apicorp · 4 board of directors 5 executive management 6 chairman’s statement 8 board of...

Annual Report and Financial Statements 1999

APICORP

ARAB PETROLEUM INVESTMENTS CORPORATION

ARABPETROLEUMINVESTMENTSCORPORATION

Head OfficePO Box 9599, Dammam 31423Saudi Arabia

Telephone966 (3) 887 05 55

Facsimile966 (3) 887 05 05/996 (3) 887 04 04

Telex870068 APIC SJ (two lines)

Commercial Register3977 Damman

E-mail: [email protected]: www.apicorp-arabia.com

APICORP

Arab Petroleum Investments Corporation

(APICORP) is an inter-Arab joint stock

company established on 23 November 1975

in accordance with an international

agreement signed and ratified by the

governments of the ten member states

of the Organisation of Arab Petroleum

Exporting Countries (OAPEC).

Arab Petroleum Investments Corporation ~ Annual Report 1999

P A G E O N E

The Corporation may undertake all operationsrequired for the fulfillment of its objectives, inparticular:

1 initiate, study and promote petroleum, andpetroleum related projects, and participate intheir equity financing;

2 extend or guarantee medium and long-termloans to finance projects in the petroleumindustry;

3 participate in the short-term financing ofthe international trade in Arab petroleum, gas and petrochemicals;

4 underwrite, purchase and sell the shares ofcompanies in the petroleum industry; and

5 issue its own bonds and borrow from Araband international financial markets.

APICORP’s head office is in the Dammam/Al Khobar area, Saudi Arabia. Its share capital is owned by the followinggovernments:

the United Arab Emirates 17%the State of Bahrain 3%the Democratic and Popular Republic of Algeria 5%the Kingdom of Saudi Arabia 17%the Syrian Arab Republic 3%the Republic of Iraq 15%the State of Qatar 10%the State of Kuwait 17%the Socialist People’s Libyan Arab Jamahiriya 15%the Arab Republic of Egypt 3%

The corporation is independent, both in its management and inthe performance of its activities. APICORP conducts its operationson a commercial basis, in a business-like manner and with theintention of making a profit.

The prime objective of APICORP is to participate in the equity, as well as the debt financing, of projects in the petroleumindustry at large. These include all businesses which are based onthe development, processing or transportation of the products of the oil and gas industry and its downstream derivatives. TheCorporation gives priority to joint Arab ventures that serve the regional Arab market.

P A G E T W O

4 Board of Directors5 Executive Management6 Chairman’s Statement

8 Board of Directors Report

8 APICORP Activities in 19998 Equity Participations

Project and Trade Finance

1999 Financial Statements

18 Balance Sheet

19 Income Statement

20 Changes in Shareholders’ Equity

21 Cash Flows

22 Maturity Profile of Assets and Liabilities

23 Repricing Profile of Assets and Liabilities

24 Currency Exposures

25 Industry Distribution of Assets and Liabilities

26 Geographical Distribution of Risk

27 Estimated Fair Values of Assets and Liabilities

28 Notes to the Financial Statements

46 Report of the Auditors to the Shareholders


Contents

P A G E T H R E E

15


P A G E F O U R

Board of Directors

Chairman

Abdullah A. Al-ZaidFor the Kingdom of Saudi Arabia

Deputy Chairman

Mohamed Ali Al-HuwejFor the Socialist People’s Libyan Arab Jamahiriya

Members of the Board

Naser Mohamed Al-SharhanFor the United Arab Emirates

Abdul Hameed Al-AradiFor the State of Bahrain

Abderrezak Naili-DouaoudaFor the Democratic and Popular Republic of Algeria

H.E. Dr. Mohamed Maher JamelFor the Syrian Arab Republic

* Taha H. MosaFor the Republic of Iraq

Ahmed Bin Hamad Al-NoaimiFor the State of Qatar

Abbas Ali NaqiFor the State of Kuwait

** H.E. Eng.Sameh FahmyFor the Arab Republic of Egypt

* Dr. Faleh H. Al-Khayyat(up to December 1999)

** H.E. Dr. Hamdi A. Wahab El-Banbi(up to December 1999)

Executive Management

Chief Executive & General Manager

Rasheed M. Al-Maraj

Assistant General Manager - Legal & Administration

El-Tayeb Abbas El-Gaily

Projects Department

Dr. Abdullah A. Al-IbrahimSenior Manager

Talal KhalilManager, Middle East & North Africa Business Group

Dr. Ashraf El-GoharySenior Industrial/Petroleum Economist

Dr. Abdulaziz S. AlidiManager, GCC Business Group

John SeldenManager, Upstream Oil & Gas Business Group

Projects & Trade Finance Department

Michael HamiltonSenior. Manager

Nicholas ThevenotManager, Middle East & North Africa Business Group

Hassan MukayedAsst. Manager, Middle East & North Africa Business Group

Rashed Al-GhurairiSenior Project & Trade Finance Officer, GCC Business Group

Bassam Al-TamimiSenior Project & Trade Finance Officer,GCC Business Group

Darren DavisSenior Project & Trade Finance Officer,GCC Business Group

Patrick MgnbenweluSenior Project & Trade Finance Officer,GCC Business Group

Treasury & Capital Markets Department

Dino Roy MorettoSenior Manager

Zafar RajaManager, Money Markets

Hesham FaridAssistant Portfolio Manager

Technical Advisor

Ibrahim Laham

Financial Control Department

Edward J. LutleySenior Manager

Omar Al OmarDeputy Manager

Legal Department

Dr. Mohd. Abdel Khalek OmarGeneral Legal Counsel

Dr. Mohamed Nur El-Din El-TahirLegal Counsel

Khalid Al-MogrinLegal Counsel

Administrative Services Department* Mohamed M. Hafed

Senior Manager

Mahdi Al-MahdiPublic Affairs Officer

Samir El-GhonaimyAdministrative Accountant

Human Resources Department

Abdulla A. Al-NashwanSenior Manager

Information Systems Department

Galal OsmanSenior Manager

Mohamed El-ShinawyOperations & Communications Manager

Mohamed El KhoulySenior Analyst/Programmer

Library & Documentation Centre

Tijani Ben DhiaHead

* Head Office Building Project Manager


P A G E F I V E


P A G E S I X

Chairman’s Statement

It is my pleasure to present to you, on behalf of the Board of Directors of Arab Petroleum

Investments Corporation the twenty-fourth Annual Report on the Corporation’s

activities and results for the year ended 31 December 1999.

The Corporation saw a marked improvement in its operations during 1999, which were positively

reflected in the net profit of $34.9 million, compared to $12.1 million for 1998.

This improvement coincided with the recovery in oil markets during the second half of

1999, which boosted the economic climate in the region. That in turn helped the startup of

various oil projects whose execution has been delayed because of the turbulence in oil prices

at the end of 1997, following the economic crisis in the South East Asian countries and the

downturn of the financial markets in Russia and Brazil, causing low levels of growth and

demand in those countries.

The recovery in economic growth in these countries during 1999, together with the

stabilisation of the financial markets and the unprecedented growth in the USA and the return

of renewed economic revival to EU countries, resulted in an increased demand for oil, and

boosted the chances of price stabilisation at better levels than in the recent past. It is hoped

that the Arab countries will continue the introduction of the necessary structural

improvements to their economies, which should assist the rate of economic growth and

improve investment conditions and promote commercial exchanges between them.

We are sure that such conditions will create significant possibilities for the private sector’s activities

and increase its effectiveness, generating more investment opportunities for APICORP, whether

in petroleum project financing or in taking an equity share in the capital of these projects.

Dividend ° Having considered the improved results and the Corporation’s strong

financial position, the General Assembly resolved that a total dividend of $25.0 million be paid

to the shareholders for 1999 (1998: $15.0 million).

Loans and trade finance ° APICORP continued to consolidate its position in the project

finance markets, which resulted in a 16.3% increase in interest income from this activity over that

of 1998. Twelve new financing agreements worth $2.7 billion were signed in 1999, of which

APICORP’s share was $313.7 million (1998: $231.9 million). The Corporation continues to play

a leading role in these new loan syndications, acting variously as an arranger, underwriter,

technical bank, regional book-runner etc.

As a result net loans and trade finance outstanding at 31 December 1999 grew to $853.9

million (1998: $640.3 million), an increase of 33.4%. I am pleased to report that the situation

with respect to our Pakistan exposures has improved and all are now performing.


P A G E S E V E N

Chairman’s Statement

For the year ahead APICORP intends to achieve further growth in lending and to take advantage

of the improving economic situation in the region, particularly in shareholder countries.

Investments in securities ° During the year management began restructuring the

Corporation’s investments by concentrating on a high quality bond portfolio, to provide a secure

interest income stream, and a portfolio of managed funds with good track records for capital

growth. Treasury operations contributed $16.8 million to the Corporation’s net profit for 1999,

compared with $13.1 million loss in 1998.

As a result of the expansion of our loan activity total assets grew to $1,639.6 million in 1999,

compared to $1,513.9 in 1998, an increase of 8.3%. The Corporation maintained high

liquidity and a strong financial position, with total shareholders equity reaching $650.6 million

at 31 December 1999.

Conclusion ° Looking ahead we see good lending and investing prospects with financing

of more than $20 billion being needed for petroleum related projects in the Arab World.

Accordingly, we are confident that APICORP will play a leading role in supporting these

projects, whether through direct investment or through loan financing.

APICORP continues to consolidate its cooperation with the General Secretariat of the

Organisation of Arab Petroleum Exporting Countries (OAPEC) and its affiliates in

particular, as well as the regional bodies and institutions that are actively involved in the

financing of gas and petrochemical projects. In this connection, the Corporation actively

supported a number of Arab joint venture companies engaged in oil-related activities

during 1999, for example, by offering loans to Arab Maritime Petroleum Transport

Company, and Arab Drilling and Workover Company. We hope to further reinforce this

cooperation by meeting the future financing requirements of these institutions, as well as

by participating in joint ventures of a similar nature.

On behalf of the Board of Directors, I would like to express our thanks to the management and

staff of the Corporation for all their efforts and contributions to the improved results for 1999.

Finally, it is an honour to record our sincere appreciation of the continued support and

confidence of the Governments of our shareholding countries; and to express our deep gratitude

for the encouragement and assistance given to the Corporation by the Government of the

Custodian of the Two Holy Mosques and all related bodies in the Kingdom of Saudi Arabia.

Abdullah A. Al-Zaid

Chairman of the Board of Directors

The primary objective of APICORP since inception in November 1975 has been to

participate in the equity, as well as the debt-financing, of projects in the petroleum industry

in the Arab countries.

At the end of 1999, the Corporation held equity investments with a total net asset value of

US$146 million in 11 companies in seven countries.

