantor or by the party appointed by it.

 

  (iii) The successful bidder of the public auction shall be the bidder that submits the highest economic bid for the Concession. The successful bidder shall execute a contract with the Grantor, whereby it shall unconditionally assume all the rights and obligations imposed by the laws then in force on it as the holder of the Concession.

Any payment by the successful bidder shall be made to the Grantor, except for the amounts payable by the Permitted Creditors of Secured Debt, which shall be paid directly by the successful bidder to the Permitted Creditors of Secured Debt.

 

  (iv) In all cases of Concession Termination, and for the purposes of Section 22 of the TUO, it shall be understood that the Concession Assets are transferred to the Peruvian State, which shall in turn deliver them under concession to the New Concessionaire. The items mentioned in subsection 20.4.3 below shall be paid with the proceeds from the public auction, under the conditions set out in such subsection.

 

  20.4.3 As established in Sections 45, 53, and 54 of the Regulations, the Grantor shall pay the Concessionaire, against the amount obtained from the auction and to the extent allowed by such amount, up to a maximum sum equivalent to the Book Value of the Concession Assets, determined as stipulated herein. Prior to payment to the Concessionaire, the Grantor shall deduct from such amount the expenses incurred in the intervention and auction process. If any balance remains after such deduction, and in all cases up to a maximum sum equivalent to the Book Value of the Concession Assets less such deduction, the Grantor shall pay:

 

  a) The remunerations and other employment rights of the Concessionaire’s workers.

 

  b) The amounts of money that must be delivered to the entities that granted a credit qualified as Secured Debt.

The successful bidder shall make this payment directly to the bank account(s) informed to the Grantor by the representative of the Permitted Creditors of Secured Debt.

For these purposes, the Grantor shall inform the successful bidder and the Permitted Creditors on the amount of the intervention and auction expenses and the amount owed to the Concessionaire’s employees by way of remunerations and other employment rights that must be paid before the Secured Debt is paid.

 

  c) The taxes, except for those that are guaranteed in accordance with the Applicable Laws.


  d) Any fine or another penalty that was not paid by the Concessionaire, unless a claim or appeal proceeding followed before an administrative court or a challenge proceeding followed before a judicial court is ongoing, in which case the respective amount shall be withheld by the Grantor as payment guarantee until the decision resolving on the challenge becomes final.

 

  e) Any other liability payable by the Concessionaire in favor of the Peruvian State, including any compensation, if applicable.

 

  f) Other liabilities not considered in items “a” to “e” above.

If any balance remains after the payments mentioned in the first paragraph of this Section and in items “a” to “f” are made, and in all cases up to a maximum amount equivalent to the Book Value of the Concession Assets less the payments referred to in this Section, the Grantor shall pay such balance to the Concessionaire.

If the proceeds from the auction are higher than the Book Value of the Concession Assets, paid in accordance with this Section, the difference shall be for the Peruvian State.

The order of priority in the payment of the above-mentioned items shall be as described above, unless otherwise provided by the Applicable Laws.

The base amount of the first call for the auction of the Concession shall not be less than the Book Value of the Concession Assets as of the date of such call. If there are no bidders and if new calls are made, the Grantor may deduct in each new call up to fifteen percent (15%) of the base amount of the immediately previous call. The Grantor may not make more than three (3) calls for the auction of the Concession within a term of twelve (12) months after the date of Concession Termination.

If, due to any reason, the proceeds from the auction are less than seventy-two point twenty-five percent (72.25%) of the Net Book Value of the Concession Assets, determined as of the date of the first call for the auction of the Concession, or there are no bidders in the auctions conducted, or no auction is carried out within the term established in the preceding paragraph due to causes attributable to the Grantor, the Grantor shall pay, against its own funds, the amounts still required to make the payment stated in item b) of this Section, taking into account the provisions of the first paragraph of this Section, for up to the amount necessary to cover the difference between the proceeds actually received from the auction and the seventy-two point twenty-five percent (72.25%) of the Net Book Value of the Concession Assets. This payment shall be made in Dollars and in readily available funds on the date the bid is awarded or on the last day of the twelve (12)-month term previously mentioned, as the case may be.


20.5 If no successful bidder is elected in the auctions for a term of twelve (12) months counted from the date of Concession Termination, the Grantor shall pay the Concessionaire, against its own resources, the lower of the following amounts: (i) the Net Book Value of the Concession Assets, or (ii) the base amount of the last call referred to in the final paragraph of subsection 20.4.3 of the Contract. In all cases, the Grantor shall deduct from the amount to be paid to the Concessionaire, to the extent allowed by such amount, the expenses and amounts payable under subsection 20.4.3 of the Contract.

 

20.6 The Concessionaire shall provide full and reasonable cooperation to achieve an orderly delivery of the Concession Assets and information to the New Concessionaire so that the provision of the Transportation Service is not interrupted.

 

20.7 The transfer of the Concession Assets required to be made upon the Concession Termination as set forth in subsection 20.4 shall be made at their Book Value, taking into consideration for that purpose the provisions of Section 22 of the TUO and the Regulations on Tax Benefits for Private Investment in Public Infrastructure Works and Utilities approved by Supreme Decree No. 132-97-EF.

 

20.8 If the Concession Termination takes place due to the ground established in subsection 20.1, items “d” or “g” or if the Grantor renders the Concession ineffective due to a cause not stipulated in Section 39 of the TUO, the Grantor shall, within a term of sixty (60) calendar days counted from the declaration of termination of the Contract referred to in the aforementioned subsection, shall return to the Concessionaire the respective guarantees that are in force as established herein and shall pay the Concessionaire, for all items, including the transfer of the Concession Assets to the Grantor and the compensation referred to in Sections 22 and 17 of the TUO, respectively, the greater of the following amounts:

 

  a) The present value of the net cash flow of the Concessionaire that was generated during the Contract Term that would have remained if the Concession Termination had not occurred, based on the actual installed capacity of the Transportation System as of the date of Concession Termination.

 

  b) The Net Book Value of the Concession Assets, as established in subsection 20.7, as of the date of Concession Termination.

The amount to be paid shall be calculated by a specialized consulting firm appointed as set forth in subsection 20.9 of the Contract; such firm shall apply the parameters established in this subsection.

The above-referred study shall be entrusted and executed within a term not to exceed sixty (60) calendar days following the Concession Termination. The expenses arising from the conduction of the study shall be borne by the Grantor.

The expenses incurred in the intervention and auction process referred to in subsection 20.4 as well as the Concessionaire’s obligations and liabilities shall be deducted from the amount that is determined to be paid, so that the Grantor pays them in the order stipulated in subsection 20.4.3.


The Grantor shall pay the amount determined by the above-referred study to the Concessionaire within a term of sixty (60) calendar days counted from the date on which the successful bidder of the auction mentioned in subsection 20.4.2 pays the price offered in such auction, including the interest accrued during the period between the date on which the Concession Termination operated and the payment in full of the compensation, at a rate equal to the average of the period of six (6) months before the payment date, be it the lending rate in domestic or foreign currency, whichever is applicable, in force in the Peruvian financial system.

 

20.9 For purposes of the provisions set forth in the preceding subsections of this Section 20, the Net Book Value of the Concession Assets shall be determined on a yearly basis, within a term of one hundred twenty (120) days following the close of the fiscal year, by an independent auditing firm to be appointed according to the following procedure:

The Concessionaire shall prepare, with the consent of the Permitted Creditors of Secured Debt, a list of three (3) auditing firms, which shall be submitted to the Grantor within thirty (30) days calculated from the close of the fiscal year for approval. If the Concessionaire fails to submit the list within the stipulated term, the Permitted Creditors of Secured Debt may do so within a term of fifteen (15) days.

The Grantor may express its agreement with the list submitted within a term of twenty (20) days following submission thereof, after which the Concessionaire shall appoint the auditing firm within a term not to exceed ten (10) days. If the Concessionaire fails to appoint the auditing firm within such term, the creditors of Secured Debt may do so within a maximum term of ten (10) days.

The costs derived from the auditing firm’s services shall be borne by the Concessionaire.

This procedure for appointment of an auditing firm does not apply to the grounds for termination or forfeiture of the Concession, in which case the provisions of Sections 45 and 54 of the Regulations shall apply. The auditing firm thus appointed, which must be an internationally renowned firm, shall establish the Book Value as prescribed in the first paragraph of this definition.

In any of the procedures, the auditing firm shall inform the Book Value determined by it as established in the preceding paragraphs to the Grantor, the Concessionaire and the creditors of Secured Debt.

 

20.10 Cure Right of the Permitted Creditors

The cure right of the Permitted Creditors, contemplated in this subsection 20.10, shall not apply if the Commercial Start-up does not occur within the term stipulated in subsection 3.2.2., item c), which includes the additional term of one hundred twenty (120) days established in item d) of the same subsection, with such additional term being subject to the applicable Penalties set forth.

 

  20.10.1 The Grantor shall notify simultaneously the Permitted Creditors and the Concessionaire of the occurrence of any breach of the Concessionaire’s obligations hereunder that gives rise to the Concession Termination due to a cause attributable to the Concessionaire, so that the Permitted Creditors may take the actions deemed necessary to contribute to the full performance of the Concessionaire’s obligations.


  20.10.2 The Grantor acknowledges that neither the Contract may be terminated nor the Concession Termination may be declared due to a cause attributable to the Concessionaire without previously notifying the Permitted Creditors of such intention and without the Permitted Creditors having had the right to rectify the cause that gave rise to the Grantor’s right to terminate the Contract as provided for in this Section and according to the following procedure:

 

  a) If any of the grounds established herein for the Concession Termination occurs and the Concessionaire’s term to cure such event expires and the Grantor desires to exercise its right to terminate the Contract, the Grantor shall first send a written notice to the Permitted Creditors. The Grantor shall expressly describe in such notice the ground or grounds for termination occurred. In order for such notice to be valid, it must bear the respective proof of receipt or it must be sent by e-mail or by fax, it being necessary to verify receipt thereof.

 

  b) The Permitted Creditors shall have a term of sixty (60) Days calculated from the notice referred to in item a) above, to cure the ground or grounds for termination notified. Upon expiry of such term without the ground for termination having been cured, the Grantor may exercise its right to terminate the Contract.

The Permitted Creditors’ failure to exercise their cure right does not or shall not affect in any manner whatsoever the benefits and/or rights established in favor of the Permitted Creditors herein.

 

  c) The cure or intended cure of the ground for termination by the Permitted Creditors may in no case be understood as the assumption by the Permitted Creditors of any of the covenants, agreements or obligations of the Concessionaire hereunder.

Should the Concessionaire cure the ground for termination during the sixty (60)-Day period referred to in the foregoing item b), the Grantor undertakes to notify the cessation of the existence of the ground for termination within a term not to exceed seventy-two (72) hours following the occurrence of such fact.

Exhibit 10.05

MEMORANDUM OF UNDERSTANDING

This Memorandum of Understanding (the “ MOU ”) is made and entered into by and between the parties detailed in the final section of this MOU. Either party may be hereinafter referred to individually as the “ Party ” and jointly as the “ Parties ”.

 

1. The Parties recognize that they have different positions with regard to several matters derived from their contract relationships and that the execution of this MOU shall in no way imply the waiver and limitation of the rights that each Party considers to hold in connection with any matter or issue not regulated by this MOU, nor the acceptance or recognition of the position of the other Party in that connection.

 

2. The purpose of this MOU is for the Parties to make a declaration of intent and to undertake to sign the documents necessary to implement the agreements contained herein and from which the essential elements of this MOU derive. Accordingly, it is understood that this MOU is binding on the Parties.

 

3. In this regard, the Parties acknowledge and agree as follows:

 

  3.1 The Parties undertake, through their participation in the Shareholders’ Meeting of GSP or in a potential Creditors’ Meeting, to ensure that GSP will not execute with the Peruvian State any agreement that establishes that the total payment of the amounts resulting from the application of Section 20 of the Concession Agreement or any other legal provision must be less than 72.25% of the Net Book Value defined in the report prepared by the auditing firm Deloitte, represented in Peru by Gris y Asociados, S. Civil de R.L.

 

  3.2 The credit rights held by the Odebrecht Group against GSP arising from the payments made to the Bridge Lenders and CHUBB as from January 24, 2017 shall have the same order of priority as the credit rights held by the Enagás Group and the Graña y Montero Group for the same reasons. Consequently, the above-mentioned credit rights held by the Odebrecht Group shall not be subject to subordination or assignment in favor of the Enagás and Graña y Montero Groups.

 

  3.3 The Parties undertake to vote, in the Shareholders’ Meeting in which the appointment of the new General Manager will be discussed, for an independent legal entity that is unanimously accepted by the Parties and that is one of the “big four” companies or an investment bank or a renowned company with experience in the management of companies undergoing liquidation. The powers of the new General Manager shall be unanimously approved by the Parties, with the participation of the new General Manager.

With regard to GSP’s system of powers, it is agreed to maintain the current system of powers until it is modified by unanimous decision of the Parties.

 

  3.4 The Parties state that they desire that the concession assets that have been subject to valuation and approved by GSP and Consorcio Supervisor del Sur (“CSS”) be immediately delivered in possession to the Ministry of Energy and Mines for custody and conservation purposes. If any of such properties is in the possession of a third party, the pertinent instruction shall be issued, so that such assets are delivered in possession directly to the Ministry of Energy and Mines.


For the above purpose, simultaneously with the execution of this MOU, a Shareholders’ Meeting shall be held with the attendance of 100% of the shareholders in order to approve such delivery, signing the certificate attached hereto as Exhibit 1 to this MOU for its submission to the Ministry of Energy and Mines. Furthermore, in such Shareholders’ Meeting, a representative of each Party shall be appointed so that they can carry out any and all acts necessary to complete the delivery of the concession assets to the Ministry of Energy and Mines.

In the same Shareholders’ Meeting, the 2016 Financial Statements shall also be approved.

