PROSPECTUS DATED 31 JULY 2017 CAP Holding S.P.A. (Incorporated

PROSPECTUS DATED 31 JULY 2017

CAP Holding S.p.A. (incorporated with limited liability under the laws of the Republic of Italy)

EUR 40,000,000 1.98 per cent. Instalment Notes due 2 August 2024

The issue price of the EUR 40,000,000 1.98 per cent. Instalment Notes due 2 August 2024 (the "Notes") of CAP Holding S.p.A. (the "Issuer") is 100 per cent. of their principal amount.

Unless previously redeemed or cancelled, the Notes will be redeemed in seven annual instalments commencing on 2 August 2018. The Notes are subject to redemption in whole at their principal amount at the option of the Issuer at any time in the event of certain changes affecting taxation in the Republic of Italy. In addition, each holder of a Note may require the Issuer to redeem such Note at their principal amount upon the occurrence of a Put Event (as defined below). See "Terms and Conditions of the Notes—Redemption and Purchase".

The Notes will bear interest from 2 August 2017 at the rate of 1.98 per cent. per annum payable annually in arrear on 2 August each year commencing on 2 August 2018. Interest payments to certain Noteholders may be subject to Italian substitute tax (imposta sostitutiva) as more fully described in "Terms and Conditions of the Notes—Taxation".

This Prospectus has been approved by the Central Bank of Ireland (the "Central Bank"), as competent authority under Directive 2003/71/EC, as amended (the "Prospectus Directive"). The Central Bank only approves this Prospectus as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the official list and trading on the Main Securities Market. The Main Securities Market is a regulated market for the purposes of Directive 2004/39/EC of the European Parliament and the Council on markets in financial instruments. The Prospectus comprises a Prospectus for the purposes of the Prospectus Directive.

The Notes have not been, and will not be, registered under the United States Securities Act of 1933 (the "Securities Act") and are subject to United States tax law requirements. The Notes are being offered outside the United States by the Lead Manager in accordance with Regulation S under the Securities Act ("Regulation S"), and may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

The Notes will be in bearer form and in the denomination of EUR 100,000 and integral multiples of EUR 1,000 in excess thereof up to and including EUR 199,000. The Notes will initially be in the form of a temporary global note (the "Temporary Global Note"), without instalment receipts and interest coupons, which will be deposited on or around 2 August 2017 (the "Closing Date") with a common safekeeper for Euroclear Bank S.A./N.V. ("Euroclear") and Clearstream Banking, société anonyme, Luxembourg ("Clearstream, Luxembourg"). The Temporary Global Note will be exchangeable, in whole or in part, for interests in a permanent global note (the "Permanent Global Note"), without instalment receipts and interest coupons, not earlier than 40 days after the Closing Date upon certification as to non-U.S. beneficial ownership. Interest payments in respect of the Notes cannot be collected without such certification of non-U.S. beneficial ownership. The Permanent Global Note will be exchangeable in certain limited circumstances in whole, but not in part, for Notes in definitive form in the denomination of EUR 100,000 and integral multiples of EUR 1,000 in excess thereof up to and including EUR 199,000 and with interest coupons attached. See "Summary of Provisions Relating to the Notes in Global Form".

Investing in the Notes involves risks. For a discussion of these risks, see "Risk Factors" beginning on page 4.

Lead Manager

UniCredit Bank

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IMPORTANT NOTICES

The Issuer accepts responsibility for the information contained in this Prospectus and declares that, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus to the best of its knowledge is in accordance with the facts and contains no omission likely to affect its import.

The language of the Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.

Certain information contained in this Prospectus under the headings "Description of the Issuer – Overview" relating to the market position of the Issuer and its subsidiaries (the "Group") and "Description of the Issuer – Business – Aqueduct" relating to the Italian national average of aqueduct networks technical losses was derived from the Blue Book 2017 prepared by Fondazione Utilitatis and CENSIS, respectively. The Issuer does not accept any responsibility for the accuracy of such information, nor has the Issuer independently verified any such information. The Issuer confirms that this information has been accurately reproduced, and so far as the Issuer is aware and is able to ascertain from information available from such sources, no facts have been omitted which would render the reproduced information inaccurate or misleading.

The Issuer has confirmed to the Lead Manager that this Prospectus contains all information regarding the Issuer and the Notes which is (in the context of the issue of the Notes) material; such information is true and accurate in all material respects and is not misleading in any material respect; any opinions, predictions or intentions expressed in this Prospectus on the part of the Issuer are honestly held or made and are not misleading in any material respect; this Prospectus does not omit to state any material fact necessary to make such information, opinions, predictions or intentions (in such context) not misleading in any material respect; and all proper enquiries have been made to ascertain and to verify the foregoing.

The Issuer has not authorised the making or provision of any representation or information regarding the Issuer or the Notes other than as contained in this Prospectus or as approved for such purpose by the Issuer. Any such representation or information should not be relied upon as having been authorised by the Issuer or the Lead Manager.

Neither the Lead Manager nor any of its affiliates have authorised the whole or any part of this Prospectus and none of them makes any representation or warranty or accepts any responsibility as to the accuracy or completeness of the information contained in this Prospectus. Neither the delivery of this Prospectus nor the offering, sale or delivery of any Note shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer since the date of this Prospectus.

This Prospectus does not constitute an offer of, or an invitation to subscribe for or purchase, any Notes.

The distribution of this Prospectus and the offering, sale and delivery of Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer and the Lead Manager to inform themselves about and to observe any such restrictions. For a description of certain restrictions on offers, sales and deliveries of Notes and on distribution of this Prospectus and other offering material relating to the Notes, see "Subscription and Sale".

In particular, the Notes have not been and will not be registered under the Securities Act and are subject to United States tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or delivered within the United States or to U.S. persons.

In this Prospectus, unless otherwise specified, references to a "Member State" are references to a Member State of the European Economic Area, references to "EUR" or "euro" are to the currency introduced at the start of the third stage of European economic and monetary union, and as defined in Article 2 of Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro, as amended. References to "billions" are to thousands of millions.

Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.

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In connection with the issue of the Notes, UniCredit Bank AG (the "Stabilisation Manager(s)") (or persons acting on behalf of any Stabilisation Manager(s)) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, stabilisation may not necessarily occur. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may cease at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilisation action or over-allotment must be conducted by the relevant Stabilisation Manager(s) (or person(s) acting on behalf of any Stabilisation Manager(s)) in accordance with all applicable laws and rules.

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PRESENTATION OF FINANCIAL INFORMATION

Financial information of the Issuer

This Prospectus includes the audited annual consolidated financial statements of the Issuer as of 31 December 2016 and 2015, and for the years then ended, which have been prepared by management in accordance with Italian laws and regulations governing the preparation of financial statements, as interpreted and integrated by the accounting principles established by the Organismo Italiano di Contabilità (the "Italian GAAP") and have been audited by BDO Italia S.p.A (the "Auditors").

Starting from the current financial year ending 31 December 2017, the Issuer expects to prepare its consolidated annual financial statements in accordance with the International Financial Reporting Standards as adopted by the European Commission ("IFRS"). Accordingly, the consolidated financial statements of the Issuer as at and for the year ended 31 December 2016 have been restated in conformity with IFRS solely for the purpose of its inclusion in the Prospectus (the "Special Purpose Audited IFRS Consolidated Financial Statements"). The Special Purpose Audited IFRS Consolidated Financial Statements have been audited by the Auditors. The Special Purpose Audited IFRS Consolidated Financial Statements and the relevant independent auditor's report are attached as the Appendix to this Prospectus.

Certain audited financial information of the Issuer as at and for the year ended 31 December 2016 extracted from the Special Purpose Audited IFRS Consolidated Financial Statements has been included in this Prospectus, together with a table to show differences between financial information prepared in accordance with Italian GAAP and IFRS and a discussion of such differences (see "Selected Financial Information - Summary of certain differences between Italian GAAP and IFRS"). Such paragraph does not include a full qualitative or detailed quantitative disclosure of the differences between Italian GAAP and IFRS applicable to the Issuer; accordingly, undue reliance should not be placed on the completeness of such disclosure. Each prospective investor should consult its own professional advisors for an understanding of the differences between Italian GAAP and IFRS and how those differences might affect the financial information included in this Prospectus.

Except where otherwise indicated, financial information relating to the Issuer included in this Prospectus has been prepared in accordance with Italian GAAP.

Alternative Performance Measures

The Prospectus and the documents incorporated by reference hereto contain certain measures ("non- GAAP measures") that are not based on generally accepted accounting principles ("GAAP") and which constitute alternative performance measures (each an "APM"). The APMs differ from the financial measures obtained directly from the audited consolidated financial statements of the Issuer as at and for the years ended 31 December 2016 and 31 December 2015 and are considered useful in presenting the results and the financial performance of the Issuer.

In line with the European Securities and Markets Authority’s Guidelines on Alternative Performance Measures (ESMA/2015/1415) concerning the presentation of APMs disclosed in regulated information and prospectuses, the criteria used to construct the APMs are as follows:

"EBITDA" is calculated as profit or loss for the year adjusted for the following line items: (i) current, deferred and advanced taxes on the income, (ii) total adjustments, (iii) total financial income and expenses, (iv) amortisation, depreciation and write-downs, (v) provisions for risks and (vi) other provisions, as derived from the Issuer’s audited consolidated financial statements as at and for the years ended 31 December 2016 and 2015, prepared pursuant to Italian GAAP.

"EBIT" is calculated as profit or loss for the year adjusted for (i) current, deferred and advanced taxes on the income, (ii) total adjustments, (iii) total financial income and expenses, as derived from the Issuer’s audited consolidated financial statements as at and for the years ended 31 December 2016 and 2015, prepared pursuant to Italian GAAP.

The following table sets forth a calculation of the Group’s EBIT and EBITDA for the years ended 31 December 2016 and 2015:

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Italian GAAP For the year ended 31 December 2016 2015 (€ in thousands)

Profit for the year 29,483 20,401 Current and deferred income taxes for the year 16,615 16,644 Total adjustments 530 1,123 Total financial income and costs 4,815 4,007 EBIT 51,443 42,175 Amortisation, depreciations and write-downs 61,783 60,689 Provision for risks 1,722 2,209 Other provisions 2,337 1,916

EBITDA 117,285 106,989

The Issuer believes these non-GAAP measures are useful and a commonly used measures of financial performance in addition to profit for the period and other profitability measures under applicable GAAP, because they facilitate operating performance comparisons from period to period, time to time and company to company. By eliminating potential differences between periods or companies caused by factors such as depreciation and amortisation methods, financing and capital structures, taxation positions or regimes, the Issuer believes these non-GAAP measures can provide a useful additional basis for comparing the current performance of the underlying operations being evaluated. For these reasons, the Issuer believes these non-GAAP measures and similar measures are regularly used by the investment community as a means of comparison of companies in its industry.

It should be noted that these non-GAAP financial measures are not recognised as a measure of performance under GAAP and should not be recognised as an alternative to operating income or net income or any other performance measures recognised as being in accordance with any GAAP. These non-GAAP financial measures are used by management to monitor the underlying performance of the business and operations. These measures are not indicative of the historical operating results of the Issuer, nor are they meant to be predictive of future results. Since all companies do not calculate these measures in an identical manner, the Issuer’s presentation may not be consistent with similar measures used by other companies. Therefore, undue reliance should not be placed on such data.

In addition, prospective investors should note that EBITDA, as defined and calculated in this paragraph and in "Description of the Issuer", may differ from the definition of "Consolidated EBITDA" in the Terms and Conditions of the Notes that will be used for the purposes of determining the Issuer’s compliance with the financial covenants set forth in the Terms and Conditions of the Notes, starting from the audited annual consolidated financial statements of the Issuer as of and for the year ended 31 December 2017.

Forward-looking Statements

This Prospectus may contain certain statements that are, or may be deemed to be, forward-looking, including statements with respect to the Issuer’s business strategies, expansion of operations, trends in their business and their competitive advantage, information on technological and regulatory changes and information on exchange rate risk and generally includes all statements preceded by, followed by or that include the words "believe", "expect", "project", "anticipate", "seek", "estimate", "aim", "intend", "plan", "continue" or similar expressions. By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward- looking statements as a result of various factors. Potential investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof.

Any forward-looking statements are only made as of the date of this Prospectus, and the Issuer does not intend, and does not assume any obligation, to update forward-looking statements set forth in this Prospectus. Many factors may cause the Issuer’s results of operations, financial condition, liquidity and the development of the industries in which they compete to differ materially from those expressed or implied by the forward-looking statements contained in this Prospectus.

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The risks described under "Risk Factors" in this Prospectus are not exhaustive. Other sections of this Prospectus describe additional factors that could adversely affect the Issuer’s results of operations, financial condition, liquidity and the development of the industries in which they operate. New risks can emerge from time to time, and it is not possible for the Issuer to predict all such risks, nor can the Issuer assess the impact of all such risks on its business or the extent to which any risks, or combination of risks and other factors, may cause actual results to differ materially from those contained in any forward- looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results.

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INFORMATION INCORPORATED BY REFERENCE

The following information has been filed with the Central Bank and the Irish Stock Exchange and shall be deemed to be incorporated in, and to form part of, this Prospectus provided however that any statement contained in any document incorporated by reference in, and forming part of, this Prospectus shall be deemed to be modified or superseded for the purpose of this Prospectus to the extent that a statement contained herein modifies or supersedes such statement:

(i) the audited annual consolidated financial statements of the Issuer as of and for the year ended 31 December 2016 prepared in accordance with Italian GAAP, which can be found at http://www.gruppocap.it/FileFolder/c4337907-c08e-4155-b548- 245d23322578/File/Il%20Gruppo/Governance/Cap%20Holding/Bilanci/Consolidated%20Financ ial%20Statements%202016_audit%20report.pdf; and

(ii) the audited annual consolidated financial statements of the Issuer as of and for the year ended 31 December 2015 prepared in accordance with Italian GAAP, which can be found at http://www.gruppocap.it/FileFolder/c4337907-c08e-4155-b548- 245d23322578/File/Il%20Gruppo/Governance/Cap%20Holding/Bilanci/Consolidated%20Financ ial%20Statements%202015_audit%20report.pdf, in each case together with the accompanying notes and, where applicable, external auditors’ report.

In addition, such documents will be made available, free of charge, during usual business hours at the specified offices of the Fiscal Agent, unless such documents have been modified or superseded.

For ease of reference, the tables below set out the relevant page references for the consolidated financial statements, the notes to the consolidated financial statements and the Auditors' reports for the years ended 31 December 2016 and 31 December 2015 for the Issuer, as set out in the respective annual reports.

This Prospectus will be available, in electronic format, on the website of the Irish Stock Exchange (www.ise.ie).

The following table shows where the information incorporated by reference in this Prospectus can be found in the above-mentioned documents. Information contained in those documents other than the information listed below does not form part of this Prospectus, and is not relevant for an investor or is covered elsewhere in this Prospectus.

CAP Holding S.p.A. Audited consolidated financial statements of the Issuer prepared in accordance with Italian GAAP as of and for the years ended 31 December 2016 2015 Balance sheet ...... Pages 5-6 Pages 6-7 Income statement ...... Page 7 Page 8 Cash flow statement ...... Page 8 Page 9 Notes to Financial Statements ...... Pages 9-63 Pages 11-56 Auditors Report ...... Pages 64-66 Pages 57-59

The documents set out above are translated into English from the original Italian. The Issuer has accepted responsibility for the accuracy of such translations.

The audited financial statements of the Issuer as at and for the year ending 31 December 2017 and as at and for each 31 December thereafter will be prepared in accordance with IFRS. The Special Purpose Audited IFRS Consolidated Financial Statements and the relevant independent auditor's report are attached as the Appendix to this Prospectus.

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CONTENTS

Page

IMPORTANT NOTICES ...... ii PRESENTATION OF FINANCIAL INFORMATION ...... iv INFORMATION INCORPORATED BY REFERENCE ...... vii OVERVIEW ...... 2 RISK FACTORS ...... 4 TERMS AND CONDITIONS OF THE NOTES ...... 21 SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM ...... 39 DESCRIPTION OF THE ISSUER...... 42 KEY CONTRACTS AND CONCESSION...... 59 REGULATION ...... 67 SELECTED FINANCIAL INFORMATION ...... 78 USE OF PROCEEDS ...... 88 TAXATION ...... 89 SUBSCRIPTION AND SALE ...... 96 GENERAL INFORMATION ...... 98 APPENDIX ...... 100

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OVERVIEW

This overview must be read as an introduction to this Prospectus and any decision to invest in the Notes should be based on a consideration of the Prospectus as a whole, including the documents incorporated by reference.

Words and expressions defined in the "Terms and Conditions of the Notes" below or elsewhere in this Prospectus have the same meanings in this overview.

The Issuer: CAP Holding S.p.A., a joint stock company (società per azioni) incorporated with limited liability under the laws of the Republic of Italy.

Lead Manager: UniCredit Bank AG.

The Notes: EUR 40,000,000 1.98 per cent. Instalment Notes due 2 August 2024.

Issue Price: 100 per cent. of the principal amount of the Notes.

Issue Date: 2 August 2017.

Use of Proceeds: The Issuer will apply the proceeds from the sale of the Notes to fund its general corporate purposes, with specific reference to investments in the Integrated Water Service ("IWS") in accordance with the Group's investment plan for the period 2017-2021. See "Use of Proceeds" and "Description of the Issuer – Investments".

Interest: The Notes will bear interest from 2 August 2017 at a rate of 1.98 per cent. per annum payable annually in arrear on 2 August in each year commencing on 2 August 2018.

Status: The Notes constitute direct, general and unconditional obligations of the Issuer which will at all times rank pari passu among themselves and at least pari passu with all other present and future unsecured obligations of the Issuer, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application.

Form and Denomination: The Notes will be issued in bearer form in the denomination of EUR 100,000 and integral multiples of EUR 1,000 in excess thereof up to and including EUR 199,000.

The Temporary Global Note and the Permanent Global Note are to be issued in new global note form.

Final Redemption: 2 August 2024. Unless previously redeemed or purchased and cancelled, the Issuer will redeem the Notes on each Instalment Date specified in column A of Condition 6(a) (Redemption and Purchase – Redemption by amortisation and final redemption) (each an "Instalment Date" with the final Instalment Date being the "Maturity Date") in an aggregate amount equal to the principal payment set out in column B of Condition 6(a) (Redemption and Purchase – Redemption by amortisation and final redemption) (each, an "Instalment Amount"). The principal aggregate amount outstanding of the Notes shall be reduced, pro rata with respect to each outstanding Note, by the Instalment Amount for all purposes with effect from the relevant Instalment Date such that the aggregate principal amount outstanding of the Notes following such reduction shall be the amount set out in column C of Condition 6(a) (Redemption and Purchase – Redemption by amortisation and final redemption), unless the

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payment of the relevant Instalment Amount is improperly withheld or refused.

Tax Redemption: The Issuer may redeem the Notes, in whole but not in part, at a redemption price of 100% of the principal amount outstanding, plus accrued and unpaid interest to but excluding the relevant date of redemption, if the Issuer would become obligated to pay certain additional amounts as a result of certain changes in specified tax laws or certain other circumstances. See "Terms and Conditions of the Notes—Redemption and Purchase—Redemption for Taxation Reasons".

Redemption at the option of Upon the occurrence of a Put Event at any time, holders of each Noteholders: Note shall have the option to require the Issuer to redeem such Note at its principal amount together with interest accrued to the relevant date of redemption. See "Terms and Conditions of the Notes— Redemption and Purchase—Redemption at the option of Noteholders".

Negative Pledge: The terms of the Notes contain negative pledge provisions as further described in Condition 3 (Negative Pledge). See "Terms and Conditions of the Notes—Negative Pledge".

Financial Covenants: The terms of the Notes contain financial covenants as further described in Condition 4 (Financial Covenants). See "Terms and Conditions of the Notes—Financial Covenants".

Cross-Default: The terms of the Notes contain a cross default provision as further described in Condition 9(c) (Cross-default of Issuer or Material Subsidiary). See "Terms and Conditions of the Notes—Events of Default—Cross-default of Issuer or Material Subsidiary".

Withholding Tax: See "Terms and Conditions of the Notes—Taxation".

Governing Law: The Notes, the Fiscal Agency Agreement, the Deed of Covenant and the Subscription Agreement will be governed by English law.

Listing and Trading: Application has been made to the Irish Stock Exchange plc (the "Irish Stock Exchange" or "ISE") for the Notes to be admitted to the official list and trading on its regulated market (the "Main Securities Market").

Clearing Systems: Euroclear and Clearstream, Luxembourg

Selling Restrictions: See "Subscription and Sale".

Risk Factors: Investing in the Notes involves risks. See "Risk Factors".

Financial Information: See "Selected Financial Information".

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RISK FACTORS

Any investment in the Notes is subject to a number of risks. Prior to investing in the Notes, prospective investors should carefully consider risk factors associated with any investment in the Notes, the business of the Issuer and the industry in which it operates together with all other information contained in this Prospectus, including the information incorporated by reference and, in particular, the risk factors described below. Words and expressions defined in the "Terms and Conditions of the Notes" below or elsewhere in this Prospectus have the same meanings in this section, unless otherwise specified.

The following is not an exhaustive list or explanation of all risks which investors may face when making an investment in the Notes and should be used as guidance only. Additional risks and uncertainties relating to the Issuer that are not currently known to the Issuer or that it currently deems immaterial based on information currently available to it, may individually or cumulatively also have a material adverse effect on the business, prospects, results of operations and/or financial position of the Issuer and, if any such risk should occur, the price of the Notes may decline and investors could lose all or part of their investment. In addition, the order in which the risk factors are presented below is not intended to be indicative either of the relative likelihood that each risk will materialise or of the magnitude of their potential impact on the business, prospects, results of operations and/or financial position of the Issuer.

Investors should consider carefully whether an investment in the Notes is suitable for them in light of the information in this Prospectus and their personal circumstances, based upon their own judgement and upon the advice from such financial, legal and tax advisers as they may deem necessary.

Risks Relating To the Issuer

Factors affecting the Issuer's ability to fulfil its obligations under the Notes

The water business of the Issuer depends on the Concession Agreements

The Issuer’s business relates to the management and provision of an integrated water service ("IWS") (see "Description of the Issuer—Business"), to be exercised in compliance with the provisions of the Concession Agreements.

There are a number of events that may lead to early termination of the Metropolitan Area of Milan Concession, including if the Issuer fails to perform its obligations thereunder. Furthermore, the Monza Brianza Concession will cease to be effective upon termination of the Metropolitan Area of Milan Concession (see "Key Contracts and Concession").

In case of termination of the Metropolitan Area of Milan Concession for failure of the relevant "Optimal Territorial Area" (Ambito Territoriale Ottimale – "ATO"), or in case of termination of the Metropolitan Area of Milan Concession for public interest reasons, article 158 of Legislative Decree 163/2006 shall apply with reference to the earmarking of the sums paid to the operator in such cases.

In case of failure by the new operator to pay the termination value to the Issuer, as well as in case of termination, withdrawal or revocation of the Metropolitan Area of Milan Concession, the Issuer shall continue to operate the IWS under the Metropolitan Area of Milan Concession (with reference only to the ordinary services and without any obligation to carry out new investment) – save for investments identified by the ATO which cannot be postponed, together with the tools for the recovery of the related costs – with the extension of the Metropolitan Area of Milan Concession until the new operator proceeds with the payment of its obligations, in any case, prior to the termination of the applicable pro tempore period and within the limits of the applicable regulations.

Furthermore, cumulatively with any penalties and sanctions set out by national and regional laws, the Issuer shall also be subject to monetary penalties in case of failure to meet certain obligations under the Metropolitan Area of Milan Concession, unless such failure is due to force majeure events. The application of the above penalties and sanctions do not prejudice the right of the ATO Metropolitan Milan or ATO Monza Brianza to ask for further damages, if any, arising from the termination of the relevant Concession Agreement for Issuer’s default (see "Key Contracts and Concession").

Termination of any Concession Agreement, as well as the application of penalties, sanctions or damages thereunder, could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

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Risks relating to the investments to be carried out by the Issuer under the Investment Plan

In order to fulfil its obligations under the Concession Agreements, the Issuer is required, inter alia, to carry out the investments required under its investment plans pursuant to the Concession Agreements (see "Regulation"), including the Investment Plan (as defined in "Description of the Issuer—Business"). Failure to meet such investment programmes means that the penalties provided by the AEEGSI method and under the Metropolitan Area of Milan Concession shall apply (see "Key Contracts and Concession").

As required by the investment plans and the applicable regulatory framework, the Group has invested and will continue to invest in the development of water provision, sewage and purification plants and networks that it owns or operates under the Concession Agreements. There is no assurance that the investment strategies implemented by the Group will be successful, as they may be interrupted or delayed due to unforeseen difficulties related to the obtaining of environmental and/or administrative authorisations or the opposition of political groups or other organisations. In addition, the Group’s investment strategies under the investment plans may be influenced by changes in the price of equipment, materials and labour, as well as changes to the political or regulatory framework or the Group’s inability to raise funds at acceptable interest rates. Such delays could affect the ability of the Issuer to meet regulatory and other environmental performance standards as well as the obligations under the Concession Agreements and could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

The continued management of the IWS by the Issuer depends on its status as an in-house company

ATO Metropolitan Milan has directly entrusted the Issuer with the management of the IWS, without the need for a public tender process, due to the Issuer’s status as an in-house company of the Shareholding Municipalities, pursuant to art. 149-bis of Legislative Decree No. 152/2006 (the "Environmental Code") and art. 5 of the Public Contracts Code (please see "Regulation").

As a result of being an in-house company, the Shareholding Municipalities may exercise control over the Issuer similar (controllo analogo) to that exercised over its own activities (servizi), pursuant to which both strategic objectives and significant decisions of the Issuer are subject to the decisive influence of the Shareholding Municipalities.

The loss of the in-house requirements or a change in law, as well as a negative decision of the ATO Metropolitan Milan in relation to the management model for the IWS, may lead to an early termination of the relevant Concession Agreement.

The ATO Monza Brianza, in accordance with the agreement between the neighbouring municipalities (accordo interambito) of the ATO, signed the concession, dated 29 June 2016, with the Issuer responsible, as wholesaler, for the provision of part of the IWS (as defined under Legislative Decree 152/2006) relating to some "neighbouring areas" (zone di interambito).

In addition, the Monza Brianza Concession is strictly linked to Metropolitan Area of Milan Concession and it will cease to be effective upon termination of the Metropolitan Area of Milan Concession. In case of termination of the Metropolitan Area of Milan Concession for failure of the ATO, or in case of termination of the Metropolitan Area of Milan Concession for public interest reasons, article 158 of Legislative Decree 163/2006 shall apply with reference to the earmarking of the sums paid to the operator in such cases. In case of failure by the new operator to pay the termination value to the Issuer, as well as in case of termination, withdrawal or revocation of the Metropolitan Area of Milan Concession, the Issuer shall continue to operate the IWS under the Metropolitan Area of Milan Concession (with reference only to the ordinary services and without any obligation to carry out new investment), save for those investments identified by the ATO which cannot be postponed, together with the tools for the recovery of the related costs – with the extension of the Metropolitan Area of Milan Concession until the new operator proceeds with the payment of its obligations, in any case, prior to the termination of the applicable pro tempore period and within the limits of the applicable regulations (see "Key Contracts and Concession").

Nonetheless, in such a case, the early termination of each of the Concession Agreements could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

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Force majeure as well as other unforeseeable events may affect the economic and financial balance of the Issuer

The Concession Agreements will expire on 31 December 2033. If during the Concession Agreements’ lifespan extraordinary and unforeseeable circumstances (such as material increase in customers' default rates or natural disasters) occur which determine an alteration of the economic and financial balance of each of the Concession Agreements, the Issuer may ask for a rebalancing of the original economic and financial conditions, identifying expressly the measures required to ensure the restoration of balance and describing the circumstances that have led to the imbalance. Such measures must then be approved by the ATO Metropolitan Milan or the ATO Monza Brianza, as applicable, and by the AEEGSI to be validly implemented (please see "Key Contracts and Concession").

Delay in the rebalancing process as well as disagreement between the parties on (i) circumstances determining the imbalance of the original economic and financial conditions and (ii) relevant measures to be put in place to restore such balance, could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Changes in IWS regulation could affect the Group’s revenues and results of operation

The IWS is a public service of primary importance, heavily regulated at European, national and regional level. For all the aspects of management of the IWS (e.g. assignment of the IWS, conditions for the operation, quality standards as well as tariff calculation and revision), the Issuer must comply with applicable regulations (including those set out by the AEEGSI) as well as with the provisions contained in the Concession Agreements. Furthermore, as an in-house company of the Shareholding Municipalities, the Issuer must act in compliance with the directives and guidelines set out by the Shareholding Municipalities (see "Regulation").

Although the entire regulatory framework is designed to give stability to the IWS sector, it cannot be excluded that –in view of the long-lasting duration of the Concession Agreements, among other things – changes in applicable laws and regulations, whether at a regional, national or European level, and the manner in which they are interpreted, could positively or negatively affect the Issuer's earnings and current operations.

Such changes could include changes in tax rates, legislation and policies as well as changes in environmental, safety or other workplace laws. Public policies related to water, energy, energy efficiency and/or air emissions may also have an impact on the IWS sector. Furthermore, the Issuer operates the IWS in a certain political, legal, and social context and, therefore, even different decisions of the Shareholding Municipalities (and, consequently, of the ATO Metropolitan Milan and the ATO Monza Brianza) may prejudice the Issuer’s revenues and results of operations. Regulation of the IWS, as well as political decisions, determine the manner in which the Issuer conducts the IWS and the tariff it charges to end-users. Any new or substantially altered rules and standards may adversely affect the Issuer’s business, financial condition and results of operations.

In such a case, the Issuer may ask for a rebalancing of the original economic and financial conditions (see "Key Contracts and Concession"). However, delay in the rebalancing process as well as disagreement between the parties on (i) circumstances determining the imbalance the original economic and financial conditions and (ii) relevant measures to be put in place to restore such balance, could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Risks specifically related to environmental and health and safety liabilities

Risks of environmental and health and safety accidents and liabilities are inherent in the operation of the IWS. Notwithstanding the Issuer’s belief that the operational policies and standards adopted and implemented to ensure the safety of its operations are adequate, it is always possible that incidents such as blowouts, spill-overs, pollution and similar events will occur, resulting in damage to the environment, the Issuer’s employees and/or local communities.

The Issuer has accrued risk provisions for environmental expenses and liabilities. Notwithstanding such provisions, the Issuer may in the future incur significant environmental expenses and liabilities in addition

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to the amounts already accrued owing to (i) unknown contamination, (ii) the results of on-going surveys or future surveys on the environmental status of certain of the Issuer's industrial sites as required by applicable regulations on contaminated sites and (iii) the possibility that proceedings will be brought against the Issuer in relation to such matters. Any such liabilities/increase in costs could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Should such events be due to force majeure or other unforeseeable events not attributable to Issuer’s default under the Concession Agreements, the Issuer could ask for a rebalancing of the original economic and financial conditions (see "Key Contracts and Concession"). However, delay in the rebalancing process as well as disagreement between the parties on (i) the circumstances determining the imbalance in the original economic and financial conditions and (ii) relevant measures to be put in place to restore such balance, could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

The Group may be unable to maintain or obtain the required licences, permits, approvals or consents

The Group’s activities entail exposure to regulatory, technical, commercial, economic and financial risks related to the obtaining of relevant permits and approvals from regulatory, legal, administrative, tax and other authorities and agencies. The processes for obtaining these permits and approvals are often lengthy, complex, unpredictable and costly. If the Group is unable to maintain or obtain the relevant permits and approvals, its ability to achieve its strategic objectives could be impaired, which could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Risks related to the determination and revision of the IWS tariff

The Issuer’s revenues received for the management of the IWS - as well as for the realisation of the investments envisaged under the relevant investment plans - is solely represented by the tariff, which is quantified by the ATO Metropolitan Milan and the ATO Monza Brianza and approved by the AEEGSI, in accordance with the provisions of the Concession Agreements, the AEEGSI regulations as well as Art. 154 of the Environmental Code (see "Key Contracts and Concession" and "Regulation").

The overall IWS tariff calculation method, as well as its revision at the end of each four-year regulatory period, is laid down in accordance with the "full cost recovery" principle under art. 9 of Directive 2000/60/EC (establishing a framework for Community action in the field of water policy), as better detailed in the Communication from the Commission to the Council, the European Parliament and the Economic and Social Committee (Pricing policies for enhancing the sustainability of water resources - COM/2000/0477).

Nonetheless, given also the long duration of the Concession Agreements, extra-costs/lower incomes may arise due to extraordinary and unforeseeable circumstances, not covered by the tariff, which determine the alteration of the economic and financial balance of the Concession Agreements. In such a case, the Issuer may ask for a rebalancing of the original economic and financial conditions (see "Key Contracts and Concession"). However, delay in the rebalancing process as well as disagreement between the parties on (i) circumstances determining the imbalance in the original economic and financial conditions and (ii) relevant measures to be put in place to restore such balance, could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Risks relating to quality standards

The Issuer is required to comply with certain contractual and contractual quality standards for the provision of the IWS to end-users, as set out under AEEGSI Resolution No. 655/2015/R/idr and the Concession Agreements (see "Regulation"). Failure to comply with these standards may result in the application to the Issuer of penalties and/or sanctions as well as in the obligation to indemnify the end- users. Although the Issuer believes that it currently complies with the applicable quality standards, any future breach of these standards could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

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Risks relating to the interruption of the IWS

The Issuer is continuously exposed to the risk of interruption of IWS activities due to the malfunctioning of its infrastructure resulting from events beyond the Issuer’s control, such as extreme weather phenomena, natural disasters, fire, malicious damage, accidents, labour disputes and mechanical breakdown as well as any unavailability of equipment of critical importance for the provision of the IWS caused by material damage to the equipment or its components, which may result in increased costs. The Issuer's management believes that its systems of prevention and protection operate according to the frequency and gravity of the particular events. Moreover, its ongoing maintenance plans, the availability of strategic spare parts and insurance coverage for the infrastructures necessary for the IWS, enable the Issuer to mitigate the economic consequences of potentially adverse events that might be suffered by any of its plants or networks. However, there can be no assurance that maintenance costs will not increase compared to those originally planned, that insurance products will continue to be available on reasonable terms or that each event or series of events affecting one or more plants or networks could compromise production capacity and result in loss of income and/or cost increases and, therefore, could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Should such events be due to force majeure or other unforeseeable events not attributable to the Issuer’s default under the Concession Agreements, the Issuer could ask for a rebalancing of the original economic and financial conditions (please see "Key Contracts and Concession"). However, delay in the rebalancing process as well as disagreement between the parties on (i) circumstances determining an imbalance in the original economic and financial conditions and (ii) relevant measures to be put in place to restore such balance, could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risks specifically referred to single segments of the IWS

Sewer flooding

The Issuer's combined sewerage systems can, during prolonged heavy rainfall, reach their hydraulic capacity, which results in flooding. As it is not possible to forecast accurately the occurrence and effects of sewer flooding, forward planning and setting adequate provisions to face or alleviate the risk of sewer flooding is difficult. The financial costs of measures necessary to address sewer flooding, or to alleviate the risk of sewer flooding to properties at risk may be higher than anticipated, which could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Should such events be due to force majeure or other unforeseeable events not attributable to the Issuer’s default under the Concession Agreements, the Issuer could ask for a rebalance of the original economic and financial conditions (please see "Key Contracts and Concession"). However, delay in the rebalancing process as well as disagreement between the parties on (i) circumstances determining the imbalance in the original economic and financial conditions and (ii) relevant measures to be put in place to restore such balance, could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Water shortages

Water shortages may be caused by natural disasters, floods and prolonged droughts, below average rainfall or increases in demand or by environmental factors such as climate change, which may exacerbate seasonal fluctuations in the availability and supply of water. However, the Issuer believes that the occurrence of these events in the Metropolitan Area of Milan could be considered very remote, due to the climate, the geographical features of its territory and the historical abundance of water resources. In the event of water shortages, additional costs may be incurred by the Issuer in order to provide emergency reinforcement to supplies in areas of shortage which may adversely affect its business, results of operations, profitability or financial condition. In addition, restrictions or interruptions on the use or supply of water may adversely affect the Issuer's turnover and potentially result in significant payments to affected customers as compensation, all of which could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

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Should such events be due to force majeure or other unforeseeable events not attributable to the Issuer’s default under the Concession Agreements, the Issuer could ask for a rebalance of the original economic and financial conditions (see "Key Contracts and Concession"). However, delay in the rebalancing process as well as disagreement between the parties on (i) circumstances determining the imbalance in the original economic and financial conditions and (ii) relevant measures to be put in place to restore such balance, could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Service interruptions due to key infrastructure disruption

Unexpected failure or disruption (including criminal acts or major health and safety incidents) at a key infrastructure (including treatment facilities) could cause a significant interruption to the supply of services (in terms of duration or number of customers affected), materially affecting the way in which the Issuer operates, prejudicing its reputation and resulting in additional costs such as liability to customers or loss of revenue, each of which could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Should such events be due to force majeure or other unforeseeable events not attributable to the Issuer’s default under the Concession Agreements, the Issuer could ask for a rebalance of the original economic and financial conditions (see "Key Contracts and Concession"). However, delay in the rebalancing process as well as disagreement between the parties on (i) circumstances determining the imbalance in the original economic and financial conditions and (ii) relevant measures to be put in place to restore such balance, could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Pipeline collapse

The management of an extensive water provision and sewage network could require ordinary and extraordinary interventions that may affect pipeline stability. These conditions may cause: pipe ruptures with consequent possible damage and flooding of roads, public and private surfaces and properties; sewage pipeline collapse, with consequent possible occurrence of craters that may cause damage to road surfaces

These events could cause a significant interruption to the supply of the IWS (in terms of duration or number of customers affected) materially affecting the way that the Issuer operates, and could cause damage to third parties, prejudicing the reputation of the Issuer and resulting in additional costs including liability to customers or loss of revenue, each of which could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

It is worth noting that, should such events be due to force majeure or other unforeseeable events not attributable to the Issuer’s default under the Concession Agreements, the Issuer could ask for a rebalance of the original economic and financial conditions (see "Key Contracts and Concession"). However, delay in the rebalancing process as well as disagreement between the parties on (i) circumstances determining the imbalance in the original economic and financial conditions and (ii) relevant measures to be put in place to restore such balance, could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Contamination of water supplies

Water supplies may be subject to contamination, including contamination from the presence of naturally occurring compounds and pollution from man-made substances or criminal acts. In the event that the Issuer's water supply is contaminated and it is unable to substitute water supply from an uncontaminated water source, or to adequately treat the contaminated water source in a cost-effective manner, this may have an adverse effect on its business, financial condition or results of operations because of the resulting prejudice to reputation and required capital and operational expenditure. The Issuer could also be fined for breaches of requirements or regulations, or held liable for human exposure to hazardous substances in its water supplies or other environmental damage, which could have a material adverse effect on the

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Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

In addition, contamination of supplies could exacerbate water shortages, giving rise to the issues described above. Risks also arise from adverse publicity that these events may generate and the consequent damage to the Issuer’s reputation. Any such negative publicity as a result of contamination could be far reaching due to the high levels of attractiveness of the area in which the Issuer operates and could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Should such events be due to force majeure or other unforeseeable events not attributable to the Issuer’s default under the Concession Agreements, the Issuer could ask for a rebalance of the original economic and financial conditions (see "Key Contracts and Concession"). However, delay in the rebalancing process as well as disagreement between the parties on (i) circumstances determining the unbalancing the original economic and financial conditions and (ii) relevant measures to be put in place to restore such balance, could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as the Issuer’s ability to meet its payment obligations under the Notes.

Weather and catastrophe risks

There is a risk that extreme weather conditions could cause flooding, prolonged periods of drought and/or operational difficulties, which could adversely affect the Issuer's service performance and give rise to potential penalties as well as the need to pay compensation to customers the application of other measures under the regulatory framework.

Moreover, catastrophic events such as dam bursts, fires, earthquakes, floods, droughts, terrorist attacks, diseases, plant failure or other similar events could result in personal injury, loss of life, pollution or environmental damage, severe damage to or destruction of the Issuer's operational assets. Any costs resulting from the suspension of operations of the Issuer as a result of such catastrophic events could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risks relating to the implementation of the Issuer’s strategic objectives

The Issuer intends to pursue a strategy of development in accordance with its in-house company status. The Issuer’s strategy (whose primary objectives are described in the following section "Description of the Issuer – Strategy") contains, and is prepared on the basis of, a number of critical assumptions and estimates relating to future trends and events that may affect the business sectors in which the Issuer operates, such as estimates of activity volumes and changes to the applicable regulatory framework. There can be no assurance that the Issuer will achieve its strategic objectives. For example, if any of the events and circumstances taken into account when the strategic objectives were set out do not occur, the future business, financial condition, cash flow and/or results of operations of the Issuer could be different from those envisaged and the Issuer may not achieve its strategic objectives, or do so within the expected timeframe, which could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risks related to information technology

The Issuer's operations are supported by complex information systems, particularly with respect to its technical, commercial and administrative divisions. Information technology risk arises in particular from issues concerning the adequacy of these systems and the integrity and confidentiality of data and information. The major operating risks connected with the IT system involve the availability of "core"

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systems. The continuous development of IT solutions to support business activities, the adoption of strict security standards and of authentication and profiling systems help to mitigate these risks. In addition, to limit the risk of activity interruption caused by a system fault, the Issuer has adopted hardware and software configurations for those applications that support critical activities, which are subjected to efficiency testing. Specifically, the services provided by the Issuer's outsourcer include a disaster recovery service and business continuity service that are intended to guarantee system recovery within timeframes that are consistent with the critical relevance of the affected applications. Nevertheless, there can be no assurance that serious system failures, network disruptions or breaches in security, including "cyber-attacks", will not occur and any such failure, disruption or breach may have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risks relating to legal proceedings or investigations by the authorities

The Issuer is a defendant in a number of legal proceedings, which are incidental to its business activities. CAP Holding made provision in its consolidated financial statements for legal proceedings which amounted to € 5,581,075 as at 31 December 2016 (See "Description of the Issuer - Legal Proceedings"). The Issuer may, from time to time, be subject to further litigation and to investigations by taxation and other authorities. The Issuer is not able to predict the ultimate outcome of any of the claims currently pending against it or future claims or investigations that may be brought against it, which may be in excess of its existing provision. In addition, it cannot be ruled out that the CAP Holding will in future years incur significant losses in addition to amounts already provided for in connection with pending legal claims and proceedings or future claims or investigations which may be brought owing to: (i) uncertainty regarding the final outcome of such proceedings, claims or investigations; (ii) the occurrence of new developments that management could not take into consideration when evaluating the likely outcome of such proceedings, claims or investigations; (iii) the emergence of new evidence and information; and (iv) the underestimation of likely future losses. Adverse outcomes in existing or future proceedings, claims or investigations could have an adverse effect on the business, financial condition, results and continuation of operations of CAP Holding.

In addition to the above, the Issuer may be subject to enforcement proceedings, which may negatively affect the Issuer’s financial positions and day-by-day operation (e.g. by suspending the bank accounts’ operation).

Risks relating to joint ventures, partnerships and future acquisitions

In the future, the Group may establish partnerships or joint ventures or make acquisitions to develop and implement its strategy or strengthen its core business.

However, the possible benefits or expected returns from such joint ventures, partnerships and acquisitions may be difficult to achieve or may prove to be less valuable than the Group will estimate. Furthermore, such investments are inherently risky as the Group may not be in a position to exercise full influence over the management of the joint venture company or partnership and the business decisions taken by it. In addition, joint ventures, partnerships and acquisitions bear the risk of difficulties that may arise when integrating people, operations, technologies and products. This could have a material adverse effect on the Group’s business, financial condition and results of operations, with a consequent adverse impact on the market value of the Notes and the Issuer’s ability to fulfil its obligations under the Notes.

Although the Group may aim to participate only in ventures in which its interests are aligned with those of its partners, it cannot guarantee that its interests will remain so aligned. Although strategic joint ventures are intended to be stable operational structures, contracts governing such projects typically include provisions for terminating the venture or resolving deadlock. The dissolution of business ventures can be both lengthy and costly and the Group cannot give any assurance that any strategic alliances will endure for a period of time compatible with its strategy.

In addition, the success of acquisitions depends in part on the Group’s ability to identify successfully and acquire, on acceptable terms, suitable companies and other assets and, once they are acquired, on the successful integration into the Group’s operations, as well as its ability to identify suitable strategic partners and conclude suitable terms with them. Any inability to implement an acquisition strategy or a failure in any particular implementation of this strategy could have an adverse impact on the Group’s

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business, financial position and results of operations, with a consequent adverse impact on the market value of the Notes and the Issuer’s ability to fulfil its obligations under the Notes.

