consistent growth - apicorp report 2012_english.pdf · talal j khalil senior technical advisor ali...

Consistent growth

Annual Report 2012

APICORPP.O. Box 9599Dammam 31423Kingdom of Saudi Arabia

Tel (966) 3 847 0444Fax (966) 3 847 0011 (966) 3 847 0022

Telex 870068 APIC SJ

E-mail [email protected] [email protected]

Web www.apicorp-arabia.com www.apic.com

APICORP (Bahrain Banking Branch)Almoayyed Tower, 26th FloorAl Seef DistrictP.O. Box 18616Manama

Tel (973) 17 563 777Fax (973) 17 581 337

APICORP Shareholders 02Mission and Vision 02Financial Summary 03Board of Directors 04Executive Management 05Chairman’s Statement 06 CE and General Manager’s Statement 08 Review of MENA Energy Investment 10 Outlook for the Economy and Markets 10 MENA Energy Investment 13 Geographical Patterns 14 Constraint and Policy Challenges 17

APICORP Activities in 2012 20 Project and Trade Finance 20 Direct Equity Investments 22 Equity Participations 26 Treasury and Capital Markets Activities 28 Economics and Research 28 Conferences and Seminars 29

Independent auditors’ report to the shareholders 32

Financial statements Statement of financial position 33Statement of income 34Statement of comprehensive income 35Statement of changes in equity 36-37Statement of cash flows 38The formation, status and activities of APICORP 39

Significant accounting policies applied in the financial statements 40-49

Notes to the financial statements 50-78

Contents

APICORP 1

Apicorp

Arab Petroleum Investments Corporation (APICORP) is an inter Arab Multi-lateral

Development Bank, established on 23 November 1975 in accordance with an

international agreement between governments of the ten member states of the

Organisation of Arab Petroleum Exporting Countries (OAPEC).

Algeria 5%

Egypt3%

Syria 3% Iraq

10%

Kuwait 17% Bahrain

3%

UAE17%

Libya15%

Saudi Arabia 17%

Qatar10%

We will measure our success by our ability to

• Be the partner of choice of oil and gas and energy-related companies, both public and private;

• Be recognised as a world-class professional institution and the leading source of research on the Arab hydrocarbon and energy industries

We will achieve our vision by

• Profitably complementing the offering of private sector financial institutions;

• Attracting and retaining the best professionals in the industry;

• Pioneering solutions for our clients;• Maintaining a portfolio of activities weathering the

cyclicality of the industry;• Nurturing a performance culture throughout the Company.

APICORP SHAREHOLDERS

APICORP is wholly owned by the member states of the Organisation of Arab Petroleum Exporting Countries (OAPEC) who are listed as follows: United Arab Emirates 17%, Bahrain 3%, Algeria 5%, Saudi Arabia 17%, Syria 3%, Iraq 10%, Qatar 10%, Kuwait 17%, Libya 15%, Egypt 3%.

APICORP MISSION AND VISION

APICORP’s mission is to contribute to the development and the transformation of the Arab hydrocarbon and energy industries through equity and debt financing, advisory and research.

APICORP Annual Report 20122

Total Assets

5,078SHAREHOLDERS’ EQUITY

1,309Net Income

109

US$ MILLION

US$ MILLION

US$ MILLION

Total AssetsUS$ million

Net IncomeUS$ million

Shareholders’ EquityUS$ million

Financial SummaryAs at 31 December 2012

Financial Position 2009 - 2012

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APICORP 3

Board of Directors

Chairman of the Board

Dr. Aabed Bin Abdulla Al-SaddounFor the Kingdom of Saudi Arabia

Deputy Chairman of the Board

Khaled Amr AlGunselFor the Government of Libya

Dr. Matar Hamed ALNeyadiFor the United Arab Emirates(Deputy Chairman,

Audit & Compensation Committee)

Hilal Ali IsmailFor the Republic of Iraq

Mahmood Hashim Al-KoohejiFor the Kingdom of Bahrain

Mohamed Khalid Al-GhanemFor the State of Qatar(Member, Audit & Compensation

Committee)

Farid BakaFor the Democratic and Popular Republic of Algeria(Member, Audit & Compensation

Committee)

Shaikh Talal Naser A. Al-SabahFor the State of Kuwait(Chairman, Audit & Compensation

Committee)

H.E. Eng. Suleiman Al-AbbasFor the Syrian Arab Republic

Sherin Ahmed Mohamed For the Arab Republic of Egypt


Executive Management

Ahmad Bin Hamad Al-NuaimiChief Executive and General Manager

Nabeel Ali Al-AdsaniDeputy General Manager

PROjECTS DEPARTMENTDr. Abdulaziz S. Alidi Executive Vice PresidentBasema T. Mahroos Senior Vice President Business DevelopmentAntony Bridgens Senior Vice President Business DevelopmentNasir Mohammad Al-Shiha Senior Vice President Business Development

PROjECT & TRADE FINANCE DEPARTMENTNicolas Thevenot Executive Vice PresidentBassam Al-Tamimi Senior Vice President Naam Business GroupRajesh Ramanathan Vice President GCC Business Group

TREASURy & CAPITAL MARKETSDEPARTMENTHesham Farid Executive Vice PresidentRichard Burnell Manager (APICORP) Bahrain Banking BranchFaiq Hussain Senior Vice President, MM, FX &

Arbitrage

FINANCIAL CONTROL DEPARTMENTAyman F. Zeyada HeadKhaled yousef Accounts & Control ManagerKamran Khan Financial & Management Accounts

Manager

FINANCIAL OPERATIONS DEPARTMENTMohamed Al-Mubarak Head

LEGAL DEPARTMENTAli Hassan Fadel General Counsel & BOD Secretary

ADMINISTRATION & HUMAN RESOURCES DEPARTMENTSami Rashed Al-Sunaid Head

INFORMATION SySTEMS DEPARTMENTMohammed I. El-Khouly Head

RISK MANAGEMENT DEPARTMENTSuresh Mergu Head

BUSINESS SOLUTIONS UNITG. Richard Sherlock Head

ADVISORSTalal j Khalil Senior Technical AdvisorAli Aissaoui Senior Economics Advisor

APICORP 5

Chairman's Statement

Financial ResultsWithout doubt, the evolving socio-political turmoil in parts of the Arab world, including the Corporation’s member states, continued to impact the financial and economic situation in these countries during 2012. At the same time, it is apparent that the economic recovery which emerged in the aftermath of the global financial crisis has stalled.

Despite this unfavourable background, APICORP reported a record net income of US$ 109 million in 2012, representing a 3.4% increase over the previous historical high of US$ 105 million posted in 2011. The Corporation’s total assets at the end of the year increased by 9.7% to US$ 5.1 billion compared with US$ 4.6 billion at the end of 2011; while total shareholders’ equity rose to US$ 1.3 billion, up 7% on the previous year of US$ 1.2 billion. The Board of Directors and the Management have committed themselves to increasing and improving the growth of APICORP’s profits to even higher levels in 2013 and beyond. Dividend DistributionThe Board of Directors recommends, for the General Assembly’s approval, that no dividend distribution shall be paid for the year 2012. This is in order to enforce the General Assembly’s resolution, issued at its extraordinary meeting last year, that the Corporation’s authorised capital be increased from US$ 1.2 billion to US$ 2.4 billion, and the subscribed capital from US$ 550 million to US$ 1.5 billion. In accordance with the Corporation’s statutes, 10% of the net profit for 2012 has been transferred to the Legal Reserve. The remaining profits will be transferred to retained earnings for future capitalisation in line with the General Assembly’s resolution.

Direct Equity InvestmentsAPICORP’s direct equity investments portfolio comprises eleven Arab joint venture projects. Seven are engaged in the refining, petrochemicals and fertilizers sectors; and three in the petroleum services sectors, covering seismic services, drilling and related services for oil and gas wells, and the storage of petroleum products. The remaining project is involved in the extraction of natural gas liquids.

As at 31 December 2012, the total book value of APICORP’s direct equity investments was US$ 318 million. It is worth mentioning here that the region’s first investment Shipping Fund in the field of petroleum transport was established by APICORP in 2012 and five medium-range petroleum product vessels were acquired. This Fund will contribute to the maximising the Corporation’s profits. Project and Trade FinanceDue to the turbulent economic and political environment prevalent in parts of the Arab world, the closing of landmark financing transactions has taken longer than in the past.

Consequently, the majority of project finance transactions launched in the first half of 2012 were still in progress at the end of the year.

In contrast, trade finance activity has remained steady, and APICORP took advantage of favourable market conditions and successfully secured mandates – both in project finance, and structured trade and commodity finance – and played a leading role in some of the transactions that were concluded during the year.

On behalf of the Board of Directors, it gives me great

pleasure to present the 37th Annual Report and

Financial Statements of Arab Petroleum Investments

Corporation (APICORP) for the year ended 31

December 2012.


Looking at the overall performance of project and trade finance activities, APICORP maintained the growth of its loan portfolio, with net loan assets growing to reach US$ 2.9 billion by the end of 2012. Net income generated by project and trade finance activities posted an historical record of US$ 44.5 million, compared to US$ 30.75 million for 2011. This performance confirms the Corporation’s ability to preserve the high quality and diversification of its loans portfolio, notwithstanding the present circumstances.

Treasury and Capital MarketsTreasury and Capital markets assets continued to grow during 2012, despite the unresolved issues faced by the global financial sector since 2011. Paramount among these challenges is the Eurozone sovereign debt crisis and the negative outcome of fiscal austerity.

As at December 2012, total assets had risen by 17% to US$ 1,709 million from US$ 1,456 million at the end of the previous year. Total income increased to US$ 32.9 million in 2012, up 14% from US$ 26.9 million the previous year. APICORP’s fixed income securities portfolio continues to be focused on strong credits, with an average portfolio rating of A+.

Economic and Research CapabilityAPICORP’s Economic and Research Department is dedicated to the study of economic and policy issues relevant to the Corporation’s business development and growth strategy in the context of the global financial crisis, and its effects on the financial, loan and energy markets.

The timely and broad dissemination of APICORP’s monthly Economic Commentary, which is highly regarded, continued to add value to the region’s economic and energy policy debate during the year.

On behalf of the Board of Directors and the Corporation’s staff, I would like to express my sincere appreciation to the Governments of the member states for their enduring support to the Corporation. And with great honour, I would like to express my thanks and gratitude to the Government of the Custodian of the Two Holy Mosques, Kingdom of Saudi Arabia, for the special care it continues to bestow upon the Corporation.

Dr. Aabed A. Al-SaadounChairman of the Board of Directors

APICORP 7

Statement by the Chief Executive and General Manager

The Arab Economies and Energy SectorOver the past year, the world economy has deteriorated noticeably, while uncertainty continued to weigh heavily on the outlook. Accordingly, world growth is forecast to be around 3.3% in 2012 and 3.6% in 2013, down from 5.1% in 2010 and 3.8% in 2011.

As a result of the stagnation in most advanced economies, and the serious slowdown in emerging and developing economies, global growth in 2012 will remain unbalanced; ranging between 1.5% for advanced economics and 5.6% for emerging and developing economies. In the Arab world, with lingering socio-political upheavals in parts of the region, economic growth has been inconsistent. Robust oil prices have boosted output in the oil-exporting countries, where growth in these economies is forecast to reach 6.5% in 2012, before returning to a more moderate growth of 3.75% in 2013. In contrast, the outlook for the Arab oil-importing-countries is subdued, as the uncertainty associated with a difficult transition has weakened their investment climate. As a result, their economies are expected to grow at 1.25% in 2012 and 1.5% in 2013.

MENA Energy Investment OutlookIn spite of the socio-political turmoil in parts of the Arab region, coupled with negative perceptions of the overall investment climate – in addition to the uncertainties surrounding the economic outlook – we still expect MENA energy capital investments to amount to US$ 740 billion for the five-year period 2013-17.

Seven countries among the largest holders of oil and gas reserves, which have not faced such turmoil, share

just over three-quarters of the required energy capital investment. These exclude Libya, but include Iraq, notwithstanding its enduring troubles. Investment in Saudi Arabia is projected to reach US$165 billion, coming mostly from Saudi Aramco, SABIC and its affiliates, and the Saudi Electricity Company. The UAE has established itself as the region’s second-largest investor with projects worth US$ 107 billion, as investment readiness has gained momentum, with capital requirements reaching US$ 71 billion. Algeria has risen in the region’s rankings as the third potential investor, overtaking both Qatar and Iran. Despite jumping ahead of Qatar and Kuwait – Iraq, with US$ 56 billion of capital requirements – is still far below its huge potential, as the government’s resolution towards achieving full development of its oil and gas sectors has yet to be translated into a tangible policy and practical reality.

APICORP Shipping FundRepresenting a major achievement in the Corporation’s long history, is the launch of APICORP’s Shipping Fund in 2012. The first of its kind in the Arab region, the Fund specialises in the transportion of petroleum products. Capitalised at US$ 150 million, the Fund targets the specific category of medium range petroleum products vessels, of which it has acquired five, for the purpose of employing them in the regional and international tanker market. Tufton Oceanic, with its in-depth knowledge of the global shipping and energy-related sectors, partners APICORP in the Fund. It should be noted that this Fund supports the Corporation’s strategic objectives aimed at the diversifying of its capital base as a specialised player in petroleum-related industries.


Rating upgrade for APICORPDuring 2012, in a move reflecting the robust fundamentals of the Corporation, Moody’s upgraded APICORP’s rating from A1 to Aa3, while maintaining a stable outlook. This upgrade is considered an exceptional achievement, given the current challenging economic and financial environment. It is worth mentioning in this respect, the steadfast support of APICORP’s shareholding countries in doubling the Corporation’s authorised capital, and increasing its paid-up capital by 36%, in addition to the introduction of US$ 750 million as callable capital, played a significant role in achieving this upgrade.

Financial PerformanceDespite the unsettled political and economic climate in some parts of the Arab region, APICORP continued its remarkable financial performance during 2012. The Corporation posted a record net income of US$ 109 million, representing a 3.4% increase over the unprecedented net income of US$ 105 million achieved in 2011.

Finance and Investment ActivitiesDuring the first quarter of 2012, APICORP concluded its first ever S.R. 2.5 billion (US$ 667 million) Shariah-compliant term loan facility, which was oversubscribed by leading Saudi banks.

The Corporation also enhanced its financing activities, by providing loans to energy projects in the Arab region. Other initiatives during the year include a special collaboration with JPMorgan, which will expand APICORP’s financing services to the Arab oil exporting countries, in the light of receding funding services by international financing institutions to energy projects in the region. In this regard, the Corporation is poised to play an instrumental and leading role in the growth and development of these industries.

APICORP also offered a complete range of integrated trade finance products and services, including the issuance of letters of credit as well as export letters of credit. This is in addition to a broad range of structured trade finance products, covering transactional and inventory financings, and borrowing base and prepayment facilities.

In line with its strategic objectives, the Corporation continued to play a leading and critical role in the development of the hydrocarbon and energy industries in the Arab region. It is worth noting that over the past 36 years, APICORP has invested in 21 joint Arab projects, which had a total value in excess of US$ 16 billion at the end of 2012. The Corporation also participated in arranging direct and syndicated loans for oil and gas industry projects amounting to US$ 130 billion, with APICORP’s final take being US$ 12 billion. As at 31 December 2012, the total value of the Corporation’s direct equity investments portfolio stood at US$ 318 million.

In ConclusionThe remarkable performance by APICORP during 2012 confirms the effectiveness of our well-planned investment strategy, which has made it possible for the Corporation to maintain a prudent balance between growth initiatives and risk management. In addition, our strong capital base and diversified financing sources have strengthened the Corporation’s capabilities and lending potentials, resulting in enhanced returns to our shareholders. This has reinforced APICORP’s eminent position in the region’s financial and banking sectors, which continue to be faced by a multitude of challenges.

Ahmad Bin Hamad Al-NuaimiChief Executive and General Manager

APICORP 9

Review of MENA Energy InvestmentSUPPORTING THE TRANSITION

The year 2012 was dominated by rapidly-evolving events with far-reaching repercussions for the Middle East and North Africa (w).1 In the so-called ‘Arab Spring’ countries, where regime changes and political transformations have taken place, discontent has proved hard to quell. In Syria, a deepening civil war has created new threats to regional stability; while in Iran, tougher international sanctions over the country’s nuclear programme – involving unilateral denial of access to financial and oil markets – have only exacerbated the uncertainties pervading the region. Adding to these uncertainties are the series of setbacks suffered by the global economy, from which the region can hardly shelter.

These unfolding developments have continued to dampen the investment climate and business sentiment. However, they have neither invalidated our framework analysis of energy investment, nor altered the resulting medium-term perspectives we provided in October 2012.2 Nevertheless, it is important to evaluate such findings against evolving macro trends. Given that growth, interest rates and energy prices are key determinants of investment and financing, the first part of the commentary examines the economic outlook, current conditions in the money markets, and developments in the oil and natural gas markets. The second part discusses the scope and structure of MENA energy investment; while part three highlights major constraints and policy challenges, and provides a timely update on funding issues.

OUTLOOK FOR THE ECONOMy AND MARKETSGlobal and MENA EconomiesThe economic recovery witnessed in the immediate aftermath of the global financial crisis has stalled as growth has faced new impediments, including fiscal policy tightening and a weakened financial system. Furthermore, despite highly accommodative monetary policies, stringent credit market conditions have persisted. According to the latest IMF’s World Economic Outlook (WEO), which was released in October 2012 under the theme “Coping with High Debt and Sluggish Growth”,3 the global economy has deteriorated further since the release of the July 2012 WEO update. Growth in 2012 was put at 5.3% for emerging market countries and 1.3% for advanced economies. The resulting world average of 3.3% shows the extent of the downtrend when set against past rates of 5.1% in 2010 and 3.8% in 2011.

Looking forward, uncertainty continues to weigh heavily on the outlook. The prospects for world GDP growth is subject to several downside risks, including continued stress in the Eurozone, intractable US fiscal problems, and China’s economic prospects. As a result, global growth projections have been marked down to 3.6% for 2013 compared with 4.1% in the previous forecast (Figure 1). However, as suggested in Figure 1, the world economy is assumed to return to the pre-crisis growth trend towards 2017.

1 As usual, MENA is defined to include the Arab world and Iran. Despite progress to demarcate borders and delineate oil deposits, energy investment in Sudan is kept inconsequentially aggregated with that of South Sudan.

2 ‘MENA Energy Investment Outlook: Capturing the Full Scope and Scale of the Power Sector’, APICORP Economic Commentary, October 2012.3 IMF, World Economic Outlook, October 2012.

