Kenon Holdings - 20-F annual report 2025

CPV Group requires capital for the development and construction of existing and future projects and acquisitions of interests in existing or new projects. CPV Group has raised and is expected to raise additional debt and equity financing including at the level of its projects. In 2024, CPV Renewables, a subsidiary of CPV Group, raised equity financing of $300 million in exchange for 33.33% of its equity interests. This investment diluted our indirect interest in CPV Renewables and we face similar dilution risks in connection with other investments in CPV Group or other subsidiaries of CPV Group or OPC. Any difficulty in obtaining the required capital (which may be significant, considering the number and scale of projects by CPV Group) may prevent CPV Group from being able to execute its plans and strategy, at all or with considerable delay. Additional financing for CPV Group may involve equity financing at CPV Group level which could dilute OPC (to the extent OPC does not participate at least proportionately), which would indirectly dilute Kenon’s interest in CPV Group.

We rely on the internal controls and financial reporting controls of our businesses and any failure by our businesses to maintain effective controls or to comply with applicable standards could make it difficult to comply with applicable reporting and audit standards. For example, the preparation of our consolidated financial statements requires the prompt receipt of financial statements that comply with applicable accounting standards and legal requirements from each of our subsidiaries and associated companies, some of whom rely on the prompt receipt of financial statements from each of their subsidiaries and associated companies. Additionally, in certain circumstances, we may be required to file with our annual report on Form 20-F, or a registration statement filed with the SEC, financial information of associated companies (including companies that were associated companies during the 3 years of financial statements included in our annual reports) which has been audited in conformity with SEC rules and regulations and relevant audit standards. We may not, however, be able to procure such financial statements, or such audited financial statements, as applicable, from our subsidiaries and associated companies and this could render us unable to comply with applicable SEC reporting standards.

There is no assurance as to the outcome of these proceedings. There is also no assurance that Baoneng Group will pay or has the ability to pay the judgments against it in our favor. Kenon is engaged in discussions with the Baoneng Group on the outstanding awards.

Conversely, lower interest rates have an adverse impact on our interest income, Kenon maintains large cash balances predominantly held as cash and cash equivalents and any decline in interest rates could have a material impact on any interest we earn on these deposits.

A disruption in deliveries from our third-party suppliers, contract manufacturers or service providers, capacity constraints, production disruptions, price increases, or decreased availability of raw materials or commodities, including as a result of the War, catastrophic events or geopolitical developments impact the ability of our businesses to meet their commitments to customers and could increase their operating costs. Our businesses could encounter supply problems and may be unable to replace a supplier that is not able to meet demand in either the short term or the long term; these risks are exacerbated in the case of raw materials or component parts that are sourced from a single-source supplier. For example, there are only a limited number of suppliers of natural gas in Israel, and the War has increased risks relating to access to gas supply. Furthermore, quality and sourcing issues experienced by third-party providers can also adversely affect the quality and effectiveness of our businesses’ products and/or services and result in liability and reputational harm that could have a material adverse effect on our business, financial condition, results of operations or liquidity. Furthermore, changes to tariff policy applicable to the importation of raw materials and products to the United States (e.g., solar panels) may affect the costs of equipment required for CPV Group projects.

Cyber security attacks could include malicious software (malware), attempts to gain unauthorized access to data, social media hacks and leaks, ransomware attacks and other electronic security breaches of our and our business’ information technology systems as well as the information technology systems of our customers and other service providers that could lead to disruptions in critical systems, unauthorized release, misappropriation, corruption or loss of data or confidential information. In addition, any system failure, accident or security breach could result in business disruption, unauthorized access to, or disclosure of, customer or personnel information, corruption of our data or of our systems, reputational damage or litigation. We or our operating companies may also be required to incur significant costs to protect against or repair the damage caused by these disruptions or security breaches in the future, including, for example, rebuilding internal systems, implementing additional threat protection measures, providing modifications to our services, defending against litigation, responding to regulatory inquiries or actions, paying damages, providing customers with incentives to maintain the business relationship, or taking other remedial steps with respect to third parties. These cyber security threats are constantly evolving. The increased reliance on remote access for employees in recent years has increased the likelihood of cyber security attacks. We, therefore, remain potentially vulnerable to additional known or yet unknown threats, as in some instances, we, our businesses and our customers may be unaware of an incident or its magnitude and effects. Should we or any of our operating businesses experience a cyber-attack, this could have a material adverse effect on our, or any of our operating companies’, business, financial condition or results of operations.

The U.S. Investment Company Act of 1940, or the “Investment Company Act,” regulates “investment companies”, which includes, in relevant part, issuers that are, or that hold themselves out as being, primarily engaged in the business of investing, reinvesting and trading in securities or that are engaged, or propose to engage, in the business of investing, reinvesting, owning, holding or trading in securities and own, or propose to acquire, investment securities (as defined in the Investment Company Act) having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Pursuant to a rule adopted under the Investment Company Act, notwithstanding the 40% test described above, an issuer is excluded from the definition of investment company if no more than 45% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) consists of, and no more than 45% of the issuer’s net income after taxes (for the last four fiscal quarters combined) is derived from, securities other than (i) U.S. government securities, (ii) securities issued by employees’ securities companies, (iii) securities issued by majority-owned subsidiaries of the issuer that are not investment companies and not relying on certain exclusions from the definition of investment company and (iv) securities issued by companies that are not investment companies and are controlled primarily by the issuer through which the issuer engages in a business other than that of investing, reinvesting, owning, holding or trading in securities. We do not believe that we are subject to regulation under the Investment Company Act. We are organized as a holding company that conducts its businesses primarily through majority owned and primarily controlled subsidiaries. We intend to continue to conduct our operations so that we will not be deemed to be an investment company under the Investment Company Act. However, maintaining such status may impose limits on our operations and on the assets that we and our subsidiaries may acquire or dispose of. If, at any time, we meet the definition of investment company, including as a result of a company in which we have an ownership interest ceasing to be majority owned or primarily controlled, including as a result of dispositions or dilution of interests in majority owned and primarily controlled subsidiaries, we could, among other things, be required to substantially change the manner in which we conduct our operations to avoid being required to register as an investment company, which could have an adverse effect on us and the market price of our securities. If we were to be deemed an “inadvertent” investment company, we may seek to rely on Rule 3a-2 under the Investment Company Act, which provides that an issuer will not be treated as an investment company subject to the provisions of the Investment Company Act provided the issuer has the requisite intent to be engaged in a non-investment business, evidenced by the issuer’s business activities and an appropriate resolution of the issuer’s board of directors, during a one year cure period.

In addition, distributions (including the repayment of shareholders’ loans) may be subject to compliance with certain financial covenants. Finance agreements impose certain restrictions in connection with a change of control in OPC, expiry of licenses, termination or change of material agreements and other circumstances. Failure to comply with such covenants or the occurrence of any of the specified events set out in the agreements may restrict distributions by OPC, increase finance costs, result in acceleration of indebtedness, increase collateral or equity contributions, or trigger demand by the lenders. In addition, in the event of such breaches or the occurrence of events specified in the relevant agreements (e.g., the TEF Loan), OPC may be required to provide additional capital. Calls for immediate repayment may result in enforcement of collateral or guarantees provided by OPC, may have an adverse effect on OPC, and could trigger cross-default provisions in OPC’s financing agreements.

In recent years, investors and other stakeholders, particularly credit providers, customers, and employees, have become increasingly aware of the climate and environmental effects associated with various activities. In addition, regulatory involvement in the area of ESG is increasing, and various ESG-related regulations are imposed under various frameworks.