The Issuer is subject to restrictive covenants under the existing indebtedness and it may be subject to restrictive covenants under any Additional Indebtedness, which could impair its ability to run its business

Any new indebtedness that the Group may incur (the "Additional Indebtedness") may contain negative covenants (subject to exceptions to be agreed between the Issuer and the providers of such Additional Indebtedness), restricting, among other things, the Issuer’s ability to:

 make certain capital expenditures;

 make certain investments;

 incur additional indebtedness or issue guarantees, including for the purpose of refinancing of existing indebtedness;

 create or incur security;

 sell, lease, transfer or dispose of assets;

 merge or consolidate with other companies;

 make a substantial change to the general nature of the Issuer’s or the Group’s business;

 pay dividends and make other distributions or restricted payments; and

 enter into transactions with affiliates.

The documentation for such Additional Indebtedness may also provide for certain restrictive financial covenants, the breach of which would lead to an event of default thereunder, as well as other terms (including representations, covenants, mandatory prepayments, trigger events and events of default) which are more restrictive than the Conditions.

The restrictions and limitations contained in the documentation for such Additional Indebtedness, as well as the restrictions contained in the Conditions, could affect the Group’s ability to operate its business. For example, such restrictions could adversely affect the Group’s ability to finance its operations, fund capital expenditure and the implementation of its investment plans or finance its capital needs. Additionally, its ability to comply with these covenants and restrictions may be affected by events beyond its control, including, among other things, prevailing economic, financial and industry conditions. If the Group breaches any of these covenants or restrictions, it could result in a default under the relevant documentation for such Additional Indebtedness.

If there was an event of default under any relevant documentation for such Additional Indebtedness that is not cured or waived, the holders of the defaulted debt could terminate their commitments thereunder and cause all amounts outstanding with respect to such indebtedness to be due and payable immediately, which in turn could result in cross defaults under other indebtedness, including the Notes. Any such actions could force the Issuer into bankruptcy or liquidation, and it may not be able to repay its obligations under the Notes in such an event.

The same considerations also apply with reference to the existing indebtedness of the Group, which documentation contains, among other things, customary covenants and events of default. Also in this case, if the Issuer breaches any of these covenants or cause otherwise an event of default under the relevant documentation, unless such default is cured or waived, the holder of the defaulted debt could terminate its commitments thereunder (without being subject to any contractual limitations or conditions towards the Noteholders) and cause all amounts outstanding with respect to such indebtedness to be due and payable immediately, which in turn could result in cross defaults under other indebtedness, including the Notes. Any such actions could force the Issuer into bankruptcy or liquidation, and it may not be able to repay its obligations under the Notes in such an event.

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The Group controlled by the Shareholding Municipalities whose interests may not be fully aligned with the interests of the holders of the Notes

As of the date of this Prospectus, the Shareholding Municipalities control the Issuer. See "Description of the Issuer – Shareholders". The interests of the Shareholding Municipalities may not in all cases be aligned with the interests of the holders of the Notes. For example, if the Group encounters financial difficulties or is unable to pay its debts as they mature, the interests of the Shareholding Municipalities might conflict with the interests of the holders of the Notes. In addition, the Shareholding Municipalities may have an interest in influencing the Issuer’s strategy, also in connection with the incurrence of indebtedness or in connection with acquisitions, divestitures, mergers, financings or other transactions that, in its judgment, could enhance its equity investments, even though such transactions might involve risks for the holders of the Notes.

The occurrence of any of these risks could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risks related to competition

As at the date of this Prospectus, the Issuer does not face any significant competition in the areas of business in which it operates, primarily due to its status as an in-house company of the Shareholding Municipalities (see "Description of the Issuer—In-house company"). However, there is no guarantee that, in the future, changes in the applicable legal and regulatory framework (including that governing the in- house providing mechanism) and how they are interpreted by the courts or by regulators, whether at a national or European level, would not lead to a significant increase in competition. The Issuer’s failure or inability to respond effectively to an increased level of competition could have an adverse impact on the Issuer’s growth prospects, results of operations and cash flows and its ability to fulfil its obligations under the Notes.

Risks related to insurance coverage

The Issuer maintains insurance coverage in an amount that it believes to be appropriate to protect itself against a variety of risks, such as property damage and liability claims. However, there can be no assurance that: (i) the Issuer will be able to maintain the same insurance coverage in the future (on terms considered acceptable by CAP Holding (considering the degree of risk undertaken by CAP Holding in relation to the insurance coverage conditions and in accordance with the insurance obligations of the Issuer under the Concession Agreements) or at all); (ii) claims will not either exceed the amount of coverage or fall outside the scope of the risks insured under the relevant policy; (iii) insurers will at all times be able to meet their obligations; or (iv) the Issuer’s provisions for uninsured or uncovered losses will be sufficient to cover the full amount of liabilities eventually incurred. Any of these scenarios could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risks relating to skills and expertise of the Issuer’s employees

The Issuer’s ability to operate its business effectively depends on the skills and expertise of its employees. If the Issuer loses any of its key personnel or is unable to recruit, retain and/or replace sufficiently qualified and skilled personnel, it may be unable to implement its business strategy. This could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risks relating to potential disputes with employees

Disputes with the Issuer’s employees may arise both in the ordinary course of the Issuer’s business or from one-off events, such as mergers and acquisitions or as a result of employees moving to an incoming concession holder upon the expiry or termination of a concession held by the Issuer. Any material dispute could give rise to difficulties in supplying customers and maintaining its IWS networks, which could in turn lead to a loss of revenues and prevent the Issuer from implementing its business strategy. This could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

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Risks relating to potential breaches of laws and regulations by employees

There is a risk that the Issuer’s employees may breach anti-bribery legislation, the Issuer’s internal policies or governance regulations. This could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes

Risk relating to any breaches of the organisation and management model

Legislative Decree No. 231/2001 ("Decree 231/2001") imposes direct liability on a company for certain unlawful actions taken by its executives, directors, agents and/or employees. The list of offences under Decree 231/2001 currently covers, among other things, bribery, theft of public funds, unlawful influence of public officials, corporate crimes (such as false accounting), fraudulent acts and market abuse, as well as health, safety and environmental hazards. In order to reduce the risk of liability arising under Decree 231/2001, the Group has adopted an organisation, management and supervision model (the "Model") to ensure the fairness and transparency of their business operations and corporate activities and provide guidelines to their management and employees to prevent them from committing any of the aforementioned offences. Each of these companies has also appointed its own supervisory body (the "Organismo di Vigilanza") to oversee the functioning and updating of, and compliance with, the Model.

Notwithstanding the adoption of these measures, the Issuer or any of its consolidated subsidiaries could still be found liable for the unlawful actions of their officers or employees if, in the relevant authority’s opinion, Decree 231/2001 has not been complied with. This could lead to a suspension or limitation of the Issuer’s or consolidated subsidiaries operating activities and/or an imposition of fines and other penalties, all of which could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risk relating to any breaches of the Plan for the prevention of corruption and for the transparency

The combined provision of Italian Law No. 190/2012 and of Italian Legislative Decree No. 33/2013 has required that the Board of Directors of the Issuer adopted a Plan for the prevention of corruption and for the transparency (the "Plan"). The Plan is adopted on a three-year basis, with the current Plan running from 2017 to 2019, and has to be revised and approved by 31 January of each year. The Issuer’s Board of Directors has appointed a Head of the Prevention of corruption and Transparency.

Anti-Corruption Law 190/2012 brings a comprehensive set of measures aimed to prevent and eliminate corruption and illegality in the Public Administration to which CAP Holding is subject.

The Plan identifies and addresses the activity areas with potential corruption risk. Among the compulsory activity areas, defined at national level by ANAC (the Italian anti-corruption authority) the Plan covers: staff recruitment and progression; works, services and supply procurement; granting and provision of subsidies and contributions as well as economic advantages allocation of any kind to individuals and public or private entities. The Plan includes also obligations, controls and monitoring actions to enforce the transparency requirements defined in the Legislative Decree No. 33/2013.

Notwithstanding the adoption of these measures, each of the entities of the Group could still be found liable for the unlawful actions of their officers or employees if, in the relevant authority’s opinion, Law No. 190/2012 and Legislative Decree No. 33/2013 have not been complied with. This could have a material adverse effect on Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risk relating to management control systems

The Issuer’s structures produce periodic reporting documents that the management team requires to carry out its activities and take strategic and operational decisions. The Issuer believes that these reports enable its management team to make informed assessments of the Issuer’s financial position and prospects. Nonetheless, the Issuer intends to continue improving the reporting system in order to achieve better integration and automation of the reports produced by it, reduce the risk of error and increase the speed of the flow of information.

Should the Issuer fail to implement the reporting system successfully, it may face the risk of data entry errors, which could mean that its management team is not properly informed of any issues which require

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prompt intervention, adversely affecting the business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risks relating to the difficult conditions in the global financial markets and in the economy in general

Although a global economic recovery has been recorded in recent years, and although there have been relevant expansive monetary interventions performed by supranational financial institutions as the European Central Bank, various concerns remain regarding the ability of certain EU member states and other countries like the United States to service their sovereign debt obligations. The significant economic stagnation in certain countries in the Eurozone, especially Greece, Italy, Portugal, Spain, Slovenia and Cyprus in part due to the effects of the sovereign debt crisis and corresponding austerity measures in these markets, has added to these concerns. The measures so far implemented to reduce public debt and fiscal deficits have already resulted in lower or negative GDP growth and high unemployment rates in these countries. If the fiscal obligations of these or other countries continue to exceed their fiscal revenue, taking into account the reactions of the credit and swap markets, or if their banking systems further destabilise, the ability of such countries to service their debt in a cost efficient manner could be impaired.

The continued uncertainty over the outcome of various international financial support programmes, the possibility that other countries might experience similar financial pressures, investor concerns about inadequate liquidity or unfavourable volatility in the capital markets, lower consumer spending, higher inflation or political instability could further disrupt the global financial markets and might adversely affect the economy in general. In addition, the risk remains that a default of one or more countries in the Eurozone, the extent and precise nature of which are impossible to predict, could lead to the expulsion or voluntary withdrawal of one or more countries from the Eurozone or a disorderly break-up of the Eurozone, either of which could significantly disrupt financial markets and possibly trigger another global recession. All of these risks could materially and adversely affect the business, results of operations and financial condition of the Issuer, and, as a result, the Issuer’s ability to meet its obligations under the Notes.

On 23 June 2016, the UK held a referendum to decide on the UK's membership of the European Union. The UK vote was to leave the European Union. There are a number of uncertainties in connection with the future of the UK and its relationship with the European Union. The negotiation of the UK’s exit terms is likely to take a number of years. Until the terms and timing of the UK’s exit from the European Union are clearer, it is not possible to determine the impact that the referendum, the UK’s departure from the European Union and/or any related matters may have on the business of the Issuer. As such, no assurance can be given that such matters would not adversely affect the business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Credit risk

Credit risk represents the Issuer’s exposure to potential losses that may be incurred if a commercial or financial counterparty fails to meet its obligations. The main credit risks for the Issuer arise from trade receivables from the provision of the IWS. The Issuer seeks to address this risk with policies and procedures regulating the monitoring of expected collection flows, the issue of reminders, the granting of extended credit terms if necessary and the implementation of suitable recovery measures. This risk has intensified in recent years due to the ongoing economic recession and the Issuer has reacted by implementing a series of preventive measures, which include an increase in internal and external credit management controls. Notwithstanding the foregoing, a general increase in default rates could have a material adverse effect on the Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Interest rate risk

The Issuer is exposed to fluctuations in rates of interest, in particular from financial indebtedness. The financial indebtedness of the Issuer is mainly represented by fixed rate interest indebtedness, while floating rate financial indebtedness amounted to Euro 18.4 million as of 31 December 2016, equal to approx. 15% of total financial indebtedness as of on 31 December 2016. As of the same date, Euro 4.9 million of floating rate financial indebtedness is hedged through not speculative interest rate swaps. The Issuer's objective is to limit its exposure to interest rate increases while maintaining acceptable borrowing costs. The risks associated with increases in interest rates are monitored non-speculatively and, if necessary, reduced or eliminated by entering swap contracts with financial counterparties. There can be

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no assurance that the hedging policy adopted by the Issuer, which is designed to minimise any losses connected to fluctuations in interest rates in the case of floating rate indebtedness by transforming them into fixed rate indebtedness, will actually have the effect of reducing any such losses. To the extent it does not, this may have an adverse effect on the Issuer's business, financial condition and results of operations.

Funding and liquidity risk

The Issuer's ability to borrow from banks or in the capital markets to meet its financial requirements is dependent on favourable market conditions. Borrowing requirements for the Group are coordinated by the Issuer's central finance department in order to achieve consistency between financial resources and management plans, to manage net trade positions and maintain the level of risk exposure within the Issuer's prescribed limits. The Issuer’s approach toward funding risk is aimed at securing competitive financing and ensuring a balance between average maturity of funding, flexibility and diversification of sources. However, these measures may not be sufficient to protect the Issuer fully from such risk and, in addition to the impact of market conditions, the ability of the Issuer to obtain new sources of funding may be affected by contractual provisions of existing financings (such as change of control clauses, requiring the Issuer to remain under the control of local authorities, as well as clauses such as negative pledges that restrict the security that can be given to other lenders). If insufficient sources of financing are available in the future for any reason, the Issuer may be unable to meet its funding requirements, which could materially and adversely affect its business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risks relating to fluctuations in the prices of energy commodities

The Issuer is exposed to the risk of fluctuations in the prices of the energy commodities it acquires in connection with the IWS segment, in particular electric energy, which cost amounted to approximately 11 per cent of the Group’s revenues for the year ended 31 December 2016. These fluctuations directly and indirectly affect the Issuer’s results through the cost recovery mechanisms contained in water tariff method, which contains a two-year lag for a full cost recovery, which is also linked to average national energy procurement price cap for the sector.

In order to contain the fluctuation risk and to ensure the convenience of the energy commodities pricing, the Issuer participate to an electric energy buying group for a joint yearly public tendering for potential suppliers. The buying group for the tender related to 2016 energy consumption included, besides CAP Holding, several public companies operating in the IWS and in the local public transport sector. The Issuer’s energy consumption volumes included in the tender represented about the 25 per cent of total volumes included in the tender. Contacts with other Water Alliance (e.g. Piemonte) are in progress to extend a joint competition and to make the sector price even more homogeneous. Through Utilitalia (the Federation that brings together companies operating in the public services of the Water, the Environment, Electricity and Gas) an annual energy cost analysis has been carried out among associates, which so far has shown how the CAP Holding price is in line with the industry average.

The Issuer gives no assurance that the measures adopted by it to manage the price fluctuation of the commodities it handles are adequate, or that in the future it will be able to continue to rely on the described procurement strategy. This could adversely affect the Issuer’s business, financial condition and results of operations as well as Issuer’s ability to meet its payment obligations under the Notes.

Risk Relating To the Notes

The Notes are fixed-rate securities and are vulnerable to fluctuations in market interest rates

The Notes will bear interest at a fixed rate. A holder of a security with a fixed interest rate is exposed to the risk that the price of such security falls as a result of changes in the current interest rate on the capital markets ("Market Interest Rate"). While the nominal interest rate of a security with a fixed interest rate is fixed during the life of such security or during a certain period of time, the Market Interest Rate typically changes on a daily basis. As the Market Interest Rate changes, the price of such security changes in the opposite direction. If the Market Interest Rate increases, the price of such security typically falls, until the yield of such security is approximately equal to the Market Interest Rate. Conversely, if the Market Interest Rate falls, the price of a security with a fixed interest rate typically increases, until the yield of such security is approximately equal to the Market Interest Rate. Investors

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should be aware that movements of the Market Interest Rate could adversely affect the market price of the Notes.

The Notes may not be a suitable investment for all investors

Each potential investor in the Notes should determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should consider, either on its own or with the help of its financial and other professional advisers, whether it:

(i) has sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained or incorporated by reference in this Prospectus or any applicable supplement;

(ii) has access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact such investment will have on its overall investment portfolio;

(iii) has sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including where the currency for principal or interest payments is different from the potential investor’s currency;

(iv) understands thoroughly the terms of the Notes and be familiar with the behaviour of financial markets; and

(v) is able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

A potential investor should not invest in the Notes, unless the potential investor has the expertise (either alone or with a financial adviser) to evaluate how the Notes will perform under changing conditions, the resulting effects on the value of the Notes and the impact this investment will have on the potential investor’s overall investment portfolio.

Redemption prior to maturity for tax reasons

In the event that the Issuer would be obliged to increase the amounts payable in respect of the Notes due to any change in or amendment to the laws or regulations of the Republic of Italy or any political subdivision thereof or of any authority therein or thereof having the power to tax or in the interpretation or administration thereof, the Issuer may redeem all outstanding Notes in accordance with the Conditions of the Notes. If this occurs, there can be no assurance that it will be possible for Noteholders to reinvest the redemption proceeds at an effective interest rate as high as the interest rate on the Notes.

The Issuer may not have sufficient funds at the time of occurrence of a Put Event to redeem outstanding Notes

Upon the occurrence of certain events relating to the Issuer as set out in "Terms and Conditions of the Notes—Redemption and Purchase— Redemption at the Option of the Noteholders", the Noteholders will have the right to require the Issuer to redeem their outstanding Notes at their principal amount outstanding plus accrued and unpaid interest, if any, to the date of redemption. However, it is possible that the Issuer will not have sufficient funds at the time of occurrence of such events to make the required redemption or repurchase of Notes. In addition, except as specifically set out in "Terms and Conditions of the Notes—Redemption and Purchase—Redemption at the option of Noteholders", the Notes do not contain provisions that provide a right to Noteholders to require the Issuer to purchase or redeem the Notes in any other circumstances.

The Notes are unsecured

The Notes constitute unsecured obligations of the Issuer and, save as provided in Condition 3 (Negative Pledge), do not contain any restriction on the giving of security by the Issuer and the Issuer’s other Subsidiaries over present and future indebtedness. Where security has been granted over assets of the Issuer to secure indebtedness, in the event of any insolvency or winding-up of the Issuer, such

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indebtedness will, in respect of such assets, rank in priority over the Notes and the other unsecured indebtedness of the Issuer.

Payments in respect of the Notes may in certain circumstances be made subject to withholding or deduction of tax

All payments in respect of the Notes will be made free and clear of withholding or deduction of Italian taxation, unless the withholding or deduction is required by law. In that event, the Issuer will pay such additional amounts as will result in the Noteholders receiving such amounts as they would have received in respect of such Notes had no such withholding or deduction been required. The Issuer’s obligation to gross up is, however, subject to a number of exceptions, including withholding or deduction of Italian substitute tax (imposta sostitutiva), pursuant to Italian Legislative Decree No. 239 of 1 April 1996 ("Decree No. 239/1996"). See "Terms and Conditions of the Notes—Taxation".

Prospective purchasers of Notes should consult their tax advisers as to the overall tax consequences of acquiring, holding and disposing of Notes and receiving payments of interest, principal and/or other amounts under the Notes, including, in particular, the effect of any state, regional or local tax laws of any country or territory. See also "Taxation".

Decisions at Noteholders’ meetings bind all Noteholders

Provisions relating to the meetings of Noteholders are contained in Schedule 5 to the Fiscal Agency Agreement and are summarised in Condition 13(a) (Meetings of Noteholders; Modification – Meetings of Noteholders). Noteholders’ meetings may be called to consider matters affecting Noteholders’ interests generally, including modifications to the terms and conditions relating to the Notes. These provisions permit defined majorities to bind all Noteholders, including those who did not attend and vote at the relevant meeting or who voted against the majority. Any such modifications to the Notes (which may include, without limitation, lowering the ranking of the Notes, reducing the amount of principal and interest payable on the Notes, changing the time and manner of payment, changing provisions relating to redemption, limiting remedies on the Notes and changing the amendment provisions) may have an adverse impact on Noteholders’ rights and the market value of the Notes.

Noteholders’ meeting provisions may change by operation of law or because of changes in the Issuer’s circumstances

As mentioned in "– Risks relating to change of law or administrative practice" below, the provisions relating to Noteholders’ meetings (including quorums and voting majorities) are subject to compliance with certain mandatory provisions of Italian law, which may change during the life of the Notes. In addition, as currently drafted, the rules concerning Noteholders’ meetings are intended to follow mandatory provisions of Italian law that apply to Noteholders’ meetings where the issuer is an Italian company. In addition, certain Noteholders’ meeting provisions could change as a result of amendments to the Issuer’s By-laws. Accordingly, Noteholders should not assume that the provisions relating to Noteholders’ meetings contained in the Fiscal Agency Agreement and summarised in the Conditions will correctly reflect mandatory provisions of Italian law applicable to Noteholders’ meetings at any future date during the life of the Notes.

Risks relating to change of law or administrative practices

The conditions of the Notes are based on English law in effect as at the date of this Prospectus, although certain provisions relating to the Notes are subject to compliance with certain mandatory provisions of Italian law, such as those applicable to Noteholders’ meetings and to the appointment and role of the Noteholders’ representative (rappresentante comune). No assurance can be given as to the impact of any possible judicial decision or change to English or Italian law or administrative practice after the date of this Prospectus. See also "– Noteholders’ meeting provisions may change by operation of law or because of changes in the Issuer’s circumstances" above.

Because the Global Notes are held by or on behalf of Euroclear and Clearstream, Luxembourg, investors will have to rely on their procedures for transfer, payment and communication with the Issuer.

The Notes will be represented by the Global Notes except in certain limited circumstances described in the Permanent Global Note. The Global Notes will be deposited with a common safekeeper for Euroclear

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and Clearstream, Luxembourg. Except in certain limited circumstances described in the Permanent Global Note, investors will not be entitled to receive definitive Notes. Euroclear and Clearstream, Luxembourg will maintain records of the beneficial interests in the Global Notes. While the Notes are represented by the Global Notes, investors will be able to trade their beneficial interests only through Euroclear and Clearstream, Luxembourg.

The Issuer will discharge its payment obligations under the Notes by making payments to or to the order of the common safekeeper for Euroclear and Clearstream, Luxembourg for distribution to their account holders. A holder of a beneficial interest in a Global Note must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the Notes. The Issuer has no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Notes.

Holders of beneficial interests in the Global Notes will not have a direct right to vote in respect of the Notes. Instead, such holders will be permitted to act only to the extent that they are enabled by Euroclear and Clearstream, Luxembourg to appoint appropriate proxies. Similarly, holders of beneficial interests in the Global Notes will not have a direct right under the Global Notes to take enforcement action against the Issuer in the event of a default under the Notes but will have to rely upon their rights under the Deed of Covenant.

Minimum Denomination

As the Notes have a denomination consisting of the minimum denomination plus a higher integral multiple of another smaller amount, it is possible that the Notes may be traded in amounts in excess of EUR100,000 (or its equivalent) that are not integral multiples of EUR100,000 (or its equivalent). In such case a Noteholder who, as a result of trading such amounts, holds a principal amount of less than the minimum denomination may not receive a Definitive Note in respect of such holding (should Definitive Notes be printed) and would need to purchase a principal amount of Notes such that its holding amounts to the minimum denomination.

There is no active trading market for the Notes.

The Notes are new securities which may not be widely distributed and for which there is currently no active trading market. If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the financial condition of the Issuer. Although application has been made to the Irish Stock Exchange for the Notes to be admitted to the official list and trading on its regulated market, there is no assurance that an active trading market will develop. Accordingly, there is no assurance as to the development or liquidity of any trading market for the Notes.

Transfers of the Notes may be restricted, which may adversely affect the secondary market liquidity and/or trading prices of the Notes

Subject to applicable Italian laws and regulations, the ability to transfer the Notes may also be restricted by securities laws or regulations of certain countries or regulatory bodies. See "Subscription and Sale".

The Notes have not been, and will not be, registered under the Securities Act or any U.S. State securities laws or the securities laws of any other jurisdiction. Noteholders may not offer the Notes in the United States or for the account or benefit of a U.S. person, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable U.S. State securities laws. It is the obligation of each Noteholder to ensure that offers and sales of Notes comply with all applicable securities laws. In addition, transfers to certain persons in certain other jurisdictions may be limited by law, or may result in the imposition of penalties or liability. For a description of restrictions which may be applicable to transfers of the Notes, see "Subscription and Sale".

The Notes are not rated and credit ratings may not reflect all risks

Neither the Notes nor the long-term debt of the Issuer are rated. To the extent that any credit rating agencies assign credit ratings to the Notes or any other senior unsecured indebtedness of the Issuer at any future date, such ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above and other factors that may affect the value of the Notes. A credit rating

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or the absence of a rating is not a recommendation to buy, sell or hold Notes and may be revised or withdrawn by the rating agency at any time.

The Notes may be delisted in the future

Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and admitted to trading on its regulated market. The Notes may subsequently be delisted despite the best efforts of the Issuer to maintain such listing and, although no assurance is made as to the liquidity of the Notes as a result of listing, any delisting of the Notes may have a material effect on a Noteholder’s ability to resell the Notes on the secondary market.

Legal investment considerations may restrict certain investments

The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (i) Notes are legal investments for it, (ii) Notes can be used as collateral for various types of borrowing, and (iii) other restrictions apply to the purchase or pledge of any Notes. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of Notes under any applicable risk-based capital or similar rules.

Exchange rate risks and exchange controls

The Issuer will pay principal and interest on the Notes in euro. This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit ("Investor’s Currency") other than euro. These include the risk that exchange rates may change significantly (including changes due to devaluation of the euro or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Investor’s Currency relative to the euro would decrease (i) the Investor’s Currency equivalent yield on the Notes, (ii) the Investor’s Currency- equivalent value of the principal payable on the Notes, and (iii) the Investor’s Currency-equivalent market value of the Notes.

In addition, government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal.

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TERMS AND CONDITIONS OF THE NOTES

The following is the text of the Terms and Conditions of the Notes which (subject to completion and amendment) will be endorsed on each Note in definitive form:

The EUR 40,000,000 1.98 per cent. Instalment Notes due 2 August 2024 (the "Notes", which expression includes any further notes issued pursuant to Condition 14 (Further Issues) and forming a single series therewith) of CAP Holding S.p.A. (the "Issuer") are the subject of a fiscal agency agreement dated 2 August 2017 (as amended or supplemented from time to time, the "Agency Agreement") between the Issuer, BNP Paribas Securities Services, Luxembourg Branch, as fiscal agent (the "Fiscal Agent", which expression includes any successor fiscal agent appointed from time to time in connection with the Notes) and the paying agents named therein (together with the Fiscal Agent, the "Paying Agents", which expression includes any successor or additional paying agents appointed from time to time in connection with the Notes). Certain provisions of these Conditions are summaries of the Agency Agreement and subject to its detailed provisions. The holders of the Notes (the "Noteholders"), the holders of the related instalment receipts (the "Receiptholders" and the "Receipts", respectively) and the holders of the related interest coupons (the "Couponholders" and the "Coupons", respectively) are bound by, and are deemed to have notice of, all the provisions of the Agency Agreement applicable to them. Copies of the Agency Agreement are available for inspection by Noteholders during normal business hours at the Specified Offices (as defined in the Agency Agreement) of each of the Paying Agents, the initial Specified Offices of which are set out below.

1. Form, Denomination and Title

The Notes are in bearer form in the denominations of EUR 100,000 and integral multiples of EUR 1,000 in excess thereof up to and including EUR 199,000 with Receipts and Coupons attached at the time of issue. Title to the Notes, the Receipts and the Coupons will pass by delivery. The holder of any Note, Receipt or Coupon shall (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing thereon or any notice of any previous loss or theft thereof) and no person shall be liable for so treating such holder. No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999.

2. Status

The Notes constitute direct, general, unconditional and unsecured (subject to Condition 3 (Negative Pledge)) obligations of the Issuer which will at all times rank pari passu among themselves and at least pari passu with all other present and future unsecured obligations of the Issuer, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application and subject to Condition 3 (Negative Pledge).

3. Negative Pledge

So long as any Note or Coupon remains outstanding (as defined in the Agency Agreement):

(a) the Issuer shall not create or permit to subsist any Security Interest (other than a Permitted Security Interest) upon the whole or any part of its present or future undertaking, assets or revenues (including uncalled capital) to secure any Indebtedness or any Guarantee of any Indebtedness; and

(b) the Issuer shall procure that none of its Subsidiaries will create or permit to subsist any Security Interest (other than a Permitted Security Interest) upon the whole or any part of its present or future undertaking, assets or revenues (including uncalled capital) to secure any Indebtedness or any Guarantee of any Indebtedness,

unless the Issuer at the same time or prior thereto takes any and all action necessary to (i) secure the Notes equally and rateably therewith or (ii) provides such other security for the Notes as may be approved by an Extraordinary Resolution (as defined in the Agency Agreement) of Noteholders.

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In these Conditions:

"Accounting Principles" means the International Financial Reporting Standards, as adopted by the European Union, or accounting principles adopted by the Issuer from time to time;

"Guarantee" means, in relation to any Indebtedness of any Person, any obligation of another Person to pay such Indebtedness including (without limitation):

(a) any obligation to purchase such Indebtedness;

(b) any obligation to lend money, to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such Indebtedness;

(d) any other agreement to be responsible for such Indebtedness;

"Indebtedness" means any indebtedness (whether being principal or interest) of any Person for money borrowed or raised including (without limitation) any indebtedness for or in respect of:

(a) amounts raised by acceptance under any acceptance credit facility;

(b) amounts raised under any note purchase facility;

(c) the amount of any liability in respect of leases or hire purchase contracts which would, in accordance with applicable law and the Accounting Principles, be treated as finance or capital leases;

(d) the amount of any liability in respect of any purchase price for assets or services the payment of which is contractually deferred for a period in excess of 120 days (provided that if payment of such amount has been contested in good faith by the relevant debtor, such amount shall not constitute Indebtedness pending settlement of the dispute);

(e) total charges in respect of certain interest rate swaps (oneri complessivi generati da operazioni di Interest Rate Swap);

(f) assumption of debts granted to shareholder public local entities (accolli di mutui e/o prestiti finanziari accessi da enti locali soci);

(g) debts owed to ATO Milano and Monza Brianza as a result of assumption of debts (debiti verso ATO Milano e Monza Brianza per accollo mutuo); and

(h) amounts raised under any other transaction (including, without limitation, any forward sale or purchase agreement) having the commercial effect of a borrowing and classified as borrowings under the Accounting Principles;

"Permitted Security Interest" means:

(a) any Security Interest in existence as of 31 July 2017 to the extent that it secures Indebtedness outstanding on such date;

(b) any Security Interest arising by operation of law and in the ordinary course of business of the Issuer or any of its Subsidiaries which has not been enforced against the assets to which it attaches;

(c) any netting or set-off arrangement entered into by the Issuer or any of its Subsidiaries in the ordinary course of its or their banking arrangements for the purpose of netting debit and credit balances;

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(d) any payment or close out netting or set-off arrangement pursuant to any hedging transaction entered into by the Issuer or any of its Subsidiaries for the purposes of:

(A) hedging from any risk to which the Issuer or any of its Subsidiaries is exposed in their ordinary course of business;

(B) managing interest or currency exchange rate exposure in the ordinary course of business and not for speculative purposes,

in each case under (A) and (B) above, excluding any Security Interest under a credit support arrangement in connection with a hedging transaction;

(e) any Security Interest arising under any retention of title, hire purchase or conditional sale arrangement or arrangements having similar effect in respect of goods supplied to the Issuer or any of its Subsidiaries in the ordinary course of business and on the supplier's standard or usual terms and not arising as a result of any default or omission by the Issuer or that Subsidiary;

(f) any Security Interest to which the assets of the Issuer or any of its Subsidiaries are subject as a result of the acquisition of such assets, provided that:

(A) such Security Interest was not created in connection with or in contemplation of the acquisition of such assets; and

(B) the aggregate principal amount of Indebtedness secured by such Security Interest is not increased in connection with or in contemplation of the acquisition of such assets or at any time thereafter; and

(g) any Security Interest created by a Person which becomes a Subsidiary after the Issue Date, where such Security Interest already exists at the time that Person becomes a Subsidiary provided that (A) such Security Interest was not created in connection with or in contemplation of that Person becoming a Subsidiary, (B) the aggregate principal amount of Indebtedness secured by such Security Interest is not increased in connection with or in contemplation of that Person becoming a Subsidiary, and (C) such Security Interest is removed or discharged within 6 months of that Person becoming a Subsidiary;

(h) any Security Interest (a "New Security Interest") created in substitution for any existing Security Interest permitted under paragraphs (a) and (b) above (an "Existing Security Interest"), provided that:

(A) the principal amount of Indebtedness secured by the New Security Interest does not at any time exceed the principal amount of Indebtedness secured by the Existing Security Interest; and

(B) other than by reason of general market trends beyond the control of the Issuer, the value of the assets over which the New Security Interest subsists does not at any time exceed the value of the assets over which the Existing Security Interest subsisted; and

(i) any Security Interest that does not fall within paragraphs (a) to (h) above and that secures Indebtedness which, when aggregated with Indebtedness secured by all other Security Interests permitted under this paragraph (i), does not exceed the amount set out in column 2 below opposite the relevant period:

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Column 1 Column 2

Relevant period Amount in EUR (or its equivalent in other currencies)

Starting on the Issue Date up to (and including) 25,000,000 2 August 2018

Starting on (but excluding) 2 August 2018 up to 30,714,284 (and including) 2 August 2019

Starting on (but excluding) 2 August 2019 up to 36,428,568 (and including) 2 August 2020

Starting on (but excluding) 2 August 2020 up to 42,142,852 (and including) 2 August 2021

Starting on (but excluding) 2 August 2021 up to 47,857,136 (and including) 2 August 2022

Starting on (but excluding) 2 August 2022 up to 50,000,000 (and including) the Maturity Date

"Person" means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality;

"Security Interest" means any mortgage, charge, pledge, lien or other security interest including, without limitation, anything analogous to any of the foregoing under the laws of any jurisdiction and assignments of receivables by way of security (cessioni di credito in garanzia); and

"Subsidiary" means, in relation to the Issuer at any particular time, any società controllata, as defined in Article 2359, first paragraph, numbers 1 and 2 of the Italian Civil Code.

4. Financial Covenants

(a) So long as any Note or Coupon remains outstanding (as defined in the Agency Agreement), the Issuer shall ensure that on each Calculation Date:

(i) the Gross Debt – EBITDA Ratio is no more than 3.5;

(ii) the EBITDA – Interest Expenses Ratio is greater than 5.0; and

(iii) the Net Financial Debt – Termination Value Ratio is no more than 0.70 to 1.

(b) The financial ratios set out in paragraph (a) shall be tested on each Calculation Date by reference to the latest Annual Consolidated Financial Statements of the Issuer as appropriate so that the financial ratios will be tested once in each year based on the previous Relevant Period (except for the Termination Value, which will be tested as set out in the definition of Termination Value) and will be set out in the Compliance Certificate for the Relevant Period delivered pursuant to paragraph (c), and for the first time in respect of the Issuer's Annual Consolidated Financial Statements for the Relevant Period in respect of the Issuer's financial year commencing 1 January 2017.

(c) The Issuer shall, as soon as the same becomes available and in any event no later than 45 days following the shareholders' meeting (or other internal body competent for such approval) approval of the Financial Statements for the relevant Period (and no later than six months after the end of the Relevant Period in respect of the Annual Consolidated

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Financial Statements) deliver to the Fiscal Agent an electronic copy of its Financial Statements for the Relevant Period, translated into English, provided that such English translation will be prepared solely for the convenience of international readers and that, in case of inconsistency, the official Italian version will prevail. The Issuer shall ensure that each set of Financial Statements is, without prejudice to paragraph (d): (i) prepared on the same basis as was used in the preparation of its immediately preceding Financial Statements (with the exception of the Financial Statements for the Relevant Period ending on 31 December 2017) and in accordance with IFRS; (ii) certified by an authorised signatory of the Issuer as giving a true and fair view of the financial condition of the Group as at the end of the period to which those financial statements relate and of the results of the Group's operations during such period; (iii) audited by independent auditors.

At the same time of delivery to the Fiscal Agent of the Financial Statements for the Relevant Period, the Issuer shall deliver to the Fiscal Agent also a compliance certificate (the "Compliance Certificate") signed by an authorised signatory of the Issuer, certifying compliance by the Issuer for the Relevant Period with the requirements specified in paragraph (a) and confirming that there have been no events, developments or circumstances that would materially affect its ability to certify such compliance on the basis of the Issuer's financial condition as at the date of the certificate and its results of operations since the end of the last Relevant Period.

(d) The Issuer shall ensure that each set of Financial Statements delivered pursuant to paragraph (c) is prepared using accounting policies, practices and procedures consistent with those applied in the preparation of the immediately preceding Financial Statements (with the exception of the Financial Statements for the Relevant Period ending on 31 December 2017) unless, in relation to any such set of Financial Statements, the Issuer notifies the Fiscal Agent that there have been one or more changes in such accounting policies, practices and procedures and provides the Fiscal Agent for inspection by the Noteholders with: (i) a description of such changes; and (ii) sufficient information to make an accurate comparison between such Financial Statements and the Financial Statements for the previous Relevant Period.

(e) So long as any Note or Coupon remains outstanding (as defined in the Agency Agreement), the Issuer shall make available for inspection by any Noteholder or Couponholder, free of charge at its own registered office and at the Specified Office of each Paying Agent, the Financial Statements and the Compliance Certificate for the Relevant Period, together with such description of changes and adjustments and such other information referred to in paragraph (d) as may be necessary.

In these Conditions:

"Calculation Date" means 31 December in each year;

"Concession Agreements" means:

(i) the concession agreement dated 20 December 2013 between the Issuer and the competent office (Ufficio d'Ambito) of the "Optimal Territorial Area" (Ambito Territoriale Ottimale) of the Metropolitan Area (città metropolitana) of Milan, as subsequently amended on 29 June 2016, and due to expire on 31 December 2033, as extended, or renewed or prorogated from time to time (the "Metropolitan Area of Milan Concession Agreement"); and

(ii) the concession agreement dated 29 June 2016 between the Issuer and the competent office of (Ufficio d'Ambito) of the "Optimal Territorial Area" (Ambito Territoriale Ottimale) of Monza and Brianza, due to expire on 31 December 2033, as extended, or renewed or prorogated from time to time; and

(iii) where applicable, any concession or other agreement or arrangement granted to or entered into in place of each of the contracts under (i) and (ii) above at

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any time after the Issue Date for the provision of substantially the same services.

"Consolidated EBITDA" means with reference to the Annual Consolidated Financial Statements, the profit of the Issuer before taxation, before deducting any net interest expense of the Issuer and (to the extent the Issuer's financial statements are produced on a consolidated basis) any consolidated Subsidiary in respect of that Relevant Period and adding back depreciation, amortisation, write-downs and provisions;

"EBITDA – Interest Expenses Ratio" means the ratio of (i) Consolidated EBITDA for the Relevant Period to (ii) Interest Expenses for the Relevant Period;

"Interest Expenses" means the sum of interest expenses paid by the Issuer and its Subsidiaries including exchange rate losses (totale degli oneri finanziari effettivamente sostenuti dal Gruppo (inclusi le perdite su cambi)) calculated on a consolidated basis and as shown in, or calculated by reference to, the Issuer's Annual Consolidated Financial Statements;

"Financial Statements" means:

(a) the income statement;

(b) the balance sheet; and

in each case, forming part of the most recent audited annual consolidated financial statements of the Issuer (the "Annual Consolidated Financial Statements"), together with any notes thereto and any accompanying reports (including independent auditors' reports), statements, declarations and other documents or information;

"Group" means the Issuer and its Subsidiaries;

"Gross Debt – EBITDA Ratio" means the ratio of (i) Gross Debt as at the Calculation Date to (ii) Consolidated EBITDA for the Relevant Period;

"Gross Debt" means the sum of the following items, calculated on a consolidated basis:

(a) bonds (obbligazioni); plus

(b) bank debts (debiti verso banche); plus

(c) assumption of debts granted to shareholder public local entities (accolli di mutui e/o prestiti finanziari accessi da enti locali soci); plus

(d) debts owed to ATO Milano and Monza Brianza as a result of assumption of debts (debiti verso ATO Milano e Monza Brianza per accollo mutuo); plus

(e) total charges in respect of certain interest rate swaps (oneri complessivi generati da operazioni di Interest Rate Swap); plus

(f) any other financial liabilities (including under leasing, factoring or other debt instruments) (altre passività di natura finanziaria (inclusi leasing, factoring e ogni altro strumento finanziario di debito)),

in each case, as shown in, or determined by reference to, the Annual Consolidated Financial Statements;

"Net Financial Debt" means the sum of the following items, calculated on a consolidated basis:

(a) Gross Debt; less

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(b) available cash (disponibilità finanziarie) and cash equivalents (where "cash equivalents" means (i) cash at banks, (ii) all assets qualified as cash and cash equivalents under the Accounting Principles and (iii) all assets (including, but not limited to, certificates of deposit, time deposits and any credit arising from repurchase transactions) that can be liquidated within twelve months); less

(c) other financial assets represented by Italian government bonds maturing within one year after the relevant date of calculation; less

(d) financial receivables due to the Group arising from the assignment or transfer of debts of the Group to entities other than the Issuer or any Subsidiary,

in each case, as shown in, or determined by reference to, the Annual Consolidated Financial Statements;

"Net Financial Debt – Termination Value Ratio" means the ratio of (i) Net Financial Debt as at the Calculation Date to (ii) Termination Value as at the Calculation Date; and

"Relevant Concessions" means the Concession Agreements and any other concession agreement for the operation of the integrated water service held by the Group from time to time.

"Relevant Period" means each period of 12 (twelve) months ending on the last day of the Issuer's financial year used for the calculation of the Financial Covenants in this Condition 4 (Financial Covenants).

"Termination Value" means the estimated value of any Termination Value Payment, as determined by the Issuer with reference to each Calculation Date, and set out in the relevant Compliance Certificate, less any penalties due by the Group to the relevant grantor of the Relevant Concession.

"Termination Value Payment" means the value of any payment made or to be made to the Issuer (i) upon the termination, forfeiture, revocation, resolution or expiry (decadenza, risoluzione, revoca, recesso or scadenza) (both if at the stated maturity or anticipated) of each Relevant Concession under the terms of such Relevant Concession and the applicable AEEGSI regulation or as a result of the Issuer exercising its rights of withdrawal under the Relevant Concession; or (ii) in any other circumstance where the Issuer is substituted by another entity in managing the integrated water services and a payment of the Termination Value is to be made by such other entity in accordance with the Relevant Concession and the applicable AEEGSI regulation; in each case under (i) and (ii) above, as calculated in accordance with article 18.6 of the Metropolitan Area of Milan Concession Agreement (as such provision may be amended, substituted or supplemented from time to time) and the relevant provisions of any other Relevant Concession, as well as the applicable AEEGSI regulation.

5. Interest

The Notes bear interest on their principal amount outstanding from 2 August 2017 (the "Issue Date") at the rate of 1.98 per cent. per annum, (the "Rate of Interest") payable in arrear on 2 August in each year (each, an "Interest Payment Date"), subject as provided in Condition 7 (Payments). Each period beginning on (and including) the Issue Date or any Interest Payment Date and ending on (but excluding) the next Interest Payment Date is herein called an "Interest Period".

Each Note will cease to bear interest from the due date for final redemption unless, upon due presentation, payment of principal is improperly withheld or refused, in which case it will continue to bear interest at such rate (both before and after judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder and (b) the day which is seven days after the Fiscal Agent has notified the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment).

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The amount of interest payable in respect of each Note for any Interest Period shall be calculated by applying the Rate of Interest to the principal amount outstanding of such Note and rounding the resulting figure to the nearest cent. (0.005 being rounded upwards). If interest is required to be calculated for any other period, it will be calculated on the basis of a year of 360 days consisting of 12 months of 30 days each and, in the case of an incomplete month, the actual number of days elapsed.