Figure 1: Overview of Global and Regional Growths

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Despite a weak global recovery and uncertain political transformations, MENA GDP growth has been revised upward from 4.8% to 5.3% for 2012. However, due to differences in macro-economic conditions and investment climates, the region witnessed a two-speed growth in 2012. Together with Libya’s relative recovery, most oil-exporting countries have shown stronger growth than the oil-importing countries, largely the result of higher petroleum fiscal revenues and increased public spending. In 2013, however, as surplus expenditures run their course, growth in the two groups of countries is expected to converge towards a more modest rate of between 3.3% and 3.6%. Whether or not the region’s economy will then be able to catch up with past trends, as implied in Figure 1, depends on the extent to which social unrest and political uncertainty recede. It also depends on governments pursuing and achieving fundamental reforms with more inclusive socio-economic agenda.

Money Markets Extensive injection of liquidity by the US Federal Reserve (Fed) and other major central banks have helped take the stress out of the money markets. Since December 2008, the Fed has pursued an ultra-accommodative monetary policy in order to encourage banks to expand credit and stimulate the economy. In December 2012, it reiterated its decision to keep its benchmark rate in a range of zero to 0.25%. This will not be until 2014 as previously suggested, but for as long as inflation is under control and

the US unemployment rate remains above 6.5% percent (estimated at 7.8% in December 2012). Therefore, the Fed has continued its unconventional policy consisting of large-scale bond purchase programmes (known as quantitative easing), with the aim of maintaining inter alia downward pressure on longer-term interest rates. At the same time, it has extended to February 2014, its dollar liquidity swap lines with the European Central Bank (ECB) and other major central banks around the world. Accordingly, the Fed will continue offering low-cost US dollar funding to these central banks with the expectation that they would, in turn, make it cheaper for their own banks to borrow. This is aimed particularly at the European banks, whose creditworthiness became a concern in the wake of the Eurozone debt crisis. However, the swap lines are only a temporary solution until US prime money market funds fully resume their lending to these banks.

Meanwhile, central banks’ continued injection of liquidity into the dollar funding markets would appear to have benefited the interbank market. As gauged by the evolution of the dollar spread between Libor and the overnight indexed swap (OIS) – a measure of credit risk and liquidity premium and a strong indicator for the relative stress in the money markets – the willingness of banks to lend to each other has greatly improved. Indeed, after rising to a two-year high of 50 bps in January 2012, the spread dropped to around 30 bps during the summer, before settling at a lower level of 16 bps at the end of 2012 (Figure 2).

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Figure 2: Evolution of Libor-OIS spreads

APICORP 11

Figure 3: Recent Trends in Oil Market and Price

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4 ‘Fiscal Break-even Prices Revisited: What More Could They Tell Us About OPEC Policy Intent?’, APICORP Economic Commentary, August-September 2012.

However, central banks’ low-cost money has barely trickled down to businesses. Instead of expanding credit, commercial banks have focused efforts on rebuilding their capital reserves to accommodate continued uncertainty in the financial markets, as well as the requirements of the new Basel III regulations. As a result, the real economy has continued to face tight credit markets. This is particularly the case of MENA where capital inflows – the bulk in dollar-dominated syndicated loans – have collapsed after foreign banks reduced their country exposure limits, or just pulled back from lending as has been the case of the European banks. In this context, loans extended to the infrastructure sector in the region have halved from $101bn in 2010 to $53bn in 2012. As discussed further in later sections of this commentary, external funding for the large-scale, capital-intensive energy sector has been no exception.

Oil and Natural Gas Markets Libya’s rapid oil recovery, together with increased production from Saudi Arabia, Iraq and North America, has helped mitigate the loss of Iranian oil. In the face of weak demand, oil prices would have softened considerably if not for geopolitical uncertainty. As a result, the value of the OPEC basket of crudes averaged $109/bbl during 2012, comfortably above OPEC’s weighted-average fiscal breakeven price, which we have estimated at around $100/bbl (Figure 3).4 Looking forward, three factors are likely to dominate the market outlook: the extent of China’s recovery, further escalation of Iran’s standoff with the West, and OPEC’s ability to close ranks. All things considered, we assume that OPEC will still be able to balance the market at present price levels of no less than $100/bbl.

In the more complex natural gas market, prices have failed to converge as anticipated in the mid-2000s. Despite significant volumes of LNG traded on the spot market, and physical arbitrage opportunities between regional markets, prices have remained fragmented. Not only have they disparately deviated from oil parity, but they have also kept diverging between themselves (Figure 4). Looking

forward, prices are likely to evolve to between $3 and 5$ MBtu in fully liberalised markets with abundant domestic supplies, as is the case of the North American market; and between $12 and 15/MBtu in markets relying on imports under traditional long-term contracts, such as European markets and, to a larger extent, Asian markets.



MENA ENERGy INVESTMENT

OverviewLingering socio-political turmoil in parts of the region, and the negative perceptions of the overall investment climate, have not invalidated our October 2012 review of MENA energy investment; nor altered the uncertainties surrounding the economic outlook and market trends. We still expect MENA energy capital investment to amount to $740bn for the five-year period 2013-17. Compared with past assessments, which have been uniformly and consistently revised to reflect the full scale and scope of the power sector, investment appears overall on the rise

Figure 5: Rolling Five-year Reviews of MENA Energy Investment(Series revised to reflect the full scope and scale of the power sector)

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5 Between 2007 and 2010 the review framework was amended in an attempt to reflect the huge uncertainty created by the global financial crisis. As a result, our findings fell into two categories: potential investment (originally secured through a ‘Final Decision to Invest’); and actual capital requirements (what is left after deducting shelved projects).

Figure 4: Recent Trends in Natural Gas Prices

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again, driven mainly by a catch-up effect and unrelenting rising costs. Indeed, for reasons discussed in later sections of this commentary, our ‘average project cost’ index, which has been subdued in the wake of the global financial crisis, is once again on an uptrend (Figure 5). However, the current amount of investment should not be considered as particularly high, since it is comparable to the nominal peak identified in 2009 when completing the 2010-14 review.5

APICORP 13

6 The biggest MENA holders of combined oil and natural gas reserves in decreasing size are: Iran (50.0 Gtoe), Saudi Arabia (42.8), Qatar (25.8), Iraq (22.3), UAE (18.5), Kuwait (15.1), Libya (7.7) and Algeria (5.7) (source of data: BP Statistical Review of World Energy, June 2012).

Geographical PatternInvestment has fallen below potential in countries where investment decisions and project implementation have been hampered by continuing turmoil. This has somewhat distorted the geographical pattern of investment (Figure 6). A little more than three-quarters of energy capital investment is shared by seven countries among the largest holders of oil and gas reserves which have not faced such turmoil. These exclude Libya but include Iraq, notwithstanding its enduring troubles.6 In Saudi Arabia, investment is projected to reach $165bn, mostly engendered by Saudi Aramco, SABIC and its affiliates, as well as Saudi Electricity Company (SEC), as stand-alone domestic private investors have continued to struggle to attract capital. The UAE has established itself, for the

second consecutive review, as the region’s second-largest investor, with projects worth $107bn. Pending further implementation decisions, Algeria has jumped in the region’s rankings, overtaking both Qatar and Iran as the third potential investor. As investment readiness has gained momentum in the wake of the restoration of good governance within Sonatrach, capital requirements – largely the result of catch-up investment – have reached $71bn. In contrast, tighter international sanctions, and the retreat of foreign companies, have ended up taking a toll on Iran’s elusive energy investment programme, which has tentatively been put at $68bn. Finally, Iraq – despite moving up the rankings ahead of Qatar and Kuwait – with $56bn of capital requirements, is still far below its huge potential.

Figure 6: Country Pattern across Previous and Current Reviews

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APICORP Research. Using internal database.

In Iraq, the reaffirmation of the vital need to achieve full development of the oil and natural gas sectors has yet to be translated into coherent policies and actions. In particular, the Iraqi Federal Government (IFG) has yet to pass a long-awaited package of hydrocarbon legislation. This will hardly be possible if IFG and the Kurdistan Regional Government (KRG) fail to come up with a complete and thorough understanding of their pending oil issues. Furthermore, IFG

needs to alleviate infrastructure bottlenecks, and develop better solutions to counter recurrent security threats.

Underinvestment, which has been particularly apparent in Kuwait, is now the case in Qatar as well. In Kuwait, government policy has often been at odds with parliamentary politics; and efforts to align the two have been repeatedly frustrated. As a result, major components



of upstream development continue to be questioned, while key downstream projects such as the long-delayed giant al-Zour refinery, are still striving for materialisation. In contrast, Qatar’s stagnation is solely the result of policy on whether or not to extend the ongoing moratorium on further development of the North Field, beyond the domestic market-oriented Barzan project. As a result, and despite a shift in emphasis on enhancing oil recovery and expanding the petrochemical industry, energy investment in Qatar has lost momentum.

As already noted, investment has been affected to different degrees in countries still facing political uncertainty. This is the case of Egypt, Libya and Tunisia, and to a larger extent Yemen, where investors have adopted a wait-and-see attitude. Unless supported during what is likely to be a protracted and difficult transition, capacity expansion in these countries will be back-ended towards the end of the review period. Much more critical is the case of Syria, where investment has come to a complete halt, and is unlikely to resume as long as armed violence continues.

In any case, investment in this country is expected to be mostly in repairs, rehabilitation and recovery of destroyed or damaged energy infrastructure.

Sectoral PatternCapturing the full scope and scale of the power sector, and adjusting for the inclusion of transport and distribution systems, has reshaped the sectorial distribution of investment. As a result, each of the oil, gas and power value chains now accounts for a third of the region’s total (Figure 7). In the hydrocarbon sector, the gas downstream link has declined as a result of Qatar’s moratorium, and the consequent pause in its LNG and GTL expansion programme. In contrast, the oil downstream link, where investment is mostly driven by Saudi Aramco’s programme of large-scale integrated refining/petrochemical facilities, has performed well. Much more impressive, however, is investment in power. In this sector, capital requirements have been on a steady rise, and are expected to accelerate during the current review period (see Box).7

7 Investments in nuclear and renewables (mostly solar) are implicit and reflected in the average capacity cost in relevant cases. For nuclear, while the Bushehr plant in Iran has been adding electricity to the national grid since September 2011, Abu Dhabi’s first such plant is not expected to be commissioned during the review period.

Figure 7: Sectoral Pattern Across All Reviews

2008-12 Review

2009-13 Review

2010-14 Review

2011-15 Review

2012-16 Review

2013-17 Review

2007-11 Review

2005-09 Review

2006-10 Review

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Notwithstanding sustained expansion of investment, power supply has fallen short of needs. To catch up with unmet potential demand, medium-term capacity growth – which has been worked out on a country-by-country basis, is expected to be much higher than that of economic

output: 7.8% for the period 2013-17 against 4.5% for GDP. This would require an investment of about $250bn, with 59% for new generation capacity and the remainder for T&D (see Box).

APICORP 15

BOX: MENA INVESTMENT IN THE POWER GENERATION SECTOR (*)

Many countries within MENA have been struggling to meet fast-growing demand for electricity, which is a consequence of high population

growth, fast expanding urban and industrial sectors, increasing needs for air conditioning, and heavily subsidized electricity tariffs. With ongoing

turmoil in parts of the region, catching up with unmet demand may be perceived as socially and politically more desirable.

In the absence of active demand side management, this will entail a capacity growth of 7.8% per year, which translates into a five-year

increment of 124GW above the 2012 level. Therefore, with current reference costs – reflecting prevailing prices of engineering, procurement

and construction (EPC) and country investment climates – the capital required will be in the order of $148bn for 2013-17. As shown in the table

below, the GCC region, which will continue to grow at the highest rate, accounts for 43% of the MENA total and 53% of the Arab world total

(expenditure for nuclear power generation is implicit for the UAE).

2011* InstalledCapacity (GW)

2011* Electricity Production (TWh)

Medium-term Annual Growth (%)

2013-17 Capacity Addition (GW)

2013 -17 Capital Requirements (G$)

Maghreb1 32.0 112.8 7.4 14.6 17.6Mashreq2 60.7 294.1 7.6 29.1 36.8GCC3 104.8 461.6 8.5 57.0 63.1Rest of Arab World4 4.4 15.6 6.6 1.8 2.3Iran 49.7 227.0 7.0 21.4 27.8MENA Region 251.6 1,111.1 7.8 123.9 147.6

*2011 Estimate1 Maghreb: Algeria, Libya, Mauritania, Morocco and Tunisia.2 Mashreq: Egypt, Iraq, Jordan, Lebanon and Syria.3 GCC: Bahrain, Kuwait, Oman, Qatar,, Saudi Arabia and United Arab Emirates (UAE).4 Rest of Arab World includes Yemen and Sudan, but excludes Comoros, Djibouti and Somalia for lack of data.Compilations and projections by APICORP Research

However, power generation comes with T&D systems. This derives from the need to develop networks to supply electricity to industries,

businesses and households. Transmission grids consist of high voltage lines designed to transfer bulk power from generation plants to large

industrial customers and distribution centres, generally over long distances. In contrast, the function of low voltage distribution grids is to supply

power to final consumers in urban and, whenever socio-economically desirable, in rural areas as well. Under this grid-based supply perspective,

MENA T&D investment amounts to $103bn for 2013-17, with further breakdown given below.

Total Investment in MENA Power Sector for the period 2013-17 ($bn)

Investment in $bn Generation (G) Transmission (T) Distribution (D) Total (T,D) Total (G,T,D)

Maghreb1 17.6 3.9 9.7 13.6 31.2Mashreq2 36.8 6.3 18.0 24.3 61.1GCC3 63.1 10.7 30.9 41.6 104.7Rest of Arab World4 2.3 0.5 1.3 1.8 4.1Iran 27.8 6.1 15.3 21.4 49.2MENA Region 147.6 27.5 75.2 102.7 250.3

*2011 Estimate1 Maghreb: Algeria, Libya, Mauritania, Morocco and Tunisia.2 Mashreq: Egypt, Iraq, Jordan, Lebanon and Syria.3 GCC: Bahrain, Kuwait, Oman, Qatar,, Saudi Arabia and United Arab Emirates (UAE).4 Rest of Arab World includes Yemen and Sudan, but excludes Comoros, Djibouti and Somalia for lack of data.Compilations and projections by APICORP Research

(*) Summary from ‘MENA Power Reassessed: Growth Potential, Investment and Policy Challenges’, APICORP Economic Commentary, April-May 2012.



MENA total energy investment, as validated in the present review, will not be fully realised without addressing serious constraints, prominent among which are cost, fuel/feedstock and funding. These constraints, which are far beyond the scope and resources of any project developer, pose considerable policy challenges.

CONSTRAINTS AND POLICy CHALLENGES

Cost UncertaintiesAs indicated by the evolution of our index (Figure 5), the cost of an ‘average energy project,’ which has almost trebled between 2003 and 2008, has resumed its upward trend after stabilising somewhat in the middle of the global financial crisis. However, the relatively moderate 7% upward trend underpinning the current review should not be misinterpreted. The extent to which project costs

are predictable, depends on the outlook for the price of engineering, procurement and construction (EPC) and its components. As shown in Figure 8, these include the prices of factor inputs, contractors’ margins, project risk premiums, and an element that mirrors general price inflation in the region; not to mention the cost of what we have dubbed ‘excessive largeness’, the documented fact that large-scale projects tend to incur significant delays and cost overruns. Energy project costs would have certainly quadrupled during the last ten years, if not for the dampening effect of the global financial crisis. The likelihood is that costs will continue rising. However, despite efforts to quantify in a meaningful way each of the above-mentioned parameters, we have found it difficult to infer how far up, and for how long, the overall cost trend is likely to be when combining all components.

1 ‘MENA Natural Gas Endowment Is Likely To Be Much Greater Than Commonly Assumed’, APICORP Economic Commentary, December 2012.

Figure 8: Large-scale Energy Project Cost Structure

APICORP Research.

45%

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15% Risk premiums

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20% Others

45% Factor inputs

Feedstock AvailabilityThe next challenge is the supply of fuel/feedstock – primarily ethane and natural gas – to the petrochemical industry and the power sector. Our findings confirm and extend previous results, showing that on aggregate, MENA proved reserves are substantial, and that their combined dynamic life is a little beyond the traditional 30-year strategic planning horizon for exploration and development (E&D). However, reserve depletion in more

than half our large sample of gas-endowed countries has critically neared – if not already reached – the point that warrants drastic actions to curb demand, and support more vigorously a supply response (Figure 9).1 This is particularly the case of Bahrain, Libya, Kuwait, Saudi Arabia, Tunisia, the UAE, and to some extent Yemen and Iraq – although Iraq can increase supply at much shorter lead-times by simply cutting down on gas flaring.

APICORP 17

Funding Conditions Uncertainties surrounding project costs and fuel/feedstock supplies are compounded by a marked deterioration of funding conditions, which is likely to further complicate the strategic decisions made by project sponsors in the region with respect to investment and financing.

In a context of prevalent deleveraging, the financing of energy projects is expected to be structured with less debt. On the one hand, the upstream, midstream and T&D systems in the power sector will continue depending heavily on internal funding in the form of either corporate retained earnings or state budget allocations. On the other hand, the hydrocarbon downstream, which has traditionally relied on debt, typically in a proportion of 70%, will need more equity. This derives from recent observations in the oil based refining/petrochemical link, where the equity-debt ratio has been 35:65. More compelling is the trend in the gas-based downstream link, where the ratio has been 40:60, almost certainly to factor in higher risks of feedstock unavailability. Similarly, in the power generation segment, the debt ratio has been reset downward to reflect reduced leverage of projects developed by independent power and water/power producers (IPPs and IWPPs). As a result, the capital-weighted average structure for the oil, gas and power value chains has been found to be 61% equity and

39% debt. This structure conforms to trends observed since the onset of the global financial crisis, once adjustments to include T&D systems in the power sector have been made.

The shift in the energy capital structure does not diminish the challenge of meeting funding from both equity and debt. On the one hand, we have estimated that any prolonged period of low oil prices (value of OPEC basket of crudes) below $100/bbl will affect internal financing for the upstream sector. On the other hand, funding prospects for the downstream, albeit less leveraged, are now highly uncertain. The total annual volume of debt of $58bn, which results from the capital requirements found in the current review and the likely capital structure highlighted above, is much higher than the record of $44bn achieved in the loan market in 2010 (Figure 10). Raising such amounts of debt in the context of a collapsing dollar-denominated syndicated loans market and tight lending conditions, will hardly be possible even with greater recourse to export credit agencies (ECA) and local commercial banks. The resulting shortfall could be even larger if MENA public investment funds, which have stepped up their involvement in the local loan market in recent years, do not receive enough government support due to increasing social demands for public funds.

