20-F 1 cresudfs.htm 20-F cresudfs
 
 
 
  
United States
  
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 20-F
  
 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR 
 
 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
For the fiscal year ended: June 30, 2020
 
OR
 
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report ___
 
For the transition period from ___ to___
 
Commission file number: 001-29190
 
Cresud SOCIEDAD ANONIMA COMERCIAL INMOBILIARIA FINANCIERA Y AGROPECUARIA
 
(Exact name of Registrant as specified in its charter)
 
Cresud Inc.
 
(Translation of Registrant’s name into English)
 
Republic of Argentina
 
(Jurisdiction of incorporation or organization)
 
Moreno 877, 23rd Floor,
 
(C1091AAQ) City of Buenos Aires, Argentina
 
(Address of principal executive offices)
 
Matías Iván Gaivironsky
 
Chief Financial and Administrative Officer
 
Tel +(5411) 4323-7449 – ir@cresud.com.ar
 
Moreno 877, 24th Floor,
 
(C1091AAQ) City of Buenos Aires, Argentina
 
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
 
Title of each class
 
 
 
TradingSymbols
 
 
 
Name of each exchange on which registered
 
 
 
 
 
 
 
American Depositary Shares (ADSs), each representing
ten shares of Common Stock
 
 
 
CRESY
 
 
 
Nasdaq National Market of the
Nasdaq Stock Market
Common Stock, par value ARS 1.00 per share
 
 
 
CRESY
 
 
 
Nasdaq National Market of the
Nasdaq Stock Market*
 
*
 
Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
 
 
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the period covered by the annual report: 501,642,804.
 
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act:
 
Yes No
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934.
 
Yes No
 
Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(a) of the Securities Exchange Act of 1934 from their obligations under those Sections
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 
Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
 
Large accelerated filer Accelerated filer Non-accelerated filer Emerging growth company
 
 
 
 
 If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
 
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP
 
International Financial Reporting Standards as issued by the International Accounting Standards Board
Other
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
 
Item 17 Item 18 
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes No
 
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 23 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes No
  
Please send copies of notices and communications from the Securities and Exchange Commission to:
 
Carolina Zang
 
 
David L.Williams
 
 
 
Jaime Mercado
 
Zang Bergel & Viñes Abogados
 
 
Simpson Thacher & Bartlett LLP
 
Florida 537 piso 18º
C1005AAK Ciudad Autónoma de Buenos Aires, Argentina.
 
 
425 Lexington Avenue
New York, NY 10019
 
 
 
 
 
TABLE OF CONTENTS
 
 
Page No.
Summary of Risk Factors
i
Disclaimer Regarding Forward-Looking Information
iii
Available information
iii
Presentation of Financial and Certain Other Information
v
Market Data
x
Part I
1
Item 1. Identity of Directors, Senior Management and Advisers
1
Item 2. Offer Statistics and Expected Timetable
1
Item 3. Key Information
1
A. Selected Consolidated Financial Data
1
A.1. Local exchange market and exchange rates
5
B. Capitalization and Indebtedness
6
C. Reasons for the Offer and Use of Proceeds
6
D. Risk Factors
6
Item 4. Information on the Company
66
A. History and Development of the Company
66
B. Business Overview
92
C. Organizational Structure
169
D. Property, Plants and Equipment
169
Item 4A. Unresolved Staff Comments
172
Item 5. Operating and Financial Review and Prospects
172
A. Consolidated Operating Results
172
B. Liquidity and Capital Resources
240
C. Research and Developments, Patents and Licenses
248
D. Trend Information
249
E. Off-Balance Sheet Arrangements
253
F. Tabular Disclosure of Contractual Obligations
253
G. Safe Harbor
253
Item 6. Directors, Senior Management and Employees
253
A. Directors and Senior Management
253
B. Compensation
258
C. Board Practices
260
D. Employees
261
E. Share Ownership
262
Item 7. Major shareholders and related party transactions
264
A. Major Shareholders
264
B. Related Party Transactions
265
C. Interests of Experts and Counsel
269
Item 8. Financial Information
269
A. Audited Consolidated Statements and Other Financial Information
269
B. Significant Changes
280
Item 9. The Offer and Listing
280
A. Offer and Listing Details
280
B. Plan of Distribution
281
C. Markets
281
D. Selling Shareholders
283
E. Dilution
283
F. Expenses of the Issue
283
Item 10. Additional Information
283
A. Share Capital
283
B. Memorandum and Articles of Association
283
C. Material Contracts
291
D. EXCHANGE CONTROLS
291
E. Money Laundering
293
F. Taxation
295
G. Dividends and Paying Agents
302
H. Statement by Experts
302
I. Documents on Display
303
J. Subsidiary Information
303
Item 11. Quantitative and Qualitative Disclosures about Market Risk
303
Item 12. Description of Securities Other than Equity Securities
303
Part II
305
Item 13. Defaults, Dividend Arrearages and Delinquencies
305
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
305
Item 15. Controls and Procedures
305
A. Disclosure Controls and Procedures
305
B. Management’s Annual Report on Internal Control Over Financial Reporting
305
C. Attestation Report of the Registered Public Accounting Firm
306
D. Changes in Internal Control Over Financial Reporting
306
Item 16. Reserved
306
Item 16A. Audit Committee Financial Expert
306
Item 16B. Code of Ethics
306
Item 16C. Principal Accountant Fees and Services
306
Item 16D. Exemption from the Listing Standards for Audit Committees
307
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
307
Item 16F. Change in Registrant’s Certifying Accountant
308
Item 16G. Corporate Governance
308
Item 16H. Mine Safety Disclosures
310
Part III
311
Item 17. Financial Statements
311
Item 18. Financial Statements
311
Item 19. Exhibits
311
 
 
 
 
 
SUMMARY OF RISK FACTORS
 
An investment in our American Depositary Shares (“ADSs”) and common shares is subject to a number of risks, including risks relating to Argentina, Brazil, other countries where we operate, our agricultural business, IRSA’s business in Argentina, our investment in Banco Hipotecario, our business in the United States, our Operations Center in Israel and our ADSs and common shares. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.
  
Risks Relating to Argentina, Brazil and other Countries Where We Operate
 
The ongoing COVID-19 pandemic and government measures to contain the virus are adversely affecting our business and results of operations.
 
 
Governments in the countries where we operate or intend to operate exercise significant influence over their economies.
 
Continuing high rates of inflation, uncertainty with regard to other economic indicators and a depreciation of the currencies of the countries in which we operate may have an adverse effect on the economy and our business, financial condition and results of operations.
 
Restrictions on transfers of foreign currency and the repatriation of capital from Argentina may impair our ability to pay dividends and distributions and investors may face restrictions on their ability collect capital and interest payments in connection with corporate bonds issued by Argentine companies.
 
The imposition of restrictions on acquisitions of agricultural properties by foreign nationals may materially restrict the development of our business and significant environmental regulation may significantly increase our expenses.
 
Risks Relating to Our Agricultural Business
 
Fluctuation in market prices for our agriculture products could adversely affect our financial condition and results of operations.
 
Unpredictable weather conditions, pest infestations and diseases may have an adverse impact on our crop yields and cattle production. We may be exposed to material losses due to volatile crop prices since a significant portion of our production is not hedged, and exposed to crop price risk.
 
Worldwide competition in the markets for our products could adversely affect our business and results of operations.
 
 
Our internal processes and controls might not be sufficient to comply with the extensive environmental regulation and current or future environmental regulations could prevent us from fully developing our land affect its operations and ability to pay its debt as it becomes Our level of debt may adversely affect our operations and our ability to pay our debt as it becomes due.
 
Risks Relating to IRSA’s Business in Argentina
  
Disease outbreaks or other public health concerns could reduce traffic in IRSA’s shopping malls.
 
IRSA is subject to risks inherent to the operation of shopping malls that may affect its profitability. The loss of tenants or the failure of tenants to comply with the terms of their leases could adversely affect IRSA’s operating revenues and value of our properties.
  
The increasingly competitive real estate sector in Argentina may adversely affect IRSA’s ability to rent or sell office space and other real estate.
 
IRSA’s level of debt may adversely affect its operations and ability to pay its debt as it becomes due.
  
  i
 
 
Risks Relating to IRSA’s Investment in Banco Hipotecario
  
COVID-19 may negatively impact the operations and financial situation of Banco Hipotecario.
 
The short-term structure of Banco Hipotecario’s deposit base could lead to a reduction in liquidity levels and limit the long-term expansion of financial intermediation.
  
Banco Hipotecario operates in a highly regulated environment and its operations are subject to capital controls regulations adopted by several regulatory agencies. 
 
Risks Relating to IRSA’s Operations Center in Israel
  
IDB Development Corporation Ltd. (“IDBD”) was declared insolvent and is in process of liquidation.
  
Capital contributions to IDBD and  any such capital contributions may be subject to claims by creditors.
 
Risks Relating to our ADSs and Common Shares
  
Common shares eligible for sale could adversely affect the price of our common shares and ADSs.
 
If we issue additional equity securities in the future, you may suffer dilution, and trading prices for our equity securities may decline.
  
We are subject to certain different corporate disclosure requirements and accounting standards than domestic issuers of listed securities in the United States.
 
Investors may not be able to effect service of process within the U.S., limiting their recovery of any foreign judgment.
  
If we are considered to be a passive foreign investment company for United States federal income tax purposes, U.S. holders of our common shares or ADSs would suffer negative consequences.
 
Holders of the ADS may be unable to exercise voting rights with respect to the common shares underlying their ADSs. 
 
Under Argentine law, shareholder rights may be fewer or less well defined than in other jurisdictions and our ability to pay dividends is limited by law and our by-laws.
 
Restrictions on the movement of capital out of Argentina may impair your ability to receive dividends and distributions on, and the proceeds of any sale of, the common shares underlying the ADSs.
  
You might be unable to exercise preemptive or accretion rights with respect to the common shares underlying your ADSs.
 
 
  ii
 
 
DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS 
 
This annual report includes forward-looking statements, principally under “Risk Factors,” “Information on the Company” and “Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among other things:
 
Factors that could cause actual results to differ materially and adversely include but are not limited to: 
 
changes in general economic, financial, business, political, legal, social or other conditions in Argentina, Brazil, Latin America or Israel or changes in developed, emerging markets or either;
 
changes in capital markets in general that may affect policies or attitudes toward lending to or investing in Argentina or Argentine companies, including volatility in domestic and international financial markets;
 
inflation and deflation;
 
 
ongoing economic impacts of the COVID-19 pandemic on the Argentine economy;
 
measures adopted by the Argentina Government in response to the COVID-19 pandemic;
 
impact on our business of the COVID-19 pandemic;
 
economic consequences of the pandemic and the related impact on our buinsess and financial condition;
 
fluctuations in the exchanges rates of the peso and in the prevailing interest rates;
 
 
increases in financing costs or our inability to obtain additional financing on attractive terms, which may limit our ability to fund existing operations and to finance new activities;
 
current and future government regulation and changes in law or in the interpretation by Argentine courts;
 
price fluctuations in the agricultural and real estate market;
 
 
political, civil and armed conflicts;
 
adverse legal or regulatory disputes or proceedings;
 
fluctuations and declines in the aggregate principal amount of Argentine public debt outstanding, default of sovereign debt;
 
government intervention in the private sector and in the economy, including through nationalization, expropriation, labor regulation or other actions;
 
restrictions on transfer of foreign currencies and other exchange controls;
 
increased competition in the shopping mall sector, office or other commercial properties and related industries;
 
potential loss of significant tenants at our shopping malls, offices or other commercial properties;
 
our ability to take advantage of opportunities in the real estate market of Argentina or Israel on a timely basis;
 
restrictions on energy supply or fluctuations in prices of utilities in the Argentine market;
 
our ability to meet our debt obligations;
 
  iii
 
 
shifts in consumer purchasing habits and trends;
 
 
technological changes and our potential inability to implement new technologies;
 
deterioration in regional, national or global businesses and economic conditions;
 
 
changes on the applicable regulations to currency exchange or transfers;
 
incidents of government corruption that adversely impact the development of our real estate projects;
 
 
fluctuations and declines in the exchange rate of the peso, the U.S. dollar against other currencies; and
 

risks related to our investment in Israel; and
 
the risk factors discussed under “Risk Factors.”
 
You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” “anticipates,” “could,” “target,” “projects,” “contemplates,” “potential,” “continue” or similar expressions. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this annual report because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not guarantees of future performance. 
 
You should not place undue reliance on such statements which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we might issue in the future.
 
AVAILABLE INFORMATION
 
We file annual and current reports and other information with the United States Securities and Exchange Commission (“SEC”). You may obtain any report, information or other document we file electronically with the SEC at the SEC’s website (http://www.sec.gov) or at our website (http://www.cresud.com.ar). The information contained in our website does not form part of this annual report.
 
  iv
 
 
PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION
 
In this annual report (the “Annual Report”), references to “Cresud,” the “Company,” “we,” “us” and “our” means Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria, and its consolidated subsidiaries, unless the context otherwise requires, or where we make clear that such term refers only to Cresud and not to its subsidiaries. 
 
The terms “Argentine government” and “government” refer to the federal government of Argentina, the terms “Central Bank” ans “BCRA” refer to the Banco Central de la República Argentina (the Argentine Central Bank), the terms “CNV” and “CNV Rules” refer to the Comisión Nacional de Valores (the Argentine National Securities Commission) and the rules issued by the CNV, respectively. In this annual report, when we refer to “peso,” “pesos” or “ARS” we mean Argentine pesos, the legal currency of Argentina; when we refer to “U.S. dollar,” “U.S. dollars” or “USD” we mean United States dollars, the legal currency of the United States; when we refer to “Real,” “Reals,” “Rs.” or “BRL” we mean Brazilian Real, the legal currency Brazil; and when we refer to “shekels” or “NIS” we mean Israeli new shekels, the legal currency of Israel.
 
References to “ADSs” are to the American Depositary Shares, each representing 10 shares of our common stock, issued pursuant to the deposit agreement, dated as of March 18, 1997 (the “deposit agreement”), between us, The Bank of New York, as depositary (the “ADS Depositary”), and the owners and holders of the ADRs issued from time to time thereunder, and references to “ADRs” are to the American Depositary Receipts, which represent the ADSs. 
 
Financial Statements
 
We prepare and maintain our financial books and records in pesos and in conformity with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), and the CNV Rules. Our fiscal year begins on July 1 and ends on June 30 of each year. 
 
Our audited consolidated financial statements as of June 30, 2020 and 2019 and for the years ended June 30, 2020, 2019 and 2018, and the notes thereto (our “Audited Consolidated Financial Statements”) are set forth on pages F-1 through F- 113 of this Annual Report.
 
Our Audited Consolidated Financial Statements have been approved by resolution of the Board of Directors’ meeting held on September 25, 2020 and have been audited by Price Waterhouse & Co S.R.L., Argentina, member of PriceWaterhouseCoopers International Limited, an independent registered public accounting firm whose report is included herein. 
 
Functional and Presentation Currency; Adjustment for Inflation
 
Our functional and presentation currency is the peso, and our Audited Consolidated Financial Statements included in this Annual Report are presented in pesos. 
 
IAS 29, Financial Reporting in Hyperinflationary Economies (“IAS 29”) requires that the financial statements of an entity whose functional currency is one of a hyperinflationary economy be measured in terms of the current unit of measurement at the closing date of the financial statements, regardless of whether they are based on the historical cost method or the current cost method. This requirement also includes the comparative information of the financial statements.
 
In order to conclude that an economy is “hyperinflationary,” IAS 29 outlines a series of factors, including the existence of an accumulated inflation rate in three years that is approximately or exceeds 100%. As of July 1, 2018, Argentina reported a cumulative three-year inflation rate greater than 100% and therefore financial information published as from that date should be adjusted for inflation in accordance with IAS 29. Therefore, our Audited Consolidated Financial Statements and the financial information included in this Annual Report have been stated in terms of the measuring unit current at the end of the reporting year. For more information, see section “Financial Statements” above and Note 2.1 to our Audited Consolidated Financial Statements.
 
  v
 
 
Effective July 1, 2019, we adopted IFRS 16 “Leases” which establishes the criteria for recognition and valuation of leases for lessees and lessors. The changes incorporated mainly impact the tenant's accounting. IFRS 16 provides that the lessee recognizes an asset for the right of use and a liability at present value with respect to those contracts that meet the definition of lease agreements according to IFRS 16. In accordance with the standard, a lease agreement is one that provides the right to control the use of an identified asset for a specific period. In order for a company to have control over the use of an identified asset: a) it must have the right to obtain substantially all the economic benefits of the identified asset and b) it must have the right to direct the use of the identified asset. The standard allows excluding the short-term contracts (under 12 months) and those in which the underlying asset has low value, such option has been adopted by the Company. Likewise, the Company has opted to recognize as consideration for the right of use, the amount of ARS 16,797 million as lease liabilities. The commitments under operating leases reported in Audited Consolidated Financial Statements as of June 30, 2019, amounted to ARS 18,395 million (such difference mainly corresponds to the effect of the discount from future payments and the excluded short-term contracts).
 
Additionally, in accordance with the amendment to IAS 28, an entity shall implement the provisions of IFRS 9 to Long-term Investments that are essentially part of the entity's net investment in the associate or in the joint venture according to the definitions of said standard. The provisions of IFRS 9 shall apply to such investments with respect to the participation in the losses of an associate or a joint venture, as well as with respect to the recognition of the impairment of an investment in an associate or joint venture. In addition, when applying IFRS 9 to such long-term investments, the entity will make it prior to the adjustments made to the carrying amount of the investment in accordance with IAS 28. We opted for an accounting policy where the currency translation adjustments arising from these loans are recorded as part of other comprehensive income.
 