6. Redemption and Purchase

(a) Redemption by amortisation and final redemption: Unless previously redeemed, or purchased and cancelled, the Notes will be redeemed by the Issuer on each instalment date specified in column A below (each an "Instalment Date" with the final Instalment Date being the "Maturity Date") in an aggregate principal amount equal to the amount specified in column B below (each an "Instalment Amount") subject as provided in Condition 7 (Payments). The principal aggregate amount outstanding of the Notes shall be reduced, pro rata with respect to each outstanding Note, by the Instalment Amount for all purposes with effect from the relevant Instalment Date such that the aggregate principal amount outstanding of the Notes following such reduction shall be as specified in column C below, unless, upon due presentation of the relevant Note or Receipt, the payment of the relevant Instalment Amount is improperly withheld or refused. In such a case, the relevant principal amount will remain outstanding until whichever is the earlier of (a) the day on which all sums due in respect of such Notes up to that day are received by or on behalf of the relevant Noteholders and (b) five calendar days after the date on which the full amount of the moneys payable in respect of such Notes has been received by the Paying Agent and notice to that effect has been given to the Noteholders in accordance with Condition 15 (Notices) (except to the extent that there is any subsequent default in payment in accordance with these Conditions). For the avoidance of doubt, any Instalment Amount indicated in the table below shall be reduced pro rata by any amount of the Notes which is redeemed in accordance with Condition 6(c) (Redemption at the option of Noteholders) below.

A. Instalment Date B. Instalment Amount C. Aggregate principal (EUR) amount outstanding of the Notes thereafter (EUR)

2 August 2018 5,714,284 34,285,716

2 August 2019 5,714,284 28,571,432

2 August 2020 5,714,284 22,857,148

2 August 2021 5,714,284 17,142,864

2 August 2022 5,714,284 11,428,580

2 August 2023 5,714,284 5,714,296

2 August 2024 5,714,296 -

In these Conditions, references to "principal" shall, unless the context requires otherwise, be deemed to include any Instalment Amount, references to the "due date" for payment shall, unless the context requires otherwise, be deemed to include any Instalment Date and references to the "principal amount outstanding" of a Note on any date shall be to its original principal amount (less) (i) the aggregate of all principal payments made in respect of such Note in accordance with paragraph (a) and (ii) the aggregate amount of all redemptions made in respect of such Note pursuant to paragraphs (b) and (c) below.

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(b) Redemption for tax reasons: The Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days' notice to the Noteholders (which notice shall be irrevocable) at their principal amount, together with interest accrued to the date fixed for redemption, if:

(i) the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 8 (Taxation) as a result of any change in, or amendment to, the laws or regulations of the Republic of Italy or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction), which change or amendment becomes effective on or after 31 July 2017; and

(ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it;

provided, however, that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts if a payment in respect of the Notes were then due.

Prior to the publication of any notice of redemption pursuant to this paragraph, the Issuer shall deliver to the Fiscal Agent:

(A) a certificate signed by two directors of the Issuer stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred; and

(B) an opinion of independent legal advisers of recognised standing to the effect that the Issuer has or will become obliged to pay such additional amounts as a result of such change or amendment.

Upon the expiry of any such notice as is referred to in this Condition 6(b), the Issuer shall be bound to redeem the Notes in accordance with this Condition 6(b).

(c) Redemption at the option of Noteholders: If at any time while any Note remains outstanding a Put Event occurs, except where prior to the giving of the relevant Put Option Notice (as defined below) the Issuer has given notice of redemption under Condition 6(b), the holder of each Note shall have the option (a "Put Option") to require the Issuer to redeem or purchase such Note at its principal amount together with interest accrued to such date. Promptly and in any event within 10 business days from the date on which the Issuer becomes aware that a Put Event has occurred, the Issuer shall give notice (a "Put Event Notice") to the Noteholders in accordance with Condition 15 (Notices), with a copy to the Fiscal Agent, specifying the nature of the Put Event and the procedure for exercising the Put Option. In order to exercise the Put Option, the holder of a Note must, within 30 days of a Put Event Notice being given to the Noteholders in accordance with Condition 15 (Notices), deposit with any Paying Agent such Note together with all unmatured Receipts and Coupons relating thereto and a duly completed put option notice (a "Put Option Notice") in the form obtainable from any Paying Agent. The Paying Agent with which a Note is so deposited shall deliver a duly completed receipt for such Note (a "Put Option Receipt") to the depositing Noteholder. No Note, once deposited with a duly completed Put Option Notice in accordance with this Condition 6(c), may be withdrawn; provided, however, that if, prior to the relevant Put Option settlement date, any such Note becomes immediately due and payable or, upon due presentation of any such Note on the relevant Put Option settlement date, payment of the redemption moneys is improperly withheld or refused, the relevant Paying Agent shall mail notification thereof to the depositing Noteholder at such address as may have been given by such Noteholder in the relevant Put Option Notice and shall hold such Note at its Specified Office for collection by the depositing Noteholder against surrender of the relevant Put Option

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Receipt. For so long as any outstanding Note is held by a Paying Agent in accordance with this Condition 6(c), the depositor of such Note and not such Paying Agent shall be deemed to be the holder of such Note for all purposes.

(d) No other redemption: The Issuer shall not be entitled to redeem the Notes otherwise than as provided in paragraphs (a) (Scheduled redemption) to (c) (Redemption at the option of Noteholders) above.

(e) Purchase: The Issuer or any of its Subsidiaries may at any time purchase Notes in the open market or otherwise and at any price, provided that all unmatured Receipts and Coupons are purchased therewith.

(f) Cancellation: All Notes so redeemed or purchased by the Issuer or any of its Subsidiaries and any unmatured Receipts and Coupons attached to or surrendered with them shall be cancelled and may not be reissued or resold.

In these Conditions:

a "Change of Control" will be deemed to occur if (i) any Person or Persons acting in concert (in each case, other than one or more Permitted Holders), together with any of their affiliates, has or gains control of the Issuer or (ii) the Permitted Holders cease to control the Issuer;

a "Concession Event" will be deemed to have occurred if at any time any or each of the Concession Agreements is or are dissolved, terminated prior to its or their expiry date or revoked, or declared null and void by the competent authority or otherwise ceases or cease to have effect for any reason;

"control" means for all purposes in connection with Condition 6(c) (Redemption at the option of Noteholders):

(a) in respect of a Person which is a company or a corporation:

(A) the acquisition and/or holding of more than 50 per cent. of the share capital of such Person; or

(B) the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to:

(1) cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a shareholders' or equivalent meeting of such Person; or

(2) appoint or remove all or a majority of the members of its board of directors (or other equivalent body) of such Person; or

(b) in respect of any other Person (other than a company or a corporation), the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting rights, by contract or otherwise,

and the expressions "controlling", "controlled" and "controlled by" shall be construed accordingly;

"Permitted Holders" means:

(a) each municipality (comune) or province (provincia) in the Republic of Italy holding an equity interest in the share capital of the Issuer as at 2 August 2017, either directly or indirectly through one or more intermediate persons (including any consortiums

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incorporated pursuant to Article 31 of Legislative Decree No. 267 of 18 August 2000); or

(b) any Person directly or indirectly controlled by any of the foregoing; and

"Put Event" means:

(a) a Concession Event; and/or

(b) a Change of Control.

7. Payments

(a) Principal: Payments of principal shall be made only against:

(i) presentation and (in the case of final redemption, provided that payment is made in full) surrender of Notes; and

(ii) in respect of any Instalment Amount which becomes due on an Instalment Date, presentation and (provided that payment is made in full) surrender of the appropriate Receipts,

at the Specified Office of any Paying Agent outside the United States by Euro cheque drawn on, or by transfer to a Euro account (or other account to which Euro may be credited or transferred) maintained by the payee with, a bank in a city in which banks have access to the TARGET System.

(b) Interest: Payments of interest shall, subject to paragraph (g) (Payments other than in respect of matured Coupons) below, be made only against presentation and (provided that payment is made in full) surrender of the appropriate Coupons at the Specified Office of any Paying Agent outside the United States in the manner described in paragraph (a) (Principal) above.

"TARGET2" means the Trans-European Automated Real-Time Gross Settlement Express Transfer payment system which utilises a single shared platform and which was launched on 19 November 2007;

"TARGET Settlement Day" means any day on which TARGET2 is open for the settlement of payments in euro;

and

"TARGET System" means the TARGET2 system.

(d) Payments subject to fiscal laws: All payments in respect of the Notes are subject in all cases to (i) any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 8 (Taxation) and (ii) any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the "Code") or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreements thereunder, any official interpretations thereof, or (without prejudice to the provisions of Condition 8 (Taxation)) any law implementing an intergovernmental approach thereto. No commissions or expenses shall be charged to the Noteholders, Receiptholders or Couponholders in respect of such payments.

(e) Unmatured Receipts void: On the due date for final redemption of any Note pursuant to Condition 6(a) (Redemption by amortisation and final redemption) or early redemption of such Note pursuant to Condition 6(b) (Redemption for tax reasons), Condition 6(c)

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(Redemption at the option of Noteholders) or Condition 9 (Events of Default), all unmatured Receipts relating thereto (whether or not still attached) shall become void and no payment will be made in respect thereof.

(f) Deduction for unmatured Coupons: If a Note is presented without all unmatured Coupons relating thereto, a sum equal to the aggregate amount of the missing Coupons will be deducted from the amount of principal due for payment; provided, however, that, if the gross amount available for payment is less than the outstanding principal amount of such Note, the sum deducted will be that proportion of the aggregate amount of such missing Coupons which the gross amount actually available for payment bears to the outstanding principal amount of such Note. Each sum of principal so deducted shall be paid in the manner provided in paragraph (a) (Principal) above against presentation and (provided that payment is made in full) surrender of the relevant missing Coupons.

(g) Payments on business days: If the due date for payment of any amount in respect of any Note, Receipt or Coupon is not a business day in the place of presentation, the holder shall not be entitled to payment in such place of the amount due until the next succeeding business day in such place and shall not be entitled to any further interest or other payment in respect of any such delay. In these Conditions, "business day" means, in respect of any place of presentation, any day on which banks are open for presentation and payment of bearer debt securities and for dealings in foreign currencies in such place of presentation and, in the case of payment by transfer to a Euro account as referred to above, on which the TARGET System is open.

(h) Payments other than in respect of matured Coupons: Payments of interest other than in respect of matured Coupons shall be made only against presentation of the relevant Notes at the Specified Office of any Paying Agent outside the United States.

(i) Partial payments: If a Paying Agent makes a partial payment in respect of any Note, Receipt or Coupon presented to it for payment, such Paying Agent will endorse thereon a statement indicating the amount and the date of such payment.

8. Taxation

All payments of principal and interest in respect of the Notes, the Receipts and the Coupons by or on behalf of the Issuer shall be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature ("Taxes") imposed, levied, collected, withheld or assessed by or on behalf of the Republic of Italy or any political subdivision thereof or any authority therein or thereof having power to tax, unless the withholding or deduction of such Taxes is required by law. In that event the Issuer shall pay such additional amounts as will result in receipt by the Noteholders, the Receiptholders and the Couponholders after such withholding or deduction of such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable in respect of any Note, Receipt or Coupon:

(a) presented for payment by, or by a third party on behalf of, the holder who is liable to such Taxes in respect of such Note, Receipt or Coupon by reason of it having some connection with the Relevant Jurisdiction other than a mere holding of the Note, Receipt or the Coupon; or

(b) presented for payment in the Relevant Jurisdiction; or

(c) presented for payment by or on behalf of a holder of Notes, Receipts or Coupons who would have been able to avoid such withholding or deduction by making a declaration of non-residence or other similar claim for an exemption; or

(d) requested more than 30 days after the Relevant Date except to the extent that a holder of such Note, Receipt or Coupon would have been entitled to such additional amounts on presenting such payment Note, Receipt or Coupon for payment on the last day of the period of 30 days; or

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(e) in relation to any payment or deduction on principal, interest or other proceeds of any Note on account of imposta sostitutiva pursuant to Italian Legislative Decree No. 239 of 1 April 1996, as amended or supplemented from time to time, or related implementing regulations (the "Decree No. 239"); or

(f) in circumstances in which the formalities to obtain an exemption from imposta sostitutiva under Decree No. 239 have not been complied with, except where such formalities have not been complied with due to the actions or omissions of the Issuer or its agents; or

(g) in the event of payment to a non-Italian resident legal entity or a non-Italian resident individual, to the extent that interest or other amounts are paid to a non-Italian resident legal entity or a non-Italian resident individual which is resident in a country which does not allow for a satisfactory exchange of information with the Italian tax authorities.

The Issuer will have no obligation to pay additional amounts or otherwise indemnify an investor for any amounts required to be withheld or deducted pursuant to Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986, any regulation or agreements thereunder, any official interpretations thereof, any intergovernmental agreement in place between the United States and another jurisdiction facilitating the implementation thereof or any law implementing an intergovernmental approach thereto to be deducted or withheld by the Issuer, the paying agent or any other party.

In these Conditions, "Relevant Date" means whichever is the later of (1) the date on which the payment in question first becomes due and (2) if the full amount payable has not been received in a city in which banks have access to the TARGET System by the Fiscal Agent on or prior to such due date, the date on which (the full amount having been so received) notice to that effect has been given to the Noteholders, and "Relevant Jurisdiction" means the Republic of Italy or any political subdivision or any authority thereof or therein having power to tax or any other jurisdiction or any political subdivision or any authority thereof or therein having power to tax to which the Issuer becomes subject in respect of payments made by it of principal and interest on the Notes or the Coupons.

Any reference in these Conditions to principal or interest shall be deemed to include any additional amounts in respect of principal or interest (as the case may be) which may be payable under this Condition 8 (Taxation).

If the Issuer becomes subject at any time to any taxing jurisdiction other than the Republic of Italy, references in these Conditions to the Republic of Italy shall be construed as references to the Republic of Italy and/or such other jurisdiction.

9. Events of Default

If any of the following events occurs:

(a) Non-payment: the Issuer fails to pay any amount of principal in respect of the Notes within three days of the due date for payment thereof or fails to pay any amount of interest in respect of the Notes within three days of the due date for payment thereof; or

(b) Breach of other obligations: the Issuer defaults in the performance or observance of any of its other obligations under or in respect of the Notes and such default remains unremedied for 30 days after written notice thereof, addressed to the Issuer by any Noteholder, has been delivered to the Issuer or to the Specified Office of the Fiscal Agent; or

(i) any Indebtedness of the Issuer or any Material Subsidiary is not paid when due or (as the case may be) within any originally applicable grace period;

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(ii) any such Indebtedness becomes due and payable prior to its stated maturity otherwise than at the option of the Issuer or (as the case may be) the relevant Material Subsidiary or (provided that no event of default, howsoever described, has occurred) any person entitled to such Indebtedness; or

(iii) the Issuer or any Material Subsidiary fails to pay when due any amount payable by it under any Guarantee in respect of any Indebtedness within any originally applicable grace period;

provided that the amount of Indebtedness referred to in sub-paragraph (i) and/or sub- paragraph (ii) above and/or the amount payable under any Guarantee referred to in sub- paragraph (iii) above, individually or in the aggregate, exceeds EUR 10,000,000 (or its equivalent in any other currency or currencies); or

(d) Unsatisfied judgment: one or more judgment(s) or order(s) for the payment of an amount in excess of EUR 10,000,000 (or its equivalent in any other currency or currencies), whether individually or in aggregate, is rendered against the Issuer or any Material Subsidiary and either (i) no appeal is filed within the period prescribed by applicable law and such judgment(s) or order(s) continue(s) unsatisfied and unstayed for a period of 30 days after the expiry of the period prescribed for such payment or (ii) an appeal is filed, but no order for suspension by the relevant court is in force and the judgment(s) or order(s) continue(s) unsatisfied until the date(s) specified for payment by the relevant court; or

(e) Security enforced: a secured party takes possession, or a receiver, manager or other similar officer is appointed (or application for any such appointment is made and is not dismissed within 60 days), of the whole or any part of the undertaking, assets and revenues of the Group; or

(f) Insolvency, etc.: (i) the Issuer or any Material Subsidiary becomes insolvent or is unable to pay its debts as they fall due, (ii) an administrator or liquidator is appointed (or application for any such appointment is made and is not dismissed within 60 days) in respect of the Issuer or any Material Subsidiary or the whole or any part of the undertaking, assets and revenues of the Issuer or any Material Subsidiary (other than for the purposes of, or pursuant to, a Permitted Reorganisation), (iii) the Issuer or any Material Subsidiary takes any action for a readjustment or deferment of any of its obligations or makes a general assignment or an arrangement or composition with or for the benefit of its creditors or declares a moratorium in respect of any of its Indebtedness or any Guarantee in respect of any Indebtedness given by it; or

(g) Cessation of business: if the Issuer or any Material Subsidiary ceases, threatens to cease or announces that is shall cease to carry on the whole or substantially the whole of its business or operations (otherwise than for the purposes of, or pursuant to, a Permitted Reorganisation), provided that the occurrence of a Concession Event will not trigger the Event of Default set out in this Condition 9(g). For the avoidance of doubt, the transfer of receivables and securities by the Issuer or any Material Subsidiary in the ordinary course of business will not constitute a cessation of business; or

(h) Winding up, etc.: an order is made or an effective resolution is passed for the winding up, liquidation or dissolution of the Issuer or any Material Subsidiary (otherwise than for the purposes of, or pursuant to, a Permitted Reorganisation); or

(i) Analogous event: any event occurs which under the laws of the Republic of Italy has an analogous effect to any of the events referred to in paragraphs (d) (Unsatisfied judgment) to (h) (Winding up, etc.) above; or

(j) Failure to take action, etc.: any action, condition or thing at any time required to be taken, fulfilled or done in order (i) to enable the Issuer lawfully to enter into, exercise its rights and perform and comply with its obligations under and in respect of the Notes, (ii) to ensure that those obligations are legal, valid, binding and enforceable and (iii) to

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make the Notes, Receipts and the Coupons admissible in evidence in the courts of the Republic of Italy is not taken, fulfilled or done; or

(k) Unlawfulness: it is or will become unlawful for the Issuer to perform or comply with any of its obligations under or in respect of the Notes,

then any Note may, by written notice addressed by the holder thereof to the Issuer and delivered to the Issuer or to the Specified Office of the Fiscal Agent, be declared immediately due and payable, whereupon it shall become immediately due and payable at its principal amount together with accrued interest without further action or formality.

In these Conditions:

"Amiacque" means Amiacque S.r.l., with registered address at Via Rimini 34/36, Milan, Italy;

"Material Subsidiary" means any consolidated Subsidiary that accounts for more than 10 per cent. of Consolidated EBITDA, provided that: (a) if a Person has become a consolidated Subsidiary of the Issuer after the date on which the Annual Consolidated Financial Statements have been prepared, Consolidated EBITDA accounted for by that Subsidiary will be determined by reference to its latest annual financial statements (whether or not audited) and will be consolidated if that Subsidiary itself has Subsidiaries; (b) the Annual Consolidated Financial Statements and the corresponding financial statements of each relevant consolidated Subsidiary will be adjusted (where appropriate) to reflect fairly the proportion of Consolidated EBITDA accounted for by any Person or business subsequently acquired or disposed of; and (c) where a consolidated Subsidiary (the "Intermediate Holding Company") has one or more Subsidiaries at least one of which, under this definition, is a Material Subsidiary, then such Intermediate Holding Company will be deemed to be a Material Subsidiary;

"Permitted Reorganisation" means:

(i) any reorganisation, amalgamation, merger, demerger, consolidation, contribution in kind or restructuring or other similar transaction whereby Amiacque is merged into the Issuer, or all or a part of the assets and undertaking of Amiacque are transferred, sold, contributed, assigned or otherwise vested in the Issuer; or

(ii) in the case of any Material Subsidiary, any reorganisation, amalgamation, merger, demerger, consolidation, contribution in kind or restructuring or other similar transaction, in each case whilst solvent whereby all or a Substantial Part of the assets and undertaking of such Material Subsidiary are transferred, sold, contributed, assigned or otherwise vested in the Issuer and/or another Subsidiary of the Issuer; or

(iii) in the case of the Issuer and to the extent the Issuer is not the surviving entity, any reorganisation, amalgamation, merger, demerger, consolidation, contribution in kind or restructuring or other similar transaction, in each case whilst solvent whereby all or substantially all of the Issuer's assets and undertaking are transferred, sold, contributed, assigned or otherwise vested in a body corporate that is in good standing, validly organized and existing under the laws of the Republic of Italy, and such body corporate (A) assumes as principal debtor in respect of the Notes and (B) continues to carry on all or substantially all of the business of the Issuer; or

(iv) any reorganisation, amalgamation, merger, demerger, consolidation, contribution in kind or restructuring whilst solvent or other similar arrangement on terms previously approved by an Extraordinary Resolution; and

a "Substantial Part" of the assets and undertaking of any Material Subsidiary shall mean such assets, undertaking as account for at least 35 per cent. of the total assets of such Material

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Subsidiary calculated by reference to its latest annual financial statement (whether or not audited).

10. Prescription

Claims for principal shall become void unless the relevant Notes are presented for payment within ten years of the appropriate Relevant Date. Claims for interest shall become void unless the relevant Coupons are presented for payment within five years of the appropriate Relevant Date.

11. Replacement of Notes, Receipts and Coupons

If any Note, Receipt or Coupon is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the Specified Office of the Fiscal Agent, subject to all applicable laws and stock exchange requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer may reasonably require. Mutilated or defaced Notes, Receipts or Coupons must be surrendered before replacements will be issued.

12. Paying Agents

In acting under the Agency Agreement and in connection with the Notes, the Receipts and the Coupons, the Paying Agents act solely as agents of the Issuer and do not assume any obligations towards or relationship of agency or trust for or with any of the Noteholders, Receiptholders or Couponholders.

The initial Paying Agents and their initial Specified Offices are listed below. The Issuer reserves the right at any time to vary or terminate the appointment of any Paying Agent and to appoint a successor fiscal agent and additional or successor paying agents.

Notice of any change in any of the Paying Agents or in their Specified Offices shall promptly be given to the Noteholders.

13. Meetings of Noteholders; Modification

(a) Meetings of Noteholders: The Agency Agreement contains provisions for convening meetings of Noteholders to consider matters relating to the Notes, including the modification of any provision of these Conditions. Any such modification may be made if sanctioned by an Extraordinary Resolution.

In relation to the convening of meetings, quorums and the majorities required to pass an Extraordinary Resolution, the following provisions shall apply in respect of the Notes but are subject to compliance with mandatory laws, legislation, rules and regulations of Italy in force from time to time and, where applicable Italian law so requires, the Issuer's By-laws:

(i) a meeting of Noteholders may be convened by the Issuer and/or the Noteholders' Representative (as defined below) and shall be convened by either of them upon the request in writing of Noteholders holding not less than one-twentieth of the aggregate principal amount of the outstanding Notes;

(ii) a meeting of Noteholders will be validly held if: (a) in respect of a meeting convened to pass a resolution relating to a Reserved Matter, there are one or more persons present being or representing Noteholders holding at least one- half of the aggregate principal amount of the outstanding Notes; or (b) in respect of a meeting convened to pass a resolution that does not relate to a Reserved Matter, (i) in the case of a first meeting (prima convocazione), there are one or more persons present being or representing Noteholders holding at least one-half of the aggregate principal amount of the outstanding Notes, (ii) in the case of a second meeting (seconda convocazione) or of any subsequent adjourned meeting (convocazioni successive), there are one or more persons

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present being or representing Noteholders holding more than one-third of the aggregate principal amount of the outstanding Notes; provided that the Issuer's by-laws may in each case (to the extent permitted under the applicable laws and regulations of the Republic of Italy) provide for a higher quorum; and

(iii) the majority required to pass an Extraordinary Resolution at any meeting (including, where applicable, any adjourned meeting) convened to vote on any resolution will be (a) for voting on any matter other than a Reserved Matter, more than one half of the aggregate principal amount of the outstanding Notes or in the case of a Second or Further Meeting, at least two thirds of the aggregate principal amount of the outstanding Notes represented at the Meeting or (b) for voting on a Reserved Matter, the higher of (i) one or more persons holding or representing not less than one half of the aggregate principal amount of the outstanding Notes, and (ii) one or more persons holding or representing not less than two thirds of the Notes represented at the meeting, provided that, to the extent permitted under applicable provisions of Italian law, the Issuer's by-laws may in each case provide for higher majorities. Any resolution duly passed at any such meeting shall be binding on all the Noteholders, whether or not they are present at the meeting and on all Couponholders.

In this Condition 13 (Meetings of Noteholders; Modification), "Reserved Matter" and "Extraordinary Resolution" have the meaning given to such terms in the Agency Agreement.

(b) Noteholders' Representative: Pursuant to Articles 2415 and 2417 of the Italian Civil Code, a representative of the Noteholders (rappresentante comune degli obbligazionisti or "Noteholders' Representative") may be appointed, inter alia, to represent the interests of Noteholders, such appointment to be made by an Extraordinary Resolution or by an order of a competent court at the request of one or more Noteholders or the Issuer. Each such Noteholders' Representative shall have the powers and duties set out in Article 2418 of the Italian Civil Code.

(c) Modification: The Notes, the Receipts, the Coupons and these Conditions may be amended without the consent of the Noteholders, the Receiptholders or the Couponholders to correct a manifest error. In addition, the parties to the Agency Agreement may agree to modify any provision thereof, but the Issuer shall not agree, without the consent of the Noteholders, to any such modification unless it is of a formal, minor or technical nature, it is made to correct a manifest error or it is, in the opinion of such parties, not materially prejudicial to the interests of the Noteholders.

14. Further Issues

The Issuer may from time to time, without the consent of the Noteholders, Receiptholders or the Couponholders, create and issue further notes having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest) so as to form a single series with the Notes.

15. Notices

Notices to the Noteholders shall be valid if published in a leading English language daily newspaper published in London with an international circulation (which is expected to be the Financial Times) and (so long as the Notes are listed on a securities market of the Irish Stock Exchange and it is a requirement of applicable laws and regulations or the rules of the Irish Stock Exchange) a leading newspaper having general circulation in the Republic of Ireland or on the website of the Irish Stock Exchange (www.ise.ie) or, if such publication is not practicable, in a leading English language daily newspaper having general circulation in Europe. Any such notice shall be deemed to have been given on the date of first publication. Receiptholders and Couponholders shall be deemed for all purposes to have notice of the contents of any notice given to the Noteholders.

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16. Governing Law and Jurisdiction

(a) Governing law: The Notes and any non-contractual obligations arising out of or in connection with the Notes are governed by English law except for the provisions relating to meetings of Noteholders, which are governed by Italian law.

(b) English courts: The courts of England have exclusive jurisdiction to settle any dispute (a "Dispute") arising out of or in connection with the Notes (including a dispute regarding any non-contractual obligation arising out of or in connection with the Notes).

(c) Appropriate forum: The Issuer agrees that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that it will not argue to the contrary.

(d) Rights of the Noteholders to take proceedings outside England: Notwithstanding Condition 16(b) (English courts), any Noteholder may take proceedings relating to a Dispute ("Proceedings") in any other courts with jurisdiction. To the extent allowed by law, Noteholders may take concurrent Proceedings in any number of jurisdictions.

(e) Service of Process: The Issuer agrees that the documents which start any Proceedings and any other documents required to be served in relation to those Proceedings may be served on it by being delivered to Law Debenture Corporate Services Limited at fifth Floor, 100 Wood Street, London EC2V 7EY, or to such other person with an address in England or Wales and/or at such other address in England or Wales as the Issuer may specify by notice in writing to the Noteholders. Nothing in this paragraph shall affect the right of any Noteholder to serve process in any other manner permitted by law. This Condition applies to Proceedings in England and to Proceedings elsewhere.

There will appear at the foot of the Conditions endorsed on each Note in definitive form the names and Specified Offices of the Paying Agents as set out at the end of this Prospectus.

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SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM

The Notes will initially be in the form of the Temporary Global Note which will be deposited on or around the Closing Date with a common safekeeper for Euroclear and Clearstream, Luxembourg.

The Notes will be issued in new global note ("NGN") form. On 13 June 2006 the European Central Bank (the "ECB") announced that Notes in NGN form are in compliance with the "Standards for the use of EU securities settlement systems in ESCB credit operations" of the central banking system for the euro (the "Eurosystem"), provided that certain other criteria are fulfilled. At the same time the ECB also announced that arrangements for Notes in NGN form will be offered by Euroclear and Clearstream, Luxembourg as of 30 June 2006 and that debt securities in global bearer form issued through Euroclear and Clearstream, Luxembourg after 31 December 2006 will only be eligible as collateral for Eurosystem operations if the NGN form is used.

The Notes are intended to be held in a manner which would allow Eurosystem eligibility - that is, in a manner which would allow the Notes to be recognised as eligible collateral for Eurosystem monetary policy and intra-day credit operations by the Eurosystem either upon issue or at any or all times during their life. Such recognition will depend upon satisfaction of the Eurosystem eligibility criteria.

The Temporary Global Note will be exchangeable in whole or in part for interests in the Permanent Global Note not earlier than 40 days after the Closing Date upon certification as to non-U.S. beneficial ownership. No payments will be made under the Temporary Global Note unless exchange for interests in the Permanent Global Note is improperly withheld or refused. In addition, interest payments in respect of the Notes cannot be collected without such certification of non-U.S. beneficial ownership.

The Permanent Global Note will become exchangeable in whole, but not in part, for Notes in definitive form ("Definitive Notes") in the denomination of EUR100,000 each and integral multiples of EUR1,000 in excess thereof, up to and including EUR199,000 each at the request of the bearer of the Permanent Global Note if (a) Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business or (b) any of the circumstances described in Condition 9 (Events of Default) occurs.

So long as the Notes are represented by a Temporary Global Note or a Permanent Global Note (each, a "Global Note") and the relevant clearing system(s) so permit, the Notes will be tradeable only in the minimum authorised denomination of EUR100,000 and higher integral multiples of EUR1,000, notwithstanding that no Definitive Notes will be issued with a denomination above EUR199,000.

Whenever the Permanent Global Note is to be exchanged for Definitive Notes, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such Definitive Notes, duly authenticated and with Receipts and Coupons attached, in an aggregate principal amount equal to the principal amount of the Permanent Global Note to the bearer of the Permanent Global Note against the surrender of the Permanent Global Note to or to the order of the Fiscal Agent within 30 days of the bearer requesting such exchange.

If:

(a) Definitive Notes have not been delivered by 5.00 p.m. (London time) on the thirtieth day after the bearer has duly requested exchange of the Permanent Global Note for Definitive Notes; or

(b) the Permanent Global Note (or any part of it) has become due and payable in accordance with the Conditions or the date for final redemption of the Notes has occurred and, in either case, payment in full of the amount of principal falling due with all accrued interest thereon has not been made to the bearer in accordance with the terms of the Permanent Global Note on the due date for payment, then the Permanent Global Note (including the obligation to deliver Definitive Notes) will become void at 5.00 p.m. (London time) on such thirtieth day (in the case of (a) above) or at 5.00 p.m. (London time) on such due date (in the case of (b) above) and the bearer of the Permanent Global Note will have no further rights thereunder (but without prejudice to the rights which the bearer of the Permanent Global Note or others may have under a deed of covenant dated 2 August 2017 (the "Deed of Covenant") executed by the Issuer). Under the Deed of Covenant, persons shown in the records of Euroclear and/or Clearstream,

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Luxembourg as being entitled to an interest in the Permanent Global Note will acquire directly against the Issuer all those rights to which they would have been entitled if, immediately before the Permanent Global Note became void, they had been the holders of Definitive Notes in an aggregate principal amount equal to the principal amount of Notes they were shown as holding in the records of Euroclear and/or (as the case may be) Clearstream, Luxembourg.

In addition, the Temporary Global Note and the Permanent Global Note will contain provisions which modify the Terms and Conditions of the Notes as they apply to the Temporary Global Note and the Permanent Global Note. The following is a summary of certain of those provisions:

Payments: All payments in respect of the Temporary Global Note and the Permanent Global Note will be made against presentation and (in the case of payment of principal in full with all interest accrued thereon) surrender of the Temporary Global Note or (as the case may be) the Permanent Global Note to or to the order of any Paying Agent and will be effective to satisfy and discharge the corresponding liabilities of the Issuer in respect of the Notes. On each occasion on which a payment of principal or interest is made in respect of the Temporary Global Note or (as the case may be) the Permanent Global Note, the Issuer shall procure that the payment is entered pro rata in the records of Euroclear and Clearstream, Luxembourg.

Payments on business days: In the case of all payments made in respect of the Temporary Global Note and the Permanent Global Note "business day" means any day on which the TARGET System is open.

Notices: Notwithstanding Condition 15 (Notices), while all the Notes are represented by the Permanent Global Note (or by the Permanent Global Note and/or the Temporary Global Note) and the Permanent Global Note is (or the Permanent Global Note and/or the Temporary Global Note are) deposited with a common safekeeper for Euroclear and Clearstream, Luxembourg, notices to Noteholders may be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg and, in any case, such notices shall be deemed to have been given to the Noteholders in accordance with Condition 15 (Notices) on the date of delivery to Euroclear and Clearstream, Luxembourg. In addition, so long as the Notes are admitted to trading on the Irish Stock Exchange and the rules of the Irish Stock Exchange so require, such notices will also be published in a leading newspaper having general circulation in the Republic of Ireland or be published on the website of the Irish Stock Exchange (www.ise.ie).

Accountholders: For so long as all of the Notes are represented by one or both of the Global Notes and such Global Note(s) is/are held on behalf of Euroclear and/or Clearstream, Luxembourg, each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular principal amount of Notes (each an "Accountholder") (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the principal amount of such Notes standing to the account of any person shall be conclusive and binding for all purposes) shall be treated as the holder of that principal amount for all purposes (including but not limited to, for the purposes of any quorum requirements of, or the right to demand a poll at, meetings of the Noteholders and giving notices to the Issuer pursuant to Condition 9 (Events of Default) and Condition 6(c) (Redemption at the option of Noteholders)) other than with respect to the payment of principal and interest on the principal amount of such Notes, the right to which shall be vested, as against the Issuer solely in the bearer of the relevant Global Note in accordance with and subject to its terms. Each Accountholder must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for its share of each payment made to the bearer of the relevant Global Note.

Cancellation: Cancellation of any Note represented by a Global Note and required by the Terms and Conditions of the Notes to be cancelled following its redemption or purchase will be effected by Euroclear and Clearstream, Luxembourg making the appropriate entries in their respective records to reflect such cancellation.

Prescription: Claims against the Issuer in respect of principal and interest on the Notes while the Notes are represented by the Permanent Global Note will become void unless it is presented for payment within a period of 10 years (in the case of principal) and five years (in the case of interest) from the appropriate Relevant Date (as defined in Condition 8 (Taxation)).

Put Option: For so long as all of the Notes are represented by one or both of the Global Notes and such Global Note(s) is/are held on behalf of Euroclear and/or Clearstream, Luxembourg, the option of the Noteholders provided for in Condition 6(b) (Redemption at the option of Noteholders) may be exercised

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by an Accountholder giving notice to the Fiscal Agent in accordance with the standard procedures of Euroclear and Clearstream, Luxembourg (which may include notice being given on his instruction by Euroclear or Clearstream, Luxembourg or any common safe-keeper for them to the Fiscal Agent by electronic means) of the principal amount of the Notes in respect of which such option is exercised and at the same time presenting or procuring the presentation of the relevant Global Note to the Fiscal Agent within the time limits set forth in that Condition.

Redemption for Taxation Reasons: The option of the Issuer provided for in Condition 6(b) (Redemption for tax reasons) shall be exercised by the Issuer giving notice to the Noteholders and Euroclear and/or Clearstream, Luxembourg within the time limits set out in, and containing the information required by, the relevant Condition.

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DESCRIPTION OF THE ISSUER

Overview

CAP Holding S.p.A. (the "Issuer" or "CAP Holding") is a company limited by shares (società per azioni) incorporated in Italy on 30 May 2000 in accordance with the provisions of the Italian Civil Code. Its registered office and principal place of business is at Via del Mulino 2, Assago (MI), Italy. It is registered with the Companies' Register of Milan with registration, Fiscal Code and VAT number 13187590156. The Issuer and its subsidiaries (the "Group") operate in the integrated water service, as defined pursuant to Legislative Decree 152/2006, ("IWS") industry in Northern Italy, with a particular focus on providing services in the "Optimal Territorial Area" (Ambito Territoriale Ottimale – "ATO") of the Metropolitan Area (città metropolitana) of Milan, excluding the municipality of Milan (the "ATO Metropolitan Milan") and acting as manager, with the role of wholesaler, for part of the areas under the competence of the ATO of Monza and Brianza (the "ATO Monza Brianza"). For more details about the IWS, see "— Business" below. The Group is among the main players in the Italian IWS market in terms of population served and water extracted. The Group operates in a geographic area that is among the most industrialised and economically developed in Italy and includes both residents (approximately 1.9 million as of 31 December 2016) and commuters. (Source: Fondazione Utilitatis - Blue Book 2017).

The management of the Issuer's main operations is regulated by:

(i) a concession agreement dated 20 December 2013 between CAP Holding and the competent office of the ATO Metropolitan Milan (i.e. the Ufficio d'Ambito), as subsequently amended on 29 June 2016 (the "Metropolitan Area of Milan Concession"); and

(ii) a concession agreement dated 29 June 2016 entered into between CAP Holding and the competent office of the ATO Monza Brianza (i.e. the Ufficio d'Ambito) - the "Monza Brianza Concession" and, together with the Metropolitan Area of Milan Concession, the "Concession Agreements") pursuant to which the Issuer operates as wholesaler in the neighbouring territorial areas (zone di interambito) of the Province of Monza and Brianza.

The Concession Agreements will expire on 31 December 2033.

In addition, the Issuer owns a minority stake in Pavia Acque S.c.a.r.l., the IWS provider for municipalities in the Province of Pavia, and provides certain services in four municipalities in the Province of Varese and the Province of Como.

The table below shows certain selected financial information of the Group for the years ended 31 December 2016 and 2015.

For the year ended 31 December 2016 2015(1) ITA GAAP ITA GAAP (audited) (audited) In Euro million, except where otherwise stated Total revenues ...... 260,001 239,694 Operating expenses ...... (186,357) (162,302) EBITDA (2) ...... 117,285 106,989 % Total revenues ...... 45.1% 44.6% EBIT (3) ...... 51,443 42,175 % Total revenues ...... 19.8% 17.6% Net profit of the year ...... 29,483 20,402 ______

(1) Figures restated for comparative purposes following reclassification of income statement line items pursuant to Italian Legislative Decree 139/2015. (2) EBITDA is calculated as profit or loss for the year adjusted for the following line items: (i) current, deferred and advanced taxes on the income, (ii) total adjustments, (iii) total financial income and expenses, (iv) amortisation, depreciation and write-downs, (v) provisions for risks and (vi) other provisions. See also "Presentation of Financial Information".

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(3) EBIT is calculated as profit or loss for the year adjusted for (i) current, deferred and advanced taxes on the income, (ii) total adjustments, (iii) total financial income and expenses. See also "Presentation of Financial Information". The Issuer may be contacted by telephone at +39 02 825021 and by email at the following certified email address: [email protected].

In-house company

The Issuer is an in-house company entirely owned by public entities - i.e. the municipalities located in the ATO Metropolitan Milan and by part of the municipalities located in the ATO Monza Brianza, as well as certain municipalities in the provinces of Pavia, Como and Varese (the "Shareholding Municipalities") - and is entitled to manage the IWS according to the in-house provision mechanism (see "Regulation— Water Business—In house providing mechanism and requirements"), as it meets the following requirements and conditions:

(i) the Shareholding Municipalities own the entire shareholding of the Issuer;

(ii) more than 80 per cent. of the activities of the Issuer relates to the performance of tasks entrusted to it by the Shareholding Municipalities; and

(iii) the Shareholding Municipalities exercise over the Issuer a control similar (controllo analogo) to that exercised over their own activities (servizi), pursuant to which both strategic objectives and significant decisions of the Issuer are subject to the decisive influence of the Shareholding Municipalities.

In order to ensure that the Shareholding Municipalities may exercise over the Issuer control in a similar way to that exercised over their own activities, as required by point (iii) above, the by-laws of the Issuer provide for the following controlling mechanisms:

 the board of directors, including its chairman, is appointed by the shareholders meeting;

 within the corporate governance structure of the Issuer, a Strategic Guidelines Committee (Comitato di Indirizzo Strategico) has been established to allow shareholders to exercise control over the Issuer. The "Strategic Guidelines Committee" is entrusted with the power to define strategic guidelines for the Group;

 the board of directors must provide to the Strategic Guidelines Committee after each quarter a report on the general operating performance of the Issuer, the main operations in terms of relevance and characteristics carried out by the Issuer or the Group and, in any case, the board of directors reports on the operations in which the members of the board of directors or the board itself shall have an interest on their own or third parties.

Strategy

The Group's mission is to ensure the best quality and efficiency standards in its business, operating with a high level of expertise and competitiveness, fulfilling the Shareholding Municipalities guidelines and its mandate as a public service undertaking for the benefit of the communities served.

The primary business goals of the Group are:

 ensuring service quality and environmental quality in its activities;

 increasing operating efficiency, improving operating margins and controlling costs;

 developing and renewing integrated water service networks and plants.

The Group intends to achieve such long-term goals through the implementation of the following principles and actions:

 focusing on full implementation of investment plan for the IWS, consistently with its long term funding strategy;

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 developing operating efficiencies throughout the whole value chain of the IWS, in order to achieve and maintain a strong performance in water provisions, sewage and purification;

 introducing the best available technologies for IWS management, increasing water and service quality;

 increasing the competence of personnel through information and training activities and fulfilling the contractual quality standards set by the national authority for electricity, gas and water services (Autorità per l'energia elettrica il gas ed il sistema idrico, "AEEGSI").

History and development

In 1928 the municipalities of Paderno Dugnano, Limbiate, Cusano Milanino and Cormano established a public entity responsible for the construction of aqueducts. Such public entity was the "Consortium for Potable water for the Municipalities of the basin of Seveso river" (Consorzio per l'Acqua Potabile ai Comuni del bacino del Seveso) (the "Original Consortium").

In 1932, the Original Consortium was transformed into the Consortium for the Potable Water of the Municipalities of the Province of Milan (Consorzio per l'Acqua Potabile ai Comuni della Provincia di Milano - CAP) (the "Consortium"), in order to expand its operations within the territory of Milan.

Starting from such year, an increasing number of municipalities decided to entrust the Consortium with the construction and management of their aqueducts: between 1932 and the end of the 1950s, over 130 municipalities joined the Consortium.

In 1994 the Galli Law (see "Regulatory Framework") entered into force and the municipalities assembly approved the establishment of a "special undertaking" (azienda speciale) under the name of CAP Milano, Consorzio per l'Acqua Potabile ("CAP Milano").

In May 2000, local authorities in the Province of Milan established and became shareholders of CAP Holding. A year later, in June 2001, CAP Milano was transformed into a company limited by shares (società per azioni) and CAP Gestione S.p.A. was incorporated as a subsidiary of the Issuer. In March 2002, CAP Impianti S.p.A., a new subsidiary of the Group, was incorporated.

In 2005, in accordance with relevant legislation requiring direct shareholding of local authorities in companies carrying out local public services, the merger by incorporation of CAP Impianti S.p.A in CAP Holding was approved and carried out.

Since 2008, CAP Holding has been responsible for planning and undertaking investments, and carrying out extraordinary maintenance operations, as well as the strategic management of IWS networks and plants. In addition, in 2008 Amiacque S.r.l. was incorporated as a subsidiary of the Issuer and was tasked with the planning and execution of works on IWS networks and plants.

In 2013 the Group expanded its operations through the merger by incorporation of Ianomi S.p.A., Tam S.p.A. and Tasm S.p.A. in CAP Holding. Such companies responsible for the management of treatment, sewage networks and plants respectively for the northern area of Milan and part of the Province of Monza and Brianza, for the western area of Milan and for the southern area of Milan. As a result of these mergers, the Group became the sole manager of the IWS in the territory of the province of Milan (excluding the Municipality of Milan) and in several municipalities of the provinces of Monza and Brianza, Pavia, Como, Lodi and Varese. However, in 2014, through the demerger of certain assets of CAP Holding for the benefit of the newly established Patrimoniale Idrica Lodigiana S.r.l., CAP Holding exited from the territorial ambit of the Province of Lodi.

On 20 December 2013 the Province of Milan entrusted the management of the IWS on its territory (excluding the Municipality of Milan) to the Group until 31 December 2033.

In April 2015, the Group expanded the territorial scope of its operations in the north-eastern area of the Metropolitan Area of Milan with the merger by incorporation of Idra Milano S.r.l. into CAP Holding.

During 2015, 2016 and 2017, CAP Holding and Brianzacque S.r.l., the manager of the IWS in the Province of Monza and Brianza, have swapped assets in relation to the industrial and commercial

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activities realised for several municipalities in the north-eastern area of the Metropolitan Area of Milan and in the south-eastern area of the province of Monza and Brianza.