 

  3.5 This MOU shall be governed by the laws of the Republic of Peru.

 

  3.6 None of the legal effects, whether direct or indirect, derived from this MOU shall take place until satisfaction of the following two conditions precedent: (i) the Ministry of Energy and Mines shall sign the certificate of delivery of the concession assets in accordance with Exhibit 1 to this MOU or any other certificate acceptable to the Parties; and (ii) this MOU shall be signed by the three shareholders of GSP.

 

  3.7 Any dispute, claim, conflict of interest, legal uncertainty or payment request that may arise in connection with the execution, interpretation and/or performance of this MOU shall be submitted to the knowledge and decision of three (3) arbitrators. Two (2) of them shall be appointed by the Parties in conflict (one by each Party). The third arbitrator shall be appointed by the two (2) arbitrators chosen by the Parties, and shall preside the arbitration tribunal (the “Arbitration Tribunal”).

The arbitration proceeding shall be governed by the following provisions:

 

  i. Subject to the provisions of the following paragraph, the Party sending a notice requesting that the dispute be submitted to arbitration shall include the appointment of its arbitrator in such notice. The other Party shall, within a term of ten (10) calendar days following receipt of each notice, appoint its arbitrator and notify the other Party of such appointment. If the respective arbitrator is not appointed, the Party initiating the arbitration shall have the right to request the Arbitration Center of the American Chamber of Commerce of Peru to appoint the second arbitrator.

If there are more than two (2) Parties in conflict, the three (3) arbitrators shall be appointed by the American Chamber of Commerce of Peru.

 

  ii. Arbitration shall be de jure and shall be conducted in the city of Lima and in Spanish.


  iii. The arbitration award rendered by the Arbitration Tribunal shall be final and binding. Consequently, the Parties expressly waive their right to file an appeal. The award issued by the Arbitral Tribunal may only be rendered null in those cases contemplated in the Governing Law. In that event, the judges and courts in and for the city of Lima shall be competent.

 

  iv. The expenses derived from arbitration shall be paid by the Parties as established by the Arbitration Tribunal. All matters related to this arbitration agreement and/or arbitration that are not regulated by this clause shall be governed by Legislative Decree 1071.

 

  v. The Parties agree that the current lack of determination of the eventual and unlikely dispute that would be submitted to arbitration may not be invoked by either of the Parties to assert that this clause is not an arbitration agreement.

 

  vi. In those cases where the supplementary intervention of the Judiciary is required, the Parties expressly submit to the jurisdiction of the judges in and for the Judicial District of Lima and waive the jurisdiction of their domiciles, if different.


[SIGNATURE PAGE OF THE MEMORANDUM OF UNDERSTANDING]

In witness whereof, this MOU has been executed in six (6) counterparts.

Lima, September 26, 2017

On behalf of Graña y Montero S.A.A.

- /s/ Mónica María Miloslavich Hart / Fingerprint

- /s/ Luis Francisco Díaz Olivero / Fingerprint

On behalf of Negocios de Gas S.A.

- /s/ Mónica María Miloslavich Hart / Fingerprint

- /s/ Luis Francisco Díaz Olivero / Fingerprint

On behalf of Enagás S.A.

- /s/ Pedro Martín-Ondarza González / Fingerprint

- /s/ José Antonio de las Heras Alonso / Fingerprint

On behalf of Odebrecht S.A.

- /s/ Mauricio Cruz Lopes / Fingerprint

- /s/ Oscar Eduardo Salazar Chiappe / Fingerprint

On behalf of Inversiones en Infraestructura de Transporte por Ductos S.A.C.

- /s/ Mauricio Cruz Lopes / Fingerprint

- /s/ Oscar Eduardo Salazar Chiappe / Fingerprint

 

NOTARIZATION ON THE REVERSE SIDE HEREOF

WILLIAM LEONCIO CAJAS BUSTAMANTE NOTARY’S OFFICE

 


WILLIAM LEONCIO CAJAS BUSTAMANTE

ATTORNEY-AT-LAW AND NOTARY’S OFFICE IN AND FOR LIMA

Malecón Ferreyros 320 – Ancón – Lima

Next to the Municipality of Ancón

Telephone: 552-0020 / Telephone and fax: 552-0252

I HEREBY CERTIFY : That the signatures appearing on the face hereof, and the identities of the signatories, are the true, proper and respective handwriting, and identities, of the following persons: MÓNICA MARÍA MILOSLAVICH HART, holder of National Identity Card (DNI) 10545024, acting on behalf of GRAÑA Y MONTERO S.A.A. and NEGOCIOS DE GAS S.A.; LUIS FRANCISCO DÍAZ OLIVERO, holder of National Identity Card (DNI) 07872756, acting on behalf of GRAÑA Y MONTERO S.A.A. and NEGOCIOS DE GAS S.A.; PEDRO MARTÍN-ONDARZA GONZÁLEZ, holder of Foreign Resident Card (CE) 001232975, a Spanish citizen, acting on behalf of ENAGÁS S.A.; JOSÉ ANTONIO DE LAS HERAS ALONSO, holder of Foreign Resident Card (CE) 001511558, a Spanish citizen, acting on behalf of ENAGÁS INTERNACIONAL SLU; MAURICIO CRUZ LOPES, holder of Foreign Resident Card (CE) 00155121, a Brazilian citizen, acting on behalf of ODEBRECHT S.A. and INVERSIONES EN INFRAESTRUCTURA DE TRANSPORTE POR DUCTOS S.A.C.; OSCAR EDUARDO SALAZAR CHIAPPE, holder of National Identity Card (DNI) 10866908, acting on behalf of ODEBRECHT S.A. and INVERSIONES EN INFRAESTRUCTURA DE TRANSPORTE POR DUCTOS S.A.C. This certification has been made by performing the biometric verification on the intervening parties against the database of the National Registry of Identification and Vital Statistics (RENIEC) and accessing the database of the Peruvian Immigration Superintendence; to which I attest.

Lima, September 26, 2017

/s/ William Leoncio Cajas Bustamante

Attorney-at-Law and Notary Public in and for Lima


Exhibit 1: Draft Certificate of Delivery of Concession Assets

AGREEMENT FOR THE DELIVERY IN POSSESSION OF THE CONCESSION ASSETS

This Agreement for the Delivery in Possession of the Concession Assets (hereinafter, the “Agreement”) is made and entered into by and between:

 

a) The Ministry of Energy and Mines (“MEM”), domiciled at Av. Las Artes Sur No. 260, District of San Borja, Province and Department of Lima, acting by and through the undersigned officer, pursuant to the resolution stated under his signature; and

 

b) Gasoducto Sur Peruano S.A. (“GSP”), identified by Taxpayer ID Number (RUC) 20563236354, with registered office at Av. Víctor Andrés Belaunde No. 280, Oficina No. 601, District of San Isidro, Province and Department of Lima, acting by and through the undersigned representatives.

For the purposes hereof, the MEM and GSP may be hereinafter, either individually or jointly, as applicable, referred to as the “Parties” or the “Party”.

The terms and conditions agreed upon by the Parties herein are as follows:

Section One : Recitals

 

a) On July 23, 2014, the MEM (as Grantor) and GSP (as Concessionaire) executed the Concession Agreement (hereinafter, the “ Concession Agreement ”) of the project named “Improvements to the Country’s Energy Security and Development of the Sur Peruano Gas Pipeline” (hereinafter, the “ Project ”).

 

b) On January 24, 2017, by Official Letter No. 145-2017-MEM-DGH, the MEM, under the provisions of subsection 6.7 of the Concession Agreement, declared the early termination of the Concession.

 

c) On January 31, 2017, Emergency Decree No. 001-2017 (hereinafter, the “ Decree ”) was approved.

Section Two : Purpose

 

1) The Parties recognize that they have different positions with regard to the regime applicable to the early termination of the Concession.

 

2) The execution of this Agreement shall in no way imply the waiver and limitation of the rights that each Party considers to hold, nor the acceptance or recognition of the position of the other Party, in connection with the regime applicable to the early termination of the Concession. In this regard, any reference herein to the Decree does not imply that GSP accepts that the early termination of the Concession is regulated by such regulatory instrument or other legal provisions.

 

3) No provision hereof may be construed as an amendment to the clauses of the Concession Agreement.


4) Without prejudice to the provisions of the preceding items, the Parties agree upon the operating mechanism to be followed for the delivery in possession of the assets referred to in the Decree under the following terms:

 

  i. GSP shall deliver the possession of the assets to the MEM.

 

  ii. The MEM shall receive the assets, in possession, for custody and conservation purposes, through Estudios Técnicos S.A.S. (the “ Administrator ”), which is the administration company engaged by OSINERGMIN in application of the provisions of the Decree, within the framework of the private investment promotion process in charge of PROINVERSION.

 

  iii. Within a term not to exceed seven (7) calendar days after execution of this document, GSP and the Administrator shall agree on a detailed schedule for the delivery of the assets. The delivery may not occur later than forty-five (45) calendar days.

 

  iv. As part of this process, upon execution of this document, GSP shall deliver to the MEM the engineering studies prepared for the development of the project.

 

  v. GPS authorizes the MEM to use the engineering studies prepared for the development of the project, referred to in the foregoing paragraph, and any other information that may be furnished to it, free of charge, for the purposes stated in point ii of this subsection 4).

 

  vi. As from the receipt of the assets, the MEM, through the Administrator, shall assume the respective possession, custody, ordinary maintenance and hiring of insurance, and shall bear the costs derived therefrom in its capacity as the possessor of such assets.

In witness whereof, this Agreement has been executed in two (2) identical counterparts this [*] day of [*], 2017.

(several illegible signatures)


REGISTRO NACIONAL DE IDENTIFICACIÓN Y ESTADO CIVIL – RENIEC

(NATIONAL REGISTRY OF IDENTIFICATION AND VITAL STATISTICS – RENIEC)

(Barcode)

Serial number 0034127518

WILLIAM LEONCIO CAJAS BUSTAMANTE NOTARY’S OFFICE

BIOMETRIC IDENTIFICATION AND AUTHENTICATION SERVICE

 

(PHOTOGRAPH)    PERSONAL DETAILS   
   Id Card (DNI)    10545024   
   First Last Name    MILOSLAVICH   
   Second Last Name    HART   
   Names    MÓNICA MARÍA   

FINGERPRINT CORRESPONDS TO DNI

The first fingerprint captured corresponds to the ID Card (DNI) under consultation. The second fingerprint captured corresponds to the ID Card (DNI) under consultation.

/s/ Mónica María Miloslavich Hart

ID Card (DNI) 10545024 / Fingerprint

 

CONSULTED INFORMATION    CONSULTATION VERIFICATION   

Operator : 09430050 – William

Leoncio Cajas Bustamante

  

The information can be verified on line at:

https://serviciosbiometricos.reniec.gob.pe/identification.do

  

Transaction Date : Sept. 26, 2017

08:40:56

   Consultation Number : 0034127518   

Entity : 10094300504 – CAJAS

BUSTAMANTE WILLIAM LEONCIO

     


REGISTRO NACIONAL DE IDENTIFICACIÓN Y ESTADO CIVIL – RENIEC

(NATIONAL REGISTRY OF IDENTIFICATION AND VITAL STATISTICS – RENIEC)

(Barcode)

Serial number 0034127961

WILLIAM LEONCIO CAJAS BUSTAMANTE NOTARY’S OFFICE

BIOMETRIC IDENTIFICATION AND AUTHENTICATION SERVICE

 

(PHOTOGRAPH)    PERSONAL DETAILS   
   Id Card (DNI)    07872756   
   First Last Name    DIAZ   
   Second Last Name    OLIVERO   
   Names    LUIS FRANCISCO   

FINGERPRINT CORRESPONDS TO DNI

The first fingerprint captured corresponds to the ID Card (DNI) under consultation. The second fingerprint captured corresponds to the ID Card (DNI) under consultation.

/s/ Luis Francisco Díaz Olivero

ID Card (DNI) 07872756 / Fingerprint

 

CONSULTED INFORMATION    CONSULTATION VERIFICATION   

Operator : 09430050 – William

Leoncio Cajas Bustamante

  

The information can be verified on line at:

https://serviciosbiometricos.reniec.gob.pe/identification.do

  

Transaction Date : Sept. 26, 2017

09:00:49

   Consultation Number : 0034127961   

Entity : 10094300504 – CAJAS

BUSTAMANTE WILLIAM LEONCIO

     


SUPERINTENDENCIA NACIONAL DE MIGRACIONES DEL PERÚ

(PERUVIAN IMMIGRATION SUPERINTENDENCY)

Av. España No. 734 – Breña – Lima

Telephone Exchange: 2001000 / Fax: 2001001

 

ONLINE CONSULTATIONS

Foreign Resident Card

   Applicant’s Details   

Enter the requested data in the screen to check your Foreign Resident Card Data, Payment of the Annual Foreigner’s Tax (TAE, for its acronym in Spanish) and Extension of Residence Time.

 

SEARCH RESULTS

MARTÍN-ONDARZA GONZALEZ,

PEDRO-ANTONIO

NATIONALITY

SPANISH

DATE OF BIRTH

JANUARY 29, 1978

 

  

Type of document :

FOREIGN RESIDENT CARD (CE)

 

Number :

001232975

 

Date of Birth :

JANUARY 29, 1978

 

Verification code :

N77DK

 

Enter characters :

 

VERIFY CLEAN

 

  

EXTENSION OF RESIDENCE TIME

YOUR RESIDENCE IS

IN FORCE

FOREIGNER’S TAX (TAE)

TAE IN FORCE

  

        (illegible signature) / Fingerprint

 

  

NOTE

If your Foreign Resident Card begins with “N”, you need to come to our offices so that we can provide you with further information.