The operations of these companies include the following activities: drilling and related services,

seismic services, extraction and marketing of LPG, production and marketing of polypropylene,

methyl tertiary butyl ethylene, aromatics, purified terephthalic acid, polyester fibres, linear alkyl

benzene, sodium tripolyphosphate, carbonblack, ammonia, urea, chemical fertiliser compounds

and storing, transhipping and handling of petroleum and petrochemical products.

APICORP continues to support its on-going investments and explore new investment

opportunities.

The following update contains a brief description of each project, together with details of

recent developments and results for 1999.

The Saudi European Petrochemical Company (Ibn Zahr) • Ibn Zahr (APICORP

investment: 10%) produces a gasoline octane booster methyl tertiary butyl ethylene

(MTBE) and polypropylene. MTBE production reached 1.5 million tons in 1999 (design


Equity Participations

BOARD OF DIRECTORS REPORT

APICORP Activities in 1999

P A G E E I G H T

capacity is 1.3 million tons/yr.) and polypropylene production reached 272 thousand tons

(design capacity is 200,000 tons/yr.).

1999 was a good year for Ibn Zahr mainly due to the economic turnaround in South East Asia

and stronger crude oil markets during the second half of the year positively impacting both

polypropylene and MTBE prices. As the average 1999 feedstock prices remained below

expectations, the company has succeeded in achieving good operational results. Net profit for

1999 was $ 61.6 million.

Ibn Zahr is expanding its polypropylene plant by adding a new line with a nameplate capacity of

320,000 tons/yr. The target for the mechanical completion of the expansion project is the third

quarter of this year.

Arab Company For Detergent Chemicals (ARADET) • ARADET (APICORP investment:

32%) was established in 1981 to produce linear alkyl benzene with a total production capacity

of 50,000 tons/yr. The complex also includes an aromatic benzene production line with a

total capacity of 30,000 tons/yr, toluene with a capacity of 8,000 tons/yr. and heavy alkyl

benzene with a total capacity of 3,000 tons/yr. In 1999 ARADET generated a net profit of

ID 567 million.



P A G E N I N E


P A G E T E N

Bahrain National Gas Company (BANAGAS) • BANAGAS (APICORP investment:

12.5%) was established in 1979 for the purpose of extracting LPG and condensate from

associated gas.

Total production in 1999 reached 93,000 tonnes of propane, 93,000 tonnes of butane and

179,000 tonnes of naphtha. While production was slightly lower than 1998, sales income

was 35 % higher than 1998. The profit for the year was BD 1.2 million.

Arab Drilling & Workover Company (ADWOC) • ADWOC (APICORP investment:

20%) was established in 1978 to provide drilling and other related operating services in the

Libyan and nearby markets.

ADWOC’S drills (11 owned and one leased) recorded 82% utilisation in 1999 against 91%

in 1998. Because of difficult market conditions, the company registered a net loss of $ 1.1

million for the year.

Tankage Mediterranée (TankMed) • TankMed (APICORP investment: 20%) was

established in 1984 to provide storage, trans-shipping and handling of petroleum and

petrochemical products at La Skirra terminal in Tunisia. The storage capacity is 300,000

cubic metres.





P A G E E L E V E N

In 1999 the utilisation increased to 69% against 60% in 1998. Net loss for the year was

TD 0.5 million.

Arab Geophysical Exploration Services Company (AGESCO) • AGESCO (APICORP

investment: 10%) was established in 1985 to provide advanced seismic services in the

Arab world.

The company has three seismic teams, presently operating in Zweiteena and Sirte in Libya.

AGESCO continues to suffer from the impact of the international economic embargo

which has reduced its work opportunities substantially inside Libya and recorded a net loss

of LD 540,0000 for 1999.

Jordan Phosphate Mining Company “JPMC” Jordan • JPMC (APICORP investment:

1.3%) is a Jordanian public company established in 1953, the current issued capital being

JD44 million (US$ 62 million). The major shareholder is the Jordanian Government

(69%), others including the Government of Kuwait (16%). The company mines phosphate

rock and produces and markets chemical fertiliser compounds. The annual production

capacity of the plant is 750,000 tons of di-ammonium phosphate, 410,000 tons of

phosphoric acid and 20,000 tons of aluminum fluoride.

Alexandria Carbon Black Company (ACBC) • ACBC (APICORP investment: 12%)

performed strongly in 1999 with carbon black production reaching 89,000 tons/yr.,

a 23% increase over 1998. Sales grew by 13% with increases on both the local and

export fronts.


The primary objective of APICORP since inception in November 1975

has been to participate in the equity, as well as the debt-financing, of

projects in the petroleum industry in the Arab countries.



ACBC has been active to promote its products in Europe, the Middle East and

other areas. Given the positive conditions that the world economy and carbon black

markets are experiencing, the company is expecting additional new markets to open in

year 2000.

Following the completion ahead of schedule in July 1999 of the expansion of the 3rd

production line, ACBC’s production capacity has increased from 70,000 tons/yr. to 110,000

tons/yr. (initial capacity was 20,000 tons/yr.).

In 1999 the company received the TPM Excellence Award from the Japanese Institute

of Plant Maintenance and is the first carbonblack company worldwide to receive ISO-

14002 accreditation for environment management and QS-9000 for quality

management. Net profit for the year reached EGP14.7 million.

The Arabian Industrial Fibers Company (Ibn Rushd) • Ibn Rushd (APICORP

investment: 8.26%) is an integrated petrochemical complex producing aromatics (730,000

tons/yr.), purified terephthalic acid - PTA (350,000 tons/yr.) and polyester (146,000

tons/yr.) plants. The polyester plant commenced commercial production in 1997.

1999 was another difficult year for the polyester industry due to global overcapacity. In

1999, Ibn Rushd’s polyester production remained unchanged at 172,000 tons/yr. against

a design capacity of 146,000 tons/yr. Polyester products are widely used in the carpet,

and packaging industries. Net loss for 1999 was S.R. 212 million.

The commissioning of the PTA and aromatics facilities has been completed and the next

phase is commercial production.

Oriental Petrochemicals Company (OPC) • OPC (APICORP investment: 14%) is

intended to produce 120,000 tons/yr. of different grades of polypropylene expandable to

162,000 tons/yr. Due to space limitations at the initial site, the company has decided to

relocate from Ameriyah to the new industrial area north west of the Gulf of Suez

(Ain Al-Sokhnah).

P A G E T W E L V E





OPC’s polypropylene plant will in future be an integrated petrochemical complex consisting

of a dehydrogenation plant for the production of propylene that, in turn, will be used as

feedstock for manufacturing polypropylene.

Toyo Engineering of Japan is implementing the project, which is expected to be completed by

the end of 2000.

The Egyptian Fertilisers Company (EFC) • EFC (APICORP investment: 10%)

specialises in nitrogen fertiliser products. Phase I, located in the new industrial area north west

of the Gulf of Suez (Ain Al-Sokhnah), has a total capacity of 400,000 tons/yr. of ammonia

and 635,000 tons/yr. of urea (for export). The project is 90% complete with commercial

production expected to begin in January 2001. Phase II` will produce 792,000 tons/yr. of

ammonium nitrate mainly for the local market.

Financing for 65% of the project cost is from a $ 210 million syndicated project finance term

loan for which APICORP was the sole arranger, documentation and syndication bank and is

the global facility agent.

P A G E T H I R T E E N

APICORP Equity Participations at 31 December 1999


Company Name Issued share capital APICORP Other major shareholders Activitiesparticipation

Saudi European Petrochemical Company SAR 1,200.0 million 10% Saudi Basic Industries Corporation Production of methyl tertiary(IBN ZAHR), Saudi Arabia (SABIC), Saudi Arabia butyl ethylene (MTBE),

Ecofuel, Italy and polypropylene.Fortum Oy, Finland

Arab Company for Detergent Chemicals ID 60.0 million 32.0% Government of the Republic of Iraq Production and marketing(ARADET), Iraq Government of the Kingdom of Saudi Arabia of linear alkyl benzene and

Government of the State of Kuwait sodium tripolyphosphate (STPP).Arab Mining Co., Jordan STPP project is beingThe Arab Investment Co., Saudi Arabia implemented.

Bahrain National Gas Company BD 8.0 million 12.5% Bahrain National Oil Co. Extraction and marketing of(BANAGAS), Bahrain Caltex Trading & Transport Co. USA LPG and condensates from

associated gas.

Arab Drilling and Workover Company LD 12.0 million 20.0% Arab Petroleum Services Co., OAPEC Drilling and related operations(ADWOC), Libya Santa Fe International Services Inc., Kuwait in the Arab world.

Tankage Mediterranee TD 12.0 million 20.0% Tunisienne d’Activities Petrolieres Storing, trans-shipping and (TANKMED), Tunisia (ETAP), Tunisia handling petroleum and

Societe Tuniso Seoudienne d’Investissement petrochemical products atet de Developpement (STUSID), Tunisia La Skhirra terminal.Banque Tuniso-Koweitienne deDevelopment (BTKD), Tunisia l’Entreprise

Arab Geophysical Exploration Services Co. LD 4.0 million 10.0% Arab Petroleum Services Co., OAPEC Providing advanced seismic(AGESCO), Libya Halliburton Geophysical Services, USA services in the Arab world.

National Oil Company, Libya

Jordan Phosphate Mining Company JD 44.0 million 1.3% Government of the Kingdom of Jordan Mining phosphate rock,(JPMC), Jordan Government of the State of Kuwait

Arab Mining Company, Jordan production and marketingIslamic Development Bank, Saudi Arabia of chemical fertiliser compounds

Alexandria Carbon Black Company EGP 99.5 million 12.0% Transport and Engineering Company Production and marketing(ACBC), Egypt (El Nesser Tire Co.), Egypt of carbon black.

Alexandria Tire Company, EgyptAl-Nasr Coke Company, EgyptSaudi-Egyptian Industrial InvestmentCompany, EgyptIndian Industrial Investment Group(BIRLA), IndiaInternational Finance Corporation, USAContinental Carbon Company, USA

The Arab Company for Industrial Fibers SAR 3,000.0 million 8.3% Saudi Basic Industries Corporation Production of aromatics(IBN RUSHD), Saudi Arabia (SABIC), Saudi Arabia purified terephthalic acid

Gulf Investment Company (GIC), Kuwait (PTA) and polyester fibres.Saudi Pharmaceuticals Co., Saudi ArabiaSaudi Arabia Fertiliser Co., Saudi Arabia

Oriental Petrochemicals Company EGP 120 million 14.0% Arab International Co. (OPC), Egypt for Joint Investments, Egypt Production of polypropylene.

