annual report 2015 - apicorp ar 2015 - english - w.pdf · as a result of our achievements in 2015,...

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A N N U A L R E P O R T 2 0 1 5

87

Head Office

PO Box 9599

Dammam 31423

Kingdom of Saudi Arabia

Tel: (+966) 13 847 0444

Fax: (+966) 13 847 0011 / 0022

Telex: 870068 APIC SJ

Bahrain Banking Branch

Almoayyed Tower,

Seef District,

PO Box 18616,

Manama,

Kingdom of Bahrain

Tel: (+973) 17 563 777

Fax: (+973) 17 581 337

www.apicorp-arabia.com

“ T H R O U G H C O O P E R A T I O N ,

P R O G R E S S ”

APICORP is wholly owned by the member states of the Organization of Arab Petroleum Exporting Countries(OAPEC)

5 % A L G E R I A

3 % B A H R A I N

3 % E G Y P T

1 0 % I R A Q

1 7 % K U W A I T

1 5 % L I B Y A

1 0 % Q A T A R

1 7 % S A U D I A R A B I A

3 % S Y R I A

1 7 % U A E

S H A R E H O L D E R S

C O N T E N T S

P 4 B O A R D O F D I R E C T O R S

P 6 E X E C U T I V E M A N A G E M E N T

P 8 C H A I R M A N ’ S S T A T E M E N T

P 1 0 M I S S I O N & V I S I O N

P 1 2 C E L E B R A T I N G 4 0 Y E A R S

P 1 4 A P I C O R P I N 2 0 1 5

P 1 6 T H E Y E A R I N R E V I E W

P 1 8 C R E A T I N G P A R T N E R S H I P S

P 2 0 O U R I N V E S T M E N T S

P 2 2 E N A B L I N G G R O W T H

P 2 4 S A F E G U A R D I N G O U R F U T U R E

P 2 6 G O V E R N A N C E E X C E L L E N C E

P 2 8 I N V E S T I N G I N O U R P E O P L E

P 3 0 P R O V I D I N G G U I D A N C E

P 3 3 F I N A N C I A L S T A T E M E N T S

4

F O R T H E

K I N G D O M

O F S A U D I

A R A B I A

Dr Aabed Al Saadoun

Chairman of the Board

Chairman of the Remuneration & Nomination Committee

F O R T H E

S T A T E O F

K U W A I T

Sheikh Talal Naser A. Al-Sabah

Chairman of the Audit & Risk Committee

Member of the Remuneration & Nomination committee

F O R

L I B Y A

Mr Khaled Amr Al Qunsul

Deputy Chairman of the Board

Deputy Chairman of the Remuneration & Nomination Committee

F O R T H E

K I N G D O M O F

B A H R A I N

Mr Mahmood Hashim Al

Kooheji

Member of the Remuneration & Nomination committee

F O R T H E

U N I T E D A R A B

E M I R A T E S

Dr Matar Al Neyadi

Deputy Chairman of the Audit & Risk committee

B O A R D O FD I R E C T O R S

5

F O R T H E

D E M O C R A T I C

A N D P O P U L A R

R E P U B L I C O F

A L G E R I A

Mr Farid Baka

Member of the Audit & Risk committee

F O R T H E

S T A T E O F

Q A T A R

Mr Ebrahim Ahmad Al-Mannai*

Member of the Audit & Risk committee

F O R T H E

A R A B

R E P U B L I C

O F E G Y P T

Engineer Sherin Ahmed

Mohamed

F O R T H E

R E P U B L I C

O F I R A Q

Engineer Nihad Moosa

F O R T H E

S Y R I A N A R A B

R E P U B L I C

*Replaced Mr. Mohamed Khalid Al-Ghanem on 7 October 2015

6

Mr Nicolas Thévenot

Head of Corporate Finance

Mr Hesham Farid

Head of Treasury

& Capital Markets

Dr Raed Al Rayes

Deputy Chief Executive &

General Manager

Mr Bennie Burger

Head of Corporate Strategy

& Acting Head of Investments

E X E C U T I V EM A N A G E M E N T

7

Mr Raed Sirhan

Head of Information Technology

Mr Hamdi Bata

Head of Human Resources & Corporate Services

Mr Ali Hassan Fadel

Head of Legal, General Counsel & Board Secretary

Mr Mohammed Al Mubarak

Head of Operations

Mr Ajay Kumar Jha

Head of Risk & ComplianceMr Ayman Zeyada

Head of Finance

2015 was a pivotal year for APICORP.

Over the course of twelve months, we looked both backwards, to celebrate the achievements of our proud 40-year history, and forwards, to formulate short, medium and long-term strategies to enable us to meet the challenges of tomorrow.

In 2015, while mindful of our mandate to facilitate the development of all Arab energy industries, we recognised the need to evolve as an organisation, in order to serve those industries better than ever before.

Our five-year business plan, approved in 2014, was designed specifically to enable us to modify both our existing business practices and our organisational culture - to bring us quickly into line with the norms of international best practice.

In 2015, we worked tirelessly to implement every aspect of our business plan, laying foundations that will give us the stability and flexibility we will require as an organisation to achieve another 40 years of operational excellence, and to deliver tangible benefits to all stakeholders.

As a result, we are better positioned than we have ever been to create value by harnessing our capabilities and properly leveraging our unique strengths.

In 2015, we conducted a top-to-bottom review of our organisation, improving governance structures, enhancing our commercial focus, creating strategic partnerships with internationally renowned financial institutions and cultivating a collective culture of shared purpose and drive.

Against a backdrop of global economic uncertainty, we again delivered profitability,

C H A I R M A N ’ SS T A T E M E N T

8

9

exceeding our financial targets and maintaining the high quality of our assets. We also maintained our Aa3 credit rating for long-term debt and Prime-1 rating for short-term debt from international ratings agency Moody’s.

We achieved a net profit of $107m, up $2m on 2014. Earnings per share increased to $108 from $105 a year previously. Total shareholder equity increased from $1.86bn to $1.91bn over the same period.

At the end of 2015, our total assets were worth $5.65bn, compared to $5.88bn in 2014.

Our performance in 2015 was testament to all APICORP employees, who worked ceaselessly to put their expertise to use for the benefit of Arab energy industries.

Today, multilateral development bank APICORP is an organisation with which the world’s biggest and best corporate entities, banks and governments want to work. Our reputation, based on 40 years of prudence and sound investment, is stellar.

Over the coming years, we will continue to play an ever more crucial role in the Arab energy industries – a sector of the global economy whose wellbeing is vital to the growth of all world economies.

We will continue to provide opportunities for high level knowledge sharing – such as the inaugural APICORP 2015 Energy Forum – and we will continue to provide financial and advisory support to Arab hydrocarbon projects wherever we are asked to do so.

Over the following pages, you will have the opportunity to read about our achievements in 2015, including the issuance of our first sukuk, our equity investments, our corporate finance activities and our initiatives to bring the very best out of every member of our staff.

As a result of our achievements in 2015, the APICORP General Assembly increased the company’s subscribed share capital to $2bn and declared a dividend payable to shareholders totalling $40m.

These are exciting times for APICORP.

Thank you to everyone who made 2015 such a successful year.

Dr Aabed al Saadoun

To be the trusted financial partner to the Arab energy industry.

O U R V I S I O N

11

To develop the Arab energy sector through a range of creative, value adding solutions, provided on a commercial basis, facilitating value maximisation. Our offering includes equity investment, debt financing, financial advisory and energy research services.

W E W I L L A C H I E V E O U R G O A L S B Y :

S T R A T E G I C G O A L S

C R E A T I N G

and maintaining strategic partnerships and alliances.

O P T I M A L L Y

leveraging the APICORP brand to create opportunities.

M A X I M I S I N G

long-term value creation while maintaining development mandates.

A T T R A C T I N G

and retaining industry- leading talent.

S E C U R I N G

best-in-class technologies and operating systems.

O U R M I S S I O N

1 9 7 5

Commenced operations from headquarters in Dammam, Saudi Arabia with total assets of $183.5m.

1 9 7 6

Began offering loan facilities to Arab petroleum companies.

1 9 7 8

Made our first strategic direct equity investment into BANAGAS.

1 9 8 1

Made our first non-Arab loan, to the Petroleum Authority of Thailand.

1 9 8 6

Total assets reached $1bn and we established our Treasury department.

1 9 8 7

Started offering trade financing for hydrocarbons projects.

1 9 9 3

Executed our first Islamic financing deal, a $100m murabaha facility for National Refinery Ltd., Pakistan.

2 0 0 1

Commenced offering financial advisory services.

C E L E B R A T I N G4 0 Y E A R S O F A C H I E V E M E N T

M I L E S T O N E S :

“The objectives of the Corporation shall be participation in financing petroleum projects and industries, and in fields of activity which are derived from, ancillary to, associated with or complimentary to such projects and industries, with priority being given to Arab joint ventures which benefit the member states and enhance their capabilities to utilise their petroleum resources and to invest their savings in such ways as would strengthen their economic and financial potential.”

Establishing Agreement and Statute, 1975.

12

2 0 0 1

Board approved the financing of power projects.

2 0 0 6

Opened APICORP offices in Bahrain.

2 0 0 8

Established the APICORP research division.

2 0 1 0

APICORP was rated A1 by Moodys for long-term debt.

2 0 1 2

APICORP was upgraded to Aa3 by Moodys for long-term debt.

2 0 1 4

Made our first investment in the power sector (ACWA Power).

2 0 1 3

Launched $150m Petroleum Shipping Fund to facilitate hydrocarbon exports.

2 0 1 5

Launched debut $500m three-year Sukuk, under a USD 3 billion Sukuk program.

APICORP has grown and evolved as an organisation since formation in 1975, but its core mandate has remained constant: to facilitate the development of the Arab energy industries.

Our organisation is a testament to the possibilities of Arab unity. We are as committed today as we were forty years ago to underpinning and supporting in every way possible the region’s energy sector – vital as it is for Middle East and global economies.

13

A P I C O R P :S N A P S H O T 2 0 1 5

14

N E T P R O F I T

0

20

40

60

80

100

120

20152014201320122011

105.3

5

108.8

9

112.0

6

105.0

3

107.6

0

US$ Million

T O T A L A S S E T S

0

1000

2000

3000

4000

5000

6000

20152014201320122011

4,630 5,0

78 5,675

5,884

5,653

US$ MillionS H A R E H O L D E R ’ S

E Q U I T Y

0

500

1000

1500

2000

20152014201320122011

1,219 1,309

1,807

1,859

1,912

US$ Million

G R O S S I N C O M E

0

50

100

150

200

20152014201320122011

158.6

1

131.2

4

149.8

2

156.2

8

162.0

4

US$ Million

15

21 COUNTRIES

C L I E N T B A S E

E X P O S U R E I N

M O O D Y ’ S R A T I N G

381%

L I Q U I D I T Y

C O V E R A G E R A T I O

117E M P L O Y E E S17

N A T I O N A L I T I E S

Aa3W I T H A

S T A B L E O U T L O O K

A S S E T S B R E A K D O W N

Corporate

Finance

($2.51bn)

Treasury &

Capital Markets

($2.06bn)

Investments

($0.92bn)

1 7 % 4 6 %

3 7 %

C

B

A

INDUSTRYD I S T R I B U T I O N O F A S S E T S

Refineries (11%)

Oilfield production development services (11%)

Floating production, storage and offloading facilities (3%)

Liquefied natural gas (LNG) plants (2%)

Petroleum and petrochemicals (23%)

Maritime transportation (1%)

Power generation (8%)

Other petroleum (9%)

Banks and financial institutions (13%)

Other industries (4%)

Governments and public sector (15%)

16

Across the organisation, we reviewed our processes and structures, embracing international best practice and innovation to proactively ensure we are ready for the next stage of our evolution as the leading multilateral development bank for the Arab energy industry and a creator of significant value.