In 2016, the Group was involved in the negotiations relating to the establishment of the network of companies "water alliance – water of Lombardy" ("Water Alliance"). Water Alliance aims at fostering collaboration between several in-house providers in the Lombardy region, with a view to improving the performance and the service provided to users and to safeguard the role of the public management of water. The companies involved are Brianzacque S.r.l., Lario Reti Holding S.p.A., Padania Acque S.p.A. of Cremona, Pavia Acque s.c.a.r.l., S.Ec.Am S.p.A. of Sondrio, Società Acqua Lodigiana (SAL) S.r.l. of Lodi, Uniacque S.p.A. of Bergamo. Together with the Issuer they provide IWS services for approximately 5.5 million inhabitants, accounting for more than 50 per cent. of the residents in the Lombardy region.

Group Structure

The following diagram illustrates the Group structure, including minority shareholdings as of the date of this Prospectus.

subsidiaries / minority under liquidation / holding company shareholdings winding up

AMIACQUE TASM S.r.l. Romania S.r.l. CAP Holding PAVIACQUE Rocca Brivio S.c.a.r.l. Sforza S.r.l.

CAP Holding manages the networks and plants for the IWS under the Concession Agreements and is responsible for strategy and financial control over such IWS business. It focuses on the planning and implementation of investments in the water infrastructures in compliance with the Concession Agreements.

As of the date of this Prospectus, CAP Holding controls the following companies:

 AMIACQUE S.r.l. ("Amiacque"), located in Milan, with a share capital of Euro 23,667,606.16 entirely owned by the Issuer as of the date of this Prospectus. Amiacque has the specific purpose of developing and managing the activities related to the IWS. As specified in its by-laws, the scope of the business activities of Amiacque is currently restricted to those activities entrusted by the Issuer under the Concession Agreements.

 Rocca Brivio Sforza S.r.l. (in liquidation), located in San Giuliano Milanese, subject to a winding up process since 21 April 2015. It has a share capital equal to Euro 53,100.00 and the Issuer owns 51.04 per cent. thereof as of the date of this Prospectus. The company has as its object the "safeguarding and enhancement of the monumental historical complex of Rocca Brivio".

Furthermore, CAP Holding owns equity stakes in the following companies:

 T.A.S.M. Romania S.r.l. ("TASM"), with registered office in Bucharest (Romania) and a share capital of Euro 575,758.00, whose 40 per cent. is owned by the Issuer as of the date of this Prospectus. TASM is under a winding up procedure conducted by the appointed liquidator.

 Pavia Acque S.c.a.r.l. ("Pavia Acque"), located in Pavia and with a share capital of Euro 15,048,128.00. As of the date of this Prospectus, the Issuer owns 10.1 per cent. of the quotas of Pavia Acque. Pavia Acque manages the IWS in the ATO of Pavia. In order to manage the IWS, Pavia Acque manages (i) the commercial relationship with users; (ii) its properties, the networks, plants and other assets which are complementary to the IWS; (iii) the activities related to plans,

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projects, tenders and infrastructure investments aimed at empowering, expanding, renewing and extra-ordinary maintaining of networks and plants. As specified in its By-laws, in order to pursue its business scope Pavia Acque operates through its business organisation and through the business organisation, the service and the know-how of its shareholders.

Business

The Group operates in the IWS business providing services in the Relevant ATOs. The Group's activities can be summarised as follows:

 Aqueduct. Includes management of water supply, water treatment, water distribution to clients (including through 156 water kiosks located in several Shareholding Municipalities), wells (for irrigation of public green areas) management; and

 Sewage. Includes sewage network management and the collection of industrial and household wastewater; and

 Treatment. Includes treatment of wastewater and its reuse or return to the environment.

The Issuer also performs the following activities in the context of the IWS managed pursuant to the Concession Agreements:

 customer management activities, mainly consisting of: (i) billing and commercial activities, (ii) customer connection and metering and (iii) customer relationship management; and

 laboratory testing and controls, related to water quality control and laboratory chemical analyses, as well as wastewater and purification plant controls.

The geographical area in which the Issuer operates is entirely located in the Lombardy region in Northern Italy and consists of (i) the Metropolitan Area (città metropolitana) of Milan, excluding the municipality of Milan, where the Group manages the local IWS service, (ii) several municipalities of the Province of Monza and Brianza where the Group operates as wholesaler, (iii) the municipalities in the Province of Pavia (through Pavia Acque, which manages the local IWS service) and (iv) the municipalities of Castellanza (where the Group manages the IWS service) and Gorla Minore (where the Group manages water treatment service activities only) in the Province of Varese and in the municipalities of Cabiate and Mariano Comense in the Provice of Como, where the Group manages water treatment service activities only. Such geographical area contains more than 2 million inhabitants.

The Issuer carries out its activities on the basis of concessions granted by local authorities. For a description of the main concessions operated by the Group, see "Key Contracts and Concession".

As of 31 December 2016, the Group served approximately 324 thousand non-industrial customers and 1,034 industrial customers. The table below shows the number of municipalities and inhabitants covered by the operations of the Group as of 31 December 2016.

(1) Services Municipalities Inhabitants Aqueduct 159 2,072,024 Sewage 138 1,920,871 Treatment 146 2,307,051 ______

(1) Source: Group's 2016 sustainability report

The services of the Group are performed in accordance with high quality standards: to this end, the Group has obtained UNI EN ISO 9001 quality certification, UNI EN ISO 14001 environmental certification, UNI EN CEI ISO 50001 energy management certification, SA 8000 and BS OHSAS 18001:2007 business management certifications. The Issuer has obtained the ISO 17025 accreditation for the Pero Waters Laboratory and the ISO 17025 Accreditation for the Milan Drinking Laboratory. The Issuer is also certified ISO 22000 for the management of water kiosks.

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Aqueduct

Water supply and distribution

The Group's aqueduct operations involve the extraction of fresh water, its preparation for human consumption (in case of drinkable water) and then its distribution and sale directly to retail users. Water distributed by the Group is extracted from 890 wells drawing water from deep underground aquifers (approximately 100 meters underground); raw water is then treated in order to be safe for drinking and then pumping stations feed the system for a total final supply to users, which in 2016 was equal to approximately 226 million cubic metres.

The total length of the distribution network is approximately 7,500 kilometres as of 31 December 2016. Water pipes are mainly made of steel, cast iron and ductile iron, with diameters ranging between 50 mm and 800 mm. The Group operates also 156 water kiosks located in several Shareholding Municipalities, allowing inhabitants to draw drinkable water from the distribution system.

The Group's water distribution system comprises several inter-connected networks and plants, which are connected to various sources in order to ensure a continuous supply of water even if a particular source or plant is affected by a temporary interruption or shutdown. In particular, the Group owns 131 surge tanks as reservoirs allowing the Group to store excess water in the distribution system (e.g. during periods of reduced water consumption, such as at night), to meet increases in water demand from the distribution system as well as to control the water pressure in the distribution system.

In addition, the Group operates several low-depth aquifers (up to 50 meters underground) drawing water for non-drinkable uses and especially for agricultural purposes.

Water treatment

Before being distributed to customers and final users, approximately 53 per cent. of water extracted from wells is subjected to specific treatment in order to reduce or eliminate compounds and substances exceeding the limits permitted under applicable law. At each of the pumping stations raw water from wells is treated in function of the specific-site characteristics and disinfected in order to eliminate viruses and bacteria. The remaining 47 per cent. of water extracted can be distributed without specific treatments due to its chemical, physical and microbiological characteristics.

In order to ensure drinking water quality, the Group performs a high number of laboratory controls in its laboratories and onsite, both at plants and stations and along the distribution network. In 2016, the Group's laboratories analysed approximately 25 thousand samples, for a total of more than 600 thousand parameters, including chemical, physical and microbiological indicators.

Monitoring distribution network

The Group regularly monitors its distribution network through periodic inspections and preventive tests, in accordance with the Group's leakage control plan, aimed at establishing the durability of the Group's plants and equipment, as well as through periodic performance tests aimed at verifying the distribution network's operating pressure, capacity and leaks.

In 2016, according to the calculation method of the AEEGSI on real leakages, the Group's network technical losses, on average, were equal to 17.8 per cent., below the national average (32 per cent. in 2014, source: CENSIS).

Sewage

Sewage network

Wastewater managed under the Group's operations can be classified as follows:

 domestic or non-industrial wastewater produced by households and small offices and containing both organic substances and substances derived from products used for domestic cleaning and personal hygiene (sometimes referred to as black wastewater);

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 industrial wastewater, released during production processes and typically containing a high concentration of pollutants; and

 meteoric wastewater produced by climatic conditions (i.e. rainwater, floods etc.) collected from road drains and gutters (sometimes referred to as white wastewater).

Maintenance of sewage network

The Group provides for the disposal of urban sewage through its network including over 6,400 km of pipeline (as of 31 December 2016). Sewage systems requires ordinary and extraordinary maintenance, which is either performed by Group's employees or is outsourced. Regular ordinary maintenance operations consist of monitoring the efficiency of the elevation plants, removing sediment and obstacles that may obstruct water flows and repairing public manholes. Extraordinary maintenance operations include renovation, restructuring or repairs to improve operating conditions, hydraulic efficiency and the safety of the network. The Group employs specialised internal maintenance technicians for the supervision of ordinary and extraordinary operations and outsources to selected firms a relevant part of the maintenance works. The Group defines a specific periodic program for sewage network inspection and cleaning, performed both by internal and outsourced teams.

Treatment

Treatment service management

The treatment services of the Group include the construction, management and maintenance operations related to urban wastewater (domestic and industrial) treatment plants connected to sewage networks. In order to restore water quality to the appropriate level for the final user, the purification activity includes sludge treatment. As of 31 December 2016, the Group operated 59 treatment plants.

The Group's treatment service is subject to stringent final drainage quality levels. The disposal of the residual sludge produced by the Group's treatment plants is usually targeted at agricultural or energy recovery uses.

Maintenance of wastewater purification plants

The Group is responsible for the ordinary and extraordinary maintenance of its treatment plants. The Issuer monitors its main plants 24 hours a day with assistance during business hours by a specialist staff.

The other plants are monitored through regular visits, third party services for maintenance and inspections and a remote control system, which is used to monitor the operational efficiency and status of all its plants.

The Issuer conducts quality, environment and product quality control on treated water and residual wastewater. The Issuer monitors and tests the chemical, physical and microbiological characteristics of its fresh water to ensure compliance with current environmental standards.

Investments

The Group's investment policies are aimed at the renewal, strengthening and modernisation of its IWS assets through the extraordinary maintenance of existing assets and building of new assets, in order for the Group to reach higher quality service standards, in line with both national and international best practices.

The Group's investments (excluding increases in assets due to external growth of the Group) increased from €63.5 million in 2014, to €78.3 million in 2015 and €80.7 million in 2016. In the same period, the investments/inhabitants (approximately 1.9 million) index improved to €42.5 in 2016 from €41 in 2015 and €33.1 in 2014.

Despite these excellent results, if compared with national data, they are still far from the best European countries, where this index reaches values around 80/100 € per inhabitant. We must yet remember that in other European countries these investment level is mainly financed by water tariff of four €/mc or more, that is around four times the ones that CAP Holding charges to its customers.

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In addition, the Group invests also in energy saving projects, information technology and extraordinary maintenance of its properties. In addition, such additional investments are connected to the IWS.

The Group has approved an investment plan for the period 2017-2021 (the "Investment Plan"), it is made by following medium-long term objectives that inspired CAP Holding strategy and that are in coherence with international guidelines, European, national, regional and local regulations, as well as with the critical issues classification of the Programma degli Interventi established by AEEGSI:

1. quality of water supplied to customers;

2. sewers;

3. quality of water introduced into the environment;

4. quantity of water introduced into the environment;

5. cost saving.

In addition, the Investment Plan includes the development of a "circular economy" policy connected to the IWS. Circular economy is based on a sustainable, competitive, low carbon approach with the aim of recovering materials, resources and energy, as well as reducing waste production.

Within an evolving European and Italian regulatory framework, the Group believes that the IWS can play a lead role in the circular economy through the recovery and reuse of waste originated by industrial and agricultural production cycles.

In particular, the IWS activities of the Group can recover materials, organic chemicals (like biopolymers or cellulose) and nutrients (like phosphorus), to be reused in industry or agricultural processes, in accordance with European Regulation EUCOM (2016) 15 on the use of organic fertiliser, whose aim is to enhance the large-scale production into the European Union of fertiliser obtained by national, organic or secondary raw materials, in accordance with the circular economy model, thanks to waste processing.

Finally, wastewater can also be used for the production of energy or bio fuels, like bio methane, usable for car traction.

The economic, environmental and social impact of these projects is further important for the territory in which the Group operates due to a lack of self-sufficiency in plants dedicated to organic waste treatment as a consequence of the increasing recycling in the cities of Metropolitan City of Milan.

In light of this, the Group's existing treatment plants, subject to an optimisation and renovation process, can represent the focal point of the development of a long-term strategic plan for the management, treatment and recovery of sludge and organic waste.

Financing

As of 31 December 2016, the Group had €125 million of total financial indebtedness.

Set forth below is a description of the Group's significant indebtedness outstanding as of the date of this Prospectus.

Long-term facility agreements with Cassa Depositi e Prestiti S.p.A.

The Issuer is party, as borrower, to several facility agreements entered into with Cassa Depositi e Prestiti S.p.A. ("CDP") as lender (the "CDP Agreements"). As of 31 December 2016, the indebtedness drawn under the CDP Agreements was equal to €19.6 million.

Maturity and repayment requirements

Loans under the CDP Agreements are repayable in instalments every six months. The longer term loans, which were drawn under the relevant CDP Agreement in 2001 and 2002, will expire on 31 December 2022.

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Voluntary Prepayment

Prepayments are permitted and are subject to certain limitations and payment of breakage costs.

Interest rate

The interest rate applicable to indebtedness under the CDP Agreements is almost exclusively at a fixed rate and may range from 4.6 per cent. to 7.5 per cent. per annum depending on the individual loans. The Issuer pays accrued interest on the loan on the last day of each interest period, which occurs every six months.

Covenants

The CDP Agreements contain certain customary covenants, including, inter alia: (i): undertaking to use the proceeds of the loans for investments of public interest; (ii) specific advertising obligations for works carried out using this financing.

Withdrawal rights and termination events

The loans under the CDP Agreements can be withdrawn upon CDP request in specific cases such as the failure to meet the requirement of the public shareholding or, in accordance with the principle of the purpose of the loan, the unauthorized use of the financing for an expense other than the one based on the formal concession.

Long-term facility agreement with Banca OPI S.p.A. (now Intesa Sanpaolo S.p.A.)

On 29 May 2006 the Issuer entered into a facility agreement (the "ISP 2006 Agreement") for a maximum total amount equal to €20 million (€12.4 million outstanding as of 31 December 2016) entered into, by and between the Issuer, as borrower, and Banca Opi S.p.A. (now Intesa Sanpaolo S.p.A.) ("ISP") as lender.

Maturity and repayment requirements

The loan is repayable in 2 pre-amortised instalments and 40 instalments payable every six months, with the last instalment due on 31 December 2026

Prepayment

Voluntary prepayments under the ISP 2006 Agreement are permitted and are subject to certain conditions, limitations and payment of breakage costs.

Furthermore the ISP 2006 Agreement includes also mandatory prepayment provisions related, among other things, to the following events: (i) the Issuer makes certain voluntary prepayment, in whole or in part, of any financing other than the ISP 2006 Agreement, that could not allow the repayment of the present debt; (ii) the Issuer lacks the punctual and integral satisfaction of any obligations assumed under the ISP 2006 Agreement; (iii) failure to reimburse all the amounts due under the contract and/or in connection with the contract; (iv) the public shareholders of the Issuer cease to own, directly or indirectly, a participation at least equal to 51 per cent. of the share capital of the Issuer; (v) declaration of bankruptcy, other concurrency procedures or executive procedures of the Issuer; (vi) cessation of the Issuer or substantial modification of its business. Mandatory prepayment is subject to payment of breakage costs too, up to 2 per cent. of the ISP's outstanding credit.

Interest rate

The interest rate is fixed and is equal to 4.7960 per cent. per annum. The Issuer pays accrued interest on the loan on the last day of each interest period, which occurs every six months.

Security or other creditor's protection mechanisms

The Issuer has undertaken under the ISP 2006 Agreement to credit into a bank account held with ISP (the "ISP Bank Account"), amounts of cash in order to ensure the regularity of the payments under the loans.

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In addition, the Issuer granted irrevocable instructions and a mandate to ISP on each relevant semi-annual repayment date, to use such cash credit on the ISP Bank Account, up to the amounts due, for the repayment of the relevant six-monthly instalment (and the relevant interests).

Covenants

The ISP 2006 Agreement contains certain customary covenants. Such covenants include, inter alia that the Issuer must: (i) provide certain financial and other information including annual financial statements; (ii) the Issuer undertakes to allocate the sums deriving from this funding solely for the realization of the investment plan 2004/2006 and to provide the ISP any information on the progressive realization of these investments.

No pledge over the balance of the ISP Account is granted in favour of ISP.

Withdrawal rights and termination events

The ISP 2006 Agreement contains customary withdrawal rights and termination events, including, inter alia: (i) failure to pay any principal or interest when due; (ii) failure to comply with certain provisions of the ISP 2006 Agreement; (iii) insolvency proceedings; (iv) reduction of the share capital of the Issuer which could have a significant impact on the repayment of the existing debt.

Long-term facility agreement with Banca Intesa Infrastrutture e Sviluppo S.p.A. (now Intesa Sanpaolo S.p.A.)

On 14 October 2010 T.A.S.M. S.p.A. (a company that has been merged by incorporation to the Issuer in May 2013) entered into a facility agreement (the "ISP 2010 Agreement") for a maximum total amount equal to €16 million (€13.5 million outstanding as of 31 December 2016) entered into by and between the Issuer, as borrower, and Banca Intesa Infrastrutture e Sviluppo S.p.A. (now ISP) as lender.

Maturity and repayment requirements

The loan is repayable in 5 pre-amortised instalments and 34 instalments payable every six months, with the last instalment due on 30 November 2029.

Prepayment

Voluntary prepayments are permitted and are subject to certain conditions, limitations and payment of breakage costs. The ISP 2010 Agreement includes also a mandatory prepayment provision related to the following event: if the Issuer receives insurance reimbursements, with a deductible of 100,000 euros, except for the replacement or repair of the instrumental property affected by the claim that caused the repayment.

Interest rate

The interest rate is fixed and is equal to 5.761 per cent. per annum. The Issuer pays accrued interest on the loan on the last day of each interest period, which occurs every six months.

Security or other creditor's protection mechanisms

The loans under the ISP 2010 Agreement benefit from a pledge on a bank account on which the tariff proceeds from the IWS formerly managed by T.A.S.M. S.p.A. are credited. In addition, the Issuer granted irrevocable instructions and a mandate to ISP to use the amounts credited on the pledged bank account for the repayment of the loans under the ISP 2010 Agreement.

Covenants

The ISP 2010 Agreement contains certain customary affirmative and negative covenants. Such positive obligations include, inter alia: i) to comply with all the regulations, communicating to the Bank any action filed against the Issuer, taking any action to oppose and to regularize its position; ii) maintain assets in good condition while maintaining adequate insurance cover; iii) keep in force authorizations, licenses, permissions for the exercise of its activity, in order to fulfil the ISP 2010 Agreement; iv) obligation to notify the ISP of any technical, administrative/legal/corporate change, even if known,

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including warranty information which may affect the ISP's rights in relation to the ISP 2010 Agreement; v) obligation to notify the ISP of any breach under the ISP 2010 Agreement or of any circumstance that may give rise to non-fulfilment, specifying remedies that are to be taken. Negative Obligations include, inter alia: i) do not modify Issuer's By-Laws without the prior consent of the Bank; ii) not cease, reduce or modify its business as appreciable as at the date stipulated if this could affect the fulfilment of the ISP's credit requirements; iii) do not constitute separate assets within the meaning of articles 2447-bis and following of the Civil Code. Obligations to provide information: i) communicate to the Bank annual reports, with statutory reports; ii) send to the Bank the agenda of the day and, subsequently, minutes of extraordinary meetings; iii) provide the Bank with declarations, documentation and any other information or data on its financial and economic condition that the ISP may reasonably require.

Withdrawal rights and termination events

The ISP 2010 Agreement contains customary withdrawal rights and termination events, including, inter alia: (i) failure to pay any principal or interest when due; (ii) failure to comply with certain provisions of the ISP 20106Agreement; (iii) starting of proceedings which may impair the solvency or the operations of the Issuer, including insolvency or liquidation proceedings; (iv) misrepresentation; (v) extraordinary transactions not approved by the lender; (vi) cross default; and (vii) material adverse effects.

Long-term facility agreement with European Investment Bank

The Issuer as borrower and the European Investment Bank ("EIB") as lender on 13 October 2014 entered into a long-term facility agreement for a maximum total amount equal to €70 million (the "EIB Financing") to partly finance investments and works required under the Investment Plan of the Issuer pursuant to the Concession Agreements. See also "– Investments" above.

As of the date of this Prospectus, the Issuer has drawn €70 million (i.e. the full amount available) under the EIB Financing.

Maturity and repayment requirements

The EIB Financing is repayable in full no later than 31 December 2032. Each tranche shall be reimbursed, on an annual, semi-annual or quarterly basis, on the dates specified under the confirmation of utilization issued by EIB. In any case, the last repayment date for each tranche will coincide with a payment date that is no earlier than 4 years and no later than 15 years from the expected drawdown date and, in any event, may not be made after 31 December 2032.

Prepayment

Voluntary prepayments are permitted and are subject to certain conditions, limitations and payment of breakage costs.

Furthermore the EIB Financing includes also mandatory prepayment provisions related, among other things, to the following events: (i) the Issuer makes certain voluntary prepayment (including cancellation), in whole or in part, of any financing other than the EIB Financing; (ii) reduction of the total cost of the project financed so that the EIB's credit amounts to more than 50 per cent. of such cost; (iii) the public shareholder(s) of the Issuer cease to own, directly or indirectly, a participation at least equal to 51 per cent. of the share capital of the Issuer (or in any case the minimum participation required for the purpose of the in house providing) (iv) an entity or a group of entities acting in concert acquire control over the Issuer or the entity directly or indirectly controlling the Issuer; (v) expiry of the guarantee before the last repayment date of the loan; (vi) change in law event; or (vii) termination of the Metropolitan Area of Milan Concessions.

Interest rate

For each tranche of the EIB Financing the Issuer is entitled to decide between a fixed interest rate (equal to the interest rate fixed by the competent EIB body per annum) or a floating rate (equal to Euribor + the spread fixed by the competent EIB body per annum) - both the fixed interest rates and the spread include the margin of 9 basis points.

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On an annual, semi-annual or quarterly basis (as specified in the relevant utilisation request for each tranche), the Issuer pays accrued interest on the loan starting from the first payment date of the drawn tranche following the relevant utilisation date.

Security or other creditor's protection mechanisms

The EIB Financing is secured by a specific warranty contract from CDP. The amount of the warranty is calculated on the outstanding debt under the EIB Financing at the beginning of each semester, increased by 15 per cent., applying the annual amount of 1.35 per cent. The payment of the guarantee fee is payable on a six-monthly basis, parallel with the amortization of the principal debt. The outstanding debt as of 31 December 2016 is equal to €7.0 million.

The EIB Financing is also secured by an assignment of the Issuer's receivables arising from the reimbursement of the residual value of the assets relating to the Metropolitan Area of Milan Concessions in respect of (i) new entrants; (ii) those subjects including the ATO Metropolitan Milan, who are required to pay the sums due in any event for repayment of the residual value of the assets.

Covenants

The EIB Financing contains certain customary affirmative and negative covenants, subject to customary qualifications, exceptions and thresholds. Such covenants include, inter alia: (i) the provision of certain financial and other information, including annual audited financial statements; (ii) compliance with laws and regulations; (iii) a negative pledge; (iv) certain financial covenants; (v) ongoing commitments in relation to the Project; limits on the project costs increase; limits to the use of the project and its completion; (vi) giving notice of any event which could have a material adverse effect on the execution and management of the water service; (vii) certain restrictions on assets disposal (subject on exceptions and thresholds) without EIB's prior written consent; (viii) certain restrictions on merger/acquisitions without EIB's prior written consent; (ix) most preferred lender clause.

Events of default

The EIB Financing contains customary events of default, which are subject to customary thresholds and other qualifications, exceptions and/or grace periods, as appropriate, including, inter alia: (i) failure to pay any principal or interest under the EIB Financing when due; (ii) failure to comply with certain provisions of the EIB Financing; (iii) untruthfulness or incorrectness of representations and warranties; (iv) failure to pay any amount under any other financial indebtedness (v) cross default (vi) insolvency and declaration of bankruptcy and (vii) termination of the Concessions.

Bonds issuance

On 18 May 2005 CAP Impianti S.p.A. (which has been subsequently merged by incorporation into the Issuer) issued a Euro 20 million non-convertible bond, represented by 200 bearer bonds with nominal value of Euro 100,000 due on 31 December 2019 (ISIN code: IT0003853568), in accordance with a resolution of the board of directors dated 28 January 2005.

The bonds are held in dematerialised form on behalf of their beneficial owners, until redemption in full or cancellation, by Monte Titoli S.p.A.

As of 31 December 2016, the nominal amount outstanding under the bonds is approximately €5.2 million.

Interest rate

The bonds bear interest at a floating rate equal to (i) a reference rate, being the 6 months EURIBOR as determined on the tenth business day prior the relevant in interest payment date and (ii) a margin of 0.40 per cent. If the 6 months EURIBOR is not available on the relevant determination date, the reference rate will be determined taking into account a relevant interbank rate.

Interest is payable in arrear on 30 June and 31 December of each year (subject to adjustments in accordance with the "Unadjusted – Following Business Day" convention), starting from 31 December 2005 up to 31 December 2019 or the early redemption date of the bonds.

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The Issuer may opt to convert the interest on the bonds from floating rate to fixed rate with 30 days' advance notice.

The bonds will cease to bear interest on their maturity date or the date of early redemption, if applicable. The amounts of coupons do not bear interest.

Amortisation and redemption

The bonds are repayable at par and without any deduction in 27 instalments, which are payable in arrear on any interest payment date starting from 31 December 2006 until 31 December 2019.

If the bonds are floating interest rate bonds, the issuer may early redeem the bonds at any time at par and without any penalties with a 30 days' advance notice.

Guarantee

The bonds are guaranteed by a jointly liable guarantee of Amiacque S.r.l.

Breach of contract

In case of breach of the Issuer's undertaking pursuant to the terms and conditions and such breach is not cured within 15 days, the bonds may declared immediately due and payable upon request of any bondholder.

Guarantees

As at 31 December 2016, guarantees to third parties amounted to Euro 15 million.

Share capital and Shareholders

As of 31 December 2016, the Issuer had share capital of Euro 571,381,786.00 fully paid up and consisting of 571,381,786.00 ordinary shares with a nominal value of Euro 1.00 each. Since 31 December 2016, there have been no changes to the Issuer's share capital. Shares in the Issuer are held by 199 shareholders. 196 shareholders are municipalities divided as follows: 134 municipalities located in the Metropolitan Area of Milan, 40 municipalities located in the Province of Monza and Brianza, 20 municipalities in the Province of Pavia, one municipality in the Province of Como and one municipality in the Province of Varese. Furthermore, the Province of Monza and Brianza and the Metropolitan Area of Milan also own shares in the Issuer.

The Issuer owns 581,938 treasury shares.

Management

Corporate governance

Corporate governance rules for Italian companies (including CAP Holding) are set forth in the Italian Civil Code. CAP Holding has adopted a system of corporate governance, based on a traditional organisational model for Italian companies comprising shareholders' meetings, the Board of Directors, the Board of Statutory Auditors and the independent auditors. According to CAP Holding's By-Laws, the Chairman of the Board of Directors is empowered to represent CAP Holding.

In addition, pursuant to the Issuer's By-Laws, the Issuer's corporate governance model provides for a "Strategic Guidelines Committee" (Comitato di Indirizzo Strategico) in order to ensure a close relationship between the shareholders and CAP Holding in compliance with the in-house providing mechanism.

The Strategic Guidelines Committee is composed of at least nine members and a maximum of 11 members among the legal representatives of the shareholders, which are appointed by the shareholders' meeting for a three-year term.

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Board of Directors

The members of the Board of Directors as of the date of this Prospectus have been appointed for a three- year term, which is set to expire at the shareholders' meeting called to approve the Issuer's 2019 year-end financial statements.

The following table sets out the members of the Board of Directors of CAP Holding as of the date of this Prospectus and the main positions held by them outside CAP Holding Group.

Name Position Main position Held outside the Group Confservizi Lombardia – Vice Chairman Alessandro Russo Chairman Fondazione Housing Sociale – Board member Utilitalia - Board member Karin Eva Imparato Vice Chairman Pavia Acque S.c.a.r.l. – Director Arianna Cavicchioli Director – Lauretta Barat Director – Giorgio Greci Director –

The business address of each member of the Board of Directors is the Issuer's registered office.

Board of Statutory Auditors

The Board of Statutory Auditors is composed of three auditors and two alternate auditors who remain in office for three years.

The members of the Board of Statutory Auditors of CAP Holding as of the date of this Prospectus have been appointed for a three-year term which is set to expire at the shareholder's meeting called to approve the Issuer's 2017 year-end financial statements.

The following table sets out the members of the Board of Statutory Auditors of CAP Holding as of the date of this Prospectus and the main positions held by them outside CAP Holding Group.

Name Position Main position Held outside the Group Istituto Golgi Redaelli – Chairman of the board of statutory auditors Antonio Liberato Tuscano Chairman SI.RE S.r.l. – Member of the board of directors TS Management S.r.l. – Sole director Ronchi S.r.l. - Liquidator Anna Maria Allievi Standing Auditor Credito Emiliano S.p.A. – Chairman of the board of statutory auditors IGD S.p.A. – Chairman of the board of statutory auditors CIR S.p.A. – Member of the board of statutory auditors Fondo Pensione Pegaso – Member of the board of statutory auditors SERAM S.p.A. – Member of the board of statutory auditors CEM Ambiente S.p.A. – Member of the board of statutory auditors Daniele Vezzani Standing Auditor Profilo Real estate Srl – Member of the board of statutory auditors MDM S.p.A. – Member of the board of statutory auditors UNIMER S.p.A. – Member of the board of statutory auditors

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Young Massa Srl – Member of the board of statutory auditors Migen S.p.A. – Member of the board of statutory auditors Rizzinox Srl – Chairman of the board of statutory auditors Antonio Viola Substitute Auditor Banca di Credito Cooperativo Laudense – Member of the board of statutory auditors MAUS SpA - Chairman of the board of statutory auditors Azienda Speciale Consortile del Lodigiano per I servizi alla persona – Sole statutory auditor Consorzio per la formazione professionale e l'educazione permanente – Sole statutory auditor Energia Ambiente Lodigiana Sr. – Sole liquidator Porgeco – Member of the board of directors Sabrina Bonetti Substitute Auditor Nord Ambiente Milano Spa - Member of the board of statutory auditors Museo Fotografia contemporanea Cinisello Balsamo – Sole statutory auditor FARMA.COM Spa – Substitute auditor Guiglia Spa – Substitute auditor Denicar – Substitute auditor

The business address of each member of the Board of Statutory Auditors is the Issuer's registered office.

Conflicts of interest

As the date of this Prospectus, no member of the Board of Directors or the Board of Statutory Auditors has any private interest and/or other duty that conflicts with its obligations deriving from its office.

Code of Ethics and Model pursuant to Legislative Decree No. 231/2001

The Group has adopted a code of ethics and an organisation management and supervision model (the "Model") to ensure conditions of fairness and transparency in the conduct of its business and corporate activities, according to Italian Legislative Decree No. 231/2001 ("Disciplina della responsabilità amministrativa delle persone giuridiche, delle società e delle associazioni anche prive di personalità giuridica, a norma dell'articolo 11 della legge 29 settembre 2000, n. 300"). The Model provides guidelines to prevent management and employees from committing offences which may make the company liable pursuant to the above-mentioned legislative decree. The Model also includes a plan for the prevention of corruption and a transparency plan pursuant to Italian laws.

Independent Auditors

On 1 June 2017, the Shareholders' Meeting of the Issuer appointed BDO Italia S.p.A. as independent auditors of the Issuer for the nine-year period 2017-2025, with effect from the issue date of the Notes (the "Independent Auditors").

The Independent Auditors audited the consolidated annual financial statements of the Group for the financial years ended 31 December 2016 and 31 December 2015.

BDO Italia S.p.A. with registered office at Viale Abruzzi n. 94, 20131, Milan, Italy, is registered under No. 167911 in the Single Register of Legal Auditors at the Ministry of Economy and Finance (Registro Unico dei Revisori Legali presso il Ministero dell'Economia e delle Finanze), State General Accounting (Ragioneria Generale dello Stato).

Employees

As of 31 December 2016, the Group had 829 employees. The tables below show the number of personnel employed, broken down according to their roles.

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Personnel in service in the Group by position 2016 2015

Executives 11 13

Middle Managers, office employees and workers 818 774

Total 829 832

Legal proceedings

The Group is party to a number of civil and administrative proceedings arising from the operation of its activities and may from time to time be subject to inspections by tax and other authorities. As of 31 December 2016, the Issuer had a provision in its consolidated financial statements for legal proceedings in the amount of Euro 5.6 million.

The following is a description of the material legal proceedings in which the Group is involved as of the date of this Prospectus.

Land occupation and restoration proceedings

The Issuer is defendant in four proceedings at the Public Water Regional Tribunal in Milan in relation to land occupation claims initiated in 2010 and 2014 arising as a result of a land seizures carried out by CAP Holding in accordance with Italian laws and regulations and, specifically, article 42-bis of Presidential Decree 327/2001. The plaintiffs allege that since 2003 the Issuer has engaged in unlawful occupation of land and claim aggregate compensation for damages for an amount of approximately Euro 2.2 million (excluding non-monetary damages and interest).

The next hearing has not been scheduled as of the date of this Prospectus.

In addition, CAP Holding is defendant in civil proceedings in relation to the plaintiffs' allegation that the Group has caused a deterioration of the plaintiffs' cultivable land due to sewer leaks. The plaintiffs requested the first instance court of Milan to require the Issuer to carry out restoration activities on such land and securing the site, and claimed compensation for damages due to loss of business. The aggregate value of the proceedings is equal to approximately Euro 1.2 million.

The next hearing at the Milan court is scheduled for 21 September 2017.

Tax proceedings

Amiacque and CAP Holding have started 11 proceedings against decisions of the Italian tax authorities which ruled on the applicability of Italian registration tax to the going concern of business branches which have been acquired by CAP Holding and Amiacque in the period 2011 - 2013 and claimed an amount of approximately Euro 650,000, including penalties and interests.

The competent first instance tax court ruled in favour of the Group in each set of proceedings on the basis of a special regime applicable to the IWS, however the Italian tax authorities have appealed such rulings and the proceedings are pending in front of the second instance tax courts. As of the date of this Prospectus, in one set of proceedings the second instance tax court have ruled in favour of the Group, while the other proceedings are still pending.

In addition, the Issuer and AMGA Legnano S.p.A. ("AMGA") haves been notified of a decision by Italian tax authorities regarding the determination of registration taxes in connection with certain disposals of assets from AMGA to the Issuer, pursuant to a deed dated 22 December 2015. The Italian tax authorities have requested AMGA and the Issuer, on a joint and several basis, to pay additional taxes of approximately Euro 900,000 in connection with such disposals.

INPS proceedings

Amiacque is defendant in three proceedings in relation to the payment of contributions to the ordinary and extraordinary wages guarantee fund (cassa integrazione guadagni ordinaria e straordinaria) for the

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2007 – 2010 period. The proceedings have been started by the Italian social security institute (Istituto Nazionale di Previdenza Sociale – "INPS") which alleged that Amiacque failed to pay such contribution, while Amiacque objected that as company wholly-controlled by public entities it was exempted from such payment obligations. The aggregate value of such proceedings is equal to approximately Euro 3.3 million.

The first and second instance courts have ruled in favour of Amiacque and the proceedings are pending in front of the Italian Supreme Court (Corte di Cassazione). The next hearing has not been scheduled as of the date of this Prospectus.

INAIL proceedings

Amiacque has initiated proceedings against the determination of the rate used by the Italian institute for insurance against work injuries (Istituto Nazionale Assicurazione Infortuni sul Lavoro – "INAIL") for calculating contribution payments by Amiacque for the 2012 – 2013 period in connection with the work- related illness of a former Amiacque employee. Pending such proceedings, the payment of such contributions (which would result in a liability for the Group equal to approximately Euro 1 million) have been suspended.

In connection with the 2012 contributions, following rejection of Amiacque’s claims by the Court of Appeal of Milan, Amiacque has filed an appeal with the Italian Supreme Court (Corte di Cassazione) and as of the date of this Prospectus the next hearing has not been scheduled. As to the 2012 and 2013 contributions, proceedings pending with the court of Milan have been stayed pending decision of the Italian Supreme Court (Corte di Cassazione).

Recent developments

On 1 June 2017, the shareholders’ meeting of the Issuer has approved the standalone and consolidated financial statements of the Issuer and has resolved to allocate the €19.2 million profit to a reserve.

On 28 June 2017, the Issuer has requested the EIB to draw the last tranche available under the EIB Financing, corresponding to €18 million. The proceeds of such tranche have been credited to the Issuer on 13 July 2017.

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KEY CONTRACTS AND CONCESSION

Relevant resolutions and agreements for the IWS

The Issuer has been entrusted with the management of the IWS for the municipalities comprised in the ATO Metropolitan Milan, on the basis of the in-house providing mechanism (please see "Regulation— Water Business—In house providing mechanism and requirements"), according to the following resolutions:

 Resolution of the Provincial Council of Milan No. 56 of 25 July 2013 recognising the territorial integration arising from the merger by incorporation of Ianomi S.p.A., Tam S.p.A. and Tasm S.p.A. into CAP Holding and expressed its intention to prepare, through the ATO Office, a new plan of the ATO (the "ATO Plan") for the IWS and intended for completing the procedure for the award of the management of the IWS to CAP Holding;

 Resolution dated 5 December 2013 of the ATO office of the Province of Milan (now relating to the Metropolitan Area of Milan - the "ATO Office") and the resolution of the Province of Milan dated 19 December 2013 approving the ATO Plan for the 2014-2033 period;

 Resolution No. 2 of 20 December 2013 of the ATO Office approved the report for the award of the IWS to CAP Holding for the Province of Milan, for the 2014-2033 period. The report was provided pursuant to art. 34, paragraph 13 of Law Decree 179/2012, as converted into Law 221/2012

 Resolution No. 3 of 20 December 2013 the ATO Office approved the Regulation on the IWS between the manager of the IWS and the final users.

 Resolution No. 4 of 20 December 2013 of the ATO Office approved the awarding of the IWS, according to the in house providing mechanism, to CAP Holding for the 2014-2033 period

 On 20 December 2013 the ATO Office and the Issuer entered into the Metropolitan Area of Milan Concession;

 Resolutions No. 656 dated 23 December 2015 of the AEEGSI approving the new essential provisions for the concession agreements;

 Amendment to the Metropolitan Area of Milan Concession, signed on 29 June 2016 between the ATO Office and the Issuer, modifying the Metropolitan Area of Milan Concession in order to make it compliant with the standard IWS concession ("Convenzione tipo") approved by the AEEGSI, (the "2016 Amendment") mandatory for all IWS operators;

 Concession agreement between the ATO office of the ATO Monza Brianza and CAP Holding acting as wholesaler in the neighbouring territorial areas (zone di interambito) of the Province of Monza and Brianza (the "Monza Brianza Concession").

Metropolitan Area of Milan Concession

Main provisions of the Metropolitan Area of Milan Concession, as resulting from the 2016 Amendment are the following:

Object (art. 2)

The Issuer must provide the IWS to the ATO of the Metropolitan Area of Milan, in compliance with applicable laws as well as with the terms under the standard IWS concession "Convenzione Tipo" approved by the AEEGSI.

In order to achieve such objectives the "Public entities responsible to entrust the IWS of the concerned territorial area" (Ente di governo d ambito – "EGA"), through their competent office (i.e. the ATO Office), must comply with the following obligations: (i) to adopt specific procedures - to which any interested entities may take part - in order to clearly identify the priorities of operation and the quality objectives of the IWS and verifying the relevant economic-financial sustainability; (ii) to update the priorities of interventions in relation to any critical situations identified in the IWS network, in

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compliance with the ATO Plan and the economic and financial plan under the Metropolitan Area of Milan Concession and (iii) to approve acts under its own competence in order to ensure reliability, coherence and full transparency under the Metropolitan Area of Milan Concession.

Furthermore, for the attainment of the above purposes, the Issuer must comply with the following obligations: (i) to provide the IWS services in accordance with conditions of efficiency, effectiveness and cost-effectiveness as set out by the EGA and in compliance with applicable laws; (ii) to bear the risks related to the management of the IWS; (iii) to carry out a "program of operation" (Programma degli interventi); (iv) to assure reliability, coherence and full transparency of the Metropolitan Area of Milan Concession and (v) to manage its own properties and networks in compliance with the Metropolitan Area of Milan Concession and the ATO Plan.

The EGA, through the ATO Office, controls the levels of the IWS service provided by the Issuer and shall obtain from the Issuer all the information necessary to exercise its powers and rights.

Regulatory Framework of the management of the IWS (art. 3)

The Issuer is responsible for the management of the IWS in compliance with the EGA decisions no. 4 and 2 dated December 20, 2013 as well as with articles 149-bis and 172 of Legislative Decree 152/2006 (please see "Regulation—Water Business— The national and regional framework applicable to the IWS").

Perimeter of the assigned activities (art. 4)

The Issuer is the sole operator of the IWS in relation to the area of the ATO Metropolitan Milan for the entire duration of the Metropolitan Area of Milan Concession, with the sole exception of the Municipality of Milan and of one "de facto" operator identified under art. 4 of the Metropolitan Area of Milan Concession, which the EGA has undertaken to terminate (the "Existing Operators"). Additional activities may also be added to the scope of the activities to be carried out by the Issuer under the Metropolitan Area of Milan Concession for technical reasons or in order to ensure the economic and financial balance of the management of the IWS.

The area to be served by the Issuer is the one identified under the ATO Plan and shall also include the additional Municipalities, or parts of them, outside the perimeter of the ATO, but whose IWS is totally or partially granted by the infrastructures dedicated to the ATO. The provision of such services is regulated by an agreement between the neighbouring municipalities (accordo interambito) of the ATO as provided by article 47 of Regional Law 26/03 and/or by disposal of the competent authorities.

In this respect, as the Issuer is also allowed to act as wholesaler and to supply the IWS, within the area of its own ATO or in a different ATO, in compliance with the terms of specific concession agreements, the Issuer has entered into the Monza Brianza Concession in order to provide specific services to some Municipalities of the ATO Monza Brianza (for more details, see below the "Monza Brianza Concession").

In case of expiry, resolution or early termination of the Existing Concessions listed under article 4, the Issuer had undertaken to extend the management of the IWS to include also such additional areas. In such cases the ATO Plan shall be duly amended and, should the economic and financial balance of the Metropolitan Area of Milan Concession be altered, the rebalancing mechanism under art. 12 and following shall apply.

Term of the Metropolitan Area of Milan Concession (art. 6)

The Metropolitan Area of Milan Concession has a 20 year term starting from 1 January 2014 and ending on 31 December 2033. Such term is subject to a possible extension in case of (i) new and substantial need for additional investments for the IWS in connection with an increase in population or due to an extension of the area to be supplied; (ii) failure to pay the takeover value by the new operator, in compliance with the relevant provisions of the AEEGSI regulation.

Previous concession agreements – financings (art. 8)

The Issuer has undertaken to continue to pay to the Municipalities the fees relating to the loans entered into by such Municipalities in connection with the financing of IWS networks, plants and equipment owned by the Municipalities and which are necessary for the supply of the IWS under the previous

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concessions agreements signed with the Municipalities, as provided under the Metropolitan Area of Milan Concession. The conditions for the payment of such amounts are included under the ATO Plan.

ATO Plan and Investment Plan (art. 9 and 10)

The Issuer must comply with the terms and provisions under the ATO Plan, in order to guarantee the levels of service required by it and the economic and financial balance of the Metropolitan Area of Milan Concession.

