AFRB.L Regulatory News (AFRB)

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IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

PROPOSED DISPOSAL OF CERTAIN PROPERTIES IN EXCHANGE FOR RELEASE OF

GROUP'S OBLIGATIONS IN RESPECT OF THE VTB LOANS

AND NOTIFICATION ON EXTRAORDINARY GENERAL MEETING

London, 15 July 2016 - AFI Development today announces the proposed Disposal of the following Properties to VTB in exchange for VTB releasing the Group from all of its obligations in respect of the Loans of approximately US$619.1 million:

• AFIMALL City Shopping Centre, a shopping and entertainment centre in the business district of Moscow;

• Ozerkovskaya III, a completed Class A office complex in Moscow; and

• Aquamarine Hotel, a modern 4-star hotel, located in the Ozerkovskaya III complex.

Background to the Disposal

As previously announced, following the Company's receipt of VTB's notice on 29 March 2016 that VTB had reached a conclusion that Bellgate and Krown (the borrowers under the AFIMALL City Loan Facility and the Ozerkovskaya III Loan Facility respectively) had experienced, in the opinion of VTB, material adverse changes in their financial conditions and there had appeared other circumstances that indicated that their obligations under the Loan Facility Agreements could not be met on time, the Company has been in ongoing negotiations with VTB in respect of approximately US$619.1 million of Loans owed by the Group to VTB.

On 26 May 2016, the Company first announced that a transaction involving releasing the Group from the Loans in exchange for the potential disposal of the Properties to VTB was under discussion.

The Company subsequently announced on 16 June 2016, following on from and further to the discussions between the Company and VTB with respect to the Disposal, that Mr Leviev, the Executive Chairman of the Company, had begun negotiating the possibility of providing a personal Guarantee to the Bank in respect of the Group's obligations under the Ozerkovskaya III Loan Facility as an alternative to the Disposal. The Guarantee continues to be discussed between the Bank and Mr Leviev. If these discussions result in the Guarantee being agreed prior to Completion of the Disposal then, subject to obtaining all approvals (including any Shareholder approvals) required in relation to the Guarantee, the Board may determine not to proceed with the Disposal. However, the Board notes that there is no certainty as to whether the Guarantee will be agreed, approved (if necessary), or entered into prior to Completion.

The Company also set out in the announcement of 16 June 2016 that the Bank had confirmed that in the event that the Guarantee was not entered into by 1 August 2016, the Transaction Documents to effect the Disposal must be entered into by the parties by that date, or it will seek to exercise its rights under the Loan Facility Agreements.

The Disposal

The Company proposes that, subject to obtaining Shareholder approval for the Disposal at the General Meeting, it intends to undertake the Disposal in exchange for VTB releasing the Group from all of its obligations in respect of the Loans. On Shareholder approval of the Resolutions, the parties will enter into the English Law Governed Transaction Documents on 1 August 2016 with Completion expected to occur on or before the end of September 2016 upon satisfaction of the Conditions.

The Disposal is a class 1 transaction for the Company under the Listing Rules and is therefore conditional upon Shareholder approval.

Accordingly, in order to be able to enter into the English Law Governed Transaction Documents by 1 August 2016, the Company is today issuing a circular, containing full details of the Disposal and the Notice convening the General Meeting (the "Circular") for 10.00 a.m. EEST at the offices of Fuamari Secretarial Limited, at 6 Spyrou Kyprianou Av., 3070, Limassol, Cyprus on 1 August 2016, to seek shareholder approval for the Disposal.

The Circular will be made available to Shareholders later today and a copy of the Circular, Forms of Proxy and the Form of Direction for depository interest holders, will be available to download from the Company's website at http://www.afi-development.com/en/investor-relations/reports-presentations.

For further information, please contact:

AFI Development Plc, Moscow +7 495 796 9988

Ilya Kutnov

Strand Hanson Limited, London +44 20 7409 3494

(Sponsor to the Company)

Richard Tulloch

Andrew Emmott

Hannam & Partners (Advisory) LLP, London +44 20 7907 8500

(Financial Adviser to the Company)

Neil Passmore

Chris Byrne

Citigate Dewe Rogerson, London +44 20 7638 9571

David Westover

Sandra Novakov

Marina Zakharova de Calero

The above highlights should be read in conjunction with the full text of the following announcement.

Capitalised terms used herein but not defined have the same meanings as set out in the Circular.