Our strategy for the year was clear: to put in place the mechanisms outlined in our organisational five-year plan, agreed in 2014, in order to consolidate and build upon our industry leadership position as a provider of energy-related corporate finance, investment, financial advisory services and research.

Additionally, we reviewed our Treasury operations to ensure our resources were being managed optimally, leveraging international financial expertise.

T H E H I G H L I G H T S O F T H E Y E A R I N C L U D E D :

T H E Y E A RI N R E V I E W

S U K U K

In October, we successfully issued APICORP’s first Debt Capital Market five-year Sukuk, raising $500m. Participation by investors across the Middle East, Europe and Asia was enthusiastic, despite challenging economic conditions. In preparation for the Sukuk, we undertook roadshows in the UK, the Middle East and the Far East.

S T R A T E G I C

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

We continued growing and developing strategic partnerships with leading regional and global investment businesses, unlocking opportunities all over the world.

In 2015, we focussed on implementing strategies to meet

the challenges of the future.

17T H E Y E A R

I N R E V I E W

D I V E R S I F I C A T I O N

In order to spread our risk profile, we looked to geographically diversify our asset holdings. In particular, we sought to diversify out of regional Middle East markets, where until the start of 2015 some 90 percent of our investments were located. Over the course of the year, we invested as much as twenty percent of our medium to long-term Treasury holdings in non-Middle East-based assets and securities.

L E V E R A G I N G

O U R B R A N D

We raised the APICORP profile and brand, regionally and internationally. We created a dedicated Corporate Communications team, and we staged the inaugural APICORP Forum in November, a platform for the oil and gas industry’s most influential people to meet and to share knowledge.

U P G R A D I N G

R E S E A R C H

A N D A D V I S O R Y

S E R V I C E S

We recruited Dr. Bassem Fattouh, director of the internationally-renowned Oxford Energy Institute, to head our Research team on a consultancy basis. Additionally, we recruited two research specialists to work under the supervision of Dr Fattouh to create research bespoke to the requirements of individual clients.

C R E A T I N G A C U L T U R E O F

O R G A N I S A T I O N A L D Y N A M I S M

We continued to work toward creating a workplace environment defined by innovation, unity and the sharing of knowledge.

D E V E L O P I N G A R A B

T A L E N T

We continued to focus on the recruitment and training of young, talented Arab executives across the organisation.

C S R

We invested significantly into a project to pump natural aquifer water using solar power energy in the Al Jafr region of Jordan. The project, which will be completed in 2016, will benefit some 15,000 people, providing easy access to clean water.

U P G R A D I N G

I T O P E R A T I N G

S Y S T E M

We rationalised existing IT operating systems in order to provide all departments with optimal, client servicing IT capabilities.

18

In 2015, the APICORP equity investments team focussed on optimising the value we derive from our

existing asset portfolio and on creating long-term strategic partnerships with internationally-renowned

investors to unlock mutually beneficial opportunities.

We took a proactive approach to the board level management of the companies in which we are invested, we worked closely with best-in-class private equity operators and we reviewed internal reporting protocols to gain an enhanced picture of the performance of every equity asset we hold.

Additionally, we formulated a strategy that will enable us to diversify our equity investments portfolio over the coming years to include assets that are not directly involved in the extraction or refinement of hydrocarbons.

Our strategy, which will increasingly see us take stakes in well managed, non-greenfield opportunities, will ensure we better serve the Arab energy industries, and deliver long-term, sustainable profitability to our stakeholders.

At the end of 2015, our portfolio of sixteen equity investments was valued at $923m, an increase of $57m on 2014.

In 2015, uncertainty over the direction of the global economy presented a significant challenge, but depressed asset prices also provided opportunities to organisations with access to liquidity.

Over the course of the year, our team identified several investment opportunities in high quality growth businesses with strong management teams and outstanding track records of profitability, in energy and related industries.

This work will underpin our investment activities in 2016.

I N V E S T M E N T S :C R E A T I N G S T R A T E G I C

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

19I N V E S T M E N T

2 0 1 5 A C H I E V E M E N T S

S M I

In line with our diversification strategy and our mandated role of facilitating the development of Arab hydrocarbons industries, we acquired a fifteen percent stake in Saudi Mechanical Industries (SMI).

I F C

We committed to a sizeable investment in the International Finance Corporation’s (IFC) MENA private equity fund, an investment we expect to pay long-term dividends and to enable us to work increasingly closely with IFC on further co-investment opportunities.

P O R T F O L I O

M A N A G E M E N T

C O N C E P T

We reviewed our approach to the governance of portfolio companies and implemented a proactive portfolio management concept – in line with international private equity best practice – to ensure optimal reporting of all equity investments.

As a result, we are better positioned than ever before to optimise the value we derive from equity investments.

I N V E S T M E N T

G U I D E L I N E S

R E V I E W

We reviewed our investment guidelines with the aim of increasing the minority equity stakes we are able to take in investee companies and also to enable us to work in a more coordinated manner with likeminded investment partners to affect strong governance and oversight of companies in which we hold a share.

R E C R U I T M E N T

We continued to build our investment team, recruiting mainly young Arab investment professionals in line with our long-term strategy to invest in Arab talent and to develop APICORP’s human capital.

Yanbu National

Petrochemical

Company

(YANSAB) 1.32%

APICORP share

Saudi Mechanical Industries

(SMI) 15% APICORP share

Misr Oil Processing Company

(MOPCO) 3.03% APICORP share

Tankage Mediterranee

(TANKMED)20% APICORP share

Egyptian Bahraini Gas

Derivative Company

(EBGDCO) 20% APICORP share

Arab Drilling and

Workover Company

(ADWOC)20% APICORP share

Saudi European

Petrochemical Company

(IBN ZAHR) 10% APICORP share

Egyptian Methanex

Methanol Company

(EMethanex) 17% APICORP share

The Industrialization

& Energy Services

Company

(TAQA) 5.86% APICORP share

National Petroleum

Services

(NPS) 28.33% APICORP share

Arab Company for

Detergent Chemicals

(ARADET)32% APICORP share

Alexandria Fiber Company

(AFCO)10% APICORP share

Arab Geophysical

Exploration Services

Company

(AGESCO) 16.67% APICORP share

The Arabian Industrial

Fibers Company

(IBN RUSHD)3.45% APICORP share

A P I C O R P I N V E S T M E N T S

P O R T F O L I O( A S O F 3 1 D E C E M B E R 2 0 1 5 )

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Trade financing projects were adversely affected by weakening oil prices as appetite across the industry for credit decreased. Several large-scale hydrocarbons projects were cancelled in the first half of the year. Nevertheless, in 2015 APICORP executed eleven trade finance deals worth $536m.

In 2015 we diversified our portfolio, focussing in particular on the energy-related utilities sector. We began relationships with seven new clients.

Additionally, in 2015 we continued to diversify our product portfolio with the launch of three Shari’a compliant trade-financing products designed specifically to meet the needs of commodity traders. We also grew the Islamic finance component of our loan asset portfolio to 32.73 percent, compared to 27.08 percent in 2014.

However, due to regional instability in North Africa and the Levant region, APICORP corporate financing activity in 2015 remained largely concentrated on GCC markets.

Tightening liquidity flows in the region during 2015 helped us to improve the yields on our transactions, in line with the strategic goal set out in our five-year plan to enhance our commercial focus while continuing to execute our mandated role as a development bank for the Arab energy industry.

C O R P O R A T EF I N A N C E :

E N A B L I N G G R O W T H

In 2015, despite challenges to the energy industry caused by sharply declining oil prices, the corporate finance team was able

not only to maintain the $3bn value of our portfolio of funded and unfunded loan assets, but also to increase the net income

generated by the portfolio from $58.7m in 2014 to $65.5m.

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2 0 1 5 A C H I E V E M E N T S

A L G E R I A

We completed an innovative, Sharia-compliant $10m transaction with Paris-based oil and gas private equity firm 4D, the main shareholder of ORSSAL, which provides services to Algeria’s national oil company Sonatrach.

The deal showcased our corporate financing capabilities and enabled us to penetrate the hard to reach Algerian market, allowing us to meet our development bank mandate goals in the country.

U A E

We completed a $100m transaction in conjunction with First Gulf Bank to finance the Al Wajeez cooling plant in Abu Dhabi, the first time we have financed a cooling project. The deal was structured in two parts: Sharia-compliant and conventional. We executed the Islamic side of the deal.

M O R O C C O

We provided a five-year $75m equity bridge facility for a renewable ACWA Power desalination and power plant.

U A E

We committed $250m in a $4.9bn facility raised by Mubadala and Investment Corporation of Dubai (ICD)-owned Emirates Global Aluminium to facilitate its development and growth.

C O M M O D I T Y

F I N A N C E

We supported PUMA, a mid and downstream oil company majority-owned by Trafigura and Sonangol Group, on two landmark transactions: a revolving credit facility in which we acted as mandated lead arranger (MLA) and book runner, and a bilateral medium-term guarantee for storage facilities under construction in Angola.

24

In 2015, the Treasury maintained funding for all APICORP balance sheet operations in a timely

manner at competitive prices, and we contributed significantly to the organisation’s profitability.

Despite global capital market uncertainty caused by depressed oil prices and a manufacturing slowdown in China, APICORP’s balance sheet remained robust.

All indicators of our financial vitality were strong in 2015: our liquidity position was sound, our ownership structure was solid, our capitalisation levels were high, our leverage levels were low and the quality of our assets and liabilities was good.

At the close of the year, APICORP’s net worth was close to $2bn and the loan book was valued at $2.6bn – a level of low leverage and high capital adequacy unparalleled amongst Middle East banking organisations.

Our assets were of a high quality: the loan book was AA rated, the Treasury book was A rated, our direct equity investments were A rated. The overall rating of our balance sheet was AA.

In 2015, we exceeded targets for income generated by Treasury assets, achieving $41.3m, compared to $36.9m in 2014. Treasury assets were valued at $2.04m, down from $2.16m in 2014.

We secured funding from a wide range of sources, both within and outside the region. Sources of funding included: debt capital markets, debt financing markets, wholesale institutional and corporate markets.

Our relationships with local and international banks and government bodies were good in 2015, thanks to our strong track record of issuing medium and long-term financing through loans or through our debut Debt Capital Market (DCM) $500m Sukuk.

In 2015, the Treasury sought to innovate and work in new capital markets in order to acquire new skills and to achieve improved margins.

T R E A S U R Y &C A P I T A L M A R K E T S :S A F E G U A R D I N G O U R F U T U R E

25

A C H I E V E M E N T S

S U K U K

The Treasury highlight of 2015 was the successful issuance of APICORP’s first DCM five-year Sukuk, raising $500m. Participation by investors across the Middle East, Europe and Asia was enthusiastic.

Our Sukuk programme is a key part of our long-term strategy for securing new forms of medium and long-term funding, in line with the goals of our five-year business plan.

I S L A M I C

M A R K E T S

We significantly increased our asset and liability exposure to Islamic markets. The move was part of a long-term strategy to capitalise on the future growth of Shari’a-compliant markets.

O U T S O U R C I N G

For the first time since the 2008 global financial crisis, we commenced outsourcing the management of a portion of our Treasury investment book to high-calibre external fund managers. Outsourcing partners included Goldman Sachs, BlackRock and J.P. Morgan.

In addition to diversifying and strengthening the risk profile of the Treasury book, the relationships we will develop with these internationally renowned fund managers will enable us to progress as an organisation, through knowledge-sharing and global networking.