SUPERINTENDENCIA NACIONAL DE MIGRACIONES DEL PERÚ

(PERUVIAN IMMIGRATION SUPERINTENDENCY)

Av. España No. 734 – Breña – Lima

Telephone Exchange: 2001000 / Virtual Fax: 2001001

 

ONLINE CONSULTATIONS

Foreign Resident Card

   Applicant’s Details   

Enter the requested data in the screen to check your Foreign Resident Card Data, Payment of the Annual Foreigner’s Tax (TAE, for its acronym in Spanish) and Extension of Residence Time.

 

SEARCH RESULTS

DE LAS HERAS ALONSO, JOSÉ

ANTONIO

NATIONALITY

SPANISH

DATE OF BIRTH

NOVEMBER 8, 1969

 

EXTENSION OF RESIDENCE TIME

YOUR RESIDENCE IS

IN FORCE

FOREIGNER’S TAX (TAE)

TAE IN FORCE

  

Type of document :

FOREIGN RESIDENT CARD (CE)

 

Number :

001511558

 

Date of Birth :

NOVEMBER 8, 1969

 

Verification code :

YQZ4N

 

Enter characters :

 

VERIFY CLEAN

 

 

 

        (illegible signature) / Fingerprint

  

NOTE

If your Foreign Resident Card begins with “N”, you need to come to our offices so that we can provide you with further information.


SUPERINTENDENCIA NACIONAL DE MIGRACIONES DEL PERÚ

(PERUVIAN IMMIGRATION SUPERINTENDENCY)

Av. España No. 734 – Breña – Lima

Telephone Exchange: 2001000 / Virtual Fax: 2001001

 

ONLINE CONSULTATIONS

Foreign Resident Card

   Applicant’s Details   

Enter the requested data in the screen to check your Foreign Resident Card Data, Payment of the Annual Foreigner’s Tax (TAE, for its acronym in Spanish) and Extension of Residence Time.

 

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CRUZ LOPES, MAURICIO

NATIONALITY

BRAZILIAN

DATE OF BIRTH

JULY 8, 1974

 

AGREEMENT-BASED RESIDENCE

YOUR RESIDENCE IS

IN FORCE

FOREIGNER’S TAX (TAE)

TAE IN FORCE

  

Type of document :

FOREIGN RESIDENT CARD (CE)

 

Number :

000155121

 

Date of Birth :

JULY 8, 1974

 

Verification code :

4J43N

 

Enter characters :

 

VERIFY CLEAN

 

 

        (illegible signature) / Fingerprint

  
     
     
     
     
     
     
     
     
     

NOTE

If your Foreign Resident Card begins with “N”, you need to come to our offices so that we can provide you with further information.


REGISTRO NACIONAL DE IDENTIFICACIÓN Y ESTADO CIVIL – RENIEC

(NATIONAL REGISTRY OF IDENTIFICATION AND VITAL STATISTICS – RENIEC)

(Barcode)

Serial number 0034128166

WILLIAM LEONCIO CAJAS BUSTAMANTE NOTARY’S OFFICE

BIOMETRIC IDENTIFICATION AND AUTHENTICATION SERVICE

 

(PHOTOGRAPH)    PERSONAL DETAILS   
   Id Card (DNI)    10866908   
   First Last Name    SALAZAR   
   Second Last Name    CHIAPPE   
   Names    OSCAR EDUARDO   

FINGERPRINT CORRESPONDS TO DNI

The first fingerprint captured corresponds to the ID Card (DNI) under consultation. The second fingerprint captured corresponds to the ID Card (DNI) under consultation.

/s/ Oscar Eduardo Salazar Chiappe

ID Card (DNI) 10866908 / Fingerprint

 

CONSULTED INFORMATION    CONSULTATION VERIFICATION   

Operator : 09430050 – William

Leoncio Cajas Bustamante

  

The information can be verified on line at:

https://serviciosbiometricos.reniec.gob.pe/identification.do

  

Transaction Date : Sept. 26, 2017

09:07:51

   Consultation Number : 0034128166   

Entity : 10094300504 – CAJAS

BUSTAMANTE WILLIAM LEONCIO

     

Exhibit 10.05.1

RIGHTS SUBORDINATION AGREEMENT

This Rights Subordination Agreement (the “Agreement”) is made and entered into by and between:

 

    ODEBRECHT LATINVEST PERU DUCTOS, S.A. , a corporation duly organized and validly existing under the laws of Peru, identified by Taxpayer ID Number (RUC) 20513396571, with principal place of business for the purposes hereof at Av. Víctor Andrés Belaunde 280, Oficina 501, San Isidro, acting by and through Jorge Henrique SIMOES BARATA, holder of Foreign Resident Card (CE) 000317457, and Nelson VIEIRA DE BULHOES, holder of Foreign Resident Card (CE) 000367276, as per powers of attorney recorded on Entry 11893941 of the Registry of Companies in and for Lima and Callao (“OLPD”);

 

    ODEBRECHT S.A. , a corporation duly organized and validly existing under the laws of Brazil, with principal place of business for the purposes hereof at Avenida Luis Viana 2841, Edificio Odebrecht, Paralela, Salvador, Bahía, acting by and through Ticiana MARIANETTI, identified by Individual Taxpayer ID Number of the Ministry of Finance (CPF/MF) 544.408.075-34 and ID Card (RG) 4835223 SSP/BA, and Mauro MOTTA FIGUEROA, identified by Individual Taxpayer ID Number of the Ministry of Finance (CPF/MF) 115.134.858-90 and ID Card (RG) 11.335.092-2 SSP/SP (“ODB”);

 

    ENAGÁS, S.A. , a corporation duly organized and validly existing under the laws of Spain, with principal place of business for the purposes hereof at Av. Santo Toribio 173 (Torre Real 8), district of San Isidro, province of Lima, department of Lima, acting by and through David SAN FRUTOS TOMÉ, holder of Foreign Resident Card (CE) 001143118, authorized for this purpose as per powers of attorney recorded on Entry 13265833 of the Registry of Companies in and for Lima (“Enagás”);

 

    GRAÑA Y MONTERO S.A.A. , identified by Taxpayer ID Number (RUC) 20332600592, with principal place of business for the purposes hereof at Avenida Paseo de la República No. 4675, district of Surquillo, province and department of Lima, acting by and through Claudia Inés DRAGO MORANTE, holder of National Identity Card (DNI) 09336254, and Dennis GRAY FEBRES, holder of National Identity Card (DNI) 10267015, as per powers of attorney recorded on Electronic Entry 11028652 of the Registry of Companies of the Lima Registration Office (“G&M”);

 

    NEGOCIOS DE GAS S.A. , a corporation duly organized and validly existing under the laws of Peru, with principal place of business for the purposes hereof at Avenida Paseo de la República No. 4675, district of Surquillo, province and department of Lima, acting by and through Claudia Inés DRAGO MORANTE, holder of National Identity Card (DNI) 09336254, and Dennis GRAY FEBRES, holder of National Identity Card (DNI) 10267015, as per powers of attorney recorded on Electronic Entry 13493968 of the Registry of Companies of the Lima and Callao Registration Office (“GYM”);


    INVERSIONES EN INFRAESTRUCTURA DE TRANSPORTE POR DUCTOS S.A.C. , a corporation duly organized and validly existing under the laws of Peru, with principal place of business for the purposes hereof at Av. Víctor Andrés Belaunde No. 280, Int. 201, district of San Isidro, province and department of Lima, acting by and through Jorge Henrique SIMOES BARATA, holder of Foreign Resident Card (CE) 000317457, and Nelson VIEIRA DE BULHOES, holder of Foreign Resident Card (CE) 000367276, as per powers of attorney recorded on Entry 12866524 of the Registry of Companies in and for Lima (“IITD”); and

 

    GASODUCTO SUR PERUANO S.A. , a corporation duly organized and validly existing under the laws of Peru, identified by Taxpayer ID Number (RUC) 20563236354, with principal place of business for the purposes hereof at Av. Víctor Andrés Belaunde 280, Piso 2, Oficina 501, San Isidro, Lima, acting by and through Dennis GRAY FEBRES, holder of National Identity Card (DNI) 10267015, and Claudia Teresa HOKAMA KUWAE, holder of National Identity Card (DNI) 10223305, as per powers of attorney granted by minutes of the Board of Directors’ Meeting held on April 6, 2016 (the “Corporation” and, together with OLPD, ODB, Enagás, HYM, IITD and NG, the “Parties”).

The Parties enter into this Agreement under the following terms and conditions:

SECTION ONE : RECITALS

 

1.1 On August 29, 2014, Gasoducto Sur Peruano S.A. (GSP) entered into a loan agreement (the “Loan Agreement”) with Natixis, New York Branch; Banco Bilbao Vizcaya Argentaria S.A.; Intesa SanPaolo, S.p.A., New York Branch; Sumitomo Mitsui Banking Corporation; and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (the “Lenders”), and Natixis, New York Branch, in its capacity as administrative agent of the Lenders (the “Administrative Agent”).

 

1.2 Within the framework of the Loan Agreement, OLDP, ODB, GyM and Enagás (the “Guarantors”), as indirect holders of shares in GSP, executed independent corporate guarantee agreements whereby they guarantee GSP’s payment obligations to the Lenders in proportion to their share in GSP’s capital stock (each of them hereinafter referred to as the “Corporate Guarantee”).

 

1.3 On April 8, 2016, GSP, the Guarantors, the Administrative Agent, and the Lenders, executed the Standstill and Amendment Agreement, whereby, among other things, the Loan Agreement was amended; the term of the guarantees furnished by the Guarantors was extended; and OLPD, ODB and GyM granted promissory notes and undertook to furnish certain additional guarantees and trusts, either directly or through Consorcio Supervisor Ductos del Sur (“CCDS”) or IITD (the “Additional Guarantees”), except for the Account Balance Pledge created by G&M in compliance with the Standstill and Amendment Agreement, which is included in the definition of Corporate Guarantee for the purposes of this Agreement), in order to guarantee their payment obligations under their respective Corporate Guarantees.

Furthermore, within the framework of the Standstill and Amendment Agreement, the CCDS: (i) shall transfer in trust to a trust estate certain accounts receivable it has with GSP under the EPC Contract executed by them on June 25, 2014, as amended (the “EPC Contract”), the beneficiaries of which shall be the Lenders, on the one hand, and Enagás and G&M, on the other hand (the “CCDS Trust”); and (ii) shall waive the collection of the 5% penalty that would be payable if GSP decides to terminate unilaterally the EPC Contract during the term of the Loan Agreement (the “Penalty”).


1.4 In the event that the Corporate Guarantees were enforced and Enagás, OLPD, ODB and/or G&M failed to honor them (or honor them partially), (i) the Lenders could enforce the Additional Guarantees and thus obtain payment of the debt owed by GSP to them (as applicable), which would create rights to collect sums of money from GSP in favor of OLPD, ODB, G&M, IITD, Odebrecht Perú Ingeniería y Construcción S.A.C., Constructora Norberto Odebrecht S.A. Sucursal Perú, and GyM S.A., in order to collect the portion of the debt paid to the Lenders directly through such enforcement; and/or (ii) a debt balance payable by GSP would remain outstanding under the Credit Agreement if Additional Guarantees were not furnished by such Guarantor or were not enforced or, if enforced, the proceeds thereof were not sufficient to pay the full amount of its obligations under the respective Corporate Guarantee.

 

1.5 If any of the events described in the foregoing subsection 1.4 occurs, GSP would be under the obligation to pay the debt that would accrue in favor of the Guarantor(s) whose Additional Guarantees were enforced, or its obligations under the Credit Agreement would remain outstanding, which would reduce its chances to obtain the long-term financing required for the execution of its project.

SECTION TWO : PURPOSE

Taking into account the information contained in subsection 1.5 of Section One, and only in the event that they have failed to comply with their payment obligations under the Corporate Guarantees in a full and timely manner, Enagás, OLPD, ODB, IITD and G&M hereby undertake:

 

2.1 Not to demand or receive from GSP the payment of any amount to which they may be entitled as a result of the enforcement of the Corporate Guarantees or the Additional Guarantees or as a result of any other current or future credit right they may have against GSP from time to time under any title (including a capital contribution made to GSP or rights over other equity accounts derived from their capacity as shareholders of GSP), in all cases except as provided for in subsection 2.5 below.

 

2.2 Not to demand the payment of any compensatory or default interest that may accrue on the amounts to which they may be entitled as a result of the enforcement of the Corporate Guarantees or the Additional Guarantees or as a result of any other current or future credit right they may have against GSP from time to time under any title.

 

2.3 To acknowledge and not to dispute GSP’s right not to pay any amount claimed from GSP in breach of the provisions set forth in subsections 2.1 and 2.2 above.

 

2.4 Not to object to the payment that GSP may make, in any form, to the Guarantor(s) that honored its/their Corporate Guarantees by making full and timely payment to the Lenders (the “Non-Defaulting Guarantor(s)”. For these purposes, the parties agree that, if there is any Non-Defaulting Guarantor(s), GSP shall pay the following amounts only to such guarantor(s) (even if there is any outstanding debt owed to long-term financial creditors), in the order of priority set forth below:


  a) First, GSP shall pay the amounts it owes to each of the Non-Defaulting Guarantors as a result of the enforcement of the Corporate Guarantees. If there is more than one Non-Defaulting Guarantor, the payment shall be made pari passu and pro rate of the amount of their credit right.

 

  b) Second, once all the amounts referred to in item a) above have been paid, GSP shall pay the amounts that such Non-Defaulting Guarantor or the entities of its economic group that make up the CCDS (that is, Odebrecht Perú Ingeniería y Construcción S.A.C. and Constructora Norberto Odebrecht S.A. Sucursal Perú, in the case of OLPD and ODB; and GyM S.A., in the case of G&M) have ceased to receive as a result of the enforcement of the CCDS Trust or the non-payment of the Penalty. If two or more Non-Defaulting Guarantors are in that situation, the payment shall be made in proportion to the amount of their credit rights. Such Non-Defaulting Guarantors may request GSP to pay such amounts directly to the respective CCDS member; in this case, the pertinent acts and procedures must be carried out so that those payments are made in compliance with the requirements and formalities established by the legal framework in force.