Strand Hanson Limited ("Strand Hanson"), which is regulated in the United Kingdom by the FCA, is acting exclusively for AFI Development Plc and no one else in connection with the Disposal and will not be responsible to anyone other than AFI Development Plc for providing the protections afforded to its clients, for the contents of this announcement or for providing any advice in relation to this announcement or the Disposal.

Hannam & Partners (Advisory) LLP ("Hannam & Partners"), which is regulated in the United Kingdom by the FCA, is acting exclusively for AFI Development Plc and no one else in connection with the Disposal and will not be responsible to anyone other than AFI Development Plc for providing the protections afforded to its clients, for the contents of this announcement or for providing any advice in relation to this announcement or the Disposal.

AFI DEVELOPMENT PLC

("AFI DEVELOPMENT" OR "THE COMPANY")

PROPOSED DISPOSAL OF CERTAIN PROPERTIES IN EXCHANGE FOR RELEASE OF

GROUP'S OBLIGATIONS IN RESPECT OF THE VTB LOANS

AND NOTIFICATION ON EXTRAORDINARY GENERAL MEETING

1. Introduction

As detailed below, the Company has been in ongoing negotiations with VTB in respect of approximately US$619.1 million of Loans owed by the Group to VTB.

Following these negotiations, the Company announces today that subject to, obtaining Shareholder approval for the Disposal at the General Meeting, it intends to enter into the Transaction Documents with VTB. Completion of the Disposal will release the Group from all of its obligations in respect of the Loans in exchange for the Disposal to VTB of the following Properties:

· AFIMALL City Shopping Centre, a shopping and entertainment centre in the business district of Moscow;

· Ozerkovskaya III, a completed Class A office complex in Moscow; and

· Aquamarine Hotel, a modern 4-star hotel, located in the Ozerkovskaya III complex.

The Bank has confirmed to the Company that it will exercise its rights under the Loan Facility Agreements if the English Law Governed Transaction Documents are not entered into by 1 August 2016.

In addition, as at the date of this announcement, the Guarantee continues to be discussed between the Bank and Mr Leviev, the Executive Chairman of the Company. If these discussions result in the Guarantee being agreed prior to Completion then, subject to obtaining all approvals (including any Shareholder approvals) required in relation to the Guarantee, the Board may determine not to proceed with the Disposal. However, the Board notes that there is no certainty as to whether the Guarantee will be agreed, approved (if necessary), or entered into prior to Completion.

The Disposal, because of its size in relation to the Group, is a class 1 transaction for the Company under the Listing Rules and is therefore conditional upon Shareholder approval.

Accordingly, in order to be able to enter into the English Law Governed Transaction Documents by 1 August 2016, the Company is today issuing the Circular and Notice to convene the General Meeting to be held on 1 August 2016 to seek such approval.

2. Background to and reasons for the Disposal

Background

As set out in its results for the year ended 31 December 2015, the Company has experienced difficult trading conditions driven by macro-economic and geopolitical developments affecting the Russian economy as a whole and a deterioration in demand for real estate assets across the country. Whilst the general economy has shown some signs of stabilisation during the first half of 2016 (with higher oil prices and inflation on a downward trend), the performance of the real estate sector remains weak.

Against this backdrop, AFI Development reported net losses during the year ended 31 December 2015 of US$467 million, which predominately related to a decrease in the value of the Group's property assets by approximately US$0.5 billion to US$1.4 billion. Cash and cash equivalents and marketable securities also declined by US$50.8 million during 2015 to US$42.5 million as at 31 December 2015.

For the three-month period ended 31 March 2016, AFI Development reported a net loss after tax of US$31.9 million, which related to a further decrease in the value of the Group's property assets of US$60.3 million, and as at 31 March 2016 current liabilities exceeded current assets by US$410 million, as a result of the Loans being reclassified from long-term liabilities to current liabilities (described further below). These, together with the discussions with the Bank regarding the acceleration and enforcement of the Loan Facility Agreements (described further below), indicated the existence of a material uncertainty which cast significant doubt on the Group's ability to continue as a going concern.