Figure 9: Distances to Optimal Natural Gas Supply Pattern

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Finally, while these funding trends are mostly common throughout the MENA region, the case of Iran should be assessed based on its specific context. In this country, tougher economic sanctions are expected to continue to deter investors, and severely restrict investment and financing. Conclusions With weakened global recovery and ongoing regional turmoil, MENA continues to face the challenge of lingering uncertainties. Despite awareness of further downside risks ahead, we have validated our October 2012 review of energy investment. The review, which has been broadened in order to capture the full scope and scale of the power sector, puts total MENA energy capital investment at $740bn for the five-year period 2013-17. Compared to past assessments (systematically revised to reflect adjustments in the power sector), investment appears to be on the rise again. However, capital requirements have mostly been driven by unrelenting escalating costs and a catch-up effect. The latter is particularly evident in the power sector, since responding to unmet electricity demand has now been considered as socially and politically more desirable.

Whatever the case, a little more than three-quarters of energy capital investment is located in seven countries among MENA’s largest holders of oil and gas reserves.

Obviously, the geographical pattern has favoured countries that have been relatively shielded from the turmoil. Otherwise, investments will most likely be back-ended.

The review has also highlighted serious constraints and policy challenges. In addition to the deteriorating investment climate which forms the background of the review, three issues continue to confront investors: rising costs, scarcity of ethane and natural gas supply, and funding limitations. Of the three, the latter is the most critical. Given the structure of capital investment stemming from the review, internal financing could only be secured if oil prices remain above OPEC’s fiscal break-even price, which we have estimated at around $100/bbl. In contrast, external financing, which comes predominantly in the form of dollar-denominated syndicated loans, is likely to be daunting due to dwindling lending resources.

Faced with more pressing social demands, MENA governments may not be able to bridge the funding gap. Going forward, policy makers in the region should focus their commitment on improving the investment climate and restoring investors’ confidence. This is particularly the case of the so-called ‘Arab Spring’ countries, which can hardly do so without support during their likely protracted and difficult transition.

Figure 10: Evolution of loans to MENA Energy Sector

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APICORP Research. Using Dealogic database.

APICORP 19

APICORP Activities in 2012

PROjECT AND TRADE FINANCE

Lending ActivityThe early signs of a slow recovery in project finance activity in the Gulf region during 2011 were confirmed in 2012, while in North Africa and the Levant, activity remained flat.

Overall, sponsors and developers continued to be cautious due to the prevailing economic and political environment with its lack of visibility. Furthermore, the closing of landmark transactions has taken much longer than in the past, due mainly to the large variety of financing sources that need to be mobilised. Consequently, most of the project finance transactions launched by sponsors in the first half of 2012 were still in progress at the year-end.

In contrast, trade and commodity finance activity remained steady, with APICORP taking advantage of favourable market conditions to confirm its position as a major regional player in this business line. Despite a persistently difficult environment, the Corporation was able to secure mandates for arranging both project finance, and structured trade and commodity finance; and played a pivotal role in some of the transactions that were concluded during the year (see opposite page). Significantly, despite the political turbulence in several countries where the Corporation is active, the performance of the loan portfolio remained excellent, with no delinquent loans being reported.

New ProductsThe year was also marked by the launch of new products. In the last quarter of 2012, APICORP started to offer a complete suite of trade finance products and services, including the issuance of letters of credit and SBLC/guarantees; and the handling of export letters of credit, including advising, negotiation and confirmation. Furthermore, in order to ensure the highest quality of service to its clients, the Corporation entered into a back office trade processing arrangement with JP Morgan. Following the launch of the APICORP Petroleum Shipping Fund, the Corporation introduced a new instrument in its range of asset-based financing products, namely residual value guarantees. The Corporation also broadened its range of structured trade finance products to include transactional financings, inventory financings, borrowing base facilities and prepayment facilities. These are in addition to arranging pre-export financings in which the Corporation has been involved for more than 10 years.

Financial AdvisoryThe year was marked by a scarcity of financial advisory opportunities due to the cautiousness of sponsors and developers. Accordingly, the Corporation was not able to secure financial advisory mandates in 2012, despite the close follow-up of several opportunities that failed to materialise.

Overall PerformanceIn 2012, the Corporation successfully maintained the growth of its loan portfolio that had resumed the previous year, following two years of stagnation. As at the end of 2012, net loan assets amounted to US$ 2.9 billion. Net income generated by project and trade finance activities reached an historical record of US$ 44.5 million, compared with US$ 30.75 million in 2011. To conclude, in an environment that remained very challenging, the Corporation confirmed its ability to increase profitability and preserve the high quality of its portfolio of loans, as well as offering new products to its clients.


APICORP’S MAIN PROjECT & TRADE FINANCE TRANSACTIONS IN 2012

CLIENT MAIN SPONSORS AMOUNT AND TyPE OF FACILITy

DATE OF SIGNING

PURPOSE APICORP ROLE

Ministry of Power, Energy and Mineral Resources

Government of Bangladesh

US 55 million Islamic Facility

April 2012 Import of Petroleum Products

Participant

Türkiye Petrol Rafinerileri A.S. (Tüpras)

Koc Group Shell US$ 120 million Islamic Facility

May 2012 Crude Oil Participant

Gulf International Services

Qatar Petroleum US$170 MM Islamic facility

May 2012 Acquisition purposes

Club Deal Lender

Gunvor Singapore Pte Ltd

Gunvor Group Limited

US 635 million Short Term Revolving Credit Facility

June 2012 Crude Oil and Petroleum Products

Mandated Lead Arranger

Egyptian Refinery Company

QPI; Citadel Capital; EGPC

US$ 472.5 million EIB Guarantee Facility

June 2012 Greenfield refinery project

Guarantor/Participant

Trafigura Privately owned company

US$ 400 million Borrowing Base Facility

Aug 2012 Crude Oil and Petroleum Products

Initial Mandated Lead Arranger

Mercuria Energy Trading Pte Ltd

Mercuria Energy Group Limited

US$ 700 million Short Term Revolving Credit Facility

Dec 2012 Crude Oil and Petroleum Products

Lead Arranger

APICORP Petroleum Shipping Fund

APICORP Tufton US$ 48 million Balloon payment guarantee

4Q 2012 MR Tankers Shipping Fund

Guarantor

Abu Dhabi National Energy Company PjSC (TAQA)

ADWEA US$2,500 million Medium Term Revolving Credit Facility

Dec 2012 General corporate purposes

Arranger

Socar Trading SA Supra Holding Limited

US$ 450 million Borrowing Base Facility

Dec 2012 Refined Products Club Deal lender

SAMIR Corral Morocco US$ 200 million Funded Risk Participation Agreement with Glencore in favour of Samir

Dec 2012 Crude Oil Underwriter & Bookrunner

Saudi Ethylene & Polyethylene Company (SEPC)

Tasnee; Sahara Petrochemical; GOSI.

SAR 4.8 billion Islamic Facility

Dec 2012 Refinancing of Project Finance Facilities

Initial Mandated Lead Arranger

APICORP 21

At the end of 2012, APICORP’s total direct equity investments comprised seven petrochemical companies, three oil and gas services companies, and one gas products company in five Arab countries, with a total book value of US$ 318 million. Four petrochemical and one gas products company are located in Egypt; while Saudi Arabia hosts IBN ZAHR, IBN RUSHD, and YANSAB petrochemical companies. Two companies engaged in seismic services and oil drilling are located in Libya; while the remaining two companies

are based in Iraq and Tunisia. The range of the products provided by these companies consists of LPG, methanol, ethylene glycol, polyethylene, polypropylene, methyl tertiary butyl ether (MTBE), aromatics (BTX), linear alkyl benzene (LAB), nitrogen fertilizers (ammonia and urea), and synthetic fibers (poly acrylic).

1. ARAB DRILLING & WORKOVER COMPANy (ADWOC)APICORP share: 20%

ADWOC was established in 1978 to provide drilling and related operation services in Libya and nearby Arab markets. During 2012, the Company continued its efforts in restoring the majority of its drilling and maintenance fleet. By the end of December, 13 rigs were operational, and all company-owned rigs are expected to be operational by mid-2013. ADWOC recorded a net profit of LD 3.4 million in 2012 against a net loss of LD 14 million the previous year.

2. ARAB COMPANy FOR DETERGENT CHEMICALS (ARADET)APICORP share: 32%

ARADET was established in 1981 to produce 50,000 tons/yr each of linear alkyl benzene (LAB) and sodium tripoly phosphate (STPP). The LAB complex at Baiji was successfully constructed and commissioned in 1987; however, the STPP project has not materialised. The LAB complex includes an aromatics line with a capacity of 30,000 tons/yr of benzene and toluene. In 2012, ARADET’s revenues from the sale of LAB and other by-products amounted to US$ 81.9 million (out of which 70% were LAB revenues). The Company achieved a net profit of US$ 4.2 million compared to US$ 7.9 million during 2011.

3. TANKAGE MéDITERRANéE (TANKMED)APICORP share: 20%

TANKMED was established in 1984 to provide storage services for petroleum products at La Skhira terminal in Tunisia. Total storage capacity stands at 475,000 cubic metres, and the company is in the process of starting commercial operations of its expansion project III (to add another 60,000 cubic metres). In 2012, revenues were TD 22.7 million against TD 17.79 million in 2011. TANKMED posted a net profit of around TD 11 million compared with around TD 9 million the previous year.

DIRECT EQUITy INVESTMENTS

A brief summary of each of direct equity investment’s performance and profitability in 2012 is provided below:



4. ARAB GEOPHySICAL EXPLORATION SERVICES COMPANy (AGESCO)APICORP share: 16.67%

AGESCO was established in 1985 to provide advanced seismic services in Libya and the Arab world. The Company’s seismic crew AG-03 resumed operations at the end of February 2012, while AG-02 resumed operations in May 2012. AGESCO recorded a net profit of LD 1.03 million in 2012 compared to net loss of LD 6.4 million in 2011.

5. THE SAUDI EUROPEAN PETROCHEMICAL COMPANy (IBN ZAHR)APICORP share: 10%

IBN ZAHR, established in 1985 in Jubail, has the capacity to produce 1.3 million tons/yr of methyl tertiary butyl ether (MTBE) – a gasoline octane booster, and 1.1 million tons/yr of polypropylene. During 2012, the Company produced 1.48 million tons of MTBE and 1.09 million tons of PP; and sold 1.48 million tons and 1.07 million tons, respectively. IBN ZAHR achieved a record net profit of US$ 850.5 million in 2012 compared to US$ 742.5 million the previous year.

6. THE ARABIAN INDUSTRIAL FIBERS COMPANy (IBN RUSHD)APICORP share: 3.45%

IBN RUSHD was established in 1993 at Yanbu, Saudi Arabia. Its integrated petrochemical complex comprises three plants for the production of aromatics (730,000 tons/yr), purified terephthalic acid (PTA - 350,000 tons/yr) and polyester (400,000 tons/yr). The Company’s expansion II project (to double PTA/PET production) is expected to be completed by the third quarter of 2013. As at end- December 2012, IBN RUSHD recorded a net loss of SR 556 million compared to SR 293 million in 2011.

7. ALEXANDRIA ACRyLIC FIBERS COMPANy (AFCO)APICORP share: 10%

AFCO was established in late 2003 in Egypt, to construct and own a poly acrylic fiber plant with a nameplate capacity of 18,000 tons/yr. Successfully commissioned in February 2006, the plant is currently in the process of being expanded to 54,000 tons/yr. Poly acrylic fibers are used mainly in the manufacture of carpets and blankets. During 2012, the Company produced and sold around 28 KMT of acrylic fibers. AFCO recorded net loss of US$ 9.64 million in 2012 compared to a marginal net profit of US$ 250,000 in 2011.

APICORP 23

8. yANBU NATIONAL PETROCHEMICAL COMPANy (yANSAB) APICORP share: 1.42%

YANSAB was established in early 2005 by SABIC with a paid up capital of SR 5,625 million. The Company is owned 55% by SABIC and 10% by SABIC’s partners in IBN RUSHD and TAIF, with the remaining shares being held by the general public. The complex is designed to produce 900,000 tons per year of low and high polyethylenes, 700,000 tons per year of ethylene glycols, 400,000 tons per year of polypropylene. YANSAB reported a net profit of SR 2.45 billion (around US$ 653 million) in 2012 compared to SR 3.17 billion the previous year.

9. EGyPTIAN METHANOL COMPANy (E-METHANEX) APICORP share: 7%

Methanex Corporation, Egyptian Petrochemicals Holding Company (ECHEM), Egyptian Natural Gas Holding Company (EGAS), Egyptian Natural Gas Company (GASCO) and APICORP established E-Methanex in 2006. The partners committed equity of US$ 215 million to build a US$ 1 billion methanol production facility in Damietta, Egypt, with a nameplate capacity of 1.26 million tons per year. In 2012, the company produced around 929 KMT of methanol and sold around 956 KMT. E-Methanex reported total revenues of US$ 280 million and net profits of US$ 44.1 million in 2012 compared to US$ 45.1 million during 2011.

10. MISR OIL PROCESSING COMPANy (MOPCO) APICORP share: 3.03%

In January 2009, MOPCO officially became the full owner of EAgrium, and its issued and paid up capital was doubled from LE 996 million to LE 1,992 million. As a result of this acquisition, APICORP’s share, which was previously 7% in EAgrium, was diluted to 3.03%. MOPCO successfully commissioned its first ammonia/urea plant (MOPCO 1) in Damietta with 400,000/635,000 t/pyr capacity in July 2008. After nearly 10 months of forced shutdown, MOPCO 1 resumed operations on August 25, 2012, and has since operated smoothly.

MOPCO’s expansion project (ex. EAgrium) consists of two identical and integrated plants (MOPCO 2&3), each with a capacity similar to MOPCO 1. Upon completion, the Company’s total capacity will increase to 1.2 million tons/yr and 1.9 million tons/yr of ammonia and urea, respectively. Expansion works at the site have been at a standstill since November 2011 due to some opposition from neighbouring communities, although the construction had reached 88% progress by then.

During 2012, the company produced 236 KMT of urea, with the majority being sold. MOPCO recorded a net profit of LE 238 million (c. US$ 38 million) compared to a net profit of LE 659 million in 2011.



11. EGyPTIAN BAHRAINI GAS DERIVATIVES COMPANy (EBGDCO)APICORP share: 20%

The Egyptian Natural Gas Holding Company (EGAS), Danagas of Bahrain and APICORP established EBGDCO in early 2007 in Egypt with a share capital of US$ 25 million. Following construction of a US$ 125 million facility at Ras Shakair for propane and butane recovery from 150 million cfd of associated natural gas feed, EBGDCO commenced pre-commercial operations on August 7, 2012. The company recorded total revenues of US$ 8.1 million and net loss of US$ 9.1 million at the end of the year.

12. APICORP SHIPPING FUNDEstablished by APICORP in 2012, APSF is the Corporation’s first investment fund, and also the first of its kind in the region. Capitalised at US$ 150 million with a Shariah-compliant structure, the Fund targets the specific category of medium-range petroleum products vessels. Five tankers have been acquired for employment in the regional and international tanker market for five years, in order to help meet the projected upsurge in demand for petroleum product carriers. The Fund is co-managed by Tufton Oceanic, a leading global fund manager in the maritime and energy-related industries.

NB: In line with its new strategy, which encourages exit from some of its investment portfolio companies and the recycling of the resulting profits in new investment opportunities, APICORP sold its share (14%) in Oriental Petrochemicals Company (OPC) to Carbon Holdings on November 21, 2012.

APICORP 25

COMPANy NAMEPAID-UP CAPITAL

PARTICI-PATION

OTHER MAjOR SHAREHOLDERS ACTIVITIES

Arab Drilling and Workover Company (ADWOC)Libya

LD 60million

20% Arab Petroleum Services Co. (APSC), LibyaFirst Energy Bank, Bahrain

Drilling and related operations in the Arab world.

Arab Company for Detergent Chemicals (ARADET)Iraq

ID 36 million

32% Government of the Republic of IraqGovernment of the KSAGovernment of the State of KuwaitArab Mining Company, AmmanThe Arab Investment Co., KSA

Production and marketing of linear alkyl benzene and the excess of intermediary products.

Tankage Mediterranee (TANKMED)Tunisia

TD 24million

20% I’Entreprise Tunisienne d’Activities Petrolieres (ETAP), TunisiaNational Oil Distribution Company (SNDP)Societe Tuniso Seoudienne d’Investissement et de Développement (STUSID)Banque Tunisio-Koweitienne de Développement (BTKD)

Storing, trans-shipping and handling petroleum and petrochemical products at La Skhirra terminal.

Arab Geophysical Exploration Services Company (AGESCO)Libya

LD 19 million

16.67% Arab Petroleum Services Co. (APSC), LibyaNational Oil Co., Libya

Providing advanced seismic services in the Arab world.

Saudi European Petrochemical Company (IBN ZAHR)Saudi Arabia

SR 1,025 million

10% Saudi Basic Industries Corp. (SABIC), KSAEcofuel, Italy

Production of gasoline octane booster MTBE and PP.

The Arabian Industrial Fibers Company (IBN RUSHD)Saudi Arabia

SR 8,510 million

3.45% Saudi Basic Industries Corp. (SABIC), KSAPublic Investments Fund, KSAGIC, KuwaitSaudi Pharmaceuticals Co., KSASAFCO, KSAOther Institutions

Production and marketing of aromatics, PTA and polyester fibers.