26

Highlights of the year included the formulation of policies to manage liquidity risk and to manage operational risk, and the implementation of guidelines relating to our overall risk appetite.

Additionally, we enhanced our risk-based pricing methodology for corporate finance transactions and we established an enterprise-wide authority matrix to streamline our internal decision-making processes.

We also reviewed and reformed board-level and senior management-level committee governance structures.

As a result of our work in 2015, our risk management processes and our governance structures will underpin APICORP’s long-term growth and development for decades to come.

G O V E R N A N C E :R A I S I N G S T A N D A R D S

In 2015, in order to maintain and optimise APICORP’s long-term stability, we focussed on

improving our governance structures and on implementing strategies that conformed to the

highest standards of international best practice to manage and mitigate organisational risk.

27

2 0 1 5 A C H I E V E M E N T S

L I Q U I D I T Y

R I S K P O L I C Y

We created and implemented a liquidity risk policy that conformed to the highest standards of international best practice. The policy significantly strengthened APICORP’s liquidity and funding profile.

R I S K A P P E T I T E

F R A M E W O R K

We developed a risk appetite framework for implementation in 2016, subject to Board approval. The framework detailed APICORP’s optimal risk/return profile, set organisational risk limits and ensured the Board and senior management would always be able to quickly gain a detailed picture of overall organisational economic health.

O P E R A T I O N A L

R I S K P O L I C Y

We created an online web portal to enable and encourage APICORP staff to report operational risk incidents – system issues, human issues or process issues – in order that every incident be quickly analysed and resolved.

A U T H O R I T Y

M A T R I X

We created and implemented an organisation-wide authority matrix to give a detailed overview of the optimal processes for decision making at all levels of APICORP enterprise. The matrix significantly improved operational efficiency.

C O R P O R A T E

G O V E R N A N C E

We reviewed and enhanced the process by which all APICORP representatives on boards of investee companies are selected and also the framework under which they report.

C O M M I T T E E

M E M B E R S H I P

At Board level, we reviewed the charter and membership of: the Board Audit & Risk committee, and the Board Remuneration & Nomination Committee. At senior management level, we reviewed the charter and membership of: the Executive Management committee, the Credit & Investment Committee, the Risk & ALCO committee, and the Tenders & Bid committee. As a result of our work in 2015, the APICORP Board and senior management-level committee structure and governance processes conformed to the highest standards of international best practice.

28

In 2015, we focussed on enhancing the processes whereby we bring about organisational development through human development, both personal and professional.

Our strategy to achieve sustained organisational excellence was predicated on maximising the potential of every APICORP employee and on ensuring every team member had access to the training and tools necessary to excel.

In order to create a working environment defined by a culture of innovation and ambition, in 2015 we launched several initiatives to optimally harness the dynamism of our people.

Additionally, we made major strides toward achieving our goal of ensuring APICORP is recognised as a leading Gulf employer, where performance and talent are cultivated and rewarded.

APICORP articulated and maintained a compelling Employee Value Proposition (EVP) in 2015. We strove to align shareholder perspectives with those of management and employees, creating a sense of unity and common purpose.

In line with our over-arching five-year business plan, APICORP’s Human Resources team was committed to driving the organisation’s long-term success through the proactive recruitment and retention of the industry’s leading talent.

I N V E S T I N GI N O U R P E O P L E

APICORP’s greatest asset is our people.

We are set apart in the market by the value we are able to create through the quality and expertise of our

staff. Put simply: our people, comprising seventeen nationalities, are our competitive advantage.

29

2 0 1 5 A C H I E V E M E N T S

M E A S U R I N G

E N G A G E M E N T

We surveyed staff to measure employee engagement. The research provided invaluable feedback with which to shape our strategy and priorities for 2016 and beyond.

R E M U N E R A T I O N

In order to ensure we remained market competitive and able to attract industry-leading talent, in 2015 we reviewed remuneration structures, benchmarking APICORP against leading Gulf employers in terms of salary, allowances and benefits.

M E A S U R I N G

P E R F O R M A N C E

We implemented the first phase of a performance management system across the organisation to facilitate the creation of an employee development culture based upon coaching and feedback, thereby enhancing employee contribution to the achievement of APICORP’s mandated goals.

R E C R U I T I N G

T A L E N T

In 2015, twenty members of staff with an average age of 53 departed the company. We recruited twelve new joiners, with an average age of 32. All new recruits held postgraduate degrees.

R E A L I G N I N G

S T R U C T U R E

We reviewed and streamlined our organisational structure to better reflect our priorities and to facilitate forward momentum and departmental cohesion.

E N H A N C E D H R

C L I E N T - S E R V I C I N G

We improved employee enquiry average response times and pro-actively shared HR information, utilising upgraded information systems.

30

The provision of world-class research and advisory services is a core function of

APICORP’s mandated role as a development bank for the Arab energy industry.

To this end, in 2015 our Research team undertook much work to enhance the quality of market commentary we disseminate and to position APICORP as an authoritative voice of leadership within our industry.

Throughout the year, we sought to unlock and leverage the brand awareness-raising opportunities regular distribution of high-quality research makes possible. Additionally, we strove to ensure our research was compelling and consistently relevant to the specific needs of our clients and industry professionals.

The feedback we received in 2015 was positive: our monthly reports on the state of the Arab energy industry were regularly quoted in international media and our clients frequently praised the quality of our work.

Over the coming years, in line with the APICORP five-year strategic plan, we will continue to enhance the quality and frequency of our industry research in order to both speed the development of the Arab energy industry and to position APICORP as an industry thought-leader.

Our work in 2015 – a year of global economic uncertainty – saw us build upon our reputation as a reliable resource for industry analysis and insight.

R E S E A R C H :P R O V I D I N G I N S I G H T

31

2 0 1 5 A C H I E V E M E N T S

E N E R G Y

R E S E A R C H

We commenced monthly publication of our Energy Research bulletin, distributing it globally. Feedback was excellent.

R E S E A R C H

T E A M

We recruited two energy research specialists to provide clients with detailed analysis and commentary on energy markets and regional investment trends.

( A P I C O R P )

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

3 1 D E C E M B E R 2 0 1 5

P 3 5 I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E S H A R E H O L D E R S

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

P 3 6 C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N

P 3 7 C O N S O L I D A T E D S T A T E M E N T O F I N C O M E

P 3 8 C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E

P 3 9 C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y

P 4 1 C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S

P 4 2 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

35

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS

To the shareholders

Arab Petroleum Investments Corporation

Dammam, Saudi Arabia 9 April 2016

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 2015, and the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of 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 Group’s 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 2015, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

Manama, Kingdom of Bahrain Deloitte & Touche - Middle East9 April 2016 Partner Registration No. 135

36

C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N

as at 31 December 2015 (US$000)

Note ASSETS

Cash and cash equivalents 22,958 65,008Placements with banks 1 972,110 917,904Available-for-sale securities 2 1,068,980 1,181,092Direct equity investments 3 922,530 865,957Syndicated and direct loans 4 2,510,060 2,690,803Property, equipment and vessels 5 122,097 128,618Other assets 6 33,953 34,619

TOTAL ASSETS 5,652,688 5,884,001

LIABILITIES

Deposits from banks 7 172,000 214,867Deposits from corporates 1,383,156 1,529,042Deposits from shareholders 107,463 106,443Securities sold under agreements to repurchase - 177,460Other liabilities 8 67,971 59,551Bank term financing 9 1,526,198 1,404,400Bonds issued 10 - 533,018Sukuk issued 11 484,197 -

Total liabilities 3,740,985 4,024,781

EQUITY

Share capital 22 1,000,000 1,000,000Legal reserve 184,500 173,500General reserve 138,984 45,031Available-for-sale investments fair value reserve 489,290 544,499Retained earnings 96,511 93,953Total equity attributable to shareholders of the Corporation 1,909,285 1,856,983Non-controlling interests 2,418 2,237

Total equity and non controlling interests (page 41 and 42) 1,911,703 1,859,220

TOTAL LIABILITIES, EQUITY & NON-CONTROLLING INTERESTS 5,652,688 5,884,001

OFF-BALANCE SHEET EXPOSURES 12 831,288 733,593

The consolidated financial statements, which consist of pages 36 to 85 were approved by the Board of Directors on 9 April 2016 and signed on its behalf by:

LIABILITIES, EQUITY & NON-CONTROLLING INTERESTS

Dr. Raed Al-Rayes

Deputy Chief Executive and General ManagerDr. Aabed Al-Saadoun

Chairman

20142015

37

C O N S O L I D A T E D S T A T E M E N T O F I N C O M E

for the year ended 31 December 2015 (US$000)

Note

Interest income 106,662 106,701

Interest expense (61,755) (66,587)

Net interest income 14 44,907 40,114

Net fee income 15 1,218 1,460

Dividend income 16 90,883 92,364

Realised gain on sale of available-for-sale portfolio 17 3,343 4,150

Other income 20 21,690 18,195

Total income 162,041 156,283

Operating expenses 18 (37,664) (37,773)

Impairment, net 19 (16,775) (13,477)

PROFIT FOR THE YEAR 107,602 105,033

Profit for the year attributable to:

Shareholders of the Corporation 107,511 104,953

Non-controlling interest 91 80

107,602 105,033

Per share information 22

Basic and diluted earnings per share US $ 108 US $ 105

Net asset value per share US $1,910 US $ 1,857

The consolidated financial statements consist of pages 36 to 85.

20142015

38

Profit for the year 107,602 105,033

Other comprehensive income

Items that may be reclassified subsequently to consolidated statement of income:

Realized gain on available-for-sale investments recycled to profit or loss (3,806) (1,749)

Change in fair value of available-for-sale investments, net (20,491) 5,391

Change in fair value of direct equity investments, net (30,912) (56,187)

Total other comprehensive income for the year (55,209) (52,545)

Total comprehensive income for the year 52,393 52,488

Total comprehensive income for the year attributable to:

Shareholders of the Corporation 52,302 52,408

Non-controlling interests 91 80

52,393 52,488

C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E



20142015

39

Total Equity attributable to Shareholders of the Corporation

2015 Share

Capital

Legal

Reserve

General

Reserve

Available-for-sale investments

fair value reserveRetained

EarningsTotal

Non-

Controlling

Interest

Total Equity

& Non-

Controlling

InterestsSecurities

Direct Equity

InvestmentsTotal

Balance at 1 January 2015 1,000,000 173,500 45,031 13,611 530,888 544,499 93,953 1,856,983 2,237 1,859,220

Comprehensive income for the year:

Profit for the year (page 37)

Other comprehensive income:

- Realized gain on available-for-sale investments recycled to profit or loss

- Net change in fair value of available-for-sale securities/direct equity investments

-

-

-

-

-

-

-

-

-

-

(3,806)

(20,491)

-

-

(30,912)

-

(3,806)

(51,403)

107,511

-

-

107,511

(3,806)

(51,403)

91

-

-

107,602

(3,806)

(51,403)

Total other comprehensive income - - - (24,297) (30,912) (55,209) - (55,209) - (55,209)

Total comprehensive income

for the year- - - (24,297) (30,912) (55,209) 107,511 52,302 91 52,393

Transfer to legal reserve during 2015

Transfer to general reserve during 2015

Equity contributed by non-controlling interest

-

-

-

11,000

-

-

-

93,953

-

-

-

-

-

-

-

-

-

-

(11,000)

(93,953)

-

-

-

-

-

-

90

-

-

90

Balance as at 31 December 2015 1,000,000 184,500 138,984 (10,686) 499,976 489,290 96,511 1,909,285 2,418 1,911,703