 

  c) Third, once all the amounts referred to in items a) and b) above have been paid, GSP shall pay any amount delivered by the Non-Defaulting Guarantor to GSP as capital stock or equity. If there are several Non-Defaulting Guarantors, GSP shall make payment pari passu and in proportion to (i) the amount of their credit rights pending collection; or (ii) their share in GSP’s capital stock.

 

2.5 The Guarantors that honor their payment obligations to the Lenders under the Guarantee Agreements in a partial or delayed manner, or as a result of the enforcement of Additional Guarantees, shall only be entitled to demand and receive from GSP the payment of up to the full amount of their credit rights against GSP, either directly or through other companies making up their economic group, provided that GSP honored in full the payments mentioned in subsection 2.3, items a) to c) above and there is no outstanding debt owed under the Credit Agreement or to long-term financial creditors.

 

2.6 In the event that Enagás, ODB and OLPD and/or G&M fail to comply with the provisions of the foregoing subsections, GSP shall be entitled to declare that such obligations have been waived in accordance with Section 1295 of the Civil Code, which is expressly consented to by Enagás, OLPD, ODB, IITD, NG and G&M.

SECTION THREE : GOVERNING LAW AND DISPUTE SETTLEMENT

The Parties agree that the Agreement and the creation, contents, enforcement, and termination of the rights created hereunder are subject to the laws of the Republic of Peru (the “Governing Law”). Therefore, this Agreement shall be construed in accordance with the rules and principles of interpretation of Peruvian law.


Any dispute, claim or conflict of interest arising out of the execution, performance, interpretation and/or termination of this Agreement and/or this arbitration clause shall be settled by de jure arbitration, in accordance with the Arbitration Rules of the Lima Chamber of Commerce (hereinafter, the “Center”), to which regulations, management and decision the Parties submit unconditionally and which they represent to know and accept in full. In this connection, the dispute, uncertainty, claim or conflict arisen shall be submitted to the jurisdiction and knowledge of an arbitration tribunal consisting of there (3) arbitrators.

If the parties in conflict are two (2), each of them shall appoint one arbitrator and the third one shall be appointed by mutual agreement between the arbitrators thus appointed. The third arbitrator shall preside the arbitration tribunal. The Party sending the request whereby the dispute is submitted to an arbitration proceeding shall include in such request the appointment of its arbitrator. The other Party shall, within five (5) days following receipt of such notice, appear in the arbitration proceeding and appoint one arbitrator. If any of the Parties fails to appoint its arbitrator within such five (5)-day term or if the arbitrators fail to reach an agreement on the appointment of the third arbitrator within a term of fifteen (15) days, the appointment shall be made by the Center.

If the parties in conflict are three (3) or more, two (2) of the arbitrators shall be appointed by the Center, and the third one shall be elected by the two arbitrators appointed by the Center. The third arbitrator shall preside the arbitration tribunal.

Furthermore, if the two (2) appointed arbitrators fail to elect the third arbitrator within a term of ten (10) days after the date on which the last of such arbitrators accepted the appointment, the third arbitrator shall be appointed by the Center.

All the members of the arbitration tribunal must be attorneys-at-law by profession and shall necessarily resolve the dispute pursuant to law ( de jure arbitration).

Arbitration shall be conducted in the city of Lima and in Spanish.

The arbitration award rendered by the arbitration tribunal shall be final, conclusive and binding. Consequently, the Parties expressly waive their right to file an appeal. The award issued by the arbitration tribunal may only be rendered null in those cases established in Section 63 of Legislative Decree 1071. In that event, the judges and courts in and for the Judicial District of Lima shall be competent.

The expenses and costs derived from arbitration shall be paid as established in the Center’s rules.

All matters related to the arbitration that are not regulated by this Clause shall be governed by Legislative Decree 1071, as amended or replaced from time to time.

The Parties agree that the current lack of determination of the unlikely dispute that would be submitted to arbitration may not be invoked by either of the Parties to assert that this clause is not an arbitration agreement.

SECTION FOUR : NOTICES

Any and all notices required to be exchanged by the Parties in connection herewith shall be made in writing and sent to the following addresses, telephone numbers or electronic addresses:


•     If to ODB:

  

Marcela Aparecida Drehmer Andrade

  

Address: Rua Lemos Monteiro No. 120, 15 andar,

  

Butanta, Sao Paulo

  

Email: marceladrehmer@odebrecht.com

•     If to OLPD:

  

Rodney Rodrigues de Carvalho

  

Marko Antonio Harasic Angulo

  

Address: Avenida Víctor Andrés Belaunde 280,

  

oficina 502, San Isidro, Lima.

  

Email: rodney@odebrecht.com

  

             mharasic@odebrecht.com

•     If to Enagás:

  

Esther Verona-Martínez Umbert

  

Address: Paseo Los Olmos No. 19, 28005, Madrid

  

España

  

Email: emverona@enagas.es

•     If to G&M:

  

Mónica María Miloslavich Hart

  

Claudia Inés Drago Morante

  

Address: Avenida Paseo de la República No. 4675,

  

Lima.

  

Email: mmiloslavich@gym.com.pe

  

             cdrago@gym.com.pe

•     If to GSP:

  

Dennis Gray Febres

  

David San Frutos Tomé

  

Claudia Teresa Hokama Kuwae

  

Avenida Víctor Andrés Belaunde 280, Piso 2,

  

San Isidro, Lima.

  

Email: dgray@concesionariagsp.com.pe

  

              chokama@concesionariagsp.com.pe

  

              dsanfrutos@concesionariagsp.com.pe

In order to be valid among the Parties, any change in the above information shall be notified to the other Parties in writing at least ten (10) days in advance. If a change in the information contained in the preceding paragraph has not been notified, any notice or communication sent to the addresses stated in said paragraph shall be deemed valid.

SECTION FIVE : GENERAL PROVISIONS

 

5.1 This Agreement may only be amended, regulated or terminated by written agreement of the Parties reached in compliance with the formalities established by the Governing Law.

 

5.2 This Agreement and the creation, modification, extension and termination of the rights created hereunder are subject to the Governing Law.

 

5.3 In no case shall the failure or delay by either Party in exercising its rights, powers, authority or privileges nor any other related act shall affect any right, power, authority or privilege granted hereunder.


5.4 The invalidity, either total or partial, absolute or relative, and the inefficacy of one or more provisions hereof shall not affect the validity of the remaining provisions hereof. On the contrary, it shall be understood that the Agreement is valid and effective in full, considering the clause(s) held to be invalid in full or in part as non-existing. Consequently, the rights and obligations of the Parties shall be exercised and performed as established herein. Subsequently to the determination of the invalidity or inefficacy of any term or provision hereof, the Parties shall negotiate in good faith in order to amend such term or provision in a manner that reflects the original intention of the Parties, to the extent possible, and in acceptable manner so that the transactions contemplated herein are consummated as originally provided for.

SECTION SIX : TERM

The Parties agree that this instrument shall remain in force until the Guarantors have collected the entirety of the credit rights they hold directly or through the companies that make up their economic group.

IN WITNESS WHEREOF, this Agreement has been executed in four (4) identical counterparts in the city of Lima, this 29 th day of April. 2016.


On behalf of Odebrecht Latinvest Perú Ductos S.A.:

/s/ Jorge Henrique Simoes Barata

Attorney-in-Fact

/s/ Nelson Vieira de Bulhoes

Attorney-in-Fact

[ Signature Page of Odebrecht Latinvest Perú Ductos S.A. – Rights Subordination Agreement ]


On behalf of Odebrecht S.A.:

/s/ Ticiana Marianetti

Attorney-in-Fact

/s/ Mauro Motta Figueira

Attorney-in-Fact

[ Signature Page of Odebrecht S.A. – Rights Subordination Agreement ]


On behalf of Enagás S.A.:

/s/

Attorney-in-Fact

[ Signature Page of Enagás S.A. – Rights Subordination Agreement ]


On behalf of Graña y Montero S.A.A.:

/s/ Claudia Inés Drago Morante

Attorney-in-Fact

/s/ Dennis Gray Febres

Attorney-in-Fact

[ Signature Page of Graña y Montero S.A.A. – Rights Subordination Agreement ]


On behalf of Negocios de Gas S.A.:

/s/ Claudia Inés Drago Morante

Attorney-in-Fact

/s/ Dennis Gray Febres

Attorney-in-Fact

[ Signature Page of Negocios de Gas S.A. – Rights Subordination Agreement ]


On behalf of Inversiones en Infraestructura de Transporte por Ductos S.A.C.:

/s/ Jorge Henrique Simoes Barata

Attorney-in-Fact

/s/ Nelson Vieira de Bulhoes

Attorney-in-Fact

[ Signature Page of Inversiones en Infraestructura de Transporte por Ductos S.A.C. – Rights Subordination Agreement ]


On behalf of Gasoducto Sur Peruano S.A.:

/s/ Claudia Teresa Hokama Kuwae

Attorney-in-Fact

/s/ Dennis Gray Febres

Attorney-in-Fact

[ Signature Page of Gasoducto Sur Peruano S.A. – Rights Subordination Agreement ]

Exhibit 10.05.1.1

ADDENDUM TO THE RIGHTS SUBORDINATION AGREEMENT

This Addendum to the Rights Subordination Agreement (the “Addendum”) is made and entered into by and between:

 

    ODEBRECHT LATINVEST PERU DUCTOS, S.A. , a corporation duly organized and validly existing under the laws of Peru, identified by Taxpayer ID Number (RUC) 20513396571, with principal place of business for the purposes hereof at Av. Víctor Andrés Belaunde 280, Oficina 501, district of San Isidro, province and department of Lima, acting by and through Jorge Henrique SIMOES BARATA, holder of Foreign Resident Card (CE) 000317457, and Diana Elizabeth ORTIZ MENDOZA, holder of National Identity Card (DNI) 03658529, as per powers of attorney recorded on Electronic Entry 11893941 of the Registry of Companies of the Lima and Callao Registration Office (“OLPD”);

 

    ODEBRECHT S.A. , a corporation duly organized and validly existing under the laws of Brazil, with principal place of business for the purposes hereof at Avenida Luis Viana 2841, Edificio Odebrecht, Paralela, Salvador, Bahía, acting by and through the signatories identified in the signature pages at the end of this instrument (“ODB”);

 

    ENAGÁS, S.A. , a corporation duly organized and validly existing under the laws of Spain, with principal place of business for the purposes hereof at Av. Santo Toribio 173 (Torre Real 8), district of San Isidro, province and department of Lima, acting by and through David SAN FRUTOS TOMÉ, holder of Foreign Resident Card (CE) 001143118, as per powers of attorney recorded on Entry 13265833 of the Registry of Companies of the Lima Registration Office (“Enagás”);

 

    GRAÑA Y MONTERO S.A.A. , a corporation duly organized and validly existing under the laws of Peru, with principal place of business for the purposes hereof at Av. Paseo de la República No. 4675, district of Surquillo, province and department of Lima, acting by and through Mónica María MILOSLAVICH HART, holder of National Identity Card (DNI) 10545024, and Hernando Alejandro GRAÑA ACUÑA, holder of National Identity Card (DNI) 07806723, as per powers of attorney recorded on Electronic Entry 11028652 of the Registry of Companies of the Lima and Callao Registration Office (“G&M”);

 

    GyM S.A. , a corporation duly organized and validly existing under the laws of Peru, with principal place of business for the purposes hereof at Av. Paseo de la República No. 4675, district of Surquillo, province and department of Lima, acting by and through Mónica María MILOSLAVICH HART, holder of National Identity Card (DNI) 10545024, and Hernando Alejandro GRAÑA ACUÑA, holder of National Identity Card (DNI) 07806723, as per powers of attorney recorded on Electronic Entry 11006796 of the Registry of Companies of the Lima and Callao Registration Office (“GyM”);

 

    NEGOCIOS DE GAS S.A. , a corporation duly organized and validly existing under the laws of Peru, with principal place of business for the purposes hereof at Av. Paseo de la República No. 4675, district of Surquillo, province and department of Lima, acting by and through Mónica María MILOSLAVICH HART, holder of National Identity Card (DNI) 10545024, and Hernando Alejandro GRAÑA ACUÑA, holder of National Identity Card (DNI) 07806723, as per powers of attorney recorded on Electronic Entry 13493968 of the Registry of Companies of the Lima Registration Office (“NG”);


    INVERSIONES EN INFRAESTRUCTURA DE TRANSPORTE POR DUCTOS S.A.C. , a corporation duly organized and validly existing under the laws of Peru, with principal place of business for the purposes hereof at Av. Víctor Andrés Belaunde 280, oficina 501, district of San Isidro, province and department of Lima, acting by and through Jorge Henrique SIMOES BARATA, holder of Foreign Resident Card (CE) 000317457, and Diana Elizabeth ORTIZ MENDOZA, holder of National Identity Card (DNI) 03658529, as per powers of attorney recorded on Electronic Entry 12866524 of the Registry of Companies of the Lima and Callao Registration Office (“IITD”);

 

    GASODUCTO SUR PERUANO S.A. , a corporation duly organized and validly existing under the laws of Peru, identified by Taxpayer ID Number (RUC) 20563236354, with principal place of business for the purposes hereof at Av. Víctor Andrés Belaunde 280, Piso 2, Oficina 501, San Isidro, Lima, acting by and through Marcio Luiz PEREZ RIBEIRO, holder of Foreign Resident Card (CE) 001259266, and Luiz Cesar LINDGREN COSTA, holder of Foreign Resident Card (CE) 001034491, as per powers of attorney granted by minutes of the Board of Directors’ Meeting held on April 6, 2016 (“GSP” and, together with OLPD, ODB, Enagás, G&M, IITD and NG, the “Original Parties”).

