Report for 1Q 2016 as at 31.13.2016 on the compliance with the terms and conditions of the debenture loan issue of corporate convertible bonds ISIN Code BG2100003156, issued by IHB in 2015

REPORT

For 1Q 2016 as at 31.03.2016on the compliance with the terms and conditions of the debenture loan

issue of corporate convertible bonds ISIN Code BG2100003156,

issued by Industrial Holding Bulgaria Plc in 2015

This Report on compliance with the terms and conditions of the debenture loan – issue of corporate convertible bonds ISIN code BG2100003156 issued by Industrial Holding Bulgaria Plc. /IHB Plc. or the Holding/ includes information regarding the maintenance of the financial ratio presented with the audited individual report as at 31.03.2016.

1. Compliance with the terms and conditions of issue of convertible bonds 2015

1.1. Convertible bonds listing at Bulgarian Stock Exchange - Sofia AD

On 21.05.2015 the trading of corporate bonds issue 2015 of IHB Plc started at BSE-Sofia AD, bonds segment. The stock exchange code is 4IDF. The issue amount is BGN 49,999,600.00 and the number of bonds is 499,996 with nominal value of BGN 100 each.

The market batch is one lot equal to 10 bonds. The listing price as of 21.05.2015 is 100% of the nominal value.

The transaction cash settlement is executed in BGN.

1.2. Holding of General Meeting of Bondholders and election of a Representative of the bondholders

On 12.05.2015 the First General Meeting of Bondholders was held and Mrs. AntoanetaMihailovaDimolarova, attorney, was elected as a Representative of the bondholders. The Representative will be entitled to a monthly remuneration of BGN 250 (two hundred and fifty).

1.3. Interest payments

Bondholders registered as such in the Central Depository AD not later than 3 /three/ business days prior to interest payment date, respectively 5 /five/ business days prior to final interest payment date, which is the final maturity date of the issue have the right to interest payment.

Nominal interest rateinthe current issueof convertible bondsis fixed atannually rate of 6.5 percentover the life ofthe loan.

The interest payment period is a 6-month period with fixed dates as follows: 10.10.2015, 10.04.2016, 10.10.2016, 10.04.2017, 10.10.2017 and 10.04.2018.

On 10.10.2015 IHB made the first interest payment and on 10.04.2016 made the second interest payment. The interestpaymentsare carried out by the Central Depository.

1.4Conversion ratio and conversion price

With the decision for bond issue 2015, the Managing Board of Industrial Holding Bulgaria has determined the number of new shares to be converted into one bond when exercising the right of conversion and their price, the so called conversion ratio and respectively conversion price.

The conversion price is equal to the nominal value of a share divided by the conversion ratio – the price on each new share is acquired when converting bonds into shares.

The Managing Board of Industrial Holding Bulgaria set a conversion ratio of 100.00 shares for each bond with a nominal value of BGN 100 which defines conversion price of BGN 1.00;

Under the terms and conditions of the debenture loan it is possible to adjust the conversion ratio and conversion price when certain events occur – for example issue of new shares (capital increase of Industrial Holding Bulgaria through cash), issue of new incremental shares (capital increase of Industrial Holding Bulgaria by converting profit into capital), payment of dividends, reduction of capital. The issuer will notify the bondholders in due time in the same manner that it discloses information to the Financial Supervision Commission, Bulgarian Stock Exchange, Central Depository and the public.