The ATO Plan comprises the following documents: (i) the overview of the infrastructures which lists the status of the network granted in use to the Issuer; (ii) the investment plan ("Investment Plan" - Programma degli Interventi) which lists the extraordinary maintenance activities and new works to be carried out by the Issuer; (iii) the management and organisation model, which describes the Issuer’s operational structure which shall ensure the supply of the IWS to users; and (iv) the Economic-Financial Plan ("PEF") of the Metropolitan Area of Milan Concession providing for (a) the development of the management and investment costs excluding public funding, (b) tariff incomes and (c) values related to the obligation of revenues of the manager and of the tariff multiplier. The Issuer is bound to implement the ATO Plan and the Investment Plan for the period 2014-2033. Any failure to be compliant with such provisions may result in the application of the penalties by AEEGSI.

At the beginning of each regulatory period, the EGA approves the "specific regulatory scheme" ("specifico schema regolatorio") applicable to the Metropolitan Area of Milan Concession, which includes the update of: (i) the Investment Plan, (ii) the PEF, (iii) the concession if new AEEGSI requirements are to be included in the text. The EGA must ensure that any amendment of the ATO Plan shall continue to allow the balance of the PEF, according to efficiency criteria and taking into account the planned investments. The ATO Plan is binding for the Issuer but it may be amended, also prior to the expiry of the relevant regulatory period, save for the provisions under the Guidelines approved by the ATO Office ("Linee di indirizzo per la gestione del Piano Investimenti di cui alla Convenzione di affidamento del servizio idrico integrato dei Comuni dell’ambito della Provincia di Milano") which define what are to be considered as variations and/or updates.

Tariff and Tariff revision mechanisms (art. 11)

The Issuer shall be entitled to receive and collect the Tariff by the clients of the IWS for the provision of the IWS and related services under the Metropolitan Area of Milan Concession.

The Tariff is calculated in accordance with national laws and AEEGSI regulations in order to ensure the achievement and maintenance over time of the economic and financial balance of the management (see "Regulation—Water Business—IWS tariff").

The tariff is subject to any change in compliance with the "tariff method" (Metodo Tariffario) and the provisions of the AEEGSI (see "Regulation—Water Business—IWS tariff").

Achieving and maintaining the economic and financial balance – procedure for rebalancing (art. 12, 13, 14, 15)

The parties agree to pursue and maintain the economic and financial balance of the Metropolitan Area of Milan Concession in compliance with AEEGSI regulations and the specific terms of the Metropolitan Area of Milan Concession. If during a regulatory period extraordinary and unforeseeable circumstances occur which determine the alteration of the economic and financial balance of the Metropolitan Area of Milan Concession, the Issuer may send a motivated request to the EGA asking for a rebalance of the PEF, identifying expressly the measures required to ensure the restoration of the balance and describing the circumstances that have determined the unbalancing.

In order to restore the original economic and financial balance, the following measures may be applied (in this order of preference):

(i) revision of the Tariff, within the limits defined by AEEGSI;

(ii) modification of the Investment Plan (this is to be done in such a way to guarantee the provision of minimum service levels and ensuring the satisfaction of the overall client demand);

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(iii) change to the perimeter of the concession area or (to the extent allowed under the Metropolitan Area of Milan Concession and applicable law) extension of the term of the Metropolitan Area of Milan Concession;

(iv) access to AEEGSI's equalisation mechanisms;

(v) other measures as agreed by the parties.

Please note that two or more of the above measures may be applied jointly.

The EGA assesses the Issuer's request within 60 days of its receipt and notifies to AEEGSI its decision on the proposed rebalancing measures. Final approval is to be given by AEEGSI in order for such measures to be validly implemented (AEEGSI's final approval shall occur at the latest within the following 180 days).

Step-in by the Issuer into the Existing Operator's concessions (art. 16)

The EGA acknowledges the existence of the Existing Operators that manage part of the IWS according to concession agreements awarded in compliance with a different regime which applied at the time of their execution. Upon expiry of the concessions of the Existing Operators, the Issuer shall step in and replace them as manager of the IWS.

At least 18 months prior to the expiry of each Existing Operator's concession, the EGA shall start the step-in procedure in order to identify the assets to be handed over to the Issuer as well as the termination value to be paid to the Existing Operators.

Expiry and re-tendering of the Metropolitan Area of Milan Concession (art. 17)

The EGA must start the procedure for the awarding of the Metropolitan Area of Milan Concession at least 18 months prior to its expiry and, in case of early termination, within 3 months from such event. An award to a new operator is notified to AEEGSI.

With reference to the termination value due to the Issuer at the end of the concession period (including the case of early termination), the EGA calculates the termination value in accordance with AEEGSI's regulation applicable from time to time relating to the Tariff calculation method (i.e. taking into account the regulatory asset base value of the assets not yet amortised at the time of the termination) – as proposed by the Issuer upon consultation with its financiers - which is then to be approved by AEEGSI. The termination value is to be paid by the new operator to the Issuer.

Upon payment of the termination value, the Issuer shall transfer to the new operator the infrastructures and equipment necessary for the carrying out of the IWS as identified in accordance with the EGA.

Issuer's Obligations (art. 20 and 22)

The Issuer must:

(i) carry out the IWS pursuant to the quality, efficiency and effectiveness criteria set out by the AEEGSI;

(ii) comply with the obligations set out under the Metropolitan Area of Milan Concession and its specifications (Disciplinare Tecnico) as well as with the ATO Plan in compliance with the AEEGSI regulations;

(iii) ensure compliance with the criteria and mechanics for the quantification of the Tariff as set out by the AEEGSI;

(iv) carry out the Investment Plan;

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(v) maintain the networks, the plants and other equipment in good conditions;

(vi) set up an adequate system to verify the correct operation of the IWS;

(vii) notify to the EGA on the status of the IWS in compliance with the AEEGSI regulations;

(viii) collaborate with EGA to activate and organise integrated control systems;

(ix) notify EGA of any event that may affect the operation of the IWS;

(x) return to EGA upon termination of the Metropolitan Area of Milan Concession all the equipment and the plants related to the IWS;

(xi) provide for the financial guarantees and insurances required under the Metropolitan Area of Milan Concession;

(xii) pay penalties and sanctions;

(xiii) draft the financial statements in compliance with applicable law;

(xiv) update the deed of acknowledgment (Atto di ricognizione);

(xv) continue with the operation of the IWS until a new operator is appointed, in compliance with AEEGSI regulations and with the specific provisions of the Metropolitan Area of Milan Concession;

(xvi) comply with the applicable law on public water;

(xvii) have a territorial control system and an analysis laboratory to assure a periodic, widespread, effective and impartial control system;

(xviii) provide the EGA with the information on the controls provided under article 128 paragraph 2 of legislative decree 152/2006.

Assets and equipment for the IWS (art. 21)

All assets and equipment necessary for the IWS are either property of the Issuer or given in free concession of use (concessione d'uso gratuita) to the Issuer for the entire duration of the Metropolitan Area of Milan Concession. All the assets are listed in the ATO Plan.

The Issuer has received such assets and equipment and undertakes to maintain and update them in order to comply with all applicable technical and safety regulations.

Obligations related to the extra-ordinary maintenance of roads, water basin and hydro-grid (art. 22)

The relevant Shareholding Municipalities may decide to charge to the Issuer extra costs relating to extraordinary maintenance of roads, maintenance of the water drainage basins and in relation to the efficient management of the minor hydro-grid (reticolo idrico minore). The Issuer shall pay such extra costs only if they will be recognized under the Tariff, pursuant to the applicable AEEGSI regulations.

Relationship between the wholesaler, EGA and Issuer (art. 23)

The Issuer, acting as a wholesaler must comply with the provisions of the EGA on the Tariff, in compliance with the AEEGSI regulations.

In case the manager of the IWS acts as wholesaler, the EGA provides for the obligations under which the other manager of the IWS must comply for the benefit of the Issuer.

Penalties (art. 24)

In addition to any penalties and sanctions set out by national and regional laws, and by the AEEGSI, the Issuer shall also be subject to the penalties set out by the technical specifications (disciplinare tecnico).

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All sanctions and penalties applied by the EGA to the Issuer are also notified to AEEGSI.

Termination, withdrawal and revocation of the Milan IWS Concession (art. 25)

The Metropolitan Area of Milan Concession shall be terminated in case of severe breach of the Issuer's obligations and, in particular, in case one of the following occurs:

(i) dissolution or liquidation of the Issuer;

(ii) failure to comply with the in-house providing requirements;

(iii) full, repeated and material interruption of the aqueduct or water disposal systems for a period exceeding 3 consecutive days due to the severe negligence or wilful misconduct of the Issuer;

(iv) failure to comply with the provisions set out under the Metropolitan Area of Milan Concession in case of wilful misconduct or gross negligence of the Issuer.

Occurring one of the above termination event, the EGA shall send to the Issuer a prior written notice granting an adequate cure period also pursuant to art. 1454 of the Italian Civil Code, failing which without the default being cured by the Issuer, the EGA may terminate the Metropolitan Area of Milan Concession.

The Issuer's financiers may avoid termination by notifying to the EGA their intention to cure the Issuer's default. In such a case, the breach must be cured within 60 days from when the financiers notify the EGA. Should such term elapse without curing the default then the EGA may terminate the Metropolitan Area of Milan Concession.

In case of termination due to the Issuer's fault, the EGA may enforce the guarantee provided by the Issuer.

Guarantee and Insurance (art. 26 and 27)

In order to guarantee the obligations provided under the Metropolitan Area of Milan Concession, the Issuer provided for a guarantee of the amount of approximately Euro 6.2 million.

The Issuer is required to submit an insurance policy to cover third party civil liability (having a maximum insured amount of Euro 20 million) and to cover the assets and equipment of the IWS from natural disasters (having a maximum insured amount of Euro 80 million).

Subcontracting (art. 31)

The Issuer may not assign or subcontract, in whole or in part, the IWS under penalty of termination of the Metropolitan Area of Milan Concession. The Issuer may assign to its subsidiaries or companies of its group, as defined under article 218 of the Public Contracts Code, only minor activities of the IWS and in particular the activities related to the measurement of water consumption, invoicing and collecting payment of the unpaid tariffs from users, as provided under article 11, paragraph 6 of the Metropolitan Area of Milan Concession.

Monza Brianza Concession

The Issuer is responsible, as wholesaler, for the provision of part of the IWS relating to some "neighbouring areas", defined as "Zone di Interambito". Due to the establishment of the new Province of Monza and Brianza and to the spin-off of the related area from the Province of Milan, a fractioning of the areas in the North of Milan occurred. Such fractioning is not coherent with the operation of the plants dedicated to the IWS and therefore some adjustments were made. The interested plants, even if located in the ATO of Monza and Brianza, need the plants and infrastructures managed by CAP Holding to operate. As provided by the Decision of the Council of the Province of Monza and Brianza no. 5 dated March 22, 2016, the Issuer is therefore responsible for the activities that integrate the operation of the IWS in the ATO Monza Brianza as defined under the Monza Brianza Concession.

Main provisions of Monza Brianza Concession, dated 29 June 2016 are the following:

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List of "Zone di Interambito" and plants subject to the Wholesaler IWS Concession agreement (art. 2)

Article 2 of the Monza Brianza Concession lists the areas and the sewage, water supply, collection, drinking water treatment and supply plants interested by such concession agreement.

Scope (art. 3)

The scope of the Monza Brianza Concession is to entrust CAP Holding with the role of wholesaler in the specific area called "Zona di Interambito". CAP Holding shall act as wholesaler and shall provide a general interest service performing the activities related to the IWS as defined under Legislative Decree 152/2006 in the area in which the IWS is supplied by the IWS operator as identified by the EGA of the ATO Monza Brianza.

CAP Holding must comply with quality, efficiency and reliability standards provided by the AEEGSI regulations and must operate in compliance with the provisions under its "Chart of the water service" (Carta del servizio idrico), its Regulation on IWS or any other quality standard requested by the EGA of the ATO Monza Brianza to the operator of its IWS. Moreover, the Issuer must hold harmless and indemnify the EGA, the IWS operator, the Province and other public entities of the Province of Monza and Brianza, as well as their employees, from any liability related to the services provided acting as a wholesaler, save for the case in which the damage arises due to the behaviour of such subjects.

Term of the Monza Brianza Concession (art. 4)

The Monza Brianza Concession has a 20 year term starting from 1 January 2014 and ending on 31 December 2033, provided that the Issuer us effectively entrusted with the title on the equipment necessary to carry out the services under the Monza Brianza Concession.

The Monza Brianza Concession will cease to be effective upon termination of the Metropolitan Area of Milan Concession.

Tariff and Tariff mechanisms (art. 5)

The Tariff due to the Issuer under the Monza Brianza Concession is calculated in accordance with national laws and AEEGSI regulations in order to ensure full recovery of all investment costs sustained by the Issuer in relation to the supply of wholesaler services under the Monza Brianza Concession. The payment mechanism of the Tariff due to the Issuer shall be agreed in a specific contract to be entered into between the operators of the IWS concession of the ATO Monza Brianza and the ATO of the city of Milan.

Investments (art. 6)

The Issuer has undertaken to carry out the specific investments listed under annex 12 to the Monza Brianza Concession.

The Issuer is also entrusted with the power to act as "expropriation authority" (autorità espropriante) and manages related proceedings in order to implement the investments undertaken under the Monza Brianza Concession.

Guarantees (art. 9)

In order to guarantee the obligations provided under the Monza Brianza Concession, the Issuer provided for an extension of the guarantee provided pursuant to the Metropolitan Area of Milan Concession in order to include the EGA of the ATO Monza Brianza as beneficiary.

The Issuer shall notify to the EGA of the ATO Monza Brianza the renewal of such guarantee and provide for new guarantee two months prior to expiry.

The guarantee does not limit the obligation of the Issuer to pay for the entire compensation for damages caused.

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Insurance (art. 9)

The Issuer is required to submit an insurance policy to cover third party civil liability (having a maximum insured amount of Euro 20 million) and to cover the assets and equipment of the IWS also from natural catastrophes (having a maximum insured amount of Euro 80 million).

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REGULATION

The principal legislative and regulatory measures applicable to Issuer's regulated business are summarised below. Although this overview contains the principal information that the Issuer considers material in the context of the issue of the Notes, it is not an exhaustive account of all applicable laws and regulations. Prospective investors and/or their advisers should make their own analysis of the legislation and regulations affecting the Issuer's and of the impact it may have on an investment in the Notes and should not rely on this overview only.

Water Business

The national and regional framework applicable to the IWS

The IWS is the comprehensive public services that relate to water collection, uptake and distribution of water for civil uses as well as the disposal and treatment of sewage water. The IWS is a public service, which is to be managed in accordance with the general principles of efficiency and cost-effectiveness as well as in compliance with national and European legislation.

The first comprehensive set of legal provisions enacted to regulate the water sector was contained in Law No. 36 of 5 January 1994 (the "Galli Law") which has then been reinstated by the Environmental Code under Part III, Section III, Title II, art. 147 and following.

With specific reference to the regulation of IWS at a Regional level, the Lombardy Region has issued Regional Law n. 26 of 12 December 2003 ("RL 26/2003"), which sets out under article 47 and following the rules applicable to the water sector.

The main objectives of national and regional laws include: (i) the appointment of a single operator for the management of the IWS within each ATO (as defined below); (ii) the identification of a tariff that allows the operator of the IWS to cover both the costs for the provision of the service and the cost to carry out the investments necessary to ensure an adequate level of service; and (iii) the separation of the competence for planning and control of the service from the management of the IWS.

Pursuant to Law Decree No. 201 of 6 December 2011 (converted into Law by Law No. 214 of 22 December 2011), the AEEGSI is the regulator in charge, inter alia, of the regulation and surveillance of the IWS and the approval of the tariffs.

Pursuant to art. 147 of the Environmental Code, the IWS is organised according to ATOs, which are defined at a Regional level. The local authorities that fall within the territory of the ATO must take part in EGA, which is in charge of: (i) the management of the IWS and of the relevant infrastructures; (ii) the approval of the ATO Plan; the awarding of the concession to manage the IWS (the "IWS Concession"); and (iii) the surveillance of the supply of the IWS.

The ATO Plan is the main planning tool for the IWS as it defines the quality standards to be achieved, as well as the type of infrastructural works that are necessary to ensure that such standards are met, and it comprises: (i) the overview of the existing infrastructures; (ii) the Investment Plan; (iii) the organizational model and (iv) the PEF. The ATO Plan is also the main reference tool to determine the tariff applicable to the IWS and to set out the terms of the IWS Concession, as it forms an integral part of such agreements. Law Decree n. 133 of 12 September 2014 (the so-called "Sblocca Italia Decree") has introduced some amendments to art. 172 of the Environmental Code, which now provides that:

(i) by 30 November 2015, the EGA must (if it hasn't already done so) approve an ATO Plan, start the awarding procedure for the IWS and provide that the relevant concession is to be awarded to a single operator within the ATO (the "Operator");

(ii) the Operator, once awarded with the IWS Concession, must step into the operation of the IWS for the whole ATO, replacing other existing operators as their concessions expire;

(iii) the Region may step in and start the procedures for the award of the IWS Concession if the EGA fails to do so. If also the Region fails to start such procedures the AEEGSI may notify the Prime Minister and request the appointment of a commissioner to be put in charge of such procedure;

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(iv) upon expiry of the IWS Concession, according to the terms and conditions therein specified, the IWS infrastructures and equipment of the exiting Operator shall be transferred into the ownership of the relevant local authorities.

Pursuant to art. 48 of RL 26/2003, the Region has identified the Provinces and the Metropolitan City of Milan as the EGA and has bestowed upon them the functions that had previously been exercised by the ATO authority (Autorità d'Ambito), which have been unwound. The Provinces and the Metropolitan City of Milan have set up specific ATO Offices (Uffici d'Ambito) to carry out the activities necessary to award IWS Concessions, approve the ATO Plan and quantify and approve the applicable tariffs in compliance with the relevant regulation (please see paragraph below).

Art. 49 of RL 26/2003 clarifies that the EGA must choose the procedure for the awarding of the IWS Concession from the three options set out under Art. 149-bis of the Environmental Code.

The procedure for the awarding of the IWS Concession

Art. 149-bis of the Environmental Code sets out the rules for the awarding of IWS Concessions to a sole Operator and specifies that one of the following three alternative procedures are available:

(i) awarding to a private Operator, though a public tender procedure, in compliance with the EU Treaty principles;

(ii) awarding to a public-private company (società mista) – using a PPP scheme – after having carried out a tender procedure with a double object aimed at the identification of the private shareholder and the grant of the concession to such company;

(iii) direct award to a public company through the "in-house providing" mechanism, if the relevant conditions are met (please see paragraph below).

In house providing mechanism and requirements

Pursuant to art. 149-bis of the Environmental Code and art. 5 of Legislative Decree n. 50/2016 (the "Public Contracts Code"), the direct award of a concession agreement to an "in-house" company, under the control of one or more public entities, may occur provided that the following conditions are met:

(a) there is no direct shareholding of private companies (or other private entities) in the in-house company;

(b) more than 80% of the activities of the in-house company must relate to the performance of tasks entrusted to it by the relevant public entities;

(c) the relevant public entities must exercise over the in-house company a control similar to that exercised over their own internal departments, pursuant to which both strategic objectives and significant decisions of the in-house company are subject to the decisive influence of the public entities.

IWS tariff

Pursuant to art. 154 of the Environmental Code, the consideration to be paid to the Operator for managing the IWS is a tariff, which is to be quantified by the EGA and approved by the AEEGSI, in accordance with the AEEGSI regulations described below (the "Tariff").

The Tariff is to be calculated taking into account the quality of the service provided, the amount of works necessary to provide such services, the management costs relating to the infrastructures, the operation costs as well as the costs in connection with the ATO Offices, in order to ensure the full coverage of all investment and operation costs.

Tariff calculation mechanisms

Up to the year 2012, the Tariff was calculated according to the provisions set out pursuant to Ministerial Decree 1 august 1996.

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By Resolution No. 585/2012/R/idr, AEEGSI approved a new tariff calculation method, which was intended as a temporary method to be applied only during as a "transitory period" for the years 2012 and 2013 (the so called, temporary transitional method: Metodo Tariffario Transitorio - "MTT").

The MTT was characterised by the application of the same tariff structure applied in 2012 (calculated using updated data to ensure that the revenues were recognised on the basis of the new methodology) multiplied by a "theta" factor which had been quantified through a complex mechanism by AEEGSI and EGA.

According to information publicly available, the MTT has been challenged, among other things, before the Administrative Court of Lombardy (TAR Lombardia) by certain consumers' associations for alleged violation of the principle of full recovery cost, which is provided - among other things - under Directive 2000/60/EC and Art. 154 of the Environmental Code. With the decisions no. 00780/2014 and no. 00779/2014, the Administrative Court of Lombardy has rejected the request of the consumers' associations and it has established that the MTT complies with the full recovery cost criteria. The above consumers' associations have challenged the decisions of the Administrative Court of Lombardy before the Administrative Court of Appeal (Consiglio di Stato) (registration procedure no. 05890/2014 and no. 05940/2014). The Administrative Court of Appeal has requested a technical expert opinion regarding the formulas and parameters under the MTT, in order to verify whether the tariff item which covers the financing costs is actually based on the principle of full cost recovery or not. The technical report has been provided and on 15 December 2016 a public hearing was held before the Administrative Court of Appeal, which is now expected to issue its decision. In this respect, please note that since such pending proceedings refer only to the MTT, in principle they do not directly affect the successive tariff calculation methods (i.e. MTI-1 and MTI-2).

By a definitive ruling published on 26/05/2017, the Administrative Court of Appeal (Consiglio di Stato) rejected them and upheld the judgments handed down by the Administrative Court of Lombardy.

By Resolution No. 643/2013/R/idr, AEEGSI approved the tariff calculation mechanism which applies to the years 2014 and 2015 (the water tariff method: Metodo Tariffario Idrico - "MTI-1").

Article 2 of Resolution No. 643/2013/R/idr defines the following service costs as components for determining the Tariff:

 investments costs, including loans, taxes and depreciation charges;

 operating costs, including costs related to the electricity, wholesale supplies, costs related to the loans and other various components;

 any additional advance payment for new investments;

 environmental costs and of resource; and

 component relating to previous years balancing.

The MTI-1 provides that the Tariff for the years 2014 and 2015 is calculated by taking the value of the Tariff relating to the year 2012, multiplied for the value "Theta (2014)" or "Theta (2015)", which is a coefficient approved by AEEGSI.

Finally, by Resolution No 664/2015/idr, AEEGSI approved the tariff calculation method for the second regulatory period going from 2016 until 2019 (Metodo Tariffario Idrico per il Secondo Periodo Regolatorio - "MTI-2"). Pursuant to art. 1 of such resolution, the Tariff for the IWS includes the fees relating to the aqueduct, sewer and waste-water purification services.

According to MTI-2, the EGA must identify the new Tariff (which shall then be approved by the AEEGSI) and update, by 30 April 2016, the following documents: (i) the Investment Plan; (ii) the PEF; and (iii) the IWS Concession, in order to take into account the integrations and amendments to the regulatory framework introduced with MTI-2.

The MTI-2 provides for six different regulatory schemes to be applied in order to determine the Tariff. Each EGA choses the relevant applicable scheme depending on the relevant infrastructure needs (i.e. capital expenditure – "capex") relating to that particular ATO.

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The regulatory schemes and the yearly price cap values are described concisely in the following table:

Opex / Population Opex / Population Consolidation of Variables discontinuity for < 109 €/inhabitant per > 109 €/inhabitant per systemic changes year year

Expected Scheme I Scheme II Scheme III 2016-2019 Capex Tariff Increase Cap Tariff Increase Cap Tariff Increase Cap < 50% RAB 6.0% 5.5% 6.5%

Scheme IV Scheme V Scheme VI

Tariff Increase Cap Tariff Increase Cap Tariff Increase Cap Expected 8.5% 8.0% 9.0% 2016-2019 Capex > 50% RAB Possibility to include in Possibility to include in Possibility to include in FoNI a portion of new FoNI a portion of new FoNI a portion of new expected investments expected investments expected investments

For the purposes of the table above:

"Opex" means operational expenditure.

"RAB" means regulatory asset base.

The "FoNi" is the New Investments Fund (Fondo Nuovi Investimenti), fed through a specific component (FNI – i.e. the component applied as an anticipation for the financing of new investments) of the Tariff.

As far as the Issuer is concerned, by Resolutions No. 375/2014/R/idr and No. 503/2016/R/idr, AEEGSI approved the Tariff relating to the ATO of the Metropolitan Area of Milan, respectively, for the MTI-1 and the MTI-2 regulatory periods (i.e. 2014-2015 and 2016-2019). In particular, the Tariff for the second regulatory period 2016-2019 has been prepared by the ATO Office of the Metropolitan Area of Milan.

The Tariff, to be considered as the fee applicable to the end-users, is divided into the following components:

 a fixed amount (applied independently from the actual water consumption);

 a variable amount, depending on the actual water consumption;

 the sewage and purification fee, similarly depending on the actual water consumption; and

 an amount destined to finance investments in the sewage and purification network under the ATO Plan.

The Issuer's Investment Plan

The Issuer's Investment Plan, as determined by the ATO Office of the Metropolitan Area of Milan and the other ATO where the Issuer operates, and approved by the AEEGSI within the MTI-2 procedure for the approval of the Tariff relating to the ATO of the Metropolitan Area of Milan, evidences a significant need to carry out investments (i.e. capex) and improvements to the IWS service.

In particular, the Issuer's Investment Plan envisages investment actions and interventions to be carried out throughout the second regulatory period 2016-2019 for an overall amount of Euro 379,475,597 million, distributed as follows:

 Euro 105 million relating to the aqueduct sector;

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 Euro 132 million relating to the sewage sector;

 Euro 105 million relating to the purification and water treatment sector;

 Euro 37 million relating to interventions on other IWS related goods.

The needs determined in the Investment Plan approved by AEEGSI for the second regulatory period are further increased with the latest annual planning review approved in June 2017 by Issuer's Shareholder. The investment forecast during the next five years 2017-2021 amounts to Euro 548,425,371, distributed as follows:

 Euro 201.2 million relating to the aqueduct sector;

 Euro 131.3 million relating to the sewage sector;

 Euro 161.1 million relating to the purification and water treatment sector;

 Euro 54.5 million relating to interventions on other IWS related goods.

The Standard IWS Concession

By Resolution 656/2015/R/idr, AEEGSI approved the general terms of the standard IWS Concession (Convenzione Tipo) which includes the minimum contents that a IWS Concession must have (the "Standard IWS Concession").

The most relevant provisions of the Standard IWS Concession pertain to the economic and financial aspects of the IWS Concession as well as to the termination value due upon expiry/termination of the concession and can be summarised as follows:

(i) instruments for the maintenance of the economic and financial balance of the IWS Concession: if during the relevant regulatory period extraordinary and unforeseeable circumstances occur which determine the alteration of the economic balance of the IWS Concession, the Operator may send a motivated request to the EGA in order to ask for the implementation of adequate measures to restore such balance. In particular the following measures may be applied (in this order of preference): (a) revision of the Tariff, within the limitations set out by AEEGSI; (b) modification of the Investment Plan (this is to be done in such a way that the minimum service levels are to be in any case guaranteed as well as the satisfaction of the client's demands); (c) change to the perimeter of the concession or (to the extent allowed under the IWS Concession and applicable law) extension of the term of the IWS Concession; (d) access to AEEGSI's equalisation mechanisms; (e) other measures as agreed by the parties. Two or more of the above may also be applied jointly. EGA assesses the Operator's request and notifies to AEEGSI its decision and proposed rebalancing measures. Final approval is to be given by AEEGSI in order for such measures to be validly implemented;

(ii) step-in by a new Operator into the IWS Concession: the EGA must start the procedure for the awarding of the IWS Concession at least 18 months prior to its expiry and, in case of early termination, within 3 months from such event. The awarding to a new Operator is notified to AEEGSI;

(iii) termination value due to the exiting Operator at the end of the concession period (including the case of early termination): the EGA calculates the termination value – as proposed by the exiting Operator upon consultation with its financiers - which is then to be approved by AEEGSI. The termination value is to be paid by the new Operator to the exiting Operator. Upon payment of the termination value, the exiting Operator shall transfer to the new Operator the infrastructures and equipment necessary for the carrying out of the IWS as identified by the EGA. The new Operator, alternatively to the payment of the termination value (in whole or in part), may step into the obligations of the exiting Operator within the limits and the provisions of art. 1406 of the Italian Civil Code (which regulates the replacement of a party to a contract). In addition, pursuant to art. 153.2 of the Environmental Code, the incoming Operator may replace to exiting Operator in the obligations and guaranties pertaining to the finance arrangements relating to the financing of the IWS or to pay back the outstanding debt, in accordance with the provisions thereunder . Failure

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by the new Operator to pay the termination value by the due date shall determine that the exiting Operator shall continue to manage the ordinary activities of the IWS through an extension of the term of the IWS Concession until the relevant current end of the four-year regulatory period and in any case subject to limitations set forth under applicable law. During such interim period, the EGA may request to the existing Operator to carry out investments only if they cannot be postponed and provided that the above EGA's request sets out also the modalities for the Operator to recover the relevant costs. In such a case the guarantees provided by the new Operator shall be enforced and a sanctioning procedure is started.

Other relevant AEEGSI Resolutions

Contractual quality

On December 23rd 2015, the AEEGSI has approved the Resolution No. 655/2015/R/idr ("Resolution 655"), which disciplines the contractual quality regulation of IWS or of each of the single services which compose it ("RQSII").

The RQSII discipline includes:

 Indicators and procedures for the start and the termination of the contractual relationship;

 Indicators and conditions for contractual relationship management;

 Procedures for customer charging, billing, payment and instalments;

 Discipline of complaints, written information requests and billing adjustment management;

 Front office management;

 Phone services quality;

 Indicators and procedure for contractual quality requirements in case of application of Article No. 156 of the Environmental Code (i.e. presence of multiple operators);

 Specific and general levels of contractual quality of IWS;

 Automatic compensations;

 Communication and registration obligations;

 Data verification discipline.

The first implementation of RQSII regulation discipline starts from 1 July 2016, with the exception of Articles 72.2 (specific increases to quality standard automatic compensations), Article 77 (Communication to AEEGSI and local territorial authority, information and data publications) and Title VII (phone services), which applies to the Issuer starting from since 1 January 2017.

While most of the contractual standards requirements were already included in the customer service charters of many operators, the RQSII sets for the first time a national minimum quality standard level and defines an integrated compensation system for the sector.

In particular, Title IX of Annex A to Resolution 655 identifies several obligations which constitute specific and general contract quality standards for the IWS, setting out terms and conditions for the implementation of such obligations by each IWS operator. Specific percentages and timing for reaching such contract quality standards are also provided.

In case of failure to comply with the specific contract quality standards for reasons attributable to the IWS operator, Title X of Annex A to Resolution 655 provides for automatic compensation due by the IWS operator to the end-user equal to Euro 30 to be deducted from the next invoice. Since 1 January 2017, such automatic compensation could increase up to three times in case final compliance by the IWS operator occurs in a timing exceeding three times the standard required under Resolution 655.

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Each EGA may define additional and differentiated specific or general contract quality standards, save for the application of those generally set out by AEEGSI under Resolution 655. In addition, EGAs may also provide for higher automatic compensations.

Table 6 of Annex A Resolution 655, summarises the specific and general contract quality standards to be taken into account specifying, for each of them, (i) classification, (ii) standards required, (iii) timing for the implementation and (iv) amount/modalities for calculation of the automatic compensations.

Both the specific and general contract quality standards must be uploaded in the IWS operator's database and relevant data on their actual implementation must be made available and communicated to the EGA, AEEGSI and end-users, also in order to allow the carrying out of the monitoring activities by the EGA and AEEGSI.

Pursuant to Title XII of Annex A to Resolution 655, the AEEGSI may carry out specific surveys on the above data, communicating to the IWS operator the year which shall be monitored, starting from the year 2017. In case violations/non-compliance are detected by the AEEGSI as a result of the monitoring activities, penalties as defined in Article 89 and 90 of Annex A may be applied for each non- compliance/major violations, as the case may be.

The AEEGSI reserves the right to carry out further inspections and spot checks, additional to those defined in Title XII of Annex A to Resolution 655, to verify the veracity of all data and information reported by the operators for the purpose to comply with the provisions of RQSII.

In addition to the above penalties, should the IWS operator fail to comply with the above general contract quality standards for two consecutive years, such violation may cause the start of a sanctioning process by the AEEGSI pursuant to Art. 2.20 lett. c) of Law No. 481/1995.

In particular, such piece of legislation provides for monetary sanctions ranging from Euro 2,500 up to Euro 154,937,069.73 depending on the seriousness of the breach. In case of repeated violations, which may prejudice the regular provision of the IWS to the end-users, the AEEGSI may also suspend the IWS activity for a period up to six months or propose the termination of the relevant concession agreement.

Accounting unbundling

On March 24th 2016, the AEEGSI has approved the resolution No. 137/2016/R/com (and in particular Annex A thereto – "Testo integrato delle disposizioni dell'autorità per l'energia elettrica il gas e il Sistema idrico in merito agli obblighi di separazione contabile (unbundling contabile) per le imprese operanti nei settori dell'energia elettrica, del gas e per i gestori del servizio idrico integrato e relative obblighi di comunicazione" – "TIUC"), which disciplines the accounting unbundling discipline for the IWS, on the basis of previously developed unbundling schemes which have been implemented for the electricity and gas sectors.

The TIUC, with reference to the unbundling scheme applicable to the IWS defines three main categories:

 main activities (the "Activities" or "Activity" – which are single operational phases that could be managed as a stand-alone entity);

 Operating shared functions ("OSF", which provide technical services for at least two of the Activities);

 Common services ("CS", logic-organisational units which provide centralised general services for the whole company or group).

The Main Activities identified in connection with IWS are:

 Aqueduct;

 Sewage;

 Purification;

 Other water activities, which include all the water activities not included in IWS;

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 Other activities, which include the residual activities of the company.

The unbundling scheme provides that economic and financial accounts relating to OSF and CS are to be allocated to each Activity according to specific drivers defined by AEEGSI, with the consequent drafting of separate annual accounts.

AEEGSI resolution No. 137/2016/R/com also provides for two separate regimes: an ordinary and a simplified regime, which differ in terms of the volumes and types of information that the specific IWS operator is bound to comply with.

The Issuer falls under the category of entities bound to implement the ordinary regime set out under the TIUC.

The ordinary regime requires that the unbundling process include a further break-up of Activities account into a more detailed level of components, defined by Article 6 of Annex A, called "Comparti". The subdivision into Comparti is applied according to the following table:

Activities Comparti

Aqueduct Catchment (i.e. water provisioning)

Adduction

Water treatment

Distribution

Aqueduct metering

Sewage Black and mixed wastewater

White wastewater

Sewage metering

Purification Purification

Other water activities Other water activities, different from Aqueduct, Sewage and Purification included in IWS

Collection for third parties ("Riscossione")

Other activities Other activities

The provisions under the TIUC apply starting from the first fiscal year that opens after 31 December 2015, which for the Issuer is the year 2016.

Please note that, in case of non-compliance with the unbundling rules under the TIUC, AEEGSI may start the sanctioning process pursuant to Art. 2.20 lett. c) of Law No. 481/1995. In particular, such piece of legislation provides for monetary sanctions depending on the seriousness of the breach. In case of repeated violations, which may prejudice the regular provision of the IWS to the end-users, the AEEGSI may also suspend the IWS activity for a period up to six months or propose the termination of the relevant concession agreement.

Furthermore, pursuant to Article 30.15 of TIUC the "Cassa per i servizi energetici ed ambientali" may suspend grants to beneficiaries until they provide the separate annual accounts, according to the provisions of the TIUC. The suspension does not include grants for which the beneficiary is considered as a mere intermediary of sums not intended to him.

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Environmental regulation

The Issuer is subject to a broad range of environmental laws and regulations both in Italy and the European Union, including those governing the discharge of pollutants into the air or water, the uses, transport, storage, processing, discharge, management and disposal of hazardous substances and wastes and the responsibility to investigate and clean-up contaminated sites that are or were owned, leased, operated or used by the Issuer. Such laws and regulations impose increasingly stringent environmental obligations regarding, among other things, zoning, the protection of employees and health and safety. The Issuer's objective is to comply in all material respects, and believes that its operations generally are in material compliance, with applicable environmental and health control laws and regulations, and all related permit requirements.

Responsibility for contamination

The main piece of EU legislation dealing with environmental liability in respect of damage to site conditions is Directive 2004/35/CE on environmental liability with regard to the prevention and remediation of environmental damage ("Environmental Liability Directive"), which establishes a framework based on the "polluter pays" principle to prevent and remedy environmental damage. The "polluter pays" principle is set out in the Article 191(2) of the Treaty on the Functioning of the European Union. As the Environmental Liability Directive deals with the "pure ecological damage", it is based on the powers and duties of public authorities ("administrative approach") as distinct from a civil liability system for "traditional damage" (damage to property, economic loss, personal injury).

The Environmental Liability Directive has been implemented in Italy by the Environmental Code, pursuant to which the polluter is legally responsible to prevent and remedy any environmental damage caused by its activities. As a result, any costs for remediation of a site must be borne by the polluter, while the landowner or any other person who is not responsible for the pollution cannot be required to carry out, or bear liability, for any clean-up activity.

Under the Environmental Code, for liability purposes the actual polluter is the person responsible for the activity that caused the pollution, regardless of whether he holds any interest in the land that has been polluted. Therefore, if an action by a third party caused pollution without the owner or user of the affected land being aware of that activity, or being able to prevent the activity, that owner or user cannot be held responsible (Article 245.1 of the Environmental Code). Remediation may only be carried out by the competent public authority if the person responsible for contamination cannot be identified or is unable to perform the clean-up (for example, as a result of its corporate insolvency). The competent authority may not direct the current owner or user of the affected land to carry out any remediation work, if that owner or user is not responsible for the contamination; however, in certain circumstances the authority may nevertheless expropriate the land as compensation for its remediation costs. As an alternative, to avoid such scenario, a landowner may carry out any required remediation itself and subsequently seek reimbursement from the polluter under Italian civil laws.

With respect to any remediation required in the execution of public works, if the contamination has not been caused by the contractor but is pre-existing on the site, the contractor is entitled to request a variation, and, to the extent applicable, a rebalancing of the economic and financial plan underlying the relevant contract. On the other hand, to the extent that pollution has been caused by the activities of that contractor, or is attributable to its sub-contractors, the contractor must bear the costs of remediation.

Health and safety

In compliance with Italian, regional and EU laws and regulations, the Issuer has implemented health and safety rules that are applicable to all its operations, processes and activities.

In particular, Legislative Decree No. 81/08 (Consolidated Act on occupational health and safety protection at workplaces, implementing, inter alia, Directives 89/391/ECC, 89/654/ECC, 89/655/ECC, 89/656/ECC, 90/269/EC, 90/270/ECC, 90/394/ECC, 90/679/ECC, 93/88/ECC, 95/63/ECC, 97/42/ECC, 98/24/ECC, 99/38/ECC, 99/92/ECC, 2001/45/ECC, 2003/10/ECC, 2004/40/ECC as well as 92/57/EEC on temporary or mobile construction sites) sets out health and safety requirements at workplaces as well as at temporary or mobile construction sites ("LD 81/08").

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Under Article 2 of LD 81/08, the Issuer, as employer, is the subject who retains the responsibility to organize the activities to be carried out at the workplace, having the relevant decision and spending powers.

Furthermore, in case construction works are to be carried out (also as a result of the implementation of the Investment Plan), Title IV of LD 81/08 (Articles 88 – 160) sets out specific health and safety requirements to be complied with in case works are carried out at temporary or mobile construction sites. To this end, Article 89.1.a) of LD 81/08 defines as construction site any site where building works or civil engineering activities (as listed in Annex X) are carried out. In its turn, Annex X provides a very broad list of activities that are to be regarded as building works or civil engineering.

CAP Holding complied with the OHSAS 18001 standards through the establishment and implementation of a specific health and safety management system. Periodical audits are conducted on the processes managed in order to monitor the compliance with the applicable regulation, the efficiency of the adopted OHSAS 18001 compliant system and to identify possible improvement areas.

The Issuer implemented a model compliant with the provision of Legislative Decree 231/2001 in order to prevent its liability from committing the crimes related to the breach of applicable health and safety regulations (see "Risk Factors - Risk relating to any breaches of the organisation and management model").

Public procurement and Traceability regime pursuant to Law No. 136/2010 (to the extent applicable)

Given to its status as in-house company, the Issuer is to be regarded as a public authority/public entity for the purpose of application of the Public Contracts Code (see "Description of the Issuer—Issuer's Businesses"). In light of the above, the Issuer must comply with the public procurement rules under the Public Contracts Code when contracting out to third parties works, supply and services contract.

Furthermore, the Issuer is also subject to specific obligations to ensure traceability of any financial flows relating to the activities necessary for the carrying out of its activities.

In particular, in order to ensure full traceability of any financial flows and to prevent criminal infiltrations, Article 3 of Law No. 136/2010 (the "Law 136/10") provides that all contractors, sub- contractors and concessionaires in relation to public works, services or supplies must use dedicated bank accounts to receive and/or make any payments relating to the performance of the activities under the relevant public contract. Furthermore, all such sums must be moved by wire transfers (which are traced and registered on the bank account) and include the tender identification code (codice identificativo gara - CIG) identified by the relevant awarding authority.

Furthermore, the Issuer must also ensure that any contracts and sub-contracts in connection with the relevant works, supplies or services include a provision requiring all sub-contractors, contractors and suppliers to comply with the obligations under Law 136/10. Any contracts entered into after the date that Law 136/10 came into effect that do not include such a provision will be deemed retroactively void.

Pursuant to Article 6.2 of Law Decree 187/2010 (as amended by Law 217/2010), contracts concluded before 7 September 2010 must be updated to include traceability obligations before 16 June 2011. However, pursuant to Article 1339 of the Italian Civil Code, any contracts that have not been updated accordingly will be deemed to automatically include such obligations.

New consolidated act on companies in which public entities have a shareholding (so-called "Madia Decree")

Legislative Decree 19 August 2016 no. 175 introduces a consolidated act regulating companies with public shareholders (Testo unico in materia di società a partecipazione pubblica - "Madia Decree"). The Madia Decree has been published on the Italian Official Gazette (Gazzetta Ufficiale) on 8 September 2016 and has entered into force from 23 September 2016.

According to article 1, paragraph 5 of the Madia Decree, the same decree does not apply to "listed companies" (as defined under article 2, letter p)), save where expressly provided. Such definition of "listed companies" includes, among other things, also companies with public shareholders that have issued financial instruments listed on regulated markets, on or before 31 December 2015.

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In this respect, article 26, paragraph 5 of the Madia Decree provides that in the 12 months following the entry into force of the Madia Decree (i.e. until September 2017) such decree does not apply to companies with public shareholders which, by 30 June 2016, have adopted deeds which are aimed at issuing financial instruments (other than shares) to be listed on regulated markets. The aforesaid deeds are communicated by the issuer to the Court of Auditors (Corte dei Conti) within 60 days form the entry into force of such decree. In case the listing procedure is concluded by the aforesaid term of 12 months, the Madia Decree continues not to apply to the issuer.

In light of the above, the Issuer, according to article 26, paragraph 5 of the Madia Decree, it may be substantially assimilated to listed companies for the purpose of the Madia Decree and, therefore, that it is excluded from the application of the provisions under the Madia Decree, having adopted deeds aimed at issuing the Notes before the abovementioned term of 30 June 2016. Thus, consistently with article 26, paragraph 5 of the Madia Decree, within the 60-day term provided therein, the Issuer has notified to the Court of Auditors (Corte dei Conti) the deeds aimed at issuing the Notes which have been adopted before the term provided under Madia Decree (30 June 2016) and which are described under Section "Description of the Issuer - IWS Financial Strategy" above.

Without prejudice to the above, for the sake of completeness please find below a brief description of the main provisions of the Madia Decree, which apply to the companies with public shareholders outside the scope of article 26, paragraph 5 of the Madia Decree.

The Madia Decree provides a consolidated regulation with reference to the incorporation of companies by public entities as well as the acquisition, the maintenance and the management of the stakes in companies which are, totally or partially, directly or indirectly, owned by public entities.