Oriental Weavers Group, EgyptNational Bank of EgyptEgyptian Petrochemicals Co.Misr Insurance Co. EgyptOrient Insurance Co. (Al-Sharq), EgyptAmerican-Egyptian Carpet

Manufacturing Co., EgyptWatani Bank of EgyptExport Development Bank, EgyptMohamed Farid Khamis and other

individuals, Egypt

Egyptian Fertilisers Company EGP 400 million 10.0% Orascom, Egypt Production and marketing(EFC), Egypt H. Shabukshi Group, Egypt of ammonia and urea.

Public Sector Companies, lead by the Holding Co. for Chemical Industries, Egypt

National Investment Bank, EgyptMisr Insurance Co., EgyptBank of Alexandria, EgyptBank Misr, Egypt

P A G E F O U R T E E N



1999 was a year of continued growth in earnings, with the project and trade finance activity

contributing $12.4 million of the Corporation’s net operating profit for the year by way of margin

and fees earned (1998: $11.1 million).

A medium-term corporate objective is to increase significantly the income derived from the finance

activity, so as to lessen the relatively high dependence the Corporation has upon income from treasury.

The financial markets stabilised over the year, after the crises of 1998; and within the region,

particularly given the much improved economics of the hydrocarbon sector, companies requiring

to borrow were able to do so without the difficulties experienced by some the year before.

Leading role ° Major regional financings in the sector concluded over the year include those

detailed below, and it will be observed that APICORP played a leading role in most:

The ability of the Corporation to undertake effectively the role of ‘Regional Bookrunner’, to

syndicate and distribute loan facilities to banks throughout the region, and help to ensure the

success of financings for the borrower, has been a notable achievement.

Project & Trade Finance


Client Main Sponsors Facility and Purpose APICORP rolesigning date

Qatar Vinyl Corporation QGPC, Norsk Hydro $475 million New Petrochemical plant Arranger, underwriter, technical Elf Atochem 7 April 1999 bank, regional bookrunner,

information memorandum (joint).

Qatar General Petroleum Co. QGPC $400 million Term funding Arranger, underwriter,NGL-4 Tranche 1 23 April 1999 regional bookrunner.

Saudi Petrochemical Company SABIC, Shell $300 million Plant expansion and co-gen facility Arranger, underwriter,(SADAF) 15 May 1999 information memorandum,

regional bookrunner.

Qatar Chemical Company QGPC, Phillips $750 million New petrochemical plant Arranger, underwriter,27 Aug 1999 regional bookrunner.

Equate Petrochemical Company PIC, Dow/ $250 million Revolving working capital facility ParticipantUnion Carbide 29 Sept 1999

Saudi European Petrochemical Co. SABIC, Ecofuel, $400 million Debt restructuring Financial advisor (Ibn Zahr) Neste Oy, APICORP 24 Nov 1999

P A G E F I F T E E N



Significant growth ° As is evident from the table above, most of the financing over

1999 related to the petrochemical sector. By year end the loan exposure of APICORP

to petrochemicals amounted to $206.4 million, compared with $165.2 million at the

end of 1998.

The total loan portfolio, amounting to $853.9 million, is however widely spread

throughout the hydrocarbon sector as is detailed in Note 7 to the Financial Statements.

More generally the loan portfolio has grown significantly over 1999 reaching to $853.9

million at year-end, compared with $640.3 million at the end of 1998, a 33.4% increase.

Most of the growth has been achieved within the Arab world, mainly within the

GCC. Total lending to borrowers in the Arab world at 1999 year-end amounted to

$601.7 million.

A significant portion of the lending is essentially project finance, with dependence upon

project success for debt service. APICORP remains the only financial institution in the

region with a specialised projects department.

Trade finance ° Notwithstanding the focus on project finance, the Corporation

continues to provide trade-finance facilities, mainly to fund the purchase of oil and refined

products from the region by foreign consumers.

Trade finance outstanding at 1999 year-end amounted to $77.9 million, in addition to

which there was off-balance sheet unfunded exposure of $50.0 million.

Of the trade facilities, $33.5 million is payable by leading entities in Pakistan. This has been

rescheduled and all arrears of interest have been made current. All other trade finance

business has been performing satisfactorily.

Equity interests ° An important aspect of the financing activity is to provide support

to companies in which the Corporation has an equity interest.

In this context in 1999 the Corporation was pleased to arrange a loan facility for Arab

Drilling & Workover Company (ADWOC), Libya and to provide financial advisory

services to Saudi European Petrochemical Company (Ibn Zahr).

P A G E S I X T E E N





The year ahead ° For the year ahead the Corporation is aiming to achieve further

growth in lending.

With market interest in Libya now revived, and prospects in Algeria more encouraging,

we are targeting a higher level of business activity in North Africa.

Consideration is also being given to diversification, to arrange debt for the power sector,

and to the development of our financial advisory services.

P A G E S E V E N T E E N

Balance Sheet 31 December 1999


US$ 000 Notes 1999 1998 1997Assets

Cash and deposits with banks 4,17 261,272 194,277 180,438

Trading securities 5 38,631 95,032 96,732

Investment securities

Capital growth portfolio 6 80,489 116,891 64,786

Bond portfolio 6 197,640 266,303 337,282

Loans and trade finance 7 853,889 640,340 592,775

Equity participations 8 145,982 147,358 138,456

Tangible fixed assets 9 40,932 32,716 25,025

Interest receivable - 13,816 15,842 14,759

Other assets 10 6,921 5,136 3,110

Total assets 1,639,572 1,513,895 1,453,363

Liabilities

Deposits from banks 11 699,792 626,810 668,516

Term financing 12 250,000 225,000 75,000

Unpaid dividends 7 17,716 15,290 12,035

Accrued interest payable - 14,322 13,759 13,350

Liabilities under guarantee 13 - - 36,000

Other liabilities 14 7,154 2,363 4,846

Total liabilities 988,984 883,222 809,747

Shareholders’ equity

Share capital 1 460,000 460,000 460,000

Legal reserve 69,850 66,359 65,153

General reserve 75,000 75,000 75,000

Unappropriated profits 20,738 14,314 18,463

Proposed dividend 25,000 15,000 25,000

Total shareholders’ equity 650,588 630,673 643,616

Total liabilities and equity 1,639,572 1,513,895 1,453,363

The financial statements were approved by the Board of Directors on 9 April 2000 and signed by:

Abdullah A. Al-Zaid Mohamed Ali El-Huwej Rasheed M. Al-Maraj

Chairman Deputy Chairman Chief Executive & General Manager

P A G E E I G H T E E N

The finanacial statements consist of pages eighteen to forty five


Income Statement 31 December 1999

US$ 000 Notes 1999 1998 1997Interest income

Loans and trade finance 18 47,575 40,896 40,287

Deposits with banks 18 10,848 8,998 7,710

Securities 18 23,041 31,715 26,732

Total interest income 81,464 81,609 74,729

Interest expense 18 (46,714) (50,109) (41,663)

Net interest income 34,750 31,500 33,066

Non-interest income

Gains (losses) on trading securities - 9,310 (33,809) 2,714

Realised gains on capital growth securities - 7,952 17,663 13,269

Realised gains (losses) on investment bonds - (442) 3,011 4,622

Dividends from trading and capital growth securities - 1,161 1,711 685

Gain (loss) on exchange - 1,301 (495) (906)

Miscellaneous treasury income (losses) - (44) 805 583

Loans and trade finance fees and commission - 4,553 5,104 4,205

Income from equity participations - 404 3,898 5,326

Total non-interest income 24,195 (2,112) 30,498

Income before impairments and expenses 58,945 29,388 63,564

Allowances for impairment of assets

Investment securities (1997: write-back) 6 (20,301) (5,115) 1,709

Loans and trade finance (1999: write-back) 7 12,700 (33,159) (14,496)

Equity participations and other receivables 8,10 (2,600) (626) (6,504)

Liabilities under guarantee - provision released 13 - 36,000 16,000

Net increase in impairment allowances (10,201) (2,900) (3,291)

Total net operating income 48,744 26,488 60,273

Expenses

Human resources 15 (10,325) (10,547) (11,696)

Premises (488) (468) (441)

Equipment and communications (930) (1,067) (1,322)

General and administrative (2,086) (2,349) (2,143)

Total expenses (13,829) (14,431) (15,602)

Net profit for the year 34,915 12,057 44,671

The proposed appropriations of the 1999 net profit are set out in the statement of changes in shareholders equity

on page 20.

P A G E N I N E T E E N


Changes in Shareholders’ Equity 31 December 1999


US$ 000 Notes 1999 1998 1997

Share Capital

At 31 December - no change in the year 1 460,000 460,000 460,000

Legal Reserve

At beginning of the year 66,359 65,153 60,686

Appropriation from net profit (see below) 3,491 1,206 4,467

Total assets 69,850 66,359 65,153

General Reserve


Appropriation from unappropriated profits (see below) - - 35,000

General reserve at 31 December 75,000 75,000 75,000

Unappropriated Profits


Net profit for the year (page 19) 34,915 12,057 44,671

Proposed appropriations (see below)

Legal reserve (3,491) (1,206) (4,467)

General reserve - - (35,000)

Dividend to the shareholders (25,000) (15,000) (25,000)

Unappropriated profits at 31 December 20,738 14,314 18,463

Dividends to Shareholders

At beginning of the year - proposed for previous year 15,000 25,000 25,000

Approved and paid during the year (15,000) (25,000) (25,000)

Proposed for the current year (see below) 25,000 15,000 25,000

Proposed dividend at 31 December 25,000 15,000 25,000

Total equity at 31 December 650,588 630,673 643,616

Reserves

Under Article 35 of APICORP’s Statutes, 10% of annual net profits are to be transferred to a ‘legal reserveaccount’ until such reserve equals the Corporation’s subscribed share capital. The legal reserve is notavailable for dividend distribution.

Article 35 permits the establishment of other reserves. Accordingly, the Annual General Assembly, on therecommendation of the Board of Directors, may appropriate profits to the general reserve. The generalreserve may be utilised for whatever is consistent with the objectives of the Corporation, as may beresolved by the General Assembly, on the recommendation of the Board of Directors.

Proposed appropriations of 1999 net profit

The appropriations for 1999 as proposed by the Directors are subject to endorsement by the AnnualGeneral Assembly of the shareholders.