C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y



40

Total Equity attributable to Shareholders of the Corporation

2014Share

Capital

Legal

Reserve

General

Reserve

Available-for-sale investments

fair value reserveRetained

EarningsTotal

Non-

Controlling

Interest

Total Equity

& Non-

Controlling

InterestsSecuritiesDirect Equity

InvestmentsTotal

Balance at 1 January 2014 750,000 162,500 194,426 9,969 587,075 597,044 100,605 1,804,575 2,157 1,806,732

Comprehensive income for the year:

Profit for the year (page 37)

Other comprehensive income:

- Realized gain on available-for-sale investments recycled to profit or loss

- Net change in fair value of available-for-sale securities/direct equity investments

-

-

-

-

-

-

-

-

-

-

(1,749)

5,391

-

-

(56,187)

-

(1,749)

(50,796)

104,953

-

-

104,953

(1,749)

(50,796)

80

-

-

105,033

(1,749)

(50,796)

Total other comprehensive income - - - 3,642 (56,187) (52,545) - (52,545) - (52,545)

Total comprehensive income for the year - - - 3,642 (56,187) (52,545) 104,953 52,408 80 52,488

Transfer to legal reserve during 2014

Transfer to general reserve during 2014

Increase in share capital

-

-

250,000

11,000

-

-

-

100,605

(250,000)

-

-

-

-

-

-

-

-

-

(11,000)

(100,605)

-

-

-

-

-

-

-

-

-

-

Balance as at 31 December 2014 1,000,000 173,500 45,031 13,611 530,888 544,499 93,953 1,856,983 2,237 1,859,220

C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y ( C O N T I N U E D )for the year ended 31 December 2015 (US$000)


41

C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S


Profit for the year 107,602 105,033Adjustment

Depreciation 6,708 7,143End-of-service benefits 1,272 1,552Interest expense 61,755 66,587Gain on sales of available-for-sale investments (3,343) (4,150)Dividend income (90,883) (92,364)Impairment, net 16,775 13,477Amortisation of transaction fee 874 504Changes in operating assets and liabilities

Direct and Syndicated loans 173,183 223,564Placements with banks (54,206) (372,032)Other assets (3,844) 5,187Other liabilities 3,217 (1,677) 219,110 (47,176)

Finance charges paid (61,053) (69,486)End-of-service indemnities paid (4,385) (190)Net cash from (used in) operating activities 153,672 (116,852)

INVESTING ACTIVITIES Net change in available-for-sale investments 91,453 11,289 Net change in direct equity investments (92,485) (105,371)Purchase of property and equipment, net (187) (386)Dividends 90,883 92,364Net cash from (used in) investing activities 89,664 (2,104)

FINANCING ACTIVITIES Repayment of deposits from banks (42,867) (225,709)Repayment from deposits from corporates (145,886) (32,159)Proceeds from deposits from shareholders 1,020 967Change from securities sold under agreements to repurchase (177,460) 5,477Proceeds from term financing 796,923 416,764Repayment of bank term financing (675,125) (6,280)Proceeds from Sukuk 491,252 -Repayment of Bonds (533,333) -Movement in non-controlling interests 90 -Net cash (used in) from financing activities (285,386) 159,060Net (decrease) increase in cash and cash equivalents for the year (42,050) 40,104Cash and cash equivalents at beginning of the year 65,008 24,904Cash and cash equivalents at 31 December 22,958 65,008

Non-cash transaction:

Change in available-for-sale investments fair value reserve (55,209) (52,545)The consolidated financial statements consist of pages 36 to 85.

20142015

42

Reporting entity

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 therefrom, 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.

Domicile and Taxation

The 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.

Share Capital

As of December 31, 2015 and 2014, the Corporation’s authorised capital is US $ 2,400 million, subscribed capital is US $ 1,500 million, issued & paid up capital is US $ 1,000 million, whereas the remainder of US $ 500 million is callable capital.

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

(US$000)Authorised

Capital

Subscribed

Capital

Issued and

Fully Paid

Callable

CapitalPercentage

United Arab EmiratesKingdom of BahrainDemocratic and Popular Republic of AlgeriaKingdom of Saudi ArabiaSyrian Arab RepublicRepublic of IraqState of QatarState of KuwaitSocialist Peoples’ Libyan Arab JamahiriyaArab Republic of Egypt

408,000 72,000

120,000 408,000 72,000

240,000 240,000 408,000 360,000 72,000

255,00045,00075,000

255,00045,000

150,000150,000255,000225,00045,000

170,000 30,000 50,000

170,000 30,000

100,000 100,000 170,000 150,000 30,000

85,000 15,000 25,00085,00015,000 50,000 50,000 85,000 75,000 15,000

17%3%5%

17%3%

10%10%17%15%3%

2,400,000 1,500,000 1,000,000 500,000 100%

Activities

APICORP 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 in the form of loans, direct equity investments in projects and close-ended fund. These activities are funded by shareholders’ equity, medium-bank term financing, Sukuk, deposits from governments, corporates and short-term deposits from banks.

The Corporation has set up the APICORP Petroleum Shipping Fund Limited (“the Fund” or “the subsidiary”), a 5 years close-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 is 94% owned by the Corporation. Assets and liabilities and results of operations of the Fund have been included in the consolidated financial statements of the Corporation. 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.

N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T

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

for the year ended 31 December 2015

43

N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T ( C O N T I N U E D )S I G N I F I C A N T A C C O U N T I N G P O L I C I E S


A GENERAL

A-1 Statement of compliance

The 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 the presented years, unless otherwise stated.

A-2 Basis of preparation

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

Historical cost is generally based on the fair value of the consideration given.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

The consolidated financial statements include the financial statements of APICORP and its subsidiaries (together the “Group”). The subsidiaries represent “APICORP Petroleum Shipping Fund Limited” and “APICORP Sukuk Limited” which are registered in Cayman Island.

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.

i. Basis of Consolidation

a) Subsidiaries

The consolidated financial statements comprise the financial statements of the Corporation and entities (including special purpose entities) controlled by the Corporation and its subsidiaries. Control is achieved when the Corporation: − has power over the investee; − is exposed, or has rights, to variable returns from its involvement with the investee; and − has the ability to use its power to affect its returns.

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 and 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.

The Corporation reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

44

A GENERAL (continued)A-2 BASIS OF PREPARATION (continued)

i. Basis of Consolidation (continued)When the Corporation has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Corporation considers all relevant facts and circumstances in assessing whether or not the Corporation’s voting rights in an investee are sufficient to give it power, including:

− the size of the Corporation’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; − potential voting rights held by the Corporation, other vote holders or other parties; − rights arising from other contractual arrangements; and − any additional facts and circumstances that indicate that the Corporation has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Corporation obtains control over the subsidiary and ceases when the Corporation loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Corporation gains control until the date when the Corporation ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Corporation and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Corporation and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. In the event of change in ownership interest in a subsidiary, but the Company does not ceases to have a control then impact of such change is classified in equity.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All significant intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated on consolidation.

When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between

− the aggregate of the fair value of the consideration received and the fair value of any retained interest and − the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests.

All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.



45


ii. Investments in associates

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these consolidated financial information using the equity method of accounting, except when the statement, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with IFRS 5. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment is classified as held for sale. When the Group retains an interest in the former associate and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with IAS 39. The difference between the carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued.

The Group continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no re-measurement to fair value upon such changes in ownership interests.

When the Group reduces its ownership interest in an associate but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. When a group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate are recognised in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group.



46


iii. Standards and Interpretations effective for the current year

The following new and revised IFRSs, which became effective for annual periods beginning on or after 1 January 2015, have been adopted in these consolidated financial statements. The application of these revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements.

− Annual Improvements to IFRSs 2010 - 2012 Cycle that includes amendments to IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38. − Annual Improvements to IFRSs 2011 - 2013 Cycle that includes amendments to IFRS 1, IFRS 3, IFRS 13 and IAS 40. − Amendments to IAS 19 Employee Benefits to clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service.

iv. New and revised IFRS issued but not yet effective

The Company has not yet applied the following new and revised IFRSs that have been issued but are not yet effective:

New and revised IFRSs Effective for annual periods beginning on or after

IFRS 14 Regulatory Deferral Accounts 1 January 2016

Amendments to IAS 1 Presentation of Financial Statements 1 January 2016 relating to Disclosure initiative

Amendments to IFRS 11 Joint arrangements relating to accounting 1 January 2016 for acquisitions of interests in joint operations

Amendments to IAS 16 Property, Plant and Equipment and IAS 38 1 January 2016 Intangible Assets relating to clarification of acceptable methods of depreciation and amortisation

Amendments to IAS 16 Property, Plant and Equipment and IAS 41 1 January 2016 Agriculture relating to bearer plants

Amendments to IAS 27 Separate Financial Statements relating to 1 January 2016accounting investments in subsidiaries, joint ventures and associates to be optionally accounted for using the equity method in separate financial statements

Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 1 January 2016Disclosure of Interests in Other Entities and IAS 28 Investment in Associates and Joint Ventures relating to applying the consolidation exception for investment entities

Annual Improvements to IFRSs 2012 - 2014 Cycle covering amendments 1 January 2016to IFRS 5, IFRS 7, IAS 19 and IAS 34



47

A GENERAL (continued)A-2 BASIS OF PREPARATION (continued) iv. New and revised IFRSs issued but not yet effective and not early adopted (continued)


IFRS 9 Financial Instruments (revised versions in 2009, 2010, 2013 1 January 2018 and 2014)

IFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments.

A finalised version of IFRS 9 which contains accounting requirements for financial instruments, replacing IAS 39 Financial Instruments: Recognition and Measurement. The standard contains requirements in the following areas:

• Classification and measurement: Financial assets are classified by reference to the business model within which they are held and their contractual cash flow characteristics. The 2014 version of IFRS 9 introduces a ‘fair value through other comprehensive income’ category for certain debt instruments. Financial liabilities are classified in a similar manner to under IAS 39, however there are differences in the requirements applying to the measurement of an entity’s own credit risk.

• Impairment: The 2014 version of IFRS 9 introduces an ‘expected credit loss’ model for the measurement of the impairment of financial assets, so it is no longer necessary for a credit event to have occurred before a credit loss is recognised

• Hedge accounting: Introduces a new hedge accounting model that is designed to be more closely aligned with how entities undertake risk management activities when hedging financial and non-financial risk exposures.

• Derecognition: The requirements for the derecognition of financial assets and liabilities are carried forward from IAS 39.



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Amendments to IFRS 7 Financial Instruments: Disclosures relating to disclosures about the initial application of IFRS 9

IFRS 7 Financial Instruments: Disclosures relating to the additional hedge accounting disclosures (and consequential amendments) resulting from the introduction of the hedge accounting chapter in IFRS 9

IFRS 15 Revenue from Contracts with Customers

In May 2014, IFRS 15 was issued which established a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related interpretations when it becomes effective.

The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:

• Step 1: Identify the contract(s) with a customer. • Step 2: Identify the performance obligations in the contract. • Step 3: Determine the transaction price. • Step 4: Allocate the transaction price to the performance obligations in the contract. • Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.

Under IFRS 15, an entity recognises when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.

When IFRS 9 is first applied

When IFRS 9 is first applied

1 January 2018



49

Effective date deferred indefinitely


Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011) relating to the treatment of the sale or contribution of assets from and investor to its associate or joint venture.

The management anticipates that all of the above Standards and Interpretations as applicable, will be adopted in the Company’s financial statements in future periods and that the adoption of those Standards and Interpretations will have no material impact on the financial statements of the Company in the period of initial application, except for IFRS 9 and IFRS 15. The Group’s management has not yet performed a detailed review to quantify the effect of the application of IFRS 9, and therefore it is not practicable at present to provide a reasonable estimate of its effect.