 

    ODEBRECHT PERÚ INGENIERÍA Y CONSTRUCCIÓN S.A.C. , a corporation duly organized and validly existing under the laws of Peru, with principal place of business for the purposes hereof at Av. Víctor Andrés Belaunde 280, Oficina 302, district of San Isidro, province and department of Lima, acting by and through Carlos Antonio RODRIGUES DO NASCIMENTO, holder of Foreign Resident Card (CE) 001088302, and Roberto Fabián RODRÍGUEZ, holder of Foreign Resident Card (CE) 001220452, as per powers of attorney granted by minutes of the Board of Directors’ Meeting held on June 22, 2016 and currently in the process of being registered (“OPIC”);

 

    CONSTRUCTORA NORBERTO ODEBRECHT S.A., SUCURSAL DEL PERÚ , a branch of a foreign corporation duly established and validly existing under the laws of Peru, with principal place of business for the purposes hereof at Av. Víctor Andrés Belaunde 280, Oficina 302, district of San Isidro, province and department of Lima, acting by and through Carlos Antonio RODRIGUES DO NASCIMENTO, holder of Foreign Resident Card (CE) 001088302, and Carlos Augusto CAMPOS DOS REIS, holder of Foreign Resident Card (CE) 001160863, as per powers of attorney granted by minutes of the Board of Directors’ Meeting held on June 22, 2016 and currently in the process of being registered (“CNO” and, together with OPIC and the Original Parties, the “Parties”);


The Parties enter into this Addendum under the following terms and conditions:

SECTION ONE : RECITALS

 

1.1 On April 29, 2016, the Original Parties executed the Rights Subordination Agreement in order to regulate the exercise of certain collection rights held or that could be held by the Original Parties or their related entities against GSP (the “Agreement”). The initial-capitalized terms contained but not defined in this Addendum shall have the meaning ascribed to such terms in the Agreement.

 

1.2 On June 8, 2016, the Guarantors, the Administrative Agent and the Lenders executed the Waiver and Amendment Agreement (the “Waiver”), whereby they amended, among other things, the Standstill and Amendment Agreement and the Loan Agreement.

 

1.3 In compliance with the provisions of the Standstill and Amendment Agreement, as amended by the Waiver, CNO and OPIC has entered into on the date hereof a Trust Agreement with La Fiduciaria S.A., as trustee, and the Administrative Agent, with the participation of GyM and GSP (the “CNO-OPIC Trust Agreement”), in order to guarantee the obligations derived from the Corporate Guarantees furnished by OLPD and ODB.

SECTION TWO : PURPOSE

By virtue of this Addendum:

 

2.1 The Parties agree that, for all purposes of the Agreement, the CNO-OPIC Trust Agreement shall be considered as an Additional Guarantee. OPIC and CNO express their consent to such treatment.

 

2.2 CNO, OPIC and GyM become parties to the Agreement; express their agreement with the terms and conditions thereof; and agree to be fully bound by such terms and conditions in their capacity as grantors of the Additional Guarantees and potential creditors of GSP as a result of the enforcement of such Additional Guarantees (thus assuming, among other obligations established in the Agreement, the obligations set forth in Section Two of the Agreement). Without limiting the foregoing, and as established in subsection 2.6 of the Agreement, CNO, OPIC and GyM agree that, in the event that any of them fails to comply with the provisions of the Agreement and the Addendum, GSP shall be entitled to declare that the obligations referred to in the Agreement and the Addendum have been waived in accordance with Section 1295 of the Civil Code.

 

2.3 The Parties amend Section Two, subsection 2.5 of the Agreement in the following terms:

The Guarantors that honor their payment obligations to the Lenders under the Guarantee Agreements in a partial or delayed manner, or as a result of the enforcement of Additional Guarantees, shall only be entitled to demand and receive from GSP the payment of up to the full amount of their credit rights against GSP, either directly or through other companies making up their economic group, provided that GSP honored in full the payments mentioned in subsection 2.4, items a) to c) above and there is no outstanding debt owed under the Credit Agreement or to long-term financial creditors .”


2.4 The Parties agree to amend Section Four of the Agreement in order to include the following information for notices:

 

•     If to CNO    Attention: Carlos Antonio Rodrigues Do Nascimento /
   Roberto Fabián Rodríguez
   Address: Av. Víctor Andrés Belaunde No. 280,
   Oficina 302, San Isidro, Lima
   Email: carlosnascimento@odebrecht.com
   rfrodriguez@odebrecht.com
•     If to OPIC    Attention: Carlos Antonio Rodrigues Do Nascimento /
   Roberto Fabián Rodríguez
   Address: Av. Víctor Andrés Belaunde No. 280,
   Oficina 302, San Isidro, Lima
   Email: carlosnascimento@odebrecht.com
   rfrodriguez@odebrecht.com
•     If to GyM    Attention: Renato Eduardo Rojas Balta /
   Mónica María Miloslavich Hart
   Address: Av. Paseo de la República No. 4675,
   district of Surquillo, province and department of Lima
   Email: rrojas@ gym.com.pe /
   mmiloslavich@gym.com.pe

SECTION THREE : TERM OF THE AGREEMENT

The Agreement shall remain in full force and unchanged, except for those provisions that have been amended by the Addendum.

[ signature pages follow ]


IN WITNESS WHEREOF , this Addendum has been signed in ten (10) counterparts in the city of Lima, this 24 th day of June, 2016.

On behalf of ODEBRECHT LATINVEST PERU DUCTOS, S.A.

- /s/ Jorge Henrique Simoes Barata

- /s/ Diana Elizabeth Ortiz Mendoza

[Signature Page of the Addendum to the Rights Subordination Agreement]


On behalf of ENAGÁS S.A. :

- /s/ David San Frutos Tomé


On behalf of ODEBRECHT S.A. :

- /s/ Mauro Motta Figueira

- /s/ Daniel Bezerra Villar


On behalf of GRAÑA Y MONTERO S.A.A. :

- /s/ Hernando Alejandro Graña Acuña

- /s/ Mónica María Miloslavich Hart


On behalf of GyM S.A. :

- /s/ Hernando Alejandro Graña Acuña

- /s/ Mónica María Miloslavich Hart


On behalf of NEGOCIOS DE GAS S.A. :

- /s/ Hernando Alejandro Graña Acuña

- /s/ Mónica María Miloslavich Hart


On behalf of GASODUCTO SUR PERUANO S.A. :

- /s/ Marcio Luiz Perez Ribeiro

- /s/ Luiz Cesar Lindgren Costa


On behalf of INVERSIONES EN INFRAESTRUCTURA DE TRANSPORTE POR DUCTOS S.A.C. :

- /s/ Jorge Henrique Simoes Barata

- /s/ Diana Elizabeth Ortiz Mendoza

[Signature Page of the Addendum to the Rights Subordination Agreement]


On behalf of ODEBRECHT PERÚ INGENIERÍA Y CONSTRUCCIÓN, S.A.C. :

- /s/ Carlos Antonio Rodrigues do Nascimento

- /s/ Roberto Fabián Rodríguez


On behalf of CONSTRUCTORA NORBERTO ODEBRECHT S.A., SUCURSAL DEL PERÚ :

- /s/ Carlos Antonio Rodrigues do Nascimento

- /s/ Carlos Augusto Campos dos Reis

Exhibit 10.05.1.2

To the Notary:

Please file in your Registry of Public Deeds one evidencing the Second Addendum to the Subordination of Rights and Conditional Assignment Agreement (the “ Second Addendum and Assignment Agreement ”) entered into by and between:

 

    ODEBRECHT LATINVEST PERU DUCTOS, S.A., a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20513396571, with domicile for the purpose hereof at Avenida Víctor Andrés Belaúnde 280, Oficina 501, San Isidro, Lima, acting by and through Diana Elizabeth Ortiz Mendoza, holder of National Identification Document (DNI) 03658529 and Javier Bernardo de Souza Ferreira Barclay, holder of DNI 08230306, as per powers of attorney registered in Electronic Entry Nr. 11893941 of the Registry of Legal Entities of the Lima and Callao Registration Office (“ OLPD ”);

 

    ODEBRECHT S.A ., a corporation duly organized and validly existing under the laws of Brazil, identified with Taxpayer (CNPJ) Nr. 05.144.757/0001.72, with domicile for the purpose hereof at Avenida Luis Viana 2841, Ed. Odebrecht, Salvador, Bahía, Brazil, acting by and through Nelson Vieira de Bulhoes, holder of Alien Card (CE) 000367276 and Diana Elizabeth Ortiz Mendoza, holder of DNI 03658529, as per powers of attorney included in the instrument granted on August 2, 2016, which in your capacity as Notary Public you are hereby requested to insert (“ ODB ”);

 

    INVERSIONES EN INFRASTRUCTURA DE TRANSPORTE POR DUCTOS S.A.C ., a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 2054837130, with domicile for the purpose hereof at Avenida Víctor Andrés Belaúnde 280, Oficina 502, San Isidro, Lima, acting by and through Diana Elizabeth Ortiz Mendoza, holder of National Identification Document (DNI) 03658529 and Javier Bernardo de Souza Ferreira Barclay, holder of DNI 08230306, as per powers of attorney registered in Electronic Entry Nr. 12866524 of the Registry of Legal Entities of the Lima and Callao Registration Office (“ IITD ”);

 

    ODEBRECHT PERÚ INGENIERÍA Y CONSTRUCCIÓN S.A.C. , a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20166012687, at Avenida Víctor Andrés Belaúnde 280, Oficina 302, San Isidro, Lima, acting by and through Raymundo Nonato Trindade Serra, holder of Foreign Resident Card (CE) 000071156, and Allan Chan Matos, holder of Foreign Resident Card (CE) 000614605, both as per powers of attorney registered under Item C00336 of Registration Entry 11000180 of the Registry of Legal Entities of Trujillo (“ OPIC ”);

 

   

CONSTRUCTORA NORBERTO ODEBRECHT S.A., SUCURSAL DEL PERÚ , a branch office of a foreign corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20509656607, with domicile for the purpose hereof at Avenida Víctor Andrés Belaúnde 280, Oficina 302, San Isidro, Lima, acting by and through Raymundo Nonato Trindade Serra, holder of Foreign Resident Card (CE) 000071156, and Allan Chan Matos, a Brazilian national, holder of Foreign Resident Card (CE) 000614605, both as per


 

powers of attorney registered under Item A00069 of Registration Entry 11686833 of the Registry of Legal Entities of the Lima Registration Office (“ CNO ” and jointly, with OLPD, ODB, IITD and OPIC, “ Odebrecht ” and with the Original Parties – as this term is defined herein below, the “ Parties ”);

And

 

    ENAGÁS S.A. , a corporation duly organized and validly existing under the laws of Spain, identified with Fiscal Identification Code A-28294726, with domicile for the purpose hereof at Avenida Santo Toribio 173, Oficina 501, San Isidro, Lima, acting by and through Pedro Martín-Ondarza Gonzalez, holder of Foreign Resident Card (CE) 001232975, as per powers of attorney granted under the special Power of Attorney Deed, dated August 4, 2016, which in your capacity as Notary Public you are hereby requested to insert (“Enagás”);

And

 

    GRAÑA Y MONTERO S.A.A., a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20332600592, with domicile for the purpose hereof at Avenida Paseo de la República 4675, Surquillo, Lima, acting by and through Hernando Graña Acuña, holder of DNI 07806723 and Mónica María Miloslavich Hart, holder of DNI 10545024, as per powers of attorney registered in Electronic Entry 11028652 of the Registry of Legal Entities of the Lima and Callao Registration Office (“ G&M ”);

 

    GyM S.A., a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20100154057, with domicile for the purpose hereof at Avenida Paseo de la República 4675, Surquillo, Lima, acting by and through Hernando Graña Acuña, holder of DNI 07806723 and Mónica María Miloslavich Hart, holder of DNI 10545024, as per powers of attorney registered in Electronic Entry 11006796 of the Registry of Legal Entities of the Lima and Callao Registration Office (“ GyM ”);

 

    NEGOCIOS DE GAS S.A. , a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20600703499, with domicile for the purpose hereof at Avenida Paseo de la República 4675, Surquillo, Lima, acting by and through Hernando Graña Acuña, holder of DNI 07806723 and Mónica María Miloslavich Hart, holder of DNI 10545024, as per powers of attorney registered in Electronic Entry 13493968 of the Registry of Legal Entities of the Lima and Callao Registration Office (“ NG ” and jointly, with G&M and GyM, “ Graña ”);

And with the participation of:

 

    GASODUCTO SUR PERUANO S.A. , a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20563236354, at Avenida Víctor Andrés Belaúnde 280, Oficina 201, San Isidro, Lima, acting by and through Dennis Gray Febres, holder of DNI 101567015 and Luiz Cesar Lindgren Costa, holder of Foreign Resident Card (CE) 001034491, both as per powers of attorney granted by Board of Directors Meeting held on April 6, 2016 (“ GSP ” and jointly with OLPD, ODB, Enagás, G&M IITD and NG, the “ Original Parties ”);


The Parties hereby enter into this Second Addendum and Assignment Agreement in the following terms and conditions:

ONE: DEFINITIONS

Capitalized terms in this Second Addendum and Assignment Agreement, not defined herein, shall have the meaning assigned to them in the Agreement (as this term is defined in Clause 2.1 below).

TWO: RECITALS

 

2.1. On April 29, 2016, the Original Parties entered into the Subordination of Rights Agreement in order to regulate the exercise of certain collection rights that they or their related entities hold or may hold with GSP (the “ Agreement ”) a copy of which is attached hereto as Exhibit 1 to this Second Addendum and Assignment Agreement.

 

2.2. On June 24, 2016, the Parties entered into the First Addendum to the Agreement in the terms and conditions established therein (the “ First Addendum ”) a copy of which is attached hereto as Exhibit 2 to this Second Addendum and Assignment Agreement.