More in details, the Madia Decree provides a list of the corporate purposes for which a company with public shareholders can be incorporated and maintained (which includes, among other things, also the realization and management of public works and/or the organization and management of a general- interest services). Moreover, the Madia Decree provides, among other things, certain general principles on the organization and management of companies with public shareholders as well as specific rules, limitations and restrictions for the incorporation, acquisition, management and sale of such type of companies. The Madia Decree also contains provisions relating to corporate bodies, including on their responsibility, remunerations and control. Furthermore, specific rules are provided both for in-house companies and public-private companies (società miste). The provisions to be applied to listed companies are those provided under article 1, paragraph 5, article 8, paragraph 3 and article 9, paragraph 9.

By decision of the Constitutional Court No. 251/2016, the Law No. 124 of 7 August 2015 (by means of which the Italian Government was delegated to issue the Madia Decree), was partly declared unconstitutional whereby it provided that Madia Decree was subject to the mere consultation with the Regions instead of their prior agreement to be reached through the Conferenza Unificata pursuant to Legislative Decree No. 281 of 28 August 1997. However, such decision should not have a direct and automatic impact on the Madia Decree as well as on the issue of the Notes. In fact the decision of the Constitutional Court expressly states that the legitimacy of any provision of the legislative decrees issued on the basis of the Law 124/2015 (including the Madia Decree) needs to be verified on a case by case basis, upon specific challenge, taking into account the remedies that the Italian Government will put in place in order to ensure the involvement of the Regions on the subject matters falling within their competence.

The Madia Decree was also directly challenged by the Veneto Region before the Constitutional Court (lawsuit register No. 76/2016).

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SELECTED FINANCIAL INFORMATION

The following tables set out in summary form balance sheet and income statement information relating to the Issuer. Such information is derived from the audited consolidated financial statements of the Issuer as at and for the years ended 31 December 2016 and 31 December 2015. The financial statements of the Issuer are prepared in accordance with Italian GAAP, which differs in certain respects from IFRS. Such financial statements, together with the reports of BDO Italia S.p.A. and the accompanying notes, appear elsewhere in this Prospectus. See "Information Incorporated by Reference". The financial information presented below should be read in conjunction with such financial statements, reports and the notes thereto.

Certain financial information of the Issuer for the year ended on 31 December 2016 prepared by the Issuer on a voluntary basis under IFRS has been included in the tables below, together with a table to show differences between financial information prepared in accordance with Italian GAAP and IFRS and a discussion of such differences. Such consolidated financial information constitutes a summary of the consolidated financial information contained in the Special Purpose Audited IFRS Consolidated Financial Statements of Cap Holding S.p.A. as at and for the year ended 31 December 2016, prepared on a voluntary basis by the Issuer in accordance with IFRS, exclusively for the purpose of the inclusion in this Prospectus and audited by BDO Italia S.p.A.. See "– Consolidated financial information prepared in accordance with IFRS".

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CAP HOLDING S.p.A. AUDITED CONSOLIDATED ANNUAL BALANCE SHEETS

Assets As at 31 December 2016 (audited) 2015 (audited) Italian GAAP Italian GAAP (thousands of Euro) NON CURRENT ASSETS Fixed assets Intangible 12,295 11,288 Tangible 798,449 806,659 Financial fixed assets 15,358 10,294 Total fixed assets 826,101 828,241

CURRENT ASSETS Inventories 32,034 18,058 Receivables - Trade receivables 246,961 237,582 - From parent companies 142 247 - For tax receivables 22,551 18,188 - For deferred tax assets 23,159 18,731 - From others 22,851 26,179 Financial assets other than fixed assets 0 0 Liquid assets (cash and cash equivalents) 118,789 93,896 Total current assets 466,487 412,880

ACCRUALS AND PREPAYMENT Accrued income and prepaid expenses 9,039 2,032 Total Accruals and deferrals 9,039 2,032

TOTAL ASSETS 1,301,627 1,243,153

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CAP HOLDING S.p.A. AUDITED CONSOLIDATED ANNUAL BALANCE SHEETS (Cont’d)

Liabilities and shareholders’ equity As at 31 December 2016 (audited) 2015 (audited) Italian GAAP Italian GAAP (thousands of Euro)

SHAREHOLDERS’ EQUITY Share capital 571,382 571,382 Share premium reserve 1,394 1,394 Legal reserve 2,689 1,988 Other reserves: consolidation reserve 20,207 20,207 Other reserves 119,619 106,295 Reserve for hedging of the expected cash flows -3,674 0 Retained earnings (losses) 8,872 2,754 Profit (loss) for the year 29,483 20,401 Reserve for own shares -623 -623 Total shareholders’ equity 749,348 723,797

PROVISIONS FOR RISKS AND CHARGES Deferred tax liabilities 1,489 1,323 Provisions for risks and charges 4,929 0 Other provisions 43,354 32,553 Total provisions for risks and charges 49,772 33,876

PROVISIONS FOR EMPLOYEE BENEFITS Employees severance indemnity 6,095 6,769 Total employees severance indemnity 6,095 6,769

PAYABLES Bonds 5,185 5,926 Payables to banks within 12 months 8,916 10,889 Payables to banks beyond 12 months 110,954 86,177 Advances 19,791 20,346 Trade payables 80,244 64,821 Due to parent companies 305 3 Tax payables 3,247 3,105 Payables to social security institutions 2,644 2,134 Other payables 114,531 131,428 Total payables 345,818 324,830

ACCRUALS AND DEFERRED INCOME Accrued expenses and deferred income 150,594 153,881 Total accrual and deferrals 150,594 153,881

TOTAL SHAREHOLDERS’ EQUITY AND 1,301,627 1,243,153 LIABILITIES

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CAP HOLDING S.p.A. AUDITED CONSOLIDATED ANNUAL INCOME STATEMENTS

As at 31 December 2016 (audited) 2015 (audited) Italian GAAP Italian GAAP (thousands of Euro) PRODUCTION VALUE Revenues from sales and services 260,001 239,694 Changes in construction contracts 61 -4,431 Increase of fixed assets due to internal works 27,896 15,910 Other revenues and income 16,152 17,672 TOTAL PRODUCTION VALUE 304,109 268,844

PRODUCTION COSTS For raw materials, consumables and goods for resale -11,054 -10,105 For services -108,986 -82,146 For use of third party assets -12,276 -17,413 For personnel -43,809 -43,966 Amortisation, depreciations and write-downs -61,783 -60,689 Changes in inventories of raw materials, consumables and -468 446 goods for resale Provision for risks -1,722 -2,209 Other provisions -2,337 -1,916 Sundry operating costs -10,232 -8,671 TOTAL PRODUCTION COSTS -252,666 -226,670

Difference between value and costs of production 51,443 42,175

FINANCIAL INCOME AND EXPENSES Other finance income 3,056 2,623 Interest and other finance expenses -7,872 -6,630 TOTAL FINANCIAL INCOME AND EXPENSES -4,815 -4,007

VALUE ADJUSTMENT OF FINANCIAL INVESTMENTS Revaluations 0 0 Devaluations -530 -1,123 TOTAL ADJUSTMENTS -530 -1,123

Profit (loss) before tax 46,098 37,045 Current and deferred income taxes for the year -16,615 -16,644 Profit (loss) for the year 29,483 20,401

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Consolidated financial information prepared in accordance with IFRS

The consolidated financial information included in the tables below constitutes a summary of the consolidated financial information contained in the Special Purpose Audited IFRS Consolidated Financial Statements.

The Special Purpose Audited IFRS Consolidated Financial Statements will be included as comparative data in the consolidated financial statements of CAP Holding S.p.A. as at and for the year ending 31 December 2017, which will be the first consolidated financial statements of the Issuer prepared in accordance with IFRS.

The Issuer will prepare its consolidated financial statements as at and for the year ending 31 December 2017 and thereafter in accordance with IFRS.

The tables below should be read in conjunction with the Special Purpose Audited IFRS Consolidated Financial Statements attached as the Appendix to this Prospectus.

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As at 31 December

2016 according IFRS 2016 to Italian adjustments according to GAAP, with (audited) IFRS IFRS form (audited) (audited)

(thousands of Euro)

ASSETS

Non-current assets

Rights on assets under concession - 662,601 662,601

Other intangible fixed assets 12,295 - 12,295

Tangible fixed assets 798,448 (784,735) 13,713

Assets for prepaid taxes 23,159 (935) 22,224

Other receivables and other non-current financial 24,396 - 24,396 assets

Total non-current assets 858,299 (123,069) 735,230

Current assets

Trade receivables 247,103 (1,470) 245,633

Inventories 5,327 - 5,327

Work in progress to order 575 - 575

Cash and cash equivalents 118,789 - 118,789

Other receivables and other current financial 45,402 - 45,402 assets

Total current assets 417,196 (1,470) 415,726

Non current assets available for sale 26,132 - 26,132

TOTAL ASSETS 1,301,627 (124.539) 1,177,088

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As at 31 December

2016 according IFRS 2016 according to Italian adjustments to IFRS GAAP, with (audited) (audited) IFRS form (audited)

(thousands of Euro)

SHAREHOLDER'S EQUITY

Share Capital 571,382 - 571,382

Other reserves 148,484 (182) 148,302

First Time Adoption reserve - (991) (991)

Net result of the period 29,482 (2,613) 26,869

TOTAL CONSOLIDATED SHAREHOLDER'S EQUITY 749,347 (3,786) 745,561

LIABILITIES

Non-current liabilities

Provision for risks and charges 48,283 (4,929) 43,354

Employee benefits 6,095 211 6,306

Liabilities for deferred tax 1,489 (1,489) -

Non-current payables to bank and other lenders 114,657 31,896 146,553

Other non-current payables 212,917 (150,802) 62,115

Total non-current liabilities 383,440 (125,113) 258,327

Current liabilities

Trade payables 80,549 - 80,549

Current payables to bank and other lenders 10,398 (3) 10,395

Liabilities for current taxes - - -

Other current payables 77,892 11 77,903

Total current liabilities 168,839 8 168,847

Non-current liabilities available for sale - 4,352 4,352

TOTAL LIABILITIES AND 1,301,627 -124,539 1,177,088 SHAREHOLDER'S EQUITY

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As at 31 December

2016 according IFRS 2016 to Italian adjustments according to GAAP, with (audited) IFRS (audited) IFRS form (audited)

(thousands of Euro)

Revenues 260,061 - 260,061

Increases in fixed assets for internal works 27,896 (27,896) -

Revenues for works on assets under concession - 77,893 77,893

Other revenues and income 16,153 (7,383) 8,770

Total revenues and other income 304,110 42,614 346,724

Costs of raw materials, consumables and goods (11,522) - (11,522)

Costs for services (121,262) (1,179) (122,441)

Costs for works on assets under concession - (49,997) (49,997)

Personnel costs (43,809) 91 (43,718)

Depreciation, amortisation, allocations and (65,842) 5,074 (60,768) impairment

Other operating costs (10,232) - (10,232)

Total costs (252,668) (46,011) (298,679)

Result from operations 51,442 (3,397) 48,045

Financial income 3,057 504 3,561

Financial charges (8,402) (185) (8,587)

Result before taxes 46,097 (3,078) 43,019

Taxes (16,615) 465 (16,150)

Net result of the period (A) 29,482 (2,613) 26,869

Other comprehensive income that will not be subsequently reclassified to the income statement

Actuarial gains (losses) on employees’ defined benefit plans - (182) (182)

Tax effect on actuarial gains (losses) on employees’ defined benefit plans - 44 44

Other comprehensive income that will be subsequently reclassified to the income

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statement

Change in the fair value of cash flow hedge - 810 810 derivatives

Tax effect on change in the fair value of cash flow - (194) (194) hedge derivatives

Total other comprehensive income, net of tax 0 478 478 effect (B)

Total comprehensive income for the year 29,482 (2,136) 27,346 (A)+(B)

Summary of certain differences between Italian GAAP and IFRS

This Prospectus contains (i) historical financial information derived from the Issuer’s consolidated audited financial statements as of and for the years ended 31 December 2016 and 2015, prepared in accordance to Italian GAAP, and (ii) certain consolidated financial information of the Issuer for the year ended 31 December 2016 extracted from the Special Purpose Audited IFRS Consolidated Financial Statements included in the Appendix of the Prospectus.

The following is a discussion of certain significant differences between Italian GAAP and IFRS applicable to the Issuer. This paragraph does not include a full qualitative or detailed quantitative disclosure of the differences between Italian GAAP and IFRS applicable to the Issuer; accordingly, undue reliance should not be placed on the completeness of such disclosure. Each prospective investor should consult its own professional advisors for an understanding of the differences between Italian GAAP and IFRS and how those differences might affect the financial information included in this Prospectus.

The differences highlighted below reflect only those main differences in accounting policies in force at the time of the preparation of the Italian GAAP consolidated financial statements for the year ended 31 December 2016. No attempt has been made to identify future differences between Italian GAAP and IFRS deriving from changes in accounting standards, transactions or events that may occur in the future. Regulatory bodies that promulgate Italian GAAP and IFRS have significant ongoing projects that could affect future comparisons. Future developments or changes in Italian GAAP and IFRS may give rise to additional differences between Italian GAAP and IFRS, which could have a significant impact on the Issuer.

Service concession arrangements - IFRIC 12

IFRIC 12 applies to service concession arrangements between a public sector body (grantor) and a private sector body (operator) when the following conditions are met:

- the grantor controls or regulates what services the operator must provide with the asset, to whom it must provide them, and at what price; and

- the grantor controls – through ownership or otherwise – any significant residual interest in the asset at the end of the term of the arrangement.

At the Transition Date, the Group applied IFRIC 12 to the forecast figures of the Integrated Water Service assets under concession. The main items on which the application of IFRIC 12 had an impact are mentioned below:

- concession rights deriving from construction and/or improvement works amounting to Euro 631,467 thousand at 1 January 2016 and Euro 662,601 thousand at 31 December 2016;

- the value of the fixed assets, plant and machinery, previously posted as proprietary assets strictly connected to the infrastructure under concession, which has been eliminated since, according to

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IFRIC 12, they represent assets under the control of the concession grantor for a value of Euro 753,335 thousand at 1 January 2016 and Euro 784,735 thousand at 31 December 2016;

- the amortisation of the value of the assets under concession for the duration of the concession, which has been posted for Euro 41,419 thousand, with the elimination of the amortisation of the fixed assets, plant and machinery which fall within the sphere of the application of IFRIC 12;

- revenues and costs for construction services, which are posted according to the state of progress of the jobs commissioned for respectively Euro 77,893 thousand and Euro 49,997 thousand.

Derivative financial instruments (IRS) – IAS 39

As of the financial year 2016, in implementation of the new Italian Accounting Standards, the Group has included the fair value of the IRS derivative financial instruments in the consolidated equity and financial situations.

The application of IAS 39 requires the fair value of the IRS derivative agreements signed by the Group to be included in the equity and financial situation at 1 January 2016.

After the first posting, the derivative instruments are treated with hedge accounting methods inasmuch as the conditions contemplated by IAS 39 are met, although it is maintained that the amounts should more correctly be posted on the consolidated financial statements for the reasons illustrated in the preceding point.

Consequently the fair value of the IRS derivative instruments, being Euro 35,500 thousand as at 1 January 2016 and Euro 31,909 thousand as at 31 December 2016, is posted under the financial liabilities while the change in the fair value, equal to Euro 810 thousand, is posted among the other components of the comprehensive income statement, net of the tax effect equal to Euro 194 thousand.

Provision for employee severance indemnities – IAS 19

In accordance with Italian accounting standards, benefits after the termination of employment are posted according to the accruals principle throughout the employees' term of service, in compliance with the law and the applicable labour agreements.

On the basis of the provisions of IAS 19, benefits after the termination of employment are divided into two types: defined contribution schemes and defined benefit schemes.

The severance indemnity provision was similar to a defined benefits scheme until 31 December 2006, to be assessed on the basis of statistical and demographic assumptions and actuarial valuation methods. After the change in Italian law, the severance indemnity that accrued as of 1 January 2007 is similar to a defined contribution scheme, providing the conditions contemplated by the legislative amendment are met.

Therefore, the value of the said provision was redetermined at the Transition Date, as well as the relative cost for each financial period. In particular, the actuarial gains and losses have been posted for the other components of the comprehensive income statement, the service cost has been posted under the item "Personnel costs" and the interest cost has been posted under the item "Financial charges". This adjustment involved, among other things, a reduction in the shareholders' equity of Euro 375 thousand at 1 January 2016 and of Euro 182 thousand at 31 December 2016.

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USE OF PROCEEDS

The net proceeds of the proposed issue of Notes will be applied by the Issuer to fund its general corporate purposes, with specific reference to investments in the integrated water service ("IWS") in accordance with the Group's investment plan for the period 2017-2021. For further information, see "Description of the Issuer – Investments".

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TAXATION

The statements herein regarding taxation are based on the laws in force in Italy as at the date of this Prospectus and are subject to any changes in law occurring after such date, which changes could be made on a retroactive basis. The following summary does not purport to be a comprehensive description of all the tax considerations which may be relevant to a decision to subscribe for, purchase, own or dispose of the Notes and does not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as dealers in securities or commodities) may be subject to special rules. Prospective purchasers of the Notes are advised to consult their own tax advisers concerning the overall tax consequences of their ownership of the Notes.

ITALIAN TAXATION

Tax treatment of the Notes

Legislative Decree No. 239 of 1 April 1996, as subsequently amended ("Decree 239"), provides for the applicable regime with respect to the tax treatment of interest, premium and other income (including the difference between the redemption amount and the issue price) from notes, falling within the category of bonds (obbligazioni) or debentures similar to bonds (titoli similari alle obbligazioni) issued, inter alia, by Italian companies with shares not traded on a regulated market or multilateral trading facility of an EU or EEA Member State which exchanges information with the Italian tax authorities, where the Notes themselves are traded on the mentioned regulated markets or multilateral trading facilities. For this purpose, bonds and debentures similar to bonds are securities that incorporate an unconditional obligation to pay, at redemption, an amount not lower than their nominal value and which do not grant the holder any direct or indirect right of participation to (or control of) to management of the Issuer.

Italian resident Noteholders

Where an Italian resident Noteholder is (a) an individual not engaged in an entrepreneurial activity to which the Notes are connected (unless he has opted for the application of the risparmio gestito regime - see under "Capital gains tax" below); (b) a non-commercial partnership; (c) a non-commercial private or public institution; or (d) an investor exempt from Italian corporate income taxation, interest, premium and other income relating to the Notes, are subject to a withholding tax, referred to as 'imposta sostitutiva', levied at the rate of 26 per cent. In the event that the Noteholders described under (a) and (c) above are engaged in an entrepreneurial activity to which the Notes are connected, the imposta sostitutiva applies as a provisional tax.

Subject to certain limitations and requirements (including a minimum holding period), Italian resident individuals not acting in connection with an entrepreneurial activity may be exempt from any income taxation, including the imposta sostitutiva, on interest, premium and other income relating to the Notes if the Notes are included in a long-term savings account (piano di risparmio a lungo termine) that meets the requirements set forth in Article 1(100-114) of Law No. 232 of 11 December 2016 (the "Finance Act 2017").

Where an Italian resident Noteholder is a company or similar commercial entity, a commercial partnership, or a permanent establishment in Italy of a foreign company to which the Notes are effectively connected, and the Notes are deposited with an authorised intermediary, interest, premium and other income from the Notes will not be subject to imposta sostitutiva, but must be included in the relevant Noteholder's income tax return and are therefore subject to general Italian corporate taxation (and, in certain circumstances, depending on the 'status' of the Noteholder, also to the regional tax on productive activities ("IRAP")).

Where an Italian resident Noteholder is an individual engaged in an entrepreneurial activity to which the Notes are connected, interest, premium and other income relating to the Notes, are subject to imposta sostitutiva and will be included in relevant income tax return. As a consequence, interests, premium and other income will be subject to the ordinary income tax and the imposta sostitutiva may be recovered as a deduction from the income tax due.

Under the current regime provided by Law Decree No. 351 of 25 September 2001, converted into Law No. 410 of 23 November 2001 ("Decree 351"), Law Decree No. 78 of 31 May 2010, converted into Law No. 122 of 30 July 2010 and Legislative Decree No. 44 of 4 March 2014, all as amended, Italian real

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estate investment funds created under Article 37 of Legislative Decree No. 58 of 24 February 1998, as amended and supplemented, and Article 14-bis of Law No. 86 of 25 January 1994 and Italian real estate SICAFs (the "Real Estate SICAFs" and together with Italian real estate investment funds, the "Real Estate Funds") are subject neither to imposta sostitutiva nor to any other income tax in the hands of the Real Estate Funds.

If the investor is resident in Italy and is an open-ended or closed-ended investment fund, a SICAF (an Italian investment company with fixed share capital) or a SICAV (an investment company with variable capital) established in Italy (the "Fund") and either (i) the Fund or (ii) its manager is subject to the supervision of a regulatory authority, and the relevant Notes are held by an authorised intermediary, interest, premium and other income accrued during the holding period on such Notes will not be subject to imposta sostitutiva, but must be included in the management results of the Fund. The Fund will not be subject to taxation on such results but a withholding or a withholding tax of 26 per cent. will apply, in certain circumstances, to distributions made in favour of unitholders or shareholders (the "Collective Investment Fund Tax").

Where an Italian resident Noteholder is a pension fund (subject to the regime provided for by article 17 of the Legislative Decree No. 252 of 5 December 2005 – the "Pension Fund") and the Notes are deposited with an authorised intermediary, interest, premium and other income relating to the Notes and accrued during the holding period will not be subject to imposta sostitutiva, but must be included in the result of the relevant portfolio accrued at the end of the tax period, to be subject to a 20 per cent. substitute taxon the increase in value of the managed assets accrued at the end of each tax year (which increase would include Interest accrued on the Notes).

Pursuant to Decree 239, imposta sostitutiva is applied by banks, SIMs, fiduciary companies, SGRs, stockbrokers and other entities identified by a decree of the Ministry of Finance (each an "Intermediary").

An Intermediary must (a) be resident in Italy or be a permanent establishment in Italy of a non-Italian resident financial intermediary and (b) intervene, in any way, in the collection of interest or in the transfer of the Notes. For the purpose of the application of the imposta sostitutiva, a transfer of Notes includes any assignment or other act, either with or without consideration, which results in a change of the ownership of the relevant Notes or in a change of the Intermediary with which the Notes are deposited.

Where the Notes are not deposited with an Intermediary (or with a permanent establishment in Italy of a foreign Intermediary), the imposta sostitutiva is applied and withheld by any entity paying interest to the holders of the Notes or, absent that by the Issuer. Non-Italian resident Noteholders

Where the Noteholder is a non-Italian resident without a permanent establishment in Italy to which the Notes are connected, an exemption from the imposta sostitutiva applies provided that the non-Italian resident beneficial owner is either (a) resident, for tax purposes, in a country which allows for a satisfactory exchange of information with Italy as listed in the Italian Ministerial Decree of 4 September 1996, as amended by Ministerial Decree of 9 August 2016 and possibly further amended by future decree issued pursuant to Article 11(4)(c) of Decree 239 (as amended by Legislative Decree No.147 of 14 September 2015) (the "White List") (b) is an international entity or body set up in accordance with international agreements which have entered into force in Italy; or (c) is a Central Bank or an entity which manages, inter alia, the official reserves of a foreign State; or (d) is an institutional investor which is resident in a country included in the White List, even if it does not possess the status of taxpayer in its own country of residence.

In order to ensure gross payment, non-Italian resident Noteholders must be the beneficial owners of the payments of interest, premium or other income and (a) deposit, directly or indirectly, the Notes with a resident bank or SIM or a permanent establishment in Italy of a non-Italian resident bank or SIM or with a non-Italian resident entity or company participating in a centralised securities management system which is in contact, via computer, with the Ministry of Economy and Finance and (b) file with the relevant depository, prior to or concurrently with the deposit of the Notes, a statement of the relevant Noteholder, which remains valid until withdrawn or revoked, in which the Noteholder declares to be eligible to benefit from the applicable exemption from imposta sostitutiva. Such statement, which is not requested for international bodies or entities set up in accordance with international agreements which have entered into force in Italy nor in case of foreign Central Banks or entities which manage, inter alia, the official

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reserves of a foreign State, must comply with the requirements set forth by Ministerial Decree of 12 December 2001, as subsequently amended.

The imposta sostitutiva will be applicable at the rate of 26 per cent. to interest paid to Noteholders who do not qualify for the exemption. Noteholders who are subject to the imposta sostitutiva might, nevertheless, be eligible for a total or partial reduction (generally to 10 per cent.) of the imposta sostitutiva under certain applicable double tax treaties entered into by Italy, if more favourable, subject to timely filing of required documentation.

Capital gains tax

Any gain obtained from the sale or redemption of the Notes would be treated as part of the taxable income (and, in certain circumstances, depending on the 'status' of the Noteholder, also as part of the net value of the production for IRAP purposes) if realised by an Italian company or a similar commercial entity (including the Italian permanent establishment of foreign entities to which the Notes are connected) or Italian resident individuals engaged in an entrepreneurial activity to which the Notes are connected.

Where an Italian resident Noteholder is an (i) an individual holding the Notes not in connection with an entrepreneurial activity, (ii) a non-commercial partnership, (iii) a non-commercial private or public institution, any capital gain realised by such Noteholder from the sale or redemption of the Notes would be subject to an imposta sostitutiva, levied at the current rate of 26 per cent. Noteholders may set off losses with gains.

In respect of the application of imposta sostitutiva, taxpayers may opt for one of the three regimes described below.

Under the tax declaration regime (regime della dichiarazione), which is the default regime for Italian resident individuals not engaged in an entrepreneurial activity to which the Notes are connected, the imposta sostitutiva on capital gains will be chargeable, on a cumulative basis, on all capital gains, net of any incurred capital loss, realised by the Italian resident individual Noteholder holding the Notes not in connection with an entrepreneurial activity pursuant to all sales or redemptions of the Notes carried out during any given tax year. Italian resident individuals holding the Notes not in connection with an entrepreneurial activity must indicate the overall capital gains realised in any tax year, net of any relevant incurred capital loss, in the annual tax return and pay imposta sostitutiva on such gains together with any balance income tax due for such year. Capital losses in excess of capital gains may be carried forward against capital gains realised in any of the four succeeding tax years. Pursuant to Law Decree No. 66 of 24 April 2014, as converted into law with amendments by Law No. 89 of 23 June 2014 ("Decree No. 66"), capital losses may be carried forward to be offset against capital gains of the same nature realised after 30 June 2014 for an overall amount of: (i) 48.08 per cent. of the relevant capital losses realised before 1 January 2012; (ii) 76.92 per cent. of the capital losses realised from 1 January 2012 to 30 June 2014.

As an alternative to the tax declaration regime, Italian resident individual Noteholders holding the Notes not in connection with an entrepreneurial activity may elect to pay the imposta sostitutiva separately on capital gains realised on each sale or redemption of the Notes (the risparmio amministrato regime). Such separate taxation of capital gains is allowed subject to (a) the Notes being deposited with Italian banks, SIMs or certain authorised financial intermediaries and (b) an express election for the risparmio amministrato regime being timely made in writing by the relevant Noteholder. The depository is responsible for accounting for imposta sostitutiva in respect of capital gains realised on each sale or redemption of the Notes (as well as in respect of capital gains realised upon the revocation of its mandate), net of any incurred capital loss, and is required to pay the relevant amount to the Italian tax authorities on behalf of the taxpayer, deducting a corresponding amount from the proceeds to be credited to the Noteholder or using funds provided by the Noteholder for this purpose. Under the risparmio amministrato regime, where a sale or redemption of the Notes results in a capital loss, such loss may be deducted from capital gains subsequently realised, within the same securities management, in the same tax year or in the following tax years up to the fourth. Under the risparmio amministrato regime, the Noteholder is not required to declare the capital gains in the annual tax return. Pursuant to Decree No. 66, capital losses realized up to 30 June 2014 may be offset against capital gains realized after that date with the following limitations: (i) for an amount equal to 48.08 per cent., for capital losses realized up to 31 December 2011; and (ii) for an amount equal to 76.92 per cent., for capital losses realized from 1 January 2012 to 30 June 2014.

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Any capital gains realised by Italian resident individuals holding the Notes not in connection with an entrepreneurial activity who have entrusted the management of their financial assets, including the Notes, to an authorised intermediary and have opted for the so-called 'risparmio gestito' regime will be included in the computation of the annual increase in value of the managed assets accrued, even if not realised, at year end, subject to a 26 per cent. substitute tax, to be paid by the managing authorised intermediary. Under the risparmio gestito regime, any depreciation of the managed assets accrued at year end may be carried forward against increase in value of the managed assets accrued in any of the four succeeding tax years. Under the risparmio gestito regime, the Noteholder is not required to declare the capital gains realised in the annual tax return. Pursuant to Decree No. 66, investment portfolio losses accrued up to 30 June 2014 may be set off against investment portfolio profits accrued after that date with the following limitations: (i) for an amount equal to 48.08 per cent., for investment portfolio losses accrued up to 31 December 2011; and (ii) for an amount equal to 76.92 per cent., for investment portfolio losses accrued from 1 January 2012 to 30 June 2014.

Subject to certain limitations and requirements (including a minimum holding period), Italian resident individuals not engaged in an entrepreneurial activity may be exempt from Italian capital gain taxes, including the imposta sostitutiva, on capital gains realised upon sale or redemption of the Notes if the Notes are included in a long-term savings account (piano di risparmio a lungo termine) that meets the requirements set forth in Article 1(100-114) of Finance Act 2017.

Any capital gains realised by a Noteholder who is an Real Estate Fund will be subject neither to imposta sostitutiva nor to any other income tax at the level of the Real Estate Fund.

Any capital gains realised by Noteholders which is a Fund will not be subject to imposta sostitutiva, but will be included in the management results of the Fund. Such result will not be subject to taxation at the level of the Fund, but subsequent distributions in favour of unitholders of shareholders may be subject to the Collective Investment Fund Tax.

Any capital gains realised by a Noteholder who is an Italian Pension Fund will be included in the result of the relevant portfolio accrued at the end of the tax period, to be subject to the 20 per cent. substitute tax.

Capital gains realised by non-Italian-resident Noteholders, not having a permanent establishment in Italy to which the Notes are connected, from the sale or redemption of Notes issued by an Italian resident issuer, which are traded on regulated markets (and, in certain cases, subject to filing of required documentation) are neither subject to the imposta sostitutiva nor to any other Italian income tax.

Capital gains realised by non-Italian resident Noteholders, not having a permanent establishment in Italy to which the Notes are connected, from the sale or redemption of Notes not traded on regulated markets are not subject to the imposta sostitutiva, provided that the effective beneficiary: (a) is resident in a country included in the White List; or (b) is an international entity or body set up in accordance with international agreements which have entered into force in Italy; or (c) is a Central Bank or an entity which manages, inter alia, the official reserves of a foreign State; or (d) is an institutional investor which is resident in a country included in the White List, even if it does not possess the status of taxpayer in its own country of residence. The list of countries which allow for an exchange of information with Italy should be amended as pointed out above.

If none of the conditions above is met, capital gains realised by non-Italian resident Noteholders from the sale or redemption of Notes not traded on regulated markets are subject to the imposta sostitutiva at the current rate of 26 per cent. On the contrary, should the Notes be traded on regulated markets, capital gains realized by non-Italian resident Noteholders would not be subject to Italian taxation.

In any event, non-Italian resident individuals or entities without a permanent establishment in Italy to which the Notes are connected that may benefit from a double taxation treaty with Italy providing that capital gains realised upon the sale or redemption of Notes are to be taxed only in the country of tax residence of the recipient, will not be subject to imposta sostitutiva in Italy on any capital gains realised upon the sale or redemption of Notes.

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Inheritance and gift taxes

Pursuant to Law Decree No. 262 of 3 October 2006, converted into Law No. 286 of 24 November 2006, as subsequently amended, the transfers of any valuable asset (including shares, notes or other securities) as a result of death or donation are taxed as follows:

(i) transfers in favour of spouses and direct descendants or direct ancestors are subject to an inheritance and gift tax applied at a rate of 4 per cent. on the value of the inheritance or the gift exceeding, for each beneficiary, Euro 1,000,000;

(ii) transfers in favour of relatives to the fourth degree or relatives-in-law to the third degree are subject to an inheritance and gift tax at a rate of 6 per cent. on the entire value of the inheritance or the gift. Transfers in favour of brothers/sisters are subject to the 6 per cent. inheritance and gift tax on the value of the inheritance or the gift exceeding, for each beneficiary, Euro 100,000; and

(iii) any other transfer is, in principle, subject to an inheritance and gift tax applied at a rate of 8 per cent. on the entire value of the inheritance or the gift.

If the transfer is made in favour of persons with severe disabilities, the tax is levied at the rate mentioned above in (i), (ii) and (iii) on the value exceeding, for each beneficiary, Euro 1,500,000.

Transfer tax

Following the repeal of the Italian transfer tax, contracts relating to the transfer of securities are subject to the following registration tax: (i) public deeds and notarised deeds are subject to fixed registration tax at a rate of €200; (ii) private deeds are subject to registration tax only in the case of voluntary registration or if the so-called 'caso d'uso' or 'enunciazione' occurs.

Stamp duty

Pursuant to Article 19(1) of Decree No. 201 of 6 December 2011 ("Decree 201"), a proportional stamp duty applies on an annual basis to the periodic reporting communications sent by financial intermediaries to their clients for the Notes deposited in Italy. The stamp duty applies at a rate of 0.2 per cent. and cannot exceed €14,000, for taxpayers different from individuals; this stamp duty is determined on the basis of the market value or - if no market value figure is available - the nominal value or redemption amount of the Notes held.

Based on the wording of the law and the implementing decree issued by the Italian Ministry of Economy on 24 May 2012, the stamp duty applies to any investor who is a client (as defined in the regulations issued by the Bank of Italy on 20 June 2012) of an entity that exercises in any form a banking, financial or insurance activity within the Italian territory. The communication is deemed to be sent to the customers at least once a year, even for instruments for which it is not mandatory.

Wealth Tax on securities deposited abroad

Pursuant to Article 19(18) of Decree 201, Italian resident individuals holding the Notes outside the Italian territory are required to pay an additional tax at a rate of 0.2 per cent.

This tax is calculated on the market value of the Notes at the end of the relevant year or - if no market value figure is available - the nominal value or the redemption value of such financial assets held outside the Italian territory. Taxpayers are entitled to an Italian tax credit equivalent to the amount of wealth taxes paid in the State where the financial assets are held (up to an amount equal to the Italian wealth tax due).

Tax Monitoring Obligations

Italian resident individuals, non-commercial entities, non-commercial partnerships and similar institutions are required to report in their yearly income tax return, according to Law Decree No. 167 of 28th June, 1990 converted into law by Law Decree No. 227 of 4th August, 1990, as amended from time to time, for tax monitoring purposes, the amount of Notes held abroad during each tax year. The requirement applies also where the persons above, being not the direct holder of the financial instruments, are the actual owner of the instrument.

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Furthermore, the above reporting requirement is not required to comply with respect to: (i) Notes deposited for management with qualified Italian financial intermediaries; (ii) contracts entered into through their intervention, upon condition that the items of income derived from the Notes have been subject to tax by the same intermediaries; or (iii) if the foreign investments are only composed by deposits and/or bank accounts and their aggregate value does not exceed a €15,000 threshold throughout the year.

The Proposed Financial Transaction Tax ("FTT")

On 14 February 2013, the European Commission published a proposal (the "Commission's Proposal") for a Directive for a common FTT in Austria, Belgium, France, Germany, Greece, Estonia, Spain, Italy, Portugal, Slovakia and Slovenia

The FTT proposal is aimed at:

 ensuring that the financial sector pays its fair share of tax;

 discouraging transactions that do not enhance the efficiency of financial markets.

The Commission's Proposal defines how the FTT would have been implemented in the participating Member States. Tabled in February 2013, it mirrors the scope and objectives of the Commission's initial proposal for an EU-wide FTT. It involves a minimum 0.1% tax rate for transactions in all types of financial instruments, except for derivatives that would be subject to a minimum 0.01% tax rate

Estonia left the enhanced cooperation in March 2016.

On 17 June 2016, the Council published the provisional version of the minute of the outcome of its meeting. During such minute, the Council discussed work on a proposal aimed at modifying and introducing FTT in the remaining 10 Member States.

Work continued on the dossier during the second half of 2016 and on the basis of an enhanced cooperation between the above mentioned member states.

However, the FTT proposal remains subject to negotiation between the participating Member States, and the scope of any such tax is uncertain. Prospective holders of Notes are advised to seek their own professional advice in relation to the FTT.

Foreign Account Tax Compliance Act

Certain non-U.S. financial institutions through which payments on the Notes are made may be required to withhold U.S. tax at a rate of 30 per cent. on all or a portion of payments made after 31 December 2016 pursuant to the U.S. Foreign Account Tax Compliance Act ("FATCA").

Whilst the Notes are held through the ICSDs, in all but the most remote circumstances, it is not expected FATCA will affect the amount of any payment received by the ICSDs. However, FATCA may affect payments made to custodians or intermediaries (including any clearing system other than an ICSD) in the payment chain leading to the ultimate investor if any such custodian or intermediary generally is unable to receive payments free of FATCA withholding. It may also affect payments to any ultimate investor that is a financial institution that is not entitled to receive payments free of withholding under FATCA or an ultimate investor that fails to provide its broker (or other custodian or intermediary from which it receives a payment) with any information, forms or other documentation or consents that may be necessary for the payments to be made free of FATCA withholding. Investors should choose the custodians or intermediaries with care (to ensure each is compliant with FATCA or other laws or agreements related to FATCA, including any local law intended to implement an inter-governmental agreement, if applicable) and provide each custodian or intermediary with any information, forms or other documentation or consents that may be necessary for such custodian or intermediary to make a payment free of FATCA withholding. Investors should consult their own tax adviser to obtain a more detailed explanation of FATCA and how it may affect them.

The Issuer's obligations under the Notes are discharged once it has made payment to, or to the order of, the common depositary or common safekeeper for the ICSDs (as bearer of the Notes) and the Issuer has therefore no responsibility for any amount thereafter transmitted through the ICSDs and custodians or intermediaries. Further, foreign financial institutions in a jurisdiction which has entered into an

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intergovernmental agreement with the United States (an "IGA") are generally not expected to be required to withhold under FATCA or an IGA (or any law implementing an IGA) from payments they make.

The FATCA regime has been recently implemented in Italy after the promulgation of the Law no. 95/2015 and the issuance of several decrees.

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SUBSCRIPTION AND SALE

Pursuant to a subscription agreement between the Issuer and the Lead Manager dated 31 July 2017 (the "Subscription Agreement"), the Lead Manager has agreed to subscribe and pay for the Notes on the Closing Date. The Issuer has agreed to pay commissions to the Lead Manager and to reimburse certain of its expenses incurred in connection with the management of the issue of the Notes. The Lead Manager is entitled in certain circumstances to be released and discharged from its obligations under the Subscription Agreement prior to the closing of the issue of the Notes.

General

The Lead Manager has represented, warranted and agreed that it has complied and will comply with all applicable laws and regulations in each country or jurisdiction in which it purchases, offers, sells or delivers Notes or possesses, distributes or publishes this Prospectus or any other offering material relating to the Notes. Persons into whose hands this Prospectus comes are required by the Issuer and the Lead Manager to comply with all applicable laws and regulations in each country or jurisdiction in which they purchase, offer, sell or deliver Notes or possess, distribute or publish this Prospectus or any other offering material relating to the Notes, in all cases at their own expense.

United States of America

The Notes have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S.

The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the United States Internal Revenue Code and regulations thereunder.

The Lead Manager has agreed that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Notes, (a) as part of their distribution at any time or (b) otherwise, until 40 days after the later of the commencement of the offering and the issue date of the Notes, within the United States or to, or for the account or benefit of, U.S. persons, and that it will have sent to each dealer to which it sells Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons.

In addition, until 40 days after commencement of the offering, an offer or sale of Notes within the United States by a dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.

Republic of Italy

The offering of the Notes has not been registered with the Commissione Nazionale per la Società e la Borsa ("CONSOB") pursuant to Italian securities legislation and, accordingly, the Lead Manager has represented and agreed that it has not offered or sold, and will not offer or sell, any Notes in the Republic of Italy in an offer to the public, and that sales of the Notes in the Republic of Italy shall be effected in accordance with all Italian securities, tax and exchange control and other applicable laws and regulation.

Any such offer, sale or delivery of the Notes or distribution of copies to this Prospectus or any other document relating to the Notes in the Republic of Italy must be:

(a) made by investment firms, banks or financial intermediaries permitted to conduct such activities in the Republic of Italy in accordance with Legislative Decree No. 385 of 1 September 1993 as amended, Legislative Decree No. 58 of 24 February 1998, CONSOB Regulation No. 16190 of 29 October 2007 (in each case, as amended from time to time) and any other applicable laws and regulations; and

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(b) in compliance with any other applicable laws and regulations requirement imposed by CONSOB (including, but not limited to, CONSOB Regulation No. 11971 of 14 May 1999, as amended) or another Italian authority.

United Kingdom

The Lead Manager has further represented, warranted and undertaken that:

(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of Financial Services and Markets Act 2000, as amended (the "FSMA")) received by it in connection with the issue or sale of the Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and

(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

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GENERAL INFORMATION

Listing and Admission to Trading

1. Application has been made for the Notes to be listed on the Official List of the Irish Stock Exchange and admitted to trading on the regulated market of the Irish Stock Exchange. Admission is expected to take effect on or about the Issue Date.

Authorisation

2. The creation and issue of the Notes has been authorised by resolutions passed at the Issuer’s shareholders’ meeting on 1 June 2017 and by the Issuer’s Board of Directors dated 10 July 2017.

Expenses Related to Admission to Trading

3. The total expenses related to admission to trading are estimated at EUR 6,540 including all fees payable to maturity.

Legal and Arbitration Proceedings

4. Save as disclosed in this Prospectus at "Description of the Issuer—Legal proceedings" at pages 57-58, there are no governmental, legal or arbitration proceedings, (including any such proceedings which are pending or threatened, of which the Issuer is aware), which may have, or have had during the 12 months prior to the date of this Prospectus, a significant effect on the financial position or profitability of the Issuer.

Auditors

5. The consolidated financial statements of the Issuer have been audited without qualification for the years ended 31 December 2016 and 31 December 2015 by BDO Italia S.p.A., with registered office at Viale Abruzzi 94, 20131, Milan, Italy, is registered under No. 167911 in the Single Register of Legal Auditors at the Ministry of the Economy and Finance (Registro Unico dei Revisori Legali presso il Ministero dell’Economia e delle Finanze), State General Accounting (Ragioneria Generale dello Stato).

BDO Italia S.p.A. has issued a special purpose independent auditors’ report with respect to the consolidated financial information of the Issuer as at and for the year ended 31 December 2016 included in the Special Purpose Audited IFRS Consolidated Financial Statements prepared in accordance with IFRS (the "2016 IFRS Report"), which is shown at the end of the Appendix to this Prospectus. The report of BDO Italia S.p.A. is included in this Prospectus, in the form and context in which it is included, at the request of the Issuer and with the consent of BDO Italia S.p.A.

BDO Italia S.p.A. accepts responsibility for the 2016 IFRS Report and declares that, having taken all reasonable care to ensure that such is the case, the information contained in the 2016 IFRS Report, to the best of its knowledge, is in accordance with the facts and contains no omission likely to affect its import.

Significant Material Change

6. Save as disclosed in this Prospectus at "Description of the Issuer—Recent developments" at page 58, since 31 December 2016 there has been no material adverse change in the prospects of the Issuer nor any significant change in the financial or trading position of the Group.

Documents on Display

7. For the life of the Prospectus, physical and/or electronic copies of the following documents (together with English translations thereof) may be inspected during normal business hours at the offices of the Fiscal Agent:

(a) the constitutive documents of the Issuer;

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(b) the Fiscal Agency Agreement;

(d) the audited consolidated financial statements of the Issuer as at and for the years ended 31 December 2016 and 31 December 2015; and

(e) the Special Purpose Audited IFRS Consolidated Financial Statements.

In addition, this Prospectus will be available, in electronic format, on the website of the Irish Stock Exchange (www.ise.ie).

Yield

8. On the basis of the issue price of the Notes of 100 per cent. of their principal amount, the yield of the Notes is 1.98 per cent. on an annual basis.

Legend Concerning U.S. Persons

9. The Notes and any Coupons and Receipts appertaining thereto will bear a legend to the following effect: "Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code.