Loan Facility Agreements

There are two Loan Facility Agreements between the Group and VTB, with a current outstanding balance of in, aggregate, US$619.1 million as at 14 July 2016 (being the latest practicable date prior to the date of this announcement):

· Bellgate, one of the Group's subsidiaries, entered into a loan with RCB on 22 June 2012. The rights and obligations of RCB under the loan facility agreement and related security documents were subsequently transferred to the Bank on 28 August 2013. The AFIMALL City Loan Facility offered a credit line totalling RUB 21 billion, maturing on 1 April 2018 and drawable in both US dollars and Russian Rubles. The purpose of the AFIMALL City Loan Facility was to refinance the construction costs related to the AFIMALL City Shopping Centre. The current outstanding balances under the loan as at 14 July 2016 (being the latest practicable date prior to the date of this announcement) amounted to, in aggregate, approximately US$428.0 million, being US$276.9 million for US$ liabilities and approximately US$151.1 million for RUB liabilities.

· On 25 January 2013, Krown, a 100 per cent. subsidiary of the Group, received a secured loan from the Bank for the purpose of refinancing the construction costs of the Ozerkovskaya III project. The Ozerkovskaya III Loan Facility offered a credit line of US$220 million maturing in January 2015. On 21 January 2015, Krown signed an addendum to the Ozerkovskaya III Loan Facility extending the term of the loan to 26 January 2018 in return for a partial repayment of US$10 million principal and the introduction of the Krown Covenants being LTV, which should not exceed 65 per cent., and DSCR, which should be at least 1.2 times EBITDA after tax. The outstanding balance of the loan as at 14 July 2016 (being the latest practicable date prior to the date of this announcement) is US$191.1 million.

The AFIMALL City Loan Facility is secured by the AFI Bellgate Suretyship from the Company (the liability of which is limited to US$1.0 million) and a suretyship from Semprex, a Cypriot law pledge by the Company of 100 per cent. of the share capital of Bellgate (the liability of which is limited to US$1.0 million), various Russian law real estate mortgages over the AFIMALL City Shopping Centre and the Aquamarine Hotel, and direct debit rights in respect of the bank accounts opened by Bellgate, which receive the rental income for AFIMALL City Shopping Centre, the Company and Semprex, with VTB.

The Ozerkovskaya III Loan Facility is secured by the AFI Krown Suretyship from the Company, a Russian law pledge by the Company of 100 per cent. participation interest in the charter capital of Krown, a Russian law real estate mortgage over Ozerkovskaya III located in the centre of Moscow, and direct debit rights in respect of the bank accounts opened by Krown and the Company with VTB through which the rental income for Ozerkovskaya III is received.

Enforcement action by the Bank

Due to the difficult trading conditions referred to above, Ozerkovskaya III performed below expectations and in the Company's half yearly report for the six months ended 30 June 2015, announced on 25 August 2015, the Company reported a risk that the LTV covenant would be breached when tested in Q4 2015. Accordingly, AFI Development commenced discussions with the Bank regarding the possible postponement of the starting date of the Krown Covenants. In the Company's Q3 results statement, announced on 24 November 2015, the Company reported that it had received notice from the Bank of its decision to postpone the applicability of the Krown Covenants to the start of Q2 2017 onwards. Detailed negotiations and the drafting of the documentation to effect the postponement of the Krown Covenants continued until after the publication by the Company on 18 March 2016 of its preliminary results for the year ended 31 December 2015, which showed a further deterioration in the Company's financial condition.

As no binding agreement to postpone the starting dates of the Krown Covenants was reached, the Company remains in breach of the Krown Covenants. In addition, according to the latest valuation of the Ozerkovskaya III business centre, its market value has decreased. In such circumstances, the Ozerkovskaya III Loan Facility requires Krown to provide additional security to the Bank, which has not yet been provided. Consequently, Krown is also in breach of this covenant. As a consequence of these breaches:

· The Bank is entitled under the terms of the Ozerkovskaya III Loan Facility to accelerate repayment of the Ozerkovskaya III Loan Facility, requiring repayment of the loan within five days. If the Bank were to accelerate repayment of the loan, Krown does not have sufficient funds to repay the loan within this period and it would therefore be in breach of the Ozerkovskaya III Loan Facility.

· Non-payment by Krown of the loan would, in turn, entitle the Bank to serve an enforcement notice on the Company, as surety for the Ozerkovskaya III Loan Facility, demanding repayment by the Company of the loan within five days. AFI Development, similarly, does not have sufficient funds to repay the Ozerkovskaya III Loan Facility.

