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Harju County Court initiated reorganisation proceedings of AS Tallinna Moekombinaat

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On  31 March 2020 the owner and operator of  T1 Mall of Tallinn shopping centre,
AS  Tallinna Moekombinaat  (TMK, a  group subsidiary  of AS  Pro Kapital Grupp),
submitted   an   application   to   Harju   County  Court  for  commencement  of
reorganisation  proceedings  with  the  purpose  to overcome temporary liquidity
issues,  reasonably reorganise liabilities and increase profitability of TMK. On
3 April  2020 Harju County Court initiated reorganisation proceedings. On 2 June
2020 TMK  has to submit to the Court  a reorganisation plan on implementation of
reorganisation  measures, including  impact of  reorganisation to the creditors.
The  creditors will need  to vote to  accept the plan  and the final decision on
approval   will  be  taken  by  the  Court.  The  initiation  of  reorganisation
proceedings shall not influence in any way the day-to-day economic activities of
the  T1 Mall  of Tallinn,  its tenants  and partners  - it  means that after the
restrictions  set by the Estonian government to the shopping centres are lifted,
T1  Mall of Tallinn  will be fully  opened and shall  continue its operations as
before.  The purpose of reorganisation proceedings  is to ensure continuation of
normal  daily business  by safeguarding  the rights  and interests of investors,
employees,  creditors and  all cooperation  partners. The reorganisation process
involves  only AS Tallinna Moekombinaat and has no direct influence to any other
group company of AS Pro Kapital Grupp.

As at 31 March 2020, AS Tallinna Moekombinaat had 71 creditors with the total of
ca  7 million  euros  past  due  debts.  The  main  creditor is an international
financing platform TSSP with Lintgen Adjacent Investments S.a.r.l acting as this
lender's  agent.  At  the  end  of  2016, AS Tallinna Moekombinaat signed a loan
agreement  to finance the construction works of the shopping centre, situated at
Peterburi  road 2, for the total amount of 65 million euros. It is a specific 5-
year  development loan  facility for  interim financing,  with a higher interest
rate  than cash flow project loans and this loan is repayable as a bullet at the
end  of  the  term.  There  has  been  a  plan  to  refinance the abovementioned
development  loan with a cash flow project loan when the shopping centre reaches
a  stable cash flow generating  ability. The development loan  is secured with a
pledge on Peterburi road 2 land plot in the amount of 84,5 million euros. On 31
March  2020, the principal  amount of  the loan  was ca  75,4 million euros. The
principal  amount has increased by interests,  which have been accumulated until
interest  payment start date.  Interest payment obligation  started in September
2019. High  interest  rate  aside,  the  loan  agreement also includes financial
covenants as non-monetary obligations. Due to significantly longer launch period
of  the  shopping  centre  and  the  consequent  lower  income  performance than
expected,  AS  Tallinna  Moekombinaat  has  not  been  able  to  meet the agreed
financial covenants nor pay correctly the interest payments to the lender. Also,
TMK  would  not  be  able  to  repay  the  principal  amount in case the loan is
accelerated.

Today's situation has been brought about by the following:

  * The construction period overran and the centre was opened later than
    planned.
  * The financial prognosis of AS Tallinna Moekombinaat were made in 2016, at
    the moment of signing of the loan agreement considering the market as at
    that time. During the construction period, the changes in the retail market
    influenced the strategies of many brands, making them more cautious to open
    new shops. Today, the centre still has vacant premises. The opening of some
    larger spaces with significant delay has also influenced the operations.
    Start-up of the centre has taken more time than originally planned and the
    revenues and results have not reached expected ones.
  * In order to halt the spread of the corona virus, Estonia has declared an
    emergency situation in the country, as a result of which TMK has been forced
    to temporarily close down most of the T1 Mall of Tallinn centre (only
    Selver, a couple of food shops and the pharmacy are allowed to remain open).

Under  these circumstances  AS Tallinna  Moekombinaat is  not able to fulfil its
monetary and non-monetary obligations before its creditors. AS Pro Kapital Grupp
disclosed  information regarding  breaches of  the TSSP  agreement in  its stock
exchange  notice of 28 February 2020 (please see the Chairman's summary). Amidst
the  global pandemic  situation of  COVID-19, constructive negotiations with the
lender  have not yielded  any results and  there is a  risk that the lender will
terminate  the loan  agreement and  accelerate the  repayment of the loan. Also,
there  is no certainty how long the  emergency situation will last and what will
be  its full impact on the operations  of TMK. To ensure operations continue and
that  tenants,  employees  and  other  stakeholders  of  T1  Mall of Tallinn are
protected, AS Tallinna Moekombinaat has submitted an application to commence its
reorganisation  proceedings. The  next steps  shall be  to compile and approve a
reorganisation plan, how to increase the operations of the centre to the maximum
extent  possible,  given  the  temporary  influence  of  the  COVID-19 crisis on
consumer behaviour and on the economy as a whole.