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A-3 Foreign currency transactions

Transactions 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, 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 consolidated 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 reporting date. 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.

B FINANCIAL INSTRUMENTS

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

B-1 FINANCIAL ASSETS

B.1.1 ClassificationThe Group classifies financial assets to the following IAS 39 categories:

Financial assets are classified into available-for-sale’ (AFS) financial assets, trading securities and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Trading securities are those that the Group acquires or incurs principally for the purpose of gains over the near-term or if it is a 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.

AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment losses at the end of each reporting period.

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.



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B FINANCIAL INSTRUMENTS (continued)B-1 FINANCIAL ASSETS (continued)

B.1.2 Recognition

Available-for-sale and held for trading financial assets are recognized on a trade date basis.

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

B.1.3 Measurement

Financial 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 consolidated statement of income.

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 consolidated 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 consolidated statement of income.

B.1.4 Amortization

Where 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 consolidated statement of income over the period from the date of purchase to the date of maturity.

B.1.5 Fair value measurement principles

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. For 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.1.6 De-recognition

Financial 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.1.7 Impairment

All 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.



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B FINANCIAL INSTRUMENTS (continued)B-1 FINANCIAL ASSETS (continued)B.1.7 Impairment (continued)

Assets carried at amortised costObjective 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, or 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.

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 consolidated 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 consolidated statement of income, then the impairment loss is reversed, with the amount of the reversal recognised in consolidated statement of income.

Assets classified as available-for-sale In case of equity investments 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 consolidated statement of income, is removed from equity and recognised in the income statement. Impairment losses recognised in the consolidated 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 consolidated statement of income, the impairment loss is reversed through the consolidated statement of income.



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B FINANCIAL INSTRUMENTS (continued)

B-2 FINANCIAL LIABILITIES

B.2.1 Initial recognition and measurement

The 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.

B.2.2 Subsequent measurement

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

B.2.3 De-recognition

Financial liabilities are derecognised when the Group’s contractual obligations are discharged, cancelled or expire.

C CASH AND CASH EQUIVALENTS

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

D REPURCHASE AND RESALE AGREEMENTS

Assets 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 consolidated 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.

E PROPERTY, EQUIPMENT AND VESSELS

E-1 Recognition and Measurement

Items of property, equipment and vessels are stated at cost less accumulated depreciation and impairment losses, if any. Where items of property, equipment and vessels comprise 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 consolidated statement of income.

E-2 Subsequent expenditure

Expenditure 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 consolidated statement of income as incurred.



54

E PROPERTY, EQUIPMENT AND VESSELS (continued)

E-3 Depreciation

Depreciation is charged to the consolidated statement of income on a straight-line basis over the estimated useful lives of the items of property, equipment and vessels. Land is not depreciated.The estimated useful lives of the Group’s property, equipment and vessels are as follows:• Buildings 40 years• Computers, Furniture & Equipment 3 to 10 years• Vessels 25 years from the date built

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 consolidated statement of income for the year in which the changes arise.

E-4 Impairment of non-financial assetsThe carrying amounts of the non-financial assets are 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 the 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 consolidated statement of income.

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 consolidated statement of income.

F EMPLOYEES’ END OF SERVICE BENEFITS

The 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.

G INCOME RECOGNITION

G-1 Interest income and expenses

Interest income and interest expense for all interest-bearing financial instruments are recognised within “interest income” and “interest expense” in the consolidated 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) to the carrying amount of the financial assets and liabilities. 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.

G-2 Dividend income

Dividend income is recognized in the consolidated statement of income when the Group’s right to receive payment is established.

G-3 Fee income

Fee 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.



55

G INCOME RECOGNITION (continued)

G-4 Other income

Rent income is recognised in the consolidated statement of income on a time apportionment basis. Bareboat 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 are treated as an advance and amortized to income over the charter period.

H DERIVATIVE FINANCIAL INSTRUMENTS

Derivative 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.

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

H-1 Fair value hedges

When 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 consolidated statement of income, changes in the fair value of the derivative are recognised immediately in consolidated 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 consolidated 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 consolidated statement of income as part of the recalculated effective interest rate of the item over its remaining life.

H-2 Other non-trading derivatives

When 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 consolidated statement of income as a component of other income.

H-3 Fair value

The 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.

I FINANCIAL GUARANTEE

Financial 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 to settle the liability when a payment under the guarantee has become probable.



56

J CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

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.

J-1 Critical judgements in applying accounting policies

In 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:

Impairment of available-for-sale investmentsThe 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.

Operating leasesThe Group has entered into a bareboat charter hire agreement for its vessels. The management considers that not all significant risks and rewards incidental to ownership of the vessels have been transferred to the lessee at the inception, during or at the end of the charter hire agreement, and accordingly, has classified the lease of the vessels 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 vessels as well as the attractiveness or otherwise of a purchase option given to the sub-bareboat charter.

Residual value of the commercial marine vesselsThe depreciable amount of the commercial marine vessels comprise 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.

J-2 Key sources of estimation uncertainty

The 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:

Impairment losses on loans and advancesThe Group reviews its loans portfolio at every reporting period to assess whether a provision for impairment should be recorded in the consolidated 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.

Collective impairment provisions on loans and advancesIn 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.



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J CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)J-2 Key sources of estimation uncertainty (continued)

Fair value measurement Some of the Group’s assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Group’s Investments Department perform the valuation. The Group’s Investments Department works closely with the management to establish the appropriate valuation techniques and inputs to the model.

K PROVISIONS

The 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.

L LEGAL AND GENERAL RESERVES

Under 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.

M OFFSETTING FINANCIAL INSTRUMENTS

Financial assets and liabilities are offset and the net amount reported in the consolidated 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.

N OPERATING LEASES

Leases, 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 consolidated statement of comprehensive income on a straight line basis over the lease period.



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1. PLACEMENTS WITH BANKS

With Islamic financial institutions 291,847 328,419

With conventional financial institutions 648,533 561,432

Reverse repurchase agreements 26,000 25,211

Margin call accounts on securities sold under agreements to repurchase 5,730 2,842

972,110 917,904

Reverse repurchase agreements: The Group enters into collateralised placement transactions (Reverse repurchase agreements) in the ordinary course of its financing activities. At 31 December 2015, the fair value of securities that had been obtained as collateral under resale agreements was US $ 26,094 thousands (2014: US $ 25,003 thousands). These transactions are conducted under the terms that are usual and customary to standard securities lending and borrowings activities.

2. AVAILABLE-FOR-SALE SECURITIES

Fixed-rate bonds 681,922 853,680

Floating-rate bonds 209,828 241,407

Structured notes - 29,705

Managed funds 177,230 23,561

Listed equities - 32,739

1,068,980 1,181,092

Movement on allowance for impairment:

Balance at 01 January 295 219

Net reversal for the year (295) (1,125)

Fair value changes - 1,201

Balance at 31 December - 295

Securities sold under agreements to repurchase: 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 2015, the fair value of available-for-sale securities that had been pledged as collateral under repurchase agreements was US $ Nil (2014: US $ 182,550 thousands). These transactions are conducted under the terms that are usual and customary to standard securities borrowings and lending activities.

N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ( C O N T I N U E D )for the year ended 31 December 2015 (US$000)

20142015

20142015

20142015

59


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.

Movements on allowance for impairment: Balance at 01 January 97,200 91,366Impairment charge for the year 5,000 5,834

Balance at 31 December 102,200 97,200

Movements during the year: Balance at 1 January 865,957 822,607Additions during the year 91,427 105,771Share of gain/(loss) from Associate 1,058 (400)Impairment during the year (5,000) (5,834)Change in fair value during the year (30,912) (56,187)

Balance at 31 December 922,530 865,957

3. DIRECT EQUITY INVESTMENTS

Unlisted equities – (see below )Kingdom of Saudi Arabia Saudi European Petro Co. (Ibn Zahr) 464,476 464,476 The Industrialization and Energy Services Company (TAQA) 94,004 46,832 Saudi Mechanical Industries (SMI) 42,485 -Socialist Peoples’ Libyan Arab Jamahiriya Arab Drilling and Workover Co. (Adwoc) 5,843 5,843 Arab Geophysical Exploration Svcs Co. (Agesco) 594 594Arab Republic of Egypt Egyptian Methanex Methanal Co. 107,642 107,642 MISR Oil Processing Company SAE 33,911 33,911 Egyptian Bahraini Gas Derivative Co. - 5,000Non-shareholder countries Tankage Mediterranee (Tankmed), Tunisia 1,112 1,112 IFC Middle East and North Africa, LLP 1,770 - 751,837 665,410Listed equities - carried at fair value

Kingdom of Saudi Arabia Yanbu National Petrochemical Company (Yansab) 64,264 95,176

Investment in an associate

United Arab Emirates NPS Holdings Limited 106,429 105,371 922,530 865,957

20142015

20142015

20142015

60

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. The investment committee regularly evaluates exit opportunities. Accordingly, these investments are classified as available-for-sale assets.

As of 31 December 2015, all the Group’s shares in Egyptian Bahraini Gas Derivative Co. of US $ 5,000 thousand are pledged as security in favour of a bank to guarantee a loan issued to Egyptian Bahraini Gas Derivative Co.

The share in total assets, liabilities, net assets of the associate (NPS Holding Company) as of December 31, 2015 were USD 166.6 million USD 61.1 million and USD 105.5 million respectively. Also, the share of net income in the associate was USD 1.0 million for the year then ended.

3. DIRECT EQUITY INVESTMENTS (continued)


Commitments - uncalled share capital At the beginning of the year 4,649 4,649Additional commitment during the year 95,380 -Commitments fulfilled /expired (1,770) -

Commitments at 31 December 98,259 4,649

Commitments - Guarantees At the beginning of the year 19,300 19,300Additional /commitments /expired during the year (6,320) -

Commitments at 31 December 12,980 19,300

4. SYNDICATED AND DIRECT LOANS

Unimpaired loans

- Islamic 830,552 731,553- Conventional 1,750,707 2,014,033Unamortized participation and upfront fees (46,279) (55,569)Collective impairment allowance (24,200) (13,600)Impaired loans

Non-performing loans (see below) 63,627 68,408Performing loans - 29,925Allowance for specific impairments (22,847) (42,447)Dividends due to Government of Iraq, offset against defaulted loans (see below) (41,500) (41,500)

Commitments at 31 December 2,510,060 2,690,803

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4. SYNDICATED AND DIRECT LOANS (continued)

(a) Impaired loans to companies fully owned by the Government of Iraq

As a result of the 1990-1991 second Gulf war, certain Government of Iraq controlled companies defaulted on loans amounting to US $ 51,848 thousand (2014: US $ 51,848 thousands) from the Corporation. With effect from 1998, the Corporation reduced the related impairment allowances against the defaulted loans by the amount of the unpaid dividends, while still carrying the dividends as liabilities in the consolidated 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 the Government of Iraq controlled companies. Accordingly dividends of US $ 41,500 thousand (2014: US $ 41,500 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 at 31 December 2015 amounts to US $145,319 thousands (2014: US $141,062 thousands).

Unimpaired loans movement during the year Outstanding at 01 January 2,745,586 2,973,321Draw-downs on new and existing loans 849,557 843,053Repayments during the year (1,013,886) (1,070,880)Exchange rate movements 2 92Unimpaired loans outstanding at 31 December 2,581,259 2,745,586

Undrawn loan commitments and guarantees At 01 January 709,644 651,921Additional underwriting and commitment during the year 1,148,069 1,264,737Drawdowns during the year (849,557) (843,053)Expired commitments and other movements - net (294,587) (363,961)Undrawn commitments at 31 December 713,569 709,644

Allowance for specific impairment At 01 January 42,447 34,355Charge for the year 560 8,092Reversal (3,600) -Write off (16,560) -Balance at 31 December - net 22,847 42,447

Allowance for collective impairment Balance at 01 January 13,600 12,924Additional allowance during the year 10,600 676Balance at 31 December 24,200 13,600


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The Group has five commercial marine vessels. All the five vessels have been leased to Hess Energy Trading Company, LLC 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 (note 9).