See Note 2.2 to our Audited Consolidated Financial Statements for a more comprehensive discussion of the effects of the adoption of these new standards.
 
Financial Information of our Subsidiaries in Israel
 
IDB Development Corporation Ltd. (“IDBD”) and Discount Investment Corporation (“DIC”), our principal subsidiaries in the Operations Center in Israel, report their quarterly and annual results following Israeli regulations, whose filing deadlines fall after the filing deadlines in Argentina. In addition, IDBD and DIC’s fiscal year-ends differ from our fiscal year-end, consequently, we consolidate the results of operations from IDBD and DIC on a three-month lag basis adjusted for the effects of any significant transactions taking place within such period. As such, our audited consolidated statement of income and other comprehensive income for the fiscal year ended June 30, 2020 includes the results of IDBD and DIC for the twelve-month period from April 1, 2019 to March 31, 2020, adjusted for the significant transactions that occurred between April 1, 2020 and June 30, 2020.
 
IDBD and DIC have certain restrictions and financial agreements in relation to their financial debt, including their bonds and loans with banks and financial institutions. Regarding IDBD's financial position, its cash flow and its ability to meet its financial debt commitments, the following should be considered:
 
 As of June 30, 2020, IDBD had a deficit in shareholders’ equity, ongoing negative cash flows from continuing operating activities and a low credit rating, which circumstance may cast significant doubt about IDBD’s ability to continue operating as a going concern. IDBD’s cash flow required to meet its liabilities, including short-term liabilities is based on the realization of assets which the realization date is not under IDBD’s control. These assets include the current price of Clal’s shares and the impact thereof on swap transaction deposits and the fact that IDBD shall receive, among others, the proceeds from the sale of private investments which are directly owned by IDBD.
 
 
 
As of June 30, 2020, the aggregate principal amount of the (i) IDBD Series 9 Bonds was NIS 901 million (“Series 9”), (ii) IDBD Series 14 Bonds was NIS 889 million collateralized by DIC shares owned directly or indirectly by IDBD representing 70% of the share capital of DIC (“Series 14”), (iii) IDBD Series 15 Bonds was NIS 238 million collateralized by shares of Clal representing 5% of the share capital of Clal (“Series 15”).
 
 
 In July 2019 and in June 2020, each of debenture holders (Series 9 and Series 14) and debenture holders (Series 15), respectively, decided to appoint a representative and legal and economic advisor, inter alia, in order to maintain contact with IDBD and / or third parties and to examine proposals that will be presented to the bondholders in connection with the repayment of IDBD's obligations towards the bondholders and to evaluate IDBD’s financial position and the remedies which may be available to the debenture holders.
 
 

 

 
  vi
 
 
In June 2020, general meetings of the holders of IDBD's debentures were convened (all of the series, each series separately), where a resolution on the agenda was not to convene a general meeting on the agenda of which would be the making of the debentures repayable immediately. The meetings of the debenture holders (Series 9 and Series 15), each decided to pass the said resolution; The meeting of the debenture holders (Series 14), decided not to pass the said resolution, and a later stage to instruct the trustee for debenture holders (Series 14) to postpone the date of the said meeting to September 17, 2020;
 
 In July 2020, Dolphin Netherlands and the controlling interest therein, Mr. Eduardo Elsztain committed vis-à-vis the generality of the debenture holders in IDBD, that subject to defined terms and conditions, during a certain period of time, some transactions will not be executed and/or initiated and/or promoted, and that subject to the provisions of the law, the power of control in corporations that are controlled by the controlling interest in IDBD will not be operated in order to promote any of those actions, unless notification has been delivered in writing to the trustees for debenture holders (Series 9, 14 and 15), at least 14 business days in advance.
 
On August 31, 2019, IDBD 's Audit Committee and the Board of Directors approved the acceptance of an irrevocable commitment by Dolphin Netherlands B.V. (“Dolphin Netherland”), the controlling interest in IDBD, to make capital injections into IDBD in an overall amount of NIS 210 million, in three equal annual payments on September 2 in each of the years 2019 to 2021, which would be made in consideration for shares in IDBD or as a subordinated loan on similar terms to the subordinated loans that had been provided by the controlling interest.
 
In August 2020, IDBD received a letter from Dolphin Netherlands stating, inter alia, that given the fact that some of IDBD's bondholders are expected to include in their agenda for the bondholder's meetings, a proposal to make the outstanding balances of their bonds immediately due and payable, in preparation for the additional inflow of NIS 70 million scheduled for September 2, 2020, Dolphin Netherlands would examine its undertaking towards IDBD, taking into account the questions that arise from IDBD’s bondholders conducts and intentions. To the said Dolphin Netherlands' letter was attached a letter from IRSA to Dolphin Netherlands, according to which, among other things, IRSA will consider the validity of its undertaking to Dolphin Netherlands to transfer to it (in accordance with Dolphin Netherlands request) the amounts required for Dolphin Netherlands to meet its commitment to carry out the capital injections into IDBD on September 2, 2020, as aforementioned.
 
IDBD responded to Dolphin Netherlands’ and IRSA’s letters, noting that, among other things, Dolphin Netherlands' commitment (dated August 29, 2019) towards IDBD is binding and irrevocable, and that there is no basis for not making the capital injections into IDBD, due to other events related to IDBD’s bondholders, which do not fall within the scope of the events listed in the wording of the commitment as expropriating the validity of Dolphin Netherlands' commitment. In addition, it was also mentioned in IDBD’s response letter, that failure to make the payments into IDBD is not acceptable and will leave IDBD with no other choice than to use all its power and rights according to the law to enforce Dolphin Netherlands' commitment as well as IRSA’s undertaking.
 
Following the above mentioned, on September 13, 2020, IDBD submitted a statement of claim against Dolphin Netherlands and against IRSA, in which it has sought to require them to pay it an amount of NIS 70 million (with the addition of linkage differentials and interest in accordance with the law). In tandem with the submission of the lawsuit, as aforesaid, IDBD submitted an urgent petition for placing temporary attachments (in the presence of one party) on Dolphin Netherlands and IRSA (which was not accepted by the Court in the presence of one party and which has been passed on for the respondents to respond to the petition).
 
On June 2, 2020, IDBD received a draft proposal from Dolphin IL for IDBD and for the trustees for IDBD’s debentures (Series 9, 14 and 15) for the strengthening of IDBD 's capital structure, by way of an arrangement between Dolphin, IDBD and the debenture holders, based on an economic contribution to IDBD on Dolphin IL's part, together with a full or partial (as the case may be) redemption of the generality of IDBD's debentures; On June 21, 2020, IDBD received an updated proposal in relation to the abovementioned proposal and on June 28, 2020, Dolphin IL approached each of the trustees for the debentures with a request to put said proposal, with slight amendments, on the agenda of meetings of the debenture holders.
 
On July 6, 2020, the Meeting of debenture holders (Series 9) decided to order the trustee for debenture holders (Series 9) not to accept Dolphin IL's offer; On July 7, 2020, the Meeting of the debenture holders (Series 14) decided to negotiate for a fixed period of one month in connection with Dolphin IL's proposal, and on July 8, 2020, the Meeting of debenture holders (Series 15) made a similar decision.
 
On September 2, 2020 IDBD received an updated offer from Dolphin IL which was addressed to it and to IDBD’s debenture holders (Series 9, 14 and 15); On September 9, 2020, Dolphin IL updated the commercial terms of its proposal for debenture holders (Series 9), and on September 16, 2020, IDBD received binding offers to debenture holders (Series 14) and debenture holders (Series 15), for the purchase of DIC shares pledged in favor of debenture holders (Series 14) of IDBD, as part of an agreed realization process.
 
As no agreement has been reached, on September 17, 2020, the Series 9 trustee submitted to the District Court in Tel-Aviv-Jaffa (the "Court") a petition to grant an order for the opening of proceedings for IDBD pursuant to the Insolvency and Economic Rehabilitation Law, 5778 – 2018 and to instruct the appointment of a trustee for IDBD pursuant to Section 43 and to grant the trustee any and all authority over the decision making of IDBD.
 
  vii
 
 

On September 21, 2020, the Series 14 bond holders approved the immediate fully payment of the remaining balances of such serie.

On September 22, 2020, IDBD and Dolphin Netherlands B.V. submitted an initial response to the Petition, arguing that it is in the best interest of IDBD and its creditors to exhaust the negotiations among the controlling shareholder and its creditors during a short period with the aim to maximize the value of its assets, avoid costs and additional negative effects.
 
In addition, responses by the Series 14 trustee and the Series 15 trustee were filed requesting the enforcement of liens and the appointment of a receiver as well as an urgent hearing, which was scheduled for September 24, 2020.
 
On September 25, 2020, the Court resolved that IDBD is insolvent and therefore it resolved to grant all three orders requested and accordingly, issued an order for the initiation of proceedings and liquidation of IDBD, and has appointed a liquidator to IDBD and interim receivers over the Pledged DIC and Clal Shares.
 
Under IFRS 10 “Consolidated Financial Statements” (“IFRS 10”), an investor controls an investee if and only if the investor has all the following: a) power over the investee; b) exposure, or rights, to variable returns from its involvement with the investee; and c) the ability to use its power over the investee to affect the amount of the investor’s returns. Based on the facts and circumstances outlined above, our management believe that, as from September 25, 2020, IRSA lost control over IDBD and DIC (as this term is defined by IFRS 10). Accordingly, our investment in IDBD and DIC will be deconsolidated in our financial statements as of and for the three-month period ended September 30, 2020.
 
 
  viii
 
 
 
 As of the date of this Annual Report, we are analyzing together with our local and international advisors the judicial decision, alternatives and course of action. For more information see “IRSA´s Recent Developments - Corporate Information: IDBD”.
 
Organizational Structure
 
As of June 30, 2020, the Company had two business lines to manage its global business, which we refer to in this Annual Peport as “Agricultural Business” and “Urban Properties and Investments Business” derived from our subsidiary IRSA, which is in turn subdivided into two operations centers which we refer as the “Operations Center in Argentina” and the “Operations Center in Israel.” 
 
 
(i) 
See “—Financial Information of our Subsidiaries in Operation Center in Israel.”
 
 
  ix
 

   
Currency Translations
 
We have translated some of the peso amounts contained in this annual report into U.S. dollars for convenience purposes only. Unless otherwise specified or the context otherwise requires, the rate used to convert peso amounts to U.S. dollars is the seller exchange rate quoted by Banco de la Nación Argentina of ARS 70.4600 per USD 1.00 for information provided as of June 30, 2020. The average seller exchange rate for fiscal year 2020, quoted by Banco de la Nación Argentina was ARS 59.5343. The U.S. dollar-equivalent information presented in this annual report is provided solely for the convenience of the reader and should not be construed as implying that the peso amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. The seller exchange rate quoted by Banco de la Nación Argentina was ARS 79.7500 per USD1.00 as of November 13, 2020. See “Local Exchange Market and Exchange Rates” and “Risk Factors—Risks relating to Argentina—Continuing high rates of inflation may have an adverse effect on the economy and our business, financial condition and the results of our operations.”
 
We have also translated certain NIS amounts into U.S. dollars at the offer exchange rate for June 30, 2020 which was NIS 3.4619 per USD 1.00. We make no representation that the peso, NIS or U.S. dollar amounts actually represent or could have been or could be converted into U.S. dollars at the rates indicated, at any particular rate or at all. See “Local Exchange Market and Exchange Rates.”
 
Market Share Data
 
Information regarding market share in a specified region or area is based on data compiled by us from internal sources and from publications such as Bloomberg, the International Council of Shopping Centers, the Argentine Chamber of Shopping Centers (Cámara Argentina de Shopping Centers), and the INDEC.
 
  x
 
 
Certain Measurements
 
In Argentina the standard measure of area in the real estate market is the square meter (m2), while in the United States and certain other jurisdictions the standard measure of area is the square foot (sq. ft.). All units of area shown in this annual report (e.g., gross leasable area of buildings (“GLA” or “gross leasable area”), and size of undeveloped land) are expressed in terms of square meters (“sqm” and “m2”). One square meter is equal to approximately 10.8 square feet. One hectare is equal to approximately 10,000 square meters and to approximately 2.47 acres.
 
In Argentina the standard measure of weight are the tons (“Tons,” “tons” or “Tns”) and kilograms (“kg” or “kgs”), while in the United States and certain other jurisdictions the standard measure of weight are the pound or the bushel. A metric ton is equal to 1,000 kilograms. A kilogram is equal to approximately 2.2 pounds. A metric ton of wheat is equal to approximately 36.74 bushels. A metric ton of corn is equal to approximately 39.37 bushels. A metric ton of soybean is equal to approximately 36.74 bushels. One kilogram of live weight cattle is equal to approximately 0.5 to 0.6 kilogram of carcass (meat and bones).
 
As used herein, GLA in the case of shopping malls refers to the total leasable area of the property, regardless of our ownership interest in such property (excluding common areas and parking and space occupied by supermarkets, hypermarkets, gas stations and co-owners, except where specifically stated).
 
Rounding Adjustments
 
Certain numbers and percentages included in this annual report have been subject to rounding adjustments. Accordingly, figures shown for the same category presented in various tables or other sections of this annual report may vary slightly, and figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them.
 
  xi
 
PART I
 
Item 1. Identity of Directors, Senior Management and Advisers
 
This item is not applicable.
 
Item 2. Offer Statistics and Expected Timetable
 
This item is not applicable.
 
Item 3. Key Information
 
A. SELECTED CONSOLIDATED FINANCIAL DATA
 
The following table presents our selected financial data as of June 30, 2020, 2019 and 2018 and for the fiscal years ended June 30, 2020, 2019, 2018 and 2017. The selected consolidated statement of income and other comprehensive income data and the selected consolidated statement of cash flow data for the fiscal years ended June 30, 2020, 2019 and 2018 and the selected consolidated statement of financial position data as of June 30, 2020 and 2019 have been prepared in accordance with IFRS, as issued by the IASB, and CNV Rules, and have been derived from our Audited Consolidated Financial Statements included in this Annual Report.
 
The summary consolidated statement of income and other comprehensive income and cash flow data for the fiscal year ended June 30, 2017 and the summary consolidated statement of financial position data as of June 30, 2018 have been restated pursuant to IAS 29 to reflect the effect of hyperinflation in Argentina. As a result of such restatement, the selected financial information included in this Annual Report differ from previously reported financial information.
 
The summary financial data as of June 30, 2017 and 2016 and for the fiscal year ended June 30, 2016 has not been presented as these cannot be provided on a restated basis without unreasonable effort or expense. See “Presentation of Financial and Other Information—Functional and Presentation Currency,” “Risk Factors—Risk Related to Argentina,” “Operating and Financial Review and Prospects—Results of Operations— Effects of Changes in Inflation” and Note 2 to our Audited Consolidated Financial Statements.
 
You should read the information below in conjunction with our Audited Consolidated Financial Statements, including the notes thereto.
 
In the following table, we have translated peso amounts into U.S. dollars at the seller exchange rate as of June 30, 2020, quoted by the Banco de la Nación Argentina, which was ARS 70.4600 per USD 1.00. The average of the seller exchange rate for the fiscal year 2020, quoted by Banco de la Nación Argentina was ARS 59.5343. We make no representation that these peso or U.S. dollar amounts actually represent, could have been or could be converted into U.S. dollars at the rates indicated, at any particular rate or at all. See “Local Exchange Market and Exchange Rates” and “Risk Factors—Risks Relating to Argentina—Continuing high rates of inflation may have an adverse effect on the economy and our business, financial condition and the results of our operations.” For more information see “Operating and Financial Review and Prospects—Factors Affecting Comparability of our Results”
 
 
1
 
 
 
  For the fiscal year ended June 30,                          
 
 
2020 (i)(ii)
 
 
2020
 
 
2019
 
 
2018
 
 
2017
 
CONSOLIDATED STATEMENT OF INCOME AND OTHER COMPREHENSIVE INCOME DATA
 
in millions of
 
  in millions of ARS                    
 
 
USD
 
  (except per share data)                    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
  1,721 
  121,256 
  110,741 
  93,266 
  91,254 
Costs
  (1,192)
  (83,971)
  (75,384)
  (62,078)
  (60,302)
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest
  40 
  2,827 
  2,305 
  1,674 
  253 
Changes in the net realizable value of agricultural products after harvest
  9 
  657 
  (43)
  532 
  (360)
Gross profit
  578 
  40,769 
  37,619 
  33,394 
  30,845 
Net gain from fair value adjustment of investment properties
  440 
  30,992 
  (37,746)
  18,971 
  (5,259)
Gain from disposal of farmlands
  12 
  838 
  665 
  1,656 
  630 
General and administrative expenses
  (174)
  (12,267)
  (12,152)
  (10,876)
  (11,057)
Selling expenses
  (232)
  (16,348)
  (13,976)
  (13,489)
  (14,089)
Impairment of associates
  (35)
  (2,470)
  - 
  - 
  - 
Other operating results, net
  39 
  2,77 
  1,101 
  3,657 
  (567)
Management fees
  (3)
  (211)
  - 
  (1,456)
  (619)
Profit / (loss) from operations
  625 
  44,073 
  (24,489)
  31,857 
  (116)
Share of profit of associates and joint ventures
  123 
  8,662 
  (7,328)
  (3,452)
  (1,366)
Profit / (loss) before financial results and income tax
  748 
  52,735 
  (31,817)
  28,405 
  (1,482)
Finance income
  21 
  1,463 
  1,775 
  1,476 
  1,630 
Finance cost
  (365)
  (25,683)
  (22,571)
  (26,377)
  (20,173)
Other financial results
  (265)
  (18,667)
  (5,981)
  (22,168)
  13,249 
Inflation adjustment
  3 
  177 
  (457)
  (321)
  (3,445)
Financial results, Net
  (606)
  (42,710)
  (15,272)
  (47,390)
  (8,739)
Profit / (loss) before income tax
  142 
  10,025 
  (47,089)
  (18,985)
  (10,221)
Income tax
  (115)
  (8,107)
  (780)
  9,964 
  (2,087)
Profit / (loss) for the fiscal year from continuing operations
  27 
  1,918 
  (47,869)
  (9,021)
  (12,308)
Profit for the period from discontinued operations
  257 
  18,085 
  7,140 
  36,441 
  17,485 
Profit / (loss) for the fiscal year
  284 
  20,003 
  (40,729)
  27,420 
  5,177 
 