P A G E T W E N T Y



Cash Flows 31 December 1999

US$ 000 Notes 1999 1998 1997

Cash Flows from Operating Activities

Interest, commission and fee receipts 17 88,275 88,262 77,222

Interest payments 17 (44,916) (48,608) (40,165)

Payments to employees and suppliers 17 (12,082) (14,921) (14,082)

Cash inflow before changes in operating assets 31,277 24,733 22,975

Decrease (Increase) in Operating Assets

Net proceeds from sales of trading securities - 82,476 3,287 22,851

Loans and trade finance drawn down 7 (390,091) (151,300) (257,511)

Payment of liabilities under guarantees 13 - (37,609) (975)

Dividends from trading and growth securities 7 187,902 109,224 160,663

Cash outflow from operating activities (88,436) (51,665) (51,997)

Cash Flows from Investing Activities

Proceeds from sales of capital growth securities - 71,912 61,600 112,800

Proceeds from sales of investment bonds - 41,382 264,900 199,937

Payments for capital growth securities - (30,000) (97,671) (36,253)

Payments for investment bonds - (10,127) (229,687) (316,757)

Dividends from equity participations - 404 1,148 4,257

Proceeds from sale of equity participations - 2,750 - 422

New investments in equity participations 8 (1,224) (8,902) (5,572)

Capital expenditure on tangible fixed assets - (9,630) (8,763) (9,310)

Cash inflow (outflow) from investing activities 65,467 (17,375) (50,476)

Cash Flows from Financing Activities

Term financing drawn down 12 25,000 150,000 75,000

Increase (decrease) in deposits from banks 17 76,795 (43,345) 30,153

Increase (decrease) in other liabilities - 1,669 (1,276) 1,623

Dividends paid in respect of previous year 17 (13,500) (22,500) (22,500)

Cash inflow from financing activities 89,964 82,879 84,276

Total cash inflow (outflow) in the year 66,995 13,839 (18,197)

Cash and Cash Equivalents 17

At the beginning of the year - 194,277 180,438 198,635

Total cash inflow (outflow) in the year as above - 66,995 13,839 (18,197)

Cash and cash equivalents at 31 December 4 261,272 194,277 180,438

Cash and cash equivalents are cash and deposits with banks as shown in the balance sheet (page 18).

P A G E T W E N T Y O N E


Maturity Profile of Assets and Liabilities 31 December 1999


Up to 3 months 1 year 5 years 1999US$ 000 3 months to 1 year to 5 years and over Total

Assets

Cash and deposits with banks 261,272 - - - 261,272

Trading securities - - 8,806 29,825 38,631


Capital growth portfolio - - - 80,489 80,489

Bond portfolio - 24,834 101,494 71,312 197,640

Loans and trade finance 17,866 167,517 485,821 182,685 853,889

Equity participations - - - 145,982 145,982

Tangible fixed assets - - - 40,932 40,932

Interest receivable and other assets 14,755 929 - 5,053 20,737

Total assets 293,893 193,280 596,121 556,278 1,639,572

Liabilities and Equity

Deposits from banks 617,292 82,500 - - 699,792

Term financing - - 250,000 - 250,000

Unpaid dividends - - 17,716 - 17,716

Interest payable and other liabilities 17,500 3,976 - - 21,476

Shareholders’ equity - 22,500 2,500 625,588 650,588

Total liabilities and equity 634,792 108,976 270,216 625,588 1,639,572

Maturity gap (340,899) 84,304 325,905 (69,310)

Cumulative Maturity Gap 31 December 1999 (340,899) (256,595) (69,310)

31 December 1998

Total assets 293,933 82,886 346,192 790,884 1,513,895


Maturity gap (328,999) 47,886 105,902 175,211

Cumulative maturity gap (328,999) (281,113) (175,211)

31 December 1997

Total assets 261,431 90,992 362,902 738,038 1,453,363


Maturity gap (304,876) (102,448) 287,902 119,422

Cumulative maturity gap (304,876) (407,324) (119,422)

The above maturity profiles are based on contractual repayment arrangements. Defaulted loans, to theextent not covered by impairment allowances, are classified as ‘5 years and over’.

P A G E T W E N T Y T W O



Repricing Profile of Assets and Liabilities 31 December 1999

US$ 000 Up to 3 months Fixed Non-interest 19993 months to 1 year rate bearing Total

Assets

Cash and deposits with banks 261,272 - - - 261,272

Trading securities 13,074 1,940 20,126 3,491 38,631


Capital growth portfolio - - - 80,489 80,489

Bond portfolio 57,693 5,000 134,947 - 197,640

Loans and trade finance 613,026 227,095 - 13,768 853,889

Equity participations - - - 145,982 145,982

Tangible fixed assets - - - 40,932 40,932

Interest receivable and other assets - - - 20,737 20,737

Total Assets 945,065 234,035 155,073 305,399 1,639,572


Deposits from banks 617,292 82,500 - - 699,792

Term financing 250,000 - - - 250,000

Unpaid dividends 17,716 - - - 17,716

Interest payable and other liabilities 3,820 - - 17,656 21,476

Shareholders’ equity - - - 650,588 650,588

Total liabilities and equity 888,828 82,500 - 668,244 1,639,572

Interest rate sensitivity gap 56,237 151,535 155,073 (362,845)

Cumulative sensitivity gap 31 December 1999 56,237 207,772 362,845

31 December 1998

Total assets 613,950 304,723 200,822 394,400 1,513,895


Interest rate sensitivity gap (158,150) 209,723 200,822 (252,395)

Cumulative interest rate sensitivity gap (158,150) 51,573 252,395

31 December 1997

Total assets 585,866 336,704 261,621 269,172 1,453,363


Interest rate sensitivity gap 20,358 129,835 261,621 (411,814)

Cumulative interest rate sensitivity gap 20,358 150,193 411,814

The repricing profile illustrates the Corporation’s sensitivity to changes in interest rates.

P A G E T W E N T Y T H R E E


Currency Exposures 31 December 1999


19991999 liabilities 1999 1998 1997

US$ 000 Note assets and equity net exposure net exposure net exposure

Assets, Liabilities and Equity

United States dollars 1,459,878 (1,516,472) (56,594) (20,965) (61,748)

Euro/EMU legacy currencies (see below) 32,344 (35,233) (2,889) (21,908) 2,981

Other OECD currencies (see below) 5,202 (5,070) 132 (703) 2,190

Arab currencies

GCC (see below) 8 98,791 (82,797) 15,994 (3,431) 11,216

Other Middle East 8 25,734 - 25,734 28,334 28,334

Egypt and North America 8 17,623 - 17,623 18,673 17,027

1,639,572 (1,639,572) - - -

Commitments and Guarantees

United States dollars 314,174 385,057 299,228

Euro/EMU legacy currencies (see below) 21,790 25,055 25,304

Arab currencies

GCC (see below) 28,800 28,649 34,858

Egypt and North Africa 1,239 2,463 11,432

366,003 441,224 370,822

EMU legacy currencies

The eleven European Monetary Union countries which adopted the euro in place of their previous(legacy) currencies in January 1999 are : Austria, Belgium, Finland, France, Germany, Ireland, Italy,Luxembourg, Netherlands, Portugal and Spain.

Other OECD currencies

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

GCC

The member states of the Gulf Co-operation Council are: Bahrain, Kuwait, Oman, Qatar, Saudi Arabiaand the United Arab Emirates. Their currencies are pegged against the United States dollar.

Significant exchange rates

The following year-end rates have been used in converting other currencies to United States dollars:

1999 1998 1997

German marks 1.9275 1.6763 1.7981

Sterling pounds 1.6152 1.6539 1.6578

Saudi riyals 3.7500 3.7500 3.7500

Egyptian pounds 3.4000 3.3900 3.4025

P A G E T W E N T Y F O U R



Industry Distribution of Assets and Liabilities 31 December 1999

US$ 000 1999 1998 1997

Assets

Petroleum and petrochemicals

Fertilisers 86,822 57,633 61,562

Liquefied natural gas 103,180 85,696 73,312

Petrochemicals 328,551 288,685 213,686

Refineries 58,760 9,991 11,400

Pipelines 34,476 52,637 65,954

Tankers 53,936 36,148 39,623

Trade finance 71,387 58,199 56,417

Other petroleum 137,326 129,241 134,217

General allowances for impairments of assets (15,949) (24,244) (15,800)

Total petroleum and petrochemicals 858,489 693,986 640,371

Banks and financial institutions 324,959 279,039 292,879

Managed funds 71,696 84,838 51,696

Other industries 163,309 242,683 219,952

Governments 221,119 213,349 248,465

Total assets 1,639,572 1,513,895 1,453,363


Banks and financial institutions 964,113 865,569 761,876


Shareholders 668,304 645,963 655,651




Fertilisers 19,968 57,690 7,670


Petrochemicals 175,894 156,244 147,686

Refineries 32,598 40,000 -

Pipelines - 5,135 7,733

Trade finance 50,385 66,054 64,351

Other petroleum 10,578 11,395 6,851


Banks and financial institutions - - 900


Total commitments and guarantees 366,003 441,224 370,822

P A G E T W E N T Y F I V E


Geographical Distribution of Risk 31 December 1999


US$ 000 1999 1998 1997

Assets

Kingdom of Saudi Arabia 384,144 309,778 239,305

Other Gulf Cooperation Council states 252,995 155,714 224,784

Other Middle East states 106,371 104,952 92,765


Total Arab World 945,836 727,939 735,148

Western Europe 294,317 277,345 138,643

Eastern Europe 18,474 17,167 66,555

India and Pakistan 61,141 60,667 83,843

Asia Pacific Rim 44,539 27,387 68,494

United States 184,211 303,408 283,578

Other North and South America 107,003 124,226 92,902

General allowances for impairments of assets (15,949) (24,244) (15,800)

Total assets 1,639,572 1,513,895 1,453,363






Total Arab World 1,118,734 1,109,571 1,057,073

Western Europe 435,707 335,217 396,290

Asia Pacific Rim 82,071 50,766 -

United States 3,060 18,341 -







Total Arab World 280,830 345,614 263,562

Western Europe 60,179 71,648 75,534

India and Pakistan - 222 222

United States 24,994 23,740 31,504


P A G E T W E N T Y S I X



Estimated Fair Values of Assets and Liabilities 31 December 1999

1999 1999 1998 1997Carrying value Estimated Estimated Estimated

US$ 000 Notes (page 18) fair value fair value fair value

Assets

Cash and deposits with banks 4 261,272 261,272 194,277 180,438

Trading securities 5 38,631 38,631 95,032 96,732


Capital growth portfolio 6 80,489 84,074 107,388 82,047

Bond portfolio 6 197,640 187,815 250,837 334,968

Loans and trade finance 7 853,889 860,665 622,189 604,995

Equity participations 8 145,982 146,059 142,942 135,023

Tangible fixed asset 9 40,932 40,932 32,716 25,025

Interest receivable - 13,816 13,816 15,842 14,759

Other assets 10 6,921 6,921 5,136 3,110

1,639,572

Total assets at estimated fair value 1,640,185 1,466,359 1,477,097

Liabilities

Deposits from banks 11 699,792 699,792 626,810 668,516

Term financing 10 250,000 253,144 226,746 75,000

Unpaid dividends - 17,716 17,716 15,290 12,035

Accrued interest payable - 14,322 14,322 13,759 13,350

Liabilities under guarantee 13 - - - 36,000

Other liabilities 14 7,154 7,154 2,363 4,846

988,984

Total liabilities at estimated fair value 992,128 884,968 809,747

Shareholders’ Equity

Equity per balance sheet (page 18) 650,588 650,588 630,673 643,616

Estimated fair value more (less) than carrying value (2,531) (49,282) 23,734

Total equity at estimated fair value 648,057 581,391 667,350

1,639,572

Liabilities and equity at estimated fair value 1,640,185 1,466,359 1,477,097

APICORP’s balance sheet on page 18 is drawn up under the historical cost convention, except formonetary assets and liabilities denominated in foreign currencies, which are translated at exchange ratesruling at the balance sheet date, and trading securities, which are carried at market value.