2. Utilization of the debenture loan funds in 2015

As specified in the Prospectus, the Holding intends to use the funds raised through the issue to reimburse the debenture loan under a previous issue of convertible bonds - ISIN BG BG2100006134, issued by Industrial Holding Bulgaria Plc and financing other projects of subsidiaries:

Utilisation of funds
№ / Utilization / Amount (BGN) / Note
1 / Repayment of debentureloan / 29 999 800 / Issue of convertiblebonds ISIN code BG ISIN BG 2100006134
2 / "Odesos PBM" АD
"BulportLogistics'AD / 7 500 000 / Financing of investments - secondinstallmentforthepurchase of shares of thecompanies
3 / "Odesos PBM" АD
"BulportLogistics' AD / 6 700 000 / Refinancing of investment to purchaseshares of thecompany
4 / "Bulyard" АD / 780 000 / Refinancing of investment to purchaseshares of thecompany
5 / "DockyardPortBurgas" АД / 3 316 000 / Refinancing of investment - thethirdstage of thecerealsector
6 / Othter / 1 643 764 / Otherprojects of subsidiaries
TOTAL / 49 939 564
Source:"IndustrialHoldinBulgaria"АD
Investmentcostsareapproximate

On 9.04.2015 the public offering was successfully closed and on 20.04.2013 the Trade Registry published announcement for opening of new debenture loan. The amount received from the subscribed and paid convertible bonds is BGN 49,999,600.00. The net amount of proceeds from the public offering after deducting the expenses of the Issuer, paid commissions, fees, etc.. expenses, including fees paid to the FSC amount to BGN 49,947,500.

As stated in the Prospectus, the principal amount of funds raised from the bond issue in 2015 is intended for early repayment of the loan under the previous issue of convertible bonds ISIN code BG2100006134 issued by IHB in 2013.

Results of the procedure for allowing holders of convertible bonds issued by Industrial Holding Bulgaria issue ISIN code BG2100006134, to convert their bonds into shares as follows:

  • Completion date for submission of applications for conversion of the bonds - 03.04.2015;
  • Number bondholders expressed their wish to convert bonds into shares - 9 /nine/.
  • Total number of bonds for conversion into shares - 94 221 /ninety four thousand two hundred twenty one/ with a nominal value of BGN 100 /one hundred/ each;
  • Total number of shares subscribed for convertible bonds - 9 422 100 /nine million four hundred and twenty two thousand one hundred/;
  • The issuer and the investment intermediary have not encountered difficulties; there were no disputes in converting bonds and subscription for shares.

With decision as of 16.04.2015 г. the Registry Agency registered in the Trade Register increase of the capital of Industrial Holding Bulgaria PLC from BGN 67 978 543 to BGN 77 400 643 by the issue of new 9 422 100 ordinary, dematerialized, registered, freely transferable shares giving right for 1 vote in the General meeting of shareholders, with a nominal value BGN 1 each, issued due to the conversion of 94 221 registered dematerialized convertible bonds ISIN code BG2100006134 into shares.

On 20.04.2015 was madethe fourth interest payment and principal payment on convertible bonds from 2013. Right of payment of principal had bondholders registered as such in the Central Depository as at 09.04.2015 who have not exercised their right to convert the bonds they hold in the corresponding number of shares of IHB in that period. The principal payment was BGN 20,577,700 with which IHB obligations on debenture loan bond issue 2013 were repaid.

The remaining funds will be used by IHB management to refinance and finance investment projects with the main objective of consolidating its portfolio in construction and repair of ships and port activity.

With funds from the new issue were refinanced USD 4,250 thousand for the first installment for the purchase of shares in ports Odessos PBM and Bulport logistics, as well as USD 500 thousand to refinance transaction for the acquisition of shares in Bulyard AD, Sofia at the end of 2014.

In order to reduce the negative impact of the high levels and fluctuations of the dollar on the amount of total interest-bearing debt of the group and reduce interest expenses, management has taken measures to further early repayment of part of the obligations of its subsidiaries to banks and related parties.At the expense of funds raised from the new issue, in April was repaid bank loans amounting to USD 4.899 thousandand USD 1,237 thousand to related parties and bank loans in BGN and Euro respectively BGN 5.849 thousand and BGN 9.025 thousand the effect of which will occur in subsequent periods:

  • Bulyard repaid BGN2,557 from the revolving credit line for working capital; repaid early and in full secured bank credit for working capital; the remaining balance of BGN 3,324 thousand was repaid early;
  • Privat Engineering repaid early and in full secured investment credit of BGN 7,078 thousand (USD 3,893thousand ) following early repayment of USD 5,153 thousand in January;
  • Tirista Ltdrepaid early USD1,132thousandprincipal payment, due by the end of 2015, from secure bank credit, the amount is reduced to USD 3,852 thousand with maturity date in 2017;
  • BGN 11,224 thousand were repaid from loans to related parties

With the funds from the new bond issue IHB made paid USD 1 mln from the second instalment for the purchase of shares in Odessos PBM.