    
    
    
    
    
 
    
    
    
    
    
Other comprehensive income / (loss):
    
    
    
    
    
Items that may be reclassified subsequently to profit or loss:
    
    
    
    
    
Currency translation adjustment
  74 
  5,232 
  -3,113 
  6,417 
  8,093 
 
  - 
  - 
  - 
  - 
  - 
Revaluation surplus
  9 
  614 
  1,111 
  316 
  - 
Change in the fair value of hedging instruments net of income taxes
  (1)
  (102)
  19 
  (40)
  412 
Items that may not be reclassified subsequently to profit or loss:
    
    
    
    
    
 
    
    
    
    
    
Actuarial loss from defined benefit plans
  (2)
  (137)
  (66)
  (60)
  (26)
Other comprehensive income / (loss) for the year from continuing operations
  80 
  5,607 
  (2,049)
  6,633 
  8,479 
Other comprehensive income / (loss) for the year from discontinued operations
  82 
  5,810 
  1,245 
  10,059 
  (2,692)
Total other comprehensive income for the year
  162 
  11,417 
  (804)
  16,692 
  5,787 
Total comprehensive income / (loss) for the year
  446 
  31,420 
  (41,533)
  44,112 
  10,964 
Total comprehensive income / (loss) from continuing operations
  107 
  7,525 
  (49,918)
  (2,389)
  (3,832)
Total comprehensive income from discontinued operations
  339 
  23,895 
  8,385 
  46,501 
  14,796 
Total comprehensive income / (loss) for the year
  446 
  31,420 
  (41,533)
  44,112 
  10,964 
Profit / (loss) of the year attributable to:
    
    
    
    
    
Equity holders of the parent
  56 
  3,929 
  (26,796)
  6,106 
  (892)
Non-controlling interest
  228 
  16,074 
  (13,933)
  21,314 
  6,069 
Loss from continuing operations attributable to:
    
    
    
    
    
Equity holders of the parent
  (34)
  (2,368)
  (28,334)
  (9,492)
  (3,096)
Non-controlling interest
  61 
  4,286 
  (19,535)
  471 
  (9,212)
Total comprehensive income attributable to:
    
    
    
    
    
Equity holders of the parent
  34 
  2,421 
  (27,078)
  5,775 
  1,436 
Non-controlling interest
  412 
  28,999 
  (14,455)
  38,337 
  9,528 
 
 
2
 
 
 
 
 
 
Fiscal year ended June 30, 2020 (i)(ii)
 
 
Fiscal year ended June 30, 2020
 
 
Fiscal year ended June 30, 2019
 
 
Fiscal year ended June 30, 2018
 
Consolidated Statements of Financial Position
 
in millions of
 
  in millions of ARS              
 
 
USD
 
  (except per share data)              
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Non-current assets
 
 
 
 
 
 
 
 
 
 
 
 
Investment properties
  3,267 
  230,167 
  335,016 
  363,675 
Property, plant and equipment
  851 
  59,956 
  54,106 
  52,073 
Trading properties
  69 
  4,856 
  7,855 
  14,801 
Intangible assets
  400 
  28,192 
  26,018 
  27,996 
Right-of-use assets
  311 
  21,928 
  - 
  - 
Biological assets
  25 
  1,759 
  1,805 
  2,012 
Other assets
  - 
  - 
  31 
  417 
Investments in associates and joint ventures
  1,066 
  75,128 
  44,870 
  58,192 
Deferred income tax assets
  13 
  927 
  772 
  2,610 
Income tax and minimum presumed income tax (“MPIT”) credits
  1 
  63 
  273 
  1,006 
Restricted assets
  27 
  1,936 
  4,547 
  4,842 
Trade and other receivables
  388 
  27,326 
  21,730 
  20,298 
Investment in financial assets
  50 
  3,515 
  4,129 
  3,815 
Financial assets held for sale
  - 
  - 
  5,972 
  17,317 
Derivative financial instruments
  2 
  164 
  153 
  67 
Total non-current assets
  6,470 
  455,917 
  507,277 
  569,121 
Current assets
    
    
    
    
Trading properties
  33 
  2,316 
  523 
  7,285 
Right-of-use assets
  - 
  - 
  - 
  - 
Biological assets
  39 
  2,773 
  3,795 
  2,030 
Inventories
  129 
  9,070 
  6,403 
  5,250 
Restricted assets
  88 
  6,209 
  6,261 
  9,446 
Income tax and minimum presumed income tax (“MPIT”) credits
  4 
  306 
  559 
  888 
Groups of assets held for sale
  622 
  43,816 
  11,498 
  11,544 
Trade and other receivables
  620 
  43,717 
  38,452 
  38,270 
Investment in financial assets
  258 
  18,192 
  45,134 
  56,998 
Financial assets held for sale
  48 
  3,377 
  16,666 
  9,930 
Derivative financial instruments
  5 
  321 
  162 
  344 
Cash and cash equivalents
  1,432 
  100,926 
  89,304 
  85,938 
Total current assets
  3,278 
  231,023 
  218,757 
  227,923 
TOTAL ASSETS
  9,748 
  686,940 
  726,034 
  797,044 
SHAREHOLDERS’ EQUITY
    
    
    
    
Share capital
  7 
  499 
  486 
  482 
Treasury shares
  - 
  3 
  16 
  20 
 Inflation adjustment of share capital and treasury shares
  139 
  9,786 
  9,786 
  9,786 
Share premium
  150 
  10,592 
  10,592 
  10,592 
Additional paid-in capital from treasury shares
  1 
  90 
  91 
  91 
Legal reserve
  5 
  373 
  373 
  373 
Special reserve
  11 
  770 
  5,179 
  5,179 
Other reserves
  14 
  1,006 
  36,427 
  6,124 
Retained earnings
  29 
  2,040 
  (38,908) 
  20,589 
Equity attributable to equity holders of the parent
  356 
  25,159 
  24,042 
  53,236 
Non-controlling interest
  1,377 
  96,994 
  103,159 
  123,218 
TOTAL SHAREHOLDERS’ EQUITY
  1,733 
  122,153 
  127,201 
  176,454 
LIABILITIES
    
    
    
    
Non-current liabilities
    
    
    
    
Borrowings
  4,548 
  320,418 
  397,414 
  416,820 
Deferred income tax liabilities
  702 
  49,469 
  57,192 
  59,963 
Trade and other payables
  41 
  2,986 
  2,830 
  8,241 
Provisions
  44 
  3,091 
  11,478 
  7,931 
Employee benefits
  6 
  447 
  189 
  244 
Income tax and minimum presumed income tax ("MPIT") liabilities
  - 
  - 
  - 
  - 
Derivative financial instruments
  216 
  15,194 
  - 
  - 
Lease liabilities
  1 
  74 
  1,470 
  89 
Payroll and social security liabilities
  4 
  247 
  197 
  169 
Total non-current liabilities
  5,562 
  391,926 
  470,770 
  493,457 
Current liabilities
    
    
    
    
Trade and other payables
  508 
  35,823 
  32,299 
  40,057 
Borrowings
  1,396 
  98,389 
  80,384 
  71,336 
Provisions
  35 
  2,443 
  2,477 
  2,355 
Group of liabilities held for sale
  336 
  23,649 
  8,137 
  7,210 
Payroll and social security liabilities
  66 
  4,685 
  3,802 
  4,154 
Income tax and MPIT liabilities
  12 
  824 
  699 
  1,324 
Lease liabilities
  80 
  5,661 
  - 
  - 
Derivative financial instruments
  20 
  1,387 
  265 
  697 
Total Current liabilities
  2,453 
  172,861 
  128,063 
  127,133 
TOTAL LIABILITIES
  8,015 
  564,787 
  598,833 
  620,590 
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES
  9,748 
  686,940 
  726,034 
  797,044 
 
 
3
 
 
 
 
  For the fiscal year ended June 30,                          
 
 
2020
 
 
2020
 
 
2019
 
 
2018
 
 
2017
 
Consolidated Statements of Cash Flows
 
in millions of
 
  in millions of ARS                    
 
 
USD(i)(ii)
 
  (except per share data)                    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash generated from operating activities
  507 
  35,734 
  25,546 
  24,150 
  23,649 
Net cash generated from / (used in) investing activities
  572 
  40,311 
  10,552 
  (31,553) 
  (6,623) 
Net cash used in financing activities
  (1,031) 
  (72,624) 
  (25,735) 
  (4,009) 
  6,066 
Net increase / (decrease) in cash and cash equivalents
  49 
  3,421 
  10,363 
  (11,412) 
  23,092 
Cash and cash equivalents at beginning of the year
  1,267 
  89,304 
  85,938 
  73,012 
  48,168 
Cash and cash equivalents at the end of the year
  1,432 
  100,926 
  89,304 
  85,938 
  73,012 
 
 
   
    For the fiscal year ended June 30,
   
  2020  
  2020  
  2019  
  2018  
    
   
  USD  
    in millions of ARS (except per share data)                           
Basic net income per share (1)
  (0.112) 
  (7.867) 
  (54.790) 
  12.290 
    
Diluted net income per share (2)
  (0.108)
  (7.634) 
  (54.790) 
  11.820 
    
Basic net income per ADS (1)(3)
  (1.117) 
  (78.670) 
  (547.900) 
  122.900 
    
Diluted net income per ADS (2)(3)
  (1.083) 
  (76.340) 
  (547.900) 
  118.200 
    
Capital stock
  7 
  502 
  502 
  502 
    
Number of common shares
  501,642,804 
  501,642,804 
  501,642,804 
  501,642,804 
    
Weighted – average number of common shares outstanding
  493,808,696 
  493,808,696 
  489,067,648 
  496,687,276 
    
Diluted weighted – average number of common shares (5)
  513,044,949 
  513,044,949 
  508,783,905 
  516,403,816 
    
Dividends paid
  (28) 
  (1,997) 
  (2,138) 
  (4,363) 
    
Dividends per share
  (0.06)
  (4.04)
  (4.37)
  (8.78) 
    
Dividends per ADS (3)
  (0.57)
  (40.44)
  (43.72)
  (87.84)
    
Depreciation and amortization
  253 
  17,797 
  11,405 
  10,241 
    
Capital expenditure
  174 
  12,28 
  20,642 
  22,741 
    
Working Capital
  825 
  58,162 
  90,694 
  100,79 
    
Gross margin
  0.33 
  0.33 
  0.33 
  0.35 
    
Operating margin
  0.36 
  0.36 
  (0.22)
  0.34 
    
Net margin
  0.16 
  0.16 
  (0.36)
  0.29 
    
Ratio of current assets to current liabilities
  1.34 
  1.34 
  1.71 
  1.79 
    
Ratio of shareholders’ equity to total liabilities
  0.22 
  0.22 
  0.21 
  0.28 
    
Ratio of non current assets to total assets
  0.66 
  0.66 
  0.70 
  0.71 
    
Ratio of “Return on Equity” – ROE
  0.16 
  0.16 
  (0.27)
  N/A. 
    
 
(i) 
Totals may not sum due to rounding.
(ii) 
Solely for the convenience of the reader we have translated peso amounts into U.S. dollars at the seller exchange rate quoted by Banco de la Nación Argentina as of June 30, 2020, which was ARS 70.4600 per USD 1.00. The average seller exchange rate for the fiscal year 2020, quoted by Banco de la Nación Argentina was ARS 59.6343. The seller exchange rate quoted by Banco de la Nación Argentina was ARS 79.7500 per USD 1.00 as of November 13, 2020. We make no representation that the peso or U.S. dollar amounts actually represent, could have been or could be converted into U.S. dollars at the rates indicated, at any particular rate or at all. See “Local Exchange Market and Exchange Rates.” Totals may not sum due to rounding.
 
(1)
Basic net income per share is computed by dividing the net income available to common shareholders for the period by the weighted average common shares outstanding during the period,
(2)
Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common shares assuming the total conversion of outstanding notes and exercise of outstanding options, Due to the loss for the year 2019, there is no diluted effect on this result,
(3)
Determined by multiplying per share amounts by ten (one ADS equals ten common shares),
 

 
4
 
 
Local Exchange Market and Exchange Rates 
 
Operations Center in Argentina
 
A.1. Local Exchange Market and Exchange Rates 
 
The Argentine government established a series of exchange control measures that restricted the free disposition of funds and the transfer of funds abroad. In 2011, these measures had significantly curtailed access to the foreign exchange market Mercado Único y Libre de Cambios (“MULC”) by both individuals and private sector entities. This made it necessary, among other things, to obtain prior approval from the Banco Central de la República Argentina (the “Central Bank”) to enter into certain foreign exchange transactions such as payments relating to royalties, services or fees payable to related parties of Argentine companies outside Argentina. With the change of government and political environment, in December 2015, one of the first measures taken by the Argentine government was to lift the main restrictions that limited access to individuals and legal entities to the MULC. Despite this, as of September 1, 2019, the Argentine government and the Central Bank implemented new exchange controls and restrictions that limited access to individuals and legal entities to the MULC. For more information about exchange controls see, “Item 10. Additional Information—D. Exchange Controls”.
 
 The following table shows the maximum, minimum, average and closing exchange rates for each applicable period to purchases of U.S. dollars.
 
 
 
Maximum(1)(2)
 
 
Minimum(1)(3)
 
 
Average(1)(4)
 
 
At closing(1)
 
Fiscal year ended:
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2018 
  28.8000 
  16.7500 
  19.4388 
  28.8000 
June 30, 2019 
  45.8700 
  27.1600 
  37.8373 
  42.3630 
June 30, 2020 
  70.3600 
  41.5000 
  59.5343 
  70.3600 
Month ended:
    
    
    
    
July 31, 2020 
  72.2200 
  70.4200 
  71.3795 
  72.2200 
August 31, 2020 
  74.0800 
  72.4200 
  73.1980 
  74.0800 
September 30, 2020 
  76.0800 
  74.1500 
  75.1036 
  76.0800 
October 30, 2020 
  78.2200 
  76.1500 
  77.4843 
  78.2200 
November (through November 13, 2020) 
  79.6500 
  78.5900 
  79.1589 
  79.6500 
Source: Banco de la Nación Argentina
(1) Average between the offer exchange rate and the bid exchange rate according to Banco de la Nación Argentina’s foreign currency exchange rate.
(2) The maximum exchange rate appearing in the table was the highest end-of-month exchange rate in the year or shorter period, as indicated.
(3) The minimum exchange rate appearing in the table was the lowest end-of-month exchange rate in the year or shorter period, as indicated.
(4) Average exchange rates at the end of the month.
 
Operations Center in Israel
 
The following table shows the maximum, minimum, average and closing exchange rates for each period applicable to purchases of New Israeli Shekels (NIS).
 
 
 
Maximum(1)(2)
 
 
Minimum(1)(3)
 
 
Average(1)(4)
 
 
At closing(1)
 
Fiscal year ended:
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2018
  3.6573 
  3.3902 
  3.5275 
  3.6573 
June 30, 2019
  3.7767 
  3.5597 
  3.6443 
  3.5700 
June 30, 2020
  3.8224 
  3.4166 
  3.5072 
  3.4643 
Month ended:
    
    
    
    
July 31, 2020
  3.4595 
  3.4030 
  3.4425 
  3.4038 
August 31, 2020
  3.4160 
  3.3528 
  3.3993 
  3.3528 
September 30, 2020
  3.4787 
  3.3617 
  3.4226 
  3.4258 
October 2020
  3.4322 
  3.3750 
  3.3948 
  3.4059 
November 2020 (through November 13, 2020)
  3.4118 
  3.3676 
  3.3835 
  3.3690 
 
Source: Bloomberg
 
(1) Average between the offer exchange rate and the bid exchange rate of the New Israeli Shekel against the U.S. dollar.
(2) The maximum exchange rate appearing in the table was the highest end-of-month exchange rate in the year or shorter period, as indicated.
(3) The minimum exchange rate appearing in the table was the lowest end-of-month exchange rate in the year or shorter period, as indicated.
(4) Average exchange rates at the end of the month.
  
 
 
5
 

B. CAPITALIZATION AND INDEBTEDNESS
 
This section is not applicable.
 
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
 
This section is not applicable.
 
D. RISK FACTORS
 
You should carefully consider the risks described below, in addition to the other information contained in this Annual Report, before making an investment decision. We also may face additional risks and uncertainties not currently known to us, or which as of the date of this annual report we might not consider significant, which may adversely affect our business. In general, you take more risk when you invest in securities of issuers in emerging markets, such as Argentina, than when you invest in securities of issuers in the United States, and certain other markets. You should understand that an investment in our common shares and American Depositary Shares (“ADSs”) involves a high degree of risk, including the possibility of loss of your entire investment.
 
Risks Relating to Argentina
 
The ongoing COVID-19 pandemic and government measures to contain the virus are adversely affecting our business and results of operations, and, as conditions are evolving rapidly, we cannot accurately predict the ultimate impact on our results of operations.
 