Alexandria Fiber Company(AFCO)Egypt

US$ 48.2 million

10% Alexandria Carbon Black Company, EgyptThai Carbon Black Public Company Ltd., ThailandThai Rayon Public Company Ltd., ThailandThai Acrylic Fiber Public Company Ltd., ThailandSidikerir Petrochemicals Company, EgyptSaudi Egyptian Industrial Investment Company, Egypt

Production and marketing of acrylic fibers

APICORP’s EQUITY PARTICIPATIONSas of 31 December 2011


Note: * MOPCO expansion (II and III) still under construction ** Pre-commercial operations started on August 07, 2012

COMPANy NAMEPAID-UP CAPITAL

PARTICI-PATION

OTHER MAjOR SHAREHOLDERS ACTIVITIES

yanbu National Petrochemical Company (yANSAB), Saudi Arabia

SR 5,625 million

1.42% Saudi Basic Industries Corp. (SABIC), Saudi ArabiaSABIC Partners in Ibn Rushd and Taif Saudi PublicOther institutions and individuals

Production and marketing of PE, EG, PP and other by-products

Egyptian Methanex Methanol Company (EMethanex), Egypt

US$ 215million

7% Methanex Corporation, CanadaEgyptian Petrochemicals Holding Company (Echem), EgyptEgyptian Natural Gas Holding Company (Egas), EgyptEgyptian Natural Gas Company (GASCO), Egypt

Production and marketing of methanol

Misr Oil Processing Company (MOPCO)*Egypt

LE 1,992million

3.03% Egyptian Petrochemicals Holding Company (Echem), EgyptAgrium, CanadaNational Investments Bank, EgyptEgyptian Natural Gas Holding Company (Egas), EgyptEgyptian Natural Gas Company (GASCO), EgyptOther institutions and individuals

Production and marketing of ammonia and urea

The Egyptian Bahraini Gas Derivative Company (EBGDCO)**Egypt

US $ 25 million

20% The Egyptian Natural Gas Holding Company (Egas), EgyptDanagas, Bahrain

Recovery and marketing of propane and butane

APICORP 27

TREASURy & CAPITAL MARKETS

The year 2012 continued to be another challenging period for the global financial sector with a continuation of the unresolved issues of 2011. These include the Eurozone sovereign debt crisis; the US debt ceiling; fiscal austerity in developed world and its drag on global growth; the inability of developed markets to address high unemployment rates; the slow-down in emerging economies including China; and instability in the Middle East and Africa. Such issues caused frequent volatilities in the financial markets across the globe, and troubled the fragile global banking system.

APICORP’s strategy during 2012 was focused on prioritising liquidity management and minimising funding risks. In its endeavour to increase its medium-term funding, the Corporation concluded its first-ever Shariah-compliant SAR 2.5 billion (US$ 667 million) three-year syndicated Murabaha loan financing in January 2012, arranged by a number of leading Saudi banks. In addition, APICORP concluded two additional five-year Shariah-compilant Murabaha term loans amounting to SAR 940 million (US$ 250 million) during May and July 2012. A US$400 million term loan that matured in May 2012 was repaid. As at 31 December 2012, the Corporation’s medium-term borrowings, including outstanding bonds of SAR 2 billion (US$ 530 million) maturing in 2015, stood at US$ 1,437 million.

Treasury & Capital Markets assets continued to grow. As at 31 December 2012, total assets were US$ 1,709 million compared to US$ 1,456 million at the end of the previous year. APICORP’s liquidity, as measured by cash and placements, amounted to a comfortable US$ 756 million at the year-end against US$ 662 million as at 31 December 2011. Total market value of investments in the fixed income securities portfolio at the end of 2012 amounted to US$ 953 million compared with US$ 794 million as at 31 December 2011; and continues to be focused on strong credits, with an average portfolio rating of A+. During 2012, Treasury & Capital Markets achieved a higher gross income than the previous year. Total income increased to US$ 32.9 million against US$ 26.9 million for 2011.

The foreign branch of APICORP which started its operations as an investment bank in Bahrain during last quarter of 2006, continues to complement all the Treasury & Capital Markets activities of APICORP’s Head Office. The Corporation continues to place emphasis on further expanding and diversifying its funding base, which is vital for financing core activities and maintaining sufficient liquidity levels.


THE DEPARTMENT OF ECONOMICS & RESEARCH

The Economics & Research Department is dedicated to the study of economic and policy issues relevant to APICORP’s growth and diversification strategy. To address and discuss these issues, the Department continued to focus on three separate but interdependent areas in 2012:

1. The scanning of the Corporation’s business environment and trends in the context of the lagged global financial crisis, highlighting impacts on the money, credit and energy markets

2. The recalibration, in the wake of the so-called ‘Arab Spring’ and the turmoil it has created, of the key attributes of APICORP’s in-house “perceptual mapping” of the energy investment climate in the Arab (MENA) world

3. The extension of the review of the Arab (MENA) energy investment outlook to incorporate the full scope and scale of the power sector

APICORP has earned a widespread reputation for the quality of its economic research and policy analysis. The Corporation’s annual Review of Energy Investments in the Arab/MENA world has become a trusted source of analysis and insight in the field. Publication of the review, year after year, has made trend studies possible, thus offering a useful tool for policy analysis.At the same time, the timely and broad dissemination of APICORP’s research findings through its monthly Economic Commentary (see Box), has consistently added value to the region’s economic and energy policy debate. In addition, growing uptake of the Corporation’s research through numerous presentations of findings in international forums has helped shape and influence some of the key policy issues that are relevant to APICORP’s shareholders.


2012 Issues of APICORP’s Economic CommentaryAll issues have been wrapped up in a single eBinder on www.apicorp-arabia.com/Research/Commentaries/EC_2012_Binder.pdf

• ‘APICORP’s Review of MENA Energy Investment: Sustained Outlook despite Lingering Uncertainty’, January 2012.

• ‘ IEA’s World Energy Outlook: Review and Discussion of MENA Deferred Investment Case’, February 2012.• ‘MENA Energy Investment in a Global Setting Assessment and Implications for Policy and Long-term Planning’,

March 2012.• ‘ MENA Power Reassessed: Growth Potential, Investment and Policy Challenges’, April-May 2012.• ‘Is the Anticipated Rise in Long-term Oil Price Inevitable?’, June 2012.• ‘Global Trends in Renewable Energy Investment: A Review of the Frankfurt School-UNEP’s Report and Discussion

of the MENA Case’, July 2012.• ‘Fiscal Break-even Prices Revisited: What More Could They Tell Us About OPEC Policy Intent?’, August –September

2012. • ‘MENA Energy Investment Outlook: Capturing the Full Scope and Scale of the Power Sector’, October 2012.• ‘Strait of Hormuz: Alternate Oil Routes Not Enough’, November 2012.• ‘MENA Natural Gas Endowment Is Likely To Be Much Greater Than Commonly Assumed’, December 2012.

CONFERENCES AND SEMINAR 2012

Effective Negotiations: Strategies and Tactics A training seminar for APICORP staff was held at the Corporation’s Head Office in Khobar, Saudi Arabia, on 21-22 February 2012. It was conducted by Professor Joseph Harbaugh, a legal expert and Ex-Dean of the School of Law at Northeastern State University, USA.

Energy Institute of Iraq Visit to APICORPIn response to an invitation by APICORP, a delegation from the Iraq Energy Institute visited the Corporation’s Bahrain Banking Branch on 4 March 2012. The purpose of the visit was to identify investment opportunities in the oil and energy projects that the Iraqi Government is planning to implement, and APICORP’s participation in such projects. The delegation gave a presentation on the future of the oil, gas and energy industries in Iraq.

The Arab Energy Club, DubaiAPICORP participated in this year’s Arab Energy Club sessions held in Dubai, UAE on 8 January 2012. The Club brainstormed on economic diversification in relation to the petroleum industry, with a focus on human capital development, local content creation, and the incentive structure needed to move away from rent-seeking to value-adding manufacturing.

Brookings Doha Energy ForumAPICORP participated in the winter meeting of the Arab Energy Club which was organised and hosted by the Brookings Doha Centre on 20-21 February 2012. The theme was ‘At the energy fault-line: what shifts in global economics and local politics mean for Middle East suppliers and their customers’.

The 13th International Energy Forum, KuwaitAPICORP participated in the 13th International Energy Forum, arranged by the State of Kuwait on 13-14 March 2012. As part of the work of the Energy Investment Committee, which was chaired by Prince Abdul-Aziz Bin Salam Bin Abdul-Aziz, Assistant Minister of Petroleum and National Resources, Kingdom of Saudi Arabia, APICORP presented a paper under the theme ‘Meeting Future Energy Demand: Planning and Investment for the Long-term’.

APICORP 29

CONFERENCES AND SEMINAR 2012 (continued)

Money and Ships – Finance and Investment in the International Shipping Market SeminarIn coordination with Tufton Oceanic (Middle East), APICORP arranged a seminar on ‘Money and Ships’ on 18-19 March 2012. This addressed the underlying context of the international shipping and oil services industry; and its different sectors and sub-sectors most relevant to the GCC region. In addition to the introduction to shipping and its historical context, the seminar also discussed the commercial/operational context of industry participants; legal and commercial structures typical in the industry; and sources of financing for the industry. The seminar also reviewed the shipping market outlook, and the overall investment opportunity in shipping; while providing specific transaction analysis based on debt and equity finance case studies.

KPMG Second Annual Energy ConferenceAPICORP participated in the KPMG Annual Energy Conference, held in Abu Dhabi, UAE on 16 October 2012 under the title ‘The Role of Energy Companies in Decision-Making in the Light of Uncertainty in the Region’.

GPCA Annual Forum Represented by a delegation led by the Chief Executive & General Manager, APICORP participated in the 7th Annual GPCA Forum organized by the Gulf Petrochemicals and Chemicals Association (GPCA), under the theme ‘Sustaining Competitiveness in a Rapidly Changing World’. The Forum took place in Dubai, UAE on 27-29 November 2012.

Abu Dhabi International Petroleum Exhibition & Conference (ADIPEC)APICORP participated in the 15th edition of the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC), which took place in Abu Dhabi, UAE on 11-14 November 2012, arranged by Abu Dhabi National Oil Company (ADNOC) and the Ministry of Energy in UAE. The theme for 2012 was ‘Meeting Increasing Oil and Gas Demand Through Innovation’.

APICORP Forum – The Transformation of the Global Energy SystemAt the Corporation’s head office in Khobar on 26 June 2012, APICORP held a Forum on the Shifts of the Global Energy System. It was presented by Professor Eicke R. Weber of the Frauhofer Institute for Solar Energy Systems ISE, Germany. The forum covered a number of aspects, including the future of the availability and sustainability of energy; the role of technology in the abundance of solar energy; the utilisation of other alternative energy systems; and the possibility of

energy storage. The Seminar was attended by a number of the Corporation’s senior employees.

Research and Economic Studies Volume # VIIAPICORP issued Volume VII of the Research and Economic Studies reports that contained the 12 monthly reports generated by the Corporation during the year.

The Oxford Energy ForumAPICORP participated in the Oxford Energy Policy Club as a member, where the following topics were discussed: • Oil Market Dynamics: is it the end of the supercycle?• Divergence in Global Gas Prices: what are the causes

and implications?• Iraq’s Energy Policy: how close is the country to

achieving its output targets?

Euromoney Annual Conference – Stability, Growth and jobsAPICORP attended, as an invited panellist, Euromoney’s Saudi Arabia Conference in Riyadh, on 22-23 May 2012. The Conference started with a keynote speech by Saudi policymakers (finance, economy and labour). Debated topics included the global economic and oil market issues; further reforms of the local capital market; housing policies and programmes; and how to address the employment gap among the younger generation of Saudis.

APICORP 2012 Symposium The APICORP 2012 Symposium is the first in a series of public events to be organised by the Corporation. The Symposium took place on 30 May 2012 in Manama, Bahrain, under the title ‘MENA Energy Investment in a Global Setting: Determinants and Policy Implications of Shifting Dynamics’. The event commenced with an opening speech by APICORP’s Chief Executive and General Manager, Mr. Ahmad Al-Nuaimi; and was moderated by Dr. Walid Khaddur, a Consultant at MEES. The main three topics of the Symposium started with an overview of oil demand/supply, shifting balances, and forecast on oil pricing, by Mr. Roberto Sieber, Chief Economist at Hess Corporation. The second topic was on the politics of oil, focusing primarily on the GCC, delivered by Mr. Bill-Farren Price, CEO at Petroleum Policy Intelligence. The third presentation, which was given by Mr. Ali Aissaoui, Senior Economic Consultant at APICORP, provided forecasts on energy investments in MENA for the coming five years, with the bulk of the presentation focused on the GCC.



Independent auditors’ report to the shareholders 32

Consolidated Financial statements Consolidated statement of financial position 33Consolidated statement of income 34Consolidated statement of comprehensive income 35Consolidated statement of changes in equity 36-37Consolidated statement of cash flows 38The formation status & activities of APICORP 39

Significant accounting policies 40-49

Notes to the consolidated financial statements 50-78

Consolidated Financial Statementsfor the year ended 31 December 2012

APICORP 31

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERSArab Petroleum Investments Corporation, Dammam, Saudi Arabia9 March 2013

REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTSWe have audited the accompanying consolidated financial statements of Arab Petroleum Investments Corporation (the “Corporation”) and its subsidiaries (together the “Group”), which comprise the consolidated statement of financial position as at 31 December 2012, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

RESPONSIBILITy OF THE MANAGEMENT AND BOARD OF DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTSThe management and the board of directors of the Corporation are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as the management and the board of directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITORS’ RESPONSIBILITyOur 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 misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Corporation’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, 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 present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2012, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

KPMG FakhroAudit5th Floor, Chamber of Commerce BuildingPO Box 710, ManamaKingdom of Bahrain

CR No. 6220Tel +973 17 224807Fax +973 17 227443Web www.kpmg.com.bh


APICORP 33

Consolidated Statement of Financial Positionas at 31 December 2012

Note 2012 2011ASSETS

Cash and cash equivalents 17,326 18,104Placements with banks 1 792,147 643,613Trading securities 2 41 53Available-for-sale securities 3 952,129 794,438Available-for-sale direct equity investments 4 318,002 324,284Syndicated and direct loans 5 2,897,046 2,803,489Property and equipment and vessels 6 71,470 26,832Other assets 7 29,414 18,691 TOTALASSETS 5,077,575 4,629,504

LIABILITIESANDEQUITYLIABILITIES Deposits from banks 8 692,819 663,515Deposits from corporates 1,057,429 1,214,068Deposits from shareholders 104,476 103,426Securities sold under agreement to repurchase 354,603 437,777Other liabilities 9 80,732 60,568Bank term financing 10 946,274 399,867Bonds issued 11 532,010 531,498 Totalliabilities 3,768,343 3,410,719

EQUITY Share capital 23 750,000 750,000Legal reserve 151,100 140,100General reserve 96,495 46,641Available-for-sale investments fair value reserve 212,513 187,190Retained earnings 97,931 94,854TotalequityattributabletoshareholdersoftheCorporation 1,308,039 1,218,785Non-controllinginterest 1,193 -

Totalequity(page36) 1,309,232 1,218,785

TOTALLIABILITIESANDEQUITY 5,077,575 4,629,504

OFF-BALANCESHEETEXPOSURES 12 536,089 409,966

The consolidated financial statements, which consist of pages 33 to 78, were approved by the Board of Directors on 9 March 2013 and signed on its behalf by:

Dr.AabedAl-Saadoun AhmadBinHamadAlNuaimi Chairman Chief Executive and General Manager

(US$000)


Consolidated Statement of Incomefor the year ended 31 December 2012

Note 2012 2011

Interest income 104,729 77,500Interest expense (64,523) (50,298)

Netinterestincome 14 40,206 27,202

Net fee income 15 1,076 1,224Dividend income 16 74,474 100,453Loss on trading securities 17 (12) (8)Gain on sale of available-for-sale portfolio 18 11,372 26,886Other income 21 4,120 2,848

Totalincome 131,236 158,605

Operating expenses 19 (30,857) (31,514)Impairment reversals/ (charge) 20 8,512 (21,737)

PROFITFORTHEYEAR 108,891 105,354

Profit for the year attributable to:Shareholders of the Corporation 108,931 -Non-controlling interest (40) -

108,891 -

Pershareinformation 23 Basic and diluted earnings per share US$145 US$158Net asset value per share US$1,744 US$ 1,625

(US$000)

The financial statements consist of pages 33 to 78.

APICORP 35

2012 2011 Profitfortheyear 108,891 105,354 Othercomprehensiveincome

Transferred to statement of income on sale of available-for-sale securities (2,680) (259) Transferred to statement of income on sale of available-for-sale direct equity investment (8,080) (10,542)Net change in fair value of available-for-sale securities 29,064 (8,236)Change in fair value of available-for-sale direct equity investments 7,019 (8,510)

Totalothercomprehensiveincomefortheyear 25,323 (27,547) Totalcomprehensiveincomefortheyear 134,214 77,807

Totalcomprehensiveincomefortheyearattributableto:Shareholders of the Corporation 134,254 -Non-controlling interest (40) -

134,214 -

Consolidated Statement of Comprehensive Incomefor the year ended 31 December 2012 (US$000)


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Consolidated Statement of Cash Flowsfor the year ended 31 December 2012

2012 2011OPERATINGACTIVITIES

Interest received 99,254 112,077Interest paid (55,553) (49,630)New placements with banks (148,534) (203,740)Drawdowns of syndicated and direct loans (3,609,869) (2,424,463)Repayments of syndicated and direct loans 3,487,176 2,130,652Fees received 1,409 1,421Fees paid (333) (197)Operating expenses paid (15,649) (25,781)Other income received 5,007 1,465Other receipts 17,783 8,560

Netcashusedinoperatingactivities (219,309) (449,636)

INVESTINGACTIVITIES Proceeds from sale of available-for-sale securities 54,997 466,575Purchase of available-for-sale securities (183,645) (354,437)Purchase of available-for-sale direct equity investments - (3,360)Dividends received 74,474 100,453Proceeds from sale of available-for-sale direct equity investments 12,998 30,000Purchase of property, equipment and vessels (47,537) (458)

Netcash(usedin)/generatedfrominvestingactivities (88,713) 238,773

FINANCINGACTIVITIES Proceeds /(repayment) of deposits from banks 29,304 (106,870)(Repayment)/proceeds of deposits from corporates (156,639) 409,807Proceeds/(repayments) from deposits from shareholders 1,050 (118,850)(Repayment)/proceeds from securities sold under agreement to repurchase (83,174) 29,488Repayment of term financing (400,000) -Proceeds from Bank term financing (net) 944,603 -Dividend paid (27,900)

Netcashgeneratedfromfinancingactivities 307,244 213,575

Net (decrease)/increase in cash and cash equivalents for the year (778) 2,712Cash and cash equivalents at beginning of the year 18,104 15,392

Cashandcashequivalentsat31December 17,326 18,104

(US$000)


APICORP 39

Arab Petroleum Investments Corporation (“APICORP” or the “Corporation”) is an Arab joint stock company established on 23 November 1975 in accordance with an international agreement signed and ratified by the ten member states of the Organization of Arab Petroleum Exporting Countries (OAPEC). The agreement defines the objectives of the Corporation as:

− participation in financing petroleum projects and industries, and in fields of activity which are derived there from, ancillary to, associated with, or complementary to such projects and industries; and

− giving priority to Arab joint ventures which benefit the member states and enhance their capabilities to utilise their petroleum resources and to invest their funds to strengthen their economic and financial development and potential.