6. OTHER ASSETS Accrued interest receivable 23,406 23,690Dividends receivable 2,350 -Employee loans and advances 1,767 1,505Derivatives at fair value (note 13) 2,644 6,108Other receivables and advance payments 3,786 3,316 33,953 34,619

Land Building Vessels

Computers,

Furniture &

Equipment

Total 5. PROPERTY, EQUIPMENT AND VESSELS

Cost

7. DEPOSITS FROM BANKS Short-term deposits from conventional banks US dollar currencies 21,000 - Non US dollar currencies 49,333 29,867Short-term Murabaha financing from Islamic financial institutions US dollar currency 75,000 185,000 Non US dollar currencies 26,667 - 172,000 214,867


Balance at 31 December 2015 4,004 13,808 103,003 1,282 122,097


Carrying Amount

Balance at 1 January 2014Depreciation for the yearBalance at 31 December 2014

Depreciation for the yearDisposal

- - -

--

39,007 1,54440,551 1,160

-

4,479 4,8869,365

4,886 -

14,363 713

15,076 662 (4)

57,849 7,143

64,992

6,708 (4)

Balance at 31 December 2015 - 41,711 14,251 15,734 71,696

Accumulated Depreciation

Balance at 1 January 2014AdditionsBalance at 31 December 2014

DisposalAdditions

4,004-

4,004

- -

55,519 -

55,519

- -

117,254-

117,254

--

16,447386

16,833

190 (7)

193,224386

193,610 190(7)


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The Corporation borrows at margins ranging from 55 basis points to 88 basis points (2014: 55 basis points to 88 basis) over the Saudi riyal interbank or London interbank offered rate (depending on facility currency).

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$ 800 million.

*Represents the subsidiary of the Group facility is borrowed at 3 months LIBOR plus margin of 3.25% (2014: 3 months LIBOR plus margin of 3.25%), per annum.


8. OTHER LIABILITIES Accrued interest payable 16,633 15,905Dividend payable to shareholders 1,350 1,350Employees’ end of service benefits 9,147 12,260Accrued expenses and other liabilities 14,537 9,434Derivatives at fair value (note 13) 20,656 12,853Call liabilities 5,648 7,749 67,971 59,551

Movement on employees’ end of service benefits Balance as at 1 January 12,260 10,898Charge for the year 1,272 1,552Paid during the year (4,385) (190)Balance as at 31 December 9,147 12,260

9. BANK TERM FINANCING SAR 2,500 million loan 2012 - 2015 – fully drawn - 666,667SAR 500 million loan 2012 – 2017 – fully drawn 133,333 133,333SAR 440 million loan 2012 – 2017 – fully drawn 117,333 117,333US$ 105 million loan 2012 – 2018 – fully drawn (see below*) 67,594 75,082SAR 1,000 million loan 2014 – 2019 – fully drawn 266,666 266,666US $ 150 million loan 2014 – 2017 – fully drawn 150,000 150,000SAR 3,000 million loan 2014 – 2019 – fully drawn 800,000 -Unamortised front-end fee (8,728) (4,681) 1,526,198 1,404,400

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.

10. BONDS ISSUED US$ 533 million bonds 2010 – 2015 - 533,333 Interest rate: Saudi riyal interbank offered rate plus 110 basis points Unamortised front-end fee - (315) - 533,018

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During the year the Group has successfully placed a five year Sukuk of USD 500 million, as part of its USD 3 billion Sukuk programme announced during July 2015. The total order book for the issuance was USD 832 million, which represents 1.7 times oversubscribed, with over 40 participating investors. However, the Sukuk issued to outside participants of USD 493 million. The deal was priced with a profit rate of 2.383% per annum, which equated to USD mid-swaps plus 100 basis points at the time of pricing.

Goldman Sachs International and Standard Chartered Bank acted as Global Coordinators for the Sukuk issuance. Sukuk is listed on the Irish Stock Exchange followed by Nasdaq Dubai, and is rated Aa3 by Moody’s Investor Services.

The Group owns as a result of the sukuk transaction structure, 100% stake of APICORP Sukuk Limited, an exempted company incorporated in the Cayman Islands with limited liability and is consolidated in the Group financials.

The Group uses interest rate swaps to hedge its exposure to changes in fair value, of borrowing through fixed rate Sukuk, attributable to changes in market interest rate. Fair values of the interest rate swap agreements and underlying instruments are estimated based on the prevailing market rates of interest.

11. SUKUK ISSUED

US$ 500 million bonds Series 1 of USD 3 billion Sukuk programme 2015 – 2020 485,386 -Profit rate:2.383%Unamortised front-end fee (1,189) -

484,197 -

12. OFF BALANCE SHEET EXPOSURES

Commitments to underwrite and fund loans (refer note 4) 713,569 709,644Commitments to subscribe capital to available-for-sale direct equity investments(refer note 3) 98,259 4,649Guarantees to bank on loans of investee companies (refer note 3) 12,980 19,300Other Commitments 6,480 -

831,288 733,593


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13. DERIVATIVE FINANCIAL INSTRUMENTS Fair value hedges

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.

Other derivatives held for risk management

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 manage 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:

2015 2014

Asset Liability Asset Liability

Interest rate swaps (Fair value hedges)

Foreign exchange contracts (Other derivatives held for risk management)

1,896748

16,855

3,801

3,688

2,420

11,807

1,046

At 31 December 2,644 20,656 6,108 12,853

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

The contractual maturity analysis of the derivative instruments are included as part of liquidity risk information in note 25.

2015 2014

Interest rate swaps (Fair value hedges)

Foreign exchange contracts (Other derivatives held for risk management)

1,123,1291,594,563

745,518

2,676,725

At 31 December 2,717,692 3,422,243


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14. NET INTEREST INCOME Interest Income

Cash and bank balances 5 1Placements with banks – Islamic 2,978 2,661Placements with banks – Conventional 8,184 5,274Available-for-sale securities (net) 31,417 36,062Syndicated and direct loans – Islamic 15,112 2,232Syndicated and direct loans – Conventional 31,752 46,835Amortisation of loan participation and upfront fees 17,214 13,636Total interest income 106,662 106,701

Interest expense

Deposits from banks and other cost – Conventional (1,808) (2,329)Deposits from banks and other cost – Islamic (359) (1,841)Securities sold under agreement to repurchase deposits (86) (1,246)Deposits from corporates & shareholders – Conventional (6,633) (8,510)Deposits from corporates & shareholders – Islamic (6,991) (4,807)Interest rate swaps (10,706) (11,631)Bank term financing (21,822) (22,229)Bonds issued (10,495) (11,073)Amortisation of bank term financing front - end fees (2,855) (2,921)Total interest expense (61,755) (66,587)

Net interest income 44,907 40,114

17. REALIZED GAIN ON SALE OF AVAILABLE-FOR-SALE PORTFOLIO Available-for-sale securities 3,343 4,150

3,343 4,150

16. DIVIDEND INCOME Available-for-sale securities 5,212 1,332Available-for-sale direct equity investments 85,671 91,032

90,883 92,364

15. NET FEE INCOME Fee income

Underwriting and arranging services - 357Agency, advisory and other services 1,735 1,414 1,735 1,771Fee expense

Custody fees and other charges paid to banks (517) (311)

Net fee income 1,218 1,460

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18. OPERATING EXPENSES Staff costs 18,060 16,940Employees’ end of service benefits 1,622 1,983Premises costs, including depreciation 7,337 7,674Equipment and communications costs 3,354 3,299Key Management’s & Board benefits, fees and expense 3,451 4,627Donations 379 300Consultancy and legal fee 1,129 1,257Other corporate expenses 2,332 1,693

37,664 37,773

19. IMPAIRMENT, NET Charge for the year

Syndicated and direct loans (note 4): Specific impairment allowance 560 8,092 Collective impairment allowance 10,600 676Available-for-sale direct equity investments (note 3) 5,000 5,834Accrued interest receivable 4,510 - 20,670 14,602Less: recoveries

Syndicated and direct loans (note 4) (3,600) - Available-for-sale securities (note 2) (295) (1,125) (3,895) (1,125) 16,775 13,477

20. OTHER INCOME Exchange, net (1,769) (573)Fair value hedge ineffectiveness 1 (23)Rent – head office building and housing compound 2,402 2,077Bareboat charter income (see below) 14,023 14,023Other 5,975 3,091Share of gain/(loss) from Associate 1,058 (400) 21,690 18,195


21. APPROPRIATIONS Legal reserve 11,000 11,000Retained earnings 93,953 100,605

Less than one year 13,714 13,605Between one and five years 16,786 32,854

(a) As at December 31, the future minimum lease payments under non-cancellable leases are receivable as follows:

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22. SHARE CAPITAL AND PER SHARE INFORMATION

The Corporation’s authorised capital is US $ 2,400 million, subscribed capital is US $ 1,500 million, issued & paid up capital is US $ 1,000 million, whereas the remainder of US $ 500 million is callable capital. The capital is denominated in shares of US$ 1,000 each and is owned by the governments of the ten OAPEC states.

23. RELATED PARTY TRANSACTIONS

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

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 2015 and 2014.

Loans to related parties

Loans outstanding at 31 December – gross 1,829,549 1,856,808Allowance for specific impairments outstanding at 31 December (22,847) (22,287)Dividends due to Government of Iraq, offset against defaulted loans at 31 December (41,500) (41,500)Commitments to underwrite and fund loans at 31 December 445,444 498,928

Interest from loans during the year 36,790 26,480Loan fees received during the year 13,226 3,159Allowance for specific impairments during the year (4,509) (8,092)

Available-for-sale direct equity investments in related parties

Investments 922,560 865,957Commitments to invest 95,380 4,649Guarantees as shareholder 12,980 19,300Dividends received during the year 85,671 91,032

Others

Deposits from corporates 997,190 691,893Deposits from shareholders 107,463 106,443Dividend payable to shareholders 1,350 1,350Interest expense on deposits from corporates during the year 6,589 6,436Interest expense on deposits from shareholders during the year 1,020 967

Balances due to key management 300 815For key management’s compensation, refer note 18.


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24. CAPITAL ADEQUACY

The risk asset ratio at 31 December is as follows: Carrying values

On-balance sheet assets 5,652,688 5,884,001Off-balance sheet exposures (note 12) 831,288 733,593

6,483,976 6,617,594

Risk-weighted exposures

On-balance sheet assets 4,818,976 5,147,184Off-balance sheet exposures 889,523 274,789

Total risk-weighted exposures 5,708,499 5,421,973

Capital adequacy ratio

Tier – 1 capital: share capital, legal & general reserves and retained earnings 1,419,787 1,312,884Tier – 2 capital: Investments fair value reserve & collective impairment allowance 215,817 250,847

Qualifying capital 1,635,604 1,563,731

Capital base expressed as a percentage of total risk-weighted exposures:

Qualifying capital 28.65% 28.84%Tier 1 capital 24.87% 24.21%

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 9 and 10). There have been no material changes in the Group’s management of capital during the year.


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25. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Financial risk management objectivesThe Group’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board of Directors has established the Group Risk Management committee, which is responsible for developing and monitoring Group risk management policies.

The Group’s risk management policies are established to identify and analyses the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group, The Group Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group Audit Committee.