As of the date of this annual report, most of the operations and property of our Operations Center in Argentina are located in Argentina. As a result, the quality of our assets, our financial condition and the results of our operations in the Operations Center in Argentina are dependent upon the macroeconomic, regulatory, social and political conditions prevailing in Argentina. These conditions include changes to growth rates, inflation rates, exchange rates, interest rates, taxes, foreign exchange controls, government policies, social instability, and other political, economic or international developments taking place in, or otherwise affecting, Argentina.
 
In December 2019, a novel strain of coronavirus (SARS-COV-2) causing a severe acute respiratory syndrome (“COVID-19”) was reported to have surfaced in Wuhan, China. COVID-19 has since spread across the world, including Argentina, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. By early November approximately 1,284,519 cases of infections had been confirmed in Argentina. In response, countries have adopted extraordinary measures to contain the spread of the virus, including imposing travel restrictions and closing borders, requiring closures of non-essential businesses, instructing residents to practice social distancing, issuing stay-at-home orders, implementing quarantines and similar actions. The ongoing pandemic and these extraordinary government measures are disrupting global economic activity and resulting in significant volatility in global financial markets. According to the International Monetary Fund (“IMF”), the global economy has recently entered into a recession.
 
The Argentine government has adopted multiple measures in response to the COVID-19 pandemic, including a nationwide mandatory lockdown that began on March 19, 2020 that has been extended several times, most recently through November 8, 2020. The government has also required during the las months the mandatory shutdown of businesses not considered essential. Finally, on November 6, 2020, the government announced the end of the mandatory lockdown for the AMBA (the “Área Metropolitana de Buenos Aires or “AMBA”) and the beginning of the new phase of social distancing. However, Coronavirus cases have risen over the last few months in several regions of the world and the rate of infections is still increasing. Lockdowns return to Europe as cases rise again. Spain, France and the UK have all recorded more than one million cases, and several others are seeing their highest number of new infections since the start of the pandemic.
 
 
6
 
 
In order to mitigate the economic impact of the COVID-19 pandemic and mandatory lockdown and shutdown of non-essential businesses, the Argentine government has adopted social aid, monetary and fiscal measures. We cannot assure you whether these measures will be sufficient to prevent a severe economic downturn in Argentina, particularly if current conditions are prolonged and if Argentina’s main trading partners are concurrently facing an economic recession. However, the Argentine government may have more limited resources at this time to support the country’s economy; the pandemic has struck at a time when Argentina is simultaneously struggling to emerge from a two-year recession. On August 31, 2020, the Argentine government announced the results of its bond restructuring offer, announcing that holders owning 93.5% in principal amount of bonds outstanding and that this participation percentage was subsequently increased to 99% by virtue of the application of collective action clauses of the restructured bonds. The Argentine government faces the challenge of restructuring its debt in foreign currency issued under Argentine law, as well as its debt with the IMF. We cannot predict the outcome of these negotiations.
 
Some of the measures adopted by the Argentine government may adversely affect the business and financial condition of companies operating in the real estate sector, such as our Company. These temporary measures include the issuance of stay-at-home orders, closures of non-essential businesses such as shopping malls, prohibition of layoffs without cause and suspension of workers, among others. These measures have necessitated, among other things, that we shut down our shopping mall properties from March 20 until October 14, 2020, resulting in lower rental revenue from our shopping mall clients whose rent is based in part on sales revenue. For more information in connection with the COVID-19 pandemic and their impact on our Company, see “Item 5.A. Operating Results – The Ongoing COVID-19 Pandemic.” Although these measures may help attenuate the economic impact on the Argentine economy overall, they may have a negative impact on our business and results of operations.
 
The ongoing COVID-19 pandemic and government measures taken to contain the spread of the virus are adversely affecting our business and results of operations. Shopping malls have been required to remain closed since March 20, 2020, leaving exclusively those premises dedicated to items considered essential such as pharmacies, supermarkets and banks. In the months of May and June, these measures were relaxed and certain activities were reopened in some provinces, such as Salta, Mendoza, Santa Fe and Córdoba, opening the Alto Noa, Mendoza Plaza, Alto Rosario, La Ribera and Córdoba shopping malls. Shopping under a strict safety and hygiene protocol that includes reduced hours, social distancing, and access control. In July 2020, IRCP proceeds with the opened Shopping Neuquén and at the beginning of August 2020, Arcos District, an open-air premium outlet in the city of Buenos Aires, opened as well. On October 14, 2020, IRCP announced the opening of Alto Palermo, Paseo Alcorta, Patio Bullrich, Abasto Shopping and Dot Baires shopping malls, located in the City of Buenos Aires. However, the uncertainty of the situation could cause setbacks in the openings. The shopping malls mentioned above are resuming their operations under a strict safety and hygiene protocol that includes social distancing, reduced hours, access controls, among other measures. Likewise, it should be clarified that the activity in the food courts is limited to the commercialization of products through home delivery or take-away and the entertainment business remains closed.
 
Also, the DirecTV Arena stadium has been closed since March 20, the date on which social, preventive and all the planned congresses are suspended, a large part of the fairs and conventions were postponed, while the shows scheduled at the DirecTV Arena were mostly canceled. The reopening date of these establishments is uncertain, as well as the future agenda of fairs, conventions and shows.
 
Additionally, we face various risks arising from the economic impact of the pandemic and government measures which are difficult to predict accurately at this time, such as:
 
Our tenants may terminate their leases, and as a result of the loss of key or anchor tenants our shopping malls and office spaces may become less attractive;
 
 
Our hotels, including the Libertador and Intercontinental hotels in Buenos Aires and the Llao Llao hotel in Bariloche, are temporarily closed or operating under emergency contingency plans, and we do not know with certainty when they may reopen or be able to operate normally again;
 
Consumer spending has sharply dropped and its persistence may generate a change in consumer habits and a trend in favor of e-commerce, which would translate into lower attendance at shopping malls or public places, thus adversely affecting our tenants’ ability to generate income and default on or terminate our leases;
  
 
7
 
 
The situation generated by COVID-19 could cause an increase in our operating costs and the operating costs of our tenants, who may be unable to meet their payment obligations under the leases entered into with the Company. This situation could cause a reduction in our rental income and negatively affect our financial situation;
 
As a result of financial turmoil in Argentina caused by disruptions in supply chains and public debt restructuring, we may experience difficulties in our ability to pay off our debts and other financial obligations. We could also face difficulties in accessing debt and capital markets and may be forced to refinance our indebtedness;
 
An extended period of remote work by our employees could deplete our technological resources and result in or exacerbate certain operational risks, including an increased risk of cybersecurity. Remote work environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts to exploit the COVID-19 pandemic; and
 
COVID-19 poses a threat to the well-being and morale of our employees. While we have implemented a business continuity plan to protect the health of our employees and we have contingency plans for key employees or executive officers who may become ill or unable to perform their duties for an extended period of time, such plans cannot anticipate all scenarios, and we may experience a possible loss of productivity or a delay in the deployment of certain strategic plans.
 
We are continuously monitoring the impact of the ongoing COVID-19 pandemic on our Company. The ultimate impact of the pandemic on our business, results of operations and financial condition remains highly uncertain and will depend on future developments outside of our control, including the intensity and duration of the pandemic and the government measures taken in order to contain the virus or mitigate the economic impact. To the extent the COVID-19 pandemic adversely affects our business, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
 
We depend on macroeconomic and political conditions in Argentina.
 
The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and depreciation of the currency. As a consequence, our business and operations have been, and could in the future be, affected to varying degrees by economic and political developments and other material events affecting the Argentine economy, such as: inflation; price controls; foreign exchange controls; fluctuations in foreign currency exchange rates and interest rates; governmental policies regarding spending and investment, national, provincial or municipal tax increases and other initiatives increasing government involvement with economic activity; civil unrest and local security concerns. You should make your own investigation into Argentina’s economy and its prevailing conditions before making an investment in us.
 
Historically, Argentina went through periods of severe political, economic and social crisis. Among other consequences, these crises resulted in Argentina defaulting on its foreign debt obligations, introducing emergency measures and numerous changes in economic policies that affected utilities, financial institutions, and many other sectors of the economy. Argentina also suffered a significant real depreciation of the Peso, which in turn caused numerous Argentine private sector debtors with foreign currency exposure to default on their outstanding debt. In the past three years, GDP grew 2.7% in 2017, but it contracted 2.5% in 2018 and 2.2% in 2019. On September 22, 2020, the Argentine Treasury announced that it expected GDP to shrink 19.1% in 2020 and fiscal deficit to reach 4.7%, both figures higher than previously forecast.
 
A decline in international demand for Argentine products, a lack of stability and competitiveness of the Peso against other currencies, a decline in confidence among consumers and foreign and domestic investors, a high rate of inflation and future political uncertainties, among other factors, may affect the development of the Argentine economy, which could lead to reduced aggregate demand and adversely affect our business, financial condition and results of operations.
 
 
8
 
 
The primary elections (Elecciones Primarias, Abiertas y Simultáneas y Obligatorias or “PASO”, per its acronym in Spanish), which define which political parties and which candidates of the different political parties may run in the general elections, took place in August 11, 2019. In these elections, the Frente de Todos coalition (which included former president Fernandez de Kirchner as a candidate to the vice-presidency) obtained 47.78% of the votes, while the Juntos por el Cambio coalition (then-president Mauricio Macri’s coalition), obtained 31.79% of the votes.
 
After the results of the primary elections, the Peso depreciated approximately 30% and the share price of Argentine listed companies dropped approximately 38% on average. In turn, the emerging market bond index (EMBI) peaked to one of the highest levels in Argentine history, above 2,000 points on August 28, 2019. As a consequence of the aforementioned effects, the Central Bank re-implemented exchange controls in order to reduce currency outflows and restrict exchange rate fluctuations, strengthen the normal functioning of the economy, foster prudent administration of the exchange market, reduce the volatility of financial variables and contain the impact of the variations of financial outflows on the real economy.
 
Presidential and Congressional elections in Argentina took place on October 27, 2019, which resulted in Alberto Fernández being elected President of Argentina, having earned 48.1% of the votes. The Fernández administration assumed office on December 10, 2019. As of such date, the Argentine Congress was composed as follows: Frente de Todos commanded a majority in the senate with 41 seats, followed by Juntos por el Cambio with 28 seats. In the house of representatives Juntos por el Cambio held a slight majority with 119 seats and Frente de Todos held 116 seats.
 
The political uncertainty in Argentina about the impact of the measures that the Fernández administration took and could take with respect to the economy, including with respect to the crisis resulting from the ongoing COVID-19 pandemic, could generate volatility in the price of securities issued by Argentine companies’ or result in a decrease in their prices, in particular companies like ours with operations in the real estate sector.
 
We can offer no assurances as to the policies that may be implemented by the Fernández administration, or that political developments in Argentina will not adversely affect the Argentine economy and our business, financial condition and results of operations. In addition, we cannot assure you that future economic, regulatory, social and political developments in Argentina will not impair our business, financial condition or results of operations, or cause the market value of our shares to decline.
 
We cannot predict the effect that changes in economic policies, laws and regulations adopted in recent years by the Argentine government may have on the economy.
 
The Macri administration took office in December 2015 and immediately implemented significant economic and policy measures, ranging from (i) lifting foreign exchange restrictions, (ii) eliminating certain energy subsidies and ordering a substantial increase in electricity tariffs, (iii) restoring the credibility of the Argentine National Institute of Statistics and Census (the “INDEC”), (iv) reducing foreign trade controls, (v) settling claims by bondholders, (vi) reforming the framework applicable to the transport and distribution of natural gas, among others described in more detail below.
 
On June 29, 2016, the Argentine Congress enacted the Historical Reparation Program for Retirees and Pensioners (Programa de Reparación Histórica para Jubilados y Pensionados). This Program included (i) payments to more than two million retirees and retroactive compensation for more than 300,000 retirees and (ii) creation of a universal pension for senior citizens, at a total cost of approximately ARS 122,000 million.
 
In December 2017, the Argentine Congress approved the tax reform law. The reform was intended to eliminate certain inefficiencies in the Argentine tax regime, curb tax evasion, expand the tax base and encourage investment, with the long-term goal of restoring fiscal balance by creating new taxes or increasing the then existing contribution rates.
 
 
9
 
 
In November 2017, the Argentine Congress approved Law No. 27,401, which establishes a system of criminal liability of corporate entities for criminal offenses against the public administration and national and cross-border bribery committed by, among others, its shareholders, attorneys-in-fact, directors, managers, employees, or representatives. Convicted legal entities are subject to various sanctions including a fine of between 1% and 20% of their annual gross revenue and the partial or total suspension of their activities for up to ten years. In addition, the law expands the national criminal jurisdiction to all cases of bribery including those committed outside the Argentine territory by citizens or companies domiciled or headquartered in Argentina.
 
At the beginning of September 2018, the Argentine government announced a series of measures in connection with the previously approved IMF loan agreement (“Stand-By Agreement”) and implemented changes in monetary policy, reducing the amount of Pesos to be issued, thus easing pressure on the foreign currency market and on inflation. In terms of fiscal policy, the government also reinstated wheat and corn export duties, and a duty for all other exports.
 
Following the results of the primary elections held in August 2019, the Argentine government adopted certain exceptional measures to relieve tension in the financial and foreign exchange markets, including:
 
increase of 20% in the federal minimum wage and implementation of special deductions for retirees and formal employees, together with an increase in the income requirements for federal income taxes;
 
exemption from employee contributions and from tax contributions for simplified filers;
 
temporary increases in welfare benefits;
 
 
adopting a 10-year tax moratorium for small- and medium-sized companies, as well as for self-employed workers and simplified filers;
 
implementing a 90-day freeze on gas prices,
 
 
exchange controls and restrictions to access to foreing exchange markets.
 
The fiscal cost of all of the above measures was estimated to be in excess of ARS 40,000 million.
 
Likewise, in order to mitigate the economic impact of the Covid-19 pandemic, the government has imposed temporary measures that include, among others:
 
the closure of businesses considered non-essential such as shopping centers,
 
the prohibition of dismissals without cause
 
suspension of workers,
 
rate freezing.
 
We have no control over the implementation of the reforms proposed by the Argentine government nor can we assure you that these reforms will be implemented at all or in a manner that will benefit our business. The failure of these measures to achieve their intended goals could adversely affect the Argentine economy and our business, financial condition and results of operations.
 
Continuing high rates of inflation may have an adverse effect on the economy and our business, financial condition and results of operations.
 
Historically, high rates of inflation have undermined the Argentine economy and the Argentine government’s ability to foster conditions for stable growth. High rates of inflation may also undermine Argentina’s competitiveness in international markets and adversely affect economic activity and employment, as well as our business, financial condition and results of operations.
 
The INDEC reported cumulative variation of the CPI of 24.8% for 2017, 47.6% for 2018, 53.8% for 2019 and 2.3%, 2.0%,3.3%, 1.5%, 1.5%, 2.2%,1.9%, 2.7%, 2.8% and 3.8% for January, February,March, April, May, June, July, August, September and October 2020, respectively.
 
 
10
 
 
In recent years, the Argentine government has taken certain measures to curb inflation, such as implementing price controls and limiting wage increases. We cannot assure you that inflation rates will not continue to escalate in the future or that the measures adopted or that may be adopted by the Fernández administration to control inflation will be effective or successful. High rates of inflation remain a challenge for Argentina. Significant increases in the rates of inflation could have a material adverse effect on Argentina’s economy and in turn could increase our costs of operation, in particular labor costs, and may negatively affect our business, financial condition and results of operations.
 
A high level of uncertainty with regard to these economic variables, and a general lack of stability in terms of inflation, could have a negative impact on economic activity and adversely affect our financial condition.
 
As of July 1, 2018, the Argentine Peso qualified as a currency of a hyperinflationary economy and we were required to restate our historical financial statements in terms of the measuring unit current at the end of the reporting year, which could adversely affect our results of operations and financial condition.
 
Pursuant to IAS 29 “Financial Reporting in Hyperinflationary Economies”, the financial statements of entities whose functional currency is that of a hyperinflationary economy must be restated for the effects of changes in a suitable general price index. IAS 29 does not prescribe when hyperinflation arises, but includes several characteristics of hyperinflation. The IASB does not identify specific hyperinflationary jurisdictions. However, in June 2018, the International Practices Task Force of the Centre for Quality, which monitors “highly inflationary countries”, categorized Argentina as a country with projected three-year cumulative inflation rate greater than 100%. Additionally, some of the other qualitative factors of IAS 29 were present, providing prima facie evidence that the Argentine economy is hyperinflationary for the purposes of IAS 29. Therefore, Argentine companies that prepare financial statements pursuant to IFRS and use the Peso as their functional currency were required to apply IAS 29 to their financial statements for periods ending on and after July 1, 2018.
 
Adjustments to reflect inflation, including tax indexation, such as those required by IAS 29, are in principle prohibited in Argentina. However, on December 4, 2018, the Argentine government enacted Law No. 27,468, which lifted the ban on indexation of financial statements. Some regulatory authorities, such as the CNV and the IGJ, have required that financial statements for periods ended on and after December 31, 2018 be restated for inflation in accordance IAS 29.
 
During the first three fiscal years starting after January 1, 2018, tax indexation will be applicable if the variation of the CPI exceeds 55% in 2019, 30% in 2020 and 15% in 2021. The tax indexation determined as of June 2019 was allocated as follows: One-third in that same year, and the remaining two-thirds in equal parts in the following two years. The tax indexation determined for fiscal years beginning on July 1, 2019 and July 1 2020 will be allocated as follows: One-sixth in that same year, and the remaining five-sixth in equal parts in the following five years. For fiscal years starting after January 1, 2021, the tax indexation procedure will be triggered under similar standards as those set forth by IAS 29.
 
We cannot predict the future impact that the eventual application of tax indexation and related inflation adjustments described above will have on our financial statements or their effects on our business, results of operations and financial condition.
 