· Non-payment of the Ozerkovskaya III Loan Facility by the Company as surety would entitle the Bank to seek enforcement action against the Company, including against assets not encumbered in favour of VTB and potentially initiating a bankruptcy procedure against the Company.

· The Company is a security provider under the AFIMALL City Loan Facility and any non-payment by the Company of the Ozerkovskaya III Loan Facility pursuant to its obligations under the AFI Krown Suretyship would also trigger a security provider default by the Company in the AFIMALL City Loan Facility, entitling the Bank to accelerate repayment of the AFIMALL City Loan Facility. Bellgate would be unable to repay the loan and the Bank would be entitled to seek enforcement of its security under the AFIMALL City Loan Facility.

In addition, on 29 March 2016, the Company received notice from VTB that it had reached a conclusion that Bellgate and Krown (the borrowers under the AFIMALL City Loan Facility and the Ozerkovskaya III Loan Facility respectively) had experienced, in the opinion of the Bank, material adverse changes in their financial conditions (in accordance with the terms of the Loan Facility Agreements, which provide that VTB can reach such an opinion at its sole discretion) and there had appeared other circumstances that indicated that their obligations under the Loan Facility Agreements could not be met on time. According to the letter, details of which were announced by the Company on 30 March 2016, the Bank proposed that the Company "implement steps aimed at removing possible negative consequences of the aforesaid circumstances, no later than 30 calendar days from today", otherwise the Bank would exercise its right under the Loan Facility Agreements to claim early repayment of the Loans.

Other financing alternatives

As set out in its Q1 2016 results, the Company has examined refinancing the Loans through new bank loans or obtaining financing from its controlling shareholder, Africa Israel, which has a 64.9 per cent. interest in the Company, who has stated that it is not willing to provide such financing.

Approaches made by the Company to alternative Russian banks did not yield any offers to refinance the Loans. As a result of these discussions and in light of the current economic climate facing Russia and its property sector and the international sanctions against Russia, the Directors are of the opinion that:

· real estate loans for Russian assets are currently only capable of being financed locally in Russian Rubles, whereas the Loans are predominately denominated in US dollars and would need to be refinanced in US dollars;

· there are only a very limited number of Russian banks who are able to provide a loan of the size of the Loans and the Company has not been able to obtain a refinancing of the Loans;

· it would not be possible to obtain a loan against Ozerkovskaya III which is a non-yielding asset; and

· for the limited extent to which banks are providing new loans to the real estate sector in Russia, interest rates are significantly in excess of rates which apply to the Loans (a blended rate of approximately 7.15 per cent.), which the Company would be unable to service given the non-yielding status of Ozerkovskaya III.

Discussions with VTB

Following the Bank informing the Company that it believed that Bellgate and Krown had experienced material adverse changes in their respective financial conditions on 29 March 2016, the Company and the Bank have been negotiating possible solutions, including a transfer of properties to the Bank, raising cash from a sale of properties to third parties to repay the Loans, and the Disposal which has now been agreed with the Bank.

The Company had also requested a six-month period to be able to effect a sale of properties to third parties to repay the Loans. However, on 13 May 2016, the Bank informed the Company that, based on its assessment of the financial condition of Bellgate and Krown and its view of the fair value of the pledged assets, it was not willing to agree to such additional time. The Bank communicated to the Company that it expected to reach an agreement on the cessation of the indebtedness by no later than 31 May 2016 (as announced on 17 May 2016 in the Company's Q1 2016 results).

Subsequently, on 26 May 2016, the Company announced that it was still discussing the Disposal with VTB and that the Bank had confirmed that it would exercise its rights to accelerate the repayment of the Loans unless the Disposal was completed by 10 June 2016. This deadline was subsequently extended to 15 June 2016 as announced on 10 June 2016.

As announced on 16 June 2016, following on from and further to the discussions between the Company and VTB with respect to the Disposal, the Executive Chairman of the Company had begun negotiating the possibility of his providing a personal Guarantee to the Bank in respect of the Group's obligations under the Ozerkovskaya III Loan Facility as an alternative to the Disposal. The Guarantee continues to be discussed between the Bank and the Executive Chairman of the Company. If these discussions result in the Guarantee being agreed prior to Completion then, subject to obtaining all approvals (including any Shareholder approvals) required in relation to the Guarantee, the Board may determine not to proceed with the Disposal. However, the Board notes that there is no certainty as to whether the Guarantee will be agreed, approved (if necessary), or entered into prior to Completion.