DomicileandtaxationThe Corporation is an international entity, and operates from its registered head office in Dammam, Kingdom of Saudi Arabia. The establishing agreement states that APICORP is exempt from taxation in respect of its operations in the member states.

SharecapitalThe Corporation’s authorised capital is US $ 2,400 million, subscribed capital US $ 1,500 million and issued & paid up capital is US $ 750 million, whereas the remainder of US $ 750 million is callable capital.

The capital is denominated in shares of US$ 1,000 and is owned by the governments of the ten OAPEC states as follows:

US$ 000

Authorisedcapital

Subscribedcapital

Issuedandfullypaid

Callablecapital

Percentage

United Arab Emirates 408,000 255,000 127,500 127,500 17%

Kingdom of Bahrain 72,000 45,000 22,500 22,500 3%

Democratic and Popular Republic of Algeria 120,000 75,000 37,500 37,500 5%

Kingdom of Saudi Arabia 408,000 255,000 127,500 127,500 17%

Syrian Arab Republic 72,000 45,000 22,500 22,500 3%

Republic of Iraq 240,000 150,000 75,000 75,000 10%

State of Qatar 240,000 150,000 75,000 75,000 10%

State of Kuwait 408,000 255,000 127,500 127,500 17%

Socialist Peoples’ Libyan Arab Jamahiriya 360,000 225,000 112,500 112,500 15%

Arab Republic of Egypt 72,000 45,000 22,500 22,500 3%

2,400,000 1,500,000 750,000 750,000 100%ActivitiesAPICORP is independent in its administration and the performance of its activities, and operates on a commercial basis with the intention of generating net income. It operates from its registered head office in Dammam, Kingdom of Saudi Arabia and its Banking Unit in Manama, Kingdom of Bahrain.

Currently the Corporation’s project-financing activities take the form of loans, direct equity investments in projects and in an open-ended fund. These activities are funded by shareholders’ equity, medium-bank term financing, deposits from government, corporate and short-term deposits from banks.

The Corporation has set up the APICORP Petroleum Shipping Fund Limited, a 5 year open-ended fund. The Fund is established for the purposes of investment in a series of IMO II/III MR Tankers (“commercial marine vessels”), the Fund has a 100% subsidiary the ‘Charter Company’, a special purpose vehicle to act as a conduit for leasing of ships and has also set up 100% special purpose entities (SPEs) to own the vessels for the beneficial interest of the Fund.

REPORTING ENTITY


Significant Accounting Policies

AGENERAL

A-1StatementofcomplianceThe consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).

The principal accounting policies applied in the preparation of these consolidated financial statements have been consistently applied to all the presented years, unless otherwise stated.

A-2BasisofpreparationThe consolidated financial statements have been prepared on the historical cost convention except for the measurement at fair value of trading securities, available-for-sale securities, certain available-for-sale direct equity investments and derivative financial instruments.

The consolidated financial statements include the financial statements of APICORP and its subsidiaries (together the “Group”).

The Group’s functional and presentation currency is United States dollars (US $) because it is a supranational organisation with its capital and the majority of its transactions and assets denominated in that currency.

The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the notes K and L.

i.BasisofConsolidation

a)Subsidiaries Subsidiaries are those enterprises (including special purpose entities) controlled by the Corporation. Control exists

when the Corporation has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Subsidiaries are consolidated from the date on which control is transferred to the Corporation and de-consolidated from the date that control ceases.

Special purpose entities (SPEs) are entities that are created to accomplish a narrow and well-defined objective such as the acquisition of shipping vessels and the execution of a specific borrowing or investment transaction. An SPE is consolidated if, based on an evaluation of the substance of its relationship with the Corporation the risks and rewards transferred by the SPE, the Corporation concludes that it controls the SPE. The assessment of whether the Corporation has control over an SPE is carried out at inception and normally no further reassessment of control is carried out in the absence of changes in the structure or terms of the SPE, or additional transactions between the Corporation and the SPE.

Where the Corporation’s voluntary actions, such as lending amounts in excess of existing liquidity facilities or extending terms beyond those established originally, change the relationship between the Corporation and an SPE, the Corporation performs a reassessment of control over the SPE.

b)Transactionseliminatedonconsolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated

in preparing the consolidated financial statements. Unrealised losses are also eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Accounting policies of the subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Corporation.

APICORP 41

A-2Basisofpreparation(continued)

ii.Newstandards,amendmentsandinterpretationseffectivefrom1January2012

The following standards, amendments and interpretations, which became effective as of 1 January 2012, are relevant to the Group:

a)IFRS7(amendment)–Disclosures:Transferoffinancialassets The amendments to IFRS 7 introduce new disclosure requirements about transfers of financial assets including

disclosures for financial assets that are not derecognised in their entirety; and financial assets that are derecognised in their entirety but for which the entity retains continuing involvement.

The adoption of this amendment had no significant impact on the consolidated financial statements.

iii.Newstandards,amendmentsandinterpretationsissuedbutnotyeteffective

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2013, and have not been applied in preparing these consolidated financial statements. Those which are relevant to the Group are set out below. The Group does not plan to early adopt these standards.

a)IAS28(2011)–InvestmentinAssociatesandJointventures IAS 28 (2011) supersedes IAS 28 (2008). IAS 28 (2011) makes the following amendments;

• Associates held for sale: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. For any retained portion of the investment that has not been classified as held for sale, the entity applies the equity method until disposal of the portion held for sale. After disposal, any retained interest is accounted for using the equity method if the retained interest continues to be an associate or a joint venture, and

• On cessation of significant influence or joint control, even if an investment in an associate becomes an investment in a joint venture or vice versa, the entity does not re-measure the retained interest.

The standard is effective for annual periods beginning on or after 1 January 2013 and is applied retrospectively.

The Group is not expecting a significant impact from the adoption of this amendment.

b)AmendmentstoIFRS7andIAS32onoffsettingfinancialassetsandfinancialliabilities(2011) Disclosures – Offsetting Financial Assets and Financial Liabilities (amendments to IFRS 7) introduces disclosures about

the impact of netting arrangements on an entity’s financial position. The amendments are effective for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods. Based on the new disclosure requirements the Group will have to provide information about what amounts have been offset in the statement of financial position and the nature and extent of rights of set off under master netting arrangements or similar arrangements.

Offsetting Financial Assets and Financial Liabilities (amendments to IAS 32) clarify the offsetting criteria IAS 32 by explaining when an entity currently has a legally enforceable right to set off and when gross settlement is equivalent to net settlement. The amendments are effective for annual periods beginning on or after 1 January 2014 and interim periods within those annual periods. Earlier application is permitted.

The Group is not expecting a significant impact from the adoption of these amendments.

c)IFRS9-FinancialInstruments IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. IFRS 9 (2010)

introduces additions to the standard relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and hedge accounting.

Significant Accounting Policies (Continued)




The IFRS 9 (2009) requirements represent a significant change from the existing requirements in IAS 39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of held to maturity, available-for-sale and loans and receivables.

For an investment in an equity instrument which is not held for trading, the standard permits an irrevocable election, on initial recognition, on an individual share-by-share basis, to present all fair value changes from the investment in other comprehensive income. No amount recognised in other comprehensive income would ever be reclassified to statement of income at a later date. However, dividends on such investments are recognised in statement of income, rather than other comprehensive income unless they clearly represent a partial recovery of the cost of the investment. Investments in equity instruments in respect of which an entity does not elect to present fair value changes in other comprehensive income would be measured at fair value with changes in fair value recognised in statement of income.

The standard requires that derivatives embedded in contracts with a host that is a financial asset within the scope of the standard are not separated; instead the hybrid financial instrument is assessed in its entirety as to whether it should be measured at amortised cost or fair value.

IFRS 9 (2010) introduces a new requirement in respect of financial liabilities designated under the fair value option to generally present fair value changes that are attributable to the liability’s credit risk in other comprehensive income rather than in statement of income. Apart from this change, IFRS 9 (2010) largely carries forward without substantive amendment the guidance on classification and measurement of financial liabilities from IAS 39.

IFRS 9 is effective for annual periods beginning on or after 1 January 2015 with early adoption permitted. The IASB decided to consider making limited amendments to IFRS 9 to address practice and other issues. The Group has commenced the process of evaluating the potential effect of this standard but is awaiting finalisation of the limited amendments before the evaluation can be completed.

Given the nature of the Group’s operations, this standard is expected to have a significant impact on the Group’s

consolidated financial statements.

d)IFRS10-ConsolidatedfinancialstatementsandIAS27SeparateFinancialStatements(2011) IFRS 10 introduces a single control model to determine whether an investee should be consolidated. As a result, the

Group may need to change its consolidation conclusion in respect of its investees, which may lead to changes in the current accounting for these investees. The standard is effective for annual periods beginning on or after 1 January 2013.

The IASB published Investment Entities (Amendments to IFRS 10 and IFRS 12), which grants certain relief from consolidation to investment entities. It requires qualifying investment entities to account for investment in controlled investees on a fair value basis. The effective date is annual periods beginning on or after 1 January 2014, but early adoption is permitted to enable alignment with the adoption of IFRS 10.

e)IFRS12-Disclosuresofinterestsinotherentities IFRS 12 brings together into a single standard all the disclosure requirements about an entity’s interests in subsidiaries,

joint arrangements, associates and unconsolidated structured entities. It requires the disclosure of information about the nature, risks and financial effects of these interests.

The standard is effective for annual periods beginning on or after 1 January 2013. The Group is currently assessing the disclosure requirements for interests in subsidiaries and unconsolidated unstructured entities in comparison with existing disclosures.

APICORP 43


f) IFRS13-Fairvaluemeasurement IFRS 13 provides a single source of guidance on how fair value is measured, and replaces the fair value measurement

guidance that is currently dispersed throughout IFRS. Subject to limited exceptions, IFRS 13 is applied when fair value measurements or disclosures are required or permitted by other IFRSs. Although many of the IFRS 13 disclosure requirements regarding financial assets and financial liabilities are already required, the adoption of IFRS 13 will require the Group to provide additional disclosures. These include fair value hierarchy disclosures for non-financial assets/liabilities and disclosures on fair value measurements that are categorised in Level 3.

IFRS 13 is effective for annual periods beginning on or after 1 January 2013. The Group is currently reviewing its methodologies for determining fair values (see notes B-5 and I-3).

g)ImprovementstoIFRSs(2011) Improvements to IFRS issued in 2011 contained numerous amendments to IFRS that the IASB considers non-urgent but

necessary. ‘Improvements to IFRS’ comprise amendments that result in accounting changes to presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. The Group is not expecting a significant impact on the current accounting policies as a result of these amendments.

A-3ForeigncurrencytransactionsTransactions in currencies other than US dollars (foreign currencies) are translated at the exchange rates ruling at the date of the transaction. All monetary assets and liabilities, except trading equities (non-monetary), denominated in foreign currencies, are translated into US dollars at rates prevailing at the reporting date. Differences arising from changes in exchange rates are recognised in the statement of income.

Available-for-sale equity investments (non-monetary assets) denominated in foreign currencies that are stated at fair value are translated to US dollars at prevailing exchange rates. Differences arising from changes in rates are included in the fair value reserve in equity. All other non-monetary assets and liabilities are stated at the historical rates of exchange.

Share capital originally contributed in Saudi Riyals is maintained at the historical rates of exchange.

BFINANCIALASSETS

B-1ClassificationThe Group classifies financial assets to the following IAS 39 categories:

Trading securities are those that the Group acquires or incurs principally for the purpose of gains over the near-term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. These consist of listed equity securities.

Available-for-sale investments are non-derivative financial assets that are not classified as held for trading or loans provided by the Group or held to maturity. Available-for-sale investments include certain debt securities, equity securities and managed funds.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and the Group does not intend to sell immediately or in the near term.

B-2RecognitionAvailable-for-sale and held for trading financial assets are recognised on a trade date basis.

Loans are recognised on the day on which they are drawn down by the borrower.

B-3MeasurementFinancial assets are initially measured at fair value plus direct transaction costs except for financial assets held for trading where transaction costs are recognised in the statement of income.



B-3Measurement(continued)

Subsequent to initial recognition, all trading and available-for-sale investments are re-measured to fair value, except in case of certain unlisted available-for-sale direct equity investments, where a reliable measure of fair value is not available and hence are carried at cost less impairment allowances, if any. Loans are subsequently measured at amortised cost using the effective interest method, less allowance for impairment, if any. The unamortised portion of deferred participation and upfront fees received is deducted from the carrying values of the loans.

Gains and losses arising from a change in the fair value of trading securities and derivative instruments not designated as an accounting hedge are recognised in the statement of income in the period in which it arises. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in other comprehensive income and presented in a fair value reserve as a separate component of equity. When the assets are sold, collected or otherwise disposed of, or are impaired, the cumulative gain or loss previously recognised in other comprehensive income, and presented in the fair value reserve in equity, is transferred to the statement of income.

B-4AmortisationWhere financial assets, mainly bonds, have been purchased at a premium or a discount, the premiums and discounts are amortised, using the effective interest method, through the statement of income over the period from the date of purchase to the date of maturity.

B-5FairvaluemeasurementprinciplesFor financial assets traded in active markets, fair value is based on their quoted closing bid market prices or dealer price quotations at the reporting date without any deduction for transaction costs. For investments in managed funds, the net asset values quoted by the fund managers are considered representative of fair value of those investments.

B-6De-recognitionFinancial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the Group tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent derecognition).

B-7ImpairmentAll financial assets that are not carried at fair value through profit or loss are assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset or a group of financial association is impaired only if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that financial asset or group of financial assets that can be estimated reliably.

Assets carried at amortised cost

Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a borrower or an issuer will enter bankruptcy, the disappearance of an active market for a security.

The Group considers evidence of impairment, for loans and other financial assets carried at amortised cost, at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. All individually significant assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.


APICORP 45

B-7Impairment(continued)

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in statement of income and reflected in an allowance account against receivables. If an asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

Interest on the impaired asset continues to be recognised through the unwinding of the discount.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised in statement of income, then the impairment loss is reversed, with the amount of the reversal recognised in statement of income.

Assets classified as available-for-sale

In case of equity investment classified as available-for-sale, a significant or prolonged decline in the fair value of security below its cost is objective evidence of impairment.

Debt instruments, classified as available-for-sale, are considered as impaired, if objective evidence indicates that a loss event has occurred after the initial recognition of the instrument, and that the loss event had a negative effect on the estimated future cash flows of that instrument that can be estimated reliably.

If any such evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in statement of income, is removed from equity and recognised in the income statement. Impairment losses recognised in the statement of income on equity instruments are reversed directly through comprehensive income. For debt instruments classified as available-for-sale, if in a subsequent period, the fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in statement of income, the impairment loss is reversed through the statement of income.

CFINANCIALLIABILITIES

C-1InitialrecognitionandmeasurementThe Group has the following non-derivative financial liabilities: deposits from banks, deposits from corporates, deposits from shareholders, bank term financing, financing received under repurchase agreements for securities and bonds issued. Financial liabilities are initially recognized, on the trade date at which the Group becomes a part to the contractual provisions of the instrument, at fair value, representing the proceeds received net of premiums, discounts and transaction costs that are directly attributable to the financial liability.

Borrowing costs directly attributable to the acquisition of qualifying assets are capitalised as part of the cost of those assets. Other borrowing costs are recognised as an expense in the year in which they are incurred.

C-2SubsequentmeasurementAll financial liabilities are classified as non-trading liabilities and are measured at amortised cost using the effective interest rate method.

C-3DerecognitionFinancial liabilities are derecognised when the Group’s contractual obligations are discharged, cancelled or expire.

DCASHANDCASHEQUIVALENTSFor the purpose of the statement of cash flows, cash and cash equivalents comprise cash balances on hand and bank balances with original maturities of less than 3 months, which are subject to insignificant risk of fluctuation in its realisable value.



EREPURCHASEANDRESALEAGREEMENTSAssets sold with a simultaneous commitment to repurchase at a specified future date (repos) are not derecognised, as the Group retains all or substantially all the risks and rewards of the transferred assets. Amounts received under these agreements are treated as liabilities and the difference between the sale and repurchase price treated as interest expense using the effective interest method.

Assets purchased with a corresponding commitment to resell at a specified future date (reverse repos) are not recognised in the statement of financial position. Amounts paid under these agreements are treated as assets and the difference between the purchase and resale price treated as interest income using the effective interest method. FPROPERTY,EQUIPMENTANDVESSELS

F-1RecognitionandMeasurementItems of property, equipment and vessels are stated at cost less accumulated depreciation and impairment losses, if any. Where an item of property, equipment and vessels comprises significant components having different useful lives, these components are accounted for as separate items of property, equipment and vessels.

Any gain or loss on disposal of an item of property, equipment and vessels (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised within other income in the statement of income.

F-2SubsequentexpenditureExpenditure incurred subsequently to replace a major component of an item of property, equipment and vessels that is accounted for separately is capitalised. Other subsequent expenditure is capitalised only when it increases the future economic benefits expected to accrue from the item of property, equipment and vessels. All other expenditure, for example on maintenance and repairs, is expensed in the statement of income as incurred.

F-3DepreciationDepreciation is charged to the statement of income on a straight-line basis over the estimated useful lives of the items of property, equipment and vessels, and of the major components that are accounted for separately. Land is not depreciated.

The estimated useful lives of the Group’s property, equipment and vessels are as follows:• Head office building (civil works and other major components) 20 to 40 years• Head office building (finishes, systems and equipment) 5 to 20 years• Housing compound buildings (including new extension) 15 years • Housing compound equipment, furniture and fittings 5 to 10 years• Office furniture, equipment and computer hardware (and related software) 3 to 10 years• Commercial marine vessels 25 years from the date it was built• Office fit outs capitalized at Bahrain branch are depreciated over un-expired period of lease or 5 years, whichever is less.

The property, equipment and vessels residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. The effects of any revision of the residual value, useful life and depreciation method are included in statement of income for the year in which the changes arise

F-4Impairmentofnon-financialassetsThe carrying amounts of the non-financial assets are be reviewed for impairment (or reversal of impairment) at each reporting date, and whenever there is indication that the assets may have changed in value. If any such indications exist, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss or reversal of impairment loss (if any).

Recoverable amount is higher of fair value less costs to sell and value in use. If the recoverable amount of an asset is estimated to be less than its carrying value, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in statement of income.