High levels of public spending in Argentina could generate long-lasting adverse consequences for the Argentine economy.
 
During recent years, the Argentine government has substantially increased public spending. Argentina recorded a primary deficit of 3.9%, 2.4% and 0.4% of GDP in 2017, 2018 and 2019, respectively. However, the new Fernández administration has indicated that will seek to foster economic growth, which may require additional public spending. If government spending continues to outpace fiscal revenue, the fiscal deficit is likely to increase. Additionally, the economic impact of the COVID-19 pandemic and the nationwide lockdown may also require the Argentine government to increase public spending.
 
The Argentine government’s ability to access the long-term financial markets to finance such increased spending is limited given the high levels of public sector indebtedness. The inability to access the capital markets to fund its deficit or the use of other sources of financing may have a negative impact on the economy and, in addition, could limit the access to such capital markets for Argentine companies, which could adversely affect our business, financial condition and results of operations.
 
 
11
 
 
Argentina’s ability to obtain financing in the international capital markets is limited, which may impair our ability to access international credit markets to finance our operations in Argentina.
 
Argentina’s 2001 sovereign default and its failure to fully restructure its sovereign debt and negotiate with the holdout creditors has limited Argentina’s ability to access international capital markets to obtain financing. In 2005, Argentina completed the restructuring of a substantial portion of its defaulted sovereign indebtedness and settled all of its debt with the IMF. Additionally, in June 2010, Argentina completed the renegotiation of approximately 67% of the principal amount of the defaulted bonds outstanding that were not swapped in the 2005 restructuring. As a result of the 2005 and 2010 debt swaps, Argentina restructured approximately 92.1% of its defaulted debt that was eligible for restructuring. Holdout creditors that had declined to participate in the exchanges commenced numerous lawsuits against Argentina in several countries, including the United States, Italy, Germany, and Japan.
 
As a result of the litigation filed by holdout bondholders and their related efforts to attach Argentina’s sovereign property located in the United States and other jurisdictions, Argentina’s ability to access the international capital markets was severely limited. In April 2016, the Argentine government settled USD4.2 billion outstanding principal amount of untendered debt.
 
In 2018, due to Argentina’s limited access to the international capital and lending markets, the Argentine government and the IMF entered into a “stand-by” arrengment forUSD57.1 billion principal amount with a 36-month maturity. As of the date of this annual report, Argentina has received disbursements under the agreement totaling USD 44.8 billion. Notwithstanding the foregoing, the Fernández administration has publicly announced that it will refrain from requesting additional disbursements under this agreement, and instead vowed to renegotiate its terms and conditions in good faith.
 
Shortly after taking office, the Fernández administration also initiated negotiations with creditors in order to restructure the country’s current Peso- and U.S. dollar-denominated public debt. In this context, on February 5, 2020, the Argentine Congress passed Law No. 27,544, pursuant to which the sustainability of the sovereign debt was declared a national priority, authorizing the Ministry of Economy to renegotiate new terms and conditions with Argentina’s creditors within certain parameters.
 
Additionally, in the midst of debt restructuring negotiations, on April 5, 2020 the Argentine government issued Decree No. 346/2020, through which the repayment of Argentine law-governed dollar-denominated notes was postponed.
 
On April 21, 2020, the Argentine government launched an exchange offer with the aim of refinancing its external indebtedness in a manner which does not compromise the development and potential growth of Argentina over the next years. On August 17, 2020, the Argentine government submitted its modified bond restructuring offer to the SEC. On August 31, 2020, the Argentine government announced the results of its bond restructuring offer, announcing that holders owning 93.5% in principal amount of bonds outstanding and that this participation percentage was subsequently increased to 99% by virtue of the application of collective action clauses of the restructured bonds. However, the Argentine government faces the challenge of restructuring its debt in foreign currency issued under Argentine law, as well as its debt with the IMF. We cannot predict the outcome of these negotiations.
 
Moreover, difficulties in accessing Argentina’s international credit may have an impact on our company as the Argentine government postponed the maturity dates of its bonds, and cut interest rates.
 
Foreign shareholders of companies operating in Argentina have initiated proceedings against Argentina that have resulted and could result in arbitral awards and/or injunctions against Argentina and its assets and, in turn, limit its financial resources.
 
In response to the emergency measures implemented by the Argentine government during the 2001-2002 economic crisis, a number of claims were filed before the International Centre for Settlement of Investment Disputes (“ICSID”) against Argentina. Claimants allege that the emergency measures were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties by which Argentina was bound at the time.
 
Claimants have also filed claims before arbitral tribunals under the rules of the United Nations Commission on International Trade Law (“UNCITRAL”) and under the rules of the International Chamber of Commerce (“ICC”). As of the date of this annual report, it is not certain that Argentina will prevail in having any or all of these cases dismissed, or that if awards in favor of the plaintiffs are granted, that it will succeed in having those awards annulled. Ongoing claims before the ICSID tribunal and other arbitral tribunals could lead to new awards against Argentina, which could have an adverse effect on our capacity to access to financing or the international capital markets. 
 
 
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Significant fluctuation in the exchange rate of the Peso against foreign currencies may adversely affect the Argentine economy as well as our financial condition and results of operations.
 
Fluctuations in the rates of exchange of the Peso against foreign currencies, particularly the U.S. dollar, may adversely affect the Argentine economy, our financial condition and results of operations. In 2017, 2018, 2019 and the first nine months of the year 2020, the Peso depreciated by approximately 16%, 105%, 59% and 27% against the U.S. dollar, respectively. Depreciation of the Peso in real terms can have a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt, and also lead to very high inflation and significant reduced real wages. The depreciation of the Peso can also negatively impact businesses whose success is dependent on domestic market demand, and adversely affect the Argentine government’s ability to honor its foreign debt obligations. A substantial increase in the exchange rate of the Peso against foregin currencies of the Peso against the U.S. dollar also represents risks for the Argentine economy since it may lead to a deterioration of the country’s current account balance and the balance of payments which may have a negative effect on GDP growth and employment, and reduce the revenue of the Argentine public sector by reducing tax revenue in real terms, due to its current heavy dependence on export taxes.
 
As a result of the greater volatility of the Peso, the former administration announced several measures to restore market confidence and stabilize the value of the Argentine Peso. Among them, during 2018, the Argentine government negotiated two agreements with the IMF, increased interest rates and the Central Bank decided to intervene in the exchange market in order to stabilize the value of the Peso. During 2019, based on a new understanding with the IMF, the Government established new guidelines for stricter control of the monetary base, which would remain in place until December 2019, in an attempt to reduce the amount of Pesos available in the market and reduce the demand for foreign currency. Complementing these measures, in September 2019 foreign currency controls were reinstated in Argentina. As a consequence of the re-imposition of exchange controls, the spread between the official exchange rate and other exchange rates resulting implicitly from certain common capital markets operations (“dólar MEP” or “contado con liquidación”), also known as blue chip swap rate, has broadened significantly, reaching a value of approximately 90% above the official exchange rate. As of November 13, 2020, the official exchange rate was ARS 79.7500 per USD 1.00.
 
The success of any measures taken by the Argentine government to restore market confidence and stabilize the value of the Argentine Peso is uncertain and the continued depreciation of the Peso could have a significant adverse effect on our financial condition and results of operations. 
 
 
 
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Certain measures that may be taken by the Argentine government may adversely affect the Argentine economy and, as a result, our business, financial condition and results of operations.
 
The Argentine government exercises substantial control over the economy and may increase its level of intervention in certain areas of the economy, including through the regulation of market conditions and prices. 
 
By way of example, in 2008 the Fernández de Kirchner administration nationalized and replaced the former private pension system with a public “pay as you go” pension system. As a result, all resources administered by the private pension funds, including significant equity interests in a wide range of listed companies, were transferred to a separate fund (Fondo de Garantía de Sustentabilidad, or “FGS”) to be administered by the National Social Security Administration (Administración Nacional de la Seguridad Social, or “ANSES”, per its acronym in Spanish). The dissolution of the private pension funds and the transfer of their financial assets to the FGS have had important repercussions on the financing of private sector companies. Debt and equity instruments which previously could be placed with pension fund administrators are now entirely subject to the discretion of the ANSES. Since it acquired equity interests in privately owned companies through the process of replacing the pension system, the ANSES is entitled to designate government representatives to the boards of directors of those entities. Pursuant to Decree No. 1,278/12, issued by the Executive Branch on July 25, 2012, the ANSES’s representatives must report directly to the Ministry of Public Finance are subject to a mandatory information-sharing regime, under which, among other obligations, they must immediately inform the Ministry of Public Finance of the agenda for each meeting of the board of director and provide related documentation.
 
Also, in April 2012, the Fernández de Kirchner administration decreed the removal of directors and senior officers of YPF S.A. (“YPF”), the country’s largest oil and gas company, that at the time was controlled by the Spanish group Repsol, and submitted a bill to the Argentine Congress to expropriate shares held by Repsol representing 51% of the total outstanding equity of YPF. The Argentine Congress approved the bill in May 2012 through the passage of Law No. 26,741, which declared the production, industrialization, transportation and marketing of hydrocarbons to be activities of public interest and fundamental policies of Argentina, and empowered the Argentine government to adopt any measures necessary to achieve self-sufficiency in hydrocarbon supply. In February 2014, the Argentine government and Repsol announced that they had reached an agreement on the terms of the compensation payable to Repsol for the expropriation of the YPF shares. Such compensation totaled USD5 billion payable by delivery of Argentine sovereign bonds with various maturities. The agreement, which was ratified by Law No. 26,932, settled the claim filed by Repsol before the International Centre for Settlement of Investment Disputes (“ICSID”).
 
Additionally, in June 2020, President Alberto Fernández announced a project to intervene and expropriate the cereal exporting company Vicentin SAIC (“Vicentin”) under which the national public administration would take control of, 51% of Vicentin, which is in creditor competition as a result of the company’s ARS 350 million debt with state-owned Banco Nación, on a total increase of USD 1.35 billion. However, on June 19, 2020, the holder of the civil and commercial court, responsible for carrying out Vicentin’s call for creditors, decided to restore the company’s original board of directors in office for 60 days and to give the status of mere oversighters to the interveners appointed by the administration of Alberto Fernández.
 
Historically, actions of the Argentine government concerning the economy, including decisions regarding interest rates, taxes, price controls, wage increases, increased benefits for workers, exchange controls and potential changes in the market of foreign currency, have had a substantial adverse effect on Argentina’s economic growth.
 
It is widely reported by private economists that expropriations, price controls, exchange controls and other direct involvement by the Argentine government in the economy have had an adverse impact on the level of investment in Argentina, the access of Argentine companies to international capital markets and Argentina’s commercial and diplomatic relations with other countries. If the level of government intervention in the economy continues or increases, the Argentine economy and, in turn, our business, results of operations and financial condition could be adversely affected. 
 
The Argentine government may mandate salary increases for private sector employees, which would increase our operating costs.
 
In the past, the Argentine government has passed laws, regulations and decrees requiring companies in the private sector to maintain minimum wage levels and provide specified benefits to employees. Argentine employers, both in the public and private sectors, have experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. Due to high levels of inflation, employees and labor organizations regularly demand significant wage increases.
 
 
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Through Decree No. 610/2019, a staggered increase of the minimum salary was approved as follows: (i) ARS 14,125 as of August 1, 2019; (ii) ARS 15,625 as of September 1, 2019; and (iii) ARS 16,875 as of October 1, 2019. In addition, the Argentine government has arranged various measures to mitigate the impact of inflation and exchange rate fluctuation in wages. In December 2019, Decree No. 34/2019, doubled legally-mandated severance pay for termination of employment. The Government went a step further amid the COVID-19 pandemic, and issued Decree No. 329/2020, restricting the ability to terminate employment with or without cause for 60 business days, prorogued it for 60 additional business days by Decree No.624/2020. Also, in January 2020, the Argentine government issued Decree No. 14/2020 which established a general increase for all employees of ARS 3,000 in January 2020, and an additional amount of ARS 1,000 in February 2020 (total ARS 4,000 effective as of February 2020).
 
It is possible that the Argentine government could adopt measures mandating further salary increases or the provision of additional employee benefits in the future. Any such measures could have a material and adverse effect on our business, results of operations and financial condition.
 
Property values in U.S. dollars in Argentina could decline significantly.
 
Property values in U.S. dollars are influenced by multiple factors that are beyond our control, such as a decreased demand for real estate properties due to a deterioration of macroeconomic conditions or an increase in supply of real estate properties that could adversely affect the value in U.S. dollars of real estate properties. We cannot assure you that property values in U.S. dollars will increase or that they will not be reduced. Most of the properties we own are located in Argentina. As a result, a reduction in the value in U.S. dollars of properties in Argentina could materially affect our business and our financial statements due to the valuation of our investment properties at fair market value in U.S. dollars.
 
Restrictions on transfers of foreign currency and the repatriation of capital from Argentina may impair our ability to pay dividends and distributions and investors may face restrictions on their ability collect capital and interest payments in connection with corporate bonds issued by Argentine companies.
 
On September 1, 2019, the BCRA issued Communication “A” 6,770, which established various rules for exports of goods and services, imports of goods and services, foreign assets, non-resident operations, financial debt, debts between residents, profits and dividends, and information systems. The Communication was issued in response to the publication of Decree 609/2019, pursuant to which the Argentine government implemented foreign exchange regulations until December 31, 2019. Decree 609/2019 sets forth the obligation to convert the value of goods and services exported into Pesos in the local financial system, in accordance with terms and conditions established by the BCRA.
 
Additionally, on December 5, 2019 the BCRA issued Communication “A” 6,844, setting forth the consolidated set of rules governing foreign trade and exchange (“Exterior y Cambios” in Spanish).
 
Among other restrictions, Communication “A” 6,844 requires prior authorization from the BCRA for the pre-cancelation of debts corresponding to imports of goods and services. For overdue or on-demand debts for the import of goods with related parties abroad outstanding as of August 31, 2019, the importer must request authorization from the BCRA if the debts exceed USD2 million per month. BCRA authorization is also required for payments of services with related parties abroad. Prior authorization from the BCRA is required for the “constitution of foreign assets” (e.g., purchase of foreign currency, among others) by legal entities, local governments, mutual funds, trusts and other vehicles. Additionally, individuals must request authorization from the BCRA for the “formation of foreign assets,” family aid and the granting of guarantees in derivative transactions, when those items exceed USD200 in the calendar month, among other circumstances.
 
With respect to financial debt, borrowers must enter and settle in the foreign exchange market new financial debts from abroad that are disbursed from September 1, 2019. Compliance with this requirement must be proved to access the foreign exchange market and cancel the principal and interest. Communication “A” 6,844 also requires companies to obtain prior authorization from the BCRA before transferring profits and dividends abroad, as a general rule.
 
Likewise, Communication “A” 6,854, issued on December 27, 2019 established that rules incorporated into the consolidated text of the regulations on foreign trade and exchange other than those applicable for export of goods and services, as set forth in Communication “A” 6,844, shall remain in full force and effect as from December 31, 2019.
 
 
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Subsequently, the BCRA issued Communication “A” 7,030, through which it established that for the purpose of accessing the exchange market for the realization of certain transactions such as (i) payment of imports and other purchases of goods abroad, (ii) purchase of foreign currency by residents with specific application, (iii) payment of profits and dividends, (iv) payment of capital and interest on financial indebtedness, among others, the entity shall have the prior consent of the BCRA unless it has an affidavit from the client stating that at the time of access to the exchange market: (i) all of its foreign currency holdings in the country are deposited in accounts in financial institutions and that it does not have liquid external assets available; and (ii) undertakes to liquidate on the exchange market, within five working days of its making available, those funds that it receives abroad arising from the collection of loans granted to third parties, the collection of a term deposit or the sale of any type of asset, where those funds have been acquired after May 28 2020.
 
On the other hand, the Communication provides that until June 30, 2020 (a period subsequently extended until July 31, 2020, by Communication “A” 7052) when accessing the market for payment of imports of goods or for the cancellation of debts arising from the import of goods, the BCRA must pre-approve the transaction unless the entity has: (i) a customer's affidavit stating that the total amount of payments associated with its imports of goods during 2020 does not exceed the amount by which the importer would have access to the exchange market that was officialized between January 1, 2020 and the day leading up to accessing the exchange market; and (ii) documentation that allows the company in question to verify compliance with the remaining requirements established for the operation by the exchange regulations.
 
At the same time, the Communication provides that until June 30, 2020 (a period subsequently extended until July 31, 2020, by Communication “A” 7,052) - prior approval of the BCRA will be required for access to the foreign market for the cancellation of financial indebtedness principal services with the foreign sector where the creditor is a counterparty linked to the debtor.
 
As for transactions corresponding to foreign market outflows, the Communication amends from 30 to 90 days the period within which (i) no sales of securities with liquidation in foreign currency or transfers thereof to foreign entities can be performed, and (ii) no local sales of securities with liquidation in foreign currency or transfers thereof to entities abroad can be performed, in this case, counted from the moment the foreign market was accessed.
 