 

2.3. On the date hereof, IITD, OLPD, CNO, OPIC, Enagás Internacional S.L.U., G&M, NG, GyM and GSP have signed a document called Contributions Payment Commitment, whereby it was agreed to make certain contributions to the capital stock of GSP in the amounts and dates established therein (the “Contributions Payment Commitment”).

Certain conditions precedent were established for the contributions of Enagás Internacional S.L.U. and NG to be made on the date and terms set forth in the Contributions Payment Commitment, among them, the modification of the Agreement in the terms and conditions agreed herein.

 

2.4. In consideration of the provisions agreed in the Contributions Payment Commitment, it is in the interest of all Parties to execute this Second Addendum and Assignment Agreement in the terms and conditions set forth herein.

THREE: SECOND ADDENDUM TO THE AGREEMENT

Under this Second Addendum and Assignment Agreement:

 

3.1. The Parties agree to modify the first Sub clause of Clause 2 of the Agreement, which will hereinafter read as follows:

“Taking into consideration the provisions in Sub clause 1.5 of Clause 1, the Guarantors, in the event that they should have failed to meet their obligations under the Corporate Guarantees, in whole or in part (any of them in such default event, the “Non-Performing Party” and any of them not in default, the “Performing Party”) hereby agree to the following:


3.2. The Parties agree to modify Sub clause 2.1 of the Agreement, which will hereinafter read as follows:

“Not to require GSP nor receive from it (and cause that no member of their economic group requires or receives) payment in any amount to which they may be entitled as a result of the enforcement of the Corporate Guarantees or the Additional Guarantees or as a result of any amount due, credit, interest or entitlement from GSP, current, future, certain or contingent (including right over equity of GSP in any scenario for their respective capital contributions or for any other concept over any equity account, including their credits in case of liquidation of GSP or selling of its assets) that the Non-Performing Party or Parties or any member of their economic group may have (the “Non-Performing Parties’ Credits”) all with exception of the provisions under Sub clause 2.5 below.

To that end, the companies of the economic group where the Non-Performing Party may have a minority share and no control shall be deemed excluded. In this respect, it is considered that a person holds “control” of another person when:

 

  a) It owns directly or indirectly more than fifty percent (50%) of the voting shares in its Shareholders’ Meeting or equivalent body;

 

  b) While not holding more than fifty percent (50%) of the voting shares in its Shareholders’ Meeting or equivalent body, it may designate or remove most of the members of the Board of Director or equivalent body;

 

  c) It holds, directly or indirectly, a representation in its Board of Directors or equivalent body of more than fifty percent (50%) of its members; or

 

  d) Through any means not provided previously (whether contractual or not) it holds decision power within the other entity or has the power to steer or cause the steering of the administration and/or policies of that entity.

Nevertheless, in no case will IITD, OLPD, OPIC, CNO, ODB, Odebrecht Latinvest Perú S.A.C. and Odebrecht Services GmbH or the other parties participating in this document be considered included in this exception.”

 

3.3. The Parties agree to modify Sub clause 2.4 of the Agreement, which will hereinafter read as follows:

“Not to oppose (and cause that no member of their economic group opposes) to the payment that GSP may make in any way, in favor of any Performing Party or to any member of their economic group for any amount due, credit, interest or entitlement they may hold with GSP, current or future, certain or contingent (including right over equity of GSP in any scenario for their respective capital contributions or for any other concept over any equity account, including their credits in case of liquidation of GSP or selling of its assets) that the Performing Party or Parties or any member of their economic group may have (the “Performing Parties’ Credits”).


To this end, the Parties agree that if one or more Performing Parties should exist, GSP shall pay only to them and to any member of their economic group (even if there should exist an outstanding debt with long-term financing creditors) the following concepts and in the prevailing order set forth below:

 

  a) In the first place, GSP will pay the amounts owed by GSP to each of the Performing Parties as a result of the enforcement of the Corporate Guarantees. If there should be more than one Performing Party, payment will be made on pari passu conditions and on a pro-rata basis of the amount of their respective outstanding amount due.

 

  b) In the second place, once all amounts under the foregoing paragraph a) have been paid, GSP will pay the amounts that the Performing Party or the companies that form part of their economic group and are members of the CCDS may have failed to collect as a result of the enforcement of the CCDS Trust. If there are two or more Performing Parties, payment will be made in the proportion that would correspond according to the amount of their respective credits and that of the companies of their economic group, members of the CCDS. The Performing Parties may request GSP that the said amounts be paid directly to the respective CCDS member, to which end the necessary actions and proceedings shall be performed so that such payments may fulfill the necessary requirements and formalities to comply with the legal framework in force.

 

  c) In the third place, once all amounts under the foregoing paragraphs a) and b) have been paid, GSP will pay any Credit of the Performing Parties and of the companies of their economic group (other than the right over the equity of GSP in any scenario for their respective capital contributions or for any other concept over any equity account, as well as the right not to pay the Penalty that will be effected (as indicated in paragraph e) below) after full payment has been made of all amounts due under paragraph d) below) and if there is more than one Performing Party, on pari passu conditions and on a pro-rata basis of the amount of their outstanding credits;

 

  d) In the fourth place, once all amounts under the foregoing paragraphs a), b) and c) have been paid, GSP will pay the rights over equity of GSP in any scenario for their respective capital contributions or for any other concept over any equity account the Performing Parties and the companies of their economic group may hold and if there is more than one Performing Party, on pari passu conditions and on a pro-rata basis of their share (direct or indirect) in the capital stock of GSP.

 

  e) In the fifth place, once all amounts under the foregoing paragraphs a), b), c) and d) have been paid, GSP will pay the amounts that the Performing Party or the companies of their economic group, members of the CCDS, may have failed to collect as a result of the non-payment of the Penalty. If there are two or more Performing Parties, payment shall be made in the proportion that would correspond according to the amount of their respective credits and to that of the companies of their economic group, members of the CCDS. The Performing Parties may request GSP that the said amounts be paid directly to the respective CCDS member, to which end the necessary actions and proceedings shall be performed so that such payments may fulfill the necessary requirements and formalities to comply with the legal framework in force.


For simple clarification purposes, below is an example of a pro-rata distribution based on the outstanding amount of credits due to be made according to paragraphs a) and c) above:

 

    Amount of credit pending total payment: US$1,000

 

    Amount of credit pending payment with Performing Party A: US$900

 

    Amount of credit pending payment with Performing Party B: US$100

 

    Amount pending distribution (after having paid the foregoing prevailing concepts): US$500

 

    Amount corresponding to Performing Party A: 500*0.9=450

 

    Amount corresponding to Performing Party B: 500*0.1=50

 

3.4. The Parties agree to modify Sub clause 2.5 of the Agreement, which will hereinafter read as follows:

“In the case of Guarantors that honor payment obligations held with Lenders under the Guarantee Agreements on a partial or late basis, or as a result of the enforcement of the Additional Guarantees, they will only be entitled to demand and receive from GSP payment of up to total credits held with GSP, directly or through other members of their economic group, provided that GSP has previously met payments mentioned in Sub clause 2.4 a) through e) above in full and that there is no outstanding debt under the Loan Agreement or with long-term financing creditors”.

 

3.5. The Parties agree to modify Sub clause 2.6 of the Agreement, which will hereinafter read as follows:

“In the event the Parties should fail to meet their obligations under the foregoing sub clauses, GSP will have the right to declare such obligations as waived pursuant to Article 1295 of the Civil Code, in respect of which the Parties have stated their agreement”.

FOUR: ASSIGNMENT OF CREDIT RIGHTS

 

4.1.

Under this Second Addendum and Assignment Agreement, each and every one of OLPD, ODB, IITD, OPIC and CNO (jointly, the “ Assignors ”) assign (the “ Assignment ”) and agree to cause that the members of their economic group assign all amounts due, credits, interest or entitlement held with GSP, current or future, certain or contingent (including economic rights of IITD as shareholder of GSP and any right of the Assignors over GSP equity in any scenario for their respective capital contributions or for any other concept over any equity account, including any right in the event of liquidation of GSP or selling of its assets) (the “ Assigned Credit Rights ”) in favor of G&M and Enagás (the “ Assignees ”) subject to the condition precedent that the following events are verified (the “ Condition Precedent ”): (i) that Odebrecht (and/or any member of its economic group) has failed to fully and timely comply with its obligations under the Corporate Guarantees or under the Suspension and Modification Agreement (or if same should have been terminated due to causes attributable


  to Odebrecht (and/or any member of its economic group)) or under the Contributions Payment Commitment; and (ii) that notification of the resolution issued by the competent authority of the Peruvian Institute for the Defense of Free Competition and Intellectual Property – INDECOPI declaring the bankruptcy situation of GSP is served.

 

4.2. The Assignment shall be duly formalized in favor of Assignees immediately and without the need of any additional act once the Condition Precedent occurs, for which OLPD, ODB, IITD, OPIC and CNO have granted their specific consent.

 

4.3. The Assignment shall not have no cancellation effect on any credit that Enagás or Graña (or any other member of their respective economic groups) may hold with GSP or with OLPD, ODB, IITD, OPIC and CNO as long as: (i) the corresponding payments under the Assigned Credit Rights are not made; and (ii) each and every credit that Enagás or Graña may hold with GSP has been settled in full.

Furthermore, the Assignment shall not imply the subrogation of OLPD, ODB, IITD, OPIC and CNO with respect to any credit that Enagás or Graña may hold with GSP as long as: (i) the corresponding payments under the Assigned Credit Rights are not made; and (ii) each and every credit that Enagás or Graña (or any other member of their respective economic groups) may hold with GSP has been settled in full.

FIVE: NO ASSIGNMENT OF CREDIT RIGHTS

OLPD, ODB, IITD, OPIC and CNO agree not to assign and further agree to cause that no member of their economic group assigns the Assigned Credit Rights, except within the framework of the transfers convened under the Suspension and Modification Agreement.

SIX: SEVERABILITY

Each and every one of OLPD, ODB, IITD, OPIC and CNO are severally liable with each other for compliance of obligations under the Agreement, the First Addendum and the Second Addendum and Assignment Agreement.

OLPD, IITD and ODB are severally liable debtors with each other for compliance of obligations under the Agreement, the First Addendum and the Second Addendum and Assignment Agreement, while only and solely for the specific case of the obligation set forth in Clause 7, the respective severally liable debtor must refund such resources within five (5) business days, following which Enagás and/or Graña may demand payment from any of the other two companies mentioned in this paragraph.

In turn, OPIC, CNO and ODB are severally liable debtors with each other for compliance of obligations under the Agreement, the First Addendum and the Second Addendum and Assignment Agreement, while only and solely for the specific case of the obligation set forth in Clause 7, the respective severally liable debtor must refund such resources within five (5) business days, following which Enagás and/or Graña may demand payment from any of the other two companies mentioned in this paragraph.


SEVEN: DEPOSITARY AND REIMBURSEMENT

OLPD, ODB, IITD, OPIC and CNO agree that any funds received in contravention of the Agreement, the First Addendum and this Second Addendum and Assignment Agreement will be received by them in their capacity as depositary and will be in the obligation of returning them immediately to GSP so that GSP may apply such funds as set forth in the above-mentioned documents.

The capacity as depositary in this document is undertaken by OLPD, ODB, IITD, OPIC and CNO gratuitously.

Furthermore, OLPD, ODB, IITD, OPIC and CNO agree to cause that any member of their economic group that receives funds in contravention of the provisions of the Agreement, the First Addendum and this Second Addendum and Assignment Agreement receives the funds in their capacity as depositary and returns them immediately to GSP so that GSP may apply such funds as set forth in the above-mentioned documents.

EIGHT: EFFECTIVE TERM OF THE AGREEMENT

The effective date of this Second Addendum and Assignment Agreement will be subject to the condition that any of the following events is verified: (i) NG and Enagás (whether voluntarily or due to the fulfillment of conditions as set forth in Sub clause 4.1 of the Contributions Payment Commitment) comply with making the contributions to the capital stock of GSP as provided in Sub clause 3.3, paragraph a) of the Contributions Payment Commitment within the terms and in the conditions set forth to that end herein; in the understanding that if the contributions are voluntary (that is, if they should decide to make those contributions without any one or more of the conditions precedent mentioned having been met) this Second Addendum and Assignment Agreement will likewise become effective even if such contributions were made outside the timeframe set forth in Sub clause 3.3, paragraph (a) item (ii); or (ii) Odebrecht defaults on its obligation set forth in Paragraph 4.1.2 of the Contributions Payment Commitment according to the terms and conditions established therein. The occurrence of any of the previously described events shall cause this Second Addendum and Assignment Agreement to enter into full force and effect immediately, without the need of any further act, event or statement.

In witness whereof the Parties hereunto set their hands in Lima, on August 11, 2016.

 

/s/ Diana Elizabeth Ortiz Mendoza

ODEBRECHT LATINVEST PERÚ DUCTOS S.A.

 

/s/ Javier Bernardo de Souza Ferreira Barclay

ODEBRECHT LATINVEST PERÚ DUCTOS S.A.

/s/ Diana Elizabeth Ortiz Mendoza

ODEBRECHT S.A.

 

/s/ Nelson Vieira de Bulhoes

ODEBRECHT S.A.


/s/ Diana Elizabeth Ortiz Mendoza

INVERSIONES EN INFRAESTRUCTURA DE TRANSPORTE POR DUCTOS S.A.C.

 

/s/ Javier Bernardo de Souza Ferreira Barclay

INVERSIONES EN INFRAESTRUCTURA DE TRANSPORTE POR DUCTOS S.A.C.

/s/ Raymundo Nonato Trindade Serra

ODEBRECHT PERÚ INGENIERÍA Y CONSTRUCCIÓN S.A.C.

 

/s/ Allan Chan Matos

ODEBRECHT PERÚ INGENIERÍA Y CONSTRUCCIÓN S.A.C.

/s/ Raymundo Nonato Trindade Serra

CONSTRUCTORA NORBERTO ODEBRECHT

S.A., SUCURSAL DEL PERÚ

 

/s/ Allan Chan Matos

CONSTRUCTORA NORBERTO ODEBRECHT

S.A., SUCURSAL DEL PERÚ

/s/ Pedro Martín-Ondarza Gonzalez

ENAGÁS S.A.