ISIN and Common Code

10. The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The ISIN is XS1656754873 and the common code is 165675487.

Potential Conflicts of Interest

11. In the ordinary course of business, the Lead Manager and its affiliates have engaged, and may in the future engage, in lending, in investment banking and/or commercial banking transactions with, and may perform services for, the Issuer and its affiliates and with companies involved directly or indirectly in the sectors in which the Issuer and its affiliates operate and/or competitors of the Issuer interested in carrying out transactions of a similar nature. In addition, in the ordinary course of their business activities, the Lead Manager and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Issuer or its affiliates or any entity related to the Notes. The Lead Manager or its affiliates that have a lending relationship with the Issuer routinely hedge their credit exposure to the Issuer consistently with their customary risk management policies. Typically, the Lead Manager and its affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in the Issuer’s securities, including potentially the Notes offered hereby. Any such short positions could adversely affect future trading prices of the Notes. The Lead Manager and its affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. For the purpose of this paragraph, the word "affiliates" also includes parent companies.

Listing Agent

12. Walkers Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in relation to the Notes and is not itself seeking admission of the Notes to the official list of the Irish Stock Exchange or to trading on the regulated market of the Irish Stock Exchange for the purposes of the Prospectus Directive.

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APPENDIX

SPECIAL PURPOSE AUDITED IFRS CONSOLIDATED FINANCIAL STATEMENTS

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Consolidated Financial Statements of the CAP GROUP at 31 December 2016

Prepared, in accordance with the IFRS (international financial reporting standards) adopted by the European Union

Balance Sheet

Notes 31 December 2016 01 January 2016 ASSETS Non-current assets Rights on assets under concession 7.1 662,601 631,467 Other intangible fixed assets 7.2 12,295 11,289 Tangible fixed assets 7.3 13,713 46,127 Assets for prepaid taxes 7.4 22,224 19,039 Other receivables and other non-current financial 7.5 24,396 12,326 assets Total non-current assets 735,230 720,248 Current assets Trade receivables 7.6 245,632 235,989 Inventories 7.7 5,327 5,805 Works in progress to order 7.8 575 514 Cash and cash equivalents 7.9 118,789 93,896 Other receivables and other current financial assets 7.10 45,402 44,367 Total current assets 415,725 380,571 Non-current assets destined for sale 7.11 26,132 18,934 TOTAL ASSETS 1,177,088 1,119,753

SHAREHOLDERS' EQUITY Share capital 7.12 571,382 571,382 Other reserves 7.12 148,302 127,651 First Time Adoption reserve 7.12 -991 -991 Net result of the period 7.12 26,869 20,337 Total consolidated shareholders' equity 745,561 718,379 LIABILITIES Non-current liabilities Provision for risks and charges 7.13 43,354 31,466 Employee benefits 7.14 6,306 7,130 Liabilities for deferred taxes - - Non-current payables to banks and other lenders 7.15 146,553 126,105 Other non-current payables 7.16 62,115 86,433 Total non-current liabilities 258,327 251,134 Current liabilities Trade payables 7.17 80,549 64,824 Current payables to banks and other lenders 7.15 10,395 12,368 Liabilities for current taxes - - Other current payables 7.18 77,903 70,415 Total current liabilities 168,847 147,607 Non-current liabilities destined for sale 7.19 4,352 2,633 TOTAL LIABILITIES AND SHAREHOLDERS' 1,177,088 1,119,753 EQUITY

Income Statement

Notes 31 December 2016 Revenues 8.1 260,061 Increases due to internal works - Revenues for works on assets under concession 8.2 77,893 Other revenues and income 8.3 8,770 Total revenues and other income 346,724 Costs for raw and consumable materials and goods 8.4 (11,522) Costs for services 8.5 (122,441) Costs for works on assets under concession 8.6 (49,997) Personnel costs 8.7 (43,718) Depreciation, amortisation, allocations and impairment 8.8 (60,768) Other operating costs 8.9 (10,232) Total costs (298,679) Result from operations 48,046 Financial income 8.10 3,561 Financial charges 8.10 (8,587) Result before taxes 43,019 Taxes 8.11 (16,150) Net result of the period (A) 26,869

Other comprehensive income that will not be subsequently reclassified to the income statement Actuarial gains (losses) on employees’ defined benefit plans (182) Tax effect on actuarial gains (losses) on employees’ defined benefit plans 44 Other comprehensive income that will be subsequently reclassified to the income statement Change in the fair value of cash flow hedge derivatives 810 Tax effect on change in the fair value of cash flow hedge derivatives (194)

Total of comprehensive income statement components, net of tax effect (B) 477

Total comprehensive result of the period (A)+(B) 27,346

Cash Flow Statement

A. Cash flows deriving from operations (indirect method)

Profit (loss) of the period 26,869 Income taxes 16,150 Interest expense/(interest income) 4,815 (Dividends) 0 (Gains)/losses on the disposal of assets 164 1. Profit (loss) of the period before taxes, interests, dividends and gains/losses on disposals 47,998

Adjustments for non-monetary elements that have no contra entry in the net working capital Allocations to provisions 17,145 Write-downs of fixed assets 49,396 Write-downs for lasting value impairment 530 Other adjustments for non-monetary elements 75 2. Cash flow before changes in the net working capital 67,146

Changes in net working capital Decrease/(Increase) in inventories 12,156 Decrease/(increase) in trade and other receivables (11,485) Increase/(decrease) in trade and other payables 2,853 3. Cash flow after changes in the net working capital 3,524

Other adjustments Interests collected/(paid) (4,815) (Income taxes paid) (18,619) Dividends cashed in 0 Use of provisions (4,635) 4. Cash flow after all other adjustments (28,070)

Cash flow from operations (A) 90,598

B. Cash flows deriving from investment activities

Tangible fixed assets (Investments) (309) Price of investment disposals 8,681

Intangible fixed assets 0 (Investments) (82,344) Price of investment disposals 0 Financial fixed assets (Investments) (5,594) Price of investment disposals 0 Short term financial assets 0

(Investments) (9,003) Price of investment disposals 642 Cash flow from investments activities (B) - 87,927

C. Cash flows deriving from lending activities

Resources of third parties Increase (decrease) in short term payables to banks 36,877 Loans taken out (14,657) Loan repayments Own resources Capital increase by payment 0 Dividends (and advances on dividends) paid out 0 22,219

Cash and cash equivalents at 01 January 2015 93,896 Cash and cash equivalents at 31 December 2016 118,789 change 24,893

Change in shareholders' equity

Share Capital First Time Cash flow Other Net result Total Adoption hedge reserves reserve reserve 571,382 -991 -4,428 132,079 20,337 718,379

Net result 0 0 0 20,337 -20,337 0 Change in fair value of cash flow hedge derivatives, net of tax effect 0 0 753 0 0 753 Actuarial profit-(losses) for employee benefits net of tax effect 0 0 0 -182 0 -182 Other movements 0 0 0 -258 0 -258 Result of the period 0 0 0 0 26,869 26,869

571,382 -991 -3,675 151,976 26,869 745,561

1. General information

CAP Holding S.p.A. (hereinafter “CAP” or the “Company”) is a company incorporated under Italian law and with domicile in Italy, with registered and administrative offices in Building U10, Via del Mulino 2, Assago (MI).

The Company and its subsidiaries (jointly, the “Group”) operates in the field of water services and it is one of the leading Italian operators (for inhabitants served and cubic metres captated) of the so-called “mono-utility” companies (i.e. which do not perform other key industrial activities) with a catchment basin of users at 31.12.2016 of about 2 million residential inhabitants served.

The Company is entirely publicly owned, its shareholders, at 31 December 2016, being exclusively local bodies of the areas served by the Company under the Agreement referred to below.

At 31 December 2016 199 local bodies were served was, also subsequent to the merger of the municipalities of Corteolona (Pavia) and Genzone (Pavia) with the simultaneous creation of the municipality of Genzone (Pavia). Of these, 196 are the following municipalities: 134 municipalities of the Metropolitan Area of Milan, 40 municipalities of the Province of Monza and Brianza, 20 municipalities of the Province of Pavia, 1 municipality of the Province of Como, and 1 municipality of the Province of Varese. The list of shareholders of CAP Holding S.p.A. is completed by the Province of Monza and Brianza and the Metropolitan Area of Milan (formerly the Province of Milan).

The management of the Integrated Water Service of the ATO [Ambito Territoriale Ottimale, a portion of territory whose confines are defined by the Regions for the purposes of the water service] of the Province of Milan, in which CAP operates, is disciplined by an Agreement stipulated on 20 December 2013, and amended on 29 June 2016 to comply with the provisions contained in Resolution no. 656/2015/R/IDR of the Electricity, Gas and Water Authority, between CAP Holding S.p.A. and the ATO Office of the Province of Milan, effective from 1 January 2014 until 31 December 2033.

These consolidated financial statements were approved by the Company's Board of Directors on June 26, 2017

2. Summary of the accounting standards

2.1 Basis for preparation

These consolidated financial statements of CAP Holding S.p.A. at 1 January 2016 for the period which closed at 31 December 2016 (the “Consolidated Financial Statements”) were prepared, in accordance with the IFRS (international financial reporting standards) adopted by the European Union (“EU IFRS”), merely for the purpose of including certain data contained in the informative prospectus being drafted by the Company (the “Prospectus”) regarding the issue of bonds to institutional investors, excluding those of the United States of America inasmuch as not allowed pursuant to Regulation S of the United States Securities Act. The Company has drawn up its financial statements in accordance with the accounting standards issued by the Italian Accounting Board (the “Italian Accounting Standards”) and, before drafting the Consolidated Financial Statements, the Company had never prepared any financial statements according to the EU IFRS. Note 11 “First application of the IFRS” illustrates the main effects resulting from the application of the EU IFRS to the Consolidated Financial Statements. The Consolidated Financial Statements include the consolidated balance sheet-statement of assets at 31 December 2016 and at 1 January 2016 (“Transition Date”), the comprehensive income statement, the schedule of changes in the consolidated shareholders' equity in the year which closed at 31 December 2016 and the relative explanatory notes to the accounts.

The EU IFRS include all the International Financial Reporting Standards, all the IAS (International Accounting Standards) and all the interpretations of the IFRIC (International Reporting Interpretations Committee), previously called the SIC (Standing Interpretations Committee), which, at the closure date of the consolidated financial statements, have European Union approval pursuant to the procedure contemplated by Regulation (EC) no. 1606/2002 of the European Parliament and Council of 19 July 2002.

These Consolidated Financial Statements are drawn up in units of one thousand Euro, and the Euro is the currency in which the Group's transactions are prevalently carried out. Unless otherwise specified, all the amounts indicated in this document are in thousands of Euro.

The financial statement schedules and the relative classification criteria adopted by the Group are indicated

below. The classification criteria fall within the options contemplated by IAS 1 - Presentation of Financial Statements:

• the consolidated balance sheet and statement of assets has been drawn up with classification of the assets and liabilities according to the “current/non-current” criterion;

• the consolidated comprehensive income statement schedule – for which the costs are analysed according to type - not only includes the result of the period but also the other changes in the shareholders' equity items ensuing from transactions not carried out with Company shareholders;

• the consolidated income statement has been drawn up with the cash flows ensuing from transactions shown according to the "indirect method".

These Consolidated Financial Statements have been drawn up considering the Company as an on-going business inasmuch as the Company can reasonably be expected to continue its business in the foreseeable future and, in any case, for more than twelve months.

2.2 Companies included in the consolidation and consolidation criteria

These Consolidated Financial Statements include the equity situations at 31 December 2016 and at 1 January 2016 and the economic situation for the period that closed at 31 December 2016 of the Company and of the subsidiaries, approved by the respective governing bodies. The companies fully consolidated by the Group at 31 December 2016 are listed below:

 AMIACQUE S.r.l. of Milan, comprehensive share capital of € 23,667,606.16 entirely held by the Group at 31 December 2016 (as also at 31 December 2015).

The subsidiaries are consolidated as of the date on which the control is effectively transferred to the Group and they cease to be consolidated as of the date on which the control is transferred outside the Group.

According to the provisions of IFRS 10, control is obtained when the Group is exposed to the risks, or has the right to the variable returns, deriving from its stake in the investee company, and has the capacity, through the exercise of power over the same, to influence said returns. Said power is defined as the current capacity to direct the relevant activities of the investee company in virtue of the existing substantial rights.

The existence of control does not depend exclusively on ownership of the majority voting rights, but on the substantial rights of the investor over the investee company. Consequently, the management must assess, according to its experience and opinion, specific situations that determine substantial rights that attribute to the Group the power to direct the relevant activities of the investee company in order to influence its returns.

For assessing the requisite of control, the management analyses all the facts and circumstances, including agreements with the other investors, the rights deriving from other contractual agreements and potential voting rights.

Such other facts and circumstances may be particularly important within the sphere of said assessment, above all if the Group holds less than the majority of the voting or similar rights of the investee company.

The Group examines the existence of the conditions of control of an investee company when the facts and circumstances indicate that there has been a change in one or more of the elements considered for the assessment of its existence.

We mention that the subsidiary Rocca Brivio Sforza in liquidazione S.r.l., with registered office at Via Vivaio 6, 20122 Milan (MI), total share capital of Euro 53,100, of which the Group, at 31 December 2016, holds 51.04% for a value of Euro 27,100, has not been included in the consolidation inasmuch as, according to IFRS 10, it is maintained that Cap Holding S.p.A. does not have effective control due to the substantial lack of rights which would attribute the power to direct the relevant activities of the investee company in a manner such as to influence its returns. Information on the data posted on the subsidiary's balance sheet and income statement at 31 December 2016 is given under point 7.5 of the explanatory notes, which are an integral part of these Financial Statements.

The subsidiary is consolidated with the line-by-line method and in accordance with the theory of consolidation

from the date on which the control is effectively acquired until it ceases and the control is transferred to third parties. The financial periods of all the subsidiaries close on the same date as that of the parent company. According to the criteria adopted for line-by-line consolidation:

• the assets and liabilities and the charges and income of the subsidiary are considered line by line, attributing to the minority shareholder, if applicable, the portion of the shareholders' equity and of the net result due to the same; on the balance sheet and on the income statement, the relative portions are shown separately;

• the transactions for the aggregation of companies pursuant to which the control of an enterprise is acquired are posted, in accordance with the provisions of IFRS 3 - Business Combinations, according to the "acquisition method". The acquisition cost is represented by the fair value at the date of the purchase of the business sold, the liabilities assumed and the capital instruments issued. The identifiable assets acquired and the liabilities and potential liabilities assumed are posted at the relative current value at the date of the acquisition, except for deferred tax payables and receivables, assets and liabilities for employee benefits and the assets destined for sale, which are posted on the basis of the relative accounting standards of reference. The difference between the acquisition cost and the current value of the assets and liabilities acquired is posted under the intangible assets as goodwill, or, if negative and after having checked the correctness of the estimate of the current values of the assets and liabilities acquired and the acquisition cost, it is posted directly on the income statement as income. The charges connected with the acquisition are posted on the income statement when they are sustained.

• The acquisition cost also includes the potential consideration paid, posted at fair value on the date on which the control is acquired. Successive changes in the fair value are posted on the income statement or the comprehensive income statement if the potential consideration is a financial asset or liability. Potential considerations classified as shareholders' equity are not recalculated and the successive extinction is posted directly under the shareholders' equity;

• the minority shareholders' portions of the equity and of the profits are posted under a specific item; at the acquisition date, they may be posted at fair value or in proportion to the minority shareholders' stake in the identifiable assets of the enterprise acquired. This chosen method for valuation is applied separately for each transaction. If the aggregation transactions by which the control is applied take place in several phases, the Group recalculates the stakes that it previously held in the acquired enterprise at the respective fair value on the acquisition date and any resulting profit or loss is posted on the income statement;

• changes in the proportion of a stake in a subsidiary that do not result in the acquisition or loss of control are dealt with as "equity transactions"; therefore, for acquisitions successive to the controlling acquisition and for partial disposals of subsidiaries without loss of control, any positive or negative differences between the purchase cost/sale price and the corresponding equity is posted directly under the Group's shareholders' equity;

• if a partial disposal of a subsidiary leads to the loss of the control, the investee company is adjusted to the relative fair value and the entry contributes to forming the gain (loss) ensuing from the transaction;

• significant profits or losses, including the relative tax effects, resulting from transactions between entirely consolidated companies and those not yet concluded with third parties are eliminated. Ratios between payables and receivables, costs and revenues and financial charges and income, if significant, are also eliminated.

2.3 Valuation Criteria

The most important accounting standards and valuation criteria used for drawing up these Consolidated Financial Statements are briefly described below.

Fixed assets, plant and machinery

Fixed assets are posted at cost, specifically purchase or production cost including any directly connected charges necessary to render such assets ready for use. The cost also includes any estimated dismantling and removal costs that will have to be sustained consequent to contractual obligations that require the asset to be restored to its original state.

Charges sustained for routine maintenance and ordinary/cyclical repairs are directly posted on the income statement of the period in which they are sustained. Costs for the expansion, modernisation or improvement of structural elements owned by the Group or used by the Group but owned by third parties are capitalised only to the extent to which they meet the requisites to be separately classified as assets or part of an asset, applying the “component approach” method. Tangible fixed assets are systematically depreciated every period at constant rates on the basis of economic- technical rates determined according to their remaining possibility of use. The depreciation rates for the various categories of fixed assets, plant and machinery are listed below:

Depreciation rates of tangible fixed assets Sundry small equipment 10% Generic equipment and plant 8% Sundry equipment 25% Specific equipment 19% Motor vehicles 20% Cars 25% Furniture and fittings 12% Electronic office machines - telephony systems 20% Mobile phones 20% Equipment with unit value below Euro 516 100%

Depreciation begins when the asset is available for use, taking into account the effective moment when this condition occurs.

Intangible fixed assets

Intangible fixed assets are identifiable non-monetary elements without physical consistency, which can be controlled and which can generate future economic benefits. These elements are initially posted at purchase and/or production cost, including directly connected expenses necessary to prepare the asset for use. Any interest expense accrued during and for the development of the intangible assets are considered part of the purchase cost. More specifically, the Group's main identifiable intangible assets are illustrated below.

(a) Assets under service concession arrangements (IFRIC 12)

The “service concession arrangements” refer to the Group's right to use assets under a concession granted by the Integrated Water Service (the so-called intangible asset method) in consideration of the costs sustained for the design and construction of the asset and the obligation to return the same on termination of the concession.

The value corresponds to the “fair value” of the design and construction activity plus the capitalised financial charges, in respect of the requisites contemplated by IAS 23, during the construction phase. The fair value of the construction services of the Integrated Water Service is determined on the basis of the costs effectively sustained. The logic of the determination of the fair value results from the fact that the concessionaire must apply the provisions of paragraph 12 of IAS 18, and therefore if the fair value of the services received (in the specific case, the right to exploit the asset) cannot be reliably determined, the revenue is calculated on the basis of the fair value of the constructions services performed.

Construction service activities in progress at the closure of the financial period are valued on the basis of the state of progress of the works, in accordance with IAS 11, and this valuation is included in the income statement item "Revenues for works on assets under concession". Assets under concession are amortised for the duration of the concession, in considering the methods by which the enterprise will obtain future economic benefits deriving from the use of the asset in question.

According to the regulatory provisions currently in force, the value to be amortised is the difference between the value of the acquisition of the asset under concession and the residual value that can presumably be obtained until the termination of its useful lifetime. If events occur that imply a reduction in the value of such intangible assets, the difference between the book value and the recovery value is posted on the income statement.

(b) Other intangible fixed assets

Other intangible fixed assets are posted at cost, as described above, net of the accumulated amortisation and value impairment. Amortisation begins at the moment at which the asset is available for use, and it is systematically spread over the residual period of time during which it can be used, i.e. on the basis of its estimated useful lifetime.

Value impairment of tangible and intangible fixed assets

At each financial statement date, a check is carried out to ascertain whether there are indicators that the tangible and intangible assets may have sustained an impairment in value. For this purpose, both internal and external sources of information are considered.

With regard to internal sources, the following are considered: the obsolescence or physical deterioration of the asset, any significant changes in the use of the asset and the economic trend of the asset compared to forecasts. With regard to external sources, key factors are: the trend in the market prices of the assets, any technological, market or regulatory discontinuity, and the trend in the market interest rates or the cost of capital used to evaluate investments.

If these indicators are identified, the recoverable value of these assets is estimated, and any write-downs compared to the book value are posted on the income statement.

The recoverable value of an asset is represented by the greater of either the fair value net of connected sale costs, or its usage value, i.e. the current value of the future cash flows estimated for that asset. In determining the usage value, the expected future cash flows are discounted at a rate, gross of tax, which reflects current market valuations of the cost of money, relative to the investment period and the specific risks of the asset. For an asset that does not generate highly independent cash flows, the recoverable value is determined in relation to the cash generating unit to which it belongs.

A value impairment is posted on the income statement if the book value of the asset, or that of the related CGU (cash generating unit) to which it is belongs, is higher than its recoverable value. Value impairments of the CGU are mainly posted as a reduction in the book value of any goodwill attributed to the same, and therefore as a reduction in the other assets, in proportion to their book value and within the limits of the relative recoverable value. If the conditions for a previous write down no longer exist, the book value of the asset is written back on the income statement; however, the write back cannot result in a value higher than that of the

book value if it had not been written down and if the asset had not been amortised.

Trade receivables and other current and non-current receivables

Trade receivables and other financial assets are initially posted at fair value and successively valued at the amortised cost on the basis of the effective interest rate method. Trade receivables and other financial assets are included in the current assets, except those with contractual expiry at least twelve months after the financial statement date, which are classified as non-current assets.

Value impairment of receivables is posted on the financial statements when there is objective evidence that the Group will not be able to recover the receivable from the counterparty on the basis of the contractual terms. Objective evidence includes, for example:

● the debtor is in significant financial difficulties; ● a legal dispute is pending against the debtor for the receivable; ● the debtor will probably be declared bankrupt or will be subjected to other financial restructuring procedures.

The amount of the impairment is posted on the income statement for a value equal to the difference between the book value of the receivable and the current value of the estimated future cash flows. If the reasons for previous write-downs no longer exist, the value of the asset is written back to its amortised value.

Financial assets represented by non-derivative financial instruments with fixed or determinable payments and a fixed term, which the Group wishes and has the capacity to keep until maturity, are classified as "financial assets held to maturity". These assets are valued at the amortised cost using the effective interest rate criterion, adjusted in the case of value impairment. In the case of value impairment, the same principles described above for loans and receivables are applied.

The other assets available for sale, including equity in other companies representing financial assets for sale, are posted at fair value, if this can be determined, and the profits and losses deriving from changes in the fair value are included directly in the other components of the comprehensive assets (liabilities) until they are sold or until they sustain a loss in value; at such a moment, the other profit (loss) components previously included in the shareholders' equity are posted on the income statement of the period. The other non-listed equity investments classified under the “assets available for sale” for which the fair value cannot be reliably determined are posted at the cost adjusted for the value impairment and posted on the consolidated income statement, in compliance with IAS 39.

Inventories

Inventories of stocks are posted at the lower of either the purchase cost, determined with the weighted average cost method, and the sale value estimated according to the market trend. Obsolete and slow moving stocks are written down according to their possibility of use or sale, with the constitution of a specific provision, and the value of the corresponding asset item is directly decreased.

Works in progress to order

Works in progress to order are posted, according to the state of progress of the works, as a percentage of the total costs of the job, sustained up to the closure of the period.

Cash and cash equivalents

Cash and cash equivalents include the petty cash, the current bank accounts, deposits available on demand and other short term financial investments with high liquidity which can be immediately converted into cash and which are subject to an insignificant value impairment risk.

Financial liabilities, Trade payables and Other payables

Financial liabilities (except derivative instruments), trade payables and other payables are initially posted at fair value, net of directly connected charges, and they are successively posted at the amortised cost, applying the effective interest rate. If there is a change in the expected cash flows that can be reliably estimated, the value of the liabilities is recalculated to reflect said change, on the basis of the current value of the new expected cash flows and the initially determined internal yield rate. Financial liabilities are posted under the current liabilities, unless the Group has an unconditioned right to defer their payment by at least 12 months after the closure of the period. A financial liability is removed from the financial statements at the moment of its extinction and when the Group has transferred all the risks and charges relating to the same.

Derivative financial instruments

Derivative instruments are assets or liabilities, and they are posted at fair value. The Group uses derivative financial instruments to hedge the interest rate risk. Pursuant to IAS 39, derivative financial instruments can be posted according to the method established for hedge accounting only when:

● the formal designation as such is established at the beginning of the hedging and the documentation of the hedge agreement exists; ● the hedge is presumed to be highly effective; ● the effectiveness can be reliably measured; ● the hedge is highly effective during the various financial periods for which it is designated.

When derivative instruments have the features to be entered in the accounts as hedges, the following accounting approaches are applied:

● if the derivatives are fair value hedges (e.g. to hedge against the risk of a change in the fair value of assets/liabilities at a fixed rate), they are posted at fair value with the effects posted on the income statement; logically, the hedge assets or liabilities must be adequate to reflect the changes in the fair value associated with the risk covered;

● if the derivatives are cash flow hedges (e.g. to hedge against the variability of the cash flows of assets/liabilities due to changes in the interest rates), the changes in the fair value of the derivatives are initially posted under the shareholders' equity and successively posted on the income statement consistently with the economic effects produced by the hedged transaction.

If hedge accounting cannot be applied, the profits or losses deriving from the valuation of the derivative instrument at fair value are immediately posted on the income statement.

Conversion of transactions in currency other than the Euro

Transactions in currency other than the Euro are converted at the exchange rate in force on the date of the transaction. Gains and losses on currency exchange resulting at the closure of the transaction or resulting from the conversion, at the closure of the period, of assets and liabilities in currency other than the Euro are posted on the income statement.

Treasury shares

The purchase cost of treasury shares is posted as a reduction in the shareholders' equity. The effects of any successive transactions on said assets are also posted directly on the balance sheet.

Employee benefits

The short term benefits are salaries, wages, the related welfare contributions, payment in lieu of holidays and incentives in the form of bonuses payable in the twelve months following the closure of the period. Said benefits are entered in the accounts as components of the personnel costs in the period in which the relative work is performed. Benefits falling due after the termination of the employment relationship are of two kinds: retirement benefit programmes with defined contributions and those with defined benefits.

● The contributions of defined contribution programmes are posted on the income statement, at their nominal value, when they are sustained.

● In the case of defined benefit programmes, which include the severance indemnity due to employees under art. 2120 of the Civil Code, the amount of the benefit to be paid to the employee is linked to one or more factors such as age, years of service and salary, and can be quantified only after the termination of the employment; therefore the relative cost is posted on the comprehensive income statement according to an actuarial calculation.

The liability posted on the financial statements for defined benefit plans corresponds to the current value of the obligation at the financial statement date. Bonds for defined benefit plans are defined annually by an independent actuary using the projected unit credit method. The current value of the defined benefit plan is determined discounting the future cash flows at an interest rate equal to that of the bond (high-quality corporate) issued in Euro, which takes into account the duration of the relative pension scheme.

As of 1 January 2007, the 2007 national budget (the annual Consolidated Finance Act) and the relative implementation decrees have introduced changes in the law on severance indemnity, including the worker's right to choose the destination of his/her own accruing severance indemnity. In particular, the new severance indemnity contributions can be invested in a pension fund chosen by the worker, or they can be left in the hands of the employer. If they are invested in external pension funds, the company must merely pay a defined contribution to the chosen fund and, as of that date, the units accruing have the nature of defined contribution schemes not subject to actuarial evaluation.

As of 1 January 2013, after the adoption of the revised version of IAS 19 (Employee benefits), the change in the actuarial profits/losses is included in the other components of the consolidated comprehensive income statement.

Provisions for risks and charges

The provisions for risks and charges are allocated to cover losses and charges that certainly or probably exist, of which, however, at the closure of the period, the amount or the date on which they will fall due are not known. They are posted only when there is a current obligation (legal or implicit) to sustain a future disbursement as a result of past events and if it is probable that the disbursement will be required to fulfil the obligation. The relative amount represents the best estimate of the discounted amount of the expenditure that will be necessary to honour the obligation. When the financial effect of time is significant and the payment dates of the obligations can be reliably foreseen, the provisions are posted at the current value of the expected disbursement, at a rate which reflects market conditions, the variation in the cost of money over time and the specific risk linked to the obligation. The increase in the value of the provision, determined by changes in the cost of money over time, is posted as interest expense.

Grants

Grants obtained for investments in plant, from both public bodies and from private third parties, are posted at fair value when there is a reasonable certainty that they will be received and that the foreseen conditions will be respected. Grants for connection to the water supply network are posted under other non-current liabilities on the income statement, for the entire duration of the investment to which they refer, if they are linked to an investment, and the full amount is posted if they are linked to costs sustained in the period. The full amount of grants towards operating expenses (to give immediate financial aid to the company or as compensation for expenses and losses sustained in a previous period) is posted on the income statement when the conditions for the entry of the grant are met.

Assets and liabilities and discontinued operations

Assets and discontinued operations classified as held for sale are valued according to the following two steps:

● the Group's assets subject to decommissioning are redetermined as assets held for sale; ● the Group's assets subject to decommissioning are valued at the lower of either the book value of the asset or its fair value (net of the sale costs).

Recognition of revenues

Revenues are initially posted at the fair value of the consideration received net of allowances and discounts. Revenues from the sale of goods are posted when the company has transferred to the buyer the significant risks and benefits connected to ownership of the goods. Revenues for the performance of services are posted at the value, at the financial statement closure date, of the performance rendered.

In accordance with the IFRS, considerations collected on behalf of third parties, as in agency agreements that do not involve an increase in the company's shareholders' equity, are excluded from the revenues and only the premium or mark-up on the transaction is posted.

Costs for the purchase of goods and the performance of services

Costs for the purchase of goods or for the performance of services are posted on the income statement according to the accruals principle.

Taxes

Current taxes are calculated on the basis of the taxable income of the period, applying the tax rates in force at the financial statement date.

Prepaid and deferred taxes are calculated for all the differences between the tax based on the value of an asset or liability according to tax regulations and the relative book value. Prepaid taxes, for the portion not offset by deferred tax expense, are posted to the extent to which it is probable that they can be recovered by a future taxable income. Deferred and prepaid taxes are calculated at the tax rates that will presumably be applicable in the periods in which the differences will exist or will be extinguished, on the basis of the tax rates in force or substantially in force at the financial statement date.

Current, deferred and prepaid taxes are posted on the income statement, except those related to items directly debited or credited to the shareholders' equity in the cases in which the relative tax effect is also posted directly under the shareholders' equity. Taxes are offset when they are applied by the same tax authority or when there is a legal right to such compensation.

2.4 Recently issued accounting standards

The accounting standards and the amendments issued by the IASB (International Accounting Standards Board), that have not been approved by the European Union or that have been approved but are not yet applicable to these Financial Statements, are reported in the following table:

EU approved Date of effect

Amendments to IAS 12: Recognition of Deferred Tax Assets for No Financial periods starting as of 01 Unrealised Losses January 2017

Amendments to IAS 7: Disclosure Initiative No Financial periods starting as of 01 January 2017

Amendments to IFRS 12: Disclosure of Interest in Other Entities No Financial periods starting as of 01 January 2017

IFRS 9 Financial Instruments Yes Financial periods starting as of 1 January 2018

IFRS 15 Revenue from Contracts with Customers including amendments Yes Financial periods starting as of 1 to IFRS 15: Effective date of IFRS 15 January 2018

Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets No Not determined between an Investor and its Associate or Joint Venture

IFRS 16 Leases No Financial periods starting as of 01 January 2019

Clarifications to IFRS 15 Revenue from Contracts with customers No Financial periods starting as of 1 January 2018

Amendments to IFRS 2: Classification and Measurement of Share-based No Financial periods starting as of 1 Payment Transactions January 2018

IFRS 14 "Regulatory Deferral Accounts No this will be applicable with backdated effect as of 1 January 2016

IFRS 1 First-time Adoption of International Financial Reporting No Financial periods starting as of 1 Standards January 2018

IAS 28 Investments in Associates and Joint Ventures No Financial periods starting as of 1 January 2018

Amendments to IAS 40 Investment Property: Transfers of Investment No Financial periods starting as of 1 Property January 2018

IFRIC Interpretation 22 Foreign Currency Transaction and Advance No Financial periods starting as of 1 Consideration January 2018

3. Management of financial risks

Within the sphere of the performance of its core business, the CAP Group is exposed to certain financial risks, such as the interest rate risk, the liquidity risk and the credit/counterparty risk. The financial risks to which the Group is exposed, and the methods by which they are managed, are illustrated below.

(a) Interest rate risk

The part of the financial debt subject to a variable interest rate is fairly limited. At 31 December 2016 it totals Euro 18,437 thousand, equal to about 15% of the total debt existing at 31 December 2016.

At the same date, Euro 4,908 thousand of said debt, at variable interest rate, regards interest rate swap (IRS) agreements purely for hedging purposes, not for speculation.

The Group's aim is to limit its exposure to interest rate increases maintaining acceptable loan costs. The risks connected to interest rate increases are monitored and, if necessary, reduced or eliminated by underwriting non-speculative swap agreements with financial counterparties.

There is no guarantee that the hedge policy adopted by the Group, intended to reduce to a minimum losses connected with interest rate variations in the case of variable interest rate loans by transforming them into fixed rate debts, will have the desired effect. In fact, if the pursued intention is not achieved, there could be negative effects on the issuer's business, financial situation and on the result of its operations.

(b) Liquidity risk

The liquidity risk is the risk, due to the incapacity to raise new funds or to liquidate assets on the market, of the Group failing to honour its payment commitments, thus causing an impact on the economic result if it is forced to sustain additional costs to fulfil its commitments or causing a situation of insolvency.

The Group's aim is to maintain a balanced management of its financial exposure over time, in order to guarantee that the structure of its liabilities is balanced with the composition of the assets on its balance sheet and can assure the necessary operational flexibility by means of the liquidity generated by current operations and bank loans.

The capacity to generate liquidity from the core business, together with the capacity to sustain debts, allows the Group to adequately satisfy its operational needs, to provide working capital and to finance investments, as well as honouring its own financial commitments.

In application of IFRS 7 and with reference to the liquidity risk, the analysis of the financial liabilities, broken down by maturity (maturity analysis) is given below. The following table shows the Group's exposure to the liquidity risk and the analysis of the maturity dates of the non-discounted contractual repayment obligations. The cash flows are placed in the first time range within which they could occur.

Loans Amount Repayable within Repayable between 12 Repayable Total repayable after Total residual issued 12 months months and 5 years after 5 years 12 months principal at 31.12.2016 Payables to 159,710 12,779 39,945 65,361 105,306 118,085 banks

The credit risk is the issuer's exposure to potential losses that could arise if a trade or financial counterparty does not honour its own obligations.

The main credit risks for the Group derive from trade receivables ensuing from the supply of the integrated water service. The Group seeks to mitigate this risk with policies and procedures that regulate the monitoring of the expected incoming cash flows, the granting of extended credit terms and, if necessary, the implementation of adequate recovery measures.

The risk has increased in recent years because of the on-going economic recession, and the Group has reacted by adopting a series of preventive measures which include increased internal and external credit management controls.

In spite of the above, a general increase in default rates could have an important negative effect on the Group's business, on its financial situation and on the results of its operations as well as on its capacity to honour its own payment commitments.

Trade receivables are posted on the financial statements net of impairment calculated on the basis of the counterparty default risk, determined in consideration of the information available on the customers' solvency and past data. Positions that are individually significant due to the fact that collection may be partially or totally impossible are written down.

4. Corporate continuity

The financial statements of the CAP Group at 31 December 2016 have been drawn up considering the Group as an on-going business.

5. Estimates and assumptions

The preparation of these Financial Statements requires the directors to apply accounting standards and methods which, in some cases, depend on difficult and subjective assessments and estimates based on past experience and assumptions that are considered reasonable and realistic, case by case, according to the relative circumstances. The application of such estimates and assumptions influences the amounts posted on the financial statement schedules and the information given. The final results of the financial statement items for which such estimates and assumptions have been used could differ from those posted on future financial statements that reflect the effects of an event related to an estimate, because of the uncertainly of the assumptions and of the conditions on which the estimates are based.

The areas that, more than others, involve greater subjectivity on the part of the directors in developing the estimates and for which a change in the conditions underlying the assumptions could have a significant impact on the financial data, are briefly described below.

(a) Amortisation/depreciation of tangible and intangible assets

The cost of tangible and intangible assets is depreciated or amortised at constant rates throughout the estimated useful lifetime of each asset. The economically useful lifetime of a tangible or intangible asset is determined when it is acquired and it is based on past experience of similar assets, market conditions and forecasts of future events that could have an impact on the same, including technological progress. Therefore, the effective economically useful lifetime can differ from that estimated. Every year the Group assesses progress in technology and in the sector, any changes in contractual conditions and in the laws in force connected with the use of the tangible and intangible assets, and the recovery value, for the purpose of updating the residual useful lifetime. The result of these analyses can modify the period, and therefore also the rates, of the amortisation/depreciation of the period and of future periods.

(b) Residual value on termination of a concession

The Company receives an indemnity on termination of a concession, for an amount equal to the residual value of the works and assets produced during the period of the concession. Said value, determined according to the rules defined by the Electricity, Gas and Water Authority (AEEGSI), is based on factors and estimates that can vary over time, and which can therefore involve a change in the said amounts.

Non-current assets are checked to ascertain any value impairment which, if there are indicators that imply difficulty in recovering the value, is posted on the financial statements as a write-down on the net book value. The verification of the existence of said indicators requires subjective assessments based on the information available within the Group and on the market, as well as past experience. In addition, when the directors deem that a potential value impairment has been generated, it is determined according to adequate valuation techniques. The correct identification of the elements that indicate the existence of a potential value impairment, and the estimates for determining said impairment, depend on factors that can vary over time, and which are reflected in the valuations and estimations. Similar considerations regarding the existence of such indicators and their use in the application of the valuation techniques are also involved in the assessment of the possible recovery of value lost in previous periods.

(d) Assets for prepaid taxes

Prepaid taxes are entered in the accounts on the basis of the expected taxable incomes of future periods. The assessment of expected income for the purpose of entering prepaid taxes in the accounts depends on factors that can vary over time and which can have significant effects on the value at which this item is posted on the financial statements.

(e) Provisions for risks and charges

In the provisions for risks and charges, the Group includes probable liabilities for disputes with personnel, suppliers, third parties and, in general, the charges deriving from commitments undertaken. The determination of said provisions involves estimates based on current knowledge of factors that can change over time, and which can therefore generate final results even significantly different from those considered during the preparation of the financial statements.

(f) Credit impairment provision

The credit impairment provision reflects the estimates of losses on the portfolio of receivables. The allocation for expected losses expresses the estimate of the credit risk which is based on past experience of similar receivables, on the analysis of overdue receivables (present and past), on the analysis of losses and of collections and, lastly, on the monitoring of the trend of the present and forecast economic conditions of the market of reference.

(g) Valuation of derivative financial instruments

The fair value of unlisted financial assets, such as derivative financial instruments, is determined by means of commonly used financial valuation techniques which require the use of assumptions and base estimates. Said assumptions involve a degree of uncertainty as regards time and manner. Therefore the final values of said derivative instruments could differ from the estimates.

Financial instruments

In accordance with IFRS 7 and IFRS 13, the fair value of financial instruments must be based on the quality of the sources of the information used to determine said fair value. In particular IFRS 7 and IFRS 13 define 3 fair value levels:

● level 1: financial assets/liabilities are classified at this level if the fair value is determined on the basis of the listed (unmodified) prices, both official and over-the-counter, of identical assets or liabilities traded on active markets; ● level 2: financial assets/liabilities are classified at this level if the fair value is determined on the basis of information other than the listed prices of level 1, but for which such assets/liabilities the information can be directly or indirectly observed on the market; ● level 3: financial assets/liabilities are classified at this level if the fair value is determined on the basis of market data that cannot be observed. This category of instruments includes those valued on the basis of internal estimates, resulting from proprietary methods according to the best practices of the sector.

The financial assets and liabilities at 31 December 2016 are listed below, broken down by category:

Financial assets and Loans and Financial assets Financial liabilities Total liabilities at fair value receivables available for sale at amortised cost with changes in the OCI (other comprehensive income) ASSETS: Other non-current assets 0 24,396 0 0 24,396 Trade receivables 0 245,632 0 0 245,632 Cash and cash equivalents 0 118,789 0 0 118,789 Other current assets 0 45,402 0 0 45,402 LIABILITIES: 0 Non-current financial liabilities 31,909 0 0 114,644 146,553 Other non-current liabilities 0 0 0 62,115 62,115 Trade payables 0 0 0 80,549 80,549 Current financial liabilities 0 0 0 10,395 10,395 Other current liabilities 0 0 0 77,903 77,903

The table below sums up the assets and liabilities posted at fair value at 31 December 2016, according to the level which reflects the inputs used to determine the fair value:

(in thousands of Euro) At 31 December 2016 Level 1 Level 2 Level 3 Derivative financial instruments (IRS) 31,909

The CAP Group, during the years 2006 and 2007, entered into certain Interest Rate Swap agreements: three with Banca Innovazione Infrastrutture e Sviluppo and one with BNP Paribas. In 2013 it acquired another from the incorporated company T.A.M. S.p.A. with the counterparty Monte dei Paschi. Lastly, in 2015 it acquired a sixth from the incorporated company Idra Milano S.r.l., the counterparty of which is Banca Nazionale del Lavoro S.p.A.

All these positions refer to underlying liabilities of a financial type, and specifically:

● the position acquired from the company TAM S.p.A. is a pure hedge against the interest rate risk; ● the position acquired from the company Idra Milano S.r.l. is also a hedge against the interest rate risk; ● the others are duration swaps, i.e. they are financial instruments created for the purpose of transforming and standardising, in terms of current value, debt repayment schemes.

6. Information on the operational sectors

The information on the operational sectors has been drawn up according to the provisions of IFRS 8 "Operating Sector", which requires the presentation of information on the methods adopted by the management for taking operational decisions. Therefore, the identification of the operating sectors and the information presented are defined on the basis of the internal reports used by the management for allocating resources to the various segments and for analysing the relative performances.

An operating sector is defined by IFRS 8 as a component of an entity: i) which performs a business activity which generates revenues and costs (including revenues and costs regarding operations involving other components of the same entity); ii) for which the operational results are periodically reviewed at the highest level at which the operational decisions of the entity are taken for the purpose of allocating resources to the sector and for assessing the results; iii) for which separate balance sheet information is available.

The management has identified the following operating sectors:

● the Integrated Water Service, which includes the integrated water services mainly for the population of the City of Milan;

The operating sectors are monitored on the basis of: i) revenues, ii) EBITDA and iii) EBIT. The EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) is defined as the net result of the period, adjusted by the following items: i) taxes; ii) financial income and charges; iii) amortisation, depreciation, value impairment and allocations. The EBIT (Earnings Before Interests and Tax) is defined as the net result of the period, adjusted by the following items: i) taxes and ii) financial income and charges.

7. Notes on the consolidated equity and financial situation

7.1 Rights on assets under concession

The change in the item "Rights on assets under concession" for the period from 1 January 2016 to 31 December 2016 is shown below:

(in thousands of Euro) Balance at Increases Decreases Grants Amortisation Balance at 01.01.2016 31.12.2016 Rights on assets under 631,467 77,893 0 -5,340 41,419 662,601 concession

In accordance with IFRIC 12, rights on assets under concession have been posted for Euro 662,601 thousand at 31 December 2016 and Euro 631,467 thousand at 1 January 2016. Said rights are amortised at constant rates for the duration of the concession, net of the residual value equal to Euro 354,239 thousand, inasmuch as destined to be devolved to the concession grantor on termination of the concession.

The item “Rights on assets under concession” is posted net of contributions to plant of Euro 5,340 thousand. The investments of the year 2016 amount to Euro 77,893 thousand.

Impairment test on rights on assets under concession

The Group has carried out a value impairment test to assess the existence of any lasting value loss on the amounts posted under the item Rights on assets under concession.

The test compares the book value (or carrying value) of the asset or of the group of asset comprising the unit which generates cash flows (or cash generating unit) with the recoverable value of the same, resulting from the greater of either the fair value (net of any sale charges) and the value of the discounted net cash flows which are expected to be produced by the asset or by the assets comprising the cash generating unit (usage value).

The impairment test was carried out using the cash flows for the duration of the concession, as extracted from the economic-financial plan developed by the Group, and the forecast residual value of the works and assets produced during the period of the concession that the Group expects to obtain on termination of the concession.

For the impairment test, the Group determined a single cash generating unit represented by the Integrated Water Service.

The discount rate applied to the cash flows (WACC: weighted average cost of capital), which reflects the market valuation of the cost of money and the specific risks of the business sector and of the geographic area of reference, is 3.5%.

The impairment test did not indicate lasting value losses for the amounts posted under the Rights on assets under concession for the financial year 2016 and, consequently, said assets were not written down.