As set out in the announcement of 16 June 2016 in the event that the Guarantee is not agreed or the Disposal is not completed by 1 August 2016 and the Bank exercises it rights under the Loan Facility Agreements, it remains highly probable that there would be a material adverse effect on the Group's operations and on the value of the Company's shares.

Accordingly, in order to achieve the Bank's deadline as described above, the Company intends, subject to obtaining Shareholder approval of the Resolutions at the General Meeting, to enter into the English Law Governed Transaction Documents on 1 August 2016. Completion is expected to occur on or before the end of September 2016 upon satisfaction of the Conditions.

In the event that the Disposal does not occur, the Directors believe that it is likely that the Bank will take actions against the Group in order to protect its position and will exercise its enforcement rights under the Loan Facility Documents. This the Directors believe may include, in addition to the enforcement action referred to above, the Bank taking interim measures against the Company in the Russian courts, including the arrest of shares and/or participation interest in the Russian companies owned by the Company to secure VTB's claims against the Company.

The Directors also believe that the Group would only be able to meet a demand for accelerated repayment of the Loans from the proceeds of a disposal of property assets. However, the Directors believe that the Bank will not allow the Company sufficient time to conduct an orderly disposal of property assets and the Group has no realistic prospect of being able to meet a demand for early repayment from VTB. Accordingly, the Directors believe that the Disposal is in the best interests of the Company and Shareholders as a whole and that unless the Disposal is completed, the Company would likely be unable to meet its financial commitments as they fall due and consequently would be unable to continue to trade resulting in the likely appointment of receivers, liquidators or administrators, which would have had a material adverse impact on the Group's other assets and on Shareholder value.

As announced on 4 July 2016, the Company applied to the Bank to grant it a deferral from its quarterly principal payments of, in aggregate, US$8.3 million due on 30 June 2016 under the Loan Facility Agreements, to 1 August 2016. Accordingly, the Company did not to make the principal payment due on 30 June 2016 and on 11 July 2016, the Bank agreed to the deferral of the principal payment and that if the Disposal proceeds, the principal payment will not be payable.

3. The Disposal

The proposed Disposal will involve the transfer by the Group to VTB of the Properties.

The total value of the Properties is approximately US$867.4 million. The valuation is broken down by each Property (together with certain income data) as follows:

Notes:

1. Market valuation as at 30 June 2016.

2. Book value as at 31 March 2016.

3. Net annual rent is rental income less operating expenses.

Given the immateriality of the Aquamarine Hotel, representing less than 1.6 per cent. of the aggregate value of the Properties, and on the basis that the Group accounts for the hotel on a costs basis and not on a market value basis as for AFIMALL City Shopping Centre and Ozerkovskaya III, an independent Valuation Report has not been prepared for the Aquamarine Hotel.

The total amount outstanding under the Loans, as at 14 July 2016 (being the latest practicable date prior to the date of this announcement), is US$619.1 million, which is US$248.3 million less than the Properties' valuations as described above.

The Bank has stated that the Properties are the minimum group of assets that the Bank is willing to accept in consideration for the Release and the Board is of the view that the terms of the Disposal are consistent with valuations that could be achieved for the Properties in a distressed sale. As AFIMALL City Shopping Centre and Ozerkovskaya III are recorded in the Group's financial accounts at market value, the Disposal will result in the realisation of a significant loss in the Group's financial accounts.

4. Summary of the terms of the Disposal

The Company intends to enter into the Settlement Deed which provides that upon completion of the Disposal, VTB will release and discharge the Company and its affiliates (including AFI RUS LLC and AFI D Finance SA) from their present and future obligations under, and any liability and claims in relation to the Suretyship Agreements (the "Release").

In connection with and in exchange for the Release provided under the Settlement Deed, the proposed Disposal is to be effected pursuant to:

(i) the Bellgate SPA pursuant to which AFI Development transfers to the Purchaser 100 per cent. of the shares in Bellgate, the company through which AFIMALL City Shopping Centre is held;

(ii) the Krown SPA pursuant to which AFI Development transfers to the Purchaser 100 per cent. of the participation interest in Krown, the company through which Ozerkovskaya III is held; and

(iii) the Semprex SPA pursuant to which AFI Development Hotels Ltd. transfers to the Purchaser 100 per cent. of the participation interest in Semprex, the company through which the Aquamarine Hotel is held.

