Kap Notices

S&P Revises Outlook on Vestel to "Positive"

Standard & Poor's Ratings Services said on 30 January 2007 that it revised to positive from negative its outlook on Turkey-based Vestel Elektronik Sanayi Ve Ticaret A.S. (Vestel), a cost-efficient consumer electronics manufacturer, reflecting expectations of improving cash flow generation and positive shareholding developments at Vestel. At the same time, the 'B+' long-term corporate credit rating was affirmed.

At Sept. 30, 2006, Vestel had consolidated financial debt of $692 million.

"Vestel's cash flow generation, which is currently modest, is expected to improve in 2007, as revenues and EBITDA from the white-goods division continue to rise, on the back of recently increased production capacity," said Standard & Poor's credit analyst Patrice Cochelin.

Capital expenditures should remain at about $100 million per year. The rating on Vestel remains primarily constrained by the volatile Turkish macroeconomic environment and resulting currency swings; the company's significant debt burden; and the highly competitive nature of the company's end-markets.

Vestel continues to benefit from its favorable cost position, flexible manufacturing capabilities, considerable economies of scale, limited marketing and distribution expenses, service quality, and end-market proximity. Turkey's participation in the European Customs Union gives Vestel a significant competitive advantage, although competitors with equally low costs could present a threat in the future.

With significantly lower capital spending in the coming months, we expect Vestel's free cash flow generation to be positive, and to become a source of liquidity.

"The positive outlook reflects the potential for an upgrade if the company's operating performance and, notably, cash flow generation, continues to improve, enabling some debt reduction," said Mr. Cochelin. "An upgrade would also hinge on our satisfaction with Vestel's majority shareholder's long-term financial and strategic goals, a lower reliance on short-term funding, and better currency matching of currencies and cash flows."

On the other hand, the outlook could return to stable in the case of operating underperformance or liquidity pressure.

Mr. Levent Hatay quitted his duty as a member of the executive committee responsible for marketing-sales & branding at Vestel Group of Companies (Vestel Şirketler Grubu) on the date of September the 29th, 2006.

By the agreement signed on the date of September the 19th, 2006, Vestel Dayanıklı Türketim Malları Pazarlama A.Ş.(Vestel Durable Goods Marketing), a member of Vestel Group of Companies, has received murabaha financing in the amount of 40,000,000 USD for a period of one year and one week under the guarantee of Vestel Elektronik A.Ş.

Through above-mentioned brand acquisitions, the company mainly targets Northern European market considering strong positioning and recognition of these brands in that region. Hence, the Company's current strategy continues with no aim to establish a "Global brand".

Please note that the company has a "strong brand name" at home and aims to expand its business in Russia and ex-CIS countries, Middle East and Sub Continental Asia through "Vestel branded products".

On the date of 23.08.2006, Vestel Elektronik Sanayi ve Ticaret A.Ş., Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş., Vestel Komünikasyon Sanayi ve Ticaret A.Ş., Vestel Dijital A.Ş. and Vestel Holland B.V. under the structure of the Vestel Group of Companies have signed a letter of credit syndicated loan facility at the amount of 125,000,000 USD for a period of 1 year with the participation of local and foreign banks acting under the leadership of Deutsche Bank A.G. and ABN Amro Bank N.V..

At the General Shareholders' Meeting of Vestel Electronics held on the date of 24.05.2006, it was decided that:

• no profits to be distributed since although profits had been determined in the financial statements being prepared according to the "Communiqué In Respect Of Accounting Standards in the Capital Market" with No. 25 and Serial XI ", losses from the previous years had appeared in the financial statements in which inflation adjustments had been made as of the date of 31.12.2003 in accordance with the Communiqué with No. 21 and Serial XI, and no profits existed as a result of deduction of the profit for the year of 2005 from these losses,
• the number of Members of the Board of Directors was established to be 7 for the activity year of 2006, and Mr. Ahmet Nazif Zorlu, Ms. Şule Zorlu, Mr. Ömer Yüngül, Mr. Mehmet Cem Bodur, Mr. Enis Turan Erdoğan, Mr. Yılmaz Argüden and Mr. Ekrem Pakdemirli were elected to the Memberships of the Board of Directors to display activities for 1 year,
• the number of auditors for the activity year of 2006 was established to be 2, and Mr. Şerif Arı and Mr. Ahmet Günaydın Hızarcı were elected to the auditor positions,
• the Engin Independent Accountancy Financial Consultancy Corp. (Engin Serbest Muhasebecilik Mali Müşavirlik A.Ş.), which had been elected as the independent auditing firm for the period of 01.01.2006 - 31.12.2006 by the Board of Directors was approved,
• and Article 6 of the Articles of Association to be amended.

Vestel Electronics acquired a 55% stake in Birim Bilgi İşlem Müşavirlik ve Ltd, a healthcare software company at a total value of 1,500,000 USD from BYSE Bilişim Sistemleri A.S. Following this transaction, 55% of Birim Bilgi İşlem is owned by Vestel Electronics Industry and Trading Corp., the remaining 45% share being owned by BYSE Bilişim Sistemleri A.S. The agreement was signed on the date of 02.05.2006.

As agreed upon previously by the board of directors, Vestel Electronics purchased 89,699,993 units of Vestel White Goods shares belonging to Zorlu Holding and Zorlu Family over the public offering price of 3.20 YTL on the date of April the 13th, 2006.

With regards to the public offering of Vestel White Goods shares, the demand collection period is completed and the IPO price is set at 3.20 YTL per share. In addition to the issuance of 52,000,000 shares through the capital increase, over-allotment option is exercised in full, bringing up the total number of shares sold to 59,800,000 shares.

As agreed upon previously by the board of directors of our company, Vestel Electronics shall purchase 89,699,993 Vestel White Goods shares belonging to Zorlu Holding and Zorlu Family over the public offering price of 3.20 YTL on the date of April the 13th, 2006. The distribution of the shares to be purchased to the shareholders shall be as follows:

As a result of this transaction, the shareholding structure of Vestel White Goods Industry and Trading Corp. shall be as follows:

Vestel Electronics, Vestel White Goods Vestel Communications Vestel Digital and Vestel Holland B.V. have received a syndicated loan of 120,000,000 USD for a period of 1 year with the participation of local and foreign banks acting under the leadership of the ABN Amro Bank N.V. on the date of February the 10th, 2006.