APICORP 47

F-4Impairmentofnon-financialassets(continued)

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, although the increased carrying amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in statement of income.

GEMPLOYEES’ENDOFSERVICEBENEFITSThe Group provides end of service benefits to its employees. The entitlement to these benefits is based upon the employees’ final salary and length of service subject to the completion of a minimum service period. Provision for the unfunded commitment (which is a defined benefit scheme under IAS 19) has been made by calculating the liability, had all the employees left at the reporting date.

HINCOMERECOGNITION

H-1InterestincomeandexpensesInterest income and interest expense for all interest-bearing financial instruments are recognised within “interest income” and “interest expense” in the statement of income using the effective interest rate method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period). When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. Fees, including loan origination less any early redemption fees are included in the calculation of the effective interest rate to the extent that they are considered to be an integral part of the effective interest rate.

H-2DividendincomeDividend income is recognised in the statement of income when the Group’s right to receive payment is established.

H-3FeeincomeFee income arises from financial services provided by the Group including project and structured finance transactions, for example advising on underwriting and arranging syndicated loan facilities, and is recognised when the service is provided.

Fees that are analogous to interest and are considered to be part of the overall yield on loans, specifically participation and upfront fees are initially deferred and then amortised over the lives of the related loans. The amortised income is included in interest income.

H-4OtherincomeRent income is recognised in the statement of income on a time apportionment basis. Charter income is recognised on straight-line basis over the period of the contractual lease term. Call option premiums in the form of a flat fee shall be treated as an advance and amortized to income over the charter period.

IDERIVATIVEFINANCIALINSTRUMENTSDerivative financial instruments are contracts, the value of which is derived from one or more underlying financial instruments and include interest rate swaps and forward currency contracts. The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures.

The Group designates interest rate swaps (“hedging instruments”) as fair value hedges to hedge the interest rate risk on its fixed income securities (“hedged items”) classified as available-for-sale securities. On initial designation of the hedge, the Group formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent.



IDERIVATIVEFINANCIALINSTRUMENTS(continued)

Derivatives are recognised initially at fair value; attributable transaction costs are recognised in statement of income as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

I-1FairvaluehedgesWhen a derivative is designated as the hedging instrument in a hedge of the change in fair value of a recognised asset or liability or a firm commitment that could affect statement of income, changes in the fair value of the derivative are recognised immediately in statement of income together with changes in the fair value of the hedged item that are attributable to the hedged risk (in the same line item in the statement of income as the hedged item).

If the hedging derivative expires or is sold, terminated, or exercised, or the hedge no longer meets the criteria for fair value hedge accounting, or the hedge designation is revoked, hedge accounting is discontinued prospectively. Any adjustment up to that point to a hedged item for which the effective interest method is used, is amortised to statement of income as part of the recalculated effective interest rate of the item over its remaining life.

I-2Othernon-tradingderivativesWhen a derivative is not held for trading, and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in statement of income as a component of other income.

I-3FairvalueThe fair value of forward exchange contracts is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using Zero Coupon curve (based on LIBOR). The fair value of interest rate swaps is determined by discounting estimated future cash flows based on the terms and maturity of each contract and the same Zero Coupon curve at the measurement date. Fair values recognized reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group and counterparty when appropriate.

JFINANCIALGUARANTEEFinancial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee liabilities are recognised initially at their fair value, and the initial fair value is amortised over the life of the financial guarantee. The financial guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment when a payment under the guarantee has become probable.

KJUDGEMENTSIn the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognised in the consolidated financial statements:

K-1Impairmentofavailable-for-saleinvestmentsThe Group considers available for sale equity investments that are at fair value, as impaired, when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires considerable judgment. In addition, objective evidence for impairment may be deterioration in the financial health of the investee, industry and sector performance, changes in technology and operational and financing cash flows.

K-2OperatingleaseThe Group has entered into a bareboat charter hire agreement for its equipment. The management considers that not all significant risks and rewards incidental to ownership of the equipment have been transferred to the lessee at the


APICORP 49

K-2Operatinglease(continued)

inception, during or at the end of the charter hire agreement, and accordingly, has classified the lease of the equipment as an operating lease. In determining significant risks and rewards of ownership, the management considered, among others, the significance of the lease term as compared with the estimated useful life of the equipment as well as the attractiveness or otherwise of a purchase option given to the sub-bareboat charter.

K-3ResidualvalueofthecommercialmarinevesselThe depreciable amount of the commercial marine vessel comprises of the cost of the vessel less an estimated residual value. Industry steel price will be used to determine the residual value of the vessel as at each reporting date. Changes in industry steel price could impact the residual value of the vessel; thereby having an impact on the depreciation charge in subsequent reporting periods

LESTIMATIONUNCERTAINTYThe key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

L-1ImpairmentlossesonloansandadvancesThe Group reviews its loans portfolio at every reporting period to assess whether a provision for impairment should be recorded in the statement of income. In particular, considerable judgment by Group is required in the estimation of the amount and timing of future cash flows when determining the level of provisions required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may differ resulting in future changes to such provisions.

L-2CollectiveimpairmentprovisionsonloansandadvancesIn addition to specific provisions against individually significant loans and advances, the Group also makes a collective impairment provision against loans and advances which although not specifically identified as requiring a specific provision have a greater risk of default than when originally granted. The amount of the provision is based on the historical loss pattern for loans within each category and is adjusted to reflect current economic changes. The loans are categorised based on various credit risk characteristics of the loans.

MPROVISIONSThe Group recognizes a provision when it has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

NLEGALANDGENERALRESERVESUnder Article 35 of APICORP’s establishment agreement and statute, 10% of annual net income is to be transferred to a legal reserve until such reserve equals the paid up share capital. The legal reserve is not available for distribution.

Article 35 also permits the creation of other reserves such as a general reserve. The general reserve may be applied as is consistent with the objectives of the Group, and as may be resolved by the General Assembly, on the recommendation of the Board of Directors.

OOFFSETTINGFINANCIALINSTRUMENTSFinancial assets and liabilities are offset and the net amount reported in the statement of financial position where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

POPERATINGLEASESLeases, where substantially all risk and rewards incidental to ownership are retained by the owner are classified as operating lease. Rental income/expense from operating leases is recognised in statement of comprehensive income on a straight line basis over the lease period



Notes to the Financial Statementsfor the year ended 31 December 2012

1.PLACEMENTSWITHBANKS 2012 2011

With Islamic financial institutions 89,957 80,183With conventional financial institutions 428,733 370,287Reverse repurchase agreements 265,073 180,513Margin call accounts on securities sold under agreements to repurchase 8,384 12,630 792,147 643,613

Reverse repurchase agreements: The Group enters into collateralised placement transactions (Reverse repurchase agreements) in the ordinary course of its financing activities. At 31 December 2012, the fair value of securities that had been obtained as collateral under resale agreements was US$ 269,689 (2011: 187,834). These transactions are conducted under the terms that are usual and customary to standard securities lending and borrowings activities.

2.TRADINGSECURITIES 2012 2011 Listed equity 41 53

3.AVAILABLE-FOR-SALESECURITIES 2012 2011 Fixed-rate bonds 734,684 554,680Floating-rate bonds 158,611 188,086Structured notes 28,970 28,152Managed funds 8,407 10,171Listed equities 21,457 13,349

952,129 794,438

Movementonallowanceforimpairment: Balance at the beginning of the year 6,848 19,145Net reversal for the year (1,024) (206)Fair value changes 206 (2,091)Write off of impaired investments (5,000) (10,000) Balanceat31December 1,030 6,848

Securitiessoldunderagreementstorepurchase: The Group enters into collateralised borrowing transactions (repurchase agreements) in the ordinary course of its financing activities. Collateral is provided in the form of securities held within the available-for-sale portfolio. At 31 December 2012, the fair value of available-for-sale securities that had been pledged as collateral under repurchase agreements was US$ 393,981 (2011: US$ 498,878). These transactions are conducted under the terms that are usual and customary to standard securities borrowings and lending activities.

(US$000)

APICORP 51

Notes to the Financial Statements (Continued)

for the year ended 31 December 2012

4.AVAILABLE-FOR-SALEDIRECTEQUITYINVESTMENTS 2012 2011Unlistedequities–carriedatcostlessimpairmentKingdom of Saudi Arabia Saudi European Petro Co. (Ibn Zahr) 142,219 142,219Republic of Iraq Arab Company for Detergent Chem (Aradet) 5,120 5,120Socialist Peoples’ Libyan Arab Jamahiriya Arab Drilling and Workover Co. (Adwoc) 11,686 11,686 Arab Geophysical Exploration Svcs Co. (Agesco) 594 594Arab Republic of Egypt Alexandria Fiber Co. SAE (AFC) 2,150 3,000 Oriental Petrochemicals Co. - 2,000 Egyptian Methanex Methanol Co. 15,603 15,603 MISR Oil Processing Company SAE 33,911 33,911 Egyptian Bahraini Gas Derivative Co. 5,000 5,000Non-shareholder countries Tankage Mediterranee (Tankmed), Tunisia 1,112 1,112 217,395 220,245Listedequities–carriedatfairvalueKingdom of Saudi Arabia Yansab Petrochemical Complex (YANSAB) 100,607 104,039 318,002 324,284

Movementsduringtheyear:Balance at the beginning of the year 324,284 365,634Additions during the year - 3,360Sold during the year* (10,451) (11,491)Impairment during the year (2,850) -Change in fair value during the year 7,019 (8,510)Reversal during the year - (5,702)Conversion on investment restructuring - (19,007) Balanceat31December 318,002 324,284

MovementsonallowanceforimpairmentBalance at the beginning of the year 90,532 86,490Impairment charge for the year 2,850 4,042 Balanceat31December 93,382 90,532

* During the year, the Group sold partial stake in Yansab Petrochemical Complex (YANSAB) which resulted in profits of US$ 10,622 thousand.

(US$000)


4.Available-for-saledirectequityinvestments(continued)

Commitments–uncalledsharecapital 2012 2011

At the beginning of the year 51,130 14,490Additional commitments during the year - 40,000Commitments fulfilled (40,000) (3,360) Commitmentsat31December 11,130 51,130

Commitments–GuaranteeAt the beginning of the year 14,000 14,000Additional commitments during the year - - Commitmentsat31December 14,000 14,000

Companies in which the Group holds 20% or more of the equity are not treated as associates under IAS 28 - Investments in Associates because the Group’s philosophy is that it should act in a fiduciary and advisory capacity and not exercise significant influence over the management and operations of the companies. These investments primarily include private equity investments in closely held project companies where the Group intends to exit these investments principally by means of strategic buy outs by an existing shareholder or through initial public offerings. Investment committee regularly evaluates exit opportunities. Accordingly, these investments are classified as available-for-sale assets.

Unquoted available-for-sale direct equity investments are carried at cost in the absence of reliable measure of fair value. The fair value of these investments cannot be reliably measured due to lack of information from the investee companies, which is primarily due to lack of influence of the Group on the investee companies.

As of 31 December 2012, all the Group’s shares in Egyptian Bahraini Gas Derivative Co. of US$ 5,000 thousand are pledged as security in favour of bank to guarantee a loan issued to Egyptian Bahraini Gas Derivative Co.

5.SYNDICATEDANDDIRECTLOANS 2012 2011Unimpairedloans - Islamic 825,582 709,598 - Conventional 2,121,082 2,116,636Unamortized participation and upfront fees (61,821) (43,981)Collective impairment allowance (12,324) (10,264)Impairedloans Non-performing loans (see below) 68,408 68,408 Performing loans 30,174 44,901 Allowance for specific impairments (32,555) (44,809) Dividends due to Government of Iraq, offset against defaulted loans (see below) (41,500) (37,000)

2,897,046 2,803,489

(US$000)



APICORP 53

ImpairedloanstocompaniesfullyownedbyGovernmentofIraqAs a result of the 1990-1991 second Gulf war, certain Government of Iraq controlled companies defaulted on loans amounting to US $ 51,848 thousand at 31 December 2012 (31 December 2011: 51,848 thousands) from the Corporation.

With effect from 1998, the Corporation reduced impairment allowances against the defaulted loans by the amount of the unpaid dividends, while still carrying the dividends as liabilities in the statement of financial position up to 2003.

In May 2003, APICORP Board of Directors adopted a resolution authorizing management, in cases where no settlement is reached, to set-off bad debts owed to the Corporation by companies and public corporations fully owned by any of APICORP’s shareholder governments, against accounts held by the Corporation belonging to such bodies and governments including dividends, provided all legal requirements are satisfied and complied with.

Accordingly, and until negotiation is undertaken with the Government of Iraq, the Corporation starting from 2003, has made a primary offset of the unpaid dividends due to the Government of Iraq, against the principal amounts of the defaulted loans due from Government of Iraq controlled companies.

Accordingly dividends of US $ 41,500 thousand as at 31 December 2012 (31 December 2011: US $ 37,000 thousand) due to the Government of Iraq (a shareholder in APICORP) have not been paid.

Since the beginning of default during 1990-92, the Corporation had kept memorandum record for contractual interest and fee on the defaulted Iraqi loans. Total contractual uncharged interest and fee on these impaired Iraqi loans as on 31 December 2012 amounts to US $ 135,480 thousands (31 December 2011: 132,153 thousands).

2012 2011Unimpairedloansmovementduringtheyear Outstanding at the beginning of the year 2,826,234 2,557,961Draw-downs on new and existing loans 3,609,869 2,424,463Repayments during the year (3,487,176) (2,130,652)Reclassified as impaired (3,289) (44,901)Reclassified to loan on investment restructuring (refer note 4) - 17,920Exchange rate movements 1,026 1,443 Unimpairedloansoutstandingat31December 2,946,664 2,826,234

Undrawnloancommitmentsandguarantees At the beginning of the year 344,836 342,876Additional underwriting and commitment during the year 4,074,512 2,455,581Drawdowns during the year (3,609,869) (2,424,463)Expired commitments and other movements - net (298,520) (29,158) Undrawncommitmentsat31December 510,959 344,836

(US$000)




5.Syndicatedanddirectloans(continued)

2012 2011Allowanceforspecificimpairment At the beginning of the year 44,809 31,408Charge for the year 1,800 13,401Reversal of specific impairment allowance (9,554) -Recovering of unpaid dividends and interest due to the Government of Iraq (4,500) - Balanceat31December-net 32,555 44,809

Allowanceforcollectiveimpairment Balance at the beginning of the year 10,264 6,660Additional allowance during the year 2,060 3,604 Balanceat31December 12,324 10,264

6.PROPERTYANDEQUIPMENT 2012 2011 Land at Rakah – head office building and housing compound 4,004 4,004Head office building, equipment, decor and furnishings 36,802 36,788Housing compound buildings, equipment, decor and furnishings 30,732 30,651Commercial marine vessels 47,061 -Computer hardware and other office equipment 1,622 1,246Computer systems software 924 924Bahrain Banking unit office equipment, decor and furnishings 1,552 1,547Totalcost 122,697 75,160Accumulated depreciation (51,227) (48,328) Netbookvalue 71,470 26,832

(US$000)



APICORP 55

6.PROPERTYANDEQUIPMENT(continued)

2012 2011Movementsduringtheyear Net carrying value at the beginning of the year 26,832 29,263Additions at cost Commercial marine vessels 47,061 - Head office building, operating equipment, decor & furnishings 14 30 Housing compound buildings, equipment, decor & furnishings 81 218 Computer systems software – acquisition & implementation 376 187 Other 5 23Depreciation charge (2,899) (2,889) Netcarryingvalueat31December 71,470 26,832

During the year, the Group purchased two commercial marine vessels that have been leased to HETCO in the capacity of bareboat charterer for a non-cancellable period of 5 years. Subsequent to the year end, the Group purchased further three commercial marine vessels of US$ 69 million that have been leased to HETCO in the capacity of bareboat charterer for a non-cancellable period of 5 years. The bareboat charterer has entered into a Call Option Agreement affording it the right to buy the Vessel declarable at any time but not exercisable before the 1st anniversary of the acquisition of the relevant Vessel (the relevant “Exercise Date”). These vessels are mortgaged against the term loan facilities taken (Note 10).

7.OTHERASSETS 2012 2011 Accrued interest receivables 18,014 12,539Employee loans and advances 1,232 594Derivatives at fair value (refer note 13) 1,820 3,088Advance for purchase of assets 4,845 470Miscellaneous receivables and advance payments 3,503 2,000 29,414 18,691

8.DEPOSITSFROMBANKS 2012 2011 Short-term deposits from conventional banks US dollar - 27,000 Other currencies 317,200 267,733Short-term Murabaha financing from Islamic financial institutions US dollar 183,074 121,000 Other currencies 192,545 247,782

692,819 663,515

(US$000)




9.OTHERLIABILITIES 2012 2011 Accrued interest payable 21,385 12,415Dividend payable to shareholders 12,600 -Employees’ end of service benefits 9,629 8,121Accrued expenses 8,418 6,014Derivatives at fair value (refer note 13) 26,396 32,628Call liabilities 1,130 -Other payables 1,174 1,390 80,732 60,568

Movementonemployees’endofservicebenefitsBalance as at 1 January 8,121 7,642Charge for the year 1,640 1,188Paid during the year (132) (709) Balance as at 31 December 9,629 8,121

10.BANKTERMFINANCING 2012 2011 US$ 400 million loan 2007 – 2012 – fully drawn - 400,000SAR 2,500 million loan 2012 - 2015 – fully drawn 666,667 -SAR 500 million loan 2012 – 2017 – fully drawn 133,333 -SAR 440 million loan 2012 – 2017 – fully drawn 117,333 -US$ 105 million loan 2012 – 2018 – partially drawn 34,371 -

Unamortised front-end fee (5,430) (133) 946,274 399,867

The Corporation borrows at margins ranging from 80 basis points to 88 basis points (2011: 28.5) over the interbank offered rate. During 2012, the Group also obtained, a total line of credit amounting to US$ 105 million. At 31 December 2012, the Group has drawn down US $ 34 million and further utilized US $ 52 million subsequent to the year-end.

The Corporation’s bank term financing are subject to following financial covenants, with which the Corporation has complied:

• The ratio of total shareholders’ funds to total assets shall at all times be equal to or greater than 16.67%; and• The amount of total shareholders’ funds shall at all times be greater than US$ 500 million.