The Disposal constitutes a class 1 transaction for the Company under the Listing Rules. As such, the approval of a simple majority of the Shareholders of the Company is required before the Disposal can be completed. A notice of the General Meeting to be held on 1 August 2016, at which the approval of Shareholders will be sought for the Disposal, will be set out in the Circular to be issued later today. As of the date of this announcement, the Board believes that the Transaction Documents are in agreed form. The Board expects to enter into the English Law Governed Transaction Documents on 1 August 2016 following your approval of the Disposal at the General Meeting and is not aware of any reason why they would not be entered into. Completion is expected to occur on or before end of September 2016 upon satisfaction of the Conditions. Following the Disposal, the Company will no longer have any equity interest in Bellgate, Krown and Semprex.

The Board believes that the Disposal is in the best interests of the Company and Shareholders as a whole and that, unless the Disposal occurs, the Company will likely be unable to meet its financial commitments as they fall due and consequently will be unable to continue to trade resulting in the likely appointment of receivers, liquidators or administrators. In coming to this conclusion, the Directors have had particular regard to the following matters:

· the fact that all alternative methods of obtaining finance have been exhausted and that the only option remaining to the Company is the Disposal;

· that the terms of the Disposal are consistent with valuations that could be achieved for the Properties in a distressed sale; and

· the likelihood that VTB would take enforcement action against the Group if it were not to enter into the Disposal which would likely lead to the Company not being able to meet its financial commitments as they fall due and consequently not being able to continue to trade.

5. Financial effects of the Disposal on the Group

As AFIMALL City Shopping Centre and Ozerkovskaya III are recorded in the Group's financial accounts at market value, the Disposal will result in the realisation of a significant loss in the Group's financial accounts. It is estimated that the effect of the Disposal will be a decrease in the Group's consolidated net assets by an amount of approximately US$253 million. Further, the loss from the Disposal is estimated to be US$197 million (including deferred tax benefit of US$5 million and translation reserve adjustment in the amount of US$54 million). In addition, the net rental income (being rental income less operating expenses) will reduce on Completion as the Properties will no longer be part of the Group.

6. Current operations and trading

AFI Development announced its unaudited results for the three months ended 31 March 2016 on 17 May 2016 and noted that rental income and income from hotel operations declined to US$20.0 million (from US$24.4 million in Q1 2015) as a result of the continuously difficult macroeconomic environment. AFIMALL City Shopping Centre's contribution was US$16.1 million, compared to US$19.1 million in Q1 2015.

At the same time, gross profit increased to US$15.1 million compared to US$11.2 million in Q1 2015.

However, net loss for the quarter amounted to US$31.9 million compared to net profit of US$6.0 million in Q1 2015, mainly due to a valuation loss for AFIMALL City Shopping Centre and Ozerkovskaya III.

Cash, cash equivalents and marketable securities were US$32.5 million as of 31 March 2016.

Since 31 March 2016, trading has been in line with management expectations with the continued delivery of Building 1 of Odinburg during Q2 2016, resulting in the associated revenues and expenses being recognised in Q2 2016. The Company will announce its results for the six months ended 30 June 2016 on 18 August 2016.

7. Future prospects of the Group

Following the Disposal, the Company will continue to be focused on developing high quality commercial and residential real estate assets within Russia, with a portfolio of completed office properties and hotels (principally being Paveletskaya I, H2O and Berezhkovskaya business centres and the Plaza Spa Kislovodsk (50 per cent. stake) and Plaza Spa Zheleznovodsk hotels) generating an operating income and projects under development generating forward sale of flats and apartments as well as a land bank of projects that have not currently commenced, which had, in aggregate, as at 31 March 2016, an unaudited asset value of approximately US$546 million.

The Group is committed to continuing the development of its existing projects and the Directors believe that the Disposal will not negatively impact on the continuing construction of these projects, specifically:

· the ongoing construction of its residential projects Odinburg, which commenced in January 2015 with delivery of the first block of apartments in Building 1 commencing in March 2016 while the construction of Building 2 continues;

· AFI Paveletskaya II, which commenced in December 2015; and

· the proposed commencement of the construction of the Bolshaya Pochtovaya in September 2016 and Botanic Garden residential projects during Q4 2016.