Finally, on September 15, 2020, Communication “A” 7,106 established that companies must refinance maturities of financial debt principal in the period from October 15, 2020 to March 31, 2021. In this sense, the Central Bank will give access to companies for up to 40% of maturities and companies must refinance the rest within at least two years or should be cancelled using currency already in possession of the Company. Furthermore, Resolution No. 862/2020 of the CNV established a three-day “parking” requirement for both transfers of securities from local accounts abroad. As a result of all the exchange restrictions mentioned and all those that may be issued in the future by the BCRA in the context of the exercise of its powers, it is clarified that there may be potential “holdouts” in the context of the restructurings that Argentine companies are obliged to carry out with the consequent possible claims. The Central Bank measure, would, in many cases, result in non-compliance or a default on corporate debt denominated in U.S. dollars. It will be a challenge for issuers of corporate debt denominated in U.S. dollars to fully quantify the implications of Communication “A” 7,106. In order to fulfill the requirements of this regulation, a refinancing plan for financial debt due for registration until December 31, 2020 must be submitted to the Argentine Central Bank before September 30, 2020. For maturities to be registered between January 1, 2021 and March 31, 2021, the plan must be submitted at least 30 calendar days prior to the maturity of the principal to be refinanced, which implies a risk to obtain financing for new productive projects. As a consequence, there could be an increase in the spreads of corporate bonds. In addition, since June 2020, through Communication “A” 7,030, companies could no longer access to the MULC to cancel financial debt between companies in advance. It is also noted that such possible proposals for restructurings will fully comply with the requirements established by the applicable and current regulations, as long as the non-compliance brings the application of the foreign exchange criminal law to the members of our board of directors.
 
 
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As of the date of this annual report, the restrictions outlined above remain in place. Such measures may negatively affect Argentina’s international competitiveness, discouraging foreign investments and lending by foreign investors or increasing foreign capital outflow which could have an adverse effect on economic activity in Argentina, and which in turn could adversely affect our business and results of operations. Any restrictions on transferring funds abroad imposed by the government could undermine our ability to pay dividends on our ADSs in U.S. dollars. Furthermore, these measures may cause delays or impose restrictions on the ability to collect payments of capital and interest on bonds issued by us. The challenge will be to achieve acceptance by creditors, in accordance with the BCRA regulations mentioned above, especially when it has highly diversified and retail creditors.
 
The Argentine economy could be adversely affected by economic developments in other global markets.
 
Argentina’s economy is vulnerable to external shocks that could be caused by adverse developments affecting its principal trading partners. A significant decline in the economic growth of any of Argentina’s major trading partners (including Brazil, the European Union, China and the United States), including as a result of the ongoing COVID-19 pandemic, could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth. In addition, Argentina may be affected by economic and market conditions in other markets worldwide, as was the case in 2008-2009, when the global financial crisis led to a significant economic contraction in Argentina in 2009.
 
Since 2015, the Brazilian economy, Argentina’s largest export market and the principal source of imports, has experienced heightened negative pressure due to the uncertainties stemming from the ongoing political crisis, including the impeachment of Brazil’s president, which resulted in the Senate of Brazil removing Dilma Rousseff from office for the rest of her term on August 31, 2016. Michel Temer, who previously held office as vice president of Brazil, subsequently took office until the end of the presidential period and in October 2018, Jair Bolsonaro was elected president. Mr. Bolsonaro has libertarian, conservative and nationalist tendenciesand assumed office on January 1, 2019. Given that Brazil is the largest economy in Latin America, the economic measures it implements can have great impact in the region. A further deterioration in economic conditions in Brazil may reduce the demand for Argentine exports to the neighboring country and, if this occurs, it could have a negative effect on the Argentine economy and potentially on our operations.
 
In addition, financial and securities markets in Argentina have been influenced by economic and market conditions in other markets worldwide. Although economic conditions vary from country to country, investors’ perceptions of events occurring in other countries have in the past substantially affected, and may continue to substantially affect, capital flows into, and investments in securities from issuers in, other countries, including Argentina. International investors’ reactions to events occurring in one market sometimes demonstrate a “contagion” effect in which an entire region or class of investment is disfavored by international investors.
 
The Argentine financial system and securities markets could be also adversely affected by events in developed countries’ economies, such as the United States and Europe. On June 23, 2016, the United Kingdom voted in favor of the United Kingdom exiting the European Union (“Brexit”). The United Kingdom formally left the European Union on January 31, 2020. Even when the United Kingdom agreed its departure from the European Union, negotiations on the terms and conditions are expected to continue during the transition period, which is due to expire on December 31, 2020. The effects of the Brexit vote and the perceptions as to the impact of the withdrawal of the United Kingdom from the European Union may adversely affect business activity and economic and market conditions in the United Kingdom, the Eurozone and globally, and could contribute to instability in global financial and foreign exchange markets. In addition, Brexit could lead to additional political, legal and economic instability in the European Union and have a negative impact on the commercial exchange of Argentina with that region.
 
 
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On November 8, 2016, Donald Trump was elected president of the United States. His presidency has created significant uncertainty about the future relationships between the United States and other countries, including with respect to the trade policies, treaties, government regulations and tariffs that could apply to trade between the United States and other nations. On November 3, 2020, presidential elections took place in the United States. Former Vice President Joseph R. Biden Jr. is the Democratic nominee to challenge President Trump. Finally, on November 7, 2020, Democrat Joe Biden has been declared president-elect, but President Donald Trump is still planning legal challenges to the results in some key states.President-elect Biden now has 279 electoral college votes, taking him past the 270 needed to win. Donald Trump has 214. Mr Biden will become the 46th president in January 2021, pending the outcome of any legal challenges. We cannot predict how Mr. Biden’s measures will evolve or how they may affect Argentina, nor will the effect that the same or any other measure taken by the Biden administration could cause on global economic conditions and the stability of global financial markets.
 
  
In July 2019, the Common Market of the South (“MERCOSUR”) signed a strategic partnership agreement with the European Union (the “EU”), which is expected to enter into force in 2021, once approved by the relevant legislatures of each member country. The objective of this agreement is to promote investments, regional integration, increase the competitiveness of the economy and achieve an increase in GDP. However, the effect that this agreement could have on the Argentine economy and the policies implemented by the Argentine government is uncertain. Recently, in October 2020, The European Parliament passed a non-binding resolution opposing the ratification of the trade agreement between the European Union and Mercosur due to concerns over the environmental policy of the Jair Bolsonaro government.
 
Changes in social, political, regulatory and economic conditions in other countries or regions, or in the laws and policies governing foreign trade, could create uncertainty in the international markets and could have a negative impact on emerging market economies, including the Argentine economy. Also, if these countries fall into a recession, the Argentine economy would be impacted by a decline in its exports, particularly of its main agricultural commodities. All of these factors could have a negative impact on Argentina’s economy and, in turn, our business, financial condition and results of operations.
 
Furthermore, the financial markets have also been affected by the oil production crisis in March 2020 arising from the OPEC’s failure to reduce production. Any of these factors could depress economic activity and restrict our access to suppliers and could have a material adverse effect on our business, financial condition and results of operations.
 
A decline in the international prices for Argentina’s main commodity exports could have an adverse effect on Argentina’s economic growth, which could adversely affect our business, financial condition and results of operations.
 
High commodity prices contributed to the increase in Argentine exports and to high government tax revenue from export withholdings. Consequently, the Argentine economy has remained relatively dependent on the price of its main agricultural products, primarily soy. This dependence has rendered the Argentine economy more vulnerable to commodity prices fluctuations.
 
A continuous decline in international prices of Argentina’s main commodity exports could have a negative impact on the levels of government revenue and the government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government’s reaction. Either of these results would adversely impact Argentina’s economy and, therefore, our business, results of operations and financial condition.
 
Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect the Argentine economy and financial condition, which in turn could adversely affect our business, financial condition and results of operations.
 
The lack of a solid institutional framework and the notorious incidents of corruption that have been identified as a significant problem for Argentina present meaningful challenges to a robust economic recovery. The Argentine economy is sensitive to local political events. Such political events could generate uncertainty and be adverse for the development of a stable market for business in the country, which could affect the Argentine economy and, indirectly, the business, results of operations and financial situation of the Company.
 
 
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Likewise, institutional deterioration and corruption may adversely affect Argentina’s economy and financial situation, which in turn could adversely affect the business, equity and financial situation and results of the Company’s operations.
 
The absence of a solid institutional framework and corruption have been pointed out as an important problem for Argentina and continue to be. Recognizing that the failure to address these issues could increase the risk of political instability, distort decision-making processes and adversely affect Argentina’s international reputation and ability to attract foreign investment, the former Macri administration adopted several measures aimed at strengthening Argentina’s institutions and curbing corruption. These measures include the reduction of criminal sentences in exchange for cooperation with the government in corruption investigations, increased access to public information, the seizing of assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the passing of a new public ethics law, among others. The Fernández administration’s ability and determination to implement these initiatives taken by the former administration is uncertain, as it would require, among other things, the involvement of the judicial branch, which is independent, as well as legislative support.
 
We cannot guarantee that the implementation of these measures will be successful or if implemented that such measures will have the intended outcomes.
 
A decline in the international prices for Argentina’s main commodity exports could have an adverse effect on Argentina’s economic growth, which could adversely affect our business, financial condition and results of operations.
 
Argentina’s financial recovery from the 2001-2002 crisis occurred in a context of price increases for Argentina’s commodity exports. High commodity prices contributed to the increase in Argentine exports since the third quarter of 2002 and to high government tax revenue from export withholdings. Consequently, the Argentine economy has remained relatively dependent on the price of its main agricultural products, primarily soy. This dependence has rendered the Argentine economy more vulnerable to commodity prices fluctuations.
 
A continuous decline in international prices of Argentina’s main commodity exports could have a negative impact on the levels of government revenues and the government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government’s reaction. Either of these results would adversely impact Argentina’s economy and, therefore, our business, results of operations and financial condition.
 
Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect the Argentine economy and financial condition, which in turn could adversely affect our business, financial condition and results of operations.
 
The lack of a solid institutional framework and the notorious incidents of corruption that have been identified as a significant problem for Argentina present meaningful challenges to a robust economic recovery. The Argentine economy is sensitive to local political events. Such political events could generate uncertainty and be adverse for the development of a stable market for business in the country, which could affect the Argentine economy and, indirectly, the business, results of operations and financial situation of the Company.
 
Likewise, institutional deterioration and corruption may adversely affect Argentina’s economy and financial situation, which in turn could adversely affect the business, equity and financial situation and results of the Company’s operations.
 
 
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The absence of a solid institutional framework and corruption have been pointed out as an important problem for Argentina and continue to be. Recognizing that the failure to address these issues could increase the risk of political instability, distort decision-making processes and adversely affect Argentina’s international reputation and ability to attract foreign investment, the former Macri administration adopted several measures aimed at strengthening Argentina’s institutions and curbing corruption. These measures include the reduction of criminal sentences in exchange for cooperation with the government in corruption investigations, increased access to public information, the seizing of assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the passing of a new public ethics law, among others. The Fernández administration’s ability and determination to implement these initiatives taken by the former administration is uncertain, as it would require, among other things, the involvement of the judicial branch, which is independent, as well as legislative support.
 
We cannot guarantee that the implementation of these measures will be successful or if implemented that such measures will have the intended outcomes.
 
Our internal policies and procedures might not be sufficient to guarantee compliance with anti-corruption and anti-bribery laws and regulations.
 
Our operations are subject to various anti-corruption and anti-bribery laws and regulations, including the Corporate Criminal Liability Law and the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”). Both the Corporate Criminal Liability Law and the FCPA impose liability against companies who engage in bribery of government officials, either directly or through intermediaries. The anti-corruption laws generally prohibit providing anything of value to government officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of our business, we may deal with entities in which the employees are considered government officials. We have a compliance program that is designed to manage the risks of doing business in light of these new and existing legal and regulatory requirements.
 
Although we have internal policies and procedures designed to ensure compliance with applicable anti-corruption and anti-bribery laws and regulations, there can be no assurance that such policies and procedures will be sufficient. Violations of anti-corruption laws and sanctions regulations could lead to financial penalties being imposed on us, limits being placed on our activities, our authorizations and licenses being revoked, damage to our reputation and other consequences that could have a material adverse effect on our business, results of operations and financial condition. Further, litigations or investigations relating to alleged or suspected violations of anti-corruption laws and sanctions regulations could be costly.
 
On July 30, 2020, the Executive Branch introduced a bill to the Senate related to a proposed reform of the Judiciary. The project provides for, among other issues: (i) the merger of 12 federal criminal courts with 11 courts with jurisdiction over economic criminal matters, doubling to reach 46 courts in the Federal Criminal judicial system, which will be located in the City of Buenos Aires, (ii) a system of surrogacy to fill in the new courts with the intervention of the National Chamber of Appeal in Criminal and Correctional matters, the Council of the Magistracy and the Senate, (iii) the unification of the appeals chambers and the expansion of the justice system with the creation of new oral courts, prosecutor’s offices and defense offices, and (v) the merger of the Federal Civil and Commercial jurisdiction with the Administrative Litigation.
 
Risks Relating to Brazil
 
The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy, which, together with Brazilian political and economic conditions, may adversely affect us.
 
We may be adversely affected by the following factors, as well as the Brazilian federal government’s response to these factors:
 
the ongoing COVID-19 pandemic and any future epidemics, pandemics or disease outbreaks;
 
economic and social instability;
 
increase in interest rates;
 
exchange controls and restrictions on remittances abroad;
 
restrictions and taxes on agricultural exports;
 
 
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exchange rate fluctuations;
 
inflation;
 
volatility and liquidity in domestic capital and credit markets;
 
 
expansion or contraction of the Brazilian economy, as measured by GDP growth rates;
 
allegations of corruption against political parties, elected officials or other public officials, including allegations made in relation to the Lava Jato investigation;
 
 
government policies related to our sector; and
 
fiscal or monetary policy and amendments to tax legislation; and other political, diplomatic, social or economic developments in or affecting Brazil.
 
Historically, the Brazilian government has frequently intervened in the Brazilian economy and has occasionally made significant changes in economic policies and regulations, including, among others, the imposition of new, changes in monetary, fiscal and tax policies, currency devaluations, capital controls and limits on imports.
 
The Brazilian economy has been experiencing a slowdown – GDP growth rates were 3.9%, 1.8%, 2.7% and 0.1%, in 2011, 2012, 2013 and 2014, respectively, and GDP decreased 3.8% in 2015 and 3.6% in 2016 and increased 1.0% in 2017, 1.1% in 2018 and 1.1% in 2019.
 
As a result of investigations carried out in connection with the Lava Jato (Car Wash) operation into corruption in Brazil, a number of senior politicians, including congressmen, and executive officers of some of the major state-owned companies in Brazil have resigned or been arrested, while others are being investigated for allegations of unethical and illegal conduct. The matters that have come, and may continue to come, to light as a result of, or in connection with, the Lava Jato operation and other similar operations have adversely affected, and we expect that they will continue to adversely affect, the Brazilian economy, markets and trading prices of securities issued by Brazilian issuers in the near future.
 
Furthermore, the Brazilian economy continues to be subject to the effects of the outcome of the impeachment proceedings against former President Dilma Rousseff. On August 31, 2016, after a trial by the Senate, the former President was formally charged. Vice President Michel Temer was sworn in as the new President of Brazil until the next presidential elections, which were held in 2018 and from which Jair Bolsonaro emerged as the new President.
 
The ultimate outcome of these investigations is uncertain, but they have already had an adverse effect on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy, the political environment and the Brazilian capital markets. The development of these investigations has affected and may continue to adversely affect us. We cannot predict if these investigations will bring further political or economic instability to Brazil, or if new allegations will be raised against high-level members of the Brazilian federal government. In addition, we cannot predict the results of these investigations, nor their effects on the Brazilian economy.
 
Since assuming office, the government of President Jair Bolsonaro has implemented a series of right-wing policies. Measures include the the approval of the sale of 700,000 state-owned properties, increases in the minimum wage, transfer of the agrarian reform duties from the National Indigenous Foundation (FUNAI) to the Ministry of Agriculture, easing of restrictions for possession of firearms in Brazil and reduction of the educational budget for universities and federal institutes. The President of Brazil has the power to determine government policies and actions related to the Brazilian economy and, consequently, the operations and financial performance of companies, including ours, may be affected.
 
 
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Inflation, coupled with the Brazilian government’s measures to fight inflation, may hinder Brazilian economic growth and increase interest rates, which could have a material adverse effect on us.
 
Brazil has in the past experienced significantly high rates of inflation. As a result, the Brazilian government adopted monetary policies that have often resulted in high interest rates. The Central Bank’s Monetary Policy Committee (Comitê de Política Monetária do Banco Central, or COPOM), establishes an official interest rate target for the Brazilian financial system based on the level of economic growth, inflation rate and other economic indicators in Brazil. As of June 30, 2020, the SELIC rate was 2.25% per year. The inflation rates, as measured by the General Market Price Index (Índice Geral de Preços–Mercado, or IGP-M), and calculated by Fundação Getúlio Vargas, or FGV, were 10.54% in 2015, 7.18% in 2016, (0.52)% in 2017, 7.54% in 2018 and 7.30% in 2019. Cumulative inflation for the first nine months of 2020, calculated by the same index, was 1.34%.
 
Inflation and the government measures to fight inflation have had and may continue to have significant effects on the Brazilian economy and our business. In addition, the Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and slowing economic growth. On the other hand, an easing of monetary policies of the Brazilian government may trigger increases in inflation. In the event of an increase in inflation, we may not be able to adjust our daily rates to offset the effects of inflation on our cost structure, which may materially and adversely affect us.
 
An increase in interest rates may have a significant adverse effect on us. In addition, as of June 30, 2020, certain of our loans were subject to interest rate fluctuations, such as the Brazilian long-term interest rate (Taxa de Juros de Longo Prazo, or TJLP), and the interbank deposit rate (Certificados de Depósitos Interbancários, or CDI). In the event of an abrupt increase in interest rates, our ability to comply with our financial obligations may be materially and adversely affected.
 
A deterioration in general economic and market conditions or the perception of risk in other countries, principally in emerging countries or the United States, may have a negative impact on the Brazilian economy and us.
 