Fair value represents the amount at which an asset could be exchanged, or a liability settled, betweenknowledgeable, willing parties in an arm’s length transaction. Underlying the definition of fair value is theassumption that the entity is a going concern without any intention or requirement to curtail materiallythe scale of its operations or to undertake a transaction on adverse terms

Differences can therefore arise between book values under the historical cost method of accounting andestimates of fair value. The bases for determining the estimated fair values of APICORP’s assets andliabilities are discussed in notes 4 to 14 relating to the individual balance sheet captions.

P A G E T W E N T Y S E V E N


Notes to the Financial Statements 31 December 1999


1 ESTABLISHMENT AND ACTIVITIES

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

• participation in financing petroleum projects and industries, and in fields of activity which are derivedtherefrom, ancillary to, associated with or complementary to such projects and industries,

• with priority being given to Arab joint ventures which benefit the member states and enhance theircapabilities to utilise their petroleum resources and to invest their savings in such ways as wouldstrengthen their economic and financial potential.

Activities

APICORP has its registered office in Dammam, Saudi Arabia, and is independent in its administration and inthe performance of its activities.

The Corporation operates on a commercial basis with the intention of making profit.

Currently project-financing activities take the form of:

• Loans and trade finance (see note 7); and

• Equity participations (see note 8).

These activities are funded by shareholders’ equity (long-term), medium-term financing (see note 12) andshort-term deposits from banks (see note 11). APICORP’s treasury department operating in internationalcapital and money markets also makes a significant contribution to income.

Taxation

Article 13 of the establishing agreement states that the Corporation shall be exempt from the payment of taxesin respect of its operations in the member states.

Share capital

The share capital of the Corporation is denominated in shares of US$ 1,000 each, owned by the governmentsof the ten OAPEC states as follows:

Issued and Authorised PercentageUS$ 000 fully paid capital

United Arab Emirates 78,200 204,000 17

State of Bahrain 13,800 36,000 3

Democratic and Popular Republic of Algeria 23,000 60,000 5

Kingdom of Saudi Arabia 78,200 204,000 17

Syrian Arab Republic 13,800 36,000 3

Republic of Iraq 46,000 120,000 10

State of Qatar 46,000 120,000 10

State of Kuwait 78,200 204,000 17

Socialist Peoples’ Libyan Arab Jamahiriya 69,000 180,000 15

Arab Republic of Egypt 13,800 36,000 3

460,000 1,200,000 100

The paid up share capital has been built up as follows:

1976 Contributed by the shareholders (SR 600 million) 169,700

1977 Contributed by the shareholders (SR 600 million) 170,000

1981 Capitalised from general reserve (bonus shares) 60,300

1996 Capitalised from general reserve (bonus shares) 60,000

460,000

P A G E T W E N T Y E I G H T




Per share information 1999 1998 1997

Earnings per US$ 1,000 share US$ 75.90 US$ 26.21 US$ 97.11

Proposed dividend per US$ 1,000 share US$ 54.35 US$ 32.61 US$ 54.35

Net assets value per US$ 1,000 share US$ 1,414 US$ 1,338 US$ 1,345

2 PRINCIPAL ACCOUNTING POLICIES

General

The financial statements are drawn up from the Corporation’s accounting records under the historical costconvention and in compliance with International Accounting Standards (IAS) and, accordingly, follow thefundamental accounting assumptions of going concern, consistency and accrual. The selection and application ofaccounting policies are governed by considerations of prudence, substance over form and materiality.

During 1999 The International Accounting Standards Committee has issued one new Standard (IAS 39 -Recognition and Measurement of Financial Instruments). It is a complicated Standard that need not be applieduntil 2001, and which may yet be modified before becoming mandatory. Accordingly APICORP managementdecided to defer applying IAS 39 until 2000.

One revised Standard was issued in 1999, IAS 10 Events After the Balance Sheet Date. The only part of the revisedStandard to affect APICORP was that proposed dividends should be included in the balance sheet in shareholders’equity rather than in liabilities as had been the Corporation’s policy hitherto.

No changes have been made with respect to profits reported in prior years.

Apart from innovations driven by changes in Standards, management policy is to seek continuously to improvethe quality of the information presented in the Corporation’s annual financial statements.

The principal accounting policies adopted in the financial statements are described below.

Income recognition

Interest income is recognised in the income statement as it accrues. Fee income is accounted for in the periodwhen receivable, except where the fee is charged to cover the costs of a continuing service to, or risks bornefor, the customer, or is interest in nature. In these cases, the fee is recognised on an appropriate basis over therelevant period.

Loans

Specific allowances are made for potential losses with respect to individual loans as and when circumstancesare identified that may cause serious, possibly permanent, impairments.

Additionally amounts are set aside as general allowances against other loan exposures to cover potentialimpairment losses not separately identified but known from experience to exist in any portfolio of loans. TheCorporation has based such general allowances on relevant risk considerations.

When there is no longer any realistic prospect of recovery, the outstanding loan balance (and any unpaidinterest) is written off with the sanction of the Board of Directors.

Loans are placed on a non-accrual basis when payment of interest or repayment of principal is 90 days pastdue, or earlier, when there is reasonable doubt as to ultimate collectability. Interest on non-performing loansis not recognised as income, but is accrued in a suspense account, which is netted off for presentation purposes.

P A G E T W E N T Y N I N E




2 PRINCIPAL ACCOUNTING POLICIES (continued)

Securities

The Corporation’s securities holdings, which include both debt and equity securities as well as managed funds,are classified according to the purposes for which they were purchased:

• Bond portfolio: This consists principally of investment grade fixed and floating rate bonds that areintended to generate a steady stream of interest income and will normally be held to maturity, unlessthere is an unexpected deterioration with respect to performance or redemption prospects.

The bond portfolio is carried at cost or amortised cost. Allowances are made for specific valueimpairments as and when these are identified.

• Capital growth portfolio: This consists principally of diversified managed funds which are purchasedwith a view to achieving capital appreciation over a holding period exceeding twelve months.

The capital growth portfolio is carried at cost. Allowances are made for specific value impairments as andwhen these are identified.

• Trading securities: These consist of various types of bonds and equity instruments that do not qualifyfor inclusion in the investment bond or capital growth portfolios. Mostly they are held with a view toachieving short-term capital gains.

The trading portfolio is carried at market value.

Where dated investment securities have been purchased at a premium or a discount, these premiums anddiscounts are amortised through the income statement (in “miscellaneous treasury income”) over the period fromthe date of purchase to the date of maturity. If the maturity is at the borrower’s option within a specified numberof years, the maturity date, which gives the more conservative result is adopted. These securities are included inthe balance sheet at cost adjusted for the amortisation of premiums and discounts arising on acquisition.

Any profit or loss on disposals of securities from the bond or capital growth portfolios is recognised in theincome statement as it arises. Changes in carrying values of the trading portfolio are recognised in income.

Equity participations

Equity participations are direct long-term investments in unquoted ordinary shares and are included in the balancesheet at cost, less specific and general allowances for any impairment of value. Participations equal to, or in excessof, 20 percent of the issued share capital of the investee companies are not treated as associate companies (andaccounted for by the equity method in accordance with IAS 28) because APICORP does not exercise significantinfluence over those companies.

Equity participations in currencies other than US dollars are translated into US dollars at the historical ratesprevailing at the date the investment was made. Dividends in respect of equity participations are included inthe income statement in the period in which the Corporation’s right to receive them is established.

Tangible fixed assets

Land is carried at cost. Other tangible fixed assets held for administrative purposes are carried at cost lessaccumulated depreciation. No borrowing costs are capitalised (all are expensed).

Depreciation is calculated, based on cost, by the straight-line method at rates intended to write off the costover the estimated useful lives of the assets.

No depreciation is provided until an asset is put into use. For example, no depreciation will be provided forin respect of the new head office building during the construction phase. When an asset is disposed of, orretired from use, the cost and related accumulated depreciation are removed from the accounts and anyresulting profit or loss is included in the income statement.

P A G E T H I R T Y




The depreciation rates used by the Corporation are based on the following estimated useful lives:

Housing compound buildings 25 yearsHousing compound equipment, furniture and fittings 5 yearsOffice equipment 4 yearsVehicles, computer hardware and software 3 years

Leases

The Corporation rents office premises, staff accommodation and equipment under short-term renewablecontracts. These contracts are in substance operating leases and, accordingly, all rents are included as expensesin the income statement on a straight-line basis over the lease term.

Foreign currencies

Monetary assets and liabilities denominated in currencies other than US dollars are translated into US dollarsat the rates of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities (and sharecapital originally contributed in Saudi riyals) are translated at historical rates of exchange.

Transactions during the year and revenue and expense items are translated at exchange rates prevailing at the timeof the transaction except for depreciation, which is based on historical cost and therefore translated at the samehistorical rates as the fixed assets. Exchange differences arising on translation are included in the determination of net profit.

3 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Financial instruments

A financial instrument is any contract that gives rise to both a financial asset in one enterprise and a financialliability or equity instrument of another enterprise.

• APICORP’s financial assets are principally deposits with banks (note 4), trading securities (note 5),investment securities (note 6), loans and trade finance (note 7) and equity participations (note 8).

• Financial liabilities consist of commitments to lend (note 7) and invest (note 8), deposits from banks (note 11), term financing (note 12), accrued interest, other liabilities (note 14) and derivatives (note16).

These financial instruments expose APICORP to varying degrees of price risk (including currency, interestrate and market risks), credit risk and liquidity risk.

Price risk management

Price risk is the risk that interest rates, foreign exchange rates or market prices will move relative to positions taken,exposing APICORP to potential losses or potential gains.