On Completion, the development of the Group's existing projects currently under construction and in the development pipeline, as set out above, will be funded from existing cash resources and forward sales and as at 30 June 2016, the number of sale contracts signed amounted to 690 (95 per cent. of total) in Building 1 and 189 (27 per cent. of total) in Building 2 in respect of Odinburg and 67 flats and 8 'apartments' had been pre-sold in respect of Paveletskaya II.

However, the Group may look to accelerate the development of its existing projects currently under construction and in the development pipeline and as set out in the Group's Q1 2016 results, the Company is in negotiations with other banks regarding new bank facilities and loans in this regard.

Following the Disposal, other than the short-term loan from Julius Baer & Co Ltd, for an amount of US$1.6 million (the balance as of 31 March 2016), for the acquisition of marketable securities, the Company will not have any outstanding loans.

The Board is confident that, following the Disposal, the Company will continue to operate and create future value for Shareholders.

8. General Meeting

The Circular includes the Notice convening the General Meeting to be held on 1 August 2016, at which the Resolutions will be proposed as ordinary resolutions to approve the Disposal.

Such approval will be sought by way of ordinary resolutions. As a result, the Disposal in its entirety will either be approved or voted down pursuant to the Resolutions at the General Meeting.

9. Consequences of a failure to approve the Resolutions

If the Shareholders do not approve the Resolutions, the Disposal will not proceed. In that event, absent any other fund raising by the Group, the Board expects, based on its discussions with and correspondence received from the Bank, that the Bank would exercise its rights to demand accelerated repayment of the Loans and that the Group would not be able meet such a demand.

The Directors are of the opinion that it is highly unlikely that alternative funding could be raised and that in all likelihood a demand by the Bank for accelerated repayment of the Loans would likely result in the Company and some or all of its subsidiaries entering into insolvency processes and/or ceasing to trade and as a result Shareholders could lose some or all of their investment in the Company.

As such, it is critical that Shareholders vote in favour of the Resolutions to enable the Disposal to proceed and the Group to continue trading.

Shareholders should note that a letter of intent from Africa Israel, the Company's controlling shareholder with an interest of approximately 64.88 per cent. in the Company, to vote in favour of the Resolutions has been received. If Africa Israel does vote in favour of the Resolutions, the Resolutions will be approved at the General Meeting and the Disposal will proceed.

10. Significant Shareholder letter of intent

Africa Israel, the Company's largest shareholder, has provided the Company with a letter of intent (the "Letter of Intent") pursuant to which it has agreed to vote in favour of the Resolutions in respect of 336,948,796 A ordinary shares and 342,799,658 B ordinary shares held by it, representing approximately 64.88 per cent. of the Company's issued share capital and voting rights in the Company. It should be noted that most of Africa Israel's holdings in the tradable securities of the Company, are pledged in favour of its bondholders in Israel and held in trust by a trustee who has granted Africa Israel a proxy to exercise the voting rights on behalf of the pledged securities. Under certain circumstances, the trustee is entitled to revoke the proxy and Africa Israel's voting rights are therefore somewhat dependent on this proxy not being revoked.

11. Recommendation

The Board considers that the Disposal is in the best interests of the Company and the Shareholders as a whole and, accordingly, the Board recommends that Shareholders vote in favour of the Resolutions.

Forward-looking Statements

This announcement may contain "forward-looking statements" with respect to the Group's financial condition, results of operations and business and certain of the Group's plans and objectives.

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "will", "anticipates", "aims", "due", "could", "may", "should", "expects", "believes", "intends", "plans", "targets", "goal" or "estimates". By their nature, forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements.

These factors include, but are not limited to, the following:

• general economic and political conditions in the jurisdictions in which the Group operates and changes to the associated legal, regulatory, competition and tax environments;

• changes in the economies and markets in which the Group operates;

• changes in the markets from which the Group raises finance;

• the impact of legal or other proceedings against, or which may affect, the Group; and

• changes in interest rates and foreign exchange rates.

Any written or oral forward-looking statements, made in this announcement or subsequently, which are attributable to the Group or any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurances can be given that the forward-looking statements in this announcement will be realised. Subject to compliance with applicable law and regulations, the Group does not intend to update these forward-looking statements and does not undertake any obligation to do so.

Other than in accordance with its legal or regulatory obligations (including under the Listing Rules and the Disclosure and Transparency Rules), the Company is under no obligation and the Company expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.