/s/ Luis Francisco Díaz Olivera

Hernando Graña Acuña

GRAÑA Y MONTERO S.A.A.

 

/s/ Mónica María Miloslavich Hart

GRAÑA Y MONTERO S.A.A.

/s/ Luis Francisco Díaz Olivera

Hernando Graña Acuña

GyM S.A.

 

/s/ Mónica María Miloslavich Hart

GyM S.A.

/s/ Luis Francisco Díaz Olivera

Hernando Graña Acuña

NEGOCIOS DE GAS S.A.

 

/s/ Mónica María Miloslavich Hart

NEGOCIOS DE GAS S.A.

/s/ Marcio Luiz Perez Ribeiro

Luiz Cesar Lindgren Costa

GASODUCTO SUR PERUANO S.A.

 

/s/ Dennis Gray Febres

GASODUCTO SUR PERUANO S.A.

/s/ María del Pilar Sabogal Dellepiane

Lima Bar Association Reg. 30993

 

(seal)    LAOS DE LAMA NOTARY PUBLIC’S OFFICE
   Kardex 230943
   Preliminary Agreement Nr. 8735 – 9107
   Kept on page: 58149
   Date: August 11, 2016
   Typesetter: C.L.U.

Exhibit 10.05.1.3

To the Notary:

Please file in your Registry of Public Deeds one evidencing the modification to the Second Addendum to the Subordination of Rights and Conditional Assignment Agreement (“ Modification to the Second Addendum and Assignment Agreement ”) entered into by and between:

 

    ODEBRECHT LATINVEST PERU DUCTOS, S.A., a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20513396571, with domicile for the purpose hereof at Avenida Víctor Andrés Belaúnde 280, Oficina 501, San Isidro, Lima, acting by and through Jorge Henrique Simoes Barata, holder of National Identification Document (DNI) 000317457 and Javier Bernardo de Souza Ferreira Barclay, holder of DNI 08230306, as per powers of attorney registered in Electronic Entry Nr. 11893941 of the Registry of Legal Entities of the Lima and Callao Registration Office (“ OLPD ”);

 

    ODEBRECHT S.A ., a corporation duly organized and validly existing under the laws of Brazil, identified with Taxpayer (CNPJ) Nr. 05.144.757/0001.72, with domicile for the purpose hereof at Avenida Luis Viana 2841, Ed. Odebrecht, Salvador, Bahía, Brazil, acting by and through Javier Bernardo de Souza Ferreira Barclay, holder of DNI 08230306 and Diana Elizabeth Ortiz Mendoza, holder of DNI 03658529, as per powers of attorney included in the instrument granted on August 2, 2016, which in your capacity as Notary Public you are hereby requested to insert (“ ODB ”);

 

    INVERSIONES EN INFRASTRUCTURA DE TRANSPORTE POR DUCTOS S.A.C ., a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 2054837130, with domicile for the purpose hereof at Avenida Víctor Andrés Belaúnde 280, Oficina 502, San Isidro, Lima, acting by and through Jorge Henrique Simoes Barata, holder of National Identification Document (DNI) 000317457 and Javier Bernardo de Souza Ferreira Barclay, holder of DNI 08230306, as per powers of attorney registered in Electronic Entry Nr. 12866524 of the Registry of Legal Entities of the Lima and Callao Registration Office (“ IITD ”);

 

    ODEBRECHT PERÚ INGENIERÍA Y CONSTRUCCIÓN S.A.C. , a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20166012687, at Avenida Víctor Andrés Belaúnde 280, San Isidro, Lima, acting by and through Raymundo Nonato Trindade Serra, holder of Foreign Resident Card (CE) 000071156, and Allan Chan Matos, holder of Foreign Resident Card (CE) 000614605, both as per powers of attorney registered under Item C00336 of Registration Entry 11000180 of the Registry of Legal Entities of Trujillo (“ OPIC ”);

 

   

CONSTRUCTORA NORBERTO ODEBRECHT S.A., SUCURSAL DEL PERÚ , a branch office of a foreign corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20509656607, with domicile for the purpose hereof at Avenida Víctor Andrés Belaúnde 280, San Isidro, Lima, acting by and through Raymundo Nonato Trindade Serra, holder of Foreign Resident Card (CE) 000071156, and Allan Chan Matos, holder of Foreign Resident Card (CE) 000614605,


 

as per powers of attorney registered in Registration Entry 11686833 of the Registry of Legal Entities of the Trujillo Registration Office (“ CNO ” and jointly, with OLPD, ODB, IITD and OPIC, “ Odebrecht ” and with the Original Parties – as this term is defined herein below, the “ Parties ”);

And

 

    ENAGÁS S.A. , a corporation duly organized and validly existing under the laws of Spain, identified with Fiscal Identification Code A-28294726, with domicile for the purpose hereof at Avenida Santo Toribio 173, Oficina 501, San Isidro, Lima, acting by and through Pedro Martín-Ondarza Gonzalez, holder of Foreign Resident Card (CE) 001232975, as per powers of attorney granted under the special Power of Attorney Deed, dated August 4, 2016, which in your capacity as Notary Public you are hereby requested to insert (“Enagás”);

And

 

    GRAÑA Y MONTERO S.A.A., a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20332600592, with domicile for the purpose hereof at Avenida Paseo de la República 4675, Surquillo, Lima, acting by and through Luis Francisco Díaz Olivero, holder of DNI 07872756 and Mónica María Miloslavich Hart, holder of DNI 10545024, as per powers of attorney registered in Electronic Entry 11028652 of the Registry of Legal Entities of the Lima and Callao Registration Office (“ G&M ”);

 

    GyM S.A., a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20100154057, with domicile for the purpose hereof at Avenida Paseo de la República 4675, Surquillo, Lima, acting by and through Luis Francisco Díaz Olivero, holder of DNI 07872756 and Mónica María Miloslavich Hart, holder of DNI 10545024, as per powers of attorney registered in Electronic Entry 11006796 of the Registry of Legal Entities of the Lima and Callao Registration Office (“ GyM ”);

 

    NEGOCIOS DE GAS S.A. , a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20600703499, with domicile for the purpose hereof at Avenida Paseo de la República 4675, Surquillo, Lima, acting by and through Luis Francisco Díaz Olivero, holder of DNI 07872756 and Mónica María Miloslavich Hart, holder of DNI 10545024, as per powers of attorney registered in Electronic Entry 13493968 of the Registry of Legal Entities of the Lima and Callao Registration Office (“ NG ” and jointly, with G&M and GyM, “ Graña ”);

And with the participation of:

 

   

GASODUCTO SUR PERUANO S.A. , a corporation duly organized and validly existing under the laws of Peru, with Taxpayer (RUC) Nr. 20563236354, at Avenida Víctor Andrés Belaúnde 280, Piso 2, San Isidro, Lima, acting by and through Dennis Gray Febres, holder of DNI 101567015 and Marcio Luiz Perez Ribeiro, holder of Foreign


 

Resident Card (CE) 001259266, as per powers of attorney registered in Electronic Entry 1322717 of the Registry of Legal Entities of the Lima and Callao Registration Office (“ GSP ” and jointly with OLPD, ODB, Enagás, G&M, IITD and NG, the “ Original Parties ”);

The Parties hereby enter into this Modification to the Second Addendum and Assignment Agreement in the following terms and conditions:

ONE: RECITALS

 

1.1. On April 29, 2016, the Original Parties entered into the Subordination of Rights Agreement in order to regulate the exercise of certain collection rights that they or their related entities hold or may hold with GSP (the “ Agreement ”) a copy of which is attached hereto as Exhibit 1 to this Second Addendum and Assignment Agreement.

 

1.2. On June 24, 2016, the Parties entered into the First Addendum to the Agreement in the terms and conditions established therein (the “ First Addendum ”) a copy of which is attached hereto as Exhibit 2 to this Second Addendum and Assignment Agreement.

 

1.3. On August 11, 22016, IITD, OLPD, CNO, OPIC, Enagás Internacional S.L.U., G&M, NG, GyM and GSP have signed a document called Contributions Payment Commitment, whereby it was agreed to make certain contributions to the capital stock of GSP in the amounts and dates established therein (the “Contributions Payment Commitment”).

 

1.4. On August 11, 2016, the Parties executed the Second Addendum to the Agreement on Subordination of Rights and Conditional Assignment of Subordinated Rights.

 

1.5. The Parties consider it convenient to modify the Second Addendum to the Agreement on Subordination of Rights and Conditional Assignment of Subordinated Rights.

TWO: MODIFICATION TO THE SECOND ADDENDUM AND ASSIGNMENT AGREEMENT

 

2.1. The Parties agree to modify Sub clause 4.1 of the Agreement: Assignment of Rights, which hereinafter will read as follows:

“4.1 Under this Second Addendum and Assignment Agreement, each and every one of OLPD, ODB, IITD, OPIC and CNO (jointly the “ Assignors ”) assign (the “ Assignment ”) and agree to cause that the members of their economic group assign any and all amounts due, credits, interest or entitlements held with GSP, current or future, certain or contingent (including any right of the Assignors over the equity of GSP in any scenario for their respective capital contributions or for any other concept over any equity account, including any right in case of liquidation of GSP or selling of its assets) (the “ Assigned Credit Rights ”) in favor of G&M and Enagás (“the


Assignees ”) subject to the condition precedent that the following event is verified (the “ Condition Precedent ”): (i) that notification of the resolution issued by the competent authority of the Peruvian Institute for the Defense of Free Competition and Intellectual Property – INDECOPI, declaring the bankruptcy situation of GSP be served.”

 

2.2. The Parties agree to include Sub clause 4.4 to Clause 4: Assignment of Rights, which hereinafter will read as follows:

“4.4 The Assignors are hereby bound to provide, immediately and irrevocably, to the Assignees (and to their respective successors, including, without limitation, any person or autonomous equity that may acquire the Assigned Credit Rights) any and all documentation and information that may be required to prove the existence, origin, legitimacy, amount, enforceability, ownership and effective transfer of the Assigned Credit Rights in favor of the Assignees, as well as any other documentation that may be necessary, in the Assignees’ discretion or as may be required by the competent bankruptcy proceeding authority so that the said credits are timely verified and recognized before such authority.

Thus, without being limited to the list below, the Assignors shall be in the obligation to provide to the Assignees promptly after being requested to, the following: (a) the documents that prove the existence, origin, amount, ownership and enforceability of the Assigned Credit Rights (including the contracts and/or agreements from which said credits derive); (b) the certificates of the accounting entries showing the Assigned Credit Rights as accounts receivable from GSP, signed by a Certified Public Accountant (authenticated by notary public, if required by the Assignees) as well as any other accounting documents evidence registration of the Assigned Credit Rights; (c) affidavits stating that no payments have been received with regard to the Assigned Credit Rights or that partial payments have been received, including invoices, vouchers, receipts and/or bank account statements; (d) liquidations of the amounts owed under the Assigned Credit Rights; (e) communications exchanged between debtor of the Assigned Credit Rights and the Assignors; (f) tax-related documents concerning the Assigned Credit Rights and, in general, (g) any minutes, certification, affidavit and/or public and/or private document that may be required to comply with the purposes set forth in this paragraph, as well as any other information and/or document that may be or is required by the competent bankruptcy authority in order to timely recognize the Assigned Credit Rights as credits recognized in the bankruptcy proceeding of GSP and always considering the timeframes provided in the applicable bankruptcy laws.

The Assignors hereby agree to send to the Assignees (i) a list of the Assigned Credit Rights as at the closing of the month of September 2016; and (ii) the information indicated in the foregoing paragraph corresponding to the credits indicated in the preceding item (i) within eight (8) business days after this document is executed. For any other Assigned Credit Right not included in the list to be sent pursuant to the provisions in the preceding item (i) the Assignors shall send the information previously mentioned to the Assignees within eight (8) business days as of the date when such new assigned credit rights are generated.


Once the above-mentioned documentation has been delivered, it must be updated by the Assignors every forty-five (45) calendar days and as requested by the Assignees, until the Assigned Credit Rights are verified and recognized by the competent bankruptcy authority.

If requested by the Assignees, Assignors undertake to intervene in any incorporation act of an autonomous equity (e.g., Trust Agreements) that include Assigned Credit Rights, so that the obligation to prove the existence, origin, legitimacy, amount, ownership and enforceability of the Assigned Credit Rights as provided for in the foregoing paragraph, may be enforceable in favor of such autonomous equity, which will act by and through the entity in charge of its administration (e.g., the Fiduciary Agent).

Finally, if required by the Assignees or by the competent bankruptcy authority, the Assignors undertake to sign any request, writ or any other document that may be required for the verification and recognition of the Assigned Credit Rights by the competent bankruptcy authority”.

In witness whereof the Parties hereunto set their hands in Lima, on October 25, 2016.

 

/s/ Jorge Henrique Simoes Barata   /s/ Javier Bernardo de Souza Ferreira Barclay
ODEBRECHT LATINVEST PERÚ DUCTOS S.A.
/s/ Javier Bernardo de Souza Ferreira Barclay   /s/ Diana Elizabeth Ortiz Mendoza
ODEBRECHT S.A.   ODEBRECHT S.A.
/s/ Jorge Henrique Simoes Barata   /s/ Javier Bernardo de Souza Ferreira Barclay
INVERSIONES EN INFRAESTRUCTURA DE TRANSPORTE POR DUCTOS S.A.C.
/s/ Raymundo Nonato Trindade Serra   /s/ Allan Chan Matos
ODEBRECHT PERÚ INGENIERÍA Y CONSTRUCCIÓN S.A.C.
/s/ Raymundo Nonato Trindade Serra   /s/ Allan Chan Matos
CONSTRUCTORA NORBERTO ODEBRECHT S.A., SUCURSAL DEL PERÚ
/s/ Pedro Martín-Ondarza Gonzalez
ENAGÁS S.A.
/s/ Luis Francisco Díaz Olivera   /s/ Mónica María Miloslavich Hart
GRAÑA Y MONTERO S.A.A.   GRAÑA Y MONTERO S.A.A.