Market risk is the risk that the value of a financial instrument will vary as a result of changes in market prices, whethercaused by factors specific to the individual security or its issuer or factors affecting all securities traded in the market.It arises on financial instruments valued at current market prices (mark-to-market basis) and those valued at cost-plus-accrued-interest (accruals basis).

APICORP deals in debt and equity securities. Treasury activities are controlled by means of a framework ofcurrency, industry and geographical limits as well as ratings by agencies such as Standard & Poors.

Loans and trade finance deals are normally denominated in United States dollars, as is the Corporation’s funding,and interest rates for both are normally linked to LIBOR.

Exposure to interest rate risk is restricted by permitting only a limited mismatch between the re-pricing of the maincomponents of the Corporation’s assets and liabilities. The repricing profile of assets and liabilities is set out on page 23.

Trading in, and exposure to, currencies other than United States dollars is conducted within strictly controlled limitsto ensure that no significant positions are taken which may expose APICORP to undue risks. The Corporation’snet currency exposures are set out on page 24.

P A G E T H I R T Y O N E




3 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

Credit risk management

Credit risk is the risk that a borrower or counter-party of APICORP will be unable or unwilling to meet acommitment that it has entered into with the Corporation. It arises from the lending, trade finance, treasuryand other activities undertaken by the Corporation. Policies and procedures are in place for the control andmonitoring of all such exposures.

Proposed loans, trade finance and equity participation investments are subject to systematic investigation, analysisand appraisal before being reviewed by a committee, consisting of the General Manager and senior managers, whichin turn makes appropriate recommendations to the Board of Directors who have the ultimate authority to sanctioncommitments.

These procedures, and because most of the loans are backed by sovereign guarantees and/or export creditagency cover, limit APICORP’s exposure to excessive credit risk.

The Corporation faces a credit risk on undrawn commitments because it is potentially exposed to loss in anamount equal to the total unused commitments. However the eventual loss, if any, will be considerably lessthan the total unused commitments since most commitments to extend credit are contingent upon borrowersmaintaining specific credit standards.

All commitments, whether drawn or undrawn, are subject to systematic monitoring so that potential problemsmay be detected early and remedial action taken. With one minor exception APICORP representatives sit onthe boards of companies in which the Corporation has equity participations and thus are in a position tomonitor circumstances that may expose the Corporation to risk.

Treasury activities are controlled by means of a framework of limits and credit ratings. Trading in marketablesecurities is primarily restricted to United States and major European stock exchanges. Dealing is only permittedwith approved internationally rated banks, brokers and other counter-parties. Securities portfolios and investingpolicies are subject to regular review by the Treasury and Capital Markets Committee, which is chaired by theGeneral Manager and consists of appropriate qualified and experienced members of senior management.

Liquidity risk and funding management

Liquidity risk is the risk of being unable to raise funds at a reasonable price to meet commitments when theyfall due, or to take advantage of investment opportunities when they arise. Liquidity risk management ensuresthat funds are available at all times to meet the funding requirements of the Corporation.

APICORP's liquidity management policies are designed to ensure that even under adverse conditions theCorporation has access to adequate funds to meet its obligations, to expand its core investment and lendingfunctions and to be able to exploit market opportunities.

This is achieved by the application of prudent but flexible controls, which provide security of access to liquidity withoutundue exposure to increased costs from the liquidation of assets or the aggressive bidding for deposits .Liquidity controlsalso provide for an adequately diversified deposit base in terms of maturity and range of counter-parties.

The asset and liability maturity profile based on contractual repayment terms is set out on page 22. Althoughdeposits from banks are taken mainly for three months or less, in practice a substantial portion is rolled overon maturity, which effectively reduces the short-term mismatch disclosed on page 22.

4 CASH AND DEPOSITS WITH BANKS

US$ 000 1999 1998 1997

Cash at call or in current accounts 10,262 14,763 9,219

Deposits with banks 251,010 179,514 171,219

Carrying value per balance sheet 261,272 194,277 180,438

P A G E T H I R T Y T W O




5 TRADING SECURITIES

US$ 000 1999 1998 1997

Fixed and floating interest rate bonds - at cost 51,122 101,357 74,735

Unrealised losses

Russia (10,837) (21,881) (159)

Other - mainly USA and other OECD countries (5,146) (13,099) (880)

Market value 35,139 66,377 73,696

Equities - at cost 6,512 42,184 33,797

Unrealised losses - mainly USA and other OECD countries (3,020) (13,529) (10,761)

Market value 3,492 28,655 23,036

Carrying value per balance sheet - market value 38,631 95,032 96,732

6 INVESTMENT SECURITIES

US$ 000 1999 1998 1997

Capital growth portfolio

Equities - at cost 12,692 30,739 13,090

Managed funds - at cost 71,697 87,652 51,696

Allowance for specific impairments in value (3,900) (1,500) -


Bond portfolio

Fixed interest rate bonds - at amortised cost 156,463 171,280 211,779

Floating interest rate bonds - at cost 62,693 98,638 125,503

Allowance for specific impairments in value (21,516) (3,615) -


Market values

Capital growth portfolio

Equities 8,486 24,186 18,101

Managed funds 75,588 83,202 63,946

Total market value 84,074 107,388 82,047

Bond portfolio

Fixed interest rate bonds 125,945 158,817 209,642

Floating interest rate bonds 61,870 92,020 125,326

Total market value 187,815 250,837 334,968

Unrealised (losses) gains

Capital growth portfolio (315) (11,003) 17,261

Bond portfolio (31,341) (19,081) (2,314)

Total market value (31,656) (30,084) 14,947

Allowances for impairments 25,416 5,115 -

Net exposure (6,240) (24,969) -

The allowances for specific impairments are based on the unrealised losses, the credit ratings of the individualsecurities and other relevant factors.

P A G E T H I R T Y T H R E E




7 LOANS AND TRADE FINANCE

US$ 000 1999 1998 1997

Loans outstanding at 31 December

Syndicated 737,182 547,320 512,486

Direct 137,840 148,352 119,920

Revolving 13,409 7,355 -

888,431 703,027 632,406Trade finance outstanding at 31 December

Syndicated 77,917 67,917 56,417

Direct 4,952 4,952 4,952

Total gross loans and advances outstanding 971,300 775,896 693,775

Allowances for loan impairments

Specific - net of collateral held (101,462) (111,312) (85,200)

General (15,949) (24,244) (15,800)

Net carrying value per balance sheet 853,889 640,340 592,775

Movements in gross loans in the year

Outstanding at the beginning of the year 775,896 693,775 602,704

Draw-downs on new and existing loans 350,931 151,300 257,511

Loan purchased on secondary market 39,160 - -

Amortisation of purchased loan 137 - -

Payments under guarantees (see note 13) - 37,609 975

Repayments and prepayments received (187,902) (109,224) (160,663)

Exchange rate movements (6,922) 2,436 (3,316)

Irrecoverable loan written off - Yemen - - (3,436)

Gross loans and advances at 31 December 971,300 775,896 693,775

Non performing loans

Iraqi companies 99,226 106,660 68,640

Sudan company 16,560 16,560 16,560

Pakistan - net of guarantees (see below) 11,810 45,526 -

Non-performing loans at 31 December 127,596 168,746 85,200

The 1998 increase in Iraq non-performing loans was because of payments APICORP was obliged to make toEuropean contractors under a guarantee entered into before the 1990-91 Gulf crisis.

In 1999 trade finance facilities to Pakistan government controlled entities amounting to US$ 33.5 million havebeen rescheduled and all arrears of interest have been paid. Under the rescheduling, repayments of principalwill be made in 2001-2002. The rescheduling of APICORP’s syndicated loans exposure to the Pakistan privatesector amounting to US$ 11.8 million is still under negotiation.

P A G E T H I R T Y F O U R




US$ 000 1999 1998 1997

Specific allowances and collateralSpecific allowances at the beginning of the year 111,312 85,200 76,560

(Write-back) charge for the year (1,979) 48,005 12,076

Allowances released because of collateral held (2,426) (23,290) -

Irrecoverable loan written off - Yemen - - (3,436)

Exchange rate movements (5,445) 1,397 -

Total specific allowances at 31 December 101,462 111,312 85,200

Collateral held against loans to Iraqi entities

Dividends and interest due to Iraqi shareholder 17,716 15,290 12,035

Machinery for ARADET project (see note 13) 8,000 8,000 -

Total specific allowances and collateral 127,178 134,602 97,235

Dividends for the years 1992-98 due to the Iraqi shareholder have not been paid because of the United Nationssanctions against Iraq, and are deemed to be held in escrow pursuant to a 1993 resolution of the APICORP Boardof Directors.

The unpaid dividends (and accrued interest thereon) are considered by APICORP as collateral against loans madeto an Iraqi company before the 1990-91 Gulf crisis.

US$ 000 1999 1998 1997

General allowances for loan impairments

General allowances at the beginning of the year 24,244 15,800 13,380

(Write back) charge for the year (8,295) 8,444 2,420

General allowance at 31 December 15,949 24,244 15,800

In 1999 management reviewed different methodologies for determining the level of general allowances, whichinvolved the consideration of various relevant risks and how these should be recognised. The results indicatedthat a level of approximately 2 percent of exposures, net of specific allowances, was appropriate in view of thenature of APICORP's lending, which is mainly to shareholder controlled entities. Accordingly a write back ofapproximately US$ 8.3 million was decided upon.

Charge for allowances for loan impairments

(Decrease) increase in specific allowances (1,979) 48,005 12,076

Allowances released because of collateral acquired (2,426) (23,290) -

(Decrease) increase in general allowances (8,295) 8,444 2,420

Net (credit) charge to income statement (page 19) (12,700) 33,159 14,496

Undrawn loan commitments and guarantees

At the beginning of the year 387,294 299,826 287,507

New commitment agreements signed 313,720 231,890 311,493

Drawdowns in the year (350,931) (152,240) (258,486)

Lapsed commitments and other movements - net (38,997) 7,818 (40,688)

Undrawn commitments at 31 December 311,086 387,294 299,826

P A G E T H I R T Y F I V E




7 LOANS AND TRADE FINANCE (continued)US$ 000 1999 1998 1997

Industry distribution


Fertilisers 75,022 45,833 53,000


Petrochemicals 206,383 165,188 110,231

Refineries 58,760 9,991 11,400

Pipelines 34,476 52,637 59,705

Tankers 53,936 36,148 39,623

Trade finance 71,387 58,199 56,417

Other petroleum 109,219 92,250 83,808

General allowance for impairments (15,949) (24,244) (15,800)


Governments 160,081 121,248 120,679

Net carrying value 853,889 640,340 592,775

The outstanding commitments and guarantees are mainly for petrochemicals projects.

Geographical distribution of risk

The analysis of country risk in respect of the loans and trade finance portfolio is after taking account of specificallowances for impairments and third-party guarantee and insurance arrangements.