Economic and market conditions in other countries, including United States and Latin American and other emerging market countries, may affect the Brazilian economy and the market for securities issued by Brazilian companies. Although economic conditions in these countries may differ significantly from those in Brazil, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Crises in other emerging market countries could dampen investor enthusiasm for securities of Brazilian issuers, including ours, which could adversely affect the market price of our common shares. In the past, the adverse development of economic conditions in emerging markets resulted in a significant flow of funds out of the country and a decrease in the quantity of foreign capital invested in Brazil. Changes in the prices of securities of public companies, lack of available credit, reductions in spending, general slowdown of the global economy, exchange rate instability and inflationary pressure may adversely affect, directlyor indirectly, the Brazilian economy and securities market. Global economic downturns and related instability in the international financial system have had, and may continue to have, a negative effect on economic growth in Brazil. Global economic downturns reduce the availability of liquidity and credit to fund the continuation and expansion of business operations worldwide.
 
In addition, the Brazilian economy is affected by international economic and market conditions generally, especially economic conditions in the United States. Share prices on B3 S.A. – Brasil, Bolsa, Balcão, or B3, for example, have historically been sensitive to fluctuations in U.S. interest rates and the behavior of the major U.S. stock indexes. An increase in interest rates in other countries, especially the United States, may reduce global liquidity and investors’ interest in the Brazilian capital markets, adversely affecting the price of our common shares.
 
 
 
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The imposition of restrictions on acquisitions of agricultural properties by foreign nationals may materially restrict the development of our business. 
 
In August 2010, the then-president of Brazil approved the opinion of the Federal Attorney General affirming the constitutionality of Brazilian Law No. 5,709/71, which imposes important limitations on the acquisition and lease of land in Brazil by foreigners and by Brazilian companies controlled by foreigners. Pursuant to this legislation, companies that are majority-owned by foreigners are not permitted to acquire agricultural properties in excess of 100 indefinite exploration modules, or MEI (which are measurement units adopted by the National Institute of Agrarian Development (Instituto Nacional de Colonização e Reforma Agrária, or INCRA), within different Brazilian regions, and which range from five to 100 hectares) absent the prior approval of the Brazilian Congress, while the acquisition of areas measuring less than 100 MEIs by such companies requires the prior approval of INCRA. In addition, agricultural areas that are owned by foreigners or companies controlled by foreigners shall not exceed 25% of the surface area of the relevant municipality, of which area up to 40% shall not belong to foreigners or companies controlled by foreigners of the same nationality, meaning that the sum of agricultural areas that belong to foreigners or companies controlled by foreigners of the same nationality shall not exceed 10% of the surface area of the relevant municipality. In addition, INCRA is also required to verify if the agricultural, cattle-raising, industrial or colonization projects to be developed in such areas were previously approved by the relevant authorities. After that analysis, INCRA will issue a certificate allowing the acquisition or rural lease of the property. The purchase and/or rural lease of agricultural properties that do not comply with the aforementioned requirements need to be authorized by the Brazilian Congress. In both cases, it is not possible to determine an estimated time frame for the approval procedure, since at the date of this annual report, there are no known cases on the grating of such certificates.
 
On June 30, 2020, approximately 58.4% of Brasilagro’s common shares were held by foreigners. Bearing that in mind, the implementation of Law No. 5,709/71 may impose on us additional procedures and approvals in connection with future acquisitions of land, which may result in material delays and/or our inability to obtain required approvals. There is also a case pending on the Supreme Court (Supremo Tribunal Federal, or STF) on the Opinion No. 461/2012-E, issued by São Paulo’s General Controller of Justice (Corregedoria Geral de Justiça do Estado de São Paulo), which has established that entities providing notary and registrar services located in the State of São Paulo are exempt from observing certain restrictions and requirements imposed by Law No. 5,709/71 and Decree No. 74,965/74. Moreover, on April 16, 2015, the Brazilian Rural Society filed a claim for the acknowledgment of non-compliance with basic principles (ADPF) under certain provisions of the Brazilian Constitution with the Supreme Court in order to (i) rule that paragraph 1, article 1, of Law No. 5,709/71 was repealed by the 1988 Federal Constitution and (ii) reverse the opinion issued by the Federal Attorney General (AGU) of 2010. As of the date hereof, we are not able to provide an estimate of the timeframe for a final judgment to be issued by the STF in both cases.
 
Depending on the final decisions of these pending lawsuits, we may need to modify our business strategy and intended practices in order to be able to acquire agricultural properties. This might have the effect of increasing the number of transactions we must complete, which would increase our transaction costs. It might also require the execution of joint ventures or shareholder agreements, which increases the complexity and risks associated with such transactions.
 
Any regulatory limitations and restrictions could materially limit our ability to acquire agricultural properties, increase the investments, transaction costs or complexity of such transactions, or complicate the regulatory procedures required, any of which could materially and adversely affect us and our ability to successfully implement our business strategy. For more information, see“Item 4—Information on the Company—Business Overview—Ownership of Agricultural Land in Brazil by Foreigners.”
 
 
 
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We are subject to extensive environmental regulation that may significantly increase the company’s expenses.
 
Our business activities in Brazil are subject to extensive federal, state and municipal laws and regulations concerning environmental protection, which impose on us various environmental obligations, such as environmental licensing requirements, minimum standards for the release of effluents, use of agrochemicals, management of solid waste, protection of certain areas (legal reserve and permanent preservation areas), and the need for a special authorization to use water, among others. The failure to comply with such laws and regulations may subject the violator to administrative fines, mandatory interruption of activities and criminal sanctions, in addition to the obligation to rectify damages and pay environmental and third-party damage compensation, without any caps. In addition, Brazilian environmental law adopts a joint and several and strict liability system for environmental damages, which makes the polluter liable even in cases where it is not negligent and would render us jointly and severally liable for the obligations of our contractors or off-takers. If we become subject to environmental liabilities, any costs we may incur to rectify possible environmental damage would lead to a reduction in our financial resources, which would otherwise remain at our disposal for current or future strategic investment, thus causing an adverse impact on our business, financial condition and results of operations.
 
As environmental laws and their enforcement become increasingly stricter, our expenses for complying with environmental requirements are likely to increase in the future. Furthermore, the possible implementation of new regulations, changes in existing regulations or the adoption of other measures could cause the amount and frequency of our expenditures on environmental preservation to vary significantly compared to present estimates or historical costs. Any unplanned future expenses could force us to reduce or forego strategic investments and as a result could materially and adversely affect our business, financial condition and results of operations.
 
Risks Relating to other Countries Where We Operate
 
Our business is dependent on economic conditions in the countries where we operate or intend to operate.
 
We have made investments in farmland in Argentina, Brazil, Paraguay and Bolivia and we may possibly make investments in other countries in and outside Latin America, as Israel and United States, among others. Owing that demand for livestock and agricultural products is usually correlated to economic conditions prevailing in the local market, whichin turn is dependent on the macroeconomic condition of the country in which the market is located, our financial condition and results of operations are, to a considerable extent, dependent upon political and economic conditions prevailing from time to time in the countries where we operate. Latin American countries have historically experienced uneven periods of economic growth, as well as recession, periods of high inflation and economic instability. Certain countries have experienced severe economic crises, which may still have future effects. As a result, governments may not have the necessary financial resources to implement reforms and foster growth. Any of these adverse economic conditions could have a material adverse effect on our business.
 
We face the risk of political and economic crises, instability, terrorism, civil strife, expropriation and other risks of doing business in emerging markets.
 
In addition to Argentina and Brazil, we conduct or intend to conduct our operations in other Latin American countries such as Paraguay and Bolivia, and other countries such as Israel, among others. Economic and political developments in the countries in which we operate, including future economic changes or crisis (such as inflation or recession), government deadlock, political instability, terrorism, civil strife, changes in laws and regulations, expropriation or nationalization of property, and exchange controls could adversely affect our business, financial condition and results of operations.
 
In particular, fluctuations in the economies of Argentina and Brazil and actions adopted by the governments of those countries have had and may continue to have a significant impact on companies operating in those countries, including us. Specifically, we have been affected and may continue to be affected by inflation, increased interest rates, fluctuations in the value of the Argentine Peso and Brazilian Real against foreign currencies, price and foreign exchange controls, regulatory policies, business and tax regulations and in general by the political, social and economic scenarios in Argentina and Brazil and in other countries that may affect Argentina and Brazil.
 
Although economic conditions in one country may differ significantly from another country, we cannot assure that events in one only country will not adversely affect our business or the market value of, or market for, our common shares and/or ADSs.
 
 
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Governments in the countries where we operate or intend to operate exercise significant influence over their economies.
 
Emerging market governments, including governments in the countries where we operate, frequently intervene in the economies of their respective countries and occasionally make significant changes in monetary, credit, industry and other policies and regulations. Governmental actions to control inflation and other policies and regulations have often involved, among other measures, price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition, results of operations and prospects may be adversely affected by changes in government policies or regulations, including factors, such as:
 
exchange rates and exchange control policies;
 
inflation rates;
 
 
labor laws;
 
economic growth;
  
currency fluctuations;
 
monetary policy;
  
liquidity and solvency of the financial system;
 
limitations on ownership of rural land by foreigners;
  
developments in trade negotiations through the World Trade Organization or other international organizations;
 
environmental regulations;
  
restrictions on repatriation of investments and on the transfer of funds abroad;
 
expropriation or nationalization;
  
import/export restrictions or other laws and policies affecting foreign trade and investment;
 
price controls or price fixing regulations;
  
restrictions on land acquisition or use or agricultural commodity production
 
interest rates;
  
tariff and inflation control policies;
 
import duties on information technology equipment;
  
liquidity of domestic capital and lending markets;
 
electricity rationing;
 
tax policies;
 
armed conflict or war declaration; and
 
other political, social and economic developments, including political, social or economic instability, in or affecting the country where each business is based.
 
Uncertainty on whether governments will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty and heightened volatility in the securities markets, which may have a material and adverse effect on our business, results of operations and financial condition. In addition, an eventual reduction of foreign investment in any of the countries where we operate may have a negative impact on such country’s economy, affecting interest rates and the ability of companies to access financial markets.
 
 
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Local currencies used in the conduct of our business are subject to exchange rate volatility and exchange controls.
 
The currencies of many Latin American countries have experienced substantial volatility in recent years. Currency movements, as well as higher interest rates, have materially and adversely affected the economies of many Latin American countries, including countries in which account for or are expected to account for a significant portion of our revenues. The depreciation of local currencies creates inflationary pressures that may have an adverse effect on us generally, and may restrict access to international capital markets. On the other hand, the appreciation of local currencies against the U.S. Dollar may lead to deterioration in the balance of payments of the countries where we operate, as well as to a lower economic growth.
 
In 2015, the U.S. dollar to the peso exchange rate increased 53% as compared to 2014. In 2016, the U.S. dollar to peso exchange rate increased 22% as compared to 2015. In 2017, the U.S. dollar to peso exchange rate increased 18% as compared to 2016. In 2018, the U.S. dollar to peso exchange rate increased 100% as compared to 2017. Since In 2019, the U.S. dollar to the peso exchange rate increased 59% compared to 2018 and so far in 2020 it increased by 31%.We cannot predict future fluctuations in the exchange rate of the Argentine Peso or whether the Argentine government will change its currency policy.
 
Historically, the Brazilian currency has historically suffered frequent fluctuations. As a consequence of inflationary pressures, in the past, the Brazilian government has implemented several economic plans and adopted a series of exchange rate policies, including sudden devaluations, periodic mini-devaluations during whichthe frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. Formally the value of the Real against foreign currencies is determined under a free-floating exchange rate regime, but in fact the Brazilian government is currently intervening in the market, through currency swaps and trading in the spot market, among other measures, every time the currency exchange rate is above or below the levels that the Brazilian governmentconsiders appropriate, taking into account, inflation, growth, the performance of the Real against the U.S dollar in comparison with other currencies and other economic factors. Periodically, there are significant fluctuations in the value of the Real against the U.S. dollar. During 2019, the Real depreciated 3.6% against the U.S. dollar and so far in 2020, the Real depreciated 28% against the U.S.dollar
 
The Israeli currency did not suffer important fluctuations during the last years. During 2019, NIS apreciated 5.3% against the U.S. dollar. During 2020, it remained the same without significant fluctuations.
 
Future fluctuations in the value of the local currencies relative to the U.S. dollar in the countries in which we operate may occur, and if such fluctuations were to occur in one or a combination of the countries in which we operate, our results of operations or financial condition could be adversely affected.
 
Inflation and certain government measures to curb inflation may have adverse effects on the economies of the countries where we operate or intend to operate our business and our operations.
 
In the past, high levels of inflation have adversely affected the economies and financial markets of some of the countries in which we operate, particularly Argentina and Brazil, and the ability of their governments to create conditions that stimulate or maintain economic growth. Moreover, governmental measures to curb inflation and speculation about possible future governmental measures have contributed to the negative economic impact of inflation and have created general economic uncertainty. As part of these measures, governments have at times maintained a restrictive monetary policy and high interest rates that has limited the availability of credit and economic growth.
 
A portion of our operating costs in Argentina are denominated in Argentine Pesos, most of our operating costs in Brazil are denominated in Brazilian Reais and most of our operating costs in Israel are nominated in NIS. Inflation in Argentina, Brazil or Israel without a corresponding Peso, Real or NIS devaluation, could result in an increase in our operating costs without a commensurate increase in our revenues, which could adversely affect our financial condition and our ability to pay our foreign currency denominated obligations.
 
 
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After several years of price stability in Argentina, the devaluation of the Peso in January 2002 imposed pressures on the domestic price system that generated high inflation throughout 2002. In 2003, inflation decreased significantly and stabilized. However, in recent years, encouraged by the pace of economic growth, according to the Instituto Nacional de Estadisticas y Censos, or “INDEC” (Argentine Statistics and Census Agency), the consumer price index increased by 9.5% in 2011, 10.8% in 2012, and 10.9% in 2013; while the wholesale price index increased 10.3% in 2009, 14.6% in 2010, 12.7% in 2011, 13.1% in 2012, 14.7% in 2013 and 28.3% in 2014. The accuracy of the measurements of the INDEC has been questioned in the past, and the actual consumer price index and wholesale price index could be substantially higher than those indicated by the INDEC.
 
In February 2014 the INDEC modified the methodology for the calculation of the consumer price index (“CPI”) and the gross domestic product. Under the new calculation methodology, the CPI increased by 23.9% in 2014 and 11.9% as of October 2015 (for the first nine months of 2015). However, opposition lawmakers reported an inflation rate of 38.5% and 27.5%, respectively. In December 2015, the Macri administration appointed a former director of a private consulting firm to manage the INDEC. The new director initially suspended the publication of any official data prepared by INDEC and implemented certain methodological reforms and adjusted certain indices based on those reforms. In January 25, 2016, INDEC published two alternative measures of the CPI for the year 2015, 29.6% and 31.6%, which were based on data from the City of Buenos Aires and the Province of San Luis. After implementing these methodological reforms in June 2016, the INDEC resumed its publication of the consumer price index.
 
Brazil has historically experienced high rates of inflation. Inflation, as well as government efforts to curb inflation, has had significant negative effects on the Brazilian economy, particularly prior to 1995. Inflation rates were 7.8% in 2007 and 9.8% in 2008, compared to deflation of 1.7% in 2009, inflation of 11.3% in 2010, inflation of 5.1% in 2011, inflation of 7.8% in 2012, inflation of 5.5% in 2013, inflation of 3.7% in 2014, inflation of 10.5% in 2015, 7.2% in 2016, (0.53)% in 2017 and 5.39% for the first six months of 2018, as measured by the General Market Price Index (Indice Geral de Preços — Mercado), compiled by the Getúlio Vargas Foundation (Fundação Getúlio Vargas). A significant proportion of our cash costs and our operating expenses are denominated in Brazilian Reais and tend to increase with Brazilian inflation. The Brazilian government’s measures to control inflation have in the past included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and reducing economic growth. This policy has changed in the last two years, when the Brazilian government decreased the interest rate by 525 basis points. Subsequently, the high inflation, arising from the lower interest rate, and the intention to maintain this rate at low levels, led the Brazilian government to adopt other measures to control inflation, such as tax relief for several sectors of the economy and tax cuts for the products included in the basic food basket. These measures were not sufficient to control the inflation, which led the Brazilian government to reinstate a tighter monetary policy. As a result, interest rates have fluctuated significantly. The Special System for Settlement and Custody (Sistema Especial de Liquidação e Custódia, or “SELIC”) interest rate in Brazil at year-end was 10.0% in 2013, 11.75% in 2014, 14.25% in 2015, 13.75% in 2016, 7% in 2017 and 6.75% in 2018 as determined by the Comitê de Política Monetária, or COPOM. As of June 30, 2020, the SELIC was 6.00%.
 
Supply problems at our farms and processing facilities and impair our ability to deliver our products to our customers in a timely manner Argentina and/or Brazil may experience high levels of inflation in the future, which may impact domestic demand for our products. Inflationary pressures may also weaken investor confidence in Argentina and/or Brazil, curtail our ability to access foreign financial markets and lead to further government intervention in the economy, including interest rate increases, restrictions on tariff adjustments to offset inflation, intervention in foreign exchange markets and actions to adjust or fix currency values, which may trigger or exacerbate increases in inflation, and consequently have an adverse impact on us. In an inflationary environment, the value of uncollected accounts receivable, as well as of unpaid accounts payable, declines rapidly. If the countries in which we operate experience high levels of inflation in the future and price controls are imposed, we may not be able to adjust the rates we charge our customers to fully offset the impact of inflation on our cost structures, which could adversely affect our results of operations or financial condition.
 