7.2 Other intangible assets

The change in the item "Other intangible assets" in the period from 1 January 2016 to 31 December 2016 is shown below:

(in thousands of Euro) Balance at Increases Decreases Grants Amortisation Balance at 01.01.2016 31.12.2016 Other intangible fixed 11,289 2,605 0 0 -1,599 12,295 assets

The amount, of Euro 12,295 thousand, includes the purchase value of the Genia business unit, which took place on 1 July 2011, for Euro 5,813 thousand, which was then revised on the occasion of adjustment to Euro 5,698 thousand, which was increased by Euro 1,654 thousand subsequent to the incorporation of T.A.S.M. S.p.A. in 2013.

Under the agreement signed between Genia S.p.A., the transferor, and CAP Holding S.p.A., Amiacque S.r.l. and T.A.S.M. S.p.A., the buyers, ownership of the assets will remain in the name of Genia S.p.A. The purchase value is posted under the open balances and systematically amortised at the rates of the underlying asset.

The amount, of Euro 12,295 thousand, also includes the costs for the Oracle software (ERP) not yet completed and works on the head office for Euro 3,308 thousand.

7.3 Fixed assets, plant and machinery

Tangible fixed assets amount to Euro 13,713 thousand at 31 December 2016, with a difference, compared to the value at 1 January 2016, of Euro 32,414 thousand.

Of this difference, Euro 26,132 thousand is due to the sale of the business unit which manages the integrated water service in the Province of Monza and Brianza to the company Brianza Acque S.r.l.

Additional information is given under Note 7.11 of these financial statements

7.4 Assets for prepaid taxes

Detail of the item "Assets for prepaid taxes" for the period from 1 January 2016 to 31 December 2016 is shown below:

Balance at 31.12.2016 Balance at Change 01.01.2016 For connection contributions from users 2,502 1,636 866 For allocation to provisions for lawsuits pending 975 703 272 For allocation to provisions for other risks 628 835 -207 For allocation to provisions for risks relating to personnel costs 1,472 1,366 106 For allocation to provisions for amicable settlements 2,076 2,220 -144 For allocation to provisions for future plant decommissioning costs 1,433 1,407 26 For allocation to provisions for future tank rehabilitation costs 815 685 130 For allocation to the credit risk provision 9,025 9,551 -526 For allocation to the water bill discount provision 478 0 478 For allocation for damages from sewer network percolation 1,805 0 1,805 For allocation to town council asphalt costs 376 0 376 For amortisation of goodwill 69 79 -10 For non-deducted excess amortisations 250 250 0 Reserve for expected cash flow hedging transactions 1,255 1,630 -375 Amortisation differential, pursuant to IFRIC 12 680 0 680 Total receivables for prepaid taxes 23,839 20,362 3,477

In accordance with IAS 12, assets for prepaid taxes and liabilities for deferred taxes are offset only if the entity can legally compensate current tax assets with current tax liabilities and the deferred tax assets and liabilities relate to income taxes imposed by the same tax authority.

Prepaid taxes were offset against deferred tax liabilities for Euro 1,323 thousand at 1 January 2016 and for Euro 1,615 thousand at 31 December 2016.

The Group expects to have sufficient future taxable income to absorb the prepaid taxes posted on the financial statements.

7.5 Other non-current assets

At 31 December 2016, the item “Other non-current assets” refers to:

Balance at 31.12.2016 Balance at 01.01.2016 Change the stake in Pavia Acque S.r.l. 14,078 8,915 5,163 the stake in Rocca Brivio Sforza S.r.l. 1,160 1,258 -98 Non-current receivables 119 121 -2 Deferred assets 9,039 2,032 7,007 Total 24,396 12,326 12,070

The change during 2016 in the stakes in the companies Pavia Acqua S.r.l. and Rocca Brivio Sforza S.r.l. is illustrated below.

Balance at Increases Decreases Balance at 01.01.2016 31.12.2016 Pavia Acque Srl 8,915 5,163 - 14,078 Rocca Brivio Sforza S.r.l. 1,258 431 (529) 1,160

The stake in Pavia Acque S.r.l. increased during the period subsequent to the contribution of a business unit, concluded on 23 December 2016.

The stake in Rocca Brivio Sforza S.r.l. derives from the incorporation, in 2013, of the company T.A.S.M. S.p.A. into CAP Holding S.p.A. During the period the value of the stake increased consequent to shareholders' agreements and it was written down on the basis of the percentage of the stake (51.036%) of the shareholders' equity of said Rocca Brivio Sforza S.r.l., pursuant to the results of the draft financial statements at 31 December 2016, drawn up by the liquidator and presented to the ordinary shareholders' meeting of 16 March 2017.

Pursuant to IFRS 10, the company was not included in the consolidation since it is maintained that Cap Holding S.p.A. does not have effective control inasmuch as it does not hold substantial rights that would attribute to the same the power to direct the relevant activities of the investee company in a manner that would influence the returns.

For greater clarity, detail of the balance sheet and of the income statement of the subsidiary at 31 December 2016 is given below:

ASSETS BALANCE AT 31.12.2016

Tangible fixed assets 2,537 Total non-current assets 2,537 Inventories 256 Total current assets 256 TOTAL ASSETS 2,793

LIABILITIES BALANCE AT 31.12.2016 Capital 53 Reserves 2,411 Profit (loss) of the period (194) Total shareholders' equity 2,270 Non-current financial liabilities 188 Total non-current liabilities 188 Trade payables 287 Current financial liabilities 40 Liabilities for current taxes 8 Total current liabilities 335 TOTAL LIABILITIES 2,793

INCOME STATEMENT BALANCE AT 31.12.2016 Other operating revenues 48 Costs for services (35) Personnel costs (4) Other operating costs (14) Depreciation, amortisation and impairment (165) Profit from operations (170) Financial charges (24) Financial management (24) Net loss of the period (194)

The deferred assets item includes Euro 6,970 thousand posted as an offset entry, for the payable due to Cassa Depositi e Prestiti (the national deposits and loans institute) for the commissions on the guarantee for the loan issued by the European Investment Bank for the investments covered by said Cassa Depositi e Prestiti.

7.6 Trade receivables

Detail of the item "Trade receivables" at 31 December 2016 and at 1 January 2016 is given below:

Balance at 31.12.2016 Balance at 01.01.2016 Change Gross trade receivables 287,406 280,035 7,371 Credit impairment provision -41,774 -44,046 2,272 Total 245,632 235,989 9,643

The trade receivables are mainly the amounts of invoices issued and to be issued to domestic, business and other customers. The balance also includes the amounts of invoices to be issued for tariff adjustments.

The following table shows the change in the trade credit impairment provision:

Balance at 01.01.2016 Increases Decreases Balance at 01.01.2016 Provision for impairment of receivables due (44,046) (7,313) 9,585 (41,774) from domestic users Provision for impairment of receivables due (44,046) (7,313) 9,585 (41,774) from domestic users

7.7 Inventories

Detail of the item "Inventories" at 31 December 2016 and at 1 January 2016 is given below:

Balance at 31.12.2016 Balance at 01.01.2016 Change Inventories 5,327 5,988 -661 Inventories depreciation provision 0 -183 183 Total 5,327 5,805 (478)

The inventories item is composed of components of electrical and hydraulic parts, electrical pumps for wells, raw materials for purification, metres and other consumable materials held in the warehouse at 31 December 2016.

7.8 Works in progress to order

The item, of Euro 575 thousand, represents the value of the orders in progress for the planning, works management and construction of the works for the hydraulic repairs of the Cagnola water source, for the Region of Lombardy, assigned in several steps to the incorporated I.A.No.Mi. S.p.A.

At 31 December 2016, no down payment had been received. The amount at 31 December 2016 represents the gross value of the state of progress of the works of the said order.

7.9 Cash and cash equivalents

Detail of the item "Cash and cash equivalents" at 31 December 2016 and at 1 January 2016 is given below:

Balance at 31.12.2016 Balance at 01.01.2016 Change Bank and postal deposits 118,704 93,857 24,847 Cash and valuables in hand 85 39 46 Total 118,789 93,896 24,893

The item cash and cash equivalents includes the deposit of Euro 8,583 thousand (Euro 14,476 thousand at 1 January 2016) tied in favour of Istituto di Credito Banca Intesa San Paolo S.p.A. to guarantee a loan of the same amount issued on 1 December 2012 to T.A.S.M. S.p.A., incorporated into CAP Holding S.p.A. as of 1 June 2013.

The amount refers specifically to the loan for the execution of the expansion works of the purification plant of the town of Assago, phase I of the expansion of the purification plant of Melegnano, the adaptation of the existing line of the purification plant of Rozzano, and works on sewer networks. The account will be released on presentation of the documentation of the expenses sustained for the execution of the above indicated works.

7.10 Other current assets

Detail of the item "Other current assets" at 31 December 2016 and at 1 January 2016 is given below:

Balance at 31.12.2016 Balance at 01.01.2016 Change Tax receivables 22,551 22,837 -286 Receivables due from others 22,851 21,530 1,321 Total 45,402 44,367 1,035

The tax receivable essentially comprises VAT credit for Euro 17,557 thousand, relative to which a rebate of Euro 13,733 thousand has been requested. Euro 733 thousand of said rebate was withheld by the Revenue Agency to cover the higher registration duties ascertained in respect of certain business unit purchase deeds and against which appeal has been filed.

The receivables due from others amount to Euro 22,851 thousand at 31 December 2016, and they mainly refer to:

● receivables due from public bodies, the prevalent part of which is composed of receivables due from the ATO of the provinces of Milan and of Monza-Brianza, amounting to Euro 2,231 thousand, relating to grants for plant works and/or portions of loans to cover expenses relative to projects included in the Hydrological Plans; ● receivables due from the investee company Pavia Acque Scarl, for Euro 6,385 thousand, relative to commercial agreements.

7.11 Assets available for sale

This item, for Euro 26,132 thousand, represents the valorisation of the fixed assets destined for sale, pursuant to the deed of sale of the business unit with effect as of 1 March 2017.

The transaction regarded specifically the sale to the company Brianzacque S.r.l., the provider of the integrated water service of the Province of Monza and Brianza, of the business unit which performs industrial/commercial activities for several towns in the south-east part of the Province of Monza and Brianza.

In detail, the sale regards the aqueduct activities, except for the management of the main capitation networks/backbones, for the towns of Aicurzio; Bellusco; Brugherio, Burago di Molgora; Busnago; Camparada; Caponago; Cavenago di Brianza; Concorezzo; Cornate d’Adda; Lesmo; Mezzago; Ornago; Roncello; Sulbiate; Besana Brianza; Briosco; Veduggio con Colzano; Bernareggio; Carnate; Correzzana; Renate; Ronco Briantino; Triuggio; Usmate Velate and Vedano al Lambro, all in the Province of Monza and Brianza, as well as the management of the sewer system for the town of Brugherio, also in the Province of Monza and Brianza.

The liabilities on the balance sheet include those destined for sale.

7.12 Shareholders' equity and Share capital

The Company's share capital is composed of 571,381,786 ordinary shares with a par value of Euro 1, entirely underwritten and paid up.

Reserves

The change in the shareholders' equity provision is reported in the schedules of these financial statements.

7.13 Provisions for risks and charges

The change in the item "Provisions for risks and charges" for the period from 1 January 2016 to 31 December 2016 is shown below:

Balance at 31.12.2016 Balance at Change 01.01.2016 Provision for risks relating to personnel costs 362 1,066 -704 Provisions for lawsuits pending 5,219 2,965 2,254 Provision for out-of-court settlements 8,728 9,249 -521 Provision for risks relating to request for 2007 tax rebate 2,720 2,720 0 Provision for other risks 13,717 8,037 5,680 Total provision for other risks 30,746 24,037 6,709 Provision for water bill discounts for social reasons 1,993 0 1,993 Provision for asphalt expenses 1,335 0 1,335 Provision for future tax rehabilitation expenses 3,396 1,769 1,627 Provision for future plant decommissioning 5,883 5,660 223 Total provision for future expenses 12,608 7,429 5,179 Total provisions for risks and charges 43,354 31,466 11,888

The allocations of major importance in 2016 include:

● an allocation to the provision for future expenses for the rehabilitation of the flocculation tanks (environmental rehabilitation), in view of the conclusion of the life cycle of said tanks with consequent re-naturalisation and recovery of the areas occupied, for which it is necessary to remedy any environmental damages potentially due to percolation into the ground;

● an allocation to the provision for future expenses for the decommissioning of buildings. The buildings in question are those in which the head offices of the subsidiary Amiacque S.r.l. are housed, at Via Rimini 34/36, Milan. Said buildings will, in fact, be demolished, presumably in the two-year term 2019-2020 and in their place a new building will be erected to be used as the headquarters of the CAP Group. The parent company has concluded an agreement with the subsidiary for the future purchase-sale of the current area and building, thus indirectly assuming the cost of the future demolition;

● an allocation to the provision for "tariff concessions for social purposes". The allocation is consequent to the decision assumed by resolution no. 7 of the Conference of the town councils of the ATO of the Metropolitan Area of 31.05.2016, to approve the “CAP Group regulations for granting tariff reductions of a social nature“.

7.14 Employee benefits

The change in the item "Employee benefits" for the period from 1 January 2016 to 31 December 2016 is shown below:

(in thousands of Euro) Balance at Financial Actuarial Amounts Other Balance at 01.01.2016 charges gains/losses paid out movements 31.12.2016 Employee benefits 7,130 100 -182 -353 -389 6,306

The severance indemnity provision is influenced by the discounting as required by the accounting standard IAS 19.

Detail of the economic and demographic assumptions used for the actuarial valuations is given below:

Inflation rate 1.5% Discount rate 0.8562% Annual frequency of Advances / Payments 1.50%

7.15 Current and non-current financial liabilities

Detail of the items "Current financial liabilities" and "Non-current financial liabilities" at 31 December 2016 and at 1 January 2016 is given below:

At 31 December 2016 At 01 January 2016 Current and non-current financial Current portion Non-current portion Current portion Non-current portion liabilities Bank loans 8,913 110,940 10,886 86,161 Bond 1,482 3,704 1,482 4,444 Fair value of derivative pursuant to 31,909 35,500 IAS Total 10,395 146,553 12,368 126,105

To guarantee correct representation of this item, a payable of Euro 6,970 thousand due to Cassa Depositi e Prestiti has been posted on the financial statements at 31 December 2016, being the total charge linked to the commissions on the guarantee due to the guarantor bank, calculated in proportion to the actual amounts withdrawn on the EIB (European Investment Bank) credit line, paid periodically until the expiry of the guaranteed loan.

An item for this payable is posted under Other non-current assets (see Note 7.5) to offset the item posted on the income statement of the relative period.

The information on bank loans is summed up in the following table:

Amounts in thousands of Euro Nominal value Maturity date Total Maturing within Maturing Maturing after 5 one year between 2 and years 5 years BANCA INTESA OPI 2002 25,823 2016 - - - - BANCA INTESA OPI 2006 20,000 2026 12,359 986 4,454 6,919 EIB (1st tranche) 18,000 2029 18,000 - 4,714 13,286 EIB (2nd tranche) 10,000 2030 10,000 - 2,157 7,843 EIB (3rd tranche) 12,000 2030 12,000 - 2,109 9,891 EIB (4th tranche) 12,000 2031 12,000 - 1,591 10,409 Bond 20,000 2019 5,185 1,481 3,704 - BANCA INTESA EX TASM 16,000 2029 13,490 722 3,334 9,435 BNL (COGESER) 1.5 1,500 2018 395 237 158 - BNL (COGESER) 0.950 950 2020 475 158 317 - BNL (IDRA merger) 6,000 2026 4,385 462 1,846 2,077 MPS 2,000 2022 1,279 196 945 139 MPS 336 2019 79 26 53 - MPS OOPE 2,066 2020 498 124 374 - MPS 85 2017 9 9 - - MPS 320 2018 68 34 34 - MPS 70 2020 27 7 19 - Finlombarda 168 2026 152 16 64 72 Finlombarda 858 2026 439 44 175 220 Finlombarda 870 2026 354 37 149 168 CDP 72,028 2031 19,629 6,931 12,443 255 Banca Popolare di Milano (former 6,107 2028 5,218 327 1,480 3,411 Banca di Legnano) MPS 3,000 2029 2,006 152 618 1,236 UBI 700 2017 37 37 - - TOTAL LOANS 230,880 118,085 11,985 40,739 65,361

The Group's exposure based on contractual repayment obligations in force at 31 December 2016, not discounted, amount to a total of Euro 118,085 thousand.

With regard to the loan from the European Investment Bank, the following tranches have been issued until 31 December 2016:

● a first issue of Euro 18 million in May 2015, which will be repaid in constant (fixed rate) six-monthly instalments from June 2019 until December 2029; ● a second issue of Euro 10 million in November 2015, which will be repaid in constant (fixed rate) six- monthly instalments from December 2019 until June 2030; ● a first issue of Euro 12 million in May 2016, which will be repaid in constant (fixed rate) six-monthly instalments from June 2020 until December 2030; ● a second issue of Euro 12 million in July 2016, which will be repaid in constant (fixed rate) six-monthly instalments from December 2020 until June 2031.

Altogether, at 31 December 2016, the debt towards the EIB amounts to a nominal sum of Euro 52 million, and during the period 2017 the last tranche of Euro 18 million will be issued.

Charges connected to the loans

The charges sustained by the Group to obtain bank loans were initially posted as a reduction in the financial liabilities, and successively posted on the income statement according to the amortised cost method in accordance with IAS 39.

7.16 Other non-current liabilities

Detail of the item "Other non-current liabilities" at 31 December 2016 and at 1 January 2016 is given below:

Other non-current liabilities At 31 December 2016 At 1 January 2016 Accrued expense and deferred liabilities 3,578 2,572 Other non-current payables 58,537 83,861 TOTAL 62,115 86,433

Of the other non-current payables, a main part of Euro 39,811 thousand are guarantee deposits of users and customers considered collectible after 12 months, and Euro 23,865 thousand represents the debt to the ATO Authority subsequent to the completion of a transaction for the transfer of a mortgage.

7.17 Trade payables

This item includes the payables relative to the normal performance of the Group's commercial transactions relating to the supply of goods, fixed assets and services. At 31 December 2016, there are no payables falling due after five years.

7.18 Other current liabilities

Detail of the item "Other current liabilities" at 31 December 2016 and at 1 January 2016 is given below:

Other current liabilities At 31 December 2016 At 1 January 2016 Advances 19,792 20,346 Tax payables 3,247 3,104 Payables to social security institutes 2,630 2,135 Other liabilities 52,234 44,830 TOTAL 77,903 70,415

Of the advances, which amount to Euro 19,792 thousand at 31 December 2016, a main portion of Euro 19,119 thousand represents advances for works in progress commissioned by private subjects and public bodies and the Region of Lombardy.

Euro 8,528 thousand of this item refers to the long-term order for the “rehabilitation of the Cagnola source”. Being advances, the value of the works in progress to order, equal to Euro 575 thousand, has not been deducted from the total value of the works in progress to order.

The other liabilities, of Euro 52,234 thousand, mainly regard:

● trade payables for connection grants, amounting to Euro 8,489 thousand; ● payables of Euro 3,022 thousand to trade unions and to the compensation fund of the electrical sector for the compensatory grant applied to the tariffs of the integrated water service; ● payables of Euro 8,937 thousand to companies for the provider's quota. These payables are posted on the basis of the amounts actually collected; ● payables of Euro 3,262 thousand to employees and directors; ● payables of approximately Euro 13,960 thousand to local bodies.

7.19 Liabilities available for sale

See the information under Note 7.11 of these financial statements.

8. Notes on the consolidated comprehensive income statement

8.1 Revenues

Revenues amount to Euro 260,061 thousand at 31 December 2016. The revenues achieved in relation to sales and the performance of services during 2016 are shown below, broken down according to the main ATO Authorities.

The revenues posted on the financial statements are mainly composed of:

● Revenues from sales and services for the ATO of the Metropolitan Area of Milan.

Revenues from the integrated water service tariff of the ATO of the Province of Milan, determined according to the Guaranteed Revenues Rule (GRR), amount to Euro 220,180 thousand.

For the regulated revenues of the ATO of the Metropolitan Area of Milan, except for the city of Milan itself, what is indicated above holds firm, i.e. pursuant to resolution no. 503/2016/r/idr of 15 September 2016, the AEEGSI has approved the regulatory scheme, containing the tariff provisions for the period 2016-2019.

The tariff scheme of reference for 2016 is the MTI-2, introduced by AEEGSI resolution no. 664/2015/R/idr of 28 December 2015, which covers the period 2016-2019 (with a two-year tariff review for the years 2018-2019).

● Revenues from sales and services for the Monza-Brianza ATO.

With regard to the regulated revenues of the Monza and Brianza ATO, the AEEGSI, with resolution no. 523/2016/r/idr of 22 September 2016, approved the tariff provisions for the period 2016-2019, proposed for certain providers operating in the ATO of Monza and Brianza, including, among other things, the aqueduct and purification wholesaler tariffs of CAP Holding S.p.A. in the ATO of the Province of Monza and Brianza, confirming the tariff scheme proposed by the ATO of the Metropolitan Area of Milan and on which the ATO of Monza and Brianza expressed a favourable opinion as contemplated under art. 16 of AEEGSI resolution no. 656/2015.

Also for the Monza and Brianza ATO the tariff method of reference is the so-called MTI-2, introduced by AEEGSI resolution no. 664/2015/R/idr of 28 December 2015, which covers the period 2016-2019 (with a two-year tariff review for the years 2018-2019).

Overall, the revenues of the integrated water service tariff of the Province of Monza and Brianza, determined according to the said GRR, amount to Euro 10,297 thousand for 2016.

● Revenues from sales and services for the ATO of Pavia

For the ATO of Pavia, the entire tariff as of 1.1.2014 is due to the consortium company Pavia Acque S.c.a.r.l. pursuant to a mandate agreement between that company and the ATO Office of Pavia concluded on 20 December 2013.

Therefore the Group no longer has any income from tariffs of that ATO. The parent company, CAP Holding S.p.A., as a member of the said consortium, has been appointed to manage various infrastructures in several towns of the Pavia area and consequently it includes among its revenues an income arising from the prices recognised to the same by Pavia Acque S.c.a r.l. For 2016 the said income amounts to Euro 2,378 thousand. Always for the Pavia ATO, the Group enters under its revenues of the period an amount received for the use on the part of Pavia Acque S.c.a.r.l. of certain infrastructures owned by the Group, at a value equal to the book depreciation of said assets plus the costs for the financial charges it pays for certain loans. For 2016 the said income amounted to Euro 653 thousand.

8.2 Revenues for works on assets under concession

Revenues for works on assets under concession amount to Euro 77,893 thousand for the period which closed at 31 December 2016. Said revenues, in application of IFRIC 12, are for the works carried out on the assets under concession to the Company and used by the same in the practice of its core business.

8.3 Other revenues and income

Detail of the item "Other revenues and income" for the period which closed at 31 December 2016 is given below:

Balance at 31.12.2016

Rental fees received 628 Penalties from suppliers and customers 495 Insurance premiums to cover losses 92 Compensation for damages and other reimbursements 276 Reimbursement for personnel on transfer 24 Other revenues and income 2,830 other contingencies 2,431 Contributions to operating expenses 620 Other contributions 1,374 Total 8,770

8.4 Costs for raw and consumable materials and goods

Detail of the item "Costs for raw and consumable materials and goods" for the period which closed at 31 December 2016 is given below:

Balance at 31.12.2016 Consumable materials 648 Consumable materials for safety in the workplace 383 Electrical and hydraulic components 1,377 Metres 2,363 Materials destined for works 228 Potable water filters and raw materials for rendering water potable 411 Electrical pumps 4,740 Fuels and combustibles 542 Wholesale water provisioning 361 Change in the inventories 468 Total costs for raw and consumable materials and goods 11,522

This item mainly comprises the costs for the purchase of consumable materials and for the maintenance of the Integrated Water Service.

8.5 Costs for services

Detail of the item "Costs for services" for the period which closed at 31 December 2016 is given below:

Balance at 31.12.2016

Works financed by private and public subjects 18,863 Routine maintenance 11,600 work on plants and waterworks houses 80 Demolition of tanks 1 Costs for industrial services 43,078 Total costs for industrial services 73,621 Other administrative, general and commercial costs 36,544 Total other administrative, general and commercial costs 36,544 Rental and licence fees 1,497 Fees for use of plants - Repayments of loans and concession fees 6,679 fee for use of well and crossings 1,780 Hire 2,297 Negative contingencies 23 Total costs for the use of third parties' property 12,276 Total costs for raw and consumable materials and goods 122,441

8.6 Costs for works on assets under concession

The costs for works on assets under concession amount to Euro 49,997 thousand for the period which closed at 31 December 2016. The capitalised internal costs are posted according to type under the specific items of the income statement.

8.7 Personnel costs

Detail of the item "Personnel costs" for the period which closed at 31 December 2016 is given below:

Balance at 31.12.2016 Salaries and wages 30,953 Social security charges 9,903 Employee severance indemnity 1,989 Retirement benefits 239 Other costs 634 Total personnel costs 43,718

The following table shows the number of Group employees, broken down by category:

Number of employees In service at Recruitments Resignations/dismissals In service at 31.12.2015 31.12.2016

Managers 13 1 3 11

Middle managers 31 2 9 24 Level 8 38 5 1 42 Level 7 48 3 3 48 Level 6 94 18 4 108 Level 5 119 7 11 115 Level 4 176 12 14 174 Level 3 159 19 8 170 Level 2 106 6 10 102 Level 1 3 0 0 3

Total middle managers, clerks and blue collars 774 72 60 786

Temporary employees 45 27 40 32

Total employees in service 832 100 103 829

8.8 Amortisation, depreciation, impairment and allocations

Detail of the item "Amortisation, depreciation, impairment and allocations" for the period which closed at 31 December 2016 is given below:

Depreciation, amortisation and impairment Balance at 31.12.2016 Amortisation of concessions 41,419 Amortisation of intangible fixed assets 1,610 Depreciation of tangible fixed assets 6,369 Credit impairment 7,313 Total depreciation, amortisation and impairment 56,711 Allocations for labour lawsuits pending 178 Allocation to provision for other lawsuits pending 1,543 Other allocations 2,336 Total depreciation, amortisation and impairment 4,057 Total depreciation, amortisation and impairment 60,768

The other allocations, amounting to Euro 2,336 thousand, refer mainly to:

● an allocation to the provision for future expenses for the decommissioning of buildings, for Euro 336 thousand. The buildings in question are those in which the head office of the subsidiary Amiacque S.r.l. are housed, at Via Rimini 34/36, Milan.

Said buildings will, in fact, be demolished, presumably in the two-year term 2019-2020, and in their place a new building will be erected to be used as the headquarters of the CAP Group. The parent company has concluded an agreement with the subsidiary for the future purchase-sale of the current area and building, thus indirectly assuming the cost of the future demolition;

● the allocation to a provision for future expenses of the tariff quota for new investments, for the part destined for granting tariff concessions for social purposes, is consequent to the decision assumed by resolution no. 7 of 31.05.2016 of the Conference of the town councils of the ATO of the Metropolitan Area. Said allocation of Euro 2 million is equal to the portion unused in the year 2016.

8.9 Other operating costs

Detail of the item "Other operating costs" for the period which closed at 31 December 2016 is given below:

Balance at 31.12.2016

Association subscriptions 136 Books magazines and newspapers 21 Losses on receivables 41 Taxes and duties 1,013 Expenses for ATO-AEEG running costs 1,143 Socially useful charity donations 20 Sanctions and fines 122 reimbursements of third parties' expenses 565 Sundry rights 41 Other sundry management costs 211 Capital losses on fixed assets 29 negative contingencies on GRR adjustments 3,927 Other negative contingencies 2,963 Total sundry management costs 10,232

8.10 Financial income and charges

The balance of the financial income and charges amounts to Euro 5,026 thousand. The financial income at 31 December 2016 amounts to Euro 3,561 thousand and mainly regards interests on outstanding bills and interests for deferred payment arrangements granted to users.

At 31 December 2016, the financial charges amount to a total of Euro 8,587 thousand.

The breakdown of interests and other financial charges related to bonds, bank payables and other items, is shown below:

Financial charges Balance at 31.12.2016 Debenture loans 11 Bank loans and mortgages 4,700 Swaps 1,423 Assumption of business units 455 Other 1,998 Total financial charges 8,587

In accordance with IAS 37, the above-indicated amounts are gross of the financial effect, of Euro 329 thousand, linked to the discounting of the trade receivables and payables.

We lastly mention that value impairment of Euro 530 thousand relative to the stake in the company Rocca Brivio Sforza S.r.l. in liquidation is posted under the financial income and charges.

8.11 Taxes

Detail of the item "Taxes" for the period which closed at 31 December 2016 is given below:

Taxes Period closing at 31 December 2016

Current taxes (Corporate income tax, Regional business tax) 19,801 Deferred taxes 210

Prepaid taxes (3,638)

Taxes relating to previous periods (223)

Total 16,150

8. Transactions with related parties

The Company is entirely publicly owned, its shareholders, at 31 December 2016, being exclusively local bodies of the areas served by the Company. At 31 December 2016, 199 local bodies were served, also subsequent to the merger of the municipalities of Corteolona (Pavia) and Genzone (Pavia) with the simultaneous creation of the municipality of Genzone (Pavia). Of said bodies, 196 comprise: 134 municipalities of the Metropolitan Area of Milan, 40 municipalities of the Province of Monza and Brianza, 20 municipalities of the Province of Pavia, 1 municipality of the Province of Como, and 1 municipality of the Province of Varese. The list of shareholders of CAP Holding S.p.A. is completed by the Province of Monza and Brianza and the Metropolitan Area of Milan (former Province of Milan).

The Group has taken avail of the exemption allowed under paragraph 25 of IAS 24, and therefore it is not required to give the information referred to under paragraph 18 of IAS 24 on transactions with related parties and the existing balances, including commitments, with the local bodies served.

At 31 December 2016 the Group has a liability of Euro 4,156 thousand essentially for the concession fee for integrated water service assets owned by town councils, proportioned to the periodic amount of the loan instalments to be repaid to the town councils, and for the works requested by the same.

At 31 December 2016 the commitments linked to the residual loan instalments to be repaid to the local bodies for the use of their networks for the period 2017-2033 amount to Euro 38,701 thousand.

10. Contractual commitments, guarantees and concessions

Commitments exist for Euro 64,905 thousand, of which:

● Euro 38,701 thousand represents the residual loan instalments to be repaid in the period 2017-2033 to local bodies for the use of the networks and plant that they own, of which Euro 33,262 thousand will fall due after 12 months; ● Euro 26,102 thousand is the estimated amount of the interest expense which will be paid to lenders in the period after 1 January 2017, on loans taken out and/or assumed and which must be repaid within the closure of the period; ● Euro 102 thousand is due to Rocca Brivio Sforza S.r.l. as the residual amount to be contributed to the capital pursuant to a shareholders' agreement signed on 15 July 2005.

Obligations towards third parties for Euro 6,726 thousand, of which:

● Euro 161 thousand is for past obligations deriving from the conferment on Pavia Acque S.r.l. of the business unit pursuant to art. 2560 of the Civil Code (deed of conferment of 15 July 2008); ● Euro 1,832 thousand is for past obligations deriving from the conferment on Pavia Acque S.r.l. of the business unit pursuant to art. 2560 of the Civil Code (deed of conferment of 2016); ● Euro 4,733 thousand is for past obligations deriving from the spin-off of Idra Patrimonio S.p.A. to the benefit of Idra Milano S.r.l. (which latter was incorporated into CAP Holding S.p.A. in 2015) and Brianzacque S.r.l.

Liabilities for sureties for Euro 15,094 thousand, of which:

● Euro 7,235 thousand represents guarantees issued by banks in favour of various subjects; ● Euro 7,759 thousand represents insurance sureties, of which Euro 6,733 thousand is in the interests of Cap Holding for the agreements on the assignment of the integrated water services, in favour of the ATO Authority of Milan and of Monza and Brianza, and of which Euro 1,026 thousand is in favour of Amiacque to guarantee the VAT rebate request of 2012; ● Euro 100 thousand is for guarantees issued by CAP Holding S.p.A. in favour of Banca Popolare di Milano in the interests of Rocca Brivio Sforza in liquidation S.r.l. for the issue of a bank loan.

The concession for the use of plants owned by local authorities for Euro 183,268 thousand, relative to integrated water service networks, collectors and plant used by the GAP Group.

11 Directors' and auditors' fees

For the period which closed at 31 December 2016, the fees for the directors amount to Euro 248 thousand, and those for the statutory auditors amount to Euro 136 thousand.

12. The external auditing firm's fees

For the period which closed at 31 December 2016, the fees for the external auditing firm amount to Euro 36 thousand.

13. First application of the IFRS to the consolidated financial statement.

This note gives the information required by IFRS 1 and, in particular, a description of the impact that the transition to the EU IFRS has had on the Group's economic, capital and shareholder's equity situations. For this purpose, the following have been drawn up:

● a schedule showing the reconciliation, at 1 January 2016 (the Transition Date) and at 31 December 2016, between the Group's equity and financial situation drawn up according to the Italian accounting standards, and the Group's equity and financial situation drawn up according to the EU IFRS; ● a schedule showing the reconciliation between the comprehensive income statement for the period closing at 31 December 2016 drawn up according to the Italian accounting standards and that drawn up according to the EU IFRS; ● a schedule showing the reconciliation, at 1 January 2016 and at 31 December 2016, between the Group's shareholders' equity drawn up according to the Italian accounting standards and that drawn up according to the EU IFRS; ● explanatory notes on the adjustments and reclassifications in the aforesaid reconciliation schedules.

The equity and financial situation at the Transition Date has been drawn up on the basis of the following criteria:

● all the assets and liabilities which must be entered according to the EU IFRS are posted on the schedules; ● the assets and liabilities which, according the EU IFRS, may not be posted on the schedules have been omitted; ● the EU IFRS have been applied in the valuation of all the assets and liabilities posted on the schedules.

Optional exemptions from the complete backdated adoption of the EU IFRS

The Group has applied IFRIC 12 "Service concession arrangements" backdated to the Transition Date.

Obligatory exemptions from the complete backdated adoption of the EU IFRS

IFRS 1 has established certain obligatory exemptions to the backdated application of the international accounting standards in the transition to the EU IFRS.

Under IFRS 1, the estimates used for re-processing the information at the Transition Date must conform to those used for the preparation of the relative financial statements according to the previous accounting standards (after the necessary adjustments to reflect any differences in the accounting standards).

The other obligatory exemptions dictated by IFRS 1 have not been applied inasmuch as relative to cases not applicable to the Group.

Reconciliation of the shareholders' equity and explanatory notes

The reconciliation between the Group's shareholders' equity at 1 January 2016 and at 31 December 2016 and the comprehensive net result for the period that closed at 31 December 2016 is shown below according to the Italian accounting principles, with the corresponding values calculated according to the EU IFRS. The adjustments to the shareholders' equity at 1 January 2016 and at 31 December 2016 and the comprehensive net result for the period that closed at 31 December 2016 for the purposes of the adoption of the EU IFRS are shown below. For each of the adjustments described below, the relative tax effect, when applicable, is also indicated.

Consolidated financial statements Shareholders' Other components of Shareholders' Net result of Other according to Italian accounting Notes equity at the comprehensive equity at 2016 changes standards 01.01.2016 income statement 31.12.2016 723,798 29,482 0 -3,933 749,347

Derivative financial instruments A -4,428 0 0 4,428 0 Provision for flocculation tanks B 1,086 -1,086 0 0 0 Amortized Cost C 19 -3 0 0 16 Employee benefits D -375 -9 -182 0 -566 Discounting of trade receivables/payables E -1,721 240 0 0 -1,481 IFRIC 12 Concessions F 0 -1,755 0 0 -1,755 0 0 0 Consolidated financial statements under the IAS and IFRS 718,379 26,869 -182 495 745,561

(A) Derivative financial instruments (IRS)

The application of IAS 39 requires the fair value of the IRS derivative agreements signed by the Group to be included in the equity and financial situation at 1 January 2016. After the first posting, the derivative instruments are treated with hedge accounting methods inasmuch as the conditions contemplated by IAS 39 are met, although it is maintained that the amounts should more correctly be posted on the consolidated financial statements for the reasons illustrated in the preceding point.

Consequently the fair value of the IRS derivative instruments, for Euro 35,500 thousand at 1 January 2016 and for Euro 31,909 thousand at 31 December 2016, is posted under the financial liabilities while the change in the fair value, equal to Euro 810 thousand, is posted among the other components of the comprehensive income statement, net of the tax effect equal to Euro 194 thousand.

(B) Provision for flocculation tanks

At the Transition Date, the Group discounted the flocculation tanks provision according to the use/financial expenditure estimated on the basis of the useful lifetime of the said assets.

The application of IAS 39 requires the application of the amortised cost method for the entry in the accounts of the financial liabilities represented by bank loans in force.

The amortised cost is calculated using the effective interest rate criterion, or the rate that links the book value to the future payments, throughout the lifetime of the financial instrument. To calculate the effective interest rate, all contractual aspects of the financial instruments must be considered, including commissions, transaction costs and any premiums or discounts.

At the Transition Date, this method was applied to the bank loans in force on the date of reference. In particular, the transaction costs were initially posted as a reduction of the relative financial liabilities, and successively posted on the income statement, with the effective interest rate method, as financial charges.

(D) Employee benefits

In accordance with the Italian accounting standards, benefits after the termination of employment are posted according to the accruals principle throughout the employees' term of service, in compliance with the law and the applicable labour agreements.

On the basis of the provisions of IAS 19, benefits after the termination of employment are divided into two types: defined contribution schemes and defined benefit schemes.

Therefore, the value of the said provision was redetermined at the Transition Date, as well as the relative cost for each financial period. In particular, the actuarial gains and losses have been posted for the other components of the comprehensive income statement, the service cost has been posted under the item "Personnel costs" and the interest cost has been posted under the item “Financial charges”. This adjustment involved, among other things, a reduction in the shareholders' equity of Euro 375 thousand at 1 January 2016 and of Euro 182 thousand at 31 December 2016.

(E) Discounting of trade receivables and payables

At the Transition Date, the Group discounted the trade receivables and payables according to the use/financial expenditure estimated on the basis of the useful lifetime of the said assets.

(F) IFRIC 12

● concession rights deriving from construction and/or improvement works amounting to Euro 631,467 thousand at 1 January 2016 and Euro 662,601 thousand at 31 December 2016;

● the value of the fixed assets, plant and machinery, previously posted as proprietary assets strictly connected to the infrastructure under concession, which has been eliminated since, according to IFRIC 12, they represent assets under the control of the concession grantor for a value of Euro 753,335 thousand at 1 January 2016 and Euro 784,735 thousand at 31 December 2016;

● the amortisation of the value of the assets under concession for the duration of the concession, which has been posted for Euro 41,419 thousand, with the elimination of the amortisation of the fixed assets, plant and machinery which fall within the sphere of the application of IFRIC 12;

● revenues and costs for construction services, which are posted according to the state of progress of the jobs commissioned for respectively Euro 77,893 thousand and Euro 49,997 thousand.

Reclassifications of the equity and financial situation and of the income statement items

(a) Deferred tax assets and liabilities

Deferred and prepaid taxes, in accordance with IAS 12, are posted as the net balance, and therefore offset against each other, under the long-term assets/liabilities.

(b) Derivative Financial Instruments (IRS)

On the consolidated financial statements at 31 December 2016 drawn up according to the Italian accounting standards, the Group, in view of the derivative agreements that it has underwritten and their features, has posted the relative values under the deferred liability items and the provision for risks and charges. In application of the UE IFRS, the values have been reclassified under the item Non-current payables to banks and other lenders.

In application of IFRS 5 regarding the assets of discontinued operations relating to independent business units or geographic areas of the business activity and which are part of a single coordinated decommissioning programme:

● the non-current assets and liabilities have been reclassified separately.

Due to the features of the sale transactions concluded by the Group, the relative income data of discontinued operations are quantitatively negligible; therefore the results of the discontinued operations have not been reclassified separately on the income statement, as would otherwise have been required by IFRS 5.

The revenues and costs of discontinued operations are therefore posted under the income and charges on the consolidated income statement at 31 December 2016.

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- 43 - Tel: +39 02 58.20.10 Viale Abruzzi n. 94 Fax: +39 02 58.20.14.03 20131 Milano www.bdo.it

INDEPENDENT AUDITORS’REPORT

To the Board of Directors Cap Holding S.p.A.

We have audited the accompanying Consolidated Financial Statements of CAP Holding S.p.A., which comprise the statement of financial position as of December 31, 2016, the statement of comprehensive income, the statement of changes in shareholders’ equity and the statement of cash flows for the year then ended, a summary of significant accounting policies and other explanatory notes.

Directors’ responsibility for the consolidated financial statements The directors are responsible for the preparation of Consolidated Financial Statements that give a true and fair view in compliance with International Financial Reporting Standards as adopted by the European Union.

Independent Auditors’ responsibility Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatements.

An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The audit procedures selected depend on the auditor’s professional judgment, including the assessment of risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view, in order to plan and perform audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the Consolidated Financial Statements give a true and fair view of the financial position of CAP Holding S.p.A. as of December 31, 2016 and of the result of its operations and cash flows for the year then ended in compliance with International Financial Reporting Standards as adopted by the European Union.

Accounting policies and restrictions on the distribution and use Without modifying our opinion, we draw attention to Note 13 "First Application of the IFRS to the consolidated financial statements” illustrating the effects of the transition to International Financial Reporting Standards as adopted by the European Union. The information disclosed in the note, with regard to the changes and reclassifications performed to the consolidated financial statements prepared in accordance with Italian regulations governing their preparation, which had been previously audited by us, on which we issued an unmodified opinion on May 12 2017, has been examined by us for the purpose of expressing opinion on the Consolidated Financial Statements prepared in accordance with IFRS as Bari, Bergamo, Bologna, Brescia, Cagliari, Firenze, Genova, Milano, Napoli, Novara, Padova, Palermo, Pescara, Potenza, Roma, Torino, Treviso, Trieste, Verona, Vicenza

BDO Italia S.p.A. – Sede Legale: Viale Abruzzi, 94 – 20131 Milano – Capitale Sociale Euro 1.000.000 i.v. Codice Fiscale, Partita IVA e Registro Imprese di Milano n. 07722780967 - R.E.A. Milano 1977842 Iscritta al Registro dei revisori Legali al n. 167911 con D.M. del 15/03/2013 G.U. n. 26 del 02/04/2013 BDO Italia S.p.A., società per azioni italiana, è membro di BDO International Limited, società di diritto inglese (company limited by guarantee), e fa parte della rete internazionale BDO, network di società indipendenti.

Pag. 2 adopted by the European union (“UE IFRS”) for the year ended December 31, 2016. The Consolidated Financial Statements has been prepared in respect of IFRS as adopted by the European Union ("EU IFRS"), for the purpose of the inclusion of some data derived from the same in the Prospectus being prepared by the Company (the " Prospectus ") in connection with the issuance of bonds to institutional investors outside the United States of America. Consequently, the Consolidated Financial Statements cannot be suitable for other purposes. Our report is issued only for these purposes and may not be used for other purposes or disclosed to third parties outside the ones involved in the process of the issuance of the bonds, without our prior written consent.

Milan, June 28 2017

BDO Italia S.p.A.

Signed by Carlo Consonni Partner

This report has been translated into english from the italian original solely for the convenience of international readers

REGISTERED OFFICE OF THE ISSUER CAP Holding S.p.A. Via del Mulino, 2 20090 Assago Italy

FISCAL AGENT BNP Paribas Securities Services, Luxembourg Branch 60, Avenue J.F. Kennedy – Luxembourg L – 1855 Luxembourg

LEAD MANAGER UniCredit Bank AG Arabellastrasse, 12 81925 Munich Germany

LEGAL ADVISERS To the Issuer as to Italian and English law:

Simmons & Simmons Via Tommaso Grossi, 2 Citypoint 20121 Milan One Ropemaker Street Italy London EC2Y 9SS United Kingdom

To the Lead Manager as to Italian and English law:

Clifford Chance Studio Legale Associato Piazzetta M. Bossi, 3 20121 Milan Italy

AUDITORS TO THE ISSUER BDO Italia S.p.A. Viale Abruzzi, 94 20131 Milan Italy

LISTING AGENT Walkers Listing Services Limited The Anchorage 17/19 Sir John Rogerson's Quay Dublin 2 Ireland

210542-4-690-v3.0 47-40651163