/s/ Luis Francisco Díaz Olivera

GyM S.A.

 

/s/ Mónica María Miloslavich Hart

GyM S.A.

/s/ Luis Francisco Díaz Olivera

NEGOCIOS DE GAS S.A.

 

/s/ Mónica María Miloslavich Hart

NEGOCIOS DE GAS S.A.

/s/ Dennis Gray Febres

GASODUCTO SUR PERUANO S.A.

 

/s/ Marcio Luiz Perez Ribeiro

GASODUCTO SUR PERUANO S.A.

 

(Seal)    LAOS DE LAMA NOTARY PUBLIC’S OFFICE
   Kardex Nr. 235387

Exhibit 12.01

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Luis Francisco Díaz Olivero, certify that:

1. I have reviewed this annual report on Form 20-F of Graña y Montero S.A.A.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

  (c) evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect the company’s internal control over financial reporting.

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: May 15, 2018

 

/s/ Luis Francisco Díaz Olivero

Luis Francisco Díaz Olivero

Chief Executive Officer

Exhibit 12.02

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mónica Miloslavich, certify that:

1. I have reviewed this annual report on Form 20-F of Graña y Montero S.A.A.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

  (c) evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: May 15, 2018

 

/s/ Mónica Miloslavich

Mónica Miloslavich

Chief Financial Officer

Exhibit 13.01

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Graña y Montero S.A.A. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2016, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Luis Francisco Díaz Olivero, Chief Executive Officer, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

  (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

 

  (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 15, 2018

 

/s/ Luis Francisco Díaz Olivero

Name: Luis Francisco Díaz Olivero

Title: Chief Executive Officer

Exhibit 13.02

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Graña y Montero S.A.A. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2016, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Mónica Miloslavich, Chief Financial Officer, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley-Act of 2002, that to the best of my knowledge:

 

  (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

 

  (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 15, 2018

 

/s/ Mónica Miloslavich

Name: Mónica Miloslavich

Title: Chief Financial Officer

LOGO

EXHIBIT 16.01

May 15,2018

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549-7561

Commissioners:

We have read the statements made by Graña y Montero S.A.A. (the “Company”) (copies attached), which we understand will be filed with the Securities and Exchange Commission, pursuant to Item 16.F of Form 20-F, as part of the annual report of the Company for the year ended December 31, 2016. We agree with the statements concerning our Firm contained therein.

Very truly yours,

/s/ Gaveglio Aparicio y Asociadas Sociedad Civil de Responsabilidad Limitada

Lima, Peru

Gaveglio Aparicio y Asociadas Sociedad Civil de Responsabilidad Limitada.

Av. Santo Toribio 143, Piso 7, San Isidro, Lima, Peru, T: +51 (1) 211 6500 F: +51 (1) 2 11 6550

www.pwc.com / pe

Gaveglio Aparicio y Asociadas Sociedad Civil de Responsabilidad Limitada es una firma miembro de Ia red global de PricewaterhouseCoopers International Limited (PwCIL). Cada una de las firmas es una entidad legal separada e independiente que no actua en nombre de PwCIL ni de cualquier otra firma miembro de Ia red. lnscrita en Ia Partida No. 11028527, Registro de Personas Juridicas de Lima y Callao.


ATTACHMENT 1:

EXTRACT FROM ITEM 16F- CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

(a) Dismissal of Independent Registered Public Accounting Firm

The company and Gaveglio, Aparicio y Asociadas S.C. de R.L., a member firm of PricewaterhouseCoopers (“PwC”) determined that PwC lacked independence from the company with respect to the company’s financial statements for the fiscal year 2016 as a consequence of non-audit services provided by PwC to the company beginning in the fourth quarter of the fiscal year 2016. The services related to the company’s testing of internal controls in accordance with the Sarbanes-Oxley Act. As a result, the company and PwC mutually agreed on October 4, 2017 to the company’s dismissal of PwC as auditor of the company’s consolidated financial statements for the fiscal year 2016. The company’s Audit and Process Committee and Board of Directors participated in and approved the decision to dismiss PwC and recommended the appointment of the company’s new independent registered public accounting firm.

 

(b) New Audit of 2015

The independence issue described above did not affect the independence of PwC with respect to PwC’s audit of the company’s consolidated financial statements for the fiscal years 2014 and 2015. The audit reports of PwC on the company’s consolidated financial statements for the fiscal years 2014 and 2015 did not contain any adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

On or about March 23, 2018, PwC informed the company that it would not authorize the use of its 2015 audit opinion in connection with the filing of the company’s annual report on Form 20-F without conducting substantial additional procedures. PwC could not give any assurance as to when it could complete such additional procedures and stated it could take several months. PwC informed the company that professional standards required the performance of substantial additional procedures with respect to the 2015 consolidated financial statements because of publicly reported procedural developments since the firm’s dismissal in October 2017 concerning the cumulative effect of the decision of the Peruvian court to include three former executives of the company and the company in its ongoing criminal investigation relating to projects involving Odebrecht, coupled with a 2015 agreement that was first provided to PwC in May 2017 while PwC was conducting the audit for the fiscal year 2016.

On Apri1 17, 2018, to avoid further delay, the company appointed Moore Stephens SCAI S.A. (“Moore Stephens”) as its new independent registered public accounting firm for the fiscal year 2015 and announced that the previously issued consolidated financial statements of the company for the 2015 fiscal year (and the related audit opinion of PwC) should no longer be relied upon. Among other factors, as the company’s current auditor, Moore Stephens, was in the process of completing its audit work with respect to the 2016 fiscal year (see (d) below) and thus, in the company’s view, could more timely and efficiently complete the 2015 audit processes as well.

 

(c) Disagreements and Reportable Events

During the 2015 and 2016 fiscal years and the subsequent interim period through October 4, 2017, there were no “disagreements” (as described in Item 16.F(a)(1)(iv) of Form 20-F) with PwC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of PwC, would have caused them to make reference thereto in their reports on the financial statements for such years.


ATTACHMENT 1

Page 2

 

During the 2015 and 2016 fiscal years and the subsequent interim period through October 4, 2017, there were “reportable events” (as that term is defined in Item 16.F(a)(1)(v) of Form 20-F) as follows: (i) as disclosed in the company’s annual report on Form 20-F for the 2015 fiscal year, the company’s management and PwC each concluded that the company did not maintain effective internal control over financial reporting as of December 31, 2015, because of a material weakness related to inadequate controls over segregation of duties in certain activities in some subsidiaries; (ii) PwC advised the company that the company did not maintain effective internal control over financial reporting as of December 31, 2016 as a result of the material weaknesses described in Item 15.B of this annual report, except that the following items were not advised by PwC: (1) inadequate oversight by the Audit Committee regarding the role of the Internal Audit Department, (2) a control environment not always sufficient to ensure adequate enterprise risk management (including fraud risk), and (3) the conclusion which states that there were no significant impacts in our consolidated financial statements because clarifying addendums were signed by the parties; and (iii) at the time of PwC’s dismissal, as described in (a) above, PwC’s audit of the consolidated financial statements for the fiscal year 2016 was not complete, including the final resolution of matters related to the accounting for two contracts and any related implications from the finalization of the internal investigation conducted by the company.

The Audit and Process Committee of the company discussed the subject matter of each of the reportable events with PwC. The company authorized PwC to fully respond to the inquiries of the successor accountant concerning these reportable events.

The company has requested that PwC furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter, dated May 15, 2018, is filed as Exhibit 16.01 to this annual report.


ATTACHMENT 2:

Extract from Item 15B - Listing of Material Weaknesses

The material weaknesses identified are described below:

Control Environment

The control environment, which is the responsibility of senior management, helps set the tone of the organization, influences the control consciousness of its officers and employees, and is an important component affecting how the organization performs risk management, financial analysis, accounting and financial reporting. A proper organizational tone can be promoted through a variety of means, such as policies and codes of ethics, a commitment to hiring competent employees, the manner and content of oral and written communications, and structures that promote and reward openness, strong internal controls, effective governance, risk management, compliance and ethical behavior.

As of December 31, 2016, we did not maintain an effective control environment primarily attributable to the following identified material weaknesses:

 

    Our assessment found that an inconsistent and ineffective tone at the top was present, under the then-existing senior management, that was not effective to ensure adherence to IFRS and our accounting policies and procedures. This resulted in an environment which in some instances may have led to incorrect accounting decisions and the failure to disclose information that may be necessary for an effective review of transactions and accounting entries to the appropriate finance and accounting personnel, our Board, our Audit and Process Committee, and/or independent registered public accounting firm. In addition, we identified an inadequate oversight by the Audit Committee regarding the role of the Internal Audit Department. The control environment was not always sufficient to ensure that adequate entreprise risk management (including fraud risk) and monitoring mechanisms were in place to secure that our internal control over financial reporting operated effectively, including that the relevant risk/control activities were carried out properly and that corrective actions were taken on a priority basis and in timely manner.

 

    We did not have sufficient personnel with an appropriate level of knowledge, experience and training in the application of IFRS and with requirements of internal control over financial reporting commensurate with the complexity of our financial reporting requirements.

These material weaknesses in the risk and control environment contributed to the following additional material weaknesses, including the material weaknesses in risk assessment, information and communication, and monitoring and evidential matter.

Risk Assessment

We identified deficiencies in the controls to address the risks of a material misstatement. Specifically, changes to existing controls or the implementation of new controls were not sufficient to respond to changes to the risks of material misstatements to financial reporting, due in part to acquisitions, dispositions and other changes to the business. These deficiencies contributed to the following additional material weaknesses:

 

    Accounting closing process with respect to the review of the consolidated and separate financial statements: we identified deficiencies in the controls over certain business processes including our period-end financial reporting process, including the identification and execution of controls over financial statement analyses required to assess the appropriateness of certain account balances at period-end and the control over the completeness and accuracy of interim and annual financial statement presentation and disclosure.

 

    Controls over the review, approval and documentation related to journal entries: we identified deficiencies in design and operational effectiveness of the controls over the review, approval and documentation related to journal entries. Specifically, effective controls were not in place to verify and properly approve that journal entries were prepared with sufficient supporting documentation, reports and spreadsheets used to support the journal entries were complete and accurate.


ATTACHMENT 2

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    Deficiencies in the design and operational effectiveness of controls over segregation of duties: we identified deficiencies in design and operational effectiveness of the controls over segregation of duties to ensure that conflicted individuals were not involved in activities related to their conflicts or that such activities were monitored by appropriate individuals using complete and accurate information.

 

    Deficiencies in the design of controls over the timely accounting for signed contracts: we identified deficiencies in the design of the controls, including entity-level controls and process-level controls to prevent or detect material inaccuracies, related to the accounting for the contracts signed with certain companies with which we are associated (Consorcio Constructor Ductos del Sur), one of the company’s significant joint arrangements. Specifically, we identified deficiencies related to the accounting assessment of joint arrangement contracts and the assessment of the completeness of contracts, which is relevant to verifying all contracts and addenda are accounted for, including any changes in the percentage-of-interests held in certain entities. We noted that certain entities (i.e. consortia) were accounted for using an accounting basis that was not consistent with the nature/type of the joint arrangement contracts. Nevertheless, there were no significant impacts in our consolidated financial statements because clarifying addendums were signed by the parties.

 

    Deficiencies in the design and operational effectiveness of controls established with respect to the recognition of revenue: we identified deficiencies in design and operational effectiveness of the controls related to the accounting for revenue and accounts receivable, including construction contract revenues and contingent revenues. Specifically, with respect to construction contract revenues and costs, we identified deficiencies in the controls to verify that unbilled services at the closing date of the financial statements were completely and accurately identified and recorded, projected margins by project/work were reasonable, supported and accurately calculated, and revenues billed related to actual transactions were authorized by the customer and stated at the correct amounts. Further, with respect to contingent revenues, we did not have effective controls to verify that revenues that were contingent in nature were not recognized until all of the recognition criteria were met. We identified deficiencies in design and operational effectiveness of the controls over the valuation of provisions for revenue. Specifically, we identified deficiencies in the controls to ensure the provisions stated in the financial statements were recoverable and were not impaired.

 

    Deficiencies in the determination of related estimates and the accounting for inventory and inventory entries received: We identified deficiencies in design and operational effectiveness of the controls related to the accounting for inventory and inventory entries received. Specifically, one of our subsidiaries has not implemented the controls in all locations where they receive inventories. Also, we identified deficiencies in the design and operational effectiveness of the control over the review, approval and documentation related to purchases of services.

 

    Deficiencies in design and operational effectiveness of the controls over the review and approval of the valuation of acquired assets and liabilities as part of a step acquisition: We identified deficiencies in the controls to verify the data, assumptions, model and calculations used to value acquired assets and liabilities were appropriate and reasonable.

Information and Communication

We identified deficiencies in the controls over information and communications. Specifically, we identified deficiencies in the process to verify all information necessary to be provided to the accounting department to achieve complete and accurate financial reporting from other operating departments were provided completely, accurately and on a timely basis.


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Monitoring and Evidential Matter

Deficiencies in operational effectiveness of controls over SOX compliance: we identified deficiencies in design and operational effectiveness of the monitoring controls related to the design and operational effectiveness of our internal controls. Specifically, we did not maintain personnel and systems within the internal audit function that were sufficient to ensure the adequate monitoring of control activities. This control deficiency resulted in some instances of the internal audit function’s failure to identify or sufficiently follow through on the analysis of certain inappropriate accounting decisions and changes in accounting methodology.

We did not consistently maintain sufficient evidential matter, including documentation, to provide reasonable support for management’s assessment of the effectiveness of internal control over financial reporting.