US$ 000 1999 1998 1997

Arab World


Other GCC states 192,168 115,383 108,603



Total Arab World 601,650 449,893 385,789

Western Europe 90,294 44,034 46,849

India and Pakistan 48,905 49,146 67,575

Asia Pacific Rim 18,760 10,200 11,400

United States 65,229 76,311 78,462

Latin America 45,000 35,000 18,500

Total gross loans less specific allowances 869,838 664,584 608,575

General allowance for impairments (15,949) (24,244) (15,800)


Commitments and guarantees

Arab World 226,072 292,574 193,179

Western Europe and United States 85,014 94,720 106,647


P A G E T H I R T Y S I X




US$ 000 1999 1998 1997

Fair values

Syndicated loans 715,717 515,430 477,354

Direct loans - including collateral 52,877 45,970 60,170

Revolving loans 12,993 7,355 10,050

Syndicated trade finance 77,309 53,087 56,034

Direct trade finance 1,769 347 1,387

Total estimated fair value (page 27) 860,665 622,189 604,995

Sovereign loans have been valued at their secondary market prices. Other direct and syndicated loans and tradefinance have been valued in line with current pricing for similar new facilities.

8 EQUITY PARTICIPATIONS

US$ 000 1999 1998 1997

Cost at beginning of the year 163,758 158,456 152,884

Paid for new investments in the year 1,224 8,902 5,572

Participation sold in the year - ABB Arescon EC - (3,600) -

Total cost at 31 December 164,982 163,758 158,456

Allowances for impairment in value (19,000) (16,400) (20,000)


The principal participations (and percentage of capital subscribed) are as follows:

US$ 000 1999 1998 1997

Arabian Industrial Fibers Co., Saudi Arabia (8.3%) 70,880 70,880 70,880

Arab Company for Detergent Chemicals, Iraq (32%) 37,370 37,370 37,370

Saudi European Petrochemical Co., Saudi Arabia (10%) 18,063 18,063 18,063

Egyptian Fertilisers Co., Egypt (10%) 11,800 11,800 4,130

Arab Drilling & Workover Co., Libya (20%) 8,100 8,100 8,100

Others (1999: 6) each less than US$ 5.0 million 18,769 17,545 19,913

Total cost 164,982 163,758 158,456

Commitments

Arab Company for Detergent Chemicals (ARADET) 24,705 24,705 24,705

Arabian Industrial Fibers Co. (Ibn Rushd) 12,144 - -

Saudi European Petrochemical Co. (Ibn Zahr) 4,649 4,649 4,649

Oriental Petrochemical Co., Egypt 1,239 2,463 3,762

Egyptian Fertiliser Co. - - 7,670

Total commitments 42,737 31,817 40,786

Currency exposures


Arab currencies

GCC 91,549 91,549 91,549

Other Middle East 25,734 28,334 28,334



P A G E T H I R T Y S E V E N




8 EQUITY PARTICIPATIONS (continued)US$ 000 1999 1998 1997

Industry distribution

Fertilisers 11,800 11,800 4,130


Petrochemicals 122,121 123,497 122,265

Other petroleum 9,455 9,455 9,455


The outstanding commitments are mainly in respect of petrochemicals projects.

Estimated fair values

The estimated fair values included on page 27 have been calculated on a net assets basis as derived from thelatest audited financial statements or unaudited management information, translated at current exchange ratesand adjusted for any other relevant factors.

The fair values previously used for 1998 and 1997 have been revised downwards by US$ 17.1 million and US$ 14.8 million respectively to make the treatment of certain deferred preoperating expenses consistentwith International Accounting Standards.

Estimated fair values at 31 December 146,059 142,942 135,023

9 TANGIBLE FIXED ASSETS

US$ 000 1999 1998 1997

Cost

Land at Dammam and Rakah 6,514 6,514 6,514

New head office building under construction 25,831 17,358 10,606

Housing compound extension under construction 3,289 2,874 1,116

35,634 26,746 18,236

Housing compound buildings and furnishings in use 23,532 23,318 23,282

Office equipment, furnishings and vehicles 5,021 5,016 4,920

Total cost 64,187 55,080 46,438

Accumulated depreciation

Housing compound buildings and furnishings in use (18,558) (17,792) (17,053)

Office equipment, furnishings and vehicles (4,697) (4,572) (4,360)

Total accumulated depreciation (23,255) (22,364) (21,413)

Carrying value

Land and buildings under construction - cost 35,634 26,746 18,236

Housing compound buildings and furnishings in use 4,974 5,526 6,229

Office equipment, furnishings and vehicles 324 444 560


P A G E T H I R T Y E I G H T




US$ 000 1999 1998 1997

Movements in the year

Net carrying value at beginning of the year 32,716 25,025 16,912

Additions at cost

New head office building under construction 8,865 6,752 7,936

Other 765 2,011 1,374

Advance payments and retentions (see below) (393) - -

Disposals at cost (131) (121) (150)

Disposals - accumulated depreciation 131 119 145

Depreciation charge for the year (1,021) (1,070) (1,192)


In 1999 advance payments made to the contractors in 1997 (and subsequently partially amortised against

progress billings) and retentions (deducted from progress billings) have been recognised as separate assets and

liabilities (see notes 10 and 14). In 1997 and 1998 they were netted with additions.

Capital commitments

Capital commitments at the beginning of the year 22,113 30,209 2,014

New commitments (deletions) (809) 130 37,000

Payments (9,124) (8,226) (8,805)

Commitments at 31 December 12,180 22,113 30,209

These commitments relate principally to the construction of the new head office building, which, as the result

of delays, is now scheduled for completion and use in late 2000, but still within the original budget.

Other capital expenditure in respect of the new head office building and the housing compound extension, as

approved by the Board of Directors, but not yet contracted, amounts to US$ 2.6 million.

10 OTHER ASSETS

US$ 000 1999 1998 1997

Costs relating to ARADET guarantee arbitration 2,580 2,562 2,160

Allowance for non-recoverability (see note 13) (2,580) (2,562) (1,936)

- - 224

Advance payments to contractors (see note 9) 2,729 - -

Accrued income on asset swaps (see note 16) 1,260 - -

Proceeds from sale of equity participation (see note 8) - 2,750 -

Dividends declared but not yet received 647 647 647

Employee advances 382 239 327

Prepaid expenses 92 175 134

Unamortised financing costs (see note 12) 925 1,234 1,571

Miscellaneous receivables 886 91 207


P A G E T H I R T Y N I N E




11 DEPOSITS FROM BANKS

US$ 000 1999 1998 1997


Euro/EMU legacy currencies 34,278 85,848 49,999

Other OECD currencies 2,965 10,790 6,567

Arab currencies - GCC 79,894 99,440 104,194


12 TERM FINANCING

US$ 000 1999 1998 1997

US$ 225 million loan 1997-2002 225,000 225,000 75,000

US$ 75 million revolving facility 1997-2002 25,000 - -

Total drawn down per balance sheet 250,000 225,000 75,000

The agreement for the US$ 225 million loan (for general corporate purposes) was signed on 30 July 1997 with

a consortium of international banks including:

• Arab Banking Corporation BSC, The Bank of Tokyo-Mitsubishi Ltd, Deutsche Bank AG, JP MorganSecurities Ltd and Union Bank of Switzerland, as arrangers;

• ANZ Investment Bank, Arab Bank Plc, Banque Nationale de Paris Plc, Banque Paribas, Dresdner BankLuxembourg SA, Riyadh Bank and Sumitomo Bank Limited, as co-arrangers; and

• 18 other international banks.

The agent for the consortium is Deutsche Bank Luxembourg SA.

On 26 November 1997 APICORP signed an agreement with Barclays Bank Plc, London for a US$ 75 million

revolving credit facility for general working capital and liquidity purposes.

13 LIABILITIES UNDER GUARANTEE

As part of the financing facilities granted to The Arab Company for Detergent Chemicals (ARADET), Iraq in1989 for the construction of a sodium tripolyphosphate (STPP) plant, APICORP issued a letter of guaranteeto the project construction consortium.

Because of the 1990-91 Gulf crisis, work on the project was suspended and the consortium claimed under theguarantee. In 1998 the Corporation has paid the consortium the equivalent of US$ 36.7 million in full andfinal settlement. APICORP has assumed custody of the STPP machinery intended for the project currentlystored in Belgium, and will hold it until the United Nations sanctions against Iraq are lifted and delivery toARADET becomes possible. Meanwhile the Corporation regards the machinery as collateral against thepossibility of ARADET failing to discharge its debt obligations to APICORP (see note 7).

The amounts paid to the consortium and other costs such as legal fees, which are reimbursable under the termsof the guarantee and thus claimable from ARADET, have been included in the balance sheet as loans (see note7) and other assets (see note 10).

Because of the uncertainty concerning the eventual outcome, full allowance has been made against all theamounts due from ARADET, less US$ 8.0 million, which is an independent expert's estimate of the scrap valueof the STPP machinery held as collateral.

P A G E F O R T Y




The provision for liabilities under guarantee

At 31 December 1996 the Corporation had in place a provision of US$ 52 million (equivalent to DEM 80 million)in respect of the potential liabilities under the ARADET guarantee. As a result of arbitration the liability wasreduced to DEM 53.9 million (plus interest) which APICORP duly paid to the consortium following negotiationsand agreement over the transfer of custody of the project machinery. Movements in the provision in 1997 and1998 were as follows:

US$ 000 1999 1998 1997

Provision at the beginning of the year - 36,000 52,000

Provision released to income statement (page 19)

Exchange rate movements (US$: DEM) - 669 (7,000)

Reduction in liability following arbitration award - - (9,000)

On settlement of agreed liability to the consortium - (36,669) -

Provision per balance sheet - - 36,000

14 OTHER LIABILITIES

US$ 000 1999 1998 1997

Retentions due to contractors (see note 9) 2,336 - -

Staff Retirement Fund current account (see below) 1,000 5 206

Accrued expenses 947 161 1,167

Other payables 2,871 2,197 3,473

Total per balance sheet 7,154 2,363 4,846

The temporary indebtedness to the Staff Retirement Fund at 31 December 1999 was in respect of a moneymarket deposit made by the Corporation on the Fund's behalf as part of its Y2K liquidity precautions. Thedeposit matured and was repaid on 9 February 2000.

15 EMPLOYEE RETIREMENT BENEFITS

A defined benefit retirement plan (The Staff Retirement Fund) has been established to provide APICORP employeeswith pensions, end-of-service gratuities and indemnities for death or disablement during service with the Corporation.

The Fund is a separate entity, and its assets are held separately from those of the Corporation. It is administeredby a committee consisting of the General Manager and other senior employees appointed by the Board ofDirectors on the recommendation of the General Manager.