 
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Depreciation of the Peso or the Real relative to the U.S. Dollar or the Euro may also create additional inflationary pressures in Argentina or Brazil that may negatively affect us. Depreciation generally curtails access to foreign financial markets and may prompt government intervention, including recessionary governmental policies. Depreciation also reduces the U.S. Dollar or Euro value of dividends and other distributions on our common shares and the U.S. Dollar or Euro equivalent of the market price of our common shares. Any of the foregoing might adversely affect our business, operating results, and cash flow, as well as the market price of our common shares.
 
Conversely, in the short term, a significant increase in the value of the Peso or the Real against the U.S. Dollar would adversely affect the respective Argentine and/or Brazilian government’s income from exports. This could have a negative effect on GDP growth and employment and could also reduce the public sector’s revenues in those countries by reducing tax collection in real terms, as a portion of public sector revenues are derived from the collection of export taxes.
 
Developments in other markets may affect the Latin American countries where we operate or intend to operate, and as a result our financial condition and results of operations may be adversely affected.
 
The market value of securities of companies such as us may be, to varying degrees, affected by economic and market conditions in other global markets. Although economic conditions vary from country to country, investors’ perception of the events occurring in one country may substantially affect capital flows into and securities from issuers in other countries, including latin american countries. Various Latin American economies have been adversely impacted by the political and economic events that occurred in several emerging economies in recent times. Furthermore, Latin American economies may be affected by events in developed economies which are trading partners or that impact the global economy and adversely affect our activities and the results of our operations.
 
Land in Latin American countries may be subject to expropriation or occupation.
 
Our land may be subject to expropriation by the governments of the countries where we operate and intend to operate. An expropriation could materially impair the normal use of our lands or have a material adverse effect on our results of operations. In addition, social movements, such as Movimento dos Trabalhadores Rurais Sem Terra and Comissão Pastoral da Terra in Brazil, are active in certain countries where we operate or intend to operate. Such movements advocate land reform and mandatory property redistribution by governments. Invasions and occupations of rural areas by a large number of individuals is common practice for these movements, and, in certain areas, including some of those in which we are likely to invest, police protection and effective eviction proceedings are not available to land owners. As a result, we cannot assure you that our properties will not be subject to invasion or occupation. A land invasion or occupation could materially affect the normal use of our properties or have a material adverse effect on us or the value of our common shares and our ADSs.
 
We may invest in countries other than Argentina and Brazil and cannot give you any assurance as to the countries in which we will ultimately invest, and we could fail to list all risk factors for each possible country.
 
We have a broad and opportunistic business strategy therefore we may invest in countries other than Argentina, Brazil and Israel including countries in other emerging markets outside Latin America (e.g., Africa). As a result, it is not possible at this time to identify all risk factors that may affect our future operations and the value of our common shares and ADSs.
 
Disruption of transportation and logistics services or insufficient investment in public infrastructure could adversely affect our operating results.
 
One of the principal disadvantages of the agricultural sector in the countries in which we operate is that key growing regions lie far from major ports. As a result, efficient access to transportation infrastructure and ports is critical to the growth of agriculture as a whole in the countries in which we operate and of our operations in particular. Improvements in transportation infrastructure are likely to be required to make more agricultural production accessible to export terminals at competitive prices. A substantialportion of agricultural production in the countries in which we operate is currently transported by truck, a means of transportation significantly more expensive than the rail transportation available to U.S. and other international producers. Our dependence on truck transportation may affect our position as a low-cost producer so that our ability to compete in the world markets may be impaired.
 
 
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Even though road and rail improvement projects have been considered for some areas of Brazil, and in some cases implemented, substantial investments are required for road and rail improvement projects, which may not be completed on a timely basis, if at all. Any delay or failure in developing infrastructure systems could reduce the demand for our products, impede our products’ delivery or impose additional costs on us. We currently outsource the transportation and logistics services necessary to operate our business. Any disruption in these services could result in supply problems at our farms and processing facilities and impair our ability to deliver our products to our customers in a timely manner.
  
The result of our operations are dependent upon economic conditions in Paraguay, in which we operate, and any decline in economic conditions could harm our results of operations or financial condition.
 
As of June 30, 2020, 6.7% of our assets were located in Paraguay. Paraguay has a history of economic and political instability, exchange controls, frequent changes in regulatory policies, corruption, and weak judicial security. However, in 2013, Paraguay had the highest GDP growth rate in Latin America and the third highest in the world with 14%. Since then, GDP has grown by 4% in 2014, 3% in 2015, 3.8% in 2016, 4.3% in 2017,3.6% in 2018 and 0.2% in 2019. The Paraguay’s GDP is closely related to the performance of the Paraguayan agricultural sector, which can be volatile and could adversely affect our business, financial condition and results of operations.
 
The exchange rate of Paraguay is free and floating and the Central Bank of Paraguay participates actively in the exchange market in order to reduce volatility. In 2018, the Paraguayan currency appreciated against the dollar by 6.7%, while in 2019 the appreciation was 8.26%. A significant depreciation of the local currency could adversely affect our business, financial condition and results of operations. However, since most of our costs of raw materials and supplies are denominated in U.S. dollars, a significant depreciation of the local currency could adversely affect our business, financial condition and results of operations, as well as impact other expenses, such as as professional fees and maintenance costs.
 
In addition, a significant deterioration in the economic growth of Paraguay or any of its main trading partners, such as Brazil or Argentina, could have a material impact on the trade balance of Paraguay and could adversely affect their economic growth, which could adversely affect our business, financial condition and results of operations.
 
The result of our operations are dependent upon economic conditions in Bolivia, in which we operate, and any decline in economic conditions could harm our results of operations or financial condition.
 
As of June 30, 2020, 5.8% of our assets were located in Bolivia. Bolivia is exposed to frequent has a history of economic, social and political instability, exchange controls, frequent changes in regulatory frameworks policies, civic and labour strikes, high tax rates and corruption among state officials, the judiciary and also the private sector.
 
Bolivia is exposed to high risk of social unrest, causing marches and roadblocks deployed by protesters to pressure the government, increasing disruption risks. Furthermore, protests over environmental issues often overlap significantly with labour disputes, which can escalate into disruptive forms of protest, including site occupations.
 
In turn, the Bolivian economy is the 14th largest in Latin America and is heavily dependent on export commodities such as natural gas and minerals. Bolivia’s GDP growth over the last decade has been among the highest in Latin America, growing by 4.9% in 2015, 4.3% in 2016,4.2% in 2017, 4.2% in 2018 and 2.2% in 2019, also. Within this context, inflation has been relatively low and under control for the last 30 years. The inflation rate for 2019 was around 1.47% with a slightly higher figure expected for 2020. In addition, Bolivia it is in the process of becoming an active partner of MERCOSUR, a common market aiming to gradually integrate economic activity among Brazil, Argentina, Uruguay, Paraguay and Bolivia.
 
A significant deterioration in the global and internal macroeconomics, political stability or social unrest of Bolivia, could have a material impact on their economic growth, which could adversely affect our business, financial condition and results of operations. On October 18, 2020, Bolivia’s general elections were held, with the aim of electing e President, Vice-President and deputies of the country. Luis Arce, belonging to the Movement to Socialism (MAS) was elected in the first round, with 54.41% of the votes. The elections were announced by Bolivia’s former president, Evo Morales, on November 10, 2019, hours before his resignation. They were scheduled to be held on May 3, 2020, but due to the outbreak of the COVID-19 pandemic elections had to be postponed to the aforementioned date.
 
 
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Risks Relating to Our Agricultural Business
  
Fluctuation in market prices for our agriculture products could adversely affect our financial condition and results of operations.
 
Prices for crops, oilseeds and by-products, like those of other commodities, have historically been cyclical and sensitive to domestic and international changes in supply and demand and can be expected to fluctuate significantly. In addition, the agricultural products and by-products we produce are traded on commodities and futures exchanges and thus are subject to speculative trading, which may adversely affect us. The prices that we are able to obtain for our agriculture products depend on many factors beyond our control, including: 
 
prevailing world prices, which historically have been subject to significant fluctuations over relatively short periods of time, depending on worldwide demand and supply;
 
changes in the agricultural subsidy levels in certain important countries (mainly the United States and countries in the European Union) and the adoption of other government policies affecting industry market conditions and prices;
 
changes to trade barriers of certain important consumer markets (including China, India, the U.S. and the E.U.) and the adoption of other governmental policies affecting industry market conditions and prices;
 
changes in government policies for biofuels;
 
world inventory levels, i.e., the supply of commodities carried over from year to year;
 
climatic conditions and natural disasters in areas where agricultural products are cultivated;
 
the production capacity of our competitors; and
 
demand for and supply of competing commodities and substitutes.
 
Unpredictable weather conditions, pest infestations and diseases may have an adverse impact on our crop yields and cattle production.
 
The occurrence of severe adverse weather conditions, especially droughts, hail, or floods, is unpredictable and may have a potentially devastating impact upon our crop production and, to a lesser extent, our cattle and wool production, and may otherwise adversely affect the supply and price of the agricultural commodities that we sell and use in our business. The occurrence of severe adverse weather conditions may reduce yields on our farmlands or require us to increase our level of investment to maintain yields. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of pest and insects that may adversely impact our agricultural production.
 
According to the United States Department of Agriculture (“USDA”) estimates, Argentina’s crops output (wheat, corn and soybean) for the 2017/2018 season is expected to decrease by 23%, reaching a production of 87.8 million tons, as compared to the previous cycle. The forecast shows mainly an increase in the planted area, with a focus on wheat and corn, which is additionally enhanced by a slightly better expected yield in comparison with the 2016/2017 campaign. The estimated production of soybean is supposed to reach 37.8 million tons, the wheat production 18 million tons and the corn production 32 million tons.
 
The occurrence and effects of disease and plagues can be unpredictable and devastating to agricultural products, potentially rendering all or a substantial portion of the affected harvests unsuitable for sale. Our agricultural products are also susceptible to fungus and bacteria that are associated with excessively moist conditions. Even when only a portion of the production is damaged, our results of operations could be adversely affected because all or a substantial portion of the production costs have been incurred. Although some diseases are treatable, the cost of treatment is high, and we cannot assure you that such events in the future will not adversely affect our operating results and financial condition. Furthermore, if we fail to control a given plague or disease and our production is threatened, we may be unable to supply our main customers, which could affect our results of operations and financial condition.
 
As a result, we cannot assure you that the current and future severe adverse weather conditions or pest infestations will not adversely affect our operating results and financial condition.
 
 
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Our cattle are subject to diseases.
 
Diseases among our cattle herds, such as mastitis, tuberculosis, brucellosis and foot-and-mouth disease, can have an adverse effect on fattening production, rendering cows unable to produce meat for human consumption. Outbreaks of cattle diseases may also result in the closure of certain important markets, such as the United States, to our cattle products. Although we abide by national veterinary health guidelines, which include laboratory analyses and vaccination, to control diseases among the herds, especially foot-and-mouth disease, we cannot assure that future outbreaks of cattle diseases will not occur. A future outbreak of diseases among our cattle herds may adversely affect our cattle sales which could adversely affect our operating results and financial condition.
 
In addition, outbreaks, or fears of outbreaks, of any of these or other animal diseases can lead to the cancellation of our customers’ orders and, particularly if the disease can affect humans, or create adverse publicity that can have adverse material effect in the consumer demand of our products. In addition, animal disease outbreaks may result in foreign government actions to close the export markets of some or all of our products, which may result in the destruction of some or all of these animals.
 
We may be exposed to material losses due to volatile crop prices since a significant portion of our production is not hedged, and exposed to crop price risk.
 
Due to the fact that we do not have all of our crops hedged, we are unable to have minimum price guarantees for all of our production and are therefore exposed to significant risks associated with the level and volatility of crop prices. We are subject to fluctuations in crop prices which could result in receiving a lower price for our crops than our production cost. We are also subject to exchange rate risks related to our crops that are hedged, because our futures and options positions are valued in U.S. Dollars, and thus are subject to exchange rate risk.
 
In addition, if severe weather or any other disaster generates a lower crop production than the position already sold in the market, we may suffer material losses in the repurchase of the sold contracts.
 
The creation of new export taxes may have an adverse impact on our sales and results of operations.
 
In order to prevent inflation and variations in the exchange rate from adversely affecting prices of primary and manufactured products (including agricultural products), and to increase tax collections and reduce Argentina’s fiscal deficit, the Argentine government has imposed new taxes on exports. Pursuant to Resolution No. 11/02 of the Ministry of Economy and Production, as amended by Resolution No. 35/02, No. 160/2002, No. 307/2002 and No. 530/2002, effective as of March 5, 2002, the Argentine government imposed a 20%, 10% and 5% export tax on primary and manufactured products. On November 12, 2005, pursuant to Resolution No. 653/2005, the Ministry of Economy and Production increased the tax on cattle exports from 5% to 10%, and on January 2007 increased the tax on soybean exports from 23.5% to 27.5%. Pursuant to Resolutions No. 368/07 and No. 369/07 both dated November 12, 2007, the Ministry of Economy and Production further increased the tax on soybean exports from 27.5% to 35.0% and also the tax on wheat and corn exports from 20.0% to 28.0% and from 20.0% to 25.0%, respectively. In early March 2008, the Argentine government introduced a regime of sliding –scale export tariffs for oilseed, grains and by-products, where the withholding rate (in percentage) would increase to the same extent as the crops’ price. Therefore, it imposed an average tax for soybean exports of 46%, compared to the previous fixed rate of 35%. In addition, the tax on exports of wheat was increased, from a fixed rate of 28% to an average variable rate of 38%, and the tax on exports of corn changed from a fixed rate of 25% to an average variable rate of 36%. This tariff regime, which according to farmers effectively sets a maximum price for their crops, sparked widespread strikes and protests by farmers whose exports have been one of the principal driving forces behind Argentina’s recent growth. In April 2008, as a result of the export tariff regime, farmers staged a 21-day strike in which, among other things, roadblocks were set up throughout the country, triggering Argentina’s most significant political crisis in five years. These protests disrupted transport and economic activity, which led to food shortages, a surge in inflation and a drop in export registrations. Finally, the federal executive branch decided to send the new regime of sliding-scale export tariffs to the federal congress for its approval. The project was approved in the lower chamber of the national congress but rejected by the Senate. Subsequently, the federal government abrogated the regime of sliding-scale export tariffs and reinstated the previous scheme of fixed withholdings.
 
 
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In December 2015, the government of Mauricio Macri announced the reduction of 35 to 30% of export duties on soybean and the removing of all of the export duties for the rest of the products. To the date, the Argentine government is analyzing the possibility of reducing again the tax for soybean exports. In addition, Decree 1343/17 implemented a monthly reduction of 0.5% of the export duty in force on soybean, wheat and soybean oil from January 2018 to December 2019 inclusive.
 
On September 4, 2018, pursuant to Decree 793/2018, the Argentine Government restablished, until December 31, 2020, a 12% export tax on goods and services included in the MERCOSUR Common Nomenclature with a cap of ARS 3 for each dollar of taxable value or the official FOB price, as appropriate, for the goods and services set forth in Annex I of the aforementioned decree and of ARS 4 for all other manufactured products.
 
On December 28, 2018, the Argentine government issued Decree No. 1201/2018, which establishes, until December 31, 2020, an export tax of 12% to the export of services rendered in the country, whose effective use or exploitation is carried out abroad and establishes that said export duty may not exceed ARS 4 for each U.S. dollar of the taxable value. If applicable, that limit will remain in pesos until the obligation is canceled. The measure took effect on January 1, 2019 and will take effect for operations that are lent and billed as of that date. We cannot assure that in case of assuming a new government, retention rates could be increased, mainly for exports of primary products and that such taxes could have an adverse impact on our financial condition and results of operations.
 
Export taxes may have a material adverse effect on our sales and results of operations. We produce exportable goods and, therefore, an increase in export taxes is likely to result in a decrease in our products’ price, and, therefore, may result in a decrease of our sales. We cannot guarantee the impact of those or any other future measures that might be adopted by the Argentine government on our financial condition and result of operations.
 
We may face risks associated with land-takings in Argentina.
 
Land-taking is a long-standing problem in Argentina that has escalated throughout the years with every economic crisis, especially now in the context of the COVID-19 economic crisis.
 
The most serious problem arises in the province of Buenos Aires, the most densely populated in the country, where there were already more than 1,800 land usurpations so far this year, according to estimates by the local Ministry of Security. The most notorious case being the usurpation of Guernica’s lands, the largest land take, which began on July 2020, in the department of Presidente Perón, in the outskirts of the city of Buenos Aires. It is estimated that around 3,000 people, especially young people and some families, occupied this private area in the absence of intervention by the authorities. Land neighbors reported increased insecurity and theft of electricity by occupants. On October 29, more than 4,000 troops under the direction of Sergio Berni, Security Minister of the Province of Buenos Aires, carried out the eviction from Guernica’s lands, property usurped since the beginning of July. After almost 100 days, negotiations between provincial authorities and usurpers failed and as a consequence, the Security Minister carried out the above mentioned eviction, resulting in several injuries and detainees. After two hours of operation, the lands were completely liberated.
 
Another relevant land usurpation problem, which has been going on for three years, in southern Argentina, near the city of San Carlos de Bariloche, in the Patagonian province of Rio Negro, relates to groups identified with the Mapuche indigenous people who have occupied what they consider ancestral lands and have broken into properties in the area.
 
The spread of land takes has revived in Argentina an old debate in Argentina. There is a conflict between two groups that claim, on the one hand, a right to decent housing, and on the other hand a group that claims that the right to private property should be respectedArgentina's constant and cyclical economic crises over the past 50 years have also caused poverty to rise sharply, so less people can access a roof, resulting in a housing deficit
 
As a consequence, we cannot provide assurance that government responses to such disruptions will restore investor confidence in Argentine lands, which could have an adverse impact on our financial condition and results of operations.
 
 
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