(US$000)



APICORP 57

11.BONDSISSUED 2012 2011 US$ 533 million bonds 2010 – 2015 – fully drawn 533,333 533,333 Interest rate: Saudi riyal interbank rate plus 110 basis points Unamortised front-end fee (1,323) (1,835) 532,010 531,498

The Bonds are subject to following financial covenants, with which the Group has complied:• The ratio of total shareholders’ funds to total assets shall at all times be equal to or greater than 16.67%; and• The amount of total shareholders’ funds shall at all times be greater than US$ 550 million.

12.OFF-BALANCESHEETEXPOSURES 2012 2011 Commitments to underwrite and fund loans (refer note 5) 510,959 344,836Commitments to subscribe capital to available-for-sale direct equity investments(refer note 4) 11,130 51,130Guarantees to bank on loans of investee companies (refer note 4) 14,000 14,000 536,089 409,966

13.DERIVATIVEFINANCIALINSTRUMENTS

Fairvaluehedges The Group uses interest rate swaps to hedge its exposure to changes in fair value, of certain investments in fixed rate bonds, attributable to changes in market interest rate. Fair values of the interest rate swap agreements are estimated based on the prevailing market rates of interest.

Otherderivativesheldforriskmanagement The Group uses derivatives, not designated in qualifying accounting hedge relationship, to manage its exposure to market risks. The Group enters into foreign exchange forward contracts to hedge against foreign exchange fluctuations. Fair values of the forward currency contracts are estimated based on the prevailing market rates of interest and forward rates of the related foreign currencies, respectively.

The fair values of derivative financial instruments held by the Group as at 31 December are provided below:

2012 2011

Asset Liabilities Asset Liabilities

Interest rate swap (Fair value hedges) 405 23,798 - 20,465

Foreign exchange contracts (Other derivatives held for risk management) 1,415 2,598 3,088 12,163

At31December 1,820 26,396 3,088 32,628

(US$000)




13.DERIVATIVEFINANCIALINSTRUMENTS(Continued)

The notional amount of derivative financial instruments held by the Group as at 31 December are provided below:

2012 2011

Interest rate swap (Fair value hedges) 617,144 406,304Foreign exchange contracts (Other derivatives held for risk management) 2,472,111 2,036,473 At31December 3,089,255 2,442,777

The contractual maturity analysis of the derivative instruments are included as part of liquidity risk information in note 26.

14.NETINTERESTINCOME 2012 2011Interestincome Cash and bank balances 24 12Placements with banks – Islamic 2,485 1,580 – Conventional 8,941 8,729Available-for-sale securities (net) 28,664 24,286Syndicated and direct loans – Islamic 13,440 8,270 – Conventional 40,558 32,309 Amortisation of loan participation and upfront fees 10,617 2,314 Totalinterestincome 104,729 77,500

Interestexpense Deposits from banks and other cost – Conventional (4,601) (4,127) – Islamic (4,881) (4,603)Securities sold under agreement to repurchase deposits (2,399) (3,040)Deposits from corporates & shareholders (15,480) (16,813)Interest rate SWAP (8,991) (8,682)Bank term financing (14,952) (2,213)Bonds issued (10,765) (9,734)Amortisation of Bank term financing front-end fees (2,310) (856)Unpaid dividends (144) (230) Totalinterestexpense (64,523) (50,298) Netinterestincome 40,206 27,202

(US$000)



APICORP 59

15.NETFEEINCOME 2012 2011Feeincome Underwriting and arranging services 120 91Agency, advisory and other services 1,241 1,270Fee from securities lending activities 48 60Feeexpense 1,409 1,421Custody fees and other charges paid to banks (333) (197) Netfeeincome 1,076 1,224

16.DIVIDENDINCOME 2012 2011Trading securities - 9Available-for-sale securities 793 227Available-for-sale direct equity investments 73,681 100,217 74,474 100,453

17.LOSSONTRADINGSECURITIES 2012 2011 Net loss on revaluation (12) (8) (12) (8)

18.GAINONSALEOFAVAILABLE-FOR-SALEPORTFOLIO 2012 2011 Available-for-sale direct equity investments 10,622 26,627Available-for-sale securities 750 259

11,372 26,886

19.OPERATINGEXPENSES 2012 2011 Staff costs 15,469 18,183Employees’ end of service benefits 1,640 1,081Premises costs, including depreciation 4,627 4,727Equipment and communications costs 1,513 1,161Key Management’s & Board benefits, fees and expense 3,881 4,029Donations 300 302Consultancy and legal fee 1,432 1,194Other corporate expenses 1,995 837 30,857 31,514

(US$000)




20.IMPAIRMENTLOSSES 2012 2011Chargefortheyear Syndicated and direct loans (note 5): Specific impairment allowance 1,800 13,401 Collective impairment allowance 2,060 3,604 Available-for-sale direct equity investments (note 4) 2,850 4,042 Other receivables - 1,126 6,710 22,173Less:recoveries Syndicated and direct loans (note 5) Government of Iraq – reversal through unpaid dividend (4,500) - Specific impairment allowance reversals (9,554) - Interest expense on unpaid dividend (144) (230) Available-for-sale investments (note 3) (1,024) (206)

(15,222) (436) Netimpairmentlosses (8,512) 21,737

21.OTHERINCOME 2012 2011 Exchange (losses)/gains (898) 717Fair value hedge ineffectiveness 11 (74)Rent – head office building and housing compound 2,395 1,465Bareboat charter income (see note below) 645 - Miscellaneous income 1,967 740 4,120 2,848

At the end of the reporting period, the future minimum lease payments under non-cancellable leases are receivable as follows: 2012 2011

Less than one year 7,992 2,395Between one and five years 21,926 -

22.PROPOSEDAPPROPRIATIONSOFPROFIT 2012 2011 Legal reserve 11,000 10,500Retained earnings 97,931 94,854 108,931 105,354

(US$000)



APICORP 61

23.SHARECAPITALANDPERSHAREINFORMATION

The calculation of earningspershare at 31 December 2012 was based on the profit of US$108,931 thousand (2011: US$ 105,354 thousand) and a weighted average number of shares of 750 thousand outstanding as at 31 December 2012 (2011: based on 668 thousand shares). The calculation of net assetvaluepershare at 31 December 2012 was based on the net assets of US$1,308,039 thousand as at 31 December 2012: (2011: US$ 1,218,785 thousand) and a number of shares of 750 thousand outstanding as at 31 December 2012 (2011: based on 750 thousand shares).

24.RELATEDPARTYTRANSACTIONS

APICORP’s principal related parties are its shareholders. Although the Group does not transact any commercial business directly with the shareholders themselves, it does finance companies, which are either controlled by the shareholder governments or over which they have significant influence.

2012 2011LoanstorelatedpartiesLoans outstanding at 31 December – gross 1,930,868 1,808,492Allowance for specific impairments outstanding at 31 December (10,348) (14,848)Dividends due to Government of Iraq, offset against defaulted loans at 31 December (41,500) (37,000)

Commitments to underwrite and fund loans at 31 December 315,568 272,118 Interest from loans during the year 33,250 24,562Loan fees received during the year 7,091 1,063

Loans to related parties are made at prevailing market interest rates and subject to normal commercial negotiation as to terms. The majority of loans to related parties are syndicated, which means that participation and terms are negotiated by a group of arrangers, of which the Group may, or may not, be a leader. No loans to related parties were written off in 2012 and 2011.

2012 2011Available-for-saledirectequityinvestmentsinrelatedpartiesInvestments at 31 December 318,002 324,284Commitments to invest at 31 December 11,130 50,660Guarantees as shareholder at 31 December 14,000 14,000Dividends received during the year 73,681 100,217

2012 2011Others Deposits from corporates at 31 December 450,084 857,596Deposits from shareholders at 31 December 104,476 103,426Dividend payable to shareholders 12,600 -Interest expense on related parties deposits from corporates during the year 9,855 10,849Interest expense on related parties deposits from shareholders during the year 1,004 3,437Advance for purchase of investment - 470

Balances due to key management 494 451

For key management’s compensation, refer note 19.

(US$000)




25.CAPITALADEQUACY

The risk asset ratio at 31 December is as follows: 2012 2011Carryingvalues On-balance sheet assets (page 33) 5,077,575 4,629,504 Off-balance sheet exposures (note 12) 536,089 409,966 5,613,664 5,039,470

Risk-weightedexposures On-balance sheet assets 3,858,976 3,501,454 Off-balance sheet exposures 536,089 409,966 Total risk-weighted exposures 4,395,065 3,911,420

Capitaladequacyratio Tier – 1 capital: share capital, legal & general reserves and retained earnings 1,096,719 1,031,595 Tier – 2 capital: Investments fair value reserve & collective impairment allowance 98,360 79,614

Qualifyingcapital 1,195,079 1,111,209

Capitalbaseexpressedasapercentageoftotalrisk-weightedexposures: Qualifying capital 27.2% 28.4% Tier 1 capital 24.9% 26.4%

The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognized and the Group recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Group manages / monitors its capital based on the capital adequacy ratios prescribed by Basel Committee.

The Group has complied with all externally imposed capital requirements throughout the year (note 10 and 11). There have been no material changes in the Group’s management of capital during the year.

(US$000)



APICORP 63

26.FINANCIALINSTRUMENTSANDRISKMANAGEMENT

FinancialinstrumentsA financial instrument is any contract that gives rise to both a financial asset in one enterprise and a financial liability or equity instrument in another enterprise. The Group’s financial assets are principally trading securities, available-for-sale securities, placements with banks, syndicated and direct loans, available-for-sale direct equity investments and certain other assets.

Financial liabilities consist of commitments to lend and invest in equity, deposits from banks, deposits from corporate and shareholders, Bank term financing, certain other liabilities and guarantees.

These financial instruments expose the Group to varying degrees of market risk (including currency, interest rate and price risks), credit risk and liquidity risk.

CreditriskmanagementCredit risk is the risk that a borrower or counter-party of the Group will be unable or unwilling to meet a commitment that it has entered into with the Group, causing a financial loss to the Group. It arises from the lending, treasury and other activities undertaken by the Group. Policies and procedures have been established for the control and monitoring of all such exposures.

Proposed loans and available-for-sale direct equity investments are subject to systematic investigation, analysis and appraisal before being reviewed by the Credit Committee (consisting of the General Manager and Senior Managers of the Corporation), which makes appropriate recommendations to the Board of Directors, who have the ultimate authority to sanction commitments. These procedures, plus the fact that most of the loans are backed by sovereign guarantees and commitments and export credit agency cover, limit the Group’s exposure to credit risk.

The Group faces a credit risk on undrawn commitments because it is potentially exposed to loss in an amount equal to the total unused commitments. However the eventual loss, if any, will be considerably less than the total unused commitments, since most commitments to extend credit are contingent upon borrowers maintaining specified credit standards. All loan commitments, whether drawn or undrawn, are subject to systematic monitoring so that potential problems may be detected early and remedial action taken.

Treasury activities are controlled by means of a framework of limits and external credit ratings. Dealing in marketable securities is primarily restricted to GCC countries, United States and major European stock exchanges. Dealings are only permitted with approved internationally rated banks, brokers and other counter-parties. Securities portfolios and investing policies are reviewed from time to time by the Assets and Liabilities Committee (“ALCO”).

(US$000)




26.Financialinstrumentsandriskmanagement(continued)

The maximum exposure to credit risk on cash and bank balances is their carrying amount. Details of credit risk exposure on other financial instruments are as follows:

Syndicatedanddirectloans(note5)

Placementswithbanks(note1)

Available-for-salesecurities(note3)

2012 2011 2012 2011 2012 2011

Impairedindividually

Grade F 68,408 68,408 - - - -

Grade E - - - - - -

Grade D - 28,651 - - - -

Grade C 30,174 16,250 - - - -

Grade B - - - - - -

Gross amount 98,582 113,309 - - - -

Unpaid dividends and interest due to Government of Iraq

(41,500) (37,000)

Allowance for impairment (32,555) (44,809) - - - -

Carrying amount 24,527 31,500 - - - -

Pastduebutnotimpaired

Gross amount - - - - - -

Allowance for impairments - - - - - -

Carrying amount - - - - - -

Neitherpastduenorimpaired

Accounts without renegotiable terms

Grade B 14,406 73,723 - - - -

Grade A 2,932,258 2,752,511 - - - -

Allowance for impairments - - - - - -

Accounts with renegotiable terms -

Grade B - - - - - -

Grade A - - - - - -

Subtotal neither past due nor impaired 2,946,664 2,826,234 - - - -

Placement with banks in

Organisation for Economic Co-operation and Development countries (OECD)

- - 339,073 136,256 - -

Placement with banks in non-OECD countries - - 453,074 507,357 - -

Externally rated (investment-grade) available- for-sale investments

- - - - 922,265 770,918

Subtotal total 2,971,191 2,857,734 792,147 643,613 922,265 770,918

Collective impairment allowance (12,324) (10,264) - - - -

Unamortised participation and commitment (61,821) (43,981) - - - -

Totalcarryingamounton31December 2,897,046 2,803,489 792,147 643,613 922,265 770,918

(US$000)



APICORP 65


The Group monitors concentration of credit risk by sector and by geographic location. An analysis of concentration of risk at reporting date is shown below (also refer note 32 and 33).




2012 2011 2012 2011 2012 2011

Concentrationofcreditriskbysector

Oilfield production development services 464,399 422,081 - - 2,301 17,516

Floating production, storage and offloading Facilities 190,825 263,068 - - -

Liquefied Natural Gas (LNG) Plants 11,580 - - - 22,500 22,280

Petroleum and petrochemicals 744,919 668,190 - - 49,013 60,927

Maritime transportation 48,865 17,468 - - - -

Refineries 512,204 450,554 - - - -

Power generation 251,092 213,398 - - - -

Other petroleum 670,412 768,730 - - 194 -

Banks and financial institutions 2,750 - 792,147 643,613 13,387 -

Governments and public sector - - - - 787,899 650,105

Other industries - - - - 46,971 20,090

Carryingamounton31December 2,897,046 2,803,489 792,147 643,613 922,265 770,918




2012 2011 2012 2011 2012 2011

Concentrationofcreditriskbylocation

Kingdom of Saudi Arabia 1,244,120 1,170,150 135,000 - 139,997 114,137

State of Qatar 869,248 818,692 269,709 177,913 209,066 168,871

Other Gulf Cooperation Council states 398,789 462,770 48,422 316,813 446,154 348,509

Egypt and North Africa 147,713 188,528 - - -

TotalArabWorld 2,659,870 2,640,140 453,131 494,726 795,217 631,517

Europe 177,565 113,154 310,455 58,854 81,495 75,499

Asia Pacific 59,204 50,195 28,561 77,402 - -

United States 407 - - 12,631 45,553 63,902

Carryingamounton31December 2,897,046 2,803,489 792,147 643,613 922,265 770,918

(US$000)




(US$000)


LiquidityriskandfundingmanagementLiquidity risk is the risk that Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk management ensures that funds are available at all times to meet the funding requirements of the Group.

The Group’s liquidity management policies are designed to ensure that even under adverse conditions, the Group has access to adequate funds to meet its obligations, and to service it core investment and lending functions. This is achieved by the application of prudent but flexible controls, which provide security of access to liquidity without undue exposure to increased costs from the liquidation of assets or to bid aggressively for deposits.

As part of liquidity management the Group also ensures availability of Bank term financing at a competitive rates, at all times to meet long term funding requirements of the Group. During 2008, the Group also obtained, from its existing shareholders, a total line of credit amounting to US$ 1 billion. This line of credit is available to the Group to draw funds from its shareholders, if required. At 31 December 2012 unutilised funding from this credit line was US $895,524 thousand (2011: US $896,574 thousand).

Daily liquidity position is monitored and regular stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies are subject to review and approval by ALCO. Liquidity controls are provided for an adequately diversified deposit base in terms of maturities and the range of counter-parties. The asset and liability maturity profile based on estimated repayment terms is set out in note 29.

Contractual maturities of financial liabilities (including interest)

2012Upto

3months3monthsTo1year

1yearTo5years

5yearsAndover

ContractualOutflows

Carryingvalue

Liabilities

Deposits from banks (580,633) (118,364) - - (698,997) (692,819)

Deposits from corporates (874,186) (187,919) - - (1,062,105) (1,057,429)

Deposits from shareholders (31,684) (73,169) - - (104,853) (104,476)Securities sold under agreement to repurchase

(143,440) (213,170) - - (356,610) (354,603)

Bank term financing (4,542) (15,539) (985,657) (20,079) (1,025,817) (946,274)

Bond (2,757) (8,423) (555,754) - (566,934) (532,010)

(1,637,242) (616,584) (1,541,411) (20,079) (3,815,316) (3,687,611)

Derivativeinstruments:

Interest rate swaps (4,217) (24,747) (61,115) (23,500) (113,579) (23,798)

Forward exchange contracts (2,032,500) (456,187) - - (2,488,687) (2,598)

Off-balance sheet exposures (146,159) (147,870) (186,400) (55,661) (536,090) (536,089)

(2,182,876) (628,804) (247,515) (79,161) (3,138,356) (562,485)



APICORP 67


2011Upto

3months3monthsTo1year

1yearTo5years

5yearsAndover

ContractualOutflows

Carryingvalue

Liabilities

Deposits from banks (650,641) (16,089) - - (666,730) (663,515)

Deposits from corporates (985,638) (235,703) - - (1,221,341) (1,214,068)

Deposits from shareholders (103,525) - - - (103,525) (103,426)Securities sold under agreement to repurchase

(255,321) (184,330) - - (439,651) (437,777)

Bank term financing (666) (400,429) - - (401,095) (399,867)

Bond (2,295) (7,472) (573,059) - (582,826) (531,498)

(1,998,086) (844,023) (573,059) - (3,415,168) (3,350,151)

Derivativeinstruments:

Interest rate swaps (3,066) (16,998) (50,246) (12,936) (83,246) (20,465)

Forward exchange contracts (1,575,996) (460,477) - - (2,036,473) (9,075)

Off-balance sheet exposures (66,263) (126,931) (195,969) (20,803) (409,966) (409,966)

(1,645,325) (604,406) (246,215) (33,739) (2,529,685) (439,506)

MarketriskmanagementMarket risk is the risk that changes in market factors, such as interest rate, equity prices and foreign exchange rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk.

The Group holds (but currently does not actively trade) debt and equity securities. Treasury activities are controlled by the Assets and Liabilities Committee and are also subject to a framework of Board-approved currency, industry and geographical limits and ratings by agencies including Standard & Poor’s.

The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates, foreign exchange rates and equity prices.

Interest rate risk: Syndicated and direct loans are normally denominated in United States dollars, as is the Group’s funding, and interest rates for both are normally linked to LIBOR. The Group’s exposure to interest rate fluctuations on certain financial assets and liabilities is also hedged by entering into interest rate swap agreements.