Credit risk management

Credit 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 Risk, Assets and Liabilities Committee (“RALCO”).


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25. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

Credit risk management (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:

2015 2014 2015 2014 2015 2014Impaired individually

Grade F 51,147 68,408 - - - - Grade E 700 - - - - - Grade D - - - - - - Grade C 11,780 29,952 - - - -Gross amount 63,627 98,333 - - - -Unpaid dividends and interest due to (41,500) Government of Iraq (41,500) Allowance for impairment (22,847) (42,447) - - - -Carrying amount (720) 14,413 - - - -Past due but not impaired

Gross amount - - - - - -Allowance for impairments - - - - - -Carrying amount - - - - - -Neither past due nor impaired

Accounts without renegotiable terms Grade B 33,668 28,962 - - - - Grade A 2,547,591 2,716,597 - - - -Allowance for impairments - - - - - -Accounts with renegotiable terms - - - - - - Grade B - - - - - - Grade A - - - - - -Subtotal neither past due nor impaired 2,581,259 2,745,559 - - - -Bank placements in OECD countries - - 35,000 26,423 - - (see below) Rated A-Banks placement in non-OECD countries Rated A to AAA - - 807,821 747,475 - - Rated B to BBB - - 99,289 119,006 - - Not Rated - - 30,000 25,000 - -Externally rated (investment-grade) - available-for-sale investments Financial institutions Rated A to AAA - - - - 342,586 636,215 Rated B to BBB - - - - 131,286 138,117Governments and public sector Rated A to AAA - - - - 154,282 113,481 Rated B to BBB - - - - 57,952 61,901Others sectors Rated A to AAA - - - - 160,282 175,078 Rated B to BBB - - - - - -Not Rated available-for-sale investments - - - - 45,362 - Subtotal total 2,580,539 2,759,972 972,110 917,904 891,750 1,124,792Collective impairment allowance (24,200) (13,600) - - - -Unamortised participation and commitment (46,279) (55,569) - - - - Total carrying amount on 31 December 2,510,060 2,690,803 972,110 917,904 891,750 1,124,792

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


Syndicated and direct

loans (note 4)Placement with banks

(note 1)Bonds classified available-for-sale (note 2)

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Credit risk management (continued)The Group monitors concentration of credit risk by sector and by geographic location. An analysis of concentration of risk at the reporting date is shown below (also refer note 31 and 32).

2015 2014 2015 2014 2015 2014Concentration of credit risk by sector

Oilfield production development services 343,040 443,880 - - 5,000 26,579 Floating production, storage and offloading 147,055 228,426 - - - - facilities Liquefied Natural Gas (LNG) Plants - - - - 37,046 36,746 Petroleum and petrochemicals 519,204 638,809 - - - 44,967 Maritime transportation 26,334 42,023 - - 45,362 - Refineries 517,347 569,420 - - - - Power generation 448,864 294,094 - - 68,907 69,974 Other petroleum 477,917 474,151 - - - - Banks and financial institutions 30,299 - 972,110 917,904 460,205 688,272 Governments and public sector - - - - 225,901 210,433 Other industries - - - - 49,329 47,821 Carrying amount on 31 December 2,510,060 2,690,803 972,110 917,904 891,750 1,124,792

2015 2014 2015 2014 2015 2014Concentration of credit risk by location

Kingdom of Saudi Arabia 1,054,756 1,098,438 172,230 91,002 177,075 235,335 State of Qatar 650,614 733,648 323,591 363,155 109,556 151,949 Other Gulf Cooperation Council states 516,465 582,580 476,289 438,538 469,491 570,928 Egypt and North Africa 140,583 135,262 - - - - Total Arab World 2,362,418 2,549,928 972,110 892,695 756,122 958,212 Europe 42,299 25,000 - 24,883 44,568 74,449 Asia pacific 61,665 115,875 - - - - United States 43,678 - - 326 91,060 92,131 Carrying amount on 31 December 2,510,060 2,690,803 972,110 917,904 891,750 1,124,792

Liquidity risk and funding management

Liquidity risk is the risk that the 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.



loans (note 4)


loans (note 4)

Placement with banks

(note 1)

Placement with banks

(note 1)

Bonds classified available-for-sale (note 2)

Bonds classified available-for-sale (note 2)

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Liquidity risk and funding management (continued)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 RALCO. 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 28.

Contractual maturities of financial liabilities (including interest)

2015 Up to 3 months 1 year 5 years Contractual Carrying

3 months to 1 year to 5 years and over outflows valueLiabilities

Deposits from banks (96,374) (76,625) - - (175,999) (172,000) Deposits from corporates (1,362,038) (27,637) - - (1,389,675) (1,383,156) Deposits from shareholders (107,569) - - - (107,569) (107,463) Bank term financing (1,364) (12,928) (1,539,935) - (1,554,227) (1,526,198) Sukuk 315 (5,848) (485,386) - (490,919) (484,197) (1,567,030) (123,038) (2,025,321) - (3,718,389) (3,673,014) Derivative instruments:

Interest rate swaps (3,936) (1,732) (15,886) (11,372) (32,926) (16,855) Forward exchange contracts (1,061,310) (186,426) - - (1,247,736) (3,801) Off-balance sheet exposures - (195,563) (383,414) (252,311) (831,288) (831,288) (1,065,246) (383,721) (399,300) (263,683) (2,111,950) (851,944)

2014 Up to 3 months 1 year 5 years Contractual Carrying 3 months to 1 year to 5 years and over outflows valueLiabilitiesDeposits from banks (140,374) (75,763) - - (216,137) (214,867) Deposits from corporates (870,219) (664,799) - - (1,535,018) (1,529,042) Deposits from shareholders (106,532) - - - (106,532) (106,443) Securities sold under (177,895) - - - (177,895) (177,460) agreement to repurchaseBank term financing (669,619) 656 (739,935) - (1,408,898) (1,404,400) Bond (2,440) (533,333) - - (535,773) (533,018) (1,967,079) (1,273,239) (739,935) - (3,980,253) (3,965,230) Derivative instrumentsInterest rate swaps (2,825) (8,201) (36,308) (9,083) (56,417) (11,807) Forward exchange contracts (1,328,277) (508,804) - - (1,837,081) (1,046) Off-balance sheet exposures (162,499) (144,907) (196,491) (229,696) (733,593) (733,593) (1,493,601) (661,912) (232,799) (238,779) (2,627,091) (746,446)


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Market risk management

Market 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 Risk, 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 29.

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 consolidated statement of income and equity to an increase or decrease in market interest rates (assuming no asymmetrical movement in yield curves and a constant consolidated statement of financial position) is as follows:

100 bp parallel increase 25 bp parallel decrease

Profit/loss Equity Profit/loss EquityAt 31 December 2015 915 35 (288) (25)At 31 December 2014 977 50 (244) 45

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

Fixed rate instruments 2015 2014 Financial assets 1,225,441 853,680 Financial liabilities (1,107,326) (745,518) 118,115 108,162 Variable rate instruments Financial assets 3,648,474 3,823,695 Financial liabilities (3,188,817) (3,965,230)

459,657 (141,535)


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Market risk management (continued)

Currency risk 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 30. The Group’s exposures in the currencies other than US $ is also hedged by entering into forward contracts. An analysis of the Group’s consolidated 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.

At 31 December 2015 5% strengthening of US $ 5% weakening of US $ EUR 973 (973) GBP (4,439) 4,439 CHF 1 (1) KWD (2,792) 2,792 JPY 2 (2)

At 31 December 2014 5% strengthening of US $ 5% weakening of US $ EUR 1,944 (1,944) GBP 19 (19) CHF 1 (1) KWD 4,074 (4,074) JPY 3 (3) EGP 8 (8)

Equity prices risk 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 RALCO. Periodical listed equity prices movements are reviewed by executive management and RALCO. Group’s exposure to listed equities is insignificant hence sensitivity to equity prices risk is not significant.

Operational risk

Operational 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.


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26. EFFECTIVE INTEREST RATES

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

2015 2014Interest-bearing financial assetsFixed-rate bonds 4.85% 4.59%Floating-rate bonds 1.89% 1.08%Placements with banks 1.74% 1.11%Syndicated and direct loans 1.88% 1.67% US dollar denominated 1.89% 1.67% Non-US dollar denominated - 1.78%

Interest-bearing financial liabilitiesDeposits from banks 1.08% 0.75% US dollar denominated 0.91% 0.81% Non-US dollar – Euros, Swiss francs and Saudi riyals 1.29% 0.35%Deposits from corporates 1.23% 0.75%Deposits from shareholders 1.17% 0.92%Securities sold under agreement to repurchase - 0.95%Bank term financing 2.09% 1.43%Bonds issued - 2.02%Sukuk Bonds 2.51% -

US$ LIBOR at 31 December was: One-month 0.43% 0.17% Three-month 0.61% 0.26% Six-month 0.85% 0.36%


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27. FAIR VALUE HIERARCHY AND CATEGORIES

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

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

Level 3 inputs are unobservable inputs for the asset or liability.

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:

2015 Level 1 Level 2 Level 3 Total

Available-for-sale securitiesFixed-rate bonds 681,922 - - 681,922

Floating-rate bonds 209,828 - - 209,828

Managed funds - 177,230 - 177,230

Available-for-sale direct equity 64,264 - 745,400 809,664

Derivative financial assets - 2,644 - 2,644

956,014 179,874 745,400 1,881,288

Derivative financial liabilities - 20,656 - 20,656

2014 Level 1 Level 2 Level 3 Total

Available-for-sale securitiesFixed-rate bonds 853,680 - - 853,680Floating-rate bonds 241,407 - - 241,407Structured notes 29,705 - - 29,705Managed funds - 23,561 - 23,561Listed equities 32,739 - - 32,739Available-for-sale direct equity 95,176 - 653,973 749,149Derivative financial assets - 6,108 - 6,108 1,252,707 29,669 653,973 1,936,349Derivative financial liabilities - 12,853 - 12,853


78

27. FAIR VALUE HIERARCHY AND CATEGORIES (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).

2015 Fair value through Loans and AFS Others at Carrying Fair

profits and loss receivables investments amortised cost amount value

Cash and bank balances - 22,958 - - 22,958 22,958Placements with banks - 972,110 - - 972,110 972,110Available for sale securities - - 1,068,980 - 1,068,980 1,068,980Available-for-sale direct equity (see below) - - 922,530 - 922,530 922,530Syndicated and direct loans (Fair value - - - - 2,510,060 2,510,060 2,510,060based on discounted cash flows at current market prices)Other assets 2,644 1,767 - 29,542 33,953 33,953Total assets 2,644 996,835 1,991,510 2,539,602 5,530,591 5,530,591

Deposits from banks - - - 172,000 172,000 172,000Deposits from corporates - - - 1,383,156 1,383,156 1,383,156Deposits from shareholders - - - 107,463 107,463 107,463Securities sold under agreement - - - - - - to repurchaseOther liabilities 20,656 - - 47,315 67,971 67,971Bank term financing (Fair value - - - - 1,526,198 1,526,198 1,526,198based on current market rates for similar remaining maturity)Sukuk issued (Fair value - based - - - 484,197 484,197 484,197on current market rates for similar remaining maturity) Total liabilities 20,656 - - 3,720,329 3,740,985 3,740,985

Certain 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.


