Kiwi Capital Funding Limited Level 8 New Zealand Post House 7 Waterloo Quay Wellington 6011 Phone (04) 816 1546 Fax (04) 462 7996 nick.griffiths@kiwibank.co.nz www.kiwibank.co.nz 6 April 2016 Client and Market Services NZX Limited New Zealand Post proposing to sell 45% of Kiwi Group Holdings to NZ Super Fund and ACC Kiwi Capital Funding Limited ("KCFL") has issued two series of loss absorbing notes with ticker codes KCF010 and KCFHA ("KCFL Notes"). KCFL has used the proceeds it received from the KCFL Notes to invest in convertible bonds ("Kiwibank Bonds") issued by Kiwibank Limited ("Kiwibank"). The bonds issued by Kiwibank count as regulatory capital to help Kiwibank meet its regulatory capital requirements imposed by the Reserve Bank of New Zealand. New Zealand Post Limited ("NZ Post") is the sole shareholder in Kiwi Group Holdings Limited ("KGHL"), which in turn is the sole shareholder of Kiwibank and KCFL. NZ Post has commenced a process that could see NZ Post selling a 45% share of KGHL to the Guardians of the New Zealand Superannuation Fund ("NZSF") (as to 25%) and Accident Compensation Corporation ("ACC") (as to 20%). Each of NZSF and ACC are Crown entities. The proposed total purchase price is NZ$495m (based on a total valuation of KGHL of NZ$1.1 billion). The valuation reflects the Government’s non-negotiable position that Kiwibank remains 100% owned by the Crown. NZ Post, NZSF and ACC have been in discussions regarding the sale and expect to finalise a term sheet soon. The proposed transaction would be subject to a number of conditions, including the completion of satisfactory due diligence by NZSF and ACC, negotiation of definitive transaction documentation, final board approvals and regulatory approvals. It is anticipated that the transaction would be completed by the end of NZ Post's current financial year. The Crown provides NZ Post with a NZ$300 million uncalled capital facility that NZ Post is able to utilise in order to support Kiwibank's capital and liquidity positions in certain circumstances. If the proposed transaction proceeds, it is proposed that the uncalled capital facility will be terminated and replaced with a new uncalled capital facility (the purpose of which will also be to support Kiwibank's capital and liquidity positions in certain circumstances), on the following terms: (a) KGHL will issue to the Crown NZ$300 million of uncalled convertible redeemable Kiwi Capital Funding Limited Level 8 New Zealand Post House 7 Waterloo Quay Wellington 6011 Phone (04) 816 1546 Fax (04) 462 7996 nick.griffiths@kiwibank.co.nz www.kiwibank.co.nz preference shares ("RPS") and KGHL will provide Kiwibank with a corresponding NZ$300 million capital facility ("Kiwibank Facility") which may take the form of a short term debt instrument, redeemable preference shares, ordinary shares or another instrument, depending on the form of capital or funding required by Kiwibank; (b) the facility will have an initial term of 10 years, after which the Crown has the option of terminating the facility by giving 5 years' notice to KGHL (although the facility may be terminated earlier at the instigation of Kiwibank or if Kiwibank ceases to be majorityowned by the Crown); (c) if any of the RPS that are called are converted into ordinary shares in KGHL, one share issued to the Crown will be a "Golden Share" and will carry sufficient voting rights to ensure that the Crown will always, collectively with all other ordinary voting shares held by the Crown, carry a requisite super majority vote for all (ordinary and special) resolutions of KGHL; (d) if any ordinary shares in Kiwibank are issued to KGHL in connection with the Kiwibank Facility, one of the ordinary shares will be a "Golden Share" and will carry sufficient voting rights to ensure that KGHL will always, collectively with all other ordinary voting shares held by KGHL, carry a requisite super majority vote for all (ordinary and special) resolutions of Kiwibank. The "Golden Share" will be held by KGHL for the benefit of the Crown; and (e) if any ordinary shares in Kiwibank are issued to KGHL in connection with the Kiwibank Facility and subsequently any Kiwibank Bonds held by KCFL convert into ordinary shares in Kiwibank, then Kiwibank will issue additional shares to KGHL to ensure that the effective issue price of each share issued to KGHL is equal to the lowest issue price of each ordinary share in Kiwibank issued to KCFL on conversion of the Kiwibank Bonds. NZ Post provides a standing guarantee of certain payment obligations of Kiwibank (eg deposits). If the proposed transaction proceeds, NZ Post has indicated that it will terminate the guarantee. NZ Post must give 3 months' notice before it terminates the guarantee. This termination will not affect any payment obligations of Kiwibank that were already guaranteed at the time the guarantee is terminated. The payment obligations under the KCFL Notes are not guaranteed by NZ Post. Standard & Poor's has indicated that following the announcement of the proposed transaction, Kiwibank's long term issuer credit rating (A+) will be placed on credit watch negative pending the proposed termination of the standing guarantee provided by NZ Post. Should the guarantee be terminated, Standard & Poor's has indicated it will result in a one notch downgrade to Kiwibank's long term issuer credit rating (from A+ to A). Kiwi Capital Funding Limited Level 8 New Zealand Post House 7 Waterloo Quay Wellington 6011 Phone (04) 816 1546 Fax (04) 462 7996 nick.griffiths@kiwibank.co.nz www.kiwibank.co.nz Standard & Poor's has confirmed that there will be no changes to NZ Post's issuer credit ratings or to the issue credit ratings of the KCFL Notes if the proposed transaction proceeds. Geoff Martin Head of Funding ENDS