In view of the trends and uncertainties regarding the development of enterprises from various industries, IHB management reserves the right to restructure the investment intentions within the group in accordance with the change in priorities. For example, refinancing of construction and expansion of the cereal sector of Dockyard Port Bourgas AD will be carried out in stages in order to shift the time of the administrative procedure. With funds from the new issue are currently refinanced BGN 500 thousand investment costs of the company in the implementation of the third stage of the cereal sector.

In the following years the group can allow new capital costs for financing of new development or ongoing projects of IHB and its subsidiaries, including the expansion of the port terminal in Bourgas, contracts for the purchase of ships, investment in priority projects and others. Financing of investment projects is carried out in order of their occurrence in time. Ongoing projects are funded and implemented with priority. Some of the projects are funded with funds raised through the bond issue and own funds depending on the needs and available cash at the specific time. IHB is ready to meet the financial needs of ongoing projects through bank loans and leasing. If necessary, the Holding will continue to fund the current development of the companies. There are existing possibilities for capital expenditures for new acquisitions and business expansion. Decisions on the amount and sources of the necessary funds will be taken individually for each case.

As at the moment of this report IHB has utilised the funds raised under bond ISIN code BG 2100003156.

3. Maintenance of financial ratios as at 31.03.2016

In compliance with IAS, as at 31 December 2015 separate hybrid component related to the conversion option is separated from the new bond issue is. The analysis was performed for the prevailing market rate for similar debt of issuers with similar risk profiles without conversion options, on which is calculated the liability component of the bonds based on the present value of cash flows. The rest of the issue is reflected as a component of equity. Respective disclosures in the financial statements were made.

The classification does not affect the calculation of financial ratios, which IHB has assumed as an obligation to maintain in the period to repay the debenture loan, ie the entire bond issue is recognized as a liability.

All calculations have been made on an individual basis.

Financial ratios
(on a individual basis) / 2012 / 2013 / 2014 / 2015 / 2015 – 2018
forcast / 1Q2016
Liabilities/assets ratio / 23% / 18% / 24% / 26% / ≤ 65% / 26%
Interest coverage ratio / 4.9 / 7.5 / 1.4 / 4.7 / ≥ 1.2 / 6.2
Interest-bearing debt/assets ratio / 13% / 18% / 23% / 26% / ≤ 50% / 25%

Liabilities/assets ratio

Liabilities/assets ratio is calculated by dividing the total short-term and long-term borrowed funds by the total assets as per the balance sheet as at a particular date. IHB has undertaken to maintainits liabilities/assets rationot higher than 65%.The interest-bearing debt/assets ratio as at 31.03.2016is 26%.

Interest coverage ratio

The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period.IHB has undertaken to maintainits interest coverage rationot lower than 1.2%.The interest coverage ratio for the first nine months is 6.2.

Interest-bearing debt/assets ratio

Interest-bearing debt/assets ratio is calculated by dividing the total short-term and long-term interest payables by the total assets as per the balance sheet as at a particular date. IHB has undertaken to maintain its interest-bearing debt/assets ratio within the limit of 50%. The interest-bearing debt/assets ratio as at 31.03.2016is 25%.

This report was approved with decision of the Supervisory and Managing boards of Industrial Holding Bulgaria as of 28.04.2016

DanetaZheleva,

CEO of Industrial Holding Bulgaria PLC

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