The  operations of AS Tallinna Moekombinaat were profitable in 2019 - the centre
generated  operating profit each month. Due to high financing costs and the non-
monetary  decrease in the property  value the net result  at the end of 2019 was
negative.  TMK estimates to be able to fulfil its obligations, if the conditions
of  its debt would be reasonable (considering normal activities before emergency
situation).  As the management  of the shopping  centre considers its activities
sustainable,  the  application  for  reorganisation  is  a  necessary measure to
protect  its stakeholders. T1 Mall of Tallinn is  a unique and first of its kind
concept  in the  Baltics, which  offers its  visitors multifaceted entertainment
next to a traditional shopping experience. In addition to the spacious and well-
lit  interior for  shopping and  art, T1  Mall of  Tallinn also  provides unique
dining experiences in Estonia. Most of the restaurants and cafes are situated on
the  top floor above the shopping areas,  offering views of the City. The centre
has  a state-of-the-art cinema, the  largest inhouse family entertainment centre
in the region Super Skypark and the Skywheel on the rooftop, which is one of its
kind  in  all  of  Europe.  Today,  T1  Mall  of Tallinn has ca 180 tenants, who
together  employ more than  a thousand persons.  Since the opening,  close to 6
million people have visited the centre.

Update on other operations of AS Pro Kapital Grupp
AS  Pro Kapital Grupp operates in the capitals of three Baltic states and in Bad
Kreuznach in Germany.
In  Tallinn we are  currently developing sea-side  residential area of Kalaranna
Kvartal in the City center and also Kristiine City not far from the City centre.
The  bank financing  of the  ongoing developments  has been secured and relevant
presales agreements with the clients have been signed to guarantee the necessary
proceeds  to  complete  the  works.  There  is  currently  no stock of completed
apartments  available for sale in Tallinn. New apartments will be ready in 2021
and  presales are ongoing.  Construction works of  Kalaranna Kvartal and Ratsuri
Houses  in Kristiine City are ongoing according  to the plan and we currently do
not foresee any delays in completion timing.
In  Riga there is  currently no ongoing  construction and preparations are being
made  to start the new stage of development in Kliversala Quarter and projecting
is  ongoing for  the other  two developments:  in Tallinas and Brivibas streets.
There  is unsold inventory available in the River Breeze Residence, which is one
of  the high-end projects in the city. As  the prices are in accordance with the
luxury  quality of the product, the sale of this project has been slower than in
Tallinn,  already before the start  of the pandemic Though,  there has been some
interest  towards the apartment sale  in spite of the  economic situation in the
world.  The  remaining  loan  balance  related  to the unsold inventory in River
Breeze Residence is 1,7 million euros.
In  Vilnius  construction  of  five  new  residential buildings was completed in
2019. More  than  70% of  the  apartments  have  been  sold  and there have been
customers   interested   in  buying  apartments  even  during  last  weeks.  The
development loan has been repaid in full.
In  Bad Kreuznach our hotel operations  were paused from 23 March until 30 April
according  to local  restrictions set  in relation  to corona  virus spread. The
hotel  operator expects to retain all  the workforce and is meanwhile minimizing
the costs to be ready to reopen in full after release from restrictions.

Considering the start of new residential developments, AS Pro Kapital Grupp will
monitor  the economic  situation in  all Baltic  countries and  in the  world in
general  and  if  necessary,  might  postpone  its  development  plans until the
situation  will  stabilize.  To  secure  health  and wellbeing of our employees,
clients and partners, the employees in our offices are working remotely, however
being  available by  e-mails and  on the  phone. We  are reviewing our fixed and
variable  costs and plan  to make adjustments  to spending where appropriate. AS
Pro  Kapital Grupp  has reported  the consolidated  cash balance over 10 million
euros  on its accounts  as at 31 December  2019 and has in February successfully
refinanced  secured  bonds  with  the  new  ones, which are redeemable in 2024.
Although  the  economies  of  the  world  have  been severely hit by the current
situation,  the business model  of AS Pro  Kapital Grupp is  having a long- term
view.  We  are  constantly  reviewing  our  risks  and we strive to minimize any
external impact to enable AS Pro Kapital Grupp reach its targets.



Allan Remmelkoor
Member of the Management Board
Tel: +372 6144 920
Email: [email protected]