79


2014 Fair value through Loans and AFS Others at Carrying Fair

profits and loss receivables investments amortised cost amount value

Cash and bank balances - 65,008 - - 65,008 65,008Placements with bank - 917,904 - - 917,904 917,904Trading securities Available for sale securities - - 1,181,092 - 1,181,092 1,181,092Available-for-sale direct equity - - 865,957 - 865,957 865,957Syndicated and direct loans - - - 2,690,803 2,690,803 2,837,200 (Fair value - based on discounted cash flows at current market prices)Other assets 6,108 1,505 - 27,006 34,619 34,619Total assets 6,108 984,417 2,047,049 2,717,809 5,755,383 5,901,780

Deposits from banks - - - 214,867 214,867 214,867 Deposits from corporate - - - 1,529,042 1,529,042 1,529,042Deposits from shareholders - - - 106,443 106,443 106,443Securities sold under agreement - - - 177,460 177,460 177,460 to repurchaseOther liabilities 12,853 - - 46,698 59,551 59,551Bank term financing - - - 1,404,400 1,404,400 1,404,400 (Fair value - based on current market rates for similar remaining maturity)Bonds issued - - - 533,018 533,018 533,018(Fair value - based on current market rates for similar remaining maturity)Total liabilities 12,853 - - 4,011,928 4,024,781 4,024,781

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.


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3) Available-for-sale direct equity investments

(refer note 3)

Saudi European Petro Co. (Ibn Zahr) Asset

464,476

Saudi European Petro Co. (Ibn Zahr) Asset

464,476Level 3 Free cash flow to equity Cost of equity and

terminal growth rate

Higher cost of equity and lower terminal

growth rate / the lower the fair value


(refer note 3)

Egyptian Methanex Methanol Co.

Asset 107,642

Egyptian Methanex Methanol Co.

Asset 107,642

Level 3 Free cash flow to firm WACC and terminal growth rate

Higher cost of equity and lower terminal

growth rate / the lower the fair value


(refer note 3)

The Industrialization and Energy Services

Company (TAQA) Asset 94,004

The Industrialization and Energy Services

Company (TAQA) Asset 46,832

Level 3 Market multiples Illiquidity discount due to lack of marketability

The higher the market multiples, the higher

the fair value


(refer note 3)

MISR Oil Processing Company SAE Asset 33,911

MISR Oil Processing Company SAE Asset 33,911

Level 3 Market multiples Illiquidity discount due to lack of marketability

The higher the market multiples, the higher

the fair value7) Available-for-sale

direct equity investments (refer note 3)

IFC Middle East and North Africa, LLP

Asset 1,770- Level 3 Market multiples Illiquidity discount due to

lack of marketabilityThe higher the market multiples, the higher

the fair value


(refer note 3)

Tankage Mediterranean

(Tankmed), TunisiaAsset 1,112

Tankage Mediterranean (Tankmed), Tunisia

Asset 1,112Level 3 Market multiples Illiquidity discount due to

lack of marketabilityThe higher the market multiples, the higher

the fair value

The movement in level 3 investments represents change in fair value during the year.



Fair value of the Group’s financial assets and financial liabilities that are measured at fair value on a recurring basis, some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).

Financialassets/financial

liabilities

Fair value as at Fair value hierarchy

Valuation technique(s)and key input(s)

Significant unobservable input(s)

Relationship of Unobservable inputs

to fair value2015 2014

1) Interest rate swap

(refer note 13)

Asset 1,896

Liabilities16,855

Asset 3,688

Liabilities11,807

Level 2

Discounted Future cash flows based on interest rates from observable

yield curves at the end of the reporting period and contract interest rates.

N/A N/A

2) Foreigncurrency forward

contracts (refer note 13)

Asset 748

Liabilities3,801

Asset 2,420

Liabilities1,046

Level 2

Future cash flows based on forward exchange rates from observable

forward exchange rates at the end of the reporting period and

contract forward rates.

N/A N/A

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28. MATURITY PROFILE OF ASSETS AND LIABILITIES

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.

Assets Up to 3 months 1 year 5 years 2015 3 months to 1 year to 5 years and over total

Cash and cash equivalents 22,958 - - - 22,958

Deposits with banks 858,110 114,000 - - 972,110

Trading securities - - - - -

Available-for-sale securities 35,049 61,226 461,375 511,330 1,068,980

Available-for-sale direct equity investments - - - 922,530 922,530

Syndicated and direct loans 75,745 287,313 1,163,160 983,842 2,510,060

Property and equipment - - - 122,097 122,097

Other assets 26,505 7,448 - - 33,953

Total assets 1,018,367 469,987 1,624,535 2,539,799 5,652,688

Liabilities and Equity

Deposits from banks (96,000) (76,000) - - (172,000)Corporate Deposits (1,355,852) (27,304) - - (1,383,156)Deposits from Shareholders (107,463) - - - (107,463)REPOs - - - - -

Other liabilities (33,561) (7,962) (6,004) (20,444) (67,971)Term financing - ATL 573 (65,875) (1,460,896) - (1,526,198)SUKUK BOND 66 198 (484,461) - (484,197)Equity - - - (1,909,285) (1,909,285)Non-controlling Interest - - - (2,418) (2,418)

Total liabilities and equity (1,592,237) (176,943) (1,951,361) (1,932,147) (5,652,688)

Maturity Gap (573,870) 293,044 (326,826) 607,652 -

CUMULATIVE MATURITY GAP (573,870) (280,826) (607,652) -

2014Total assets 812,510 924,236 2,108,510 2,038,745 5,884,001Total liabilities and equity (1,970,869) (1,282,896) (755,885) (1,874,351) (5,884,001)Maturity gap (1,158,359) (358,660) 1,352,625 164,394 -

Cumulative maturity gap (1,158,359) (1,517,019) (164,394) - -


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29. REPRICING PROFILE OF FINANCIAL ASSETS AND LIABILITIES

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

2015 Up to 3 months 1 year 5 years 2015

ASSETS 3 months to 1 year to 5 years and over total

Placements with banks 858,110 114,000 - - 972,110

Available for sale securities Floating-rate bonds 174,591 35,237 - - 209,828

Syndicated and direct loans US$ denominated 1,423,012 1,118,616 7,171 44,220 2,593,019

Non US$ denominated - - - - -

LIABILITIES

Deposits from banks US$ denominated (96,000) - - - (96,000) Non US$ denominated - (76,000) - - (76,000)Deposits from corporate (1,355,853) (27,304) - - (1,383,157)Deposits from shareholders (107,463) - - - (107,463)Securities sold under agreement - - - - - to repurchaseBank term financing (550,000) (984,927) - - (1,534,927)Sukuk Bond - (485,386) - - (485,386)Interest rate sensitivity gap 346,397 (305,764) 7,171 44,220 92,024Cumulative Gap 346,397 40,633 47,804 92,024 -

2014 Up to 3 months 1 year 5 years 2014 ASSETS 3 months to 1 year to 5 years and over total

Placements with banks 639,048 278,856 - - 917,904Available for sale securities Floating-rate bonds 161,966 79,441 - - 241,407 Structured notesSyndicated and direct loans US$ denominated 1,488,984 1,176,437 - 44,220 2,709,641 Non US$ denominated 222 65,648 - - 65,870LIABILITIESDeposits from banks US$ denominated (110,000) (75,000) - - (185,000) Non US$ denominated (29,867) - - - (29,867)Deposits from corporate (868,235) (660,806) - - (1,529,041)Deposits from shareholders (106,443) - - - (106,443)Securities sold under agreement (177,460) - - - (177,460) to repurchaseBank term financing (1,216,667) (117,333) - - (1,334,000)Bonds issued (533,333) - - - (533,333)Interest rate sensitivity gap (751,785) 747,243 - 44,220 39,678Cumulative Gap (751,785) (4,542) (4,542) 39,678 -


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30. CURRENCY EXPOSURES

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

Assets Liabilities 2015 Net 2014 Net & Equity Exposure ExposureASSETS, LIABILITIES AND EQUITYUnited States dollar 5,070,658 (4,095,708) 974,950 936,473Euro 19,886 (430) 19,456 38,886Other OECD currencies (see below) 197 (88,897) (88,700) 463Arab currenciesGCC (see below) 561,947 (1,467,653) (905,706) (975,982)Egypt and North Africa - - - 160

5,652,688 (5,652,688) - -

COMMITMENTS AND GUARANTEES 2015 2014United States dollar 822,128 733,593 Saudi Riyal 9,160 -

831,288 733,593

Other OECD currencies

The other member countries of the Organisation for Economic Co-operation and Development, excluding the United States and the 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.

GCC

The 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.

Significant exchange ratesThe following year-end rates have been used in translating other currencies to United States dollars:

2015 2014Euro EUR 1=US$ 1.0941 1.2107Saudi riyal SAR 1=US$ 0.2666 0.2666Swiss franc CHF 1=US$ 0.9885 1.0058British pound GBP 1=US$ 1.4820 1.5581Egyptian pound EGP 1=US$ 0.1277 0.1399

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


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31. INDUSTRY DISTRIBUTION OF ASSETS AND LIABILITIES

The industry distribution of the Group’s assets and liabilities was as follows:

ASSETS 2015 2014

Petroleum and petrochemicalsRefineries 517,347 569,429 Oilfield production development and services 533,693 535,552 Floating production, storage and offloading facilities 147,055 262,114 Liquefied natural gas (LNG) plants 34,127 43,405 Petrochemical plants 1,189,550 1,542,436 Maritime transportation 144,464 120,161 Power generation 518,632 364,679 Other petroleum 618,968 482,100

Total petroleum and petrochemicals 3,703,836 3,919,876

Banks and financial institutions 1,036,187 994,342Other industries 49,329 47,821 Governments and public sector institutions 863,336 921,962

Total assets at 31 December 5,652,688 5,884,001

LIABILITIES AND EQUITYBanks and financial institutions 2,774,586 2,730,816Other petroleum and petrochemicals 966,398 760,632Government and public sector institutions - 533,333Equity 1,911,704 1,859,220

Total liabilities and equity at 31 December 5,652,688 5,884,001

COMMITMENTS AND GUARANTEESPetroleum and petrochemicals

Refineries - 134,120Oilfield production development and services 258,105 204,289Liquefied natural gas (LNG) plants 56,656 -Petrochemicals plants 70,967 153,613Maritime transportation 48,066 48,067Banks and financial institutions 113,441 -Power generation 57,405 91,116Other petroleum 226,648 102,388

Total commitments and guarantees 831,288 733,593at 31 December


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32. GEOGRAPHICAL DISTRIBUTION OF RISK

The geographical distribution of risk of the Group’s assets and liabilities, after taking into account insurance and third-party guarantees, was as follows:

ASSETS 2015 2014Kingdom of Saudi Arabia 2,161,444 2,139,260 State of Qatar 1,087,641 1,253,274 Other Gulf Cooperation Council states 1,575,690 1,696,609 Other Middle East states - 16,048 Egypt and North Africa 289,457 294,228 Total Arab World 5,114,232 5,399,419Europe 217,044 147,582 Asia pacific 62,886 116,870 United States 65,770 67,500 Other North and South America 192,756 152,630 Total assets 5,652,688 5,884,001

LIABILITIES AND EQUITYKingdom of Saudi Arabia 3,072,889 3,202,647State of Qatar 191,170 346,246Other Gulf Cooperation Council states 1,573,291 1,364,590Other Middle East states 291,100 284,028Egypt and North Africa 517,650 504,957Total Arab World 5,646,100 5,702,468Europe 5,219 2,311Asia pacific 1,369 179,222Total liabilities and equity 5,652,688 5,884,001

COMMITMENTS AND GUARANTEES Kingdom of Saudi Arabia 353,535 209,448State of Qatar 30,510 34,657Other Gulf Cooperation Council states 82,853 162,389Other Middle East states - -Egypt and North Africa 114,635 112,442Total Arab World 581,533 518,936Europe 162,024 60,000Asia pacific 39,665 86,590United States - -Other North and South America 48,066 68,067 831,288 733,593


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