NIS Group Co. Ltd. (8571) - Mktcap ¥54.6 bn Could this be a potential Pearl Fund buyout candidate? Internal Discussion Material October 6, 2007 (HI)

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1 NIS Group Co. Ltd. (8571) - Mktcap ¥54.6 bn Could this be a potential Pearl Fund buyout candidate? Internal Discussion Material October 6, 2007 (HI)

2 2 Summary –After interviewing NIS on September 28, 2007, the company indicated that it would be difficult for the company to find a buyer for its consumer loans (O/S of ¥31.3 bn as of 6/07) in the current market regardless of the magnitude of the discount –In our original liquidation analysis, we have assumed a mark-to-market value of such loans at a 60% discount to its face value. Under such scenario, NIS’s liquidation value was ¥303 per share. –If we assume “0” value for the consumer loans, NIS’s liquidation value is reduced to ¥175 per share. Liquidation Analysis (Update)

3 3 –At a liquidation price of ¥175, NIS’s current share price of ¥374 is overvalued by 114%. Tough current PB is 0.6x, the pro forma PB is actually 2.1x –Under this scenario, the pro forma B/S shows that Shareholders’ Equity of the company will decrease from ¥81.3 bil to ¥25.6 bn and the Capital Adequacy Ratio (SHE/Total Assets) will fall from 20.2% to 7.2% –At this level, the company will definitely require additional capital injection to operate as a going concern Important to note, our original analysis pointed out that NIS is likely to face liquidity problems over the next several months since ST borrowings payable within 12 months has risen to ¥105.6 bn In line with our view, S&P has downgraded NIS’s credit rating to BB- with negative credit watch on October 3 rd indicating concerns that NIS’s lenders may not extend their credit lines –We should maintain a close eye on NIS as it could become an interesting Pearl Fund buy-out candidate NIS has investments in 18 public companies, 162 unlisted companies, and 23 limited partnerships (see Appendix 1) –NIS is scheduled to announce its 1HY results on 11/6 and hold an analyst meeting on 11/9

4 4 The following page illustrates a hypothetical deal structure for internal discussion purposes Originally, we thought of a MBO structure. However, we believe that such structure would not be feasible for the following reasons: –We will need to assume all liabilities of NIS (i.e. overcharged interest, off balance sheet liabilities) –A delisting of NIS will prevent future funding from the capital markets –We will need to assess the management credibility of NIS (Chairman Sakioka and CEO Amiya) –We will need to negotiate with the banks for debt forgiveness (time consuming) –A tender price lower than the current stock price may result in a TOB failure A more feasible structure will be a purchase of certain NIS assets (i.e. consumer loans and NIS’s investments in public and private companies) –Under this structure, NIS can continue its business (real estate loans, leasing, China, etc.) –Taiyo could potentially create value with NIS’s investments (trading, restructuring, selling assets to Taiyo’s portfolio companies, etc.) –Tokyo Star Bank could potentially benefit by getting access to new customers, refinancing, servicing, etc. The benefit of this structure is that Taiyo may be able to limit the risks of assuming unexpected liabilities and NIS could stay in business Hypothetical Transaction Structure

5 5 NIS Transaction Structure Taiyo Star Inc. NIS Fin Service Assets (RE loan, etc.) 194 ST Debt150 Consumer31 LT Assets58 Investments33 Other Assets111 Cash & STI39 LT Debt146 Equity81 Total Others25 402 TPP (Pearl Fund) Tokyo Star Consumer Investments 6 23 (3) Servicing Agreement Refinancing Collection (3) Portfolio Management Agreement Trading Restructuring/M&A IPO (2) Payment (2) Asset Transfer Agreement (1) Equity 50% + Debt? (1) Equity 50% Assumption: Consumer loans 31bn x 20% = 6bn, Investments 33.2bn x 70% = 23bn Asset Transfer Agreement: No liability assumption or obligations, transfer of relevant employees to Taiyo Star Inc., etc. 18 public companies 162 unlisted companies 23 limited partnerships 8 bonds Total 223 investments

6 6 Internal discussion –Are we interested in pursuing this opportunity? –Are we comfortable with getting in the consumer loan business? –Is this in line with our strategy? –Can we create value? –Do we have the resources? Do we need to team up? Monitor 1HY results, credit rating Conduct further analysis Meeting with IR after 1HY results Partner meeting with Chairman Sakioka and CEO Amiya Partner meeting with Tokyo Star Bank Next Steps

7 7 Appendix

8 8 Appendix 1 NIS’s Investments

9 9 Appendix 2 B/S

10 10 Appendix 3 Valuation

11 11 Comps Appendix 4

12 12 Share buybacks June – August 2007 60 mil shares (2.4 bn yen) Reverse stock spilt (August 31, 2007) Ordinary shares 1-for-20 reverse stock 2.9 bil shares became 145.9 mil shares ADR 2 ADRs = 1 ordinary share (before 1 ADR = 10 ordinary shares) NIS’s Recent Activities NIS Share Performance Appendix 5

13 13 NIS’s Med-term Plan and China Strategy China Business- Investment Banking Business in China Nissin Leasing (China) is the platform $100 mil of capital Just became profitable with 70-80 mil yen/month. Expected to grow significantly.  Services Installment-based sales, leasing, and mortgage-backed lending (linked to construction machinery. Charges 17-18% vs. local lending rate of 7%) Delayed payment of less than 20-30% Account receivable guarantee service (intent is to establish credit information company in China)  Strategy Interested in listing Nissin Leasing on the Hong Kong stock exchange within 2 years May lower holdings to lesser than 50% Will purchase shares in Vietnamese companies engaged in real estate development Med-term plan Appendix 6