The Fund is financed by contributions from both employees and the Corporation whose contributions arebased on the advice of an independent actuary and approved by the Board of Directors.

Valuation

The fund is actuarily valued, by the projected benefit method, every third year with less comprehensiveassessments in the interim years. The most recent full valuation at 31 December 1999 assumed a discount rateof 8 percent and average annual increases in salaries of 5 percent and indicated that the liabilities of the Fundto its beneficiaries were adequately covered by the fair values of the Fund assets.

US$ 000 1999 1998 1997

Estimated fair value of total Fund assets 10,710 13,195 12,127

Actuarially determined value of accrued benefits (9,777) (11,060) (10,715)

Surplus over liabilities 933 2,135 1,412

Current service cost

The Corporation's contributions to the Fund in respect of current service cost as charged in the incomestatement were as follows.

Total contributions for the year 511 1,011 993


P A G E F O R T Y O N E



15 EMPLOYEE RETIREMENT BENEFITS (continued)

At the beginning of 1999 the rate of the Corporation's contributions was temporarily reduced by 50% to save costs. The position will be monitored during 2000 and the rate of contributions increased as andwhen appropriate.

There have been no other changes in the terms and conditions of the Fund or changes in the actuarial valuationmethod or any other significant matters that affect the charge to income or comparability with previous years.

GOSI

APICORP also contributes to the compulsory General Organisation for Social Insurance (GOSI) scheme,which covers, amongst other benefits, retirement pensions for Saudi nationals.

1999 1998 1997

Total contributions in the year 242 221 176

16 COMMITMENTS, DERIVATIVES AND CONTINGENT LIABILITIES

The Corporation has commitments to extend credit in the form of loans and trade finance and relatedguarantees as described in note 7, to subscribe to investments in equity participations (see note 8) and topurchase capital assets (see note 9).

There were no open underwriting commitments at the balance sheet date.

Information with respect to current guarantees is contained in note 7.

There were no open forward foreign exchange contracts at 31 December 1999 (or 1998).

Derivatives

In 1997 the Corporation entered into six asset swap transactions with a notional amount of US$ 44.75 million.In 1999 two of the positions were closed out, leaving four with a notional value of US$ 29.75 million maturingin 2000 - 2001. The swaps were undertaken in order to convert non-US dollar fixed rate interest into US dollarfloating rate income.

Asset swaps involve the use of interest rate swaps and currency swaps in conjunction with the cash flows froman asset, with the intention of changing the interest rate and currency risks. The primary risks associated withthese transactions are the risk of default by the bond issuers and the swap counterparties.

The notional amounts of the swaps represent the volume of outstanding transactions and do not represent thepotential for gain or loss associated with the market risk or credit risk of such transactions.

APICORP attempts to limit its credit risk by dealing with high credit quality counterparties and using legallyenforceable master netting agreements.

At 31 December 1999 income amounting to US$ 1.26 million, arising mainly from movements in exchangerates, has been included in the income statement (page 19).

17 CASH FLOWS

Cash flows are inflows and outflows of cash and cash equivalents. APICORP's cash and cash equivalents consistof cash and deposits with banks as set out in note 4. The cash flow statement shows the cash flows derivedfrom the Corporation's activities as follows:

1 Operating activities: These are the principal revenue-producing activities and other activities that are notinvesting or financing activities;

2 Investing activities: The acquisition and disposal of long-term assets and other investments not included incash and cash equivalents; and

3 Financing activities which are activities that result in changes in equity capital and borrowings.

P A G E F O R T Y T W O




Operating activities

The derivation of the principal cash flow components included in operating activities is as follows:

Interest, commission and fee receiptsUS$ 000 1999 1998 1997

Total interest income per income statement (page 19) 81,464 81,609 74,729

Decrease (increase) in interest receivable in the year 2,026 (1,083) (2,515)

Fee and other receipts 4,785 7,736 5,008

Net cash inflow 88,275 88,262 77,222

Interest payments

Interest expense per income statement (page 19) (46,714) (50,109) (41,663)

Increase in accrued interest payable 563 409 2,471

Deferred financing costs and other payments 1,235 1,092 (973)

Net cash (outflow) (44,916) (48,608) (40,165)

Cash payments to employees and suppliers

Operating expenses per income statement (page 19) (13,829) (14,431) (15,602)

Accrued expense movements and other payments 726 (1,562) 323

Depreciation charge and disposals (note 9) 1,021 1,072 1,197

Net cash (outflow) (12,082) (14,921) (14,082)

Financing activitiesThe increase (1998: decrease) in deposits from banks was derived as follows:

Net increase (decrease) per balance sheet (page 18) 72,982 (41,706) 27,743

Effect of changes in exchange rates 3,813 (1,639) 2,410

Net cash inflow (outflow) 76,795 (43,345) 30,153

Dividends paid

Dividends paid in respect of previous year (page 20) (15,000) (25,000) (25,000)

Dividend due to Iraqi shareholder not paid (note 7) 1,500 2,500 2,500

Net cash (outflow) (13,500) (22,500) (22,500)

18 EFFECTIVE INTEREST RATES

The effective interest rate of a financial instrument is:

• the historical rate for a fixed rate instrument carried at amortised cost; or

• the current market rate for a floating rate instrument.

The effective interest rates of the Corporation's financial instruments at the balance sheet date were:1999 1998 1997

Interest bearing financial assets

Deposits with banks - average 6.38% 5.84% 5.52%

Fixed rate bonds - average 8.50% 8.66% 8.80%

Floating rate bonds - average 6.97% 6.23% 7.00%

Loans and trade finance (performing) - range 6.23-9.95% 5.41-7.34% 6.3-8.31%

Term loans - average 7.01% 6.27% -

Trade finance - average 8.27% 7.03% -

Interest bearing financial liabilitiesDeposits from banks - average 6.03% 5.52% 5.66%

Term financing - average 6.38% 5.69% 6.16%

P A G E F O R T Y T H R E E



19 RELATED PARTY TRANSACTIONS

APICORP's principal related parties are its shareholders. Although the Corporation does not transact anycommercial business directly with the shareholders themselves, it does finance companies which are eithercontrolled by the shareholder governments or over which they have significant influence.

US$ 000 1999 1998 1997

Loans to related partiesLoans outstanding at 31 December - gross 639,636 504,605 415,333

Allowances against loans at 31 December 73,509 83,370 76,484

Commitments to lend at 31 December 211,112 329,811 169,900

Interest from loans during the year 30,779 26,585 22,967

Other income received during the year 2,552 3,777 2,796

Loans to related parties are made at ruling market interest rates and subject to normal commercial terms. Themajority of loans to related parties are syndicated, which means that participation and terms are negotiated bya group of arrangers, of which the Corporation may or may not be a member.

No loans to related parties were written off in 1997-1999. The above allowances for impairment are in respectof exposures to Iraqi companies.

Equity participations in related partiesInvestments at 31 December - cost 141,306 141,306 144,906

Investment sold in the year - ABB Arescon EC - cost - 3,600 -

Allowances for impairment at 31 December 19,000 16,400 20,000

Commitments to invest at 31 December 41,498 29,354 29,354

Dividends received during the year 404 1,148 4,184

Other related party transactionsDirectors’ fees and expenses paid in the year 641 685 945

20 CAPITAL ADEQUACY

The risk asset ratio at 31 December, calculated in accordance with the capital adequacy guidelines of the BasleCommittee on Banking Supervision, is as follows:

US$ 000 1999 1998 1997

Capital baseTier-1 capital: Shareholders’ equity 650,588 630,673 643,616

Tier-2 capital: General allowances for impairments 15,960 24,244 15,800

Total capital base 666,548 654,917 659,416



P A G E F O R T Y F O U R


Carrying Risk Risk RiskUS$ 000 value weighted weighted weighted

Risk-weighted exposuresOn-balance sheet assets

Cash and deposits with banks 261,272 52,254 38,407 34,244

Trading and investment securities 316,760 284,345 425,050 408,684

Loans and trade finance 853,889 781,907 568,744 520,782

Equity participations 145,982 145,982 147,358 138,456

Other assets 61,669 61,669 53,694 42,894

1,639,572 1,326,157 1,233,253 1,145,060

Off-balance sheet exposures

Loan commitments and guarantees 311,086 288,383 349,423 253,741

Uncalled equity commitments 42,547 27,870 17,140 26,109

Other 41,930 13,449 25,623 35,484

395,563 329,702 392,186 315,334

Total risk-weighted exposures 1,655,859 1,625,439 1,460,394

Capital adequacy ratiosQualifying ‘capital base’ expressed as a percentage of ‘total risk-weighted exposures’:

Core capital (Tier-1) (Minimum: 4%) 39.3% 38.8% 44.1%

Total capital (Minimum: 8%) 40.3% 40.3% 45.2%

21 CORRESPONDING FIGURES FOR 1998 AND 1997

Some of the information presented in the 1999 financial statements in respect of the years 1998 and 1997 has,of necessity, been revised from the format in which it was originally presented in the 1998 and 1997 financialstatements. This is in order for it to be consistent with the 1999 presentation and to enable the reader to makemeaningful comparisons between the three years' data.

Where information is being presented for the first time in 1999, management has endeavoured to ensure thatcorresponding information is included in respect of 1998 and 1997, where appropriate.



P A G E F O R T Y F I V E


P A G E F O R T Y S I X

Report of the Auditors to the Shareholders Arab Petroleum Investments Corporation, Dammam, Saudi Arabia

We have audited the financial statements of Arab Petroleum Investments Corporation as at, and for the yearended, 31 December 1999, as set out on pages 18 to 45.

Respective responsibilities of directors and auditors

These financial statements are the responsibility of the directors of the Corporation. Our responsibility is toexpress an opinion on these financial statements based on our audit.

Basis of opinion

We conducted our audit in accordance with International Standards on Auditing. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are freeof material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management as well as evaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of ArabPetroleum Investments Corporation as at 31 December 1999, and the results of its operations, the changes inits shareholders’ equity and its cash flows for the year then ended, in accordance with International AccountingStandards.

Other matters

In addition, in our opinion the Corporation has maintained proper accounting records and the financialstatements are in agreement therewith. We have reviewed the accompanying report of the board of directorsand confirm that the information contained therein is consistent with the financial statements. To the best ofour knowledge and belief, no violations of the Corporation’s statutes have occurred during the year that mighthave had a material adverse effect on the business of the Corporation or on its financial position. Satisfactoryexplanations and information have been provided to us by the management in response to all our requests.

KPMG Arthur Andersen & Co

Public Accountants Public AccountantsManama, Bahrain Al Khobar, Saudi Arabia

9 April 2000

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