Exposure to interest rate risk is restricted by permitting only a limited mismatch between the re-pricing of the main components of the Group’s assets and liabilities. The re-pricing profile of assets and liabilities is set out in note 30.

The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Group’s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a periodic basis include a 100 basis point (bp) parallel fall or rise in all yield curves worldwide. An analysis of sensitivity of the Group’s statement of income and equity to an increase or decrease in market interest rates (assuming no asymmetrical movement in yield curves and a constant statement of financial position position) is as follows:

100bpparallelincrease 31bpparalleldecrease

Profit/loss Equity Profit/loss Equity

At31December2012 1,073 (80) (321) 31

At 31 December 2011 8,488 (36) (5,093) 22

(US$000)




(US$000)


Marketriskmanagement(continued)

At reporting date the interest rate profile of Group’s interest bearing financial instruments was:

2012 2011Fixedrateinstruments Financial assets 734,684 554,680 Financial liabilities (617,144) (406,304)

117,540 148,376

Variablerateinstruments Financial assets 3,876,774 3,663,340 Financial liabilities (3,687,611) (3,350,151)

189,163 313,189

Currencyrisk is minimised by regular review of exposures to currencies other than United States dollars to ensure that no significant positions are taken, which may expose the Group to undue risks. Currently there is no trading in foreign exchange. The Group’s net currency exposures are set out in note 31. The Group’s exposures in the currencies other than US $ is also hedged by entering into forward contracts. An analysis of the Group’s statement of income sensitivity to 5% strengthening or 5% weakening of US $ against major un-pegged foreign currencies is shown below. This analysis assumes that all other variables, in particular interest rates, remain same.

5%strengtheningofUS$ 5%weakeningofUS$

At31December2012

EUR 1,236 (1,236)

GBP (318) 318

CHF 2 (2)

KWD 55 (55)

JPY 3 (3)

QAR 233 (233)

AED (68) 68

EGP (45) 45

At31December2011

EUR 49 (49)

GBP (304) 304

CHF 48 (48)

EGP (82) 82

KWD (1,461) 1,461

JPY 3 (3)

QAR (120) 120

AED (121) 121



APICORP 69


Marketriskmanagement(continued)

Equitypricesrisk is the risk that Groups quoted equity investments will depreciate in value due to movements in the quoted equity prices. The overall authority of equity prices risk management is vested in ALCO. Periodical listed equity prices movements are reviewed by executive management and ALCO. Group’s exposure to listed equities is insignificant hence sensitivity to equity prices risk is not significant.

OperationalriskOperational risk is the risk of unexpected losses resulting from inadequate or failed internal controls or procedures, systems failures, fraud, business interruption, compliance breaches, human error, management failure or inadequate staffing.

A framework and methodology has been developed to identify and control the various operational risks. While operational risk cannot be entirely eliminated, it is managed and mitigated by ensuring that the appropriate infrastructure, controls, systems, procedures, and trained and competent people are in place throughout the Group. A strong internal audit function makes regular, independent appraisals of the control environment in all identified risk areas. Adequately tested contingency arrangements are also in place to support operations in the event of a range of possible disaster scenarios.

27.EFFECTIVEINTERESTRATES

The weighted average effective interest rates of the Group’s financial instruments at the reporting date were:

2012 2011Interest-bearingfinancialassets Fixed-rate bonds 4.66% 4.78%Floating-rate bonds 1.38% 1.40%Structured notes 0.00% 0.00%Placements placed with banks 1.58% 2.42%Syndicated and direct loans 1.67% 1.55% US dollar denominated 1.66% 1.55% Non-dollar 1.92% 1.25%

Interest-bearingfinancialliabilities Deposits from banks 1.37% 1.19% US dollar denominated 1.34% 1.23% Non-dollar – Euros, Swiss francs and Saudi riyals 1.38% 1.18%Deposits from corporates 1.22% 1.23%Deposits from shareholders 0.96% 1.05%Securities sold under agreement to repurchase 0.81% 1.19%Bank term financing 1.96% 0.74%Bonds issued 1.81% 1.72%

US$LIBORAT31Decemberwas: One-month 0.21% 0.30% Three-month 0.31% 0.58% Six-month 0.51% 0.81%

(US$000)




(US$000)

28.FAIRVALUEHIERARCHYANDCATEGORIES

ValuationoffinancialinstrumentsThe Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

• Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.• Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. as derived

from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

• Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted market prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The table below analyses financial instruments, measured at fair value as at the end of the year, by level in the fair value hierarchy into which the fair value measurement is categorized:

2012 Level1 Level2 Level3 Total

Trading securities 41 - - 41

Available-for-sale securities

Fixed-rate bonds 734,684 - - 734,684

Floating-rate bonds 158,611 - - 158,611

Structured notes 28,970 - - 28,970

Managed funds 8,407 - - 8,407

Listed equities 21,457 - - 21,457

Available-for-sale direct equity 100,607 - - 100,607

Derivative financial assets - 1,820 - 1,820

1,052,777 1,820 - 1,054,597

Derivative financial liabilities - 26,396 - 26,396

2011 Level1 Level2 Level3 Total

Trading securities 53 - - 53

Available-for-sale securities

Fixed-rate bonds 554,680 - - 554,680

Floating-rate bonds 188,086 - - 188,086

Structured notes 28,152 - - 28,152

Managed funds 10,171 - - 10,171

Listed equities 13,349 - - 13,349

Available-for-sale direct equity 104,039 - - 104,039

Derivative financial assets - 3,088 - 3,088

898,530 3,088 - 901,618

Derivative financial liabilities - 32,628 - 32,628



APICORP 71

28.FAIRVALUEHIERARCHYANDCATEGORIES(continued)

The table below set outs the allocation of financial assets and liabilities into various IAS 39 categories and the carrying amounts and fair values of the financial assets and liabilities (excluding interest).

2012Fairvaluethrough

profitorloss

Loansandreceivables

AFSinvestments

Othersatamortised

cost

Carryingamount

Fairvalues

Cash and bank balances - 17,326 - - 17,326 17,326

Placements with banks 792,147 - - 792,147 792,147

Trading securities 41 - - - 41 41

Available for sale securities - - 952,129 - 952,129 952,129

Available-for-sale direct equity** - - 318,002 - 318,002 318,002

Syndicated and direct loans (Fair value - based on discounted cash flows at current market prices) - - - 2,897,046 2,897,046 3,012,640

Other assets 1,820 9,580 - - 11,400 11,400

Totalassets 1,861 819,053 1,270,131 2,897,046 4,988,091 5,103,685

Deposits from banks - - - 692,819 692,819 692,819

Deposits from corporates - - - 1,057,429 1,057,429 1,057,429

Deposits from shareholders - - - 104,476 104,476 104,476

Securities sold under agreement to repurchase

- - - 354,603 354,603 354,603

Other liabilities 26,396 - - 19,756 46,152 46,152

Bank term financing (Fair value - based on current market rates for similar remaining maturity) - - - 946,274 946,274 946,274

Bonds issued (Fair value - based on current market rates for similar remaining maturity) - - - 532,010 532,010 532,010

Totalliabilities 26,396 - - 3,707,367 3,733,763 3,733,763

** Unquoted available-for-sale direct equity investments are carried at cost in the absence of reliable measure of fair value. The fair value of these investments cannot be reliably measured due to lack of information from the investee companies, which is primarily due to lack of influence of the Group on the investee companies.

(US$000)




(US$000)

2011Fairvaluethrough

profitorloss

Loansandreceivables

AFSinvestments

Othersatamortised

cost

Carryingamount

Fairvalues

Cash and bank balances - 18,104 - - 18,104 18,104

Placements with banks 643,613 - - 643,613 643,613

Trading securities 53 - - - 53 53

Available for sale securities - - 794,438 - 794,438 794,438

Available-for-sale direct equity** (Note 4) - - 324,284 - 324,284 324,284

Syndicated and direct loans (Fair value - based on discounted cash flows at current market prices) - - - 2,803,489 2,803,489 2,866,670

Other assets 3,088 594 - - 3,682 3,682

Total assets 3,141 662,311 1,118,722 2,803,489 4,587,663 4,650,844

Deposits from banks - - - 663,515 663,515 663,515

Deposits from corporates - - - 1,214,068 1,214,068 1,214,068

Deposits from shareholders - - - 103,426 103,426 103,426

Securities sold under agreement to repurchase

- - - 437,777 437,777 437,777

Other liabilities 32,628 - - 1,390 34,018 34,018

Bank term financing (Fair value - based on current market rates for similar remaining maturity) - - - 399,867 399,867 399,867

Bonds issued (Fair value - based on current market rates for similar remaining maturity) - - - 531,498 531,498 531,498

Total liabilities 32,628 - - 3,351,541 3,384,169 3,384,169

** Unquoted available-for-sale direct equity investments are carried at cost in the absence of reliable measure of fair value. The fair value of these investments cannot be reliably measured due to lack of information from the investee companies, which is primarily due to lack of influence of the Group on the investee companies.

28.FAIRVALUEHIERARCHYANDCATEGORIES(continued)



APICORP 73

29.MATURITYPROFILEOFASSETSANDLIABILITIES

The maturity profile of the Group’s assets and liabilities, based on management’s estimate of its realizations, is set out below. The apparent significant short-term mismatch between maturities of assets and liabilities is substantially reduced in practice because the majority of deposits from banks are routinely rolled over on maturity.

2012Upto

3months3monthsTo

1year1yearTo5

years5yearsAnd

overTotal

ASSETS

Cash and cash equivalents 17,326 - - - 17,326

Deposits with banks 792,147 - - - 792,147

Trading securities - - -

41 41

Available-for-sale securities - 6,596 702,950 242,583 952,129 Available-for-sale direct equity investments

- - - 318,002 318,002

Syndicated and direct loans 46,611 334,617 1,309,774 1,206,044 2,897,046

Property, equipment and vessels - - - 71,470 71,470

Other assets 20,588 2,510 6,316 - 29,414

Totalassets 876,672 343,723 2,019,040 1,838,140 5,077,575

LIABILITIESANDEQUITY

Deposits from banks (575,930) (116,889) - - (692,819)

Deposits from corporate (870,936) (186,493) - - (1,057,429)

Deposits from shareholders (31,657) (72,819) - - (104,476)Securities sold under agreement to repurchase

(143,403) (211,200) - - (354,603)

Other liabilities (29,616) (18,258) (2,000) (30,858) (80,732)

Bank term financing 476 (242) (921,338) (25,170) (946,274)

Bond 116 354 (532,480) - (532,010)

Equity - - - (1,308,039) (1,308,039)

Non-controlling Interest - - - (1,193) (1,193)

Totalliabilitiesandequity (1,650,950) (605,547) (1,455,818) (1,365,260) (5,077,575)

Maturitygap (774,278) (261,824) 563,222 472,880 -

Cumulativematuritygap (774,278) (1,036,102) (472,880) - -

2011

Total assets 518,855 596,376 1,741,371 1,772,902 4,629,504

Total liabilities and equity (2,017,121) (833,604) (545,046) (1,233,733) (4,629,504)

Maturity gap (1,498,266) (237,228) 1,196,325 539,169 -

Cumulative maturity gap (1,498,266) (1,735,494) (539,169) - -

(US$000)




(US$000)

30.REPRICINGPROFILEOFFINANCIALASSETSANDLIABILITIES

The repricing profile of the Group’s interest bearing financial assets and liabilities at 31 December was as follows:

2012Upto

3months3monthsTo

1year1yearTo5

years5yearsAnd

overTotal

ASSETS

Placements with banks 792,147 - - - 792,147

Available for sale securities

Floating-rate bonds 158,671 - - - 158,671

Structured notes 28,970 28,970

Syndicated and direct loans

US$ denominated 1,876,138 990,213 - 18,620 2,884,971

Non US$ denominated - 91,867 - - 91,867

LIABILITIES

Deposits from banks

US$ denominated (121,652) (61,422) - - (183,074)

Non US$ denominated (454,278) (55,467) - - (509,745)


Deposits from shareholders (31,657) (72,819) - - (104,476)Securities sold under agreement to repurchase

(143,403) (211,200) - - (354,603)

Bank term financing (818,371) (133,333) - - (951,704)

Bonds issued (533,333) - - - (533,333)

Interestratesensitivitygap (146,674) 361,346 28,970 18,620 262,262

CumulativeGap (146,674) 214,672 243,642 262,262 -



APICORP 75

30.REPRICINGPROFILEOFFINANCIALASSETSANDLIABILITIES(continued)

2011Upto

3months3monthsTo

1year1yearTo5

years5yearsAnd

overTotal

ASSETS

Placements with banks 444,743 198,870 - - 643,613

Available for sale securities

Fixed-rate bonds

Floating-rate bonds 188,086 - - - 188,086

Structured notes - - 28,152 - 28,152

Syndicated and direct loans

US$ denominated 1,675,143 1,155,943 - - 2,831,086

Non US$ denominated - 21,429 - - 21,429

LIABILITIES

Deposits from banks

US$ denominated (148,000) - - - (148,000)

Non US$ denominated (499,515) (16,000) - - (515,515)


Deposits from shareholders (103,426) - - - (103,426)Securities sold under agreement to repurchase

(254,500) (183,277) - - (437,777)

Bank term financing (400,000) - - - (400,000)

Bonds issued (533,333) - - - (533,333)

Interestratesensitivitygap (611,625) 943,720 28,152 - 360,247

CumulativeGap (611,625) 332,095 360,247 360,247 -

(US$000)




(US$000)

31.CURRENCYEXPOSURES

The Group’s currency exposures at 31 December were as follows:

AssetsLiabilitiesand

equity2012NetExposure

2010Netexposure

ASSETS,LIABILITIESANDEQUITY

United States dollar 2,782,690 (2,887,636) (104,946) 57,277

Euro 43,978 (19,262) 24,716 979

Other OECD currencies (see below) (6,346) 68 (6,278) (5,071)

Arab currencies

GCC (see below) 2,255,321 (2,167,915) 87,406 (51,547)

Egypt and North Africa 1,932 (2,830) (898) (1,638)

5,077,575 (5,077,575) - -

COMMITMENTSANDGUARANTEES

United States dollar 531,440 405,317

Saudi riyal 4,649 4,649

536,089 409,966

OtherOECDcurrenciesThe other member countries of the Organisation for Economic Co-operation and Development, excluding the United States and the twelve European Monetary Union countries are: Australia, Canada, Czech Republic, Denmark, Hungary, Iceland, Japan, Mexico, New Zealand, Norway, Poland, South Korea, Sweden, Switzerland, Turkey and the United Kingdom.

GCCThe member states of the Gulf Co-operation Council are: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Their currencies except for Kuwait are pegged against the United States dollar.

SignificantexchangeratesThe following year-end rates have been used in translating other currencies to United States dollars: 2012 2011 Euro EUR 1=US$ 1.3221 1,2958Saudi riyal SAR 1=US$ 0.2666 0.2666Swiss franc CHF 1=US$ 1.0887 1.0656British pound GBP 1=US$ 1.6264 1.5532Egyptian pound EGP 1=US$ 0.1570 0.1658

Since the Group’s net foreign currency exposures to currencies other then US dollar and GCC currencies is not significant, the sensitivity of fluctuation in the currencies will not be significant.



APICORP 77

32.INDUSTRYDISTRIBUTIONOFASSETSANDLIABILITIES

The industry distribution of the Corporation’s assets and liabilities was as follows: 2012 2011ASSETS Petroleum and petrochemicals Refineries 512,204 450,554 Oilfield production development and services 491,588 470,782 Floating production, storage and offloading facilities 193,375 266,135 Liquefied natural gas (LNG) plants 42,803 48,143 Petrochemical plants 1,117,139 1,045,222 Maritime transportation 50,324 19,222 Power generation 252,215 214,255 Other petroleum 679,778 763,292 Totalpetroleumandpetrochemicals 3,339,426 3,277,605Banks and financial institutions 826,009 666,348Other industries 106,468 21,619Governments and public sector institutions 805,672 663,932 Totalassetsat31December 5,077,575 4,629,504

LIABILITIESANDEQUITY Banks and financial institutions 2,810,216 2,395,168 Other petroleum and petrochemicals 422,680 482,248 Government and public sector institutions 535,447 533,303 Shareholders 1,309,232 1,218,785 Totalliabilitiesandequityat31December 5,077,575 4,629,504

COMMITMENTSANDGUARANTEES Petroleum and petrochemicals Refineries 40,000 44,334 Oilfield production development and services 222,840 125,015 Petrochemicals plants 67,348 67,348 Maritime transportation 13,090 62,342 Power generation 123,672 108,335 Other petroleum 69,139 2,592 Totalcommitmentsandguaranteesat31December 536,089 409,966

(US$000)




33.GEOGRAPHICALDISTRIBUTIONOFRISK

The geographical distribution of risk of the Group’s assets and liabilities, after taking into account insurance and third-party guarantees, was as follows: 2012 2011ASSETS Kingdom of Saudi Arabia 1,824,472 1,571,285State of Qatar 1,361,562 1,175,588Other Gulf Cooperation Council states 901,299 1,133,781Other Middle East states 5,120 5,120Egypt and North Africa 230,116 286,474

TotalArabWorld 4,322,569 4,172,248

Europe 561,823 240,369Asia Pacific 90,437 127,696United States 48,126 86,554Other North and South America 54,620 2,637

Totalassets 5,077,575 4,629,504

LIABILITIESANDEQUITY Kingdom of Saudi Arabia 2,638,980 1,962,470State of Qatar 279,330 320,444Other Gulf Cooperation Council states 1,355,768 1,073,806Other Middle East states 211,970 199,793Egypt and North Africa 380,957 381,607

TotalArabWorld 4,867,005 3,938,120

Europe 34,644 511,819Asia Pacific 173,664 179,565United States 446 -Other North and South America 1,816 -

Totalliabilitiesandequity 5,077,575 4,629,504

COMMITMENTSANDGUARANTEES Kingdom of Saudi Arabia 111,060 107,589State of Qatar 66,362 71,188Other Gulf Cooperation Council states 85,435 24,152Other Middle East states 15,000 15,000Egypt and North Africa 84,100 48,607

TotalArabWorld 361,957 266,536

Europe 125,588 130,773Asia Pacific 40,016 12,657Other North and South America 8,528 - 536,089 409,966

34.COMPARITIVES

The corresponding figures have been regrouped in order to conform to the presentation for current year. Such regrouping did not affect previously reported profit or equity.

(US$000)



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